SEC. File Nos. 2-86838
811-3857
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement
Under
the Securities Act of 1933
Post-Effective Amendment No. 24
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 24
AMERICAN VARIABLE INSURANCE SERIES
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, CA 90071
(Address of principal executive offices)
Registrant's telephone number, including area code:
(213) 486-9200
Chad L. Norton
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071
(name and address of agent for service)
Copies to:
Robert E. Carlson, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 S. Flower Street
Los Angeles, California 90071
(Counsel for the Registrant)
The Registrant has filed a declaration pursuant to rule 24f-2
registering an indefinite number of shares under the Securities Act of 1933.
On January 29, 1997, it filed its 24f-2 notice for fiscal 1996.
Approximate date of proposed public offering:
It is proposed that this filing become effective on April 1, 1997, pursuant
to paragraph (b) of rule 485.
AMERICAN VARIABLE INSURANCE SERIES
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number of Captions in Prospectus (Part "A") (Class 1 and Class 2)
Part "A" of Form N-1A (Class 1 and Class 2)
<S> <C> <C>
2. Synopsis N/A
3. Financial Highlights Financial Highlights
4. General Description of Registrant Investment Objectives and Policies of the Funds
5. Management of the Fund Financial Highlights; Fund Organization and Management
6. Capital Stock and Other Securities Investment Objectives and Policies of the Funds;
Fund Organization and Management; Dividends, Distributions and Taxes
7. Purchase of Securities Being Offered Purchases and Redemptions of Shares
8. Redemption or Repurchase Purchases and Redemptions of Shares
9. Legal Proceedings N/A
</TABLE>
<TABLE>
<CAPTION>
Item Number of Captions in Statement of
Part "B" of Form N-1A Additional Information (Part "B")
<S> <C> <C>
10. Cover Page Cover
11. Table of Contents Table of Contents
12. General Information and History None
13. Investment Objectives and Policies Investment Objectives and Policies of the Funds (Part "A")
14. Management of the Registrant Series Trustees and Officers
15. Control Persons and Principal Holders of Series Trustees and Officers
Securities
16. Investment Advisory and Other Services Investment Advisory and Service Agreement
17. Brokerage Allocation and Other Practices Execution of Portfolio Transactions
18. Capital Stock and Other Securities None
19. Purchase, Redemption and Pricing of Purchases and Redemptions of Shares (Part "A");
Securities Being Offered
20. Tax Status Dividends, Distributions and Taxes
21. Underwriters N/A
22. Calculation of Performance Data N/A
23. Financial Statements Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Item in Part "C"
<S> <C>
24. Financial Statements and Exhibits
25. Persons Controlled by or under Common Control
26. Number of Holders of Securities
27. Indemnification
28. Business and Other Connections of Investment Adviser
29. Principal Underwriters
30. Location of Accounts and Records
31. Management Services
32. Undertakings
Signature Page
</TABLE>
<PAGE>
Prospectus
American
Variable
Insurance
Series(R)
Class 1 Shares
April 1, 1997
<PAGE>
AMERICAN VARIABLE INSURANCE SERIES
CLASS 1 SHARES
333 South Hope Street
Los Angeles, California 90071
(213) 486-9200
American Variable Insurance Series (the "Series") is a fully managed,
diversified, open-end investment company. The Series consists of nine funds,
each of which has its own investment objective(s) and policies.
Shares of the Series are offered only to insurance company separate accounts
to serve as the funding vehicle for certain variable annuity and life
insurance contracts ("Contract" or "Contracts").
THE CONTRACTS INVOLVE CERTAIN FEES AND EXPENSES NOT DESCRIBED IN THIS
PROSPECTUS AND ALSO MAY INVOLVE CERTAIN RESTRICTIONS OR LIMITATIONS ON THE
ALLOCATION OF PURCHASE PAYMENTS OR CONTRACT VALUES TO ONE OR MORE FUNDS OF THE
SERIES. IN PARTICULAR, CERTAIN FUNDS MAY NOT BE AVAILABLE IN CONNECTION WITH A
PARTICULAR CONTRACT. SEE THE APPLICABLE CONTRACT PROSPECTUS FOR INFORMATION
REGARDING FUND FEES AND EXPENSES OF THE CONTRACT AND ANY APPLICABLE
RESTRICTIONS OR LIMITATIONS. THE SERIES OFFERS TWO CLASSES OF SHARES TO
INVESTORS: CLASS 1 SHARES AND CLASS 2 SHARES. THIS PROSPECTUS OFFERS ONLY
CLASS 1 SHARES AND IS FOR USE WITH CONTRACTS THAT MAKE CLASS 1 SHARES
AVAILABLE.
The GLOBAL GROWTH FUND seeks long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics of
issuers domiciled around the world. THE FUND WILL BECOME AVAILABLE ON APRIL
30, 1997; HOWEVER, IT MAY NOT BE AVAILABLE IN ALL STATES ON THAT DATE.
The GROWTH FUND seeks growth of capital by investing primarily in common
stocks or securities with common stock characteristics, such as convertible
preferred stocks, which demonstrate the potential for appreciation.
The INTERNATIONAL FUND seeks long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics of
issuers domiciled outside the United States.
The GROWTH-INCOME FUND seeks growth of capital and income by investing
primarily in common stocks or other securities which demonstrate the potential
for appreciation and/or dividends.
The ASSET ALLOCATION FUND seeks high total return (including income and
capital gains) consistent with preservation of capital over the long term
through a diversified portfolio that can include common stocks and other
equity-type securities, bonds and other intermediate and long-term fixed-
income securities and money market instruments in any combination.
The BOND FUND seeks to provide as high a level of current income as is
consistent with the preservation of capital by investing primarily in fixed-
income securities.
The HIGH-YIELD BOND FUND seeks high current income and secondarily seeks
capital appreciation by investing primarily in intermediate- and long-term
corporate obligations, with emphasis on higher yielding, higher risk, lower
rated or unrated securities. In addition to other risks, high-yield, high-risk
bonds (also known as "junk bonds") are subject to greater fluctuations in
value and risk of loss of income and principal due to default by the issuer
than are investments in lower yielding, higher rated bonds.
The U.S. GOVERNMENT/AAA-RATED SECURITIES FUND seeks a high level of current
income consistent with prudent investment risk and preservation of capital by
investing primarily in a combination of securities guaranteed by the U.S.
Government and other debt securities rated AAA or Aaa.
The CASH MANAGEMENT FUND seeks high current yield while preserving capital
by investing in a diversified selection of high-quality money market
instruments.
This prospectus presents information you should know before investing in the
Series. You should keep it on file for future reference.
More detailed information about the Series, including the Series' financial
statements, is contained in the statement of additional information dated
April 1, 1997, which has been filed with the Securities and Exchange
Commission and is available to you without charge, by writing to the Secretary
of the Series at the above address or telephoning 800/421-0180.
YOU MAY LOSE MONEY BY INVESTING IN THE FUNDS. GENERALLY, THE LIKELIHOOD OF
LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR
INVESTMENT IN THE SERIES IS NOT A DEPOSIT OR OBLIGATION OF, OR
INSURED, OR GUARANTEED BY, ANY ENTITY OR PERSON INCLUDING THE U.S.
GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF THE
APPLICABLE CONTRACT. THIS PROSPECTUS AND THE APPLICABLE CONTRACT PROSPECTUS
SHOULD BE READ CAREFULLY AND THEN RETAINED FOR FUTURE REFERENCE.
The date of this prospectus is April 1, 1997
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following condensed financial information for 1991 through 1996 has
been derived from financial statements which have been audited by Price
Waterhouse LLP, independent accountants. The information for the years prior
to 1991 was audited by other independent accountants. This information
should be read in conjunction with the financial statements and accompanying
notes which are included in the statement of additional information.
<TABLE>
<CAPTION>
Net asset Net realized &
Period value, Net unrealized Total income Dividends from Distributions
ended beginning investment gain (loss) from investment net investment from net Total Net asset value,
11/30 of period income on investments operations income realized gains distributions end of period
- ------ --------- ---------- --------------- --------------- --------------- -------------- ------------- ----------------
Growth Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1987 $15.66 $ .14 $ (.78) $ (.64) $ (.11) $ (.34) $ (.45) $14.57
1988 14.57 .33 2.85 3.18 (.28) (.61) (.89) 16.86
1989 16.86 .49 6.01 6.50 (.45) -- (.45) 22.91
1990 22.91 .54 (2.27) (1.73) (.56) (.64) (1.20) 19.98
1991 19.98 .41 4.48 4.89 (.47) (.22) (.69) 24.18
1992 24.18 .29 4.25 4.54 (.31)/3/ -- (.31) 28.41
1993 28.41 .25 4.13 4.38 (.24) (.21) (.45) 32.34
1994 32.34 .24 .69 .93 (.24) (1.09) (1.33) 31.94
1995 31.94 .33 10.63 10.96 (.29) (.80) (1.09) 41.81
1996 41.81 .24 5.17 5.41 (.29) (3.40) (3.69) 43.53
- -------------------------------------------------------------------------------------------------------------------------
International Fund/4/
1990 $10.00 $ .11 $ (.62) $ (.51) $ (.04) -- $ (.04) $ 9.45
1991 9.45 .22 .59 .81 (.24) -- (.24) 10.02
1992 10.02 .19 (.09) .10 (.21) $ (.02) (.23) 9.89
1993 9.89 .17 2.50 2.67 (.16) -- (.16) 12.40
1994 12.40 .25 1.04 1.29 (.20) (.22) (.42) 13.27
1995 13.27 .34 1.02 1.36 (.33) (.41) (.74) 13.89
1996 13.89 .28 1.96 2.24 (.31) (.29) (.60) 15.53
- -----------------------------------------------------------------------------------------------------------------------
Growth-Income Fund
1987 $17.46 $ .47 $(1.87) $(1.40) $ (.46) $ (.08) $ (.54) $15.52
1988 15.52 .72 2.66 3.38 (.68) (.18) (.86) 18.04
1989 18.04 .78 3.93 4.71 (.74) (.58) (1.32) 21.43
1990 21.43 .82 (1.91) (1.09) (.86) (.25) (1.11) 19.23
1991 19.23 .75 2.63 3.38 (.79) (.10) (.89) 21.72
1992 21.72 .65 2.74 3.39 (.67) (.27) (.94) 24.17
1993 24.17 .63 2.12 2.75 (.63) (.28) (.91) 26.01
1994 26.01 .68 .14 .82 (.65) (.88) (1.53) 25.30
1995 25.30 .73 7.20 7.93 (.73) (1.03) (1.76) 31.47
1996 31.47 .71 5.55 6.26 (.74) (1.26) (2.00) 35.73
- -----------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund/6/
1989 $10.00 $ .08 $ .10 $ .18 $ (.01) -- $ (.01) $10.17
1990 10.17 .50 (.75) (.25) (.42) -- (.42) 9.50
1991 9.50 .53 1.11 1.64 (.55) -- (.55) 10.59
1992 10.59 .48 .94 1.42 (.49) $ (.05) (.54) 11.47
1993 11.47 .51 .67 1.18 (.49) (.15) (.64) 12.01
1994 12.01 .51 (.57) (.06) (.52) (.18) (.70) 11.25
1995 11.25 .50 2.69 3.19 (.50) (.17) (.67) 13.77
1996 13.77 .53 1.89 2.42 (.53) (.48) (1.01) 15.18
- -----------------------------------------------------------------------------------------------------------------------
Bond Fund/7/
1996 $10.00 $ .40 $ .16 $ .56 $ (.25) -- $ (.25) $10.31
- -----------------------------------------------------------------------------------------------------------------------
High-Yield Bond Fund
1987 $13.49 $1.35 $ (.94) $ .41 $(1.36) $ (.32) $(1.68) $12.22
1988 12.22 1.26 .68 1.94 (1.33) (.17) (1.50) 12.66
1989 12.66 1.22 .10 1.32 (1.16) -- (1.16) 12.82
1990 12.82 1.33 (1.02) .31 (1.30) -- (1.30) 11.83
1991 11.83 1.17 1.78 2.95 (1.25) -- (1.25) 13.53
1992 13.53 1.10 .62 1.72 (1.08) -- (1.08) 14.17
1993 14.17 1.09 1.20 2.29 (1.10) (.19) (1.29) 15.17
1994 15.17 1.27 (2.07) (.80) (1.23) (.25) (1.48) 12.89
1995 12.89 1.32 1.10 2.42 (1.32) -- (1.32) 13.99
1996 13.99 1.28 .54 1.82 (1.30) -- (1.30) 14.51
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government/AAA-Rated Securities Fund
1987 $11.62 $ .85 $(1.21) $ (.36) $ (.79) -- $ (.79) $10.47
1988 10.47 .93 .02 .95 (.97) -- (.97) 10.45
1989 10.45 .78 .30 1.08 (.79) -- (.79) 10.74
1990 10.74 .83 (.11) .72 (.80) -- (.80) 10.66
1991 10.66 .77 .58 1.35 (.79) -- (.79) 11.22
1992 11.22 .75 .32 1.07 (.76) -- (.76) 11.53
1993 11.53 .74 .68 1.42 (.75) $ (.05) (.80) 12.15
1994 12.15 .76 (1.30) (.54) (.74) (.07) (.81) 10.80
1995 10.80 .82 .71 1.53 (.81) -- (.81) 11.52
1996 11.52 .83 (.24) .59 (.82) -- (.82) 11.29
- -----------------------------------------------------------------------------------------------------------------------
Cash Management Fund
1987 $10.65 $ .54 $ .08 $ .62 $ (.54) -- $ (.54) $10.73
1988 10.73 .60 .11 .71 (.56) -- (.56) 10.88
1989 10.88 .81 .12 .93 (.81) -- (.81) 11.00
1990 11.00 .71 .13 .84 (.70) -- (.70) 11.14
1991 11.14 .62 .01 .63 (.66) -- (.66) 11.11
1992 11.11 .35 .01 .36 (.43) -- (.43) 11.04
1993 11.04 .29 -- .29 (.31) -- (.31) 11.02
1994 11.02 .37 .02 .39 (.32) -- (.32) 11.09
1995 11.09 .63 (.02) .61 (.59) -- (.59) 11.11
1996 11.11 .54 .01 .55 (.54) -- (.54) 11.12
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of Ratio of net Average
Period Net assets, expenses income to commissions Portfolio
ended end of period to average average paid per turnover
11/30 Total return (in millions) net assets net assets share/1/ rate
- ------- ------------- ------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund
1987 (4.34)% $ 99 .63% .97% 7.01c 14.0%
1988 22.34 48 .72 1.72 7.36 7.1/2/
1989 38.87 173 .60 2.97 7.53 29.2
1990 (7.87) 304 .59 3.00 7.26 16.8
1991 24.90 700 .56 1.94 6.81 9.8
1992 18.90 1,212 .53 1.15 6.89 11.2
1993 15.59 1,737 .50 .86 6.43 20.4
1994 2.92 2,027 .49 .78 6.09 29.6
1995 35.35 3,154 .47 .92 5.91 35.47
1996 14.32 3,860 .44 .61 5.42 30.88
- --------------------------------------------------------------------------------
International Fund/4/
1990 (5.08)% $ 66 1.03%/5/ 3.18%/5/ 3.74c 4.5%
1991 8.67 197 1.04 2.62 2.43 8.2
1992 .90 360 1.00 2.11 1.22 16.7
1993 27.20 840 .96 1.75 .23 17.7
1994 10.48 1,405 .80 2.03 1.01 19.7
1995 10.78 1,703 .75 2.64 .16 24.66
1996 16.66 2,370 .69 1.99 1.24 32.08
- --------------------------------------------------------------------------------
Growth-Income Fund
1987 (8.59)% $ 217 .59% 2.85% 7.04c 6.8%
1988 22.13 102 .67 3.59 7.60 14.3/2/
1989 27.32 305 .58 4.94 7.18 16.7
1990 (5.27) 535 .56 4.77 7.80 9.7
1991 17.83 1,022 .56 3.80 7.23 11.1
1992 15.90 1,704 .52 3.01 7.46 13.6
1993 11.63 2,436 .49 2.66 7.02 24.9
1994 3.21 2,740 .47 2.72 6.39 29.3
1995 33.14 3,953 .44 2.70 6.21 26.91
1996 21.02 5,249 .41 2.26 5.75 31.27
- --------------------------------------------------------------------------------
Asset Allocation Fund/6/
1989 1.70 % $ 33 .59%/5/ 5.78%/5/ 3.20c --
1990 (2.34) 106 .64 6.70 6.83 14.4%
1991 17.63 194 .59 5.56 7.42 15.1
1992 13.69 359 .57 4.73 7.12 19.7
1993 10.59 578 .55 4.66 6.85 19.0
1994 (.54) 637 .53 4.55 6.38 36.1
1995 29.45 870 .52 4.11 6.27 39.89
1996 18.65 1,141 .49 3.88 5.60 50.62
- --------------------------------------------------------------------------------
Bond Fund/7/
1996 5.74 %/8/ $ 77 .52%/8/ 6.18%/8/ -- 32.83%/8/
- -------------------------------------------------------------------------------------
High-Yield Bond Fund
1987 2.96 % $ 70 .63% 10.89% -- 61.9%
1988 16.95 26 .77 10.62 -- 23.6/2/
1989 10.85 50 .72 12.30 -- 28.2
1990 2.49 58 .68 11.17 -- 22.7
1991 26.22 107 .63 9.81 -- 18.1
1992 13.14 197 .59 8.88 -- 47.4
1993 17.09 379 .56 8.18 -- 34.1
1994 (5.71) 390 .54 9.37 -- 38.5
1995 19.81 534 .54 10.12 -- 31.73
1996 13.75 662 .53 9.27 -- 44.81
- --------------------------------------------------------------------------------
U.S. Government/AAA-Rated Securities Fund
1987 (3.17)% $ 47 .67% 8.24% -- 105.6%
1988 9.50 28 .77 8.32 -- 47.5/2/
1989 10.82 78 .66 8.61 -- 14.5
1990 7.11 126 .61 8.58 -- 24.0
1991 13.24 240 .58 7.91 -- 27.1
1992 9.83 360 .57 7.08 -- 40.0
1993 12.65 505 .55 6.42 -- 21.7
1994 (4.58) 463 .54 6.69 -- 45.2
1995 14.73 542 .54 7.37 -- 30.11
1996 5.49 512 .53 7.33 -- 30.45
- --------------------------------------------------------------------------------
Cash Management Fund
1987 6.01 % $ 57 .68% 5.90% -- --
1988 6.88 31 .76 6.75 -- --
1989 8.90 58 .68 8.26 -- --
1990 7.91 143 .60 7.48 -- --
1991 5.84 163 .58 5.65 -- --
1992 3.31 197 .53 3.24 -- --
1993 2.67 206 .51 2.57 -- --
1994 3.59 221 .49 3.60 -- --
1995 5.65 193 .49 5.37 -- --
1996 5.09 240 .47 4.94 -- --
- ------------------------------------------------------------------------------------
</TABLE>
- ------
1. Brokerage commissions paid on 4. Commenced operations May 1, 1990.
portfolio transactions increase 5. Annualized
the cost of securities purchased 6. Commenced operations August 1,
or reduce the proceeds of 1989.
securities sold, and are not 7. Commenced operations January 2,
separately reflected in the 1996.
funds' statement of operations. 8. Based on operations for the period
Shares traded on a principal shown and, accordingly, not
basis, such as fixed-income representative of a full year's
transactions, are excluded. operations.
Generally, non-U.S. commissions No information is presented for the
are lower than U.S. commissions Global Growth Fund since it had no
when expressed as cents per investment operations as of April 1,
share but higher when expressed 1997.
as a percentage of transactions
because of the lower per-share
prices of many non-U.S.
securities.
2. Percentages are exclusive of the redemption in kind which occurred March
29, 1988.
3. Amount includes net realized
short-term gains treated as net
investment income for federal
income tax purposes.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT THE FUNDS The Series consists of nine funds, each
OBJECTIVES AND representing a separate fully managed diversified
POLICIES OF THE portfolio of securities. The nine funds are the
FUNDS Global Growth Fund, the Growth Fund, the Interna-
tional Fund, the Growth-Income Fund, the Asset
Allocation Fund, the Bond Fund, the High-Yield
Bond Fund, the U.S. Government/AAA-Rated Securi-
ties Fund and the Cash Management Fund. The Se-
ries offers two classes of fund shares: Class 1
shares and Class 2 shares. This prospectus offers
Class 1 shares only. The Board of Trustees may
establish additional funds and classes in the fu-
ture. The investment objective(s) and policies of
each fund are discussed below. Investment policy
limits as stated below are measured at the time
of purchase. MORE INFORMATION ON THE FUNDS IS
CONTAINED IN THE SERIES' STATEMENT OF ADDITIONAL
INFORMATION.
The Series consists Shares of the Series are currently offered only
of nine funds, each to separate accounts of various insurance compa-
with its own nies to serve as the underlying investment for
investment both variable annuity and variable life insurance
objective(s) and contracts. All such shares may be purchased or
policies. redeemed by the separate accounts without any
sales or redemption charges at net asset value.
Due to differences in tax treatment or other con-
siderations, the interests of various Contract
owners participating in a fund might at some time
be in conflict. The Board of Trustees will moni-
tor the Series' operations for any material con-
flicts and determine what action, if any, should
be taken.
INVESTMENT RESTRICTIONS Each fund's fundamental
investment restrictions (as described in the
statement of additional information) and objec-
tive(s) may not be changed without shareholder
approval. All other investment practices may be
changed by the Series' Board of Trustees.
The Global Growth GLOBAL GROWTH FUND The investment objective of
Fund seeks to the Global Growth Fund is to achieve long-term
provide you with growth of capital by investing in securities of
long-term growth of issuers domiciled around the world.
capital generally
by investing in The fund will invest primarily in common stocks
equity securities under normal market conditions. These securities
of issuers may be denominated in various currencies.The fund
domiciled around may also invest in securities through depositary
the world. receipts which may be denominated in various cur-
rencies. For example, the fund may purchase Amer-
ican Depositary Receipts which are U.S. dollar
denominated securities designed for use in the
U.S. securities markets which represent and may
be converted to the underlying security.
When prevailing market, economic, political or
currency conditions warrant, the fund may invest
in other securities such as preferred stock, debt
securities and other securities convertible into
common stock. The fund may also invest in
straight debt securities (generally rated in the
top three quality categories by Standard & Poor's
Corporation or Moody's Investors Service, Inc. or
unrated but determined to be of equivalent qual-
ity by the fund's investment adviser, Capital Re-
search and Management Company). Up to 10% of the
fund's assets may be invested in lower rated
straight debt securities (including securities
commonly referred to as "junk bonds" or "high-
yield, high-risk bonds") or in unrated securities
determined to be of equivalent quality. High-
yield, high-risk bonds carry a higher degree of
investment risk than higher rated bonds and are
considered speculative. See the Appendix for a
description of the various bond ratings, and
"High-Yield Bond Fund--Risks of Investing in
High-Yield, High-Risk Securities" below. In addi-
tion, the fund may at times hold a portion of its
assets in cash and money market instruments de-
nominated in U.S. dollars or other currencies.
See "Securities and Investment Techniques--Money
Market Instruments."
Investments may be made from time to time in se-
curities of companies domiciled in, or govern-
ments of, developing countries. See "Securities
and Investment Techniques--Investing in Various
Countries."
3
<PAGE>
- --------------------------------------------------------------------------------
The fund has the ability to purchase and sell
currencies to facilitate securities transactions
and to enter into forward currency contracts to
hedge against changes in currency exchange rates.
See "Securities and Investment Techniques--Cur-
rency Transactions."
Under normal market conditions, the fund will in-
vest in issuers domiciled in at least three coun-
tries, with no more than 40% of its assets in-
vested in issuers domiciled in any one country.
(In determining the domicile of an issuer, Capi-
tal Research and Management Company takes into
account such factors as where the company is le-
gally organized, where it maintains principal
corporate offices and where it conducts its prin-
cipal operations.)
The Growth Fund GROWTH FUND The investment objective of the
seeks Growth Fund is growth of capital. Whatever cur-
to provide you with rent income is generated by the fund is likely to
growth of capital. be incidental to the objective of capital growth.
Ordinarily, the fund seeks to achieve this objec-
tive by investing primarily in common stocks or
securities with common stock characteristics.
When the outlook for common stocks is not consid-
ered promising, for temporary defensive purposes,
a substantial portion of the assets may be in-
vested in securities of the U.S. Government, its
agencies and instrumentalities, cash, and money
market instruments. See "Securities and Invest-
ment Techniques" below.
The fund's assets may be invested in securities
of non-U.S. issuers, which are generally denomi-
nated in currencies other than the U.S. dollar,
although there is no requirement that the fund
maintain investments in non-U.S. issuers. See
"Securities and Investment Techniques--Investing
in Various Countries" below.
Up to 10% of the fund's assets may be invested in
straight debt securities rated BB or below by
Standard & Poor's Corporation and Ba or below by
Moody's Investors Services, Inc. or in unrated
securities that are determined to be of equiva-
lent quality, provided the fund's investment ad-
viser, Capital Research and Management Company,
determines that these securities have character-
istics similar to the equity securities eligible
for purchase by the fund. These securities are
commonly referred to as "junk bonds" or "high-
yield, high-risk bonds," carry a higher degree of
investment risk than higher rated bonds and are
considered speculative. See the Appendix for a
further description of the various bond ratings,
and "High-Yield Bond Fund--Risks of Investing in
High-Yield, High-Risk Securities" below. As of
the last day of the fund's most recent fiscal
year, the fund did not hold any junk bonds.
The International INTERNATIONAL FUND The investment objective of
Fund aims to the International Fund is to achieve long-term
provide you with growth of capital by investing primarily in secu-
long-term growth rities of issuers domiciled outside the United
ofcapital by States. The fund's investment approach is based
investingin on the belief that economic and political devel-
securities opments have helped to create new opportunities
ofissuers outside the U.S.
domiciledoutside
the U.S.
The fund may also invest in securities through
depositary receipts which may be denominated in
various currencies. For example, the fund may
purchase American Depositary Receipts which are
U.S. dollar denominated securities designed for
use in the U.S. securities markets which repre-
sent and may be converted to the underlying secu-
rity.
When prevailing market, economic, political or
currency conditions warrant, the fund may invest
in securities convertible into common stocks,
straight debt securities (generally rated in the
top three quality categories by Standard & Poor's
Corporation or Moody's Investors Service, Inc. or
unrated but determined to be of equivalent
quality by Capital Research and Management
Company), government securities, or
nonconvertible preferred stocks. Up to 5% of the
fund's assets may also be invested in lower rated
4
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straight debt securities (including securities
commonly referred to as "junk bonds" or "high-
yield, high-risk bonds") or in unrated securities
that are determined to be of equivalent quality.
High-yield, high-risk bonds carry a higher degree
of investment risk than higher rated bonds and
are considered speculative. See the Appendix for
a description of the various bond ratings. These
securities may also be issued by non-U.S.
entities.
The fund has the ability to purchase and sell
currencies to facilitate securities transactions
and to enter into forward currency contracts to
hedge against changes in currency exchange rates.
See "Securities and Investment Techniques--Cur-
rency Transactions."
Under normal circumstances, the fund will invest
at least 65% of its assets in equity securities
(including depositary receipts) of issuers domi-
ciled outside the U.S., including those domiciled
in developing countries. The fund may at times
hold a portion of its assets in various curren-
cies or in cash equivalents which may be denomi-
nated in U.S. dollars or other currencies (in-
cluding U.S. Government securities, certificates
of deposit, time deposits, commercial paper,
bankers' acceptances and other high-quality
short-term debt securities). See "Securities and
Investment Techniques--Investing in Various Coun-
tries." Additionally, for temporary defensive
purposes, the fund may at times maintain all or
any part of its assets in cash and cash equiva-
lents.
The Growth-Income GROWTH-INCOME FUND The investment objective of
Fund seeks to the Growth-Income Fund is growth of capital and
provide you with income. In the selection of securities for in-
capital growth and vestment, the possibilities of appreciation and
income. potential dividends are given more weight than
current yield. Ordinarily, the fund will invest
primarily in common stocks. However, the fund may
invest in other types of securities, including
other equity-type securities (such as convertible
bonds), bonds (and other types of fixed-income
securities) and money market instruments, to the
extent consistent with its investment objective.
Up to 5% of the fund's assets may be invested in
straight debt securities rated BB or below by
Standard & Poor's Corporation and Ba or below by
Moody's Investors Services, Inc. or in unrated
securities that are determined to be of equiva-
lent quality by Capital Research and Management
Company. These securities are commonly referred
to as "junk bonds" or "high-yield, high-risk
bonds," carry a higher degree of investment risk
than higher rated bonds and are considered specu-
lative. See the Appendix for a description of the
various bond ratings.
Up to 10% of the fund's assets may be invested in
the equity securities of issuers domiciled
outside the U.S. and not included in the Standard
& Poor's 500 Composite Index (a broad measure of
the U.S. stock market), provided those securities
are either held through depositary receipts which
are U.S. dollar denominated or are traded on the
New York Stock Exchange. Since the fund limits
its investments in non-U.S. securities as
described above, the fund has no current
intention to engage in forward currency
transactions. See "Securities and Investment
Techniques--Investing in Various Countries."
The Asset ASSET ALLOCATION FUND The investment objective of
Allocation Fund the Asset Allocation Fund is high total return
aims to provide you (including income and capital gains) consistent
with high total with preservation of capital over the long term.
return and The fund seeks to achieve its objective by in-
preservation of vesting in a diversified portfolio that can in-
capital over the clude common stocks and other equity-type securi-
long-term. ties (such as convertible bonds), bonds and other
intermediate- and long-term fixed income securi-
ties, and money market instruments (debt securi-
ties maturing in one year or less).
5
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Capital Research and Management Company will de-
termine the relative mix of equities, fixed-in-
come securities and money market instruments for
the fund's portfolio. The determination will be
based on its view of long-term economic and mar-
ket trends and the relative risks and opportuni-
ties for long-
term total return of the different classes of as-
sets. Under normal conditions, Capital Research
and Management Company expects (but is not re-
quired) to maintain an investment mix falling
within the following ranges: 40% to 80% in equi-
ties; 20% to 50% in fixed-income securities, and
0% to 40% in money market instruments. Capital
Research and Management Company does not intend
to make frequent shifts within these broad rang-
es. Rather it intends in normal situations to
make any shifts in the fund's asset allocation
gradually over time based on its views of long-
term trends and conditions.
Up to 10% of the fund's assets may be invested in
the equity securities of issuers domiciled out-
side the U.S., provided those securities are ei-
ther held through depositary receipts which are
U.S. dollar denominated or are traded on the New
York Stock Exchange. Since the fund limits its
investments in non-U.S. equity securities as
such, the fund has no current intention to engage
in forward currency transactions. See "Securities
and Investment Techniques--Investing in Various
Countries."
The fund's fixed-income investments will consist
primarily of "investment grade" bonds; that is,
bonds that are rated BBB or better by Standard &
Poor's Corporation or Baa or better by Moody's
Investors Service, Inc., or that are unrated but
considered by Capital Research and Management
Company to be of equivalent credit quality. Up to
25% of the fund's fixed-income assets may be in-
vested in securities that are below investment
grade as defined above, including securities
rated as low as CC by S&P or Ca by Moody's. Secu-
rities rated Ba and BB or below or unrated secu-
rities that are determined to be of equivalent
quality (commonly known as "junk" or "high-yield,
high-risk" bonds) are subject to special review
before purchase. These bonds are subject to
greater market fluctuations and risk of loss of
income and principal due to default by the issuer
than are investments in lower yielding, higher-
rated bonds. See the Appendix for a further de-
scription of the various bond ratings, and "High-
Yield Bond Fund--Risks of Investing in High-
Yield, High-Risk Securities" below. During the
previous fiscal year, the approximate monthly av-
erage percentages of the Asset Allocation Fund's
fixed-income net assets based on the higher of
the Moody's or S&P rating categories were:
Aaa/AAA -- 11.26%; Aa/AA -- 0.92%; A/A -- 2.93%;
Baa/BBB -- 5.35%; Ba/BB -- 1.13%; B/B -- 1.46%;
and Caa/CCC -- 0.14%. Non-rated investments (in-
cluding equity-type securities) and cash or cash
equivalents amounted to 62.16% and 14.65%, re-
spectively, of the fund's assets.
The fund's investments in non-U.S. fixed-income
securities will be concentrated in securities is-
sued or guaranteed as to principal and interest
by foreign governments or their agencies or in-
strumentalities or by multinational agencies. The
fund may purchase and sell currencies to facili-
tate settlement of trades; however, it does not
currently intend to enter into forward currency
contracts.
The Bond Fund seeks BOND FUND The investment objective of the Bond
to provide you with Fund is to provide as high a level of current in-
high current income come as is consistent with the preservation of
while preserving capital. The fund invests in a broad variety of
yourcapital. fixed-income securities, including marketable
corporate debt securities, loan participations,
U.S. Government securities, mortgage-related se-
curities, other asset-backed securities and cash
or money market instruments. Normally, at least
65% of the fund's assets will be invested in
bonds. (For this purpose, bonds are considered
any debt securities having initial maturities in
excess of one year.) In addition, the fund may
invest up to 20% in preferred stocks.
6
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At least 65% of the value of the fund's assets,
measured at the time of purchase, must be in-
vested in debt securities that are rated Baa or
better by Moody's Investors Service, Inc. or BBB
or better by Standard & Poor's Corporation or
unrated but determined to be of equivalent qual-
ity by Capital Research and Management Company.
Securities rated Baa or BBB have speculative
characteristics. See the Appendix for a descrip-
tion of the various bond ratings.
At least 35% of the value of the fund's assets
must be invested in debt securities that are
rated A or better or, if not rated, determined to
be of equivalent quality.
Up to 35% of the assets of the fund may be in-
vested in debt securities rated Ba and BB or be-
low, or in unrated securities that are determined
to be of equivalent quality. These securities may
be rated as low as Ca by Moody's or CC by S&P.
See the Appendix for a further description of the
various bond ratings.
Securities rated Ba and BB or below or unrated
securities that are determined to be of equiva-
lent quality (commonly known as "junk" or "high-
yield, high-risk" bonds) are subject to special
review before purchase. These bonds are consid-
ered speculative and typically are subject to
greater market fluctuations and risk of loss of
income and principal due to default by the issuer
than are investments in lower yielding, higher-
rated bonds. See "High-Yield Bond Fund--Risks of
Investing in High-Yield, High-Risk Securities"
below. During the previous fiscal year, the ap-
proximate monthly average percentages of the Bond
Fund's net assets based on the higher of the
Moody's or S&P rating categories were: Aaa/AAA --
47.65%; Aa/AA -- 1.08%; A/A -- 3.08%; Baa/BBB --
8.07%; Ba/BB -- 6.41%; and B/B -- 10.05%. Non-
rated investments (including equity-type securi-
ties) and cash or cash equivalents amounted to
3.14% and 20.52%, respectively, of the fund's as-
sets.
The fund may invest in fixed-income securities of
corporations or governmental entities outside the
U.S.; however, no more than 20% of the fund's as-
sets will be invested in non-U.S. dollar denomi-
nated securities including those of issuers domi-
ciled in developing countries. The fund may pur-
chase or sell various currencies on either a spot
or forward basis in connection with non-U.S. dol-
lar investments. See "Securities and Investment
Techniques--Currency Transactions" below.
The High-Yield Bond HIGH-YIELD BOND FUND The primary investment ob-
Fund seeks to jective of the High-Yield Bond Fund is high cur-
provide you with rent income and its secondary investment objec-
high current income tive is capital appreciation. Under normal market
and, secondarily, conditions the fund will be invested in fixed-in-
capital come securities, with emphasis on higher yield-
appreciation. ing, higher risk, lower rated or unrated corpo-
rate bonds.
High-yield, high-risk bonds (also known as "junk
bonds") generally include any bonds rated Ba or
below by Moody's Investors Service, Inc. and BB
or below by Standard & Poor's Corporation or
unrated but determined to be of equivalent
quality by Capital Research and Management
Company. Bonds rated Ba or BB or below are
considered speculative. The High-Yield Bond Fund
may invest without limitation in bonds rated as
low as Ca by Moody's or CC by S&P (or in bonds
that are unrated but determined to
be of equivalent quality). In addition, the fund
may invest up to 10% of its total assets in bonds
rated C by Moody's or D by S&P (or in bonds
that are unrated but determined to be of
equivalent quality). See the Appendix for a
further description of the various bond ratings.
During the previous fiscal year, the approximate
monthly average percentages of the High-Yield
Bond Fund's net assets based on the higher of the
Moody's or S&P rating categories were: Aaa/AAA --
7.31%; Baa/BBB -- 1.42%;
7
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Ba/BB -- 25.71%; B/B -- 50.67%; and Caa/CCC --
3.35%. Non-rated investments (including equity-
type securities) and cash or cash equivalents
amounted to 3.55% and 7.99%, respectively, of the
fund's assets.
In pursuing its secondary investment objective of
capital appreciation, the Series may purchase
high-yield bonds that are expected by Capital Re-
search and Management Company to increase in
value due to improvements in their credit quality
or ratings or anticipated declines in interest
rates. In addition, the fund may invest for this
purpose up to 25% of its assets in common stocks
or other equity or equity-related securities. Eq-
uity-type securities normally will be purchased
as part of a unit with fixed-income securities or
when an unusual opportunity for capital apprecia-
tion is perceived due to an anticipated improve-
ment in the issuer's credit quality or ratings.
Up to 25% of the fund's assets may be invested in
securities of non-U.S. issuers, which are gener-
ally denominated in currencies other than the
U.S. dollar.
Under normal conditions the fund will invest pri-
marily in higher yielding obligations which may
include loan participations in addition to corpo-
rate bonds. The fund also may invest in securi-
ties of the U.S. Government, its agencies and in-
strumentalities, cash, and money market instru-
ments. See "Securities and Investment Techniques"
below.
RISKS OF INVESTING IN HIGH-YIELD, HIGH-RISK
SECURITIES "High-yield, high risk" bonds, also
known as "junk bonds," have speculative charac-
teristics and involve greater risk of default or
price changes due to changes in the issuer's
creditworthiness than higher rated bonds, or they
may already be in default. The market prices of
these securities may fluctuate more than higher-
quality securities and may decline significantly.
It may be more difficult to dispose of, or to de-
termine the value of, high-yield, high-risk
bonds.
High-yield, high-risk bonds may be very sensitive
to adverse economic changes and may be less
sensitive to interest rate changes. In addition,
periods of economic uncertainty and changes may
increase volatility of market prices and yields
of high-yield, high-risk bonds and in turn, the
fund's net asset value. High-yield, high-risk
bonds may contain redemption or call provisions
which, if exercised during a period of declining
interest rates, may cause the fund to have to
replace the security with a lower yielding
security, resulting in a decreased return for
investors. Furthermore, there may be little
trading in the secondary market for particular
bonds, which may affect adversely the fund's
ability to value accurately or dispose of such
bonds.
Capital Research and Management Company attempts
to reduce the risks described above through di-
versification of the portfolio and by credit
analysis of each issuer, as well as by monitoring
broad economic trends and corporate and legisla-
tive developments.
There can be, of course, no assurance that the
fund's investment objectives will be realized or
that the net return on an investment in the fund
will equal or exceed that which could have been
obtained through other investment or savings ve-
hicles. Contract owners should carefully review
the investment objectives and policies of the
fund and consider their ability to assume the
risks involved before making any investment in
the fund.
The U.S. U.S. GOVERNMENT/AAA-RATED SECURITIES FUND The in-
Government/AAA- vestment objective of the U.S. Government/AAA-
Rated Securities Rated Securities Fund is a high level of current
Fund aims to income consistent with prudent investment risk
provide you with and preservation of capital. It seeks to achieve
high current income its objective by investing primarily in a combi-
while preserving nation of (i) securities guaranteed by the U.S.
your capital. Government (i.e., backed by the full faith and
credit of the United States) and (ii) other debt
securities (including corporate bonds) rated AAA
by Standard & Poor's Corporation or Aaa by
8
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Moody's Investors Service, Inc. (or unrated but
determined to be of equivalent quality by Capital
Research and Management Company). The fund may
purchase obligations of non-U.S. corporations or
governmental entities, provided they are U.S.
dollar denominated and highly liquid. Except when
the fund is in a temporary defensive investment
position, at least 65% of its total assets will
be invested in these securities, including secu-
rities held subject to repurchase agreements.
The fund anticipates that it will invest in Gov-
ernment National Mortgage Association ("GNMA")
certificates, which are mortgage-backed securi-
ties representing part ownership of a pool of
mortgage loans on which timely payment of inter-
est and principal is guaranteed by the U.S. Gov-
ernment. The fund also may invest in securities
issued by U.S. Government agencies or instrumen-
talities that are not backed by the full faith
and credit of the U.S. Government; in short-term
debt securities of private issuers (including
certificates of deposit, bankers' acceptances,
and commercial paper rated A-1 by S&P or Prime-1
by Moody's); and in securities issued by finan-
cial institutions such as commercial banks, sav-
ings and loan associations, mortgage bankers and
securities broker-dealers which represent a di-
rect or indirect interest in a pool of mortgages.
See "Securities and Investment Techniques" below.
The fund may not purchase any security, other
than a U.S. Government security or a short-term
debt security described above, that is not rated
AAA by S&P or Aaa by Moody's (or that is unrated
but determined to be of equivalent quality by
Capital Research and Management Company). Howev-
er, if the rating of a security currently being
held by the fund is reduced below AAA or Aaa the
fund is not required to dispose of the security.
The Cash Management CASH MANAGEMENT FUND The investment objective of
Fund seeks to the Cash Management Fund is high current yield
provide you with while preserving capital. It seeks to achieve
high current yield this objective by investing in high quality money
while preserving market instruments that mature, or may be re-
capital. deemed or resold, in 13 months or less (25 months
or less in the case of U.S. Government securi-
ties). The fund invests only in such instruments
that are determined, in accordance with proce-
dures established by the Series' Board of Trust-
ees, to present minimal credit risks. The fund's
investments may include, but are not limited to,
commercial paper rated in the highest rating cat-
egory by Moody's Investors Service, Inc. and
Standard & Poor's Corporation, instruments is-
sued, guaranteed or insured by the U.S. Govern-
ment, its agencies or instrumentalities as to the
payment of principal and interest, and other se-
curities rated in the highest two categories by
either Moody's or S&P, provided the issuer has
commercial paper rated in the highest rating cat-
egory by Moody's or S&P. The fund also may enter
into repurchase agreements. See "Securities and
Investment Techniques" below.
Although there is no guarantee that the fund's
investment objective will be achieved, invest-
ments in the Cash Management Fund should present
the least market risk of any of the funds because
it invests only in high-quality short-term debt
obligations. However, an investment in this fund
is subject to the risks of changes in market in-
terest rates and of the economy as a whole. Note
that the return on an investment in the Cash Man-
agement Fund should not be the same as the return
on an investment in a money market fund which is
available directly to the public, even where
gross yields are equivalent, due to the fees im-
posed at the Contract level. The Cash Management
Fund yield for the seven days ended November 30,
1996 was 4.77% on an annualized basis.
9
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SECURITIES AND EQUITY SECURITIES Equity securities represent an
INVESTMENT ownership position in a company. These securities
TECHNIQUES include common stocks, preferred stocks, and
securities with equity conversion or purchase
rights. The prices of equity securities fluctuate
based on changes in the financial condition of
their issuers and on market and economic
conditions. The funds' results will be related to
the overall market for these securities.
The nine funds of DEBT SECURITIES Bonds and other debt securities
the Series invest are used by issuers to borrow money. Issuers pay
in a wide variety investors interest and must repay the amount bor-
of securities which rowed at maturity. Some debt securities, such as
are subject to zero coupon bonds, do not pay current interest
varying degrees of but are purchased at a discount from their face
risk. values. The prices of debt securities fluctuate
depending on such factors as interest rates,
credit quality and maturity. In general their
prices decline when interest rates rise and vice
versa.
U.S. GOVERNMENT SECURITIES Securities guaranteed
by the U.S. Government include: (1) direct obli-
gations of the U.S. Treasury (such as Treasury
bills, notes and bonds) and (2) federal agency
obligations guaranteed as to principal and inter-
est by the U.S. Treasury.
Certain securities issued by U.S. Government in-
strumentalities and certain federal agencies are
neither direct obligations of, nor guaranteed by,
the Treasury. However, they generally involve
federal sponsorship in one way or another: some
are backed by specific types of collateral; some
are supported by the issuer's right to borrow
from the Treasury; some are supported by the dis-
cretionary authority of the Treasury to purchase
certain obligations of the issuer; and others are
supported only by the credit of the issuing gov-
ernment agency or instrumentality.
MORTGAGE-RELATED SECURITIES The funds may invest
in Government National Mortgage Association
(GNMA) certificates and the U.S. Govern-ment/AAA-
Rated Securities Fund expects to invest substan-
tially in these and other mortgage-related secu-
rities. GNMA certificates are securities repre-
senting part ownership of a pool of mortgage
loans on which timely payment of interest and
principal is guaranteed by the U.S. Government.
GNMA certificates differ from typical bonds be-
cause principal is repaid monthly over the term
of the loan rather than returned in a lump sum at
maturity.
Although the mortgage loans in the pool will have
stated maturities of up to 30 years, the actual
average life or effective maturity of the GNMA
certificates typically will be substantially less
because the mortgages will be subject to normal
principal amortization and may be prepaid prior
to maturity. Due to the prepayment feature and
the need to reinvest prepayments of principal at
current market rates, which may occur at higher
or lower yields than the original yield, GNMA
certificates may be less effective than typical
bonds at "locking in" yields during periods of
declining interest rates.
The funds also may invest in securities repre-
senting interests in pools of conventional mort-
gage loans issued by the Federal National Mort-
gage Association (FNMA) or by the Federal Home
Loan Mortgage Corporation (FHLMC).
In addition, the funds may invest in collateral-
ized mortgage obligations (CMOs) and mortgage-
backed bonds. A CMO is made up of a series of
bonds of varying maturities that together are
fully collateralized directly or indirectly by a
pool of mortgages on which the payments of prin-
cipal and interest are dedicated to payment of
principal and interest on the bonds. Mortgage-
backed bonds are general obligations fully col-
lateralized directly or indirectly by a pool of
mortgages, but on which payments are not passed
through directly. The fund will only purchase
CMOs or mortgage-backed bonds which are fully
collateralized by securities issued by GNMA,
FNMA, or FHLMC and or mortgages insured by GNMA.
10
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MONEY MARKET INSTRUMENTS The funds invest in
various high-quality money market instruments
that mature, or may be redeemed or resold, in 13
months or less (25 months in the case of U.S.
government securities). These include (1)
commercial paper (short-term notes issued by
corporations or governmental bodies), (2)
commercial bank obligations (certificates of
deposit (interest-bearing time deposits),
bankers' acceptances (time drafts on a commercial
bank where the bank accepts an irrevocable
obligation to pay at maturity), and documented
discount notes (corporate promissory discount
notes accompanied by a commercial bank guarantee
to pay at maturity)), (3) corporate bonds and
notes (corporate obligations that mature, or that
may be redeemed, in one year or less), and (4)
savings association obligations (certificates of
deposit issued by savings banks or savings and
loan associations). Although certain floating or
variable rate obligations (securities which have
a coupon rate that changes at least annually and
generally more frequently) have maturities in
excess of one year, they are also considered to
be short-term debt securities.
REPURCHASE AGREEMENTS The funds may enter into
repurchase agreements, under which they buy a se-
curity and obtain a simultaneous commitment from
the seller to repurchase a security at a speci-
fied time and price. The seller must maintain
with the Series' custodian collateral equal to at
least 100% of the repurchase price including ac-
crued interest as monitored daily by Capital Re-
search and Management Company. If the seller un-
der the repurchase agreement defaults, a fund may
incur a loss if the value of the collateral se-
curing the repurchase agreement has declined and
may incur disposition costs in connection with
liquidating the collateral. If bankruptcy pro-
ceedings are commenced with respect to the sell-
er, liquidation of the collateral by a fund may
be delayed or limited.
FORWARD COMMITMENTS The funds may enter into com-
mitments to purchase or sell securities at a fu-
ture date. When a fund agrees to purchase such
securities it assumes the risk of any decline in
value of the securities beginning on the date of
the agreement. When a fund agrees to sell such
securities, it does not participate in further
gains or losses with respect to the securities
beginning on the date of the agreement. If the
other party to such a transaction fails to de-
liver or pay for the securities, a fund could
miss a favorable price or yield opportunity, or
could experience a loss.
The Asset Allocation Fund, the Bond Fund, the
High-Yield Bond Fund, and the U.S.
Government/AAA-Rated Securities Fund also may en-
ter into "roll" transactions, which consist of
the sale of GNMA certificates or other securities
together with a commitment to purchase similar,
but not identical, securities at a later date.
The funds assume the rights and risks of owner-
ship, including the risk of price and yield fluc-
tuations as of the time of the agreement.
U.S. PRIVATE PLACEMENTS The Global Growth Fund,
the Growth Fund, the International Fund, the
Growth-Income Fund, the Asset Allocation Fund,
the Bond Fund and the High-Yield Bond Fund may
invest in private placements. Private placements
may be either purchased from another
institutional investor that originally acquired
the securities in a private placement or directly
from the issuers of the securities. Generally,
securities acquired in such private placements
are subject to contractual restrictions on resale
and may not be resold except pursuant to a
registration statement under the Securities Act
of 1933 or in reliance upon an exemption from the
registration requirements under the Act (for
example, private placements sold pursuant to Rule
144A). Accordingly, all such private placements
will be considered illiquid unless they have been
specifically determined to be liquid taking into
account factors such as the frequency and volume
of trading and the
11
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commitment of dealers to make markets under
procedures adopted by the Series' Board of
Trustees. Additionally, investing in private
placement securities could have the effect of
increasing the level of illiquidity of a fund's
portfolio to the extent that "qualified"
institutional investors become, for a period of
time, uninterested in purchasing these
securities.
INVESTING IN VARIOUS COUNTRIES The Global Growth
Fund, the Growth Fund, the International Fund,
the Asset Allocation Fund, the Bond Fund and the
High-Yield Bond Fund may invest in securities of
issuers domiciled outside the U.S. which may be
denominated in currencies other than the U.S.
dollar. Investing outside the U.S. can involve
special risks, particularly in certain developing
countries, caused by, among other things; fluctu-
ating currency values; different accounting, au-
diting, and financial reporting regulations and
practices in some countries; changing local and
regional economic, political, and social condi-
tions; greater market volatility; differing secu-
rities market structures; and various administra-
tive difficulties such as delays in clearing and
settling portfolio transactions or in receiving
payment of dividends. However, in the opinion of
Capital Research and Management Company, invest-
ing outside the U.S. also can reduce certain
portfolio risks due to greater diversification
opportunities.
Additional costs could be incurred in connection
with the funds' investment activities outside the
U.S. Brokerage commissions are generally higher
outside the U.S., and the funds will bear certain
expenses in connection with their currency
transactions. Furthermore, increased custodian
costs may be associated with the maintenance of
assets in certain jurisdictions.
The Growth-Income Fund and the Asset Allocation
Fund may invest in the equity securities of is-
suers domiciled outside the U.S., provided those
securities are either held through depositary re-
ceipts which are U.S. dollar denominated or are
traded on the New York Stock Exchange, and the
Asset Allocation Fund may invest in non-U.S.
fixed-income securities denominated in currencies
other than the U.S. dollar. In addition, the U.S.
Government/AAA-Rated Securities Fund may purchase
obligations of non-U.S. corporations or govern-
mental entities, provided they are U.S. dollar
denominated and highly liquid. Accordingly, while
the risks mentioned above are still present, they
are present to a lesser extent.
CURRENCY TRANSACTIONS The Global Growth Fund, the
Growth Fund, the International Fund, the Bond
Fund and the High-Yield Bond Fund may purchase
and sell currencies to facilitate securities
transactions and to enter into forward currency
contracts to hedge against changes in currency
exchange rates. The Asset Allocation Fund may
purchase and sell currencies to facilitate
settlements of fixed-income securities
transactions but has no current intention of
entering into forward currency contracts. While
entering into forward transactions could minimize
the risk of loss due to a decline in the value of
the hedged currency, it could also limit any
potential gain which might result from an
increase in the value of the currency. The funds
generally will not attempt to protect against all
potential changes in exchange rates.
12
<PAGE>
- --------------------------------------------------------------------------------
MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic
investment philosophy of Capital Research and
Management Company is to seek fundamental values
at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund
assets. Under this system the portfolios of the
funds are divided into segments which are managed
by individual counselors. Each counselor decides
how their segment will be invested (within the
limits provided by each fund's objective(s) and
policies and by Capital Research and Management
Company's investment committee). In addition,
Capital Research and Management Company's
research professionals may, from time to time,
make investment decisions with respect to a
portion of each fund's portfolio. The primary
individual portfolio counselors for the Series
are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
PORTFOLIO COUNSELOR (AND RESEARCH PROFESSIONAL,
PORTFOLIO IF APPLICABLE) FOR THE FUNDS
COUNSELORS INDICATED
FOR THE SERIES PRIMARY TITLE(S) (APPROXIMATE)
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
WITH CAPITAL
RESEARCH AND
PORTFOLIO MANAGEMENT
COUNSELORS COMPANY OR ITS TOTAL
FOR THE SERIES AFFILIATES YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James K. Dunton Senior Vice President of the Series. Growth-Income Fund--since the fund
Senior Vice President and Director, began operations in 1984
Capital Research and Management
Company
- ---------------------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice President of the Series. Asset Allocation Fund--since the fund
Senior Vice President and Director, began operations in 1989;
Capital Research and Management Bond Fund--since the fund began
Company operations in 1996;
U.S. Government Fund--since the fund
began operations in 1985
- ---------------------------------------------------------------------------------------------------------------
Claudia P. Huntington Vice President of the Series. Growth-Income Fund--3 years (plus 5 years
Senior Vice President, as a research professional prior to becoming
Capital Research Company* a portfolio counselor for the fund)
- ---------------------------------------------------------------------------------------------------------------
John H. Smet Vice President of the Series. Bond Fund--since the fund began
Vice President, Capital Research and operations in 1996;
Management Company U.S. Government Fund--5 years
- ---------------------------------------------------------------------------------------------------------------
Timothy D. Armour Senior Vice President and Director, Asset Allocation Fund--1 year
Capital Research Company*
- ---------------------------------------------------------------------------------------------------------------
David C. Barclay Executive Vice President and Director, High-Yield Bond Fund--4 years
Capital Research Company*
- ---------------------------------------------------------------------------------------------------------------
Martial Chaillet Senior Vice President, Capital Global Growth Fund--since the fund
Research Company* began operations in 1997;
International Fund--4 years
- ---------------------------------------------------------------------------------------------------------------
Gordon Crawford Senior Vice President and Director, Growth Fund--3 years (plus 5 years as a
Capital Research and Management research professional prior to becoming a
Company portfolio counselor for the fund)
- ---------------------------------------------------------------------------------------------------------------
James E. Drasdo Senior Vice President and Director, Growth Fund--10 years;
Capital Research and Management Growth-Income Fund--3 years
Company
- ---------------------------------------------------------------------------------------------------------------
Alwyn Heong Vice President, Capital International Fund--less than one year
Research Company*
- ---------------------------------------------------------------------------------------------------------------
Robert W. Lovelace Executive Vice President, Capital Global Growth Fund--since the fund
Research Company* began operations in 1997;
International Fund--3 years
- ---------------------------------------------------------------------------------------------------------------
Robert G. O'Donnell Senior Vice President and Director, Growth-Income Fund--7 years (plus
Capital Research and Management 1 year as a research professional prior to
Company becoming a portfolio counselor for the fund)
- ---------------------------------------------------------------------------------------------------------------
Donald D. O'Neal Vice President, Capital Research and Global Growth Fund--since the fund
Management Company began operations in 1997;
Growth Fund--6 years (plus 4 years as a
research professional prior to becoming a
portfolio counselor for the fund)
- ---------------------------------------------------------------------------------------------------------------
Victor M. Parachini Senior Vice President, Capital Asset Allocation Fund--1 year
Research and Management Company
- ---------------------------------------------------------------------------------------------------------------
Richard T. Schotte Senior Vice President, Capital Bond Fund--since the fund began
Research and Management Company operations in 1996;
High-Yield Bond Fund--9 years
- ---------------------------------------------------------------------------------------------------------------
Susan M. Tolson Vice President, Capital Research High-Yield Bond Fund--2 years
Company* (plus 2 years as a research professional prior
to becoming a portfolio counselor for the fund)
<S> <C> <C> <C>
James K. Dunton 35 35
- ---------------------------------------------------------------------------------------------------------------
Abner D. Goldstine 30 45
- ---------------------------------------------------------------------------------------------------------------
Claudia P. Huntington 19 21
- ---------------------------------------------------------------------------------------------------------------
John H. Smet 14 15
- ---------------------------------------------------------------------------------------------------------------
Timothy D. Armour 14 14
- ---------------------------------------------------------------------------------------------------------------
David C. Barclay 9 16
- ---------------------------------------------------------------------------------------------------------------
Martial Chaillet 25 25
- ---------------------------------------------------------------------------------------------------------------
Gordon Crawford 26 26
- ---------------------------------------------------------------------------------------------------------------
James E. Drasdo 20 25
- ---------------------------------------------------------------------------------------------------------------
Alwyn Heong 5 5
- ---------------------------------------------------------------------------------------------------------------
Robert W. Lovelace 12 12
- ---------------------------------------------------------------------------------------------------------------
Robert G. O'Donnell 22 25
- ---------------------------------------------------------------------------------------------------------------
Donald D. O'Neal 12 12
- ---------------------------------------------------------------------------------------------------------------
Victor M. Parachini 21 35
- ---------------------------------------------------------------------------------------------------------------
Richard T. Schotte 19 30
- ---------------------------------------------------------------------------------------------------------------
Susan M. Tolson 7 9
</TABLE>
*-COMPANY-AFFILIATED-WITH-CAPITAL-RESEA13RCH-AND-MANAGEMENT-COMPANY.
<PAGE>
- --------------------------------------------------------------------------------
It is the Series' policy to distribute to the
DIVIDENDS, shareholders (the insurance company separate ac-
DISTRIBUTIONS AND counts) all of its net investment income and cap-
TAXES ital gains realized during each fiscal year.
The Series Each fund of the Series is subject to asset di-
distributes to versification regulation prescribed by the U.S.
shareholders all Treasury Department under the Internal Revenue
its income and Code (the "Code"). These regulations generally
capital gains provide that, as of the end of each calendar
realized during quarter or within 30 days thereafter, no more
each fiscal year. than 55% of the total assets of the fund may be
represented by any one investment, no more than
70% by any two investments, no more than 80% by
any three investments, and no more than 90% by
any four investments. For this purpose, all secu-
rities of the same issuer are considered a single
investment. Furthermore, each U.S. Government
agency or instrumentality is treated as a sepa-
rate issuer. There are also alternative diversi-
fication tests which may be satisfied by the
funds under the regulations. The Series intends
to comply with the diversification regulations.
If a fund should fail to comply with these regu-
lations, Contracts invested in that fund would
not be treated as annuity, endowment or life in-
surance contracts under the Code.
FEDERAL TAXES Each fund of the Series intends to
operate as a "regulated investment company" under
the Internal Revenue Code. In any fiscal year in
which a fund so qualifies and distributes to
shareholders its net investment income and real-
ized capital gains, the fund itself is relieved
of federal income tax.
See the applicable Contract prospectus for infor-
mation regarding the federal income tax treatment
of the Contracts and distributions to the sepa-
rate accounts.
SERIES SERIES ORGANIZATION The Series, an open-end in-
ORGANIZATION AND vestment company, was organized as a Massachu-
MANAGEMENT setts business trust in 1983. The Series' Board
of Trustees supervises Series operations and per-
forms duties required by applicable state and
federal law. Members of the board who are not em-
ployed by Capital Research and Management Company
or its affiliates are paid for services rendered
to the Series as described in the statement of
additional information. They may elect to defer
all or a portion of these fees through a deferred
compensation plan in effect for the Series. The
Board of Trustees has approved the retention of
the companies listed below to provide certain
services to the Series.
INVESTMENT ADVISER Capital Research and Manage-
ment Company, a large and experienced investment
management organization founded in 1931, is the
investment adviser to the Series and other mutual
funds, including those in The American Funds
Group. Capital Research and Management Com- pany,
a wholly-owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South
Hope Street, Los Angeles, CA 90071. Capital Re-
search and Management Company manages the invest-
ment portfolios and business affairs of the Se-
ries.
The compensation paid to the Investment Adviser
for the most recent fiscal year as a percentage
of average net assets amounted to the following:
Growth Fund -- .42%; International Fund -- .61%;
Growth-Income Fund -- .39%; Asset Allocation
Fund -- .47%; Bond Fund -- .51%; High-Yield Bond
Fund -- .50%; U.S. Government/AAA-Rated Securi-
ties Fund -- .51%; and Cash Management Fund --
.45%. Capital Research and Management Company
has received no compensation for the Global
Growth Fund because it had not commenced opera-
tions during the most recent fiscal year.
Capital Research and Management Company and its
affiliated companies have adopted a personal in-
vesting policy that is consistent with the recom-
mendations contained in the report dated May 9,
1994 issued by the Investment Company Institute's
Advisory Group on Personal Investing. (See the
14
<PAGE>
- --------------------------------------------------------------------------------
statement of additional information.) This policy
has been incorporated into the Series' "code of
ethics" which is available from the Series' Sec-
retary upon request.
PORTFOLIO TRANSACTIONS Orders for the Series'
portfolio securities transac- tions are placed by
Capital Research and Management Company which
strives to obtain the best available prices,
taking into account the costs and quality of
executions. There is no agreement or commitment
to place orders with any broker-dealer. Fixed-
income securities are generally traded on a "net"
basis with a dealer acting as principal for its
own account without a stated commission, although
the price of the security usually includes a
profit to the dealer. In underwritten offerings,
securities are usually purchased at a fixed price
which includes an amount of compensation to the
underwriter, generally referred to as the
underwriter's concession or discount. On
occasion, securities may be purchased directly
from an issuer, in which case no commissions or
discounts are paid.
Subject to the above policy, when two or more
brokers are in a position to offer comparable
prices and executions, preference may be given to
brokers that have sold Contracts or have provided
investment research, statistical and other re-
lated services for the benefit of the Series
and/or of other funds served by Capital Research
and Management Company.
SHAREHOLDER VOTING RIGHTS All shares of the Se-
ries have equal voting rights and are entitled to
one vote per share with proportional voting for
fractional shares; however, only shareholders of
Class 2 shares will be entitled to vote on mat-
ters relating either to Class 1 or Class 2
shares. There will not usually be a shareholder
meeting in any year, except, for example, when
the election of the board is required to be acted
upon by shareholders under the Investment Company
Act of 1940.
In matters which only affect a particular fund,
the matter shall have been effectively acted upon
by a majority vote of that fund even though: (1)
the matter has not been approved by a majority
vote of any other fund; or (2) the matter has not
been approved by a majority vote of the Series.
The insurance company separate accounts, as the
shareholders of the Series, have the right to
vote Series shares at any meeting of sharehold-
ers. However, the Contracts provide that the sep-
arate accounts will vote Series shares in accor-
dance with instructions received from owners of
the Contracts. See the applicable Contract pro-
spectus for information regarding Contract own-
ers' voting rights. Since the funds use a com-
bined prospectus, each fund may be liable for
misstatements, inaccuracies, or incomplete dis-
closure concerning any other fund contained in
this prospectus.
PURCHASES AND Shares of the Series are currently offered only
REDEMPTIONS to insurance company separate accounts which fund
OF SHARES the Contracts. All such shares may be purchased
or redeemed by the separate accounts at net asset
value, without any sales or redemption charges.
Such purchases and redemptions are made subse-
quent to corresponding purchases and redemptions
of units of the separate accounts without delay.
Except in extraordinary circumstances and as per-
missible under the Investment Company Act of
1940, redemption proceeds will be paid on or be-
fore the seventh day following the request for
redemption.
PRICE OF SHARES The net asset value per share is
calculated once daily at the close of trading
(currently 4:00 p.m., New York time) on each day
the New York Stock Exchange is open. The current
value of each fund's total assets, less all lia-
bilities, is divided by the total number of
shares outstanding (excluding treasury shares),
and the result, rounded to the nearer cent, is
the net asset value per share.
15
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. rates the long-term debt securities issued
by various entities in categories ranging from "Aaa" to "C," according to
quality as described below.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may
be other elements present which make the long-term risks appear somewhat
greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Generally lack characteristics of the desirable investment; assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
Standard & Poor's Corporation rates the long-term debt securities issued by
various entities in categories ranging from "AAA" to "D," according to quality
as described below.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
LOGO This prospectus has been printed on recycled
paper that meets the guidelines of the United
States Environmental Protection Agency
16
<PAGE>
LL24183-14 26-101-497
<PAGE>
Prospectus
American
Variable
Insurance
Series(R)
Class 2 Shares
April 1, 1997
<PAGE>
AMERICAN VARIABLE INSURANCE SERIES
CLASS 2 SHARES
333 South Hope Street
Los Angeles, California 90071
(213) 486-9200
American Variable Insurance Series (the "Series") is a fully managed,
diversified, open-end investment company. The Series consists of nine funds,
each of which has its own investment objective(s) and policies.
Shares of the Series are offered only to insurance company separate accounts
to serve as the funding vehicle for certain variable annuity and life
insurance contracts ("Contract" or "Contracts").
THE CONTRACTS INVOLVE CERTAIN FEES AND EXPENSES NOT DESCRIBED IN THIS
PROSPECTUS AND ALSO MAY INVOLVE CERTAIN RESTRICTIONS OR LIMITATIONS ON THE
ALLOCATION OF PURCHASE PAYMENTS OR CONTRACT VALUES TO ONE OR MORE FUNDS OF THE
SERIES. IN PARTICULAR, CERTAIN FUNDS MAY NOT BE AVAILABLE IN CONNECTION WITH A
PARTICULAR CONTRACT. SEE THE APPLICABLE CONTRACT PROSPECTUS FOR INFORMATION
REGARDING FUND FEES AND EXPENSES OF THE CONTRACT AND ANY APPLICABLE
RESTRICTIONS OR LIMITATIONS. THE SERIES OFFERS TWO CLASSES OF SHARES TO
INVESTORS: CLASS 1 SHARES AND CLASS 2 SHARES. THIS PROSPECTUS OFFERS ONLY
CLASS 2 SHARES, WHICH WILL BECOME AVAILABLE APRIL 30, 1997, AND IS FOR USE
WITH CONTRACTS THAT MAKE CLASS 2 SHARES AVAILABLE.
The GLOBAL GROWTH FUND seeks long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics of
issuers domiciled around the world. THE FUND MAY NOT BE AVAILABLE IN ALL
STATES ON APRIL 30, 1997.
The GROWTH FUND seeks growth of capital by investing primarily in common
stocks or securities with common stock characteristics, such as convertible
preferred stocks, which demonstrate the potential for appreciation.
The INTERNATIONAL FUND seeks long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics of
issuers domiciled outside the United States.
The GROWTH-INCOME FUND seeks growth of capital and income by investing
primarily in common stocks or other securities which demonstrate the potential
for appreciation and/or dividends.
The ASSET ALLOCATION FUND seeks high total return (including income and
capital gains) consistent with preservation of capital over the long term
through a diversified portfolio that can include common stocks and other
equity-type securities, bonds and other intermediate and long-term fixed-
income securities and money market instruments in any combination.
The BOND FUND seeks to provide as high a level of current income as is
consistent with the preservation of capital by investing primarily in fixed-
income securities.
The HIGH-YIELD BOND FUND seeks high current income and secondarily seeks
capital appreciation by investing primarily in intermediate- and long-term
corporate obligations, with emphasis on higher yielding, higher risk, lower
rated or unrated securities. In addition to other risks, high-yield, high-risk
bonds (also known as "junk bonds") are subject to greater fluctuations in
value and risk of loss of income and principal due to default by the issuer
than are investments in lower yielding, higher rated bonds.
The U.S. GOVERNMENT/AAA-RATED SECURITIES FUND seeks a high level of current
income consistent with prudent investment risk and preservation of capital by
investing primarily in a combination of securities guaranteed by the U.S.
Government and other debt securities rated AAA or Aaa.
The CASH MANAGEMENT FUND seeks high current yield while preserving capital
by investing in a diversified selection of high-quality money market
instruments.
This prospectus presents information you should know before investing in the
Series. You should keep it on file for future reference.
More detailed information about the Series, including the Series' financial
statements, is contained in the statement of additional information dated
April 1, 1997, which has been filed with the Securities and Exchange
Commission and is available to you without charge, by writing to the Secretary
of the Series at the above address or telephoning 800/421-0180.
YOU MAY LOSE MONEY BY INVESTING IN THE FUNDS. GENERALLY, THE LIKELIHOOD OF
LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR
INVESTMENT IN THE SERIES IS NOT A DEPOSIT OR OBLIGATION OF, OR
INSURED, OR GUARANTEED BY, ANY ENTITY OR PERSON INCLUDING THE U.S.
GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF THE
APPLICABLE CONTRACT. THIS PROSPECTUS AND THE APPLICABLE CONTRACT PROSPECTUS
SHOULD BE READ CAREFULLY AND THEN RETAINED FOR FUTURE REFERENCE.
The date of this prospectus is April 1, 1997
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following condensed financial information for 1991 through 1996 has
been derived from financial statements which have been audited by Price
Waterhouse LLP, independent accountants. The information for the years prior
to 1991 was audited by other independent accountants. This information
should be read in conjunction with the financial statements and accompanying
notes which are included in the statement of additional information.
<TABLE>
<CAPTION>
Net asset Net realized &
Period value, Net unrealized Total income Dividends from Distributions
ended beginning investment gain (loss) from investment net investment from net Total Net asset value,
11/30 of period income on investments operations income realized gains distributions end of period
- ------ --------- ---------- --------------- --------------- --------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1987 $15.66 $ .14 $ (.78) $ (.64) $ (.11) $ (.34) $ (.45) $14.57
1988 14.57 .33 2.85 3.18 (.28) (.61) (.89) 16.86
1989 16.86 .49 6.01 6.50 (.45) -- (.45) 22.91
1990 22.91 .54 (2.27) (1.73) (.56) (.64) (1.20) 19.98
1991 19.98 .41 4.48 4.89 (.47) (.22) (.69) 24.18
1992 24.18 .29 4.25 4.54 (.31)/3/ -- (.31) 28.41
1993 28.41 .25 4.13 4.38 (.24) (.21) (.45) 32.34
1994 32.34 .24 .69 .93 (.24) (1.09) (1.33) 31.94
1995 31.94 .33 10.63 10.96 (.29) (.80) (1.09) 41.81
1996 41.81 .24 5.17 5.41 (.29) (3.40) (3.69) 43.53
- ------------------------------------------------------------------------------------------------------------------------
International Fund/4/
1990 $10.00 $ .11 $ (.62) $ (.51) $ (.04) -- $ (.04) $ 9.45
1991 9.45 .22 .59 .81 (.24) -- (.24) 10.02
1992 10.02 .19 (.09) .10 (.21) $ (.02) (.23) 9.89
1993 9.89 .17 2.50 2.67 (.16) -- (.16) 12.40
1994 12.40 .25 1.04 1.29 (.20) (.22) (.42) 13.27
1995 13.27 .34 1.02 1.36 (.33) (.41) (.74) 13.89
1996 13.89 .28 1.96 2.24 (.31) (.29) (.60) 15.53
- ------------------------------------------------------------------------------------------------------------------------
Growth-Income Fund
1987 $17.46 $ .47 $(1.87) $(1.40) $ (.46) $ (.08) $ (.54) $15.52
1988 15.52 .72 2.66 3.38 (.68) (.18) (.86) 18.04
1989 18.04 .78 3.93 4.71 (.74) (.58) (1.32) 21.43
1990 21.43 .82 (1.91) (1.09) (.86) (.25) (1.11) 19.23
1991 19.23 .75 2.63 3.38 (.79) (.10) (.89) 21.72
1992 21.72 .65 2.74 3.39 (.67) (.27) (.94) 24.17
1993 24.17 .63 2.12 2.75 (.63) (.28) (.91) 26.01
1994 26.01 .68 .14 .82 (.65) (.88) (1.53) 25.30
1995 25.30 .73 7.20 7.93 (.73) (1.03) (1.76) 31.47
1996 31.47 .71 5.55 6.26 (.74) (1.26) (2.00) 35.73
- ------------------------------------------------------------------------------------------------------------------------
Asset Allocation Fund/6/
1989 $10.00 $ .08 $ .10 $ .18 $ (.01) -- $ (.01) $10.17
1990 10.17 .50 (.75) (.25) (.42) -- (.42) 9.50
1991 9.50 .53 1.11 1.64 (.55) -- (.55) 10.59
1992 10.59 .48 .94 1.42 (.49) $ (.05) (.54) 11.47
1993 11.47 .51 .67 1.18 (.49) (.15) (.64) 12.01
1994 12.01 .51 (.57) (.06) (.52) (.18) (.70) 11.25
1995 11.25 .50 2.69 3.19 (.50) (.17) (.67) 13.77
1996 13.77 .53 1.89 2.42 (.53) (.48) (1.01) 15.18
- -----------------------------------------------------------------------------------------------------------------------
Bond Fund/7/
1996 $10.00 $ .40 $ .16 $ .56 $ (.25) -- $ (.25) $10.31
- -----------------------------------------------------------------------------------------------------------------------
High-Yield Bond Fund
1987 $13.49 $1.35 $ (.94) $ .41 $(1.36) $ (.32) $(1.68) $12.22
1988 12.22 1.26 .68 1.94 (1.33) (.17) (1.50) 12.66
1989 12.66 1.22 .10 1.32 (1.16) -- (1.16) 12.82
1990 12.82 1.33 (1.02) .31 (1.30) -- (1.30) 11.83
1991 11.83 1.17 1.78 2.95 (1.25) -- (1.25) 13.53
1992 13.53 1.10 .62 1.72 (1.08) -- (1.08) 14.17
1993 14.17 1.09 1.20 2.29 (1.10) (.19) (1.29) 15.17
1994 15.17 1.27 (2.07) (.80) (1.23) (.25) (1.48) 12.89
1995 12.89 1.32 1.10 2.42 (1.32) -- (1.32) 13.99
1996 13.99 1.28 .54 1.82 (1.30) -- (1.30) 14.51
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government/AAA-Rated Securities Fund
1987 $11.62 $ .85 $(1.21) $ (.36) $ (.79) -- $ (.79) $10.47
1988 10.47 .93 .02 .95 (.97) -- (.97) 10.45
1989 10.45 .78 .30 1.08 (.79) -- (.79) 10.74
1990 10.74 .83 (.11) .72 (.80) -- (.80) 10.66
1991 10.66 .77 .58 1.35 (.79) -- (.79) 11.22
1992 11.22 .75 .32 1.07 (.76) -- (.76) 11.53
1993 11.53 .74 .68 1.42 (.75) $ (.05) (.80) 12.15
1994 12.15 .76 (1.30) (.54) (.74) (.07) (.81) 10.80
1995 10.80 .82 .71 1.53 (.81) -- (.81) 11.52
1996 11.52 .83 (.24) .59 (.82) -- (.82) 11.29
- -------------------------------------------------------------------------------------------------------------------------
Cash Management Fund
1987 $10.65 $ .54 $ .08 $ .62 $ (.54) -- $ (.54) $10.73
1988 10.73 .60 .11 .71 (.56) -- (.56) 10.88
1989 10.88 .81 .12 .93 (.81) -- (.81) 11.00
1990 11.00 .71 .13 .84 (.70) -- (.70) 11.14
1991 11.14 .62 .01 .63 (.66) -- (.66) 11.11
1992 11.11 .35 .01 .36 (.43) -- (.43) 11.04
1993 11.04 .29 -- .29 (.31) -- (.31) 11.02
1994 11.02 .37 .02 .39 (.32) -- (.32) 11.09
1995 11.09 .63 (.02) .61 (.59) -- (.59) 11.11
1996 11.11 .54 .01 .55 (.54) -- (.54) 11.12
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of Ratio of net Average
Period Net assets, expenses income to commissions Portfolio
ended end of period to average average paid per turnover
11/30 Total return (in millions) net assets net assets share/1/ rate
- ------- ------------- ------------- ----------- ------------- ----------- -----------
Growth Fund
<S> <C> <C> <C> <C> <C> <C>
1987 (4.34)% $ 99 .63% .97% 7.01c 14.0%
1988 22.34 48 .72 1.72 7.36 7.1/2/
1989 38.87 173 .60 2.97 7.53 29.2
1990 (7.87) 304 .59 3.00 7.26 16.8
1991 24.90 700 .56 1.94 6.81 9.8
1992 18.90 1,212 .53 1.15 6.89 11.2
1993 15.59 1,737 .50 .86 6.43 20.4
1994 2.92 2,027 .49 .78 6.09 29.6
1995 35.35 3,154 .47 .92 5.91 35.47
1996 14.32 3,860 .44 .61 5.42 30.88
- --------------------------------------------------------------------------------
International Fund/4/
1990 (5.08)% $ 66 1.03%/5/ 3.18%/5/ 3.74c 4.5%
1991 8.67 197 1.04 2.62 2.43 8.2
1992 .90 360 1.00 2.11 1.22 16.7
1993 27.20 840 .96 1.75 .23 17.7
1994 10.48 1,405 .80 2.03 1.01 19.7
1995 10.78 1,703 .75 2.64 .16 24.66
1996 16.66 2,370 .69 1.99 1.24 32.08
- --------------------------------------------------------------------------------
Growth-Income Fund
1987 (8.59)% $ 217 .59% 2.85% 7.04c 6.8%
1988 22.13 102 .67 3.59 7.60 14.3/2/
1989 27.32 305 .58 4.94 7.18 16.7
1990 (5.27) 535 .56 4.77 7.80 9.7
1991 17.83 1,022 .56 3.80 7.23 11.1
1992 15.90 1,704 .52 3.01 7.46 13.6
1993 11.63 2,436 .49 2.66 7.02 24.9
1994 3.21 2,740 .47 2.72 6.39 29.3
1995 33.14 3,953 .44 2.70 6.21 26.91
1996 21.02 5,249 .41 2.26 5.75 31.27
- --------------------------------------------------------------------------------
Asset Allocation Fund/6/
1989 1.70 % $ 33 .59%/5/ 5.78%/5/ 3.20c --
1990 (2.34) 106 .64 6.70 6.83 14.4%
1991 17.63 194 .59 5.56 7.42 15.1
1992 13.69 359 .57 4.73 7.12 19.7
1993 10.59 578 .55 4.66 6.85 19.0
1994 (.54) 637 .53 4.55 6.38 36.1
1995 29.45 870 .52 4.11 6.27 39.89
1996 18.65 1,141 .49 3.88 5.60 50.62
- --------------------------------------------------------------------------------
Bond Fund/7/
1996 5.74 %/8/ $ 77 .52%/8/ 6.18%/8/ -- 32.83%/8/
- -------------------------------------------------------------------------------------
High-Yield Bond Fund
1987 2.96 % $ 70 .63% 10.89% -- 61.9%
1988 16.95 26 .77 10.62 -- 23.6/2/
1989 10.85 50 .72 12.30 -- 28.2
1990 2.49 58 .68 11.17 -- 22.7
1991 26.22 107 .63 9.81 -- 18.1
1992 13.14 197 .59 8.88 -- 47.4
1993 17.09 379 .56 8.18 -- 34.1
1994 (5.71) 390 .54 9.37 -- 38.5
1995 19.81 534 .54 10.12 -- 31.73
1996 13.75 662 .53 9.27 -- 44.81
- --------------------------------------------------------------------------------
U.S. Government/AAA-Rated Securities Fund
1987 (3.17)% $ 47 .67% 8.24% -- 105.6%
1988 9.50 28 .77 8.32 -- 47.5/2/
1989 10.82 78 .66 8.61 -- 14.5
1990 7.11 126 .61 8.58 -- 24.0
1991 13.24 240 .58 7.91 -- 27.1
1992 9.83 360 .57 7.08 -- 40.0
1993 12.65 505 .55 6.42 -- 21.7
1994 (4.58) 463 .54 6.69 -- 45.2
1995 14.73 542 .54 7.37 -- 30.11
1996 5.49 512 .53 7.33 -- 30.45
- --------------------------------------------------------------------------------
Cash Management Fund
1987 6.01 % $ 57 .68% 5.90% -- --
1988 6.88 31 .76 6.75 -- --
1989 8.90 58 .68 8.26 -- --
1990 7.91 143 .60 7.48 -- --
1991 5.84 163 .58 5.65 -- --
1992 3.31 197 .53 3.24 -- --
1993 2.67 206 .51 2.57 -- --
1994 3.59 221 .49 3.60 -- --
1995 5.65 193 .49 5.37 -- --
1996 5.09 240 .47 4.94 -- --
- ------------------------------------------------------------------------------------
</TABLE>
- ------
1. Brokerage commissions paid on 4. Commenced operations May 1, 1990.
portfolio transactions increase 5. Annualized
the cost of securities purchased 6. Commenced operations August 1,
or reduce the proceeds of 1989.
securities sold, and are not 7. Commenced operations January 2,
separately reflected in the 1996.
funds' statement of operations. 8. Based on operations for the period
Shares traded on a principal shown and, accordingly, not
basis, such as fixed-income representative of a full year's
transactions, are excluded. operations.
Generally, non-U.S. commissions No information is presented for the
are lower than U.S. commissions Global Growth Fund since it had no
when expressed as cents per investment operations as of April 1,
share but higher when expressed 1997.
as a percentage of transactions
because of the lower per-share
prices of many non-U.S.
securities.
2. Percentages are exclusive of the redemption in kind which occurred March
29, 1988.
3. Amount includes net realized
short-term gains treated as net
investment income for federal
income tax purposes.
<PAGE>
- --------------------------------------------------------------------------------
THE FUNDS The Series consists of nine funds, each
INVESTMENT representing a separate fully managed diversified
OBJECTIVES AND portfolio of securities. The nine funds are the
POLICIES OF THE Global Growth Fund, the Growth Fund, the Interna-
FUNDS tional Fund, the Growth-Income Fund, the Asset
Allocation Fund, the Bond Fund, the High-Yield
Bond Fund, the U.S. Government/AAA-Rated Securi-
ties Fund and the Cash Management Fund. The Se-
ries offers two classes of fund shares: Class 1
shares and Class 2 shares. This prospectus offers
Class 2 shares only. The Board of Trustees may
establish additional funds and classes in the fu-
ture. The investment objective(s) and policies of
each fund are discussed below. Investment policy
limits as stated below are measured at the time
of purchase. MORE INFORMATION ON THE FUNDS IS
CONTAINED IN THE SERIES' STATEMENT OF ADDITIONAL
INFORMATION.
The Series consists Shares of the Series are currently offered only
of nine funds, each to separate accounts of various insurance compa-
with its own nies to serve as the underlying investment for
investment both variable annuity and variable life insurance
objective(s) and contracts. All such shares may be purchased or
policies. redeemed by the separate accounts without any
sales or redemption charges at net asset value.
Due to differences in tax treatment or other con-
siderations, the interests of various Contract
owners participating in a fund might at some time
be in conflict. The Board of Trustees will moni-
tor the Series' operations for any material con-
flicts and determine what action, if any, should
be taken.
PLAN OF DISTRIBUTION Class 2 shares pay 0.25% of
average net assets annually, pursuant to a plan
of distribution or "12b-1 Plan." Currently,
Class 2 shares are available only through Ameri-
can Legacy III, a variable annuity contract is-
sued by Lincoln National Life Insurance Company
("Lincoln National"). Amounts paid under the 12b-
1 Plan are used by Lincoln National to cover the
expense of certain Contract owner services ren-
dered by Lincoln National and investment dealers.
Class 2 shares pay only their proportionate share
of Series expenses plus plan of distribution ex-
penses.
INVESTMENT RESTRICTIONS Each fund's fundamental
investment restrictions (as described in the
statement of additional information) and objec-
tive(s) may not be changed without shareholder
approval. All other investment practices may be
changed by the Series' Board of Trustees.
The Global Growth GLOBAL GROWTH FUND The investment objective of
Fund seeks to the Global Growth Fund is to achieve long-term
provide you with growth of capital by investing in securities of
long-term growth of issuers domiciled around the world.
capital generally
by investing in The fund will invest primarily in common stocks
equity securities under normal market conditions. These securities
of issuers may be denominated in various currencies.The fund
domiciled around may also invest in securities through depositary
the world. receipts which may be denominated in various cur-
rencies. For example, the fund may purchase Amer-
ican Depositary Receipts which are U.S. dollar
denominated securities designed for use in the
U.S. securities markets which represent and may
be converted to the underlying security.
When prevailing market, economic, political or
currency conditions warrant, the fund may invest
in other securities such as preferred stock, debt
securities and other securities convertible into
common stock. The fund may also invest in
straight debt securities (generally rated in the
top three quality categories by Standard & Poor's
Corporation or Moody's Investors Service, Inc. or
unrated but determined to be of equivalent qual-
ity by the fund's investment adviser, Capital Re-
search and Management Company). Up to 10% of the
fund's assets may be invested in lower rated
straight debt securities (including securities
commonly referred to as "junk bonds" or "high-
yield, high-risk bonds") or in unrated securities
determined to be of equivalent quality. High-
yield, high-risk bonds carry a higher degree of
investment risk than higher rated bonds and are
considered speculative. See the Appendix for a
description of the various bond ratings, and
"High-Yield Bond Fund--Risks of Investing in
High-Yield, High-Risk Securities" below. In addi-
tion, the
3
<PAGE>
- --------------------------------------------------------------------------------
fund may at times hold a portion of its assets in
cash and money market instruments denominated in
U.S. dollars or other currencies. See "Securities
and Investment Techniques--Money Market Instru-
ments."
Investments may be made from time to time in se-
curities of companies domiciled in, or govern-
ments of, developing countries. See "Securities
and Investment Techniques--Investing in Various
Countries."
The fund has the ability to purchase and sell
currencies to facilitate securities transactions
and to enter into forward currency contracts to
hedge against changes in currency exchange rates.
See "Securities and Investment Techniques--Cur-
rency Transactions."
Under normal market conditions, the fund will in-
vest in issuers domiciled in at least three coun-
tries, with no more than 40% of its assets in-
vested in issuers domiciled in any one country.
(In determining the domicile of an issuer, Capi-
tal Research and Management Company takes into
account such factors as where the company is le-
gally organized, where it maintains principal
corporate offices and where it conducts its prin-
cipal operations.)
The Growth Fund GROWTH FUND The investment objective of the
seeks Growth Fund is growth of capital. Whatever cur-
to provide you with rent income is generated by the fund is likely to
growth of capital. be incidental to the objective of capital growth.
Ordinarily, the fund seeks to achieve this objec-
tive by investing primarily in common stocks or
securities with common stock characteristics.
When the outlook for common stocks is not consid-
ered promising, for temporary defensive purposes,
a substantial portion of the assets may be in-
vested in securities of the U.S. Government, its
agencies and instrumentalities, cash, and money
market instruments. See "Securities and Invest-
ment Techniques" below.
The fund's assets may be invested in securities
of non-U.S. issuers, which are generally denomi-
nated in currencies other than the U.S. dollar,
although there is no requirement that the fund
maintain investments in non-U.S. issuers. See
"Securities and Investment Techniques--Investing
in Various Countries" below.
Up to 10% of the fund's assets may be invested in
straight debt securities rated BB or below by
Standard & Poor's Corporation and Ba or below by
Moody's Investors Services, Inc. or in unrated
securities that are determined to be of equiva-
lent quality, provided the fund's investment ad-
viser, Capital Research and Management Company,
determines that these securities have character-
istics similar to the equity securities eligible
for purchase by the fund. These securities are
commonly referred to as "junk bonds" or "high-
yield, high-risk bonds," carry a higher degree of
investment risk than higher rated bonds and are
considered speculative. See the Appendix for a
further description of the various bond ratings,
and "High-Yield Bond Fund--Risks of Investing in
High-Yield, High-Risk Securities" below. As of
the last day of the fund's most recent fiscal
year, the fund did not hold any junk bonds.
The International INTERNATIONAL FUND The investment objective of
Fund aims to the International Fund is to achieve long-term
provide you with growth of capital by investing primarily in secu-
long-term growth rities of issuers domiciled outside the United
ofcapital by States. The fund's investment approach is based
investingin on the belief that economic and political devel-
securities opments have helped to create new opportunities
ofissuers outside the U.S.
domiciledoutside
the U.S.
The fund may also invest in securities through
depositary receipts which may be denominated in
various currencies. For example, the fund may
purchase American Depositary Receipts which are
U.S. dollar denominated securities designed for
use in the U.S. securities markets which repre-
sent and may be converted to the underlying secu-
rity.
When prevailing market, economic, political or
currency conditions warrant, the fund may invest
in securities convertible into common stocks,
straight
4
<PAGE>
- --------------------------------------------------------------------------------
debt securities (generally rated in the top three
quality categories by Standard & Poor's
Corporation or Moody's Investors Service, Inc. or
unrated but determined to be of equivalent
quality by Capital Research and Management
Company), government securities, or
nonconvertible preferred stocks. Up to 5% of the
fund's assets may also be invested in lower rated
straight debt securities (including securities
commonly referred to as "junk bonds" or "high-
yield, high-risk bonds") or in unrated securities
that are determined to be of equivalent quality.
High-yield, high-risk bonds carry a higher degree
of investment risk than higher rated bonds and
are considered speculative. See the Appendix for
a description of the various bond ratings. These
securities may also be issued by non-U.S.
entities.
The fund has the ability to purchase and sell
currencies to facilitate securities transactions
and to enter into forward currency contracts to
hedge against changes in currency exchange rates.
See "Securities and Investment Techniques--Cur-
rency Transactions."
Under normal circumstances, the fund will invest
at least 65% of its assets in equity securities
(including depositary receipts) of issuers domi-
ciled outside the U.S., including those domiciled
in developing countries. The fund may at times
hold a portion of its assets in various curren-
cies or in cash equivalents which may be denomi-
nated in U.S. dollars or other currencies (in-
cluding U.S. Government securities, certificates
of deposit, time deposits, commercial paper,
bankers' acceptances and other high-quality
short-term debt securities). See "Securities and
Investment Techniques--Investing in Various Coun-
tries." Additionally, for temporary defensive
purposes, the fund may at times maintain all or
any part of its assets in cash and cash equiva-
lents.
The Growth-Income GROWTH-INCOME FUND The investment objective of
Fund seeks to the Growth-Income Fund is growth of capital and
provide you with income. In the selection of securities for in-
capital growth and vestment, the possibilities of appreciation and
income. potential dividends are given more weight than
current yield. Ordinarily, the fund will invest
primarily in common stocks. However, the fund may
invest in other types of securities, including
other equity-type securities (such as convertible
bonds), bonds (and other types of fixed-income
securities) and money market instruments, to the
extent consistent with its investment objective.
Up to 5% of the fund's assets may be invested in
straight debt securities rated BB or below by
Standard & Poor's Corporation and Ba or below by
Moody's Investors Services, Inc. or in unrated
securities that are determined to be of equiva-
lent quality by Capital Research and Management
Company. These securities are commonly referred
to as "junk bonds" or "high-yield, high-risk
bonds," carry a higher degree of investment risk
than higher rated bonds and are considered specu-
lative. See the Appendix for a description of the
various bond ratings.
Up to 10% of the fund's assets may be invested in
the equity securities of issuers domiciled
outside the U.S. and not included in the Standard
& Poor's 500 Composite Index (a broad measure of
the U.S. stock market), provided those securities
are either held through depositary receipts which
are U.S. dollar denominated or are traded on the
New York Stock Exchange. Since the fund limits
its investments in non-U.S. securities as
described above, the fund has no current
intention to engage in forward currency
transactions. See "Securities and Investment
Techniques--Investing in Various Countries."
5
<PAGE>
- --------------------------------------------------------------------------------
The Asset ASSET ALLOCATION FUND The investment objective of
Allocation Fund the Asset Allocation Fund is high total return
aims to provide you (including income and capital gains) consistent
with high total with preservation of capital over the long term.
return and The fund seeks to achieve its objective by in-
preservation of vesting in a diversified portfolio that can in-
capital over the clude common stocks and other equity-type securi-
long-term. ties (such as convertible bonds), bonds and other
intermediate- and long-term fixed income securi-
ties, and money market instruments (debt securi-
ties maturing in one year or less).
Capital Research and Management Company will de-
termine the relative mix of equities, fixed-in-
come securities and money market instruments for
the fund's portfolio. The determination will be
based on its view of long-term economic and mar-
ket trends and the relative risks and opportuni-
ties for long-term total return of the different
classes of assets. Under normal conditions, Capi-
tal Research and Management Company expects (but
is not required) to maintain an investment mix
falling within the following ranges: 40% to 80%
in equities; 20% to 50% in fixed-income securi-
ties, and 0% to 40% in money market instruments.
Capital Research and Management Company does not
intend to make frequent shifts within these broad
ranges. Rather it intends in normal situations to
make any shifts in the fund's asset allocation
gradually over time based on its views of long-
term trends and conditions.
Up to 10% of the fund's assets may be invested in
the equity securities of issuers domiciled out-
side the U.S., provided those securities are ei-
ther held through depositary receipts which are
U.S. dollar denominated or are traded on the New
York Stock Exchange. Since the fund limits its
investments in non-U.S. equity securities as
such, the fund has no current intention to engage
in forward currency transactions. See "Securities
and Investment Techniques--Investing in Various
Countries."
The fund's fixed-income investments will consist
primarily of "investment grade" bonds; that is,
bonds that are rated BBB or better by Standard &
Poor's Corporation or Baa or better by Moody's
Investors Service, Inc., or that are unrated but
considered by Capital Research and Management
Company to be of equivalent credit quality. Up to
25% of the fund's fixed-income assets may be
invested in securities that are below investment
grade as defined above, including securities
rated as low as CC by S&P or Ca by Moody's.
Securities rated Ba and BB or below or unrated
securities that are determined to be of
equivalent quality (commonly known as "junk" or
"high-yield, high-risk" bonds) are subject to
special review before purchase. These bonds are
subject to greater market fluctuations and risk
of loss of income and principal due to default by
the issuer than are investments in lower
yielding, higher-rated bonds. See the Appendix
for a further description of the various bond
ratings, and "High-Yield Bond Fund--Risks of
Investing in High-Yield, High-Risk Securities"
below. During the previous fiscal year, the
approximate monthly average percentages of
the Asset Allocation Fund's fixed-income net
assets based on the higher of the Moody's or S&P
rating categories were: Aaa/AAA -- 11.26%;
Aa/AA -- 0.92%; A/A -- 2.93%; Baa/BBB -- 5.35%;
Ba/BB -- 1.13%; B/B -- 1.46%; and Caa/CCC --
0.14%. Non-rated investments (including equity-
type securities) and cash or cash equivalents
amounted to 62.16% and 14.65%, respectively, of
the fund's assets.
The fund's investments in non-U.S. fixed-income
securities will be concentrated in securities is-
sued or guaranteed as to principal and interest
by foreign governments or their agencies or in-
strumentalities or by multinational agencies. The
fund may purchase and sell currencies to facili-
tate settlement of trades; however, it does not
currently intend to enter into forward currency
contracts.
6
<PAGE>
- --------------------------------------------------------------------------------
The Bond Fund seeks BOND FUND The investment objective of the Bond
to provide you with Fund is to provide as high a level of current in-
high current income come as is consistent with the preservation of
while preserving capital. The fund invests in a broad variety of
yourcapital. fixed-income securities, including marketable
corporate debt securities, loan participations,
U.S. Government securities, mortgage-related se-
curities, other asset-backed securities and cash
or money market instruments. Normally, at least
65% of the fund's assets will be invested in
bonds. (For this purpose, bonds are considered
any debt securities having initial maturities in
excess of one year.) In addition, the fund may
invest up to 20% in preferred stocks.
At least 65% of the value of the fund's assets,
measured at the time of purchase, must be in-
vested in debt securities that are rated Baa or
better by Moody's Investors Service, Inc. or BBB
or better by Standard & Poor's Corporation or
unrated but determined to be of equivalent qual-
ity by Capital Research and Management Company.
Securities rated Baa or BBB have speculative
characteristics. See the Appendix for a descrip-
tion of the various bond ratings.
At least 35% of the value of the fund's assets
must be invested in debt securities that are
rated A or better or, if not rated, determined to
be of equivalent quality.
Up to 35% of the assets of the fund may be in-
vested in debt securities rated Ba and BB or be-
low, or in unrated securities that are determined
to be of equivalent quality. These securities may
be rated as low as Ca by Moody's or CC by S&P.
See the Appendix for a further description of the
various bond ratings.
Securities rated Ba and BB or below or unrated
securities that are determined to be of
equivalent quality (commonly known as "junk" or
"high-yield, high-risk" bonds) are subject to
special review before purchase. These bonds are
considered speculative and typically are subject
to greater market fluctuations and risk of loss
of income and principal due to default
by the issuer than are investments in lower
yielding, higher-rated bonds. See "High-Yield
Bond Fund--Risks of Investing in High-Yield,
High-Risk Securities" below. During the previous
fiscal year, the approximate monthly average
percentages of the Bond Fund's net assets based
on the higher of the Moody's or S&P rating
categories were: Aaa/AAA -- 47.65%; Aa/AA --
1.08%; A/A -- 3.08%; Baa/BBB -- 8.07%; Ba/BB --
6.41%; and B/B -- 10.05%. Non-rated investments
(including equity-type securities) and cash or
cash equivalents amounted to 3.14% and 20.52%,
respectively, of the fund's assets.
The fund may invest in fixed-income securities of
corporations or governmental entities outside the
U.S.; however, no more than 20% of the fund's as-
sets will be invested in non-U.S. dollar denomi-
nated securities including those of issuers domi-
ciled in developing countries. The fund may pur-
chase or sell various currencies on either a spot
or forward basis in connection with non-U.S. dol-
lar investments. See "Securities and Investment
Techniques--Currency Transactions" below.
The High-Yield Bond HIGH-YIELD BOND FUND The primary investment ob-
Fund seeks to jective of the High-Yield Bond Fund is high cur-
provide you with rent income and its secondary investment objec-
high current income tive is capital appreciation. Under normal market
and, secondarily, conditions the fund will be invested in fixed-in-
capital come securities, with emphasis on higher yield-
appreciation. ing, higher risk, lower rated or unrated corpo-
rate bonds.
High-yield, high-risk bonds (also known as "junk
bonds") generally include any bonds rated Ba or
below by Moody's Investors Service, Inc. and BB
or below by Standard & Poor's Corporation or
unrated but determined to be of equivalent qual-
ity by Capital Research and Management Company.
Bonds rated Ba or BB or below are considered
speculative. The High-Yield Bond
7
<PAGE>
- --------------------------------------------------------------------------------
Fund may invest without limitation in bonds rated
as low as Ca by Moody's or CC by S&P (or in bonds
that are unrated but determined to be
of equivalent quality). In addition, the fund may
invest up to 10% of its total assets in bonds
rated C by Moody's or D by S&P (or in bonds
that are unrated but determined to be of
equivalent quality). See the Appendix for
a further description of the various bond
ratings. During the previous fiscal year, the
approximate monthly average percentages of the
High-Yield Bond Fund's net assets based on the
higher of the Moody's or S&P rating categories
were: Aaa/AAA -- 7.31%; Baa/BBB -- 1.42%;
Ba/BB -- 25.71%; B/B -- 50.67%; and Caa/CCC --
3.35%. Non-rated investments (including equity-
type securities) and cash or cash equivalents
amounted to 3.55% and 7.99%, respectively, of the
fund's assets.
In pursuing its secondary investment objective of
capital appreciation, the Series may purchase
high-yield bonds that are expected by Capital Re-
search and Management Company to increase in
value due to improvements in their credit quality
or ratings or anticipated declines in interest
rates. In addition, the fund may invest for this
purpose up to 25% of its assets in common stocks
or other equity or equity-related securities. Eq-
uity-type securities normally will be purchased
as part of a unit with fixed-income securities or
when an unusual opportunity for capital apprecia-
tion is perceived due to an anticipated improve-
ment in the issuer's credit quality or ratings.
Up to 25% of the fund's assets may be invested in
securities of non-U.S. issuers, which are gener-
ally denominated in currencies other than the
U.S. dollar.
Under normal conditions the fund will invest pri-
marily in higher yielding obligations which may
include loan participations in addition to corpo-
rate bonds. The fund also may invest in securi-
ties of the U.S. Government, its agencies and in-
strumentalities, cash, and money market instru-
ments. See "Securities and Investment Techniques"
below.
RISKS OF INVESTING IN HIGH-YIELD, HIGH-RISK
SECURITIES "High-yield, high risk" bonds, also
known as "junk bonds," have speculative charac-
teristics and involve greater risk of default or
price changes due to changes in the issuer's
creditworthiness than higher rated bonds, or they
may already be in default. The market prices of
these securities may fluctuate more than higher-
quality securities and may decline significantly.
It may be more difficult to dispose of, or to de-
termine the value of, high-yield, high-risk
bonds.
High-yield, high-risk bonds may be very sensitive
to adverse economic changes and may be less sen-
sitive to interest rate changes. In addition, pe-
riods of economic uncertainty and changes may in-
crease volatility of market prices and yields of
high-yield, high-risk bonds and in turn, the
fund's net asset value. High-yield, high-risk
bonds may contain redemption or call provisions
which, if exercised during a period of declining
interest rates, may cause the fund to have to re-
place the security with a lower yielding securi-
ty, resulting in a decreased return for invest-
ors. Furthermore, there may be little trading in
the secondary market for particular bonds, which
may affect adversely the fund's ability to value
accurately or dispose of such bonds.
Capital Research and Management Company attempts
to reduce the risks described above through di-
versification of the portfolio and by credit
analysis of each issuer, as well as by monitoring
broad economic trends and corporate and legisla-
tive developments.
There can be, of course, no assurance that the
fund's investment objectives will be realized or
that the net return on an investment in the fund
will equal or exceed that which could have been
obtained through other investment or savings ve-
hicles. Contract owners should carefully review
the investment objectives and policies of the
fund and consider their ability to assume the
risks involved before making any investment in
the fund.
8
<PAGE>
- --------------------------------------------------------------------------------
The U.S. U.S. GOVERNMENT/AAA-RATED SECURITIES FUND The in-
Government/AAA- vestment objective of the U.S. Government/AAA-
Rated Securities Rated Securities Fund is a high level of current
Fund aims to income consistent with prudent investment risk
provide you with and preservation of capital. It seeks to achieve
high current income its objective by investing primarily in a combi-
while preserving nation of (i) securities guaranteed by the U.S.
your capital. Government (i.e., backed by the full faith and
credit of the United States) and (ii) other debt
securities (including corporate bonds) rated AAA
by Standard & Poor's Corporation or Aaa by
Moody's Investors Service, Inc. (or unrated but
determined to be of equivalent quality by Capital
Research and Management Company). The fund may
purchase obligations of non-U.S. corporations or
governmental entities, provided they are U.S.
dollar denominated and highly liquid. Except when
the fund is in a temporary defensive investment
position, at least 65% of its total assets will
be invested in these securities, including secu-
rities held subject to repurchase agreements.
The fund anticipates that it will invest in Gov-
ernment National Mortgage Association ("GNMA")
certificates, which are mortgage-backed securi-
ties representing part ownership of a pool of
mortgage loans on which timely payment of inter-
est and principal is guaranteed by the U.S. Gov-
ernment. The fund also may invest in securities
issued by U.S. Government agencies or instrumen-
talities that are not backed by the full faith
and credit of the U.S. Government; in short-term
debt securities of private issuers (including
certificates of deposit, bankers' acceptances,
and commercial paper rated A-1 by S&P or Prime-1
by Moody's); and in securities issued by finan-
cial institutions such as commercial banks, sav-
ings and loan associations, mortgage bankers and
securities broker-dealers which represent a di-
rect or indirect interest in a pool of mortgages.
See "Securities and Investment Techniques" below.
The fund may not purchase any security, other
than a U.S. Government security or a short-term
debt security described above, that is not rated
AAA by S&P or Aaa by Moody's (or that is unrated
but determined to be of equivalent quality by
Capital Research and Management Company). Howev-
er, if the rating of a security currently being
held by the fund is reduced below AAA or Aaa the
fund is not required to dispose of the security.
The Cash Management CASH MANAGEMENT FUND The investment objective of
Fund seeks to the Cash Management Fund is high current yield
provide you with while preserving capital. It seeks to achieve
high current yield this objective by investing in high quality money
while preserving market instruments that mature, or may be re-
capital. deemed or resold, in 13 months or less (25 months
or less in the case of U.S. Government securi-
ties). The fund invests only in such instruments
that are determined, in accordance with proce-
dures established by the Series' Board of Trust-
ees, to present minimal credit risks. The fund's
investments may include, but are not limited to,
commercial paper rated in the highest rating cat-
egory by Moody's Investors Service, Inc. and
Standard & Poor's Corporation, instruments is-
sued, guaranteed or insured by the U.S. Govern-
ment, its agencies or instrumentalities as to the
payment of principal and interest, and other se-
curities rated in the highest two categories by
either Moody's or S&P, provided the issuer has
commercial paper rated in the highest rating cat-
egory by Moody's or S&P. The fund also may enter
into repurchase agreements. See "Securities and
Investment Techniques" below.
Although there is no guarantee that the fund's
investment objective will be achieved, invest-
ments in the Cash Management Fund should present
the least market risk of any of the funds because
it invests only in high-quality short-term debt
obligations. However, an investment in this fund
is subject to the risks of changes in market in-
terest rates and of the economy as a whole. Note
that the return on an investment in the Cash Man-
agement Fund should not be the same as the return
on an investment in a money market fund which is
available directly to the public, even where
gross yields are equivalent, due to the fees im-
posed at the Contract level. The Cash Management
Fund yield for the seven days ended November 30,
1996 was 4.77% on an annualized basis.
9
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EQUITY SECURITIES Equity securities represent an
INVESTMENT ownership position in a company. These securities
TECHNIQUES include common stocks, preferred stocks, and
securities with equity conversion or purchase
rights. The prices of equity securities fluctuate
based on changes in the financial condition of
their issuers and on market and economic
conditions. The funds' results will be related to
the overall market for these securities.
The nine funds of DEBT SECURITIES Bonds and other debt securities
the Series invest are used by issuers to borrow money. Issuers pay
in a wide variety investors interest and must repay the amount bor-
of securities which rowed at maturity. Some debt securities, such as
are subject to zero coupon bonds, do not pay current interest
varying degrees of but are purchased at a discount from their face
risk. values. The prices of debt securities fluctuate
depending on such factors as interest rates,
credit quality and maturity. In general their
prices decline when interest rates rise and vice
versa.
U.S. GOVERNMENT SECURITIES Securities guaranteed
by the U.S. Government include: (1) direct obli-
gations of the U.S. Treasury (such as Treasury
bills, notes and bonds) and (2) federal agency
obligations guaranteed as to principal and inter-
est by the U.S. Treasury.
Certain securities issued by U.S. Government in-
strumentalities and certain federal agencies are
neither direct obligations of, nor guaranteed by,
the Treasury. However, they generally involve
federal sponsorship in one way or another: some
are backed by specific types of collateral; some
are supported by the issuer's right to borrow
from the Treasury; some are supported by the dis-
cretionary authority of the Treasury to purchase
certain obligations of the issuer; and others are
supported only by the credit of the issuing gov-
ernment agency or instrumentality.
MORTGAGE-RELATED SECURITIES The funds may invest
in Government National Mortgage Association
(GNMA) certificates and the U.S. Government/AAA-
Rated Securities Fund expects to invest
substantially in these and other mortgage-related
securities. GNMA certificates are securities
representing part ownership of a pool of mortgage
loans on which timely payment of interest and
principal is guaranteed by the U.S. Government.
GNMA certificates differ from typical bonds
because principal is repaid monthly over the term
of the loan rather than returned in a lump sum at
maturity.
Although the mortgage loans in the pool will have
stated maturities of up to 30 years, the actual
average life or effective maturity of the GNMA
certificates typically will be substantially less
because the mortgages will be subject to normal
principal amortization and may be repaid prior to
maturity. Due to the prepayment feature and the
need to reinvest prepayments of principal at cur-
rent market rates, which may occur at higher or
lower yields than the original yield, GNMA cer-
tificates may be less effective than typical
bonds at "locking in" yields during periods of
declining interest rates.
The funds also may invest in securities repre-
senting interests in pools of conventional mort-
gage loans issued by the Federal National Mort-
gage Association (FNMA) or by the Federal Home
Loan Mortgage Corporation (FHLMC).
In addition, the funds may invest in collateral-
ized mortgage obligations (CMOs) and mortgage-
backed bonds. A CMO is made up of a series of
bonds of varying maturities that together are
fully collateralized directly or indirectly by a
pool of mortgages on which the payments of prin-
cipal and interest are dedicated to payment of
principal and interest on the bonds. Mortgage-
backed bonds are general obligations fully col-
lateralized directly or indirectly by a pool of
mortgages, but on which payments are not passed
through directly. The fund will only purchase
CMOs or mortgage-backed bonds which are fully
collateralized by securities issued by GNMA,
FNMA, or FHLMC and or mortgages insured by GNMA.
10
<PAGE>
- --------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS The funds invest in
various high-quality money market instruments
that mature, or may be redeemed or resold, in
13 months or less (25 months in the case of U.S.
government securities). These include (1)
commercial paper (short-term notes issued by
corporations or governmental bodies), (2)
commercial bank obligations (certificates of
deposit (interest-bearing time deposits),
bankers' acceptances (time drafts on a commercial
bank where the bank accepts an irrevocable
obligation to pay at maturity), and documented
discount notes (corporate promissory discount
notes accompanied by a commercial bank guarantee
to pay at maturity)), (3) corporate bonds and
notes (corporate obligations that mature, or that
may be redeemed, in one year or less), and (4)
savings association obligations (certificates of
deposit issued by savings banks or savings and
loan associations). Although certain floating or
variable rate obligations (securities which have
a coupon rate that changes at least annually and
generally more frequently) have maturities in
excess of one year, they are also considered to
be short-term debt securities.
REPURCHASE AGREEMENTS The funds may enter into
repurchase agreements, under which they buy a se-
curity and obtain a simultaneous commitment from
the seller to repurchase a security at a speci-
fied time and price. The seller must maintain
with the Series' custodian collateral equal to at
least 100% of the repurchase price including ac-
crued interest as monitored daily by Capital Re-
search and Management Company. If the seller un-
der the repurchase agreement defaults, a fund may
incur a loss if the value of the collateral se-
curing the repurchase agreement has declined and
may incur disposition costs in connection with
liquidating the collateral. If bankruptcy pro-
ceedings are commenced with respect to the sell-
er, liquidation of the collateral by a fund may
be delayed or limited.
FORWARD COMMITMENTS The funds may enter into com-
mitments to purchase or sell securities at a fu-
ture date. When a fund agrees to purchase such
securities it assumes the risk of any decline in
value of the securities beginning on the date of
the agreement. When a fund agrees to sell such
securities, it does not participate in further
gains or losses with respect to the securities
beginning on the date of the agreement. If the
other party to such a transaction fails to de-
liver or pay for the securities, a fund could
miss a favorable price or yield opportunity, or
could experience a loss.
The Asset Allocation Fund, the Bond Fund, the
High-Yield Bond Fund, and the U.S.
Government/AAA-Rated Securities Fund also may en-
ter into "roll" transactions, which consist of
the sale of GNMA certificates or other securities
together with a commitment to purchase similar,
but not identical, securities at a later date.
The funds assume the rights and risks of owner-
ship, including the risk of price and yield fluc-
tuations as of the time of the agreement.
U.S. PRIVATE PLACEMENTS The Global Growth Fund,
the Growth Fund, the International Fund, the
Growth-Income Fund, the Asset Allocation Fund,
the Bond Fund and the High-Yield Bond Fund may
invest in private placements. Private placements
may be either purchased from another
institutional investor that originally acquired
the securities in a private placement or directly
from the issuers of the securities. Generally,
securities acquired in such private placements
are subject to contractual restrictions on resale
and may not be resold except pursuant to a
registration statement under the Securities Act
of 1933 or in reliance upon an exemption from the
registration requirements under the Act (for
example, private placements sold pursuant to Rule
144A). Accordingly, all such private placements
will be considered illiquid unless they have been
specifically determined to be liquid taking into
account factors such as the frequency and volume
of trading and the
11
<PAGE>
- --------------------------------------------------------------------------------
commitment of dealers to make markets under
procedures adopted by the Series' Board of
Trustees. Additionally, investing in private
placement securities could have the effect of
increasing the level of illiquidity of a fund's
portfolio to the extent that "qualified"
institutional investors become, for a period of
time, uninterested in purchasing these
securities.
INVESTING IN VARIOUS COUNTRIES The Global Growth
Fund, the Growth Fund, the International Fund,
the Asset Allocation Fund, the Bond Fund and the
High-Yield Bond Fund may invest in securities of
issuers domiciled outside the U.S. which may be
denominated in currencies other than the U.S.
dollar. Investing outside the U.S. can involve
special risks, particularly in certain developing
countries, caused by, among other things;
fluctuating currency values; different
accounting, auditing, and financial reporting
regulations and practices in some countries;
changing local and regional economic, political,
and social conditions; greater market volatility;
differing securities market structures; and
various administrative difficulties such as
delays in clearing and settling portfolio
transactions or in receiving payment of
dividends. However, in the opinion of Capital
Research and Management Company, investing
outside the U.S. also can reduce certain
portfolio risks due to greater diversification
opportunities.
Additional costs could be incurred in connection
with the funds' investment activities outside the
U.S. Brokerage commissions are generally higher
outside the U.S., and the funds will bear certain
expenses in connection with their currency
transactions. Furthermore, increased custodian
costs may be associated with the maintenance of
assets in certain jurisdictions.
The Growth-Income Fund and the Asset Allocation
Fund may invest in the equity securities of is-
suers domiciled outside the U.S., provided those
securities are either held through depositary re-
ceipts which are U.S. dollar denominated or are
traded on the New York Stock Exchange, and the
Asset Allocation Fund may invest in non-U.S.
fixed-income securities denominated in currencies
other than the U.S. dollar. In addition, the U.S.
Government/AAA-Rated Securities Fund may purchase
obligations of non-U.S. corporations or govern-
mental entities, provided they are U.S. dollar
denominated and highly liquid. Accordingly, while
the risks mentioned above are still present, they
are present to a lesser extent.
CURRENCY TRANSACTIONS The Global Growth Fund, the
Growth Fund, the International Fund, the Bond
Fund and the High-Yield Bond Fund may purchase
and sell currencies to facilitate securities
transactions and to enter into forward currency
contracts to hedge against changes in currency
exchange rates. The Asset Allocation Fund may
purchase and sell currencies to facilitate
settlements of fixed-income securities
transactions but has no current intention of
entering into forward currency contracts. While
entering into forward transactions could minimize
the risk of loss due to a decline in the value of
the hedged currency, it could also limit any
potential gain which might result from an
increase in the value of the currency. The funds
generally will not attempt to protect against all
potential changes in exchange rates.
12
<PAGE>
- --------------------------------------------------------------------------------
MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic
investment philosophy of Capital Research and
Management Company is to seek fundamental values
at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund
assets. Under this system the portfolios of the
funds are divided into segments which are managed
by individual counselors. Each counselor decides
how their segment will be invested (within the
limits provided by each fund's objective(s) and
policies and by Capital Research and Management
Company's investment committee). In addition,
Capital Research and Management Company's
research professionals may, from time to time,
make investment decisions with respect to a
portion of each fund's portfolio. The primary
individual portfolio counselors for the Series
are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
PORTFOLIO COUNSELOR (AND RESEARCH PROFESSIONAL,
PORTFOLIO IF APPLICABLE) FOR THE FUNDS
COUNSELORS INDICATED
FOR THE SERIES PRIMARY TITLE(S) (APPROXIMATE)
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
WITH CAPITAL
RESEARCH AND
PORTFOLIO MANAGEMENT
COUNSELORS COMPANY OR ITS TOTAL
FOR THE SERIES AFFILIATES YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James K. Dunton Senior Vice President of the Series. Growth-Income Fund--since the fund
Senior Vice President and Director, began operations in 1984
Capital Research and Management
Company
- ---------------------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice President of the Series. Asset Allocation Fund--since the fund
Senior Vice President and Director, began operations in 1989;
Capital Research and Management Bond Fund--since the fund began
Company operations in 1996;
U.S. Government Fund--since the fund
began operations in 1985
- ---------------------------------------------------------------------------------------------------------------
Claudia P. Huntington Vice President of the Series. Growth-Income Fund--3 years (plus 5 years
Senior Vice President, as a research professional prior to becoming
Capital Research Company* a portfolio counselor for the fund)
- ---------------------------------------------------------------------------------------------------------------
John H. Smet Vice President of the Series. Bond Fund--since the fund began
Vice President, Capital Research and operations in 1996;
Management Company U.S. Government Fund--5 years
- ---------------------------------------------------------------------------------------------------------------
Timothy D. Armour Senior Vice President and Director, Asset Allocation Fund--1 year
Capital Research Company*
- ---------------------------------------------------------------------------------------------------------------
David C. Barclay Executive Vice President and Director, High-Yield Bond Fund--4 years
Capital Research Company*
- ---------------------------------------------------------------------------------------------------------------
Martial Chaillet Senior Vice President, Capital Global Growth Fund--since the fund
Research Company* began operations in 1997;
International Fund--4 years
- ---------------------------------------------------------------------------------------------------------------
Gordon Crawford Senior Vice President and Director, Growth Fund--3 years (plus 5 years as a
Capital Research and Management research professional prior to becoming a
Company portfolio counselor for the fund)
- ---------------------------------------------------------------------------------------------------------------
James E. Drasdo Senior Vice President and Director, Growth Fund--10 years;
Capital Research and Management Growth-Income Fund--3 years
Company
- ---------------------------------------------------------------------------------------------------------------
Alwyn Heong Vice President, Capital International Fund--less than one year
Research Company*
- ---------------------------------------------------------------------------------------------------------------
Robert W. Lovelace Executive Vice President, Capital Global Growth Fund--since the fund
Research Company* began operations in 1997;
International Fund--3 years
- ---------------------------------------------------------------------------------------------------------------
Robert G. O'Donnell Senior Vice President and Director, Growth-Income Fund--7 years (plus
Capital Research and Management 1 year as a research professional prior to
Company becoming a portfolio counselor for the fund)
- ---------------------------------------------------------------------------------------------------------------
Donald D. O'Neal Vice President, Capital Research and Global Growth Fund--since the fund
Management Company began operations in 1997;
Growth Fund--6 years (plus 4 years as a
research professional prior to becoming a
portfolio counselor for the fund)
- ---------------------------------------------------------------------------------------------------------------
Victor M. Parachini Senior Vice President, Capital Asset Allocation Fund--1 year
Research and Management Company
- ---------------------------------------------------------------------------------------------------------------
Richard T. Schotte Senior Vice President, Capital Bond Fund--since the fund began
Research and Management Company operations in 1996;
High-Yield Bond Fund--9 years
- ---------------------------------------------------------------------------------------------------------------
Susan M. Tolson Vice President, Capital Research High-Yield Bond Fund--2 years
Company* (plus 2 years as a research professional prior
to becoming a portfolio counselor for the fund)
<S> <C> <C> <C>
James K. Dunton 35 35
- ---------------------------------------------------------------------------------------------------------------
Abner D. Goldstine 30 45
- ---------------------------------------------------------------------------------------------------------------
Claudia P. Huntington 19 21
- ---------------------------------------------------------------------------------------------------------------
John H. Smet 14 15
- ---------------------------------------------------------------------------------------------------------------
Timothy D. Armour 14 14
- ---------------------------------------------------------------------------------------------------------------
David C. Barclay 9 16
- ---------------------------------------------------------------------------------------------------------------
Martial Chaillet 25 25
- ---------------------------------------------------------------------------------------------------------------
Gordon Crawford 26 26
- ---------------------------------------------------------------------------------------------------------------
James E. Drasdo 20 25
- ---------------------------------------------------------------------------------------------------------------
Alwyn Heong 5 5
- ---------------------------------------------------------------------------------------------------------------
Robert W. Lovelace 12 12
- ---------------------------------------------------------------------------------------------------------------
Robert G. O'Donnell 22 25
- ---------------------------------------------------------------------------------------------------------------
Donald D. O'Neal 12 12
- ---------------------------------------------------------------------------------------------------------------
Victor M. Parachini 21 35
- ---------------------------------------------------------------------------------------------------------------
Richard T. Schotte 19 30
- ---------------------------------------------------------------------------------------------------------------
Susan M. Tolson 7 9
</TABLE>
*-COMPANY-AFFILIATED-WITH-CAPITAL-RESEA13RCH-AND-MANAGEMENT-COMPANY.
<PAGE>
- --------------------------------------------------------------------------------
It is the Series' policy to distribute to the
DIVIDENDS, shareholders (the insurance company separate ac-
DISTRIBUTIONS AND counts) all of its net investment income and cap-
TAXES ital gains realized during each fiscal year.
The Series Each fund of the Series is subject to asset di-
distributes to versification regulation prescribed by the U.S.
shareholders all Treasury Department under the Internal Revenue
its income and Code (the "Code"). These regulations generally
capital gains provide that, as of the end of each calendar
realized during quarter or within 30 days thereafter, no more
each fiscal year. than 55% of the total assets of the fund may be
represented by any one investment, no more than
70% by any two investments, no more than 80% by
any three investments, and no more than 90% by
any four investments. For this purpose, all secu-
rities of the same issuer are considered a single
investment. Furthermore, each U.S. Government
agency or instrumentality is treated as a sepa-
rate issuer. There are also alternative diversi-
fication tests which may be satisfied by the
funds under the regulations. The Series intends
to comply with the diversification regulations.
If a fund should fail to comply with these regu-
lations, Contracts invested in that fund would
not be treated as annuity, endowment or life in-
surance contracts under the Code.
FEDERAL TAXES Each fund of the Series intends to
operate as a "regulated investment company" under
the Internal Revenue Code. In any fiscal year in
which a fund so qualifies and distributes to
shareholders its net investment income and
realized capital gains, the fund itself is
relieved of federal income tax.
See the applicable Contract prospectus for
information regarding the federal income tax
treatment of the Contracts and distributions to
the separate accounts.
SERIES SERIES ORGANIZATION The Series, an open-end in-
ORGANIZATION AND vestment company, was organized as a Massachu-
MANAGEMENT setts business trust in 1983. The Series' Board
of Trustees supervises Series operations and per-
forms duties required by applicable state and
federal law. Members of the board who are not em-
ployed by Capital Research and Management Company
or its affiliates are paid for services rendered
to the Series as described in the statement of
additional information. They may elect to defer
all or a portion of these fees through a deferred
compensation plan in effect for the Series. The
Board of Trustees has approved the retention of
the companies listed below to provide certain
services to the Series.
INVESTMENT ADVISER Capital Research and Manage-
ment Company, a large and experienced investment
management organization founded in 1931, is the
investment adviser to the Series and other mutual
funds, including those in The American Funds
Group. Capital Research and Management Com- pany,
a wholly-owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South
Hope Street, Los Angeles, CA 90071. Capital Re-
search and Management Company manages the invest-
ment portfolios and business affairs of the Se-
ries.
The compensation paid to the Investment Adviser
for the most recent fiscal year as a percentage
of average net assets amounted to the following:
Growth Fund -- .42%; International Fund -- .61%;
Growth-Income Fund -- .39%; Asset Allocation
Fund -- .47%; Bond Fund -- .51%; High-Yield Bond
Fund -- .50%; U.S. Government/AAA-Rated Securi-
ties Fund -- .51%; and Cash Management Fund --
.45%. Capital Research and Management Company
has received no compensation for the Global
Growth Fund because it had not commenced opera-
tions during the most recent fiscal year.
Capital Research and Management Company and its
affiliated companies have adopted a personal in-
vesting policy that is consistent with the recom-
mendations contained in the report dated May 9,
1994 issued by the Investment Company Institute's
Advisory Group on Personal Investing. (See the
14
<PAGE>
- --------------------------------------------------------------------------------
statement of additional information.) This policy
has been incorporated into the Series' "code of
ethics" which is available from the Series' Sec-
retary upon request.
PORTFOLIO TRANSACTIONS Orders for the Series'
portfolio securities transac- tions are placed by
Capital Research and Management Company which
strives to obtain the best available prices,
taking into account the costs and quality of
executions. There is no agreement or commitment
to place orders with any broker-dealer. Fixed-
income securities are generally traded on a "net"
basis with a dealer acting as principal for its
own account without a stated commission, although
the price of the security usually includes a
profit to the dealer. In underwritten offerings,
securities are usually purchased at a fixed price
which includes an amount of compensation to the
underwriter, generally referred to as the
underwriter's concession or discount. On
occasion, securities may be purchased directly
from an issuer, in which case no commissions or
discounts are paid.
Subject to the above policy, when two or more
brokers are in a position to offer comparable
prices and executions, preference may be given to
brokers that have sold Contracts or have provided
investment research, statistical and other re-
lated services for the benefit of the Series
and/or of other funds served by Capital Research
and Management Company.
SHAREHOLDER VOTING RIGHTS All shares of the Se-
ries have equal voting rights and are entitled to
one vote per share with proportional voting for
fractional shares; however, only shareholders of
Class 2 shares will be entitled to vote on mat-
ters relating solely to Class 2 shares; for exam-
ple the 12b-1 Plan. There will not usually be a
shareholder meeting in any year, except, for ex-
ample, when the election of the board is required
to be acted upon by shareholders under the In-
vestment Company Act of 1940.
In matters which only affect a particular fund,
the matter shall have been effectively acted upon
by a majority vote of that fund even though: (1)
the matter has not been approved by a majority
vote of any other fund; or (2) the matter has not
been approved by a majority vote of the Series.
The insurance company separate accounts, as the
shareholders of the Series, have the right to
vote Series shares at any meeting of sharehold-
ers. However, the Contracts provide that the sep-
arate accounts will vote Series shares in accor-
dance with instructions received from owners of
the Contracts. See the applicable Contract pro-
spectus for information regarding Contract own-
ers' voting rights. Since the funds use a com-
bined prospectus, each fund may be liable for
misstatements, inaccuracies, or incomplete dis-
closure concerning any other fund contained in
this prospectus.
PURCHASES AND Shares of the Series are currently offered only
REDEMPTIONS to insurance company separate accounts which fund
OF SHARES the Contracts. All such shares may be purchased
or redeemed by the separate accounts at net asset
value, without any sales or redemption charges.
Such purchases and redemptions are made subse-
quent to corresponding purchases and redemptions
of units of the separate accounts without delay.
Except in extraordinary circumstances and as per-
missible under the Investment Company Act of
1940, redemption proceeds will be paid on or be-
fore the seventh day following the request for
redemption.
PRICE OF SHARES The net asset value per share is
calculated once daily at the close of trading
(currently 4:00 p.m., New York time) on each day
the New York Stock Exchange is open. The current
value of each fund's total assets, less all lia-
bilities, is divided by the total number of
shares outstanding (excluding treasury shares),
and the result, rounded to the nearer cent, is
the net asset value per share.
15
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. rates the long-term debt securities issued
by various entities in categories ranging from "Aaa" to "C," according to
quality as described below.
"AAA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may
be other elements present which make the long-term risks appear somewhat
greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Generally lack characteristics of the desirable investment; assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
Standard & Poor's Corporation rates the long-term debt securities issued by
various entities in categories ranging from "AAA" to "D," according to quality
as described below.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
[LOGO OF This prospectus has been printed on recycled
RECYCLED paper that meets the guidelines of the United
PAPER] States Environmental Protection Agency
16
<PAGE>
LL24183-14 26-101-497
AMERICAN VARIABLE INSURANCE SERIES
PART B
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1997
This document is not a prospectus but should be read in conjunction with
the current prospectuses of American Variable Insurance Series (the "Series")
dated April 1, 1997. The prospectuses may be obtained from your investment
dealer or financial planner or by writing to the series at the following
address:
AMERICAN VARIABLE INSURANCE SERIES
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
TABLE OF CONTENTS
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ITEM PAGE NO.
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INVESTMENT POLICIES 1
INVESTMENT RESTRICTIONS 8
SERIES OFFICERS AND TRUSTEES 13
TRUSTEE COMPENSATION 13
MANAGEMENT 17
PRICE OF SHARES 19
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 20
EXECUTION OF PORTFOLIO TRANSACTIONS 21
GENERAL INFORMATION 22
APPENDIX 24
FINANCIAL STATEMENTS ATTACHED
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INVESTMENT POLICIES
With respect to all funds, portfolio changes will be made without regard
to the length of time a particular investment may have been held. Under
certain market conditions, the investment polices of the Asset Allocation Fund,
the Bond Fund, the High-Yield bond Fund, and the U.S. Government/AAA-Rated
Securities Fund may result in higher portfolio turnover than those of the other
funds, although no fund's annual portfolio turnover rate is expected to exceed
100%. A 100% annual portfolio turnover rate would occur, for example, if all
the investments in a fund's portfolio (exclusive of securities with less than
one year to maturity) were replaced in a period of one year. High portfolio
turnover involves correspondingly greater brokerage commissions, to the extent
such commissions are payable, and other transaction costs, which will be borne
directly by the fund involved.
GLOBAL GROWTH FUND, GROWTH FUND, GROWTH-INCOME FUND, ASSET ALLOCATION FUND,
BOND FUND AND HIGH-YIELD BOND FUND
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK SECURITIES:
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk
securities can be sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress that
would adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay
interest or principal or entered into bankruptcy proceedings, a fund may incur
losses or expenses in seeking recovery of amounts owed to it. In addition,
periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices and yields of high-yield, high-risk bonds
and each fund's net asset value.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, a fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely,
the value of high-yield, high-risk bonds held by each fund will decrease in a
rising interest rate market, as will the value of each fund's assets. If a
fund experiences unexpected net redemptions, this may force it to sell
high-yield, high-risk bonds without regard to their investment merits, thereby
decreasing the asset base upon which expenses can be spread and possibly
reducing each fund's rate of return.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely a fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
GLOBAL GROWTH FUND, GROWTH FUND, INTERNATIONAL FUND, ASSET ALLOCATION FUND,
BOND FUND AND HIGH-YIELD BOND FUND
CURRENCY TRANSACTIONS -- The Global Growth Fund, the Growth Fund, the
International Fund, the Bond Fund and the High-Yield Bond Fund have the ability
to enter into forward currency contracts to protect against changes in currency
exchange rates. A forward currency contract is an obligation to purchase or
sell a specific currency at a future date and price, both of which are set at
the time of the contract. The funds intend to enter into forward currency
contracts solely to hedge into the U.S. dollar its exposure to other
currencies. The fund will segregate liquid assets which will be marked to
market daily to meet its forward contract commitments to the extent required by
the Securities and Exchange Commission.
The Growth Fund and the Asset Allocation Fund do not currently intend
to engage in any transactions other than purchasing and selling currencies and
foreign exchange contracts which will be used to facilitate settlement of
trades.
The Bond Fund and the High-Yield Bond Fund may enter into the
transactions described above and may also enter into exchange-traded futures
contracts relating to foreign currencies ("currency contracts") in connection
with investments in securities of foreign issuers in anticipation of, or to
protect against, fluctuations in exchange rates. In addition, forward currency
contracts may be used by these funds to purchase or sell a currency against
another currency at a future date and price as agreed upon by the parties. An
exchange-traded futures contract relating to foreign currency is similar to a
forward foreign currency contract but has a standardized size and exchange
date. Although currency contracts typically will involve the purchase and sale
of a currency against the U.S. dollar, these funds also may enter into currency
contracts not involving the U.S. dollar. In connection with these futures
transactions, the Series has filed a notice of eligibility with the Commodities
Futures Trading Association ("CFTC") that exempts the Series from CFTC
registration as a "commodity pool operator" as defined under the Commodities
Exchange Act. Pursuant to this notice, these funds will observe certain CFTC
guidelines with respect to its futures transactions that, among other things,
limit initial margin deposits in connection with the use of futures contracts
and related options for purposes other than "hedging" (as defined by CFTC
rules) to 5% of a fund's net assets.
The Bond Fund and the High-Yield Bond Fund may attempt to accomplish
objectives similar to those involved in their use of currency contracts by
purchasing put or call options on currencies. A put option gives a fund, as
purchaser, the right (but not the obligation) to sell a specified amount of
currency at the exercise price until the expiration of the option. A call
option gives a fund, as purchaser, the right (but not the obligation) to
purchase a specified amount of currency at the exercise price until its
expiration. The funds might purchase a currency put option, for example, to
protect themselves during the contract period against a decline in the U.S.
dollar value of a currency in which they hold or anticipate holding securities.
If the currency's value should decline against the U.S. dollar, the loss in
currency value should be offset, in whole or in part, by an increase in the
value of the put. If the value of the currency instead should rise against the
U.S. dollar, any gain to the funds would be reduced by the premium they had
paid for the put option. A currency call option might be purchased, for
example, in anticipation of, or to protect against, a rise in the value against
the U.S. dollar of a currency in which the funds anticipate purchasing
securities.
Currency options may be either listed on an exchange or traded
over-the-counter ("OTC options"). Listed options are third-party contracts
(I.E., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation) and have standardized strike
(exercise) prices and expiration dates. OTC options are two-party contracts
with negotiated strike prices and expiration dates. The High-Yield Bond Fund
and Bond Fund will not purchase an OTC option unless it is believed that daily
valuations for such options are readily obtainable. OTC options differ from
exchange-traded options in that OTC options are transacted with dealers
directly and not through a clearing corporation which guarantees performance.
Consequently, there is a risk of non-performance by the dealer. Since no
exchange is involved, OTC options are valued on the basis of a quote provided
by the dealer. In the case of OTC options, there can be no assurance that a
liquid secondary market will exist for any particular option at any specific
time.
Certain provisions of the Internal Revenue code may limit the extent to
which the fund may enter into forward contracts. Such transactions may also
affect, for U.S. federal tax purposes, the character and timing of income, gain
or loss recognized by the fund.
ASSET ALLOCATION FUND, BOND FUND AND U.S. GOVERNMENT/AAA-RATED SECURITIES FUND
GNMA CERTIFICATES, FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS, AND OTHER
MORTGAGE-RELATED SECURITIES -- The funds may purchase certificates issued by
the Government National Mortgage Association ("GNMA") and the U.S.
Government/AAA-Rated Securities Fund expects to invest substantially in these
securities. GNMA certificates are mortgage-backed securities representing part
ownership of a pool of mortgage loans on which timely payment of interest and
principal is guaranteed by the full faith and credit of the U.S. Government. A
pool of these mortgages is assembled and, after being approved by GNMA, is
offered to investors through securities dealers. GNMA certificates differ from
typical bonds because principal is repaid monthly over the term of the loan
rather than returned in a lump sum at maturity. Because both interest and
principal payments (including prepayments) on the underlying mortgage loans are
passed through to the holder of the certificate, GNMA certificates are called
"pass-through" securities.
The Federal National Mortgage Association ("FNMA"), a federally chartered
and privately-owned corporation, issues pass-through securities representing
interests in a pool of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest, but this guarantee is not backed by the full
faith and credit of the U.S. Government. The Federal Home Loan Mortgage
Corporation ("FHLMC"), a corporate instrumentality of the U.S. Government,
issues participation certificates which represent an interest in a pool of
conventional mortgage loans. FHLMC guarantees the timely payment of interest
and the ultimate collection of principal and maintains reserves to protect
holders against losses due to default, but the certificates are not backed by
the full faith and credit of the U.S. Government. As is the case with GNMA
certificates, the actual maturity of and realized yield on particular FNMA and
FHLMC pass-through securities will vary based on the prepayment experience of
the underlying pool of mortgages.
The funds may invest in mortgage-related securities issued by financial
institutions such as commercial banks, savings and loan associations, mortgage
bankers and securities broker-dealers (or separate trusts or affiliates of such
institutions established to issue the securities) including collateralized
mortgage obligations ("CMO's") and mortgage-backed bonds. CMO's (including
real estate mortgage investment conduits as authorized under the Internal
Revenue Code of 1986, as amended) are issued in series that are made up of a
group of bonds that together are fully collateralized directly or indirectly by
a pool of mortgages on which the payments of principal and interest are
dedicated to payment of principal and interest on the bonds in the series.
Each class of bonds in the series may have a different maturity than the other
classes of bonds in the series, bear a different coupon and have a different
priority in receiving payments. The different maturities come from the fact
that all principal payments, both regular principal payments as well as any
prepayment of principal, are passed through first to the holders of the class
with the shortest maturity until it is completely retired. Thereafter,
principal payments are passed through to the next class of bonds in the series,
until all the classes have been paid off. As a result, an acceleration in the
rate of prepayments that may be associated with declining interest rates
shortens the expected life of each class, with the greatest impact on those
classes with the shortest maturities. Similarly, should the rate of
prepayments slow down, as may happen in times of rising interest rates, the
expected life of each class lengthens, again with the greatest impact on those
classes with the shortest maturities. In the case of some CMO series, each
class may receive a differing proportion of the monthly interest and principal
repayments on the underlying collateral. In these series the classes having
proportionally greater interests in principal repayments generally would be
more affected by an acceleration (or slowing) in the rate of prepayments.
Mortgage-backed bonds are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMO's). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity of a
CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
BOND FUND AND U.S. GOVERNMENT/AAA-RATED SECURITIES FUND
REVERSE REPURCHASE AGREEMENTS -- Although the Bond Fund and the U.S.
Government/AAA-Rated Securities Fund have no current intention of doing so
during the next 12 months, each fund is authorized to enter into reverse
repurchase agreements. A reverse repurchase agreement is the sale of a
security by a fund and its agreement to repurchase the security at a specified
time and price. Each fund will maintain in a segregated account with its
custodian cash, cash equivalents or U.S. Government securities in an amount
sufficient to cover its obligations under reverse repurchase agreements with
broker-dealers (but no collateral is required on reverse repurchase agreements
with banks). Under the Investment Company Act of 1940 (the "1940 Act"),
reverse repurchase agreements may be considered borrowings by a fund. The use
of reverse repurchase agreements by a fund creates leverage which increases the
fund's investment risk. As a fund's aggregate commitments under these reverse
repurchase agreements increase, the opportunity for leverage similarly
increases. If the income and gains on securities purchased with the proceeds
of reverse repurchase agreements exceed the costs of the agreements, a fund's
earnings or net asset value will increase faster than otherwise would be the
case; conversely, if the income and gains fail to exceed the costs, a fund's
earnings or net asset value would decline faster than otherwise would be the
case.
ASSET ALLOCATION FUND, BOND FUND, HIGH-YIELD BOND FUND, AND U.S.
GOVERNMENT/AAA-RATED SECURITIES FUND
LOANS OF PORTFOLIO SECURITIES -- Although the Asset Allocation Fund, the Bond
Fund, the High-Yield Bond Fund and the U.S. Government/AAA-Rated Securities
Fund have no current intention of doing so during the next 12 months, these
funds are authorized to lend portfolio securities to selected securities
dealers or other institutional investors whose financial condition is monitored
by Capital Research and Management Company (the "Investment Adviser"). The
borrower must maintain with the Series' custodian collateral consisting of
cash, cash equivalents or U.S. Government securities equal to at least 100% of
the value of the borrowed securities, plus any accrued interest. The
Investment Adviser will monitor the adequacy of the collateral on a daily
basis. Each fund may at any time call a loan of its portfolio securities and
obtain the return of the loaned securities. Each fund will receive any
interest paid on the loaned securities and a fee or a portion of the interest
earned on the collateral. Each fund will limit its loans of portfolio
securities to an aggregate of 10% of the value of its total assets, determined
at the time any such loan is made.
PORTFOLIO TRADING OF FIXED-INCOME SECURITIES -- The funds intend to engage in
portfolio trading of fixed-income securities when it is believed that the sale
of a fixed-income security owned and the purchase of another security of better
value can enhance principal and/or increase income. A security may be sold to
avoid any prospective decline in market value in light of what is evaluated as
an expected rise in prevailing yields, or a security may be purchased in
anticipation of a market rise (a decline in prevailing yields). A security
also may be sold and a comparable security purchased coincidentally in order to
take advantage of what is believed to be a disparity in the normal yield and
price relationship between the two securities.
"ROLL" TRANSACTIONS -- Although the Asset Allocation Fund, the High-Yield Bond
Fund, the Bond Fund and the U.S. Government/AAA-Rated Securities Fund have no
current intention of doing so during the next 12 months, these funds may engage
in "roll" transactions. A "roll" transaction is the sale of GNMA certificates
or other securities together with a commitment to purchase similar, but not
identical, securities at a future date. The funds intend to treat "roll"
transactions as two separate transactions; one involving the purchase of a
security and a separate transaction involving the sale of a security. Since
the funds do not intend to enter into "roll" transactions for financing
purposes, they may treat these transaction as not falling within the definition
of "borrowing" set forth in Section 2(a)(23) of the 1940 Act. As a fund's
aggregate commitments under these transactions increase, the opportunity for
leverage similarly may increase; however, it is not the intent of the fund to
engage in these transactions for leveraging purposes. In addition, a fund may
enter into other purchase and sale transactions involving securities which are
not settled in the ordinary course of business and under various terms when to
do so is in the best interest of the fund.
A fund will segregate liquid assets, which will be marked to market daily,
in an amount sufficient to meet its payment obligations in these transactions.
Although these transactions will not be entered into for leveraging purposes,
to the extent a fund's aggregate commitments under these transactions exceed
its holdings of cash and securities that do not fluctuate in value (such as
short-term money market instruments), the funds temporarily will be in a
leveraged position (i.e., it will have an amount greater than its net assets
subject to market risk). Should market values of the funds' portfolio
securities decline while the funds are in a leveraged position, greater
depreciation of its net assets would likely occur than were it not in such a
position. A fund will not borrow money to settle these transactions and,
therefore, will liquidate other portfolio securities in advance of settlement
if necessary to generate additional cash to meet its obligations
thereunder.
BOND FUND AND HIGH-YIELD BOND FUND
LOAN PARTICIPATIONS -- The High-Yield Bond Fund and the Bond Fund may each
invest up to 10% of its assets in loan participations. These participations,
which can also include loan assignments, typically involve loans made by a
syndicate of banks to U.S. and non-U.S. corporate or governmental borrowers for
a variety of purposes which may be secured or unsecured, and will vary in term
and legal structure. Typically, price quotations with respect to loan
participations are available from the originating bank (the bank that makes the
underlying loan). The originating bank also serves as the market maker for the
resale of loan participations. When purchasing such instruments, a fund may
assume the credit risks associated with the original bank lender as well as the
credit risks associated with the borrower. In addition, if the loan is
foreclosed, a fund could be part owner of any collateral, and could bear the
costs and liabilities of owning and disposing of the collateral. Loan
participations generally are not rated by major rating agencies and may not be
protected by the securities laws. Also, loan participations may be liquid or
illiquid. To the extent these instruments are illiquid, a fund may have
difficulty determining their value or selling the instruments as generally
there is no secondary market. A fund will purchase these instruments only to
the extent that such a purchase would be consistent with its investment
policies regarding debt securities and/or illiquid securities.
In determining whether to purchase a particular loan participation, the
Investment Adviser will take into account all relevant factors including the
instrument's potential volatility, liquidity and risks (including whether the
fund could be put in an undesirable position as lender and/or owner of
collateral).
CASH MANAGEMENT FUND
The Cash Management Fund seeks to achieve its investment objective by
investing in a diversified selection of money market instruments, and the other
funds generally will invest a portion of their assets in money market
instruments. These money market instruments include the following:
COMMERCIAL PAPER: Commercial paper is short-term notes (up to nine months)
issued by companies or governmental bodies. The Cash Management Fund may only
purchase commercial paper judged by the Investment Adviser to be of suitable
investment quality. This includes (a) commercial paper that is rated in the
two highest categories by Standard & Poor's Corporation and by Moody's
Investors Service, Inc. or (b) other commercial paper deemed on the basis of
the issuer's creditworthiness to be of a quality appropriate for the Cash
Management Fund. (No more than 5% of the Cash Management Fund's assets may be
invested in commercial paper rated in the second highest rating category by
either Moody's or Standard & Poor's; no more than the greater of 1% of the Cash
Management Fund's assets or $1 million may be invested in such securities of
any one issuer.) See the Appendix for a description of the ratings.
The commercial paper in which the Cash Management Fund may invest includes
variable amount master demand notes. Variable amount master demand notes
permit the Cash Management Fund to invest varying amounts at fluctuating rates
of interest pursuant to the agreement in the master note. These are direct
lending obligations between the lender and borrower, they are generally not
traded, and there is no secondary market. Such instruments are payable with
accrued interest in whole or in part on demand. The amounts of the instruments
are subject to daily fluctuations as the participants increase or decrease the
extent of their participations. Investments in these instruments are limited
to those that have a demand feature enabling the Cash Management Fund
unconditionally to receive the amount invested from the issuer upon seven or
fewer days' notice. (Generally, the Cash Management Fund attempts to invest in
instruments having a one-day notice provision). In connection with master
demand note arrangements, the Investment Adviser, subject to the direction of
the Trustees, monitors on an ongoing basis the earning power, cash flow, and
other liquidity ratios of the borrower and its ability to pay principal and
interest on demand. The Investment Adviser also considers the extent to which
the variable amount master demand notes are backed by bank letters of credit.
These notes generally are not rated by Moody's or Standard & Poor's. The Cash
Management Fund may invest in them only if it is deemed that at the time of
investment the notes are of comparable quality to the other commercial paper in
which the Cash Management Fund may invest. Master demand notes are considered
to have a maturity equal to the repayment notice period unless the Investment
Adviser has reason to believe that the borrower could not make timely repayment
upon demand.
COMMERCIAL BANK OBLIGATIONS: Commercial bank obligations are certificates of
deposit (interest-bearing time deposits), bankers acceptances (time drafts
drawn on a commercial bank where the bank accepts an irrevocable obligation to
pay at maturity) representing direct or contingent obligations of commercial
banks with assets in excess of $1 billion, based on latest published reports,
or other obligations issued by commercial banks with assets of less than $1
billion if the principal amount of such obligation is fully insured by the U.S.
Government.
CORPORATE BONDS AND NOTES: The Cash Management Fund may purchase corporate
obligations that mature or that may be redeemed in one year or less. These
obligations originally may have been issued with maturities in excess of one
year. The Cash Management Fund may invest only in corporate bonds or notes of
issuers having outstanding short-term securities rated as described above in
"Commercial Paper."
SAVINGS ASSOCIATION OBLIGATIONS: Certificates of deposit (interest-bearing
time deposits) issued by savings banks or savings and loan associations that
have assets in excess of $1 billion, based on latest published reports, or
obligations issued by institutions with assets of less than $1 billion if the
principal amount of such obligation is fully insured by the U.S. Government.
FLOATING RATE OBLIGATIONS: These securities have a coupon rate that changes at
least annually and generally more frequently. The coupon rate is set in
relation to money market rates. The obligations, issued primarily by banks,
other corporations, governments and semi-governmental bodies, may have a
maturity in excess of one year. In some cases, the coupon rate may vary with
changes in the yield on Treasury bills or notes or with changes in LIBOR
(London Interbank Offering Rate). The Investment Adviser considers floating
rate obligations to be liquid investments because a number of U.S. and non-U.S.
securities dealers make active markets in these securities.
INVESTMENT RESTRICTIONS
The Series has adopted certain investment restrictions for each fund which
are fundamental policies and cannot be changed without approval by a majority
of the fund's outstanding shares. Such majority is defined by the 1940 Act as
the vote of the lesser of (i) 67% or more of the outstanding shares of the fund
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the fund are present in person or by proxy, or (ii) more than 50%
of the outstanding voting securities of the fund. All percentage limitations
expressed in the following investment restrictions are measured immediately
after the relevant transaction is made.
INVESTMENT RESTRICTIONS OF THE GLOBAL GROWTH FUND, GROWTH FUND, INTERNATIONAL
FUND, GROWTH-INCOME FUND, ASSET ALLOCATION FUND, BOND FUND AND HIGH-YIELD BOND
The Global Growth Fund, Growth Fund, International Fund, Growth-Income
Fund, Asset Allocation Fund, Bond Fund and High-Yield Bond Fund may not:
1. Invest more than 5% of the value of the total assets of the fund in the
securities of any one issuer, provided that this limitation shall apply only to
75% of the value of the fund's total assets and, provided further, that the
limitation shall not apply to obligations of the government of the U.S. under a
general Act of Congress. The short-term obligations of commercial banks are
excluded from this 5% limitation with respect to 25% of the fund's total
assets.
2. As to 75% of its total assets, purchase more than 10% of the outstanding
voting securities of an issuer.
3. Invest more than 25% of the fund's total assets in the securities of
issuers in the same industry. Obligations of the U.S. Government, its agencies
and instrumentalities, are not subject to this 25% limitation on industry
concentration. In addition, the fund may, if deemed advisable, invest more
than 25% of its assets in the obligations of domestic commercial banks.
4. Enter into any repurchase agreement maturing in more than seven days or
invest in any other illiquid security if, as a result, more than 10% of the
fund's total assets would be so invested.
5. Invest in real estate (including limited partnership interests, but
excluding securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein).
6. Purchase commodities or commodity contracts; except that the International
Fund, Asset Allocation Fund, High-Yield Bond Fund and Bond Fund may engage in
transactions involving currencies (including forward or futures contracts and
put and call options).
7. Invest in companies for the purpose of exercising control or management.
8. Make loans to others except for (a) the purchase of debt securities; (b)
entering into repurchase agreements; (c) the loaning of its portfolio
securities; and (d) entering into loan participations.
9. Borrow money, except from banks for temporary purposes, and then in an
amount not in excess of 5% of the value of the fund's total assets. Moreover,
in the event that the asset coverage for such borrowings falls below 300%, the
fund will reduce, within three days, the amount of its borrowings in order to
provide for 300% asset coverage.
10. Purchase securities on margin.
11. Pledge or hypothecate the fund's assets.
12. Sell securities short, except to the extent that the fund
contemporaneously owns, or has the right to acquire at no additional cost,
securities identical to those sold short.
13. Invest in puts, calls, straddles, spreads or any combination thereof;
except as described above in Investment Restriction number 6.
14. Purchase or sell securities of other investment companies (except in
connection with a merger, consolidation, acquisition or reorganization).
15. Engage in underwriting of securities issued by others, except to the
extent it may be deemed to be acting as an underwriter in the purchase or
resale of portfolio securities.
Notwithstanding investment restriction number 14, the funds may invest in
securities of other managed investment companies if deemed advisable by its
officers in connection with the administration of a deferred compensation plan
adopted by Trustees pursuant to an exemptive order granted by the Securities
and Exchange Commission.
Notwithstanding investment restriction number 15, the funds may not engage
in the business of underwriting securities of other issuers, except to the
extent that the disposal of an investment position may technically constitute
the fund an underwriter as that term is defined under the Securities Act of
1933.
The Global Growth Fund, International Fund and High-Yield Bond Fund may
not invest more than 10% of the value of their total assets in securities which
are restricted as to resale; the Growth Fund, Growth-Income Fund and Asset
Allocation Fund may not invest more than 5% of the value of their respective
total assets in securities which are restricted as to resale. (Rule 144A
securities and Section 4(2) commerical paper, as defined in the Securities Act
of 1933, are excluded from these investment limits.) As a condition to the
acquisition of the type of securities mentioned herein, the funds will
ordinarily require that the issuer of such securities agree to bear the
expenses of registration under the Securities Act of 1933, if and when the
funds desire to sell such securities. The need to effect such registration
could result in a delay in disposing of such securities. These policies of the
Series are not deemed fundamental policies and therefore may be changed without
shareholder approval.
To the extent a fund invests in non-U.S. securities, the Series has
undertaken to the California Department of Insurance (which regulates certain
contracts that use the Series as an underlying investment) to adhere to the
following guidelines with respect to such investments:
1. The fund will have no more than 20% of its net asset value invested in
securities of issuers located in any one country. An additional 15% of the
fund's assets may be invested in securities of issuers located in any one of
the following countries: Australia, Canada, France, Japan, the United Kingdom
or the former West Germany.
2. The fund will be invested in a minimum of five different non-U.S. countries
at all times. However, this minimum is reduced to four countries when non-U.S.
investments comprise less than 80% of the fund's net asset value; to three
countries when less than 60%; to two countries when less than 40%; and to one
country when less than 20%.
INVESTMENT RESTRICTIONS OF THE U.S. GOVERNMENT/AAA-RATED SECURITIES FUND
The U.S. Government/AAA-Rated Securities Fund may not:
1. Purchase any security (other than securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities ("U.S. Government
securities")) if, immediately after and as a result of such investment, more
than 5% of the value of the fund's total assets would be invested in securities
of the issuer.
2. Invest 25% or more of the value of its total assets in the securities of
issuers conducting their principal business activities in the same industry,
except that this limitation shall not apply to U.S. Government securities or
other securities to the extent they are backed by or represent interests in
U.S. Government securities or U.S. Government-guaranteed mortgages.
3. Invest in companies for the purpose of exercising control or management.
4. Knowingly purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition, or reorganization.
5. Buy or sell real estate or commodities or commodity contracts in the
ordinary course of its business; however, the fund may purchase or sell readily
marketable debt securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein, including
real estate investment trusts.
6. Acquire securities subject to restrictions on disposition imposed by the
Securities Act of 1933, if, immediately after and as a result of such
acquisition, the value of such restricted securities and all other illiquid
securities held by the fund would exceed 10% of the value of the fund's total
assets.
7. Engage in the business of underwriting securities of other issuers, except
to the extent that the disposal of an investment position may technically cause
it to be considered an underwriter as that term is defined under the Securities
Act of 1933.
8. Make loans, except that the fund may: (a) purchase readily marketable
debt securities; (b) invest in repurchase agreements; (c) make loans of
portfolio securities; and (d) enter into loan participations. The fund will
not invest in repurchase agreements maturing in more than seven days if any
such investment, together with any illiquid securities (including securities
which are subject to legal or contractual restrictions on resale) held by the
fund, exceeds 10% of the value of its total assets.
9. Sell securities short, except to the extent that the fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short.
10. Purchase securities on margin, except that the fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities.
11. Borrow money, except from banks for temporary or emergency purposes not in
excess of 5% of the value of the fund's total assets, except that the fund may
enter into reverse repurchase agreements.
12. Mortgage, pledge, or hypothecate any of its assets, provided that this
restriction shall not apply to the sale of securities pursuant to a reverse
repurchase agreement.
13. Write, purchase or sell puts, calls or combinations thereof.
Notwithstanding investment restriction number 4, the fund may invest in
securities of other managed investment companies if deemed advisable by its
officers in connection with the administration of a deferred compensation plan
adopted by Trustees pursuant to an exemptive order granted by the Securities
and Exchange Commission.
INVESTMENT RESTRICTIONS OF THE CASH MANAGEMENT FUND
The Cash Management Fund may not:
1. Invest more than 5% of the value of the total assets of the fund in the
securities of any one issuer, provided that this limitation shall apply only to
75% of the value of the fund's total assets and, provided further, that the
limitation shall not apply to obligations of the government of the U.S. under a
general Act of Congress. The short-term obligations of commercial banks are
excluded from this 5% limitation with respect to 25% of fund's total assets.
2. As to 75% of its total assets, purchase more than 10% of the outstanding
voting class of securities of an issuer.
3. Invest more than 25% of the fund's total assets in the securities of
issuers in the same industry. Obligations of the U.S. Government, its agencies
and instrumentalities, are not subject to this 25% limitation on industry
concentration. In addition, the fund may, if deemed advisable, invest more
than 25% of its assets in the obligations of domestic commercial banks.
4. Enter into any repurchase agreement maturing in more than seven days or
invest in any other illiquid security if, as a result, more than 10% of the
fund's total assets would be so invested.
5. Make loans to others except for the purchase of the debt securities listed
above. The fund may enter into repurchase agreements as described above.
6. Borrow money, except from banks for temporary purposes, and then in an
amount not in excess of 5% of the value of the fund's total assets. Moreover,
in the event that the asset coverage for such borrowings falls below 300%, the
fund will reduce within three days the amount of its borrowings in order to
provide for 300% asset coverage.
7. Pledge or hypothecate the fund's assets.
8. Sell securities short except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost, securities identical to
those sold short.
9. Invest in puts, calls, straddles, spreads or any combination thereof.
10. Purchase or sell securities of other investment companies (except in
connection with a merger, consolidation, acquisition or reorganization), real
estate or commodities.
11. Act as underwriter of securities issued by others, engage in distribution
of securities for others, or make investments in other companies for the
purpose of exercising control or management.
Notwithstanding investment restriction number 10, the fund may invest in
securities of other investment companies if deemed advisable by its officers in
connection with the administration of a deferred compensation plan adopted by
Trustees pursuant to an exemptive order granted by the Securities and Exchange
Commission.
Notwithstanding investment restriction number 1 above, in order to comply
with Rule 2a-7 under the 1940 Act, the Cash Management Fund has adopted a
non-fundamental policy (that may be changed by the Board of Trustees without
shareholder approval) of investing no more than 5% of its assets (measured at
the time of purchase) in the securities of any one issuer (other than the U.S.
Government); provided however, that the Cash Management Fund may invest, as to
25% of its assets, more than 5% of its assets in certain high-quality
securities (as defined in the Rule) of a single issuer for a period of up to
three business days. Investment restriction number 9 above does not prevent
the purchase by the Cash Management Fund of securities that have "put" or
"stand-by" commitment features.
To the extent that any fund is used with a variable life insurance
contract sold in the state of California, it will limit its borrowing
activities to (1) 10% of net asset value when borrowing for any general purpose
and (2) 25% of net asset value when borrowing as a temporary measure to
facilitate redemptions. For this purpose, reverse repurchase agreements shall
constitute borrowing. This policy is not deemed a fundamental policy and
therefore may be changed without shareholder approval.
SERIES TRUSTEES AND OFFICERS
TRUSTEES AND TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
AND AGE WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER OF
REGISTRANT DURING PAST 5 (INCLUDING (INCLUDING FUND
YEARS VOLUNTARILY VOLUNTARILY BOARDS
(POSITIONS DEFERRED DEFERRED ON WHICH
WITHIN THE COMPENSATION/1/) COMPENSATION/1/) TRUSTEE
ORGANIZATIONS FROM FROM ALL FUNDS SERVES/2/
LISTED MAY HAVE SERIES DURING MANAGED BY
CHANGED DURING FISCAL CAPITAL
THIS PERIOD) YEAR ENDED RESEARCH AND
11/30/96 MANAGEMENT
COMPANY
<S> <C> <C> <C> <C> <C>
Charles H. Trustee Private $25,600/3/ $112,600 4
Black investor and
525 Alma Real consultant;
Drive Former
Pacific Executive Vice
Palisades, CA President
90272 and Director,
Age: 70 Kaiser Steel
Corporation
+H. Frederick Trustee Private $24,400/3/ $149,900 18
Christie Investor;
P. O. Box 144 Former
Palos Verdes, President
CA 90274 and Chief
Age: 63 Executive
Officer, The
Mission Group
(non-utility
holding
Company,
subsidiary of
Southern
California
Edison Company)
Joe E. Davis Trustee Private $25,000 $25,000 1
3436 Caribeth Investor;
Drive Former
Encino, CA Chairman,
91436 Linear
Age: 62 Corporation;
former
President and
Chief Executive
Officer,
National Health
Enterprises,
Inc.
Martin Fenton, Trustee Chairman, $24,400 $121,000 16
Jr. Senior Resource
4350 Executive Group
Drive (management of
Suite 101 senior living
San Diego, CA centers)
92123
Age: 61
++Richard H. M. Trustee Retired. $21,100 $58,800 4
Holmes Former Vice
580 Laurent President,
Road Capital
Hillsborough, Research and
CA 94010 Management
Age: 71 Company
Mary Myers Trustee Founder and $23,800/3/ $75,500 4
Kauppila President,
286 Congress Energy
Street Investment,
Boston, MA Inc.
02110
Age: 42
Kirk P. Trustee President, $10,444/3/ $48,284 5
Pendleton Cairnwood, Inc.
Cairnwood, Inc.
75 James Way
Southampton, PA
18966
Age: 57
@James F. President President and none/4/ none/4/ 1
Rothenberg and Director,
333 South Hope Trustee Capital
Street Research and
Los Angeles, CA Management
90071 Company
Age: 50
@Thomas E. Chairman Retired. none/4/ none/4/ 3
Terry of Former Vice
6034 S. the Board President and
Highlands Secretary,
Avenue Capital
Madison, WI Research and
53705 Management
Age: 59 Company
</TABLE>
+ May be deemed an "interested person" within the meaning of the Investment
Company Act of 1940 (the "1940 Act") due to membership on the board of
directors of the parent company of a registered broker-dealer.
++ Not considered an "interested person" within the meaning of the 1940 Act,
but he does not participate on the Contracts or Nominating Committees due to
his former affiliation with the Investment Adviser.
@ Trustees who are "interested persons" within the meaning of the 1940 Act on
the basis of their affiliation with the Investment Adviser.
/1/ Amounts may be deferred by eligible trustees under a non-qualified deferred
compensation plan adopted by the Series in 1993. Deferred amounts accumulate
at an earnings rate determined by the total return of one or more funds in The
American Funds Group as designated by the Trustee.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U. S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages Anchor Pathway Fund which serves as the
underlying investment vehicle for certain variable insurance contracts; and
Bond Portfolio for Endowments, Inc. and Endowments, Inc. whose shares may be
owned only by tax-exempt organizations. These amounts reflect the aggregate
compensation paid during the most recent fiscal year of the funds involved.
/3/ Since the plan's adoption, the total amount of deferred compensation
accrued by the Series (plus earnings thereon) for participating Trustees is as
follows: Charles H. Black ($3,054); H . Frederick Christie ($30,542); Mary
Myers Kauppila ($79,916) and Kirk P. Pendleton ($1,569). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the Series until paid to the Trustee.
/4/ James F. Rothenberg and Thomas E. Terry are affiliated with the Investment
Adviser and, accordingly, receive no remuneration from the Series.
OFFICERS
(with their principal occupations during the past five years)#
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) WITH PRINCIPAL OCCUPATION(S)
REGISTRANT DURING PAST 5 YEARS
<S> <C> <C> <C>
Thomas E. Terry 59 Chairman of the Board Retired. Former Vice President and
6048 S. Highlands Avenue Secretary, Capital Research and
Madison, WI 53705 Management Company
James F. Rothenberg 50 President and Trustee President and Director, Capital
333 South Hope Street Research and Management Company
Los Angeles, CA 90071
James K. Dunton 59 Senior Vice President Senior Vice President and Director,
333 South Hope Stree Capital Research and Management
Los Angeles, CA 90071 Company
Abner D. Goldstine 67 Senior Vice President Senior Vice President and Director,
11100 Santa Monica Capital Research and Management
Boulevard Company
Los Angeles, CA 90025
Michael J. Downer 42 Vice President Vice President - Fund Business
333 South Hope Street Management Group, Capital Research
Los Angeles, CA 90071 and Management Company
Claudia P. Huntington 45 Vice President Senior Vice President, Capital
333 South Hope Street Research Company
Los Angeles, CA 90071
Steven N. Kearsley 55 Vice President Vice President and Treasurer,
135 South State College Capital Research and Management
Blvd. Company
Brea, CA 92821
Dina N. Perry 51 Vice President Vice President, Capital Research and
333 South Hope Street Management Company
Los Angeles, CA 90071
John H. Smet 40 Vice President Vice President, Capital Research and
11100 Santa Monica Management Company
Boulevard
Los Angeles, CA 90025
Chad L. Norton 36 Secretary Vice President - Fund Business
333 South Hope Street Managment Group, Capital Research
Los Angeles, CA 90071 and Management Company
Robert P. Simmer 36 Treasurer Vice President - Fund Business
5300 Robin Hood Road Managment Group, Capital Research
Norfolk, VA 23513 and Management Company
Sheryl F. Johnson 28 Assistant Treasurer Assistant Vice President - Fund
5300 Robin Hood Road Business Management Group, Capital
Norfolk, VA 23513 Research and Management Company
</TABLE>
# Positions within the organizations listed may have changed during this
period.
All of the Trustees and officers also are officers or employees of the
Investment Adviser or affiliated companies. No compensation is paid by the
Series to any officer or Trustee who is a director, officer or employee of the
Investment Adviser or affiliated companies. The Series pays fees of $20,000
per annum to Trustees who are not affiliated with the Investment Adviser, plus
$1,500 for each Board of Trustees meeting attended, plus $600 for each meeting
attended as a member of a committee of the Board of Trustees. The Trustees may
elect, on a voluntary basis, to defer all or a portion of these fees through a
deferred compensation plan in effect for the Series. The Series also
reimburses certain expenses of the Trustees who are not affiliated with the
Investment Adviser.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Hong Kong, Singapore and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's professionals travel several million miles a year,
making more than 5,000 research visits in more than 50 countries around the
world. The Investment Adviser believes that it is able to attract and retain
quality personnel. The Investment Adviser is a wholly owned subsidiary of The
Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of
stocks, bonds and money market instruments and serves over five million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the "Agreement") between the Series and the Investment Adviser,
unless sooner terminated, will continue in effect until November 30, 1997, and
may be renewed from year to year thereafter, provided that any such renewal has
been specifically approved at least annually by (i) the Board of Trustees, or
by the vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Series, and (ii) the vote of a majority of Trustees
who are not parties to the Agreement or interested persons (as defined in the
1940 Act) of any such party, cast in person at a meeting called for the purpose
of voting on such approval. The Agreement provides that the Investment Adviser
has no liability to the Series for its acts or omissions in the performance of
its obligations to the Series not involving willful misconduct, bad faith,
gross negligence or reckless disregard of its obligations under the Agreement.
The Agreement also provides that either party has the right to terminate it,
without penalty, upon 60 days' written notice to the other party, and that the
Agreement automatically terminates in the event of its assignment (as defined
in the 1940 Act).
As compensation for its services, the Investment Adviser receives a
monthly fee which is accrued daily, calculated at the annual rates of:
GLOBAL GROWTH FUND: 0.69% of net assets;
GROWTH FUND: 0.50% of the first $600 million of net assets, plus 0.45% on net
assets greater than $600 million but not exceeding $1.2 billion, plus 0.42% on
net assets greater than $1.2 billion but not exceeding $2.0 billion, plus 0.37%
on net assets greater than $2.0 billion but not exceeding $3.2 billion, plus
0.35% on net assets in excess of $3.2 billion;
INTERNATIONAL FUND: 0.90% of the first $60 million of net assets, plus 0.78%
on net assets greater than $60 million but not exceeding $600 million, plus
0.60% on net assets greater than $600 million but not exceeding $1.2 billion,
plus 0.48% on net assets greater than $1.2 billion but not exceeding $2.0
billion, plus 0.465% on net assets in excess of $2.0 billion;
GROWTH-INCOME FUND: 0.50% of the first $600 million of net assets, plus 0.45%
on net assets greater than $600 million but not exceeding $1.5 billion, plus
0.40% on net assets greater than $1.5 billion but not exceeding $2.5 billion,
plus 0.32% on net assets greater than $2.5 billion but not exceeding $4.0
billion, plus 0.285% on net assets in excess of $4.0 billion;
ASSET ALLOCATION FUND: 0.50% of the first $600 million of net assets, plus
0.42% on net assets greater than $600 million but not exceeding $1.2 billion,
plus 0.36% on net assets in excess of $1.2 billion;
BOND FUND: 0.6% of the first $30 million of net assets, plus 0.50% on net
assets in excess of $30 million;
HIGH-YIELD BOND FUND: 0.60% of the first $30 million of net assets, plus 0.50%
on net assets greater than $30 million but not exceeding $600 million, plus
0.46% on net assets in excess of $600 million;
U.S. GOVERNMENT/AAA-RATED SECURITIES FUND: 0.60% of the first $30 million of
net assets, plus 0.50% on net assets greater than $30 million but not exceeding
$600 million, plus 0.40% on net assets in excess of $600 million;
CASH MANAGEMENT FUND: 0.50% of the first $100 million of net assets, plus
0.42% on net assets greater than $100 million but not exceeding $400 million,
plus 0.38% on net assets in excess of $400 million.
The Investment Adviser, in addition to providing investment advisory
services, furnishes the services and pays the compensation and travel expenses
of qualified persons to perform the executive, and related administrative
functions of the Series, provides necessary office space, office equipment and
utilities, and general purpose accounting forms, supplies, and postage used at
the office of the Series relating to the services furnished by the Investment
Adviser. Subject to the expense agreement described below, the Series will pay
all expenses not expressly assumed by the Investment Adviser, including, but
not limited to, registration and filing fees with federal and state agencies;
blue sky expenses (if any); expenses of shareholders' meetings; the expense of
reports to existing shareholders; expenses of printing proxies and
prospectuses; insurance premiums; legal and auditing fees; dividend
disbursement expenses; the expense of the issuance, transfer, and redemption of
its shares; custodian fees; printing and preparation of registration
statements; taxes; compensation, fees and expenses paid to Trustees
unaffiliated with the Investment Adviser; association dues; and costs of
stationary and forms prepared exclusively for the Series.
The Agreement provides for an advisory fee reduction to the extent that
each fund's annual ordinary net operating expenses, except the International
Fund's, exceed 1 1/2% of the first $30 million of the average month-end total
net assets of the fund and 1% of the average month-end total net assets in
excess thereof. For the International Fund, the advisory fee will be reduced
to the extent that its annual ordinary net operating expenses exceed 1 1/2% of
its average month-end total net assets. Expenditures, including costs incurred
in connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
During the fiscal years ended November 30, 1996, 1995 and 1994, the
Investment Adviser's total fees, respectively, amounted to the following:
Growth Fund $14,284,000, $ 11,222,000 and $8,735,000; International Fund
$12,370,000, $9,882,000 and $8,330,000; Growth-Income Fund $17,451,000,
$13,593,000 and $11,517,000; Asset Allocation Fund $4,663,000, $3,620,000 and
$3,129,000; High-Yield Bond Fund $2,996,000, $2,350,000 and $2,022,000; U. S.
Government/AAA-Rated Securities Fund $2,661,000, $2,550,000 and $2,459,000;
and Cash Management Fund $1,007,000, $907,000 and $905,000. During the fiscal
year ended November 30, 1996, the Investment Adviser's total fees for the Bond
Fund amounted to $204,000.
PLAN OF DISTRIBUTION The Series has adopted a Plan of Distribution (the
"Plan") for its Class 2 shares, pursuant to rule 12b-1 under the 1940 Act. As
required by rule 12b-1, the Plan has been approved by a majority of the entire
Board of Trustees, and separately by a majority of the Trustees who are not
"interested persons" of the Series and who have no direct or indirect financial
interest in the operation of the Plan. The officers and Trustees who are
"interested persons" of the Series may be considered to have a direct or
indirect financial interest in the operation of the Plan due to present or past
affiliations with the Investment Adviser and related companies. Potential
benefits of the Plan to the Series include improved shareholder services,
benefits to the investment process from growth or stability of assets and
maintenance of a financially healthy management organization. The selection
and nomination of Trustees who are not "interested persons" of the Series is
committed to the discretion of the Trustees who are not "interested persons"
during the existence of the Plan. The Plan is reviewed quarterly and must be
renewed annually by the Board of Trustees.
PRICE OF SHARES
The price paid for shares, the net asset value price, is calculated for
each of the funds once daily at the close of trading (currently 4:00 p.m., New
York Time) each day the New York Stock Exchange is open as set forth below.
The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The net
asset value per share is determined as follows:
1. Stocks, and convertible bonds and debentures traded on securities exchanges
or the over-the-counter market are valued at the last reported sale price on
the day of valuation, or, lacking any sales on that day, at the last-reported
bid price.
2. Non-convertible bonds and debentures, and other long-term debt securities
and Treasury notes normally are valued at prices obtained for the day of
valuation from a bond pricing service, when such prices are available on the
day of valuation; however, in circumstances where the Investment Adviser deems
it appropriate to do so, such securities will be valued at the mean of
representative quoted bid or asked prices for such securities or, if such
prices are not available, at such prices for securities of comparable maturity,
quality and type. Securities traded on exchanges outside the U.S. are valued
at the last sale price on the day of valuation, or lacking any sales on that
day, at the last-reported bid price. Short-term securities other than Treasury
notes with original or remaining maturities in excess of 60 days are valued at
the mean of representative quoted bid and asked prices or, if such prices are
not available, at such prices for securities of comparable maturity, quality
and type. Short-term securities with 60 days or less to maturity are valued at
amortized cost, which approximates market value. Options on currencies
purchased by the fund are valued at their last sale price in the case of listed
options or at the average of the last bid prices obtained from dealers in the
case of OTC options. Futures contracts involving foreign currencies traded on
exchanges are valued at their last sale or settlement price as of the close of
such exchanges or, lacking any sales, at the mean between the last reported bid
and asked prices. Other securities are valued on the basis of last sale or bid
prices in what is, in the opinion of the Investment Adviser, the broadest and
most representative market, which may be either a securities exchange or
over-the-counter market.
3. Where quotations are not readily available, securities are valued at fair
value as determined in good faith by the Board of Trustees. The fair value of
all other assets is added to the value of securities to arrive at the
respective fund's total assets;
4. The value of any security denominated in a currency other than U.S. dollars
will be translated into U.S. dollars at the prevailing market rate as
determined by the Series' officers;
5. There are deducted from the total assets, thus determined, the liabilities
of the respective funds including proper accruals of expense items; and
6. The net assets of the respective fund so obtained is then divided by the
total number of shares outstanding (excluding treasury shares), and the result,
rounded to the nearer cent, is the fund's net asset value per share.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
Each fund of the Series intends to qualify to be taxed as a "regulated
investment company" under the provisions of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). To qualify for the tax
treatment afforded a regulated investment company under the Code, a fund must
annually distribute at least 90% of its net investment income and certain
short-term capital gains and meet certain diversification of assets and other
requirements of the Code. If a fund qualifies for such tax treatment, it will
not be subject to Federal income tax on the part of its ordinary income and its
net realized capital gains which it distributes to shareholders. To meet the
requirements of the Code, a fund must (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of stock or securities or currencies;
(b) derive less than 30% of its gross income from the sale or other disposition
of securities held less than three months; and (c) diversify its holdings so
that, at the end of each fiscal quarter, (i) at least 50% of the market value
of the fund's assets is represented by cash, U.S. Government securities and
other securities, limited, in respect of any one issuer, to an amount not
greater than 5% of the fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which each fund controls and which are
engaged in the same or similar trades or businesses. It is the Series' policy
to distribute to the shareholders (the insurance company separate accounts) all
of its net investment income and net realized capital gains during each fiscal
year.
Under the Code, the Asset Allocation Fund's and the International Fund's
taxable income for each year will be computed without regard to any net foreign
currency loss attributable to transactions after October 31, and any such net
foreign currency loss will be treated as arising on the first day of the
following taxable year.
The amount of any realized gain or loss of the Asset Allocation Fund and
the International Fund on closing out a currency contract will generally result
in a realized capital gain or loss for tax purposes. Under Code Section 1256,
currency contracts held by each fund at the end of each fiscal year will be
required to be "marked to market" for federal income tax purposes, that is,
deemed to have been sold at market value. Sixty percent of any net gain or
loss recognized on these deemed sales and 60% of any net realized gain or loss
from any actual sales, will be treated as long-term capital gain or loss, and
the remainder of gain or loss from deemed and actual sales will be treated as
short-term capital gain or loss. Code Section 988 may also apply to currency
contracts. Under Section 988, each foreign currency gain or loss is generally
computed separately and treated as ordinary income or loss. In the case of
overlap between Sections 1256 and 988, special provisions determine the
character and timing of any income, gain or loss. Each fund will attempt to
monitor Section 988 transactions to avoid an adverse tax impact.
Each fund, except for the Cash Management Fund, may be required to pay
withholding and other taxes imposed by foreign countries which would reduce
investment income. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes.
In addition to the asset diversification and other requirements for
qualification as a regulated investment company, the funds are subject to
another set of asset diversification requirements applicable to insurance
company separate accounts and their underlying funding vehicles. To satisfy
these diversification requirements, as of the end of each calendar quarter or
within 30 days thereafter, no more than 55% of the total assets of a fund may
be represented by any one investment, no more than 70% by any two investments,
no more than 80% by any three investments, and no more than 90% by any four
investments. For this purpose all securities of the same issuer are considered
a single investment, and each agency or instrumentality of the U.S. government
is treated as a separate issue of securities. The Series intends to comply
with these regulations. If a fund should fail to comply with these
regulations, Contracts invested in that fund will not be treated as annuity,
endowment or life insurance contracts under the Code.
See the applicable Contract prospectus for information regarding the
Federal income tax treatment of the Contracts and distributions to the separate
accounts.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the Series may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the Series, they are effected only when the
Investment Adviser believes that to do so is in the interest of the Series.
When such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The Series will not pay a mark-up for
research in principal transactions.
Brokerage commissions paid on portfolio transactions for the fiscal
years ended November 30, 1996, 1995 and 1994, respectively, amounted to the
following: Growth Fund $2,358,000, $1,928,000, and $1,643,000; International
Fund $3,813,000, $1,301,000, and $1,754,000; Growth-Income Fund $3,389,000,
$2,291,000, and $2,421,000; Asset Allocation Fund $557,000, $700,000, and
$585,000.
GENERAL INFORMATION
CUSTODIAN OF ASSETS -- Securities and cash owned by the Series, including
proceeds from the sale of shares of the Series and of securities in the Series'
portfolios, are held by State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, as Custodian. Non-U.S. securities may be
held by the Custodian in non-U.S. banks or securities depositories or foreign
branches of U.S. banks.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 400 South Hope Street, Los
Angeles, CA 90071, has served as the Series' independent accountants since
March 18, 1991, providing audit services, preparation of tax returns and review
of certain documents to be filed with the Securities and Exchange Commission.
The financial statements included in this Statement of Additional Information
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. Prior to March 18, 1991, KPMG Peat Marwick, 725 South
Figueroa Street, Los Angeles, CA 90017, served as the Series' independent
public accountants. The selection of the Series' independent accountant is
reviewed and determined annually by the Board of Trustees.
REPORTS TO SHAREHOLDERS -- The Series' fiscal year ends November 30. Contract
owners are provided at least semi-annually with reports showing the investment
portfolio, financial statements and other information. The financial
statements included in the Annual Report are audited by the independent
accounting firm of Price Waterhouse LLP.
PERSONAL INVESTING POLICY -- Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
SHAREHOLDER AND TRUSTEE RESPONSIBILITY -- Under the laws of certain states,
including Massachusetts, where the Series was organized, and California, where
the Series' principal office is located, shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the Series. However, the risk of a shareholder
incurring any financial loss on account of shareholder liability is limited to
circumstances in which the Series itself would be unable to meet its
obligations. The Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Series and provides that
notice of the disclaimer may be given in each agreement, obligation, or
instrument which is entered into or executed by the Series or trustees. The
Declaration of Trust provides for indemnification out of Series property of any
shareholder personally liable for the obligations of the Series and also
provides for the Series to reimburse such shareholder for all legal and other
expenses reasonably incurred in connection with any such claim or liability.
Under the Declaration of Trust, the Trustees or officers are not liable
for actions or failure to act; however, they are not protected from liability
by reason of their willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office. The
Series will provide indemnification to its Trustees and officers as authorized
by its By-Laws and by the 1940 Act and the rules and regulations thereunder.
REGISTRATION STATEMENT -- A registration statement has been filed with the
Securities and Exchange Commission under the Securities Act of 1933 and the
1940 Act, with respect to the Series. The prospectus and this Statement of
Additional Information do not contain all information set forth in the
registration statement, its amendments and exhibits, to which reference is made
for further information concerning the Series. Statements contained in the
prospectus and this Statement of Additional Information as to the content of
the Contracts issued through the separate accounts and other legal instruments
are summaries. For a complete statement of the terms thereof, reference is
made to the registration statements of the separate accounts and Contracts as
filed with the Securities and Exchange Commission.
AUTHORIZED SHARES -- The Series was organized as a Massachusetts Business Trust
which permits each fund of the Series to issue an unlimited number of shares of
beneficial interest of a single class.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.'s top two rating designations for
commercial paper are described as follows: issuers rated Prime-1 have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return
on funds employed; conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earnings coverage
of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong capacity for repayment
of short-term promissory obligations. This will normally be evidenced by many
of the characteristics cited above, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained.
Standard & Poor's Corporation's top two rating categories for commercial
paper are described as follows: A -- Issues assigned its highest rating are
regarded as having the greatest capacity for timely payment. Issues in this
category are delineated with numbers 1 or 2 to indicate the relative degree of
safety. A-1 -- This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted with a plus (+)
sign designation. A-2 -- Capacity for timely payments on issues with this
designation is strong. However, the relative degree of safety is not as high
as for issues designated "A-1".
<TABLE>
<S> <C> <C> <C>
GROWTH FUND
Investment Portfolio November 30, 1996
- --------------------------------------------------------------------
STOCKS 89.58%
CASH &
EQUIVALENTS 10.42%
- --------------------------------------------------------------------
Percent
Of Net
Largest Individual Stocks Assets
- --------------------------------------------------------------------------------
Intel 3.78%
Walt Disney 3.39
America Online 2.90
Time Warner 2.66
Oracle 2.33
Viacom 2.15
Solectron 1.53
Adaptec 1.48
Xilinx 1.42
LSI Logic 1.42
Market Percent
Number of Value of Net
Stocks (common and preferred) Shares (000) Assets
- -------------------------------------------- ---------------------------------
Electronic Components- 18.07%
Intel Corp. 1,150,400 $145,957 3.78%
Adaptec, Inc./1/ 1,536,000 57,216 1.48
Xilinx,Inc./1/ 1,250,000 54,844 1.42
LSI Logic Corp./1/ 1,820,000 54,828 1.42
Analog Devices, Inc./1/ 1,700,000 54,613 1.42
Texas Instruments Inc. 570,000 36,337 .94
Linear Technology Corp. 715,000 33,694 .87
National Semiconductor Corp./1/ 1,265,000 30,993 .80
Maxim Integrated Products, Inc./1/ 600,000 27,825 .72
SCI Systems, Inc./1/ 500,263 26,389 .68
Bay Networks, Inc./1/ 937,000 25,065 .65
EMC Corp./1/ 600,000 19,350 .50
Altera Corp./1/ 250,000 18,875 .49
Quantum Corp./1/ 700,000 18,725 .49
ADC Telecommunications, Inc./1/ 500,000 18,125 .47
Newbridge Networks Corp. (Canada)/1/ 460,000 13,685 .35
Microchip Technology Inc./1/ 248,400 11,861 .31
Flextronics International Ltd. (Incorporated In Singapore)/1/ 300,000 10,500 .27
Western Digital Corp./1/ 156,300 8,401 .22
Seagate Technology/1/ 200,000 7,900 .20
Actel Corp./1/ 300,000 6,600 .17
Park Electrochemical Corp. 250,000 5,687 .15
Rogers Corp./1/ 190,800 5,247 .14
Motorola, Inc. 42,000 2,326 .06
ANTEC Corp./1/ 150,000 1,463 .04
Advanced Micro Devices, Inc./1/ 50,000 1,212 .03
Business & Public Services- 14.64%
America Online, Inc./1/ 3,170,000 112,139 2.90
United HealthCare Corp. 1,265,000 54,553 1.41
Oxford Health Plans, Inc./1/ 804,000 46,632 1.21
Columbia/HCA Healthcare Corp. 997,500 39,900 1.03
Electronic Data Systems Corp.(formerly General Motors Corp.,
Class E) 741,700 35,880 .93
Manpower Inc. 1,000,200 32,632 .85
Federal Express Corp./1/ 700,000 30,975 .80
WMX Technologies, Inc. 800,000 28,800 .75
CUC International Inc./1/ 1,061,250 27,990 .73
ADT Ltd./1/ 1,255,000 25,727 .67
PacifiCare Health Systems, Inc., Class B/1/ 265,000 21,995 .57
Avery Dennison Corp. 310,000 21,894 .57
Ecolab Inc. 429,000 16,677 .43
FHP International Corp./1/ 388,100 13,923 .36
USA Waste Services, Inc./1/ 400,000 12,900 .33
Loewen Group Inc. (Canada) 250,000 10,094 .26
Shared Medical Systems Corp. 200,000 9,950 .26
Ceridian Corp./1/ 150,000 7,219 .19
Apria Healthcare Group Inc./1/ 400,000 7,200 .19
Value Health, Inc./1/ 350,000 6,344 .16
Air & Water Technologies Corp., Class A/1/ 285,000 1,763 .04
Broadcasting & Publishing- 10.54%
Time Warner Inc. 2,519,325 102,662 2.66
Viacom Inc., Class B/1/ 2,200,000 83,050 2.15
News Corp. Ltd. (American Depositary Receipts) (Australia) 1,270,000 26,987
News Corp. Ltd. preferred shares (American .98
Depositary Receipts) 635,000 10,954
Tele-Communications, Inc., Series A, Liberty Media Group/1/ 1,459,050 36,476 .94
BHC Communications, Inc., Class A/1/ 286,189 29,227 .76
Tele-Communications, Inc., Series A, TCI Group/1/ 2,052,500 27,709 .72
New World Communications Group Inc., Class A/1/ 850,000 20,931 .54
U S WEST Media Group/1/ 1,000,000 19,125 .50
Gaylord Entertainment Co., Class A 820,500 17,538 .45
United International Holdings, Inc., Class A/1/ 685,000 9,333 .24
Comcast Corp., Class A, special stock 500,000 8,375 .22
Cablevision Systems Corp., Class A/1/ 240,000 7,230 .19
Jones Intercable, Inc., Class A/1/ 370,000 3,978 .10
Adelphia Communications Corp., Class A/1/ 350,000 2,319 .06
Marvel Entertainment Group, Inc./1/ 363,800 1,000 .03
Data Processing & Reproduction- 10.44%
Oracle Corp./1/ 1,837,500 90,038 2.33
Solectron Corp./1/ 1,009,000 59,027 1.53
Silicon Graphics, Inc./1/ 1,920,000 38,160 .99
Adobe Systems Inc. 920,000 36,340 .94
Digital Equipment Corp./1/ 750,000 27,563 .71
3Com Corp./1/ 350,000 26,294 .68
Sybase, Inc./1/ 1,300,000 22,913 .59
Dell Computer Corp,/1/ 200,000 20,325 .53
Intuit Inc./1/ 554,200 19,813 .51
Autodesk, Inc. 600,000 16,800 .44
Sequent Computer Systems, Inc./1/ 850,000 14,344 .37
Structural Dynamics Research Corp./1/ 475,000 9,203 .24
Mentor Graphics Corp./1/ 800,000 7,800 .20
Tandem Computers Inc./1/ 440,000 5,995 .16
Danka Business Systems PLC (American Depository Receipts)
(United Kingdom) 125,000 5,250 .14
CompuServe Corp./1/ 150,000 1,575 .04
Data General Corp./1/ 100,000 1,462 .04
Leisure & Tourism- 6.45%
Walt Disney Co. 1,775,000 130,906 3.39
King World Productions, Inc./1/ 650,000 24,781 .64
Host Marriott Corp./1/ 1,550,000 23,637 .61
Marriott International, Inc. 400,000 22,300 .58
Carnival Corp., Class A 650,000 20,556 .53
Harrah's Entertainment, Inc./1/ 950,000 16,863 .44
Trump Hotels & Casino Resorts, Inc./1/ 650,000 9,181 .24
Luby's Cafeterias, Inc. 40,000 880 .02
Merchandising- 4.04%
Circuit City Stores, Inc. 1,250,000 41,719 1.08
Barnes & Noble, Inc./1/ 825,000 25,781 .67
Wal-Mart Stores, Inc. 950,000 24,225 .63
Consolidated Stores Corp./1/ 572,900 21,197 .55
Home Shopping Network, Inc./1/ 1,700,000 19,125 .50
Staples, Inc./1/ 711,562 14,053 .36
Spiegel, Inc., Class A/1/ 726,600 6,267 .16
Limited Inc. 150,000 2,700 .07
Amway Asia Pacific Ltd. (Multinational) 24,600 987 .02
Health & Personal Care- 3.35%
Guidant Corp. 700,000 37,012 .96
Omnicare, Inc. 879,602 26,828 .69
Genetics Institute, Inc./1/ 260,000 17,680 .46
Forest Laboratories, Inc./1/ 380,000 14,725 .38
Kimberly-Clark Corp. 100,000 9,775 .25
Nellcor Puritan Bennett Inc./1/ 300,000 6,225 .16
SEQUUS Pharmaceuticals, Inc./1/ 380,808 5,474
SEQUUS Pharmaceuticals, Inc., warrants, expire 1998/1//2/ 40,416 263 .15
Johnson & Johnson 97,600 5,185 .13
Paragon Trade Brands, Inc./1/ 105,000 2,914 .08
Alpha-Beta Technology, Inc./1/ 200,000 1,850 .05
Pharmacia & Upjohn, Inc. 36,250 1,400 .04
Banking- 2.41%
Banc One Corp. 447,700 21,322 .55
Bank of Boston Corp. 290,840 20,322 .53
Commerce Bancshares, Inc. 428,596 19,287 .50
Norwest Corp. 250,000 11,688 .30
Charter One Financial, Inc. 262,500 11,419 .30
Northern Trust Corp. 125,000 9,078 .23
Chemicals- 2.19%
Valspar Corp. 690,000 39,589 1.03
Great Lakes Chemical Corp. 325,000 17,428 .45
Mycogen Corp./1/ 800,000 13,400 .35
Air Products and Chemicals, Inc. 125,000 8,688 .22
Engelhard Corp. 284,400 5,546 .14
Insurance- 2.19%
EXEL Ltd. (Incorporated in Bermuda) 810,000 30,679 .79
Transatlantic Holdings, Inc. 270,000 21,499 .56
Trenwick Group Inc. 266,800 13,006 .34
CNA Financial Corp./1/ 80,000 8,600 .22
Everest Reinsurance Holdings, Inc. 200,000 5,625 .15
NAC Re Corp. 135,000 4,927 .13
Electrical & Electronics- 1.90%
Telefonaktiebolaget LM Ericsson, Class B (American
Depositary Receipts) (Sweden) 1,184,500 36,571 .95
Nokia Corp., Class A (American Depositary Receipts) (Finland) 360,000 20,205 .52
General Instrument Corp./1/ 661,700 14,640 .38
Lucent Technologies Inc. 35,000 1,794 .05
Telecommunications- 1.79%
MCI Communications Corp. 1,420,000 43,310 1.12
AirTouch Communications/1/ 850,000 21,781 .56
United States Cellular Corp./1/ 144,000 4,032 .11
Recreation & Other Consumer Products- 1.78%
Mattel, Inc. 1,596,288 49,285 1.28
Duracell International Inc. 150,000 9,994 .26
Hasbro, Inc. 185,000 7,608 .20
Electronic Arts/1/ 54,400 1,748 .04
Transportation: Airlines- 1.73%
Southwest Airlines Co. 1,750,300 43,320 1.12
AMR Corp./1/ 195,000 17,794 .46
Delta Air Lines, Inc. 75,000 5,644 .15
Energy Equipment- 1.40%
Schlumberger Ltd. (Netherlands Antilles) 325,000 33,800 .87
Reading & Bates Corp./1/ 700,000 20,300 .53
Miscellaneous Materials & Commodities- 1.15%
Pioneer Hi-Bred International, Inc. 635,000 44,291 1.15
Electronic Instruments- 1.10%
Applied Materials, Inc./1/ 650,000 24,781 .64
KLA Instruments Corp./1/ 500,000 17,750 .46
Energy Sources- 0.78%
Murphy Oil Corp. 298,000 15,198 .39
Enterprise Oil PLC (United Kingdom) 1,500,000 15,003 .39
Beverages & Tobacco - 0.65%
Philip Morris Companies Inc. 185,000 19,078 .49
PepsiCo, Inc. 200,000 5,975 .16
Financial Services- 0.64%
Federal National Mortgage Assn. 600,000 24,750 .64
Multi-Industry- 0.32%
U.S. Industries, Inc./1/ 420,000 12,390 .32
Utilities: Electric & Gas- 0.30%
Columbia Gas System, Inc. 178,200 11,516 .30
Construction & Housing- 0.08%
Stone & Webster, Inc. 90,000 2,936 .08
Miscellaneous
Other stocks in initial period of acquisition 63,280 1.64
- -
TOTAL STOCKS (cost: $2,472,575,000 ) 3,458,067 89.58
---------------------
Principal
Amount
Short-Term Securities (000)
- -----------------------------------------------------------------------------------------------------
Corporate Short-Term Notes- 8.17%
National Rural Utilities Cooperative Finance Corp. $54,500 54,124 1.40
5.30%-5.31% due 12/13/96-1/28/97
Walt Disney Co. 5.26%-5.28% due 1/7-1/8/97 37,100 36,890 .96
Lucent Technologies Inc. 5.24%-5.28% due 12/19/96-1/17/97 35,400 35,215 .91
Weyerhaeuser Co. 5.28%-5.29% due 1/22-1/29/97 32,300 32,033 .83
Warner-Lambert Co. 5.28% due 3/4/97 30,000 29,585 .77
General Electric Capital Corp. 5.25%-5.34% due 12/18/96-1/29/97 18,700 18,602 .48
Kellogg Co. 5.23% due 12/9/96 18,200 18,179 .47
American Express Credit Corp. 5.32% due 1/6/97 18,200 18,100 .47
J.C. Penney Funding Corp. 5.24%-5.25% due 12/17-12/20/96 17,500 17,455 .45
Beneficial Corp. 5.25%-5.30% due 12/2/96-1/16/97 17,150 17,079 .44
H.J. Heinz Co. 5.23%-5.28% due 12/10-12/18/96 16,300 16,260 .42
IBM Credit Corp. 5.30% due 1/23/97 15,900 15,773 .41
Sara Lee Corp. 5.26% due 12/24/96 6,300 6,278 .16
Certificates of Deposit- 1.04%
Morgan Guaranty Trust Co. of New York 5.29% due 12/12/96 40,000 40,000 1.04
Federal Agency Discount Notes- 0.80%
Federal Home Loan Mortgage Corp. 5.215% 12/11-12/16/96 24,200 24,151 .63
Federal National Mortgage Assn. 5.00%-5.45% 12/10/96 6,665 6,656 .17
---------------------
TOTAL SHORT-TERM SECURITIES (cost: $386,387,000) 386,380 10.01
---------------------
3,844,447 99.59
TOTAL INVESTMENT SECURITIES (cost: $2,858,962,000)
Excess of cash and receivables over payables 15,902 .41
---------------------
NET ASSETS $3,860,349 100.00%
=====================
/1/ Non-income-producing securities.
/2/ Valued under procedures established by the Board of Trustees.
See Notes to Financial Statements
- --------------------------------------------------------------------
Stocks appearing in the portfolio
since May 31, 1996
- --------------------------------------------------------------------
3Com
Adaptec
Advanced Micro Devices
Altera
Amway Asia Pacific
Bank of Boston
Columbia Gas System
CompuServe
Danka Business Systems
Enterprise Oil
Everest Reinsurance Holdings
KLA Instruments
Limited
Mycogen
Norwest
Quantum
Shared Medical Systems
Solectron
Western Digital
Woolworth
- --------------------------------------------------------------------
Stocks eliminated from the portfolio
since May 31, 1996
- --------------------------------------------------------------------
Bausch & Lomb
BayBanks
Centennial Cellular
Cerner
Circus Circus Enterprises
Cirrus Logic
Compuware
Coram Healthcare
Electronic Arts
Fruit of the Loom
Greyhound Lines
H&R Block
Host Marriott Services
Huntington Bancshares
Infinity Broadcasting
Informix
International Business Machines
LIN Television
Loctite
Mercantile Bancorporation
Mercury General
Michaels Stores
Mirage Resorts
Mohawk Industries
New York Times
Nintendo
Noble Affiliates
Nucor
Phillips-Van Heusen
Pitney Bowes
Rayonier
Revlon
Southern Pacific Rail
Tambrands
Telephone and Data Systems
TIG Holdings
Toys "R" Us
Turner Broadcasting System
</TABLE>
<TABLE>
<S> <C> <C> <C>
AMERICAN VARIABLE INSURANCE SERIES INTERNATIONAL FUND
Investment Portfolio, November 30, 1996
(Unaudited)
Where the Fund's Assets Are Invested
Percent of Percent of
Net Assets Net Assets
-------------- -------------
EUROPE 51.5%
United Kingdom 11.4%
Sweden 8.2
France 5.6
Germany 5.5
Netherlands 4.0
Italy 4.0
Spain 3.7
Switzerland 3.4
Norway 2.4
Finland 1.7
Other Europe 1.6
ASIA/PACIFIC 25.3%
Japan 9.1
Australia 7.4
Hong Kong 4.3
South Korea 1.5
New Zealand 1.4
Other Asia/Pacific 1.6
THE AMERICAS 12.6%
Canada 5.5
Brazil 3.3
Mexico 3.2
Other Americas 0.6
OTHER COUNTRIES 2.1%
CASH AND EQUIVALENTS 8.5%
TOTAL 100.0%
Largest Individual Equity Holdings
Astra 2.27%
Orkla 2.12
Telecomunicacoes Brasileiras 1.95
Australia and New Zealand Banking Group 1.72
Telefonica de Espana 1.70
Mannesmann 1.67
Volvo 1.47
Coca-Cola Amatil 1.39
ASEA/BBC Brown Boveri 1.39
United News & Media 1.35
Market Percent
Number of Value of Net
Stocks (common and preferred) Shares (000) Assets
- --------------------------------------------------------------------- -------------------------------------
TELECOMMUNICATIONS - 11.53%
Telecomunicacoes Brasileiras SA, preferred nominative
(American Depositary Receipts) (Brazil) 609,722 $46,186 1.95%
Telefonica de Espana, SA (Spain) 1,360,000 29,802
Telefonica de Espana, SA (American Depositary Receipts) 158,000 10,428 1.70
Telecom Italia Mobile SpA (Italy) 11,961,000 28,001
Telecom Italia Mobile SpA, savings shares 1,242,200 1,653 1.25
Telecom Corp. of New Zealand Ltd. (New Zealand)/1/ 4,956,800 26,119
Telecom Corp. of New Zealand Ltd. (American Depositary Receipts) 11,700 984 1.14
Telefonos de Mexico, SA de CV, Class L
(American Depositary Receipts) (Mexico) 882,000 26,791 1.13
Hong Kong Telecommunications Ltd. (Hong Kong) 14,333,663 24,843 1.05
STET - Societa Finanziaria Telefonica p.a. (Italy) 3,300,000 14,050
STET - Societa Finanziaria Telefonica p.a., nonconvertible .97
savings shares 2,900,000 8,921
Telefonica del Peru SA (American Depositary Receipts) (Peru) 766,700 14,855 .63
Telecom Italia SpA (Italy) 6,075,200 14,210
Telecom Italia SpA, savings shares 276,000 508 .62
Koninklijke PTT Nederland NV (Netherlands) 230,000 8,610 .36
Perusahaan Perseroan (Persero) PT Indonesian Satellite Corp. (Indonesia) 1,600,000 4,420
Perusahaan Perseroan (Persero) PT Indonesian Satellite Corp. .23
(American Depositary Receipts) 40,000 1,105
Korea Mobile Telecommunications Corp. (South Korea) 4,730 4,782 .20
Philippine Long Distance Telephone Co. (Global Depositary Receipts)
(Philippines) 80,000 4,400 .19
SmarTone Telecommunications Holdings Ltd. (Hong Kong -
Incorporated in Bermuda) 1,300,000 2,640 .11
BROADCASTING & PUBLISHING - 8.85%
United News & Media plc (United Kingdom) 2,816,000 32,023 1.35
Pathe (France) 73,000 17,055 .72
Television Broadcasts Ltd. (Hong Kong) 4,092,000 15,719 .66
NV Verenigd Bezit VNU (Netherlands) 770,000 15,707 .66
CANAL+ (France) 67,132 15,401 .65
News Corp. Ltd. (American Depositary Receipts) (Australia) 362,000 7,693
News Corp. Ltd., preferred shares (American Depositary Receipts) 181,000 3,122 .61
News Corp. Ltd., preferred shares (United Kingdom) 777,162 3,415
Wolters Kluwer NV (Netherlands) 108,118 14,129 .60
Seven Network Ltd. (Australia) 3,600,000 11,717 .49
Nippon Television Network Corp. (Japan) 39,000 11,716 .49
Independent Newspapers, PLC (Ireland) 2,007,020 10,293 .43
Mediaset SPA (Italy)/2/ 1,967,000 9,411 .40
Grupo Televisa, SA (American Depositary Receipts) (Mexico)/2/ 261,000 7,112 .30
SOFTBANK CORP. (Japan) 94,600 7,063 .30
TeleWest Communications PLC (American Depositary Receipts)
(United Kingdom)/2/ 351,000 7,020 .30
Pearson PLC (United Kingdom) 540,000 6,672 .28
Elsevier NV (Netherlands) 340,000 5,793 .24
Multicanal Participacoes SA (American Depositary Receipts) (Brazil)/2/ 346,000 4,887 .21
Sing Tao Holdings Ltd. (Hong Kong - Incorporated in Bermuda) 6,121,230 2,494 .11
AUDIOFINA (Luxembourg) 26,780 1,195 .05
BANKING - 6.45%
Australia and New Zealand Banking Group Ltd. (Australia) 6,196,216 40,688 1.72
Bank of Nova Scotia (Canada) 874,200 30,259 1.28
HSBC Holdings plc (United Kingdom) 1,000,000 20,824 .88
Banco de Santander, SA (Spain) 287,800 15,589 .66
Westpac Banking Corp. (Australia) 1,900,000 11,363 .48
ABN AMRO Holding NV (Netherlands) 125,000 8,091 .34
Allied Irish Banks, PLC (Ireland) 1,160,253 7,636 .32
Safra Republic Holdings SA (Luxembourg) 42,000 5,775 .24
Hanil Bank (South Korea) 804,980 5,323 .22
Korea First Bank (South Korea)/2/ 850,000 4,923 .21
Grupo Financiero Banamex Accival, SA de CV, Class B (Mexico)/2/ 1,130,397 2,231
Grupo Financiero Banamex Accival, SA de CV, Class L (Mexico)/2/ 92,127 167 .10
AUTOMOBILES - 6.02%
Volvo AB, Class B (Sweden) 1,580,000 34,737 1.47
Bayerische Motoren Werke AG (Germany) 48,000 31,126 1.31
Daimler-Benz AG (Germany)/2/ 320,000 20,907 .88
Toyota Motor Corp. (Japan) 680,000 18,577 .78
Suzuki Motor Corp. (Japan) 1,700,000 17,771 .75
Peugeot SA (France) 110,000 13,524 .57
Hyundai Motor Co. (Global Depositary Receipts) (South Korea) 628,440 6,128 .26
MULTI-INDUSTRY - 5.77%
Orkla AS, Class A (Norway) 755,000 50,297 2.12
Hutchison Whampoa Ltd. (Hong Kong) 3,500,000 27,048 1.14
Industriforvaltnings AB Kinnevik, Class B (Sweden) 305,000 8,547
Industriforvaltnings AB Kinnevik, Class A 101,600 2,756 .48
Benpres Holdings Corp. (Global Depositary Receipts ) (Philippines)/2/ 1,400,000 10,290 .43
Anglovaal LTD, Class N (South Africa) 270,000 8,229 .35
Lend Lease Corp. Ltd. (Australia) 443,522 8,228 .35
Incentive AB, Class A (Sweden) 120,000 8,013 .34
Groupe Bruxelles Lambert SA (Belgium) 57,000 7,230 .31
Brierley Investments Ltd. (New Zealand) 5,985,000 5,362
Brierley Investments Ltd., 9.00% convertible preferred 722,000 626 .25
HEALTH & PERSONAL CARE - 4.92%
AB Astra, Class A (Sweden) 1,120,000 53,755 2.27
Ciba-Geigy Ltd. (Switzerland) 24,540 30,378 1.28
Glaxo Wellcome plc (American Depositary Receipts)
(United Kingdom) 500,000 16,438 .69
Hoya Corp. (Japan) 300,000 11,253 .47
Banyu Pharmaceutical Co., Ltd. (Japan) 250,000 3,206 .14
SmithKline Beecham PLC (American Depositary Receipts) (United Kingdom) 25,000 1,722 .07
ELECTRICAL & ELECTRONICS - 4.66%
ASEA AB, Class A (Sweden) 130,000 15,056
ASEA AB, Class B 69,300 7,974 1.39
BBC Brown Boveri Ltd, Class A (Switzerland) 7,822 9,791
ELECTRICAL & ELECTRONICS (continued)
Telefonaktiebolaget LM Ericsson, Class B (Sweden) 804,600 24,825
Telefonaktiebolaget LM Ericsson, Class B, 4.25% convertible preferred 14,500 62 1.05
Siemens AG (Germany) 400,000 19,278 .81
Nokia Corp., Class A (Finland) 180,000 10,009
Nokia Corp., Class K 150,000 8,309 .77
Northern Telecom Ltd. (Canada) 230,000 15,123 .64
FOOD & HOUSEHOLD PRODUCTS - 4.15%
Nestle SA (Switzerland) 20,936 22,736 .96
Groupe Danone (France) 151,171 22,262 .94
Reckitt & Colman PLC (United Kingdom) 1,687,437 19,884 .84
Cadbury Schweppes PLC (United Kingdom) 2,277,584 19,583 .83
PT Indofood Sukses Makmur (Indonesia) 4,017,000 8,397 .35
Dalgety PLC (United Kingdom) 1,000,000 5,589 .23
BUSINESS & PUBLIC SERVICES - 3.03%
Reuters Holdings PLC (United Kingdom) 2,632,000 31,966 1.35
Rentokil Group PLC (United Kingdom) 2,610,000 19,041 .80
Brambles Industries Ltd. (Australia) 700,000 12,246 .52
NTT Data Communications Systems Corp. (Japan) 160 4,750 .20
Autopistas del Mare Nostrum, SA Concesionaria del Estado (Spain) 250,000 3,848 .16
MACHINERY & ENGINEERING - 2.95%
Mannesmann AG (Germany) 95,000 39,637 1.67
Valmet Corp. (Finland) 600,000 9,886 .42
Svedala Industri AB (Sweden) 530,000 9,085 .38
Kawasaki Heavy Industries, Ltd. (Japan) 1,400,000 6,420 .27
VA Technologie AG (Austria) 31,764 4,998 .21
BEVERAGES & TOBACCO - 2.94%
Coca-Cola Amatil Ltd. (Australia) 2,908,736 32,851 1.39
LVMH Moet Hennessy Louis Vuitton (France) 48,000 12,170 .51
Panamerican Beverages, Inc., Class A (Mexico) 190,000 8,883 .37
San Miguel Corp., Class B (Philippines) 1,870,000 7,470 .32
Swedish Match AB (Sweden) 1,580,000 5,181 .22
South African Breweries Ltd. (South Africa) 121,928 3,075 .13
UTILITIES: ELECTRIC & GAS - 2.85%
Hongkong Electric Holdings Ltd. (Hong Kong) 5,875,000 18,845 .80
Centrais Eletricas Brasileiras SA, Class B, preferred nominative
(American Depositary Receipts) (Brazil) 948,000 15,524 .65
Iberdrola, SA (Spain) 1,275,000 14,708 .62
Korea Electric Power Corp. (South Korea) 188,000 6,011
Korea Electric Power Corp. (American Depositary Receipts) 200,000 3,525 .40
Scottish Power PLC (United Kingdom) 661,200 3,757 .16
Consolidated Electric Power Asia Ltd. (Hong Kong -
Incorporated in Bermuda) 1,181,400 2,781 .12
CESP-Companhia Energetica de Sao Paulo, preferred nominative
(American Depositary Receipts) (Brazil)/2/ 204,096 1,939
CESP-Companhia Energetica de Sao Paulo, ordinary nominative 9,745,000 377 .10
ELECTRONIC COMPONENTS - 2.53%
Rohm Co., Ltd. (Japan) 330,000 20,292 .86
Murata Manufacturing Co., Ltd. (Japan) 420,000 14,352 .61
Kyocera Corp. (Japan) 199,000 12,796 .54
ASM Lithography Holding NV (Netherlands)/2/ 240,000 10,556 .44
Hirose Electric Co., Ltd. (Japan) 30,000 1,818 .08
METALS: NONFERROUS - 2.42%
Western Mining Corp. Holdings Ltd. (Australia) 2,390,451 15,172 .64
Inco Ltd. (Canada) 420,000 14,648 .62
Alcan Aluminium Ltd. (Canada) 310,000 10,928 .46
Noranda Inc. (Canada) 400,000 9,457 .40
Teck Corp., Class B (Canada) 300,000 7,093 .30
MERCHANDISING - 1.87%
Carrefour, SA (France) 20,000 12,355 .52
Tesco PLC (United Kingdom) 2,064,980 11,820 .50
Cifra, SA de CV, Class C (Mexico)/2/ 6,000,000 8,294 .35
Woolworths Ltd. (Australia) 2,533,042 6,307 .27
Amway Japan Ltd. (American Depositary Receipts) (Japan) 300,000 5,588 .23
INSURANCE - 1.82%
Royal Sun Alliance (United Kingdom) 2,978,861 22,458 .95
Internationale Nederlanden Groep NV, warrants, expire 2001
(Netherlands)/2/ 1,500,000 10,266 .43
Corporacion Mapfre, CIR, SA (Spain) 109,798 5,788 .25
National Mutual Asia Ltd. (Hong Kong) 5,000,000 4,559 .19
APPLIANCES & HOUSEHOLD DURABLES - 1.74%
Philips Electronics NV (Netherlands) 464,000 18,742 .79
Sony Corp. (Japan) 224,000 14,344 .61
AB Electrolux, Class B (Sweden) 137,900 8,088 .34
RECREATION & OTHER CONSUMER PRODUCTS - 1.54%
EMI Group PLC (United Kingdom) (formerly THORN EMI) 468,712 10,814 .45
Fuji Photo Film Co., Ltd. (Japan) 300,000 9,408 .40
Sony Music Entertainment Inc. (Japan) 215,000 8,839 .37
Square Co. Ltd. (Japan) 102,000 4,928 .21
PolyGram NV (New York Registered Shares) (Netherlands) 52,500 2,553 .11
BUILDING MATERIALS & COMPONENTS - 1.43%
Cemex, SA de CV, ordinary participation certificates (Mexico) 4,562,700 15,219
Cemex, SA de CV, Class A 2,321,450 7,773 .97
Holderbank Financiere Glaris Ltd. (Switzerland) 15,000 10,833 .46
CHEMICALS - 1.38%
AGA AB, Class B (Sweden) 800,000 12,222
AGA AB, Class A 220,000 3,410 .66
L'Air Liquide (France) 83,159 13,265 .56
Hoechst AG (Germany) 88,000 3,852 .16
MISCELLANEOUS MATERIALS & COMMODITIES - 1.31%
SGL Carbon AG (Germany) 89,600 11,014 .47
De Beers Consolidated Mines Ltd. (South Africa) 345,000 10,533 .44
English China Clays PLC (United Kingdom) 3,168,750 9,535 .40
ENERGY SOURCES - 1.01%
TOTAL, Class B (France) 156,372 12,508
TOTAL, Class B, preferred nominative (American Depositary Receipts) 75,000 3,028 .66
ENI SpA (American Depositary Receipts) (Italy) 140,000 7,350 .31
"Shell" Transport and Trading Co., PLC (United Kingdom) 10,000 998 .04
GOLD MINES - 0.53%
Ashanti Goldfields Co. Ltd. (Global Depositary Receipts) (Ghana) 500,600 7,196
Ashanti Goldfields Co. Ltd. (Australia) 386,088 5,454 .53
Normandy Mining Ltd. (Australia) 7,400,000 9,935 .42
AEROSPACE & MILITARY TECHNOLOGY - 0.60%
Bombardier Inc., Class B (Canada) 793,900 14,122 .60
INDUSTRIAL COMPONENTS - 0.52%
Compagnie Generale des Etablissements Michelin, Class B (France) 220,000 11,286
Compagnie Generale des Etablissements Michelin, .50
2.50% convertible preferred 10,000 574
Orbital Engine Corp. Ltd. (Australia)/2/ 611,040 452 .02
TRANSPORTATION: RAIL & ROAD - 0.50%
TNT Ltd. (Australia)/2/ 5,248,007 10,334
TNT Ltd., 8.00% convertible preferred 783,255 1,555 .50
LEISURE & TOURISM - 0.45%
Mandarin Oriental International Ltd. (Singapore) 6,911,218 10,574 .45
DATA PROCESSING & REPRODUCTION - 0.42%
Olivetti SpA (Italy)/2/ 28,300,000 10,066 .42
TRANSPORTATION: SHIPPING - 0.40%
Stolt-Nielsen SA, Class B (American Depositary Receipts)
(Multinational) 327,000 5,723 .24
Nippon Yusen KK (Japan) 790,000 3,782 .16
METALS: STEEL - 0.36%
Kawasaki Steel Corp. (Japan) 2,700,000 8,467 .36
FOREST PRODUCTS & PAPER - 0.33%
UPM-Kymmene Corp. (Finland)/2/ 385,000 7,712 .33
FINANCIAL SERVICES - 0.19%
ACOM CO., LTD. (Japan) 100,000 4,392 .19
REAL ESTATE - 0.15%
Mitsui Fudosan Co., Ltd. (Japan) 300,000 3,558 .15
MISCELLANEOUS
Other stocks in initial period of acquisition 118,420 5.00
------------------------
TOTAL STOCKS (cost: $1,785,725,000) 2,157,219 91.04
------------------------
Principal
Amount
Convertible Debentures (000)
- --------------------------------------------------------------------- ------------- -----------------------
ELECTRIC & GAS - 0.21%
Korea Electric Power Corp 5.00% 2001 KW5,000 4,925 .21
FOREST PRODUCTS & PAPER - 0.18%
UPM-Kymmene Corp. 8.25% 2043 FM17,000 4,183 .18
ELECTRONIC COMPONENTS - 0.08%
Acer Peripherals Inc. 1.25% 2006 $2000 2,010 .08
AUTOMOBILES - 0.01%
Daimler-Benz AG 4.125% 2003 DM463 348 .01
----------------------
TOTAL CONVERTIBLE DEBENTURES (cost: $11,595,000) 11,466 .48
----------------------
TOTAL EQUITY-TYPE SECURITIES (cost: $1,797,320,000) 2,168,685 91.52
----------------------
Principal Market Percent
Amount Value of Net
Short-Term Securities (000) (000) Assets
- --------------------------------------------------------------------- ------------- ----------------------
CORPORATE SHORT-TERM NOTES - 6.90%
Daimler-Benz North America Corp. 5.34%-5.42% due 12/11-12/17/96 $20,400 20,355 .86
Panasonic Finance Inc. 5.28% due 2/7/97/1/ 20,000 19,795 .84
Siemens Corp. 5.24%-5.31% due 12/5/96-1/31/97 19,800 19,685 .83
SmithKline Beecham Corp. 5.23%-5.25% due 12/2-12/3/96 19,600 19,594 .83
Toyota Motor Corp. 5.28%-5.29% due 12/3-12/4/96 16,200 16,192 .68
France Telecom 5.30% due 2/10-2/25/97 13,990 13,823 .58
Halifax Building Society 5.40% due 1/3/97 13,300 13,232 .56
Canada Bills 5.23%-5.27% due 12/9-12/12/96 13,200 13,181 .56
Sony Capital Corp. 5.31% due 1/13-1/15/97/1/ 8,100 8,046 .34
Abbey National North America 5.31% due 12/30/96 7,000 6,969 .29
Svenska Handelsbanken Inc. 5.43% due 12/19/96 5,000 4,986 .21
Dresdner U.S. Finance Inc. 5.30% due 1/6/97 4,000 3,978 .17
ABN AMRO North America Finance Inc. 5.50% due 12/3/96 3,600 3,598 .15
CERTIFICATES OF DEPOSIT - 0.21%
National Westminster Bank PLC 5.53% due 12/12/96 5,000 5,000 .21
-----------------------
TOTAL SHORT-TERM SECURITIES (cost: $168,440,000) 168,434 7.11
-----------------------
TOTAL INVESTMENT SECURITIES (cost: $1,965,760,000) 2,337,119 98.63
Excess of cash and receivables over payables 32,509 1.37
-----------------------
NET ASSETS 2,369,628 100.00%
======== ========
/1/ Purchased in a private placement transaction; resale to the public
may require registration or sale only to qualified institutional buyers.
/2/ Non-income-producing securities.
See Notes to Financial Statements
Equity-type securities appearing in the portfolio
since May 31, 1996
Acer Peripherals
Anglovaal
ASM Lithography Holding
Benpres Holdings
De Beers Consolidated Mines
Hirose Electric
Hoechst
Hong Kong Telecommunications
Hyundai Motor
Kawasaki Steel
Korea Electric Power
Korea Mobile Telecommunications
Mediaset
Mitsui Fudosan
Multicanal Participacoes
Normandy Mining
Pathe
SGL Carbon
"Shell" Transport and Trading
SmarTone Telecommunications Holdings
SmithKline Beecham
Sony Music Entertainment
Square
Svedala Industri
Telefonica del Peru
Equity-type securities eliminated from the portfolio
since May 31, 1996
Air New Zealand
Atlas Copco
Autopistas, Concesionaria Espanola
Banco Popular Espanol
Bank of Montreal
BARCO nv
British Airways
British Sky Broadcasting Group
Canadian National Railway
Chargeurs
China Light & Power
Compagnie de Saint-Gobain
Deutsche Bank
Engen
Hazlewood Foods
Irish Life
Ito-Yokado
ITOCHU
John Fairfax Holdings
Munchener Ruckversicherungs-Gesellschaft
NetCom Systems
News International
Nippon Telegraph and Telephone
Pohang Iron & Steel
Preussag
Rank Organisation
Securicor Group
Sidel
Sun Hung Kai Properties
Svenskt Stal
Swire Pacific
Tele Danmark
Telefonica de Sao Paulo
Uni-Charm
Vodafone Group
</TABLE>
<TABLE>
<S> <C> <C> <C>
American Variable Insurance Series
GROWTH-INCOME FUND
Investment Portfolio - November 30, 1996
Stocks 84.96%
Cash & Equivalents 15.04%
Percent
of Net
Largest Individual Stocks Assets
AT&T 1.62%
Aluminum Co. of America 1.43
Walt Disney 1.39
Atlantic Richfield 1.31
Potash Corp. of Saskatchewan 1.19
Seagram 1.17
WMX Technologies 1.12
Schering-Plough 1.09
Bowater 1.07
Philip Morris 1.05
Number Market Percent
of Value of Net
Stocks (common and preferred) Shares (000) Assets
Energy Sources - 8.79%
Atlantic Richfield Co. 495,000 68,867 1.31%
Phillips Petroleum Co. 1,075,000 48,509 .93
Diamond Shamrock, Inc. 1,460,000 47,450 .90
Amoco Corp. 600,000 46,575 .89
Pennzoil Co. 750,000 42,188 .80
Valero Energy Corp. 1,275,000 38,250 .73
Unocal Corp. 835,000 34,026 .65
Exxon Corp. 300,000 28,387 .54
Texaco Inc. 175,000 17,347 .33
Royal Dutch Petroleum Co. (New York Registered Shares)
(Netherlands) 100,000 16,988 .32
Chevron Corp. 250,000 16,750 .32
TOTAL, Class B (American Depositary Receipts) (France) 409,455 16,532 .32
Union Pacific Resources Group, Inc. 419,281 12,526 .24
Ashland Inc. 200,000 9,600 .18
Societe Nationale Elf Aquitaine (American Depositary Receipts) .00
(France) 200,000 8,775 .17
Murphy Oil Corp. 163,200 8,323 .16
Health & Personal Care - 6.82%
Schering-Plough Corp. 800,000 57,000 1.09
Pfizer Inc 600,000 53,775 1.02
Merck & Co., Inc. 575,000 47,725 .91
American Home Products Corp. 660,000 42,405 .81
Warner-Lambert Co. 520,000 37,180 .71
Kimberly-Clark Corp. 370,000 36,167 .69
Abbott Laboratories 350,000 19,513 .37
Johnson & Johnson 300,000 15,938 .30
AB Astra, Class A (American Depositary Receipts) (Sweden) 300,000 14,475 .28
Eli Lilly and Co. 180,000 13,770 .26
Bristol-Myers Squibb Co. 100,000 11,375 .22
Tambrands Inc. 200,000 8,550 .16
Banking - 6.44%
Norwest Corp. 800,000 37,400 .71
First Union Corp. 365,000 27,877 .53
PNC Bank Corp. 700,000 27,650 .53
BankAmerica Corp. 260,000 26,780 .51
Banc One Corp. 551,375 26,259 .50
KeyCorp 450,000 23,569 .45
SunTrust Banks, Inc. 450,000 22,837 .43
Chase Manhattan Corp. 200,000 18,900 .36
National City Corp. 400,000 18,550 .35
Fleet Financial Group, Inc. 300,000 16,613 .32
First Chicago NBD Corp. 250,000 14,687 .28
Northern Trust Corp. 200,000 14,525 .28
Bank of New York Co., Inc. 400,000 14,350 .27
Wells Fargo & Co. 50,000 14,231 .27
CoreStates Financial Corp 250,000 13,469 .26
Citicorp 100,000 10,925 .21
J.P. Morgan & Co. Inc. 100,000 9,438 .18
Business & Public Services - 5.89%
WMX Technologies, Inc. 1,630,000 58,680 1.12
Browning-Ferris Industries, Inc. 1,450,000 38,969 .74
Cognizant Corp./1/ 960,000 33,120 .63
Electronic Data Systems Corp.
(formerly General Motors Corp., Class E) 649,500 31,419 .60
Alexander & Baldwin, Inc. 1,020,000 27,030 .51
Dun & Bradstreet Corp. 960,000 21,720 .41
Omnicom Group Inc. 340,000 17,340 .33
Federal Express Corp./1/ 380,000 16,815 .32
Manpower Inc. 450,000 14,681 .28
PacifiCare Health Systems, Inc., Class A/1/ 160,000 12,640 .24
Humana Inc./1/ 600,000 11,325 .22
Pitney Bowes Inc. 175,000 10,325 .20
Ecolab Inc. 250,000 9,719 .18
A.C. Nielsen Corp./1/ 320,000 5,560 .11
Broadcasting & Publishing - 4.11%
Viacom Inc., Class B/1/ 1,235,000 46,621 .89
Time Warner Inc. 942,000 38,386 .73
News Corp. Ltd. (American Depositary Receipts) (Australia) 1,100,000 23,375
News Corp. Ltd., preferred shares (American Depositary
Receipts) 400,000 6,900 .58
New York Times Co., Class A 645,000 24,107 .46
E.W. Scripps Co., Class A 630,000 21,892 .42
U S WEST Media Group/1/ 775,000 14,822 .28
Gannett Co., Inc. 170,000 13,345 .25
Comcast Corp., Class A, special stock 729,706 12,223 .23
Tele-Communications, Inc., Series A, Liberty
Media Group/1/ 393,750 9,844 .19
Chris-Craft Industries, Inc./1/ 101,821 4,162 .08
Telecommunications- 4.06%
AT&T Corp. 2,170,000 85,172 1.62
Ameritech Corp. 804,100 47,341 .90
U S WEST Communications, Inc. 850,000 26,563 .51
Telefonos de Mexico, SA de CV, Class L
(American Depositary Receipts) (Mexico) 575,000 17,466 .33
MCI Communications Corp. 539,800 16,464 .31
AirTouch Communications/1/ 449,621 11,522 .22
SBC Communications Inc. 100,000 5,262 .10
ALLTEL Corp. 108,200 3,449 .07
Merchandising - 3.74%
Circuit City Stores, Inc. 1,418,000 47,326 .90
Wal-Mart Stores, Inc. 1,650,000 42,075 .80
Limited Inc. 1,294,900 23,308 .45
Giant Food Inc., Class A 450,000 15,187 .29
Federated Department Stores/1/ 400,000 13,650 .26
J.C. Penney Co., Inc. 250,000 13,437 .26
Mercantile Stores Co., Inc. 250,000 12,563 .24
May Department Stores Co. 250,000 12,188 .23
Sears, Roebuck and Co. 200,000 9,950 .19
Gap, Inc. 200,000 6,425 .12
Chemicals - 3.71%
Mallinckrodt, Inc. 799,600 35,182 .67
Praxair, Inc. 600,000 29,175 .56
Monsanto Co. 673,000 26,752 .51
E.I. du Pont de Nemours and Co. 275,000 25,919 .49
Dow Chemical Co. 180,000 15,075 .29
Great Lakes Chemical Corp. 250,000 13,406 .26
Imperial Chemical Industries PLC (American
Depositary Receipts) (United Kingdom) 200,000 10,350 .20
Eastman Chemical Co. 175,000 9,997 .19
PPG Industries, Inc. 140,000 8,575 .16
Lyondell Petrochemical Co. 340,000 7,650 .15
Air Products and Chemicals, Inc. 100,000 6,950 .13
Engelhard Corp. 284,400 5,546 .10
Forest Products & Paper - 3.50%
Bowater Inc. 1,495,000 56,249 1.07
Union Camp Corp. 750,000 36,844 .70
Weyerhaeuser Co. 450,000 20,700 .40
Rayonier Inc. 525,000 20,344 .39
International Paper Co. 450,000 19,125 .36
Georgia-Pacific Corp. 150,000 10,912 .21
James River Corp. of Virginia 300,000 9,600 .18
Westvaco Corp. 187,500 5,297 .10
Louisiana-Pacific Corp. 200,000 4,525 .09
Insurance - 3.15%
SAFECO Corp. 1,078,800 44,905 .86
General Re Corp. 156,000 26,325 .50
Allstate Corp. 400,000 24,100 .46
American General Corp. 420,000 17,272 .33
Liberty Corp. 350,000 13,344 .25
Aetna Inc. 181,100 13,062 .25
AMBAC Inc. 129,900 8,898 .17
St. Paul Companies, Inc. 120,000 7,065 .13
Arthur J. Gallagher & Co. 188,100 5,784 .11
American International Group, Inc. 41,250 4,744 .09
Machinery & Engineering - 3.08%
Caterpillar Inc. 625,000 49,453 .94
Parker Hannifin Corp. 1,000,000 40,625 .77
Deere & Co. 716,600 31,978 .61
Ingersoll-Rand Co. 350,000 16,275 .31
Crompton & Knowles Corp. 700,000 12,863 .25
Greenfield Capital Trust, 6.00% convertible preferred/2/ 118,000 5,428 .10
Case Corp. 100,000 5,250 .10
Beverages & Tobacco - 2.84%
Seagram Co. Ltd. (Canada) 1,500,000 61,313 1.17
Philip Morris Companies Inc. 535,000 55,172 1.05
PepsiCo, Inc. 870,000 25,991 .49
Anheuser-Busch Companies, Inc. 160,000 6,780 .13
Food & Household Products - 2.71%
Unilever NV (New York Registered Shares) (Netherlands) 250,000 43,281 .82
McCormick & Co. 950,000 23,394 .45
Archer Daniels Midland Co. 850,000 18,700 .36
CPC International Inc. 200,000 16,650 .32
H.J. Heinz Co. 375,000 14,203 .27
General Mills, Inc. 210,200 13,348 .25
ConAgra, Inc. 240,000 12,750 .24
Aerospace & Military Technology - 2.15%
United Technologies Corp. 145,000 20,336 .39
General Motors Corp., Class H 370,000 20,165 .38
Boeing Co. 200,000 19,875 .38
Sundstrand Corp. 500,000 19,500 .37
Raytheon Co. 350,000 17,894 .34
Litton Industries, Inc./1/ 321,800 15,044 .29
Miscellaneous Materials & Commodities - 2.05%
Potash Corp. of Saskatchewan Inc. (Canada) 830,000 62,561 1.19
Crown Cork & Seal Co., Inc. 450,000 23,850 .46
Pioneer Hi-Bred International, Inc. 300,000 20,925 .40
Metals: Nonferrous - 1.78%
Aluminum Co. of America 1,180,000 75,078 1.43
Inco Ltd. (Canada) 280,000 9,765 .18
Alumax Inc./1/ 160,000 5,180 .10
Phelps Dodge Corp. 50,000 3,631 .07
Recreation & Other Consumer Products - 1.74%
Polaroid Corp. 950,000 40,494 .77
Eastman Kodak Co. 220,000 17,820 .34
Stanley Works 400,000 11,800 .22
American Greetings Corp., Class A 400,000 11,300 .22
Duracell International Inc. 150,000 9,994 .19
Financial Services - 1.74%
Household International, Inc. 300,000 28,425 .54
Beneficial Corp. 400,000 24,850 .47
Finova Group Inc. 180,000 11,880 .23
ADVANTA Corp., Class A 200,000 8,900 .17
American Express Co. 170,000 8,882 .17
Capital One Financial Corp. 150,000 5,419 .10
Associates First Capital Corp., Class A 60,000 2,903 .06
Transportation: Rail & Road - 1.68%
Conrail, Inc. 352,122 34,244 .65
Union Pacific Corp. 548,250 31,935 .61
Norfolk Southern Corp. 245,000 22,050 .42
Leisure & Tourism - 1.67%
Walt Disney Co. 989,932 73,007 1.39
Host Marriott Corp./1/ 600,000 9,150 .17
Marriott International, Inc. 100,000 5,575 .11
Data Processing & Reproduction - 1.50%
Silicon Graphics, Inc./1/ 1,300,000 25,837 .49
Xerox Corp. 510,000 25,054 .48
Adobe Systems Inc. 400,000 15,800 .30
International Business Machines Corp. 75,000 11,953 .23
Electronic Components - 1.41%
Texas Instruments Inc. 500,000 31,875 .61
Intel Corp. 200,000 25,375 .48
Linear Technology Corp. 350,000 16,494 .32
Multi-Industry - 1.36%
Tenneco Inc. 555,000 28,305 .54
Textron Inc. 170,000 16,214 .31
AlliedSignal Inc. 200,000 14,650 .28
Harsco Corp. 100,000 6,975 .13
Minnesota Mining and Manufacturing Co. 60,000 5,025 .10
Energy Equipment - 1.21%
Western Atlas Inc./1/ 296,800 20,924 .40
Schlumberger Ltd. (Netherlands Antilles) 170,000 17,680 .34
Baker Hughes Inc. 300,000 10,988 .21
Cooper Industries, Inc. 179,802 7,462 .14
Dresser Industries, Inc. 200,000 6,550 .12
Electrical & Electronics - 0.93%
Nokia Corp., Class A (American Depositary Receipts) (Finland)
(Finland) 600,000 33,675 .64
Lucent Technologies Inc. 297,136 15,228 .29
Telefonaktiebolaget LM Ericsson, Class B
(American Depositary Receipts) (Sweden) 350,000 10,806 .21
Industrial Components - 1.02%
Goodyear Tire & Rubber Co. 595,000 28,857 .55
Rockwell International Corp. 200,000 12,850 .24
Dana Corp. 231,800 7,215 .14
ITT Industries, Inc. 200,000 4,675 .09
Utilities: Electric & Gas - 0.95%
Union Electric Co. 500,000 19,875 .38
Consolidated Edison Co. of New York, Inc. 450,000 13,050 .25
Pacific Gas and Electric Co. 500,000 12,062 .23
Edison International 250,000 4,969 .09
Automobiles - 0.95%
General Motors Corp. 550,000 31,694 .61
Ford Motor Co., Class A 550,000 18,012 .34
Transportation: Airlines - 0.80%
AMR Corp./1/ 412,500 37,641 .72
Delta Air Lines, Inc. 60,000 4,515 .08
Appliances & Household Durables - 0.71%
Corning Inc. 670,000 27,135 .52
Philips Electronics NV (New York Registered Shares)
(Netherlands) 250,000 10,125 .19
Textiles & Apparel - 0.30%
VF Corp. 230,000 15,611 .30
Electronic Instruments
Imation Corp./1/ 6,000 182 .00
Miscellaneous
Other stocks in initial period of acquisition 103,038 1.96
- -
TOTAL STOCKS (cost: $3,221,455,000) 4,459,328 84.96
- -
Short-Term Securities
Corporate Short-Term Notes - 12.05%
H.J. Heinz Co. 5.23%-5.30% due 12/9/96-1/8/97 68,900 68,709 1.31
IBM Credit Corp. 5.30% due 1/15-1/30/97 56,200 55,750 1.06
Coca-Cola Co. 5.25% due 12/19-12/26/96 55,000 54,822 1.04
Lucent Technologies Inc. 5.24%-5.29% due 12/3/96-2/5/97 53,200 52,973 1.01
Walt Disney Co. 5.26%-5.28% due 1/7-2/14/97 50,200 49,779 .95
Southwestern Bell Capital Corp. 5.24%-5.30%
due 12/3/96-1/22/97/2/ 43,000 42,846 .82
General Electric Capital Corp. 5.25%-5.34%
due 12/18/96-1/29/97 42,800 42,486 .81
National Rural Utilities Cooperative Finance Corp. 5.28%-5.31%
due 1/6-2/18/97 41,200 40,839 .78
Weyerhaeuser Co. 5.28%-5.30% due 1/13-1/24/97 39,700 39,415 .75
Hershey Foods Corp. 5.24%-5.26% due 12/2/96-1/14/97 34,600 34,466 .66
Kellogg Co. 5.23%-5.30% due 12/4/96-1/2/97 27,000 26,949 .51
American Express Credit Corp. 5.32% due 1/6/97 26,800 26,653 .51
Monsanto Co. 5.25% due 12/13/96/2/ 25,200 25,152 .48
Sara Lee Corp. 5.28% due 12/27/96 20,000 19,921 .38
Beneficial Corp. 5.30% due 1/16/97 16,000 15,889 .30
Gannett Co., Inc. 5.25% due 12/5/96/2/ 13,600 13,590 .26
J.C. Penney Funding Corp. 5.24%-5.25% due 12/10-12/20/96 12,200 12,176 .23
United Parcel Service of America Inc. 5.40% due 12/11/96 10,000 9,984 .19
Federal Agency Discount Notes - 1.52%
Federal Home Loan Mortgage Corp. 5.215% due 12/11-12/16/96 79,715 79,560 1.52
Certificates of Deposit - 0.95%
Morgan Guaranty Trust Co. of New York 5.29% due 12/12/96 50,000 50,000 .95
- -
TOTAL SHORT-TERM SECURITIES (cost: $761,970,000) 761,959 14.52
- -
TOTAL INVESTMENT SECURITIES (cost: $3,983,425,000) 5,221,287 99.48
Excess of cash and receivables
over payables 27,353 .52
- -
NET ASSETS 5,248,640 100.00%
=======================
/1/ Non-income-producing securities.
/2/ Purchased in a private placement transaction; resale to the public
may require registration or sale only to qualified institutional buyers.
See Notes to Financial Statements
Stocks appearing in the portfolio
since May 31, 1996
AB Astra
A.C. Nielsen
Aetna
Air Products and Chemicals
Ashland
Associates First Capital
Circuit City Stores
Cognizant
Comcast
Crown Cork & Seal
Dresser Industries
Federated Department Stores
Finova Group
Humana
Imation
ITT Industries
Limited
Linear Technology
Lucent Technologies
Lyondell Petrochemical
McCormick & Co.
PacifiCare Health Systems
Pennzoil
Philips Electronics
Pioneer Hi-Bred International
Raytheon
Societe Nationale Elf Aquitaine
Telefonaktiebolaget LM Ericsson
Union Pacific
Stocks eliminated from the portfolio
since May 31, 1996
360/0/ Communications
Bankers Trust New York
Bausch & Lomb
Betz Laboratories
Boatmen's Bancshares
Cleveland-Cliffs
Colgate-Palmolive
Cox Communications
Digital Equipment
General Electric
General Public Utilities
Johnson Controls
LADD Furniture
McKesson
Novell
Oracle
Pacific Telesis Group
Southern Pacific Rail
TIG Holdings
Times Mirror
Tosco
Tribune
TRINOVA
TRW
Walgreen
</TABLE>
<TABLE>
<S> <C> <C> <C>
Percent
Asset Allocation Fund of Net
Investment Portfolio November 30, 1996 Assets
- ---------------------------------------------------- ----------
Equity-Type Securities 62.13%
Cash & Equivalents 14.30
U.S. Government Bonds 12.05
Corporate Bonds 11.31
Non-U.S. Government Bonds .21
LARGEST INDIVIDUAL EQUITIES
Atlantic Richfield 1.95%
Warner-Lambert 1.88
Pfizer 1.81
Rockwell International 1.74
DuPont 1.65
Tenneco 1.56
NationsBank 1.41
Rentokil Group 1.39
J.C. Penney 1.37
PepsiCo 1.36
Market Percent
Number of Value of Net
Stocks (common and preferred) Shares (000) Assets
- ---------------------------------------------------- ---------- ---------- ----------
Energy Sources- 7.21%
Atlantic Richfield Co. 160,000 22,260 1.95%
Royal Dutch Petroleum Co. (New York Registered
Shares) (Netherlands) 90,000 15,289 1.34
Chevron Corp. 225,000 15,075 1.32
Phillips Petroleum Co. 200,000 9,025 .79
Kerr-McGee Corp. 100,000 7,000 .61
Diamond Shamrock, Inc. 175,000 5,687 .50
Amoco Corp. 60,000 4,658 .41
Unocal Corp. 80,000 3,260 .29
Health & Personal Care- 7.06%
Warner-Lambert Co. 300,000 21,450 1.88
Pfizer Inc 230,000 20,614 1.81
SmithKline Beecham PLC (American Depositary
Receipts) (United Kingdom) 150,000 10,331 .90
Bristol-Myers Squibb Co. 70,000 7,962 .70
Tambrands Inc. 170,000 7,268 .64
American Home Products Corp. 110,000 7,068 .62
Kimberly-Clark Corp. 60,000 5,865 .51
Banking- 7.03%
NationsBank Corp. 155,000 16,062 1.41
Citicorp 140,000 15,295 1.34
First Union Corp. 94,500 7,217 .63
Jefferson BankShares, Inc. 238,700 6,997 .61
CoreStates Financial Corp 125,000 6,734 .59
Fleet Financial Group, Inc. 120,000 6,645 .58
H.F. Ahmanson & Co. 200,000 6,600 .58
PNC Bank Corp. 135,000 5,333 .47
BankAmerica Corp. 50,000 5,150 .45
KeyCorp 80,000 4,190 .37
Merchandising- 5.91%
J.C. Penney Co., Inc. 290,000 15,587 1.37
Wal-Mart Stores, Inc. 525,000 13,388 1.17
Walgreen Co. 300,000 12,525 1.10
Limited Inc. 550,000 9,900 .87
May Department Stores Co. 125,000 6,094 .53
Circuit City Stores, Inc. 130,000 4,339 .38
Sears, Roebuck and Co. 60,000 2,985 .26
Mercantile Stores Co., Inc. 52,400 2,633 .23
Chemicals- 4.92%
E.I. du Pont de Nemours and Co. 200,000 18,850 1.65
Air Products and Chemicals, Inc. 195,000 13,552 1.19
PPG Industries, Inc. 150,000 9,187 .81
Mallinckrodt Inc. 150,000 6,600 .58
Armor All Products Corp. 250,000 4,719 .41
Great Lakes Chemical Corp. 60,000 3,218 .28
Industrial Components- 2.74%
Rockwell International Corp. 310,000 19,917 1.74
Echlin Inc. 200,000 6,725 .59
Dana Corp. 150,000 4,669 .41
Food & Household Products- 2.37%
McCormick & Co. 400,000 9,850 .86
General Mills, Inc. 100,000 6,350 .56
H.J. Heinz Co. 150,000 5,681 .50
Archer Daniels Midland Co. 236,250 5,198 .45
Insurance- 2.25%
American General Corp. 176,700 7,267 .64
CIGNA Corp. 50,000 7,069 .62
SAFECO Corp. 150,000 6,244 .55
General Re Corp. 30,000 5,062 .44
Beverages & Tobacco- 2.19%
PepsiCo, Inc. 520,000 15,535 1.36
Seagram Co. Ltd. (Canada) 230,000 9,401 .83
Business & Public Services- 2.13%
Rentokil Group PLC (American Depositary Receipts)
(United Kingdom) 214,000 15,836 1.39
Dun & Bradstreet Corp. 200,000 4,525 .39
Alexander & Baldwin, Inc. 150,000 3,975 .35
Multi-Industry- 2.06%
Tenneco Inc. 350,000 17,850 1.56
Textron Inc. 60,000 5,722 .50
Recreation & Other Consumer Products- 1.96%
American Greetings Corp., Class A 300,000 8,475 .74
Duracell International Inc. 120,000 7,995 .70
Stanley Works 200,000 5,900 .52
Forest Products & Paper- 1.71%
Georgia-Pacific Corp. 100,000 7,275 .64
Union Camp Corp. 100,000 4,912 .43
Weyerhaeuser Co. 100,000 4,600 .40
Rayonier Inc. 70,000 2,713 .24
Transportation: Rail & Road- 1.56%
Union Pacific Corp. 230,000 13,397 1.17
Conrail, Inc. 45,929 4,467 .39
Aerospace & Military Technology- 1.48%
General Motors Corp., Class H 200,000 10,900 .96
Boeing Co. 60,000 5,963 .52
Electrical & Electronics- 1.30%
Nokia Corp., Class A (American Depositary
Receipts) (Finland) 170,000 9,541 .84
Hubbell Inc., Class B 126,000 5,292 .46
Machinery & Engineering- 1.19%
Deere & Co. 180,000 8,032 .71
Crompton & Knowles Corp. 300,000 5,513 .48
Leisure & Tourism- 1.11%
Carnival Corp., Class A 400,000 12,650 1.11
Data Processing & Reproduction- 0.87%
Adobe Systems Inc. 130,000 5,135 .45
International Business Machines Corp. 30,000 4,781 .42
Telecommunications- 0.80%
Pacific Telesis Group 150,000 5,550 .49
AT&T Corp. 90,000 3,533 .31
Metals: Nonferrous- 0.78%
Aluminum Co. of America 140,000 8,907 .78
Miscellaneous Materials & Commodities- 0.53%
Potash Corp. of Saskatchewan Inc. (Canada) 80,000 6,030 .53
Automobiles- 0.50%
General Motors Corp. 100,000 5,762 .50
Broadcasting & Publishing- 0.44%
Time Warner Inc., preferred equity redemption
cumulative stock 55,000 2,200
Time Warner Inc., 10.25% cumulative exchangeable
preferred, Series K/1/ 2,597 2,811 .44
----------- -----------
TOTAL STOCKS (cost: $504,469,000) 685,822 60.10
----------- -----------
Principal
Amount
Convertible Debentures (000)
- ---------------------------------------------------- ---------- ---------- ----------
Industrials & Services- 0.90%
Turner Broadcasting System, Inc. 0% 2007/1/ 10,000 4,850 .43
Hanson America Inc. 2.39% 2001/1/ 5,000 4,375 .38
Time Warner Inc. 0% 2012 2,500 944 .08
Discovery Zone 0% 2013 6,000 75 .01
Telecommunications- 0.25%
U S WEST Communications, Inc. 0% 2011 8,000 2,890 .25
---------- ----------
TOTAL CONVERTIBLE DEBENTURES (cost: $14,695,000) 13,134 1.15
---------- ----------
MISCELLANEOUS
Other equity-type securities in initial period of
acquisition (cost:$9,725,000) 9,986 .88
---------- ----------
TOTAL EQUITY-TYPE SECURITIES (cost: $528,889,000) 708,942 62.13
---------- ----------
Bonds & Notes
- -----------------------------------------------
Industrials- 9.06%
Oryx Energy Co.:
9.50% 1999 3,000 3,195
8.375% 2004 2,500 2,641
10.00% 1999 1,000 1,070 .61
Time Warner Inc. 9.125% 2013 4,000 4,430 .39
Inco Ltd.:
9.60% 2022 2,000 2,240
9.875% 2019 1,500 1,621 .34
News America Holdings Inc.:
10.125% 2012 2,000 2,369
7.43% 2026 1,250 1,303 .32
Mobil Corp. 8.00% 2032 3,000 3,182 .28
Allegiance Corp. 7.00% 2026 3,000 3,105 .27
General Motors Corp. 8.80% 2021 2,500 2,948 .26
USX Corp. 9.125% 2013 2,500 2,896 .25
Dayton Hudson Corp. 8.50% 2022 2,500 2,666 .23
Philips Electronics NV 7.20% 2026 2,500 2,597 .23
360/0/ Communications Co. 7.50% 2006 2,500 2,530 .22
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 2,500 2,525 .22
OXYMAR 7.50% 2016/1/ 2,500 2,450 .21
Acme Metals Inc. 12.50% 2002 2,000 2,140 .19
Container Corp. of America 9.75% 2003 2,000 2,085 .18
CenCall Communications Corp. 0%/10.125% 2004/2/ 3,000 1,995 .18
TCI Communications, Inc. 8.75% 2015 2,000 1,967 .17
Tele-Communications, Inc. 9.25% 2023 2,000 1,957 .17
Unisys Corp. 11.75% 2004 1,750 1,829 .16
Comtel Brasileira Ltda. 10.75% 2004/1/ 1,500 1,556 .14
Loehmann's, Inc. 11.875% 2003 1,000 1,080 .09
Omnipoint Corp. 11.625% 2006/1/ 1,000 1,052 .09
Kaiser Aluminum Corp. 12.75% 2003 750 791 .07
PriCellular Wireless Corp. 10.75% 2004/1/ 750 780 .07
Woolworth Corp., Series A, 7.00% 2002 750 753 .07
Federal Agency Obligations-Mortgage
Pass-Throughs /4/- 3.65%
Government National Mortgage Assn.:
8.00% 2020-2026 20,729 21,438
7.50% 2026 9,900 10,042
8.50% 2022-2026 5,695 5,980
10.00% 2019 1,384 1,525 3.42
Federal National Mortgage Assn.:
7.00% 2009 1,812 1,826
9.00% 2019 759 809 .23
Financial- 3.48%
Capital One Bank:
7.35% 2000 7,500 7,699
7.15% 2006 2,000 2,051 .85
General Motors Acceptance Corp.:
8.875% 2010 3,235 3,865
9.625% 2001 2,000 2,275 .54
Ocwen Financial Corp. 11.875% 2003 2,850 3,028 .26
Aetna Services, Inc. 6.97% 2036 2,500 2,593 .23
Terra Nova (Bermuda) Holdings Ltd. 10.75% 2005 2,000 2,265 .20
First Union Corp. 6.82%/7.57% 2026/2/ 2,000 2,059 .18
Chevy Chase Bank, F.S.B. 9.25% 2008 2,000 2,020 .18
American Re Corp. 10.875% 2004 1,500 1,623 .14
B.F. Saul Real Estate Investment Trust 11.625% 2002 1,500 1,620 .14
First Nationwide Holdings Inc. 10.625% 2003/1/ 1,500 1,605 .14
Security Capital Industrial Trust 7.95% 2008 1,500 1,587 .14
Shopping Center Associates 6.75% 2004/1/ 1,500 1,488 .13
Irvine Co. 7.46% 2006/1/ /3/ 1,500 1,466 .13
Metropolitan Life Insurance Co. 7.45% 2023/1/ 1,500 1,438 .12
National Westminster Bancorp Inc. 9.45% 2001 1,000 1,124 .10
Collateralized Mortgage Obligations
(Privately Originated) /4/- 2.05%
Continental Airlines, Inc.:
1996-A, 6.94% 2013/1/ 4,000 4,045
1996-2C, 10.22% 2014/1/ 2,250 2,693 .59
United Air Lines, Inc.:
1996-A2, 7.87% 2019 2,500 2,512
1995-A1, 9.02% 2012 1,417 1,573 .36
Delta Air Lines, Inc.:
1993-A2, 10.50% 2016 2,000 2,481
1992-A2, 9.20% 2014 1,000 1,128 .31
Airplanes Pass Through Trust, Class C, 8.15% 2019 3,000 3,157 .28
Jet Equipment Trust, Series 1995-B, 7.83% 2015/1/ 2,431 2,575 .22
USAir, Inc., 1996-B, 7.50% 2008/1/ 1,948 2,026 .18
Federal Express Corp. 7.53% 2006 1,238 1,279 .11
Federal Agency Obligations-Other- 1.42%
Federal National Mortgage Assn.:
6.53% 2006 10,000 9,742
7.52% 2004 4,000 4,090 1.21
Federal Home Loan Mortgage Corp. 6.555% 2006 2,400 2,358 .21
Non-U.S. Government Obligations- 0.21%
Israel (State of) 6.375% 2005 2,500 2,437 .21
Transportation- 0.15%
AMR Corp. 9.75% 2000 1,000 1,090 .10
United Air Lines, Inc. 9.00% 2003 500 549 .05
Asset-Backed Obligations 4- 0.13%
Green Tree Financial Corp., Series 1995-A, Class NIM,
7.25% 2005 1,429 1,427 .13
Electric & Gas Utilities- 0.09%
Columbia Gas System Inc., Series E, 7.32% 2010 1,000 1,017 .09
U.S. Treasury Obligations- 6.98%
10.375% 2012 17,000 22,453
7.25% 2004 13,000 13,985
7.125% 2000 8,000 8,325
8.75% 1997 6,000 6,166
8.75% 2008 5,000 5,738
8.25% 2005 5,000 5,335
9.25% 1998 5,000 5,295
8.75% 2000 3,000 3,295
8.875% 1999 2,500 2,666
11.125% 2003 2,000 2,563
10.375% 2009 2,000 2,528
11.75% 2010 500 679
10.75% 2003 500 627 6.98
---------- ----------
TOTAL BONDS & NOTES (cost: $264,266,000) 269,013 23.57
---------- ----------
Short-Term Securities
- ------------------------------------------------
Corporate Short-Term Notes- 12.66%
J.C. Penney Funding Corp. 5.23%-5.31% due 12/12/96-1/30/97 25,300 25,218 2.21
American Express Credit Corp. 5.25%-5.26% due 12/5-12/18/96 20,000 19,967 1.75
Warner-Lambert Co. 5.28% due 3/5/97/1/ 20,000 19,721 1.73
Lucent Technologies Inc. 5.24%-5.26% due 12/5/96-1/6/97 13,500 13,467 1.18
PACCAR Financial Corp. 5.24% due 12/19/96 12,000 11,967 1.05
Walt Disney Co. 5.28% due 1/7/97 10,700 10,640 .93
Hershey Foods Corp. 5.24% due 12/2/96 10,400 10,397 .91
Sara Lee Corp. 5.28% due 12/27/96 10,000 9,961 .87
IBM Credit Corp. 5.30% due 1/15-1/30/97 9,900 9,820 .86
General Electric Capital Corp. 5.34% due 1/29/97 7,700 7,631 .67
National Rural Utilities Cooperative Finance Corp.
5.30% due 12/13/96 5,700 5,689 .50
Federal Agency Discount Notes- 1.14%
Federal National Mortgage Assn. 5.45% due 12/10/96 13,000 12,981 1.14
--------- ---------
TOTAL SHORT-TERM SECURITIES (cost: $157,461,000) 157,459 13.80
--------- ---------
TOTAL INVESTMENT SECURITIES (cost: $950,616,000) 1,135,414 99.50
Excess of cash and receivables over payables 5,677 .50
--------- ---------
NET ASSETS 1,141,091 100.00%
========= =========
/1/Purchased in a private placement transaction; resale to the public may require registration or sale
only to qualified institutional buyers.
/2/Represents a step bond; coupon rate will increase at a later date.
/3/Valued under procedures established by the Board of Trustees.
/4/ Pass-through securities backed by a pool of mortgages or other loans on which principal payments
are periodically made. Therefore, the effective maturity is shorter than the stated maturity.
See Notes to Financial Statements
Equity-type securities appearing in the portfolio
since May 31, 1996
Carnival
Discovery Zone
General Re
Limited
Mallinckrodt
Potash Corp of Saskatchewan
PPG Industries
Rentokil Group
Equity-type securities eliminated from the portfolio
since May 31, 1996
AMBAC
Anheuser-Busch
Baker Hughes
Bausch & Lomb
H&R Block
Colgate-Palmolive
Comerica
Cooper Cameron
CSX
Eastman Chemical
Eastman Kodak
Gap
General Public Utilities
Greenfield Capital Trust
Hancock Fabrics
Long Island Lighting
Louisiana-Pacific
Minnesota Mining and Manufacturing
Norfolk Southern
Ralston Purina
Texaco
</TABLE>
<TABLE>
<S> <C> <C> <C>
AMERICAN VARIABLE INSURANCE SERIES
BOND FUND
INVESTMENT PORTFOLIO - NOVEMBER 30, 1996
U.S. GOVERNMENT BONDS 33.10%
CORPORATE BONDS 35.87
CASH & EQUIVALENTS 23.76
EQUITY-TYPE SECURITIES 4.21
NON-U.S. GOVERNMENT BONDS 3.06
Principal Market Percent
Amount Value Of Net
Bonds & Notes (000) (000) Assets
Diversified Media, Cable Television &
Telecommunications - 4.88%
MFS Communications Co., Inc.:
0%/9.375% 2004/1/ $800 $692
0%/8.875% 2006/1/ 750 544 1.60%
Comtel Brasileira Ltda. 10.75% 2004/2/ 1,000 1,038 1.34
Brooks Fiber Properties, Inc. 0%/10.875% 2006/1/ 700 459 .59
AT&T Corp. 8.625% 2031 250 272 .35
Time Warner Inc. 7.95% 2000 250 260 .34
Muzak LP/Capital 10.00% 2003 250 256 .33
Viacom International Inc. 9.125% 1999 250 256 .33
Transportation - 4.21%
USAir, Inc. 9.625% 2001 1,000 985 1.27
Airplanes Pass Through Trust:
Class C, 8.15% 2019/3/ 500 526
Class D, 10.875% 2019/3/ 275 307 1.08
Jet Equipment Trust:
Series 1995-A, 11.44% 2014/2/ /3/ 300 362
Series 1994-A, 11.79% 2013/2/ /3/ 250 308 .86
Continental Airlines, Inc., Series 1996-C, 9.50% 2015/3/ 250 287 .37
Teekay Shipping Corp. 8.32% 2008 250 247 .32
United Air Lines, Inc. 10.67% 2004 200 241 .31
Financial Services - 3.88%
Ocwen Financial Corp. 11.875% 2003 1,150 1,222 1.58%
Capital One Bank 7.15% 2006 500 513 .66
Aames Financial Corp. 9.125% 2003 500 510 .66
Ford Motor Credit Co. 6.85% 2000 500 510 .66
General Motors Acceptance Corp. 6.625% 2005 250 249 .32
Manufacturing & Materials - 3.75%
Kaiser Aluminum & Chemical Corp.:
10.875% 2006/2/ 500 516
9.875% 2002 250 252 .99
Knoll Group, Inc. 10.875% 2006 500 545 .70
Printpack Inc. 10.625% 2006/2/ 500 520 .67
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 300 303 .39
U.S. Can Corp. 10.125% 2006/2/ 250 261 .34
Northern Telecom Ltd. 6.875% 2002 250 257 .33
AMTROL Inc. 10.625% 2006/2/ 250 253 .33
Energy & Related Companies - 3.30%
Oryx Energy Co. 8.375% 2004 500 528 .68
J. Ray McDermott, SA 9.375% 2006 500 525 .68
Mariner Energy, Inc. 10.50% 2006/2/ 500 519 .67
Chesapeake Energy Corp. 9.125% 2006 500 517 .67
Falcon Drilling Co., Inc., Series B, 8.875% 2003 250 253 .33
McDermott Inc. 9.375% 2002 200 211 .27
Cellular, Paging & Wireless Communications - 2.57%
PriCellular Wireless Corp. 10.75% 2004/2/ 500 520 .67
NEXTEL Communications, Inc. 0%/11.50% 2003/1/ 500 376 .49
360/0/ Communications Co. 7.50% 2006 325 329 .43
Sprint Spectrum LP, Sprint Spectrum Finance Corp. 500 325 .42
0%/12.50% 2006/1/
Omnipoint Corp. 11.625% 2006/2/ 250 263 .34
Cellular Communications International, Inc.
Units, 0% 2000 250 170 .22
Banking & Thrifts - 2.37%
First Nationwide Holdings Inc. 10.625% 2003/2/ 1,000 1,070 1.38
Chevy Chase Bank, FSB 9.25% 2008 500 505 .66
First Union Corp. 6.82%/7.57% 2026/1/ 250 257 .33
Health & Personal Care - 1.92%
Integrated Health Services, Inc. 10.75% 2004 500 529 .68
Allegiance Corp. 7.00% 2026 500 517 .67
Paracelsus Healthcare Corp. 10.00% 2006 500 443 .57
Collateralized Mortgage Obligations (Privately
Originated) /3/ - 1.86%
Wells Fargo Capital Markets APT Financing Trust 6.56% 2005/2/ 1,000 1,007 1.30
Merrill Lynch Mortgage Investors, Inc., Series 1995-C2,
Class A, 7.452% 2021 /4/ 427 436 .56
Broadcasting & Publishing - 1.73%
Young Broadcasting Inc. 10.125% 2005 500 502 .65
Grupo Televisa, S.A. 0%/13.25% 2008/1/ 500 329 .42
News America Holdings Inc. 7.43% 2026 250 261 .34
Chancellor Broadcasting Co. 9.375% 2004 250 249 .32
Business & Public Services - 1.03%
Allied Waste North America, Inc. 10.25% 2006/2/ 500 510 .66
Federal Express Corp. 9.875% 2002 250 288 .37
Merchandising - 0.92%
Loehmann's, Inc. 11.875% 2003 500 540 .70
Woolworth Corp., Series A, 7.00% 2002 170 171 .22
Asset- Backed Obligations/3/ - 0.85%
Green Tree Financial Corp., Series 1995-A, Class NIM, 7.25% 2005 357 357 .46
EQCC Home Equity Loan Asset-Backed Certificates, Series 1996-A
Class A-2, 6.95% 2012 300 304 .39
Insurance - 0.70%
Terra Nova (Bermuda) Holdings Ltd. 10.75% 2005 250 283 .37
Aetna Services, Inc. 6.97% 2036 250 259 .33
Cable & Telephone in the United Kingdom - 0.57%
Comcast UK Cable Partners Ltd. 0%/11.20% 2007/1/ 650 444 .57
Machinery & Engineering - 0.38%
Deere & Co. 8.95% 2019 250 294 .38
Data Processing & Reproduction - 0.34%
Unisys Corp. 11.75% 2004 250 261 .34
Electrical & Electronics - 0.34%
Philips Electronics NV 7.20% 2026 250 260 .34
Independent Power Producers - 0.27%
California Energy Co., Inc. 9.875% 2003 200 209 .27
Non-U.S. Governments & Governmental
Authorities - 3.06%
Canadian Government 4.599% 2021 /4/ C$1000 833 1.08
Argentina (Republic of):
Eurobond Series L, 6.625% 2005 /4/ $319 275
8.375% 2003 250 233 .66
Ireland (Republic of) 8.00% 2006 IRE250 461 .59
Brazil (Federal Republic of) Capitalization Bond 8.00% 2014 /5/ $275 202 .26
Deutschland Republic 8.00% 2002 DM250 185 .24
South Africa (Republic of) 13.00% 2010 ZAR1,000 180 .23
Federal Agency Obligations-Mortgage Pass-Throughs/3/ - 11.17%
Government National Mortgage Assn.:
5.00% 2026 $2,181 2,156
6.50% 2025-2026 1,310 1,273 7.72
9.50% 2021 955 1,040
10.00% 2019 923 1,016
7.00% 2026 498 495
Federal National Mortgage Assn.:
10.00% 2018-2025 1,392 1,542 3.45
9.00% 2021 781 833
6.50% 2026 303 294
Federal Agency Obligations-Other - 2.28%
Federal National Mortgage Assn. 7.04% 2005 890 884 1.14
Federal Home Loan Mortgage Corp.:
6.78% 2005 500 496
5.78% 2003 400 384 1.14
U.S. Treasury Obligations - 19.65%
6.25% 2003 7,500 7,634 19.65
10.375% 2009-2012 3,000 3,934
7.25% 2004 2,500 2,691
8.875% 2017 750 955
-------- --------
TOTAL BONDS & NOTES (cost: $54,281,000) 55,768 72.03
-------- -------
Number
of
Shares
or Principal
Amount
(000)
Equity-Type Securities
Preferred Stocks - 1.04%
Time Warner Inc. exchangeable preferred, Series K/2/ 524 567 .73
El Paso Electric Co., 11.40% preferred,
Series, A 2008 /5/ 2,168 239 .31
Convertible Debentures - 0.70%
U S WEST Communications, Inc. 0% 2011 $1,500 542 .70
Miscellaneous
Equity-type securities in initial period of acquisition 1,909 2.47
-------- --------
TOTAL EQUITY-TYPE SECURITIES (cost: $2,667,000) 3,257 4.21
-------- --------
Principal
Amount
Short-Term Securities (000)
Corporate Short-Term Notes - 22.35%
Southwestern Bell Telephone Co. 5.25% due 12/6/96 $ 2,000 1,998 2.58
H.J. Heinz Co. 5.25% due 12/4/96 1,900 1,899 2.45
CIT Group Holdings Inc. 5.26% 12/16/96 1,900 1,896 2.45
Abbott Laboratories Inc. 5.25% due 12/5/96 1,500 1,499 1.94
Lucent Technologies Inc. 5.25% due 12/17/96 1,500 1,496 1.93
Coca-Cola Co. 5.24% due 12/30/96 1,400 1,394 1.80
Raytheon Co. 5.25% due 12/10/96 1,300 1,298 1.68
International Lease Finance Corp. 5.23% due 12/13/96 1,300 1,297 1.67
IBM Credit Corp. 5.33% due 1/14/97 1,300 1,291 1.67
American Express Credit Corp. 5.26% due 12/9/96 1,000 999 1.29
General Electric Capital Corp. 5.75% due 12/2/96 900 900 1.16
PACCAR Financial Corp. 5.26% due 12/19/96 838 836 1.08
BellSouth Telecommunications, Inc. 5.22% due 12/4/96 502 502 .65
Federal Agency Discount Notes - 1.29%
Federal Farm Credit Bank 5.22% due 12/6/96 1,000 999 1.29
-------- -------
TOTAL SHORT-TERM SECURITIES (cost: $18,304,000) 18,304 23.64
-------- -------
TOTAL INVESTMENT SECURITIES (cost: $75,252,000) 77,329 99.88
Excess of cash and receivables over payables 96 .12
--------- -------
NET ASSETS $77,425 100.00
--------- ---------
/1/ Represents a step bond; coupon rate will increase at a later date.
/2/ Purchased in a private placement transaction; resale to the public may require registration or sale
only to qualified institutional buyers.
/3/ Pass-through securities backed by a pool of mortgages or other loans on which principal
payments are periodically made. Therefore, the effective maturity is shorter than the stated maturity.
/4/ Coupon rate may change periodically.
/5/ Payment in kind. The issuer has the option of paying additional securities in lieu of cash.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C> <C>
AMERICAN VARIABLE INSURANCE SERIES
HIGH-YIELD BOND FUND
INVESTMENT PORTFOLIO - NOVEMBER 30, 1996
CORPORATE BONDS 77.19%
NON-U.S. CORPORATE BONDS 0.00%
U.S. TREASURY BONDS 7.36%
NON-U.S. GOVERNMENT BONDS 1.72%
CASH & EQUIVALENTS 11.42%
STOCKS & CONVERTIBLE DEBENTURES 2.31%
Percent
of Net
Largest Corporate Holdings Assets
MFS Communications 3.17%
Bell Cablemedia 2.39
Videotron Holdings 2.18
Integrated Health Services 2.10
California Energy 2.08
Container Corp. of America 2.06
Coltec Industries 1.82
USAir 1.81
International CableTel 1.62
CellNet Data Systems 1.57
Principal Market Percent
Amount Value Of Net
Bonds & Notes (000) (000) Assets
Cellular, Paging & Wireless Communications - 12.55%
Centennial Cellular Corp. 8.875% 2001 $10,000 $9,600 1.45%
PriCellular Wireless Corp.:
0%/12.25% 2003/1/ 6,000 5,055
10.75% 2004/2/ 2,250 2,340 1.44
0%/14.00% 2001/1/ 2,185 2,152
CellNet Data Systems, Inc. 0%/13.00% 2005/1/ /2/ /3/ 14,000 9,170 1.38
PanAmSat, LP:
9.75% 2000 6,000 6,345 1.24
0%/11.375% 2003/1/ 2,000 1,840
Paging Network, Inc. 11.75% 2002 7,300 7,884 1.19
NEXTEL Communications, Inc.:
0%/10.125% 2004 (formerly CenCall Communications)/1/ 4,750 3,159
0%/11.50% 2003/1/ 3,000 2,257 1.07
0%/9.75% 2004/1/ 2,500 1,653
Cellular Communications International, Inc. Units, 0% 2000 6,500 4,420 .67
Cellular, Inc. 0%/11.75% 2003/1/ 4,500 4,050 .61
Rogers Cantel Mobile Communications Inc.:
11.125% 2002 2,500 2,637 .56
9.375% 2008 1,000 1,050
Comunicacion Celular SA 0%/13.125% 2003/1/ 5,000 3,263 .49
Omnipoint Corp. 11.625% 2006/2/ 3,000 3,157 .48
Heartland Wireless Communications, Inc. 13.00% 2003 3,000 3,090 .47
MobileMedia Communications, Inc. 0%/10.50% 2003/1/ 5,250 2,284 .35
Sprint Spectrum LP, Sprint Spectrum
Finance Corp. 11.00% 2006 2,000 2,125 .32
Mobile Telecommunications Technology Corp. 13.50% 2002 1,750 1,811 .27
Western Wireless Corp. 10.50% 2006/2/ 1,500 1,545 .23
InterCel, Inc. 0%/12.00% 2006/1/ 2,000 1,190 .18
Vanguard Cellular Systems, Inc. 9.375% 2006 1,000 1,004 .15
Manufacturing & Materials - 8.52%
Coltec Industries Inc.:
9.75% 2000 9,450 10,230 1.82
9.75% 1999 1,750 1,881
Kaiser Aluminum & Chemical Corp.:
12.75% 2003 4,850 5,117
10.875% 2006/2/ 2,500 2,581 1.52
9.875% 2002 2,350 2,374
Texas Petrochemicals Corp. 11.125% 2006/2/ 5,500 5,885 .89
Acme Metals Inc.:
0%/13.50% 2004/1/ 3,000 3,030 .86
12.50% 2002 2,500 2,675
MagneTek, Inc. 10.75% 1998 3,500 3,605 .54
AGCO Corp. 8.50% 2006 3,500 3,587 .54
UCAR Global Enterprises Inc. 12.00% 2005 2,865 3,305 .50
Westinghouse Air Brake Co. 9.375% 2005 3,000 3,090 .47
Owens-Illinois, Inc. 11.00% 2003 2,500 2,766 .42
Sterling Chemicals, Inc. 11.75% 2006 2,000 2,040 .31
U.S. Can Corp. 10.125% 2006/2/ 1,750 1,829 .28
Knoll Group, Inc. 10.875% 2006 1,250 1,363 .21
AK Steel Corp. 10.75% 2004 1,000 1,072 .16
Cable & Telephone in the United Kingdom - 8.14%
Bell Cablemedia PLC 0%/11.95% 2004/1/ 18,500 15,817 2.39
Videotron Holdings PLC:
0%/11.125% 2004/1/ 14,500 12,470 2.18
0%/11.00% 2005/1/ 2,500 1,969
International CableTel Inc. 0%/10.875% 2003/1/ 13,250 10,699 1.62
Comcast UK Cable Partners Ltd. 0%/11.20% 2007/1/ 11,500 7,849 1.18
TeleWest PLC:
9.625% 2006 2,500 2,556 .49
0%/11.00% 2007/1/ 1,000 678
Ionica, PLC Units 13.50% 2006/2/ 1,750 1,873 .28
Energy & Related Companies - 6.13%
Triton Energy Corp. 0%/9.75% 2000/1/ 4,500 4,669 .70
Chesapeake Energy Corp.:
9.125% 2006 3,000 3,105 .63
10.50% 2002 1,000 1,095
Mariner Energy, Inc. 10.50% 2006/2/ 4,000 4,150 .63
Abraxas Petroleum Corp. 11.50% 2004/2/ 4,000 4,130 .62
Kelley Oil & Gas Corp. 10.375% 2006/2/ 4,000 4,080 .62
Dual Drilling Co. 9.875% 2004 3,500 3,780 .57
Benton Oil and Gas Co. 11.625% 2003 3,000 3,300 .50
Falcon Drilling Co., Inc.:
Series B, 8.875% 2003 2,250 2,273 .50
Series B, 9.75% 2001 1,000 1,024
Global Marine, Inc. 12.75% 1999 2,700 2,903 .44
Tuboscope Vetco International Inc. 10.75% 2003 2,000 2,195 .33
Flores & Rucks, Inc. 13.50% 2004 1,750 2,069 .31
J. Ray McDermott, SA 9.375% 2006 1,000 1,050 .16
Forcenergy Inc. 9.50% 2006 750 780 .12
Diversified Media, Cable Television &
Telecommunications - 6.04%
MFS Communications Co., Inc. 0%/9.375% 2004/1/ 24,250 20,976 3.17
Multicanal Participacoes SA 12.625% 2004/2/ 4,000 4,310 .65
Cablevision Systems Corp. 9.875% 2013 3,000 2,925 .44
Brooks Fiber Properties, Inc. 0%/10.875% 2006/1/ 3,250 2,129 .32
Jones Intercable, Inc. 9.625% 2002 1,500 1,545 .23
Viacom International Inc. 7.75% 2005 1,500 1,492 .22
Telecom Argentina STET-France Telecom SA 12.00% 2002 1,000 1,102 .17
Summitt Communications Group, Inc. 10.50% 2005 1,000 1,097 .17
Teleport Communications Group Inc. 9.875% 2006 1,000 1,057 .16
Comtel Brasileira Ltda. 10.75% 2004/2/ 1,000 1,038 .16
Comcast Corp. 10.25% 2001 925 983 .15
IntelCom Group Inc. 0%/13.50% 2005/1/ 1,000 688 .10
Storer Communications, Inc. 10.00% 2003 634 640 .10
Health & Personal Care - 5.76%
Integrated Health Services, Inc.:
10.25% 2006/2/ 5,000 5,150
9.625% 2002 2,750 2,812 1.60
10.75% 2004 2,500 2,644
Regency Health Services, Inc.:
9.875% 2002 6,250 6,312 1.28
12.25% 2003 2,000 2,128
Paracelsus Healthcare Corp. 10.00% 2006 8,250 7,301 1.10
Universal Health Services, Inc. 8.75% 2005 6,500 6,711 1.01
Merit Behavioral Care Corp. 11.50% 2005 2,500 2,650 .40
Mariner Health Group, Inc. 9.50% 2006 2,500 2,438 .37
Leisure, Tourism & Restaurants - 4.83%
Foodmaker, Inc.:
9.75% 2002 3,750 3,825 .96
9.25% 1999 2,500 2,538
AMF Group Inc.:
0%/12.25% 2006/1/ 6,000 3,795 .85
10.875% 2006 1,750 1,838
Four Seasons Hotels Inc. 9.125% 2000/2/ 3,500 3,579 .54
Trump Atlantic City Associates, Trump Atlantic
City Funding, Inc. 11.25% 2006 3,750 3,544 .53
Station Casinos, Inc. 9.625% 2003 3,600 3,510 .53
California Hotel Finance Corp. 11.00% 2002 3,250 3,372 .51
Wyndham Hotel Corp. 10.50% 2006 2,500 2,650 .40
Rio Hotel & Casino, Inc. 10.625% 2005 2,250 2,379 .36
Casino America, Inc. 12.50% 2003 1,000 970 .15
Broadcasting & Publishing - 4.38%
American Media Operations, Inc. 11.625% 2004 7,000 7,473 1.13
American Radio Systems Corp. 9.00% 2006 4,750 4,631 .70
Chancellor Broadcasting Co.:
12.50% 2004 1,750 1,975 .53
9.375% 2004 1500 1496
Newsquest Capital PLC 11.00% 2006/2/ 3,000 3,060 .46
Infinity Broadcasting Corp. 10.375% 2002 2,750 2,929 .44
Univision Television Group, Inc. 11.75% 2001 2,500 2,608 .39
Young Broadcasting Inc. 10.125% 2005 2,000 2,010 .30
Tevecap SA 12.625% 2004/2/ 1,500 1,543 .23
Gray Communications Systems, Inc. 10.625% 2006 1,250 1,288 .20
Forest Products & Paper - 4.35%
Container Corp. of America:
9.75% 2003 10,000 10,425
Series A, 11.25% 2004 2,000 2,160 2.06
Series B, 10.75% 2002 1,000 1,070
Fort Howard Paper Corp.:
9.25% 2001 3,750 3,909
8.25% 2002 3,000 3,008 1.33
11.00% 2002 /4/ 1,813 1,908
Pacific Lumber Co. 10.50% 2003 4,000 4,005 .61
MAXXAM Group Inc. 11.25% 2003 2,000 2,045 .31
Four M Corp., Series B, 12.00% 2006 250 256 .04
Food Retailing - 4.25%
Stater Brothers Holdings Inc. 11.00% 2001 6,750 7,222 1.09
Bruno's, Inc. 10.50% 2005 6,250 6,469 .98
Star Markets Co., Inc. 13.00% 2004 5,000 5,525 .83
Carr-Gottstein Foods Co. 12.00% 2005 4,000 4,240 .64
Rykoff-Sexton, Inc. 8.875% 2003 4,400 4,147 .63
The Penn Traffic Co. 9.625% 2005 1,000 540 .08
Transportation - 3.64%
USAir, Inc.:
10.00% 2003 4,500 4,432
Pass Through Trust, Series 1993-A3, 10.375% 2013 /4/ 3,500 3,570 1.81
9.625% 2001 3,000 2,955
Series 1993-A2, 9.625% 2003 1,000 1,015
Airplanes Pass Through Trust, Class D, 10.875% 2019 /4/ 5,370 5,987 .90
Teekay Shipping Corp. 8.32% 2008 5,000 4,950 .75
Delta Air Lines, Inc. 10.00% 2014/2/ 1,000 1,191 .18
Independent Power Producers - 2.08%
California Energy Co., Inc. 0%/10.25% 2004/1/ 13,300 13,766 2.08
Merchandising - 2.07%
Barnes & Noble, Inc., Series B, 11.875% 2003 5,250 5,736 .87
Thrifty PayLess, Inc. 12.25% 2004 3,250 3,802 .57
Loehmann's, Inc. 11.875% 2003 2,500 2,700 .41
AnnTaylor, Inc. 8.75% 2000 1,500 1,455 .22
Beverages - 1.28%
Canandaigua Wine Co., Inc.:
8.75% 2003 2,750 2,685 .73
Series B, 8.75% 2003/2/ 2,250 2,171
Dr Pepper Bottling Co. of Texas 10.25% 2000 3,500 3623 .55
Construction & Housing - 1.00%
M.D.C. Holdings, Inc. 11.125% 2003 3,850 3,889 .59
Toll Corp. 8.75% 2006 1,500 1,500 .22
Del Webb Corp. 9.75% 2003 1,250 1,238 .19
Banking & Financial Services - 0.67%
First Nationwide Holdings Inc., 10.625% 2003/2/ 1,500 1,605 .24
Chevy Chase Bank, FSB 9.25% 2008 1,500 1,515 .23
Ocwen Financial Corp. 11.875% 2003 1,250 1,328 .20
Protection Services - 0.59%
ADT Operations, Inc. 9.25% 2003 2,000 2,120 .32
Protection One Alarm Monitoring, Inc. 0%/13.625% 2005/1/ 2,000 1,820 .27
Real Estate - 0.33%
B.F. Saul Real Estate Investment Trust 11.625% 2002 2,000 2,160 .33
Electric & Gas Utilities - 0.30%
Columbia Gas System, Inc., Series A, 6.39% 2000 2,000 2,010 .30
Textiles & Apparel - 0.28%
WestPoint Stevens Inc. 8.75% 2001 1,000 1,027 .16
Tultex Corp. 10.625% 2005 750 810 .12
Non-U.S. Governments & Governmental
Authorities - 1.72%
Argentina (Republic of):
Eurobond, Series L, 6.625% 2005 /5/ 5880 5079
Bocon 4.751% 2007 /5/ /6/ ARP2,500 1420 1.05
8.375% 2003 $ 500 465
Panama (Republic of) Interest Reduction Bond 3.50% 2014/2/ /5/ 3000 2055 .31
United Mexican States Government:
11.375% 2016 1250 1299 .28
9.75% 2001 500 518
Ecuador (Republic of) Past Due Interest Bond 6.50% 2015 /5/ /6/ 529 320 .05
Brazil (Federal Republic of) Eligible Interest Bond
6.50% 2006 /5/ 250 217 .03
U.S. Treasury Obligations - 7.36%
11.625% 2004 9,600 12,958
7.375% 1997 10,000 10,173
7.75% 2001 8,000 8,576
6.875% 1999 7,000 7,203 7.36
8.50% 2000 5,000 5,475
8.00% 2001 4,000 4,341
-------- --------
TOTAL BONDS & NOTES (cost: $549,728,000) 571,254 86.27
-------- -------
Number
of
Stocks Shares
Common & Preferred Stocks - 1.39%
EarthWatch Inc., 12.00% convertible preferred,
Series C /2/ /3/ /6/ /7/ 350,000 3,751 .56
Time Warner Inc., 10.25% cumulative exchangeable
preferred, Series K/2/ 3,145 3,405 .51
CellNet Data Systems, Inc., warrants, expire 1997 /3/ /7/ 56,000 1,232 .19
Marriott International, Inc. 4,512 251 .04
El Paso Electric Co., 11.40% preferred, Series A 2008 /6/ 2,168 239 .04
IntelCom Group Inc., warrants, expire 2005/2/ /7/ 13,200 165 .02
Protection One Alarm Monitoring, Inc., warrants,
expire 2005/2/ /7/ 6,400 50 .01
Heartland Wireless Communications, Inc.,
warrants, expire 2000/2/ /7/ 18,000 36 .01
Sterling Chemicals Inc., warrants, expire 2008 /7/ 1,000 35 .01
Comunicacion Celular, SA, warrants, expire 2003/2/ /7/ 5,000 31 .00
NEXTEL Communications, Inc., warrants, expire 1999/3/ /7/ 9,500 0 .00
-------- --------
TOTAL STOCKS (cost: $8,375,000) 9,195 1.39
-------- --------
Principal
Amount
Convertible Debentures - 0.92% (000)
Integrated Health Services, Inc. 5.75% 2001 $ 3,500 3,316 .50
Ashland Capital Group Inc. 9.50% 2006 1700 2,772 .42
-------- --------
TOTAL CONVERTIBLE DEBENTURES (cost: $6,191,000) 6,088 .92
-------- --------
Short-Term Securities
Corporate Short-Term Notes - 9.73%
Lucent Technologies Inc. 5.23%-5.29% due 12/10/96-2/5/97 21,300 21,167 3.20
H.J. Heinz Co. 5.24% due 12/13/96 11,400 11,378 1.72
National Rural Utilities Cooperative Finance Corp. 9400 9382 1.42
5.30% due 12/13/96
J.C. Penney Funding Corp. 5.31% due 12/9/96-1/30/97 7,000 6,951 1.05
IBM Credit Corp. 5.30% due 1/23/97 6,000 5,952 .90
Southwestern Bell Telephone Co. 5.27% due 12/3/96/2/ 5,000 4,998 .75
General Electric Capital Corp. 5.75% due 12/2/96 4,600 4,599 .69
-------- -------
TOTAL SHORT-TERM SECURITIES (cost: $64,430,000) 64,427 9.73
-------- -------
TOTAL INVESTMENT SECURITIES (cost: $628,724,000) 650,964 98.31
Excess of cash and receivables over payables 11,221 1.69
--------- -------
NET ASSETS $662,185 100.00%
========= =======
/1/ Represents a step bond; coupon rate will increase at a later date.
/2/ Purchased in a private placement transaction; resale to the public may require registration or sale only to
qualified institutional buyers.
/3/Valued under procedures established by the Board of Trustees.
/4/ Pass-through securities backed by a pool of mortgages or other loans on which principal payments
are periodically made. Therefore, the effective maturity is shorter than the stated maturity.
/5/ Coupon rate may change periodically.
/6/ Payment in kind. The issuer has the option of paying additional securities in lieu of cash.
/7/ Non-income-producing securities.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C> <C>
American Variable Insurance Series
U.S. Government/AAA-Rated Securities Fund
Investment Portfolio, November 30, 1996
- ------------------------------------------------ -------- -------- --------
U.S. TREASURY BONDS 47.61%
PRIVATE MORTGAGE & ASSET-BACKED SECURITIES 18.16
FEDERAL AGENCY MORTGAGE-RELATED SECURITIES 17.95
OTHER FEDERAL OBLIGATIONS 8.82
CASH & EQUIVALENTS 5.21
CORPORATE BONDS 1.40
DEVELOPMENTAL AGENCIES & NON-U.S.
GOVERNMENT BONDS .85
- ------------------------------------------------ -------- -------- --------
Principal Market Percent
Amount Value of Net
Bonds & Notes (000) (000) Assets
- ------------------------------------------------ -------- -------- --------
U.S. Treasury Obligations - 47.61%
10.375% 2012 $47,500 $62,737
8.875% 2017 40,300 51,320
10.375% 2009 33,500 42,341
12.00% 2013 13,000 19,086
8.75% 2008 10,000 11,477
7.25% 2004 10,000 10,758
9.25% 1998 10,000 10,591 47.61%
8.875% 1997 10,000 10,312
11.75% 2010 5,500 7,470
8.375% 2008 5,000 5,620
12.50% 2014 3,000 4,606
14.25% 2002 2,000 2,746
13.125% 2001 1,500 1,923
10.75% 2003 1,250 1,567
9.00% 1998 1,250 1,310
Federal Agency Obligations - Mortgage
Pass-Throughs/1/ - 17.41%
Government National Mortgage Assn.:
8.50% 2021-2026 24,347 25,612
9.50% 2019-2021 7,437 8,094
7.50% 2022-2023 4,698 4,795
7.00% 2024 4,327 4,411
6.50% 2024 4,030 4,098
10.00% 2019 3,690 4,066 10.96
8.00% 2022 3,106 3,242
9.00% 2009-2016 1,495 1,608
10.50% 2019 151 169
11.00% 2019 69 79
12.00% 2012-2014 8 9
Federal National Mortgage Assn.:
8.00% 2024 8,504 8,827
8.50% 2023 6,328 6,658
10.00% 2018 4,521 5,005 6.04
7.50% 2009 3,854 3,947
9.00% 2011-2025 3,483 3,696
7.00% 2010 2,785 2,805
Federal Home Loan Mortgage Corp.:
9.00% 2021-2022 1,797 1,915
9.50% 2016 151 164 .41
12.00% 2010 2 2
Collateralized Mortgage Obligations
(Privately Originated)/1/ - 12.73%
GE Capital Mortgage Services, Inc.:
Series 1995-10, Class A-1, 7.00% 2010 9,934 10,008
Series 1994-15, Class A-10, 6.00% 2009 8,000 7,600 3.44
Prudential-Bache CMO Trust III, 9.44 2018 14,000 15,133 2.95
Westam Mortgage, Class 4-H, 8.95% 2018 11,000 11,894 2.32
Structured Asset Securities Corp., Series 1996-CFL,
Class A1-C, 5.944% 2028 4,900 4,839 .94
CMC Securities Corp. I, Series 1993-E, Class S-9, 6.50% 2008 4,518 4,331 .85
Prudential Home Mortgage Securities Co., Inc., Series 1992-33,
Class A-12, 7.50% 2022 4,029 4,035 .79
J.P. Morgan Commercial Mortgage Finance Corp., Series 1995-C1,
Class A2, 7.399% 2010/2/ 3,000 3,112 .61
CS First Boston Mortgage Securities Corp., Series 1995-AEW1,
Class A-1, 6.665% 2027 2,725 2,740 .53
Merrill Lynch Mortgage Investors, Inc., Series 1995-C3,
Class A-2, 6.848% 2025/2/ 1,500 1,514 .30
Federal Agency Obligations - Other - 8.82%
FNSM Principal STRIPS:
0%/7.56% 2001/3/ 15,000 14,976
0%/8.62% 2022/3/ 10,000 9,164 5.05
0%/8.25% 2022/3/ 2,000 1,736
Federal Home Loan Mortgage Corp.:
6.555% 2006 8,500 8,350
6.945% 2005 2,000 1,996 2.02
Federal National Mortgage Assn.:
6.53% 2006 7,000 6,820
8.625% 2021 2,000 2,112 1.75
Asset-Backed Obligations/1/ - 5.43%
ContiMortgage Home Equity Loan Trust 1996-4,
Class A-4, 6.37% 2006 15,000 15,015 2.93
Standard Credit Card Master Trust 1991-3, Class A,
8.875% 1999 5,500 5,751 1.12
Green Tree Financial Corp., Series 1995-9, Class A-5,
6.80% 2027 5,000 5,004 .98
EQCC Home Equity Loan Asset Backed Certificates,
Series 1996-A, Class A-2, 6.95% 2012 2,000 2,030 .40
Electric & Gas Utilities - 0.75%
Public Service Electric and Gas Co. First and Refunding Mortgage
Bonds, Series SS, MBIA insured, 7.00% 2024 4,000 3,860 .75
Non-U.S. Government Obligations - 0.61%
Ontario (Province of):
15.75% 2012 1,700 1,852
15.25% 2012 1,145 1,287 .61
Collateralized Mortgage Obligations
(Federal Agencies)/1/ - 0.54%
Federal Home Loan Mortgage Corp.:
Series 1716, Class A, 6.50% 2009 2,250 2,194
Series 83-B, Class B-3, 12.50% 2013 523 587 .54
Financial - 0.44%
Signal Capital Corp. 9.95% 2006 2,157 2,217 .44
Developmental Authorities - 0.24%
International Bank for Reconstruction & Development 14.90%
1997 1,200 1,251 .24
Telephone Utilities - 0.21%
BellSouth Savings and Security ESOP Trust 9.125% 2003 999 1,086 .21
-------- --------
TOTAL BONDS & NOTES (cost: $481,978,000) 485,560 94.79
-------- --------
Short-Term Securities
- ------------------------------------------------
Corporate Short-Term Notes - 7.22%
IBM Credit Corp. 5.30% due 1/23/97 14,600 14,483 2.83
National Rural Utilities Cooperative Finance Corp.
5.30% due 12/13/96 8,400 8,384 1.64
General Electric Capital Corp. 5.75% due 12/2/96 7,700 7,698 1.50
Lucent Technologies Inc. 5.29% due 2/5/97 6,500 6,435 1.25
-------- --------
TOTAL SHORT-TERM SECURITIES (cost: $37,002,000) 37,000 7.22
-------- --------
TOTAL INVESTMENT SECURITIES (cost: $518,980,000) 522,560 102.01
Excess of payables over cash and receivables 10,309 2.01
-------- --------
NET ASSETS $512,251 100.00%
======== ========
/1/ Pass-through securities backed by a pool of mortgages or other loans on which principal
payments are periodically made. Therefore, the effective maturity is shorter than the
stated maturity.
/2/ Coupon rates may change periodically.
/3/ Represents a step bond; coupon rate will increase at a later date.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C> <C>
American Variable Insurance Series
Cash Management Fund
Investment Portfolio November 30, 1996
Principal Market
Amount Value Percent of
Short-Term Securities (000) (000) Net Assets
Corporate Short-Term Notes - 83.69%
Coca-Cola Co. 5.22%-5.23% due 12/3-12/20/96 $ 9,600 $ 9,583 3.99%
General Electric Capital Corp. 5.24%-5.25% due 12/5-12/18/96 8,700 8,685 3.61
Harvard University 5.24% due 12/11/96 8,300 8,287 3.45
American Express Credit Corp. 5.23%-5.25% due 12/5-12/26/96 8,300 8,283 3.45
IBM Credit Corp. 5.25% due 12/10-12/19/96 8,250 8,233 3.43
E.I. du Pont de Nemours and Co. 5.23% due 12/18/96 8,100 8,079 3.36
Motorola Credit Corp. 5.24% due 12/10/96 8,000 7,988 3.32
H.J. Heinz Co. 5.23%-5.25% due 12/9-12/12/96 7,500 7,488 3.12
Beneficial Corp. 5.25% due 12/4/96 7,000 6,996 2.91
J.C. Penney Funding Corp. 5.24% due 12/17/96 7,000 6,983 2.91
American General Finance Corp. 5.25% due 12/27/96 7,000 6,972 2.90
Walt Disney Co. 5.25%-5.26% due 12/10/96-1/9/97 7,000 6,968 2.90
CIT Group Holdings, Inc. 5.31% due 1/13/97 7,000 6,955 2.89
Warner-Lambert Co. 5.24% due 12/9/96 6,900 6,891 2.87
John Deere Capital Corp. 5.23% due 12/12/96 6,500 6,489 2.70
Ford Motor Credit Co. 5.25% due 12/13/96 6,500 6,488 2.70
Minnesota Mining and Manufacturing Co. 5.23% due 12/16/96 6,500 6,485 2.70
Campbell Soup Co. 5.25% due 12/6/96 6,000 5,995 2.49
Lucent Technologies Inc. 5.25% due 12/20/96 5,800 5,783 2.41
International Lease Finance Corp. 5.29% due 1/27/97 5,600 5,552 2.31
National Rural Utilities Cooperative Finance Corp.
5.29% due 1/7/97 5,400 5,370 2.23
Monsanto Co. 5.25% due 12/3/96 5,000 4,998 2.08
Weyerhaeuser Co. 5.24% due 12/19/96 5,000 4,986 2.08
Ameritech Corp. 5.24% due 12/23/96 5,000 4,984 2.07
U S WEST Communications, Inc. 5.26% due 12/24/96 5,000 4,982 2.07
Albertson's Inc. 5.27% due 1/7/97 5,000 4,974 2.07
Atlantic Richfield Co. 5.28% due 1/15/97 5,000 4,967 2.07
SAFECO Credit Co. Inc. 5.29% due 1/22/97 5,000 4,961 2.06
American Brands, Inc. 5.30% due 1/8/97 4,000 3,977 1.65
Sara Lee Corp. 5.25% due 12/2/96 3,900 3,899 1.62
BellSouth Telecommunications, Inc. 5.25% due 12/23/96 3,000 2,990 1.24
Southwestern Bell Telephone Co. 5.22% due 12/23/96 2,600 2,591 1.08
Commercial Credit Co. 5.24% due 12/17/96 2,300 2,294 .95
Federal Agency Discount Notes - 13.98%
Federal Farm Credit Bank 5.22%-5.23% due 12/6-12/16/96 14,985 14,966 6.23
Federal Home Loan Mortgage Corp. 5.20%-5.22% due 10,400 10,365 4.31
12/20-12/27/96
International Bank for Reconstruction and Development
5.22% due 12/30/96 5,700 5,675 2.36
Federal National Mortgage Assn. 5.23% due 12/16/96 2,600 2,594 1.08
Certificates of Deposit - 2.08%
Morgan Guaranty Trust Co. of New York 5.29% due 12/13/96 5,000 5,000 2.08
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $239,756,000) 239,756 99.75
Excess of cash and receivables over payables 592 .25
---------- ----------
NET ASSETS $240,348 100.00%
========== ==========
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C> <C>
American Variable Insurance Series
FINANCIAL STATEMENTS
(dollars
Statement of Assets and Liabilities in
at November 30, 1996 thousands)
Inter- Growth-
Growth national Income
Fund Fund Fund
- --------------------------------- ---------- ---------- ----------
ASSETS:
Investment securities at market
(cost: $2,858,962; $1,965,760;
$3,983,425; $950,616; $75,252;
$628,724; $518,980; $239,756
and $11,221,475, respectively) $3,844,447 $2,337,119 $5,221,287
Cash 81 1,857 316
Receivables for-
Sales of investments 19,989 32,469 21,750
Sales of fund's shares 797 1,047 1,081
Open forward currency
contracts
Dividends and accrued
interest 1,245 7,973 10,257
---------- ---------- ----------
3,866,559 2,380,465 5,254,691
LIABILITIES: ---------- ---------- ----------
Payables for-
Purchases of investments 4,596 9,338 4,301
Repurchases of fund's shares 312 95 135
Management services 1,254 1,126 1,555
Accrued expenses 48 278 60
---------- ---------- ----------
6,210 10,837 6,051
NET ASSETS AT ---------- ---------- ----------
November 30, 1996 $ 3,860,3 $2,369,628 $5,248,640
=========== =========== ===========
Shares of beneficial interest
outstanding (unlimited
shares authorized) 88,690,116 152,588,793 146,906,619
Net asset value per share $43.53 $15.53 $35.73
Asset High-Yield
Allocation Bond Bond
Fund Fund Fund
- --------------------------------- ---------- ---------- ----------
ASSETS:
Investment securities at market
(cost: $2,858,962; $1,965,760;
$3,983,425; $950,616; $75,252;
$628,724; $518,980; $239,756
and $11,221,475, respectively) $1,135,414 $77,329 $650,964
Cash 156 1 11
Receivables for-
Sales of investments 2,373 - 2,265
Sales of fund's shares 620 251 142
Open forward currency
contracts 6
Dividends and accrued
interest 6,188 871 10,628
---------- ---------- ----------
1,144,751 78,458 664,010
LIABILITIES: ---------- ---------- ----------
Payables for-
Purchases of investments 3,206 1,000 1,500
Repurchases of fund's shares 14 - 44
Management services 423 32 269
Accrued expenses 17 1 12
---------- ---------- ----------
3,660 1,033 1,825
NET ASSETS AT ---------- ---------- ----------
November 30, 1996 $1,141,091 $77,425 $662,185
=========== =========== ===========
Shares of beneficial interest
outstanding (unlimited
shares authorized) 75,174,289 7,511,221 45,638,580
Net asset value per share $15.18 $10.31 $14.51
U.S.
Government/
AAA-Rated Cash
Securities Management
Fund Fund Total
- --------------------------------- ---------- ---------- ----------
ASSETS:
Investment securities at market
(cost: $2,858,962; $1,965,760;
$3,983,425; $950,616; $75,252;
$628,724; $518,980; $239,756
and $11,221,475, respectively) $522,560 $239,756 $14,028,876
Cash 27 81 2,530
Receivables for-
Sales of investments - 78,846
Sales of fund's shares 117 732 4,787
Open forward currency
contracts - 6
Dividends and accrued
interest 4,914 16 42,092
---------- ---------- ----------
527,618 240,585 14,157,137
LIABILITIES: ---------- ---------- ----------
Payables for-
Purchases of investments 15,047 38,988
Repurchases of fund's shares 97 141 838
Management services 213 91 4,963
Accrued expenses 10 5 431
---------- ---------- ----------
15,367 237 45,220
NET ASSETS AT ---------- ---------- ----------
November 30, 1996 $512,251 $240,348 $14,111,917
=========== =========== ===========
Shares of beneficial interest
outstanding (unlimited
shares authorized) 45,370,093 21,610,763
Net asset value per share $11.29 $11.12
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C> <C>
American Variable Insurance Series (dollars
FINANCIAL STATEMENTS in
thousands)
Statement of Operations
for the year ended November 30, 1996
Inter- Growth-
Growth national Income
Fund Fund Fund
---------- ---------- ---------
INVESTMENT INCOME:
Income:
Dividends $16,764 $41,019 $88,452
Interest 19,020 13,569 31,672
---------- ---------- ----------
35,784 54,588 120,124
---------- ---------- ----------
Expenses:
Management services fee 14,284 12,370 17,451
Reports to shareholders 113 72 157
Registration statement and
prospectus 197 104 223
Postage, stationery and
supplies 70 36 81
Trustees' fees 45 26 57
Auditing and legal fees 40 22 50
Custodian fee 136 1,428 158
Taxes other than federal
income tax 46 27 60
Other expenses 26 54 33
---------- ---------- ----------
14,957 14,139 18,270
---------- ---------- ----------
Net investment income 20,827 40,449 101,854
---------- ---------- ----------
REALIZED GAIN (LOSS) AND
UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS:
Realized gain (loss) 269,265 96,629 373,978
---------- ---------- ----------
Net change in unrealized appreciation
(depreciation) on investments 183,049 177,135 407,012
Net increase in unrealized appreciation
on open forward currency contracts - - -
---------- ---------- ----------
Net unrealized appreciation
(depreciation) 183,049 177,135 407,012
---------- ---------- ----------
Net realized gain (loss) and
unrealized appreciation (depreciation)
on investments 452,314 273,764 780,990
---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $473,141 $314,213 $882,844
========= =========== =========
High-
Asset Yield
Allocation Bond Bond
Fund Fund /1/ Fund
---------- ---------- ----------
INVESTMENT INCOME:
Income:
Dividends $16,529 $51 $163
Interest 26,719 2,629 58,061
---------- ---------- ----------
43,248 2,680 58,224
---------- ---------- ----------
Expenses:
Management services fee 4,663 204 2,996
Reports to shareholders 34 1 20
Registration statement and
prospectus 41 1 44
Postage, stationery and
supplies 18 1 11
Trustees' fees 13 - 7
Auditing and legal fees 11 - 7
Custodian fee 54 2 37
Taxes other than federal
income tax 14 - 9
Other expenses 9 1 7
---------- ---------- ----------
4,857 210 3,138
---------- ---------- ----------
Net investment income 38,391 2,470 55,086
---------- ---------- ----------
REALIZED GAIN (LOSS) AND
UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS:
Realized gain (loss) 72,509 38 4,194
---------- ---------- ----------
Net change in unrealized appreciation
(depreciation) on investments 62,633 2,077 17,642
Net increase in unrealized appreciation
on open forward currency contracts - 6 -
----------- ----------- ----------
Net unrealized appreciation
(depreciation) 62,633 2,083 17,642
----------- ----------- ----------
Net realized gain (loss) and
unrealized appreciation (depreciation)
on investments 135,142 2,121 21,836
----------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $173,533 $4,591 $76,922
========= ========= =========
U.S.
Government/ Cash
AAA-Rated Manage-
Securities ment
Fund Fund Total
--------------- ---------- ---------
INVESTMENT INCOME:
Income:
Dividends - - $162,978
Interest $ 41,273 $ 11,985 204,
---------- ---------- ----------
41,273 11,985 367,906
---------- ---------- ----------
Expenses:
Management services fee 2,661 1,007 55,636
Reports to shareholders 18 8 423
Registration statement and
prospectus 23 3 636
Postage, stationery and
supplies 10 4 231
Trustees' fees 7 3 158
Auditing and legal fees 7 2 139
Custodian fee 29 12 1,856
Taxes other than federal
income tax 9 3 168
Other expenses 7 4 141
---------- ---------- ----------
2,771 1,046 59,388
---------- ---------- ----------
Net investment income 38,502 10,939 308,518
---------- ---------- ----------
REALIZED GAIN (LOSS) AND
UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS:
Realized gain (loss) (2,883) - 813,730
---------- ---------- ----------
Net change in unrealized appreciation
(depreciation) on investments (8,951) - 840,597
Net increase in unrealized appreciation
on open forward currency contracts - - 6
--------------- ---------- ----------
Net unrealized appreciation
(depreciation) (8,951) - 840,603
--------------- ---------- ----------
Net realized gain (loss) and
unrealized appreciation (depreciation)
on investments (11,834) - 1,654,333
--------------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $26,668 $10,939 $1,962,851
=============== ========= =========
/1/ For the period January 2, 1996, commencement of operations, through
November 30, 1996.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C> <C>
American Variable Insurance Series (dollars
FINANCIAL STATEMENTS in
thousands)
Statement of Changes in Net Assets
for the year ended November 30, 1996
Inter- Growth-
Growth national Income
Fund Fund Fund
- ---------------------------------- ----------- ----------- -----------
OPERATIONS:
Net investment income $ 20,827 $ 40,449 $ 101,854
Net realized gain (loss) on investments 269,265 96,629 373,978
Net unrealized appreciation (depreciation)
on investments 183,049 177,135 407,012
----------- ----------- -----------
Net increase in net assets
resulting from operations 473,141 314,213 882,844
----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS PAID TO
SHAREHOLDERS:
Dividends from net investment income (24,246) (42,718) (101,529)
Distributions from net realized
gain on investments (259,930) (35,844) (159,645)
----------- ----------- -----------
Total dividends and distributions (284,176) (78,562) (261,174)
----------- ----------- -----------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares sold:
12,825,093; 28,612,329; 16,813,646;
9,441,738; 7,434,995; 6,502,188;
3,523,988; 24,337,746 and 109,491,723
shares, respectively 506,249 412,624 540,891
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
7,512,662; 5,605,115; 8,475,637;
4,980,163; 137,024; 3,834,396;
3,478,224; 937,903 and 34,961,124 shares,
respectively 284,176 78,562 261,174
Cost of shares repurchased:
7,086,581; 4,238,963; 4,001,696;
2,391,438; 160,798; 2,875,119;
8,689,601; 21,049,530 and 50,493,726
shares, respectively (273,482) (60,680) (128,364)
Net increase (decrease) in net ----------- ----------- -----------
assets resulting from capital share
transactions 516,943 430,506 673,701
----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 705,908 666,157 1,295,371
NET ASSETS:
Beginning of year 3,154,441 1,703,471 3,953,269
----------- ----------- -----------
End of year (including
undistributed net investment
income: $4,638; $7,669; $25,264;
$9,974; $1,121; $14,357; $9,778;
$3,089 and $75,890, respectively) $3,860,349 $2,369,628 $5,248,640
============ ============ ============
Asset High-Yield
Allocation Bond Bond
Fund Fund/1/ Fund
- ---------------------------------- ----------- ----------- -----------
OPERATIONS:
Net investment income $ 38,391 $ 2,470 $ 55,086
Net realized gain (loss) on investments 72,509 38 4,194
Net unrealized appreciation (depreciation)
on investments 62,633 2,083 17,642
----------- ----------- -----------
Net increase in net assets
resulting from operations 173,533 4,591 76,922
----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS PAID TO
SHAREHOLDERS:
Dividends from net investment income (36,923) (1,349) (53,386)
Distributions from net realized
gain on investments (30,506) - -
----------- ----------- -----------
Total dividends and distributions (67,429) (1,349) (53,386)
----------- ----------- -----------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares sold:
12,825,093; 28,612,329; 16,813,646;
9,441,738; 7,434,995; 6,502,188;
3,523,988; 24,337,746 and 109,491,723
shares, respectively 131,175 73,438 91,739
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
7,512,662; 5,605,115; 8,475,637;
4,980,163; 137,024; 3,834,396;
3,478,224; 937,903 and 34,961,124 shares,
respectively 67,429 1,349 53,386
Cost of shares repurchased:
7,086,581; 4,238,963; 4,001,696;
2,391,438; 160,798; 2,875,119;
8,689,601; 21,049,530 and 50,493,726
shares, respectively (33,309) (1,604) (40,681)
Net increase (decrease) in net ----------- ----------- -----------
assets resulting from capital share
transactions 165,295 73,183 104,444
----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 271,399 76,425 127,980
NET ASSETS:
Beginning of year 869,692 1,000/2/ 534,205
----------- ----------- -----------
End of year (including
undistributed net investment
income: $4,638; $7,669; $25,264;
$9,974; $1,121; $14,357; $9,778;
$3,089 and $75,890, respectively) $1,141,091 $77,425 $662,185
============ ============ ============
U.S.
Government/
AAA-Rated Cash
Securities Management
Fund Fund Total
- ---------------------------------- ----------- ----------- -----------
OPERATIONS:
Net investment income $ 38,502 $ 10,939 $ 308,518
Net realized gain (loss) on investments (2,883) - 813,730
Net unrealized appreciation (depreciation)
on investments (8,951) - 840,603
----------- ----------- -----------
Net increase in net assets
resulting from operations 26,668 10,939 1,962,851
----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS PAID TO
SHAREHOLDERS:
Dividends from net investment income (38,383) (10,336) (308,870)
Distributions from net realized
gain on investments - - (485,925)
----------- ----------- -----------
Total dividends and distributions (38,383) (10,336) (794,795)
----------- ----------- -----------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares sold:
12,825,093; 28,612,329; 16,813,646;
9,441,738; 7,434,995; 6,502,188;
3,523,988; 24,337,746 and 109,491,723
shares, respectively 39,469 269,588 2,065,173
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
7,512,662; 5,605,115; 8,475,637;
4,980,163; 137,024; 3,834,396;
3,478,224; 937,903 and 34,961,124 shares,
respectively 38,383 10,336 794,795
Cost of shares repurchased:
7,086,581; 4,238,963; 4,001,696;
2,391,438; 160,798; 2,875,119;
8,689,601; 21,049,530 and 50,493,726
shares, respectively (96,167) (233,296) (867,583)
Net increase (decrease) in net ----------- ----------- -----------
assets resulting from capital share
transactions (18,315) 46,628 1,992,385
----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (30,030) 47,231 3,160,441
NET ASSETS:
Beginning of year 542,281 193,117 10,951,476
----------- ----------- -----------
End of year (including
undistributed net investment
income: $4,638; $7,669; $25,264;
$9,974; $1,121; $14,357; $9,778;
$3,089 and $75,890, respectively) $512,251 $240,348 $14,111,917
============ ============ ============
/1/ For the period January 2, 1996, commencement of operations, through November 30, 1996.
/2/ Represents initial capitalization from sale of 100,000 shares of beneficial interest.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
American Variable Insurance Series (dollars
FINANCIAL STATEMENTS in
thousands)
Statement of Changes in Net Assets
for the year ended November 30, 1995
Inter- Growth- Asset
Growth national Income Allocation
Fund Fund Fund Fund
- ---------------------------------- ----------- ----------- ----------- -----------
OPERATIONS:
Net investment income $ 23,635 $ 40,140 $ 88,796 $ 30,480
Net realized gain (loss) on investments 259,039 34,945 160,279 30,610
Net unrealized appreciation
on investments 480,224 83,096 691,459 129,814
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations 762,898 158,181 940,534 190,904
----------- ----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS PAID TO
SHAREHOLDERS:
Dividends from net investment income (20,133) (37,537) (85,055) (29,507)
Distributions from net realized
gain on investments (51,801) (44,136) (112,521) (9,640)
----------- ----------- ----------- -----------
Total dividends and distributions (71,934) (81,673) (197,576) (39,147)
----------- ----------- ----------- -----------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares sold:
14,348,086; 19,173,422; 13,715,393;
6,084,975; 7,379,725; 6,989,389;
20,995,679 and 88,686,669 shares,
respectively 528,750 254,241 387,075 76,296
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
2,225,519; 6,335,172; 7,750,200;
3,296,555; 3,356,613; 3,279,414;
937,931 and 27,181,404 shares,
respectively 71,934 81,673 197,576 39,147
Cost of shares repurchased:
4,610,567; 8,773,846; 4,174,136;
2,877,501; 2,819,500; 6,063,251;
24,444,114 and 53,762,915 shares,
respectively (164,548) (113,837) (114,706) (34,878)
Net increase (decrease) in net ----------- ----------- ----------- -----------
assets resulting from capital share
transactions 436,136 222,077 469,945 80,565
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,127,100 298,585 1,212,903 232,322
NET ASSETS:
Beginning of year 2,027,341 1,404,886 2,740,366 637,370
----------- ----------- ----------- -----------
End of year (including
undistributed net investment
income: $8,057; $9,938; $24,939;
$8,506; $12,657; $9,659; $2,486
and $76,242, respectively) $3,154,441 $1,703,471 $3,953,269 $869,692
============ ============ ============ ============
U.S.
Government/
High-Yield AAA-Rated Cash
Bond Securities Management
Fund Fund Fund Total
- ---------------------------------- ----------- ----------- ----------- -----------
OPERATIONS:
Net investment income $ 46,966 $ 37,218 $ 10,687 $ 277,922
Net realized gain (loss) on investments (11,260) (5,497) - 468,116
Net unrealized appreciation
on investments 47,164 37,855 - 1,469,612
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations 82,870 69,576 10,687 2,215,650
----------- ----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS PAID TO
SHAREHOLDERS:
Dividends from net investment income (44,378) (36,115) (10,344) (263,069)
Distributions from net realized
gain on investments - - - (218,098)
----------- ----------- ----------- -----------
Total dividends and distributions (44,378) (36,115) (10,344) (481,167)
----------- ----------- ----------- -----------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares sold:
14,348,086; 19,173,422; 13,715,393;
6,084,975; 7,379,725; 6,989,389;
20,995,679 and 88,686,669 shares,
respectively 99,350 77,672 233,089 1,656,473
Proceeds from shares issued in
reinvestment of net investment
income dividends and distributions
of net realized gain on investments:
2,225,519; 6,335,172; 7,750,200;
3,296,555; 3,356,613; 3,279,414;
937,931 and 27,181,404 shares,
respectively 44,378 36,115 10,344 481,167
Cost of shares repurchased:
4,610,567; 8,773,846; 4,174,136;
2,877,501; 2,819,500; 6,063,251;
24,444,114 and 53,762,915 shares,
respectively (37,940) (67,704) (271,390) (805,003)
Net increase (decrease) in net ----------- ----------- ----------- -----------
assets resulting from capital share
transactions 105,788 46,083 (27,957) 1,332,637
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 144,280 79,544 (27,614) 3,067,120
NET ASSETS:
Beginning of year 389,925 462,737 220,731 7,883,356
----------- ----------- ----------- -----------
End of year (including
undistributed net investment
income: $8,057; $9,938; $24,939;
$8,506; $12,657; $9,659; $2,486
and $76,242, respectively) $534,205 $542,281 $193,117 $10,950,476
============ ============ ============ ============
See Notes to Financial Statements
</TABLE>
Notes to Financial Statements
1. American Variable Insurance Series (the "series") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company with eight different funds. The eighth fund, the Bond Fund,
commenced operations on January 2, 1996. The assets of each fund are
segregated, with each fund accounted for separately. The funds' investment
objectives are as follows: Growth Fund - growth of capital by investing
primarily in common stocks or securities with common stock characteristics;
International Fund - long-term growth of capital by investing primarily in
securities of issuers domiciled outside the United States; Growth-Income Fund -
growth of capital and income by investing primarily in common stocks or other
securities which demonstrate the potential for appreciation and/or dividends;
Asset Allocation Fund - high total return (including income and capital gains)
consistent with long-term preservation of capital; Bond Fund - as high a level
of current income as is consistent with the preservation of capital by
investing primarily in fixed-income securities; High-Yield Bond Fund - high
current income and secondarily capital appreciation by investing primarily in
intermediate and long-term corporate obligations; U.S. Government/AAA-Rated
Securities Fund - a high level of current income consistent with prudent
investment risk and preservation of capital by investing primarily in a
combination of securities guaranteed by the U.S. government and other debt
securities rated AAA or Aaa; Cash Management Fund - high current yield while
preserving capital by investing in a diversified selection of high-quality
money market instruments. The following paragraphs summarize the significant
accounting policies consistently followed by the series in the preparation of
its financial statements:
Equity-type securities traded on a national securities exchange (or
reported on the NASDAQ national market) and securities traded in the
over-the-counter market are stated at the last reported sales price
on the day of valuation; other securities, and securities for which no sale was
reported on that date, are stated at the last quoted bid price. Bonds and notes
are valued at prices obtained from a bond-pricing service provided by a major
dealer in bonds, when such prices are available; however, in circumstances
where the investment adviser deems it appropriate to do so, such securities
will be valued at the mean of their representative quoted bid and asked prices
or, if such prices are not available, at prices for securities of comparable
maturity, quality and type. Securities denominated in non-U.S. currencies are
generally valued on the basis of bid quotations. Short-term securities with
original or remaining maturities in excess of 60 days, including forward
currency contracts, are valued at the mean of their quoted bid and asked
prices. Short-term securities with 60 days or less to maturity are valued at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available are valued at fair value as determined by
the Board of Trustees or a committee thereof.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Dividend and
interest income is reported on the accrual basis. Discounts on securities
purchased are amortized over the life of the respective securities. The series
does not amortize premiums on securities purchased. Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
Investment securities and other assets and liabilities, including forward
currency contracts, denominated in non-U.S. currencies are recorded in the
financial statements after translation into U.S. dollars utilizing rates of
exchange on the last business day of the year. Purchases and sales of
investment securities, income and expenses are calculated using the prevailing
exchange rate as accrued. The effects of changes in foreign currency exchange
rates on investment securities are included with the net realized and
unrealized gain or loss on investment securities.
Common expenses incurred by the series are allocated among the funds based
upon relative net assets. In all other respects, expenses are charged to each
fund as incurred on a specific identification basis.
Pursuant to the custodian agreement, each fund within the series receives
credits against its custodian fee for imputed interest on certain balances with
the custodian bank. Custodian fees for the series aggregated $1,856,000, of
which $60,000 was paid by these credits rather than in cash.
2. It is the series' policy to continue to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. During the year ended November 30, 1996, the International Fund
realized, on a tax basis, a net capital gain of $96,027,000 on securities
transactions. During the year ended November 30, 1996, the High-Yield Bond Fund
utilized a capital loss carryforward of $2,806,000 to offset, for tax purposes,
capital gains realized during the year up to such amount. The High-Yield Bond
Fund and the U.S. Government/AAA-Rated Securities Fund had available at
November 30, 1996 capital loss carryforwards totaling $6,501,000 and $9,822,000
respectively, which may be used to offset capital gains realized during
subsequent years through November 30, 2003 and 2004, respectively. It is the
intention of these funds not to make distributions from capital gains while
there are capital loss carryforwards. For book and federal income tax purposes,
the amounts of unrealized appreciation and depreciation and the cost of
portfolio securities, excluding forward currency contracts, at November 30,
1996 were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
(Table for footnote 2) (dollars
in
thousands)
Growth- Asset
Growth Interna- Income Allocation Bond
Fund tional Fund Fund Fund Fund
Unrealized
appreciation $1,099,498 $ 461,949 $1,280,331 $190,020 $ 2,234
Unrealized
depreciation 114,013 90,590 42,469 5,222 157
Net unrealized
appreciation 985,485 371,359 1,237,862 184,798 2,077
Cost of portfolio
securities 2,858,962 1,965,760 3,983,425 950,616 75,252
High-Yield U.S. Government/ Cash
Bond AAA-Rated Management
Fund Securities Fund Fund Total
Unrealized
appreciation $ 28,039 $ 9,479 - $ 3,071,550
Unrealized
depreciation 5,799 5,899 - 264,149
Net unrealized
appreciation 22,240 3,580 - 2,807,401
Cost of portfolio
securities 628,724 518,980 $239,756 11,221,475
</TABLE>
3. The fees for management services were paid pursuant to an Investment
Advisory and Service Agreement with Capital Research and Management Company
(CRMC), with which certain officers and Trustees of the series are affiliated.
The agreement provides for monthly fees, accrued daily, based on the following
annual rates: Growth Fund - 0.60% of the first $30 million of average net
assets; 0.50% of such assets in excess of $30 million but not exceeding $600
million; 0.45% of such assets in excess of $600 million but not exceeding $1.2
billion; 0.42% of such assets in excess of $1.2 billion but not exceeding $2.0
billion; and 0.37% of such assets in excess of $2.0 billion; International Fund
- - 0.90% of the first $60 million of average net assets; 0.78% of such assets in
excess of $60 million but not exceeding $600 million; 0.60% of such assets in
excess of $600 million but not exceeding $1.2 billion; 0.48% of such assets in
excess of $1.2 billion but not exceeding $2.0 billion; and 0.465% of such
assets in excess of $2.0 billion; Growth-Income Fund - 0.60% of the first $30
million of average net assets; 0.50% of such assets in excess of $30 million
but not exceeding $600 million; 0.45% of such assets in excess of $600 million
but not exceeding $1.5 billion; 0.40% of such assets in excess of $1.5 billion
but not exceeding $2.5 billion; and 0.32% of such assets in excess of $2.5
billion; Asset Allocation Fund - 0.60% of the first $30 million of average net
assets; 0.50% of such assets in excess of $30 million but not exceeding $600
million; and 0.42% of such assets in excess of $600 million; Bond Fund - 0.60%
of the first $30 million of average net assets; and 0.50% of such assets in
excess of $30 million; High-Yield Bond Fund - 0.60% of the first $30 million of
average net assets; 0.50% of such assets in excess of $30 million but not
exceeding $600 million; and 0.46% of such assets in excess of $600 million;
U.S. Government/AAA-Rated Securities Fund - 0.60% of the first $30 million of
average net assets; 0.50% of such assets in excess of $30 million but not
exceeding $600 million; and 0.40% of such assets in excess of $600 million;
Cash Management Fund - 0.50% of the first $100 million of average net assets;
0.42% of such assets in excess of $100 million but not exceeding $400 million;
and 0.38% of such assets in excess of $400 million.
The Board of Trustees has approved an amended Investment Advisory and
Service agreement, which provides for reduced fees for the Growth Fund,
Growth-Income Fund, and the Asset Allocation Fund effective December 1, 1996,
at the following annual rates: Growth Fund - 0.50% of the first $600 million of
average net assets; 0.45% of such assets in excess of $600 million but not
exceeding $1.2 billion; 0.42% of such assets in excess of $1.2 billion but not
exceeding $2.0 billion; 0.37% of such assets in excess of $2.0 billion but not
exceeding $3.2 billion; and 0.35% of such assets in excess of $3.2 billion;
Growth-Income Fund - 0.50% of the first $600 million of average net assets;
0.45% of such assets in excess of $600 million but not exceeding $1.5 billion;
0.40% of such assets in excess of $1.5 billion but not exceeding $2.5 billion;
0.32% of such assets in excess of $2.5 billion but not exceeding $4.0 billion;
and 0.285% of such assets in excess of $4.0 billion; Asset Allocation Fund -
0.50% of the first $600 million of average net assets; 0.42% of such assets in
excess of $600 million but not exceeding $1.2 billion; and 0.36% of such assets
in excess of $1.2 billion. Beginning October 1, 1996, CRMC has voluntarily
agreed to waive its management fees in excess of those provided by the amended
agreement.
Trustees who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the series. As of November 30,
1996, aggregate amounts deferred and earnings thereon were $110,000.
<TABLE>
<S> <C> <C> <C>
(Table for footnote 4) (dollars
in
thousands)
Growth-
Growth Interna- Income
Fund tional Fund Fund
As of November 30,
1996:
Accumulated
undistributed
net realized
gain (loss) on
investments $ 267,737 $ 95,444 $ 373,216
Paid-in capital 2,602,489 1,895,065 3,612,298
For the year
ended November 30,
1996:
Purchases of
investment
securities /1/ 1,304,842 1,121,564 1,584,674
Sales of invest-
ment securities /1/ 946,236 576,765 1,223,882
Asset High-Yield
Allocation Bond Bond
Fund Fund Fund
As of November 30,
1996:
Accumulated
undistributed
net realized
gain (loss) on
investments $ 72,422 $ 38 $ (7,163)
Paid-in capital 873,897 74,183 632,750
For the year
ended November 30,
1996:
Purchases of
investment
securities /1/ 458,007 66,769/2/ 295,440
Sales of invest-
ment securities /1/ 436,285 10,095/2/ 245,208
U.S. Government/ Cash
AAA-Rated Management
Securities Fund Fund Total
As of November 30,
1996:
Accumulated
undistributed
net realized
gain (loss) on
investments $ (11,022) - $ 790,672
Paid-in capital 509,915 $237,259 10,437,856
For the year
ended November 30,
1996:
Purchases of
investment
securities /1/ 167,672 - 4,998,968
Sales of invest-
ment securities /1/ 149,264 - 3,587,735
/1/ Excludes short-
term securities
/2/ For the period
January 2, 1996,
commencement of
operations, through
November 30, 1996.
</TABLE>
5. Dividend and interest income for the International Fund is recorded net of
non-U.S. taxes paid. For the year ended November 30, 1996, such non-U.S. taxes
were $5,796,000. Net realized currency gains on dividends, interest,
withholding taxes reclaimable, and sales of non-U.S. bonds and notes were
$877,000 for the year ended November 30, 1996.
The funds may enter into forward currency contracts, which represent an
agreement to exchange currencies of different countries at a specified future
date at a specified rate. The funds enter into these contracts to reduce their
exposure to fluctuations in foreign exchange rates arising from investments
denominated in non-U.S. currencies. The funds' use of forward currency
contracts involves market risk in excess of the amount recognized in the
statement of assets and liabilities. The contracts are recorded in the
statement of assets and liabilities at their net unrealized value. The face or
contract amount in U.S. dollars reflects the total exposure the funds have in
that particular contract. Losses may arise upon entering these contracts from
the potential inability of counterparties to meet the terms of their contracts
and from possible movements in non-U.S. exchange rates and securities values
underlying these instruments. At November 30, 1996, the Bond Fund had an
outstanding forward currency contract to sell non-U.S. currencies as follows:
<TABLE>
<S> <C> <C> <C> <C>
(Table for
footnote 5)
Non-U.S. Currency Sale ContractContract Amount U.S. Valuation at 11/30/96
Unrealized
Non-U.S. U.S. Amount Appreciation
------------------------------ --------------- ---------------
Deutsche Markes
expiring 1/8/97 DM275,000 $185,000 $179,000 $6,000
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
PER-SHARE
DATA AND
RATIOS
Net Total
realized & income Dividends
Net asset Net unrealized from from net
Year value, invest- gain (loss) invest- invest-
Ended beginning ment on invest- ment ment
11/30 of year income ments operations income
- --------- --------- --------- --------- --------- ---------
Growth Fund
1992 $24.18 $ .29 $ 4.25 $ 4.54 $(.31) /2/
1993 28.41 .25 4.13 4.38 (.24)
1994 32.34 .24 .69 .93 (.24)
1995 31.94 .33 10.63 10.96 (.29)
1996 41.81 .24 5.17 5.41 (.29)
International Fund
1992 $10.02 $ .19 $ (.09) $ .10 $ (.21)
1993 9.89 .17 2.50 2.67 (.16)
1994 12.40 .25 1.04 1.29 (.20)
1995 13.27 .34 1.02 1.36 (.33)
1996 13.89 .28 1.96 2.24 (.31)
Growth-Income Fund
1992 $21.72 $ .65 $ 2.74 $ 3.39 $ (.67)
1993 24.17 .63 2.12 2.75 (.63)
1994 26.01 .68 .14 .82 (.65)
1995 25.30 .73 7.20 7.93 (.73)
1996 31.47 .71 5.55 6.26 (.74)
Asset Allocation Fund
1992 $10.59 $ .48 $ .94 $ 1.42 $ (.49)
1993 11.47 .51 .67 1.18 (.49)
1994 12.01 .51 (.57) (.06) (.52)
1995 11.25 .50 2.69 3.19 (.50)
1996 13.77 .53 1.89 2.42 (.53)
Bond Fund /3/
1996 $10.00 $ .40 $ .16 $ .56 $ (.25)
High-Yield Bond Fund
1992 $13.53 $1.10 $ .62 $ 1.72 $(1.08)
1993 14.17 1.09 1.20 2.29 (1.10)
1994 15.17 1.27 (2.07) (.80) (1.23)
1995 12.89 1.32 1.10 2.42 (1.32)
1996 13.99 1.28 .54 1.82 (1.30)
U.S. Government/AAA-
Rated Securities Fund
1992 $11.22 $ .75 $ .32 $ 1.07 $ (.76)
1993 11.53 .74 .68 1.42 (.75)
1994 12.15 .76 (1.30) (.54) (.74)
1995 10.80 .82 .71 1.53 (.81)
1996 11.52 .83 (.24) .59 (.82)
Cash Management Fund
1992 $11.11 $ .35 $ .01 $ .36 $ (.43)
1993 11.04 .29 - .29 (.31)
1994 11.02 .37 .02 .39 (.32)
1995 11.09 .63 (.02) .61 (.59)
1996 11.11 .54 .01 .55 (.54)
Distri-
butions
from Net asset Net assets,
Year net Total value, end of
Ended realized distri- end of Total year (in
11/30 gains butions year return millions)
- --------- --------- --------- --------- --------- ---------
Growth Fund
1992 - $ (.31) $28.41 18.90% $1,212
1993 $ (.21) (.45) 32.34 15.59 1,737
1994 (1.09) (1.33) 31.94 2.92 2,027
1995 (.80) (1.09) 41.81 35.35 3,154
1996 (3.40) (3.69) 43.53 14.32 3,860
International Fund
1992 $ (.02) $ (.23) $ 9.89 0.90% $ 360
1993 - (.16) 12.40 27.20 840
1994 (.22) (.42) 13.27 10.48 1,405
1995 (.41) (.74) 13.89 10.78 1,703
1996 (.29) (.60) 15.53 16.66 2,370
Growth-Income Fund
1992 $ (.27) $ (.94) $24.17 15.90% $1,704
1993 (.28) (.91) 26.01 11.63 2,436
1994 (.88) (1.53) 25.30 3.21 2,740
1995 (1.03) (1.76) 31.47 33.14 3,953
1996 (1.26) (2.00) 35.73 21.02 5,249
Asset Allocation Fund
1992 $ (.05) $ (.54) $11.47 13.69% $ 359
1993 (.15) (.64) 12.01 10.59 578
1994 (.18) (.70) 11.25 (.54) 637
1995 (.17) (.67) 13.77 29.45 870
1996 (.48) (1.01) 15.18 18.65 1,141
Bond Fund /3/
1996 - $ (.25) $10.31 5.74% /4/ $ 77
High-Yield Bond Fund
1992 - $(1.08) $14.17 13.14% $ 197
1993 $ (.19) (1.29) 15.17 17.09 379
1994 (.25) (1.48) 12.89 (5.71) 390
1995 - (1.32) 13.99 19.81 534
1996 - (1.30) 14.51 13.75 662
U.S. Government/AAA-
Rated Securities Fund
1992 - $ (.76) $11.53 9.83% $ 360
1993 $ (.05) (.80) 12.15 12.65 505
1994 (.07) (.81) 10.80 (4.58) 463
1995 - (.81) 11.52 14.73 542
1996 - (.82) 11.29 5.49 512
Cash Management Fund
1992 - $ (.43) $11.04 3.31% $ 197
1993 - (.31) 11.02 2.67 206
1994 - (.32) 11.09 3.59 221
1995 - (.59) 11.11 5.65 193
1996 - (.54) 11.12 5.09 240
Ratio
Ratio of of net Average
Year expenses income to commissions Portfolio
Ended to average average paid per turnover
11/30 net assets net assets share /1/ rate
- --------- --------- --------- --------- ---------
Growth Fund
1992 0.53% 1.15% 6.89 cents 11.15%
1993 .50 .86 6.43 20.40
1994 .49 .78 6.09 29.58
1995 .47 .92 5.91 35.47
1996 .44 .61 5.42 30.88
International Fund
1992 1.00% 2.11% 1.22 cents 16.73%
1993 .96 1.75 .23 17.70
1994 .80 2.03 1.01 19.66
1995 .75 2.64 .16 24.66
1996 .69 1.99 1.24 32.08
Growth-Income Fund
1992 0.52% 3.01% 7.46 cents 13.60%
1993 .49 2.66 7.02 24.93
1994 .47 2.72 6.39 29.26
1995 .44 2.70 6.21 26.91
1996 .41 2.26 5.75 31.27
Asset Allocation Fund
1992 0.57% 4.73% 7.12 cents 19.74%
1993 .55 4.66 6.85 19.01
1994 .53 4.55 6.38 36.13
1995 .52 4.11 6.27 39.89
1996 .49 3.88 5.60 50.62
Bond Fund /3/
1996 .52% /4/ 6.18% /4/ - 32.83%/4/
High-Yield Bond Fund
1992 0.59% 8.88% - 47.44%
1993 .56 8.18 - 34.05
1994 .54 9.37 - 38.46
1995 .54 10.12 - 31.73
1996 .53 9.27 - 44.81
U.S. Government/AAA-
Rated Securities Fund
1992 0.57% 7.08% - 39.96%
1993 .55 6.42 - 21.69
1994 .54 6.69 - 45.21
1995 .54 7.37 - 30.11
1996 .53 7.33 - 30.45
Cash Management Fund
1992 0.53% 3.24% - -
1993 .51 2.57 - -
1994 .49 3.60 - -
1995 .49 5.37 - -
1996 .47 4.94 - -
/1/ Brokerage commissions paid on portfolio transactions increase the cost of
securities purchased or reduce the proceeds of securities sold, and are not reflected
in the funds' statement of operations. Shares traded on a principal basis, such as most
over-the-counter and fixed-income transactions, are excluded. Generally, non-U.S. commissions
are lower than U.S. commissions when expressed as cents per share but higher when
expressed as a percentage of transactions because of the lower per-share
prices of many non-U.S. securities.
/2/ Amount includes net realized short-term gains treated as net investment income for
federal income tax purposes.
/3/ Commenced operations January 2, 1996.
/4/ Based on operations for the period shown and, accordingly, not representative of a
full year's operations.
See Notes to Financial Statements
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
_________________________________________________________________
To the Board of Trustees and Shareholders of
American Variable Insurance Series:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of
operations and of changes in net assets and the per-share data and ratios
present fairly, in all material respects, the financial position of the Growth
Fund, the International Fund, the Growth-Income Fund, the Asset Allocation
Fund, the Bond Fund, the High-Yield Bond Fund, the U.S. Government/AAA-Rated
Securities Fund and the Cash Management Fund (constituting the American
Variable Insurance Series, hereafter referred to as the "Series") at November
30, 1996, the results of each of their operations for the year then ended, the
changes in each of their net assets for the years indicated, and the per-share
data and ratios for the years indicated, in conformity with generally accepted
accounting principles. These financial statements and per-share data and
ratios (hereafter referred to as "financial statements") are the responsibility
of the Series' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at November 30, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above
PRICE WATERHOUSE LLP
Los Angeles, California
January 8, 1997
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Included in Prospectus - Part A
Financial Highlights
Included in Statement of Additional Information - Part B
Statement of Assets and Liabilities Per Share Data and Ratios
Statement of Operations Notes to Financial Statements
Statement of Changes in Net Assets Report of Independent Accountants
(B) EXHIBITS:
1. Copy of Declaration of Trust and Certificate of Amendment of
Declaration of Trust dated October 19, 1988
2. By-laws
3. None
4. None
5. Copy of Investment Advisory and Service Agreement dated April 1, 1997
6. Principal Underwriting Agreement with American Funds Distributors, Inc.
dated July 12, 1989 and Amendment dated February 7, 1992.
7. None
8. Copy of Custody Contract dated December 29, 1987 and Amendment
dated 1995
9. Shareholder Services Agreement dated February 18, 1987
10. Opinion of Counsel dated December 2, 1983
11. Consent of Independent Accountants
12. None
13. Investment Letter dated 1983 concerning initial capital and purchases
for investment purposes
14. None
15. Form of Plan of Distribution for Class 2 shares pursuant to rule 12b-1
16. None
17. Financial data schedule (EDGAR)
18. On file (see SEC file nos. 811-3857 and 2-86838)
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of November 30, 1996.
Number of
Title of Class Record-Holders
Beneficial Interest 9
(no par value)
ITEM 27. INDEMNIFICATION.
Registrant is a joint-insured under an Investment Adviser/Mutual Fund
Errors and Omissions Policy written by American International Surplus Lines
Insurance Company, Chubb Custom Insurance Company and ICI Mutual Insurance
Company, which insures its officers and Trustees against certain liabilities.
Article VI of the Trust's By-Laws states:
(a) The Trust shall indemnify any Trustee or officer of the Trust who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than action by or in the right of the Trust) by reason
of the fact that such person is or was such Trustee or officer or an employee
or agent of the Trust, or is or was serving at the request of the Trust as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or pro-ceeding, had no reasonable cause to believe such
person's conduct was unlawful.
(b) The Trust shall indemnify any Trustee or officer of the Trust who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Trust to procure a judgment
in its favor by reason of the fact that such person is or was such Trustee or
officer or an employee or agent of the Trust, or is or was serving at the
request of the Trust as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of such person's duty to the Trust unless and
only to the extent that the court in which such action or suit was brought, or
any other court having jurisdiction in the premises, shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
(c) To the extent that a Trustee or officer of the Trust has been successful on
the merits in defense of any action, suit or proceeding referred to in
subparagraphs (a) or (b) above or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity for the determination as to the standard of
conduct as provided in subparagraph (d).
(d) Any indemnification under subparagraph (a) or (b) (unless ordered by a
court) shall be made by the Trust only as authorized in the specific case upon
a determination that indemnification of the Trustee or officer is proper under
the standard of conduct set forth in subparagraph (a) or (b). Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of Trustees who were not parties to such action, suit or proceeding,
and are disinterested Trustees or (ii) if such a quorum of disinterested
Trustees so directs, by independent legal counsel in a written opinion; and any
determinations so made shall be conclusive.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case, upon receipt
of an undertaking and security by or on behalf of the Trustee or officer to
repay such amount unless it shall ultimately be determined that such person is
entitled to be indemnified by the Trust as authorized herein.
(f) Agents and employees of the Trust who are not Trustees or officers of the
Trust may be indemnified under the same standards and procedures set forth
above, in the discretion of the Board.
(g) Any indemnification pursuant to this Article shall not be deemed exclusive
of any other rights to which those indemnified may be entitled and shall
continue as to a person who has ceased to be Trustee or officer and shall inure
to the benefit of the heirs, executors and administrators of such person.
(h) Nothing in the Declaration of Trust or in these By-Laws shall be deemed to
protect any Trustee, officer, distributor, investment adviser or controlling
shareholder of the Trust against any liability to the Trust or to its
shareholders to which such person would otherwise be subject by reason of
willful malfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.
(i) The Trust shall have power to purchase and maintain insurance on behalf of
any person against any liability asserted against or incurred by such person,
whether or not the Trust would have the power to indemnify such person against
such liability under the provisions of this Article. Nevertheless, insurance
will not be purchased or maintained by the Trust if the purchase or maintenance
of such insurance would result in the indemnification or any person in
contravention of any rule or regulation of the Securities and Exchange
Commission.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer of controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such Trustee, officer of controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
None.
ITEM 29. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other records required by Rules 31a-1 and 31a-2 under
the Investment Company Act of 1940, as amended, are maintained and kept in the
offices of the Series and its investment adviser, Capital Research and
Management Company, 333 South Hope Street, Los Angeles, CA 90071. Certain
accounting records are maintained and kept in the offices of the Investment
Adviser's accounting department, 135 South State College Blvd., Brea, CA
92621.
Records covering portfolio transactions are also maintained and kept by
the custodian, State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02101.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
None.
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, and State of California, on the
27th day of March, 1997.
AMERICAN VARIABLE INSURANCE SERIES
By /s/ James F. Rothenberg
James F. Rothenberg, President and Trustee
Pursuant to the requirements of the Securities Act of 1933, this amendment
to Registration Statement has been signed below on March 27, 1997, by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
(1) Principal Executive Officer:
/s/ James F. Rothenberg President and Trustee
James F. Rothenberg
(2) Principal Financial Officer and
Principal Accounting Officer:
/s/ Robert P. Simmer Treasurer
Robert P. Simmer
(3) Trustees:
Charles H. Black* Trustee
H. Frederick Christie* Trustee
Joe E. Davis* Trustee
Martin Fenton, Jr.* Trustee
Richard H. M. Holmes* Trustee
Mary Myers Kauppila* Trustee
Kirk P. Pendleton* Trustee
/s/ James F. Rothenberg President and Trustee
James F. Rothenberg
Thomas E. Terry* Chairman of the Board
</TABLE>
*By /s/ Chad L. Norton
Chad L. Norton (Attorney-in-Fact)
Counsel reports that the amendment does not contain disclosures that would
make the amendment ineligible for effectiveness under the provisions of rule
485(b).
/s/ Michele Y. Yang
Michele Y. Yang
DECLARATION OF TRUST
OF
AMERICAN PATHWAY FUND
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
<S> <C> <C> <C>
I. NAME AND DEFINITIONS 2
1.2 Definitions 2
II. TRUSTEES 4
2.1 Number of Trustees 4
2.2 Term and Election 4
2.3 Resignation and Removal by Trustees 4
2.4 Removal by Shareholders 4
2.5 Vacancies 5
2.6 Delegation of Power to Other Trustees 5
III. POWERS OF TRUSTEES 5
3.1 General 5
3.2 Investments 6
3.3 Legal Title 8
3.4 Issuance and Repurchase of Shares 8
3.5 Delegation; Committees 8
3.6 Collection and Payment 8
3.7 Expenses 9
3.8 Manner of Acting 9
3.9 By-Laws 9
3.10 Miscellaneous Powers 9
3.11 Principal Transactions 10
3.12 Trustees and Officers as Shareholders 10
3.13 Litigation 11
IV. CONTRACTS 11
4.1 Underwriting Contract 11
4.2 Investment Advisory or Management Contract 11
4.3 Transfer Agent 12
4.4 Affiliations of Trustees or Officers, Etc. 12
V. LIMITATIONS OF LIABILITY
OF SHAREHOLDERS, TRUSTEES
AND OTHERS 13
5.1 No Personal Liability of Shareholders, 13
Trustees, etc.
5.2 Non-Liability of Trustees, etc. 14
5.3 No Bond Required of Trustees 14
5.4 No Duty of Investigation; Notice in Trust 14
Instruments, etc 14
5.5 Reliance on Experts, etc 14
VI. SHARES OF BENEFICIAL
INTEREST 15
6.1 Beneficial Interest 15
6.2 Rights of Shareholders 16
6.3 Trust Only 16
6.4 Issuance of Shares 16
6.5 Register of Shares; Share Certificates 16
6.6 Transfer of Shares 17
6.7 Notices 17
6.8 Treasury Shares 17
6.9 Voting Powers 18
6.10 Series or Classes of Shares 18
VII. REDEMPTION, REPURCHASE,
AND REDUCTION OF SHARES 20
7.1 Redemption of Shares 20
7.2 Price 20
7.3 Payment 21
7.4 Repurchase by Agreement 21
7.5 Redemption of Shareholder's Interest;
Redemption of Shares to Qualify as a
Regulated Investment Company; Disclosure
of Holdings 21
7.6 Suspension of Right of Redemption 22
7.7 Effect of Suspension of Determination of
Net Asset Value 23
7.8 Reductions of Shares 23
VIII. DETERMINATION OF NET
ASSET VALUE, NET INCOME,
AND DISTRIBUTIONS 23
8.1 Net Asset Value 23
8.2 Distributions with Respect to Outstanding
Shares 24
8.3 Determination of Net Income 24
8.4 Power to Modify Foregoing Procedures 25
IX. DURATION; TERMINATION OF
TRUST; AMENDMENT;
MERGERS; ETC. 25
9.1 Duration 25
9.2 Termination of Trust 25
9.3 Amendment Procedure 26
9.4 Merger, Consolidation or Sale of Assets 27
9.5 Incorporation 27
X. MISCELLANEOUS 28
10.1 Filing 28
10.2 Governing Law 28
10.3 Counterparts 28
10.4 Reliance by Third Parties 28
10.5 Provisions in Conflict With Law or
Regulations 29
10.6 Index and Heading for Reference Only 29
</TABLE>
(iii)
DECLARATION OF TRUST
OF
AMERICAN PATHWAY FUND
Dated September 13, 1983
DECLARATION OF TRUST made September 13, 1983 by John W. Belash,
Michael J. Downer and Thomas E. Terry, {the "Trustees"};
WHEREAS, the Trustees desire to establish a trust under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, the Trustees desire that the beneficial interest in the
trust assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of the holders, from time to time, of the shares of
beneficial interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1 - Name.
The name of the trust created hereby Is "American Pathway Fund."
SECTION 1.2 - Definitions.
Wherever they are used herein, the following terms have the following
respective meanings:
(a) "By-Laws" means the By-Laws referred to in Section 3.9 hereof, as
amended from time to time.
(b) The terms "Commission" and "Interested Person", have the meanings
given them in the 1940 Act. The term "vote of a majority of the Shares
outstanding and entitled to vote" shall have the same meaning as the term "Vote
of a majority of the outstanding voting securities" given it in the 1940 Act.
(c) "Custodian" means any Person other than the Trust who has custody of
any Trust Property as required by Section 17(f) of the 1940 Act.
(d) "Declaration" means this Declaration of Trust as amended from time
to time. Reference in this Declaration to "Declaration", "hereof", "herein" and
"hereunder" shall be deemed to refer to this Declaration rather than
exclusively to the article or section in which such words appear.
(e) "Distributor" means the other person to any contract entered into by
the Trust pursuant to Section 4.1 hereof.
(f) "Fundamental Policies" means the investment restrictions set forth and
identified as such in the By-Laws.
(g) "His" shall be deemed to include the feminine and neuter, as well as
the masculine, genders.
(h) "Investment Adviser" means the other Person to any contract entered
into by the Trust pursuant to Section 4.2 hereof.
(i) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
(j) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures, and other entities, whether or not legal
entities, governments and agencies and instrumentalities and political
subdivisions thereof$ and quasi-governmental agencies and instrumentalities.
(k) "Prospectus" means the prospectus of the Trust effective from time to
time under the Securities Act of 1933, as amended from time to time.
(l) "Securities" shall include, without limitation, common and preferred
stocks; American Depository Receipts, currency futures, certificates of
deposit, finance paper, commercial paper, bankers acceptances and all kinds of
repurchase agreements and reverse repurchase agreements of any Person;
warrants; options; bonds; debentures; bills; notes; other evidences of
indebtedness; negotiable or non-negotiable instruments; government securities,
including, without limitation, securities of the United States or any other
government, any state, municipality or other political subdivision thereof, or
any governmental or quasi-governmental agency or instrumentality.
(m) "Shareholder" means a record owner of outstanding Shares.
(n) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to time and
includes fractions of Shares as well as whole Shares. "Outstanding" Shares
means those Shares shown from time to time on the books of the Trust or its
Transfer Agent as then issued and outstanding, but shall not include Shares
which have been redeemed or repurchased by the Trust and which are at the time
held in the Treasury of the Trust.
(o) "Transfer Agent" means the other Person to any contract entered into
by the Trust pursuant to Section 4.3 hereof.
(p) "Trust" means the Trust created by this Declaration.
(q) "Trust property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees as such, but shall not include property owned by the
Trustees as individuals.
(r) "Trustees" means the persons who have signed this Declaration, so long
as they shall continue in office in accordance with the terms hereof, and all
other persons who may from time to time be serving as Trustees in accordance
with the provisions of Article II hereof, and reference herein to a Trustee or
the Trustees shall refer to such Person or persons in his capacity as Trustee
or their capacities as Trustees hereunder and not in his or their individual
capacities except where the context otherwise requires.
ARTICLE II
TRUSTEES
SECTION 2.1 - Number of Trustees.
The number of Trustees shall be such number as shall be fixed from time to
time by written instrument signed by a majority of the Trustees, provided,
however, that the number of Trustees shall in no event be reduced to less than
three by such an instrument.
SECTION 2.2 - Term and Election.
The Trustees shall (except in the event of resignations or removals or
vacancies pursuant to Sections 2.3 or 2.4 hereof) hold office during the
lifetime of the Trust and until its termination as hereinafter provided.
SECTION 2.3 - Resignation and Removal by Trustees.
Any Trustee may resign as such (without need for prior or subsequent
accounting) by an instrument in writing signed by him and delivered to the
other Trustees and such resignation shall be effective upon such delivery, or
at a later date according to the terms of the instrument. Any of the Trustees
may be removed (provided the aggregate number of Trustees after such removal
shall not be less than the minimum number required by this Declaration) for
cause by the action of two-thirds of the remaining Trustees. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he shall execute and deliver such documents as the remaining Trustees shall
require for the purpose of conveying to the Trust or the remaining Trustees any
Trust Property held in the name of the resigning or removed Trustee. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence.
SECTION 2.4 - Removal by Shareholders.
The shareholders shall have the power to remove a Trustee by the
affirmative vote of the holders of not less than two-thirds of the shares
outstanding and entitled to vote either by declaration in writing filed with
the custodian or by votes cast in person or by proxy at a meeting called for
the purpose of removal under this section. The Trustees shall promptly call
such a meeting of shareholders when requested to do so by record holders of not
less than 10 per cent of the outstanding shares.
Whenever ten or more shareholders of record who have been shareholders at
least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at
least 1 per centum of the outstanding shares, whichever is less, shall apply to
the trustees tn writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to a request for a meeting
pursuant to this Section 2.4 and accompanied by a form of communication and
request which they wish to transmit, the trustees shall within five business
days after receipt of such application either:
(a) Afford to such applicants access to a list of the names and addresses
of all shareholders as recorded on the books of the trust; or
(b) Inform such applicants as to the approximate number of shareholders of
record, and the approximate cost of mailing to them the proposed communication
and form of request.
SECTION 2.5 - Vacancies.
The term of office of a Trustee shall terminate and a vacancy shall occur
in the event of his death, resignation, removal, bankruptcy, adjudicated
incompetence or other permanent incapacity as two-thirds of the remaining
Trustees deems to have rendered him unable to perform the duties of the office
of a Trustee. No such vacancy shall operate to annul this Declaration or to
revoke any existing agency created pursuant to the terms of this Declaration.
In the case of an existing vacancy, including a vacancy existing by reason of
an increase in the number of Trustees, subject to the provisions of the 1940
Act, the remaining Trustees shall fill such vacancy by the appointment Of such
other Person as they in their discretion shall see fit, made by a written
instrument signed by a majority of the Trustees then in office. No such
appointment shall become effective until the Person named in the written
instrument of appointment shall have accepted such appointment in writing and
agreed in writing to be bound by the terms of this Declaration. An appointment
of a Trustee may be made in anticipation of a vacancy to occur at a later date
by reason of retirement, resignation or increase in the number of Trustees,
provided that such appointment shall not become effective prior to such
retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees snail occur, until such vacancy is filled as
provided this Section 2.4, the Trustees in office, regardless of their number,
shall have all the powers granted to the Trustees and shall discharge all the
duties imposed upon the Trustees by this Declaration. A written instrument
certifying the existence of such vacancy signed by a majority of the Trustees
shall be conclusive evidence of the existence of such vacancy.
SECTION 2.6 - Delegation of Power to Other Trustees.
Any Trustee may. by power of attorney, delegate his power for a period not
exceeding six (6) months at any one time to any other Trustee or Trustees,
provided that in no case shall less than two (2) Trustees personally exercise
the powers granted to the Trustees under this Declaration except as herein
otherwise expressly provided, and provided further that this Section shall in
no way be deemed to limit the provisions of Section 3.5.
ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1 - General.
The Trustees shall have exclusive and absolute control over the Trust
Property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust Property and business in their own
right.
The Trustees are responsible for the general policies of the Trust and for
such general supervision of the business of the Trust conducted by all
officers, employees, agents, Investment Advisers, Distributors, Custodians,
Transfer Agents or independent contractors of the Trust as may be necessary to
insure that such business conforms to the provisions of this Declaration.
However, the Trustees are not and shall not be required personally to conduct
the business of the Trust and, consistent with their ultimate responsibility as
stated above, the Trustees shall have the power to appoint, employ or contract
with any Person or Persons (including one or more of themselves or any Person
in which one or more of them may be directors, officers, agents, employees,
stockholders, partners or Trustees or with which one or more of them may be
otherwise affiliated) as the Trustees may deem necessary or proper for the
transaction of the business of the Trust, and for such purpose may grant or
delegate such authority to any such Person as the Trustees may in their sole
discretion deem necessary or desirable without regard to whether such authority
is normally granted or delegated by Trustees. The Trustees shall nave the power
to determine the terms and compensation of any such Person and may exercise
broad discretion in allowing such Person to administer and regulate the
operations of the Trust, to act as agent for the Trust, to execute documents on
behalf of the Trustees or the Trust, and to make executive decisions which
conform to the general policies and general principles previously established
by the Trustees.
The Trustees shall have power to conduct the business of the Trust and
carry on its operations in any and all of its branches and maintain offices
both within and without the Commonwealth of Massachusetts, in any and all
states of the United States of America, in the District of Columbia, and in any
and all commonwealths, territories, dependencies, colonies, and possessions of
the United States of America and of foreign governments, and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not specifically mentioned herein. Any determination as to what is in the
interests of the Trust or as to the existence of powers or authorities
hereunder made by the Trustees in good faith shall be conclusive. In construing
the provisions of this Declaration, the presumption shall be in favor of a
grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid powers. Such powers of the Trustees may be exercised
without order of or resort to any court.
SECTION 3.2 - Investments.
The Trustees shall have the power, subject to the Fundamental Policies:
(a) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
business;
(b) To invest in, hold for investment, and reinvest in Securities or in
"when issued" or delayed delivery contracts for any Securities or retain all or
any part of the Trust Property in cash and at any time and from time to time to
change the investments of the Trust Property;
(c) To acquire (by purchase, subscription or otherwise), to hold, to trade
in and deal in, to sell or otherwise dispose of, to lend, and to pledge,
Securities;
(d) To exercise all rights, powers and privileges of ownership or
interest in all Securities included in the Trust Property, including the right
to vote thereon and otherwise act with respect thereto and to do all acts for
the preservation, protection, improvement and enhancement in value of all Trust
Property;
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, tangible or intangible, including, without limitation, cash, and any
interest therein;
(f) To borrow money and in connection therewith to issue notes or other
evidences of indebtedness; to secure borrowings by mortgage; pledging or
otherwise subjecting as security the Trust Property or any portion thereof; to
endorse, guarantee, or undertake the performance of any obligation or
engagement of any other Person and to lend Trust Property;
(g) To aid by further investment any Person, any Security of or interest
in which is included in the Trust Property or in the affairs of which the
Trustee, as such, have any direct or indirect interest; to do all acts and
things designed to protect, preserve, improve or enhance the value of such
Security or interest; to guarantee or become surety on any or all of the
contracts, stocks, bonds, notes, debentures and other obligations of any such
Person; and
(h) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power herein set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
SECTION 3.3 - Legal Title.
Legal title to all the Trust Property shall be vested in the Trustees as
joint tenants except that the Trustees shall have power to cause legal title to
any Trust Property to be held by or in the name of one or more of the Trustees,
or in the name of the Trust, or in the name of any other Person as nominee, on
such terms as the Trustees may determine, the right, title and interest of the
Trustees in the Trust Property shall vest automatically in each Person who may
become a Trustee. Upon the termination of a Trustee's term of office, he shall
automatically cease to have any right, title, or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents
have been executed and delivered.
SECTION 3.4 - Issuance and Repurchase of Shares.
The Trustees shall have the power to issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in Shares and, subject to the provisions set forth in Articles
VII, VIII and IX, to apply to any Such repurchase, redemption, retirement,
cancellation or acquisition of Shares any Trust Property whether capital or
surplus or otherwise, to the full extent now or hereafter not prohibited by the
laws of the Commonwealth of Massachusetts.
SECTION 3.5 - Delegation; Committees.
The Trustees shall have power to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
things and the execution of such Instruments either in the name of the Trust or
in the names of the Trustees or otherwise as the Trustees may deem expedient,
except as may be prohibited by the 1940 Act.
SECTION 3.6 - Collection and Payment.
The Trustees shall have power to collect all property due to the Trust; to
pay all claims, including, without limitation, taxes, against the Trust
Property; to prosecute, defend, compromise or abandon any claims relating to
the Trust Property; to foreclose any security interest securing any
obligations, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and. other instruments.
SECTION 3.7 - Expenses.
The Trustees shall have the power to incur and pay any expenses which in
the opinion of the Trustees, are necessary or incidental to carrying out any of
the purposes of this Declaration, to pay themselves reasonable compensation and
to reimburse themselves for expenses incurred in the performance of their
duties as Trustees from the Trust Property. The Trustees shall fix the
compensation of all officers, employees, agents and Trustees.
SECTION 3.8 - Manner of Acting.
Except as otherwise provided herein or in the By-Laws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees at which a quorum is present, including any meeting held by
means of a conference telephone circuit or similar communications equipment by
means of which all persons participating in the meeting can hear each other, or
by written consents of the entire number of Trustees then in office.
SECTION 3.9 - By-Laws.
The Trustees may adopt By-Laws not inconsistent with this Declaration to
provide for the conduct of the business of the Trust and amend or repeal such
By-Laws to the extent such power is not reserved to the Shareholders.
SECTION 3.10 - Miscellaneous Powers.
The Trustees shall have the power to:
(a) Employ or contract with such Person or Persons as the Trustees may
deem desirable for the transaction of the business of the Trust;
(b) Enter into joint ventures, partnerships and any other combinations or
associations;
(c) Remove Trustees or fill vacancies in or add to their number, elect and
remove such officers and appoint and terminate such agents or employees as they
consider appropriate, and appoint from their own number, and terminate, any one
or more committees which may exercise some or all of the power and authority of
the Trustees as the Trustees may determine;
(d) Purchase, and pay for out of Trust Property Insurance policies
insuring the Shareholders, Trustees, officers, employees, agents, Investment
Advisers, Distributors, Transfer Agents, Custodians, selected dealers or
independent contractors of the Trust against any and all claims and liabilities
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such claim or liability;
(e) Establish pension, profit-sharing, share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees
and agents of the Trust;
(f) To the extent not prohibited by law, indemnify any Person with whom
the Trust has dealings. including any Investment Adviser, Distributor, Transfer
Agent and selected dealers, to such extent as the Trustees shall determine;
(g) Guarantee indebtedness or contractual obligations of others.
(h) Determine and change the fiscal year of the Trust and the method by
which its accounts shall be kept; and
(i) Adopt a seal for the Trust, but the absence of such seal shall not
impair the validity of any instrument executed on behalf of the Trust.
SECTION 3.11 - Principal Transactions.
Except in transactions permitted by the 1940 Act or any order of exemption
issued by the Commission, or effected to implement the provisions of any
agreement to which the Trust is a party, the Trustees shall not, on behalf of
the Trust, buy any securities (other than Snares) from or sell any securities
(other than Snares) to, or lend any assets of the Trust to any Trustee or
officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with the Manager,
Distributor or Transfer Agent or with any Affiliated Person of such Person; but
the Trust may employ any such Person, or firm or company in which such Person
is an Interested Person, as broker, legal counsel, registrar, transfer agent,
dividend disbursing agent or custodian upon customary terms.
SECTION 3.12 - Trustees and Officers as Shareholders.
Any Trustee, officer, employee or agent of the Trust may acquire, own and
dispose of Shares to the same extent as if he were not such a Trustee, officer,
employee or agent; and the Trustees may issue and sell or cause to be issued
and sold Shares to and buy Shares from any such Person or any firm or company
in which he is an Interested Person.
SECTION 3.13 - Litigation.
The Trustees shall have the power to engage in and to prosecute, defend,
compromise, abandon, or adjust, by arbitration, or otherwise, any actions,
suits, proceedings, disputes, claims, and demands relating to the Trust, and
out of the assets of the Trust to pay or to satisfy any debts, claims or
expenses incurred in connection therewith, including those of litigation, and
such power shall include without limitation the power of the Trustees or any
appropriate committee thereof, in the exercise of their or its good faith
business judgment, to dismiss any action, suit, proceeding, dispute, claim, or
demand, derivative or otherwise, brought by any person, including a Shareholder
in its own name or the name of the Trust, whether or not the Trust or any of
the Trustees may be named individually therein or the subject matter arises by
reason of business for, or on behalf of the Trust.
ARTICLE IV
CONTRACTS
SECTION 4.1 - Underwriting Contract.
Subject to the provisions of the 1940 Act, the Trustees may, in their
discretion, from time to time enter into, renew, amend, or modify an exclusive
or non-exclusive underwriting contract or contracts providing for the sale of
the Shares to net the Trust an amount per Share not less than the amount
provided for in Section 8.1 hereof, whereby the Trustees may agree to sell the
Shares to the other party to the contract and/or appoint such other party sales
agent of the Trust for the Shares, on such terms and conditions as may be
prescribed in the By-Laws, if any, and such further terms and conditions as the
Trustees may, in their discretion, determine not inconsistent with the
provisions of this Declaration or the By-Laws; and any such contract may also
provide for the repurchase of the Shares by such other party as agent of the
Trust and may provide that such other party may enter into selected dealer
agreements with registered securities dealers to further the purpose of the
distribution or repurchase of such Shares.
SECTION 4.2 - Investment Advisory or Management Contract.
Subject to the provisions of the 1940 Act, the Trustees may, in their
discretion, from time to time enter into, renew, amend, or modify an investment
advisory or management contract or contracts whereby the other party or parties
to such contract or contracts shall undertake to furnish to the Trust such
management, investment advisory, statistical, and research facilities and
services and such other facilities and services, if any, and all upon such
terms and conditions as the Trustees may, in their discretion, determine,
including the grant of authority to such other party to determine what
Securities shall be purchased or sold by the Trust and what portion of its
assets shall be uninvested, which authority shall include the power to make
changes in the Trust's investments. Notwithstanding any provisions of this
Declaration, the Trustees may authorize the Investment Adviser (subject to such
general or specific instructions as the Trustees may from time to time adopt)
to effect purchases, sales, loans or exchanges of Securities of the Trust on
behalf of the Trustees and may authorize any officer, employee or Trustee to
effect such purchases, sales, loans or exchanges pursuant to recommendations of
the Investment Adviser, without further action by the Trustees. Any such
activities shall be deemed to have been authorized by all of the Trustees.
SECTION 4.3 - Transfer Agent.
The Trustees may in their discretion from time to time enter into a
transfer agency and shareholder service contract or contracts whereby the other
party or parties to such contract or contracts shall undertake to furnish
transfer agency and shareholder services to the Trust. Any such contract shall
have such terms and conditions as the Trustees may, in the discretion,
determine not inconsistent with this Declaration or the By-Laws. Such services
may be provided by one or more Persons.
SECTION 4.4 - Affiliations of Trustees or Officers, etc.
Any Shareholder, Trustee or officer of the Trust, individually, any firm
of which any Shareholder, Trustee or officer of the Trust may be a member, or
any Person of which any Shareholder, Trustee or officer of the Trust may be an
officer or director or in which any Shareholder, Trustee officer of the Trust
may be directly or indirectly interested as the holder of any amount of its
capital stock or otherwise, may be a party to, or may be financially or
otherwise interested in, any contract or transaction of the Trust, and in the
absence of fraud no contract or other transaction shall be thereby affected or
invalidated by reason of the existence of any such relationship; nor shall any
Person holding such relationship be liable merely by reason of such
relationship for any or expense to the Trust under or by reason of said
contract or accountable for any profit realized directly or indirectly
therefrom provided, that the fact of any such interests or relationships shall
be disclosed or shall have been known to the Trustees or a majority thereof;
and any such Shareholder, Trustee or officer of the Trust may be counted in
determining the existence of a quorum at the meeting of the Trustees of the
Trust which shall authorize any such contract or transaction, and may vote
thereat to authorize any such contract or transaction, with like force and
effect as if such other interests or relationships did not exist. In
furtherance and not in limitation of the foregoing, the Trustees of the Trust
are expressly authorized to contract for investment advisory and management
services of any nature, as described in Section 4.2, with any Person affiliated
with any Trustee or parent or affiliate or Interested Person of any such
Person, on such terms as the Trustees may deem desirable. The Trustees are
further expressly authorized to contract with any such Person or parent or
affiliate or Interested Person of any such Person on such terms as the Trustees
may deem desirable for the distribution of shares of the Trust as described in
Section 4.1 and to contract for other services, including, without limitation
services as Transfer Agent for the Trust's shares as described in Section 4.3
above with any such Person on such terms as the Trustees may deem desirable.
Any such Person or parent or affiliate or Interested Person of any such Person
which enters into one or more of such contracts may also perform similar or
identical services for other investment companies and other Persons without
restriction by reason of the relationship with the Trust.
ARTICLE V
LIMITATIONS OF LIABILITY OF
SHAREHOLDERS, TRUSTEES AND OTHERS
SECTION 5.1 - No Personal Liability of Shareholders, Trustees, etc.
No Shareholder as such shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the acts,
omissions, obligations or affairs of the Trust. No Trustee, officer, employee
or agent of the Trust as such shall be subject to any Personal liability
whatsoever to any Person in connection with Trust Property or the affairs of
the Trust, save only that to which they would be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of their duties,
or by reason of their reckless disregard of their obligations and duties with
respect to such Person; and all Persons shall look solely to the Trust Property
for satisfaction of claims of any nature arising directly or indirectly in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust is made a party to any suit or
proceeding to enforce any such liability of the Trust, he shall not, on account
thereof, be held to any personal liability. The Trust shall Indemnify and hold
each Shareholder harmless from and against all claims and liabilities to which
such Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall
not exclude any other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to
indemnify or reimburse a Shareholder in any appropriate situation even though
not specifically provided herein.
SECTION 5.2 - Non-Liability of Trustees, etc.
No trustee, officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee, or
agent thereof for any action or failure to act (including without limitation
the failure to compel in any way any former or acting Trustee to redress any
breach of Trust) except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
SECTION 5.3 - No Bond Required of Trustees.
No Trustee shall be obligated to give any bond or other security for the
performance of any of his duties hereunder.
SECTION 5.4 - No Duty of Investigation; Notice in Trust Instruments, etc.
No purchaser, lender, Transfer Agent, Custodian or other Person dealing
with the Trustees or any officer, employee or agent of the Trust shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for the
application of Trust Property paid, loaned, or delivered to or on the order of
the Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with or on behalf of
the Trust shall be conclusively presumed to have been executed or done by the
executors thereof only in their capacity as Trustees under this Declaration or
in their capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees may recite, in substance,
that the same is executed or made by them not individually, but as Trustees
under the declaration, and that the obligations of the Trust under any such
instrument are not binding upon any of the Trustees or Shareholders
individually, but bind only the Trust estate, and may contain any further
recital which they or he may deem appropriate, but the omission of such recital
shall not operate to bind the Trustee or Shareholders individually. The
Trustees may maintain insurance for the protection of the Trust Property, its
Shareholders, Trustees, officers, employees, and agents in such amount as the
Trustees shall deem adequate to cover possible tort liability, and such other
insurance as the Trustees in their sole judgment shall deem advisable.
SECTION 5.5 - Reliance on Experts, etc,
Each Trustee, officer, employee, or agent of the Trust shall, in the
performance of his duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust, upon an opinion of
counsel, or upon reports made to the Trust by any of its officers, employees,
agents or by the Investment Adviser, the Distributor, Transfer Agent,
Custodian, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers, or
employees of the Trust, regardless of whether any such Person may also be a
Trustee or an Interested Person of the Trust.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1 - Beneficial Interest.
The interest of the beneficiaries of the Trust shall be divided into
transferable shares and fractions of shares of beneficial interest without par
value. The number of shares of beneficial interest is unlimited. Initially the
shares of beneficial interest shall be of four series and of one class. The
Trustees shall have authority in their sole discretion to create one or more
additional series of shares of beneficial interest or one or more additional
classes of shares of beneficial interest, on such terms and conditions as they
may determine, without vote of the shareholders. The Trustees shall nave
authority, in their sole discretion, to combine series of shares of beneficial
interest or a class of shares of beneficial interest with another series of
shares of beneficial interest or another class of shares of beneficial
interest, without vote of the shareholders, either
(a) through an exchange of shares of beneficial interest in one series of
shares of beneficial interest or class of shares of beneficial interest for
shares of beneficial interest in another series of shares of beneficial
interest or class of shares of beneficial interest, or
(b) by amendment of the terms of and conditions applicable to a series of
shares of beneficial interest or to a class of shares of beneficial interest to
conform such terms and conditions to the terms and conditions applicable to the
other series of shares of beneficial interest or to the other class of shares
of beneficial interest; provided that any such combination of two
or more series of shares of beneficial interest or two or more classes of
shares of beneficial interest shall always be effected in a way which will
preserve the relative net asset value of the shares of beneficial interest
affected. All shares of beneficial interest issued hereunder including, without
limitation, shares of beneficial interest issued in connection with any
dividend declared and paid in shares of beneficial interest or any split of
shares of beneficial interest, shall be fully paid and non-assessable.
SECTION 6.2 - Rights of Shareholders.
The ownership of the Trust Property of every description and the right to
conduct any business hereinbefore described are vested exclusively in the
Trustees, and the Shareholders shall have no interest in the Trust Property or
in the business of the Trust other than the beneficial interest conferred by
their Shares, and they shall nave no right to call for any partition,
divisions, dividend or distribution of any property, profits, rights or
interests of the Trust nor can they be called upon personally to share or
assume any losses of the Trust or suffer an assessment of any kind by virtue of
their ownership of Shares. The Shares shall be personal property giving only
the rights specifically set forth in this declaration. The Shares shall not
entitle the holder to preference, preemptive, appraisal, conversion or exchange
rights except as the Trustees may determine with respect to any series of
shares.
SECTION 6.3 - Trust Only.
It is the intention of the Trustees to create only the relationship of
trustee and beneficiary between the Trustees and each Shareholder from time to
time. It is not the intention of the Trustees to create a general partnership,
limited partnership, joint stock association, joint venture, corporation,
bailment or any form of legal relationship other than a trust. Nothing in this
Declaration shall be construed to make the Shareholders, either by themselves
or with the Trustees, partners or members of a joint stock association.
SECTION 6.4 - Issuance of Shares.
The Trustees, in their discretion, may at any time and from time to time
without vote of the Shareholders, issue Shares to such party or parties and for
such amount and type of consideration, including cash or property, at such time
or times, the Trust may also reduce the number of outstanding Shares, and on
such terms as the Trustees may deem best, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with
the assumption of liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares. The Trustees may from time
to time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust.
Contributions to the Trust may be accepted for, and Shares shall be redeemed
as, whole Shares and/or 1/1,00Oths of a Share or integral multiples thereof.
SECTION 6.5 - Register of Shares; Share Certificates.
A register shall be kept at the principal office of the Trust or an office
of the Transfer Agent which shall contain the names and addresses of the
Shareholders and the number of Shares held by them respectively and a record of
all transfers thereof. Such register shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, or to have notice given to him as herein or in the By-Laws
provided, until he has given his address to the Transfer Agent or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
SECTION 6.6 - Transfer of Shares.
Shares shall be transferable on the register of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing,
upon delivery to the Trustees or the Transfer Agent of a duly executed
instrument of transfer, together with such evidence of the genuineness of each
such execution and authorization and of such other matters as may reasonably be
required. Upon such delivery, the transfer shall be recorded on the register of
the Trust. Until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar, if any, nor any officer, employee
or agent of the Trust shall be affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, except as may otherwise be provided in the laws of the Commonwealth of
Massachusetts, shall be recorded on the register of Shares as the holder of
such Shares upon production of the proper evidence thereof to the Trustees or
the Transfer Agent, but until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar, if$any, nor any
officer or agent of the Trust shall be affected by any notice of such death,
bankruptcy or incompetence, or other operation of law. Nothing tn this
Declaration shall impose on the Trustees or a Transfer Agent a duty, or limit
their rights, to inquire into adverse claims.
SECTION 6.7 - Notices.
Any and all notices to which any Shareholder may be entitled and any and
all communications shall be deemed duly served or given if mailed, postage
prepaid, addressed to any Shareholder of record at his last known address as
recorded on the registrar of the Trust.
SECTION 6.8 - Treasury Shares.
Shares held in the treasury shall, until reissued pursuant to Section 6.4,
not confer any voting rights on the Trustees, nor shall such Shares be entitled
to any dividends or other distributions declared with respect to the Shares.
SECTION 6.9 - Voting Powers.
The Shareholders shall have power to vote with respect to such matters
relating to the Trust as may be required by law, this Declaration, the By-Laws,
the 1940 Act, any registration of Trust with the Commission (or any successor
agency) or any state, or as the Trustees may consider necessary or desirable.
Each whole Share shall be entitled to one vote as to any matter on which
it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares shall not entitle the Shareholders to preference,
appraisal, conversion, exchange or preemptive rights of any kind. Until Shares
are issued, the Trustees may exercise all rights of Shareholders and may take
any action required by law, this Declaration or the By-Laws to be taken by
Shareholders. The By-Laws may include further provisions for Shareholder's
votes and meetings, setting of record dates, and related matters.
SECTION 6.10 - Series or Classes of Snares.
If the Trustee shall divide the shares of the Trust into two or more
series or two or more classes of any series, as provided in Section 6.1
thereof, the following provisions shall be applicable:
(a) The number of authorized shares and the number of shares of each
series or of each class that may be issued shall be unlimited. The Trustees
may classify or reclassify any unissued shares or any shares previously issued
and reacquired of any series or class into one or more series or one or more
classes that may be established and designated from time to time. The Trustees
may hold as treasury shares (of the same or some other series or class),
reissue for such consideration and on such terms as they may determine, or
cancel any shares of any series or any class reacquired by the Trust at their
discretion from time to time.
(b) The power of the trustees to invest and reinvest the Trust Property
shall be governed by Section 3.2 of this Declaration with respect to any one or
more series which represents the interests in the assets of the Trust
immediately prior to the establishment of two or more series and the power of
the Trustees to invest and reinvest assets applicable to any other series shall
be as set forth in the instrument of the Trustees establishing such series
which is hereinafter described.
(c) All consideration received by the Trust for the issue or sale of
shares of a particular series or class together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series or class for all purposes, subject only to
the rights of creditors, and shall be so recorded upon the books of account of
the Trust. In the event that there are any assets, income, earnings, profits,
and proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series or class, the Trustees shall allocate them
among any one or more of the series or classes established and designated from
time to time in such manner and on such basis as they, in their sole
discretion, deem fair and equitable. Each such allocation by the Trustees shall
be conclusive and binding upon the shareholders of all series or classes for
all purposes.
(d) The assets belonging to each particular series shall be charged with
the liabilities of the Trust in respect of that series and all expenses, costs,
charges and reserves attributable to that series and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be allocated and
charged by the Trustees to and among any one or more of the series established
and designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the shareholders.
(e) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 8.2 of this Declaration with respect to any one or
more series or classes which represents the interests in the assets of the
Trust immediately prior to the establishment of two or more series or classes.
With respect to any other series or class, dividends and distributions on
shares of a particular series or class may be paid with such frequency as the
Trustees may determine, which may be daily or otherwise, pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Trustees may determine, to the holders of shares of that series or class, from
such of the income and capital gains, accrued or realized, from the assets
belonging to that series or class, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that series or class.
All dividends and distributions on shares of a particular series or class shall
be distributed pro rata to the holders of that series or class in proportion to
the number of shares of that series or class held by such holders at the date
and time of record established for the payment of such dividends or
distributions.
(f) The Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights, including voting and dividend
rights, of each class and series of Shares.
(g) The establishment and designation of any series or class of shares
shall be effective upon the execution by a majority of the then Trustees of an
instrument setting forth such establishment and designation and the relative
rights and preferences of such series or class, or as otherwise provide in such
instrument. At any time that there are no shares outstanding of any particular
series or class previously established and designated, the Trustees may by an
instrument executed by a majority of their number abolish that series or class
and the establishment and designation thereof. Each instrument referred to in
this paragraph shall nave the status of an amendment to this Declaration.
ARTICLE VII
REDEMPTION, REPURCHASE,
AND REDUCTION OF SHARES
SECTION 7.1 - Reception of Shares.
All Shares of the Trust shall be redeemable, at the redemption price
determined in the manner set out in this Declaration. Redeemed or repurchased
Shares may be reissued by the Trust.
The Trust shall redeem Shares at the price determined as hereinafter set
forth, upon the appropriately verified written application of the record holder
thereof (or upon such other form of request as the Trustees may determine) at
such office or agency as may be designated from time to time for that purpose
by the Trustees. The Trustees may from time to time specify additional
conditions not inconsistent with the 1940 Act regarding the redemption of
Shares.
SECTION 7.2 - Price.
Shares shall be redeemed at their net asset value determined as set forth
in Section 8.1 hereof as of such time as the Trustees shall have theretofore
prescribed by resolution. In the absence of such resolution, the redemption
price of Shares deposited shall be the net asset value of such Shares next
determined as set forth in Section 8.1 after receipt of the application
required by Section 7.1.
SECTION 7.3 - Payment.
Payment for redeemed Shares shall be made at such time and in the manner,
not inconsistent with the 1940 Act or other applicable law, as may be specified
from time to time in the Prospectus, subject to the provision of Section 7.4
hereof.
SECTION 7.4 - Repurchase by Agreement.
The Trust may repurchase Shares directly, or through the Distributor or
another agent designated for the purpose, by agreement with the owner thereof
at a price not exceeding the net asset value per Share next determined after
the time when the purchase or contract is made or the net asset value as of any
time which may be later determined pursuant to Section 8.1 hereof, provided
payment is not made for the Shares prior to the time as of which such net asset
value is determined.
SECTION 7.5 - Redemption of Shareholder's Interest; Redemption of Shares to
Qualify as a Regulated Investment Company; Disclosure of Holdings.
The Trust shall have the right at any time to redeem the Shares of any
Shareholder for their then current net asset value per Share if at such time
the Shareholder owns of record, Shares having an aggregate net asset value of
less than the minimum initial investment amount required of new Shareholders,
subject to such terms and conditions as the Trustee may approve and subject to
the Trust's giving general notice to all Shareholders of the existence of such
right, either by publication in the Trust's Prospectus, if any, or by such
other means as the Trustees may determine.
If the Trustees shall, at any time and in good faith, be of the opinion
that direct or indirect ownership of Shares or other securities of the Trust
has or may become concentrated in any Person to an extent which would
disqualify the Trust as a regulated investment company under the Internal
Revenue Code, then the Trustees shall have the power by lot or other means
deemed equitable by them to:
(a) Call for redemption by any such Person a number, or principal amount,
of Shares or other securities of the Trust sufficient to maintain or bring the
direct or indirect ownership of Shares or other securities of the Trust into
conformity with the requirements for such qualification, and
(b) Refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question would, in the judgment of the Trustees, be likely to result in such
disqualification.
The redemption shall be effected at the redemption price.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or
to comply with the requirements of any other taxing authority.
SECTION 7.6 - Suspension of Right of Redemption.
The Trust may declare a suspension of the right of redemption or postpone
the date of payment of redemption for the whole or any part of any period:
{a) During which the New York Stock Exchange is closed other customary
weekend and holiday closings;
(b} During which trading on the New York Stock Exchange is restricted;
(c) During which an emergency exists as a result of which disposal by the
Trust of Securities owned by it is not reasonably practical if it is not
reasonably practicable for the Trust fairly to determine the value of its net
assets; or
(d) During any other period when the Commission may for the protection of
Shareholders of the Trust by order permit suspension of the right of redemption
or postponement of the date of payment or redemption; provided that applicable
rules and regulations of the Commission shall govern as to whether the
conditions prescribed tn subparagraphs (b), (c) or (d) exist. Such suspension
shall take effect at such time as the Trust shall specify but not later than
the close of business on the business day next following the declaration of
suspension, and thereafter there shall be no right of redemption or payment on
redemption until the Trust shall declare the suspension at an end, except that
the suspension shall terminate in any event on the first day on which said
stock exchange shall have reopened or the period specified in subparagraphs (b)
or (c) above shall have expired (as to which in the absence of an official
ruling by the Commission, the determination of the Trust shall be conclusive).
In the case of a suspension of the right of redemption, a Shareholder may
either withdraw his request for redemption or receive payment based on the net
asset value next determined after the termination of the suspension.
SECTION 7.7 - Effect of Suspension of Determination of Net Asset Value.
If, pursuant to Section 8.1, the Trustees shall declare a suspension of
the determination of net asset value, the rights of Shareholders (including
those who shall have applied for redemption pursuant to Section 7.1, but who
shall not yet have received payment) to have Shares redeemed and paid for by
the Trust and the right of the Trust to redeem Shares at its option set forth
in Section 7.5, shall be suspended until the termination of such suspension is
declared. Any record holder who shall have his redemption right so suspended
may, during the period of such suspension, by appropriate written notice of
revocation at the office or agency where application was made, revoke any
application for redemption not honored and withdraw any certificates on
deposit. The redemption price of Shares for which redemption applications have
not been revoked shall be the net asset value of such Shares next determined as
set forth in Section 7.1 hereof after the termination of such suspension, and
payment shall be made within seven (7) days after the date upon which the
application was made plus the period after such application during which the
determination of net asset value was suspended.
SECTION 7.8 - Reductions of Shares.
The Trust may also reduce the number of outstanding Shares.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
INCOME, AND DISTRIBUTIONS
SECTION 8.1 - Net Asset Value.
The value of the assets of the Trust shall be determined as follows:
Securities and other assets owned by the Trust shall be valued by methods,
reflecting their fair value, as determined by the Trustees in good faith.
From the total value of said assets, there shall be deducted the
liabilities of the Trust, including proper accruals of interest, taxes and
other expense items, amounts determined and declared as dividends or
distributions, and reserves for contingent or undetermined liabilities. The
net asset value of the Trust so obtained shall then be divided by the total
number of Shares outstanding and the result, rounded to the nearest cent, shall
be the net asset value per Share. The net asset value of the Shares shall be
determined once on each business day, as of the close of trading on the New
York Stock Exchange or as of such other time or times as the Trustees shall
determine. The power and duty to make the daily calculations may be delegated
by the Trustees to the Investment Adviser, the Custodian, the Transfer Agent,
or such other Person as the Trustees by resolution may determine. The Trustees
may suspend the daily determination of net asset value if to do so is not
prohibited by the 1940 Act.
SECTION 8.2 - Distributions With Respect to Outstanding Shares.
The Trustees shall from time to time distribute ratably among the
Outstanding Shares such proportion of the net profits, surplus (including
paid-in surplus), capital, or assets held by the Trustees as they may deem
proper. Such distribution may be made in cash or property (including, without
limitation, any type of obligation of the Trust or any assets thereof), and the
Trustees may distribute ratably among the Outstanding Shares additional Shares
issuable hereunder in such manner, at such times, and on such terms as the
Trustees may deem proper. Such distributions may be among the Outstanding
Shares at the time of declaring a distribution or among the Outstanding Shares
at such later date as the Trustees shall determine. The Trustees may in their
discretion determine that, solely for the purposes of such distributions,
Outstanding Shares shall exclude Shares for which orders have been placed
subsequent to a specified time on the date of distribution. The Trustees may
always retain from the net profits of the Trust such amount as they may deem
necessary to pay the debts or expenses of the Trust or to meet the obligations
of the Trust, or as they may deem desirable to use in the conduct of its
affairs or to retain for future requirements or extensions of the business. The
Trustees may adopt and offer to Shareholders such dividend reinvestment plans,
cash dividend payout plans, or other plans as the Trustees shall deem
appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books of the Trust the
above provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
SECTION 8.3 - Determination of Net Income.
The Trustees shall have the power to determine the net income of the Trust
and from time to time to distribute such net income ratably among the
Shareholders as dividends in cash or additional Shares Issuable hereunder. The
determination of net income and the resultant declaration of dividends shall be
as set forth tn the Prospectus. The Trustees shall have full discretion to
determine whether any cash or property received by the Trust shall be treated
as income or as principal and whether any item of expense shall be charged to
the income or the principal account, and their determination made in good faith
shall be conclusive upon the Shareholders. In the case of stock dividends
received, the Trustees shall have full discretion to determine, in the light of
the particular circumstances, how much, if any, of the value thereof shall be
treated as income, the balance, if any, to be treated as principal.
SECTION 8.4 - Power to Modify Foregoing Procedures.
Notwithstanding any of the foregoing provisions of this Article VIII, the
Trustees may prescribe, in their absolute discretion, such other bases and
times for determining the per Share net asset value of the Trust's Shares or
net income, or the declaration and payment of dividends and distributions as
they may deem necessary or desirable.
ARTICLE IX
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS; ETC.
SECTION 9.1 - Duration.
The Trust snail continue without limitation of time, subject to the
provisions of this Article IX.
SECTION 9.2 - Termination of Trust.
(a) the Trust may be terminated by the affirmative vote of a majority of
the Shares Outstanding and entitled to vote, at any meeting of Shareholders or
by an instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than a majority of such
Shares. Upon the termination of the Trust,
(i) the Trust shall carry on no business except for the purpose of winding
up its affairs;
(ii) the Trustee shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under this Declaration shall continue
until the affairs of the Trust shall have been wound up, including, without
limitation, the power to fulfill or discharge the contracts of the Trust,
collect its assets, sell, convey, assign, exchange, transfer or otherwise
dispose of all or any part of the remaining Trust Property to one or more
Persons at public or private sale for consideration which may consist in whole
or in part of cash, Securities or other property of any kind, discharge or pay
its 1iabilities, and do all other acts appropriate to liquidate its business;
provided that any sale, conveyance, assignment, exchange, transfer or other
disposition of all or substantially all the Trust Property shall require
Shareholder approval in accordance with Section 9.4 hereof; and
(iii) after paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary, the Trustees may distribute the remaining
Trust Property, if any, in cash or in kind or partly each, among the
Shareholders according to their respective rights,
(b) After termination of the Trust and distribution to the Shareholders as
herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
duties hereunder, and the rights and interests of all Shareholders shall
thereupon cease.
SECTION 9.3 - Amendment Procedure.
(a) This Declaration may be amended by a vote of a majority of the Shares
Outstanding and entitled to vote or by any instrument writing, without a
meeting, signed by a majority of the Trustees and consented to by the holders
of a majority of the Shares Outstanding and entitled to vote. The Trustees may
also amend this Declaration without the vote or consent of Shareholders, if
they deem it necessary to conform this Declaration to the requirements of
applicable federal laws regulations or the requirements of the regulated
investment company provisions of the Internal Revenue Code, but the Trustees
shall not be held liable for failing to do so;
(b) No amendment may be made under this Section 9.3 which would change
any rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation of the Trust or by diminishing or eliminating
any voting rights pertaining thereto, except with the affirmative vote of a
majority of the Shares Outstanding and entitled to vote. Nothing contained in
this Declaration shall permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon Shareholders;
and
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares shall have become effective, this
Declaration may be terminated or amended in any respect by the affirmative vote
of a majority of the Trustees or by an instrument signed by a majority of the
Trustees.
SECTION 9.4 - Merger, Consolidation or Sale of Assets.
The Trust may merge or consolidate with any other Person or may sell,
lease or exchange all or substantially all of the Trust Property. including its
goodwill. if any, upon such terms and conditions and for such consideration
when and as authorized, at any meeting of Shareholders called for the purpose,
by the affirmative vote of the holders of not less than two-thirds of the
Shares Outstanding and entitled to vote, or by an instrument or instruments in
writing without a meeting, consented to by the holders of not less than
two-thirds of the Shares outstanding and entitled to vote or by such other vote
as may be established by the Trustees with respect to any series or class of
shares; provided, however, that if such merger, consolidation, sale, lease or
exchange is recommended by the Trustees, a majority shareholder vote shall be
sufficient authorization; and any such merger, consolidation, sale, lease or
exchange shall be deemed for all purposes to have been accomplished under and
pursuant to the statutes of the Commonwealth of Massachusetts.
SECTION 9.5 - Incorporation.
With the vote of a majority of the Shares Outstanding and entitled to
vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction, or any other
trust, partnership, association or other organization to take over all or
substantially all of the Trust Property or to carry on any business in which
the Trust shall directly or indirectly have any interest, and to sell, convey
and transfer all or substantially all of the Trust Property to any such
corporation, trust, association or organization in exchange for securities
thereof or otherwise, and to lend money to, subscribe for securities of, and
enter into any contracts with any such corporation, trust, partnership,
association, or organization, or any corporation, partnership, trust,
association or organization in which the Trust holds or is about to acquire
Securities or any other interest. The Trustees may also cause a merger or
consolidation between the Trust of any successor thereto and any such
corporation, trust, partnership, association or other organization if and to
the extent not prohibited by applicable law then in effect. Nothing contained
herein shall be construed as requiring approval of Shareholders for the
Trustees to organize or assist tn organizing one or more corporations, trusts,
partnerships, associations or other organizations, and selling, conveying or
transferring a portion of the Trust Property to such organization or entities.
ARTICLE X
MISCELLANEOUS
SECTION 10. l - Filing.
This Declaration and any amendment hereto shall be filed in the office of
the Secretary of the Commonwealth of Massachusetts and in such other places as
may be required under the laws of Massachusetts and may also be filed or
recorded in such other places as the Trustees deem appropriate. Each amendment
so filed shall be accompanied by a certificate signed and acknowledged by a
Trustee stating that such action was duly taken in a manner provided herein,
and unless such amendment or such certificate sets forth some later time for
the effectiveness of such amendment, such amendment shall be effective upon its
filing. A restated Declaration, integrating into a single instrument all of the
provisions of the Declaration which are then in effect and operative, may be
executed from time to time by a majority of the Trustees and shall, upon filing
with the Secretary of the Commonwealth of Massachusetts, be conclusive evidence
of all amendments contained therein and may thereafter be referred to in lieu
of the original Declaration and the various amendments thereto.
SECTION 10.2 - Governing Law.
This Declaration is executed by the Trustees and delivered in Commonwealth
of Massachusetts and with reference to the laws thereof, and the rights of all
parties and the validity and construction of every provision hereof shall be
subject to and construed according to the laws of said State.
SECTION 10.3 - Counterparts.
This Declaration may be simultaneously executed in several counterparts,
each of which shall be deemed to be an original, and such counterparts,
together, shall constitute one and the same instrument, which shall be
sufficiently evidenced by any such original counterpart.
SECTION 10.4 - Reliance by Third Parties.
Any certificate executed by an individual who, according to the records of
the Trust appears to be a Trustee hereunder or an officer of the Trust
appointed by the Trustees, certifying to:
(a) The number or identity of Trustees or Shareholders or agents or
employees;
(b) The due authorization of the execution of any instrument in writing;
(c) The form of any vote passed at a meeting of Trustees or committees
thereof or Shareholders;
(d) The fact that the number of Trustees or Shareholders present at any
meeting or executing any written instrument satisfies the requirements of this
Declaration;
(e) The form of any By-Laws adopted by or the identity of any officers,
Trustees, agents or employees; or
(f) The existence of any fact or facts which in any manner relate to the
affairs of the Trust;
shall be conclusive evidence as to the matters so certified in favor of any
person dealing with the Trustees or their successors or the Trust.
SECTION 10.5 - Provisions in Conflict With Law or Regulations
(a) The provisions of this Declaration are severable and, if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination; and
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
SECTION 10.6 - Index and Heading for Reference Only.
The Index and headings preceding the text, articles and sections hereof
have been inserted for convenience and reference only and shall not be
construed to affect the meaning, construction or effect of this Declaration.
IN WITNESS WHEREOF, the undersigned have executed this instrument this 9th
day of September, 1983.
/s/ Michael J. Downer
Michael J. Downer, as Trustee and not individually
/s/ Thomas E. Terry
Thomas E. Terry, as Trustee and not individually
Address:
333 South Hope Street
50th Floor
Los Angeles, CA 90071
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES SS.
Before me, Julie F. Brenner, a Notary Public in and for the County of Los
Angeles, State of California, personally appeared this day Michael J. Downer
and Thomas E. Terry, to me known and known to me to be the same persons whose
names are signed to the foregoing instrument, and who acknowledged to me that
they executed the same at their free and voluntary act and deed.
WITNESS, my hand and Notarial seal this 9th day of September, 1983.
/s/ Julie F. Brenner Notary Public in and for said County and State
[seal]
<PAGE>
CERTIFICATE OF AMENDMENT
OF
DECLARATION OF TRUST
OF
AMERICAN PATHWAY FUND
Pursuant to Section 9.3 of the Fund's Declaration of Trust, the
undersigned, CHARLES H. BLACK, ROBERT G. FRANK, RICHARD H.M. HOLMES, HUGH J.
SHUMAKER, and RICHARD H. WARD, certify that they constitute a majority of the
Board of Trustees of American Pathway Fund, a Massachusetts Business Trust, and
further that:
(1) Section 1.1 of Article I of the Declaration of Trust has been amended
to read as follows:
"Section 1.1 - Name.
The name of the Trust created hereby is $American Variable Insurance
Series.'"
(2) The Amendment was unanimously approved by the Board of Trustees and
duly adopted by the Fund's shareholders as instructed by owners of the
contracts using the Fund as an investment vehicle.
IN WITNESS WHEREOF, the undersigned have executed this instrument this 19th day
of October, 1988.
/s/ Charles H. Black
Charles H. Black, as Trustee
and not individually
/s/ Hugh J. Shumaker
Hugh J. Shumaker, as Trustee
and not individually
/s/ Robert G. Frank
Robert G. Frank, as Trustee
and not individually
/s/ Richard H. Ward
Richard H. Ward, as Trustee
and not individually
/s/ Richard H. M. Holmes
Richard H. M. Holmes, as Trustee
and not individually
Address: 333 South Hope Street
50th Floor
Los Angeles, CA 90071
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
Before me, Julie F. Williams, a Notary Public in and for the County of Los
Angeles, State of California, personally appeared this day Charles H. Black,
Robert G. Frank, Richard H.M. Holmes, Hugh J. Shumaker and Richard H. Ward, to
me known and known to me to be the same persons whose names are signed to the
foregoing instrument, and who acknowledged to me that they executed the same at
their free and voluntary act and deed.
WITNESS my hand and notarial seal this 19th day of October, 1988.
/s/ Julie F. Williams
Notary Public in and for said
County and State
(Notarial Seal)
AMERICAN PATHWAY FUND
BY-LAWS
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Section and Title Page
Article I. SHAREHOLDERS 1
1.01 Annual Meetings 1
1.02 Special Meetings 1
1.03 Place of Meetings 1
1.04 Notice of Meetings 2
1.05 Quorum 2
1.06 Votes Required 2
1.07 Proxies 2
1.08 List of Shareholders 2
1.09 Voting 3
1.10 Action by Shareholders Other than at a Meeting 3
Article II. BOARD OF TRUSTEES 3
2.01 Powers 3
2.02 Number of Trustees 4
2.03 Regular Meetings 4
2.04 Special Meetings 4
2.05 Notice of Meetings 4
2.06 Quorum 5
2.07 Compensation and Expenses 5
2.08 Action by Trustees Other than at a Meeting 5
2.09 Committees 5
2.10 Holding of Meetings by Conference Telephone Call 6
Article III. OFFICERS 6
3.01 Executive Officers 6
3.02 Chairman and Vice Chairman of the Board 6
3.03 President 7
3.04 Vice Presidents 7
3.05 Secretary and Assistant Secretaries 7
3.06 Treasurer and Assistant Treasurers 7
3.07 Subordinate Officers 8
3.08 Removal 8
Article IV. SHARES OF BENEFICIAL INTEREST 8
4.01 Certificates 8
4.02 Record Date 9
Article V. GENERAL PROVISIONS 9
5.01 Checks 9
5.02 Custodian 9
5.03 Bonds 10
5.04 Inspection of Records 10
5.05 Representation of Shares 10
5.06 Offices of the Trust 10
Article VI. INDEMNIFICATION 11
Article VII. AMENDMENT OF BY-LAWS 13
</TABLE>
BY-LAWS
OF
AMERICAN PATHWAY FUND
ARTICLE I.
SHAREHOLDERS
Section 1.01. Annual Meetings. Unless otherwise required by law, the
Declaration of Trust as amended from time to time (the "Declaration") or by
these By-Laws, the Trust shall not be required to hold an annual meeting of
shareholders unless the Board of Trustees of the Trust (the "Board") determines
to hold an annual meeting. If the Board makes such a determination, the annual
meeting of shareholders shall be held on such date and time as may be
designated from time to time by the Board for the election of trustees and the
transaction of any business within the powers of the Trust. Any business of the
Trust may be designated in the notice, except such business as is specifically
required by statute or by the Declaration to be stated in the notice. Failure
to hold an annual meeting at the designated time shall not, however, invalidate
the existence of the Trust or affect otherwise valid acts of the Trust.
Section 1.02. Special Meetings. At any time in the interval between annual
meetings, special meetings of the shareholders may be called by the Chairman of
the Board or the President or by a majority of the Board by vote at a meeting
or in writing with or without a meeting, or, in writing by those shareholders
holding a majority of the outstanding shares of beneficial interest of the
Trust.
Section 1.03. Place of Meetings. Meetings of the shareholders for the election
of trustees shall be held at such place either within or without the State of
Massachusetts as shall be designated from time to time by the Board of Trustees
and stated in the notice of the meeting. Meetings of shareholders for any other
purpose may be held at such time and place, within or without the State of
Massachusetts, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 1.04. Notice of Meetings. Not less than ten days nor more than ninety
days before the date of every shareholders' meeting, the Secretary shall give
to each shareholder entitled to vote at such meeting, written or printed notice
stating the time and place of the meeting and, in case of a special meeting,
the purpose or purposes for which the meeting is called, either by mall or by
presenting it to the shareholder personally or by leaving it at the
shareholder's residence or usual place of business. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the shareholder at his post office address as it appears on the records of
the Trust, with postage thereon prepaid. Notwithstanding the foregoing
provision, a waiver of notice in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting in
person or by proxy, shall be deemed equivalent to the giving of such notice to
such persons. Any meeting of shareholders, annual or special, may adjourn from
time to time to reconvene at the same or some other place, and no notice need
be given of any such adjourned meeting other than by announcement at the
meeting.
Section 1.05. Quorum. At any meeting of shareholders the presence in person or
by proxy of shareholders entitled to cast a majority of the votes thereat shall
constitute a quorum; but this Section shall not affect any requirement under
statute or under the Declaration for the vote necessary for the adoption of any
measure. In the absence of a quorum the shareholders present in person or by
proxy, by majority vote and without notice, may adjourn the meeting from time
to time until a quorum shall attend. At any such adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 1.06. Votes Required. A majority of the votes cast at a meeting of
shareholders, duly called and at which a quorum is present, shall be sufficient
to take or authorize action upon any matter which may properly come before the
meeting, unless more than a majority of votes cast is required by statute or by
the Declaration.
Section 1.07. Proxies. A shareholder may vote the shares owned of record by him
either in person or by proxy executed in writing by the shareholder or by the
shareholder's duly authorized attorney-in-fact. No proxy shall be valid after
eleven months from its date, unless otherwise provided in the proxy. Every
proxy shall be in writing, subscribed by the shareholder or the shareholder's
duly authorized attorney, and dated, but need not be sealed, witnessed or
acknowledged.
Section 1.08. List of Shareholders. At each meeting of share holders, a full,
true and complete list in alphabetical order of all share holders entitled to
vote at such meeting, certifying the number of shares held by each, shall be
made available by the Secretary.
Section 1.09. Voting. In all elections for trustees every share holder shall
have the right to vote, in person or by proxy, the shares owned of record by
the shareholder, for as many persons as there are trustees to be elected and
for whose election the shareholder has a right to vote. At all meetings of
shareholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions regarding the qualification of
voters and the validity of proxies and the acceptance or rejection of votes
shall be decided by the chairman of the meeting. If demanded by shareholders,
present in person or by proxy, entitled to cast 10% in number of votes, or if
ordered by the chairman, the vote upon any election or question shall be taken
by ballot. Upon like demand or order, the voting shall be conducted by two
inspectors in which event the proxies and ballots shall be received, and all
questions regarding the qualification of voters and the validity of proxies and
the acceptance or rejection of votes shall be decided, by such inspectors.
Unless so demanded or ordered, no vote need be by ballot, and voting need not
be conducted by inspectors. Inspectors may be elected by the share holders at
their annual meeting, to serve until the close of the next annual meeting and
their election may be held at the same time as the election of trustees. In
case of a failure to elect inspectors, or in case an inspector shall fail to
attend, or refuse or be unable to serve, the share holders at any meeting may
choose an inspector or inspectors to act at such meeting, and in default of
such election the chairman of the meeting may appoint an inspector or
inspectors.
Section 1.10. Action by Shareholders Other than at a Meeting. Any action
required or permitted to be taken at any meeting of shareholders may be taken
without a meeting, if a consent in writing, setting forth such action, is
signed by all the shareholders entitled to vote on the subject matter thereof
and any other shareholders entitled to notice of a meeting of shareholders (but
not to vote thereat) have waived in writing any rights which they may have to
dissent from such action, and such consent and waiver are filed with the
records of the Trust.
ARTICLE II.
BOARD OF TRUSTEES
Section 2.01. Powers. The Board may exercise all the powers of the Trust,
except such as are by statute or the Declaration or these By-Laws conferred
upon or reserved to the shareholders. The Board shall keep full and fair
accounts of its transactions.
Section 2.02. Number of Trustees. The number of trustees shall be such number
as shall be fixed from time to time by a written instrument signed by a
majority of the trustees; provided, however, the number of trustees shall in no
event be reduced to less than three by such an instrument. The tenure of office
of a trustee shall not be affected by any decrease in the number of trustees
made by the Board.
Section 2.03. Regular Meetings. After each meeting of share holders at which a
Board of Trustees shall have been elected, the Board so elected shall meet as
soon as practicable for the purpose of organization and the transaction of
other business. No notice of such first meeting shall be necessary if held
immediately after the adjournment, and at the site, of such meeting of
shareholders. Other regular meetings of the Board shall be held without notice
on such dates and at such places within or without the State of Massachusetts
as may be designated from time to time by the Board.
Section 2.04. Special Meetings. Special meetings of the Board may be called at
any time by the Chairman of the Board, the President or the Secretary of the
Trust, or by a majority of the Board by vote at a meeting, or in writing with
or without a meeting. Such special meetings shall be held at such place or
places within or without the State of Massachusetts as may be designated from
time to time by the Board. In the absence of such designation such meetings
shall be held at such places as may be designated in the calls.
Section 2.05. Notice of Meetings. Except as provided in Section 2.03, notice of
the place, day and hour of every regular and special meeting shall be given to
each trustee two days (or more) before the meeting, by delivering the same
personally, or by sending the same by telegraph, or by leaving the same at the
trustee's residence or usual place of business, or, in the alternative, by
mailing such notice three days (or more) before the meeting, postage prepaid,
and addressed to the trustee at the trustee's last known business or residence
post office address, according to the records of the Trust. Unless required by
these By-Laws or by resolution of the Board, no notice of any meeting of the
Board need state the business to be transacted thereat. No notice of any
meeting of the Board need be given to any trustee who attends, or to any
trustee who in writing executed and filed with the records of the meeting
either before or after the holding thereof, waives such notice. Any meeting of
the Board, regular or special, may adjourn from time to time to reconvene at
the same or some other place, and no notice need be given of any such adjourned
meeting other than by announcement at the adjourned meeting.
Section 2.06. Quorum. At all meetings of the Board, one-third of the entire
Board (but in no event fewer than two trustees) shall constitute a quorum for
the transaction of business. Except in cases in which it is by statute, by the
Declaration or by these By-Laws otherwise provided, the vote of a majority of
such quorum at a duly constituted meeting shall be sufficient to elect and pass
any measure. In the absence of a quorum, the trustees present by majority vote
and without notice other than by announcement at the meeting may adjourn the
meeting from time to time until a quorum shall attend. At any such adjourned
meeting at which a quorum shall be present, any business may be transacted
which might have been transacted at the meeting as originally notified.
Section 2.07. Compensation and Expenses. Trustees may, pursuant to resolution
of the Board, be paid fees for their services, which fees may consist of an
annual fee or retainer and/or a fixed fee for attendance at meetings. In
addition, trustees may in the same manner be reimbursed for expenses incurred
in connection with their attendance at meetings or other wise in performing
their duties as trustees. Members of committees may be allowed like
compensation and reimbursement. Nothing herein contained shall preclude any
trustee from serving the Trust in any other capacity and receiving compensation
therefor.
Section 2.08. Action by Trustees Other than at a Meeting. Any action required
or permitted to be taken at any meeting of the Board, or of any committee
thereof, may be taken without a meeting, if a written consent to such action is
signed by all members of the Board or of such committee, as the case may be,
and such written consent is filed with the minutes of proceedings of the Board
or committee.
Section 2.09. Committees. The Board may, by resolution passed by a majority of
the whole Board, designate one or more committees, each committee to consist of
two or more of the trustees. The Board may designate one or more trustees as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution, shall have and may exercise the powers of the Board
in the management of the business and affairs of the Trust, provided, however,
that in the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board. Each committee shall keep regular minutes of
its meetings and report the same to the Board when required.
Section 2.10. Holding of Meetings by Conference Telephone Call. At any regular
or special meeting of the Board or any committee thereof, members thereof may
participate in such meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
ARTICLE III
OFFICERS
Section 3.01. Executive Officers. The Board of Trustees shall choose a
President and may choose a Chairman of the Board and a Vice Chairman of the
Board from among the trustees, and shall choose a Secretary and a Treasurer who
need not be trustees. The Board of Trustees shall designate as principal
executive officer of the Trust either the Chairman of the Board, the Vice
Chairman of the Board, or the President. The Board of Trustees may choose an
Executive Vice President, one or more Senior Vice Presidents, one or more
Vice-Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers, none of whom need be a director. Any two or more of the
above-mentioned offices, except those of President and a Vice-President, may be
held by the same person, but no officer shall execute, acknowledge or verify
any instrument in more than one capacity if such instrument be required by law,
by the Declaration of Trust, by the By-Laws or by resolution of the Board of
Trustees to be executed by any two or more officers. Each such officer shall
hold office until his successor shall have been duly chosen and qualified, or
until he shall have resigned or shall have been removed. Any vacancy in any of
the above offices may be filled for the unexpired portion of the term of the
Board of Trustees at any regular or special meeting.
Section 3.02. Chairman and Vice Chairman of the Board. The Chairman of the
Board, if one be elected, shall preside at all meetings of the Board of
Trustees and of the shareholders at which he is present. He shall have and may
exercise such powers as are, from time to time, assigned to him by the Board of
Trustees. The Vice Chairman of the Board, if one be elected, shall, when
present and in the absence of the Chairman of the Board, preside at all
meetings of the shareholders and trustees, and he shall perform such other
duties as may from time to time be assigned to him by the Board of Trustees or
as may be required by law.
Section 3.03. President. In the absence of the Chairman or Vice Chairman of the
Board, the President shall preside at all meetings of the shareholders and of
the Board at which the President is present; and in general, shall perform all
duties incident to the office of a president of a trust, and such other duties,
as from time to time, may be assigned to him by the Board.
Section 3.04. Vice Presidents. The Vice President or Vice Presidents, including
any Executive or Senior Vice President or Presidents, at the request of the
President or in President's absence or during the President's inability or
refusal to act, shall perform the duties and exercise the functions of the
President, and when so acting shall have the powers of the President. If there
be more than one Vice President, the Board may determine which one or more of
the Vice Presidents shall perform any of such duties or exercise any of such
functions, or if such determination is not made by the Board, the President may
make such determination. The Vice President or Vice Presidents shall have such
other powers and perform such other duties as may be assigned by the Board, the
Chairman of the Board, or the President.
Section 3.05. Secretary and Assistant Secretaries. The Secretary shall: keep
the minutes of the meetings of the shareholders, of the Board and of any
committees, in books provided for the purpose; shall see that all notices are
duly given in accordance with the provisions of these By-Laws or as required by
law; be custodian of the records of the Trust; see that the corporate seal is
affixed to all documents the execution of which, on behalf of the Trust, under
its seal, is duly authorized, and when so affixed may attest the same; and in
general perform all duties incident to the office of a secretary of a trust,
and such other duties as, from time to time, may be assigned to him by the
Board, the Chairman of the Board, or the President.
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board, the President or the Chairman
of the Board, shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Board may from time to time prescribe.
Section 3.06. Treasurer and Assistant Treasurers. The Treasurer shall: have
charge of and be responsible for all funds, securities, receipts and
disbursements of the Trust, and shall deposit, or cause to be deposited in the
name of the Trust, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by the
Board in accordance with Section 5.04 of these By-Laws; render to the
President, the Chairman of the Board and to the Board, whenever requested, an
account of the financial condition of the Trust; and in general, perform all
the duties incident to the office of a treasurer of a trust, and such other
duties as may be assigned to him by the Board, the President or the Chairman of
the Board.
The Assistant Treasurer, or if there shall be more than one, the Assistant
Treasurers in the order determined by the Board, the President or the Chairman
of the Board shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform other duties and have such other
powers as the Board may from time to time prescribe.
Section 3.07. Subordinate Officers. The Board may from time to time appoint
such subordinate officers as it may deem desirable. Each such officer shall
hold office for such period and perform such duties as the Board, the President
or the Chairman of the Board may prescribe. The Board may, from time to time,
authorize any committee or officer to appoint and remove subordinate officers
and prescribe the duties thereof.
Section 3.08. Removal. Any officer or agent of the Trust may be removed by the
Board whenever, in its Judgment, the best interests of the Trust will be served
thereby, but such removal shall be without prejudice to the contractual rights,
if any, of the person so removed.
ARTICLE IV
SHARES OF BENEFICIAL INTEREST
Section 4.01. Certificates. If the Board authorizes the issuance of
certificates representing the shares of beneficial interest, such certificates
shall be signed by the President, the Chairman of the Board or a Vice President
and countersigned by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and sealed with the seal of the Trust. The
signatures may be either manual or facsimile signatures and the seal may be
either facsimile or any other form of seal. No certificates shall be issued for
fractional shares. Such certificates shall be in such form, not inconsistent
with law or with the Declaration, as shall be approved by the Board. In case
any officer of the Trust who has signed any certificate ceases to be an officer
of the Trust, whether because of death, resignation or otherwise, before such
certificate is issued, the certificate may nevertheless be issued and delivered
by the Trust as if the officer had not ceased to be such officer as of the date
of its issue. Certificates need not be issued except to shareholders who
request such issuance in writing.
The Board may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Trust alleged to have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or
such owner's legal representative, to advertise the same in such manner as it
shall require and/or to give the Trust a bond in such sum as it may direct as
indemnity against any claim that may be made against the Trust with respect to
the certificate alleged to have been lost, stolen or destroyed.
Section 4.02. Record Dates. The Board is hereby empowered to fix, in advance, a
date as the record date for the purpose of determining shareholders entitled to
notice of, or to vote at, any meeting of share holders, or shareholders
entitled to receive payment of any dividend, capital gains distribution or the
allotment of any rights, or in order to make a determination of shareholders
for any other proper purpose. Such date in any case shall be not more than
sixty days, and in case of a meeting of shareholders, not less than ten days,
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken.
ARTICLE V
GENERAL PROVISIONS
Section 5.01. Checks. All checks or demands for money and notes of the Trust
shall be signed by such officer or officers or such other per son or persons as
the Board may from time to time designate.
Section 5.02. Custodian. All securities and cash of the Trust shall be placed
in the custody of a bank or trust company ("Custodian") having (according to
its last published report) not less than $2,000,000 aggregate capital, surplus
and undivided profits, provided such a Custodian can be found ready and willing
to act (or maintained in such other manner as is consistent with Section17(f)
of the Investment Company Act of 1940 and the rules and regulations promulgated
thereunder.) The Trust shall enter into a written contract with the Custodian
regarding the powers, duties and compensation of the Custodian with respect to
the cash and securities of the Trust held by the Board of Trustees of the
Trust. The Trust shall upon the resignation or inability to serve of the
Custodian use its best efforts to obtain a successor custodian; require that
the cash and securities owned by the Trust be delivered directly to the
successor custodian; and in the event that no successor custodian can be found,
submit to the shareholders, before permitting delivery of the cash and
securities owned by the Trust to other than a successor custodian, the question
whether or not the Trust shall be liquidated or shall function without a
custodian.
The Trustees may direct the Custodian to deposit all or any part of the
securities owned by the Trust in a system for the central handling of
securities established by a national securities exchange or a national
securities association registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, or such other person as may be
permitted by the Securities and Exchange Commission, or otherwise in accordance
with applicable law, pursuant to which system all securities of any particular
class or series of any issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Trust.
The Trustees may direct the Custodian to accept written receipts or other
written evidences indicating purchases of securities held in book-entry form in
the Federal Reserve System in accordance with regulations promulgated by the
Board of Governors of the Federal Reserve System and the local Federal Reserve
Banks in lieu of receipt of certificates representing such securities.
Section 5.03. Bonds. The Board may require any officer, agent or employee of
the Trust to give a bond to the Trust, conditioned upon the faithful discharge
of such person's duties, with one or more sureties and in such amount as may be
satisfactory to the Board.
Section 5.04. Inspection of Records. The records of the Trust shall be open to
inspection by shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation.
Section 5.05. Representation of Shares. Any officer of the Trust is authorized
to vote, represent and exercise of the Trust any and all rights incident to any
shares of any corporation or other business enterprise owned by the Trust.
Section 5.06. Offices of the Trust. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk. The principal executive office of the
Trust is hereby fixed and located at 333 South Hope Street, Los Angeles,
California. The Trustees are granted full power and authority to change from
time to time the respective locations of said principal executive office. Any
such change shall be noted on the By-Laws opposite this Section, or this
Section may be amended to state the new location. Branch or subordinate offices
may be established at any time by the Trustees at any place or places.
ARTICLE VI
INDEMNIFICATION
The Trust shall provide any indemnification required by applicable law and
shall indemnify directors, officers, agents and employees as follows:
(a) The Trust shall indemnify any Trustee or officer of the Trust who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than action by or in the right of the Trust) by reason
of the fact that such person is or was such Trustee or officer or an employee
or agent of the Trust, or is or was serving at the request of the Trust as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding of
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person reasonably believed to be in or not opposed to the best interests of
the Trust, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
(b) The Trust shall indemnify any Trustee or officer of the Trust who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Trust to procure a judgment
in its favor by reason of the fact that such person is or was such Trustee or
officer or an employee or agent of the Trust, or is or was serving at the
request of the Trust as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of such person's duty to the Trust unless and
only to the extent that the court in which such action or suit was brought, or
any other court having jurisdiction in the premises, shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
(c) To the extent that a Trustee or officer of the Trust has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in subparagraphs (a) or (b) above or in defense of any claim, issue
or matter therein, such person shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by such person in connection
therewith, without the necessity for the determination as to the standard of
conduct as provided in subparagraph (d).
(d) Any indemnification under subparagraph (a) or (b) (unless ordered by a
court) shall be made by the Trust only as authorized in the specific case upon
a determination that indemnification of the Trustee or officer is proper in
standard of conduct set forth in subparagraph (a) or (b). Such determination
shall be made (1) by the Board by a majority vote of a quorum consisting of
Trustees who were not parties to such action, suit or proceeding, or (ii) if
such a quorum of disinterested Trustees so directs, by independent legal
counsel in a written opinion; and any determination so made shall be
conclusive.
(e) Expenses incurred in defending a civil or criminal action, writ or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case, upon receipt
of an undertaking by or on behalf of the Trustee or officer to repay such
amount unless it shall ultimately be determined that such person is entitled to
be indemnified by the Trust as authorized herein. Such determination must be
made by disinterested trustees or independent legal counsel.
(f) Agents and employees of the Trust who are not Trustees or officers of the
Trust may be indemnified under the same standards and procedures set forth
above, in the discretion of the Board.
(g) Any indemnification pursuant to this Article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled and
shall continue as to a person who has ceased to be a Trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
(h) Nothing in the Declaration or in these By-Laws shall be deemed to protect
any Trustee or officer of the Trust against any liability to the Trust or to
its shareholders to which such person would otherwise be subject by reason of
willful malfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.
(i) The Trust shall have power to purchase and maintain insurance on behalf
of any person against any liability asserted against or incurred by such
person, whether or not the Trust would have the power to indemnify such person
against such liability under the provisions of this Article. Nevertheless,
insurance will not be purchased or maintained by the Trust if the purchase or
maintenance of such insurance would result in the indemnification of any person
in contravention of any rule or regulation of the Securities and Exchange
Commission.
ARTICLE VII
AMENDMENT OF BY-LAWS
These By-Laws of the Trust may be altered, amended, added to or repealed by the
shareholders or by majority vote of the entire Board.
AMENDED INVESTMENT ADVISORY AND SERVICE AGREEMENT
THIS AGREEMENT, dated and effective as of the 18th day of March, 1997
is made and entered into by and between AMERICAN VARIABLE INSURANCE SERIES, a
Massachusetts business trust, (hereinafter called the "Trust"), and CAPITAL
RESEARCH AND MANAGEMENT COMPANY, a Delaware corporation, (hereinafter called
the "Adviser"). The parties agree as follows:
1.
The Trust hereby employs the Adviser to furnish advice to the Trust with
respect to the investment and reinvestment of the assets of the Trust. The
Adviser hereby accepts such employment and agrees to render the services and to
assume the obligation to the extent herein set forth, for the compensation
herein provided. The Adviser shall, for all purposes herein, be deemed an
independent contractor and not an agent of the Fund.
2.
The Adviser agrees to provide supervision of the portfolio of the Trust
and to determine what securities or other property shall be purchased or sold
by the Trust, giving due consideration to the policies of the Trust as
expressed in the Trust's Declaration of Trust, By-Laws, Registration Statement
under the Investment Company Act of 1940, as amended (the "1940 Act"),
Registration Statement under the Securities Act of 1933, as amended (the "1933
Act"), and Prospectus as in use from time to time, as well as to the factors
affecting the Trust's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended.
The Adviser shall provide adequate facilities and qualified personnel for
the placement of orders for the purchase, or other acquisition, and sale, or
other disposition, of portfolio securities for the Fund. With respect to such
transactions, the Adviser, subject to such directions as may be furnished from
time to time by the Trustees, shall endeavor as the primary objective to obtain
the most favorable prices and execution of orders. Subject to such primary
objective, the Adviser may place order with broker-dealer firms which have sold
shares of the Trust or which furnish statistical and other information to the
Adviser, taking into account the value and quality of the brokerage services of
such broker-dealers, including the availability and quality of such statistical
and other information. Receipt by the Adviser of any such statistical and
other information and services shall not be deemed to give rise to any
requirement for abatement of the advisory fee payable pursuant to Section 6
hereof.
3.
The Adviser (a) shall furnish to the Trust the services of qualified
personnel to (i) manage the investments of the Trust, (ii) perform the
executive and related administrative functions of the Trust and (iii) if
desired by the Trust, serve as Trustees of the Trust, in all cases without
additional compensation of such persons by the Trust; (b) pay the expenses of
all persons whose services are to be furnished by the Adviser under this
Section; (c) provide office space, furniture, small office equipment, and
telephone facilities and utilities, all of which may be the same as occupied or
used by the Adviser; and (d) provide general purpose forms, supplies,
stationery, and postage used at the offices of the Fund relating to the
services to be furnished by the Adviser hereunder.
4.
Except to the extent expressly assumed by the Adviser herein, and subject
to an expense fee agreement described in Section 7 below, the Trust shall pay
all costs and expenses in connection with its operations. Without limiting the
generality of the foregoing, such costs and expenses shall include the
following: compensation paid to the Trustees who are not affiliated persons of
the Adviser, fees and expenses of the transfer agent, dividend disbursing
agent, legal counsel and independent public accounts, and custodian, including
charges of such custodian for the preparation and maintenance of the books of
account and records of the Trust and the daily determination of the Trust's net
asset value per share costs of designing, printing, and mailing reports,
prospectuses, proxy statements and notices to shareholders; fees and expenses
of sale (including registration and qualification), issuance (including costs
of any share certificates) and redemption of shares; association dues;
interest; and taxes.
5.
The Adviser agrees to pay the expenses incurred in connection with the
organization of the Trust, its qualification to do business as a foreign
corporation in the State of California, and its registration as an investment
company under the 1940 Act, and all fees and expenses including fees of legal
counsel to the Trust, which would otherwise be required to be paid by the Trust
pursuant to Section 4 which are incurred by the Trust prior to the effective
date of its Registration Statement, except for the costs of any share
certificates and transfer agent fees and costs.
6.
The Trust shall pay to the Adviser on or before the tenth (10th) day of
each month, as compensation for the services rendered by the Adviser during the
preceding month, an amount to be computed by applying to the total net asset
value of each Fund at the annual rates of:
Global Growth Fund: 0.69% of net assets;
Growth Fund: 0.60% on the first $30 million of net assets, plus 0.50% on net
assets from $30 million to $600 million, plus 0.45% on net assets from $600
million to $1.2 billion, plus 0.42% on net assets from $1.2 billion to $2.0
billion, plus 0.37% on net assets in excess of $2.0 billion;
Growth-Income Fund: 0.60% on the first $30 million of net assets, plus 0.50%
on net assets from $30 million to $600 million, plus 0.45% on net assets from
$600 million to $1.5 billion, plus 0.40% on net assets from $1.5 billion to
$2.5 billion, plus 0.32% on net assets in excess of $2.5 billion;
International Fund: 0.90% on the first $60 million of net assets, plus 0.78%
on net assets from $60 million to $600 million, plus 0.60% on net assets from
$600 million to $1.2 billion, plus 0.48% on net assets from $1.2 billion to
$2.0 billion, plus 0.465% on net assets in excess of $2.0 billion;
Asset Allocation Fund: 0.60% on the first $30 million of net assets, plus
0.50% on net assets from $30 million to $600 million, plus 0.42% on net assets
in excess of $600 million;
U.S. Government Securities Fund: 0.60% on the first $30 million of net assets,
plus 0.50% on net assets from $30 million to $600 million, plus 0.40% on net
assets in excess of $600 million;
Bond Fund: 0.60% on the first $30 million of net assets, plus 0.50% on net
assets in excess of $30 million;
High-Yield Bond Fund: 0.60% on the first $30 million of net assets, plus 0.50%
on net assets from $30 million to $600 million, plus 0.46% on net assets in
excess of $600 million; and
Cash Management Fund: 0.50% on the first $100 million of net assets, plus
0.42% on net assets from $100 million to $400 million, plus 0.38% on net assets
in excess of $400 million.
The advisory fee shall be accrued daily at 1/365th of the applicable
annual rate set forth above. The net asset value of the Trust shall be
determined in the manner set forth in the Declaration of Trust and prospectus
of the Trust as of the close of the New York Stock Exchange on each day on
which said Exchange is open, and in the case of Saturdays, Sundays, and other
days on which said exchange shall not be open, as at the close of the last
preceding day on which said Exchange shall have been open.
Upon any termination of this Agreement on a day other than the last day of
the month the fee for the period from the beginning of the month in which
termination occurs to the date of termination shall be prorated according to
the proportion which such period bears to the full month of the Trust.
7.
The advisory fee will be reduced to the extent that each Fund, except the
International Fund's annual ordinary net operating expenses exceed 1 1/2% of
the first $30,000,000 of the average month-end total net assets of each Fund
and 1% of the average month-end total net assets in excess thereof. For the
International Fund, the advisory fee will be reduced to the extent that the
Fund's annual ordinary net operating expenses exceed 1 1/2% of its average
month-end total net assets. Expenses which are not subject to this limitation
are interest, taxes, and extraordinary items such as litigation. Expenditures,
including costs incurred in connection with the purchase or sale of portfolio
securities, which are capitalized in accordance with generally accepted
accounting principles applicable to investment companies, are accounted for as
capital items and not as expenses.
8.
Nothing contained in this Agreement shall be construed to prohibit the
Adviser from performing investment advisory, management, or distribution
services for other investment companies and other persons or companies, nor to
prohibit affiliates of the Adviser from engaging in such business or in other
related or unrelated businesses.
9.
The Adviser shall have no liability to the Trust, or its shareholders or
creditors, for any error of judgment, mistake of law, or for any loss arising
out of any investment, or for any other act or omission in the performance of
its obligations to the Trust not involving willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties hereunder.
10.
This Agreement shall continue in effect until the close of business on
November 30, 1995. It may thereafter be renewed from year to year thereafter
by mutual consent, provided that such renewal shall be specifically approved at
least annual by (i) the Trustees or by the vote of a majority (as defined in
the 1940 Act) of the outstanding voting securities of the Trust, and (ii) a
majority of those Trustees who are not parties to this Agreement or interested
persons (as defined in the 1940 Act) of any such party cast in person at a
meeting called for the purpose of voting on such approval. Such mutual consent
to renewal shall not be deemed to have been given unless evidenced by a writing
signed by both parties hereto.
11.
The obligations of the Trust under this Agreement are not binding upon any
of the Trustees, officers, employees, agents or shareholders of the Trust
individually, but bind only the Trust Estate. The Adviser agrees to look
solely to the assets of the Trust for the satisfaction of any liability of the
Trust in respect of this Agreement and will not seek recourse against such
Trustees, officers, employees, agents or shareholders, or any of them, or any
of their personal assets for such satisfaction.
12.
This Agreement may be terminated at any time, without payment of any
penalty, by the Trustees or by the vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Trust, on sixty (60) days'
written notice to the Adviser, or by the adviser on like notice to the Trust.
This Agreement shall automatically terminate in the event of its assignment (as
defined in the 1940 Act).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their officers thereunto duly authorized as
of the day and year first above written.
AMERICAN VARIABLE INSURANCE SERIES
By
James F. Rothenberg, President
By
Chad L. Norton, Secretary
CAPITAL RESEARCH AND MANAGEMENT COMPANY
By
Paul G. Haaga, Jr., Senior Vice President
By
Michael J. Downer, Secretary
PRINCIPAL UNDERWRITING AGREEMENT
THIS AGREEMENT is effective on the 12th day of July, 1989 among THE
LINCOLN NATIONAL LIFE INSURANCE COMPANY ("Lincoln National"), a life insurance
company organized under the laws of the State of Indiana on behalf of itself
and SEPARATE ACCOUNT H OF THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
("Separate Account"), a separate account established by Lincoln National
pursuant to the Indiana Insurance Code and AMERICAN FUNDS DISTRIBUTORS, INC.
("AFD"), a corporation organized under the laws of the State of California.
WITNESSETH:
WHEREAS, Lincoln National proposes to issue to the public certain
variable annuity contracts ("Contracts") and has, by resolution of its Board of
Directors on November 4, 1982, and by directive of its Chief Executive Officer
on February 7, 1989, authorized the creation of a segregated investment account
in connection therewith; and
WHEREAS, Lincoln National has established the Separate Account for the
purpose of issuing the Contracts and has registered the Separate Account with
the Securities and Exchange Commission ("Commission") as a unit investment
trust under the Investment Company Act of 1940; and
WHEREAS, the Contracts to be issued by Lincoln National are registered
with the Commission for offer and sale to the public, and otherwise are in
compliance with all applicable laws; and
WHEREAS, AFD is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities Dealers,
Inc., and proposes to form a selling group for the distribution of said
Contracts; and
WHEREAS, Lincoln National desires to obtain the services of AFD as
principal underwriter of the Contracts issued by Lincoln National through the
Separate Account;
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and conditions set forth herein, and for other good and valuable
consideration, Lincoln National, the Separate Account and AFD hereby agree as
follows:
Duties of AFD
1. AFD will form a selling group consisting of broker-dealers appointed
by Lincoln National to distribute the Contracts which are issued by Lincoln
National through the Separate Account and are registered with the Commission
for offer and sale to the public. Broker-dealers listed in the attached
Schedule B - Schedule of Broker-Dealers to be Excluded from the Selling Group -
may not be members of such selling group. Said Schedule B may be amended from
time to time by the mutual consent of the undersigned parties.
2. AFD will enter into and maintain a dealer agreement with each
broker-dealer Joining such selling group ("member"); an executed copy of each
will be provided to Lincoln National. Any such dealer agreement expressly will
be made subject to this Agreement. Any such dealer agreement will provide: (i)
that each member will distribute the Contracts only in those jurisdictions in
which the Contracts are registered or qualified for sale and only through duly
licensed registered representatives of the members who are fully licensed with
Lincoln National to sell the Contracts in the applicable Jurisdiction(s); (ii)
that all applications and initial and subsequent payments under the Contracts
collected by the member will be remitted promptly by the member to Lincoln
National at such address as it may from time to time designate; (iii) that each
member will comply with all applicable federal and state laws, rules and
regulations; and (iv) that the Contracts will not be offered in connection with
plans qualified under Section 403(b) of the U.S. Internal Revenue Code.
3. AFD will use reasonable efforts to provide information and marketing
assistance to the members, including preparing and providing members with
advertising materials and sales literature, and providing members with current
Prospectuses of the Contracts and of American Variable Insurance Series (the
"Series"). AFD will use reasonable efforts to ensure that members deliver only
the currently effective Prospectuses of the Contracts and the Series. AFD and
Lincoln National will cooperate in the development of advertising and sales
literature, as requested. AFD will deliver to members, and use reasonable
efforts to ensure that members use, only sales literature and advertising
material which conforms to the requirements of federal and state laws and
regulations and which has been authorized by Lincoln National and AFD. AFD will
be responsible for filing sales literature and advertising material, where
necessary, with appropriate securities regulatory authorities, including the
National Association of Securities Dealers, Inc. AFD will not distribute any
Prospectus, sales literature, advertising material or any other printed matter
or material relating to the Contracts or the Series if, to its knowledge, any
of the foregoing misstates the duties, obligations or liabilities of Lincoln
National or AFD. AFD will not actively encourage any member to sell Contracts
to employees of hospitals in the State of California that are members of the
California Hospital Association.
4. AFD shall not be responsible for (i) taking or transmitting
applications for the Contracts; (ii) examining or inspecting risks or
approving, issuing or delivering Contracts; (iii) receiving, collecting or
transmitting premium payments; (iv) assisting in the completion of applications
for Contracts; (v) paying sales commissions to licensed broker- dealers and
insurance agents; and (vi) otherwise offering and selling Contracts directly to
the public.
5. AFD will bear all its expenses of providing services under this
Agreement, including the cost of preparing, printing and mailing advertising
and sales literature, and the cost of printing and mailing Series and Contract
Prospectuses which are used for sale purposes, except that AFD shall not bear
the expenses of registering and qualifying shares for Contracts for sale under
federal and state laws and expenses of preparing, printing and mailing
Prospectuses, proxies and shareholder reports to the extent authorized by law.
It is understood that Lincoln National will not be required to bear the cost of
preparing, printing and mailing Series Prospectuses. AFD will, except with
respect to agents and brokers with Lincoln National Sales Corporation ("LNSC"),
reimburse Lincoln National for all state appointing fees and associated renewal
fees incurred to enable members to sell the Contracts.
6. AFD will furnish to Lincoln National such information with respect
to the Series in such form and signed by such of its officers as Lincoln
National may reasonably request, and will warrant that the statements therein
contained when so signed will be true and correct. AFD will advise Lincoln
National immediately of: (a) any request by the Commission (i) for amendment of
the registration statement relating to the Contracts or the Series or (ii) for
additional information; (b) the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement of the Contracts or
the Series or the initiation of any proceedings for that purpose; (c) the
institution of any proceeding, investigation or hearing involving the offer or
sale of the Contracts or the Series of which it becomes aware; or (d) the
happening of any material event, if known, which makes untrue any statement
made in the registration statement of the Contracts or the Series or which
requires the making of a change therein in order to make any statement made
therein not misleading.
7. AFD will use reasonable efforts to have the Series register for sale
under the Securities Act of 1933 and, as required, under state securities laws,
from time to time as necessary, such additional shares of the Series as may
reasonably be necessary for use as the funding vehicle for the Contracts.
Duties of Lincoln National
8. Lincoln National or its agent will receive and process applications
and premium payments in accordance with the terms of the Contracts and the
current Prospectuses. All applications for Contracts are subject to acceptance
or rejection by Lincoln National in its sole discretion. Lincoln National will
inform AFD of any such rejection and the reason therefor.
9. Lincoln National will be responsible for filing the Contracts,
applications, forms, sales literature and advertising material, where
necessary, with appropriate insurance regulatory authorities.
10. Lincoln National will furnish to AFD such information with respect to
the Separate Account and the Contracts in such form and signed by such of its
officers as AFD may reasonably request, and will warrant that the statements
therein contained when so signed will be true and correct. Lincoln National
will advise AFD immediately of: (a) any request by the Commission (i) for
amendment of the registration statement relating to the Contracts or the Series
or (ii) for additional information; (b) the issuance by the Commission of any
stop order suspending the effectiveness of the registration statement of the
Contracts or the Series or the initiation of any proceedings for that purpose;
(c) the institution of any proceeding, investigation, hearing or other action
involving the offer or sale of the Contracts or the fund of which it becomes
aware; (d) the happening of any material event, if known, which makes untrue
any statement made in the registration statement of the Contracts or the Series
or which requires the making of a change therein in order to make any statement
made therein not misleading.
11. Lincoln National will use reasonable efforts to register for sale,
from time to time as necessary, additional dollar amounts of the Contracts
under the Securities Act of 1933, and, should it ever be required, under state
securities laws and to file for approval under state insurance laws when
necessary and will maintain the Investment Company Act of 1940 registration of
the Separate Account.
12. Lincoln National will pay to members of this selling group such
commissions as are from time to time set forth in dealer agreements. Such
dealer agreements shall provide for the return of sales commissions by the
members to Lincoln National if the Contracts are tendered for redemption to
Lincoln National in accordance with the 10-day review provision in the
Contract.
13. Lincoln National will bear its expenses of providing services under
this Agreement, including the cost of preparing (including typesetting costs),
printing and mailing Prospectuses of the Contracts to Contract Owners, expenses
and fees of registering or qualifying the Contracts and the Separate Account
under federal or state laws, and any direct expenses incurred by its employees
in assisting AFD in performing its duties hereunder. Lincoln National will pay
to AFD such remuneration for its services and for the services of its salaried
employees, and such reimbursement for its charges and expenses, as may be
contained in such schedule of remuneration as may be adopted and appended to
this Agreement from time to time. (See Schedule A - Commissions to Members and
Remuneration to AFD.) Said Schedule A may be amended from time to time by the
mutual consent of the undersigned parties; except that AFD may alter the ratio
of commissions paid to dealers and remuneration paid to AFD as set forth in
paragraph 25 of this Agreement.
Warranties
14. Lincoln National represents and warrants to AFD that: (i) a
registration statement under the Securities Act of 1933 (File No. 33-27783) and
under the Investment Company Act of 1940 (File No. 811-5721) on Form N-4 with
respect to the Contracts and Separate Account has been flied with the
Commission in the form previously delivered to AFD, and copies of any and all
amendments thereto will be forwarded to AFD at the time that they are filed
with the Commission; (ii) the registration statement and any further amendments
or supplements thereto will, when they become effective, conform in all
material respects to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, and the rules and regulations of the Commission
thereunder, and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statement or omission made
in reliance upon and in conformity with information furnished in writing to
Lincoln National by AFD expressly for use therein; (iii) Lincoln National is
validly existing as a stock life insurance company in good standing under the
laws of the State of Indiana, with power (corporate or other) to own its
properties and conduct its business as described in the Prospectus, and has
been duly qualified for the transaction of business and is in good standing
under the laws of each other Jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such qualification; (iv)
the Contracts to be issued through the Separate Account have been duly and
validly authorized and, when issued and delivered against payment therefor as
provided in the Prospectuses and in the Contracts, will be duly and validly
issued and will conform to the description of such Contracts contained in the
Prospectuses relating thereto; (v) Lincoln National will not pay commissions to
persons who, to the best of Lincoln National's knowledge, are not appropriately
licensed in a manner as to comply with the state insurance laws; (vi) the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under any statute, any indenture,
mortgage, deed of trust, note agreement or other agreement or instrument to
which Lincoln National is a party or by which Lincoln National is bound,
Lincoln National's Charter as a stock life insurance company or By-Laws, or any
order, rule or regulation of any court or governmental agency or body having
Jurisdiction over Lincoln National or any of its properties; and no consent,
approval, authorization or order of any court or governmental agency or body
which has not been obtained by the effective date of this Agreement is required
for the consummation by Lincoln National of the transactions contemplated by
this Agreement; and (vii) there are no material legal or governmental
proceedings pending to which Lincoln National or the Separate Account is a
party or of which any property of Lincoln National or the Separate Account is
the subject, other than as set forth in the Prospectus relating to the
Contracts, and other than litigation incident to the kind of business conducted
by Lincoln National which, if determined adversely to Lincoln National, would
not individually or in the aggregate have a material adverse effect on the
financial position, surplus or operations of Lincoln National; and (viii) any
information furnished in writing by Lincoln National to AFD for use in the
registration statement of the Series will not result in the registration
statement's falling to conform in all respects to the requirements of the
Securities Act of 1933 and the rules and regulations thereunder or containing
any untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
15. AFD represents and warrants to Lincoln National that: (i) a
registration statement under the Securities Act of 1933 (File No. 2-86838), and
under the Investment Company Act of 1940 (File No. 811-3857) with respect to
American Variable Insurance Series has been filed with the Commission in the
form previously delivered to Lincoln National, and copies of any and all
amendments thereto will be forwarded to Lincoln National at the time that they
are flied with the Commission; (ii) the Series' registration statement and any
further amendments or supplements thereto will, when they become effective,
conform in all material respects to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, and the rules and regulations of
the Commission thereunder, and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information furnished in
writing to AFD by Lincoln National expressly for use therein; (iii) the
performance of its duties under this Agreement by AFD will not result in a
breach or violation of any of the terms or provisions or constitute a default
under any statute, any indenture, mortgage, deed of trust, note agreement or
other agreement or instrument to which AFD is a party or by which AFD is bound,
the Certificate of incorporation or By-Laws of AFD, or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
AFD or its property; and (iv) any information furnished in writing by AFD to
Lincoln National for use in the registration statement for the Contracts will
not result in the registration statement's failing to conform in all respects
to the requirements of the Securities Act of 1933 and the rules and regulations
thereunder or containing any untrue statement of a material fact or omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; (v) it is a broker-dealer duly registered
with the Commission pursuant to the Securities Exchange Act of 1934.and a
member in good standing of the National Association of Securities Dealers, Inc.
and is in compliance with the securities laws in those states in which it
conducts business as a broker-dealer; (vi) it will use reasonable efforts to
ensure that no offering, sale or other disposition of the Contracts will be
made until it has been notified by Lincoln National that the subject
registration statements have been declared effective and the Contracts have
been released for sale by Lincoln National, and that such offering, sale or
other disposition shall be limited to those Jurisdictions that have approved or
otherwise permit the offer and sale of the Contracts by Lincoln National; and
(vii) it will comply with the requirements of state broker-dealer regulations
and the Securities Exchange Act of 1934 as each applies to AFD and shall
conduct its affairs in accordance with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
Miscellaneous
16. AFD makes no representation or warranty regarding the number of
Contracts to be sold by licensed broker-dealers and insurance agents or the
amount to be paid thereunder. AFD does, however, represent that it will
actively engage in its duties under this Agreement on a continuous basis while
the Agreement is in effect and there is an effective registration of the
Contracts and of the Series, or its successor, with the Commission.
17. AFD may act as principal underwriter, sponsor, distributor or dealer
for issuers other than Lincoln National or its affiliates in connection with
mutual funds or insurance products; except that AFD shall not, while this
Agreement is in effect, act as principal underwriter, sponsor, distributor or
dealer with respect to insurance contracts which are issued by insurance
companies other than Lincoln National or its affiliates that are similar to the
Contracts.
While this Agreement is in effect, Lincoln National will not issue,
through any broker-dealer (except LNSC and those broker-dealers listed in
Schedule B attached hereto--"Schedule of Brokers to be Excluded from the
Selling Group"), any insurance contract similar to the Contracts, without the
written consent of AFD. Schedule C attached hereto--"List of Broker- Dealers
Selling Similar Contracts With Consent of AFD"--contains the listing of those
broker-dealers for which AFD has so consented. Furthermore, Lincoln National
will not enter into any agreement with any other organization for the purpose
of distributing the Contracts.
In addition, AFD agrees not to offer the Contracts through the Broker-
Dealers listed in the aforesaid Schedule B. It is understood that shares of
American Variable Insurance Series may be sold to fund insurance contracts of
issuers other than Lincoln National or its affiliates or to other shareholders
in accordance with Internal Revenue Code Section 817(h) and the regulations
thereunder.
18. Nothing in this Agreement shall obligate Lincoln National to appoint
any member or registered representative of a member its agent for purposes of
the distribution of the Contracts. Nothing in this Agreement shall be construed
as requiring AFD to effect sales of the Contracts directly to the public or to
act as an insurance agent or insurance broker on behalf of Lincoln National for
purposes of state insurance laws.
19. AFD agrees to indemnify Lincoln National (or any control person,
shareholder, director, officer or employee of Lincoln National) for any
liability incurred (including costs relating to defense of any action) arising
out of any AFD act or omission relating to (i) rendering services under this
Agreement or (ii) the purchase, retention or surrender of a Contract by any
person or entity; provided, however that indemnification will not be provided
hereunder for any such liability that results from the willful misfeasance, bad
faith or gross negligence of Lincoln National or from the reckless disregard by
Lincoln National of the duties and obligations arising under this Agreement.
20. Lincoln National agrees to indemnify AFD (or any control person,
shareholder, director, officer or employee of AFD) for any liability incurred
(including costs relating to defense of any action) arising out of any Lincoln
National act or omission relating to (i) rendering services under this
Agreement or (ii) the purchase, retention or surrender of a Contract by any
person or entity; provided, however, that indemnification will not be provided
hereunder for any such liability that results from the willful misfeasance, bad
faith and gross negligence of AFD or from the reckless disregard by AFD of the
duties and obligations arising under this Agreement.
21. This Agreement will terminate automatically upon its assignment, as
that term is defined in the Investment Company Act of 1940. The parties
understand that there is no intention to create a joint venture in the subject
matter of this Agreement. Accordingly, the right to terminate this Agreement
and to engage in any activity not inconsistent with this Agreement is absolute.
This Agreement will terminate, without the payment of any penalty by either
party: (a) at the option of Lincoln National upon six months' advance written
notice to AFD; or (b) at the option of AFD upon six months' advance written
notice to Lincoln National; or (c) at the option of Lincoln National upon
institution of formal proceedings against AFD by the National Association of
Securities Dealers, Inc. or by the Commission; or (d) at the option of AFD upon
the institution of formal proceedings against LNL by the Department of
insurance of a state; or (e) as otherwise provided in the Investment Company
Act of 1940.
22. Each notice required by this Agreement shall be given in writing and
delivered by certified mall-return receipt requested.
23. This Agreement shall be subject to the laws of the State of Indiana
and construed so as to interpret the Contracts as insurance products written
within the business operation of Lincoln National.
24. This Agreement covers and includes all agreements, oral and written
(expressed or implied) between Lincoln National and AFD with regard to the
marketing and distribution of the Contracts, and supersedes any and all
Agreements between the parties with respect to the subject matter of this
Agreement; except that this Agreement shall not affect the operation of any
previous agreements entered into between Lincoln National and AFD unrelated to
the subject matter of this Agreement.
25. This Agreement, along with any Schedules attached hereto and
incorporated herein by reference, may be amended from time to time by the
mutual agreement and consent of the undersigned parties, provided such
amendment be in writing and duly executed; except that with respect to any
Schedule A, AFD in its sole discretion, may alter upon written notice to
Lincoln National the ratio of member commissions paid to remuneration paid to
AFD. AFD agrees to reimburse Lincoln National any remuneration previously
received to the extent necessary to pay additional commissions to members due
to a retroactive change of this ratio.
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be duly executed and attested as follows:
The Lincoln National Life Insurance Company on behalf of itself and Separate
Account H of The Lincoln National Life Insurance Company
Attest: /s/ Kelly D. Clevenger
By: /s/ Robert A. Nikels
American Funds Distributors, Inc. By:
Attest: /s/ Michael Downer
By: /s/
SCHEDULE A - COMMISSIONS TO MEMBERS AND REMUNERATION TO AFD
Effective July 12, 1989
1. All Sales of the Contracts (also referred to herein as "American Legacy
II").
a) Lincoln National will make direct payment of commissions to members and
remuneration to AFD with respect to all sales of the above-cited Contracts
according to the schedule set forth below. Where state law prohibits direct
payment to AFD, payment will be made in accordance with the applicable state
law.
<TABLE>
<CAPTION>
Commissions Remuneration
to Members to AFD
other than
LNSC
<S> <C> <C>
All Contract Purchase Payments
from Contracts Sold 4.7% 1.00%
Commissions Remuneration
to LNSC to AFD
All Contract Purchase Payments
from Contracts Sold 5.2% .50%
</TABLE>
b) An annual .25% continuing commission will be paid to dealers on the value
of all Contract purchase payments beginning in the second Contract year. This
compensation will be paid at the end of each calendar quarter and will be
calculated as follows: At the end of each calendar quarter, Lincoln National
will calculate and pay, for all Contracts which have been in force for 15
months or more as of the last day of the quarter, an amount equal to .0625% of
an amount equal to the quarter ending account value less any deposits made in
the previous 15 months. This continuing commission is not paid on Contracts
that have been annuitized.
c) A .25% commission is all that will be paid on transfers from The American
Legacy to American Legacy II.
2. Annuitization
All Purchase Payments held five years and Individual Contract Earnings which
are annuitized (Contracts issued by LNL that are annuitized solely on a fixed
basis will result in a separate Contract being issued.)
<TABLE>
<CAPTION>
Commissions Remuneration
to Members to AFD
other than
LNSC
<S> <C> <C>
All Purchase Payments held 4.7% 1.00%
five years and Individual
Contract Earnings which are
annuitized (Contracts issued
by LNL that are annuitized
solely on a fixed basis will
result in a separate Contract
being issued.)
Commissions Remuneration
to LNSC to AFD
All Purchase Payments held 5.2% .50%
five years and Individual
Contract Earnings which are
annuitized (Contracts issued
by LNL that are annuitized
solely on a fixed basis will
result in a separate Contract
being issued.)
</TABLE>
3. Sell and Reload
<TABLE>
<CAPTION>
Commissions Remuneration
to Members to AFD
other than
LNSC
<S> <C> <C>
a) All Contract Purchase 3.7% 1.00%
Payments arising from
Reloaded Contracts sold
Commissions Remuneration
to LNSC to AFD
All Contract Purchase 4.2% .50%
Payments from Reloaded
Contracts sold
</TABLE>
b) "Sell and Reload" occurs when Contract Purchase Payments are again
subjected to a contingent deferred sales charge (once such charge has expired
with respect to all Contract Purchase Payments) for purposes of increasing the
minimum death benefit.
c) An annual continuing commission of .25% will be paid on the value of such
Purchase Payments in the manner indicated in l(b) above, except that the first
year's continuing commission of .25% will be paid when the initial commission
is paid.
4. Sales Volume Allowance
AFD will give up a portion of its remuneration in order to provide an extra
sales volume allowance of .25% of Purchase Payments to be paid to dealers
maintaining a sales volume of at least $5,000,000 in each calendar year.
Lincoln National, upon notification from AFD, will deduct enough from AFD's
remuneration to pay this additional allowance to that dealer on all sales for
that calendar year. Payments will be made to dealers every quarter after
notification from AFD is received by Lincoln National.
5. Introductory Period
From September 1 through October 31, 1989, AFD will waive its remuneration in
connection with new sales of the Contracts, in order that the commissions to
dealers be increased by amounts which AFD has waived.
IN WITNESS WHEREOF, the undersigned parties have caused this Schedule A -
Commissions to Members and Remuneration to AFD to be duly executed and attested
as follows:
Attest:
/s/ Kelly D. Clevenger
The Lincoln National Life Insurance Company
By: /s/ Robert A. Nikels
Attest:
/s/ Michael Downer
American Funds Distributors, Inc.
By: /s/ Hoyt J. Turner
SCHEDULE B - BROKER-DEALERS TO BE EXCLUDED FROM SELLING GROUP
ABI Management
H. C. Copeland
Durham
James Freeman
Mutual of America
United Resources
R. M. Weber
Western Annuities
Zahorlk
SCHEDULE C - LIST OF BROKER-DEALERS SELLING
SIMILAR CONTRACTS WITH CONSENT OF AFD
1. Advisory Financial Consultants - CA
2. American Capital Corp. - PA
*3. American Investors Company - CA
4. APS Securities Corp. - TX
*5. Bates Securities, Inc. - IL
6. Beach Street Financial Corp. - CA
7. Benefit Securities Inc. - AK
8. Berthel, Fisher & Flelschman - IA
*9. Boardwalk Capital Corp. - CA
10. Capital Analysts Inc. - PA
11. CBL Equities, Inc. - IL
12. CES Insurance Agency - MA
*13. Chubb Securities Corp. - NH
14. Colorado Investors Resources Inc. - CO
*15. DeRand Investment Corp. - TX
*16. E. F. Hutton Inc. - MI
*17. E. I. Sales Inc. - IA
18. Equity Services Inc. - VT
19. Federation for Financial Independence - CA
(Ind. Advantage Fin. & Ins. Services, Inc.)
20. Financial Designs, Ltd. - CA
*21. Financial Network Investment Corp. - CA
22. First Financial Capital Corp. - TX
23. Frank B. Hall Securities Inc. - WA
*24. FSC Securities Corp. - GA
25. Hackett Associates - PA
26. H. C. Copeland - NJ
*27. H. D. Vest - TX
*28. International Money Management Group - MD
29. Investors Brokerage Services - IL
30. Jason Mackinzle Securities Inc. - GA
*31. Laney & Company - WA
*32. Linsco Financial Group Inc. - MA
*33. Main Street Management Co. - CT
*34. Market Securities Corp. - FL
35. Marsh & McLennan Securities Corp. - NY
36. Munlclcorp of California - CA
*37. Mutual Service Corporation - MI
*38. Paine Webber Jackson & Curtis - NY
39. Pal-Star Management CorD. - IL
*40. Parker-Hunter Inc. - PA
41. PEBSCO - OH
42. Philadelphia Financial Advisors - PA
43. Portsmouth Financial Services - CA
*44. Raffensperger, Hughes & Co. - IN
*45. William L. Marshall - PA
46. Zahorlk - CA
* Also have Group Selling Agreement with AFD.
K56687
<PAGE>
AMENDMENT (effective February 7, 1992)
to that certain
PRINCIPAL UNDERWRITING AGREEMENT (AGREEMENT)
effective July 12, 1989
between
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
and
AMERICAN FUNDS DISTRIBUTORS, INC.
WITNESSETH:
WHEREAS, The President of the United States in his 1993 Budget Proposal
has proposed legislation to the Congress which, if enacted, could eliminate tax
deferral for certain of the Contracts described in the Agreement; and
WHEREAS, The possibility exists that the legislation, if enacted, could
have a retroactive effective date; and
WHEREAS, Lincoln National and AFD are concerned that the mere existence
of the Proposal, even if never enacted, together with the possibility of a
retroactive effective date, will discourage prospective purchasers from buying
the Contracts; and
WHEREAS, If the Proposal is enacted with a retroactive effective date
Lincoln National has agreed to waive the contingent deferred sales charges and
contract fees for a limited period, with respect to affected Contract Owners
who bought their Contracts between the effective date of the Proposal and the
date of its enactment.
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and considerations set forth therein and in the Agreement, and for
other good and valuable consideration, Lincoln National, the Separate Account
and AFD hereby agree as follows:
1. For each Contract returned to Lincoln National under the circumstances set
out above, AFD hereby agrees to return to Lincoln National any and all
"Remuneration to AFD" (as that term is used in the Agreement) which has been
paid by Lincoln National.
2. All other terms of the Agreement not inconsistent with the above shall
remain unchanged.
IN WITNESS WHEREOF, the undersigned parties have caused this Amendment
to the Agreement to be duly executed and attested as follows:
Attest: /s/ O. Douglas Worthington
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: /s/ Robert A. Nikels
Attest: /s/ Kenneth R. Gorvetzian
AMERICAN FUNDS DISTRIBUTORS, INC.
By: /s/ Hoyt J. Turner
CUSTODIAN CONTRACT
Between
AMERICAN VARIABLE INSURANCE SERIES
and
STATE STREET BANK AND TRUST COMPANY
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
1. Employment of Custodian and Property to be Held By
It 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States 2
2.1 Holding Securities 2
2.2 Delivery of Securities 2
2.3 Registration of Securities 4
2.4 Bank Accounts 4
2.5 Availability of Federal Funds 5
2.6 Collection of Income 5
2.7 Payment of Fund Monies 5
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased 6
2.9 Appointment of Agents 7
2.10 Deposit of Fund Assets in Securities System 7
2.10A Fund Assets Held in the Custodian's Direct
Paper System 8
2.11 Segregated Account 9
2.12 Ownership Certificates for Tax Purposes 9
2.13 Proxies 9
2.14 Communications Relating to Portfolio
Securities 10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States 10
3.1 Appointment of Foreign Sub-Custodians 10
3.2 Assets to be Held 10
3.3 Foreign Securities Depositories 10
3.4 Segregation of Securities 11
3.5 Agreements with Foreign Banking Institutions 11
3.6 Access of Independent Accountants of the Fund 11
3.7 Reports by Custodian 11
3.8 Transactions in Foreign Custody Account 12
3.9 Liability of Foreign Sub-Custodians 12
3.10 Monitoring Responsibilities 12
3.11 Branches of U.S. Banks 13
4. Payments for Sales or Repurchases or Redemptions
of Shares of the Fund 13
5. Proper Instructions 13
6. Actions Permitted Without Express Authority 14
7 Evidence of Authority 14
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income 14
9. Records 15
10. Opinion of Fund's Independent Accountants 15
11. Reports to Fund by Independent Public Accountants 15
12. Compensation of Custodian 16
13. Responsibility of Custodian 16
14. Effective Period, Termination and Amendment 17
15. Successor Custodian 17
16. Interpretive and Additional Provisions 18
17. Additional Funds 18
18. Massachusetts Law to Apply 19
19. Prior Contracts 19
</TABLE>
CUSTODIAN CONTRACT
This Contract between American Variable Insurance Series, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at 333 South Hope Street, Los Angeles, CA 90071 hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in five series, the
Cash Management Series, High Yield Bond Series, Growth-Income Series, Growth
Series and the U.S. Government Guaranteed/AAA Rated Securities Series (such
series together with all other series subsequently established by the Fund and
made subject to this Contract in accordance with paragraph 17, being herein
referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the
United States ("foreign securities") pursuant to the provisions of the
Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver
to the Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as
may be issued or sold from time to time. The Custodian shall not be
responsible for any property of a Portfolio held or received by the Portfolio
and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash property, to be held
by it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to Section
2.10 in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System" and (b) commercial paper
of an issuer for which State Street Bank and Trust Company acts as issuing and
paying agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct Paper
book entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio, which
may be continuing instructions when deemed appropriate by the parties, and only
in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided that in any
such case, the Custodian shall have no responsibility or liability for any loss
arising from the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own negligence or
willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions for
conversion contained in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund on behalf of the
Portfolio, which may be in the form of cash or obligations issued by the United
States government, its agencies or instrumentalities, except that in connection
with any loans for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible for the delivery
of securities owned by the Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of assets by the Fund on
behalf of the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be described
from time to time in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of Trustees
or of the Executive Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which such delivery is
to be made, declaring such purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the
Custodian (other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio
or of any nominee of the Custodian which nominee shall be assigned exclusively
to the Portfolio, unless the Fund has authorized in writing the appointment of
a nominee to be used in common with other registered investment companies
having the same investment adviser as the Portfolio, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or nominee
name of any sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant to
the terms of this Contract, and shall hold in such account or accounts, subject
to the provisions hereof, all cash received by it from or for the account of
the Portfolio, other than cash maintained by the Portfolio in a bank account
established and used in accordance with Rule 17f-3 under the Investment Company
Act of 1940. Funds held by the Custodian for a Portfolio may be deposited by
it to its credit as Custodian in the Banking Department of the Custodian or in
such other banks or trust companies as it may in its discretion deem necessary
or desirable; provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of 1940 and
that each such bank or trust company and the funds to be deposited with each
such bank or trust company shall on behalf of each applicable Portfolio be
approved by vote of a majority of the Board of Trustees of the Fund. Such
funds shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the
Fund on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified times
agreed upon from time to time by the Fund and the Custodian in the amount of
checks received in payment for Shares of such Portfolio which are deposited
into the Portfolio's account.
2.6 Collection of Income. The Custodian shall collect on a timely
basis all income and other payments with respect to registered domestic
securities held hereunder to which each Portfolio shall be entitled either by
law or pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities are held
by the Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for payment
all coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held hereunder.
Income due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will
have no duty or responsibility in connection therewith, other than to provide
the Fund with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to which
the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from
the Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall pay
out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of title to such
options, futures contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the United States or
abroad which is qualified under the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by the Custodian as its agent for
this purpose) registered in the name of the Portfolio or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or in proper form
for transfer; (b) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Section 2.10 hereof; (c)
in the case of a purchase involving the Direct Paper System, in accordance with
the conditions set forth in Section 2.10A; (d) in the case of repurchase
agreements entered into between the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing purchase by the
Portfolio of securities owned by the Custodian along with written evidence of
the agreement by the Custodian to repurchase such securities from the
Portfolio;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for the account
of the Portfolio: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Fund whether or not such expenses are
to be in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Trustees or of the Executive
Committee of the Fund signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or persons to whom such
payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase of domestic
securities for the account of a Portfolio is made by the Custodian in advance
of receipt of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in advance,
the Custodian shall be absolutely liable to the Fund for such securities to the
same extent as if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940, as
amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities depository, or in
the book-entry system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not include
any assets of the Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Account, and (ii) the making
of an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i) receipt of advice
from the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the account of the
Portfolio. Copies of all advices from the Securities System of transfers of
securities for the account of the Portfolio shall identify the Portfolio, be
maintained for the Portfolio by the Custodian and be provided to the Fund at
its request. Upon request, the Custodian shall furnish the Fund on behalf of
the Portfolio confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall furnish to the
Fund on behalf of the Portfolio copies of daily transaction sheets reflecting
each day's transactions in the Securities System for the account of the
Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding securities
deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case may be, required
by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the Portfolio for any
loss or damage to the Portfolio resulting from use of the Securities System by
reason of any negligence, misfeasance or misconduct of the Custodian or any of
its agents or of any of its or their employees or from failure of the Custodian
or any such agent to enforce effectively such rights as it may have against the
Securities System; at the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent that the Portfolio
has not been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions from the Fund on
behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall not include
any assets of the Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the account of
the Portfolio. The Custodian shall transfer securities sold for the account of
the Portfolio upon the making of an entry on the records of the Custodian to
reflect such transfer and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct Paper on the
next business day following such transfer and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting control as the
Fund may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio establish and
maintain a segregated account or accounts for and on behalf of each such
Portfolio, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the Custodian
pursuant to Section 2.10 hereof, (i) in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASD (or
any futures commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio, (ii) for purposes of segregating
cash or government securities in connection with options purchased, sold or
written by the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release No.
10666, or any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but only, in
the case of clause (iv), upon receipt of, in addition to Proper Instructions
from the Fund on behalf of the applicable Portfolio, a certified copy of a
resolution of the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in connection
with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting materials
and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. The Custodian
shall transmit promptly to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and notices of
exercise of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the Portfolio)
received by the Custodian from issuers of the securities being held for the
Portfolio. With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Portfolio all written information received by the
Custodian from issuers of the securities whose tender or exchange is sought and
from the party (or his agents) making the tender or exchange offer. If the
Portfolio desires to take action with respect to any tender offer, exchange
offer or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the Custodian
is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Custodian is
authorized and instructed to employ as sub-custodians for the securities and
other assets maintained outside the United States the foreign banking
institutions and foreign securities depositories designated on Schedule A
hereto ("foreign sub-custodians"). Upon receipt of "Proper Instructions",
together with a certified resolution of the Fund's Board of Trustees on behalf
of the applicable Portfolios, the Custodian and the Fund may agree to amend
Schedule A hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-custodian. Upon
receipt of Proper Instructions from the Fund on behalf of the applicable
Portfolios shall cease the employment of any one or more such sub-custodians
for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under the
Investment Company Act of 1940, and (b) cash and cash equivalents in such
amounts as the Custodian or the Fund may determine to be reasonably necessary
to effect the foreign securities transactions of the applicable Portfolios.
3.3 Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by the Custodian and the Fund on behalf of the
applicable Portfolios, assets of the applicalbe Portfolios shall be maintained
in foreign securities depositories only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the terms
hereof.
3.4 Segregation of Securities. The Custodian shall identify on its
books as belonging to each applicable Portfolio of the Fund, the foreign
securities of such Portfolios held by each foreign sub-custodian. Each
agreement pursuant to which the Custodian employs a foreign institution shall
require that such institution establish custody account(s) for the Custodian on
behalf of the Fund for each applicable Portfolio of the Fund and physically
segregate in each such account securities and other assets of the Portfolios,
and, in the event that such institution deposits the securities of one or more
of the Portfolios in a foreign securities depository, that it shall identify on
its books as belonging to the Custodian, as agent for each applicable
Portfolio, the securities so deposited (all collectively referred to as the
"Accounts").
3.5 Agreements with Foreign Banking Institutions. Each agreement with
a foreign banking institution shall be substantially in the form set forth in
Exhibit 1 hereto and shall provide that: (a) the assets of each Portfolio will
not be subject to any right, charge, security interest, lien or claim of any
kind in favor of the foreign banking institution or its creditors or agent,
except a claim of payment for their safe custody or administration; (b)
beneficial ownership for the assets of each Portfolio will be freely
transferable without the payment of money or value other than for custody or
administration; (c) adequate records will be maintained identifying the assets
as belonging to each applicable Portfolio; (d) officers of or auditors employed
by, or other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the Custodian; and
(e) assets of the Portfolios held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of
the Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books and
records of any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such foreign
banking institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from
time to time, as mutually agreed upon, statements in respect of the securities
and other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account maintained by a
foreign banking institution for the Custodian on behalf of each applicable
Portfolio indicating, as to securities acquired for a Portfolio, the identity
of the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account.
(a) Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall on
behalf of each applicable Portfolio make or cause its foreign sub-custodian to
transfer, exchange or deliver foreign securities owned by the Portfolio, but
except to the extent explicitly provided herein only in any of the cases
specified in Section 2.2
(b) Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties the Custodian shall on
behalf of each applicable Portfolio pay out or cause its foreign sub-custodians
to pay out monies of a Portfolio, but except to the extent explicitly provided
herein only in any of the cases specified in Section 2.7.
(c) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account of
each applicable Portfolio may be effected in accordance with the customary
established securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the purchaser thereof
or to a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such securities
from such purchaser or dealer.
(d) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set forth
in Section 2.3 of this Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to
which the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the Custodian
and the Fund from and against any loss, damage, cost, expense, liability or
claim arising out of or in connection with the institution's performance of
such obligations. At the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims against a
foreign banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not been
made whole for any such loss, damage, cost, expense, liability or claim.
3.10 Monitoring Responsibilities. The Custodian shall furnish
annually to the Fund, during the month of June, information concerning the
foreign sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian will promptly
inform the Fund in the event that the Custodian learns of a material adverse
change in the financial condition of a foreign sub-custodian or is notified by
a foreign banking institution employed as a foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity will
decline below $200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case computed in
accordance with generally accepted U.S. accounting principles).
3.11 Branches of U.S. Banks. Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the Fund
assets maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of 1940
meeting the qualification set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-custodian shall be governed by Article
1 of this Contract.
4. Payments for Sales or Repurchases or Redemptions of Shares of the
Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer
Agent of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board
of Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt
of instructions from the Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon
from time to time between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board of
Trustees of the Fund accompanied by a detailed description of procedures
approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied
that such procedures afford adequate safeguards for the Portfolios' assets.
For purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three - party agreement which
requires a segregated asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to the Fund on
behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as otherwise
directed by the Board of Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any
action by the Board of Trustees pursuant to the Declaration of Trust as
described in such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall
advise the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of each Portfolio shall be made at the time or times described
from time to time in the Fund's currently effective prospectus related to such
Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1
and 31a-2 thereunder applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Fund. All
such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents
of the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by each
Portfolio and held by the Custodian and shall, when requested to do so by the
Fund and for such compensation as shall be agreed upon between the Fund and the
Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on
futures contracts, including securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so
state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in good faith without negligence. It shall
be entitled to rely on and may act upon advice of counsel (who may be counsel
for the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. Notwithstanding the
foregoing the responsiblity of the Custodian with respect to redemptions
effected by check shall be in accordance with a separate Agreement entered into
between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.10)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.11 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money
or which action may, in the opinion of the Custodian, result in the Custodian
or its nominee assigned to the Fund or the Portfolio being liable for the
payment of money or incurring liability of some other form, the Fund on behalf
of the Portfolio, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose for the benefit of a Portfolio including the purchase or sale of
foreign exchange or of contracts for foreign exchange or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio,
as required by Rule 17f-4 under the Investment Company Act of 1940, as amended
and that the Custodian shall not with respect to a Portfolio act under Section
2.10A hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has approved the
initial use by such Portfolio of the Direct Paper System and the receipt of an
annual certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by such Portfolio of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or
any provision of the Declaration of Trust, and further provided, that the Fund
on behalf of one or more of the Portfolios may at any time by action of its
Board of Trustees (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to
transfer to an account of such successor custodian all of the securities of
each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of
the Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to Cash Management Series, High Yield Bond Series, Growth-Income
Series, Growth Series and the U.S. Government Guaranteed/AAA Rated Securities
Series with respect to which it desires to have the Custodian render services
as custodian under the terms hereof, it shall so notify the Custodian in
writing, and if the Custodian agrees in writing to provide such services, such
series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 29th day of December , 1987.
ATTEST AMERICAN VARIABLE INSURANCE SERIES
By--------------------------------------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
By--------------------------------------------------------------
Executive Vice President
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of American Variable
Insurance Series for use as sub-custodians for the Fund's securities and other
assets:
(Insert banks and securities depositories)
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN DEPOSITORY
<S> <C> <C>
Argentina - (branch of U.S. bank) - Caja de Valores
Australia - Westpac Banking Corporation - Austraclear Limited
- The Reserve Bank Information and
Transfer System
Austria - GiroCredit Bank Aktiengesellschaft - Oesterreichische Kontrollbank AG
der Sparkassen
Bangladesh - Standard Chartered Bank - none
Belgium - Generale Bank - Caisse Intrprofessionnelle de Depots
et de Virements de Titres S.A.
- Banque nationale de Belgique
Botswana - Barclays Bank of Botswana Ltd - none
Brazil - (branch of U.S. bank) - Bolsa de Valores de Sao Paulo
- Baco Central do Brasil, Systema
Especial de Liquidacao e Custodia
Canada - Canada Trustco Mortgage Company - Canadian Depository for Securities
China - Hongkong Shanghai Banking Corp. - Shanghai Securities Central Clearing
and Registration Corp.
- Shenzhen Securities Central Clearing
Co.,Ltd.
Colombia - Cititrust Colombia S.A. - none
Sociedad Fiduciaria
Cyprus - Barclays Bank PLC - none
Czech Republic - Ceskoslovenska Obchodni Banka, - Stredisko Cennych Papiru
A.S. - Czech National Bank
Denmark - Den Danske Bank - Vaerdipapircentralen - The Danish
Securities Center
Egypt - National Bank of Egypt - none
Finland - Merita Bank Limited - The Central Share Register of Finland
France - Banque Paribas - Societe Interprofessionelle pour la
Compensation des Valuers Mobilieres
- Banque de France, Satrune System
Germany - Dresdner Bank AG, Frankfurt - The Deutscher Kassenverein AG
Ghana - Barclays Bank of Chana Limited - none
Greece - National Bank of Greece S.A. - The Central Securities Depository
Hong Kong - Standard Chartered Bank - The Central Clearing and Settlement
System
Hungary - Citibank Budapest Rt - The Central Depository and Clearing
House
India - Deutsche Bank AG - none
- The Hong Kong and Shanghai
Banking Corporation Limited
Indonesia - Standard Chartered Bank - The Central Bank of Ireland (the Gilt
Settlement Office)
Ireland - Bank of Ireland - none
Israel - Bank Hapoalim B.M. - The Clearing House of the Tel Aviv
Stock Exchange
Italy - Monte Titoli S.p.A.
Japan - The Daiwa Bank, Limited - Japan Securities Depository Center
- The Sumitomo Trust & Banking Co. - Bank of Japan Net System
- The Fuji Bank, Limited
Jordan - The British Bank of the Middle - none
East
Kenya - Barclays Bank of Kenya Limited - none
Korea - SEOULBANK - Korea Securities Depository
Malaysia - Standard Chartered Bank - Malyasian Central Depository Sdn. Bhd.
Mauritius - Hongkong Shanghai Banking Corp. - none
Mexico - Citibank Mexico, S.A. - Institucion para el Deposito de
Valores
- Banco de Mexico
Morocco - Banque Commerciale du Maroc - none
Netherlands - MeesPierson N.V. - Nederlands Centraal Instituut voor
Giraal Effectenverkeer BV
New Zealand - ANZ Banking Group Limited
Limited
Norway - Christiania Bank og Kreditkasse - Verdipapiresentralen
Pakistan - Deutsche Bank AG - none
Peru - (branch of U.S. bank) - Caja de Valores
Philippines - Standard Chartered Bank - none
Poland - Citibank Poland S.A. - National Depository of Securities
Portugal - Banco Comercial Portugues - Central de Valores Mobiliaros
Singapore - The Development Bank of - The Central Depository Limited
Singapore
Slovak Republic - Ceskoslovenska Obchodna Banka - Stredisko cennych papierov
A.S. - National Bank of Slovakia
South Africa - Standard Bank of South Africa Ltd
Spain - Banco Santander, S.A. - Servicio de Compensacion y Liquidacion
de Valores, S.A.
- Banco de Espana, Anotaciones en Cuenta
Sri Lanka - Hongkong Shanghai Banking Corp. - Central Depository System Limited
Swaziland - Barclays Bank of Swaziland Limited - none
Sweden - Skandinaviska Enskilda Banken - Vardepapperscentralen VPC AB
Switzerland - Union Bank of Switzerland - Schweizerische Effekten-Giro AG
Taiwan - Central Trust of China - The Taiwan Securities Central
Depository
Thailand - Standard Chartered Bank - Thailand Securities Depository Company
Zimbabwe - Barclays Bank of Zimbabwe Ltd. - none
(multinational) - Cedel S.A.
- Euroclear
Italy - Banque Paribas - Milan - Banca d'Italia
Ivory Coast - Societe Generale de Banque en - none
En cote d' Ivoire
New Zealand - New Zealand Central Securities
Depository Limited
Poland - National Bank of Poland
Russia - Credit Suisse, Zurich - None
South Africa - The Central Depository Limited
Turkey - Takas ve Saklama Bankasi A.S.
- Central Bank of Turkey
United Kingdom - (branch of U.S. bank) - The Central Gilts Office
- The Central Moneymarkets Office
</TABLE>
Certified:
Fund's Authorized Officer
Date:
<PAGE>
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and American Variable Insurance Series (formerly American Pathway
Fund) (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated December 29, 1987 (the "Custodian Contract") governing the terms and
conditions under which the Custodian maintains custody of the securities and
other assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in
conformity with the requirements of Rule 17f-5 under the Investment Company Act
of 1940, as amended;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash property
of the Fund which are maintained in such account shall identify by book-entry
those securities and other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force
and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative this day of , 1995.
AMERICAN VARIABLE INSURANCE SERIES
By:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
Title:
SHAREHOLDER SERVICES AGREEMENT
I. The parties to this Agreement which shall become effective on February 18,
1987 are American Pathway Fund, a Massachusetts business trust (herein after
called "the Trust"), and American Funds Service Company, a California
corporation (hereinafter called "AFS"). AFS is a wholly owned subsidiary of
Capital Research and Management Company (hereinafter called "CRMC").
II. The Trust hereby employs AFS, and AFS hereby accepts such employment by
the Trust, as its transfer agent. In such capacity AFS will provide the
services of stock transfer agent, dividend disbursing agent, redemption agent,
and such additional related services as the Trust may from time to time
require, all of which services are sometimes referred to herein as "shareholder
services."
III. AFS has entered into Shareholder Services Agreements with other
investment companies for which CRMC serves as investment adviser. (For the
purposes of this Agreement, such investment companies, including the Trust, are
called "participating investment companies.")
IV. The Trust shall not be required to make any payments to AFS under this
Agreement except that the Trust shall reimburse AFS for all costs associated
with providing shareholder services for the Trust.
V. This Agreement may be terminated on 180 days' written notice from either
party to the other. In the event of termination of this Agreement, AFS and the
Trust will each extend full cooperation in effecting a conversion to whatever
successor shareholder service agent the Trust may select, it being understood
that all records relating to the Trust and its shareholders are property of the
Trust.
VI. In the event of disagreement between the Trust and AFS, or between the
Trust and other participating investment companies as to any matter arising
under this Agreement, which the parties to the disagreement are unable to
resolve, the question shall be referred to arbitration; one arbitrator to be
named by each party to the disagreement and a third arbitrator to be selected
by the two arbitrators named by the original parties. The decision of a
majority of the arbitrators shall be final and binding on all parties to the
arbitration. The expenses of such arbitration shall be paid by the party
electing to submit the question to arbitration.
This Agreement is effective as of the date first written above.
AMERICAN PATHWAY FUND
By /s/ Thomas E. Terry
Thomas E. Terry
President
By /s/ Vincent P. Corti
Vincent P. Corti
Secretary
AMERICAN FUNDS SERVICE COMPANY
By /s/ Eugene C. Frey
Eugene C. Frey
President
By /s/ Timothy W. Weiss
Timothy W. Weiss
Executive Vice President
CAPITAL RESEARCH AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071
Telephone (213) 486-9200
Telex 67-3320
December 2, 1983
American Pathway Fund
333 South Hope Street
Los Angeles, Calif. 90071
Gentlemen:
At your request, I have examined the form of Registration Statement on
Form N-1 filed by your with the Securities and Exchange Commission, and
Pre-Effective Amendment No. 1 thereto in connection with the registration under
the Securities Act of 1933, as amended, of an indefinite number of shares of
beneficial interests (the "Shares"). I am familiar with the proceedings taken
and proposed to be taken by you in connection with the authorization, issuance
and sale of the Shares.
Based upon my examination and upon my knowledge of your activities, it is
my opinion that, subject to the issuance of an appropriate order by the
Securities and Exchange Commission declaring said Registration Statement
effective and the completion of the proposed action referred to above, and
subject to the qualification of the Shares under the California Corporate
Securities law of 1968, the Shares, upon issuance and sale in the manner
referred to in the Registration Statement will constitute legally issued and
fully-paid shares of beneficial interest, nonassessable by you.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Respectfully submitted,
/s/ Michael Downer
Michael J. Downer
Counsel
MJD:lmf
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 24 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated January 8, 1997, relating to the financial
statements and per share data and ratios appearing in the November 30, 1996
Annual Report of American Variable Insurance Series which is also incorporated
by reference into the Registration Statement. We also consent to the
references to us under the heading "Financial Highlights" in the Prospectus and
under the headings "Independent Accountants" and "Reports to Shareholders" in
the Statement of Additional Information.
PRICE WATERHOUSE LLP
Los Angeles, California
March 27, 1997
December , 1983
Anchor National Life Insurance Company
Camelback at 22nd Street
Phoenix, Arizona 85016
Re: Investment letter
Gentlemen:
The American Pathway Fund ("Fund"), a Massachusetts Business Trust, hereby
offers to sell to Anchor National Life Insurance Company 2,500 Shares of
Beneficial Interest ("Shares"), with no par value, of each of the four series
at a price of $10.00 per Share for immediate allocation to the American Pathway
II - Separate Account of Anchor National Life Insurance Company, upon the
following terms and conditions:
You agree to pay to the Fund the Aggregate Purchase Price of $100,000
against delivery of a statement confirming the registration of 10,000 Shares in
your name.
You represent to the Fund that you are purchasing the Shares for the
Separate Account for investment purposes and not with the present intention of
redeeming or reselling the Shares and that the purchase price of such Shares is
in payment for an equity interest in the Fund and does not represent a loan or
temporary advance by you to the Fund.
We represent that Shares so purchased shall participate pro rata in the
investment performance of the Fund and shall be subject to the same valuation
procedures as are other shares of the Fund. You shall have and may exercise
voting rights on the same basis as other beneficial owners of shares of the
Fund.
You agree that your interest in the Fund as a result of the purchase
hereunder shall be neither senior nor subordinate to the interests of any other
beneficial shareholders and that, in the event of liquidation of the Fund,
however occurring, the Shares purchased shall have no preferential rights of
any kind over such other beneficial shareholders, but shall participate ratably
with them.
You agree that you will not redeem any of the Shares while any portion of
such organizational expenses have not been paid. In addition, you agree that
in no case shall you sell or redeem such Shares if as a result thereof, the
total capital of the Fund would be less than $100,000, so long as the Fund
shall continue to offer its shares.
We agree to make available to you for inspection, upon advance written
request, all books and records of the Fund required to be maintained for
purposes of the Federal Securities Laws. In addition, we agree to provide you
on a timely basis with all periodical reports and filings made by the Fund with
the Securities and Exchange Commission. In the event such procedures are not
followed, upon demand we agree to provide you with a complete accounting of all
monies advanced by you under the terms of this Investment Letter.
Very truly yours,
AMERICAN PATHWAY FUND,
By
Thomas E. Terry
Trustee
Confirmed and agreed to December , 1983
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By
PLAN OF DISTRIBUTION
OF
AMERICAN VARIABLE INSURANCE SERIES
CLASS 2 SHARES
WHEREAS, American Variable Insurance Series (the "Series") is a
Massachusetts Business Trust which offers shares of beneficial interest;
WHEREAS, the purpose of this Plan of Distribution (the "Plan") is to
authorize the Series to bear expenses of distribution of a class of such
shares, including payments to Lincoln National Life Insurance Co. ("Lincoln")
for certain distribution expenses incurred in connection with the Series;
WHEREAS, the Board of Trustees of the Series has determined that there is
a reasonable likelihood that this Plan will benefit the Series and its
shareholders, as well as the owners of variable insurance contracts and
policies that hold shares of the Series:
NOW, THEREFORE, the Series adopts this Plan as follows:
1. The Series shall pay to Lincoln, pursuant to this Plan, an amount equal to
0.25 of 1% per annum of the average net assets represented by Class 2 shares of
the Series to finance any distribution activity which is primarily intended to
benefit the shares of the Series; provided that the Board of Trustees of the
Series shall have approved categories of expenses for which payment shall be
made pursuant to this paragraph 1.
2. This Plan shall not take effect until it has been approved, together with
any related agreement, by votes of the majority of both (i) the Board of
Trustees of the Series and (ii) those Trustees of the Series who are not
"interested persons" of the Series (as defined in the Investment Company Act of
1940 (the "1940 Act")) and have no direct or indirect financial interest in the
operation of this Plan or any agreement related to it (the "Independent
Trustees"), cast in person at a meeting called for the purpose of voting on
this Plan and/or such agreement.
3. At least quarterly, the Board of Trustees shall be provided by any person
authorized to direct the disposition of monies paid or payable by the Series
pursuant to this Plan or any related agreement, and the Board shall review, a
written report of the amounts expended pursuant to the Plan and the purposes
for which such expenditures were made.
4. This Plan may be terminated as to the Series at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Class 2
shares of the Series. Unless sooner terminated in accordance with this
provision, this Plan shall continue in effect until November 30, 1997. It may
thereafter be renewed from year to year in the manner provided for in paragraph
2 hereof.
5. Any agreement related to this Plan shall be in writing, and shall provide:
A. that such agreement may be terminated as to the Series at any time,
without payment of any penalty, by vote of a majority of the Independent
Trustees or by a vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Series, on not more than sixty (60) days'
written notice to any other party to the agreement; and
B. that such agreement shall terminate automatically in the event of its
assignment.
6. This Plan may not be amended to increase materially the maximum amount of
fee or other distribution expenses provided for in paragraph 1 hereof with
respect to the Series unless such amendment is approved by a vote of at least a
majority (as defined in the 1940 Act) of the Class 2 shares of the Series
outstanding, and no material amendment to this Plan shall be made unless
approved in the manner provided for in paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of Trustees of
the Series who are not "interested persons" of the Series (as defined in the
1940 Act) shall be committed to the discretion of the Trustees who are not
interested persons.
8. This Plan shall apply to any additional funds added to the Series that
offer Class 2 shares unless the Series' Independent Trustees otherwise provide.
9. The Series shall preserve copies of this Plan and any related agreement and
all reports made pursuant to paragraph 3 hereof for a period of not less than
six years from the date of this Plan, or such agreement or reports, as the case
may be, the first two years of which such records shall be stored in an easily
accessible place.
IN WITNESS WHEREOF, the Series has caused this Plan to be executed by its
officers thereunto duly authorized, as of March 18, 1997.
AMERICAN VARIABLE INSURANCE SERIES
By
James F. Rothenberg, Chairman
By
Chad L. Norton, Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 26
<NAME> GROWTH-INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 3,983,425
<INVESTMENTS-AT-VALUE> 5,221,287
<RECEIVABLES> 33,088
<ASSETS-OTHER> 316
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,254,691
<PAYABLE-FOR-SECURITIES> 4,301
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,750
<TOTAL-LIABILITIES> 6,051
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,612,298
<SHARES-COMMON-STOCK> 146,906,619
<SHARES-COMMON-PRIOR> 125,619,032
<ACCUMULATED-NII-CURRENT> 25,264
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 373,216
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,237,862
<NET-ASSETS> 5,248,640
<DIVIDEND-INCOME> 88,452
<INTEREST-INCOME> 31,672
<OTHER-INCOME> 0
<EXPENSES-NET> 18,270
<NET-INVESTMENT-INCOME> 101,854
<REALIZED-GAINS-CURRENT> 373,978
<APPREC-INCREASE-CURRENT> 407,012
<NET-CHANGE-FROM-OPS> 882,844
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 101,529
<DISTRIBUTIONS-OF-GAINS> 159,645
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,813,646
<NUMBER-OF-SHARES-REDEEMED> 4,001,696
<SHARES-REINVESTED> 8,475,637
<NET-CHANGE-IN-ASSETS> 1,295,371
<ACCUMULATED-NII-PRIOR> 24,939
<ACCUMULATED-GAINS-PRIOR> 158,883
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17,451
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,270
<AVERAGE-NET-ASSETS> 4,500,102
<PER-SHARE-NAV-BEGIN> 31.47
<PER-SHARE-NII> .71
<PER-SHARE-GAIN-APPREC> 5.55
<PER-SHARE-DIVIDEND> .74
<PER-SHARE-DISTRIBUTIONS> 1.26
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 35.73
<EXPENSE-RATIO> .004
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 27
<NAME> GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 2,858,962
<INVESTMENTS-AT-VALUE> 3,844,447
<RECEIVABLES> 22,031
<ASSETS-OTHER> 81
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,866,559
<PAYABLE-FOR-SECURITIES> 4,596
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,614
<TOTAL-LIABILITIES> 6,210
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,602,489
<SHARES-COMMON-STOCK> 88,690,116
<SHARES-COMMON-PRIOR> 75,438,942
<ACCUMULATED-NII-CURRENT> 4,638
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 267,737
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 985,485
<NET-ASSETS> 3,860,349
<DIVIDEND-INCOME> 16,764
<INTEREST-INCOME> 19,020
<OTHER-INCOME> 0
<EXPENSES-NET> 14,957
<NET-INVESTMENT-INCOME> 20,827
<REALIZED-GAINS-CURRENT> 269,265
<APPREC-INCREASE-CURRENT> 183,049
<NET-CHANGE-FROM-OPS> 473,141
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 24,246
<DISTRIBUTIONS-OF-GAINS> 259,930
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,825,093
<NUMBER-OF-SHARES-REDEEMED> 7,086,581
<SHARES-REINVESTED> 7,512,662
<NET-CHANGE-IN-ASSETS> 705,908
<ACCUMULATED-NII-PRIOR> 8,057
<ACCUMULATED-GAINS-PRIOR> 258,402
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14,284
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,957
<AVERAGE-NET-ASSETS> 3,412,370
<PER-SHARE-NAV-BEGIN> 41.81
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> 5.17
<PER-SHARE-DIVIDEND> .29
<PER-SHARE-DISTRIBUTIONS> 3.40
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 43.53
<EXPENSE-RATIO> .004
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 28
<NAME> HIGH-YIELD BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 628,724
<INVESTMENTS-AT-VALUE> 650,964
<RECEIVABLES> 13,035
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 664,010
<PAYABLE-FOR-SECURITIES> 1,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 325
<TOTAL-LIABILITIES> 1,825
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 632,750
<SHARES-COMMON-STOCK> 45,638,580
<SHARES-COMMON-PRIOR> 38,177,115
<ACCUMULATED-NII-CURRENT> 14,357
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,163)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,240
<NET-ASSETS> 662,185
<DIVIDEND-INCOME> 163
<INTEREST-INCOME> 58,061
<OTHER-INCOME> 0
<EXPENSES-NET> 3,138
<NET-INVESTMENT-INCOME> 55,086
<REALIZED-GAINS-CURRENT> 4,194
<APPREC-INCREASE-CURRENT> 17,642
<NET-CHANGE-FROM-OPS> 76,922
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 53,386
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,502,188
<NUMBER-OF-SHARES-REDEEMED> 2,875,119
<SHARES-REINVESTED> 3,834,396
<NET-CHANGE-IN-ASSETS> 127,980
<ACCUMULATED-NII-PRIOR> 12,657
<ACCUMULATED-GAINS-PRIOR> (11,357)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,996
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,138
<AVERAGE-NET-ASSETS> 593,959
<PER-SHARE-NAV-BEGIN> 13.99
<PER-SHARE-NII> 1.28
<PER-SHARE-GAIN-APPREC> .54
<PER-SHARE-DIVIDEND> 1.30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.51
<EXPENSE-RATIO> .005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 29
<NAME> CASH MANAGEMENT FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 239,756
<INVESTMENTS-AT-VALUE> 239,756
<RECEIVABLES> 748
<ASSETS-OTHER> 81
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 240,585
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 237
<TOTAL-LIABILITIES> 237
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237,259
<SHARES-COMMON-STOCK> 21,610,763
<SHARES-COMMON-PRIOR> 17,384,644
<ACCUMULATED-NII-CURRENT> 3,089
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 240,348
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,985
<OTHER-INCOME> 0
<EXPENSES-NET> 1,046
<NET-INVESTMENT-INCOME> 10,939
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,939
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,336
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,337,746
<NUMBER-OF-SHARES-REDEEMED> 21,049,530
<SHARES-REINVESTED> 937,903
<NET-CHANGE-IN-ASSETS> 47,231
<ACCUMULATED-NII-PRIOR> 2,486
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,007
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,046
<AVERAGE-NET-ASSETS> 221,305
<PER-SHARE-NAV-BEGIN> 11.11
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> .54
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.12
<EXPENSE-RATIO> .005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 30
<NAME> U.S. GOVERNMENT/AAA-RATED SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 518,980
<INVESTMENTS-AT-VALUE> 522,560
<RECEIVABLES> 5,031
<ASSETS-OTHER> 27
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 527,618
<PAYABLE-FOR-SECURITIES> 15,047
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 320
<TOTAL-LIABILITIES> 15,367
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 509,915
<SHARES-COMMON-STOCK> 45,370,093
<SHARES-COMMON-PRIOR> 47,057,482
<ACCUMULATED-NII-CURRENT> 9,778
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11,022)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,580
<NET-ASSETS> 512,251
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,273
<OTHER-INCOME> 0
<EXPENSES-NET> 2,771
<NET-INVESTMENT-INCOME> 38,502
<REALIZED-GAINS-CURRENT> (2,883)
<APPREC-INCREASE-CURRENT> (8,951)
<NET-CHANGE-FROM-OPS> 26,668
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 38,383
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,523,988
<NUMBER-OF-SHARES-REDEEMED> 8,689,601
<SHARES-REINVESTED> 3,478,224
<NET-CHANGE-IN-ASSETS> (30,030)
<ACCUMULATED-NII-PRIOR> 9,659
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,661
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,771
<AVERAGE-NET-ASSETS> 525,271
<PER-SHARE-NAV-BEGIN> 11.52
<PER-SHARE-NII> .83
<PER-SHARE-GAIN-APPREC> (.24)
<PER-SHARE-DIVIDEND> .82
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.29
<EXPENSE-RATIO> .005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 70
<NAME> ASSET ALLOCATION FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 950,616
<INVESTMENTS-AT-VALUE> 1,135,414
<RECEIVABLES> 9,181
<ASSETS-OTHER> 156
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,144,751
<PAYABLE-FOR-SECURITIES> 3,206
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 454
<TOTAL-LIABILITIES> 3,660
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 873,897
<SHARES-COMMON-STOCK> 75,174,289
<SHARES-COMMON-PRIOR> 63,143,826
<ACCUMULATED-NII-CURRENT> 9,974
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 72,422
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 184,798
<NET-ASSETS> 1,141,091
<DIVIDEND-INCOME> 16,529
<INTEREST-INCOME> 26,719
<OTHER-INCOME> 0
<EXPENSES-NET> 4,857
<NET-INVESTMENT-INCOME> 38,391
<REALIZED-GAINS-CURRENT> 72,509
<APPREC-INCREASE-CURRENT> 62,633
<NET-CHANGE-FROM-OPS> 173,533
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 36,923
<DISTRIBUTIONS-OF-GAINS> 30,506
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,441,738
<NUMBER-OF-SHARES-REDEEMED> 2,391,438
<SHARES-REINVESTED> 4,980,163
<NET-CHANGE-IN-ASSETS> 165,295
<ACCUMULATED-NII-PRIOR> 8,506
<ACCUMULATED-GAINS-PRIOR> 30,419
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,663
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,857
<AVERAGE-NET-ASSETS> 988,321,193
<PER-SHARE-NAV-BEGIN> 13.77
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> 1.89
<PER-SHARE-DIVIDEND> .53
<PER-SHARE-DISTRIBUTIONS> .48
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.18
<EXPENSE-RATIO> .005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 71
<NAME> INTERNATIONAL FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 1,965,760
<INVESTMENTS-AT-VALUE> 2,337,119
<RECEIVABLES> 41,489
<ASSETS-OTHER> 1,857
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,380,465
<PAYABLE-FOR-SECURITIES> 9,338
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,449
<TOTAL-LIABILITIES> 10,837
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,895,065
<SHARES-COMMON-STOCK> 152,588,793
<SHARES-COMMON-PRIOR> 122,610,312
<ACCUMULATED-NII-CURRENT> 7,669
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 95,444
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 371,359
<NET-ASSETS> 2,369,628
<DIVIDEND-INCOME> 41,019
<INTEREST-INCOME> 13,569
<OTHER-INCOME> 0
<EXPENSES-NET> 14,139
<NET-INVESTMENT-INCOME> 40,449
<REALIZED-GAINS-CURRENT> 96,629
<APPREC-INCREASE-CURRENT> 177,135
<NET-CHANGE-FROM-OPS> 314,213
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 42,718
<DISTRIBUTIONS-OF-GAINS> 35,844
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,612,329
<NUMBER-OF-SHARES-REDEEMED> 4,238,963
<SHARES-REINVESTED> 5,605,115
<NET-CHANGE-IN-ASSETS> 666,157
<ACCUMULATED-NII-PRIOR> 9,938
<ACCUMULATED-GAINS-PRIOR> 34,694
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,370
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,139
<AVERAGE-NET-ASSETS> 2,036,098
<PER-SHARE-NAV-BEGIN> 13.89
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> 1.96
<PER-SHARE-DIVIDEND> .31
<PER-SHARE-DISTRIBUTIONS> .29
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.53
<EXPENSE-RATIO> .007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 78
<NAME> THE BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> JAN-02-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 75,252
<INVESTMENTS-AT-VALUE> 77,329
<RECEIVABLES> 1,128
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 78,458
<PAYABLE-FOR-SECURITIES> 1,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33
<TOTAL-LIABILITIES> 1,033
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,183
<SHARES-COMMON-STOCK> 7,511,221
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,121
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 38
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,083
<NET-ASSETS> 77,425
<DIVIDEND-INCOME> 51
<INTEREST-INCOME> 2,629
<OTHER-INCOME> 0
<EXPENSES-NET> 210
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</TABLE>
