AMERICAN VARIABLE
INSURANCE SERIES(r)
Class 1 Shares
PROSPECTUS
APRIL 1, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE
SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Series consists of 11 funds, each representing a separate fully managed
diversified portfolio of securities. The 11 funds are:
Global Growth Fund
Global Small Capitalization Fund
Growth Fund
International Fund
New World Fund
Growth-Income Fund
Asset Allocation Fund
Bond Fund
High-Yield Bond Fund
U.S. Government /AAA-Rated Securities Fund
Cash Management Fund.
The Series offers two classes of fund shares: 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 Board of Trustees may
establish additional funds and classes in the future. The investment
objective(s) and policies of each fund are discussed below. MORE INFORMATION
ON THE FUNDS IS CONTAINED IN THE SERIES' STATEMENT OF ADDITIONAL INFORMATION.
Shares of the Series are currently offered only to separate accounts of various
insurance companies to serve as the underlying investment for both variable
annuity and variable life insurance contracts ("Contracts"). All such shares
may be purchased or redeemed by the separate accounts without any sales or
redemption charges at net asset value. Due to differences in tax treatment or
other considerations, the interest of various Contract owners participating in
a fund might at some time be in conflict. The Board of Trustees will monitor
the Series' operations for any material conflicts and determine what action, if
any, should be taken.
GLOBAL GROWTH FUND
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
common stocks of companies located around the world. The fund is designed for
investors seeking capital appreciation through stocks. Investors in the fund
should have a long-term perspective and be able to tolerate potentially wide
price fluctuations.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations and administrative difficulties such as delays in clearing and
settling portfolio transactions. The growth oriented, equity-type securities
generally purchased by the fund may involve large price swings and potential
for loss, particularly in the case of smaller capitalization stocks.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1998 29.04%
]end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 21.51% (quarter ended December 31, 1998)
- - LOWEST -10.70% (quarter ended September 30, 1998)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ MSCI WORLD INDEX/2/ LIPPER CPI/4/
TOTAL RETURN GLOBAL
FUND
INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 29.04% 24.80% 14.63% 1.61%
LIFETIME/5/ 22.36% 22.24% 15.36% 1.38%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX MEASURES 22 MAJOR
STOCK MARKETS THROUGHOUT THE WORLD, INCLUDING THE U.S. THIS INDEX IS UNMANAGED
AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES.
/3/ THE LIPPER GLOBAL FUND INDEX REPRESENTS FUNDS THAT INVEST AT LEAST 25% OF
THEIR PORTFOLIOS IN SECURITIES TRADED OUTSIDE THE U.S. SALES CHARGES AND
COMMISSIONS ARE NOT REFLECTED IN THE RESULTS OF THE UNDERLYING FUNDS.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON APRIL 30, 1997.
GLOBAL SMALL CAPITALIZATION FUND
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of smaller companies located around the world that typically have market
capitalizations of $50 million to $1.2 billion. The fund is designed for
investors seeking capital appreciation through stocks. Investors in the fund
should have a long-term perspective and be able to tolerate potentially wide
price fluctuations.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations and administrative difficulties such as delays in clearing and
settling portfolio transactions. The growth oriented, equity-type securities
generally purchased by the fund may involve large price swings and potential
for loss, particularly in the case of smaller capitalization stocks. In
addition, smaller capitalization stocks are often more difficult to value or
dispose of, more difficult to obtain information about, and more volatile than
stocks of larger, more established companies.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The fund began operations on April 30, 1998. Accordingly, results for a full
calendar year are not available.
GROWTH FUND
RISK/RETURN SUMMARY
The fund seeks to make your investment grow by investing primarily in common
stocks of companies that appear to offer superior opportunities for growth of
capital. The fund may also invest up to 10% of its assets in securities of
issuers domiciled outside the U.S. and not included in the Standard & Poor's
500 Composite Index. The fund is designed for investors seeking capital
appreciation through stocks. Investors in the fund should have a long-term
perspective and be able to tolerate potentially wide price fluctuations.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations and administrative difficulties such as delays in clearing and
settling portfolio transactions. The growth oriented, equity-type securities
generally purchased by the fund may involve large price swings and potential
for loss
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1989 31.25%
1990 -4.37
1991 33.27
1992 10.78
1993 16.33
1994 0.50
1995 33.27
1996 13.36
1997 30.10
1998 35.55
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 30.05% (quarter ended December 31, 1998)
- - LOWEST -17.01% (quarter ended September 30, 1990)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ S&P 500 LIPPER CAPITAL CPI/4/
TOTAL RETURN INDEX/2/ APPRECIATION
FUND INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 35.55% 28.52% 19.90% 1.61%
FIVE YEARS 21.77% 24.02% 16.26% 2.37%
TEN YEARS 19.16% 19.16% 15.71% 3.12%
LIFETIME/5/ 17.79% 18.43% 14.26% 3.24%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE STANDARD & POOR'S 500 COMPOSITE INDEX REPRESENTS PRIMARILY U.S. STOCKS.
THIS INDEX IS UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR
EXPENSES.
/3/ THE LIPPER CAPITAL APPRECIATION FUND INDEX REPRESENTS FUNDS THAT SEEK
GROWTH OF CAPITAL BUT DO NOT NECESSARILY EMPHASIZE INVESTMENTS IN RAPIDLY
GROWING, HIGH P/E COMPANIES. SALES CHARGES AND COMMISSIONS ARE NOT REFLECTED
IN THE RESULTS OF THE UNDERLYING FUNDS.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON FEBRUARY 8, 1984.
INTERNATIONAL FUND
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
common stocks of companies located outside the United States. The fund is
designed for investors seeking capital appreciation through stocks. Investors
in the fund should have a long-term perspective and be able to tolerate
potentially wide price fluctuations.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations and administrative difficulties such as delays in clearing and
settling portfolio transactions. The growth oriented, equity-type securities
generally purchased by the fund may involve large price swings and potential
for loss, particularly in the case of smaller capitalization stocks.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1991 11.76%
1992 -1.84
1993 34.34
1994 1.93
1995 12.68
1996 17.53
1997 9.06
1998 21.22
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 19.66% (quarter ended December 31, 1998)
- - LOWEST -14.22% (quarter ended September 30, 1998)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ MSCI EAFE LIPPER CPI/4/
TOTAL RETURN INDEX /2/ INTERNATIONAL
FUND INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 21.22% 20.33% 12.66% 1.61%
FIVE YEARS 12.28% 9.50% 8.59% 2.37%
LIFETIME/5/ 11.34% 8.33% 9.18% 2.81%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE (EUROPE, AUSTRALIA, FAR EAST)
INDEX MEASURES ALL MAJOR STOCK MARKETS OUTSIDE NORTH AMERICA. THIS INDEX IS
UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES.
/3/ THE LIPPER INTERNATIONAL FUND INDEX REPRESENTS FUNDS THAT INVEST IN
SECURITIES WITH PRIMARY TRADING MARKETS OUTSIDE THE U.S. SALES CHARGES AND
COMMISSIONS ARE NOT REFLECTED IN THE RESULTS OF THE UNDERLYING FUNDS.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON MAY 1, 1990.
NEW WORLD FUND
THIS FUND WILL BECOME AVAILABLE ON JUNE 17, 1999; HOWEVER IT MAY NOT BE
AVAILABLE IN ALL STATES ON THAT DATE. PLEASE CONTACT YOUR INVESTMENT
PROFESSIONAL FOR ADDITIONAL INFORMATION.
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of companies with significant exposure to countries which have
developing economies and/or markets. The fund is designed for investors
seeking capital appreciation through stocks. Investors in the fund should have
a long-term perspective and be able to tolerate potentially wide price
fluctuations.
The fund may invest in equity securities of any company, regardless of where it
is based, if the fund's investment adviser has determined that a significant
portion of its assets or revenues (generally 20% or more) are attributable to
developing countries. Under normal market conditions, the fund will invest at
least 35% of its assets in equity and debt securities of issuers primarily
based in "qualified" countries that have developing economies and/or markets.
In addition, the fund may invest up to 25% of its assets in debt securities of
issuers, including issuers of high-yield, high-risk and government bonds,
primarily based in qualified countries or that have a significant portion of
their assets in revenues attributable to developing countries.
In determining whether a country is qualified, the fund will consider such
factors as the country's per capita gross domestic product, the percentage of
the country's economy that is industrialized, market capital as a percentage of
gross domestic product, the overall regulatory environment, the presence of
government regulation limiting or banning foreign ownership, and restrictions
on repatriation of initial capital, dividends, interest, and/or capital gains.
Capital Research and Management Company will maintain an eligible list of
qualified countries and securities in which the fund may invest.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability, and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations, higher transaction costs, and administrative difficulties such as
delays in clearing and settling portfolio transactions.
Investing in countries with developing economies and/or markets generally
involves risks in addition to and greater than those generally associated with
investing in developed countries. For instance, developing countries may have
less developed legal and accounting systems. The governments of these countries
may be more unstable and likely to impose capital controls, nationalize a
company or industry, place restrictions on foreign ownership and on withdrawing
sale proceeds of securities from the country, and/or impose punitive taxes that
could adversely affect security prices. In addition, the economies of these
countries may be dependent on relatively few industries that are more
susceptible to local and global changes. Securities markets in these countries
are also relatively small and have substantially lower trading volumes. As a
result, securities issued in these countries may be more volatile and
potentially less liquid than securities issued in countries with more developed
economies or markets.
The value of debt securities held by the fund may be affected by factors such
as changing interest rates, credit ratings, and effective maturities. For
example, the value of bonds in the fund's portfolio generally will decline when
interest rates rise and vice versa. In addition, the values of high-yield,
high-risk and longer maturity bonds will be subject to greater credit risk and
price fluctuations than higher quality and shorter maturity bonds.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
GROWTH-INCOME FUND
RISK/RETURN SUMMARY
The fund seeks to make your investment grow and provide you with income over
time by investing primarily in common stocks or other securities which offer
the potential for appreciation and/or income. The fund may also invest up to
10% of its assets in securities of issuers domiciled outside the U.S. and not
included in the Standard & Poor's 500 Composite Index. The fund is designed for
investors seeking both capital appreciation and income.
The prices of equity securities held by the fund will decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability, and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations, higher transaction costs, and administrative difficulties such as
delays in clearing and settling portfolio transactions.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1989 25.45%
1990 -2.55
1991 24.08
1992 7.93
1993 12.30
1994 2.08
1995 32.99
1996 18.72
1997 25.84
1998 18.38
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 18.91% (quarter ended December 31, 1998)
- - LOWEST -11.86% (quarter ended September 30, 1990)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ S&P 500 LIPPER CPI/4/
TOTAL RETURN INDEX/2/ GROWTH AND
INCOME FUND
INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 18.38% 28.52% 13.58% 1.61%
FIVE YEARS 19.15% 24.02% 17.83% 2.37%
TEN YEARS 16.01% 19.16% 15.54% 3.12%
LIFETIME/5/ 16.17% 18.43% 15.20% 3.24%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE STANDARD & POOR'S 500 COMPOSITE INDEX REPRESENTS PRIMARILY U.S. STOCKS.
THIS INDEX IS UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR
EXPENSES.
/3/ THE LIPPER GROWTH AND INCOME FUND INDEX REPRESENTS FUNDS THAT COMBINE A
GROWTH-OF-EARNINGS ORIENTATION AND AN INCOME REQUIREMENT FOR LEVEL AND/OR
RISING DIVIDENDS. SALES CHARGES AND COMMISSIONS ARE NOT REFLECTED IN THE
RESULTS OF THE UNDERLYING FUNDS.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON FEBRUARY 8, 1984.
ASSET ALLOCATION FUND
RISK/RETURN SUMMARY
The fund seeks to provide you with high total return (including income and
capital gains) consistent with preservation of capital over the long-term by
investing in a diversified portfolio of common stocks and other equity
securities, bonds and other intermediate and long-term debt securities, and
money market instruments (debt securities maturing in one year or less). The
fund may also invest up to 10% of its assets in equity securities of issuers
domiciled outside the U.S. and not included in the Standard & Poor's 500
Composite Index, and up to 5% of its assets in debt securities of non-U.S.
issuers. Under normal market conditions, the fund's investment adviser expects
(but is not required) to maintain an investment mix falling within the
following ranges: 40-80% in equity securities; 20-50% in debt securities; and
0-40% in money market instruments. The fund is designed for investors seeking
above average total return.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy, or
overall market declines, world political, social and economic instability, and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations and administrative difficulties such as delays in clearing and
settling portfolio transactions. The value of debt securities held by the fund
will be affected by factors such as changing interest rates, credit ratings,
and effective maturities. Lower quality and longer maturity bonds will be
subject to greater credit risk and price fluctuations than higher quality and
shorter maturity bonds. Money market instruments held by the fund may be
affected by unfavorable political, economic, or governmental developments that
could affect the repayment of principal or the payment of interest.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1990 -1.04%
1991 21.81
1992 8.50
1993 10.42
1994 -0.28
1995 29.56
1996 15.78
1997 20.49
1998 13.13
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - Highest 11.56% (quarter ended December 31, 1998)
- - Lowest -9.15% (quarter ended September 30, 1998)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ S&P 500 SALOMON SMITH CPI/4/
TOTAL RETURN INDEX/2/ BARNEY BROAD
INVESTMENT GRADE
INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 13.13% 28.52% 8.71% 1.61%
FIVE YEARS 15.32% 24.02% 7.30% 2.37%
LIFETIME/5/ 12.48% 17.55% 8.64% 2.97%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE STANDARD & POOR'S 500 COMPOSITE INDEX REPRESENTS PRIMARILY U.S. STOCKS.
THIS INDEX IS UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR
EXPENSES.
/3/ THE SALOMON SMITH BARNEY BROAD INVESTMENT-GRADE (BIG) BOND INDEX REPRESENTS
A MARKET CAPITALIZATION-WEIGHTED INDEX THAT INCLUDES TREASURY,
GOVERNMENT-SPONSORED, MORTGAGE, AND INVESTMENT GRADE FIXED-RATE CORPORATE BONDS
(BBB-/BAA3) WITH A MATURITY OF ONE YEAR OR LONGER. THIS INDEX IS UNMANAGED AND
DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES. THIS INDEX IS INCLUDED
AS A COMPARISON BECAUSE UNDER NORMAL MARKET CONDITIONS, THE FUND GENERALLY
INVESTS AT LEAST 20% OF ITS ASSETS IN BONDS, INCLUDING INTERMEDIATE AND
LONG-TERM DEBT SECURITIES. IT MAY INCREASE ITS EXPOSURE TO DEBT SECURITIES TO
AS MUCH AS 50% OF ASSETS.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON AUGUST 1, 1989.
BOND FUND
RISK/RETURN SUMMARY
The fund seeks to maximize your level of current income and preserve your
capital by investing primarily in bonds. The fund is designed for investors
seeking income and more price stability than stocks, and capital preservation
over the long-term.
The value of debt securities held by the fund may be affected by factors such
as changing interest rates, credit ratings, and effective maturities. The fund
may invest up to 35% of its assets in lower quality bonds (rated Ba and BB or
below by Moody's Investors Service, Inc. or Standard & Poor's Corporation or
unrated but determined to be of equivalent quality). Lower quality and longer
maturity bonds will be subject to greater credit risk and price fluctuations
than higher quality and shorter maturity bonds. The fund may also invest
significantly in securities of issuers domiciled outside the U.S. The value of
non-U.S. securities can decline in response to various factors including
currency fluctuations, political, social and economic instability, differing
securities regulations and administrative difficulties such as delays in
clearing and settling portfolio transactions.
The fund may also invest up to 20% of its assets in preferred stocks, including
convertible and non-convertible preferred stocks. Non-convertible preferred
stocks are similar to debt in that they have a stated dividend rate akin to the
coupon of a bond or note even though they are often classified as equity
securities. The prices and yields of non-convertible preferred stocks
generally move with changes in interest rates and the issuer's credit quality.
The value of convertible preferred stocks varies in response to many factors,
including the value of the underlying equity, general market and economic
conditions, and convertible market valuations, as well as changes in interest
rates, credit spreads, and the credit quality of the issuer.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1996 5.84%
1997 10.13
1998 4.37
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 4.51% (quarter ended June 30, 1997)
- - LOWEST -2.10% (quarter ended March 31, 1996)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ SALOMON SMITH CPI/3/
TOTAL RETURN BARNEY BROAD
INVESTMENT GRADE
INDEX/2/
<S> <C> <C> <C>
1998 4.37% 8.71% 1.61%
1997 10.13% 9.64% 1.70%
1996 5.84% 3.62% 3.32%
LIFETIME/4/ 6.77% 7.30% 2.21%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE SALOMON SMITH BARNEY BROAD INVESTMENT-GRADE (BIG) BOND INDEX
REPRESENTS A MARKET CAPITALIZATION-WEIGHTED INDEX THAT INCLUDES TREASURY,
GOVERNMENT-SPONSORED, MORTGAGE, AND INVESTMENT GRADE FIXED-RATE CORPORATE BONDS
(BBB-/BAA3) WITH A MATURITY OF ONE YEAR OR LONGER. THIS INDEX IS UNMANAGED AND
DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES.
/3/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/4/ THE FUND BEGAN INVESTMENT OPERATIONS ON JANUARY 2, 1996.
HIGH-YIELD BOND FUND
RISK/RETURN SUMMARY
The fund seeks to provide you with a high level of current income and
secondarily capital appreciation by investing primarily in lower quality debt
securities (rated Ba and BB or below by Moody's Investors Services, Inc. or
Standard & Poor's Corporation or unrated but determined to be of equivalent
quality), including those of non-U.S. issuers. The fund may also invest in
equity securities and securities that have both equity and debt characteristics
that provide an opportunity for capital appreciation. The fund is designed
for investors seeking a high level of current income and who are able to
tolerate greater credit risk and price fluctuations than funds investing in
higher quality bonds.
The value of debt securities held by the fund may be affected by factors such
as changing credit ratings, interest rates, and effective maturities. For
example, the values of lower quality and longer maturity bonds will be subject
to greater credit risk and price fluctuations than higher quality and shorter
maturity bonds. In addition, values of bonds in the fund's portfolio generally
will decline when interest rates rise and vice versa. The value of non-U.S.
securities can decline in response to currency fluctuations, world political,
social and economic instability, differing securities regulations, and
administrative difficulties such as delays in clearing and settling portfolio
transactions. In addition, the prices of equity securities may decline in
response to certain events, including those directly involving securities owned
in the fund, adverse conditions affecting the general economy, or overall
market declines.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If
insurance separate account fees were included, results would have been lower.)
[bar chart]
1989 10.50%
1990 3.84
1991 26.57
1992 12.47
1993 16.43
1994 -6.54
1995 21.77
1996 13.21
1997 12.41
1998 0.44
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 10.40% (quarter ended March 31, 1991)
- - LOWEST -8.42% (quarter ended September 30, 1998)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ CS FIRST SALOMON SMITH CPI/4/
TOTAL RETURN BOSTON HIGH BARNEY BROAD
YIELD INVESTMENT
INDEX/2/ GRADE
INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 0.44% 0.58% 8.71% 1.61%
FIVE YEARS 7.78% 8.16% 7.30% 2.37%
TEN YEARS 10.71% 10.74% 9.31% 3.12%
LIFETIME/5/ 12.13% N/A 10.28% 3.24%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE CREDIT SUISSE FIRST BOSTON HIGH YIELD INDEX IS AN UNMANAGED,
TRADER-PRICED PORTFOLIO CONSTRUCTED TO MIRROR THE HIGH YIELD DEBT MARKET
(REVISIONS TO THE INDEX ARE EFFECTED WEEKLY). THIS INDEX DOES NOT REFLECT SALES
CHARGES, COMMISSIONS OR EXPENSES.
/3/ THE SALOMON SMITH BARNEY BROAD INVESTMENT-GRADE BOND INDEX REPRESENTS A
MARKET CAPITALIZATION-WEIGHTED INDEX THAT INCLUDES TREASURY,
GOVERNMENT-SPONSORED, MORTGAGE, AND INVESTMENT GRADE FIXED-RATE CORPORATE BONDS
(BBB-/BAA3) WITH A MATURITY OF ONE YEAR OR LONGER. THIS INDEX IS UNMANAGED AND
DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON FEBRUARY 8, 1984.
U.S. GOVERNMENT/AAA-RATED SECURITIES FUND
RISK/RETURN SUMMARY
The fund seeks to provide you with a high level of current income, as well as
preserve your investment. The fund invests primarily in securities that are
guaranteed by the "full faith and credit" pledge of the U.S. Government and
securities that are rated AAA or Aaa by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation or unrated but determined to be of equivalent
quality. The fund may also invest a significant portion of its assets in
securities backed by pools of mortgages.
The value of certain debt securities held by the fund may be affected by
changing interest rates and prepayment risks. For example, as with other debt
securities, the value of U.S. Government securities generally will decline when
interest rates rise and vice versa. A security backed by the U.S. Treasury or
the full faith and credit of the United States is guaranteed only as to the
timely payment of interest and principal when held to maturity. Accordingly,
the current market prices for such securities are not guaranteed and will
fluctuate. It is important to note that neither the fund nor its yield are
guaranteed by the U.S. Government.
In addition, many types of debt securities, including mortgage-related
securities are subject to prepayment risk. For example, when interest rates
fall, homeowners are more likely to refinance their mortgages and "prepay"
their principal earlier than expected. The fund must then reinvest the
unanticipated principal in new securities when interest rates on new mortgage
investments are lower, thus reducing the income of the fund.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If
insurance separate account fees were included, results would have been lower.)
[bar chart]
1989 10.81%
1990 8.42
1991 15.94
1992 7.60
1993 11.17
1994 -4.34
1995 15.38
1996 3.11
1997 8.45
1998 8.19
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 5.95% (quarter ended September 30, 1991)
- - LOWEST -3.76% (quarter ended March 31, 1994)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ SALOMON CPI/3/
TOTAL RETURN TREASURY/GOVERNMENT-
SPONSORED MORTGAGE
INDEX/2/
<S> <C> <C> <C>
ONE YEAR 8.19% 8.76% 1.61%
FIVE YEARS 5.95% 7.20% 2.37%
TEN YEARS 8.33% 9.18% 3.12%
LIFETIME/4/ 8.28% 9.14% 3.16%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE SALOMON BROTHERS TREASURY/GOVERNMENT-SPONSORED MORTGAGE INDEX
REPRESENTS FIXED-RATE TREASURY, GOVERNMENT-SPONSORED, AND MORTGAGE ISSUES WITH
A MATURITY OF ONE YEAR OR LONGER. THIS INDEX IS UNMANAGED AND DOES NOT REFLECT
SALES CHARGES, COMMISSIONS OR EXPENSES.
/3/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/4/ THE FUND BEGAN INVESTMENT OPERATIONS ON DECEMBER 1, 1985.
CASH MANAGEMENT FUND
RISK/RETURN SUMMARY
The fund seeks to provide you an opportunity to earn income on your cash
reserves while preserving the value of your investment and maintaining
liquidity by investing in a diversified selection of high quality money market
instruments. The prices of money market instruments may be affected by
unfavorable political, economic, or governmental developments that could affect
the repayment of principal or the payment of interest.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good investment
opportunities. Securities may be sold when they are judged to no longer
represent good value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1989 8.79%
1990 7.90
1991 5.56
1992 3.22
1993 2.67
1994 3.87
1995 5.55
1996 5.09
1997 5.16
1998 5.15
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 2.22% (quarter ended June 30, 1989)
- - LOWEST 0.64% (quarter ended March 31, 1993)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/
TOTAL RETURN
<S> <C>
ONE YEAR 5.15%
FIVE YEARS 4.96%
TEN YEARS 5.28%
LIFETIME/2/ 5.90%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA.
/2/ THE FUND BEGAN INVESTMENT OPERATIONS ON FEBRUARY 8, 1984.
CASH POSITION
The funds may also hold cash or money market instruments of any issuer to any
extent deemed appropriate. The size of the funds' cash position will vary and
will depend on various factors, including market conditions and purchases and
redemptions of fund shares. A larger cash position could detract from the
achievement of the funds' objectives, but it also provides greater liquidity to
meet redemption or to make additional investments, and it would reduce the
funds' exposure in the event of a market downturn.
PORTFOLIO TURNOVER
Portfolio changes will be made without regard to the length of time particular
investments may have been held. The funds do not anticipate their portfolio
turnover to exceed 100% annually. The funds' portfolio turnover rate would
equal 100% if each security in the in the funds' portfolios were replaced once
per year. High portfolio turnover involves correspondingly greater transaction
costs in the form of dealer spreads or brokerage commissions, and may result in
the realization of net capital gains, which are taxable when distributed to
shareholders. Debt securities are generally traded on a net basis and usually
neither brokerage commissions nor transfer taxes are involved. See the
"Financial Highlights" for the funds' portfolio turnover for each of the last
five years.
IMPORTANT RECENT DEVELOPMENTS
YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the Series and its
shareholders. However, the Series understands that its key service providers
- -- including the investment adviser and its affiliates -- are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
issuers in which the funds invest. For example, issuers may incur substantial
costs to address the problem. They may also suffer losses caused by corporate
and governmental data processing errors. The Series and its investment adviser
will continue to monitor developments relating to this issue.
MANAGEMENT AND ORGANIZATION
INVESTMENT ADVISER
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the Series and
other mutual funds, including those in The American Funds Group. Capital
Research Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los, Angeles, CA
90071. Capital Research Management Company manages the investment portfolios
and business affairs of the Series.
The total management fee paid by each fund, as a percentage of average net
assets, for the previous fiscal year amounted to the following: Global Growth
Fund -- .69%; Global Small Capitalization Fund - .79%; Growth Fund - .40%;
International Fund - .57%; Growth-Income Fund - .35%; Asset Allocation Fund -
.44%; Bond Fund - .52%; High-Yield Bond Fund - .49%; U.S. Government/AAA-Rated
Securities Fund - .50%; and Cash Management Fund - .45%. Capital Research and
Management Company has received no compensation for the New World Fund because
it had not commenced operations during the most recent fiscal year.
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has been
incorporated into the Series' code of ethics.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this system the portfolio of
a fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested (within the
limits provided by a 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 make investment decisions
with respect to a portion of the fund's portfolio. The primary portfolio
counselors for each of the funds are listed on the next two pages.
<TABLE>
<CAPTION>
APPROXIMATE YEARS OF
EXPERIENCE AS AN INVESTMENT
PROFESSIONAL (INCLUDING THE
LAST FIVE YEARS)
PORTFOLIO PRIMARY TITLE(S) YEARS OF EXPERIENCE AS WITH TOTAL YEARS
COUNSELORS PORTFOLIO COUNSELOR CAPITAL
FOR THE (AND RESEARCH RESEARCH
SERIES PROFESSIONAL, IF AND
APPLICABLE) MANAGEMENT
(APPROXIMATE) COMPANY OR
AFFILIATES
<S> <C> <C> <C> <C>
James K. President of the Growth-Income Fund -- 37 37
Dunton Series. Senior Vice 15 years (since the
President and fund began operations)
Director, Capital
Research and
Management Company
Abner D. Senior Vice Asset Allocation Fund 32 47
Goldstine President of the - 10 years (since the
Series. Senior Vice fund began operations)
President and Bond Fund - 3 years
Director, Capital (since the fund began
Research and operations)
Management Company High-Yield Bond Fund -
1 year
Alan N. Vice President of Growth- Income Fund -- 8 13
Berro the Series. Senior 3 years (plus 6 years
Vice President, as a research
Capital Research professional prior to
Company* becoming a portfolio
counselor for the
fund)
Claudia P. Vice President of Growth-Income Fund -- 22 25
Huntington the Series. Senior 5 years (plus 5 years
Vice President, as a research
Capital Research and professional prior to
Management Company becoming a portfolio
counselor for the
fund)
Robert W. Vice President of Global Growth Fund - 2 14 14
Lovelace the Series, Vice years (since the fund
President, Capital began operations)
Research and Global Small
Management Company Capitalization Fund -
1 year (since the fund
began operations)
International Fund - 4
years
New World Fund - less
than 1 year (since the
fund began operations)
Donald D. Vice President of Global Growth Fund - 2 14 14
O'Neal the Series. Vice years (since the fund
President, Capital began operations)
Research and Growth Fund - 8 years
Management Company (plus 4 years as a
research professional
prior to becoming a
portfolio counselor
for the fund)
John H. Smet Vice President of Bond Fund - 3 years 16 17
the Series. Vice (since the fund began
President, Capital operations)
Research and U.S. Government Fund -
Management Company 7 years
Timothy D. Chairman and Chief Asset Allocation Fund 16 16
Armour Executive Officer, - 3 years
Capital Research
Company*
David C. Vice President, Bond Fund -- 1 year 11 18
Barclay Capital Research and High-Yield Bond Fund -
Management Company 6 years
New World Fund -- less
than 1 year (since the
fund began operations)
Martial Senior Vice Global Growth Fund - 2 27 27
Chaillet President, Capital years (since the fund
Research Company* began operations)
International Fund - 6
years
Gordon Senior Vice Growth Fund - 5 years 28 28
Crawford President and (plus 5 years as a
Director, Capital research professional
Research and prior to becoming a
Management Company portfolio counselor
for the fund)
Global Small
Capitalization Fund --
1 year (since the fund
began operations)
Mark E. Director, Capital Global Small 17 17
Denning Research and Capitalization Fund -
Management Company 1 year (since the fund
began operations)
New World Fund - less
than 1 year (since the
fund began operations)
James E. Senior Vice Growth Fund - 12 years 22 27
Drasdo President and
Director, Capital
Research and
Management Company
Alwyn Heong Vice President, International Fund - 3 7 11
Capital Research years
Company* New World Fund - less
than 1 year (since the
fund began operations)
Thomas H. Vice President - U.S. Government Fund - 9 12
Hogh Capital International 1 year
Research, Inc.*
Carl M. Vice President, New World Fund -- less 8 12
Kawaja Capital Research and than 1 year (since
Management Company fund began operations)
Robert G. Senior Vice Growth-Income Fund -- 24 27
O'Donnell President and 9 years (plus 1 year
Director, Capital as a research
Research and professional prior to
Management Company becoming a portfolio
counselor for the
fund)
Victor M. Senior Vice Asset Allocation Fund 24 37
Parachini President, Capital - 3 years
Research and
Management Company
John W, Executive Vice U.S. Government Fund 11 11
Ressner President and -- 1 year
Director -- Capital
Research Company*
Susan M. Senior Vice High-Yield Bond Fund 9 11
Tolson President and -- 4 years (plus 3 years
Director, Capital as a research professional
Research Company* prior to becoming a portfolio
counselor for the
fund)
Gregory W. Senior Vice Global Small 12 12
Wendt President and Capitalization Fund --
Director, Capital 1 year (since the fund
Research Company* began operations)
* Company affiliated with Capital Research and Management Company.
</TABLE>
PURCHASES AND REDEMPTIONS OF SHARES
Shares of the Series are currently offered only to insurance company separate
accounts which fund 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 subsequent to
corresponding purchases and redemptions of units of the separate accounts
without delay.
SHARE PRICE
Each fund calculates its share price, also called net asset value, as of 4:00
p.m. New York time, which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. If a market price for a particular
security is not available, a fund will determine the appropriate price for the
security. Certain of the funds invest in securities listed on foreign exchanges
which trade on Saturdays or other U.S. business holidays. Since the funds
typically do not calculate their net asset values on Saturdays or other U.S.
business holidays, the value of the funds' redeemable securities may be
affected on days when shareholders do not have access to the funds. Shares of
the funds will be purchased or sold at the net asset value next determined
after receipt and acceptance of requests from the appropriate insurance
company.
DISTRIBUTION ARRANGEMENTS
DIVIDENDS AND DISTRIBUTIONS
It is the Series' policy to distribute to the shareholders (the insurance
company separate accounts) all of its net investment income and capital gains
realized during each fiscal year.
Each fund of the Series intends to qualify 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.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the funds'
results for the past five years. Certain information reflects financial
results for a single fund share. The total returns in the table represent the
rate than an investor would have earned or lost on an investment in a fund
(assuming reinvestment of all dividends and distributions). This information
has been audited by PricewaterhouseCoopers LLP, whose report, along with the
funds' financial statements, are included in the statement of additional
information, which is available upon request.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
Net gains or
Net asset losses on
Year value, Net securities (both Total Dividends (from Distributions Net
ended beginning investment realized and from investment net investment (from Total asset value,
11/30 of year income unrealized) operations income) capital gains) distributions end of year
Global Growth Fund/1/
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS 1
1997 $10.00 $.06 $ .59 $ .65 $(.03) -- $ (.03) $10.62
1998 10.62 .13 2.43 2.56 (.14) $ (.02) (.16) 13.02
CLASS 2/3/
1997 $10.00 .03 .60 .63 (.02) -- (.02) 10.61
1998 10.61 .10 2.44 2.54 (.11) (.02) (.13) 13.02
Global Small Capitalization Fund/4/
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
1998 $10.00 $ .07 $ (.92) $(.85) $ (.04) -- $ (.04) $9.11
CLASS 2
1998 10.00 .04 (.91) (.87) (.03) -- (.03) 9.10
Growth Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 43.53 .27 9.61 9.88 (.27) (3.02) (3.29) 50.12
1998 50.12 .19 10.91 11.10 (.17) (6.14) (6.31) 54.91
CLASS 2/3/
1997 40.59 .11 9.51 9.62 (.12) -- (.12) 50.09
1998 50.09 .08 10.90 10.98 (.05) (6.14) (6.19) 54.88
International Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 15.53 .25 1.18 1.43 (.27) (.62) (.89) 16.07
1998 16.07 .22 2.21 2.43 (.28) (1.65) (1.93) 16.57
CLASS 2/3/
1997 15.86 .13 .23 .36 (.16) -- (.16) 16.06
1998 16.06 .20 2.19 2.39 (.24) (1.65) (1.89) 16.56
Growth-Income Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 35.73 .73 6.78 7.51 (.72) (2.55) (3.27) 39.97
1998 39.97 .67 4.60 5.27 (.68) (3.83) (4.51) 40.73
CLASS 2/3/
1997 34.10 .37 5.82 6.19 (.35) -- (.35) 39.94
1998 39.94 .58 4.60 5.18 (.59) (3.83) (4.42) 40.70
Asset Allocation Fund
- ------------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 15.18 .55 1.94 2.49 (.54) (.97) (1.51) 16.16
1998 16.16 .58 1.27 1.85 (.57) (.87) (1.44) 16.57
CLASS 2/3/
1997 14.43 .29 1.69 1.98 (.26) -- (.26) 16.15
1998 16.15 .53 1.28 1.81 (.53) (.87) (1.40) 16.56
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
LESS RATIOS/SUPPLEMENTAL DATA
DISTRIBUTIONS
Ratio of Ratio of net
Year Net assets, expenses income to Portfolio
ended end of year to average average turnover
11/30 Total return (in millions) net assets net assets rate
Global Growth Fund/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS 1
1997 6.45%/2/ $ 80 .44%/2/ .80%/2/ 13.22%/2/
1998 24.26 132 .75 1.14/3/ 25.56
CLASS 2/3/
1997 6.28/2/ 46 .57/2/ .56/2/ 13.22/2/
1998 24.06 124 1.00 .87 25.56
Global Small Capitalization Fund/4/
- ---------------------------------------------------------------------------------
CLASS 1
1998 (8.31)%/2/ $55 .51%/2/ .86%/2/ 28.20%/2/
CLASS 2
1998 (8.49)/2/ 17 .64/2/ .63/2/ 28.20/2/
Growth Fund
- ---------------------------------------------------------------------------------
CLASS 1
1994 2.92 % $2,027 .49 % .78 % 29.58%
1995 35.35 3,154 .47 .92 35.47
1996 14.32 3,860 .44 .61 30.88
1997 24.57 4,671 .42 .59 45.14
1998 25.27 5,313 .41 .38 49.91
CLASS 2/3/
1997 23.73/2/ 75 .37/2/ .08/2/ 45.14
1998 24.97 310 .66 .15 49.91
International Fund
- ---------------------------------------------------------------------------------
CLASS 1
1994 10.48 % $1,405 .80 % 2.03% 19.66%
1995 10.78 1,703 .75 2.64 24.66
1996 16.66 2,370 .69 1.99 32.08
1997 9.52 2,162 .67 1.56 50.12
1998 16.94 2,593 .66 1.36 34.08
CLASS 2/3/
1997 2.20/2/ 48 .53/2/ .34/2/ 50.12
1998 16.63 126 .91 1.03 34.08
Growth-Income Fund
- ---------------------------------------------------------------------------------
CLASS 1
1994 3.21 % $ 2,740 .47% 2.72% 29.26%
1995 33.14 3,953 .44 2.70 26.91
1996 21.02 5,249 .41 2.26 31.27
1997 22.92 6,430 .38 2.01 37.55
1998 14.77 6,704 .36 1.74 42.72
CLASS 2/3/
1997 18.18/2/ 157 .35/2/ .93/2/ 37.55
1998 14.49 564 .61 1.02 42.72
Asset Allocation Fund
- ---------------------------------------------------------------------------------
CLASS 1
1994 (.54) % $637 .53 % 4.55% 36.13%
1995 29.45 870 .52 4.11 39.89
1996 18.65 1,141 .49 3.88 50.62
1997 17.90 1,393 .47 3.63 34.14
1998 12.32 1,497 .45 3.63 27.97
CLASS 2/3/
1997 13.80/2/ 42 .40/2/ 1.81/2/ 34.14
1998 12.05 173 .70 3.39 27.97
- ---------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
Net gains or
Net asset losses on
Year value, Net securities (both Total Dividends (from Distributions Net
ended beginning investment realized and from investment net investment (from Total asset value,
11/30 of year income unrealized) operations income) capital gains) distributions end of year
Bond Fund/5/
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS 1
1996 $10.00 $ .40 $ .16 $ .56 $ (.25) -- $ (.25) $10.31
1997 10.31 .63 .30 .93 (.62) -- (.62) 10.62
1998 10.62 .67 (.15) .52 (.65) $(.12) (.77) 10.37
CLASS 2/3/
1997 10.11 .35 .46 .81 (.31) -- (.31) 10.61
1998 10.61 .65 (.15) .50 (.63) (.12) (.75) 10.36
High-Yield Bond Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 14.51 1.29 .43 1.72 (1.27) -- (1.27) 14.96
1998 14.96 1.26 (1.04) .22 (1.25) (.16) (1.41) 13.77
CLASS 2/3/
1997 14.28 .69 .61 1.30 (.63) -- (.63) 14.95
1998 14.95 1.25 (1.06) .19 (1.22) (.16) (1.38) 13.76
U.S. Government/AAA-Rated Securities Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 11.29 .76 (.07) .69 (.80) -- (.80) 11.18
1998 11.18 .68 .26 .94 (.69) -- (.69) 11.43
CLASS 2/3/
1997 10.83 .38 .33 .71 (.37) -- (.37) 11.17
1998 11.17 .68 .24 .92 (.67) -- (.67) 11.42
Cash Management Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 11.12 .57 (.01) .56 (.55) -- (.55) 11.13
1998 11.13 .57 (.01) .56 (.56) -- (.56) 11.13
CLASS 2/3/
1997 11.07 .28 .03 .31 (.26) -- (.26) 11.12
1998 11.12 .55 (.02) .53 (.53) -- (.53) 11.12
<CAPTION>
<CAPTION>
LESS RATIOS/SUPPLEMENTAL DATA
DISTRIBUTIONS
Ratio of Ratio of net
Year Net assets, expenses income to Portfolio
ended end of year to average average turnover
11/30 Total return (in millions) net assets net assets rate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bond Fund/5/
Class 1
1996 5.74 %/2/ $ 77 .52%/2/ 6.18%/2/ 32.83%/2/
1997 9.36 132 .55 6.63 52.93
1998 5.12 186 .54 6.89 61.54
Class 2/3/
1997 8.09/2/ 12 .44/2/ 3.50/2/ 52.93
1998 4.85 45 .78 6.62 61.54
High-Yield Bond Fund
- ----------------------------------------------------------------------------------
Class 1
1994 (5.71) % $390 .54 % 9.37 % 38.46%
1995 19.81 534 .54 10.12 31.73
1996 13.75 662 .53 9.27 44.81
1997 12.45 765 .51 8.92 50.22
1998 1.44 715 .51 8.66 65.80
Class 2/3/
1997 9.20/2/ 21 .43/2/ 4.92/2/ 50.22
1998 1.18 68 .76 8.60 65.80
U.S. Government/AAA-Rated Securities Fund
- ----------------------------------------------------------------------------------
Class 1
1994 (4.58) % $463 .54 % 6.69% 45.21%
1995 14.73 542 .54 7.37 30.11
1996 5.49 512 .53 7.33 30.45
1997 6.49 471 .52 6.73 53.80
1998 8.72 537 .51 6.11 89.25
Class 2/3/
1997 6.65/2/ 7 .44/2/ 3.45/2/ 53.80
1998 8.46 32 .75 5.68 89.25
Cash Management Fund
- ----------------------------------------------------------------------------------
Class 1
1994 3.59 % $ 221 .49 % 3.60% --
1995 5.65 193 .49 5.37 --
1996 5.09 240 .47 4.94 --
1997 5.21 226 .47 4.99 --
1998 5.17 250 .46 5.07 --
CLASS 2/3/
1997 2.87/2/ 14 .41/2/ 2.80/2/ --
1998 4.92 34 .70 4.75 --
- ------------
</TABLE>
1 COMMENCED OPERATIONS APRIL 30, 1997.
2 BASED ON OPERATIONS FOR THE PERIOD SHOWN AND, ACCORDINGLY, NOT
REPRESENTATIVE OF A FULL YEAR.
3 SHARES OFFERED FOR SALE COMMENCING APRIL 30, 1997.
4 COMMENCED OPERATIONS ON APRIL 30, 1998.
5 COMMENCED OPERATIONS JANUARY 2, 1996.
NO INFORMATION IS PRESENTED FOR THE NEW WORLD FUND SINCE IT HAD NO INVESTMENT
OPERATIONS AS OF APRIL 1, 1999.
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Contains additional information about the Series including financial
statements, investment results, portfolio holdings, a statement from portfolio
management discussing market conditions and the Series' investment strategies
that significantly affected each fund's performance during its latest fiscal
year, and the independent accountants' report (in the annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the Series, including the
Series financial statements.
A current SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. The SAI and
other related materials about the Series are available for review or to be
copied at the SEC Public Reference Room in Washington, D.C. (1-800-SEC-0330) or
on the SEC's Internet Web site at http://www.sec.gov.<?r>
CODE OF ETHICS
Includes a description of the Series personal investing policy.
To request a free copy of any of the documents above, write to:
Secretary of the Series
333 South Hope Street
Los Angeles, CA 90071
Investment Company File No. 811-3857
AMERICAN VARIABLE
INSURANCE SERIES(r)
Class 2 Shares
PROSPECTUS
APRIL 1, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE
SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Series consists of 11 funds, each representing a separate fully managed
diversified portfolio of securities. The 11 funds are:
Global Growth Fund
Global Small Capitalization Fund
Growth Fund
International Fund
New World Fund
Growth-Income Fund
Asset Allocation Fund
Bond Fund
High-Yield Bond Fund
U.S. Government /AAA-Rated Securities Fund
Cash Management Fund.
The Series offers two classes of fund shares: Class 1 shares and Class 2
shares. This prospectus offers only Class 2 shares and is for use with
Contracts that make Class 2 shares available. The Board of Trustees may
establish additional funds and classes in the future. The investment
objective(s) and policies of each fund are discussed below. MORE INFORMATION
ON THE FUNDS IS CONTAINED IN THE SERIES' STATEMENT OF ADDITIONAL INFORMATION.
Shares of the Series are currently offered only to separate accounts of various
insurance companies to serve as the underlying investment for both variable
annuity and variable life insurance contracts ("Contracts"). All such shares
may be purchased or redeemed by the separate accounts without any sales or
redemption charges at net asset value. Due to differences in tax treatment or
other considerations, the interest of various Contract owners participating in
a fund might at some time be in conflict. The Board of Trustees will monitor
the Series' operations for any material conflicts and determine what action, if
any, should be taken.
GLOBAL GROWTH FUND
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
common stocks of companies located around the world. The fund is designed for
investors seeking capital appreciation through stocks. Investors in the fund
should have a long-term perspective and be able to tolerate potentially wide
price fluctuations.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations and administrative difficulties such as delays in clearing and
settling portfolio transactions. The growth oriented, equity-type securities
generally purchased by the fund may involve large price swings and potential
for loss, particularly in the case of smaller capitalization stocks.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1998 28.75%
]end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 21.35% (quarter ended December 31, 1998)
- - LOWEST -10.76% (quarter ended September 30, 1998)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ MSCI WORLD INDEX/2/ LIPPER CPI/4/
TOTAL RETURN GLOBAL
FUND
INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 28.75% 24.80% 14.63% 1.61%
LIFETIME/5/ 22.03% 22.24% 15.36% 1.38%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX MEASURES 22 MAJOR
STOCK MARKETS THROUGHOUT THE WORLD, INCLUDING THE U.S. THIS INDEX IS UNMANAGED
AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES.
/3/ THE LIPPER GLOBAL FUND INDEX REPRESENTS FUNDS THAT INVEST AT LEAST 25% OF
THEIR PORTFOLIOS IN SECURITIES TRADED OUTSIDE THE U.S. SALES CHARGES AND
COMMISSIONS ARE NOT REFLECTED IN THE RESULTS OF THE UNDERLYING FUNDS.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON APRIL 30, 1997.
GLOBAL SMALL CAPITALIZATION FUND
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of smaller companies located around the world that typically have market
capitalizations of $50 million to $1.2 billion. The fund is designed for
investors seeking capital appreciation through stocks. Investors in the fund
should have a long-term perspective and be able to tolerate potentially wide
price fluctuations.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations and administrative difficulties such as delays in clearing and
settling portfolio transactions. The growth oriented, equity-type securities
generally purchased by the fund may involve large price swings and potential
for loss, particularly in the case of smaller capitalization stocks. In
addition, smaller capitalization stocks are often more difficult to value or
dispose of, more difficult to obtain information about, and more volatile than
stocks of larger, more established companies.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The fund began operations on April 30, 1998. Accordingly, results for a full
calendar year are not available.
GROWTH FUND
RISK/RETURN SUMMARY
The fund seeks to make your investment grow by investing primarily in common
stocks of companies that appear to offer superior opportunities for growth of
capital. The fund may also invest up to 10% of its assets in securities of
issuers domiciled outside the U.S. and not included in the Standard & Poor's
500 Composite Index. The fund is designed for investors seeking capital
appreciation through stocks. Investors in the fund should have a long-term
perspective and be able to tolerate potentially wide price fluctuations.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations and administrative difficulties such as delays in clearing and
settling portfolio transactions. The growth oriented, equity-type securities
generally purchased by the fund may involve large price swings and potential
for loss
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1989 30.79%
1990 -4.67
1991 32.90
1992 10.48
1993 16.00
1994 0.23
1995 32.90
1996 13.07
1997 29.79
1998 35.24
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 29.99% (quarter ended December 31, 1998)
- - LOWEST -17.08% (quarter ended September 30, 1990)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ S&P 500 LIPPER CAPITAL CPI/4/
TOTAL RETURN INDEX/2/ APPRECIATION
FUND INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 35.24% 28.52% 19.90% 1.61%
FIVE YEARS 21.46% 24.02% 16.26% 2.37%
TEN YEARS 18.83% 19.16% 15.71% 3.12%
LIFETIME/5/ 17.45% 18.43% 14.26% 3.24%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE STANDARD & POOR'S 500 COMPOSITE INDEX REPRESENTS PRIMARILY U.S. STOCKS.
THIS INDEX IS UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR
EXPENSES.
/3/ THE LIPPER CAPITAL APPRECIATION FUND INDEX REPRESENTS FUNDS THAT SEEK
GROWTH OF CAPITAL BUT DO NOT NECESSARILY EMPHASIZE INVESTMENTS IN RAPIDLY
GROWING, HIGH P/E COMPANIES. SALES CHARGES AND COMMISSIONS ARE NOT REFLECTED
IN THE RESULTS OF THE UNDERLYING FUNDS.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON FEBRUARY 8, 1984.
INTERNATIONAL FUND
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
common stocks of companies located outside the United States. The fund is
designed for investors seeking capital appreciation through stocks. Investors
in the fund should have a long-term perspective and be able to tolerate
potentially wide price fluctuations.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations and administrative difficulties such as delays in clearing and
settling portfolio transactions. The growth oriented, equity-type securities
generally purchased by the fund may involve large price swings and potential
for loss, particularly in the case of smaller capitalization stocks.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1991 11.45%
1992 -1.11
1993 33.97
1994 1.64
1995 12.83
1996 17.23
1997 8.82
1998 20.92
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 19.64% (quarter ended December 31, 1998)
- - LOWEST -14.34% (quarter ended September 30, 1998)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ MSCI EAFE LIPPER CPI/4/
TOTAL RETURN INDEX /2/ INTERNATIONAL
FUND INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 20.92% 20.33% 12.66% 1.61%
FIVE YEARS 12.00% 9.50% 8.59% 2.37%
LIFETIME/5/ 11.05% 8.33% 9.18% 2.81%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE (EUROPE, AUSTRALIA, FAR EAST)
INDEX MEASURES ALL MAJOR STOCK MARKETS OUTSIDE NORTH AMERICA. THIS INDEX IS
UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES.
/3/ THE LIPPER INTERNATIONAL FUND INDEX REPRESENTS FUNDS THAT INVEST IN
SECURITIES WITH PRIMARY TRADING MARKETS OUTSIDE THE U.S. SALES CHARGES AND
COMMISSIONS ARE NOT REFLECTED IN THE RESULTS OF THE UNDERLYING FUNDS.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON MAY 1, 1990.
NEW WORLD FUND
THIS FUND WILL BECOME AVAILABLE ON JUNE 17, 1999; HOWEVER IT MAY NOT BE
AVAILABLE IN ALL STATES ON THAT DATE. PLEASE CONTACT YOUR INVESTMENT
PROFESSIONAL FOR ADDITIONAL INFORMATION.
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of companies with significant exposure to countries which have
developing economies and/or markets. The fund is designed for investors
seeking capital appreciation through stocks. Investors in the fund should have
a long-term perspective and be able to tolerate potentially wide price
fluctuations.
The fund may invest in equity securities of any company, regardless of where it
is based, if the fund's investment adviser has determined that a significant
portion of its assets or revenues (generally 20% or more) are attributable to
developing countries. Under normal market conditions, the fund will invest at
least 35% of its assets in equity and debt securities of issuers primarily
based in "qualified" countries that have developing economies and/or markets.
In addition, the fund may invest up to 25% of its assets in debt securities of
issuers, including issuers of high-yield, high-risk and government bonds,
primarily based in qualified countries or that have a significant portion of
their assets in revenues attributable to developing countries.
In determining whether a country is qualified, the fund will consider such
factors as the country's per capita gross domestic product, the percentage of
the country's economy that is industrialized, market capital as a percentage of
gross domestic product, the overall regulatory environment, the presence of
government regulation limiting or banning foreign ownership, and restrictions
on repatriation of initial capital, dividends, interest, and/or capital gains.
Capital Research and Management Company will maintain an eligible list of
qualified countries and securities in which the fund may invest.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability, and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations, higher transaction costs, and administrative difficulties such as
delays in clearing and settling portfolio transactions.
Investing in countries with developing economies and/or markets generally
involves risks in addition to and greater than those generally associated with
investing in developed countries. For instance, developing countries may have
less developed legal and accounting systems. The governments of these countries
may be more unstable and likely to impose capital controls, nationalize a
company or industry, place restrictions on foreign ownership and on withdrawing
sale proceeds of securities from the country, and/or impose punitive taxes that
could adversely affect security prices. In addition, the economies of these
countries may be dependent on relatively few industries that are more
susceptible to local and global changes. Securities markets in these countries
are also relatively small and have substantially lower trading volumes. As a
result, securities issued in these countries may be more volatile and
potentially less liquid than securities issued in countries with more developed
economies or markets.
The value of debt securities held by the fund may be affected by factors such
as changing interest rates, credit ratings, and effective maturities. For
example, the value of bonds in the fund's portfolio generally will decline when
interest rates rise and vice versa. In addition, the values of high-yield,
high-risk and longer maturity bonds will be subject to greater credit risk and
price fluctuations than higher quality and shorter maturity bonds.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
GROWTH-INCOME FUND
RISK/RETURN SUMMARY
The fund seeks to make your investment grow and provide you with income over
time by investing primarily in common stocks or other securities which offer
the potential for appreciation and/or income. The fund may also invest up to
10% of its assets in securities of issuers domiciled outside the U.S. and not
included in the Standard & Poor's 500 Composite Index. The fund is designed for
investors seeking both capital appreciation and income.
The prices of equity securities held by the fund will decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy,
overall market declines, world political, social and economic instability, and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations, higher transaction costs, and administrative difficulties such as
delays in clearing and settling portfolio transactions.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1989 25.02%
1990 -2.87
1991 23.69
1992 7.62
1993 11.97
1994 1.79
1995 32.63
1996 18.41
1997 25.54
1998 18.09
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 18.85% (quarter ended December 31, 1998)
- - LOWEST -11.93% (quarter ended September 30, 1990)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ S&P 500 LIPPER CPI/4/
TOTAL RETURN INDEX/2/ GROWTH AND
INCOME FUND
INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 18.09% 28.52% 13.58% 1.61%
FIVE YEARS 18.84% 24.02% 17.83% 2.37%
TEN YEARS 15.67% 19.16% 15.54% 3.12%
LIFETIME/5/ 15.82% 18.43% 15.20% 3.24%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE STANDARD & POOR'S 500 COMPOSITE INDEX REPRESENTS PRIMARILY U.S. STOCKS.
THIS INDEX IS UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR
EXPENSES.
/3/ THE LIPPER GROWTH AND INCOME FUND INDEX REPRESENTS FUNDS THAT COMBINE A
GROWTH-OF-EARNINGS ORIENTATION AND AN INCOME REQUIREMENT FOR LEVEL AND/OR
RISING DIVIDENDS. SALES CHARGES AND COMMISSIONS ARE NOT REFLECTED IN THE
RESULTS OF THE UNDERLYING FUNDS.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON FEBRUARY 8, 1984.
ASSET ALLOCATION FUND
RISK/RETURN SUMMARY
The fund seeks to provide you with high total return (including income and
capital gains) consistent with preservation of capital over the long-term by
investing in a diversified portfolio of common stocks and other equity
securities, bonds and other intermediate and long-term debt securities, and
money market instruments (debt securities maturing in one year or less). The
fund may also invest up to 10% of its assets in equity securities of issuers
domiciled outside the U.S. and not included in the Standard & Poor's 500
Composite Index, and up to 5% of its assets in debt securities of non-U.S.
issuers. Under normal market conditions, the fund's investment adviser expects
(but is not required) to maintain an investment mix falling within the
following ranges: 40-80% in equity securities; 20-50% in debt securities; and
0-40% in money market instruments. The fund is designed for investors seeking
above average total return.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving companies whose securities
are owned in the fund, adverse conditions affecting the general economy, or
overall market declines, world political, social and economic instability, and
currency fluctuations. Investments outside the U.S. may be affected by these
events to a greater extent and may also be affected by differing securities
regulations and administrative difficulties such as delays in clearing and
settling portfolio transactions. The value of debt securities held by the fund
will be affected by factors such as changing interest rates, credit ratings,
and effective maturities. Lower quality and longer maturity bonds will be
subject to greater credit risk and price fluctuations than higher quality and
shorter maturity bonds. Money market instruments held by the fund may be
affected by unfavorable political, economic, or governmental developments that
could affect the repayment of principal or the payment of interest.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1990 -1.37%
1991 21.41
1992 8.16
1993 10.09
1994 -0.57
1995 29.20
1996 14.48
1997 20.15
1998 12.94
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - Highest 11.50% (quarter ended December 31, 1998)
- - Lowest -9.20% (quarter ended September 30, 1998)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ S&P 500 SALOMON SMITH CPI/4/
TOTAL RETURN INDEX/2/ BARNEY BROAD
INVESTMENT GRADE
INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 12.94% 28.52% 8.71% 1.61%
FIVE YEARS 15.02% 24.02% 7.30% 2.37%
LIFETIME/5/ 12.16% 17.55% 8.64% 2.97%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE STANDARD & POOR'S 500 COMPOSITE INDEX REPRESENTS PRIMARILY U.S. STOCKS.
THIS INDEX IS UNMANAGED AND DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR
EXPENSES.
/3/ THE SALOMON SMITH BARNEY BROAD INVESTMENT-GRADE (BIG) BOND INDEX REPRESENTS
A MARKET CAPITALIZATION-WEIGHTED INDEX THAT INCLUDES TREASURY,
GOVERNMENT-SPONSORED, MORTGAGE, AND INVESTMENT GRADE FIXED-RATE CORPORATE BONDS
(BBB-/BAA3) WITH A MATURITY OF ONE YEAR OR LONGER. THIS INDEX IS UNMANAGED AND
DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES. THIS INDEX IS INCLUDED
AS A COMPARISON BECAUSE UNDER NORMAL MARKET CONDITIONS, THE FUND GENERALLY
INVESTS AT LEAST 20% OF ITS ASSETS IN BONDS, INCLUDING INTERMEDIATE AND
LONG-TERM DEBT SECURITIES. IT MAY INCREASE ITS EXPOSURE TO DEBT SECURITIES TO
AS MUCH AS 50% OF ASSETS.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON AUGUST 1, 1989.
BOND FUND
RISK/RETURN SUMMARY
The fund seeks to maximize your level of current income and preserve your
capital by investing primarily in bonds. The fund is designed for investors
seeking income and more price stability than stocks, and capital preservation
over the long-term.
The value of debt securities held by the fund may be affected by factors such
as changing interest rates, credit ratings, and effective maturities. The fund
may invest up to 35% of its assets in lower quality bonds (rated Ba and BB or
below by Moody's Investors Service, Inc. or Standard & Poor's Corporation or
unrated but determined to be of equivalent quality). Lower quality and longer
maturity bonds will be subject to greater credit risk and price fluctuations
than higher quality and shorter maturity bonds. The fund may also invest
significantly in securities of issuers domiciled outside the U.S. The value of
non-U.S. securities can decline in response to various factors including
currency fluctuations, political, social and economic instability, differing
securities regulations and administrative difficulties such as delays in
clearing and settling portfolio transactions.
The fund may also invest up to 20% of its assets in preferred stocks, including
convertible and non-convertible preferred stocks. Non-convertible preferred
stocks are similar to debt in that they have a stated dividend rate akin to the
coupon of a bond or note even though they are often classified as equity
securities. The prices and yields of non-convertible preferred stocks
generally move with changes in interest rates and the issuer's credit quality.
The value of convertible preferred stocks varies in response to many factors,
including the value of the underlying equity, general market and economic
conditions, and convertible market valuations, as well as changes in interest
rates, credit spreads, and the credit quality of the issuer.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1996 5.57%
1997 9.98
1998 4.11
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 4.47% (quarter ended June 30, 1997)
- - LOWEST -2.16% (quarter ended March 31, 1996)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ SALOMON SMITH CPI/3/
TOTAL RETURN BARNEY BROAD
INVESTMENT GRADE
INDEX/2/
<S> <C> <C> <C>
1998 4.11% 8.71% 1.61%
1997 9.88% 9.64% 1.70%
1996 5.57% 3.62% 3.32%
LIFETIME/4/ 6.51% 7.30% 2.21%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE SALOMON SMITH BARNEY BROAD INVESTMENT-GRADE (BIG) BOND INDEX
REPRESENTS A MARKET CAPITALIZATION-WEIGHTED INDEX THAT INCLUDES TREASURY,
GOVERNMENT-SPONSORED, MORTGAGE, AND INVESTMENT GRADE FIXED-RATE CORPORATE BONDS
(BBB-/BAA3) WITH A MATURITY OF ONE YEAR OR LONGER. THIS INDEX IS UNMANAGED AND
DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES.
/3/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/4/ THE FUND BEGAN INVESTMENT OPERATIONS ON JANUARY 2, 1996.
HIGH-YIELD BOND FUND
RISK/RETURN SUMMARY
The fund seeks to provide you with a high level of current income and
secondarily capital appreciation by investing primarily in lower quality debt
securities (rated Ba and BB or below by Moody's Investors Services, Inc. or
Standard & Poor's Corporation or unrated but determined to be of equivalent
quality), including those of non-U.S. issuers. The fund may also invest in
equity securities and securities that have both equity and debt characteristics
that provide an opportunity for capital appreciation. The fund is designed
for investors seeking a high level of current income and who are able to
tolerate greater credit risk and price fluctuations than funds investing in
higher quality bonds.
The value of debt securities held by the fund may be affected by factors such
as changing credit ratings, interest rates, and effective maturities. For
example, the values of lower quality and longer maturity bonds will be subject
to greater credit risk and price fluctuations than higher quality and shorter
maturity bonds. In addition, values of bonds in the fund's portfolio generally
will decline when interest rates rise and vice versa. The value of non-U.S.
securities can decline in response to currency fluctuations, world political,
social and economic instability, differing securities regulations, and
administrative difficulties such as delays in clearing and settling portfolio
transactions. In addition, the prices of equity securities may decline in
response to certain events, including those directly involving securities owned
in the fund, adverse conditions affecting the general economy, or overall
market declines.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If
insurance separate account fees were included, results would have been lower.)
[bar chart]
1989 10.03%
1990 3.40
1991 26.10
1992 12.07
1993 16.05
1994 -6.83
1995 21.42
1996 12.91
1997 12.08
1998 0.27
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 10.29% (quarter ended March 31, 1991)
- - LOWEST -8.42% (quarter ended September 30, 1998)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ CS FIRST SALOMON SMITH CPI/4/
TOTAL RETURN BOSTON HIGH BARNEY BROAD
YIELD INVESTMENT
INDEX/2/ GRADE
INDEX/3/
<S> <C> <C> <C> <C>
ONE YEAR 0.27% 0.58% 8.71% 1.61%
FIVE YEARS 7.50% 8.16% 7.30% 2.37%
TEN YEARS 10.35% 10.74% 9.31% 3.12%
LIFETIME/5/ 11.71% N/A 10.28% 3.24%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE CREDIT SUISSE FIRST BOSTON HIGH YIELD INDEX IS AN UNMANAGED,
TRADER-PRICED PORTFOLIO CONSTRUCTED TO MIRROR THE HIGH YIELD DEBT MARKET
(REVISIONS TO THE INDEX ARE EFFECTED WEEKLY). THIS INDEX DOES NOT REFLECT SALES
CHARGES, COMMISSIONS OR EXPENSES.
/3/ THE SALOMON SMITH BARNEY BROAD INVESTMENT-GRADE BOND INDEX REPRESENTS A
MARKET CAPITALIZATION-WEIGHTED INDEX THAT INCLUDES TREASURY,
GOVERNMENT-SPONSORED, MORTGAGE, AND INVESTMENT GRADE FIXED-RATE CORPORATE BONDS
(BBB-/BAA3) WITH A MATURITY OF ONE YEAR OR LONGER. THIS INDEX IS UNMANAGED AND
DOES NOT REFLECT SALES CHARGES, COMMISSIONS OR EXPENSES.
/4/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/5/ THE FUND BEGAN INVESTMENT OPERATIONS ON FEBRUARY 8, 1984.
U.S. GOVERNMENT/AAA-RATED SECURITIES FUND
RISK/RETURN SUMMARY
The fund seeks to provide you with a high level of current income, as well as
preserve your investment. The fund invests primarily in securities that are
guaranteed by the "full faith and credit" pledge of the U.S. Government and
securities that are rated AAA or Aaa by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation or unrated but determined to be of equivalent
quality. The fund may also invest a significant portion of its assets in
securities backed by pools of mortgages.
The value of certain debt securities held by the fund may be affected by
changing interest rates and prepayment risks. For example, as with other debt
securities, the value of U.S. Government securities generally will decline when
interest rates rise and vice versa. A security backed by the U.S. Treasury or
the full faith and credit of the United States is guaranteed only as to the
timely payment of interest and principal when held to maturity. Accordingly,
the current market prices for such securities are not guaranteed and will
fluctuate. It is important to note that neither the fund nor its yield are
guaranteed by the U.S. Government.
In addition, many types of debt securities, including mortgage-related
securities are subject to prepayment risk. For example, when interest rates
fall, homeowners are more likely to refinance their mortgages and "prepay"
their principal earlier than expected. The fund must then reinvest the
unanticipated principal in new securities when interest rates on new mortgage
investments are lower, thus reducing the income of the fund.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they are judged to no
longer represent good long-term value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If
insurance separate account fees were included, results would have been lower.)
[bar chart]
1989 10.38%
1990 8.01
1991 15.54
1992 7.25
1993 10.38
1994 -4.62
1995 15.06
1996 2.84
1997 8.21
1998 7.93
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 5.85% (quarter ended September 30, 1991)
- - LOWEST -3.83% (quarter ended March 31, 1994)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/ SALOMON CPI/3/
TOTAL RETURN TREASURY/GOVERNMENT-
SPONSORED MORTGAGE
INDEX/2/
<S> <C> <C> <C>
ONE YEAR 7.93% 8.76% 1.61%
FIVE YEARS 5.68% 7.20% 2.37%
TEN YEARS 8.00% 9.18% 3.12%
LIFETIME/4/ 7.92% 9.14% 3.16%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA
REQUIRED FOR ALL STOCK AND BOND FUNDS.
/2/ THE SALOMON BROTHERS TREASURY/GOVERNMENT-SPONSORED MORTGAGE INDEX
REPRESENTS FIXED-RATE TREASURY, GOVERNMENT-SPONSORED, AND MORTGAGE ISSUES WITH
A MATURITY OF ONE YEAR OR LONGER. THIS INDEX IS UNMANAGED AND DOES NOT REFLECT
SALES CHARGES, COMMISSIONS OR EXPENSES.
/3/ THE CONSUMER PRICE INDEX IS A MEASURE OF INFLATION AND IS COMPUTED FROM
DATA SUPPLIED BY THE U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS.
/4/ THE FUND BEGAN INVESTMENT OPERATIONS ON DECEMBER 1, 1985.
CASH MANAGEMENT FUND
RISK/RETURN SUMMARY
The fund seeks to provide you an opportunity to earn income on your cash
reserves while preserving the value of your investment and maintaining
liquidity by investing in a diversified selection of high quality money market
instruments. The prices of money market instruments may be affected by
unfavorable political, economic, or governmental developments that could affect
the repayment of principal or the payment of interest.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good investment
opportunities. Securities may be sold when they are judged to no longer
represent good value.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time. Your investment in the fund is not
a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, entity or person.
INVESTMENT RESULTS
The following information provides an indication of the risks associated with
investing in the fund by showing changes in the fund's investment results from
year to year. Past results are not an indication of future results.
Here are the fund's results calculated on a CALENDAR YEAR basis. (If insurance
separate account fees were included, results would have been lower.)
[bar chart]
1989 8.37%
1990 7.52
1991 5.21
1992 2.93
1993 2.39
1994 3.59
1995 5.27
1996 4.81
1997 4.92
1998 4.90
[end bar chart]
The fund's highest/lowest QUARTERLY results during this time period were
- - HIGHEST 2.12% (quarter ended June 30, 1989)
- - LOWEST 0.57% (quarter ended March 31, 1993)
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
AVERAGE ANNUAL FUND/1/
TOTAL RETURN
<S> <C>
ONE YEAR 4.90%
FIVE YEARS 4.70%
TEN YEARS 4.98%
LIFETIME/2/ 5.56%
</TABLE>
/1/ THESE FUND RESULTS WERE CALCULATED ACCORDING TO A STANDARD FORMULA.
/2/ THE FUND BEGAN INVESTMENT OPERATIONS ON FEBRUARY 8, 1984.
CASH POSITION
The funds may also hold cash or money market instruments of any issuer to any
extent deemed appropriate. The size of the funds' cash position will vary and
will depend on various factors, including market conditions and purchases and
redemptions of fund shares. A larger cash position could detract from the
achievement of the funds' objectives, but it also provides greater liquidity to
meet redemption or to make additional investments, and it would reduce the
funds' exposure in the event of a market downturn.
PORTFOLIO TURNOVER
Portfolio changes will be made without regard to the length of time particular
investments may have been held. The funds do not anticipate their portfolio
turnover to exceed 100% annually. The funds' portfolio turnover rate would
equal 100% if each security in the in the funds' portfolios were replaced once
per year. High portfolio turnover involves correspondingly greater transaction
costs in the form of dealer spreads or brokerage commissions, and may result in
the realization of net capital gains, which are taxable when distributed to
shareholders. Debt securities are generally traded on a net basis and usually
neither brokerage commissions nor transfer taxes are involved. See the
"Financial Highlights" for the funds' portfolio turnover for each of the last
five years.
IMPORTANT RECENT DEVELOPMENTS
YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the Series and its
shareholders. However, the Series understands that its key service providers
- -- including the investment adviser and its affiliates -- are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
issuers in which the funds invest. For example, issuers may incur substantial
costs to address the problem. They may also suffer losses caused by corporate
and governmental data processing errors. The Series and its investment adviser
will continue to monitor developments relating to this issue.
MANAGEMENT AND ORGANIZATION
INVESTMENT ADVISER
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the Series and
other mutual funds, including those in The American Funds Group. Capital
Research Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los, Angeles, CA
90071. Capital Research Management Company manages the investment portfolios
and business affairs of the Series.
The total management fee paid by each fund, as a percentage of average net
assets, for the previous fiscal year amounted to the following: Global Growth
Fund -- .69%; Global Small Capitalization Fund - .79%; Growth Fund - .40%;
International Fund - .57%; Growth-Income Fund - .35%; Asset Allocation Fund -
.44%; Bond Fund - .52%; High-Yield Bond Fund - .49%; U.S. Government/AAA-Rated
Securities Fund - .50%; and Cash Management Fund - .45%. Capital Research and
Management Company has received no compensation for the New World Fund because
it had not commenced operations during the most recent fiscal year.
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has been
incorporated into the Series' code of ethics.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this system the portfolio of
a fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested (within the
limits provided by a 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 make investment decisions
with respect to a portion of the fund's portfolio. The primary portfolio
counselors for each of the funds are listed on the next two pages.
<TABLE>
<CAPTION>
APPROXIMATE YEARS OF
EXPERIENCE AS AN INVESTMENT
PROFESSIONAL (INCLUDING THE
LAST FIVE YEARS)
PORTFOLIO PRIMARY TITLE(S) YEARS OF EXPERIENCE AS WITH TOTAL YEARS
COUNSELORS PORTFOLIO COUNSELOR CAPITAL
FOR THE (AND RESEARCH RESEARCH
SERIES PROFESSIONAL, IF AND
APPLICABLE) MANAGEMENT
(APPROXIMATE) COMPANY OR
AFFILIATES
<S> <C> <C> <C> <C>
James K. President of the Growth-Income Fund -- 37 37
Dunton Series. Senior Vice 15 years (since the
President and fund began operations)
Director, Capital
Research and
Management Company
Abner D. Senior Vice Asset Allocation Fund 32 47
Goldstine President of the - 10 years (since the
Series. Senior Vice fund began operations)
President and Bond Fund - 3 years
Director, Capital (since the fund began
Research and operations)
Management Company High-Yield Bond Fund -
1 year
Alan N. Vice President of Growth- Income Fund -- 8 13
Berro the Series. Senior 3 years (plus 6 years
Vice President, as a research
Capital Research professional prior to
Company* becoming a portfolio
counselor for the
fund)
Claudia P. Vice President of Growth-Income Fund -- 22 25
Huntington the Series. Senior 5 years (plus 5 years
Vice President, as a research
Capital Research and professional prior to
Management Company becoming a portfolio
counselor for the
fund)
Robert W. Vice President of Global Growth Fund - 2 14 14
Lovelace the Series, Vice years (since the fund
President, Capital began operations)
Research and Global Small
Management Company Capitalization Fund -
1 year (since the fund
began operations)
International Fund - 4
years
New World Fund - less
than 1 year (since the
fund began operations)
Donald D. Vice President of Global Growth Fund - 2 14 14
O'Neal the Series. Vice years (since the fund
President, Capital began operations)
Research and Growth Fund - 8 years
Management Company (plus 4 years as a
research professional
prior to becoming a
portfolio counselor
for the fund)
John H. Smet Vice President of Bond Fund - 3 years 16 17
the Series. Vice (since the fund began
President, Capital operations)
Research and U.S. Government Fund -
Management Company 7 years
Timothy D. Chairman and Chief Asset Allocation Fund 16 16
Armour Executive Officer, - 3 years
Capital Research
Company*
David C. Vice President, Bond Fund -- 1 year 11 18
Barclay Capital Research and High-Yield Bond Fund -
Management Company 6 years
New World Fund -- less
than 1 year (since the
fund began operations)
Martial Senior Vice Global Growth Fund - 2 27 27
Chaillet President, Capital years (since the fund
Research Company* began operations)
International Fund - 6
years
Gordon Senior Vice Growth Fund - 5 years 28 28
Crawford President and (plus 5 years as a
Director, Capital research professional
Research and prior to becoming a
Management Company portfolio counselor
for the fund)
Global Small
Capitalization Fund --
1 year (since the fund
began operations)
Mark E. Director, Capital Global Small 17 17
Denning Research and Capitalization Fund -
Management Company 1 year (since the fund
began operations)
New World Fund - less
than 1 year (since the
fund began operations)
James E. Senior Vice Growth Fund - 12 years 22 27
Drasdo President and
Director, Capital
Research and
Management Company
Alwyn Heong Vice President, International Fund - 3 7 11
Capital Research years
Company* New World Fund - less
than 1 year (since the
fund began operations)
Thomas H. Vice President - U.S. Government Fund - 9 12
Hogh Capital International 1 year
Research, Inc.*
Carl M. Vice President, New World Fund -- less 8 12
Kawaja Capital Research and than 1 year (since
Management Company fund began operations)
Robert G. Senior Vice Growth-Income Fund -- 24 27
O'Donnell President and 9 years (plus 1 year
Director, Capital as a research
Research and professional prior to
Management Company becoming a portfolio
counselor for the
fund)
Victor M. Senior Vice Asset Allocation Fund 24 37
Parachini President, Capital - 3 years
Research and
Management Company
John W, Executive Vice U.S. Government Fund 11 11
Ressner President and -- 1 year
Director -- Capital
Research Company*
Susan M. Senior Vice High-Yield Bond Fund 9 11
Tolson President and -- 4 years (plus 3 years
Director, Capital as a research professional
Research Company* prior to becoming a portfolio
counselor for the
fund)
Gregory W. Senior Vice Global Small 12 12
Wendt President and Capitalization Fund --
Director, Capital 1 year (since the fund
Research Company* began operations)
* Company affiliated with Capital Research and Management Company.
</TABLE>
PURCHASES AND REDEMPTIONS OF SHARES
Shares of the Series are currently offered only to insurance company separate
accounts which fund 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 subsequent to
corresponding purchases and redemptions of units of the separate accounts
without delay.
SHARE PRICE
Each fund calculates its share price, also called net asset value, as of 4:00
p.m. New York time, which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. If a market price for a particular
security is not available, a fund will determine the appropriate price for the
security. Certain of the funds invest in securities listed on foreign exchanges
which trade on Saturdays or other U.S. business holidays. Since the funds
typically do not calculate their net asset values on Saturdays or other U.S.
business holidays, the value of the funds' redeemable securities may be
affected on days when shareholders do not have access to the funds. Shares of
the funds will be purchased or sold at the net asset value next determined
after receipt and acceptance of requests from the appropriate insurance
company.
PLAN OF DISTRIBUTION
Class 2 shares pay .25% of average net assets annually, pursuant to a Plan of
Distribution or "12b-1 plan." Currently, Class 2 shares are available only
through American Legacy III, a variable annuity contract issued 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 rendered by Lincoln National and investment dealers. Class 2
shares pay only their proportionate share of Series expenses plus 12b-1 plan
expenses. Since these fees are paid out of a fund's assets on an ongoing basis,
over time they will increase the cost of an investment.
DISTRIBUTION ARRANGEMENTS
DIVIDENDS AND DISTRIBUTIONS
It is the Series' policy to distribute to the shareholders (the insurance
company separate accounts) all of its net investment income and capital gains
realized during each fiscal year.
Each fund of the Series intends to qualify 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.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the funds'
results for the past five years. Certain information reflects financial
results for a single fund share. The total returns in the table represent the
rate than an investor would have earned or lost on an investment in a fund
(assuming reinvestment of all dividends and distributions). This information
has been audited by PricewaterhouseCoopers LLP, whose report, along with the
funds' financial statements, are included in the statement of additional
information, which is available upon request.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
Net gains or
Net asset losses on
Year value, Net securities (both Total Dividends (from Distributions Net
ended beginning investment realized and from investment net investment (from Total asset value,
11/30 of year income unrealized) operations income) capital gains) distributions end of year
Global Growth Fund/1/
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS 1
1997 $10.00 $.06 $ .59 $ .65 $(.03) -- $ (.03) $10.62
1998 10.62 .13 2.43 2.56 (.14) $ (.02) (.16) 13.02
CLASS 2/3/
1997 $10.00 .03 .60 .63 (.02) -- (.02) 10.61
1998 10.61 .10 2.44 2.54 (.11) (.02) (.13) 13.02
Global Small Capitalization Fund/4/
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
1998 $10.00 $ .07 $ (.92) $(.85) $ (.04) -- $ (.04) $9.11
CLASS 2
1998 10.00 .04 (.91) (.87) (.03) -- (.03) 9.10
Growth Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 43.53 .27 9.61 9.88 (.27) (3.02) (3.29) 50.12
1998 50.12 .19 10.91 11.10 (.17) (6.14) (6.31) 54.91
CLASS 2/3/
1997 40.59 .11 9.51 9.62 (.12) -- (.12) 50.09
1998 50.09 .08 10.90 10.98 (.05) (6.14) (6.19) 54.88
International Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 15.53 .25 1.18 1.43 (.27) (.62) (.89) 16.07
1998 16.07 .22 2.21 2.43 (.28) (1.65) (1.93) 16.57
CLASS 2/3/
1997 15.86 .13 .23 .36 (.16) -- (.16) 16.06
1998 16.06 .20 2.19 2.39 (.24) (1.65) (1.89) 16.56
Growth-Income Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 35.73 .73 6.78 7.51 (.72) (2.55) (3.27) 39.97
1998 39.97 .67 4.60 5.27 (.68) (3.83) (4.51) 40.73
CLASS 2/3/
1997 34.10 .37 5.82 6.19 (.35) -- (.35) 39.94
1998 39.94 .58 4.60 5.18 (.59) (3.83) (4.42) 40.70
Asset Allocation Fund
- ------------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 15.18 .55 1.94 2.49 (.54) (.97) (1.51) 16.16
1998 16.16 .58 1.27 1.85 (.57) (.87) (1.44) 16.57
CLASS 2/3/
1997 14.43 .29 1.69 1.98 (.26) -- (.26) 16.15
1998 16.15 .53 1.28 1.81 (.53) (.87) (1.40) 16.56
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
LESS RATIOS/SUPPLEMENTAL DATA
DISTRIBUTIONS
Ratio of Ratio of net
Year Net assets, expenses income to Portfolio
ended end of year to average average turnover
11/30 Total return (in millions) net assets net assets rate
Global Growth Fund/1/
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS 1
1997 6.45%/2/ $ 80 .44%/2/ .80%/2/ 13.22%/2/
1998 24.26 132 .75 1.14/3/ 25.56
CLASS 2/3/
1997 6.28/2/ 46 .57/2/ .56/2/ 13.22/2/
1998 24.06 124 1.00 .87 25.56
Global Small Capitalization Fund/4/
- ---------------------------------------------------------------------------------
CLASS 1
1998 (8.31)%/2/ $55 .51%/2/ .86%/2/ 28.20%/2/
CLASS 2
1998 (8.49)/2/ 17 .64/2/ .63/2/ 28.20/2/
Growth Fund
- ---------------------------------------------------------------------------------
CLASS 1
1994 2.92 2,027 .49 .78 29.58
1995 35.35 3,154 .47 .92 35.47
1996 14.32 3,860 .44 .61 30.88
1997 24.57 4,671 .42 .59 45.14
1998 25.27 5,313 .41 .38 49.91
CLASS 2/3/
1997 23.73/2/ 75 .37/2/ .08/2/ 45.14
1998 24.97 310 .66 .15 49.91
International Fund
- ---------------------------------------------------------------------------------
CLASS 1
1994 10.48 1,405 .80 2.03 19.66
1995 10.78 1,703 .75 2.64 24.66
1996 16.66 2,370 .69 1.99 32.08
1997 9.52 2,162 .67 1.56 50.12
1998 16.94 2,593 .66 1.36 34.08
CLASS 2/3/
1997 2.20/2/ 48 .53/2/ .34/2/ 50.12
1998 16.63 126 .91 1.03 34.08
Growth-Income Fund
- ---------------------------------------------------------------------------------
CLASS 1
1994 3.21 2,740 .47 2.72 29.26
1995 33.14 3,953 .44 2.70 26.91
1996 21.02 5,249 .41 2.26 31.27
1997 22.92 6,430 .38 2.01 37.55
1998 14.77 6,704 .36 1.74 42.72
CLASS 2/3/
1997 18.18/2/ 157 .35/2/ .93/2/ 37.55
1998 14.49 564 .61 1.02 42.72
Asset Allocation Fund
- ---------------------------------------------------------------------------------
CLASS 1
1994 (.54) 637 .53 4.55 36.13
1995 29.45 870 .52 4.11 39.89
1996 18.65 1,141 .49 3.88 50.62
1997 17.90 1,393 .47 3.63 34.14
1998 12.32 1,497 .45 3.63 27.97
CLASS 2/3/
1997 13.80/2/ 42 .40/2/ 1.81/2/ 34.14
1998 12.05 173 .70 3.39 27.97
- ---------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
Net gains or
Net asset losses on
Year value, Net securities (both Total Dividends (from Distributions Net
ended beginning investment realized and from investment net investment (from Total asset value,
11/30 of year income unrealized) operations income) capital gains) distributions end of year
Bond Fund/5/
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS 1
1996 $10.00 $ .40 $ .16 $ .56 $ (.25) -- $ (.25) $10.31
1997 10.31 .63 .30 .93 (.62) -- (.62) 10.62
1998 10.62 .67 (.15) .52 (.65) $(.12) (.77) 10.37
CLASS 2/3/
1997 10.11 .35 .46 .81 (.31) -- (.31) 10.61
1998 10.61 .65 (.15) .50 (.63) (.12) (.75) 10.36
High-Yield Bond Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 14.51 1.29 .43 1.72 (1.27) -- (1.27) 14.96
1998 14.96 1.26 (1.04) .22 (1.25) (.16) (1.41) 13.77
CLASS 2/3/
1997 14.28 .69 .61 1.30 (.63) -- (.63) 14.95
1998 14.95 1.25 (1.06) .19 (1.22) (.16) (1.38) 13.76
U.S. Government/AAA-Rated Securities Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 11.29 .76 (.07) .69 (.80) -- (.80) 11.18
1998 11.18 .68 .26 .94 (.69) -- (.69) 11.43
CLASS 2/3/
1997 10.83 .38 .33 .71 (.37) -- (.37) 11.17
1998 11.17 .68 .24 .92 (.67) -- (.67) 11.42
Cash Management Fund
- -------------------------------------------------------------------------------------------------------------------------
CLASS 1
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
1997 11.12 .57 (.01) .56 (.55) -- (.55) 11.13
1998 11.13 .57 (.01) .56 (.56) -- (.56) 11.13
CLASS 2/3/
1997 11.07 .28 .03 .31 (.26) -- (.26) 11.12
1998 11.12 .55 (.02) .53 (.53) -- (.53) 11.12
<CAPTION>
<CAPTION>
LESS RATIOS/SUPPLEMENTAL DATA
DISTRIBUTIONS
Ratio of Ratio of net
Year Net assets, expenses income to Portfolio
ended end of year to average average turnover
11/30 Total return (in millions) net assets net assets rate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bond Fund/5/
Class 1
1996 5.74 %/2/ $ 77 .52%/2/ 6.18%/2/ 32.83%/2/
1997 9.36 132 .55 6.63 52.93
1998 5.12 186 .54 6.89 61.54
Class 2/3/
1997 8.09/2/ 12 .44/2/ 3.50/2/ 52.93
1998 4.85 45 .78 6.62 61.54
High-Yield Bond Fund
- ----------------------------------------------------------------------------------
Class 1
1994 (5.71) 390 .54 9.37 38.46
1995 19.81 534 .54 10.12 31.73
1996 13.75 662 .53 9.27 44.81
1997 12.45 765 .51 8.92 50.22
1998 1.44 715 .51 8.66 65.80
Class 2/3/
1997 9.20/2/ 21 .43/2/ 4.92/2/ 50.22
1998 1.18 68 .76 8.60 65.80
U.S. Government/AAA-Rated Securities Fund
- ----------------------------------------------------------------------------------
Class 1
1994 (4.58) 463 .54 6.69 45.21
1995 14.73 542 .54 7.37 30.11
1996 5.49 512 .53 7.33 30.45
1997 6.49 471 .52 6.73 53.80
1998 8.72 537 .51 6.11 89.25
Class 2/3/
1997 6.65/2/ 7 .44/2/ 3.45/2/ 53.80
1998 8.46 32 .75 5.68 89.25
Cash Management Fund
- ----------------------------------------------------------------------------------
Class 1
1994 3.59 221 .49 3.60 --
1995 5.65 193 .49 5.37 --
1996 5.09 240 .47 4.94 --
1997 5.21 226 .47 4.99 --
1998 5.17 250 .46 5.07 --
CLASS 2/3/
1997 2.87/2/ 14 .41/2/ 2.80/2/ --
1998 4.92 34 .70 4.75 --
- ------------
</TABLE>
1 COMMENCED OPERATIONS APRIL 30, 1997.
2 BASED ON OPERATIONS FOR THE PERIOD SHOWN AND, ACCORDINGLY, NOT
REPRESENTATIVE OF A FULL YEAR.
3 SHARES OFFERED FOR SALE COMMENCING APRIL 30, 1997.
4 COMMENCED OPERATIONS ON APRIL 30, 1998.
5 COMMENCED OPERATIONS JANUARY 2, 1996.
NO INFORMATION IS PRESENTED FOR THE NEW WORLD FUND SINCE IT HAD NO INVESTMENT
OPERATIONS AS OF APRIL 1, 1999.
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Contains additional information about the Series including financial
statements, investment results, portfolio holdings, a statement from portfolio
management discussing market conditions and the Series' investment strategies
that significantly affected each fund's performance during its latest fiscal
year, and the independent accountants' report (in the annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the Series, including the
Series financial statements.
A current SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. The SAI and
other related materials about the Series are available for review or to be
copied at the SEC Public Reference Room in Washington, D.C. (1-800-SEC-0330) or
on the SEC's Internet Web site at http://www.sec.gov.<?r>
CODE OF ETHICS
Includes a description of the Series personal investing policy.
To request a free copy of any of the documents above, write to:
Secretary of the Series
333 South Hope Street
Los Angeles, CA 90071
Investment Company File No. 811-3857
<PAGE>
AMERICAN VARIABLE INSURANCE SERIES
PART B
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1999
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, 1999. 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
<TABLE>
<CAPTION>
ITEM PAGE NO.
<S> <C>
Certain Investment Limitations and Guidelines 2
Investment Policies 6
Investment Restrictions 19
Series Trustees and Officers 24
Management 28
Price of Shares 30
Dividends, Distributions and Federal Taxes 31
Execution of Portfolio Transactions 33
General Information 34
Description of Bond Ratings 35
Financial Statements Attached
</TABLE>
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
GLOBAL GROWTH FUND
Non-U.S. Securities
- - The fund will invest in issuers domiciled in at least three countries.
Debt Securities
- - The fund may invest up to 10% of its assets in straight debt securities rated
BBB or Baa or below by S&P or Moody's (or unrated but determined to be
equivalent)
GLOBAL SMALL CAPITALIZATION FUND
Equity Securities
- - The fund will invest at least 65% of its total assets in equity securities of
small capitalization issuers (market capitalizations of $50 million to $1.2
billion based on U.S. share prices)
Debt Securities
- - The fund may invest in straight debt securities generally rated in the top
three categories by S&P or Moody's (or unrated but determined to be equivalent)
GROWTH FUND
Non-U.S. Securities
- - The fund may invest up to 10% of its assets in securities of issuers
domiciled outside the U.S. and not included in the S&P 500.
Debt Securities
- - The fund may invest up to 10% of its assets on straight debt securities rated
Ba and BB or below by S&P or Moody's or unrated by determined to be of
equivalent quality.
INTERNATIONAL FUND
Equity Securities
- - The fund will invest at least 65% of its assets in equity securities
(including depositary receipts) of issuers domiciled outside the U.S.; however,
under normal market conditions, the fund will invest substantially all of its
assets in issuers domiciled outside the U.S.
Debt Securities
- - The fund may invest up to 5% of its assets in straight debt securities rated
BBB or Baa or below by S&P or Moody's or unrated but determined to be of
equivalent quality.
NEW WORLD FUND
General
- - The fund will invest at least 35% of its assets in equity and debt securities
of companies primarily based in qualified countries which have developing
economies and/or markets.
Equity Securities
- - The fund may invest the balance of its assets in equity securities of any
company regardless of where it is based, provided the adviser has determined
that a significant portion of its assets or revenues (generally 20% or more)
are attributable to developing countries.
Debt Securities
- - The fund may invest up to 25% of its assets in debt securities of issuers
primarily based in qualified countries which have developing economies and/or
markets, or issuers that the fund's investment adviser determines has a
significant portion of its assets or revenues (generally 20% or more)
attributable to developing countries.
- - The fund may invest up to 25% of its assets in debt securities rated Ba and
BB or below by S&P or Moody's or unrated but determined to be of equivalent
quality
GROWTH-INCOME FUND
Non-U.S. Securities
- - The fund may invest up to 10% of its assets in equity securities of issuers
domiciled outside U.S. and not in the S&P 500.
Debt Securities
- - The fund may invest up to 5% of its assets on straight debt securities rated
Ba and BB or below by S&P or Moody's or unrated but determined to be of
equivalent quality.
ASSET ALLOCATION FUND
General
- - The fund will generally invest 40% to 80% of its assets in equity securities;
20% to 50% in debt securities; and 0% to 40% in money market instruments
(including cash).
Debt Securities
- - The fund may invest up to 25% of the fund's debt assets in securities rated
Ba and BB below by S&P or Moody's or unrated by determined to be of equivalent
quality.
Non-U.S. Securities
- - The fund may invest up to 10% of its assets in equity-type securities of
issuers domiciled outside the U.S. and not in the S&P 500.
- - The fund may invest up to 5% of its assets in debt securities of issuers
domiciled outside the U.S.
BOND FUND
Equity Securities
- - The fund may not purchase equity securities directly, but may retain up to 5%
in common stock, warrants and rights after the sale of the corresponding debt
securities.
Debt Securities
- - The fund will invest at least 65% of its assets in bonds (debt securities
having initial maturities in excess of one year)
- - The fund will invest at least 35% of its assets in debt securities (including
cash and cash equivalents) rated A or better by Moody's or S&P or unrated but
determined to be of equivalent quality.
- - The fund will invest at least 65% of its assets in debt securities (including
cash and cash equivalents) that are rated BBB or Baa or better by Moody's or
S&P.
- - The fund may invest up to 35% of its assets in debt securities (including
cash and cash equivalents) rated Ba and BB or below by Moody's or S&P or
unrated but determined to be of equivalent quality.
Non-U.S. Securities
- - The fund may invest up to 20% of its assets in non-U.S. dollar denominated
securities (including those of issuers domiciled in developing countries).
HIGH-YIELD BOND FUND
Debt Securities
- - The fund will invest at least 65% of its assets in debt securities rated Ba
or BB or below by Moody's or S&P or unrated but determined to be of equivalent
quality.
Equity and Other Securities
- - The fund may invest up to 25% of its assets in common and preferred stocks
and convertibles.
Maturity
- - The fund will invest in securities with maturities in excess of 3 years.
Non-U.S. Securities
- - The fund may invest up to 25% of its assets in securities of issuers
domiciled outside the U.S.
U.S. GOVERNMENT/AAA-RATED SECURITIES FUND
General
- - The fund will invest at least 65% of its assets in securities guaranteed by
the "full faith and credit" pledge of the U.S. Government or debt securities
rated AAA by S&P or Aaa by Moody's or unrated but determined to be of
equivalent quality.
CASH MANAGEMENT FUND
General
- - The fund will invest in high quality money market instruments rated in the
two highest quality categories by either Moody's or S&P, provided the issuer
has commercial paper rated in the highest rating category by Moody's or S&P.
Maturity
- - The fund may purchase securities that mature or may be redeemed in 13 months
or less (25 months or less if U.S. Government securities), even if original
maturity is greater than 1 year.
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.
EQUITY SECURITIES -- Equity securities represent an ownership position in a
company. 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.
INVESTING IN SMALLER CAPITALIZATION STOCKS -- Investing in smaller
capitalization stock can involve greater risk than is customarily associated
with investing in stocks of larger, more established companies. Transaction
costs in stocks of smaller capitalization companies may be higher than those of
larger capitalization companies. Because the Global Small Capitalization Fund
in particular emphasizes the stocks of issuers with smaller market
capitalizations (by U.S. standards), it can be expected to have more difficulty
obtaining information about the issuers or valuing or disposing of its
securities than if it were to concentrate on more larger capitalization stocks.
The funds determine relative market capitalizations using U.S. standards.
Accordingly, the fund's non-U.S. investments may have large capitalizations
relative to market capitalizations of companies based outside the U.S.
DEBT SECURITIES -- Bonds and other debt securities are used by issuers to
borrow money. Issuers pay investors interest and must repay the amount borrowed
at maturity. Some debt securities, such as zero coupon bonds, do not pay
current interest but are purchased at a discount from their face 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.
INFLATION-INDEXED BONDS -- Inflation-indexed notes and bonds are issued by
governments, their agencies or instrumentalities, or corporations. The
principal value of this type of bond is periodically adjusted according to
changes in the rate of inflation. The interest rate is generally fixed at
issuance; however, interest payments are based on an inflation adjusted
principal value. For example, in a period of falling inflation, principal
value will be adjusted downward, reducing the interest payable.
Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The funds may also invest in other
bonds which may or may not provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
REAL ESTATE INVESTMENT TRUSTS -- The funds may invest in debt securities issued
by real estate investment trusts (REITs), which are pooled investment vehicles
that primarily invest in real estate or real estate related loans. REITs are
not taxed on income distributed to shareholders provided they meet requirements
imposed by the Internal Revenue Code. The risks associated with REIT debt
investments are similar to the risks of investing in corporate-issued debt. In
addition, the return on REITs is dependent on such factors as the skill of
management and the real estate environment in general. Debt that is issued by
REITs is typically rated by the credit rating agencies as investment grade or
above.
OTHER SECURITIES -- The funds may also invest in securities that have a
combination of equity and debt characteristics such as non-convertible
preferred stocks and convertible securities. These securities may at times
resemble equity more than debt and vice versa. Non-convertible preferred
stocks are similar to debt in that they have a stated dividend rate akin to the
coupon of a bond or note even though they are often classified as equity
securities. The prices and yields of non-convertible preferred stocks generally
move with changes in interest rates and the issuer's credit quality, similar to
the factors affecting debt securities.
Bonds, preferred stocks, and other securities may sometimes be converted into
shares of common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury. Certain securities issued by U.S.
Government instrumentalities 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 discretionary authority of the Treasury
to purchase certain obligations of the issuer; and others are supported only by
the credit of the issuing government agency or instrumentality.
PASS-THROUGH SECURITIES -- The funds may invest in various debt obligations
backed by a pool of mortgages or other assets including loans on single family
residences, home equity loans, mortgages on commercial buildings, credit card
receivables, and leases on airplanes or other equipment. Principal and interest
payments made on the underlying asset pools backing these obligations are
typically passed through to investors. Pass-through securities may have either
fixed or adjustable coupons. These securities include those discussed below.
"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. Government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities)
or the issuer (in the case of FNMA and FHLMC securities). However, the
guarantees do not apply to the market prices and yields of these securities,
which vary with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies. In
addition, these securities generally are structured with one or more types of
credit enhancement. Mortgage-backed securities generally permit borrowers to
prepay their underlying mortgages. Prepayments can alter the effective maturity
of these instruments.
"Collateralized mortgage obligations" (CMOs) are backed by a pool of mortgages,
mortgage-backed securities or mortgage loans, which are divided into two or
more separate bond issues. CMOs issued by U.S. government agencies are backed
by agency mortgages, while privately issued CMOs may be backed by either
government agency mortgages or private mortgages. Payments of principal and
interest are passed-through to each bond at varying schedules resulting in
bonds with different coupons, effective maturities, and sensitivities to
interest rates. In fact, some CMOs may be structured in a way that when
interest rates change, the impact of changing prepayment rates on these
securities' effective maturities is magnified.
"Commercial mortgage-backed securities" are backed by commercial property, such
as hotels, office buildings, retail stores, hospitals, and other commercial
buildings. These securities may have a lower prepayment risk than other
mortgage-related securities because commercial mortgage loans generally
prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan
payments, and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as a credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the securities' effective maturities.
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 security and obtain a simultaneous commitment from the seller
to repurchase a security at a specified time and price. The seller must
maintain with the Series' custodian collateral equal to at least 100% of the
repurchase price including accrued interest as monitored daily by Capital
Research and Management Company. If the seller under the repurchase agreement
defaults, a fund may incur a loss if the value of the collateral securing the
repurchase agreement has declined and may incur disposition costs in connection
with liquidating the collateral. If bankruptcy proceedings are commenced with
respect to the seller, liquidation of the collateral by a fund may be delayed
or limited.
FORWARD COMMITMENTS -- The funds may enter into commitments to purchase or sell
securities at a future 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. If the other party to such a
transaction fails to deliver 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 enter into "roll"
transactions, which consist of the sale of mortgage-backed securities 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 ownership,
including the risk of price and yield fluctuations as of the time of the
agreement.
RESTRICTED AND ILLIQUID SECURITIES -- The funds may purchase securities subject
to restrictions on resale. All such securities whose principal trading market
is in the U.S. will be considered illiquid unless they have been specifically
determined to be liquid under procedures which have been adopted by the Series'
Board of Trustees, taking into account factors such as the frequency and volume
of trading, the commitment of dealers to make markets and the availability of
qualified investors, all of which can change from time to time. The funds may
incur certain additional costs in disposing of illiquid securities.
INVESTING IN VARIOUS COUNTRIES -- The Global Growth Fund, the Global Small
Capitalization Fund, the Growth Fund, the International Fund, the New World
Fund, the Growth-Income 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. and 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; expropriation and confiscatory taxation; 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.
The risks described above are potentially heightened in connection with
investments in less developed and developing countries. Although there is no
universally accepted definition, a developing country is generally considered
to be a country which is in the initial stages of its industrialization cycle
with a low per capita gross national product. For example, political and/or
economic structures in these countries may be in their infancy and developing
rapidly. Historically, the markets of developing countries have been more
volatile than the markets of developed countries.
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 U.S. Government/AAA-Rated Securities Fund may purchase obligations of
non-U.S. corporations or governmental 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.
CERTAIN RISK FACTORS RELATED TO DEVELOPING COUNTRIES
CURRENCY FLUCTUATIONS - Certain funds may invest in securities valued in
currencies other than the U.S. dollar. Certain developing countries' currencies
have experienced and may in the future experience significant declines against
the U.S. dollar. For example, if the U.S. dollar appreciates against foreign
currencies, the value of the fund's securities holdings would generally
depreciate and vice versa. Consistent with its investment objective, the fund
can engage in certain currency transactions to hedge against currency
fluctuations. SEE "Currency Transactions" below.
GOVERNMENT REGULATION - The political, economic, and social structures of
certain developing countries may be more volatile and less developed than those
in the U.S. Certain developing countries lack uniform accounting, auditing,
and financial reporting standards, have less governmental supervision of
financial markets than in the U.S., and do not honor legal rights enjoyed in
the U.S. Certain governments may be more unstable and present greater risks of
nationalization or restrictions on foreign ownership of local companies.
Repatriation of investment income, capital, and the proceeds of sales by
foreign investors may require governmental registration and/or approval in some
developing market countries. While the fund will only invest in markets where
these restrictions are considered acceptable, a country could impose new or
additional repatriation restrictions after the funds' investment. If this
happened, the fund's response might include, among other things, applying to
the appropriate authorities for a waiver of the restrictions or engaging in
transactions in other markets designed to offset the risks of decline in that
country. Such restrictions will be considered in relation to the fund's
liquidity needs and all other positive and negative factors. Further, some
attractive equity securities may not be available to the fund because foreign
shareholders hold the maximum amount legally permissible.
While government involvement in the private sector varies in degree among
developing countries, such involvement may in some cases, include government
ownership of companies in certain sectors, wage and price controls or
imposition of trade barriers and other protectionist measures. With respect to
any developing country, there is no guarantee that some future economic or
political crisis will not lead to price controls, forced mergers of companies,
expropriation, or creation of government monopolies to the possible detriment
of the fund's investments.
LESS DEVELOPED SECURITIES MARKETS - Developing countries may have less
well-developed securities markets and exchanges. They have lower trading
volumes than the securities markets of more developed countries. These markets
may be unable to respond effectively to increases in trading volume.
Consequently, these markets may be substantially less liquid than those of more
developed countries and the securities of issuers located in these markets may
have limited marketability. These factors may make prompt liquidation of
substantial portfolio holdings difficult or impossible at times.
SETTLEMENT RISKS - Settlement systems in developing countries are generally
less well organized in developed markets. Supervisory authorities may also be
unable to apply standards comparable with those in developed markets. Thus,
there may be risks that settlement may be delayed and that cash or securities
belonging to the fund may be in jeopardy because of failures of or defects in
the systems. In particular, market practice may require that payment be made
before receipt of the security being purchased or that delivery of a security
be made before payment is received. In such cases, default by a broker or bank
(the "counterparty") through whom the transaction is effected might cause the
funds to suffer a loss. The funds will seek, where possible, to use
counterparties whose financial status is such that this risk is reduced.
However, there can be no certainty that the funds will be successful in
eliminating this risk, particularly as counterparties operating in developing
countries frequently lack the substance or financial resources of those in
developed countries. There may also be a danger that, because of uncertainties
in the operation of settlement systems in individual markets, competing claims
may arise with respect to securities held by or to be transferred to the
funds.
INVESTOR INFORMATION - The funds may encounter problems assessing investment
opportunities in certain developing securities markets in light of limitations
on available information and different accounting, auditing and financial
reporting standards. In such circumstances, the fund's investment adviser will
seek alternative sources of information, and to the extent the investment
adviser may not be satisfied with the sufficiency of the information obtained
with respect to a particular market or security, the funds will not invest in
such market or security.
TAXATION - Taxation of dividends and capital gains received by non-residents
varies among developing countries and, in some cases, is comparatively high.
In addition, developing countries typically have less well-defined tax laws and
procedures and such laws may permit retroactive taxation so that the funds
could in the future become subject to local tax liability that it had not
reasonably anticipated in conducting its investment activities or valuing its
assets.
LITIGATION - The funds and their shareholders may encounter substantial
difficulties in obtaining and enforcing judgments against non-U.S. resident
individuals and companies.
FRAUDULENT SECURITIES - Securities purchased by the funds may subsequently be
found to be fraudulent or counterfeit, resulting in a loss to the funds.
LOAN PARTICIPATIONS - New World Fund may invest, subject to its overall
limitation on debt securities, in loan participations, typically made by a
syndicate of banks to governmental or corporate borrowers for a variety of
purposes. The underlying loans to developing market governmental borrowers may
be in default and may be subject to restructuring under the Brady Plan. The
underlying loans may be secured or unsecured, and will vary in term and legal
structure. When purchasing such instruments the fund may assume the credit
risks associated with the original bank lender as well as the credit risks
associated with the borrower. Investment in loan participations present the
possibility that in the U.S., the fund could be held liable as a co-lender
under emerging legal theories of lender liability. In addition, if the loan is
foreclosed, the fund could be part owner of any collateral, and could bear the
costs and liabilities of owning and disposing of the collateral. Loan
participations are generally not rated by major rating agencies, may not be
protected by securities laws, and are often considered to be illiquid.
PORTFOLIO TURNOVER -- Under certain market conditions, the investment policies
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, GLOBAL SMALL CAPITALIZATION FUND, GROWTH FUND, NEW WORLD
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, GLOBAL SMALL CAPITALIZATION FUND, GROWTH FUND,
INTERNATIONAL FUND, NEW WORLD FUND, GROWTH-INCOME FUND, ASSET ALLOCATION FUND,
BOND FUND AND HIGH-YIELD BOND FUND
CURRENCY TRANSACTIONS -- The Global Growth Fund, the Global Small
Capitalization Fund, the Growth Fund, the International Fund, the New World
Fund, the Asset Allocation 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. The Growth-Income Fund does 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. 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 their 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 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) up 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
PASS-THROUGH SECURITIES -- The funds may purchase certificates issued by the
Government National Mortgage Association ("GNMA"). 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 segregate liquid assets which will be marked to
market daily 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 concurrently 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 -- The Asset Allocation Fund, the High-Yield Bond Fund, the
Bond Fund and the U.S. Government/AAA-Rated Securities Fund may engage in
"roll" transactions. A "roll" transaction is the sale of mortgage-backed 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 AND ASSIGNMENTS -- The funds may invest in loan
participations or assignments, typically made by a syndicate of banks to U.S.
and non-U.S. corporate or governmental borrowers for a variety of purposes.
Loan participations are loans or other direct debt instruments which are
interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending
syndicates, to suppliers of goods or services, or to other parties. A fund
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the lender selling the participation and only
upon receipt by the lender of the payments from the borrower. In connection
with purchasing participations, a fund generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement relating to
loan, nor any rights of set-off against the borrower, and the fund may not
directly benefit from any collateral supporting the loan in which it has
purchased the participation. As a result, the fund will assume the credit risk
of both the borrower and the lender that is selling the participation. In the
event of the insolvency of the lender selling a participation, a fund may be
treated as a general creditor of the lender and may not benefit from any
set-off between the lender and the borrower.
When a fund purchases assignments from lenders it will acquire direct rights
against the borrower on the loan. However, because assignments are arranged
through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by a fund as the purchaser of an
assignment may differ from, and be more limited than, those held by the
assigning lender. Because there is no liquid market for such securities, the
fund's anticipate that such securities could be sold only to a limited number
of institutional investors.
Investments in loan participations and assignments present the possibility that
the fund could be held liable as a co-lender under emerging legal theories of
lender liability. 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 and assignments are generally
not rated by major rating agencies, may not be protected by the securities
laws, and are generally considered to be illiquid.
HIGH-YIELD BOND FUND
REINSURANCE RELATED NOTES AND BONDS -- The High-Yield Bond Fund may invest in
reinsurance related notes and bonds. These instruments, which are typically
issued by special purpose reinsurance companies, transfer an element of
insurance risk to the note or bond holders. For example, the reinsurance
company would not be required to repay all or a portion of the principal value
of the notes or bonds if losses due to a catastrophic event under the policy
(such as a major hurricane) exceed certain dollar thresholds. Consequently,
the fund may lose the entire amount of its investment in such bonds or notes if
such an event occurs and losses exceed certain dollar thresholds. In this
instance, investors would have no recourse against the insurance company.
These instruments may be issued with fixed or variable interest rates and rated
in a variety of credit quality categories by the rating agencies.
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 the following fundamental policies and investment
restrictions for each fund which may not be changed without a majority vote 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. Investment limitations
expressed in the following restrictions are considered at the time securities
are purchased and are based on the fund's net assets unless otherwise
indicated.
INVESTMENT RESTRICTIONS OF THE GLOBAL GROWTH FUND, GLOBAL SMALL CAPITALIZATION
FUND, GROWTH FUND, INTERNATIONAL FUND, NEW WORLD FUND, GROWTH-INCOME FUND,
ASSET ALLOCATION FUND, BOND FUND AND HIGH-YIELD BOND FUND
The Global Growth Fund, Global Small Capitalization 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 Global Small
Capitalization Fund, 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); except
that the Global Small Capitalization Fund may invest up to 5% of its total
assets in the securities of other managed investment companies. Any such
investments by the Global Small Capitalization Fund shall be limited to 3% of
the voting stock of any investment company, provided, however that investment
in the open market of a closed-end investment company where no more than
customary broker's commissions are involved shall not be prohibited by this
restriction.
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, Global Small Capitalization 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) commercial 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.
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 the 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 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 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.
SERIES ORGANIZATION AND MANAGEMENT
The Series, an open-end investment company, was organized as a Massachusetts
business trust on September 13, 1983. The Series' Board of Trustees supervises
Series operations and performs duties required by applicable state and federal
law. Members of the board who are not employed 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.
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
DEFERRED DEFERRED ON WHICH
COMPENSATION/1/) COMPENSATION/1/) TRUSTEE
FROM FROM ALL FUNDS SERVES/3/
SERIES DURING MANAGED BY
FISCAL CAPITAL
YEAR ENDED RESEARCH AND
11/30/98 MANAGEMENT
COMPANY OR ITS
AFFILIATES/2/
FOR THE YEAR
ENDED 11/30/98
<S> <C> <C> <C> <C> <C>
Charles H. Black Trustee Private investor $32,200/4/ $113,600 4
525 Alma Real Drive and consultant;
Pacific Palisades, CA Former Executive
90272 Vice President
Age: 72 and Director,
Kaiser Steel
Corporation
H. Frederick Christie Trustee Private Investor; $32,700 $189,650 18
P. O. Box 144 Former President
Palos Verdes, CA and Chief
90274 Executive
Age: 65 Officer, The
Mission Group
(non-utility
holding
Company,
subsidiary of
Southern
California Edison
Company)
Joe E. Davis Trustee Private Investor; $34,700 $34,700 1
3436 Caribeth Drive Former Chairman,
Encino, CA 91436 Linear
Age: 63 Corporation;
former
President and
Chief Executive
Officer, National
Health
Enterprises, Inc.
Martin Fenton Trustee Chairman, Senior $32,700/4/ $126,834 16
4350 Executive Drive Resource Group
Suite 101 (management of
San Diego, CA 92123 senior living
Age: 62 centers)
Mary Myers Kauppila Trustee Founder and $33,100/4/ $102,450 5
286 Congress Street President, Energy
Boston, MA 02110 Investment, Inc.
Age: 44
Kirk P. Pendleton Trustee President, $31,100/4/ $113,734 5
Cairnwood, Inc. Cairnwood, Inc.
Box 546
Bryn Athyn, PA 19009
Age: 59
+ James F. Rothenberg President President and none/5/ none/5/ 1
333 South Hope Street and Director, Capital
Los Angeles, CA 90071 Trustee Research and
Age: 52 Management
Company
+ Thomas E. Terry Chairman of Retired. Former none/5/ none/5/ 3
6048 S. Highlands the Board Vice President
Avenue and Secretary,
Madison, WI 53705 Capital Research
Age: 61 and Management
Company
</TABLE>
+ "Interested persons" of the Series within the meaning of the Investment
Company Act of 1940 (the "1940 Act") on the basis of their affiliation with the
Series' Investment Adviser, Capital Research and Management Company or the
parent company of the Investment Adviser, The Capital Group Companies, Inc.
/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
Endowments, whose shareholders are limited to (i) any entity exempt from
taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended ("501 (c)(3) organization"); (ii) any trust, the present or future
beneficiary of which is a 501(c)(3) organization; and (iii) any other entity
formed for the primary purpose of benefiting a 501(c)(3) organization.
/3/ Includes funds managed by Capital Research and Management Company
/4/ Since the deferred compensation 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 ($77,559); H . Frederick
Christie ($78,363); Martin Fenton ($39,726); Mary Myers Kauppila ($180,321) and
Kirk P. Pendleton ($59,526). Amounts deferred and accumulated earnings thereon
are not funded and are general unsecured liabilities of the Series until paid
to the Trustee.
/5/ James F. Rothenberg and Thomas E. Terry are affiliated with the Investment
Adviser and, accordingly, receive no remuneration from the Series.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION(S)
WITH DURING PAST 5 YEARS
REGISTRANT
<S> <C> <C> <C>
Thomas E. Terry 61 Chairman of Retired. Former Vice
6048 S. Highlands the Board President and
Avenue Secretary, Capital
Madison, WI 53705 Research and Management
Company
James F. Rothenberg 52 President President and Director,
333 South Hope and Trustee Capital Research and
Street Management Company
Los Angeles, CA
90071
James K. Dunton 53 Senior Vice Senior Vice President
333 South Hope President and Director, Capital
Street Research and Management
Los Angeles, CA Company
90071
Abner D. Goldstine 69 Senior Vice Senior Vice President
11100 Santa Monica President and Director, Capital
Boulevard Research and Management
Los Angeles, CA Company
90025
Michael J. Downer 44 Vice Vice President - Fund
333 South Hope President Business Management
Street Group, Capital Research
Los Angeles, CA and Management Company
90071
Claudia P. 47 Vice Senior Vice President,
Huntington President Capital Research
333 South Hope Company
Street
Los Angeles, CA
90071
John H. Smet 42 Vice Vice President, Capital
11100 Santa Monica President Research and Management
Boulevard Company
Los Angeles, CA
90025
Chad L. Norton 38 Secretary Vice President - Fund
333 South Hope Business Management
Street Group, Capital Research
Los Angeles, CA and Management Company
90071
Robert P. Simmer 37 Treasurer Vice President - Fund
5300 Robin Hood Road Business Management
Norfolk, VA 23513 Group, Capital Research
and Management Company
Sheryl F. Johnson 30 Assistant Assistant Vice
5300 Robin Hood Road Treasurer President - Fund
Norfolk, VA 23513 Business Management
Group, Capital Research
and Management Company
</TABLE>
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 $22,000
per annum to Trustees who are not affiliated with the Investment Adviser, plus
$2,500 for each Board of Trustees meeting attended, plus $1,000 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 $200 billion of stocks,
bonds and money market instruments and serves over eight 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 - An Amended Investment Advisory and
Service Agreement (the "Agreement") between the Series and the Investment
Adviser, unless sooner terminated, will continue in effect until November 30,
1999, 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 the first $600 million of net assets, plus 0.59%
on net assets greater than $600 million but not exceeding $1.2 billion, plus
0.53% on net assets in excess of $1.2 billion;
GLOBAL SMALL CAPITALIZATION FUND: .80% of the first $600 million of net
assets, plus 0.74% on net assets in excess of $600 million;
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 greater than $3.2 billion but not exceeding $5.2 billion,
plus 0.33% on net assets greater than $5.2 billion but not exceeding $8.4
billion, plus 0.315% on net assets in excess of $8.4 billion;
INTERNATIONAL FUND: 0.78% of the first $600 million of net assets, 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;
NEW WORLD FUND: 0.85% of net assets;
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 greater than $4.0 billion bu not exceeding
$6.5 billion, plus 0.256% on net assets greater than $6.5 billion but not
exceeding $10.5 billion, plus 0.242% on net assets in excess of $10.5 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 greater than $1.2 billion but not exceeding $2.0
billion, plus 0.32%on net assets in excess of $2.0 billion;
BOND FUND: 0.60% 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, 1998, 1997 and 1996, the Investment
Adviser's total fees, respectively, amounted to the following: Growth Fund
$20,494,000, $17,154,000 and $14,284,000; International Fund $15,732,000,
$15,477,000 and $12,370,000; Growth-Income Fund $24,542,000, $21,263,000 and
$17,451,000; Asset Allocation Fund $6,916,000, $5,806,000 and $4,663,000; Bond
Fund $952,000 $557,000 and $204,000; High-Yield Bond Fund $4,018,000,
$3,624,000 and $2,996,000; U. S. Government/AAA-Rated Securities Fund
$2,553,000, $2,444,000 and $2,661,000; and Cash Management Fund $1,164,000,
$1,113,000 and $1,007,000. During the fiscal periods ended November 30, 1998
and 1997, the Investment Adviser's total fee for the Global Growth Fund
amounted to $1,341,000 and $310,000. During the fiscal period ended November
30, 1998, the Investment Adviser's total fee for the Global Small
Capitalization Fund amounted to $240,000.
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.
Under the Plan the Series will pay Lincoln National Life Insurance Company
("Lincoln National") 0.25% of each fund's average net assets annually (Class 2
shares only) to finance any distribution activity which is primarily intended
to benefit the Class 2 shares of the Series, provided that the Board of
Trustees of the Series has approved the categories of expenses for which
payment is being made. Payments made pursuant to the Plan will be used by
Lincoln Life to pay a continuing annual service fee to dealers on the value
of all variable annuity contract payments. During the fiscal period ended
November 30, 1998, the Series paid $2,403,000 to Lincoln National under
the Plan. This fee is paid to Lincoln National without regard to expenses.
PRICE OF SHARES
The price paid for shares, the net asset value price, is determined as of 4:00
p.m., Eastern time (the normal close of trading) every day the New York Stock
Exchange is open. For example, if the Exchange closes at 1:00 p.m. on one day
and at 4:00 p.m. on the next, the funds' share prices would be determined as of
4:00 p.m. on both days. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas Day. Certain of the funds invest in securities
listed on foreign exchanges which trade on Saturdays or other U.S. business
holidays. Since the funds typically do not calculate their net asset values on
Saturdays or other U.S. business holidays, the value of the funds' redeemable
securities may be affected on days when shareholders do not have access to the
funds. The net asset value per share is determined as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, 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 quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type. Securities with
original maturities of one year or less having 60 days or less to maturity are
amortized to maturity based on their cost if acquired within 60 days of
maturity or, if already held on the 60th day, based on the value determined on
the 61st day. Forward currency contracts are valued at the mean of
representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the 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;
and (b) 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, a fund may elect to compute taxable income for each year
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 by a fund on closing out a currency
contract will generally result in ordinary income 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 issuer 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
Orders for the funds' portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. 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 dealer, generally
referred to as a concession or discount. On occasion, securities may be
purchased directly from an issuer, in which case no commissions or discounts
are paid. In the over-the-counter market, purchases and sales are transacted
directly with principal market-makers except in those circumstances where it
appears better prices and executions are available elsewhere.
When circumstances relating to a proposed transaction indicate that a
particular broker (either directly or through their correspondent clearing
agents) is in a position to obtain the best price and execution, the order is
placed with that broker. This may or may not be a broker who has provided
investment research, statistical, or other related services to the Investment
Adviser or has sold shares of the funds or other funds served by the Investment
Adviser. The funds do not consider that they have an obligation to obtain the
lowest available commission rate to the exclusion of price, service and
qualitative considerations.
Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) are in a position to offer
comparable prices and executions, preference may be given to brokers who have
sold shares of the funds or have provided investment research, statistical, and
other related services for the funds and or other funds served by the
Investment Adviser.
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, 1998, 1997 and 1996, respectively, amounted to the following:
Growth Fund $3,271,000, $2,869,000, and $2,358,000; International Fund
$3,972,000, $5,252,000, and $3,813,000; Growth-Income Fund $5,110,000,
$3,955,000, and $3,389,000; Asset Allocation Fund $501,000, $551,000, and
$557,000. Brokerage commissions paid on portfolio transactions for the Global
Growth Fund for the periods ended November 30, 1998 and 1987 amounted to
$292,000 and $194,000. Commission paid on transaction for the Global Small
Capitalization Fund for the period ended November 30, 1998 amounted to
$90,000.
GENERAL INFORMATION
CUSTODIANS OF ASSETS -- Securities and cash owned by all funds except New World
Fund, including proceeds from the sale of shares of the funds and of securities
in the funds' portfolios, are held by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, as Custodian. Securities and cash
owned by New World Fund, including proceeds from the sale of shares of the fund
and of securities in the fund's portfolio, are held by The Chase Manhattan
Bank, One Chase Manhattan Plaza, New York, NY 10081, as Custodian. Non-U.S.
securities may be held by the Custodians in non-U.S. banks or securities
depositories or foreign branches of U.S. banks.
INDEPENDENT ACCOUNTANTS -- PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. 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 PricewaterhouseCoopers LLP, whose selection is determined
annually by the Board of Trustees.
YEAR 2000 - The Series and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The Series understands that
these service providers are taking steps to address the "Year 2000 problem."
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Series. In addition, the funds' investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the funds invest could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
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; blackout periods on
personal investing for certain investment personnel; a 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.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.'s top two rating designations for commercial
paper are described as follows: issues 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".
<PAGE>
<TABLE>
AMERICAN VARIABLE INSURANCE SERIES GLOBAL GROWTH FUND
Investment Portfolio, November 30, 1998
<S> <C> <C> <C>
Where the Fund's Assets Are Invested
Percent
Net Asse
--------
The Americas 42.22%
Europe 31.06%
Asia/Pacific 11.70%
Other Countries 1.27%
Cash & Equivalents 13.75%
100.00%
Largest Individual Stocks
Zeneca Group 3.36%
Telefonica 2.45
Pfizer 2.15
Telecom Italia 2.15
Time Warner 2.09
Cendant 2.09
CKS Group 1.92
Viacom 1.88
Rentokil Initial 1.81
Telefonaktiebolaget LM Ericsson 1.79
Market Percent
Number o Value of Net
Stocks (common and preferred) Shares (000) Assets
- ----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 12.78%
Telefonica SA (American Depositary Receipts) (Spain) 44,800 $6,244 2.45%
Telecom Italia SpA, nonconvertible savings shares (Italy) 741,100 4,594
Telecom Italia SpA 110,000 890 2.15
Mannesmann AG (Germany) 39,650 4,289 1.68
AirTouch Communications (USA) (1) 69,000 3,946 1.55
Telecom Argentina STET-France Telecom SA, Class B
(American Depositary Receipts) (Argentina) 128,500 3,919 1.54
Deutsche Telekom AG (Germany) 107,500 3,016 1.18
Orange PLC (United Kingdom) (1) 192,000 1,963 .77
Cable & Wireless Communications PLC (United Kingdom) (1) 211,100 1,883 .74
TELECEL - Comunicacoes Pessoais, SA (Portugal) 6,700 1,310 .51
Stet Hellas Telecommunications SA (American Depositary
Receipts) (Greece) (1) 35,300 1,227 .48
China Telecom (Hong Kong) Ltd. (American Depositary
Receipts) (Peoples Republic of China) (1) 31,000 1,227 .48
AT&T Corp. (USA) 18,750 1,168 .46
France Telecom, SA (France) 13,000 903 .35
Nippon Telegraph and Telephone Corp. (Japan) 120 897 .35
Telefonos de Mexico, SA de CV, Class L
(American Depositary Receipts) (Mexico) 12,000 559 .22
Millicom International Cellular SA (Luxembourg) (1) 14,000 467 .18
Compania de Telecomunicaciones de Chile SA
(American Depositary Receipts) (Chile) 15,948 370 .14
BUSINESS & PUBLIC SERVICES - 13.00%
Cendant Corp. (USA) (1) 281,000 5,339 2.09
CKS Group, Inc. (USA) (1) 146,400 4,905 1.92
Rentokil Initial PLC (formerly Rentokil Group PLC)
(United Kingdom) 690,800 4,615 1.81
America Online, Inc. (USA) (1) 45,000 3,940 1.54
Reuters Group PLC (United Kingdom) 383,140 3,699 1.45
Brambles Industries Ltd. (Australia) 123,800 3,025 1.19
Vivendi SA (France) 11,800 2,667 1.05
Waste Management, Inc. (formerly USA Waste
Services, Inc.) (USA) 42,700 1,831 .72
Suez Lyonnaise des Eaux (France) 7,000 1,382 .54
Ratin, A/S Class B (Denmark) 6,300 1,178 .46
Columbia/HCA Healthcare Corp. (USA) 24,000 591 .23
BROADCASTING & PUBLISHING - 10.56%
Time Warner Inc. (USA) 50,500 5,340 2.09
Viacom Inc., Class B (USA) (1) 72,000 4,793 1.88
Fox Entertainment Group, Inc., Class A (USA) (1) 130,000 3,071 1.20
Grupo Televisa, SA, ordinary participation certificates
(American Depositary Receipts) (Mexico) (1) 119,900 3,050 1.19
TV Azteca, SA de CV (American Depositary
Receipts) (Mexico) 400,000 3,000 1.17
News Corp. Ltd. (Australia) 290,467 2,033 .80
ProSieben Media AG (Germany) (1) 36,000 1,725 .68
Fuji Television (Japan) 410 1,633 .64
Ziff-Davis Inc.(USA) (1) 60,000 686 .27
Sinclair Broadcast Group, Inc., Class A (USA) (1) 53,800 663 .26
Tele-Communications, Inc., Series A, TCI Group (USA) (1) 13,800 583 .23
SOFTBANK CORP. (Japan) 6,600 381 .15
HEALTH & PERSONAL CARE - 8.69%
Zeneca Group PLC (United Kingdom) 203,960 8,459
Zeneca Group PLC (American Depositary Receipts) 3,000 126 3.36
Pfizer Inc (USA) 49,150 5,486 2.15
Avon Products, Inc. (USA) 55,800 2,267 .89
Glaxo Wellcome PLC (United Kingdom) 52,900 1,672 .65
Astra AB, Class A (Sweden) 90,000 1,648 .65
Guidant Corp. (USA) 18,000 1,545 .61
Luxottica Group SpA (American Depositary Receipts) (Italy) 75,000 778 .30
Omnicare, Inc. (USA) 7,000 200 .08
ELECTRONIC COMPONENTS - 5.43%
Murata Manufacturing Co., Ltd. (Japan) 82,000 3,212 1.26
Microchip Technology Inc. (USA) (1) 70,000 2,437 .96
Intel Corp. (USA) 20,000 2,152 .84
Rohm Co., Ltd. (Japan) 23,000 1,944 .76
Micron Technology, Inc. (USA) (1) 41,100 1,698 .67
Texas Instruments Inc. (USA) 15,000 1,145 .45
Quantum Corp. (USA) (1) 35,000 774 .30
Altera Corp. (USA) (1) 10,000 491 .19
DATA PROCESSING & REPRODUCTION - 4.74%
Oracle Corp. (USA) (1) 105,000 3,596 1.41
Microsoft Corp. (USA) (1) 28,000 3,416 1.34
PeopleSoft, Inc. (USA) (1) 127,000 2,611 1.02
Computer Associates International, Inc. (USA) 30,000 1,328 .52
Dassault Systemes SA (France) 29,600 1,155 .45
BANKING - 4.40%
Bank of Nova Scotia (Canada) 161,000 3,533 1.39
BankAmerica Corp. (USA) 38,400 2,503 .98
Washington Mutual, Inc. (USA) 60,000 2,325 .91
ForeningsSparbanken AB, Class A (Sweden) 52,000 1,457 .57
Westpac Banking Corp.(Australia) 211,148 1,405 .55
ELECTRICAL & ELECTRONICS - 3.17%
Telefonaktiebolaget LM Ericsson, Class B (Sweden) 165,000 4,583 1.79
Nokia Corp., Class A (American
Depositary Receipts) (Finland) 20,000 1,960 .77
Northern Telecom Ltd. (Canada) 33,400 1,559 .61
AUTOMOBILES - 2.81%
Suzuki Motor Corp. (Japan) 281,000 3,220 1.26
Bayerische Motoren Werke AG (Germany) 2,200 1,699
Bayerische Motoren Werke AG (1) 660 498 .86
Nissan Motor Co., Ltd. (Japan) 570,000 1,760 .69
CHEMICALS - 2.31%
Monsanto Co. (USA) 61,400 2,782 1.09
BOC Group PLC (United Kingdom) 145,000 2,105 .83
Valspar Corp. (USA) 30,000 998 .39
MERCHANDISING - 1.51%
Consolidated Stores Corp. (USA) (1) 113,700 2,445 .96
Cifra, SA de CV (American Depositary Receipts)
(Mexico) (1) 60,000 742 .29
Koninklijke Ahold NV (Netherlands) 19,600 679 .26
LEISURE & TOURISM - 1.46%
Village Roadshow Ltd., Class A,
5.50% preferred shares (Australia) 1,078,30 1,553 .61
Mirage Resorts, Inc. (USA) (1) 65,000 967 .38
Walt Disney Co. (USA) 15,000 483 .19
King World Productions, Inc. (USA) (1) 17,250 470 .18
Carnival Corp., Class A (USA) 7,100 245 .10
RECREATION & OTHER CONSUMER PRODUCTS - 1.30%
EMI Group PLC (United Kingdom) 557,000 3,316 1.30
ELECTRONIC INSTRUMENTS - 1.17%
Applied Materials, Inc. (USA) (1) 40,000 1,550 .61
ADVANTEST CORP. (Japan) 21,600 1,443 .56
MULTI-INDUSTRY - 1.13%
Orkla AS, Class A (Norway) 72,000 1,201 .47
Preussag AG (Germany) (1) 3,000 1,098 .43
Gambro AB, Class A (formerly Incentive AB) (Sweden) 48,000 587 .23
METALS: NONFERROUS - 0.99%
Aluminum Co. of America (USA) 28,000 2,076 .81
Freeport-McMoRan Copper & Gold Inc.,
Class B (USA) 35,000 457 .18
ENERGY SOURCES - 0.96%
Fletcher Challenge Energy (New Zealand) 398,974 840 .33
Woodside Petroleum Ltd. (Australia) 142,000 720 .28
TOTAL, Class B (American Depositary
Receipts) (France) 9,600 587 .23
Shell Transport and Trading Co., PLC (New York
Registered) (United Kingdom) 8,500 309 .12
AEROSPACE & MILITARY TECHNOLOGY - 0.87%
Bombardier Inc., Class B (Canada) 170,000 2,215 .87
MISCELLANEOUS MATERIALS & COMMODITIES - 0.86%
Sealed Air Corp. (USA) (1) 50,000 2,206 .86
APPLIANCES & HOUSEHOLD DURABLES - 0.85%
Sony Corp. (Japan) 29,600 2,167 .85
INSURANCE - 0.63%
Fairfax Financial Holdings Ltd. (Canada) (1) 5,000 1,603 .63
FINANCIAL SERVICES - 0.61%
Shohkoh Fund & Co., Ltd. (Japan) 3,000 990 .39
Credicorp Ltd. (Peru) 50,600 556 .22
ENERGY EQUIPMENT - 0.60%
Schlumberger Ltd. (Netherlands Antilles) 34,200 1,528 .60
BEVERAGES & TOBACCO - 0.58%
Seagram Co. Ltd. (Canada) 25,000 858 .33
Grupo Industrial Emprex-B (Mexico) 150,000 352 .14
Coca-Cola Amatil Ltd. (Australia) 51,820 174 .07
Coca-Cola Beverages PLC (United Kingdom) (1) 50,728 105 .04
GOLD MINES - 0.57%
Anglogold Ltd. (South Africa) 30,000 1,466 .57
REAL ESTATE - 0.54%
Mandamus AB (Sweden) (1) (2) 262,600 1,388 .54
INDUSTRIAL COMPONENTS - 0.49%
NGK Spark Plug Co., Ltd. (Japan) 135,000 1,248 .49
FOOD & HOUSEHOLD PRODUCTS - 0.37%
Raisio Group PLC (Finland) 73,000 946 .37
MACHINERY & ENGINEERING - 0.12%
Kvaerner AS, Class A (Norway) 20,600 311 .12
TEXTILES & APPAREL - 0.06%
Nine West Group Inc. (USA) (1) 12,900 161 .06
MISCELLANEOUS - 0.24%
Other stocks in initial period of acquisition 637 .24
----------------------
TOTAL STOCKS (cost: $194,792,000) 220,208 83.80
----------------------
Principa
Amount
Short-Term Securities (000)
- ------------------------------------------------------------------------------------ -------
CORPORATE SHORT-TERM NOTES - 9.64%
Kellogg Co. 4.97-5.30% 12/4-12/17/1998 3,100 3,094 1.21
Siemens Capital Corp. 5.02% due 1/22/1999 2,800 2,779 1.09
Electricite de France 5.05% due 2/16/1999 2,600 2,572 1.01
General Electric Capital Corp. 5.06% due 12/1/1998 2,500 2,500 .98
Bayer AG 5.17% due 12/8/1998 (3) 2,000 1,998 .78
AMERICAN HONDA FINANCE 5.20% due 1/28/1999 2,000 1,983 .78
KFW International Finance Inc. 5.15% due 12/11/1998 1,700 1,697 .66
HOUSEHOLD FINANCE CORP. 5.03% due 12/2/1998 1,600 1,600 .63
Coca-Cola Co. 4.85% due 12/22/1998 1,600 1,595 .62
BMW US CAPITAL CORP. 5.10% due 12/15/1998 1,400 1,397 .55
Johnson & Johnson 5.00% due 12/14/1998 (3) 1,400 1,397 .55
Diageo Capital PLC 5.15% due 12/18/1998 (3) 1,400 1,396 .55
Pfizer Inc 5.09% due 12/2/1998 (3) 600 600 .23
FEDERAL AGENCY DISCOUNT NOTES - 3.57%
Federal Home Loan Banks 5.00% due 1/29/1999 4,300 4,264 1.67
Fannie Mae 4.92-5.12% due 1/8-3/18/1999 3,000 2,965 1.16
Freddie Mac 4.95% due 1/25/1999 1,900 1,885 .74
---------------------
TOTAL SHORT-TERM SECURITIES (cost: $33,722,000) 33,722 13.21
---------------------
TOTAL INVESTMENT SECURITIES (cost: $228,514,000) 253,930 97.01
Excess of cash and receivables over payables 1,372 .54
------------------------
NET ASSETS $255,302 97.55%
======== ========
(1) Non-income-producing securities.
(2) Valued under procedures established by the Board of Trustees.
(3) 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, 1998
Anglogold
Applied Materials
Astra
AT&T
BankAmerica
Coca-Cola Beverages
Computer Associates International
Deutsche Telekom
Fox Entertainment Group
Fuji Television
Grupo Televisa
Guidant
Koninklijke Ahold
Luxottica Group
Mirage Resorts
News Corp.
NGK Spark Plug
Nippon Telegraph and Telephone
Nissan Motor
PeopleSoft
Preussag
Quantum
Sealed Air
Shell Transport and Trading
Shohkoh Fund
Stet Hellas Telecommunications
Tele-Communications
Telefonaktiebolaget LM Ericsson
Stocks eliminated from the portfolio
since May 31, 1998
Advanced Micro Devices
Chrysler
General Motors
Home Depot
Host Marriott
Inco
Kyocera
Oil Co. LUKoil
Oryx Energy
Rambus
Raytheon
Rio Tinto
Thomson-CSF
Viking Office Products
</TABLE>
<TABLE>
AMERICAN VARIABLE INSURANCE SERIES GLOBAL SMALL CAPITALIZATION FUND
Investment Portfolio, NOVEMBER 30, 1998
<S> <C> <C> <C>
Where the Fund's Assets Are Invested
Percent of
Net Assets
--------
The Americas 58.02%
Europe 11.22%
Asia/Pacific 7.54%
Other Countries 1.85%
Cash & Equivalent 21.37%
100.00%
Largest Individual Stocks
PMC-Sierra 2.61%
Sanmina 2.41
ABR Information Services 2.24
HNC Software 1.87
Sapient 1.56
Laurentian Bank of Canada 1.53
Jones Intercable 1.50
Black Box 1.43
USWeb 1.39
Flextronics International 1.38
Market Percent
Number of Value of Net
STOCKS (common and preferred) Shares (000) Assets
- --------------------------------------------------------------------- -------- -------- --------
BUSINESS & PUBLIC SERVICES - 14.56%
ABR Information Services, Inc. (USA)(1) 95,000 $ 1 2.24%
Sapient Corp. (USA)(1) 24,400 1,128 1.56
Black Box Corp. (USA)(1) 29,500 1,036 1.43
USWeb Corp. (USA)(1) 44,000 1,001 1.39
Flextronics International Ltd. (Singapore)(1) 15,000 998 1.38
Midas, Inc. (USA) 28,700 895 1.24
Protection One, Inc. (USA)(1) 62,400 601 .83
Kroll-O'Gara Co. (USA)(1) 18,700 580 .80
Medicis Pharmaceutical Corp., Class A (USA)(1) 9,200 580 .80
NCO Group, Inc. (USA)(1) 15,100 557 .77
Strayer Education, Inc. (USA) 13,500 502 .70
Rhon-Klinikum AG (Germany) 5,000 486 .67
Corporate Services Group PLC (United Kingdom) 178,750 433 .60
International Container Terminal Services, Inc. (Philippines)(1) 4,500,000 401 .56
Budget Group, Inc., Class A (USA)(1) 28,500 356 .49
Renaissance Worldwide Inc. (USA)(1) 46,700 333 .46
ARIS Corp. (USA)(1) 20,000 327 .45
Brunel International NV (Netherlands) 13,048 252 .35
Fujitsu Support and Service Inc. (Japan)(2) 1,000 56 .08
ELECTRONIC COMPONENTS - 10.56%
PMC-Sierra, Inc. (USA)(1) 35,000 1,886 2.61
Sanmina Corp. (USA)(1) 35,000 1,743 2.41
Level One Communications, Inc. (USA)(1) 30,000 928 1.29
Venture Manufacturing (Singapore) Ltd (Singapore) 150,000 574
Venture Manufacturing Ltd (Singapore)(2) 90,000 344 1.28
Micrel, Inc. (USA)(1) 20,000 811 1.12
NatSteel Electronics Ltd (Singapore)(2) 175,000 378 .52
Megachips Corp. (Japan)(1,2) 10,000 358 .50
Cymer, Inc. (USA)(1) 14,100 212 .29
Towa Corp. (Japan) 8,500 202 .28
Cicorel Holding AG (Switzerland)(1) 700 133 .18
QPL International Holdings Ltd. (Hong Kong -
Incorporated in Bermuda) 664,000 57 .08
MERCHANDISING - 8.00%
Disco SA (ADR) (Argentina)(1) 44,250 916 1.27
Rent-Way, Inc. (USA)(1) 30,000 814 1.13
DFS Furniture Co. PLC (United Kingdom) 250,000 701 .97
EUROBIKE AG (Germany) 40,000 691 .95
White Cap Industries, Inc. (USA)(1) 50,000 663 .92
Migros Turk TAS (Turkey) 650,000 642 .89
Komori Corp. (Japan) 40,000 569 .79
GrandVision SA (France) 20,000 448 .62
Dickson Concepts (International) Ltd. (Hong Kong-
Incorporated in Bermuda) 310,000 334 .46
DATA PROCESSING & REPRODUCTION - 7.61%
HNC Software Inc. (USA)(1) 40,900 1,350 1.87
Aspect Development, Inc. (USA)(1) 25,000 836 1.16
Platinum Software Corp. (USA)(1) 69,300 736 1.02
Macromedia, Inc. (USA)(1) 25,900 724 1.00
National Computer Systems, Inc. 20,000 657 .91
Remedy Corp. (USA)(1) 50,000 522 .72
Vantive Corp. (USA)(1) 60,000 510 .71
Edify Corp. (USA)(1) 19,300 159 .22
BROADCASTING & PUBLISHING - 6.93%
Jones Intercable, Inc., Class A (USA)(1) 35,000 1,087 1.51
Century Communications Corp., Class A (USA)(1) 40,000 977 1.35
Westwood One, Inc. (USA)(1) 32,100 851 1.18
United Television, Inc. (USA) 6,000 660 .91
APN News and Media, Ltd. (Australia) 400,000 541 .75
Central European Media Enterprises Ltd., Class A (1)
(USA - Incorporated in Bermuda) 80,000 520 .72
Sondagsavisen A/S (Denmark) 7,500 372 .51
LEISURE & TOURISM - 4.34%
Morton's Restaurant Group, Inc. (USA)(1) 35,000 696 .96
Navigant International, Inc. (USA)(1) 100,000 637 .88
Lions Gate Entertainment Corp. (Canada)(1) 200,000 620 .86
Imax Corp. (Canada)(1) 20,000 545 .76
Cheesecake Factory Inc. (USA)(1) 14,300 372 .52
Hoyts Cinemas Ltd., units (Australia) 282,300 262 .36
BANKING - 2.52%
Laurentian Bank of Canada (Canada) 63,700 1,107 1.53
Citizens Banking Corp. (USA) 22,100 714 .99
FOOD & HOUSEHOLD PRODUCTS - 2.28%
Santa Isabel SA (ADR) (Chile) 75,000 642 .89
Grupo Industrial Maseca, SA de CV, Class B (ADR) (Mexico) 31,300 421 .58
Geest PLC (United Kingdom) 45,000 301 .42
Metro-Richelieu Inc., Class A (Canada) 24,000 282 .39
RECREATION & OTHER CONSUMER PRODUCTS - 2.21%
Radica Games Ltd. (1) 52,000 812 1.12
Movado Group, Inc. (USA) 30,000 608 .84
Metromedia International Group, Inc. (USA)(1) 40,000 178 .25
HEALTH & PERSONAL CARE - 1.76%
Aviron (USA)(1) 29,200 628 .87
Pharmacyclics, Inc. (USA)(1) 20,000 347 .48
Grupo Casa Autrey, SA de CV (ADR) (Mexico) 45,000 298 .41
ELECTRONIC INSTRUMENTS - 1.52%
Etec Systems, Inc. (USA)(1) 16,600 546 .76
Disco Corp. (Japan) 10,000 283 .39
ASM Pacific Technology Ltd. (Hong Kong) 700,000 267 .37
BEVERAGES & TOBACCO - 1.28%
Robert Mondavi Corp., Class A (USA) (1) 13,600 498 .69
Quilmes Industrial SA, preferred shares
(ADR) (Luxembourg) 45,000 425 .59
BUILDING MATERIALS & COMPONENTS - 1.08%
Futuris Corp. Ltd. (Australia) 675,000 778 1.08
INSURANCE - 1.02%
LandAmerica Financial Group, Inc. (USA) 12,000 736 1.02
MISCELLANEOUS MATERIALS & COMMODITIES - 0.97%
SPARTECH Corp. (USA) 35,000 698 .97
FINANCIAL SERVICES - 0.84%
American Capital Strategies, Ltd. (USA) 40,000 610 .84
INDUSTRIAL COMPONENTS - 0.70%
Hayes Lemmerz International, Inc. (USA)(1) 16,000 504 .70
CHEMICALS - 0.60%
Gurit-Heberlein AG (Switzerland) 130 321 .44
Kalon Group PLC (United Kingdom) 78,000 117 .16
TELECOMMUNICATIONS - 0.55%
Western Telecom (France)(1) 25,000 277 .38
CESKE RADIOKOMUNIKACE AS (GDR) (Czech Republic)(1,2) 4,200 123 .17
REAL ESTATE - 0.45%
TBI PLC (United Kingdom) 204,100 328 .45
MACHINERY & ENGINEERING - 0.40%
KCI Konecranes International Corp. (Finland) 6,800 290 .40
ENERGY SOURCES - 0.38%
Premier Oil PLC (United Kingdom) 430,000 152 .21
Ramco Energy PLC (United Kingdom) 26,400 122 .17
TRANSPORTATION: SHIPPING - 0.38%
ICB Shipping AB, Class B (Sweden) 35,400 274 .38
EQUITY COMMON TRUSTS - 0.32%
Atle AB, Class A (Sweden) 16,800 233 .32
AEROSPACE & MILITARY TECHNOLOGY - 0.16%
Alvis PLC (United Kingdom) 38,400 115 .16
MISCELLANEOUS - 4.97%
Other stocks in initial period of acquisition 3592 4.97
-------- --------
TOTAL STOCKS (cost: $60,509,000) 56802 76.39
-------- --------
Principal Market Percent
Amount Value of Net
SHORT-TERM SECURITIES (000) (000) Assets
- --------------------------------------------------------------------- -------- -------- --------
CORPORATE SHORT-TERM NOTES - 19.15%
BP Capital PLC 5.30% due 12/1/98 $ 1,500 2.08
Canadian Wheat Board 5.02% due 2/19/99 1,300 1,285 1.78
BMW U.S. Capital Corp. 5.10% due 12/10/98 1,000 999 1.38
E.I. du Pont de Nemours and Co. 5.17% due 12/7/98 1,000 999 1.38
Reed Elsevier Inc. 5.11% due 12/4/98 (2) 1,000 999 1.38
Unilever PLC 5.00% due 12/4/98 (2) 1,000 999 1.38
Siemens Corp. 5.02% due 1/22/99 1,000 993 1.37
Vermont American Corp. 5.11% due 12/18/98 (2) 900 898 1.24
Kellogg Co. 5.30% due 12/4/98 825 824 1.14
Pfizer Inc. 5.09% due 12/2/98 (2) 800 800 1.11
France Telecom 5.15% due 12/14/98 800 798 1.11
KFW International Finance Inc. 5.15% due 12/9/98 700 699 .97
Household Finance Corp. 5.00% due 12/22/98 550 548 .76
Diageo Capital PLC 5.15% due 12/18/98 (2) 500 499 .69
American Honda Finance Corp. 5.40% 1/13/99 500 497 .69
Mobil Australia Finance Co. 5.08% due 2/8/99 (2) 500 495 .69
FEDERAL AGENCY DISCOUNT NOTES - 4.26%
Federal Home Loan Bank 5.00%-5.04% due 12/4/98-1/29/99 2,500 2,483 3.44
Freddie Mac 4.95% due 1/25/99 600 595 .82
-------- --------
TOTAL SHORT-TERM SECURITIES (cost: $16,911,000) 16,910 23.41
-------- --------
TOTAL INVESTMENT SECURITIES (cost: $77,420,000) 73,712 99.80
Excess of payables over cash and receivables 1,470 2.04
-------- --------
NET ASSETS $72,242 97.76%
======== ========
(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.
ADR = American Depositary Receipts
GDR = Global Depositary Receipts
See Notes to Financial Statements
</TABLE>
<TABLE>
Stocks appearing in the portfolio Stocks eliminated from the portfolio
since November 30, 1998 since November 30, 1998
<S> <C>
American Capital Strategies Dr Solomon's Group
Aspect Development Four Media
Century Communications Hartmarx
CESKE RADOKOMUNIDACE Medallion
EUROBIKE Petco Animal Supplies
Fujitsu Support and Service Rambus
Futuris
Imax
Megachips
Morton's Restaurant Group
Movado Group
National Computer Systems
NatSteel Electronics
Navigant International
PMC- Sierra
Radica Games
Rent- Way
Rhon-Klinikum
Sanmina
Santa Isabel
Sapient
Venture Manufacturing
Western Telecom
White Cap Industries
</TABLE>
<TABLE>
GROWTH FUND
Investment Portfolio November 30, 1998
- ------------------------------------------------------------
<S> <C> <C> <C>
STOCKS 91.99%
CASH &
EQUIVALENTS 8.01%
- ------------------------------------------------------------
Percent
Of Net
Largest Individual Stocks Assets
- ------------------------------------------------------------ -------
Time Warner 5.08%
Viacom 4.89
Tele-Communications, Liberty Media Group 3.05
Cendant 2.89
Texas Instruments 2.72
Disney 2.06
Comcast 1.79
Altera 1.79
King World Productions 1.72
USA Networks 1.67
Market Percent
Number of Value of Net
Stocks (common and preferred) Shares (000) Assets
- -------------------------------------------- ------- ------- -------
Broadcasting & Publishing - 24.74%
Time Warner Inc. 2,702,575 $285,797 5.08%
Viacom Inc., Class B (1) 3,700,000 246,281 4.89
Viacom Inc., Class A (1) 439,200 28,850
Tele-Communications, Inc., Series A, Liberty Media Group (1 4,255,205 171,538 3.05
Comcast Corp., Class A, special 2,075,000 100,897 1.79
USA Networks, Inc. (1) 2,970,000 93,741 1.67
News Corp. Ltd., preferred (ADR) (Australia) 2,102,500 52,957 1.58
News Corp. Ltd. (ADR) 1,270,000 35,560
Fox Entertainment Group, Inc., Class A (1) 2,750,000 64,969 1.16
CSC Holdings, Inc. (Formerly Cablevision Systems Corp.), Cla 1,500,000 62,062 1.10
Cox Communications, Inc., Class A (1) 1,105,600 58,251 1.04
Jones Intercable, Inc., Class A (1) 1,525,000 47,370 .84
Tele-Communications, Inc., Series A, TCI Group (1) 1,089,078 46,014 .82
BHC Communications, Inc., Class A (1) 286,189 31,910 .57
Tele-Communications, Inc., Series A, TCI Ventures Group (1) 1,545,698 30,624 .55
United International Holdings, Inc., Class A (1) 1,180,000 19,912 .35
Jacor Communications, Inc. (1) 100,000 5,819 .10
Adelphia Communications Corp., Class A (1) 135,000 4,717 .08
Chancellor Media Corp., Class A (1) 100,000 3,769 .07
Electronic Components - 15.22%
Texas Instruments Inc. 2,000,000 152,750 2.72
Altera Corp. (1) 2,050,000 100,578 1.79
Intel Corp. 860,800 92,644 1.65
Microchip Technology Inc. (1) 2,105,000 73,280 1.30
Micron Technology, Inc. (1) 1,696,300 70,078 1.25
SCI Systems, Inc. (1) 1,213,326 58,998 1.05
Linear Technology Corp. 800,000 56,050 1.00
Quantum Corp. (1) 2,275,000 50,334 .89
ADC Telecommunications, Inc. (1) 1,305,900 39,014 .69
Adaptec, Inc. (1) 2,336,000 37,960 .68
Xilinx, Inc. (1) 700,000 35,525 .63
Analog Devices, Inc. (1) 1,366,666 27,931 .50
LSI Logic Corp. (1) 1,000,000 15,500 .28
Newbridge Networks Corp. (Canada) (1) 460,000 13,455 .24
National Semiconductor Corp. (1) 665,000 9,559 .17
Motorola, Inc. 103,400 6,411 .11
Seagate Technology (1) 200,000 5,900 .10
Rogers Corp. (1) 190,800 5,176 .09
Park Electrochemical Corp. 250,000 4,797 .08
Business & Public Services - 9.38%
Cendant Corp. (1) 8,564,800 162,731 2.89
Columbia/HCA Healthcare Corp. 2,047,500 50,420 .90
Waste Management, Inc. (formerly USA Waste Services, Inc.) 1,070,597 45,902 .82
Federal Express Corp. (1) 700,000 45,413 .81
America Online, Inc. (1) 436,000 38,177 .68
Cambridge Technology Partners (Massachusetts), Inc. (1) 1,400,000 29,225 .52
Concord EFS, Inc. (1) 850,900 27,069 .48
Universal Health Services, Inc., Class B (1) 500,000 26,813 .48
Allied Waste Industries, Inc. (1) 1,257,100 25,613 .46
Flextronics International Ltd. (USA - Incorporated in Singap 300,000 19,950 .35
First Data Corp. 500,000 13,344 .24
Avery Dennison Corp. 220,000 10,546 .19
Ceridian Corp. (1) 150,000 9,759 .17
Paychex, Inc. 125,000 6,219 .11
Electronic Data Systems Corp. 150,000 5,850 .10
TeleTech Holdings, Inc. (1) 640,000 5,840 .10
APAC TeleServices, Inc. (1) 700,000 4,550 .08
Data Processing & Reproduction - 8.42%
Solectron Corp. (1) 1,271,000 84,124 1.50
Oracle Corp. (1) 2,425,000 83,056 1.48
PeopleSoft, Inc. (1) 3,100,000 63,744 1.13
Ascend Communications, Inc. (1) 750,000 42,141 .75
Microsoft Corp. (1) 300,000 36,600 .65
Autodesk, Inc. 859,100 31,250 .56
Silicon Graphics, Inc. (1) 2,170,000 26,582 .47
Intuit Inc. (1) 393,300 22,762 .41
Lexmark International Group, Inc., Class A (1) 200,000 15,275 .27
Computer Associates International, Inc. 320,800 14,195 .25
Vantive Corp. (1) 1,269,156 10,788 .19
Compaq Computer Corp. 300,000 9,750 .17
Gateway 2000, Inc. (1) 150,000 8,419 .15
Structural Dynamics Research Corp. (1) 475,000 8,283 .15
3Com Corp. (1) 205,000 7,931 .14
Mentor Graphics Corp. (1) 800,000 6,900 .12
Data General Corp. (1) 100,000 1,813 .03
Leisure & Tourism - 5.58%
Walt Disney Co. 3,600,000 115,875 2.06
King World Productions, Inc. (1) 3,550,000 96,737 1.72
Carnival Corp. 1,284,800 44,326 .79
Mirage Resorts, Inc. (1) 2,700,000 40,162 .71
MGM Grand, Inc. (1) 650,000 16,697 .30
Insurance - 2.99%
American International Group, Inc. 800,000 75,200 1.34
EXEL Ltd., Class A (Incorporated in Bermuda) 635,000 47,704 .85
Transatlantic Holdings, Inc. 405,000 30,780 .55
MGIC Investment Corp. 320,000 14,060 .25
Health & Personal Care - 2.51%
Sepracor Inc. (1) 300,000 24,900 .44
Guidant Corp. 250,000 21,453 .38
Warner-Lambert Co. 244,400 18,452 .33
Gilead Sciences, Inc. (1) 500,000 15,563 .28
Pfizer Inc 100,000 11,163 .20
BioChem Pharma Inc. (Canada) (1) 400,000 9,750 .17
SEQUUS Pharmaceuticals, Inc. (1) 440,416 8,698 .16
Johnson & Johnson 97,600 7,930 .14
Forest Laboratories, Inc. (1) 160,000 7,460 .13
Novoste Corp. (1) 400,000 6,500 .12
Omnicare, Inc. 150,000 4,294 .08
Guilford Pharmaceuticals, Inc. (1) 200,000 2,825 .05
Pharmacia & Upjohn, Inc. 36,250 1,887 .03
Chemicals - 2.37%
Monsanto Co. 1,721,200 77,992 1.39
Valspar Corp. 750,000 24,938 .44
Air Products and Chemicals, Inc. 450,000 17,156 .31
Praxair, Inc. 200,000 7,638 .13
Engelhard Corp. 284,400 5,492 .10
Banking - 2.23%
Washington Mutual, Inc. 1,225,000 47,469 .84
BankBoston Corp. 581,680 24,212 .43
Charter One Financial, Inc. 791,824 23,507 .42
Wells Fargo & Co. 500,000 18,000 .32
M&T Bank Corp. 25,000 12,463 .22
Telecommunications - 2.23%
AirTouch Communications (1) 1,550,000 88,641 1.58
MCI WorldCom, Inc. (formerly MCI Communications Corp.) (1) 460,243 27,154 .48
Paging Network, Inc. (1) 1,500,000 9,281 .17
Electronic Instruments - 2.13%
Applied Materials, Inc. (1) 2,041,700 79,116 1.41
Perkin-Elmer Corp. 363,900 33,934 .60
Security Dynamics Technologies, Inc. (1) 250,000 3,812 .07
ANTEC Corp. (1) 150,000 2,775 .05
Transportation:Airlines - 1.97%
AMR Corp. (1) 790,000 52,091 .93
Southwest Airlines Co. 2,350,675 50,539 .90
Delta Air Lines, Inc. 150,000 8,053 .14
Merchandising - 1.95%
Consolidated Stores Corp. (1) 2,152,425 46,277 .82
Limited Inc. 617,700 17,875 .32
Lowe's Companies, Inc. 400,000 16,900 .30
Cardinal Health, Inc., Class A 222,300 15,255 .27
Circuit City Stores, Inc. - Circuit City Group 200,000 7,237 .13
Venator Group, Inc. (formerly Woolworth Corp.) (1) 774,300 6,098 .11
Electrical & Electronics - 1.56%
Telefonaktiebolaget LM Ericsson, Class B (ADR) (Sweden) 1,590,000 43,924 .78
Northern Telecom Ltd. (Canada) 390,000 18,208 .32
General Instrument Corp. (1) 600,000 16,875 .30
Nokia Corp., Class A (ADR) (Finland) 90,000 8,820 .16
Financial Services - 1.37%
Fannie Mae 500,000 36,375 .65
Household International, Inc. 700,000 27,388 .49
Capital One Financial Corp. 120,000 13,200 .23
Energy Sources - 0.89%
Murphy Oil Corp. 350,000 13,956 .25
Pogo Producing Co. 1,124,300 13,070 .23
Enterprise Oil PLC (United Kingdom) 1,700,000 9,335 .17
Talisman Energy Inc. (Canada) (1) 400,000 6,961 .12
TOTAL, Class B (ADR) (France) 110,000 6,724 .12
Textiles & Apparel - 0.83%
NIKE, Inc., Class B 1,000,000 40,000 .71
Nine West Group Inc. (1) 544,500 6,806 .12
Beverages & Tabacco - 0.69%
Philip Morris Companies Inc. 555,000 31,045 .55
PepsiCo, Inc. 200,000 7,738 .14
Miscellaneous Materials & Commodities - 0.67%
Sealed Air Corp. (1) 850,000 37,506 .67
Recreation & Other Consumer Products - 0.48%
Hasbro, Inc. 770,700 27,023 .48
Food & Household Products - 0.26%
Keebler Foods Co. (1) 250,000 8,422 .15
Dole Food Co., Inc. 200,000 6,325 .11
Energy Equipment - 0.25%
Schlumberger Ltd. (Netherlands Antilles) 250,000 11,172 .20
Baker Hughes Inc. 162,500 2,976 .05
Aerospace & Military Technology - 0.24%
Gulfstream Aerospace Corp. (1) 267,000 13,717 .24
Transportation: Rail & Road - 0.06%
Wisconsin Central Transportation Corp. (1) 200,000 3,625 .06
Machinery & Engineering - 0.06%
Thermo Electron Corp. (1) 200,000 3,375 .06
Miscellaneous - 2.91%
Other stocks in intial period of acquisition 163,859 2.91
------- -------
TOTAL STOCKS (cost: $3,548,234,000) 5,172,758 91.99
------- -------
Principal
Amount
Short-Term Securities (000)
CORPORATE SHORT - TERM NOTES - 8.14%
A.I. Credit Corp. 5.00%-5.14% due 12/9/1998-1/6/1999 $64,900 64,648 1.15
Lucent Technologies Inc. 5.05%-5.17%
due 12/4-12/10/1998 52,605 52,559 .94
E.I. du Pont de Nemours and Co. 5.23%-5.28%
due 1/13-1/20/1999 50,000 49,662 .88
Johnson & Johnson 5.08% due 1/21/1999 50,000 49,635 .88
Ford Motor Credit Co. 5.04% due 1/8/1999 40,000 39,777 .71
PACCAR Financial Corp. 4.99%-5.12%
due 12/3/1998-2/22/1999 29,500 29,320 .52
General Electric Capital Corp. 5.00% due 2/1/1999 27,500 27,246 .48
PepsiCo. Inc. 5.03%-5.05% due 1/7-1/12/1999 26,000 25,858 .46
H.J. Heinz Co. 5.05%-5.18% due 1/7-1/25/1999 25,875 25,708 .46
National Rural Utilities Cooperative Finance Corp. 5.00%
due 1/11/1999 22,600 22,460 .40
General Motors Acceptance Corp. 5.11%-5.19%
due 12/7/1998-1/4/1999 19,400 19,359 .34
BellSouth Telecommunications, Inc. 4.95%-5.00%
due 1/27-2/4/1999 16,340 16,200 .29
Associates Corp. of North America 5.06% due 1/11/1999 15,000 14,906 .27
Household Finance Corp. 5.05% due 1/14/1999 15,000 14,901 .26
Associates First Capital Corp. 5.34% due 12/2/1998 5,500 5,498 .10
FEDERAL AGENCY DISCOUNT NOTES - 0.37%
Fannie Mae 4.92% due 3/18/1999 13,000 12,807 .23
Freddie Mac 5.07%-5.21% due 12/3/1998-2/11/1999 8,151 8,078 .14
------- -------
TOTAL SHORT-TERM SECURITIES (cost: $478,657,000) 478,622 8.51
------- -------
TOTAL INVESTMENT SECURITIES (cost: $4,026,891,000) 5,651,380 100.50
Excess of payables over cash and receivables 28,272 .50
------- -------
NET ASSETS $5,623,108 100.00%
======= =======
(1) Non-income-producing securities.
ADR = American Depositary Receipts
See notes to Financial Statements
Stocks appearing in the portfolio
since May 31, 1998
American International
Applied Materials
Compaq Computer
Computer Associates International
Fox Entertainment
Gateway 2000
General Instrument
Gilead Sciences
Keebler Foods
MGIC Investment
Northern Telecom
Paging Network
PeopleSoft
Praxair
Sealed Air
TeleTech Holdings
WorldCom
Stocks eliminated from the portfolio
since May 31, 1998
Aetna
Avon Products
Barnes & Noble
Bay Networks
Boise Cascade Office Products
Coram Healthcare
Digital Equipment
Dura Pharmaceuticals
Ecolab
Harrah's Entertainment
Host Marriott
KLA-Tencor
LCI International
Midway Games
Mycogen
Netscape Communications
NextLevel Systems
Oryx Energy
Payless ShoeSource
Rambus
Security Capital
Sequent Computer Systems
Shared Medical Systems
Spiegel
Stone & Webster
Transocean Offshore
Union Texas Petroleum Holdings
Western Atlas
Western Digital
</TABLE>
<TABLE>
AMERICAN VARIABLE INSURANCE SERIES INTERNATIONAL FUND
Investment Portfolio, November 30, 1998
<S> <C> <C>
Where the Fund's Assets Are Invested
Percent of
Net Assets
-----------
EUROPE 66.76%
ASIA/PACIFIC 16.75%
THE AMERICAS 8.17%
OTHER COUNTRIES 2.19%
CASH AND EQUIVALENTS 6.13%
TOTAL 100.0%
Largest Individual Stocks
Telefonica 4.48%
Nokia 3.43
Telefonaktiebolaget LM Ericsson 2.72
TELECEL - Comunicacoes Pessoais 2.32
Deutsche Telekom 2.24
Olivetti 2.17
Koninklijke Philips Electronics 2.02
Novartis 2.02
Bayerische Motoren Werke 1.76
Rentokil Initial 1.76
Market Percent
Number of Value of Net
Stocks (common and preferred) Shares (000) Assets
- -----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 21.76%
Telefonica, SA (Spain) 2,077,636 97,652
Telefonica, SA (ADR) 172,363 24,023 4.48%
TELECEL - Comunicacoes Pessoais, SA (Portugal) 322,835 63,134 2.32
Deutsche Telekom AG (Germany) 2,167,400 60,812 2.24
Orange PLC (United Kingdom) (1) 4,440,000 45,394 1.67
Telefonos de Mexico, SA de CV, Class L (ADR) (Mexico) 882,000 41,068 1.51
Telecom Italia SpA, nonconvertible savings (Italy) 5,754,265 35,673
Telecom Italia SpA 345,000 2,793 1.41
Mannesmann AG (Germany) 350,000 37,857 1.39
Koninklijke PTT Nederland NV (Netherlands) 634,000 27,348 1.01
France Telecom, SA (France) 365,000 25,341 .93
Telecom Italia Mobile SpA (Italy) 2,000,000 13,144
Telecom Italia Mobile SpA savings 1,312,800 5,554 .69
Cable & Wireless Communications PLC (United Kingdom) (1) 1,900,000 16,950 .62
Telefonica de Argentina SA, Class B (ADR) (Argentina) 417,000 13,500 .50
Philippine Long Distance Telephone Co. (Philippines) 205,000 5,380
Philippine Long Distance Telephone Co. (ADR) 154,000 4,033 .48
Philippine Long Distance Telephone Co., convertible preferred (GDR) 80,000 3,780
China Telecom (Hong Kong) Ltd. (ADR) (People's Republic of China) (1 314,600 12,446 .46
Cia. de Telecomunicaciones de Chile SA (ADR) (Chile) 425,300 9,862 .36
DDI Corp. (Japan) 2,600 8,451 .31
Hong Kong Telecommunications Ltd. (Hong Kong) 4,000,000 7,647 .28
Bayan Telecommunications Holdings Corp., 150,000 7,500
convertible preferred (Philippines) (1,2,3)
Bayan Telecommunications Holdings Corp. (1,2,3) 57,209 146 .28
NTT Mobile Communications Network, Inc. (Japan) (1) 163 6,225 .23
Panafon Hellenic Telecommunications Co., SA (Greece) (1,3) 300,400 5,385 .20
SK Telecom Co., Ltd. (South Korea) 5,017 3,506 .13
Telstra Corp. Ltd. (Australia) (1) 700,000 3,105 .11
Perusahaan Perseroan (Persero) PT Indonesian Satellite Corp. (Indone 1,600,000 2,314
Perusahaan Perseroan (Persero) PT Indonesian Satellite Corp. (ADR) 40,000 560 .11
Videsh Sanchar Nigam Ltd. (GDR) (India) 108,600 1,110 .04
BROADCASTING & PUBLISHING - 8.86%
Mediaset SpA (Italy) (1) 4,000,000 28,358
Mediaset SpA 1,967,000 13,945 1.56
CANAL+ (France) 124,418 28,582 1.05
Societe Europeenne des Satellites, Class A (FDR) (Luxembourg) (1) 143,000 22,176 .82
FLEXTECH PLC (United Kingdom) (1) 2,250,000 21,575 .79
News Corp. Ltd. (ADR) (Australia) 362,000 10,136
News Corp. Ltd., preferred (United Kingdom) 793,719 4,973 .72
News Corp. Ltd., preferred (ADR) 181,000 4,559
ProSieben Media AG (Germany) 400,000 19,169 .71
Metropole Television (France) 106,000 17,439 .64
Fuji Television (Japan) 3,733 14,864 .55
Television Francaise 1 SA (France) 80,000 13,991 .51
Grupo Televisa, SA (ADR) (Mexico) (1) 321,100 8,168 .30
Nippon Television Network Corp. (Japan) 21,000 6,672 .25
Television Broadcasts Ltd. (Hong Kong) 2,259,300 5,836 .21
Modern Times Group MTG AB, Class B (ADR) (Sweden) (1) 61,000 3,923
Modern Times Group MTG AB, Class A (1) 101,600 1,286 .19
Seven Network Ltd. (Australia) 1,531,083 5,084 .19
TV Azteca, SA de CV (ADR) (Mexico) 463,900 3,479 .13
Hachette Filipacchi Medias (France) 14,909 3,132 .12
Primedia Ltd. units (South Africa) 391,631 1,094
Primedia Ltd. units, Class N 167,842 389 .05
SOFTBANK CORP. (Japan) 24,900 1,437 .05
Publishing & Broadcasting Ltd. (Australia) 150,000 651 .02
ELECTRICAL & ELECTRONICS - 7.95%
Nokia Corp., Class A (Finland) 652,000 63,853
Nokia Corp., Class K 300,000 29,380 3.43
Telefonaktiebolaget LM Ericsson, Class B (Sweden) 2,269,200 63,022
Telefonaktiebolaget LM Ericsson, Class B (ADR) 400,000 11,050 2.72
Siemens AG (Germany) 350,000 24,344 .90
Northern Telecom Ltd. (Canada) 460,000 21,476 .79
Premier Farnell PLC (United Kingdom) 1,000,000 2,968 .11
BUSINESS & PUBLIC SERVICES - 6.90%
Rentokil Initial PLC (formerly Rentokil Group PLC) (United Kingdom) 7,144,100 47,728 1.76
Vivendi, SA (France) 166,934 37,733 1.39
Suez Lyonnaise des Eaux (France) 145,000 28,621 1.05
Brambles Industries Ltd. (Australia) 925,682 22,621 .83
TNT Post Groep (Netherlands) 634,000 15,944 .59
Aegis Group PLC (United Kingdom) 7,350,000 10,878 .40
Thames Water PLC (United Kingdom) 435,416 8,602 .32
Reuters Holdings PLC (United Kingdom) 776,533 7,497 .27
United Utilities PLC (United Kingdom) 320,424 4,671 .17
Zhejiang Expressway Co. Ltd., Class H (People's Republic of China) 17,262,000 3,233 .12
Sasani Ltd. (South Africa) 1,229,528 50 .00
FOOD & HOUSEHOLD PRODUCTS - 4.92%
Nestle SA (Switzerland) 20,936 43,470 1.60
Raisio Group PLC (Finland) 2,319,300 30,045 1.10
Cadbury Schweppes PLC (United Kingdom) 1,500,000 22,675 .83
Reckitt & Colman PLC (United Kingdom) 1,076,375 15,122 .56
Groupe Danone (France) 50,987 14,877 .55
Kerry Group PLC, Class A (United Kingdom) 560,000 7,572 .28
MERCHANDISING - 4.03%
Dixons Group PLC (United Kingdom) 3,850,000 46,520 1.71
Carrefour SA (France) 39,000 27,591 1.02
Koninklijke Ahold NV (Netherlands) 437,436 15,164 .56
Cifra, SA de CV, Class C (Mexico) (1) 6,000,000 7,336
Cifra, SA de CV, Class V (1) 3,397,506 4,195 .42
Kingfisher PLC (United Kingdom) 553,798 5,278 .19
Coles Myer Ltd. (Australia) 660,436 3,413 .13
HEALTH & PERSONAL CARE - 3.67%
Novartis AG (Switzerland) 29,324 55,007 2.02
AB Astra, Class A (Sweden) 1,333,333 24,414 .90
Zeneca Group PLC (United Kingdom) 418,200 17,344 .64
SmithKline Beecham PLC (ADR) (United Kingdom) 50,000 3,047 .11
BANKING - 3.58%
Safra Republic Holdings SA (Luxembourg) 468,000 22,464 .83
Bank of Nova Scotia (Canada) 975,000 21,393 .79
Westpac Banking Corp. (Australia) 2,349,948 15,635 .57
Royal Bank of Scotland Group PLC (United Kingdom) 650,000 9,797 .36
ForeningsSparbanken AB, Class A (Sweden) 310,000 8,686 .32
Bank of Scotland (United Kingdom) 707,000 7,858 .29
Sakura Bank, Ltd. (Japan) 1,720,000 4,389 .16
Commonwealth Bank of Australia (Australia) 304,105 4,182 .15
Fuji Bank, Ltd. (Japan) 470,000 1,860 .07
Standard Chartered Bank (United Kingdom) 100,000 1,062 .04
DATA PROCESSING & REPRODUCTION - 3.30%
Olivetti SpA (Italy) (1) 20,602,400 54,072
Olivetti SpA, warrants, expire 2002 (1) 2,490,400 5,058 2.17
Dassault Systemes SA (France) 466,000 18,183 .67
Fujitsu Ltd. (Japan) 1,070,000 12,364 .46
APPLIANCES & HOUSEHOLD DURABLES - 3.07%
Koninklijke Philips Electronics NV (formerly 870,000 55,040 2.02
Philips Electronics NV) (Netherlands)
Sony Corp. (Japan) 340,000 24,894 .92
Samsung Electronics Co., Ltd. (South Korea) 65,000 3,477 .13
ELECTRONIC COMPONENTS - 2.82%
Rohm Co., Ltd. (Japan) 340,000 28,734 1.06
Hoya Corp. (Japan) 475,000 19,956 .73
Murata Manufacturing Co., Ltd. (Japan) 455,000 17,821 .66
Hirose Electric Co., Ltd. (Japan) 111,000 7,441 .27
LG Semicon Co., Ltd. (South Korea) (1) 239,820 2,697 .10
AUTOMOBILES - 2.72%
Bayerische Motoren Werke AG (Germany) 48,000 37,064
Bayerische Motoren Werke AG (1) 14,400 10,865 1.76
Suzuki Motor Corp. (Japan) 1,700,000 19,478 .72
Mazda Motor Corp. (Japan) (1) 1,535,000 5,925 .22
Honda Motor Co., Ltd. (Japan) 14,000 503 .02
BEVERAGES & TOBACCO - 2.24%
South African Breweries Ltd. (South Africa) 1,416,686 23,977 .88
Coca-Cola Beverages PLC (United Kingdom) (1) 6,505,950 13,518
Coca-Cola Amatil Ltd. (Australia) 2,408,093 8,068 .80
Panamerican Beverages, Inc., Class A (Multinational-Incorporated in 486,000 11,208 .41
San Miguel Corp., Class B (Philippines) 2,357,000 4,144 .15
MULTI-INDUSTRY - 2.15%
Orkla AS, Class A (Norway) 1,835,700 30,636 1.13
Lend Lease Corp. Ltd. (Australia) 452,616 11,016 .41
Siebe PLC (United Kingdom) 3,060,000 10,988 .40
Benpres Holdings Corp. (GDR) (Philippines) (1) 2,156,000 5,821 .21
FINANCIAL SERVICES - 1.64%
Shohkoh Fund & Co., Ltd. (Japan) 109,000 35,961 1.32
Credicorp Ltd. (Peru) 792,000 8,712 .32
ENERGY SOURCES - 1.41%
Broken Hill Proprietary Co. Ltd. (Australia) 2,078,038 16,469 .61
Imperial Oil Ltd. (Canada) 330,000 5,981 .22
Elf Aquitaine (France) 40,000 4,985 .18
TOTAL, Class B (ADR) (France) 75,000 4,584 .17
"Shell" Transport and Trading Co., PLC (New York Registered) (United 90,000 3,268 .12
Woodside Petroleum Ltd. (Australia) 600,000 3,045 .11
AEROSPACE & MILITARY TECHNOLOGY - 1.34%
Bombardier Inc., Class B (Canada) 2,787,800 36,320 1.34
BUILDING MATERIALS & COMPONENTS - 1.27%
Holderbank Financiere Glaris Ltd. (Switzerland) 15,000 17,355 .64
Cemex, SA de CV (Mexico) 4,769,224 11,567
Cemex, SA de CV, Class A 2,321,450 5,584 .63
RECREATION & OTHER CONSUMER PRODUCTS - 1.24%
EMI Group PLC (United Kingdom) 3,800,000 22,621 .83
Nintendo Co., Ltd. (Japan) 50,000 4,636 .17
Sony Music Entertainment (Japan) Inc. (Japan) 90,000 3,964 .15
Square Co., Ltd. (Japan) 125,000 2,580 .09
CHEMICALS - 0.89%
Bayer AG (Germany) 590,000 24,205 .89
METALS: NONFERROUS - 0.79%
Alcan Aluminium Ltd. (Canada) 310,000 8,254 .30
WMC Ltd. (Australia) 1,928,134 6,063 .22
Pechiney, Class A (France) 90,000 2,996 .11
Inco Ltd. (Canada) 180,000 2,081 .08
Teck Corp., Class B (Canada) 300,000 2,028 .08
FOREST PRODUCTS & PAPER - 0.77%
UPM-Kymmene Corp. (Finland) 795,000 20,813 .77
INSURANCE - 0.76%
Royal & Sun Alliance Insurance Group PLC (United Kingdom) 1,786,407 14,906 .55
ING Groep NV (Netherlands) 100,000 5,725 .21
GOLD MINES & PAPER - 0.49%
Anglogold Ltd. (South Africa) 275,000 13,436 .49
UTILITIES: ELECTRIC & GAS - 0.42%
Cia. Paranaense de Energia-COPEL, Class B, preferred nominative (Bra480,373,000 4,619
Cia. Paranaense de Energia-COPEL, ordinary nominative 328,207,800 2,104 .25
Scottish Power PLC (United Kingdom) 350,000 3,723 .14
Cia. Energetica de Minas Gerais - CEMIG (Brazil) 43,678,798 673 .02
Centrais Geradoras do Sul do Brasil SA - GERASUL, 53,800 350 .01
Class B, preferred nominative (ADR) (Brazil) (1)
MACHINERY & ENGINEERING - 0.34%
Valmet Corp. (Finland) 600,000 8,145 .30
Kvaerner AS, Class A (Norway) 80,000 1,207 .04
CONSTRUCTION & HOUSING - 0.30%
YTL Corp. Bhd. (Malaysia) (3) 10,000,000 8,032 .30
ELECTRONIC INSTRUMENTS - 0.29%
ADVANTEST CORP. (Japan) 118,400 7,909 .29
INDUSTRIAL COMPONENTS - 0.23%
Bridgestone Corp. (Japan) 175,000 4,096 .15
Minebea Co., Ltd. (Japan) 200,000 2,150 .08
REAL ESTATE - 0.22%
Cheung Kong (Holdings) Ltd. (Hong Kong) 500,000 3,600 .13
Mitsui Fudosan Co., Ltd. (Japan) 159,000 1,220 .05
Kerry Properties Ltd. (Hong Kong - Incorporated In Bermuda) 1,411,000 1,139 .04
LEISURE & TOURISM - 0.20%
Mandarin Oriental International Ltd. (Singapore) 6,911,218 5,460 .20
TRANSPORTATION: SHIPPING - 0.18%
Stolt-Nielsen SA, Class B (ADR) (Multinational) 327,000 3,924 .14
Nippon Yusen KK (Japan) 353,000 1,076 .04
ENERGY EQUIPMENT - 0.16%
Petroleum Geo-Services ASA (ADR) (Norway) (1) 311,600 4,382 .16
MISCELLANEOUS MATERIALS & COMMODITIES - 0.15%
English China Clays PLC (United Kingdom) 1,583,750 4,100 .15
MISCELLANEOUS -- 2.32%
Other stocks in initial period of acquisition 63,143 2.32
----------------------
TOTAL STOCKS (cost: $1,924,615,000) 2,538,817 93.38
----------------------
Principal
Amount
Convertible Debentures (000)
- ----------------------------------------------------------------------------------------------------
BROADCASTING & PUBLISHING - 0.29%
United News & Media PLC 6.125% 2003 GBP4,500 7,708 .29
ELECTRONIC COMPONENTS - 0.11%
Acer Peripherals Inc. 1.25% 2006 (2) $2,680 2,948 .11
ENERGY SOURCES - 0.03%
Zhenhai Refining & Chemical Co. Ltd. 3.00% 2003 (2) 950 817 .03
MISCELLANEOUS -- 0.06%
Other equities in initial period of acquisition 1,682 .06
----------------------
TOTAL CONVERTIBLE DEBENTURES (cost: $12,793,000) 13,155 .49
----------------------
TOTAL EQUITY-TYPE SECURITIES (cost: $1,937,408,000) 2,551,972 93.87
----------------------
Principal Market Percent
Amount Value of Net
Short-Term Securities (000) (000) Assets
- -----------------------------------------------------------------------------------------------------
CORPORATE SHORT-TERM NOTES - 6.34%
British Gas Capital Inc. 5.25% due 1/4/1999 24,100 23,977 .88
General Electric Capital Corp. 5.45% due 12/1/1998 17,700 17,697 .65
Shell Finance (UK) PLC 5.12% due 2/2/1999 16,700 16,548 .61
Siemens Capital Corp. 5.18% due 1/20/1999 15,100 14,992 .55
Export Development Corp. 5.02% due 1/28/1999 15,000 14,874 .55
Electricite de France 5.12% due 2/16/1999 14,900 14,736 .54
Rio Tinto America, Inc. 5.15% due 1/8/1999 (2) 14,000 13,922 .51
Unilever NV 5.00% due 12/4/1998 (2) 13,000 12,993 .48
Diageo Capital PLC 5.07% due 12/11/1998 (2) 12,000 11,982 .44
Nestle Capital Corp. 5.00% due 1/27/1999 11,300 11,207 .41
International Lease Finance Corp. 5.19% due 1/14/1999 10,000 9,935 .37
General Motors Acceptance Corp. 5.17% due 1/4/1999 9,700 9,651 .35
NON-U.S. CURRENCY - 0.09%
New Taiwanese Dollar NT$77,697 2,399 .09
----------------------
TOTAL SHORT-TERM SECURITIES (cost: $174,774,000) 174,913 6.43
----------------------
TOTAL INVESTMENT SECURITIES (cost: $2,112,182,000) 2,726,885 100.30
Excess of payables over cash and receivables 8,172 .30
------------------------
NET ASSETS $2,718,713 100.00%
======== ========
(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.
(3) Valued under procedures established by the Board of Trustees.
ADR = American Depositary Receipts
FDR = Fiduciary Depositary Receipts
GDR = Global Depositary Receipts
See Notes to Financial Statements
Stocks appearing in the portfolio
since May 31, 1998
ADVANTEST
Anglogold
Bayer
Broken Hill Proprietary
Centrais Geradoras do Sul do Brasil - GERASUL
DDI
Fuji Television
NTT Mobile Communications Network
Panafon Hellenic Telecommunications
Siemens
Societe Europeenne des Satellites
Telstra
TNT POST
Stocks eliminated from the portfolio
since May 31, 1998
Amway Japan
Australia and New Zealand Banking
Ayala Land
Bank of Montreal
BOC Group
Centrais Eletricas Brasileiras SA - ELETROBRAS
CESP - Cia. Energetica de Sao Paulo
China Southern Airlines
Christiania Bank
Cia. Cervejaria Brahma
Cie. Generale des Etablissements Michelin
Deutsche Bank
Grupo Financiero Banamex Accival
Havas
Hellenic Bottling
Hongkong Electric Holdings
Hutchison Whampoa
Hyundai Electronics Industries
Imasco
Incentive
Kawasaki Heavy Industries
Kyocera
LG Electronics-LG Semiconductors
Mandamus
Oil Co. LUKoil
Pathe
RAO Gazprom
SGL Carbon
Societe Centrale des Assurances Generales de France
Springer (Axel) Verlag
Swire Pacific
Telecomunicacoes Brasileiras
Tesco
Toronto-Dominion Bank
Unidanmark
</TABLE>
<TABLE>
American Variable Insurance Series
GROWTH-INCOME FUND
Investment Portfolio - November 30, 1998
<S> <C> <C> <C>
Equity Securities 88.76%
Cash & Equivalents 11.24%
Percent
of Net
Largest Individual Stocks Assets
Oracle 1.71%
Texas Instruments 1.58
Monsanto 1.45
Viacom 1.31
First Union 1.28
Wells Fargo 1.24
Time Warner 1.15
York International 1.10
Warner-Lambert 1.04
3Com 1.01
Market Percent
Number of Value of Net
Stocks (common and preferred) Shares (000) Assets
Data Processing & Reproduction - 7.13%
Oracle Corp. (1) 3,622,700 $124,077 1.71%
3Com Corp. (1) 1,900,000 73,506 1.01
Xerox Corp. 609,400 65,510 .90
Microsoft Corp. (1) 500,000 61,000 .84
Computer Associates International, Inc. 1,000,000 44,250 .61
Hewlett-Packard Co. 500,000 31,375 .43
Silicon Graphics, Inc. (1) 2,424,300 29,698 .41
Adobe Systems Inc. 600,000 26,850 .37
International Business Machines Corp. 135,400 22,341 .31
Cisco Systems, Inc. (1) 200,000 15,075 .21
Compaq Computer Corp. 400,000 13,000 .18
Gateway 2000, Inc. (1) 200,000 11,225 .15
Health & Personal Care - 6.99%
Warner-Lambert Co. 1,000,000 75,500 1.04
Schering-Plough Corp. 600,000 63,825 .88
Glaxo Wellcome PLC (ADR) (United Kingdom) 950,000 60,325 .83
Guidant Corp. 600,000 51,487 .71
Astra AB, Class A (ADR) (Sweden) 2,600,000 48,100 .66
Pfizer Inc 400,000 44,650 .61
Kimberly-Clark Corp. 740,000 38,942 .54
Merck & Co., Inc. 250,000 38,719 .53
Bristol-Myers Squibb Co. 275,000 33,705 .46
Avon Products, Inc. 800,000 32,500 .45
Johnson & Johnson 250,000 20,313 .28
Banking - 6.37%
First Union Corp. 1,530,000 92,947 1.28
Wells Fargo & Co. 2,497,000 89,892 1.24
BankAmerica Corp. 856,537 55,835 .77
Washington Mutual Savings Bank 1,200,000 46,500 .64
Marshall & Ilsley Corp. 599,800 30,552 .42
Bank of New York Co., Inc. 800,000 27,400 .37
Chase Manhattan Corp. 400,000 25,375 .35
KeyCorp 800,000 24,550 .33
SunTrust Banks, Inc. 280,000 19,547 .27
J.P. Morgan & Co. Inc. 150,000 16,031 .22
Huntington Bancshares Inc. 459,679 13,618 .19
BANK ONE CORP. 183,012 9,391 .13
Bank of Tokyo - Mitsubishi, Ltd. (ADR) (Japan) 600,000 6,337 .09
Sakura Bank, Ltd. (ADR) (Japan) 200,000 5,000 .07
Broadcasting & Publishing - 6.26%
Viacom Inc., Class B (1) 1,425,000 94,851 1.31
Time Warner Inc. 792,000 83,754 1.15
Tele-Communications, Inc., Series A, Liberty Media Group (1) 1,285,937 51,839 .71
Harte-Hanks Communications, Inc. 1,845,600 43,602 .60
News Corp. Ltd. (ADR) (Australia) 1,100,000 30,800
News Corp. Ltd., preferred (ADR) 400,000 10,075 .56
Houston Industries Inc. 7.00% ACES convertible preferred 2000 350,000 32,200 .44
Media General, Inc., Class A 636,100 30,175 .42
Gannett Co., Inc. 385,400 24,882 .34
E.W. Scripps Co., Class A 372,800 19,176 .26
Comcast Corp., Class A, special stock 350,000 17,019 .24
Fox Entertainment Group, Inc., Class A (1) 700,000 16,537 .23
Chemicals - 5.60%
Monsanto Co. 2,325,000 105,352 1.45
Morton International, Inc. 2,200,000 64,763 .89
International Flavors & Fragrances Inc. 1,100,000 46,063 .63
Praxair, Inc. 1,094,100 41,781 .58
Millennium Chemicals Inc. 1,641,600 39,193 .54
E.I. du Pont de Nemours and Co. 600,000 35,250 .49
Mallinckrodt Inc. 770,000 24,881 .34
Dow Chemical Co. 180,000 17,528 .24
PPG Industries, Inc. 250,000 15,297 .21
Witco Corp. 500,000 9,531 .13
Air Products and Chemicals, Inc. 200,000 7,625 .10
Energy Sources - 5.59%
Ultramar Diamond Shamrock Corp. 2,780,400 71,595 .99
Valero Energy Corp. (2) 2,809,000 58,989 .81
Atlantic Richfield Co. 750,000 49,875 .69
Conoco Inc., Class A (1) 1,374,000 32,547 .45
Noble Affiliates, Inc. 1,160,000 29,362 .40
Pennzoil Co. 780,900 28,991 .40
Amoco Corp. 450,000 26,522 .36
Texaco Inc. 350,000 20,147 .28
Murphy Oil Corp. 463,200 18,470 .25
Kerr-McGee Corp. 450,000 17,775 .24
Oryx Energy Co. (1) 1,250,000 17,266 .24
Pioneer Natural Resources Co. 930,700 12,332 .17
Ashland Inc. 250,000 12,156 .17
Phillips Petroleum Co. 250,000 10,500 .14
Merchandising - 4.38%
American Stores Co. 1,750,000 58,734 .81
J.C. Penney Co., Inc. 1,050,000 57,750 .79
Circuit City Stores, Inc. - Circuit City Group 1,425,000 51,567 .71
Albertson's, Inc. 818,700 46,717 .64
Federated Department Stores, Inc. (1) 700,000 29,181 .40
Limited Inc. 900,000 26,044 .36
AutoZone, Inc. (1) 750,000 22,594 .31
Lowe's Companies, Inc. 300,000 12,675 .17
Circuit City Stores, Inc. - CarMax Group (1) 1,300,000 6,987 .10
Venator Group, Inc. (formerly Woolworth Corp.) (1) 798,600 6,289 .09
Business & Public Services - 4.28%
Cendant Corp. (1) 2,800,000 53,200 .73
Electronic Data Systems Corp. 1,349,500 52,631 .73
Browning-Ferris Industries, Inc. 1,656,100 .67
IKON Office Solutions, Inc. 4,050,000 39,488 .54
Hertz Corp., Class A 991,800 36,449 .50
Waste Management, Inc. 725,000 31,084 .43
Alexander & Baldwin, Inc. 1,020,000 23,460 .32
Pitney Bowes Inc. 350,000 19,600 .27
Avery Dennison Corp. 127,500 6,112 .09
Telecommunications- 4.09%
Ameritech Corp. 1,161,800 62,882 .87
AT&T Corp. 1,000,000 62,312 .86
GTE Corp. 739,900 45,874 .63
AirTouch Communications (1) 755,000 43,176 .59
Telefonica, SA (ADR) (Spain) 218,181 30,409 .42
MCI Communications Corp. (1) 435,365 25,686 .35
U S WEST Communications, Inc. 275,000 17,119 .24
SBC Communications Inc. 200,000 9,588 .13
Forest Products & Paper - 3.89%
Bowater Inc. 1,495,000 59,052 .81
Weyerhaeuser Co. 950,000 47,619 .66
Fort James Corp. 1,169,499 45,757 .63
Union Camp Corp. 600,000 38,812 .53
Georgia-Pacific Corp., Georgia-Pacific Group 448,300 25,441
Georgia-Pacific Corp., Timber Group 300,000 6,900 .45
Sonoco Products Co. 800,000 23,950 .33
International Paper Co. 450,000 19,547 .27
Chesapeake Energy Corp. 192,600 6,681 .09
Westvaco Corp. 187,500 5,273 .07
Louisiana-Pacific Corp. 200,000 3,400 .05
Electronic Components - 3.54%
Texas Instruments Inc. 1,500,000 114,562 1.58
Intel Corp. 500,000 53,813 .74
AMP Inc. 632,381 30,591 .42
Corning Inc. 679,500 27,265 .38
Micron Technology, Inc. (1) 300,000 12,394 .17
SCI Systems, Inc. (1) 200,000 9,725 .13
Quantum Corp. (1) 400,000 8,850 .12
Beverages & Tobacco - 3.35%
Philip Morris Companies Inc. 1,305,000 72,998 1.00
RJR Nabisco Holdings Corp. 1,800,000 51,863 .71
Seagram Co. Ltd. (Canada) 1,300,000 44,606 .62
PepsiCo, Inc. 820,000 31,724 .44
Anheuser-Busch Companies, Inc. 350,000 21,219 .29
UST Inc. 600,000 20,850 .29
Insurance - 2.41%
St. Paul Companies, Inc. 937,254 33,038 .46
Aetna Inc. 375,000 28,992 .40
General Re Corp. 110,000 25,685 .35
Allstate Corp. 600,000 24,450 .34
American General Corp. 320,000 22,540 .31
MGIC Investment Corp. 500,000 21,969 .30
Royal & Sun Alliance Insurance Group PLC (United Kingdom) 2,200,000 18,357 .25
Utilities: Electric & Gas - 2.29%
Ameren Corp. 1,145,400 47,176 .65
DPL Inc. 1,600,000 32,000 .44
GPU, Inc. 725,000 31,764 .43
TECO Energy, Inc. 1,050,000 28,219 .39
Williams Companies, Inc. 622,000 17,921 .25
Duke Energy Corp. 150,000 9,384 .13
Electrical & Electronics - 2.20%
York International Corp. 1,902,900 79,922 1.10
Northern Telecom Ltd. (Canada) 978,840 45,700 .63
Nokia Corp., Class A (ADR) (Finland) 180,000 17,640 .24
Siemens AG (Germany) 240,000 16,693 .23
Financial Services - 2.09%
Household International, Inc. 1,813,320 70,946 .98
Capital One Financial Corp. 300,000 33,000 .45
FINOVA Group Inc. 360,000 19,013 .26
Transamerica Corp. 170,000 18,063 .25
Associates First Capital Corp., Class A 138,732 10,804 .15
Machinery & Engineering - 2.03%
Deere & Co. 1,016,600 35,517 .49
Ingersoll-Rand Co. 525,000 24,577 .34
Parker Hannifin Corp. 675,000 23,456 .32
New Holland NV (Netherlands) 1,570,900 21,502 .30
Caterpillar Inc. 400,000 19,775 .27
Pall Corp. 700,000 16,275 .22
Greenfield Capital Trust 6.00% convertible preferred 118,000 6,136 .09
Aerospace & Military Technology - 1.90%
United Technologies Corp. 350,000 37,516 .51
Raytheon Co., Class B 350,000 19,381
Raytheon Co., Class A 224,030 12,252 .44
Boeing Co. 750,000 30,469 .42
Sundstrand Corp. 500,000 27,000 .37
Gulfstream Aerospace Corp. (1) 225,000 11,559 .16
Industrial Components - 1.49%
Eaton Corp. 520,000 35,523 .49
Federal-Mogul Corp. 456,600 25,912 .36
TRW Inc. 400,000 22,025 .30
Tower Automotive, Inc. (1) 400,000 9,100 .13
Dana Corp. 231,800 9,040 .12
Genuine Parts Co. 200,000 6,588 .09
Multi-Industry - 1.32%
FMC Corp. (1) 550,000 31,969 .44
Textron Inc. 340,000 26,414 .36
Loews Corp. 200,000 20,000 .28
AlliedSignal Inc. 400,000 17,600 .24
Energy Equipment - 1.18%
Schlumberger Ltd. (Netherlands Antilles) 1,170,000 52,284 .72
Baker Hughes Inc. 1,810,120 33,148 .46
Electronic Instruments - 1.17%
Perkin-Elmer Corp. 500,000 46,625 .64
Applied Materials, Inc. (1) 1,000,000 38,750 .53
Food & Household Products - 1.07%
General Mills, Inc. 500,000 37,750 .52
Bestfoods 400,000 23,250 .32
Colgate-Palmolive Co. 200,000 17,125 .23
Textiles & Apparel - 0.88%
NIKE, Inc., Class B 1,040,000 41,600 .57
VF Corp. 460,000 22,569 .31
Miscellaneous Materials & Commodities - 0.72%
Crown Cork & Seal Co., Inc. 1,100,000 37,125 .51
Potash Corp. of Saskatchewan Inc. (Canada) 250,000 15,422 .21
Real Estate - 0.62%
Boston Properties, Inc. 750,000 23,672 .33
Equity Residential Properties Trust 500,000 21,156 .29
Leisure & Tourism - 0.60%
Walt Disney Co. 1,364,796 43,929 .60
Metals: Nonferrous - 0.35%
Aluminum Co. of America 340,000 25,203 .35
Metals: Steel - 0.34%
Allegheny Teledyne Inc. 1,200,000 24,675 .34
Transportation: Rail & Road - 0.23%
Norfolk Southern Corp. 540,000 16,403 .23
Miscellaneous - 4.25%
Other stocks in initial period of acquisition 309,202 4.25
--------- ---------
TOTAL STOCKS (cost:$4,972,455,000) 6,439,754 88.61
--------- ---------
Principal
Amount Market ValuePercent of
Convertible Debentures (000) (000) Net Assets
Business & Public Services - 0.15%
Cendant Corp. (formerly CUC International Inc.) 3.00% 2002(3) $12,000 10,965 .15
--------- ---------
TOTAL CONVERTIBLE DEBENTURES (cost: $11,982,000) 10,965 .15
--------- ---------
TOTAL EQUITY SECURITIES (cost: $4,984,437,000) 6,450,719 88.76
--------- ---------
Short-Term Securities
Corporate Short-Term Notes - 8.91%
International Lease Finance Corp. 5.10%-5.18% due 12/8/98-2/12/99 75,900 75,367 1.04
A.I. Credit Corp. 5.10%-5.12% due 12/4-12/9/98 54,600 54,548 .75
H.J. Heinz Co. 5.05%-5.20% due 1/7-1/25/99 43,100 42,791 .59
Procter & Gamble Co. 4.95%-5.00% due 12/11/98-1/22/99 38,100 37,932 .52
PepsiCo, Inc. 5.03%-5.05% due 1/7-1/12/99 38,100 37,885 .52
Coca-Cola Co. 5.00%-5.08% due 1/12/99 34,000 33,795 .47
Eastman Kodak Co. 5.11%-5.12% due 12/3-12/4/98 31,000 30,985 .43
General Motors Acceptance Corp. 5.11%-5.16% due 12/7/1998-1/14/1999 30,400 30,246 .42
Ford Motor Credit Co. 5.18% due 12/1/98 30,000 29,996 .41
Associates First Capital Corp. 5.32%-5.34% due 12/2/98-1/6/99 28,500 28,414 .39
CIT Group Holdings, Inc. 5.09% due 12/14/98 27,500 27,445 .38
American Express Credit Corp. 5.05% due 12/15/98-1/26/99 27,000 26,855 .37
PACCAR Financial Corp. 4.99%-5.12% 12/7/98-1/26/99 26,000 25,867 .36
St. Paul Companies, Inc. 5.07%-5.16% due 12/3-12/10/98 (3) 25,000 24,984 .34
Ameritech Capital Funding Corp. 5.00%-5.04% due 1/12-1/20/99 (3) 25,100 24,928 .34
Lucent Technologies Inc. 5.17% due 12/8/98 22,700 22,674 .31
Sara Lee Corp. 5.00% due 12/23/98 20,000 19,936 .27
Associates Corp. of North America 5.06%-5.26% due 1/5-1/11/99 20,000 19,881 .27
National Rural Utilities Cooperative
Finance Corp. 5.00%-5.33% due 1/7-1/11/99 19,500 19,387 .27
General Electric Capital Corp. 5.00% due 2/1/99 18,500 18,329 .25
Kellogg Co. 5.10% due 12/10/98 12,000 11,983 .16
Gannett Co., Inc. 5.05% due 1/11/99 (3) 3,600 3,579 .05
Federal Agency Discount Notes - 2.28%
Freddie Mac 4.66%-5.30% due 12/3/98-2/24/99 111,650 110,805 1.52
Federal Home Loan Banks 5.02%-5.10% due 12/4/98-1/13/99 55,300 55,069 .76
--------- ---------
TOTAL SHORT-TERM SECURITIES (cost: $813,716,000) 813,681 11.19
--------- ---------
TOTAL INVESTMENT SECURITIES (cost: $5,798,153,000) 7,264,400 99.95
Excess of cash and receivables over payables 3,317 .05
--------- ---------
NET ASSETS $7,267,717 100.00%
=======================
(1)Non-income-producing securities.
(2)The Fund owns 5.03% of the outstanding voting securities of Valero Energy,
which represent investments in affiliates as defined in the Investment
Company Act of 1940.
(3)Purchased in a private placement transaction; resale to the public
may require registration or sale only to qualified institutional buyers.
ADR = American Depositary Receipts
See Notes to Financial Statements
Stocks appearing in the portfolio
since May 31, 1998
Applied Materials
Boston Properties
Cendant
Cisco Systems
Compaq Computer
Conoco
Equity Residential Properties Trust
Fox Entertainment
Gateway 2000
Genuine Parts
GTE
Gulfstream Aerospace
International Flavors & Fragrances
Loews
MGIC Investment
Micron Technology
Morton International
Northern Telecom
Pall
Perkin-Elmer
Quantum
RJR Nabisco Holdings
SCI Systems
Transamerica
TRW
Washington Mutual Savings Bank
Stocks eliminated from the portfolio
since May 31, 1998
Abbott Laboratories
Alumax
Beneficial
Cardinal Health
Chrysler
Citicorp
Columbia/HCA Healthcare
Crompton & Knowles
DePuy
Elf Aquitaine
Ford Motor
General Motors
Goodyear Tire & Rubber
Harley Davidson
McCormick
Norsk Hydro
Norwest
Rayonier
Regions Financial
Scottish Power
Telefonaktiebolaget LM Ericsson
Unilever
Union Pacific
UNOVA
Wal-Mart Stores
Western Atlas
</TABLE>
<TABLE>
Asset Allocation Fund Percent
Investment Portfolio November 30, 1998 of Net
Assets
<S> <C> <C> <C>
- ---------------------------------------------------- ----------
Equity Securities 61.16%
Corporate Bonds 15.33
U.S. Government Bonds 14.02
Non-U.S. Government Bonds 0.20
Cash & Equivalents 9.29
LARGEST INDIVIDUAL EQUITY SECURITIES
BankAmerica 2.18%
Rentokil Initial 1.92
Century Telephone Enterprises 1.83
Household International 1.76
Zeneca Group 1.66
Carnival 1.65
International Business Machines 1.43
Warner-Lambert 1.35
Citigroup 1.35
Pfizer 1.34
Market Percent
Number of Value of Net
Stocks (common and preferred) Shares (000) Assets
- ---------------------------------------------------- ---------- ---------- ----------
Chemicals- 5.12%
Praxair, Inc. 550,000 $21,003 1.26%
Monsanto Co. 365,600 16,566 .99
Air Products and Chemicals, Inc. 420,000 16,012 .96
Morton International, Inc. 500,000 14,719 .88
Millennium Chemicals Inc. 600,000 14,325 .86
PPG Industries, Inc. 200,000 12,237 .73
E.I. du Pont de Nemours and Co. 200,000 11,750 .70
Energy Sources- 6.26%
Atlantic Richfield Co. 320,000 21,280 1.27
Royal Dutch Petroleum Co. (New York Registered
Shares) (Netherlands) 360,000 16,920 1.01
Chevron Corp. 150,000 12,544 .75
Ultramar Diamond Shamrock Corp. 350,000 9,013 .54
Amoco Corp. 150,000 8,841 .53
Phillips Petroleum Co. 200,000 8,400 .50
Kerr-McGee Corp. 200,000 7,900 .47
Murphy Oil Corp. 175,300 6,990 .42
Oryx Energy Co. (1) 500,000 6,906 .42
Pioneer Natural Resources Co. 442,100 5,858 .35
Banking- 6.18%
BankAmerica Corp. 558,620 36,415 2.18
Citigroup Inc. (formerly Citicorp) 450,000 22,584 1.35
Washington Mutual Savings Bank 400,000 15,500 .93
First Union Corp. 202,500 12,302 .74
KeyCorp 250,000 7,672 .46
Tokai Preferred Capital Co. LLC 9.98% noncumulative
preferred, Series A (2) 5,000 4,400 .26
BNP U.S. Funding Co. LLC 7.738% noncumulative preferred, 2,500 2,414 .14
Series A (2)
IBJ Preferred Capital Co. LLC 8.79% noncumulative preferred,
Series A (2) 1,500 1,305 .08
Fuji JGB investment LLC 9.87% noncumulative preferred, 1,000 711 .04
Series A (Japan) (2)
Health & Personal Care- 6.04%
Zeneca Group PLC (American Depositary Receipts)
(United Kingdom) 660,000 27,761 1.66
Warner-Lambert Co. 300,000 22,650 1.35
Pfizer Inc 200,000 22,325 1.34
SmithKline Beecham PLC (American Depositary
Receipts) (United Kingdom) 300,000 18,281 1.09
Gillette Co. 216,960 9,967 .60
Business & Public Services- 3.44%
Rentokil Initial PLC (American Depositary Receipts)
(United Kingdom) 500,000 32,062 1.92
Reuters Group PLC (American Depositary Receipts)
(United Kingdom) 216,740 12,463 .75
Avery Dennison Corp. 250,000 11,984 .72
Alexander & Baldwin, Inc. 37,500 862 .05
Insurance- 3.22%
St. Paul Companies, Inc. 575,000 20,269 1.21
American General Corp. 176,700 12,446 .75
CIGNA Corp. 150,000 11,672 .70
General Re Corp. 40,000 9,340 .56
Telecommunications- 3.09%
Century Telephone Enterprises, Inc. 536,250 30,566 1.83
Telefonica SA (American Depositary
Receipts) (Spain) 125,000 17,422 1.04
NEXTEL Communications, Inc. 13.00% exchangeable
preferred, Series D (1) (3) 1,461 1,505 .10
NEXTEL Communications, Inc., Class A (1) 4,647 100
Omnipoint Corp. 7.00% convertible preferred (2) 40,000 830 .05
COLT Telecom Group PLC, warrants, expire 2006 (1) (2) 3,750 750 .04
Iridium LLC, warrants, expire 2005 (1) (2) 1,500 218 .01
Conecel Holdings Ltd., Class B, warrants,
expire 2000 (Ecuador) (2) (1) 77,700 117 .01
Esat Telecom Group PLC, warrants, expire 2007
(Ireland) (1) (2) 3,500 108 .01
Loral Space & Communication Ltd.,warrants, expire 2007 1,250 15 .00
(formerly Orion Network Systems, Inc.) (1)
McCaw International, Ltd., warrants, expire 2007 (1) (2) 2,000 6 .00
Aerospace & Military Technology- 2.73%
United Technologies Corp. 190,100 20,376 1.22
Raytheon Co., Class A 161,037 8,807 1.02
Raytheon Co., Class B 150,000 8,306
Boeing Co. 200,000 8,125 .49
Merchandising- 2.39%
J.C. Penney Co., Inc. 290,000 15,950 .96
Limited Inc. 550,000 15,916 .95
Walgreen Co. 150,000 8,053 .48
Electrical & Electronics- 2.35%
Nokia Corp., Class A (American Depositary
Receipts) (Finland) 200,000 19,600 1.17
York International Corp. 400,000 16,800 1.01
Hubbell Inc., Class B 72,300 2,915 .17
Forest Products & Paper- 2.34%
Weyerhaeuser Co. 300,000 15,037 .90
Sonoco Products Co. 400,000 11,975 .71
Union Camp Corp. 100,000 6,469 .39
Georgia-Pacific Corp. 100,000 5,675 .34
Beverages & Tobacco- 2.04%
PepsiCo, Inc. 520,000 20,118 1.21
UST Corp. 400,000 13,900 .83
Financial Services- 1.76%
Household International, Inc. 39 29,344 1.76
Leisure & Tourism- 1.65%
Carnival Corp., Class A 800,000 27,600 1.65
Discovery Zone, Inc. (1) (4) 2,940 15 .00
Discovery Zone, Inc., warrants, expire 2007 (1) (4) 326 0
Data Processing & Reproduction- 1.43%
International Business Machines Corp. 145,000 23,925 1.43
Automobiles- 1.26%
General Motors Corp. 75 21,000 1.26
Food & Household Products- 0.90%
General Mills, Inc. 200,000 15,100 .90
Electronic Components- 0.88%
AMP Inc. 305,287 14,768 .88
Industrial Components- 0.86%
Dana Corp. 200,000 7,800 .47
Genuine Parts Co. 200,000 6,587 .39
Multi-Industry- 0.66%
Textron Inc. 120,000 9,322 .56
Swire Pacific Capital Ltd. 8.84% cumulative
guaranteed perpetual capital securities (Hong Kong) (2) 100,000 1,650 .10
Machinery & Engineering- 0.62%
Deere & Co. 300,000 10,481 .63
Metals: Steel- 0.37%
Allegheny Teledyne Inc. 300,000 6,169 .37
Broadcasting & Publishing- 0.14%
Adelphia Communications Corp. 13.00% exchangeable
preferred, Series B (1) 20,000 2,360 .14
Real Estate- 0.07%
CarrAmerica Realty Corp. 8.57% redeemable preferred,
Series B 50,000 1,116 .07
Recreation-Other Consumer Products- 0.00%
V2 Music Holdings, warrants, expire 2008 1,250 0 .00
(United Kingdom) (2) (1)
Miscellaneous- 3.41%
Other stocks in initial period of acquisition 56,890 3.41
---------- ----------
TOTAL STOCKS (cost: $735,121,000) 1,010,435 59.22
----------- -----------
Principal
Amount
Convertible Debentures (000)
- ---------------------------------------------------- ---------- ----------
Industrials & Services- 0.68% ----------
Bell Atlantic Financial Services, Inc., senior $4,000 4,115 .46
exchangeable notes, 4.25% 2005 (2)
Bell Atlantic Financial Services, Inc. 5.75% 2003 (2) 3,500 3,592
Sunglass Hut International, Inc. 5.25% 2003 3,375 2,160 .13
Advanced Micro Devices, Inc. 6.00% convertible 1,500 1,462 .09
subordinated notes 2005
---------- ----------
TOTAL CONVERTIBLE DEBENTURES (cost: $11,331,000) 11,329 .68
---------- ----------
TOTAL EQUITY SECURITIES (cost: $746,452,000) 1,021,764 59.90
---------- ----------
Bonds & Notes
- -----------------------------------------------
Diversified Media, Cable Television &
Telecommunications- 3.05%
Time Warner Inc.:
9.125% 2013 4,000 4,989 .40
7.25% 2017 1,500 1,633
Cable & Wireless Communications PLC:
6.625% 2005 3,300 3,326 .32
6.75% 2008 2,000 2,009
Comcast Cable Communications, Inc. 8.875% 2017 2,500 3,138 .19
Qwest Communications International Inc. 0%/9.47% 2007 (5) 4,000 3,100 .19
CBS Radio Inc. 11.375% 2009 2,632 3,066 .18
Fox/Liberty Networks, LLC 0%/9.75% 2007 (5) 4,000 2,860 .17
TCI Communications, Inc. 8.75% 2015 2,000 2,505 .15
Tele-Communications, Inc. 9.25% 2023 2,000 2,389 .14
Telemundo Holdings, Inc. 0%/11.50% 2008 (5) 4,000 2,360 .14
Hearst-Argyle Television 7.50% 2027 2,000 2,095 .13
Sprint Capital Corp. 6.875% 2028 2,000 2,093 .13
CBS Corp. 7.15% 2005 2,000 2,077 .12
Falcon Holding Group, LP 0%/9.285% 2010 (5) 3,000 2,077 .12
Conecel Holdings Ltd.:
Series A, 14.00% 2000 (2) 3,000 1,395 .12
14.0% 2002 1,000 560
CEI Citicorp Holdings SA 11.25% 2007 (2) 2,500 1,700 .10
Telesystem International Wireless Inc. 0%/13.25% 2007 (5) 3,700 1,665 .10
Cox Communications, Inc. 6.40% 2008 1,500 1,562 .09
Cablevision Systems Corp. 8.125% 2009 (2) 1,250 1,337 .08
Iridium LLC, Series A, 13.00% 2005 1,500 1,320 .08
WorldCom, Inc. 6.40% 2005 1,000 1,040 .06
V2 Music (Holdings) PLC, units, 0%/14.00% 2008 (2) (5) 1,250 663 .04
Financial Services- 1.66%
Capital One Bank:
7.35% 2000 5,000 5,053 .45
6.375% 2003 2,500 2,457
GS Escrow Corp. 7.125% 2005 (2) 3,000 2,946 .18
Ocwen Financial Corporation 11.875% 2003 2,850 2,508 .15
MBNA America Bank, NA 6.75% 2008 2,500 2,495 .15
Household Finance Corp. 6.40% 2008 2,250 2,304 .14
Pan Pacific Industrial Investments PLC 0% 2007 (2) 6,000 2,100 .12
AT&T Capital Corp. 6.60% 2005 2,000 1,947 .12
PDVSA Finance Ltd. 7.40% 2016 (2) 2,250 1,943 .12
Capital One Financial Corp. 7.125% 2008 1,500 1,433 .08
Wharf International Finance Ltd., Series A, 7.625% 2007 1,750 1,415 .08
Capital One Capital I 6.769% 2027 1,250 1,097 .07
Transportation- 1.62%
Continental Airlines, Inc.:
Series 1996-A, 6.94% 2015 3,816 3,933 .57
Series 1996-2C 10.22% 2014 2,135 2,519
Series 1998-3C 7.25% 2005 1,500 1,504
Series 1997-4A, 6.90% 2018 1,500 1,496
United Air Lines, Inc.:
1996-A2, 7.87% 2019 (7) 2,500 2,544 .28
1995-A1, 9.02% 2012 1,356 1,516
9.00% 2003 500 549
Delta Air Lines, Inc. Pass Through Trust:
1993-A2, 10.50% 2016 (7) 2,000 2,568 .23
1992-A2, 9.20% 2014 (7) 1,000 1,221
Airplanes Pass Through Trust, Class 1-C, 8.15% 2019 (7) 2,948 3,037 .18
Jet Equipment Trust, Series 1995-B, 7.83% 2015 (2) 2,311 2,424 .14
USAir, Inc., 1996-B, 7.50% 2009 2,322 2,386 .14
Canadian National Railway Company 6.45% 2036 1,250 1,293 .08
Banking & Thrifts- 1.61%
National Westminster Bank PLC:
7.75% 2049 3,200 3,361 .27
9.450% 2001 1,000 1,091
Imperial Capital Trust I, Series B, 9.98% 2026 2,950 3,155 .19
MBNA Corp.:
MBNA Capital A, Series A, 8.278% 2026 2,010 2,071 .18
MBNA Capital B, Series B, 6.019% 2027 (6) 1,000 887
Dime Capital Trust I, Series A, 9.33% 2027 2,500 2,718 .16
Chase Capital II, Series B, 5.719% 2027 (6) 2,500 2,366 .14
Bankers Trust New York Corp. 6.70% 2007 2,080 2,145 .13
Chevy Chase Bank, FSB 9.25% 2005 2,000 1,980 .12
Advanta Capital Trust I 8.99% 2026 3,000 1,770 .10
First Union Corp. 6.82%/7.57% 2026 (5) 1,250 1,364 .08
Korea Development Bank 6.50% 2002 1,300 1,159 .07
Chase Capital II 7.67% 2026 1,000 1,068 .06
Abbey National PLC 6.70% 2049 1,000 980 .06
Komercni Banka AS 9.00%/10.75% 2008 (2) (5) 1,000 765 .05
Cellular, Paging & Wireless Communications- 0.90%
NEXTEL Communications, Inc.:
0%/9.95% 2008 (5) 4,500 2,790 .30
0%/9.75% 2007 (5) 2,000 1,265
0%/10.65% 2007 (5) 1,500 994
Clearnet Communications Inc.:
0%/11.75% 2007 (5) 5,250 2,109 .21
0%/10.40% 2008 (5) 4,000 1,411
McCaw International, Ltd. 0%/13.00% 2007 (5) 6,000 3,240 .19
Esat Telecom Group PLC, 0%/12.50% 2007 (5) 3,500 2,328 .14
Omnipoint Corp. 11.625% 2006 1,500 964 .06
Real Estate- 0.85%
CarrAmerica Realty Corp. 6.875% 2008 3,000 2,832 .17
SocGen Real Estate Co. LLC
7.64%/8.40% preferred, Series A (5) 3,000 2,799 .17
Security Capital Pacific Trust 7.20% 2013 2,000 1,796 .11
Irvine Co., Series A, 7.46% 2006 (2) (4) 1,500 1,506 .09
Security Capital Industrial Trust 7.95% 2008 1,500 1,505 .09
Irvine Apartment Communities, LP 7.00% 2007 1,500 1,454 .09
Shopping Center Associates 6.75% 2004 (2) 1,500 1,447 .08
EOP Operating LP 7.25% 2018 1,000 949 .05
Energy & Related Companies- 0.72%
Oryx Energy Co.:
9.50% 1999 3,000 3,086 .40
8.375% 2004 2,500 2,671
10.00% 1999 1,000 1,022
USX Corp. 9.125% 2013 2,500 2,976 .18
OXYMAR 7.50% 2016 (2) 2,500 2,368 .14
Collateralized Mortgage Obligations
(Privately Originated) (7)- 0.58%
DLJ Mortgage Acceptance Corp., Series 1996-CF2:
Class A1, 7.29% 2021 (2) 3,000 3,187 .19
Morgan Stanley Capital I, Inc., Series 1998-HF2,
Class A-2, 6.48% 2030 (6) (7) 3,000 3,110 .19
GMAC Commercial Mortgage Securities, Inc.,
Series 1997-C1, Class A-1, 6.83% 2003 1,985 2,037 .12
Asset-Backed Securities Investment Trust,
Series 1997-D, 6.79% 2003 (2) 1,416 1,418 .08
Broadcasting & Publishing- 0.54%
Chancellor Media Corp:
Series B, 8.75% 2007 2,250 2,312 .23
8.125% 2007 1,500 1,500
News America Holdings Inc.:
7.43% 2026 1,250 1,326 .15
10.125% 2012 1,000 1,171
Ziff-Davis Inc. 8.50% 2008 1,500 1,417 .08
RBS Participacoes SA 11.00% 2007 (2) 2,000 1,300 .08
Utilities: Electric & Gas- 0.54%
Israel Electric Corp. Ltd.:
7.25% 2006 (2) 2,500 2,475 .34
7.70% 2018 (2) 1,750 1,725
7.75% 2027 (2) 1,500 1,443
Commonwealth Edison Co., Series 75, 9.875% 2020 1,500 1,813 .11
Energen Corp., Series B, 7.125% 2028 1,500 1,499 .09
Food & Household Products- 0.48%
Home Products International, Inc. 9.625% 2008 3,000 2,910 .17
AKI Inc. 10.50% 2008 2,500 2,400 .14
Fage Dairy Industry SA 9.00% 2007 2,000 1,700 .10
Gruma, SA de CV 7.625% 2007 1,000 909 .06
Forest Products & Paper- 0.47%
Fort James Corp. 6.625% 2004 2,500 2,540 .15
Container Corp. of America 9.75% 2003 2,000 2,040 .12
Scotia Pacific Company LLC, Class A-2, 7.11% 2028 2,000 1,995 .12
Norampac Inc. 9.375% 2008 (2) 1,000 676 .04
Pindo Deli Finance Mauritius Ltd. 10.75% 2007 1,000 605 .04
Metals: Nonferrous- 0.41%
Inco Ltd.:
9.60% 2022 2,000 2,339 .23
9.875% 2019 1,500 1,570
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 2,750 1,884 .11
Doe Run Resources Corp. 11.696% 2003 (6) 1,500 1,110 .07
Health & Personal Care- 0.37%
Allegiance Corp. 7.00% 2026 300 3,190 .19
Integrated Health Services, Inc., Series A:
9.25% 2008 1,750 1,706 .18
9.50% 2007 1,250 1,234
Asset-Backed Obligations (7) - 0.28%
SCAMT 98-2 5.25% 2008 3,250 3,176 .19
FIRSTPLUS Home Loan Owner Trust, Series 1997-1,
Class A-6, 6.95% 2015 1,500 1,513 .09
Cable & Telephone in the United Kingdom- 0.26%
COLT Telecom Group PLC 0%/12.00% 2006 (5) 3,750 3,216 .19
NTL Inc. 11.5% 2008 1,000 1,097 .07
Merchandising- 0.21%
Dayton Hudson Corp. 8.50% 2022 2,500 2,728 .16
Woolworth Corp., Series A, 7.00% 2002 750 735 .05
Beverages & Tobacco- 0.18%
Sparkling Spring Water Group Ltd. 11.50% 2007 3,000 2,970 .18
Leisure, Tourism & Restaurants- 0.18%
Royal Caribbean Cruises Ltd. 7.00% 2007 3,000 2,963 .18
Electrical & Electronics- 0.13%
Philips Electronics NV 7.20% 2026 2,000 2,111 .13
Manufacturing & Materials- 0.11%
Owens-Illinois, Inc. 8.10% 2007 1,750 1,845 .11
Machinery & Engineering- 0.08%
United Defense Industries, Inc. 8.75% 2007 1,400 1,414 .08
Business & Public Services- 0.06%
Federal Express Corp., Series A-310, Class A-1,
7.53% 2006 945 968 .06
Appliances & Household Durables- 0.05%
Samsung Electronics Co., Ltd. 7.45% 2002 (2) 1,000 870 .05
Non-U.S. Governments & Governmental
Authorities- 0.20%
Canadian Government 4.36% 2026 (8) 2,000 1,384 .08
Mendoza (Province of) 10.00% 2007 (2) 1,300 985 .06
Poland (Republic of), Past Due Interest Bond 5.00% 2014 (6) 1,000 940 .06
Federal Agency Obligations-Mortgage
Pass-Throughs (7)- 2.08%
Fannie Mae:
6.50% 2013 9,578 9,716 1.59
6.00% 2013 9,669 9,681
8.50% 2024 5,229 5,471
7.00% 2009 1,222 1,250
9.00% 2019 360 382
Government National Mortgage Assn.:
8.50% 2027 3,525 3,747 .49
8.00% 2020-2022 3,447 3,612
10.00% 2019 777 843
Federal Agency Obligations-Other- 0.54%
Fannie Mae:
6.53% 2006 5,000 4,992 .54
7.52% 2004 4,000 4,022
U.S. Treasury Obligations- 11.40%
6.50% 2002-2005 50,000 53,725 11.40
7.00% 2006 25,000 28,445
7.13% 2000 25,000 25,734
7.25% 2004 20,000 22,425
10.38% 2009-2012 14,000 19,164
3.63% 2002 12,500 12,747
8.75% 2000-2008 8,000 9,054
8.25% 2005 5,000 5,245
11.88% 2003 2,500 3,275
11.13% 2003 2,000 2,530
8.88% 1999 2,500 2,521
7.50% 2016 2,000 2,505
9.13% 2009 1,500 1,803
11.75% 2010 500 681
10.75% 2003 500 619
---------- ----------
TOTAL BONDS & NOTES (cost: $491,142,000) 493,684 29.55
---------- ----------
Short-Term Securities
- ------------------------------------------------
Corporate Short-Term Notes- 7.88%
BellSouth Telecommunications, Inc. 5.06% due 2/2/1999 20,000 19,820 1.19
National Ruaral Utilities Cooperative Finance Corp. 19,500 19,381 1.16
5.12% due 1/12/1999
International Lease Finance Corp. 5.05% due 12/1/1998 16,900 16,898 1.01
A. I. Credit Corp. 5.17% due 12/14/1998 16,800 16,766 1.00
Lucent Technology 5.17% due 12/8/1998 14,500 14,483 .87
St. Paul Companies 5.15%-5.25% due 12/18/1998-1/25/1999 14,000 13,925 .83
Procter & Gamble Co. 5.00% due 12/11/1998 13,800 13,779 .82
PepsiCo Inc. 5.05% due 1/7/1999 10,000 9,947 .60
Ameritech Corp. 5.00% due 1/12/1999 6,700 6,660 .40
Federal Agency Discount Notes- 1.02%
Fannie Mae 5.00% due 1/26-2/9/1999 17,200 17,043 1.02
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $148,686,000) 148,702 8.90
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $1,386,280,000) 1,664,150 98.35
Excess of cash and receivables over payables 6,461 .39
--------- ---------
NET ASSETS 1,670,611 98.74
========= =========
(1)Non-income-producing securities.
resale to the public may require registration or sale
only to qualified institutional buyers.
(2)Purchased in a private placement transaction;
(3)Payment in kind. The issuer has the option of paying
additional securities in lieu of cash.
(4) Valued under procedures established by the
Board of Trustees.
(5) Step bond; coupon rate will increase at a later date.
(6) Coupon rate changes periodically.
(7)+A465 Pass-through securities backed by a pool of
mortgages or other loans on which principal payments
are periodically made. Therefore, the effective
maturity of these securities is shorter than the stated
maturity.
(8) Index-linked bond, which is a floating rate bond whose
principal amount moves with a government retail price
index.
See Notes to Financial Statements
Equity securities appearing in the portfolio
since May 31, 1998
Corning Inc.
General Motors Corp.
Hewlett-Packard Co.
Household International, Inc.
Millipore Corp
Monsanto Co.
Morton International, Inc.
Schlumberger Ltd.
United Technologies Corp.
Washington Mutual Savings Bank
Equity securities eliminated from the portfolio
since May 31, 1998
Aluminum Co. of America
American Radio Systems Corp
H.F. Ahmanson
Nationsbank (merger with BankAmerica)
Rogers Communications Inc.
Time Warner
Union Pacific Corp.
Wal-Mart Stores, Inc.
</TABLE>
<TABLE>
AMERICAN VARIABLE INSURANCE SERIES
BOND FUND
INVESTMENT PORTFOLIO - November 30, 1998
<S> <C> <C> <C>
CORPORATE BONDS 55.36%
U.S. GOVERNMENT BONDS 24.47
EQUITY SECURITIES 7.45
NON-U.S. GOVERNMENT BONDS 2.88
CASH & EQUIVALENTS 9.84
Percent
of Net
Largest Industry Holdings Assets
Diversified Media, Cable Television
& Telecommunications 5.73%
Transportation 4.21
Financial Services 3.88
Manufacturing & Materials 3.75
Energy & Related Companies 3.30
MFS Communications 1.60%
Ocwen Financial 1.58
First Nationwide Holdings 1.38
Comtel Brasileira 1.34
USAir 1.27
Airplanes Pass 1.08
Time Warner 1.07
Kaiser Aluminum & Chemical 1.00
McDermott 0.95
Jet Equipment 0.87
Banking & Thrifts 2.37
Principal Market Percent
Amount Value Of Net
Bonds & Notes (000) (000) Assets
Diversified Media, Cable Television &
Telecommunications - 7.66%
CBS Corp. 7.15% 2005 3,000 $ 1.35%
Fox/Liberty Networks, LLC:
0%/9.75% 2007 (1) 2,250 1,609
8.875% 2007 500 515 .92
Time Warner Inc.:
7.75% 2005 500 550
7.25% 2017 500 544
7.95% 2000 500 511 .69
WorldCom, Inc.:
8.875% 2006 1,000 1,098
6.40% 2005 250 260 .59
Cablevision Systems Corp. 8.125% 2009 1250 1,337 .58
Comcast Corp.:
Class B, 9.50% 2007 500 540
8.875% 2017 250 314
8.375% 2007 250 292 .50
Qwest Communications International Inc.:
0%/9.47% 2007 (1) 750 581
0%/8.29% 2008 (1) 750 564 .49
PanAmSat Corp. 6.125% 2005 1,000 980 .42
News America Holdings Inc.:
6.625% 2008 500 511
7.43% 2026 250 265 .33
Sprint Capital Corp. 6.875% 2028 625 654 .28
Tele-Communications, Inc. 9.25% 2023 500 597 .26
Consorcio Ecuatoriano de Telecomunicaciones SA CONECEL:
14.00% 2002 500 280
14.00% 2000 (2) 600 279 .24
V2 Music Holdings, units 0%/14.00% 2008 (1) (2) GBP575 503 .22
TVN Entertainment Corp. 14.00% 2008 $550 484 .21
Ziff-Davis Inc. 8.50% 2008 500 472 .20
SpectraSite Holdings, Inc. 0%/12.00% 2008 (1) (2) 500 267 .12
Northern Telecom Ltd. 6.875% 2002 250 259 .11
Iridium LLC, Series A, 13.00% 2005 250 220 .10
Viatel, Inc. 11.25% 2008 125 125 .05
Cellular, Paging & Wireless Communications - 7.65%
Nextel Communications, Inc.:
0%/9.95% 2008 (1) 2,625 1,627
0%/9.75% 2004 (1) 1,000 980
0%/9.75% 2007 (1) 1,500 949
12.00% 2008 (2) 500 553
0%/10.65% 2007 (1) 750 497
0%/12.125% 2008 (1) 1,000 460 2.18
Cable & Wireless Communications PLC:
6.625% 2005 3,660 3,689
6.75% 2008 500 502 1.81
Clearnet Communications Inc.:
0%/11.75% 2007 (1) C$2,658 1,068
0%/10.40% 2008 (1) 3,000 1,058 .92
Esat Telecom Group PLC 0%/12.50% 2007 (1) $2,000 1,330 .57
McCaw International, Ltd. 0%/13.00% 2007 (1) 2,125 1,147 .50
Omnipoint Corp. 11.625% 2006 1,500 964 .42
PageMart Wireless, Inc.:
0%/15.00% 2005 (1) 500 447
0%/11.25% 2008 (1) 750 352 .35
Crown Castle International Corp. 0%/10.625% 2007 (1) 1,000 685 .30
Cellular Communications of Puerto Rico, Inc. 10.00% 2007 500 508 .22
NEXTLINK Communications, Inc. 9.625% 2007 500 495 .21
Globalstar LP 11.375% 2004 500 382 .17
Financial Services - 7.12%
Capital One Bank:
7.15% 2006 810 818
6.375% 2003 500 491
7.125% 2008 500 478
6.769% 2027 (2), (3) 250 219 .87
J.P. Morgan & Co. Inc. 5.861% 2012 (3), (4) 2,000 1,789 .77
Lindsey Morden Group Inc. 7.00% 2008 (2) C$2,750 1,742 .75
MBNA Capital:
Series A, 8.278% 2026 $1,000 1,031
6.75% 2008 500 499 .66
Toyota Motor Credit Corp. 6.00% 2003 1,000 1,020 .44
Ocwen Financial Corp. 11.875% 2003 1,012 .44
AT&T Capital Corp. 6.60% 2005 1,000 974 .42
Abbey National PLC 6.70% 2049 970 951 .41
PDVSA Finance Ltd. 7.40% 2016 (2) 1,000 864 .37
Sintab AB 7.50% 2049 (2) 750 755 .33
National Westminster Bank PLC 7.75% 2049 500 525 .23
Household Finance Corp. 6.40% 2008 500 512 .22
GS Escrow Corp. 7.125% 2005 (2) 500 491 .21
Wharf International Finance Ltd. 7.625% 2007 515 416 .18
BT Capital Trust, Series A, 7.90% 2027 340 362 .16
Pan Pacific Industrial Investments PLC 0% 2007 (1) 785 275 .12
Hutchison Whampoa Finance Ltd., Series D, 6.988% 2037 (2) 300 272 .12
Chase Capital I, Capital Securities, Series A, 7.67% 2026 250 267 .12
Bankers Trust New York Corp. 6.70% 2007 250 258 .11
Bankunited Capital Trust, Bankunited Financial Corp., 10.25% 2026 250 255 .11
Komercni Banka AS 9.00%/10.75% 2008 (1), (2) 250 191 .08
Collateralized Mortgage Obligations (Privately Originated) (5) - 5.73%
Morgan Stanley Capital I, Inc.:
Series 1998-HF2, Class A2, 6.48% 2030 2,500 2,592
Series 98-1, Class A5, 6.75% 2013 705 713 1.42
Nomura Asset Securities Corp., Series 1998-D6, Class A-1A, 6.28% 2030 1,912 1,947 .84
Chase Commercial Mortgage Securities Corp., Series 1998-2, 1,500 1,548 .67
Class A2, 6.39% 2008
Merrill Lynch Mortgage Investors, Inc.:
Series 1995-C3, Class A3, 7.062% 2025 1,000 1,038
Series 1995-C2, Class A, 7.009% 2021 213 216 .54
CS First Boston Mortgage Securities Corp., Series 1998-C1, 1,216 1,241 .54
Class A-1A, 6.26% 2040
Norwest Asset Securities Corp., Series 1998-31, Class A1, 6.25% 2013 1,000 998 .43
GMAC Commercial Mortgage Securities, Inc., Series 1997-C1:
Class A-3, 6.869% 2007 500 530
Class A-1, 6.83% 2003 397 407 .41
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.577% 2 844 902 .39
DLJ Mortgage Acceptance Corp., Series 1995-CF2, Class A1, 6.85% 2027 600 621 .27
Commercial Mortgage Acceptance Corp., Series 1998-C1, Class A1, 6.23% 491 500 .22
Broadcasting & Publishing - 3.90%
CBS Radio, Inc. 11.375% 2009 (6) 1,842 2,146 .93
Chancellor Media Corp.:
8.125% 2007 1,000 1,000
Class B, 8.75% 2007 750 771 .76
Hearst-Argyle Television, Inc. 7.00% 2018 1500 1,528 .66
Time Warner Telecom Inc. 9.75% 2008 975 1,034 .45
Clear Channel Communications, Inc. 7.25% 2027 750 751 .32
Telemundo Holdings, Inc. 0%/11.50% 2008 (1), (2) 1,000 590 .25
Cox Communications, Inc. 6.40% 2008 500 521 .23
American Radio Systems Corp. 9.00% 2006 400 434 .19
RBS Participacoes SA 11.00% 2007 (2) 250 163 .07
Globo Comunicacoes E Participacoes Ltda. 10.50% 2006 (2) 120 91 .04
Health & Personal Care - 3.25%
Columbia/HCA Healthcare Corp.:
6.91% 2005 2,000 1,908
8.85% 2007 500 524
7.15% 2004 500 488 1.27
Integrated Health Services, Inc., Series A:
9.25% 2008 2,000 1,950
9.50% 2007 750 741 1.16
Paracelsus Healthcare Corp. 10.00% 2006 1,500 1,365 .59
Allegiance Corp. 7.00% 2026 500 532 .23
Banking & Thrifts - 2.49%
Advanta Corp.:
Series B, 7.00% 2001 1,900 1,756
6.98% 2002 1,000 892
6.925% 2002 500 445
Capital Trust I, Series B, 8.99% 2026 500 295 1.47
Dime Capital Trust I, Series A, 9.33% 2027 725 788 .34
Imperial Capital Trust I, Series B, 9.98% 2026 550 588 .25
Riggs Capital Trust II 8.875% 2027 (2) 500 519 .22
Chevy Chase Bank, FSB 9.25% 2008 500 495 .21
Leisure, Tourism & Restaurants - 2.46%
Mirage Resorts, Inc. 6.625% 2005 2,000 1,961 .85
Royal Caribbean Cruises Ltd.:
7.25% 2018 1,000 944
7.00% 2007 500 494 .62
William Hill Finance PLC 10.625% 2008 GBP750 1,274 .55
Regal Cinemas, Inc. 9.50% 2008 (2) $500 525 .23
Boyd Gaming Corp. 9.50% 2007 500 490 .21
Transportation - 2.44%
Continental Airlines, Inc.:
Series 1998-3, Class C-2, 7.25% 2005 500 501
7.78% 2007 (5) 491 498
Series 1998-3, Class A-2, 6.32% 2008 500 497
Series 1998-1, Class A, 6.648% 2019 (5) 500 496
Series 1996-C 9.50% 2015 (5) 239 268 .97
Atlas Air, Inc., Pass-Through Trust, Series 1998-1, Class A,
7.38% 2018 (5) 1,500 1,551 .67
Jet Equipment Trust:
Series 1995-D, 11.44% 2014 (2) 300 393
Series 1994-A, 11.79% 2013 (2) 250 339 .32
United Air Lines, Inc. 10.67% 2004 500 594 .26
Airplanes Pass Through Trust, Class C, 8.15% 2019 (5) 491 506 .22
Utilities: Electric & Gas - 1.51%
Israel Electric Corp. Ltd.:
7.70% 2018 (2) 1,000 986
7.75% 2027 (2) 620 596 .68
Cia. de Transporte de Energia Electrica en Alta Tension
TRANSENER SA 9.25% 2008 (2) 1,000 940 .41
United Utilities 6.875% 2028 500 491 .21
Commonwealth Edison Co., Series 75, 9.875% 2020 400 484 .21
Forest Products & Paper - 1.50%
Pindo Deli Finance Mauritius Ltd.:
10.75% 2007 1,450 877
10.25% 2002 500 303 .51
Container Corp. of America 9.75% 2003 1,000 1,020 .44
Fort James Corp.:
6.625% 2004 500 508
6.875% 2007 250 257 .33
Norampac Inc. 9.50% 2008 500 515 .22
Multi-Industry - 1.48%
Sony Corp. 6.125% 2003 2,500 2,541 1.10
Graham Packaging Co. 8.75% 2008 500 513 .22
Reliance Industries Ltd.:
10.25% 2097 (2) 250 188
Series B, 10.25% 2097 250 188 .16
Energy & Related Companies - 1.37%
Pioneer Natural Resources Co. 7.20% 2028 1,500 1,303 .56
J. Ray McDermott, SA 9.375% 2006 500 528 .23
McDermott Inc. 9.375% 2002 400 427 .18
Petrozuata Finance Inc. 7.63% 2009 (2) 750 683 .30
Kelley Oil & Gas Corp. 10.375% 2006 300 237 .10
Cable & Telephone in the United Kingdom - 1.14%
COLT Telecom Group PLC:
7.625% 2008 DM 1,0 592
8.875% 2007 750 467
0%/12.00% 2006 (1) $250 214 .55
NTL Inc.:
11.50% 2008 (2) 500 549
Series B, 10.00% 2007 250 260 .35
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (1) 650 562 .24
Real Estate - 1.13%
SocGen Real Estate Co. LLC, Series A, 7.64% 2049 (2) 1,000 933 .40
EOP Operating LP 6.625% 2005 500 491 .21
Irvine Apartment Communities, LP 7.00% 2007 500 485 .21
Security Capital Pacific Trust 7.20% 2013 500 449 .20
ProLogis Trust 7.05% 2006 250 246 .11
Business & Public Services - 1.00%
Cendant Corp. 7.75% 2003 2,000 2,010 .87
Allied Waste North America, Inc. 10.25% 2006 250 293 .13
Asset- Backed Obligations (5) - 0.93%
Sears Credit Account Master Trust II, Series 1998-2, Class A, 5.25% 2 1,425 1,392 .60
FIRSTPLUS Home Loan Owner Trust, Series 1997-1, Class A-6, 6.95% 2015 500 504 .22
EQCC Home Equity Loan Trust, Asset-Backed Certificates, Series 1996-A,
Class A-2, 6.95% 2012 243 244 .11
Food & Household Products - 0.69%
Gruma, SA de CV 7.625% 2007 1,000 910 .39
AKI Inc. 10.50% 2008 (2) 500 480 .21
Fage Dairy Industry SA 9.00% 2007 250 213 .09
Manufacturing & Materials - 0.58%
Printpack, Inc. 10.625% 2006 500 520 .22
Freeport-McMoRan Copper & Gold Inc. 7.20% 2026 500 343 .15
Kaiser Aluminum & Chemical Corp. 9.875% 2002 250 253 .11
BREED Technologies, Inc. 9.25% 2008 (2) 275 237 .10
Beverages & Tobacco - 0.43%
Sparkling Spring Water Group Ltd. 11.50% 2007 1,000 990 .43
Insurance - 0.32%
Jefferson-Pilot Corp. 8.14% 2046 (2) 700 731 .32
Machinery & Engineering - 0.25%
United Defense Industries, Inc. 8.75% 2007 300 303 .13
Deere & Co. 8.95% 2019 250 288 .12
Miscellaneous Services - 0.23%
Petro Stopping Centers, LP 10.50% 2007 500 526 .23
Independent Power Producers - 0.10%
California Energy Co., Inc. 9.875% 2003 200 221 .10
Non-U.S. Governments & Governmental
Authorities - 2.88%
Canadian Government:
4.615% 2021 (4) C$2,000 1,462
4.362% 2026 (4) 1,000 692 .93
Ontario (Province of) 5.50% 2008 $1,500 1,508 .65
Panama (Republic of) 8.875% 2027 1,250 1,182 .51
Argentina (Republic of) 11.00% 2005 500 526 .23
United Mexican States Government Eurobonds, Global, 11.375% 2016 250 269 .12
Venezuela (Republic of) Eurobond 6.625% 2007 (3) 452 260 .11
Poland (Republic of) Past Due Interest Bond, Bearer, 5.00% 2014 (3) 250 235 .10
Korea (Republic of) 8.875% 2008 200 198 .09
Deutschland Republic 8.00% 2002 DM 2 170 .07
Mendoza (Province of) 10.00% 2007 (2) $200 151 .07
Federal Agency Obligations - Mortgage Pass-Throughs (5) - 8.00%
Government National Mortgage Assn.:
7.00% 2023-2026 4,653 4,763
8.00% 2023 2,759 2,869
7.50% 2023-2024 1,319 1,362
6.50% 2025-2028 1,184 1,196
5.00% 2026 (3) 786 794
6.63% 2026 (3) 665 671
10.00% 2019 518 562
9.50% 2021 508 548 5.52
Fannie Mae:
7.00% 2026 1,500 1,533
6.50% 2013-2026 1,197 1,212
6.00% 2013 947 949
6.131% 2033 (3) 780 787
10.00% 2018-2025 697 757
9.00% 2021 466 494 2.48
Federal Agency Obligations-Other - 0.22%
Freddie Mac: 6.78% 2005 500 500 .22
U.S. Treasury Obligations - 16.25%
6.25% 2003 16,000 16,94
7.25% 2004 6,330 7,105
7.50% 2005-2016 5,000 5,835
8.875% 2017 3,025 4,294
10.375% 2009-2012 1,000 1,332
5.75% 2002 1,000 1,038
3.711% 2002 (4) 1,000 1,020 16.25
-------- --------
TOTAL BONDS & NOTES (cost: $192,896,000) 191,298 82.71
-------- -------
Shares
or Principal
Amount (000)
Stocks
Common & Preferred Stocks - 4.60%
SB Treasury Co. LLC, Series A, 9.40% noncumulative $2,500 2,449 1.06
preferred securities, perpetual (2)
Tokai Preferred Capital Co. LLC, Series A, 9.98% $1,500 1,320 .57
noncumulative preferred securities(2)
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred (2) $1,300 1,255 .54
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed perpetual
capital securities (Hong Kong) (2) 40,000 660 .47
Swire Pacific Offshore Financing Ltd. 9.33% cumulative guaranteed
perpetual capital securities (Hong Kong) (2) 25,000 438
Fuji JGB Investment LLC, Series A, 9.87% noncumulative
preferred securities, perpetual (Japan) (2) $1,500 1,066 .46
ProLogis Trust(formerly Security Capital Industrial Trust), 40,000 995 .43
Series D, 7.92% preferred
IBJ Preferred Capital Co. LLC, Series A, 8.79% $1,000 870 .38
noncumulative preferred securities (2)
Adelphia Communications Corp., Series B, 13.00% exchangeable preferre 5,000 590 .26
CarrAmerica Realty Corp., Series B, 8.57% redeemable preferred 20,000 446 .19
Nextel Communications, Inc.:
Series D, 13.00% exchangeable preferred, redeemable 2009 (6), (7) 290 299
Class A (7) 774 17 .14
Esat Telecom Group PLC, warrants, expire 2007 (Ireland) (2), (7) 2,000 62 .03
COLT Telecom Group PLC, warrants, expire 2006 (United Kingdom) (2), ( 250 50 .02
Iridium World Communications Ltd. warrants, expire 2005 (2), (7) 250 36 .02
Globalstar Telecommunications Ltd., warrants, expire 2004 (7) 500 30 .01
Conecel Holdings Ltd., Class B, warrants, expire 2000 15,500 23 .01
(Ecuador) (2), (7), (8)
Cellular Communications International, Inc., warrants, expire 2003 (7 250 18 .01
NTL Inc., warrants, expire 2008 (United Kingdom - 237 7 .00
Incorporated in USA) (2), (7), (8)
McCaw International, Ltd., warrants, expire 2007 (2), (7) 2,000 6 .00
Viatel, Inc., Series A, 10.00% convertible preferred 2015 (6) (7) 62 4 .00
Loral Space & Communications Ltd., warrants, expire 2007 (7) 250 3 .00
V2 Music Holdings, warrants, expire 2000 (7) 575 .00
Miscellaneous - 0.22%
Other stocks in initial period of acquisition 517 .22
-------- --------
TOTAL STOCKS (cost: $11,556,000) 11,161 4.82
-------- --------
Principal
Convertible Debentures Amount (000)
Industrials & Services - 2.63%
Bell Atlantic Financial Services, Inc.:
4.25% senior exchangeable note 2005 (2) $2,500 2,572
5.75% senior exchangeable note 2003 (2) 750 770 1.45
Micron Technology, Inc. 7.00% convertible subordinated notes 2004 1,000 1,038 .45
Advanced Micro Devices, Inc. 6.00% convertible subordinated notes 200 625 609 .26
Kelley Oil & Gas Corp. 8.50% 2000 500 400 .17
Sunglass Hut International, Inc. 5.25% convertible subordinated notes 600 384 .17
MBI Finance Ltd. 0% 2001 500 312 .13
-------- --------
TOTAL CONVERTIBLE DEBENTURES (cost: $5,909,000) 6,085 2.63
-------- --------
TOTAL EQUITY SECURITIES (cost: $17,465,000) 17,246 7.45
-------- --------
Short-Term Securities
Corporate Short-Term Notes - 10.56%
PepsiCo, Inc. 5.12% due 12/15/1998 3,000 2,994 1.29
CIT Group Holdings, Inc. 5.14% due 12/14/1998 2,500 2,495 1.08
IBM Credit Corp. 5.30% due 1/5/1999 2,500 2,488 1.08
General Mills, Inc. 5.08% due 1/8/1999 2,500 2,486 1.08
Eastman Kodak Co. 5.00% due 1/25/1999 2,500 2,480 1.07
Vermont American Corp. 5.11% due 12/18/1998 (2) 2,200 2,194 .95
Nordstrom Credit Inc. 5.12% due 12/18/1998 2,200 2,194 .95
General Electric Capital Corp. 5.45% due 12/1/1998 2100 2,100 .91
St. Paul Companies, Inc. 5.16% due 12/16/1998 (2) 2000 1,995 .86
Procter & Gamble Co. 5.07% due 12/22/1998 1500 1,495 .65
A.I. Credit Corp. 5.14% due 1/4/1999 1100 1,095 .47
Coca-Cola Co. 5.00% due 1/19/1999 400 397 .17
-------- -------
TOTAL SHORT-TERM SECURITIES (cost: $24,413,000) 24,413 10.56
-------- -------
TOTAL INVESTMENT SECURITIES (cost: $234,774,000) 232,957 100.72
Excess of payables over cash and receivables 1,678 .72
----------------
NET ASSETS $231,279 100.00%
------------------
------------------
1 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 Coupon rate may change periodically.
4 Index-linked bond, whose principal amount moves with a government retail
price index.
5 Pass-through securities backed by a pool of mortgages or
other loans on which
principal payments are periodically made. Therefore,
the effective maturities are
shorter than the stated maturities.
6 Payment in kind. The issuer has the option of paying
additional securities in lieu of cash.
7 Non-income-producing securities.
8 Valued under procedures established by the Board of Trustees.
See Notes to Financial Statements
</TABLE>
<TABLE>
AMERICAN VARIABLE INSURANCE SERIES
HIGH-YIELD BOND FUND
INVESTMENT PORTFOLIO - NOVEMBER 30, 1998
<S> <C> <C> <C>
CORPORATE BONDS 82.00%
NON-U.S. GOVERNMENT BONDS 1.77%
U.S. GOVERNMENT BONDS 1.43%
EQUITY SECURITIES 7.76%
CASH & EQUIVALENTS 7.04%
Percent
of Net
Largest Corporate Holdings Assets
Nextel Communications 4.76%
Integrated Health Services 2.47
Container Corp. of America 2.30
COLT Telecom 2.04
Viatel 1.81
NTL 1.66
Paracelsus Healthcare 1.63
Chancellor Media 1.57
Fox/Liberty Networks 1.50
Falcon Holding 1.45
Principal Market Percent
Amount Value Of Net
Bonds & Notes (000) (000) Assets
Cellular, Paging & Wireless Communications - 13.97%
Nextel Communications, Inc.:
0%/9.95% 2008 (1) $11,000 $6,820 2.72%
0%/10.65% 2007 (1) 7,500 4,969
0%/9.75% 2004 (1) 3,750 3,675
0%/9.75% 2007 (1) 3,000 1,897
12% 2008 (2) 1,000 1,105
Nextel International, Inc. 0%/12.125% 2008 (1) 6,000 2,760
Clearnet Communications Inc.:
0%/11.75% 2007 (1) C$ 20,825 8,364 1.38
0%/10.40% 2008 (1) 7,000 2,468
PageMart Wireless, Inc. 0%/11.25% 2008 (1), (2) $21,650 10,176 1.30
Omnipoint Corp.:
11.625% 2006 11,200 7,196 1.10
8.66% 2006 1,549 1,379
Centennial Cellular Corp. 8.875% 2001 8,000 8,360 1.07
CCPR Services, Inc. 10.00% 2007 7,250 7,359 .94
American Cellular Corp. 10.50% 2008 (2) 5,250 5,197 .66
CTI Holdings SA 0%/11.50% 2008 (1) 10,500 4,804 .61
Comcast Cellular Corp., Series B, 9.50% 2007 4,000 4,320 .55
Mobile Telecommunication Technologies Corp. 13.50% 2002 3,500 3,920 .50
Loral Space & Communications Ltd. 3,900 3,744 .48
(formerly Orion Network Systems, Inc. ) 11.25% 2007
McCaw International, Ltd. 0%/13.00% 2007 (1) 6,500 3,510 .45
Comunicacion Celular SA 0%/13.125% 2003 (1) 5,000 3,500 .45
Occidente Y Caribe Celular SA 0%/14.00% 2004 (1) 3,700 2,738 .35
CellNet Data Systems, Inc. 0%/14.00% 2007 (1) 9,982 1,897 .24
SpectraSite Holdings, Inc. 0%/12.00% 2008 (1), (2) 3,500 1,872 .24
Western Wireless Corp. 10.50% 2006 1,500 1,575 .20
Telesystem International Wireless Inc. 0%/13.25% 2007 (1) 3,450 1,552 .20
PTC International Finance BV 0%/10.75% 2007 (1) 2,000 1,340 .17
Vanguard Cellular Systems, Inc. 9.375% 2006 1,000 1,130 .14
Price Communications Cellular Holdings, Inc. 11.25% 2008 (3) 1,000 975 .12
Globalstar, LP 11.375% 2004 1,000 765 .10
Diversified Media, Cable Television &
Telecommunications - 13.95%
Viatel Inc.:
11.25% 2008 6,000 6,000 1.73
11.15% 2008 DM7,000 4,064
0%/12.50% 2008 (1) $5,250 3,045
0%/12.40% 2008 (1) DM1,000 360
Fox/Liberty Networks, LLC:
0%/9.75% 2007 (1) $8,765 6,267 1.50
8.875% 2007 5,250 5,407
Falcon Holding Group, LP:
8.375% 2010 6,250 6,438 1.45
0%/9.285% 2010 (1) 7,000 4,847
Time Warner Telecom Inc. 9.75% 2008 7,625 8,083 1.03
NEXTLINK Communications LLC:
NEXTLINK Communications, Inc.:
9.625% 2007 3,500 3,465 .95
9.00% 2008 3,000 2,880 .
NEXTLINK Capital, Inc. 12.50% 2006 1,000 1,100
TVN Entertainment Corp. 14.00% 2008 6,500 5,720 .73
US Xchange 15.0% 2008 (2) 4,625 4,856 .62
Esat Telecom Group PLC:
0%/12.50% 2007 (1) 4,250 2,826 .59
11.875% 2008 (2) 1,750 1,811
V2 Music Holdings:
0%/14.00% 2008 (1), (2) 6,900 3,657 .58
0%/14.00% 2008 (1), (2) Pound1,000 874
Century Communications Corp. 0% 2008 $8,900 4,405 .56
CSC Holdings, Inc. (formerly Cablevision Systems Corp.):
9.875% 2013 3,000 3,330 .56
8.125% 2009 1,000 1,070
KMC Telecom Holdings, Inc. 0%/12.50% 2008 (1) 8,500 4,080 .52
Netia Holdings BV:
0%/11.25% 2007 (1) 3,500 2,117 .44
10.25% 2007 1,500 1,328
Global TeleSystems Group, Inc. 9.875% 2005 3,600 3,384 .43
GST Equipment Funding, Inc. 13.25% 2007 3,000 3,090 .39
Lenfest Communications, Inc. 8.25% 2008 3,000 3,090 .39
Multicanal Participacoes SA, Series B, 12.625% 2004 2,600 2,411 .31
Hermes Euro Railtel BV 11.50% 2007 1,500 1,650 .21
Newsquest Capital PLC:
11.00% 2006 900 999 .20
Series B, 11.00% 2006 500 555
IMPSAT Corp. 12.375% 2008 1,750 1,518 .19
Level 3 Communications, Inc. 9.125% 2008 1,500 1,496 .19
Teligent, Inc. 11.50% 2007 1,500 1,432 .18
Consorcio Ecuatoriano de Telecomunicaciones SA CONECEL :
14.00% 2000 (2) 1,000 465 .11
14.00% 2002 750 420
TEVECAP SA 12.625% 2004 750 487 .06
Cellco Finance NV 15.00% 2005 (2) 250 215 .03
Manufacturing & Materials - 9.06%
Anchor Glass Container Corp.:
11.25% 2005 5,000 5,350 1.01
9.875% 2008 2,500 2,513
BREED Technologies, Inc. 9.25% 2008 (2) 8,500 7,310 .93
Impress Metal Packaging Holdings BV 9.875% 2007 DM10,250 6,661 .85
Tekni-Plex, Inc. 9.25% 2008 $5,500 5,720 .73
Flextronics International Ltd. 8.75% 2007 5,500 5,637 .72
Boyds Collection Ltd. 9.00% 2008 (2) 5,250 5,408 .69
Lifestyle Furnishings International Ltd. 10.875% 2006 4,000 4,380 .56
Printpack, Inc. 10.625% 2006 3,750 3,900 .50
Consumers International Inc. 10.25% 2005 3,250 3,494 .45
Westinghouse Air Brake Co. 9.375% 2005 3,000 3,105 .40
Key Plastics, Inc., Series B, 10.25% 2007 3,000 2,850 .36
Samsung Electronics Co., Ltd. 7.45% 2002 (2) 3,150 2,740 .35
Fairchild Semiconductor Corp. 10.125% 2007 2,750 2,722 .35
Kaiser Aluminum and Chemical Corp. 12.75% 2003 2,350 2,326 .30
Advanced Micro Devices, Inc. 11.00% 2003 2,000 2,135 .27
Ball Corp. 7.75% 2006 (2) 1,750 1,829 .23
Doe Run Resources Corp. 11.25% 2005 2,000 1,460 .19
DGS International Finance Co. BV 10.00% 2007 (2) 2,000 1,360 .17
Broadcasting & Publishing - 8.11%
Chancellor Media Corp., Series B, 8.75% 2007 6,000 6,165 1.57
Chancellor Radio Broadcasting Co.:
8.125% 2007 4,500 4,500
9.375% 2004 1,500 1,590
CBS Radio, Inc. 11.375% 2009 (3) 6,782 7,901 1.01
Acme Intermediate Holdings, LLC, 0%/12.00% 2005 (1) 8,911 5,347 .68
American Radio Systems Corp. 9.00% 2006 4,750 5,154 .66
Ziff-Davis Inc. 8.50% 2008 5,000 4,725 .60
Gray Communications Systems, Inc. 10.625% 2006 3,750 4,031 .52
Big City Radio, Inc. 0%/11.25% 2005 (1) 6,000 4,020 .51
FrontierVision 11.00% 2006 3,000 3,360 .43
Globo Comunicacoes E Participacoes Ltda. 10.50% 2006 (2) 3,750 2,850 .36
Antenna TV, SA 9.00% 2007 2,750 2,489 .32
TransWestern Publishing Company:
9.625% 2007 2,000 2,090 .30
9.625% 2007 (2) 250 261
Young Broadcasting Inc. 10.125% 2005 2,000 2,090 .27
Telemundo Holdings, Inc. 0%/11.50% 2008 (1), (2) 3,000 1,770 .23
Sun Media Corp. 9.50% 2007 1,300 1,372 .18
STC Broadcasting, Inc. 11.00% 2007 1,250 1,341 .17
Coaxial Communications of Central Ohio, Inc. 10.00% 2006 1,000 1,005 .13
Fox Family Worldwide, Inc. 0%/10.25% 2007 (1) 1,000 670 .09
RBS Participacoes SA 11.00% 2007 (2) 1,000 650 .08
Forest Products & Paper - 5.57%
Container Corp. of America:
9.75% 2003 14,600 14,892 2.30
Series A, 11.25% 2004 2,000 2,060
Series B, 10.75% 2002 1,000 1,025
Graham Packaging Co., GPC Capital Corp. I 8.75% 2008 4,250 4,356 1.11
Graham Packaging Holdings Co. 0%/10.75% 2009 (1) 6,250 4,344
Paperboard Industries International Inc. 8.375% 2007 4,000 3,960 .51
Indah Kiat Finance Mauritius Ltd.:
11.875% 2002 2,900 2,139 .48
10.00% 2007 2,550 1,651
Advance Agro PCL 13.00% 2007 (2) 4,500 3,780 .48
Pindo Deli Finance Mauritius Ltd.:
10.75% 2007 2,200 1,331 .29
10.25% 2002 1,500 907
Norampac Inc.:
9.50% 2008 1,500 1,545 .28
9.375% 2008 C$ 1,000 676
Copamex Industrias, SA de CV, Series B, 11.375% 2004 $1,000 960 .12
Leisure, Tourism & Restaurants - 5.28%
AMF Bowling Worldwide, Inc. (formerly AMF Group):
10.875% 2006 8,000 6,800 1.19
0%/12.25% 2006 (1) 4,466 2,546
Boyd Gaming Corp.:
9.25% 2003 6,250 6,406 .94
9.50% 2007 1,000 980
Hard Rock Hotel, Inc. 9.25% 2005 6,000 6,030 .77
William Hill Finance PLC 10.625% 2008 Pound3,550 6,030 .77
Friendly Ice Cream Corp. 10.50% 2007 $3,000 3,090 .39
Premier Parks, Inc. 0%/10.00% 2008 (1) 3,750 2,550 .33
Sun International Hotels Ltd., Sun International
North America, Inc.:
8.625% 2007 1,500 1,549 .30
9.00% 2007 750 787
Regal Cinemas, Inc. 9.50% 2008 (2) 2,000 2,100 .27
FelCor Suites LP 7.375% 2004 1,750 1,617 .21
Rio Hotel & Casino, Inc. 10.625% 2005 750 825 .11
Health & Personal Care - 4.92%
Integrated Health Services, Inc.:
Series A, 9.25% 2008 6,750 6,581 2.09
10.25% 2006 5,000 5,100
Series A, 9.50% 2007 4,750 4,691
Paracelsus Healthcare Corp. 10.00% 2006 14,000 12,740 1.63
Mariner Health Group, Inc. 9.50% 2006 6,625 6,492 .83
Tenet Healthcare Corp. 8.00% 2005 1,500 1,553 .20
Unison HealthCare Corp. 13.00% 2006 (2), (4), (5) 6,600 1,320 .17
Cable & Telephone in the United Kingdom - 4.78%
COLT Telecom Group PLC:
0%/12.00% 2006 (1) 11,250 9,647 1.75
8.875% 2007 DM6,500 4,049
NTL Inc.:
0%/10.75% 2008 (1), (2) Pound7,500 6,184 1.65
0%/9.75% 2008 (1), (2) $5,500 3,520
11.5% 2008 (2) 1,500 1,646
Series B, 10.00% 2007 1,500 1,560
Comcast UK Cable Partners Ltd. 0%/11.20% 2007 (1) 10,000 8,650 1.11
TeleWest Communications PLC 9.625% 2006 2,000 2,090 .27
Food & Food Retailing - 3.57%
Fage Dairy Industry SA 9.00% 2007 10,500 8,925 1.14
Home Products International, Inc. 9.625% 2008 7,500 7,275 .93
Randall's Food Markets, Inc. 9.375% 2007 5,750 6,095 .78
Favorite Brands International, Inc. 10.75% 2006 (2) 4,125 3,383 .43
Carr-Gottstein Foods Co. 12.00% 2005 2,000 2,300 .29
Beverages - 2.77%
Delta Beverage Group, Inc. 9.75% 2003 6,200 6,541 .84
Sparkling Spring Water Group, Ltd. 11.50% 2007 5,500 5,445 .70
Canandaigua Wine Co., Inc.:
Series C, 8.75% 2003 3,750 3,834 .69
8.75% 2003 1,500 1,534
Standard Commercial Corp. 8.875% 2005 4,250 4,186 .54
Energy & Related Companies - 2.73%
Kelley Oil & Gas Corp. 10.375% 2006 8,000 6,320 .81
Cross Timbers Oil Co.:
Series B, 9.25% 2007 3,000 3,000 .54
8.75% 2009 1,250 1,216
Benton Oil and Gas Co.:
11.625% 2003 2,000 1,500 .34
9.375% 2007 1,950 1,189
Michael Petroleum Corp. 11.50% 2005 2,450 1,960 .25
Pogo Producing Co. 8.75% 2007 2,000 1,960 .25
Crown Castle International Corp. 0%/10.625% 2007 (1) 2,500 1,713 .22
McDermott Inc. 9.375% 2002 1,000 1,068 .17
J. Ray McDermott, SA 9.375% 2006 250 264
Lomak Petroleum, Inc. 8.75% 2007 1,250 1,188 .15
Miscellaneous Services - 1.90%
Allied Waste North America, Inc. 10.25% 2006 8,300 9,711 1.24
Iron Mountain Inc.:
10.125% 2006 1,500 1,635 .25
8.75% 2009 350 357
EarthWatch Inc., units, 12.50% 2001 (2), (4), (5) 2,000 1,600 .20
Teletrac, Inc. 14.00% 2007 4,100 1,435 .18
Reliance Industries Ltd. 10.50% 2046 250 200 .03
Banking & Financial Services - 1.82%
Advanta Corp.:
6.98% 2002 2,000 1,784 .58
6.925% 2002 2,000 1,781
7.50% 2000 1,000 950
Wharf International Finance Ltd. 7.625% 2007 3,000 2,426 .31
Dime Capital Trust I, Dime Bancorp, Inc., 2,000 2,175 .28
Series A, 9.33% 2027
AT&T Capital Corp. 6.60% 2005 1,500 1,460 .19
Chase Commercial Mortgage Securities Corp. 6.39% 2008 1,522 1,295 .17
BT Institutional Capital Trust B 7.75% 12-01-26 (2) 1,000 1,030 .13
Komercni Finance BV 9.00%/10.75% 2008 (1), (2) 750 574 .07
Amresco Inc. 9.875% 2005 600 432 .06
Wilshire Financial Services Group Inc. 13.00% 2004 1,500 270 .03
Transportation - 1.04%
Teekay Shipping Corp. 8.32% 2008 3,500 3,482 .45
USAir, Inc. Pass-Through Trust, Series 1993-A3, 3,000 3,387 .43
10.375% 2013 (6)
Delta Air Lines, Inc., Series 1991-I, 10.00% 2014 (2) 1,000 1,255 .16
Consumer Products - 0.90%
AKI Inc. 10.50% 2008 (2) 3,250 3,120 .53
AKI Holding Inc. 0%/13.50% 2009 (1), (2) 2,750 1,059
Zilog, Inc. 9.50% 2005 3,000 2,340 .30
WestPoint Stevens Inc. 7.875% 2005 500 515 .07
Machinery & Engineering - 0.75%
LES, Inc. 9.25% 2008 (2) 5,625 5,850 .75
Private Issue Collateralized Mortgage/
Asset-Backed Obligations (6)
Kmart Corp., Series K-2, 9.78% 2020 2,000 2,191 .28
Dr Structured Finance Corp., Series 1994 K-2, 9.35% 2019 1,500 1,530 .20
Textiles & Apparel - 0.21%
Tultex Corp. 10.625% 2005 2,500 1,625 .21
Protection Services - 0.19%
Protection One Alarm Monitoring, Inc. 0%/13.625% 2005 (1) 1,300 1,482 .19
Non-U.S. Governments & Governmental
Authorities - 1.77%
Panama (Republic of):
Interest Reduction Bond 3.75% 2014 (2), (7) $3,000 2,303 .57
8.875% 2027 2,250 2,127
United Mexican States Government:
11.375% 2016 2,750 2,963 .41
11.50% 2026 250 269
Argentina (Republic of):
11.00% 2006 1,500 1,534 .32
9.75% 2027 800 720
11.375% 2017 250 254
Philippines (Republic of) 8.875% 2008 1,750 1,732 .22
Korea (Republic of) 8.875% 2008 1,000 989 .13
Poland (Republic of) Past Due Interest Bond 5.00% 2014 (7) 1,000 940 .12
U.S. Treasury Obligations - 1.43%
7.50% 2005 8,000 9,164 1.43
6.875% 2006 1,770 1,999
TOTAL BONDS & NOTES (cost: $699,597,000) 666,490 82.48
Number
of
Stocks Shares
Common & Preferred Stocks - 6.13%
Nextel Communications, Inc., Series E, 11.125% 2010 (3), (8) 12,881 11,594 2.04
Nextel Communications, Inc., Series D, 13.00% exchangeable 4,078 4,201
preferred (3), (8)
Nextel Communications, Inc. Class A (8) 5,422 117
Nextel Communications, Inc., warrants, expire 1999 (4), (8) 9,500 1
Dobson Communications Corp. 12.250% 2008 (3), (8) 4,126 3,919 .51
Fuji JGB Investment LLC, Series A, 9.87% noncumulative
preferred securities, perpetual (Japan) (2) $5,000 3,554 .45
Tokai Preferred Capital Co. LLC, Series A, $4,000 3,520 .45
9.98% noncumulative preferred (2)
IXC Communications, Inc. 12.50% exchangeable preferred 2,911 3,115 .40
2009 (3), (8)
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed
perpetual capital securities (Hong Kong) (2) 160,000 2,640 .34
COLT Telecom Group PLC warrants, expire 2006 11,250 2,250 .29
(United Kingdom) (2), (8)
Jacor Communications, Inc. (8) 35,000 2,037 .26
Chevy Chase Preferred Capital Corp. 10.375% 39,000 1,989 .25
exchangeable preferred
Cellular Communications International, Inc. (8) 15,300 954 .18
Cellular Communications International, Inc. warrants, expire 2003 (8) 6,500 468
Omnipoint Corp. 7.00% convertible preferred (2) 62,000 1,286 .16
Kelley Oil & Gas Corp., convertible preferred 90,000 1,283 .16
Adelphia Communications Corp., preferred, 10,000 1,180 .15
Series B, 13.00% 2009 (8)
IBJ Preferred Capital Co. LLC, Series A, 8.79%
noncumulative
preferred securities, perpetual (2) $1,000 870 .11
CellNet Data Systems, Inc. (5), (8) 112,000 526 .09
CellNet Data Systems, Inc. warrants, expire 2007 (2), (8) 20,870 167
Comunicacion Celular SA, Class B, warrants, expire 2003 5,000 400 .05
(Colombia) (2), (8)
Acme Televison, LLC (2), (8) 363 362 .05
ACME Intermediate Holdings, LLC (2), (8) 5,970 358 .05
Viatel, Inc., Series A, 10.00% convertible preferred (3), (8) 5,114 337 .04
Verio Inc., warrants, expire 2004 (2), (8) 7,350 239 .03
EarthWatch Inc.12.00% convertible preferred, 350,000 175 .02
Series C (2), (3), (5), (8)
Loral Space & Communications Ltd. (formerly Orion Network
Systems, Inc. ), warrants, expire 2007 (8) 11,250 135 .02
Protection One Alarm Monitoring, Inc. warrants, 6,400 67 .01
expire 2005 (2), (8)
Globalstar Telesystem, warrants, expire 2004 (8) 1,000 60 .01
NTL Inc., warrants, expire 2008 (United Kingdom-- 1,425 42 .01
Incorporated in USA) (2), (8)
Conecel Holdings Ltd., Class B, warrants, expire 25,900 39 .00
2000 (Ecuador) (2), (8)
Esat Telecom Group PLC, warrants, expire 2007 1,250 39 .00
(Ireland) (2), (8)
KMC Telecom Holdings Inc., warrants expire 2008 (2), (8) 9,500 24 .00
Teletrac Holdings, Inc., warrants, expire 2007 (2), (8) 4,100 23 .00
McCaw International, Ltd. warrants, expire 2007 (2), (8) 2,500 7 .00
V2 Music Holdings, warrants (United Kingdom):
expire 2008 (2), (8) 6,900 0 .00
expire 2008 (8) 1,000 0
Miscellaneous - 0.18%
Other stocks in initial period of acquisition 1,386 .18
-------- --------
TOTAL STOCKS (cost: $55,131,000) 49,364 6.31
-------- --------
Principal Market Percent
Amount Value Of Net
Convertible Debentures (000) (000) Assets
Industrials & Services - 1.41%
Integrated Health Services, Inc. 5.75% 2001 $ 3,500 3,045 .38
Advanced Micro Devices, Inc. 6.00% 2005 2,400 2,340 .30
Jacor Communications, Inc.0% 2018 4,750 2,138 .27
Sunglass Hut International, Inc. 5.25% 2003 2,125 1,360 .17
Pilipino Telephone International Holding Corp. 1.75% 2006 1,875 994 .13
MBI Finance Ltd. 0.0% 2001 1,500 937 .12
Viatel, Inc.10.00% 2011 DM422 286 .04
Miscellaneous - 0.04%
Other convertible debentures in initial period of acquisition 280 .04
-------- --------
TOTAL CONVERTIBLE DEBENTURES (cost: $11,940,000) 11,380 1.45
-------- --------
TOTAL EQUITY SECURITIES (cost: $67,071,000) 60,744 7.76
-------- --------
Short-Term Securities
Corporate Short-Term Notes - 2.91%
General Electric Capital Corp. 5.45% due 12/1/98 $ 13,100 13,098 1.68
Ameritech Corp. 5.04% due 1/12/99 9,700 9,641 1.23
Federal Agency Discount Notes - 2.42%
Federal Home Loan Banks 4.81%-5.10% due 12/16/98-1/31/99 19,000 18,943 2.42
-------- --------
TOTAL SHORT-TERM SECURITIES (cost: $41,683,000) 41,682 5.33
-------- -------
TOTAL INVESTMENT SECURITIES (cost: $808,351,000) 768,916 0.96%
Excess of cash and receivables over payables 13,386 1.71
--------- -------
NET ASSETS $782,302 1.71
========= =======
(1) 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) Payment in kind. The issuer has the option of paying
additional securities in lieu of cash.
(4) Issue in Default.
(5) Valued under procedures established by the Board of Trustees.
(6) Pass-through securities backed by a pool of mortgages
or other loans on which principal payments are
periodically made. Therefore, the effective
maturity of these securities is shorter than the
stated maturity.
(7) Coupon rate changes periodically.
(8) Non-income-producing securities.
</TABLE>
<TABLE>
American Variable Insurance Series
U.S. Government/AAA-Rated Securities Fund
Investment Portfolio, November 30, 1998
<S> <C> <C> <C>
- ------------------------------------------------ -------- -------- --------
U.S. TREASURY OBLIGATIONS 29.34%
FEDERAL AGENCY MORTGAGE-RELATED SECURITIES 29.50
PRIVATE MORTGAGE & ASSET-BACKED SECURITIES 33.12
CASH & EQUIVALENTS 2.11
CORPORATE BONDS 2.91
OTHER FEDERAL OBLIGATIONS 3.02
- ------------------------------------------------ -------- -------- --------
Principal Market Percent
Amount Value of Net
Bonds & Notes (000) (000) Assets
- ------------------------------------------------ -------- -------- --------
U.S. Treasury Obligations - 29.34%
8.875% 2017 $34,800 $49,394
10.375% 2009 27,500 35,243
7.25% 2004 17,840 20,003
12.00% 2013 10,000 15,302
10.75% 2003 9,850 12,192
7.125% 2023 7,200 8,940
7.875% 2021 5,750 7,628
6.125% 2007 4,655 5,078
11.625% 2004 2,820 3,810
3.493% 2007 (1) 2,750 2,772 29.34%
3.65% 2028 (1) 2,000 2,014
7.50% 2005 1,740 1,993
7.00% 2006 1,478 1,682
6.25% 2007 750 824
Collateralized Mortgage Obligations
(Privately Originated) (2) - 26.20%
Morgan Stanley Capital I, Inc.:
Series 1998-HF2, Class A-2, 6.48% 2030 10,000 10,367
Series 1998-1, Class A-5, 6.75% 2013 8,147 8,236
Series 1997-HF1, Class A-1, 6.86% 2006 (3) 4,572 4,709
Series 1998-HF2, Class A-1, 6.01% 2030 3,000 3,035
Series 1998-WF2, Class A-1, 6.34% 2030 2,926 2,999
Series 1998-WF1, Class A-1, 6.25% 2007 2,529 2,577 5.61
Prudential-Bache CMO Trust III, 9.44% 2018 14,000 14,066 2.47
Westam Mortgage, Class 4-H, 8.95% 2018 11,000 11,337 1.99
Ocwen Residential MBS Corp.,
Series 1998-R1, Class AWC, 2.459% 2027 (3) 9,671 9,525 1.68
Structured Asset Securities Corp.:
Series 1998-RF2, Class A, 8.577% 2027 (3) 3,561 3,805
Series 1998-RF1, Class A, 8.696% 2027 (3) 3,393 3,649
Series 1996-CFL, Class A1-C, 5.944% 2028 1,465 1,462 1.57
Nomura Asset Securities Corp., Series 1998-D6,
Class A-A1, 6.28% 2030 7,649 7,789 1.37
G E Capital Mortgage Services, Inc., Series 1994-15,
Class A-10, 6.00% 2009 8,000 7,655 1.35
Deutsche Mortgage & Asset Receiving Corp., Series 1998-C1,
Class A-1, 6.22% 2031 7,236 7,354 1.29
Mortgage Capital Funding, Inc., Series 1998-MC1,
Class A-1, 6.42% 2030 6,274 6,465 1.14
CS First Boston Mortgage Securities Corp., Series 1998-C1,
Class A-1A, 6.26% 2040 6,131 6,257 1.10
Chase Commercial Mortgage Securities Corp.:
Series 1998-2, Class A-2, 6.39% 2008 3,000 3,096
Series 1998-1, Class A-1, 6.34% 2030 2,907 2,976 1.07
Merrill Lynch Mortgage Investors, Inc.:
Series 1997-C1, Class A-1, 6.95% 2029 (4) 2,803 2,916
Series 1995-C3, Class A-3, 7.062% 2025 1,500 1,558
Series 1995-C3, Class A-2, 6.822% 2025 (4) 1,500 1,536 1.06
Commercial Mortgage Acceptance Corp.:
Series 1998-C1, Class A-1, 6.23% 2007 2,454 2,501
Series 1998-C2, Class A-1, 5.80% 2006 1,486 1,494 .70
AMRESCO Commercial Mortgage Funding I Corp., Series 1997-C1,
Class A-1, 6.73% 2029 3,346 3,424 .60
J.P. Morgan Commercial Mortgage Finance Corp., Series 1995-C1,
Class A-2, 7.452% 2010 (4) 3,000 3,041 .53
Nationsbanc Montgomery Funding Corp., Series 1998-5,
Class A-1, 6.00% 2013 3,000 2,974 .52
Norwest Asset Securities Corp.:
Series 1998-8, Class A-1,6.50% 2013 1,415 1,422
Series 1998-31, Class A-1, 6.25% 2014 1,300 1,297 .48
Freddie Mac, Series 1998-A, Class A-3, 6.69% 2020 (3) 2,000 2,023 .36
LB Commercial Conduit Mortgage Trust, Series 1998-C1,
Class A-1, 6.33% 2004 1,901 1,940 .34
DLJ Mortgage Acceptance Corp., Series 1996-CF1,
Class A-1A, 7.28% 2028 1,653 1,734 .30
GMAC Commercial Mortgage Securities Inc., Series 1997-C1,
Class A-3, 6.869% 2007 1,500 1,590 .28
DLJ Commercial Mortgage Corp., Series 1998-CF2,
Class A-1B, 6.24% 2031 1,250 1,277 .23
Ryland Acceptance Corp., Series 1988-E(Z), 7.95% 2019 907 934 .16
Federal Agency Obligations - Mortgage
Pass-Throughs (2) - 25.30%
Government National Mortgage Assn.:
7.00% 2023-2026 15,377 15,744
8.50% 2021-2023 6,993 7,467
6.875% 2021-2024 (4) 7,198 7,275
6.00% 2013 6,838 6,876
6.50% 2028 6,346 6,403
8.00% 2023-2026 5,837 6,070
9.50% 2019-2021 3,427 3,700 11.63
7.50% 2022-2028 3,516 3,632
7.375% 2024 (4) 2,287 2,312
10.00% 2019 2,073 2,249
7.00% 2018 (4) 1,514 1,535
5.50% 2013 1,096 1,080
9.00% 2009-2016 931 998
6.625% 2018 (4) 666 677
10.50% 2019 87 96
11.00% 2019 27 30
12.00% 2012-2014 5 5
Fannie Mae:
6.00% 2013 10,971 10,985
6.50% 2013-2028 9,166 9,267
8.50% 2023-2027 6,770 7,107
8.00% 2024 5,358 5,571
7.00% 2026-2028 5,311 5,425
13.00% 2015 2,565 3,065
10.00% 2018 2,574 2,789
12.00% 2028 1,901 2,207 9.27
7.50% 2009 2,122 2,183
9.00% 2011-2025 2,023 2,137
5.50% 2013 2,012 1,982
Freddie Mac:
6.00% 2013 8,920 8,937
8.25% 2008-2009 2,982 3,093
8.00% 2012 2,897 2,982
6.50% 2013 2,144 2,175
5.50% 2013 1,980 1,951 4.02
7.00% 2008 1,873 1,917
9.00% 2022 1,240 1,311
8.50% 2018 390 412
9.50% 2016 93 99
12.00% 2016 1 1
Freddie Mac Gold 9.00% 2028 2,033 2,142 .38
Asset-Backed Obligations (2) - 6.92%
Green Tree Financial Corp.:
Series 1995-9, Class A-5, 6.80% 2027 5,000 5,053
Series 1996-7, Class A-6, 7.65% 2027 3,000 3,094
Series 1996-10, Class A-5, 6.83% 2028 2,500 2,535
Series 1997-6, Class A-6, 6.90% 2029 2,500 2,534
Series 1995-3, Class A-5, 7.30% 2025 2,050 2,085 2.69
Sears Credit Account Master Trust, Series 1998-2,
Class A, 5.25%, 2008 5,300 5,179 .91
Chase Credit Card Master Trust, Series 1997-5, Class A, 6.194% 4,000 4,116 .72
ContiMortgage Home Equity Loan Trust 1996-4,
Class A-4, 6.37% 2011 3,742 3,734 .66
First Chicago Master Trust II, Series 1995-M,
Class A, 5.518% 2003 (4) 3,500 3,488 .61
Chevy Chase Master Credit Card Trust, Series 1996-C,
Class A, 5.418% 2007 (4) 3,000 2,962 .52
Standard Credit Card Master Trust 1994-4, Class A,
8.25% 2003 2,500 2,659 .47
Bombardier Capital Mortgage Securitization Corp., Series 1998-A,
Class A-3, 6.23% 2028 2,000 1,943 .34
Collateralized Mortgage Obligations
(Federal Agencies) (2) - 4.20%
Freddie Mac:
Series 1567, Class A, 5.713% 2023 (4) 8,145 7,873
Series 1948, Class PJ, 6.65% 2027 4,000 3,971
Series 1716, Class A, 6.50% 2009 2,250 2,254
Series 1507, Class JZ, 7.00% 2023 587 606
Series 2030, Class F, 5.778% 2028 379 382
Series 83-B, Class B-3, 12.50% 2013 312 352 2.71
Fannie Mae:
Series 1997-M6, Class ZA, 6.85% 2026 5,446 5,458
Series 1998-M6, Class A-2, 6.32% 2008 1,000 1,036
Series 1997-28, Class C, 7.00% 2027 1,000 1,015
Series 1994-4, 6.50% 2024 964 941 1.49
Federal Agency Obligations - Other - 3.02%
Fannie Mae:
5.75% 2005 3,000 3,108
6.00% 2008 2,000 2,101 .92
Freddie Mac 5.75% 2008 4,500 4,637 .82
Federal Home Loan Bank:
5.80% 2008 2,000 2,062
5.125% 2003 2,500 2,508 .80
Tennesee Valley Authority, Series G, 5.375% 2008 2,750 2,761 .48
Development Authorities - 2.41%
Inter-American Development Bank 8.875% 2009 10,000 12,683 2.23
Asian Development Bank 5.75% 2003 1,000 1,021 .18
Financial - 0.31%
Toyota Motor Credit Corp., 6.00% 2003 (Japan) 1,750 1,785 .31
Foreign Governmental Authorities - 0.19%
KfW International Finance Inc., 7.625% 2004 (Germany) 1,000 1,100 .19
--------------------
TOTAL BONDS & NOTES (cost: $541,273,000) 556,818 97.89
--------------------
Short-Term Securities
- ------------------------------------------------
Corporate Short-Term Notes - 5.76%
General Motors Acceptance Corp. 5.19% due 12/14/1998 11,800 11,776 2.07
General Electric Capital Corp. 5.45% due 12/1/1998 11,000 10,998 1.93
Eastman Kodak Co. 5.11% due 12/8/1998 10,000 9,989 1.76
Federal Agency Discount Notes - 0.61%
Freddie Mac 4.93% due 2/5/1999 3,500 3,467 .61
--------------------
TOTAL SHORT-TERM SECURITIES (cost: $36,230,000) 36,230 6.37
--------------------
TOTAL INVESTMENT SECURITIES (cost: $577,503,000) 593,048 104.26
Excess of payables over cash and receivables 24,219 4.26
--------------------
NET ASSETS $568,829 100.00%
====================
(1) Index-linked bond, which is a floating rate
bond whose principal amount moves with a
government retail price index.
(2) Pass-through securities backed by a pool of
mortgages or other loans on which principal
payments are periodically made. Therefore,
the effective maturity of these securities is
shorter than the stated maturity.
(3) Purchased in a private placement transaction;
resale to the public may require registration or sale only to
qualified institutional buyers.
(4) Coupon rate may change periodically.
(5) Step bond; coupon rate will
increase at a later date.
See Notes to Financial Statements
</TABLE>
<TABLE>
American Variable Insurance Series
Cash Management Fund
Investment Portfolio, November 30, 1998
<S> <C> <C> <C>
Principal Market
Amount Value Percent of
Short-Term Securities (000) (000) Net Assets
Corporate Short-Term Notes - 74.03%
Shell Oil Co. 5.06% due 12/10/1998 $10,000 $ 9,986 3.52%
Procter & Gamble Co. 5.02%-5.12% due 12/11/1998-1/6/1999 8,500 8465 2.99
A.I. Credit Corp. 5.14%-5.18% due 1/4-1/12/1999 8,100 8054 2.84
E.I. du Pont de Nemours and Co. 5.00%-5.17% due 12/7-12/8/1998 7,600 7,592 2.68
Yale University 5.20% due 1/7/1999 7,500 7459 2.63
Consolidated Natural Gas Co. 5.12% due 12/10/1998 7,200 7190 2.54
Eastman Kodak Co. 5.00% due 12/17/1998 6,700 6684 2.36
Lucent Technologies Inc. 5.05% due 1/8-1/13/1999 6,700 6660 2.35
Harvard University 5.15% due 12/3/1998 6,500 6497 2.29
General Electric Capital Corp. 5.23% due 12/4/1998 6,500 6,496 2.29
American Express Credit Corp. 5.21% due 12/11/1998 6500 6490 2.29
IBM Credit Corp. 5.30% due 1/5/1999 6,300 6,267 2.21
Colgate-Palmolive Co. 5.15% due 12/1/1998 (1) 6,000 5,999 2.12
General Motors Acceptance Corp. 5.16% due 12/3/1998 6,000 5998 2.12
Motorola, Inc. 5.17% due 12/3/1998 6,000 5,997 2.12
SBC Communications Inc. 4.85% due 12/11/1998 (1) 6,000 5,991 2.11
Amoco Corp. 4.83% due 12/15/1998 6,000 5,988 2.11
Minnesota Mining and Manufacturing Co. 5.06% due 12/15/1998 6,000 5987 2.11
St Paul Companies, Inc. 5.16% due 12/16/1998 (1) 6,000 5986 2.11
Rockwell International Corp. 4.87% due 12/22/1998 6,000 5982 2.11
BellSouth Telecommunications, Inc. 4.99%-5.08%
due 12/8/1998-1/20/1999 6,000 5975 2.11
General Mills Inc. 5.25% due 1/11/1999 6,000 5963 2.10
International Lease Finance Corp. 5.11% due 1/19/1999 6,000 5957 2.10
Household Finance Corp. 5.00%-5.03% due 12/2-12/22/1998 5,900 5892 2.08
Vermont American Corp. 4.82%-5.11% due 12/18-12/31/1998 (1) 5,100 5083 1.79
Hershey Foods Corp. 4.97% due 12/10/1998 5,000 4993 1.76
Ameritech Corp. 5.00% due 1/12/1999 5,000 4,970 1.75
Duke Energy Corp. 5.05% due 1/12/1999 5,000 4970 1.75
Duke University 5.10% due 1/15/1999 5,000 4967 1.75
Gannett Co. 5.05% due 1/11/1999 (1) 4,500 4474 1.58
Ford Motor Credit Co. 5.24% due 1/29/1999 4,200 4,163 1.47
H.J. Heinz Co. 5.15% due 12/1/1998 4,000 3999 1.41
Coca-Cola Co. 5.00% due 1/19/1999 4,000 3,972 1.40
PepsiCo, Inc. 5.05% due 1/5/1999 3,800 3,781 1.33
Walt Disney Co. 5.13% due 12/7/1998 3,600 3,596 1.27
Johnson & Johnson 5.00% due 12/14/1998 (1) 3,600 3,593 1.27
CIT Group Holdings, Inc. 5.24% due 1/14/1999 3,500 3,477 1.23
Nordstrom Credit Inc. 5.12% due 12/18/1998 2,000 1,995 0.70
Schering Corp. 5.00% due 12/2/1998 1,372 1,372 0.48
Pfizer Inc 5.09% due 12/2/1998 (1) 900 900 0.32
Federal Agency Discount Notes - 22.66%
Federal Home Loan Banks 5.00%-5.056% due 12/4/1998-1/29/1999 25,300 25246 8.90
Fannie Mae 5.00%-5.12% due 12/22/1998-1/15/1999 22,643 22514 7.94
Freddie Mac 5.05%-5.06% due 12/1-12/2/1998 16,500 16497 5.82
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $284,117,000) 284117 100.21
Excess of payables over cash and receivables 601 0.21
---------- ----------
NET ASSETS $283,516 100.00%
========== ==========
(1) 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
</TABLE>
<TABLE>
American Variable Insurance Series
FINANCIAL STATEMENTS
<S> <C> <C> <C> <C>
Statement of Assets and Liabilities
at November 30, 1998
(dollars in thousands, except per-share
data) Global
Global Small Inter-
Growth Capitalization Growth national
Fund Fund Fund Fund
- --------------------------------- ---------- ---------- ---------- ----------
ASSETS:
Investment securities at market $253,930 $73,712 $5,651,380 $2,726,885
Cash 78
Receivables for-
Sales of investments 18,927 4,275
Sales of fund's shares 100 105 911 174
Open forward currency
contracts - - -
Dividends and
interest 149 61 964 6,725
---------- ---------- ---------- ----------
257,490 73,914 5,672,213 2,738,354
LIABILITIES: ---------- ---------- ---------- ----------
Payables for-
Purchases of investments 2,010 1,618 43,658 15,322
Repurchases of fund's shares 3,503
Open forward currency
contracts - - - -
Management services 139 46 1,754 1,254
Distribution fees - Class 2
Other expenses 14 2 130 407
---------- ---------- ---------- ----------
2,188 1,672 49,105 19,641
NET ASSETS AT ---------- ---------- ---------- ----------
November 30, 1998 (Total $19,473,619) $255,302 $72,242 $5,623,108 $2,718,713
=========== =========== =========== ===========
Investment securities at cost $228,514 $77,420 $4,026,891 $2,112,182
=========== =========== =========== ===========
Class 1 (unlimited shares authorized):
Net assets $131,691 $54,833 $5,312,603 $2,592,639
Shares of beneficial interest
outstanding 10,111,982 6,019,266 96,747,129 156,465,710
Net asset value per share $13.02 $9.11 $54.91 $16.57
Class 2 (unlimited shares authorized):
Net assets $123,611 $17,409 $310,505 $126,074
Shares of beneficial interest
outstanding 9,496,959 1,912,201 5,657,846 7,612,694
Net asset value per share $13.02 $9.10 $54.88 $16.56
Growth- Asset High-Yield
Income Allocation Bond Bond
Fund Fund Fund Fund
- --------------------------------- ---------- ---------- ---------- ----------
ASSETS:
Investment securities at market $7,264,400 $1,664,150 $232,957 $768,916
Cash 382 85 4 30
Receivables for-
Sales of investments 18,088 823 - 231
Sales of fund's shares 1,218 419 334 873
Open forward currency
contracts - - -
Dividends and
interest 9,854 9,064 3,363 13,692
---------- ---------- ---------- ----------
7,293,942 1,674,541 236,677 783,742
LIABILITIES: ---------- ---------- ---------- ----------
Payables for-
Purchases of investments 21,270 3,268 5,289 1,065
Repurchases of fund's shares 21
Open forward currency
contracts - - - 9
Management services 2,037 586 95 308
Distribution fees - Class 2
Other expenses 191 40 3 24
---------- ---------- ---------- ----------
26,225 3,930 5,398 1,440
NET ASSETS AT ---------- ---------- ---------- ----------
November 30, 1998 (Total $19,473,619) $7,267,717 $1,670,611 $231,279 $782,302
=========== =========== =========== ===========
Investment securities at cost $5,798,153 $1,386,280 $234,774 $808,351
=========== =========== =========== ===========
Class 1 (unlimited shares authorized):
Net assets $6,703,872 $1,497,375 $186,105 $714,640
Shares of beneficial interest
outstanding 164,600,954 90,363,732 17,950,462 51,917,114
Net asset value per share $40.73 $16.57 $10.37 $13.77
Class 2 (unlimited shares authorized):
Net assets $563,845 $173,236 $45,174 $67,662
Shares of beneficial interest
outstanding 13,852,224 10,460,667 4,359,683 4,918,329
Net asset value per share $40.70 $16.56 $10.36 $13.76
U.S.
Government/
AAA-Rated Cash
Securities Management
Fund Fund
- --------------------------------- ---------- ----------
ASSETS:
Investment securities at market $593,048 $284,117
Cash 26 30
Receivables for-
Sales of investments 1,771 -
Sales of fund's shares 259 695
Open forward currency
contracts - -
Dividends and
interest 4,624
---------- ----------
599,728 284,842
LIABILITIES: ---------- ----------
Payables for-
Purchases of investments 30,162 -
Repurchases of fund's shares 1,202
Open forward currency
contracts - -
Management services 238 108
Distribution fees - Class 2 7
Other expenses 18 9
---------- ----------
30,899 1,326
NET ASSETS AT ---------- ----------
November 30, 1998 (Total $19,473,619) $568,829 $283,516
=========== ===========
Investment securities at cost $577,503 $284,117
=========== ===========
Class 1 (unlimited shares authorized):
Net assets $536,795 $249,403
Shares of beneficial interest
outstanding 46,973,661 22,406,554
Net asset value per share $11.43 $11.13
Class 2 (unlimited shares authorized):
Net assets $32,034 $34,113
Shares of beneficial interest
outstanding 2,804,954 3,066,851
Net asset value per share $11.42 $11.12
See Notes to Financial Statements
</TABLE>
<TABLE>
American Variable Insurance Series
FINANCIAL STATEMENTS
Statement of Operations
for the year ended November 30, 1998
(dollars in thousands)
<S> <C> <C> <C> <C>
Global
Global Small Inter-
Growth Capitalization Growth national
Fund Fund (1) Fund Fund
---------- ---------- ---------- ----------
INVESTMENT INCOME:
Income:
Dividends $2,147 $249 $17,697 $45,118
Interest 1,510 425 23,289 10,544
---------- ---------- ---------- ----------
3,657 674 40,986 55,662
---------- ---------- ---------- ----------
Expenses:
Management services fee 1,341 240 20,494 15,732
Distribution fees - Class 2 217 13 479 225
Reports to shareholders 6 1 155 82
Registration statement and
prospectus 38 2 125 87
Postage, stationery and
supplies 2 1 67 37
Trustees' fees 2 - 55 30
Auditing and legal fees 2 - 54 30
Custodian fee 61 7 112 2,067
Taxes other than federal
income tax 3 - 58 49
Other expenses 5 1 28 92
---------- ---------- ---------- ----------
1,677 265 21,627 18,431
---------- ---------- ---------- ----------
Net investment income 1,980 409 19,359 37,231
---------- ---------- ---------- ----------
REALIZED GAIN AND
UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS:
Realized gain 9,087 925 847,243 47,635
---------- ---------- ---------- ----------
Net change in unrealized appreciation
(depreciation) on investments 26,951 (3,708) 296,599 337,298
Net change in unrealized appreciation
(depreciation) on open forward currency
contracts - - - (1,826)
---------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation) 26,951 (3,708) 296,599 335,472
---------- ---------- ---------- ----------
Net realized gain and
unrealized appreciation (depreciation)
on investments 36,038 (2,783) 1,143,842 383,107
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $38,018 $ $1,163,201 $420,338
========= ========= ========= ===========
High-
Growth- Asset Yield
Income Allocation Bond Bond
Fund Fund Fund Fund
--------- ---------- ---------- ----------
INVESTMENT INCOME:
Income:
Dividends $101,871 $19,125 $ 505 $2,097
Interest 44,403 45,430 13,230 72,491
---------- ---------- ---------- ----------
146,274 64,555 13,735 74,588
---------- ---------- ---------- ----------
Expenses:
Management services fee 24,542 6,916 952 4,018
Distribution fees - Class 2 917 268 70 116
Reports to shareholders 211 48 6 24
Registration statement and
prospectus 250 75 20 38
Postage, stationery and
supplies 92 20 2 11
Trustees' fees 75 17 2 9
Auditing and legal fees 75 16 2 9
Custodian fee 155 44 9 33
Taxes other than federal
income tax 81 14 2 5
Other expenses 47 9 2 6
---------- ---------- ---------- ----------
26,445 7,427 1,067 4,269
---------- ---------- ---------- ----------
Net investment income 119,829 57,128 12,668 70,319
---------- ---------- ---------- ----------
REALIZED GAIN AND
UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS:
Realized gain 1,068,839 115,877 1,054 6,948
---------- ---------- ---------- ----------
Net change in unrealized appreciation
(depreciation) on investments (236,509) 6,383 (4,900) (66,641)
Net change in unrealized appreciation
(depreciation) on open forward currency
contracts 12 (133)
---------- ----------- ----------- ----------
Net unrealized appreciation
(depreciation) (236,509) 6,383 (4,888) (66,774)
---------- ----------- ----------- ----------
Net realized gain and
unrealized appreciation (depreciation)
on investments 832,330 122,260 (3,834) (59,826)
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $952,159 $179,388 $8,834 $10,493
========= ========= ========= =========
U.S.
Government/ Cash
AAA-Rated Manage-
Securities ment
Fund Fund
--------------- ----------
INVESTMENT INCOME:
Income:
Dividends $ -
Interest 33,531 $14,295
---------- ----------
33,531 14,295
---------- ----------
Expenses:
Management services fee 2,553 1,164
Distribution fees - Class 2 42 56
Reports to shareholders 16 8
Registration statement and
prospectus - 2
Postage, stationery and
supplies 6 3
Trustees' fees 4 3
Auditing and legal fees 5 3
Custodian fee 16 7
Taxes other than federal
income tax 2 -
Other expenses 2 4
---------- ----------
2,646 1,250
---------- ----------
Net investment income 30,885 13,045
---------- ----------
REALIZED GAIN AND
UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS:
Realized gain 4,748 1
---------- ----------
Net change in unrealized appreciation
(depreciation) on investments 5,763 -
Net change in unrealized appreciation
(depreciation) on open forward currency
contracts - -
--------------- ----------
Net unrealized appreciation
(depreciation) 5,763 -
--------------- ----------
Net realized gain and
unrealized appreciation (depreciation)
on investments 10,511 1
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $41,396 $13,046
=============== =========
(1) For the period April 30, 1998, commencement of
operations, through November 30, 1998.
See Notes to Financial Statements
</TABLE>
<TABLE>
American Variable Insurance Series
FINANCIAL STATEMENTS
<S> <C> <C> <C> <C>
Global Small
Statement of Changes in Net Assets Global Capitalization
(dollars in thousands) Growth Fund Fund
------------- ------------- -------------
Year ended Period ended Period ended
November 30, November 30, November 30,
1998 1997 (1) 1998(2)
- ---------------------------------- ----------- ----------- -----------
OPERATIONS:
Net investment income $1,980 $549 $409
Net realized gain (loss) on investments 9,087 (99) 925
Net unrealized appreciation (depreciation)
on investments 26,951 (1,529) (3,708)
----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 38,018 (1,079) (2,374)
----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income:
Class 1 (1,226) (176) (194)
Class 2 (766) (62) (36)
----------- ----------- -----------
Total dividends from net investment income (1,992) (238) (230)
Distributions from net realized gain on
investments (277) - -
----------- ----------- -----------
Total dividends and distributions (2,269) (238) (230)
----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Class 1:
Proceeds from shares sold 45,339 81,956 50,353
Proceeds from shares issued on reinvestment
of dividends and distributions 1,395 176 194
Cost of shares repurchased (15,055) (6,631) (2,874)
----------- ----------- -----------
Net increase (decrease) from Class 1 transactions 31,679 75,501 47,673
----------- ----------- -----------
Class 2:
Proceeds from shares sold 61,131 47,516 17,199
Proceeds from shares issued on reinvestment
of dividends and distributions 874 62 36
Cost of shares repurchased (893) - (62)
----------- ----------- -----------
Net increase from Class 2 transactions 61,112 47,578 17,173
Net increase (decrease) in net ----------- ----------- -----------
assets resulting from capital share
transactions 92,791 123,079 64,846
----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 128,540 121,762 62,242
NET ASSETS:
Beginning of year 126,762 5,000 10,000
----------- ----------- -----------
End of year $255,302 $126,762 $72,242
============ ============ ============
Undistributed net investment income $296 $311 $182
============ ============ ============
SHARES OF BENEFICIAL INTEREST:
Class 1:
Shares sold 3,748,614 7,649,183 5,351,886
Shares issued on reinvestment of dividends
and distributions 118,716 15,620 23,072
Shares repurchased (1,315,104) (605,047) (355,692)
----------- ----------- -----------
Net increase (decrease) in shares outstanding 2,552,226 7,059,756 5,019,266
============ ============ ============
Class 2:
Shares sold 5,120,157 4,376,072 1,915,704
Shares issued on reinvestment of dividends
and distributions 73,850 5,510 4,349
Shares repurchased (78,598) (32) (7,852)
----------- ----------- -----------
Net increase in shares outstanding 5,115,409 4,381,550 1,912,201
============ ============ ============
Growth Fund International Fund
------------- -------------
Year ended Year ended Year ended Year ended
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
- ---------------------------------- ----------- ----------- ----------- -----------
OPERATIONS:
Net investment income $19,359 $24,821 $37,231 $41,594
Net realized gain (loss) on investments 847,243 561,323 47,635 277,748
Net unrealized appreciation (depreciation)
on investments 296,599 342,407 335,472 (92,076)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 1,163,201 928,551 420,338 227,266
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income:
Class 1 (16,761) (24,809) (45,333) (43,541)
Class 2 (125) (50) (1,201) (166)
----------- ----------- ----------- -----------
Total dividends from net investment income (16,886) (24,859) (46,534) (43,707)
Distributions from net realized gain on
investments (580,855) (268,039) (272,318) (94,763)
----------- ----------- ----------- -----------
Total dividends and distributions (597,741) (292,898) (318,852) (138,470)
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Class 1:
Proceeds from shares sold 109,347 238,801 41,886 208,181
Proceeds from shares issued on reinvestment
of dividends and distributions 586,639 292,848 312,120 138,304
Cost of shares repurchased (589,670) (354,956) (471,251) (196,240)
----------- ----------- ----------- -----------
Net increase (decrease) from Class 1 transactions 106,316 176,693 (117,245) 150,245
----------- ----------- ----------- -----------
Class 2:
Proceeds from shares sold 195,304 72,649 68,884 51,308
Proceeds from shares issued on reinvestment
of dividends and distributions 11,102 50 6,732 166
Cost of shares repurchased (457) (11) (1,263) (24)
----------- ----------- ----------- -----------
Net increase from Class 2 transactions 205,949 72,688 74,353 51,450
Net increase (decrease) in net ----------- ----------- ----------- -----------
assets resulting from capital share
transactions 312,265 249,381 (42,892) 201,695
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 877,725 885,034 58,594 290,491
NET ASSETS:
Beginning of year 4,745,383 3,860,349 2,660,119 2,369,628
----------- ----------- ----------- -----------
End of year $5,623,108 $4,745,383 $2,718,713 $2,660,119
============ ============ ============ ============
Undistributed net investment income $7,091 $4,612 $ $9,642
============ ============ ============ ============
SHARES OF BENEFICIAL INTEREST:
Class 1:
Shares sold 2,196,906 5,361,345 2,567,211 12,876,841
Shares issued on reinvestment of dividends
and distributions 13,311,288 7,259,293 21,440,773 8,982,981
Shares repurchased (11,951,567) (8,120,252) (30,137,030) (11,853,859)
----------- ----------- ----------- -----------
Net increase (decrease) in shares outstanding 3,556,627 4,500,386 (6,129,046) 10,005,963
============ ============ ============ ============
Class 2:
Shares sold 3,926,116 1,488,730 4,258,892 2,969,078
Shares issued on reinvestment of dividends
and distributions 252,355 1,040 460,573 9,366
Shares repurchased (10,179) (216) (83,746) (1,469)
Net increase in shares outstanding ----------- ----------- ----------- -----------
4,168,292 1,489,554 4,635,719 2,976,975
============ ============ ============ ============
Growth-Income Asset
Fund Allocation Fund
------------- -------------
Year ended Year ended Year ended Year ended
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
- ---------------------------------- ----------- ----------- ----------- -----------
OPERATIONS:
Net investment income $119,829 $117,807 $57,128 $46,387
Net realized gain (loss) on investments 1,068,839 631,933 115,877 78,404
Net unrealized appreciation (depreciation)
on investments (236,509) 464,898 6,383 86,689
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 952,159 1,214,638 179,388 211,480
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income:
Class 1 (115,861) (112,850) (51,238) (43,924)
Class 2 (5,220) (568) (3,336) (267)
----------- ----------- ----------- -----------
Total dividends from net investment income (121,081) (113,418) (54,574) (44,191)
Distributions from net realized gain on
investments (633,062) (373,625) (78,277) (72,976)
----------- ----------- ----------- -----------
Total dividends and distributions (754,143) (487,043) (132,851) (117,167)
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Class 1:
Proceeds from shares sold 79,575 258,887 55,514 94,533
Proceeds from shares issued on reinvestment
of dividends and distributions 730,769 486,475 126,847 116,900
Cost of shares repurchased (713,841) (287,990) (120,895) (52,765)
----------- ----------- ----------- -----------
Net increase (decrease) from Class 1 transactions 96,503 457,372 61,466 158,668
----------- ----------- ----------- -----------
Class 2:
Proceeds from shares sold 363,643 152,837 121,817 40,846
Proceeds from shares issued on reinvestment
of dividends and distributions 23,374 568 6,004 267
Cost of shares repurchased (829) (2) (195) (203)
----------- ----------- ----------- -----------
Net increase from Class 2 transactions 386,188 153,403 127,626 40,910
Net increase (decrease) in net ----------- ----------- ----------- -----------
assets resulting from capital share
transactions 482,691 610,775 189,092 199,578
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 680,707 1,338,370 235,629 293,891
NET ASSETS:
Beginning of year 6,587,010 5,248,640 1,434,982 1,141,091
----------- ----------- ----------- -----------
End of year $7,267,717 $6,587,010 $1,670,611 $1,434,982
============ ============ ============ ============
Undistributed net investment income $28,393 $29,653 $14,723 $12,170
============ ============ ============ ============
SHARES OF BENEFICIAL INTEREST:
Class 1:
Shares sold 2,066,094 7,261,018 3,472,672 6,313,389
Shares issued on reinvestment of dividends
and distributions 20,193,738 14,498,052 8,206,467 8,156,386
Shares repurchased (18,531,056) (7,793,511) (7,525,015) (3,428,456)
----------- ----------- ----------- -----------
Net increase (decrease) in shares outstanding 3,728,776 13,965,559 4,154,124 11,041,319
============ ============ ============ ============
Class 2:
Shares sold 9,296,520 3,921,601 7,514,429 2,569,382
Shares issued on reinvestment of dividends
and distributions 643,598 14,358 385,691 16,640
Shares repurchased (23,804) (49) (12,673) (12,802)
Net increase in shares outstanding ----------- ----------- ----------- -----------
9,916,314 3,935,910 7,887,447 2,573,220
============ ============ ============ ============
High-Yield
Bond Fund Bond Fund
------------- -------------
Year ended Year ended Year ended Year ended
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
- ---------------------------------- ----------- ----------- ----------- -----------
OPERATIONS:
Net investment income $12,668 $7,007 $70,319 $64,918
Net realized gain (loss) on investments 1,054 1,649 6,948 14,913
Net unrealized appreciation (depreciation)
on investments (4,888) 1,007 (66,774) 5,122
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 8,834 9,663 10,493 84,953
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income:
Class 1 (9,573) (5,948) (65,776) (61,513)
Class 2 (1,605) (126) (3,726) (387)
----------- ----------- ----------- -----------
Total dividends from net investment income (11,178) (6,074) (69,502) (61,900)
Distributions from net realized gain on
investments (1,717) - (8,320) -
----------- ----------- ----------- -----------
Total dividends and distributions (12,895) (6,074) (77,822) (61,900)
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Class 1:
Proceeds from shares sold 64,860 52,881 45,293 74,311
Proceeds from shares issued on reinvestment
of dividends and distributions 11,132 5,948 73,843 61,513
Cost of shares repurchased (18,584) (7,585) (107,252) (55,586)
----------- ----------- ----------- -----------
Net increase (decrease) from Class 1 transactions 57,408 51,244 11,884 80,238
----------- ----------- ----------- -----------
Class 2:
Proceeds from shares sold 33,674 11,571 49,128 20,198
Proceeds from shares issued on reinvestment
of dividends and distributions 1,763 126 3,979 387
Cost of shares repurchased (1,431) (29) (1,418) (3)
----------- ----------- ----------- -----------
Net increase from Class 2 transactions 34,006 11,668 51,689 20,582
Net increase (decrease) in net ----------- ----------- ----------- -----------
assets resulting from capital share
transactions 91,414 62,912 63,573 100,820
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 87,353 66,501 (3,756) 123,873
NET ASSETS:
Beginning of year 143,926 77,425 786,058 662,185
----------- ----------- ----------- -----------
End of year $231,279 $143,926 $782,302 $786,058
============ ============ ============ ============
Undistributed net investment income $3,506 $2,081 $17,744 $17,389
============ ============ ============ ============
SHARES OF BENEFICIAL INTEREST:
Class 1:
Shares sold 6,220,296 5,092,091 3,143,506 5,078,465
Shares issued on reinvestment of dividends
and distributions 1,070,589 579,221 5,138,832 4,250,842
Shares repurchased (1,789,981) (732,975) (7,540,786) (3,792,325)
----------- ----------- ----------- -----------
Net increase (decrease) in shares outstanding 5,500,904 4,938,337 741,552 5,536,982
============ ============ ============ ============
Class 2:
Shares sold 3,219,589 1,098,637 3,361,669 1,355,310
Shares issued on reinvestment of dividends
and distributions 169,961 12,011 280,937 26,144
Shares repurchased (137,744) (2,771) (105,506) (225)
Net increase in shares outstanding ----------- ----------- ----------- -----------
3,251,806 1,107,877 3,537,100 1,381,229
============ ============ ============ ============
U.S. Government/
AAA-Rated Cash Management
Securities Fund Fund
------------- -------------
Year ended Year ended Year ended Year ended
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
- ---------------------------------- ----------- ----------- ----------- -----------
OPERATIONS:
Net investment income $30,885 $32,546 $13,045 $12,382
Net realized gain (loss) on investments 4,748 (9,383) 1 -
Net unrealized appreciation (depreciation)
on investments 5,763 6,202 - -
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 41,396 29,365 13,046 12,382
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
PAID TO SHAREHOLDERS:
Dividends from net investment income:
Class 1 (29,472) (34,740) (11,431) (11,948)
Class 2 (938) (123) (984) (182)
----------- ----------- ----------- -----------
Total dividends from net investment income (30,410) (34,863) (12,415) (12,130)
Distributions from net realized gain on
investments - - - -
----------- ----------- ----------- -----------
Total dividends and distributions (30,410) (34,863) (12,415) (12,130)
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Class 1:
Proceeds from shares sold 97,521 23,001 269,818 252,946
Proceeds from shares issued on reinvestment
of dividends and distributions 29,472 34,740 11,431 11,948
Cost of shares repurchased (71,432) (93,774) (258,426) (279,424)
----------- ----------- ----------- -----------
Net increase (decrease) from Class 1 transactions 55,561 (36,033) 22,823 (14,530)
----------- ----------- ----------- -----------
Class 2:
Proceeds from shares sold 26,930 8,344 40,995 19,573
Proceeds from shares issued on reinvestment
of dividends and distributions 938 123 984 182
Cost of shares repurchased (3,235) (1,538) (21,792) (5,950)
----------- ----------- ----------- -----------
Net increase from Class 2 transactions 24,633 6,929 20,187 13,805
Net increase (decrease) in net ----------- ----------- ----------- -----------
assets resulting from capital share
transactions 80,194 (29,104) 43,010 (725)
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 91,180 (34,602) 43,641 (473)
NET ASSETS:
Beginning of year 477,649 512,251 239,875 240,348
----------- ----------- ----------- -----------
End of year $568,829 $477,649 $283,516 $239,875
============ ============ ============ ============
Undistributed net investment income $7,936 $7,461 $3,971 $3,341
============ ============ ============ ============
SHARES OF BENEFICIAL INTEREST:
Class 1:
Shares sold 8,582,116 2,087,594 24,352,691 22,809,829
Shares issued on reinvestment of dividends
and distributions 2,630,834 3,195,318 1,037,352 1,083,759
Shares repurchased (6,349,283) (8,543,011) (23,299,957) (25,187,883)
----------- ----------- ----------- -----------
Net increase (decrease) in shares outstanding 4,863,667 (3,260,099) 2,090,086 (1,294,295)
============ ============ ============ ============
Class 2:
Shares sold 2,379,800 756,866 3,700,810 1,763,820
Shares issued on reinvestment of dividends
and distributions 83,414 11,218 89,256 16,540
Shares repurchased (287,245) (139,099) (1,966,921) (536,654)
Net increase in shares outstanding ----------- ----------- ----------- -----------
2,175,969 628,985 1,823,145 1,243,706
(1) For the period April 30, 1997, commencement ============ ============ ============ ============
of operations, through November 30, 1997.
(2) For the period April 30, 1998, commencement
of operations, through November 30, 1998.
(3) Represents initial capitalization from the sale
of 500,000 Class 1 shares of beneficial interest.
(4) Represents initial capitalization from the sale
of 1,000,000 Class 1 shares of beneficial interest.
See Notes to Financial Statements
</TABLE>
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Variable Insurance Series (the "series") is registered
under the Investment Company Act of 1940 as an open-end, diversified management
investment company with 10 different funds. The 10th fund, the Global Small
Capitalization Fund, commenced operations on April 30, 1998. The assets of each
fund are segregated, with each fund accounted for separately. The funds'
investment objectives are as follows: Global Growth Fund - growth of capital by
investing primarily in common stocks or securities with common stock
characteristics of issuers domiciled around the world; Global Small
Capitalization Fund - long-term growth of capital by investing primarily in
smaller companies in the U.S. and around the world; 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,
with emphasis on higher yielding, higher risk, lower rated or unrated
securities; 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.
Each fund in the series is authorized to offer multiple classes of shares.
Currently, each fund offers two classes of shares: Class 1 and Class 2. Class
1 shares are not subject to either an initial or contingent deferred sales
charge nor have they adopted a plan of distribution to cover any distribution
expenses. Class 2 shares are subject to certain fees pursuant to a Plan of
Distribution as described below. Both classes of shares have identical voting,
dividend, liquidation and other rights and shall have exclusive rights to vote
on matters affecting only individual classes. Income, expenses, and any
realized capital gains and losses not specific to a particular class will be
allocated to each class on the basis of the net asset value of that class in
relation to net assets of the fund. Class-specific expenses will be allocated
to that particular class on a specific identification basis.
SIGNIFICANT ACCOUNTING POLICIES -- The following is a summary of the
significant accounting policies consistently followed by the series in the
preparation of its financial statements:
SECURITY VALUATION -- Equity securities, including depositary receipts, are
valued at the last reported sale price on the exchange or market on which such
securities are traded, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available bid price. In
cases where equity securities are traded on more than one exchange, the
securities are valued on the exchange or market determined by the investment
adviser to be the broadest and most representative market, which may be either
a securities exchange or the over-the-counter market. Fixed-income securities
are valued at prices obtained from a pricing service, 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 quoted bid and
asked prices or at prices for securities of comparable maturity, quality and
type. Securities with original maturities of one year or less having 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity or, if already held on the 60th day, based on the
value determined on the 61st day. Forward currency contracts are valued at the
mean of their representative quoted bid and asked prices. Securities and assets
for which representative market quotations are not readily available are valued
at fair value as determined in good faith by a committee appointed by the Board
of Trustees.
NON-U.S. CURRENCY TRANSLATION -- Assets or liabilities initially expressed in
terms of non-U.S. currencies are translated into U.S. dollars at the prevailing
market rates at the end of the reporting period. Purchases and sales of
securities and income and expenses are translated into U.S. dollars at the
prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- 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 series 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 and premiums on securities purchased
are amortized.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions paid
to shareholders are recorded on the ex-dividend date.
FORWARD CURRENCY CONTRACTS -- The series may enter into forward currency
contracts, which represent agreements to exchange currencies of different
countries at specified future dates at specified rates. The series enters into
these contracts to reduce its exposure to fluctuations in foreign exchange
rates arising from investments denominated in non-U.S. currencies. The series'
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 series records realized gains or losses at the time the forward
contract is closed or offset by a matching contract. The face or contract
amount in U.S. dollars reflects the total exposure the series has in that
particular contract. Risks 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.
COMMON EXPENSES -- 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.
2. FEDERAL INCOME TAXATION
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, 1998, the U.S. Government/AAA-Rated
Securities Fund utilized a capital loss carryforward of $4,051,000 to offset,
for tax purposes, capital gains realized during the period up to such amount.
The U.S. Government/AAA-Rated Securities Fund had available at November 30,
1998 capital loss carryforward totaling $15,528,000, which may be used to
offset capital gains realized during subsequent years through November 30,
2005, and thereby relieve the fund and its shareholders of any federal income
tax liability with respect to the capital gains that are so offset. It is the
intention of this fund not to make distributions from capital gains while there
is a capital loss carryforward.
Additional tax basis disclosures for and as of the year ended November 30, 1998
are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
(dollars in
thousands)
Global Global Small Growth-
Growth Capitalization Growth Interna- Income
Fund Fund Fund tional Fund Fund
For the year
ended November 30, 1998
Tax basis net capital
gain 8,723 $1,054 * $827,001 $47,635 $1,068,847
Tax basis net currency
gain (loss) (3) 3 * 9 - (8)
Losses during the period
November 1, 1998 to
November 30, 1998 deferred to
fiscal year ending
November 30,1999 related to
the following:
Currency - - 3 - -
Capital gains - 132 132 - -
As of November 30, 1998 (tax
basis amounts,
excluding forward
currency contracts):
Unrealized
appreciation 42,825 6,330 1,892,039 776,874 1,743,049
Unrealized
depreciation 17,409 10,038 267,550 162,171 276,802
Net unrealized
appreciation
(depreciation) 25,416 (3,708) 1,624,489 614,703 1,466,247
Cost of portfolio
securities 228,514 77,420 4,026,891 2,112,182 5,798,153
(dollars in
thousands)
Asset High-Yield U.S. Government/ Cash
Allocation Bond Bond AAA-Rated Management
Fund Fund Fund Securities Fund Fund
For the year
ended November 30, 1998
Tax basis net capital
gain $115,878 $1,107 $10,784 $4,051 $1
Tax basis net currency
gain (loss) (1) (53) (595) - -
Losses during the period
November 1, 1998 to
November 30, 1998 deferred to
fiscal year ending
November 30,1999 related to
the following:
Currency - - - - -
Capital gains - - 3,903 - -
As of November 30, 1998 (tax
basis amounts,
excluding forward
currency contracts):
Unrealized
appreciation 330,738 5,476 24,943 17,543 -
Unrealized
depreciation 52,868 7,274 64,378 1,998 -
Net unrealized
appreciation
(depreciation) 277,870 (1,798) 39,435 15,545 -
Cost of portfolio
securities 1,386,280 234,774 808,351 577,503 284,117
* For the period
April 30, 1998,
commencement of operations,
through November 30, 1998.
</TABLE>
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE -- The fees for management services were incurred
pursuant to an agreement with Capital Research and Management Company (CRMC),
with which certain officers and Trustees of the series are affiliated. The
Investment Advisory and Service Agreement provides for monthly fees, accrued
daily, based on the following annual rates: Global Growth Fund - 0.69% of
average net assets; Global Small Capitalization Fund - 0.80% of average net
assets; 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; International Fund -0.78%
of the first $600 million of average net assets; 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 - 0.50% 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; 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 Global Growth Fund, Global
Small Capitalization Fund, Growth Fund, Growth-Income Fund, and Asset
Allocation Fund effective December 1, 1998, at the following annual rates:
Global Growth Fund - 0.69% of the first $600 million of average net assets;
0.59% of such assets in excess of $600 million but not exceeding $1.2 billion;
and 0.53% of such assets in excess of $1.2 billion; Global Small Capitalization
Fund - 0.80% of the first $600 million of average net assets; and 0.74% of such
assets in excess of $600 million; 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; 0.35% of such assets in excess of $3.2 billion but not
exceeding $5.2 billion; 0.33% of such assets in excess of $5.2 billion but not
exceeding $8.4 billion; and 0.315% of such assets in excess of $8.4 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;
0.285% of such assets in excess of $4.0 billion but not exceeding $6.5 billion;
0.256% of such assets in excess of $6.5 billion but not exceeding $10.5
billion; and 0.242% of such assets in excess of $10.5 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; 0.36% of such
assets in excess of $1.2 billion but not exceeding $2.0 billion; and 0.32% of
such assets in excess of $2.0 billion. Beginning July 1, 1998, CRMC has
voluntarily agreed to waive its management fees in excess of those provided by
the amended agreement. For the Growth Fund and the Growth-Income Fund, the
amounts waived were $15,000 and $55,000 respectively.
DISTRIBUTION EXPENSES -- Pursuant to a Plan of Distribution, each fund is
authorized to pay an annual rate of 0.25% of the average daily net assets of
Class 2 shares in connection with certain distribution services and related
activities. During the year ended November 30, 1998, Plan expenses for the
series aggregated $2,403,000. As of November 30, 1998, accrued and unpaid
distribution expenses were $293,000.
DEFERRED TRUSTEES' FEES -- 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 30,1998, aggregate amounts deferred and earnings thereon
were $386,000. Certain trustees and officers of the series are or may be
considered to be affiliated with CRMC. No such persons received any
remuneration directly from the series.
4. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The following table presents additional information for and as of November 30,
1998:
<TABLE>
<S> <C> <C> <C><C> <C> <C>
(dollars in
thousands)
Global Global Small Growth-
Growth Capitalization Growth Interna- Income
Fund Fund Fund tional Fund Fund
For the year
ended November 30,1998:
Purchases of
investment
securities (1) 121,673 70,231 (2)2,396,436 875,181 2,658,486
Sales of invest-
ment securities (1) 48,490 10,644 (2)2,632,263 1,133,256 2,734,346
Book basis net currency
gain (loss) on dividends,
interest, withholding
taxes reclaimable, and
sale of non-U.S. bonds (3) 3 (2) 6 (775) (8)
As of November 30, 1998:
Accumulated
undistributed
net realized
gain (loss) on
Investments $8,714 $922 $827,391 $50,374 $1,067,309
Reclassification from (to)
undistributed net investment
income to (from)undistributed
net realized gain 3 (3) (6) 828 8
Paid-in capital 220,870 74,846 3,164,137 2,053,868 4,705,764
(dollars in
thousands)
Asset High-YieldU.S. Government/ Cash
Allocation Bond Bond AAA-Rated Management
Fund Fund Fund Securities Fund Fund
For the year
ended November 30,1998:
Purchases of
investment
securities (1) 478,986 195,963 542,112 520,241 -
Sales of invest-
ment securities (1) 397,678 98,164 497,096 419,153 -
Book basis net currency
gain (loss) on dividends,
interest, withholding
taxes reclaimable, and
sale of non-U.S. bonds (1) (145) (112) - -
As of November 30, 1998:
Accumulated
undistributed
net realized
gain (loss) on
Investments $115,451 $1,062 $6,826 $ (15,657) $1
Reclassification from (to)
undistributed net investment
income to (from)undistributed
net realized gain 1 65 462 - -
Paid-in capital 1,262,567 228,509 797,143 561,005 254,071
(1) Excludes short-
term securities
(2) For the period
April 30, 1998,
commencement of operations,
through November 30, 1998.
</TABLE>
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 $2,511,000, of
which $132,000 was paid by these credits rather than in cash.
Dividend and interest income for the Global Growth Fund, the Global Small
Capitalization Fund and the International Fund is recorded net of non-U.S.
taxes paid. For the year ended November 30, 1998, such non-U.S. taxes were
$187,000, $29,000 and $5,327,000, respectively.
At November 30, 1998, the Bond Fund and the High-Yield Bond Fund had
outstanding forward currency contracts to sell non-U.S. currencies as follows:
<TABLE>
<S> <C> <C> <C>
Non-U.S. Currency Sale Contracts
Contract Amount
--------- ---------
Fund Non-U.S. U.S.
--------- --------- ---------
Deutsche Marks
expiring 2/3/1999 Bond DM 983,000 $ 600,000
expiring 2/3-2/25/1999 High-Yield Bond 21,424,000 12,723,000
Great British Pound
expiring 12/21/1998-8/10/1999 High-Yield Bond GBP 6,696,000 10,950,000
U.S. Valuation at 11/30/98
--------- ---------
Unrealized
Appreciation
Fund Amount (Depreciation)
--------- --------- ---------
Deutsche Marks
expiring 2/3/1999 Bond $ 581,000 $ 19,000
expiring 2/3-2/25/1999 High-Yield Bond 12,675,000 48,000
Great British Pound
expiring 12/21/1998-8/10/1999 High-Yield Bond 10,984,000 (34,000)
</TABLE>
<PAGE>
<TABLE>
PER-SHARE DATA AND RATIOS
<S> <C> <C> <C> <C> <C>
Net gains Total Dividends
Net asset Net or losses on from (from net
value, invest- securities invest- invest-
Year beginning ment (both realized ment ment
Ended of year income and unrealized) operations income)
- --------- --------- --------- --------- --------- ---------
Global Growth Fund (1)
Class 1
1997 $10.00 $.06 $ .59 $ .65 $(.03)
1998 10.62 .13 2.43 2.56 (.14)
Class 2 (3)
1997 10.00 .03 .60 .63 (.02)
1998 10.61 .10 2.44 2.54 (.11)
Global Small Capitalization Fund (4)
Class 1
1998 $10.00 $.06 $(.91) $(.85) $(.04)
Class 2
1998 10.00 .04 (.91) (.87) (.03)
Growth Fund
Class 1
1994 $ $.24 $.69 $.93 $(.24)
1995 31.94 .33 10.63 10.96 (.29)
1996 41.81 .24 5.17 5.41 (.29)
1997 43.53 .27 9.61 9.88 (.27)
1998 50.12 .19 10.91 11.10 (.17)
Class 2 (3)
1997 40.59 .11 9.51 9.62 (.12)
1998 50.09 .08 10.90 10.98 (.05)
International Fund
Class 1
1994 $ $.25 $ $ $(.20)
1995 13.27 .34 1.02 1.36 (.33)
1996 13.89 .28 1.96 2.24 (.31)
1997 15.53 .25 1.18 1.43 (.27)
1998 16.07 .22 2.21 2.43 (.28)
Class 2 (3)
1997 15.86 .13 .23 .36 (.16)
1998 16.06 .20 2.19 2.39 (.24)
Growth Income Fund
Class 1
1994 $ $.68 $.14 $.82 $(.65)
1995 25.30 .73 7.20 7.93 (.73)
1996 31.47 .71 5.55 6.26 (.74)
1997 35.73 .73 6.78 7.51 (.72)
1998 39.97 .67 4.60 5.27 (.68)
Class 2 (3)
1997 34.10 .37 5.82 6.19 (.35)
1998 39.94 .58 4.60 5.18 (.59)
Asset Allocation Fund
Class 1
1994 $ $.51 $ (.57) $ (.06) $(.52)
1995 11.25 .50 2.69 3.19 (.50)
1996 13.77 .53 1.89 2.42 (.53)
1997 15.18 .55 1.94 2.49 (.54)
1998 16.16 .58 1.27 1.85 (.57)
Class 2 (3)
1997 14.43 .29 1.69 1.98 (.26)
1998 16.15 .53 1.28 1.81 (.53)
Bond Fund (5)
Class 1
1996 $10.00 $.40 $.16 $.56 $(.25)
1997 10.31 .63 .30 .93 (.62)
1998 10.62 .67 (.15) .52 (.65)
Class 2 (3)
1997 10.11 .35 .46 .81 (.31)
1998 10.61 .65 (.15) .50 (.63)
High-Yield Bond Fund
Class 1
1994 $ $ $ (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)
1997 14.51 1.29 .43 1.72 (1.27)
1998 14.96 1.26 (1.04) .22 (1.25)
Class 2 (3)
1997 14.28 .69 .61 1.30 (.63)
1998 14.95 1.23 (1.04) .19 (1.22)
U.S. Government/
AAA-Rated Securities Fund
Class 1
1994 $ $.76 $(1.30) $ (.54) $(.74)
1995 10.80 .82 .71 1.53 (.81)
1996 11.52 .83 (.24) .59 (.82)
1997 11.29 .76 (.07) .69 (.80)
1998 11.18 .68 .26 .94 (.69)
Class 2 (3)
1997 10.83 .38 .33 .71 (.37)
1998 11.17 .68 .24 .92 (.67)
Cash Management Fund
Class 1
1994 $ $.37 $ .02 $.39 $(.32)
1995 11.09 .63 (.02) .61 (.59)
1996 11.11 .54 .01 .55 (.54)
1997 11.12 .57 (.01) .56 (.55)
1998 11.13 .57 (.01) .56 (.56)
Class 2 (3)
1997 11.07 .28 .03 .31 (.26)
1998 11.12 .55 (.02) .53 (.53)
Distri-
butions Net asset Net assets,
(from Total value, end of
Year capital distri- end of Total year (in
Ended gains) butions year return millions)
- --------- --------- --------- --------- --------- ---------
Global Growth Fund (1)
Class 1
1997 - $(.03) $10.62 6.45% (2) $ 80
1998 $(.02) (.16) 13.02 24.26 132
Class 2 (3)
1997 - (.02) 10.61 6.28 (2) 46
1998 (.02) (.13) 13.02 24.06 124
Global Small Capitalization Fund (4)
Class 1
1998 $(.04) $ (8.31)% (2) $55
Class 2
1998 (.03) 9.10 (8.49) (2) 17
Growth Fund
Class 1
1994 $(1.09) $(1.33) $ 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
1997 (3.02) (3.29) 50.12 24.57 4,671
1998 (6.14) (6.31) 54.91 25.27 5,313
Class 2 (3)
1997 - (.12) 50.09 23.73 (2) 75
1998 (6.14) (6.19) 54.88 24.97 310
International Fund
Class 1
1994 $ (.22) $ (.42) $ 10.48% $1,405
1995 (.41) (.74) 13.89 10.78 1,703
1996 (.29) (.60) 15.53 16.66 2,370
1997 (.62) (.89) 16.07 9.52 2,612
1998 (1.65) (1.93) 16.57 16.94 2,593
Class 2 (3)
1997 - (.16) 16.06 2.20 (2) 48
1998 (1.65) (1.89) 16.56 16.63 126
Growth Income Fund
Class 1
1994 $ (.88) $ (1.53) $ 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
1997 (2.55) (3.27) 39.97 22.92 6,430
1998 (3.83) (4.51) 40.73 14.77 6,704
Class 2 (3)
1997 - (.35) 39.94 18.18 (2) 157
1998 (3.83) (4.42) 40.70 14.49 564
Asset Allocation Fund
Class 1
1994 $(.18) $ (.70) $ (.54) $ 637
1995 (.17) (.67) 13.77 29.45 870
1996 (.48) (1.01) 15.18 18.65 1,141
1997 (.97) (1.51) 16.16 17.90 1,393
1998 (.87) (1.44) 16.57 12.32 1,497
Class 2 (3)
1997 - (.26) 16.15 13.80 (2) 42
1998 (.87) (1.40) 12.05 173
Bond Fund (5)
Class 1
1996 - $(.25) $10.31 5.74% (2) $ 77
1997 - (.62) 10.62 9.36 132
1998 $(.12) (.77) 10.37 5.12 186
Class 2 (3)
1997 - (.31) 10.61 8.09 (2) 12
1998 (.12) (.75) 10.36 4.85 45
High-Yield Bond Fund
Class 1
1994 $ (.25) $(1.48) $ (5.71)% $390
1995 - (1.32) 13.99 19.81 534
1996 - (1.30) 14.51 13.75 662
1997 - (1.27) 14.96 12.45 765
1998 (.16) (1.41) 13.77 1.44 715
Class 2 (3)
1997 - (.63) 14.95 9.20 (2) 21
1998 (.16) (1.38) 13.76 1.18 68
U.S. Government/
AAA-Rated Securities Fund
Class 1
1994 $(.07) $ (.81) $ (4.58)% $463
1995 - (.81) 11.52 14.73 542
1996 - (.82) 11.29 5.49 512
1997 - (.80) 11.18 6.49 471
1998 - (.69) 11.43 8.72 537
Class 2 (3)
1997 - (.37) 11.17 6.65 (2) 7
1998 - (.67) 11.42 8.46 32
Cash Management Fund
Class 1
1994 - $(.32) $ 3.59% $221
1995 - (.59) 11.11 5.65 193
1996 - (.54) 11.12 5.09 240
1997 - (.55) 11.13 5.21 226
1998 - (.56) 11.13 5.17 250
Class 2 (3)
1997 - (.26) 2.87 (2) 14
1998 - (.53) 4.92 34
Ratio
Ratio of of net
expenses income to Portfolio
Year to average average turnover
Ended net assets net assets rate
- --------- --------- --------- ---------
Global Growth Fund (1)
Class 1
1997 .44% (2) .80% (2) 13.22% (2)
1998 .75 1.14 25.56
Class 2 (3)
1997 .57 (2) .56 (2) 13.22 (2)
1998 1.00 .87 25.56
Global Small Capitalization Fund (4)
Class 1
1998 .51% (2) .86% (2) 28.20% (2)
Class 2
1998 .62 (2) .63 (2) 28.2 (2)
Growth Fund
Class 1
1994 .49% .78% 29.58%
1995 .47 .92 35.47
1996 .44 .61 30.88
1997 .42 .59 45.14
1998 .41 .38 49.91
Class 2 (3)
1997 .37 (2) .08 (2) 45.14
1998 .66 .15 49.91
International Fund
Class 1
1994 .80% 2.03% 19.66%
1995 .75 2.64 24.66
1996 .69 1.99 32.08
1997 .67 1.56 50.12
1998 .66 1.36 34.08
Class 2 (3)
1997 .53 (2) .34 (2) 50.12
1998 .91 1.03 34.08
Growth Income Fund
Class 1
1994 .47% 2.72% 29.26%
1995 .44 2.70 26.91
1996 .41 2.26 31.27
1997 .38 2.01 37.55
1998 .36 1.74 42.72
Class 2 (3)
1997 .35 (2) .93 (2) 37.55
1998 .61 1.02 42.72
Asset Allocation Fund
Class 1
1994 .53% 4.55% 36.13%
1995 .52 4.11 39.89
1996 .49 3.88 50.62
1997 .47 3.63 34.14
1998 .45 3.63 27.97
Class 2 (3)
1997 .40 (2) 1.81 (2) 34.14
1998 .70 3.39 27.97
Bond Fund (5)
Class 1
1996 .52% (2) 6.18% (2) 32.83% (2)
1997 .55 6.63 52.93
1998 .54 6.89 61.54
Class 2 (3)
1997 .44 (2) 3.50 (2) 52.93
1998 .78 6.62 61.54
High-Yield Bond Fund
Class 1
1994 .54% 9.37% 38.46%
1995 .54 10.12 31.73
1996 .53 9.27 44.81
1997 .51 8.92 50.22
1998 .51 8.66 65.80
Class 2 (3)
1997 .43 (2) 4.92 (2) 50.22
1998 .76 8.60 65.80
U.S. Government/
AAA-Rated Securities Fund
Class 1
1994 .54% 6.69% 45.21%
1995 .54 7.37 30.11
1996 .53 7.33 30.45
1997 .52 6.73 53.80
1998 .51 6.11 89.25
Class 2 (3)
1997 .44 (2) 3.45 (2 53.80
1998 .75 5.68 89.25
Cash Management Fund
Class 1
1994 .49% 3.60% -
1995 .49 5.37 -
1996 .47 4.94 -
1997 .47 4.99 -
1998 .46 5.07 -
Class 2 (3)
1997 .41 (2) 2.80 (2) -
1998 .70 4.75 -
</TABLE>
1 Commenced operations
April 30, 1997.
2 Based on operations
for the period shown
and, accordingly, not
representative of a
full year.
3 Shares offered for
sale commencing
April 30, 1997.
4 Commenced operations
April 30, 1998.
5 Commenced operations
January 2, 1996.
See Notes to Financial Statements
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 investment portfolios, 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 Global
Growth Fund, the Global Small Capitalization Fund, 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, 1998, 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, 1998 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.
PricewaterhouseCoopers LLP
Los Angeles, California
January 8, 1999
