<PAGE> 1
PROSPECTUS -- MAY 14, 1997
================================================================================
SUNAMERICA SERIES TRUST
================================================================================
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
SunAmerica Series Trust ("Trust") is an open-end management investment company.
The Trust consists of 21 Portfolios, each of which has its own investment
objectives and policies. This Prospectus includes 15 of the 21 Portfolios of the
Trust.
The CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving capital
by investing in a diversified selection of money market instruments.
The CORPORATE BOND PORTFOLIO seeks a high total return with only moderate price
risk by investing primarily in investment grade fixed-income securities.
The GLOBAL BOND PORTFOLIO seeks a high total return, emphasizing current income
and, to a lesser extent, providing opportunities for capital appreciation,
through investment in high quality fixed-income securities of U.S. and foreign
issuers and through transactions in foreign currencies.
The HIGH-YIELD BOND PORTFOLIO seeks a high level of current income and
secondarily seeks capital appreciation by investing primarily in intermediate
and long-term corporate obligations, with emphasis on higher-yielding,
higher-risk, lower-rated or unrated securities.
The WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income and, secondarily,
capital appreciation, by investing primarily in a portfolio of high-yielding
fixed-income securities of issuers located throughout the world.
The SUNAMERICA BALANCED PORTFOLIO seeks to conserve principal by maintaining at
all times a balanced portfolio of stocks and bonds.
The ASSET ALLOCATION PORTFOLIO seeks high total return (including income and
capital gains) consistent with preservation of capital over the long-term
through a diversified portfolio that can include common stocks and other
securities having common stock characteristics, bonds and
other intermediate and long-term fixed-income securities and money market
instruments (debt securities maturing in one year or less) in any combination.
The UTILITY PORTFOLIO seeks high current income and moderate capital
appreciation by investing primarily in the equity and debt securities of utility
companies.
THE HIGH-YIELD BOND AND WORLDWIDE HIGH INCOME PORTFOLIOS INVEST PREDOMINANTLY
IN, AND THE CORPORATE BOND AND ASSET ALLOCATION PORTFOLIOS MAY INVEST IN,
LOWER-RATED AND UNRATED BONDS (ALSO KNOWN AS "JUNK BONDS"). BONDS OF THIS TYPE
ARE TYPICALLY SUBJECT TO GREATER MARKET FLUCTUATIONS AND RISK OF LOSS OF INCOME
AND PRINCIPAL DUE TO DEFAULT BY THE ISSUER THAN ARE INVESTMENTS IN
LOWER-YIELDING, HIGHER-RATED BONDS. SEE "DESCRIPTION OF SECURITIES AND
INVESTMENT TECHNIQUES -- RISK FACTORS RELATING TO HIGH-YIELD BONDS" FOR A
DISCUSSION OF THE RISKS ASSOCIATED WITH HIGH-YIELD, HIGH-RISK SECURITIES.
(Cover continued on next page)
------------------------
INVESTMENTS IN A PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT OR ANY
OTHER ENTITY OR PERSON.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Trust. Please read it carefully and retain
it for future reference. A Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. Further information about the performance of the Portfolios is
contained in the Trust's Annual Report to Shareholders. The Annual Report to
Shareholders and the Statement of Additional Information may be obtained upon
request and without charge by writing to the Trust at the above address or by
calling 1-800-445-SUN2.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 2
(Cover continued from previous page)
The GROWTH-INCOME PORTFOLIO seeks growth of capital and income by investing
primarily in common stocks or securities which demonstrate the potential for
appreciation and/or dividends.
The FEDERATED VALUE PORTFOLIO seeks growth of capital and income by investing
primarily in the securities of high quality companies.
The VENTURE VALUE PORTFOLIO seeks to achieve growth of capital by investing
primarily in common stocks.
The ALLIANCE GROWTH PORTFOLIO seeks long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics which
the Adviser believes have the potential for appreciation.
The AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation by investing
primarily in equity securities of small capitalization growth companies.
The GLOBAL EQUITIES PORTFOLIO seeks long-term growth of capital through
investment primarily in common stocks or securities of U.S. and foreign issuers
with common stock characteristics which demonstrate the potential for
appreciation and through transactions in foreign currencies.
The INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO seeks long-term capital
appreciation by investing in accordance with country weightings determined by
its subadviser in common stocks of foreign issuers which, in the aggregate,
replicate broad country indices.
Shares of the Trust are issued and redeemed only in connection with investments
in and payments under variable annuity contracts and may be sold to fund
variable life contracts issued in the future. The contracts involve fees and
expenses not described in this Prospectus. Certain Portfolios may not be
available in connection with a particular contract. See the applicable contract
prospectus for information regarding contract fees and expenses and any
restrictions or limitations.
<PAGE> 3
=========================================================
TABLE OF CONTENTS
=========================================================
<TABLE>
<CAPTION>
TOPIC PAGE
----- ----
<S> <C> <C>
FINANCIAL HIGHLIGHTS..................... 4
THE TRUST, ITS INVESTMENT OBJECTIVES AND
POLICIES............................... 7
Cash Management Portfolio.......... 8
Corporate Bond Portfolio........... 8
Global Bond Portfolio.............. 9
High-Yield Bond Portfolio.......... 10
Worldwide High Income Portfolio.... 11
SunAmerica Balanced Portfolio...... 13
Asset Allocation Portfolio......... 14
Utility Portfolio.................. 14
Growth-Income Portfolio............ 15
Federated Value Portfolio.......... 15
Venture Value Portfolio............ 16
Alliance Growth Portfolio.......... 17
Aggressive Growth Portfolio........ 17
Global Equities Portfolio.......... 18
International Diversified Equities
Portfolio.......................... 18
DESCRIPTION OF SECURITIES AND INVESTMENT
TECHNIQUES............................. 19
MANAGEMENT............................... 30
PORTFOLIO TURNOVER AND BROKERAGE.........
36
DIVIDENDS, DISTRIBUTIONS AND FEDERAL
TAXES.................................. 36
PRICE OF SHARES.......................... 37
PURCHASES AND REDEMPTIONS................ 37
SHAREHOLDER VOTING RIGHTS................ 38
INDEPENDENT ACCOUNTANTS.................. 38
SHAREHOLDER INQUIRIES.................... 38
FINANCIAL INFORMATION.................... 39
</TABLE>
3
<PAGE> 4
================================================================================
FINANCIAL HIGHLIGHTS
================================================================================
The following Financial Highlights for the Portfolios and periods set forth
below have been audited by Price Waterhouse LLP, the Trust's independent
accountants, whose report on the financial statements containing such
information is included in the Trust's Annual Report to Shareholders. These
Financial Highlights* should be read in conjunction with the financial
statements and notes thereto, which are included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
NET TOTAL DECLARED FROM NET NET
NET ASSET NET REALIZED FROM FROM NET REALIZED ASSET
VALUE INVEST- & UNREALIZED INVEST- INVEST- GAIN ON VALUE
BEGINNING MENT GAIN (LOSS) ON MENT MENT INVEST- END OF
PERIOD ENDED OF PERIOD INCOME** INVESTMENTS OPERATIONS INCOME MENTS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
========================================================================================================================
Cash Management Portfolio
2/9/93-11/30/93 $ 10.00 $ 0.19 $ 0.01 $ 0.20 $ -- $ -- $ 10.20
11/30/94 10.20 0.38 (0.02) 0.36 (0.09) -- 10.47
11/30/95 10.47 0.56 0.01 0.57 (0.34) -- 10.70
11/30/96 10.70 0.53 (0.02) 0.51 (0.45) -- 10.76
- ------------------------------------------------------------------------------------------------------------------------
Corporate Bond Portfolio
7/1/93-11/30/93 10.00 0.14 0.05 0.19 -- -- 10.19
11/30/94 10.19 0.52 (0.87) (0.35) (0.05) (0.04) 9.75
11/30/95 9.75 0.60 1.00 1.60 (0.53) -- 10.82
11/30/96 10.82 0.65 0.03 0.68 (0.41) -- 11.09
- ------------------------------------------------------------------------------------------------------------------------
Global Bond Portfolio
7/1/93-11/30/93 10.00 0.13 0.17 0.30 -- -- 10.30
11/30/94 10.30 0.53 (0.86) (0.33) (0.09) (0.05) 9.83
11/30/95 9.83 0.60 0.97 1.57 (0.38) -- 11.02
11/30/96 11.02 0.59 0.54 1.13 (0.75) -- 11.40
- ------------------------------------------------------------------------------------------------------------------------
High-Yield Bond Portfolio
2/9/93-11/30/93 10.00 0.76 0.36 1.12 -- -- 11.12
11/30/94 11.12 1.20 (1.65) (0.45) (0.29) (0.06) 10.32
11/30/95 10.32 1.11 0.12 1.23 (1.02) -- 10.53
11/30/96 10.53 0.98 0.48 1.46 (0.95) -- 11.04
- ------------------------------------------------------------------------------------------------------------------------
Worldwide High Income Portfolio
10/28/94-11/30/94 10.00 0.04 (0.09) (0.05) -- -- 9.95
11/30/95 9.95 1.10 0.47 1.57 (0.10) -- 11.42
11/30/96 11.42 1.25 1.60 2.85 (0.87) (0.05) 13.35
- ------------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced Portfolio
6/3/96-11/30/96 10.00 0.10 1.03 1.13 -- -- 11.13
========================================================================================================================
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES INCOME AVERAGE
TOTAL PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
PERIOD ENDED RETURN*** (000'S) NET ASSETS NET ASSETS TURNOVER PER SHARE@
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Cash Management Portfolio
2/9/93-11/30/93 2.00% $ 24,603 0.71%+++ 2.53%+++ --% N/A
11/30/94 3.51 89,098 0.70++ 3.73++ -- N/A
11/30/95 5.59 90,731 0.67 5.32 -- N/A
11/30/96 4.92 91,247 0.62 4.90 -- N/A
- ------------------------------------------------------------------------------------------------------------------------
Corporate Bond Portfolio
7/1/93-11/30/93 1.90 11,667 0.94+++ 3.92+++ 208 N/A
11/30/94 (3.41) 15,869 0.94++ 5.21++ 419 N/A
11/30/95 17.01 29,475 0.96++ 5.93++ 412 N/A
11/30/96 6.51 37,207 0.97 6.11 338 N/A
- ------------------------------------------------------------------------------------------------------------------------
Global Bond Portfolio
7/1/93-11/30/93 3.00 25,010 1.35+++ 3.56+++ 84 N/A
11/30/94 (3.18) 44,543 1.06 5.29 347 N/A
11/30/95 16.40 59,759 0.95 5.89 339 N/A
11/30/96 10.94 68,221 0.89 5.44 223 N/A
- ------------------------------------------------------------------------------------------------------------------------
High-Yield Bond Portfolio
2/9/93-11/30/93 11.20 41,851 0.94+++ 9.43+++ 229 N/A
11/30/94 (4.26) 55,803 0.92++ 11.07++ 225 N/A
11/30/95 12.64 82,174 0.80 10.80 174 N/A
11/30/96 14.86 113,229 0.77 9.41 107 N/A
- ------------------------------------------------------------------------------------------------------------------------
Worldwide High Income Portfolio
10/28/94-11/30/94 (0.50) 10,478 1.60+++ 4.48+++ 2 N/A
11/30/95 16.02 21,515 1.30 10.46 176 N/A
11/30/96 26.87 49,204 1.18 10.45 177 N/A
- ------------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced Portfolio
6/3/96-11/30/96 11.30 10,224 1.00+++ 1.92+++ 40 0.0600
========================================================================================================================
</TABLE>
* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company and First SunAmerica Life Insurance Company.
If such expenses had been included, total return would have been lower for
each period presented.
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased or sold.
+ Annualized
++ During the periods ended November 30, 1993, 1994, 1995 and 1996, the
investment adviser waived a portion of or all fees and assumed a portion of
or all expenses for the Portfolios. If all fees and expenses had been
incurred by the Portfolios, the ratio of expenses to average net assets and
the ratio of net investment income (loss) to average net assets would have
been as follows:
<TABLE>
<CAPTION>
EXPENSES NET INVESTMENT INCOME
------------------------------- ----------------------------------
1993 1994 1995 1996 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Cash Management Portfolio......................... 1.10% 0.78% 0.67% 0.62% 2.14% 3.65% 5.32% 4.90%
Corporate Bond Portfolio.......................... 1.81 1.09 0.97 0.97 3.05 5.06 5.92 6.11
Global Bond Portfolio............................. 1.81 1.06 0.95 0.89 3.10 5.29 5.89 5.44
High-Yield Bond Portfolio......................... 1.29 0.93 0.80 0.77 9.08 11.06 10.80 9.41
Worldwide High Income Portfolio................... -- 2.26 1.30 1.18 -- 3.82 10.46 10.45
SunAmerica Balanced Portfolio..................... -- -- -- 1.43 -- -- -- 1.49
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DEBT AVERAGE AVERAGE AVERAGE
YEAR OUTSTANDING DEBT SHARES DEBT
ENDED AT YEAR END OUTSTANDING OUTSTANDING PER SHARE
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Worldwide High Income Portfolio..................... 11/30/96 -- $ 120,656 3,085,308 $0.0391
==============================================================================================================================
</TABLE>
4
<PAGE> 5
The following Financial Highlights for the Portfolios and periods set forth
below have been audited by Price Waterhouse LLP, the Trust's independent
accountants, whose report on the financial statements containing such
information is included in the Trust's Annual Report to Shareholders. These
Financial Highlights* should be read in conjunction with the financial
statements and notes thereto, which are included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
NET NET TOTAL DECLARED FROM NET NET
NET ASSET INVEST- REALIZED FROM FROM NET REALIZED ASSET
VALUE MENT & UNREALIZED INVEST- INVEST- GAIN ON VALUE
BEGINNING INCOME GAIN (LOSS) ON MENT MENT INVEST- END OF TOTAL
PERIOD ENDED OF PERIOD (LOSS)** INVESTMENTS OPERATIONS INCOME MENTS PERIOD RETURN***
<S> <C> <C> <C> <C> <C> <C> <C> <C>
==============================================================================================================================
Asset Allocation Portfolio
7/1/93-11/30/93 10.00 0.08 0.28 0.36 -- -- 10.36 3.60
11/30/94 10.36 0.29 (0.25) 0.04 (0.05) (0.03) 10.32 0.30
11/30/95 10.32 0.42 2.24 2.66 (0.20) (0.04) 12.74 26.10
11/30/96 12.74 0.48 2.00 2.48 (0.31) (0.39) 14.52 20.27
- ------------------------------------------------------------------------------------------------------------------------------
Utility Portfolio
6/3/96-11/30/96 10.00 0.24 0.51 0.75 -- -- 10.75 7.50
- ------------------------------------------------------------------------------------------------------------------------------
Growth-Income Portfolio
2/9/93-11/30/93 10.00 0.12 0.49 0.61 -- -- 10.61 6.10
11/30/94 10.61 0.13 (0.36) (0.23) (0.04) (0.01) 10.33 (2.20)
11/30/95 10.33 0.17 3.31 3.48 (0.10) -- 13.71 33.89
11/30/96 13.71 0.18 3.48 3.66 (0.12) (0.43) 16.82 27.41
- ------------------------------------------------------------------------------------------------------------------------------
Federated Value Portfolio
6/3/96-11/30/96 10.00 0.07 1.01 1.08 -- -- 11.08 10.80
- ------------------------------------------------------------------------------------------------------------------------------
Venture Value Portfolio
10/28/94-11/30/94 10.00 0.03 (0.25) (0.22) -- -- 9.78 (2.20)
11/30/95 9.78 0.17 3.55 3.72 (0.03) -- 13.47 38.17
11/30/96 13.47 0.18 3.46 3.64 (0.09) (0.12) 16.90 27.44
==============================================================================================================================
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
PERIOD ENDED (000'S) NET ASSETS NET ASSETS TURNOVER PER SHARE@
<S> <C> <C> <C> <C> <C>
==================
7/1/93-11/30/93 35,590 0.99+++ 2.33+++ 71 N/A
11/30/94 106,856 0.94++ 2.71++ 152 N/A
11/30/95 199,836 0.81 3.62 207 N/A
11/30/96 316,388 0.74 3.66 200 0.0587
- ------------------
6/3/96-11/30/96 6,299 1.05+++ 4.41+++ 24 0.0439
- ------------------
2/9/93-11/30/93 45,080 0.82+++ 1.59+++ 27 N/A
11/30/94 84,899 0.81++ 1.26++ 59 N/A
11/30/95 171,281 0.77 1.42 59 N/A
11/30/96 325,463 0.72 1.21 82 0.0597
- ------------------
6/3/96-11/30/96 12,460 1.05+++ 1.26+++ 30 0.0520
- ------------------
10/28/94-11/30/94 4,449 1.10+++ 3.93+++ -- N/A
11/30/95 154,908 1.00++ 1.43++ 18 N/A
11/30/96 516,413 0.85 1.21 22 0.0598
==================
</TABLE>
* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company and First SunAmerica Life Insurance Company.
If such expenses had been included, total return would have been lower for
each period presented.
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased or sold.
+ Annualized
++ During the periods ended November 30, 1993, 1994, 1995 and 1996, the
investment adviser waived a portion of or all fees and assumed a portion of
or all expenses for the Portfolios. If all fees and expenses had been
incurred by the Portfolios, the ratio of expenses to average net assets and
the ratio of net investment income (loss) to average net assets would have
been as follows:
<TABLE>
<CAPTION>
EXPENSES NET INVESTMENT INCOME (LOSS)
------------------------------- ----------------------------------
1993 1994 1995 1996 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Portfolio........................ 1.67% 0.94% 0.81% 0.74% 1.65% 2.71% 3.62% 3.66%
Utility Portfolio................................. -- -- -- 1.93 -- -- -- 3.53
Growth-Income Portfolio........................... 1.40 0.89 0.77 0.72 1.01 1.18 1.42 1.21
Federated Value Portfolio......................... -- -- -- 1.57 -- -- -- 0.74
Venture Value Portfolio........................... -- 3.89 1.02 0.85 -- 1.14 1.41 1.21
==============================================================================================================================
</TABLE>
5
<PAGE> 6
The following Financial Highlights for the Portfolios and periods set forth
below have been audited by Price Waterhouse LLP, the Trust's independent
accountants, whose report on the financial statements containing such
information is included in the Trust's Annual Report to Shareholders. These
Financial Highlights* should be read in conjunction with the financial
statements and notes thereto, which are included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
NET NET TOTAL DECLARED FROM NET NET
NET ASSET INVEST- REALIZED FROM FROM NET REALIZED ASSET
VALUE MENT & UNREALIZED INVEST- INVEST- GAIN ON VALUE
BEGINNING INCOME GAIN (LOSS) ON MENT MENT INVEST- END OF
PERIOD ENDED OF PERIOD (LOSS)** INVESTMENTS OPERATIONS INCOME MENTS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
========================================================================================================================
Alliance Growth Portfolio
2/9/93-11/30/93 $ 10.00 $ 0.05 $ 0.87 $ 0.92 $ -- $ -- $ 10.92
11/30/94 10.92 0.04 (0.14) (0.10) (0.01) (0.17) 10.64
11/30/95 10.64 0.07 5.08 5.15 (0.03) (0.13) 15.63
11/30/96 15.63 0.08 4.07 4.15 (0.04) (1.01) 18.73
- ------------------------------------------------------------------------------------------------------------------------
Aggressive Growth Portfolio
6/3/96-11/30/96 10.00 0.02 0.34 0.36 -- -- 10.36
- ------------------------------------------------------------------------------------------------------------------------
Global Equities Portfolio
2/9/93-11/30/93 10.00 0.03 0.96 0.99 -- -- 10.99
11/30/94 10.99 0.05 0.71 0.76 (0.01) (0.07) 11.67
11/30/95 11.67 0.12 1.64 1.76 (0.08) (0.29) 13.06
11/30/96 13.06 0.14 2.19 2.33 (0.14) (0.33) 14.92
- ------------------------------------------------------------------------------------------------------------------------
International Diversified Equities Portfolio
10/28/94-11/30/94 10.00 0.01 (0.23) (0.22) -- -- 9.78
11/30/95 9.78 0.07 0.38 0.45 (0.08) -- 10.15
11/30/96 10.15 0.05 1.43 1.48 (0.26) -- 11.37
========================================================================================================================
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES INCOME AVERAGE
TOTAL PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
PERIOD ENDED RETURN*** (000'S) NET ASSETS NET ASSETS TURNOVER PER SHARE @
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
2/9/93-11/30/93 9.20% $ 23,256 0.82%+++ 0.61%+++ 73% N/A
11/30/94 (0.93) 52,213 0.82++ 0.37++ 146 N/A
11/30/95 48.91 167,870 0.79 0.51 138 N/A
11/30/96 28.05 381,367 0.71 0.51 121 0.0649
- ------------------------------------------------------------------------------------------------------------------------
6/3/96-11/30/96 3.60 35,124 1.05+++ 0.46+++ 47 0.0600
- ------------------------------------------------------------------------------------------------------------------------
2/9/93-11/30/93 9.90 43,737 1.50+++ 0.38+++ 58 N/A
11/30/94 6.87 136,758 1.28 0.42 67 N/A
11/30/95 15.58 165,752 1.14 1.02 106 N/A
11/30/96 18.21 246,482 1.03 1.04 70 0.0256
- ------------------------------------------------------------------------------------------------------------------------
10/28/94-11/30/94 (2.20) 12,438 1.70+++ 1.60+++ -- N/A
11/30/95 4.63 48,961 1.70++ 0.76++ 52 N/A
11/30/96 14.85 157,008 1.59 0.47 53 0.0023
========================================================================================================================
</TABLE>
* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company and First SunAmerica Life Insurance
Company. If such expenses had been included, total return would have been
lower for each period presented.
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased or sold.
+ Annualized
++ During the periods ended November 30, 1993, 1994, 1995 and 1996, the
investment adviser waived a portion of or all fees and assumed a portion
of or all expenses for the Portfolios. If all fees and expenses had been
incurred by the Portfolios, the ratio of expenses to average net assets
and the ratio of net investment income (loss) to average net assets would
have been as follows:
<TABLE>
<CAPTION>
EXPENSES NET INVESTMENT INCOME (LOSS)
------------------------------- -----------------------------------
1993 1994 1995 1996 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Alliance Growth Portfolio............................ 1.56% 0.96% 0.79% 0.71% (0.13)% 0.23% 0.51% 0.51%
Aggressive Growth Portfolio.......................... -- -- -- 1.09 -- -- -- 0.42
Global Equities Portfolio............................ 2.52 1.28 1.14 1.03 (0.64) 0.42 1.02 1.04
International Diversified Equities Portfolio......... -- 3.50 2.09 1.59 -- (0.20) 0.37 0.47
==============================================================================================================================
</TABLE>
6
<PAGE> 7
=========================================================
THE TRUST, ITS INVESTMENT OBJECTIVES AND POLICIES
=========================================================
The Trust, organized as a Massachusetts business trust on September 11, 1992, is
an open-end management investment company. It was established to provide a
funding medium for certain annuity contracts issued by the Anchor National Life
Insurance Company and First SunAmerica Life Insurance Company (collectively
referred to as the "Life Companies").
The Trust issues 21 separate series of shares ("Portfolios"), each of which
represents a separate managed portfolio of securities with its own investment
objectives. The Board of Trustees may establish additional series in the future.
This Prospectus describes 15 of the 21 Portfolios of the Trust which are the:
Cash Management Portfolio, Corporate Bond Portfolio, Global Bond Portfolio,
High-Yield Bond Portfolio, Worldwide High Income Portfolio, SunAmerica Balanced
Portfolio, Asset Allocation Portfolio, Utility Portfolio, Growth-Income
Portfolio, Federated Value Portfolio, Venture Value Portfolio, Alliance Growth
Portfolio, Aggressive Growth Portfolio, Global Equities Portfolio, and
International Diversified Equities Portfolio. All shares may be purchased or
redeemed by the Accounts at net asset value without any sales or redemption
charge.
SunAmerica Asset Management Corp. ("SAAMCo" or the "Adviser"), an indirect,
wholly owned subsidiary of Anchor National Life Insurance Company, serves as
investment adviser for all the Portfolios of the Trust. (See "Management.") Some
Portfolios benefit from discretionary advisory services provided by separate
registered investment advisers (each a "Subadviser"). Alliance Capital
Management L.P. ("Alliance") serves as subadviser for the Global Equities,
Alliance Growth and Growth-Income Portfolios; Davis Selected Advisers, L.P.
("Davis Selected") serves as subadviser for the Venture Value Portfolio;
Federated Investment Counseling ("Federated") serves as subadviser for the
Corporate Bond, Federated Value and Utility Portfolios; Goldman Sachs Asset
Management ("GSAM") serves as subadviser for the Asset Allocation Portfolio;
Goldman Sachs Asset Management International ("GSAM-International") serves as
subadviser for the Global Bond Portfolio; and Morgan Stanley Asset Management
Inc. ("MSAM") serves as subadviser for the International Diversified Equities
and Worldwide High Income Portfolios. There is no subadviser for the Cash
Management, High-Yield Bond, SunAmerica Balanced, or Aggressive Growth
Portfolios. SAAMCo performs all investment advisory services for these
Portfolios.
Each Portfolio has investment objectives and certain policies as described in
this Prospectus. There can be no guarantee that any Portfolio's investment
objectives will be met or that the net return on an investment in a Portfolio
will exceed that which could have been obtained through other investment or
savings vehicles. Investors should carefully review the investment objectives
and policies of a Portfolio and consider their ability to assume the risks
involved before making an investment in a Portfolio. Each Portfolio also has
certain fundamental investment restrictions, which are described in the
Statement of Additional Information. A Portfolio's fundamental investment
restrictions may not be changed without a majority of the outstanding voting
securities of that Portfolio. See "Shareholder Voting Rights." All other
investment practices may be changed without a vote of the shareholders.
The Global Bond, Worldwide High Income and International Diversified Equities
Portfolios are organized as separate "non-diversified" portfolios of the Trust
(as such term is defined under the Investment Company Act of 1940, as amended,
(the "1940 Act")); subject, however, to certain tax diversification
requirements. See "Dividends, Distributions and Federal Taxes." The Utility
Portfolio intends to concentrate its investments in the utility industry, which
means that the Portfolio intends to invest at least 25% of its total assets in
the securities of utility companies.
The Portfolios' investment objectives are discussed below. Please also refer,
however, to the section captioned "Description of Securities and Investment
Techniques" for a more detailed description of the characteristics and risks
associated with the types of securities in which the various Portfolios may
invest. Reference is also made in the following sections to ratings assigned to
certain types of securities by Standard & Poor's Rating Services, a Division of
the McGraw Hill Companies, Inc. ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Service, Inc. ("Fitch"), Duff &
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Phelps Credit Rating Co. ("Duff & Phelps") and Thomson BankWatch, Inc.,
recognized independent securities ratings institutions. References to the
particular ratings categories of the securities in which a Portfolio may invest
should be read to include unrated securities deemed by the Adviser or Subadviser
to be of comparable quality to the rated securities in such categories. A
description of the ratings categories assigned by S&P, Moody's, Fitch, Thompson
BankWatch and Duff & Phelps is contained in the Statement of Additional
Information.
CASH MANAGEMENT PORTFOLIO
The Cash Management Portfolio seeks high current yield while preserving capital
by investing in a diversified selection of money market instruments including
corporate bonds and notes; commercial bank obligations; securities of the U.S.
government, its agencies and instrumentalities; commercial paper and savings
association obligations. These securities mature in one year or less. The Cash
Management Portfolio also may enter into repurchase agreements and firm
commitment agreements and purchase when-issued securities. See "Description of
Securities and Investment Techniques."
The Cash Management Portfolio invests only in securities determined, in
accordance with procedures established by the Trust's Board of Trustees, to
present minimal credit risks. It is the current policy to invest only in
instruments rated in the highest rating category by Moody's and S&P (for
example, commercial paper rated P-1 and A-1 by Moody's and S&P, respectively) or
in instruments that are issued, guaranteed or insured by the U.S. government,
its agencies or instrumentalities as to the payment of principal and interest,
or in other instruments rated in the highest two categories by either Moody's or
S&P, provided the issuer has commercial paper rated in the highest rating
category by Moody's and S&P.
Although investments in the Cash Management Portfolio should present minimal
market risk because the investments of the Portfolio consists of only short-term
debt obligations, an investment in this Portfolio is subject to the risks of
declining interest rates and the economy as a whole. Also, the return on an
investment in the Cash Management Portfolio would not be the same as the return
on an investment in a money market fund available directly to the public even
where yields are equivalent, due to fees imposed at the variable annuity
contract level.
CORPORATE BOND PORTFOLIO
The Corporate Bond Portfolio seeks a high total return with only moderate price
risk by investing primarily in investment grade fixed-income securities. Under
normal market conditions, at least 65% of the Portfolio's total assets will be
invested in investment grade debt securities (i.e., those rated at the time of
purchase within the four highest grades assigned by Moody's (Aaa, Aa, A or Baa)
or by S&P (AAA, AA, A or BBB)), securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities (including mortgage-backed
securities) or repurchase agreements collateralized by such investment grade or
U.S. government securities. In addition, under normal circumstances, the
Portfolio will invest at least 65% of the value of its total assets, taken at
market value at the time of investment, in corporate debt securities, including
asset-backed securities and privately placed debt securities, of domestic and
foreign issuers. Certain fixed rate obligations in which the Portfolio invests
may involve equity characteristics. The Portfolio may, for example, invest in
unit offerings that combine fixed rate securities and common stock or common
stock equivalents such as warrants, rights and options. These may be purchased
by the Portfolio only when the debt security meets the Portfolio's investment
criteria and the value of the equity security or equity equivalent is relatively
small. If the equity security or equity equivalent becomes valuable it will
ordinarily be sold rather than exercised in the case of warrants, rights or
options. It is anticipated that no more than 10% of the assets of the Portfolio
will constitute equity securities or equity equivalents regardless of how such
securities were acquired. To the extent that such securities are acquired, there
may be some additional investment risk and countervailing opportunity, depending
upon the extent to which the common stock price fluctuates.
Up to 35% of the Portfolio's total assets may be invested in the following:
other types of debt securities, including those rated below investment grade,
zero-coupon bonds, pay-in-kind securities, and units consisting of bonds and
equity equivalents; commercial paper rated at the time of purchase P-1 by
Moody's or A-1 by
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S&P; obligations of banks having total assets in excess of $1 billion; and
preferred stocks (including those rated below investment grade, convertible
into, or carrying warrants to purchase, common stocks or other equity
interests).
The Portfolio will generally invest in debt securities and preferred stocks
rated below investment grade only to the extent that the Subadviser believes
that lower credit quality of such securities is offset by more attractive
yields. There is no limit with respect to the rating categories for securities
in which the Portfolio may invest. The weighted average ratings by S&P as a
percentage of all bonds held by the Portfolio during the fiscal year ended
November 30, 1996 were: "AAA" 21.2%; "AA" 10.0%; "A" 20.0%; "BBB" 26.6%; "BB"
9.9%; and "B" 12.3%. See "Description of Securities and Investment Techniques --
Corporate Debt Instruments -- Lower Grade" for a description of lower-rated
securities.
The Portfolio may invest in high quality short-term money market instruments
denominated in U.S. dollars, including repurchase agreements, which are also
authorized for purchase by the Cash Management Portfolio. The Portfolio may
enter into "dollar rolls" in which the Portfolio sells mortgage or other
asset-backed securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same types, coupons and maturity)
securities on a specified future date. The Portfolio may also invest in
synthetic or derivative instruments based on permitted investments, including
futures contracts, options, interest-rate swaps, mortgage swaps and interest-
rate caps, floors and collars.
GLOBAL BOND PORTFOLIO
The investment objective of the Global Bond Portfolio is to provide investors
with a high total return, emphasizing current income and, to a lesser extent,
providing opportunities for capital appreciation. Under normal circumstances,
the Portfolio will seek to meet its investment objective by pursuing investment
opportunities in foreign and domestic high quality fixed-income securities
markets and by engaging in currency transactions to enhance returns and for the
purpose of hedging its investments. High quality securities are defined as
securities which have ratings of at least AA by S&P or Aa by Moody's ("High
Quality Ratings").
The fixed-income securities in which the Portfolio may invest include: (i)
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities and custodial receipts thereof; (ii) securities issued or
guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies or instrumentalities or by multiple governmental entities
(i.e., international organizations designated or supported by governmental
entities to promote economic reconstruction or development, such as the World
Bank) rated A or better by S&P or Moody's, provided that the obligations are
denominated in the issuer's own currency; (iii) corporate debt securities having
at least one High Quality Rating or, if unrated, determined by the Subadviser to
be of comparable credit quality; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, banks
(including U.S. or foreign branches of U.S. banks or U.S. or foreign branches of
foreign banks) having total assets of more than $1 billion and determined by the
Subadviser to be of comparable credit quality to securities with a High Quality
Rating; (v) commercial paper rated A-1 or better by S&P, P-1 or better by
Moody's, Fitch-1 or better by Fitch, or Duff 1 or better by Duff & Phelps or, if
not rated, issued by U.S. or foreign companies having outstanding debt
securities with a high quality rating and determined by the Subadviser to be of
comparable credit quality to securities with a high quality rating; and (vi)
mortgage-related and asset-backed securities having at least one High Quality
Rating.
Although the Portfolio may invest in securities satisfying the minimum credit
quality criteria prescribed above, the Portfolio generally intends to invest at
least 50% of its total assets in securities having the highest applicable credit
quality rating. Currently, most of the foreign securities that meet the
Portfolio's credit quality standards are likely to be securities issued by
foreign governments. The debt securities in which the Portfolio will invest may
have fixed, variable or floating interest rates.
In selecting securities for the Portfolio, the Subadviser will consider such
factors as the security's duration, sector and credit quality rating as well as
the security's yield and prospects for capital appreciation. It is expected that
the Portfolio will use currency transactions both to enhance returns for a given
level of risk and to hedge its exposure to foreign currencies.
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While the Portfolio will have both long and short currency positions, neither
its net long foreign currency exposure nor its net short foreign currency
exposure will exceed the value of the Portfolio's total assets.
Under normal circumstances, the Portfolio will maintain a dollar-weighted
average duration of not more than 7.5 years. However, the Portfolio is not
subject to any limitation with respect to the average maturity of its Portfolio
or the individual securities in which the Portfolio may invest. Duration
represents the weighted average maturity of expected cash flows on a debt
obligation, discounted to present value. Maturity measures only the time until
final payment is due on a bond or other debt security; it takes no account of
the pattern of a security's cash flows over time. In computing the duration of
its portfolio, the Subadviser will have to estimate the duration of debt
obligations that are subject to prepayment or redemption by the issuer. The
Portfolio may use various techniques to shorten or lengthen its dollar-weighted
average duration, including the acquisition of debt obligations at a premium or
discount, transactions in options, futures contracts, options on futures and
interest-rate swaps, caps and floors. The Portfolio may also invest in
mortgage-related securities and enter into dollar rolls.
It is expected that the Portfolio will employ certain active currency and
interest-rate management techniques involving risks different from those
associated with investing solely in dollar-denominated fixed-income securities
of U.S. issuers. Such active management techniques include transactions in
options (including yield curve options), futures and options on futures, forward
foreign currency exchange contracts, currency options and futures, currency and
interest-rate swaps and floors, caps and collars. The aggregate amount of the
Portfolio's net currency exposure will not exceed its total asset value.
However, to the extent that the Portfolio is fully invested in fixed-income
securities while also maintaining currency positions, it may be exposed to
greater combined risk. The Portfolio's net currency positions may expose it to
risks independent of its securities positions.
The Portfolio will, under normal market conditions, have at least 30% of its
total assets, adjusted to reflect the Portfolio's net exposure after giving
effect to currency transactions and positions, denominated in U.S. dollars. The
Portfolio may, for temporary defensive purposes (such as when instability or
unfavorable conditions exist in foreign countries), invest 100% of its total
assets in U.S. dollar-denominated securities or securities of U.S. issuers.
Because the securities markets in each of Canada, Germany, Japan and the United
Kingdom are highly developed, liquid and subject to extensive regulation, the
Global Bond Portfolio may invest up to 35% of its total assets in the securities
of corporate and government issuers located in any one of such countries.
Concentration of the Portfolio's investments in such issuers will subject the
Portfolio to the risks of adverse social, political or economic events which may
occur in those countries.
Investment in foreign securities involves special risks. See "Description of
Securities and Investment Techniques -- Risks and Considerations Applicable to
Investment in Securities of Foreign Issuers."
HIGH-YIELD BOND PORTFOLIO
The primary investment objective of the High-Yield Bond Portfolio is a high
level of current income; its secondary investment objective is capital
appreciation. Under normal market conditions, the Portfolio will invest at least
65% of its total assets in high-yield bonds. Subject to this requirement the
Portfolio may maintain assets in cash or cash equivalents, including commercial
bank obligations (certificates of deposit; bankers' acceptances, which are time
drafts on a commercial bank for which the bank accepts an irrevocable obligation
to pay at maturity; and demand or time deposits), commercial paper (short-term
notes issued by corporations or governmental bodies) and obligations issued or
guaranteed by the U.S. government. These "high-yield" bonds, commonly referred
to as "junk bonds," typically are subject to greater market fluctuations and
risk of loss of income and principal due to default by the issuer than are
investments in lower-yielding, higher-rated bonds. Further, a substantial
portion of the Portfolio's assets will generally be invested in long-term (over
10 years to maturity) and intermediate-term (3 to 10 years to maturity)
fixed-income securities, with emphasis on higher-yielding, higher-risk,
lower-rated or unrated corporate bonds.
High-yield, high-risk bonds generally include any bonds that are rated Ba or
below by Moody's or
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BB or below by S&P. Bonds rated Ba or BB or below are considered speculative.
The Portfolio may invest without limitation in bonds rated as low as Ca by
Moody's or C by S&P (or unrated but considered by the Adviser of equivalent
quality). In addition, the Portfolio may invest up to 10% of its total assets in
bonds rated C by Moody's or D by S&P. The weighted average ratings by Moody's as
a percentage of all bonds held by the Portfolio during the fiscal year ended
November 30, 1996 were: "Ba" 8.0%; "B" 86.3%; and "Caa" 4.4%; and the balance
1.3% in unrated bonds which the adviser deemed comparable to "Caa" rating. See
"Description of Securities and Investment Techniques -- Corporate Debt
Instruments -- Lower Grade" and "Description of Securities and Investment
Techniques Risk Factors Relating to High-Yield Bonds" for a more detailed
description of these securities.
In pursuing its secondary investment objective of capital appreciation, the
Portfolio may purchase high-yield bonds that are expected by the Adviser to
increase in value due to improvements in their credit quality or ratings or
anticipated declines in interest rates. In addition, the Portfolio may invest
for this purpose up to 25% of its assets in equity securities, such as common
stocks, or other securities having common stock characteristics. Securities
designated as having "common stock" characteristics include, but are not limited
to, securities convertible into or exchangeable for common stock. Such
securities normally will be purchased as part of a unit with fixed-income
securities or when an unusual opportunity for capital appreciation is perceived
due to anticipated improvement in the issuer's credit quality or ratings. The
Portfolio also may purchase or hold warrants or rights.
Up to 25% of the Portfolio's assets may be invested in securities of foreign
issuers, which are generally denominated in currencies other than the U.S.
dollar. The Portfolio also has the ability to hold a portion of its assets in
foreign currencies and to enter into forward foreign currency exchange
contracts, currency options, currency and financial futures contracts, and
options on such futures contracts. The Portfolio may enter into repurchase
agreements and firm commitment agreements and may purchase securities on a
when-issued basis. Investment in foreign securities also involves special risks.
See "Description of Securities and Investment Techniques -- Risks and
Considerations Applicable to Investment in Securities of Foreign Issuers."
WORLDWIDE HIGH INCOME PORTFOLIO
The investment objective of the Worldwide High Income Portfolio is high current
income and, secondarily, capital appreciation, by investing primarily in a
portfolio of high-yielding fixed-income securities of issuers located throughout
the world. The Portfolio seeks to achieve its investment objective by allocating
its assets among any or all of three investment sectors: U.S. corporate
lower-rated and unrated debt securities, emerging country debt securities and
global fixed-income securities offering high real yields. The types of
securities in each of these investment sectors are described in detail in the
Statement of Additional Information. In selecting U.S. corporate lower-rated and
unrated debt securities for the Portfolio, the Subadviser will consider, among
other things, the price of the security, and the financial history, condition,
prospects and management of the issuer. The Subadviser intends to invest a
portion of the Portfolio's assets in emerging country debt securities that
provide a high level of current income, while at the same time holding the
potential for capital appreciation if the perceived creditworthiness of the
issuers improves due to improving economic, financial, political, social or
other conditions in the country in which the issuer is located. In addition, the
Subadviser will attempt to invest a portion of the Portfolio's assets in
fixed-income securities of issuers in global fixed-income markets displaying
high real (inflation adjusted) yields. Under normal conditions, the Portfolio
intends to invest between 80% and 100% of its total assets in some or all of
three categories of higher-yielding securities, some of which may entail
increased credit and market risk.
The Subadviser's approach to multi-currency fixed-income management is strategic
and value-based and designed to produce an attractive real rate of return. The
Subadviser's assessment of the bond markets and currencies is based on an
analysis of real interest rates. Current nominal yields of securities are
adjusted for inflation prevailing in each currency sector using an analysis of
past and projected inflation rates. The Portfolio's aim is to invest in bond
markets which offer the most attractive real returns relative to inflation.
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From time to time, a portion of the Portfolio's investments, which may be up to
100% of its investments, may be considered to have credit quality below
investment grade as determined by internationally recognized credit rating
agency organizations, such as Moody's and S&P. Such lower-rated bonds are
commonly referred to as "junk bonds." Securities in such lower rating categories
may have predominantly speculative characteristics or may be in default. See
"Description of Securities and Investment Techniques -- Corporate Debt
Instruments -- Lower Grade" for a description of Moody's and S&P's corporate
bond ratings. Ratings represent the opinion of rating agencies as to the quality
of bonds and other debt securities they undertake to rate at the time of
issuance. However, ratings are not absolute standards of quality and may not
reflect changes in an issuer's creditworthiness. Accordingly, while the
Subadviser will consider ratings, it will perform its own analysis and will not
rely principally on ratings. Emerging country debt securities in which the
Portfolio may invest will be subject to high risk and will not be required to
meet a minimum rating standard and may not be rated for creditworthiness by any
internationally recognized credit rating organization. The Portfolio's
investments in U.S. corporate lower-rated and unrated debt securities and
emerging country debt securities are expected to be rated in the lower and
lowest rating categories of internationally recognized credit rating
organizations. Ratings of a foreign debt instrument, to the extent that those
ratings are undertaken, are related to evaluations of the country in which the
issuer of the instrument is located. Ratings generally take into account the
currency in which a foreign debt instrument is denominated; instruments issued
by a foreign government in other than the local currency, for example, typically
have a lower rating than local currency instruments due to the existence of an
additional risk that the government will be unable to obtain the required
foreign currency to service its foreign currency-denominated debt. In general,
the ratings of debt securities or obligations issued by a foreign public or
private entity will not be higher than the rating of the currency or the foreign
currency debt of the central government of the country in which the issuer is
located, regardless of the intrinsic creditworthiness of the issuer. To mitigate
the risks associated with investment in such lower-rated securities, the
Portfolio will diversify its holdings by market, issuer, industry and credit
quality. The weighted average ratings by Moody's as a percentage of all bonds
held by the Portfolio during the fiscal year ended November 30, 1996 were: "Ba"
21.34%; "B" 35.80%; and "Caa" 1.14%; "C" 0.05%; and the balance 41.67% in
unrated bonds. See "Risk Factors Relating to High-Yield Bonds" and "Risks and
Considerations Applicable to Investment in Securities of Foreign Issuers" under
"Description of Securities and Investment Techniques."
The Portfolio may invest in or own securities of companies in various stages of
financial restructuring, bankruptcy or reorganization which are not currently
paying interest or dividends, provided that the total value at the time of
purchase of all such securities will not exceed 10% of the value of the
Portfolio's total assets. The Portfolio may have limited recourse in the event
of default on such debt instruments. The Portfolio may invest in loans,
assignments of loans and participation in loans. See the Statement of Additional
Information for a description of these investments. The Portfolio may also
invest in depository receipts issued by U.S. or foreign financial institutions.
See the Statement of Additional Information for further information.
The Portfolio is not restricted in the portion of its assets which may be
invested in securities denominated in a particular currency and a substantial
portion of its assets may be invested in non-U.S. dollar-denominated securities.
The portion of the Portfolio's assets invested in securities denominated in
currencies other than the U.S. dollar will vary depending on market conditions.
The analysis of currencies is made independent of the analysis of markets. Value
in foreign exchange is determined by relative purchasing power parity of a given
currency. The Portfolio seeks to invest in currencies currently undervalued
based on purchasing power parity. The Subadviser analyzes current account and
capital account performance and real interest rates to adjust for short-term
currency flows. Although the Portfolio is permitted to engage in a wide variety
of investment practices designed to hedge against currency exchange rate risks
with respect to its holdings of non-U.S. dollar-denominated debt securities, the
Portfolio may be limited in its ability to hedge against these risks. See
"Foreign Currency Transactions" and "Short Sales" under "Description of
Securities and Investment Techniques." The Portfolio may also write (i.e.,
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<PAGE> 13
sell) covered call options and may enter into futures contracts and options on
futures and sell indexed financial futures contracts. See "Futures Contracts and
Options Thereon" and "Options on Securities and Securities Indices" under
"Description of Securities and Investment Techniques."
The average time to maturity of the Portfolio's securities will vary depending
upon the Subadviser's perception of market conditions. The Subadviser invests in
medium-term securities (i.e., those with a remaining maturity of approximately
five years) in a market neutral environment. When the Subadviser believes that
real yields are high, the Subadviser lengthens the remaining maturities of
securities held by the Portfolio and, conversely, when the Subadviser believes
real yields are low, it shortens the remaining maturities. Thus, the Portfolio
is not subject to any restrictions on the maturities of the debt securities it
holds, and the Subadviser may vary the average maturity of the securities held
in the Portfolio without limit.
The Portfolio may also invest in other types of securities and/or engage in a
variety of investment strategies including: zero-coupon, pay-in-kind, illiquid
and restricted securities; repurchase agreements; and borrowing for investment
and temporary purposes. See "Description of Securities and Investment
Techniques." For temporary defensive purposes, the Portfolio may invest part or
all of its total assets in cash or in short-term securities, including
certificates of deposit, commercial paper, notes, obligations issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities.
SUNAMERICA BALANCED PORTFOLIO
The investment objective of the SunAmerica Balanced Portfolio is to conserve
principal by maintaining at all times a balanced portfolio of stocks and bonds.
In seeking to achieve the investment objective of the Portfolio, the Adviser has
the flexibility to select among different types of investments for capital
growth and income and may alter the composition of the Portfolio as economic and
market trends change. The Adviser considers both the opportunity for gain and
the risk of loss in making investments. The Adviser anticipates that, over the
long term, the Portfolio will consist of equity investments, in the form of
common and preferred stocks, warrants and other rights, as well as long-term
bonds and other debt securities such as convertible securities, short-term
investments and U.S. government securities. The Portfolio will, under normal
circumstances, invest at least 25% of its assets in fixed-income senior
securities; however, the fixed-income component will exceed 25% when the Adviser
believes such an adjustment in portfolio mix to be necessary in order to
conserve principal, such as in anticipation of decline in the equities market.
The Adviser shifts its emphasis among these different types of investments, as
well as among various industry sectors, as financial trends and economic
conditions change.
In selecting equity investments, the Adviser typically seeks companies of medium
to large capitalizations (generally $1 billion or more) that, based on their
future prospects or opportunities, it believes are undervalued in the
marketplace. Investments in companies with market capitalizations of less than
$1 billion may be more volatile than investments in companies with larger market
capitalizations, and thus the Portfolio intends to limit its investments in such
companies to no more than 20% of its total assets. See "Description of
Securities and Investment Techniques Risks Associated with Investing in Small
Companies."
In selecting debt investments, the Adviser seeks debt securities with longer
maturities during periods of anticipated lower interest rates and shorter-term
debt securities when interest rates are expected to rise. The Adviser generally
selects long-term debt securities from high quality bonds (rated AA or higher by
S&P, Aa or higher by Moody's) to achieve income and capital gains. The Adviser
may also invest the Portfolio's assets in high quality, short-term debt
securities (such as commercial paper rated A-1 by S&P or P-1 by Moody's, or
determined by the Adviser to be of equivalent quality if unrated). However, the
Adviser may invest up to 10% of the value of the Portfolio's total assets
(measured at the time of investment) in securities rated as low as BBB by S&P or
Baa by Moody's. See "Fixed-Income Securities" in "Description of Securities and
Investment Techniques" below for a discussion of the risks associated with
investing in such securities. See also the Statement of Additional Information
for a description of securities ratings.
The Adviser may select equity and debt securities for the Portfolio issued by
either
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domestic or foreign issuers. See "Description of Securities and Investment
Techniques" for a description of the risks associated with foreign securities.
ASSET ALLOCATION PORTFOLIO
The investment objective of the Asset Allocation Portfolio is high total return
(including income and capital gains) consistent with preservation of capital
over the long-term. The Portfolio seeks to achieve its objectives by investing
in a diversified portfolio that can include common stocks and other securities
having common stock characteristics, bonds and other intermediate and long-term
fixed-income securities, including mortgage-related and asset-backed securities,
and money market instruments (debt securities maturing in one year or less).
Securities designated as having "common stock" characteristics include, but are
not limited to, securities convertible into or exchangeable for common stock.
The Subadviser will determine the relative mix of equities, fixed-income
securities and money market instruments for the Portfolio based on its view of
long-term economic and market trends under the relative risks and opportunities
for long-term total return of the different classes of assets. Under normal
conditions, the Subadviser expects (but is not required) to maintain an
investment mix falling within the following ranges: 40% to 80% in equities; 20%
to 50% in fixed-income securities; and 0% to 40% in money market instruments.
The Subadviser may make frequent shifts within these broad ranges whenever, in
the Subadviser's judgment, market or economic changes warrant a reallocation.
The Subadviser intends in normal situations to make any shifts in the
Portfolio's asset allocation gradually over time based on its views of long-term
trends and conditions.
The Portfolio may invest in securities of foreign issuers (which are generally
denominated in currencies other than the U.S. dollar), although there is no
requirement that the Portfolio maintain investments in foreign issuers. See
"Description of Securities and Investment Techniques -- Risks and Considerations
Applicable to Investment in Securities of Foreign Issuers." The Portfolio also
has the ability to hold a portion of its assets in foreign currencies and to
enter into forward foreign currency exchange contracts, currency options,
currency swaps, currency and financial futures contracts, and options on such
futures contracts.
The Portfolio's fixed-income investments will consist primarily of "investment
grade" bonds; that is, bonds that are rated BBB or better by S&P or Baa or
better by Moody's. Up to 25% of the Portfolio's fixed-income assets may be
invested in securities that are below investment grade as defined above,
including securities rated as low as CC by S&P or Ca by Moody's. Securities
rated BBB or below by S&P or Baa or below by Moody's are considered to have
speculative characteristics. The weighted average ratings by S&P as a percentage
of all bonds held by the Portfolio during the fiscal year ended November 30,
1996 were: "AAA" 55.6%; "A" 8.1%; "BBB" 20.2%; "BB" 14.1%; and "B" 2.0%. For a
more detailed description of the risks involved with these securities, see
"Description of Securities and Investment Techniques -- Corporate Debt
Instruments -- Lower Grade" and "Risk Factors relating to High-Yield, High-Risk
Bonds." The Portfolio's investments in foreign fixed-income securities will be
concentrated in securities issued or guaranteed as to principal and interest by
foreign governments or their agencies and instrumentalities or by multinational
agencies.
The Portfolio may enter into repurchase agreements and firm commitment
agreements, and may purchase when-issued securities. The Portfolio may also
engage in interest-rate swaps, mortgage swaps, transactions involving interest-
rate caps, floors and collars, dollar rolls and securities lending.
UTILITY PORTFOLIO
The Utility Portfolio seeks high current income and moderate capital
appreciation. The Portfolio's investment approach is based on the Subadviser's
conviction that over the long-term, the economy will continue to expand and
develop and that this economic growth will be reflected in the growth of the
revenues and earnings of utility companies. The Portfolio intends to achieve its
investment objective by investing in equity and debt securities of utility
companies that produce, transmit, or distribute gas and electric energy as well
as those companies that provide communications facilities, such as telephone and
telegraph companies.
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The Portfolio will, under normal circumstances, invest at least 65% of its total
assets in securities of utility companies. Such investments will be primarily in
common stocks selected by the Subadviser on the basis of traditional research
techniques, including assessment of earnings and dividend growth prospects and
of the risk and volatility of an issuer's industry. However, other factors, such
as product position, market share, or profitability will also be considered by
the Subadviser. The Portfolio may also invest in preferred stocks, corporate
bonds, notes, and warrants of utility companies. Fixed-income securities
purchased by the Portfolio will be rated at least BBB by S&P or Baa by Moody's.
The Portfolio may also invest in other types of securities and/or engage in a
variety of investment strategies, including: U.S. government securities; money
market instruments; foreign securities; illiquid securities; repurchase and
reverse repurchase agreements; securities lending; when-issued and delayed-
delivery transactions; and options, financial futures and options on such
futures. See "Description of Securities and Investment Techniques" for more
information on these securities and strategies. For temporary defensive
purposes, the Portfolio may invest up to 100% of its assets in cash, cash
equivalents and short-term debt instruments.
Risk Factors Applicable to Utility Securities -- There exist certain risks
associated with the utility industry of which investors in the Portfolio should
be aware. These include (i) utility companies' difficulty in earning adequate
returns on investment despite frequent rate increases; (ii) restrictions on
operations and increased costs and delays due to governmental regulations; (iii)
building or construction delays; (iv) environmental regulations; (v) difficulty
of the capital markets in absorbing utility debt and equity securities; and (vi)
difficulties in obtaining fuel at reasonable prices. Further information
concerning the risks associated with the utility industry generally, and
particular segments within the utility industry is contained in the Statement of
Additional Information.
Reducing Risks of Utility Securities -- The Subadviser believes that the risks
of investing in utility securities can be reduced. The professional portfolio
management techniques used by the Subadviser to attempt to reduce these risks
include credit research and diversification techniques. The Subadviser will
perform its own credit analysis in addition to using recognized rating agencies,
and will obtain information from other sources, including the issuer's
management and other investment analysts. The Subadviser's credit analysis will
consider the issuer's financial soundness, its responsiveness to changes in
interest rates and business conditions, and its anticipated cash flow, interest
or dividend coverage, and earnings. In evaluating an issuer, the Subadviser
places special emphasis on the estimated current value of the issuer's assets
rather than historical cost.
GROWTH-INCOME PORTFOLIO
The Growth-Income Portfolio seeks growth of capital and income. In the selection
of securities for investment, the possibilities of appreciation and potential
dividends are given more weight than current yield. Ordinarily, the assets of
the Portfolio consist principally of a diversified group of common stocks, but
other types of securities, including preferred stocks, corporate bonds and
convertible bonds, may be held when deemed advisable. The Subadviser determines
the relative amounts to be invested in common stocks, preferred stocks, bonds
(including corporate and convertible), securities of the U.S. government, its
agencies and instrumentalities, cash and cash equivalents (such as commercial
bank and savings association obligations, commercial paper and short-term
corporate bonds and notes) and repurchase agreements. See "Description of
Securities and Investment Techniques."
FEDERATED VALUE PORTFOLIO
The Federated Value Portfolio seeks growth of capital and income. The Portfolio
pursues its investment objective by investing, under normal circumstances, at
least 65% of its assets in a portfolio of securities issued by the one hundred
companies contained in "The Leaders List" described below. The Portfolio's
investment approach is based upon the Subadviser's conviction that over the
longer term, the economy will continue to expand and develop and that this
economic growth will be reflected importantly in the growth of major
corporations. Generally, the Subadviser makes portfolio selections utilizing
fundamental analysis, with emphasis on the issuer's earning power, financial
condition and valuation.
The securities in which the Portfolio invests include, but are not limited to:
common stocks;
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preferred stocks; domestic issues of corporate debt obligations; and warrants.
The fixed-income securities in which the Portfolio may invest must be rated, at
the time of purchase, BBB or better by S&P, Baa by Moody's, or BBB by Fitch. If
a security loses its rating or has its rating reduced after the Portfolio has
purchased it, the Portfolio is not required to sell the security, but will
consider doing so.
The Portfolio may also invest in other securities and/or engage in various
investment strategies, including: foreign securities; repurchase agreements;
illiquid securities; and securities lending. See "Description of Securities and
Investment Techniques" for more information on these securities and strategies.
For temporary or defensive purposes, the Portfolio may also hold cash and invest
in U.S. government securities in such proportions as the Subadviser may deem
necessary for such purposes.
"The Leaders List" is a trade name which represents a list of 100 blue chip
companies selected by the Subadviser. In the opinion of the Subadviser,
securities of these companies represent diversified and highly marketable
investments. The Subadviser uses its proprietary securities selection process to
evaluate the relative value of securities suitable for "The Leaders List". The
Subadviser also uses a number of standards and fundamental research factors in
selecting "The Leaders List." "The Leaders List" generally includes leading
companies in their industries determined in terms of sales, earnings, and/or
market capitalization. Companies on "The Leaders List" typically have a market
capitalization in excess of $1 billion. The list is subject to continuous review
and modification.
VENTURE VALUE PORTFOLIO
The Venture Value Portfolio seeks growth of capital. Under normal circumstances,
the assets of the Portfolio will be invested in securities which the Subadviser
believes have above-average appreciation potential. Usually these securities are
common stocks. Income is not a significant factor in selecting investments for
the Portfolio.
Generally, the Portfolio will invest predominantly in equity securities of
companies with market capitalizations of at least $250 million. Investments will
consist of issues which the Subadviser believes have capital growth potential
due to factors such as undervalued assets or earnings potential, product
development and demand, favorable operating ratios, resources for expansion,
management abilities, reasonableness of market price, and favorable overall
business prospects. These companies may offer greater potential for capital
appreciation but may also involve certain risks. See "Description of Securities
and Investment Techniques -- Risks Associated With Investing in Small Companies.
The Portfolio may invest in securities of foreign issuers. Such foreign
investments may involve a higher degree of risk than investments in domestic
issuers. Foreign securities are often denominated in foreign currencies, which
means that their value will be affected by changes in exchange rates, as well as
other factors that affect securities prices. To help reduce exposure to currency
fluctuations, the Portfolio may trade in forward foreign currency exchange
contracts (forward contracts), currency futures contracts and options thereon
and securities indexed to foreign securities. The Subadviser will use these
techniques to lock in an exchange rate in connection with transactions in
securities denominated or traded in foreign currencies, to hedge the currency
risk in foreign securities held by the Portfolio and to hedge a currency risk
involved in an anticipated purchase of foreign securities.
The Portfolio will generally invest in securities of foreign companies through
trades of individual securities on recognized exchanges and developed
over-the-counter markets, through American Depositary Receipts (ADRs) covering
such securities, and through U.S. registered investment companies primarily
investing in foreign securities. With respect to other registered investment
companies, no such investment may cause more than 10% of the Portfolio's total
assets to be invested in such companies. Such other investment companies usually
have their own management costs or fees and the Portfolio's Subadviser earns its
regular fee on such assets.
Investment in foreign securities and engaging in foreign currency transactions
involves special risks. See "Description of Securities and Investment
Techniques -- Risks and Considerations Applicable to Investment in Securities of
Foreign Issuers and Foreign Currency Transactions."
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Sometimes a more defensive position may be desirable under certain economic or
financial circumstances. At these times, the Portfolio may without limitation
hold assets in cash and cash equivalents, including repurchase agreements, or in
fixed-income or other defensive securities rather than in securities selected
for appreciation potential. The Portfolio may also have such holdings
temporarily for the purpose of managing exceptional in-flows and out-flows of
cash.
The Portfolio may also engage in other types of investment practices, including,
but not limited to, investment in illiquid securities and lending of portfolio
securities. See "Description of Securities and Investment Techniques" for a
description of these investment techniques and a discussion of the other
techniques in which the Portfolio may engage.
ALLIANCE GROWTH PORTFOLIO
The investment objective of the Alliance Growth Portfolio is to seek long-term
growth of capital. Whatever current income is generated by the Portfolio is
incidental to the objective of capital growth. The Portfolio's objective of
capital growth is sought by investing primarily in common stocks or securities
with common stock characteristics. Securities designated as having "common
stock" characteristics include, but are not limited to, securities convertible
into or exchangeable for common stock. Such convertible securities may be rated
below BBB by S&P or Baa by Moody's or be determined by the Subadviser to be of
comparable quality (i.e., junk bonds). See "Description of Securities and
Investment Techniques -- Risk Factors Relating to High-Yield, High-Risk
Securities"). In addition, the Portfolio may purchase preferred stocks and debt
securities if the Subadviser believes they would help achieve the Portfolio's
objective. The potential for appreciation of capital is the basis for investment
decisions. The Portfolio's Subadviser considers the factors that it believes
affect potential for capital appreciation, including an issuer's current and
projected revenue, earnings, cash flow and assets, as well as general market
conditions. When the outlook for common stocks is not considered promising, for
temporary defensive purposes, a substantial portion of the assets may be
invested in securities of the U.S. government, its agencies and
instrumentalities, cash and cash equivalents (such as commercial bank and
savings association obligations, commercial paper and short-term corporate bonds
and notes) and repurchase agreements. Because the securities purchased by these
Portfolios in pursuing its investment objective are selected for growth
potential rather than production of income, the market values of such securities
(and therefore, to a large extent, the net asset values per share of the
Portfolio) will tend to be more volatile in response to market changes than they
would be if income-producing securities were sought for investment by the
Portfolio. Up to 25% of the Portfolio's total assets may be invested in foreign
securities. See "Description of Securities and Investment Techniques -- Risks
and Considerations Applicable to Investment in Securities of Foreign Issuers"
and the Statement of Additional Information.
AGGRESSIVE GROWTH PORTFOLIO
The Aggressive Growth Portfolio seeks capital appreciation as its objective. The
Portfolio pursues this investment objective by investing, under normal
circumstances, at least 65% of its total assets in the equity securities of
small, lesser known or new growth companies or industries, such as
telecommunications, media and biotechnology. Such "Small Cap" companies will
typically have, at the time of purchase, market capitalizations of under $1
billion and have achieved, or are expected to achieve, growth or earnings over
various major business cycles. These companies may offer greater potential for
capital appreciation but may also involve certain risks. See "Description of
Securities and Investment Techniques -- Risks Associated with Investing in Small
Companies." The Portfolio may invest in securities issued by well known and
established domestic or foreign companies, as well as in newer and less-seasoned
companies. Such securities may be listed on an exchange or traded
over-the-counter. In addition, the Portfolio may invest up to 35% of its total
assets in debt securities that have the potential for capital appreciation due
to anticipated market conditions. The Portfolio may invest in securities rated
as low as BBB by S&P or Baa by Moody's.
The Portfolio is authorized to borrow for investment purposes to increase the
opportunity for greater return and for payment of dividends. Such borrowings
would constitute leverage, which is a speculative characteristic. Leveraging
will magnify declines as well as increases in the
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net asset value of the Portfolio's shares and in the yield on the Portfolio's
investments. See "Description of Securities and Investment
Techniques -- Borrowing and Other Forms of Leverage."
GLOBAL EQUITIES PORTFOLIO
The investment objective of the Global Equities Portfolio is to achieve
long-term growth of capital through investment primarily in common stocks or
securities of U.S. and foreign issuers with common stock characteristics and
through transactions in foreign currencies. Securities designated as having
"common stock" characteristics include, but are not limited to, securities
convertible into or exchangeable for common stock. A major premise of the
Portfolio's investment approach is the Subadviser's belief that economic and
political developments have helped to create new opportunities worldwide.
The assets of the Portfolio will be invested with geographic flexibility. Under
normal market conditions, the Portfolio will invest at least 50% of its assets
in equity securities of issuers domiciled outside the U.S. or dollar-denominated
securities or securities of U.S. issuers. The Subadviser seeks to identify those
companies, both domestic and foreign, likely to benefit from long-term trends
and shifting trade patterns as they develop in the global economy. The
Subadviser currently does not intend to invest more than 20% of the Portfolio's
total assets in issuers domiciled in, or governments of, developing countries
(i.e., those identified as such by the international financial community).
When prevailing market, economic, political or currency conditions warrant, the
Portfolio may purchase fixed-income securities (including securities of
governments other than the U.S., which may be securities of either national,
regional or local governments). For temporary defensive purposes, the Portfolio
may at times maintain all or any part of its assets in U.S. or
dollar-denominated or foreign currency-denominated cash or cash equivalents
(including U.S. government securities, foreign government securities,
certificates of deposit, time deposits, commercial paper, bankers' acceptances
and other high quality short-term debt securities).
It is expected that the Portfolio will use currency transactions and financial
index futures both to enhance returns for a given level of risk and to hedge its
exposure to foreign currencies and local market conditions. While the Portfolio
will have both long and short currency positions, neither its net long foreign
currency exposure nor its net short foreign currency exposure will exceed the
value of the Portfolio's total assets. See "Description of Securities and
Investment Techniques -- Risks and Considerations Applicable to Investment in
Securities of Foreign Issuers" and the Statement of Additional Information.
INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO
The investment objective of the International Diversified Equities Portfolio is
to provide long-term capital appreciation by investing in accordance with
country weightings determined by the Subadviser in common stocks of foreign
issuers which, in the aggregate, replicate broad country indices. The Subadviser
utilizes a top-down approach in selecting investments for the Portfolio that
emphasizes country selection and weighting rather than individual stock
selection. This approach reflects the Subadviser's philosophy that a diversified
selection of securities representing exposure to world markets, based upon the
economic outlook and current valuation levels for each country, is an effective
way to maximize the return and minimize the risk associated with international
investment.
The Subadviser determines country allocations for the Portfolio on an ongoing
basis within policy ranges dictated by each country's market capitalization and
liquidity. The Portfolio will invest in the industrialized countries throughout
the world that comprise the Morgan Stanley Capital International EAFE (Europe,
Australia and the Far East) Index. The Portfolio will also invest in emerging
country equity securities. Further information concerning emerging country
equity securities is contained in the Statement of Additional Information. See
"Description of Securities and Investment Techniques -- Risks and Considerations
Applicable to Investment in Securities of Foreign Issuers."
By analyzing a variety of macroeconomic and political factors, the Subadviser
develops fundamental projections on interest rates, currencies, corporate
profits and economic growth for each country. These country projections are used
then to determine what the Subadviser believes to be a fair value for the
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stock market of each country. Discrepancies between actual value and fair value
as determined by the Subadviser provide an expected return for each stock
market. The expected return is adjusted by currency return expectations derived
from the Subadviser's purchasing-power parity exchange rate model to arrive at
an expected total return in U.S. dollars. The final country allocation decision
is then arrived at by considering the expected total return in light of various
country specific considerations such as market size, volatility, liquidity and
country risk.
Within a particular country, investments are made through the purchase of common
stocks which, in aggregate, replicate a broad market index, which in most cases
will be the Morgan Stanley Capital International EAFE Index for the given
country. The Subadviser may overweight or underweight an industry segment of a
particular index if it concludes this would be advantageous to the Portfolio.
Common stocks purchased for the Portfolio include common stocks and equivalents,
such as securities convertible into common stocks and securities having common
stock characteristics, such as rights and warrants to purchase common stocks.
Indexation of the Portfolio's stock selection reduces stock-specific risk
through diversification and minimizes transaction costs, which can be
substantial in foreign markets.
Common stocks purchased for the Portfolio normally will be listed on a major
stock exchange in the subject country. The Portfolio will not invest in the
stocks of U.S. issuers. For a description of special considerations and certain
risks associated with investments in foreign issuers, see "Description of
Securities and Investment Techniques -- Risks and Considerations Applicable to
Investment in Securities of Foreign Issuers." The Portfolio may temporarily
reduce its equity holdings in response to adverse market conditions and invest
in domestic, Eurodollar and foreign short-term money market instruments for
defensive purposes. Not withstanding the foregoing, the Portfolio may seek to
gain exposure to certain foreign markets where direct investment may be
difficult or impracticable through investment in domestic close-end mutual funds
which invest predominately in such markets.
The Portfolio may also engage in certain options transactions and enter into
financial futures contracts and related options for hedging purposes.
Because the Portfolio invests primarily in the real estate industry, it is
subject to risks associated with the direct ownership of real estate. The
Portfolio could also be subject to such risks by reason of direct ownership as a
result of a default on a debt security it may own. These risks include declines
in the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, changes in zoning laws, casualty or condemnation losses,
fluctuations in rental income, changes in neighborhood values, the appeal of
properties to tenants and increases in interest rates. If the Portfolio has
rental income or income from the disposition of real property, the receipt of
such income may adversely affect its ability to retain its tax status as a
regulated investment company
Equity REITs may be affected by changes in the value of the underlying property
owned by the trusts, while Mortgage REITs may be affected by the quality of
credit extended. Equity and Mortgage REITs are dependent upon management skill,
may not be diversified and are subject to project financing risks. Such trusts
are also subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax-free pass-
through of income under the Internal Revenue Code of 1986 (the "Code") and to
maintain exemption from registration under the 1940 Act. Changes in interest
rates may also affect the value of the debt securities in the Portfolio's
portfolio. By investing in REITs indirectly through the Portfolio, a shareholder
will bear not only his proportionate share of the expense of the Portfolio, but
also, indirectly, similar expenses of the REITs, including compensation of
management.
=========================================================
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
=========================================================
FIXED-INCOME SECURITIES -- Fixed-income securities are broadly characterized as
those that provide for periodic payments to the holder of the security at a
stated rate. Most fixed-income securities, such as bonds, represent indebtedness
of the issuer and provide for repayment of principal at a stated time in the
future. Others do not provide for repayment of a principal
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amount, although they may represent a priority over common stockholders in the
event of the issuer's liquidation. Many fixed-income securities are subject to
scheduled retirement, or may be retired or "called" by the issuer prior to their
maturity dates.
The market values of fixed-income securities tend to vary inversely with the
level of interest rates -- when interest rates rise, their values will tend to
decline; when interest rates decline, their values generally will tend to rise.
Long-term instruments are generally more sensitive to these changes than are
short-term instruments. The market value of fixed-income securities and
therefore their yield is also affected by the perceived ability of the issuer to
make timely payments of principal and interest.
CORPORATE DEBT INSTRUMENTS -- These instruments, such as bonds, represent the
obligation of the issuer to repay a principal amount of indebtedness at a stated
time in the future and, in the usual case, to make periodic interim payments of
interest at a stated rate.
Investment Grade -- A designation applied to intermediate and
long-term corporate debt securities rated within the highest four rating
categories assigned by S&P (AAA, AA, A or BBB) or by Moody's (Aaa, Aa, A or
Baa). The ability of the issuer of an investment grade debt security to pay
interest and to repay principal is considered to vary from extremely strong
(for the highest ratings) through adequate (for the lowest ratings given
above), although the lower-rated investment grade securities may be viewed
as having speculative elements as well.
Lower Grade -- A designation applied to intermediate and long-term
corporate debt securities that are not investment grade; commonly referred
to as "junk bonds". These include bonds rated BB or below by S&P, or Ba or
below by Moody's. These securities are considered speculative.
The Corporate Bond and Worldwide High Income Portfolios may invest in bonds
rated as low as C by Moody's or D by S&P without limitation. The High-Yield Bond
Portfolio may invest in bonds rated as low as Ca by Moody's (or CC by S&P) and
may invest in bonds rated as low as C by Moody's or D by S&P. The Asset
Allocation Portfolio may invest in bonds rated as low as Ca by Moody's or CC by
S&P. Bonds rated Ca by Moody's are described as "speculative in a high degree;
often in default or having other marked shortcomings." Bonds rated D by
Moody's -- the lowest rated class -- can be "regarded as having extremely poor
prospects of ever attaining any real investment standing." Not all fixed income
securities are rated, and each of the foregoing Portfolios may invest in
securities that are not rated but that are determined by the Adviser or
Subadviser to be of comparable quality to the rated securities in which the
Portfolio may invest. Bonds rated C by S&P are of the "highest degree of
speculation"; those rated D by that organization are in default and in arrears.
RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS -- High-yield, high-risk
bonds are subject to greater fluctuations in value than are higher-rated bonds
because the values of high-yield bonds tend to reflect short-term corporate,
economic and market developments and investor perceptions of the issuer's credit
quality to a greater extent. Although under normal market conditions longer-term
securities yield more than shorter-term securities, they are subject to greater
price fluctuations. Fluctuations in the value of a Portfolio's investments will
be reflected in its net asset value per share. The growth of the high-yield bond
market paralleled a long economic expansion, followed by an economic downturn
which severely disrupted the market for high-yield bonds and adversely affected
the value of outstanding bonds and the ability of the issuers to repay principal
and interest. The economy may affect the market for high-yield bonds in a
similar fashion in the future including an increased incidence of defaults on
such bonds. From time to time, legislation may be enacted which could have a
negative effect on the market for high-yield bonds.
High-yield bonds present the following risks:
Sensitivity to Interest Rate and Economic Changes -- High-yield,
high-risk bonds are very 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
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interest or principal or entered into bankruptcy proceedings, a Portfolio 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 therefore yields) of high-yield bonds
and the Portfolio'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 Portfolio would have to replace the
security with a lower-yielding security, resulting in a decreased return
for investors. Conversely, a high-yield bond's value will decrease in a
rising interest rate market, as will the value of the Portfolio's assets.
If the Portfolio experiences unexpected net redemptions, this may force it
to sell high-yield bonds without regard to their investment merits, thereby
decreasing the asset base upon which expenses can be spread and possibly
reducing the Portfolio's rate of return.
Liquidity and Valuation -- There may be little trading in the
secondary market for particular bonds, which may affect adversely a
Portfolio's ability to value accurately or dispose of such bonds. Under
such circumstances, the task of accurate valuation becomes more difficult
and judgment would play a greater role due to the relative lack of reliable
and objective data. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of
high-yield bonds, especially in a thin market.
The Adviser or Subadviser attempts to reduce these risks through diversification
of the applicable Portfolio and by credit analysis of each issuer, as well as by
monitoring broad economic trends and corporate and legislative developments. If
a high-yield bond previously acquired by a Portfolio is downgraded, the Adviser
or Subadviser, as appropriate, will evaluate the security and determine whether
to retain or dispose of it.
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 (such as Government National Mortgage
Association ("GNMA") certificates and Federal Housing Administration
debentures). For these securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. government. They are of the highest
possible credit quality. These securities are subject to variations in market
value due to fluctuations in interest rates, but if held to maturity, are
guaranteed by the U.S. government to be paid in full.
Securities issued by the U.S. government instrumentalities and certain federal
agencies are neither direct obligations of, nor are they guaranteed by, the U.S.
Treasury. However, they involve federal sponsorship in one way or another. For
example, 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. These agencies and instrumentalities include, but are
not limited to, Federal Land Banks, Farmers Home Administration, Central Bank
for Cooperatives, Federal Intermediate Credit Banks and Federal Home Loan Banks.
GNMA CERTIFICATES -- 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. 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.
Although the mortgage loans in the pool have maturities of up to 30 years, the
actual average life of the GNMA certificates typically will be substantially
less because the mortgages are subject to normal principal amortization and may
be prepaid prior to maturity. Prepayment rates vary widely and may be affected
by changes in market interest rates. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of the GNMA certificates.
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Conversely, when interest rates are rising, the rate of prepayment tends to
decrease, thereby lengthening the actual average life of the GNMA certificates.
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayments may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, GNMA
certificates can be less effective than typical bonds of similar maturities at
"locking-in" yields during periods of declining interest rates, although they
may have comparable risks of decline in value during periods of rising interest
rates.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS -- The Federal National Mortgage
Association ("FNMA"), a federally chartered and privately owned corporation,
issues pass-through securities representing an interest 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 United States, issues participation
certificates that 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.
OTHER MORTGAGE-RELATED SECURITIES -- The Global Bond, Corporate Bond, High-Yield
Bond, SunAmerica Balanced and Asset Allocation Portfolios may invest in
collateralized mortgage obligations ("CMOs") or mortgage-backed bonds issued by
financial institutions such as commercial banks, savings and loan associations,
mortgage banks and securities broker-dealers (or affiliates of such institutions
established to issue these securities). CMOs are obligations fully
collateralized directly or indirectly by a pool of mortgages on which payments
of principal and interest are dedicated to payment of principal and interest on
the CMOs. Payments on the underlying mortgages (both interest and principal) are
passed through to the holders, although not necessarily on a pro rata basis, on
the same schedule as they are received. 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 CMOs).
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 may be callable by the issuer
prior to maturity).
The Global Bond, Corporate Bond, High-Yield Bond and Asset Allocation Portfolios
may also invest in stripped mortgage-backed securities ("SMBS"), which are
derivative multiclass mortgage securities, provided they are issued or
guaranteed by the U.S. government, its agencies or instrumentalities. SMBS are
usually structured with two classes that receive different proportions of the
interest and principal distributions from a pool of mortgage assets. A common
type of SMBS will have one class receiving all of the interest from the mortgage
assets, while the other class will receive all of the principal. However, in
some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying mortgage assets experience
greater-than-anticipated prepayments of principal, the Portfolio may fail to
fully recoup its initial investment in these securities. Although the market for
such securities is increasingly liquid, certain SMBS may not be readily
marketable and will be considered illiquid for purposes of the Portfolios'
limitation on investments in illiquid securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage assets are generally higher
than prevailing market yields on other mortgage-backed securities because their
cash flow patterns are more volatile and there is a
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greater risk that the initial investment will not be fully recouped.
ASSET-BACKED SECURITIES -- These securities represent an interest in a pool of
consumer or other types of loans ("asset-backed securities"). Payments of
principal and interest on the underlying loans are passed through to the holders
of asset-backed securities over the life of the securities. Some asset-backed
securities may be subject to early prepayment of principal, which can be
expected to accelerate during periods of declining interest rates. Such
prepayments can usually be reinvested only at the lower yields then prevailing
in the market. Therefore, during periods of declining interest rates,
asset-backed securities are less likely than other fixed-income obligations to
appreciate in value and less effective at locking in a particular yield. On the
other hand, asset-backed securities are subject to substantially the same risk
of depreciation during periods of rising interest rates as other fixed-income
securities.
DOLLAR ROLLS -- The Global Bond, Corporate Bond, High-Yield Bond, SunAmerica
Balanced and Asset Allocation Portfolios may enter into "dollar rolls" in which
the Portfolio sells mortgage or other asset-backed securities ("Roll
Securities") for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period, the Portfolio foregoes
principal and interest paid on the Roll Securities. A Portfolio is compensated
by the difference between the current sales price and the lower forward price
for the future purchase (often referred to as the "drop") as well as by the
interest earned on the cash proceeds of the initial sale. A Portfolio also could
be compensated through the receipt of fee income equivalent to a lower forward
price. A "covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction. The
Portfolio will hold and maintain in a segregated account until the settlement
date cash or liquid securities in an amount equal to the forward purchase price.
The Portfolios will only enter into covered rolls. Covered rolls are not treated
as a borrowing or other senior security and will be excluded from the
calculation of each Portfolio's borrowings and other senior securities. Because
"roll" transactions involve both the sale and purchase of a security, they may
cause the reported portfolio turnover rate to be higher than that reflecting
typical portfolio management activities.
Dollar rolls involve certain risks including that if the broker-dealer to whom
the Portfolio sells the security becomes insolvent, the Portfolio's right to
purchase or repurchase the security subject to the dollar roll may be restricted
and the instrument which the Portfolio is required to repurchase may be worth
less than an instrument which the Portfolio originally held. Successful use of
dollar rolls will depend upon the Adviser's or Subadviser's ability to predict
correctly interest rates and in the case of mortgage dollar rolls, mortgage
prepayments. For these reasons, there is no assurance that dollar rolls can be
successfully employed.
SHORT-TERM DEBT SECURITIES -- Debt securities maturing within one year of date
of the purchase include (1) commercial bank obligations (certificates of
deposit, 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)), (2) savings association obligations
(certificates of deposit issued by mutual savings banks or savings and loan
associations), (3) commercial paper (short-term notes with maturities of up to 9
months issued by corporations or governmental bodies), (4) corporate bonds and
notes (corporate obligations that mature, or that may be redeemed, in one year
or less), and (5) adjustable-rate mortgage securities backed by GNMA, FNMA,
FHLMC and other non-agency issuers. Although certain floating or variable rate
obligations (securities whose coupon rate changes at least annually and
generally more frequently) have maturities in excess of one year, they are also
considered short-term debt securities.
ZERO-COUPON, PAY-IN-KIND AND DEFERRED INTEREST BONDS -- The Global Bond,
Corporate Bond, High-Yield Bond, Worldwide High Income, SunAmerica Balanced,
Asset Allocation and Venture Value Portfolios may invest in zero-coupon bonds
and deferred interest bonds, or other obligations that contain "original issue
discount" for federal income tax purposes. In addition, the Corporate Bond,
High-Yield Bond and Worldwide High Income Portfolios may
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invest in pay-in-kind securities. Zero-coupon, deferred interest and capital
appreciation bonds are debt obligations which are issued or purchased at a
significant discount from face value. Pay-in-kind bonds are debt obligations
which provide that the issuer thereof may, at its option, pay interest on such
bonds in cash or in the form of additional debt obligations. Such investments
may experience greater volatility in market value due to changes in interest
rates than do debt obligations, which make regular payments of interest. A
Portfolio will accrue income on such investments for tax and accounting
purposes, as required, which is distributable to shareholders and which, because
no cash is received at the time of accrual, may require the liquidation of other
portfolio securities under disadvantageous circumstances to satisfy the
Portfolio's distribution obligations.
REPURCHASE AGREEMENTS -- Each Portfolio may enter into repurchase agreements,
under which the Portfolio buys a security and obtains a simultaneous commitment
from the seller to repurchase the security at a specified time and price. The
seller must maintain appropriate collateral with the Trust's custodian or
subcustodian. A Portfolio will only enter into repurchase agreements involving
securities in which it could otherwise invest and with selected banks and
securities dealers whose financial condition is monitored by the Adviser or
applicable Subadviser, subject to the oversight of the Board of Trustees. If the
seller under the repurchase agreement defaults, the Portfolio 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, realization
of the collateral by the Portfolio may be delayed or limited.
REVERSE REPURCHASE AGREEMENTS -- The Cash Management, Corporate Bond, High-Yield
Bond, Worldwide High Income, SunAmerica Balanced, Utility, Federated Value and
Aggressive Growth Portfolios may enter into reverse repurchase agreements. In a
reverse repurchase agreement, the Portfolio sells a security subject to the
right and obligation to repurchase such security. The Portfolio then invests the
proceeds from the transaction in another obligation in which the Portfolio is
authorized to invest. In order to minimize any risk involved, the Portfolio
maintains in a segregated account with the custodian cash or liquid securities
equal in value to the repurchase price.
ILLIQUID SECURITIES -- Each of the Portfolios may invest no more than 15% (10%
in the case of the Cash Management Portfolio) of the value of its net assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, interest-rate and currency
swaps, caps, floors and collars. For this purpose, not all securities which are
restricted are deemed to be illiquid. For example, restricted securities which
the Board of Trustees, or the Adviser (or Subadviser, as the case may be)
pursuant to guidelines established by the Board of Trustees, has determined to
be marketable, such as securities eligible for sale under Rule 144A promulgated
under the Securities Act of 1933, as amended, or certain private placements of
commercial paper issued in reliance on an exemption from such Act pursuant to
Section 4(2) thereof, may be deemed to be liquid for purposes of this
restriction. This investment practice could have the effect of increasing the
level of illiquidity in the Portfolio to the extent that qualified institutional
buyers (as defined in Rule 144A) become for a time uninterested in purchasing
these restricted securities. In addition, a repurchase agreement which by its
terms can be liquidated before its nominal fixed-term on seven days or less
notice is regarded as a liquid instrument. Subject to the applicable limitation
on illiquid securities investments, a Portfolio may acquire securities issued by
the U.S. government, its agencies or instrumentalities in a private placement.
See "Illiquid Securities" in the Statement of Additional Information for a
further discussion of investments in such securities.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS --
Each Portfolio may purchase securities on a firm commitment, when-issued or
delayed-delivery basis. Firm commitment agreements and when-issued or
delayed-delivery transactions call for the purchase or sale of securities at an
agreed-upon price on a specified future date. While a Portfolio will only
purchase securities on a when-issued or delayed-delivery basis with the
intention of acquiring the securities, the Portfolio may sell the securities
before the settlement date, if it is deemed advisable to do so. At the time a
Portfolio makes the commitment to purchase securities on a when-issued or
delayed-delivery basis, the Portfolio
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will record the transaction and thereafter reflect the value, each day, of such
security in determining the net asset value of the Portfolio. At the time of
delivery of the securities, the value may be more or less than the purchase
price. A Portfolio will maintain in a segregated account liquid assets having a
value equal to or greater than the Portfolio's purchase commitments. The
Portfolio will likewise segregate liquid assets with respect to securities sold
on a delayed-delivery basis.
INTEREST-RATE SWAPS, MORTGAGE SWAPS, CAPS, FLOORS AND COLLARS -- In order to
protect the value of the Global Bond, Corporate Bond and Asset Allocation
Portfolios from interest rate fluctuations and to hedge against fluctuations in
the fixed-income market in which the Portfolio's investments are traded, the
Portfolios may enter into interest-rate swaps and mortgage swaps or purchase or
sell interest-rate caps, floors or collars. A Portfolio will enter into these
hedging transactions primarily to preserve a return or spread on a particular
investment or portion of the portfolio and to protect against any increase in
the price of securities the Portfolio anticipates purchasing at a later date.
The Global Bond Portfolio may also enter into interest-rate swaps for
non-hedging purposes. Interest-rate swaps involve the exchange by the Portfolio
with another party of their respective commitments to pay or receive interest,
e.g., an exchange of floating-rate payments for fixed-rate payments. Since
interest-rate swaps are individually negotiated, the Portfolios expect to
achieve an acceptable degree of correlation between their respective portfolio
investments and their interest-rate positions. The Portfolios will only enter
into interest-rate swaps on a net basis, which means that the two payment
streams are netted out, with the Portfolios receiving or paying, as the case may
be, only the net amount of the two payments. Interest-rate swaps do not involve
the delivery of securities, other underlying assets or principal. Accordingly,
the risk of loss with respect to interest-rate swaps is limited to the net
amount of interest payments that the Portfolio is contractually obligated to
make. If the other party to an interest-rate swap defaults, the Portfolio's risk
of loss consists of the net amount of interest payments that the Portfolio is
contractually entitled to receive, if any. The use of interest-rate swaps is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
Mortgage swaps are similar to interest-rate swaps in that they represent
commitments to pay and receive interest. The notional principal amount, upon
which the value of the interest payments is based, is tied to a reference pool
or pools of mortgages.
The purchase of an interest-rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such
interest-rate cap. The purchase of an interest-rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate floor. An interest-rate collar is the
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates.
The Portfolios will not enter into any mortgage swap, interest-rate swap, cap or
floor transaction unless the unsecured commercial paper, senior debt, or the
claims paying ability of the other party thereto is rated either AA or A-1 or
better by S&P or Aa or P-1 or better by Moody's, or is determined to be of
equivalent quality by the applicable Subadviser.
STRUCTURED SECURITIES -- The Global Bond and Worldwide High Income Portfolios
may invest in structured notes, bonds or debentures, the value of the principal
of and/or interest on which is determined by reference to changes in the value
of specific currencies, interest rates, commodities, indices or other financial
indicators (the "Reference") or the relative change in two or more References.
The interest rate or the principal amount payable upon maturity or redemption
may be increased or decreased depending upon changes in the applicable
Reference. The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, may result in the
loss of the Portfolio's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at maturity.
In addition, the change in interest rate or the value of the security at
maturity may be a multiple of the change in the value of the Reference.
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Consequently, structured securities entail a greater degree of market risk than
other types of debt obligations. Structured securities may also be more
volatile, less liquid and more difficult to price accurately than less complex
securities.
SECURITIES LENDING -- Each Portfolio (except the Cash Management Portfolio) may
lend portfolio securities in amounts up to 33 1/3% of its respective total
assets to brokers, dealers and other financial institutions, provided such loans
are callable at any time by the Portfolio and are at all times secured by cash
or equivalent collateral. By lending its portfolio securities, a Portfolio will
receive income while retaining the securities' potential for capital
appreciation. As with any extensions of credit, there are risks of delay in
recovery and, in some cases, even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will be made only to firms deemed by the Adviser or Subadviser to be
creditworthy. The proceeds of such loans will be invested in high-quality
short-term debt securities, including repurchase agreements.
BORROWING AND OTHER FORMS OF LEVERAGE -- All of the Portfolios (except the Cash
Management Portfolio) are authorized to borrow money to the extent permitted by
applicable law. The 1940 Act permits each Portfolio to borrow up to 33 1/3% of
its total assets from banks for temporary or emergency purposes. In seeking to
enhance performance, a Portfolio may borrow for investment purposes and may
pledge assets to secure such borrowings. The Cash Management Portfolio may not
borrow, except from banks for temporary emergency purposes, and then in an
amount not in excess of 5% of the value of the Portfolio's total assets. In the
event that asset coverage for a Portfolio's borrowings falls below 300%, the
Portfolio will reduce within three days the amount of its borrowings in order to
provide for 300% asset coverage.
To the extent a Portfolio borrows for investment purposes, borrowing creates
leverage which is a speculative characteristic. Although a Portfolio is
authorized to borrow, it will do so only when the Adviser or Subadviser believes
that borrowing will benefit the Portfolio after taking into account
considerations such as the costs of borrowing and the likely investment returns
on securities purchased with borrowed monies. Borrowing by a Portfolio will
create the opportunity for increased net income but, at the same time, will
involve special risk considerations. Leveraging results from borrowing and will
magnify declines as well as increases in a Portfolio's net asset value per share
and net yield. The Portfolios expect that all of their borrowing will be made on
a secured basis. The Portfolios' custodian will either segregate the assets
securing the borrowing for the benefit of the lenders or arrangements will be
made with a suitable subcustodian. If assets used to secure a borrowing decrease
in value, a Portfolio may be required to pledge additional collateral to the
lender in the form of cash or securities to avoid liquidation of those assets.
RISKS ASSOCIATED WITH INVESTING IN SMALL COMPANIES -- Investing in smaller,
lesser known companies may involve certain risks not generally associated with
investments in larger, more well-established companies. For example, it may be
difficult to obtain reliable information and financial data on such companies
and the securities of these small companies may not be readily marketable,
making it difficult to dispose of shares when desirable. Also, securities of
small or emerging growth companies may be subject to more abrupt or erratic
market movements than larger, more established companies or the market average
in general. A risk of investing in smaller, emerging companies is that they
often are at an earlier stage of development and therefore have limited product
lines, market access for such products, financial resources and depth in
management than larger, more established companies, and their securities may be
subject to more abrupt or erratic market movements than securities of larger,
more established companies or the market averages in general. Finally, certain
smaller issuers may face difficulties in obtaining the capital necessary to
continue in operation and may go into bankruptcy, which could result in a
complete loss of an investment. Smaller companies also may be less significant
factors within their industries and may have difficulty withstanding competition
from larger companies. While smaller companies may be subject to these
additional risks, they may also realize more substantial growth than larger,
more established companies.
RISKS AND CONSIDERATIONS APPLICABLE TO INVESTMENT IN SECURITIES OF FOREIGN
ISSUERS -- Elements of risk and opportunity when investments in foreign issuers
are made include trade imbalances and related economic policies;
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currency fluctuations; foreign exchange control policies; taxation on income
from sources in such countries; expropriation or confiscatory taxation;
limitation on the removal of funds or other assets; political or social
instability; the diverse structure and liquidity of securities markets in
various countries and regions; policies of governments with respect to possible
nationalization of their industries; and other specific local political and
economic considerations. There may be less information publicly available about
foreign companies, and foreign companies may not be subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those of U.S. companies. Investment decisions made in the context
of the Portfolios' objectives and policies involve the evaluation of
opportunities and risks presented by probable future currency relationships,
especially during periods of broad adjustments in such relationships.
The Portfolios may invest, in issuers domiciled in, or governments of,
developing countries or emerging markets as well as developed countries.
Although there is no universally accepted definition, a developing or emerging
market 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. Historical experience indicates that the markets of developing
countries have been more volatile than the markets of developed countries;
however, such markets can provide higher rates of return to investors. The risks
described above with respect to investment in foreign securities generally may
be exacerbated with respect to investments in developing or emerging countries;
however, such markets can provide higher rates of return to investors.
Investment in an emerging market country may involve certain risks, including a
less diverse and mature economic structure, a less stable political system, an
economy based on only a few industries or dependent on international aid or
development assistance, the vulnerability to local or global trade conditions,
extreme debt burdens, or volatile inflation rates.
The performance of investments in securities denominated in a foreign currency
("non-dollar securities") will depend on, among other things, the strength of
the foreign currency against the dollar and the interest rate environment in the
country issuing the foreign currency. Absent other events which could otherwise
affect the value of non-dollar securities (such as a change in the political
climate or an issuer's credit quality), appreciation in the value of the foreign
currency generally can be expected to increase the value of a Portfolio's
non-dollar securities in terms of U.S. dollars. A rise in foreign interest rates
or decline in the value of foreign currencies relative to the U.S. dollar
generally can be expected to depress the value of the Portfolio's non-dollar
securities. Currencies are evaluated on the basis of fundamental economic
criteria (e.g., relative inflation levels and trends, growth rate forecasts,
balance of payments status and economic policies) as well as technical and
political data.
Additional costs could be incurred in connection with a Portfolio's foreign
investment activities. Foreign brokerage commissions are generally higher than
in the U.S. and a Portfolio will bear certain expenses in connection with its
foreign currency transactions. Increased custodian costs as well as
administrative difficulties (such as the applicability of foreign laws to
foreign custodians in various circumstances including bankruptcy, ability to
recover lost assets, expropriation, nationalization, record access, etc.) may be
associated with the maintenance of assets in foreign jurisdictions.
FOREIGN CURRENCY TRANSACTIONS -- Currency exchange rate fluctuations are a major
area of risk and opportunity for the Global Bond, Worldwide High Income, Global
Equities and International Diversified Equities Portfolios, and is of some risk
to the other Portfolios. Each Portfolio (other than the Cash Management
Portfolio) has the ability to hold a portion of its assets in foreign currencies
and to enter into forward foreign currency exchange contracts. Each may also
purchase and sell exchange-traded futures contracts relating to foreign currency
and purchase and sell put and call options on currencies and futures contracts.
A significant portion of the Portfolios' currency transactions will be
over-the-counter transactions.
Each Portfolio may enter into forward foreign currency exchange contracts to
reduce the risks of fluctuations in exchange rates; however, these contracts
cannot eliminate all such risks and do not eliminate fluctuations in the prices
of the Portfolio's portfolio securities.
Each Portfolio may purchase and write put and call options on currencies for the
purpose of protecting against declines in the U.S. dollar
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value of foreign portfolio securities and against increases in the U.S. dollar
cost of foreign securities to be acquired. The purchase of an option on currency
may constitute an effective hedge against exchange rate fluctuations; however,
in the event of exchange rate movements adverse to the Portfolio's position, the
Portfolio may forfeit the entire amount of the premium plus related transaction
costs. As with other kinds of option transactions, the writing of an option on
currency will constitute only a partial hedge, up to an amount of the premium
received, and a Portfolio could be required to purchase or sell currencies at
disadvantageous exchange rates, thereby incurring losses.
Each Portfolio that invests in foreign securities may utilize certain techniques
to attempt to enhance return, including forward foreign currency exchange
contracts, currency options and currency swaps. These techniques may be used
when the Subadviser anticipates that a foreign currency will appreciate or
depreciate in value, but securities denominated in that currency do not present
attractive investment opportunities or are not included in the Portfolio. Each
Portfolio may also use currency contracts and options to cross-hedge, which
involves selling or purchasing instruments on one currency to hedge against
changes in exchange rates for a different currency with a pattern of
correlation. To limit any leverage in connection with currency contract
transactions for hedging or non-hedging purposes, each Portfolio will segregate
cash or liquid securities in an amount sufficient to meet its payment
obligations in these transactions or otherwise "cover" the obligation. See the
Statement of Additional Information for more information regarding foreign
currency transactions.
The Global Bond, Worldwide High Income, Asset Allocation, Global Equities and
International Diversified Equities Portfolios may enter into currency swaps.
Currency swaps involve the exchange by the Portfolio with another party of their
respective rights to make or receive payments in specified currencies. Currency
swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser or a Subadviser is incorrect
in its forecasts of market values and currency exchange rates, the investment
performance of the respective Portfolio would be less favorable than it would
have been if this investment technique were not used.
OPTIONS ON SECURITIES AND SECURITIES INDICES -- Each Portfolio (other than the
Cash Management Portfolio) may write (sell) covered call and put options on any
securities in which it may invest. All call options written by each Portfolio
are covered, which means that the Portfolio will own the securities subject to
the option so long as the option is outstanding. All put options written by each
Portfolio are covered, which means that the Portfolio would have deposited with
its custodian cash or liquid securities with a value at least equal to the
exercise price of the put option. A Portfolio may also write call and put
options on any securities index composed of securities in which it may invest. A
Portfolio may purchase put and call options on any securities in which it may
invest or options on any securities index composed of securities in which it may
invest.
Each Portfolio (other than the Cash Management Portfolio) may purchase and write
options on the yield "spread," or yield differential between two securities.
Such transactions are referred to as "yield curve" options. In contrast to other
types of options, a yield curve option is based on the difference between the
yields of designated securities, rather than the prices of the individual
securities, and is settled through cash payments. Accordingly, a yield curve
option is profitable to the holder if this differential widens (in the case of a
call) or narrows (in the case of a put), regardless of whether the yields of the
underlying securities increase or decrease. All yield curve options written by a
Portfolio will be covered in the manner described above.
There is no assurance that a liquid secondary market on a domestic or foreign
options exchange will exist for any particular exchange-traded option or at any
particular time. If a Portfolio is unable to effect a closing purchase
transaction with respect to covered options it has written, the Portfolio will
not be able to sell the underlying securities or dispose of assets held in a
segregated account until the options
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expire or are exercised. Similarly, if a Portfolio is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of the underlying securities. In a closing
purchase or sale transaction, a Portfolio acquires a position that offsets and
cancels an option position then held by the Portfolio.
A Portfolio may purchase and sell both options that are traded (i) on U.S.
exchanges, (ii) on foreign exchanges and (iii) over-the-counter with
broker-dealers who make markets in these options. The ability to terminate
over-the-counter options is more limited than with exchange-traded options and
may involve the risk that broker-dealers participating in such transactions will
not fulfill their obligations. Until such time as the staff of the U.S.
Securities and Exchange Commission ("SEC") changes its position, each Portfolio
will treat purchased over-the-counter options and all assets used to cover
written over-the-counter options as illiquid securities. However, for options
written with primary dealers in U.S. government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to a formula
approved by the SEC staff.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The use of options to increase total
return involves the risk of loss if the Adviser or Subadviser is incorrect in
its expectations of fluctuations in securities prices or interest rates. The
successful use of puts for hedging purposes depends in part on the ability of
the Adviser or Subadviser to predict future price fluctuations and the degree of
correlation between the options and securities markets. A Portfolio pays
brokerage commissions or spreads in connection with its options transactions.
The writing of options could significantly increase portfolio turnover rate of a
Portfolio and, therefore, associated brokerage commissions or spreads.
FUTURES CONTRACTS AND OPTIONS THEREON -- Futures contracts may be based on
various securities (including U.S. government securities), securities indices,
foreign currencies and other financial instruments and indices. The purchases of
futures contracts or call options thereon can serve as a long hedge, and the
sale of futures or the purchase of put options thereon can serve as a short
hedge. Writing covered call options on futures contracts can serve as a limited
short hedge, using a strategy similar to that used for writing covered call
options on securities and indices.
In addition, subject to regulations promulgated by the Commodity Futures Trading
Commission, a Portfolio may engage in futures transactions for non-hedging
purposes. For example, futures strategies can be used to manage the average
duration of a Portfolio. To shorten the average duration of a Portfolio, the
Portfolio may sell a futures contract or a call option thereon, or purchase a
put option on that futures contract; to lengthen the average duration of a
Portfolio, the Portfolio may buy a futures contract or a call option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Portfolio is required to deposit in a
segregated account with the Trust's custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash
or liquid securities, in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call option on a
futures contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Portfolio at the termination of the transaction
if all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Portfolio may be required by an exchange
to increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures broker
daily as the value of the futures position varies, a process known as "marking
to market." Variation margin does not involve borrowing, but rather represents a
daily settlement of the Portfolio's obligations to or from a futures broker.
When a Portfolio purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Portfolio
purchases or sells a futures contract or writes a call option
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thereon, it is subject to daily variation margin calls that could be substantial
in the event of adverse price movements. If the Portfolio has insufficient cash
to meet daily variation margin requirements, it might need to sell securities at
a time when such sales are disadvantageous.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
while a Portfolio may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for the Portfolio than if it
had not entered into any futures contracts or options transactions. The loss
incurred by a Portfolio in writing options on futures is potentially unlimited
and may exceed the amount of the premium received.
In the event of an imperfect correlation between a futures position and a
portfolio position which is intended to be protected, the desired protection may
not be obtained and a Portfolio may be exposed to risk of loss. In addition, it
is not possible to hedge fully or perfectly against currency fluctuations
affecting the value of securities denominated in foreign currencies because the
value of such securities is also likely to fluctuate as a result of independent
factors not related to currency fluctuations. Therefore, perfect correlation
between a Portfolio's futures positions and portfolio positions will be
impossible to achieve.
Investment in futures contracts or options thereon may also involve liquidity
risks due, for example, to exchange-imposed daily trading limits that would
prevent the Portfolio from liquidating an unfavorable position. See the
Statement of Additional Information concerning futures and options contracts.
WARRANTS -- Certain Portfolios may invest in warrants which give the holder of
the warrant a right to purchase a given number of shares of a particular issue
at a specified price until expiration.
INVERSE FLOATERS -- The Corporate Bond and Asset Allocation Portfolios may
invest in leveraged inverse floating rate debt instruments ("inverse floaters").
The interest rate on an inverse floater resets in the opposite direction from
the market rate of interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index rate
of interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of a
Portfolio's 15% limitation on investments in such securities.
=========================================================
MANAGEMENT
=========================================================
The Trust's Board of Trustees is responsible for the overall supervision of the
operations of the Trust and performs various duties imposed on trustees of
investment companies by the 1940 Act. The Board has retained others to provide
certain services to the Trust.
INVESTMENT ADVISER -- SAAMCo, located at The SunAmerica Center, 733 Third
Avenue, New York, New York 10017-3204, is a corporation organized in 1982 under
the laws of the State of Delaware. SAAMCo is an indirect, wholly-owned
subsidiary of Anchor National Life Insurance Company, which is an indirect
subsidiary of SunAmerica Inc., an investment grade financial services company
which has over $45 billion in assets. SAAMCo is engaged in providing investment
advice and management services to the Trust, other mutual funds and private
accounts. As of March 31, 1997, SAAMCo and its affiliates managed, advised
and/or administered assets of approximately $9.6 billion.
The Trust, on behalf of each Portfolio, entered into an Investment Advisory and
Management Agreement (the "Agreement") with SAAMCo to handle the Trust's
day-to-day affairs, to provide investment advisory services, office space, and
other facilities for the management of the affairs of the Trust, and to pay the
compensation of certain officers of the Trust who are affiliated persons of
SAAMCo. The Agreement authorizes SAAMCo to retain one or more Subadvisers to
make the investment decisions for the Portfolios, and to place the purchase and
sale orders for the Portfolio transactions. SAAMCo has hired Subadvisers for
certain Portfolios, and manages the investments of other Portfolios itself
without the assistance of a Subadviser. SAAMCo, in consultation with one or more
SunAmerica affiliates, monitors the activities of the Subadvisers, and from time
to time will recommend the replacement of a
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Subadviser on the basis of investment performance or other considerations.
SAAMCo may terminate any Subadvisory Agreement without shareholder approval.
Moreover, SAAMCo has obtained an exemptive order from the Securities and
Exchange Commission which would permit SAAMCo, subject to certain conditions, to
enter into Subadvisory Agreements relating to the Trust with Subadvisers
approved by the Board without obtaining shareholder approval. The exemptive
order would also permit SAAMCo, subject to the approval of the Board but without
shareholder approval, to employ new Subadvisers for new or existing Portfolios,
change the terms of particular Subadvisory Agreements or continue the employment
of existing Subadvisers after events that would otherwise cause an automatic
termination of a Subadvisory Agreement. Shareholders of a Portfolio have the
right to terminate such agreements for such Portfolio at any time by a vote of
the majority of the outstanding voting securities of such Portfolio.
Shareholders will be notified when SAAMCo intends to commence relying on the
exemptive order, and would be notified of any Subadviser changes effected
thereafter.
Purchase and sale orders may be directed to any broker including, in the manner
and to the extent permitted by applicable law, affiliates of the Adviser or a
Subadviser. The individual Portfolio Managers for both the Adviser and
Subadvisers are identified in the "Portfolio Management" subsection of this
section.
The annual rates of the investment advisory fees which apply to the Cash
Management Portfolio are .55% on the first $100 million of Assets, .50% on the
next $200 million and .45% on Assets over $300 million. The annual rates of the
investment advisory fees which apply to the Corporate Bond Portfolio are .70% on
the first $50 million of Assets, .60% on the next $100 million, .55% on the next
$100 million and .50% on Assets over $250 million. The annual rates of the
investment advisory fees which apply to both the Global Bond and Asset
Allocation Portfolios are .75% on the first $50 million of Assets, .65% on the
next $100 million, .60% on the next $100 million and .55% on Assets over $250
million. The annual rates of the investment advisory fees which apply to the
High-Yield Bond Portfolio are .70% on the first $50 million of Assets, .65% on
the next $100 million, .60% on the next $100 million, .55% on Assets over $250
million. The annual rate of the investment advisory fees which apply to each of
the Worldwide High Income and International Diversified Equities Portfolios are
1.00%. The annual rates of the investment advisory fees which apply to each of
the SunAmerica Balanced, Growth-Income and Alliance Growth Portfolios are .70%
on the first $50 million of Assets, .65% on the next $100 million, .60% on the
next $150 million, .55% on the next $200 million, and .50% on Assets over $500
million. The annual rates of the investment advisory fees which apply to the
Utility and Federated Value Portfolios are .75% on the first $150 million of
Assets, .60% on the next $350 million and .50% on Assets over $500 million. The
annual rates of the investment advisory fees which apply to the Venture Value
Portfolio are .80% on the first $100 million of Assets, .75% on the next $400
million and .70% on Assets over $500 million. The annual rates of the investment
advisory fees which apply to the Global Equities Portfolio are .90% on the first
$50 million of Assets, .80% on the next $100 million, .70% on the next $150
million and .65% of Assets over $300 million. The annual rates of the investment
advisory fees which apply to the Aggressive Growth Portfolio are .75% on the
first $100 million of Assets, .675% on the next $150 million, .625% on the next
$250 million and .60% on Assets over $500 million. For the fiscal year ended
November 30, 1996, the following Portfolios paid to SAAMCo a fee equal to the
following percentage of average daily net assets: Cash Management
Portfolio -- .54%, Global Bond Portfolio -- .73%, Corporate Bond Portfolio --
.70%, High-Yield Bond Portfolio -- .68%, Worldwide High Income
Portfolio -- 1.00%, Asset Allocation Portfolio -- .65%, Growth-Income
Portfolio -- .64%, Venture Value Portfolio -- .76%, Alliance Growth Portfolio --
.64%, Global Equities Portfolio -- .80%, and International Diversified Equities
Portfolio -- 1.00%. For the period June 3, 1996 through November 30, 1996, the
following Portfolios paid to SAAMCo a fee equal to the following percentage of
average daily net assets: SunAmerica Balanced Portfolio -- .70%, Utility
Portfolio -- .75%, Federated Value Portfolio -- .75% and Aggressive Growth
Portfolio -- .75%.
For certain Portfolios, the Adviser has voluntarily agreed to waive fees or
reimburse
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expenses, if necessary, to keep annual operating expenses at or below the lesser
of the following percentages of each of the following Portfolio's average net
assets: SunAmerica Balanced Portfolio -- 1.00%, Utility Portfolio -- 1.05%,
Federated Value Portfolio -- 1.05%, and Aggressive Growth Portfolio -- 1.05%.
The Adviser also may voluntarily waive or reimburse additional amounts to
increase the investment return to a Portfolio's investors. The Adviser may
terminate all such waivers and/or reimbursements at any time. Further, any
waivers or reimbursements made by the Adviser (after June 3, 1996) with respect
to a Portfolio are subject to recoupment from that Portfolio within the
following two years, provided that the Portfolio is able to effect such payment
to the Adviser and remain in compliance with the foregoing expense limitations.
The term "Assets" means the average daily net assets of the Portfolio. The
investment advisory fees are accrued daily and paid monthly.
SUBADVISERS -- The organizations described below act as Subadvisers to the Trust
and certain of its Portfolios pursuant to Subadvisory Agreements with SAAMCo.
Under the Subadvisory Agreements, the Subadvisers manage the investment and
reinvestment of the assets of the respective Portfolios for which they are
responsible. Each of the Subadvisers is independent of SAAMCo and discharges its
responsibilities subject to the policies of the Trustees and the oversight and
supervision of SAAMCo, which pays the Subadvisers' fees.
The Subadviser for the Growth-Income, Alliance Growth and Global Equities
Portfolios is Alliance Capital Management L.P. Alliance is a Delaware limited
partnership with principal offices at 1345 Avenue of the Americas, New York, New
York 10105. Alliance is a major international investment manager, supervising
client accounts with assets totalling over $183 billion as of March 31, 1997.
Alliance serves its clients, who primarily are major corporate employee benefit
funds, investment companies, foundations, endowment funds and public employee
retirement systems. As of March 31, 1997, Alliance was retained as an investment
manager of employee benefit fund assets for 33 of the Fortune 100 companies.
The portion of the annual investment advisory fees received by SAAMCo which is
paid to Alliance with respect to the Growth-Income Portfolio and the Alliance
Growth Portfolio is .35% on the first $50 million of Assets, .30% on the next
$100 million, .25% on the next $150 million, .20% on the next $200 million and
.15% on Assets over $500 million; and, with respect to the Global Equities
Portfolio, .50% on the first $50 million of Assets, .40% on the next $100
million, .30% on the next $150 million and .25% on Assets over $300 million. For
the fiscal year ended November 30, 1996, SAAMCo paid to Alliance, with respect
to each Portfolio subadvised by Alliance, a fee equal to the following
percentage of average daily net assets: Growth-Income Portfolio -- .29%,
Alliance Growth Portfolio -- .29%, and Global Equities Portfolio -- .40%.
The Subadviser of the Venture Value Portfolio is Davis Selected Advisers, L.P.,
("Davis Selected") 124 East Marcy Street, Sante Fe, New Mexico 87501. Venture
Advisers, Inc. is the sole General Partner of the limited partnership, which, in
turn, is controlled by Shelby M.C. Davis. Davis Selected provides advisory
services to other investment companies. As of March 31, 1997, Davis Selected had
over $7.9 billion of assets under management. The Subadvisory Agreement with
Davis Selected provides that Davis Selected may delegate any of its
responsibilities under the agreement to one of its affiliates, including Davis
Selected Advisers - NY, Inc., a wholly-owned subsidiary; however Davis Selected
remains ultimately responsible (subject to supervision by SAAMCo) for the assets
of the Portfolio allocated to it.
The portion of the annual investment advisory fee received by SAAMCo which is
paid to Davis Selected with respect to the Venture Value Portfolio is .45% on
the first $100 million of Assets, .40% on the next $400 million and .35% on
Assets over $500 million. For the fiscal year ended November 30, 1996, SAAMCo
paid to Davis Selected, with respect to the Venture Value Portfolio, a fee equal
to .42% of the Portfolio's average daily net assets.
The Subadviser for the Corporate Bond, Utility and Federated Value Portfolios is
Federated Investment Counseling, Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. Federated is a wholly owned subsidiary of
Federated Investors, and together with other subsidiaries of Federated Investors
serves as investment adviser to a number of investment companies and private
accounts. With over $115 billion invested across more than 260 funds under
management and/or
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administration as of March 31, 1997, Federated Investors is one of the largest
mutual fund investment managers in the United States.
The portion of the annual investment advisory fees received by SAAMCo which is
paid to Federated with respect to the Corporate Bond Portfolio is .30% on the
first $25 million of Assets, .25% on the next $25 million, .20% on the next $100
million and .15% on Assets over $150 million; and with respect to each of the
Utility and Federated Value Portfolios is .55% on the first $20 million of
Assets, .35% on the next $30 million, .25% on the next $100 million, .20% on the
next $350 million and .15% on Assets over $500 million. For the fiscal year
ended November 30, 1996, SAAMCo paid to Federated, with respect to each
Portfolio subadvised by Federated, a fee equal to the following percentage of
average daily net assets: Utility -- .55%, and Federated Value -- .55%. For the
period June 3, 1996 through November 30, 1996, SAAMCo paid to Federated, with
respect to the Corporate Bond Portfolio, a fee equal to .30% of average daily
net assets.
The Subadviser for the Asset Allocation Portfolio is GSAM, a separate operating
division of Goldman, Sachs & Co. The Subadviser for the Global Bond Portfolio is
GSAM-International, an affiliate of Goldman, Sachs & Co. Goldman, Sachs & Co. is
a New York limited partnership with its principal offices at 85 Broad Street,
New York, New York 10004. GSAM serves a wide range of clients including private
and public pension funds, endowments, foundations, banks, thrifts, insurance
companies, corporations, and private investors and family groups. The asset
management services are divided into the following areas: institutional
fixed-income investment management; global currency management; institutional
equity investment management; fund management; money market mutual fund
management and administration; and private asset management. As of March 24,
1997, GSAM, together with its affiliates, acted as investment adviser,
administrator or distributor for approximately $104.9 billion in assets.
GSAM-International was organized in 1990 as a company with limited liability
under the laws of England. It is authorized to conduct investment advisory
business in the United Kingdom as a member of the Investment Management
Regulatory Organisation Limited, a United Kingdom self-regulatory organization.
GSAM and GSAM-International are able to draw on the research and market
expertise of Goldman, Sachs & Co. in making investment decisions for the
Portfolios for which they act as Subadviser. In performing their subadvisory
services, GSAM and GSAM-International, while remaining ultimately responsible
for the management of the Portfolio, are able to draw upon the research and
expertise of their affiliate offices, for portfolio decisions and management
with respect to certain portfolio securities.
The portion of the annual investment advisory fees received by SAAMCo which is
paid to GSAM with respect to the Asset Allocation Portfolio is .40% on the first
$50 million of Assets, .30% on the next $100 million, .25% on the next $100
million and .20% on Assets over $250 million. For the fiscal year ended November
30, 1996, SAAMCo paid to GSAM, with respect to each Portfolio subadvised by
GSAM, a fee equal to the following percentage of average daily net assets:
Corporate Bond -- .34%, and Asset Allocation -- .30%. The portion of the annual
investment advisory fees received by SAAMCo which is paid to GSAM-International
with respect to the Global Bond Portfolio is .40% on the first $50 million of
Assets, .30% on the next $100 million, .25% on the next $100 million and .20% on
Assets over $250 million. For the fiscal year ended November 30, 1996, SAAMCo
paid to GSAM-International, with respect to the Global Bond Portfolio, a fee
equal to .38% of the Portfolio's average daily net assets.
The Subadviser of the Worldwide High Income and International Diversified
Equities Portfolios is Morgan Stanley Asset Management Inc., 1221 Avenue of the
Americas, New York, New York 10020. MSAM is a wholly owned subsidiary of Morgan
Stanley Group Inc., and provides a broad range of portfolio management services
to customers in the United States and abroad. As of March 31, 1997, MSAM,
together with its affiliated investment management companies, had approximately
$170 billion of assets under management (inclusive of assets under fiduciary
advisory control).
On February 5, 1997, Morgan Stanley Group, Inc. and Dean Witter, Discover & Co.
announced that they had entered into an Agreement and Plan of Merger to form
Morgan Stanley, Dean Witter, Discover & Co. Morgan Stanley Group, Inc. is the
direct parent of MSAM, subadviser to the Worldwide High
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Income and International Diversified Equities Portfolios. It is currently
anticipated that the transaction will close in mid-1997. Thereafter, MSAM will
be a subsidiary of Morgan Stanley, Dean Witter, Discover & Co. Dean Witter,
Discover & Co. is a financial services company with three major businesses: full
service brokerage, credit services and asset management.
The portion of the annual investment advisory fee received by SAAMCo which is
paid to MSAM with respect to each of the Worldwide High Income and International
Diversified Equities Portfolios is .65% on Assets up to $350 million and .60% on
Assets thereafter. For the fiscal year ended November 30, 1996, SAAMCo paid to
MSAM, with respect to the International Diversified Equities Portfolio and
Worldwide High Income Portfolio, a fee equal to .65% of each Portfolio's average
daily net assets.
PORTFOLIO MANAGEMENT -- The following individuals are primarily responsible for
the day-to-day management of the particular Portfolios as indicated below.
SAAMCo's Fixed Income Investment Team headed by P. Christopher Leary has been
responsible for managing the CASH MANAGEMENT PORTFOLIO, HIGH-YIELD BOND
PORTFOLIO and the fixed-income component of the SUNAMERICA BALANCED PORTFOLIO
since October 1996. Mr. Leary is a Senior Vice President of SAAMCo and has been
a portfolio manager with the firm since 1990. John W. Risner has supervisory
responsibility for the High-Yield Bond Portfolio. He is a Vice President of
SAAMCo and joined the firm in February 1997. Prior to joining SAAMCo, Mr. Risner
served as Senior Portfolio Manager of the Value Line Aggressive Income Trust and
the Value Line Convertible Fund. Audrey L. Snell has served as the portfolio
manager for the AGGRESSIVE GROWTH PORTFOLIO since the inception date of June 3,
1996. Ms. Snell is a Senior Vice President of SAAMCo and has been a portfolio
manager with the firm since 1991.
Joseph M. Balestrino and Mark E. Durbiano serve as co-portfolio managers of the
CORPORATE BOND PORTFOLIO. Mr. Balestrino joined Federated Investors in 1986 and
has been a Vice President of Federated Advisers since 1995. Mr. Balestrino
served as an Assistant Vice President of Federated Advisers from 1991 to 1995.
Mr. Balestrino is a Chartered Financial Analyst. Mr. Durbiano joined Federated
Investors in 1982 and has been a Senior Vice President of Federated Advisers
since January 1996. From 1988 through 1995, Mr. Durbiano was a Vice President of
Federated Advisers. Mr. Durbiano is a Chartered Financial Analyst.
Stephen C. Fitzgerald and Andrew F. Wilson serve as co-portfolio managers of the
GLOBAL BOND PORTFOLIO. Mr. Fitzgerald has served as co-portfolio manager since
the inception date of July 1, 1993 and Mr. Wilson has served as co-portfolio
manager since December 1, 1995. Mr. Fitzgerald, a Vice President in the London
office, joined GSAM-International in 1992. Prior to 1992, he spent two years
managing multi-currency, fixed-income and balanced portfolios at Invesco MIM
Limited, where he was a senior member of the derivative products group. Mr.
Wilson, a Vice President in the London office, joined GSAM-International in
December 1995. Prior to joining GSAM-International, Mr. Wilson spent three years
as an Assistant Director of Rothschild Asset Management, where he was
responsible for managing global and international bond portfolios, with specific
focus on the U.S., Canadian, Australian and Japanese economies. Prior to his
employment at Rothschild, Mr. Wilson spent seven years at the Reserve Bank of
New Zealand, his most recent position a Trading Manager of Foreign Reserves
Management. Mr. Wilson's employment at Reserve Bank of New Zealand also included
a two year assignment to the foreign investment unit at the Bank of England in
London.
Robert Angevine and Paul Ghaffari have served as co-portfolio managers of the
WORLDWIDE HIGH INCOME PORTFOLIO since the inception date of October 28, 1994.
Mr. Angevine is a principal of Morgan Stanley & Co. Incorporated ("Morgan
Stanley") and a portfolio manager of MSAM's high yield investments. He has been
with the firm since 1988. Mr. Ghaffari is a managing director of Morgan Stanley
and a portfolio manager of MSAM's emerging market debt instruments. He has been
with the firm since 1983.
Stanton J. Feeley has served as the portfolio manager for the SUNAMERICA
BALANCED PORTFOLIO since the inception date of June 3, 1996. Mr. Feeley has
served as Executive Vice President and Chief Investment Officer of SAAMCo since
February 1992. Prior to joining SAAMCo, Mr. Feeley was a Senior Portfolio
Manager for Delaware Management Company, Inc.
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Ronald E. Gutfleish, G. Lee Anderson and Eileen A. Aptman serve as co-portfolio
managers of the equity portion of the ASSET ALLOCATION PORTFOLIO. Mr. Gutfleish
has served in this capacity since February 1, 1995. Mr. Anderson and Ms. Aptman
have served as co-portfolio managers since December 1, 1996. Mr. Gutfleish is a
Vice President of GSAM, which he joined in 1993. Prior to 1993, he was a
principal of Sanford C. Bernstein & Co., Inc., in its Investment Management
Research Department. Mr. Anderson, is a Vice President of GSAM, which he joined
in 1992. Ms. Aptman is a Vice President of GSAM, which she joined in 1993. Prior
to 1993, she was an equity analyst at Delphi Management. Jonathan A. Beinner and
Richard C. Lucy have served as co-portfolio managers for the fixed-income
portion of the ASSET ALLOCATION PORTFOLIO since its inception date of July 1,
1993. Mr. Beinner is a Vice President of GSAM, where he joined the Funds Group
in 1990. Mr. Lucy is a Vice President of GSAM, where he joined the Funds Group
in 1992 after spending nine years managing fixed-income assets at Brown Brothers
Harriman & Co.
Linda A. Duessel serves as portfolio manager of the UTILITY PORTFOLIO. Ms.
Duessel joined Federated Investors in 1991, and has been a Vice President of
Federated Advisers since 1995. She was an Assistant Vice President of Federated
Advisers from 1991 until 1995. Ms. Duessel is a Certified Public Accountants and
a Chartered Financial Analyst.
Michael R. Baldwin and Bruce W. Calvert have served as co-portfolio managers for
the GROWTH-INCOME PORTFOLIO since the inception date of February 9, 1993 and
Stephen W. Pelensky has served as a co-portfolio manager for the Portfolio since
June 30, 1995. Mr. Baldwin is a Vice President of Alliance Capital Management
and joined the company in 1989. Mr. Calvert is Vice Chairman and Chief
Investment Officer, and joined Alliance Capital Management in 1973. Mr. Pelensky
is a Vice President of Alliance Capital Management and joined the company in
1994. Prior to joining Alliance Capital Management, Mr. Pelensky was a portfolio
manager and analyst with Affinity Investment Advisors and BEA Associates.
Peter R. Anderson and Scott B. Schermerhorn serve as co-portfolio managers of
the FEDERATED VALUE PORTFOLIO. Mr. Anderson joined Federated Investors in 1972
as, and is presently, a Senior Vice President of Federated Advisers. Mr.
Anderson is a Chartered Financial Analyst. Mr. Schermerhorn joined Federated
Investors in 1996 as a Vice President of Federated Advisers. From 1990 through
1996, Mr. Schermerhorn was a Senior Vice President and Senior Investment Officer
at J. W. Seligman & Co., Inc.
Christopher C. Davis serves as portfolio manager of the VENTURE VALUE PORTFOLIO.
He has been employed by Davis Selected since September, 1989 as a research
analyst, assistant portfolio manager, co-portfolio manager, and portfolio
manager, working side by side with Shelby M. C. Davis. Shelby M.C. Davis
previously served as co-portfolio manager of the Venture Value Portfolio. He
will continue to consult with Christopher Davis in his capacity as Chief
Investment Officer of Davis Selected.
James G. Reilly has served as the portfolio manager for the ALLIANCE GROWTH
PORTFOLIO since the inception date of February 9, 1993. Mr. Reilly is a Senior
Vice President of Alliance Capital Management and joined the company in 1984.
Barton Biggs has served as a co-portfolio manager for the INTERNATIONAL
DIVERSIFIED EQUITIES PORTFOLIO since the inception date of October 28, 1994 and
Francine Bovich and Ann Thivierge have served as co-portfolio managers of the
Portfolio since July 1, 1995. Mr. Biggs is Chairman and Chief Investment Officer
of MSAM and a Director of Morgan Stanley Group, Inc. He joined Morgan Stanley in
1973 as a General Partner and Managing Director and is a member of Morgan
Stanley Group, Inc.'s Board of Directors and of the Management Committee. Ms.
Bovich is responsible for product development, portfolio management and
communication of asset allocation strategy. She joined MSAM, as a Principal in
1993. Prior to joining MSAM, Ms. Bovich was a Principal and Executive Vice
President of Westwood Management Corp. and was with the firm from 1986 to 1993.
Ms. Thivierge is a Principal of MSAM and joined the company in 1986 as an
Analyst. From 1992 through 1996 she served as a Vice President of Morgan Stanley
Asset Management Inc.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT -- State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts
02110, is the Trust's custodian, transfer agent and dividend paying
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agent. State Street maintains custody of the Trust's securities and cash and the
records of each shareholder's account. State Street also performs other related
shareholder service functions.
=========================================================
PORTFOLIO TURNOVER AND BROKERAGE
=========================================================
All Portfolios effect portfolio transactions without regard to the length of
time particular investments have been held. Under certain market conditions, the
investment policies of the Portfolios may result in high portfolio turnover. The
portfolio turnover rates for the Portfolios are contained in the section
entitled "Financial Highlights." High portfolio turnover involves
correspondingly greater brokerage commissions, to the extent such commissions
are payable, and other transaction costs that are borne directly by the
Portfolio involved. Higher turnover rates reflect an increased rate of
realization of gains and losses by the Portfolio, which would normally affect
the taxable income of the Portfolio's shareholders. Where the shareholder is an
insurance company separate account funding variable annuity contracts, qualified
as such under the Code; however, the contractowners are not currently charged
with such income or losses except to the extent provided under the Code
(normally when distributions under the contracts are made). Corporate bonds and
U.S. government securities are generally traded on a net basis and usually
neither brokerage commissions nor transfer taxes are involved.
Broker-dealers involved in the execution of portfolio transactions on behalf of
the Trust are selected on the basis of their professional capability and the
value and quality of their services. In selecting such broker-dealers, the
Adviser and Subadvisers will consider various relevant factors, including, but
not limited to, the size and type of the transaction; the nature and character
of the markets in which the security can be purchased or sold; the execution
efficiency, settlement capability, and financial condition of the broker-dealer;
the broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions. The Adviser or a Subadviser also may select
broker-dealers which provide it with research services and may cause a Portfolio
to pay such broker-dealers commissions which exceed those which other
broker-dealers may have charged, if in the Adviser's or Subadviser's view the
commissions are reasonable in relation to the value of the brokerage and/or
research services provided by the broker-dealer. Further, the Adviser or a
Subadviser may effect portfolio transactions through broker-dealer affiliates of
the Trust, Adviser or Subadvisers.
=========================================================
DIVIDENDS, DISTRIBUTIONS AND
FEDERAL TAXES
=========================================================
Under the Code each Portfolio is treated as a separate regulated investment
company providing qualification requirements are met. To qualify as a regulated
investment company, a Portfolio must, among other things, (a) derive at least
90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stocks, securities
or foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stocks, securities or currencies; (b) derive less than 30% of
its gross income from the sale or other disposition of stocks or securities or
certain foreign currencies (or options, futures or forward contracts thereon)
held less than three months ("short-short gains"); provided, however, that
foreign currency gains, including those derived from options, futures and
forward contracts, will not, in any event, be characterized as short-short gains
if they are directly related to the registered investment company's investments
in stocks, options or futures thereon; and (c) diversify its holdings so that,
at the end of each fiscal quarter, (i) at least 50% of the market value of the
Portfolio's assets is represented by cash, U.S. government securities and other
securities limited in respect of any one issuer to 5% of the Portfolio's assets
and to not more than 10% of the 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). Each Portfolio is intended
to meet these qualification requirements.
The restriction on short-short gains may require a Portfolio's Subadviser to
defer closing out a position in a security or financial contract at the most
opportunistic time.
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So long as a Portfolio qualifies as a regulated investment company, such
Portfolio will not be subject to federal income tax on the net investment
company taxable income or net capital gains distributed to shareholders as
ordinary income dividend or capital gains dividends. It is the policy of each
Portfolio to distribute to its shareholders substantially all of its ordinary
income and net long-term capital gains realized during each fiscal year. All
distributions are reinvested in shares of the Portfolio at net asset value
unless the transfer agent is instructed otherwise.
Each Portfolio of the Trust is also subject to variable contract asset
diversification regulations prescribed by the U.S. Treasury Department under the
Code. These regulations generally provide that, as of the end of each calendar
quarter or within 30 days thereafter, no more than 55% of the total assets of
the Portfolio 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, but each U.S. agency or instrumentality is
treated as a separate issuer. If a Portfolio fails to comply with these
regulations, the contracts invested in that Portfolio will not be treated as
annuity, endowment or life insurance contracts for tax purposes.
A "passive foreign investment company" (PFIC) is a foreign corporation that, in
general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If a Portfolio acquires and
holds stock in a PFIC beyond the end of the year of its acquisition, the
Portfolio will be subject to federal income tax on a portion of any "excess
distribution" received on the stock or of any gain from disposition of the stock
(collectively PFIC income), plus interest thereon, even if the Portfolio
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Portfolio's investment
company taxable income and, accordingly, will not be taxable to it to the extent
that income is distributed to its shareholders. Proposed Treasury regulations
provide that the Portfolio may make a "mark-to-market" election with respect to
any stock it holds of a PFIC. If the election is in effect, at the end of the
Portfolio's taxable year, the Portfolio will recognize the amount of gains, if
any, with respect to PFIC stock. No loss will be recognized on PFIC stock.
Alternatively, the Portfolio may elect to treat any PFIC in which it invests as
a "qualified electing fund," in which case, in lieu of the foregoing tax and
interest obligation, the Portfolio will be required to include in income each
year its pro rata share of the qualified electing fund's annual ordinary
earnings and net capital gain, even if they are not distributed to the
Portfolio; those amounts would be subject to the distribution requirements
applicable to the Portfolio described above. It may be very difficult, if not
impossible, to make this election because of certain requirements thereof.
See the applicable contract prospectus for information regarding the federal
income tax treatment of the contracts and distributions to the separate
accounts.
=========================================================
PRICE OF SHARES
=========================================================
The Portfolios are open for business on any day the New York Stock Exchange
("NYSE") is open for regular trading. Shares of each Portfolio of the Trust are
sold at the net asset value per share calculated daily at the close of regular
trading on the NYSE (generally, 4:00 p.m., Eastern time). Each Portfolio
calculates its net asset value per share by dividing the total value of its net
assets by the number of shares outstanding. Assets are generally valued at their
market value, where available, except that short-term securities with 60 days or
less to maturity are valued on an amortized cost basis. For a complete
description of the procedures involved in valuing various Trust assets, see the
Statement of Additional Information.
=========================================================
PURCHASES AND REDEMPTIONS
=========================================================
Shares of the Trust currently are offered only to separate accounts of Anchor
National Life Insurance Company and First SunAmerica Life Insurance Company. At
present, Trust shares are used as the investment vehicle for annuity contracts
only. The Life Companies may issue variable life contracts that also will use
the Trust as the underlying investment. The offering of Trust shares to variable
annuity and variable life separate accounts is referred to as "mixed funding."
It may be disadvantageous for variable
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annuity separate accounts and variable life separate accounts to invest in the
Trust simultaneously. Although neither the Life Companies nor the Trust
currently foresees such disadvantages either to variable annuity or variable
life contract owners, the Board of Trustees of the Trust, based upon information
provided by the Life Companies, would monitor events in order to determine,
should a material conflict arise, what action, if any, need be taken in response
thereto. Shares of the Trust may be offered to separate accounts of other life
insurance companies which are affiliates of the Life Companies.
All shares may be purchased or redeemed by the separate accounts without any
sales or redemption charge at the next computed net asset value. Purchases and
redemptions are made subsequent to corresponding purchases and redemptions of
units of the separate accounts without delay.
Except in extraordinary circumstances and as permissible under the 1940 Act, the
redemption proceeds are paid on or before the seventh day following the request
for redemption.
=========================================================
SHAREHOLDER VOTING RIGHTS
=========================================================
All shares of the Trust have equal voting rights and may be voted in the
election of trustees and on other matters submitted to the vote of the
shareholders. Shareholders' meetings ordinarily will not be held unless required
by the 1940 Act. As permitted by Massachusetts law, there normally will be no
shareholders' meetings for the purpose of electing trustees unless and until
such time as fewer than a majority of the trustees holding office have been
elected by shareholders. At that time, the trustees then in office will call a
shareholders' meeting for the election of trustees. The trustees must call a
meeting of shareholders for the purpose of voting upon the removal of any
trustee when requested to do so by the record holders of 10% or more of the
outstanding shares of the Trust. A trustee may be removed after the holders of
record of not less than two-thirds of the outstanding shares have declared that
the trustee be removed either by declaration in writing or by votes cast in
person or by proxy. Except as set forth above, the trustees shall continue to
hold office and may appoint successor trustees, provided that immediately after
the appointment of any successor trustee, at least two-thirds of the trustees
have been elected by the shareholders. Shares do not have cumulative voting
rights. Thus, holders of a majority of the shares voting for the election of
trustees can elect all the trustees. No amendment may be made to the Declaration
of Trust without the affirmative vote of a majority of the outstanding shares of
the Trust, except that amendments to conform the Declaration to the requirements
of applicable federal laws or regulations or the regulated investment company
provisions of the Code may be made by the trustees without the vote or consent
of shareholders. If not terminated by the vote or written consent of a majority
of its outstanding shares, the Trust will continue indefinitely.
A change in the fundamental investment restrictions of a Portfolio requires the
vote of a "majority of the outstanding voting securities" of that Portfolio.
This term is defined in the 1940 Act and explained in the Statement of
Additional Information.
In matters affecting only a particular Portfolio, the matter shall have been
effectively acted upon by a vote of that Portfolio even though: (1) the matter
has not been approved by a vote of any other Portfolio; or (2) the matter has
not been approved by a vote of the Trust as a whole.
The Life Companies' separate accounts, as shareholders of the Portfolios, have
the right to vote each Portfolio's shares at any meeting of shareholders.
However, the separate account will vote each Portfolio's shares in accordance
with instructions received from contract owners. See the applicable contract
prospectus for information regarding contract owners' voting rights.
=========================================================
INDEPENDENT ACCOUNTANTS
=========================================================
Price Waterhouse LLP has been selected as independent accountants for the Trust.
=========================================================
SHAREHOLDER INQUIRIES
=========================================================
Shareholder inquiries should be directed to Anchor National Life Insurance
Company or First SunAmerica Life Insurance Company, Service Center, P.O. Box
54299, Los Angeles, California 90054-0299, telephone number (800) 445-SUN2. In
New York, shareholders should call (800) 99-NYSUN.
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=========================================================
FINANCIAL INFORMATION
=========================================================
Further financial information can be found in the Statement of Additional
Information, which is available upon written request to the Trust.
39
