<PAGE> 1
As filed with the Securities and Exchange Commission on January 15, 1999
Securities Act File No. 33-52742
Investment Company Act File No. 811-7238
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 19 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 21
(Check appropriate box or boxes)
SUNAMERICA SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
1 SunAmerica Center
Los Angeles, CA 90067-6022
(Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (800) 858-8850
Robert M. Zakem, Esq.
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(Name and Address for Agent for Service)
Copy to:
Susan L. Harris, Esq.
Senior Vice President and General Counsel
SunAmerica Inc.
1 SunAmerica Center
Los Angeles, CA 90067-6022
Margery K. Neale, Esq.
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, NY 10022
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
It is proposed that this filing will become effective
(check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE> 2
_______________________, 1999 PROSPECTUS
SUNAMERICA SERIES TRUST
- CASH MANAGEMENT PORTFOLIO
- CORPORATE BOND PORTFOLIO
- GLOBAL BOND PORTFOLIO
- HIGH-YIELD BOND PORTFOLIO
- WORLDWIDE HIGH INCOME PORTFOLIO
- SUNAMERICA BALANCED PORTFOLIO
- MFS TOTAL RETURN PORTFOLIO
- ASSET ALLOCATION PORTFOLIO
- UTILITY PORTFOLIO
- EQUITY INCOME PORTFOLIO
- EQUITY INDEX PORTFOLIO
- GROWTH-INCOME PORTFOLIO
- FEDERATED VALUE PORTFOLIO
- VENTURE VALUE PORTFOLIO
- "DOGS" OF WALL STREET PORTFOLIO
- ALLIANCE GROWTH PORTFOLIO
- MFS GROWTH AND INCOME PORTFOLIO
- PUTNAM GROWTH PORTFOLIO
- REAL ESTATE PORTFOLIO
- SMALL COMPANY VALUE PORTFOLIO
- MFS MID-CAP GROWTH PORTFOLIO
- AGGRESSIVE GROWTH PORTFOLIO
- INTERNATIONAL GROWTH AND INCOME PORTFOLIO
- GLOBAL EQUITIES PORTFOLIO
- INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO
- EMERGING MARKETS PORTFOLIO
The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
[LOGO]
<PAGE> 3
TABLE OF CONTENTS
TRUST HIGHLIGHTS............................................................ 3
FINANCIAL HIGHLIGHTS........................................................ 32
ACCOUNT INFORMATION......................................................... 32
MORE INFORMATION ABOUT THE PORTFOLIOS ...................................... 33
Investment Strategies.............................................. 33
Glossary .......................................................... 52
Investment Terminology.................................... 52
Risk Terminology.......................................... 54
MANAGEMENT.................................................................. 57
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TRUST HIGHLIGHTS
The following questions and answers are designed to give you an overview of the
Trust, and to provide you with information about the Trust's twenty-six
Portfolios and their investment goals and principal strategies. More complete
investment information is provided in the chart, under "More Information About
the Portfolios," which is on page 33, and the glossary that follows on page 52.
Q: What are the Portfolios' investment goals and principal investment
strategies?
A: Each Portfolio operates as a separate mutual fund, with its own
investment goal and a principal strategy for pursuing it. A Portfolio's
investment goal may be changed without shareholder approval, but you
will be notified of any change. There can be no assurance that any
Portfolio will meet its investment goal or that the net return on an
investment will exceed what could have been obtained through other
investment or savings vehicles.
FIXED INCOME PORTFOLIOS
<TABLE>
<CAPTION>
Portfolio Investment Goal Principal Investment Strategy
--------- --------------- -----------------------------
<S> <C> <C>
CASH high current yield while invests in a diversified selection of
MANAGEMENT preserving capital money market instruments
PORTFOLIO
CORPORATE BOND high total return with invests primarily in investment grade
PORTFOLIO only moderate price risk fixed-income securities
GLOBAL BOND high total return, investment in high quality fixed
PORTFOLIO emphasizing current income securities of U.S. and foreign
income and, to a lesser issuers and transactions in foreign
extent, capital currencies
appreciation
HIGH-YIELD high current income and invests primarily in intermediate and
BOND PORTFOLIO (secondarily) capital long-term corporate obligations,
appreciation emphasizing higher-yielding, higher-risk,
lower-rated or unrated securities,
commonly known as junk bonds with a
primary focus on "B" rated high-yield
bonds
WORLDWIDE HIGH high current income and invests primarily in high-yielding fixed
INCOME PORTFOLIO (secondarily) capital income securities (junk bonds) of
appreciation issuers located throughout the world
</TABLE>
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[Margin note: "HIGH-QUALITY" instruments have a very strong capacity to pay
interest and repay principal; they reflect the issuers' high creditworthiness
and low risk of default. An "INVESTMENT GRADE" fixed income security is rated in
one of the top four ratings categories by a debt rating agency (or is considered
of comparable quality by SunAmerica or the Subadviser).]
[Margin note: The two best-known debt rating agencies are Standard & Poor's
Rating Services, a Division of The McGraw-Hill Companies, Inc. and Moody's
Investors Service, Inc. "Investment grade" refers to any security rated "BBB" or
above by Standard & Poor's or "Baa" or above by Moody's.]
BALANCED OR ASSET ALLOCATION PORTFOLIOS
<TABLE>
<CAPTION>
Portfolio Investment Goal Principal Investment Strategy
--------- --------------- -----------------------------
<S> <C> <C>
SUNAMERICA conservation of maintains at all times a balanced
BALANCED principal portfolio of stocks and bonds, with at
PORTFOLIO least 25% invested in fixed income
securities
MFS TOTAL reasonable current invests primarily in common stocks
RETURN PORTFOLIO income, long-term and fixed-income securities, with an
capital growth and emphasis on income-producing
conservation of capital securities that appear to have some
potential for capital enhancement
ASSET ALLOCATION high total return invests in a diversified portfolio that
PORTFOLIO (including income and may include common stocks and other
capital gains) consistent securities with common stock
with preservation of characteristics, bonds and other
capital over the long- intermediate and long-term fixed-
term income securities and money market
instruments
UTILITY PORTFOLIO high current income and invests primarily in equity and debt
moderate capital securities of utility companies
appreciation
</TABLE>
EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
Portfolio Investment Goal Principal Investment Strategy
--------- --------------- -----------------------------
<S> <C> <C>
EQUITY INCOME long-term capital invests primarily in equity securities
PORTFOLIO appreciation and income that are expected to pay above-average
dividends
</TABLE>
4
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<TABLE>
<S> <C> <C>
EQUITY INDEX investment results that invests primarily in common stocks
PORTFOLIO correspond to the included in the S&P 500
performance of the
Standard & Poor's 500
Composite Stock Price
Index ("S&P 500")
GROWTH-INCOME growth of capital and invests primarily in common stocks or
PORTFOLIO income securities that demonstrate the potential
for appreciation and/or dividends
FEDERATED VALUE growth of capital and invests primarily in the securities of the
PORTFOLIO income 100 companies contained in "The
Leaders List," a list of 100 blue chip
companies selected by the Portfolio's
Subadviser
VENTURE VALUE growth of capital invests primarily in common stocks,
PORTFOLIO generally issued by companies with
market capitalizations in excess of
$250 million
</TABLE>
[Margin note: The "value" oriented philosophy to which the FEDERATED VALUE,
VENTURE VALUE and SMALL COMPANY VALUE PORTFOLIOS subscribe - that of investing
principally in securities believed to be undervalued in the market - reflects a
contrarian approach, in that the potential for superior relative performance is
believed to be highest when stocks of fundamentally solid companies are out of
favor. The selection criteria is usually calculated to identify stocks of large,
well-known companies with solid financial strength and generous dividend yields
that have low price-earnings ratios and have been generally overlooked by the
market. With respect to the SMALL COMPANY VALUE PORTFOLIO, however, the
Subadviser will invest in equity securities of small capitalization companies
that it believes are undervalued relative to other securities in the same
industry or market at the time of purchase.]
<TABLE>
<S> <C> <C>
"DOGS" OF WALL total return (including invests in thirty high dividend yielding
STREET PORTFOLIO capital appreciation and common stocks selected annually from
current income) the Dow Jones Industrial Average and
the broader market
ALLIANCE GROWTH long-term growth of invests primarily in common stocks or
PORTFOLIO capital securities with common stock
characteristics that its Subadviser
believes have the potential for
appreciation
</TABLE>
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<TABLE>
<S> <C> <C>
MFS GROWTH reasonable current invests primarily in equity securities
AND INCOME income and long-term
PORTFOLIO growth of capital and
income
PUTNAM GROWTH long-term growth of invests primarily in common stocks or
PORTFOLIO capital securities with common stock
characteristics that its Subadviser
believes have above-average growth
prospects
REAL ESTATE total return through a invests primarily in securities of
PORTFOLIO combination of growth companies principally engaged in or
and income related to the real estate industry
or that own significant real estate
assets or that primarily invest in
real estate financial instruments
SMALL COMPANY capital appreciation invests in a broadly diversified
VALUE PORTFOLIO portfolio of equity securities of small
companies generally with market
capitalizations of less than $1 billion
MFS MID-CAP long-term growth of invests primarily in equity securities of
GROWTH capital medium-sized companies with market
PORTFOLIO capitalizations between $1 billion and
$5 billion that its Subadviser believes
have above-average growth potential
AGGRESSIVE capital appreciation invests primarily in equity securities of
GROWTH small growth companies generally with
PORTFOLIO market capitalizations of less than $1
billion
</TABLE>
INTERNATIONAL PORTFOLIOS
<TABLE>
<S> <C> <C>
INTERNATIONAL growth of capital and invests primarily in common stocks
GROWTH AND (secondarily) current traded on markets outside the U.S.
INCOME PORTFOLIO income
</TABLE>
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[Margin note: The issuers of "growth" securities - in which the GROWTH-INCOME,
ALLIANCE GROWTH, MFS GROWTH AND INCOME, PUTNAM GROWTH, MFS MID-CAP GROWTH,
AGGRESSIVE GROWTH and INTERNATIONAL GROWTH AND INCOME PORTFOLIOS will primarily
invest - are considered: to have a historical record of above-average growth
rate; to have significant growth potential; to offer above-average earnings
growth or value or the ability to sustain earnings growth; to offer proven or
unusual products or services; or to operate in industries experiencing
increasing demand.]
<TABLE>
<S> <C> <C>
GLOBAL EQUITIES long-term growth of invests primarily in common stocks or
PORTFOLIO capital securities with common stock
characteristics of U.S. and foreign
issuers that demonstrate the potential
for appreciation and engages in
transactions in foreign currencies
INTERNATIONAL long-term capital invests (in accordance with country
DIVERSIFIED appreciation weightings determined by its
EQUITIES Subadviser) in common stocks of
PORTFOLIO foreign issuers that, in the aggregate,
replicate broad country indices
EMERGING long-term capital invests primarily in common stocks
MARKETS appreciation and other equity securities of
PORTFOLIO companies that its Subadviser believes
have above-average growth prospectus
primarily in emerging markets outside the
United States.
</TABLE>
The "DOGS" OF WALL STREET PORTFOLIO annually selects the following 30 stocks
through a passively managed strategy: (1) the 10 highest yielding common stocks
in the DJIA and (2) the 20 other highest yielding stocks of the 400 largest
industrial companies in the U.S. markets that have capitalizations of at least
$1 billion and have received one of the two highest rankings from an
independently published common stock ranking service on the basis of growth and
stability of earnings and dividends. The annual selection of the thirty stocks
that meet these criteria takes place no later than January 15, on the basis of
information as of the preceding December 31st. Immediately after the Portfolio
buys and sells stocks, it will hold an equal value of each of the thirty stocks.
In other words, the Portfolio will invest 1/30 of its assets in each of the
stocks that make up its portfolio. Thereafter, when an investor purchases shares
of the Portfolio, the Subadviser invests the additional funds in the selected
stocks based on each stock's respective percentage of the Portfolio's assets.
This may result in the Portfolio investing more than 25% of its assets in the
securities of issuers in the same industry, to the extent such investments are
selected according to the Portfolio's stock selection criteria.
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The Portfolio employs a "buy and hold strategy." This means that the stocks in
the Portfolio's portfolio over the course of the year will not change, even if
there are adverse developments concerning a particular stock, an industry, the
economy or the stock market generally. However, due to purchases and redemptions
of Portfolio shares during the year and changes in the market value of the
stocks held by the Portfolio, it is likely that the weightings of the stocks in
the Portfolio's portfolio will fluctuate throughout the course of the year.
Q: What are the principal risks of investing in the Portfolios?
A: The following section describes the principal risks of each Portfolio,
while the chart on page 34 describes various additional risks.
Risks of Investing in Equity Securities
The EQUITY INCOME, EQUITY INDEX, GROWTH-INCOME, FEDERATED VALUE,
VENTURE VALUE, "DOGS" OF WALL STREET, ALLIANCE GROWTH, MFS GROWTH AND
INCOME, PUTNAM GROWTH, REAL ESTATE, SMALL COMPANY VALUE, MFS MID-CAP
GROWTH, AGGRESSIVE GROWTH, INTERNATIONAL GROWTH AND INCOME, GLOBAL
EQUITIES, INTERNATIONAL DIVERSIFIED EQUITIES and EMERGING MARKETS
PORTFOLIOS invest primarily in EQUITY SECURITIES. In addition, the
SUNAMERICA BALANCED, MFS TOTAL RETURN, ASSET ALLOCATION and UTILITY
PORTFOLIOS invest significantly in equities. As with any equity fund,
the value of your investment in any of these Portfolios may fluctuate
in response to stock market movements. You should be aware that the
performance of different types of equity stocks may rise or decline
under varying market conditions - for example, "value" stocks may
perform well under circumstances in which "growth" stocks in general
have fallen. In addition, individual stocks selected for any of these
Portfolios may underperform the market generally.
Risks of Investing in Bonds
The CORPORATE BOND, GLOBAL BOND, HIGH-YIELD BOND, and WORLDWIDE HIGH
INCOME PORTFOLIOS invest primarily in BONDS. In addition, the
SUNAMERICA BALANCED, MFS TOTAL RETURN, ASSET ALLOCATION and UTILITY
PORTFOLIOS invest significantly in bonds. As with any bond fund, the
value of your investment in these Portfolios may go up or down in
response to changes in interest rates or defaults (or even the
potential for future default) by bond issuers. To the extent a
Portfolio is invested in the bond market, movements in the bond market
generally may affect its performance.
Risks of Investing in Money Market Securities
While an investment in the CASH MANAGEMENT PORTFOLIO should present the
least market risk of any of the Portfolios since it invests only in
HIGH-QUALITY SHORT-TERM DEBT OBLIGATIONS (MONEY MARKET SECURITIES), you
should be aware that an investment in the CASH MANAGEMENT PORTFOLIO is
subject to the risk that the value of its investments may
8
<PAGE> 10
be subject to changes in interest rates. You should also be aware that
fees at the contract level will affect your return on an investment in
the CASH MANAGEMENT PORTFOLIO. The CASH MANAGEMENT PORTFOLIO does not
seek to maintain a stable net asset value of $1.00.
Risks of Investing Internationally
All of the Portfolios may invest INTERNATIONALLY, including in
"emerging market" countries. While investing internationally may reduce
your risk by increasing the diversification of your investment, the
value of your investment may be affected by fluctuating currency
values, changing local and regional economic, political and social
conditions, and greater market volatility, and, in addition, foreign
securities may not be as liquid as domestic securities. These risks
affect particularly the GLOBAL BOND, WORLDWIDE HIGH INCOME,
INTERNATIONAL GROWTH AND INCOME, GLOBAL EQUITIES, INTERNATIONAL
DIVERSIFIED EQUITIES and EMERGING MARKETS PORTFOLIOS.
Risks of Investing in Smaller Companies
Stocks of SMALLER COMPANIES may be more volatile than, and not as
liquid as, those of larger companies. This will particularly affect the
GROWTH-INCOME, ALLIANCE GROWTH, MFS GROWTH AND INCOME, PUTNAM GROWTH,
AGGRESSIVE GROWTH, INTERNATIONAL GROWTH AND INCOME and EMERGING MARKETS
PORTFOLIOS.
Risks of Investing in Junk Bonds
The HIGH-YIELD BOND and WORLDWIDE HIGH INCOME PORTFOLIOS invest
predominantly in JUNK BONDS, which are considered speculative. The
CORPORATE BOND, MFS TOTAL RETURN, ASSET ALLOCATION, ALLIANCE GROWTH,
REAL ESTATE, MFS MID-CAP, INTERNATIONAL GROWTH AND INCOME and EMERGING
MARKETS PORTFOLIOS may also invest in junk bonds. While SunAmerica and
the Trust's Subadvisers each tries to diversify its portfolio and to
engage in a credit analysis of each junk bond issuer in which it
invests, junk bonds carry a substantial risk of default or changes in
the issuer's creditworthiness, or they may already be in default. A
junk bond's market price may fluctuate more than higher-quality
securities and may decline significantly. In addition, it may be more
difficult for a Portfolio to dispose of junk bonds or to determine
their value. Junk bonds may contain redemption or call provisions that,
if exercised during a period of declining interest rates, may force a
Portfolio to replace the security with a lower yielding security. If
this occurs, it will result in a decreased return for you.
[Margin note: A "JUNK BOND" is a high yield, high risk bond that does not meet
the credit quality standards of investment grade securities.]
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Risks of a "Disciplined Strategy"
Each of the EQUITY INDEX, "DOGS" OF WALL STREET and INTERNATIONAL
DIVERSIFIED EQUITIES PORTFOLIOS will not deviate from its strategy
(except to the extent necessary to comply with federal tax laws). If a
Portfolio is committed to a strategy that is unsuccessful, the
Portfolio will not meet its investment goal. Because the Portfolios
will not use certain techniques available to other mutual funds to
reduce stock market exposure, the Portfolios may be more susceptible to
general market declines than other Portfolios.
Risks of Investing in Utility Securities
The UTILITY PORTFOLIO invests primarily 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. Such UTILITY
SECURITIES entail certain risks including: (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.
To attempt to reduce these risks, 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.
Risks of Investing in Real Estate Securities
The REAL ESTATE PORTFOLIO invests primarily in the REAL ESTATE
industry. A Portfolio that invests primarily in the real estate
industry is subject to the risks associated with the direct ownership
of real estate. The Portfolio could also be subject to the risks 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.
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Risks of Investing in "Non-Diversified" Portfolios
The GLOBAL BOND, WORLDWIDE HIGH INCOME, "DOGS" OF WALL STREET, MFS
MID-CAP GROWTH and INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIOS are
organized as "NON-DIVERSIFIED" Portfolios. A non-diversified Portfolio
can invest a larger portion of assets in the stock of a single company
than can some other mutual funds; by concentrating in a smaller number
of stocks, a Portfolio's risk is increased because the effect of each
stock on the Portfolio's performance is greater.
Additional Principal Risks
Shares of the Portfolios are not bank deposits and are not guaranteed
or insured by any bank, government entity or the Federal Deposit
Insurance Corporation. As with any mutual fund, there is no guarantee
that a Portfolio will be able to achieve its investment goals. If the
value of the assets of a Portfolio goes down, you could lose money.
Q: How have the Portfolios performed historically?
A: The following Risk/Return Bar Charts and Tables illustrate the risks of
investing in the Portfolios by showing changes in the Portfolios'
performance from year to year and compare the Portfolios' average
annual returns to those of an appropriate market index. Of course, past
performance is not necessarily an indication of how a Portfolio will
perform in the future.
Cash Management Portfolio
1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Management Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted.]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on February 9, 1993.
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Corporate Bond Portfolio
1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Bond Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted.]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on July 1, 1993.
12
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Global Bond Portfolio
1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Bond Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted.]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on July 1, 1993.
13
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High-Yield Bond Portfolio
1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High-Yield Bond Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted.]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on February 9, 1993.
14
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Worldwide High Income Portfolio
1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Worldwide High Income Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted.]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on October 28, 1994.
15
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SunAmerica Balanced Portfolio
1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
SunAmerica Balanced Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted.]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on June 3, 1996.
16
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MFS Total Return Portfolio
1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Total Return Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted.]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on October 28, 1994.
17
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Asset Allocation Portfolio
1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on July 1, 1993.
18
<PAGE> 20
Utility Portfolio
1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utility Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on June 3, 1996.
19
<PAGE> 21
Growth-Income Portfolio
1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth-Income Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on February 9, 1993.
20
<PAGE> 22
Federated Value Portfolio
1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federated Value Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on June 3, 1996.
21
<PAGE> 23
Venture Value Portfolio
1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Venture Value Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on October 28, 1994.
22
<PAGE> 24
Alliance Growth Portfolio
1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alliance Growth Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on February 9, 1993.
23
<PAGE> 25
MFS Growth and Income Portfolio
1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Growth and Income Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on February 9, 1993.
24
<PAGE> 26
Putnam Growth Portfolio
1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Putnam Growth Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on February 9, 1993.
25
<PAGE> 27
Real Estate Portfolio
1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on June 2, 1997.
26
<PAGE> 28
Aggressive Growth Portfolio
1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on June 3, 1996.
27
<PAGE> 29
International Growth and Income Portfolio
1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
International Growth and Income
Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on June 2, 1997.
28
<PAGE> 30
Global Equities Portfolio
1994 1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equities Portfolio
- ------------------------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on February 9, 1993.
29
<PAGE> 31
International Diversified Equities Portfolio
1995 1996 1997 1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
International Diversified Equities
Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on October 28, 1994.
30
<PAGE> 32
Emerging Markets Portfolio
1998
During the period shown in the bar chart, the highest return for a quarter was %
(quarter ended xx/xx/xx) and the lowest return for a quarter was % (quarter
ended xx/xx/xx). The Fund's year-to-date return as of , 1998 was %.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS
OF THE CALENDAR YEAR ENDED
DECEMBER 31, 1998) PAST ONE YEAR RETURN SINCE INCEPTION**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Emerging Markets Portfolio
- ------------------------------------------------------------------------------------------------------
[Index to be inserted]*
- ------------------------------------------------------------------------------------------------------
</TABLE>
* [To be filed by amendment]
** Shares of the Portfolio commenced offering on June 2, 1997.
31
<PAGE> 33
FINANCIAL HIGHLIGHTS
The Financial Highlights table for each Portfolio is intended to help you
understand the Portfolios' financial performance for the past 5 years. Certain
information reflects financial results for a single Portfolio share. The total
returns in each table represent the rate that an investor would have earned on
an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with each Portfolio's financial statements, are included in
the Statement of Additional Information (SAI), which is available upon request.
[TO BE FILED BY AMENDMENT]
ACCOUNT INFORMATION
Shares of the Portfolios are not offered directly to the public. Instead, shares
are currently offered only to certain Separate Accounts of Anchor National Life
Insurance Company and First SunAmerica Life Insurance Company. So if you would
like to invest in a Portfolio, you must purchase a variable annuity contract
from either Anchor National Life Insurance Company or First SunAmerica Life
Insurance Company. You should be aware that the contracts involve fees and
expenses that are not described in this Prospectus and that the contracts also
may involve certain restrictions and limitations. Certain Portfolios may not be
available in connection with a particular contract. You will find information
about purchasing a variable annuity contract in the prospectus that offers the
contracts, which accompanies this Prospectus.
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each Portfolio is
determined each business day at the close of regular trading on the New York
Stock Exchange (generally 4:00 p.m., Eastern time) by dividing its net assets by
the number of its shares outstanding. Investments for which market quotations
are readily available are valued at market. All other securities and assets are
valued at "fair value" following procedures approved by the Trustees.
Certain of the Portfolios may invest to a large extent in securities that are
primarily listed on foreign exchanges that trade on weekends or other days when
the Trust does not price its shares. As a result, the value of these Portfolios'
shares may change on days when the Trust is not open for purchases or
redemptions.
BUY AND SELL PRICES The Separate Accounts buy and sell shares of a Portfolio at
NAV, without any sales or other charges.
EXECUTION OF REQUESTS The Trust is open on those days when the New York Stock
Exchange is open for regular trading. Buy and sell requests are executed at the
next NAV to be calculated
32
<PAGE> 34
after the request is accepted by the Trust. If the order is received by the
Trust before the Trust's close of business (generally 4:00 p.m., Eastern time),
the order will receive that day's closing price. If the order is received after
that time, it will receive the next business day's closing price.
During periods of extreme volatility or market crisis, a Portfolio may
temporarily suspend the processing of sell requests, or may postpone payment of
proceeds for up to seven business days or longer, as allowed by federal
securities laws.
DIVIDEND POLICIES AND TAXES
DISTRIBUTIONS Each Portfolio annually declares and distributes substantially all
of its net investment income in the form of dividends and capital gains
distributions.
DISTRIBUTION REINVESTMENT The dividends and distributions will be reinvested
automatically in additional shares of the same Portfolio on which they were
paid.
TAXABILITY OF A PORTFOLIO Each Portfolio intends to continue to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended. As long as each Portfolio is qualified as a regulated investment
company, it will not be subject to federal income tax on the earnings that it
distributes to its shareholders.
MORE INFORMATION ABOUT THE PORTFOLIOS
INVESTMENT STRATEGIES
Each Portfolio has its own investment goal and a strategy for pursuing it. The
chart summarizes information about each Portfolio's investment strategy. We have
included a glossary to define the investment and risk terminology used in the
chart and throughout this Prospectus.
33
<PAGE> 35
FIXED INCOME PORTFOLIOS
<TABLE>
<CAPTION>
CASH MANAGEMENT CORPORATE BOND GLOBAL BOND
------------------- ------------------- --------------------
<S> <C> <C> <C>
What is the Portfolio's high current yield high total return high total return,
investment goal? while preserving with only emphasizing current
capital moderate price risk income and, to a
lesser extent, capital
appreciation
What are the a diversified investment grade high quality fixed
Portfolios' principal selection of money fixed income income securities of
investments (under market instruments securities U.S. and foreign
normal market issuers and
conditions)? transactions in
foreign currencies
What are the - securities - bond market - bond market
Portfolio's principal selection volatility volatility
risks? - interest rate - securities - securities
fluctuations selection selection
- interest rate - interest rate
fluctuations fluctuations
- credit quality - credit quality
- foreign exposure
- euro conversion
What other investment
strategies can the
Portfolio use?
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE HIGH
HIGH-YIELD BOND INCOME
------------------- ---------------------
<S> <C> <C>
What is the Portfolio's high current high current
investment goal? income and income and
(secondarily) (secondarily)
capital appreciation capital appreciation
What are the intermediate and high-yielding fixed
Portfolios' principal long-term corporate income securities
investments (under obligations, (junk bonds) of
normal market emphasizing issuers located
conditions)? higher-yielding, throughout the
higher-risk,
lower-world
rated or unrated
securities (junk
bonds) with a
primary focus
on "B" rated
high-yield bonds
What are the - bond market - bond market
Portfolio's principal volatility volatility
risks? - securities - securities
selection selection
- interest rate - interest rate
fluctuations fluctuations
- credit quality - credit quality
- junk bonds - junk bonds
- foreign exposure
- euro conversion
- emerging
markets
What other investment
strategies can the
Portfolio use?
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
CASH MANAGEMENT CORPORATE BOND GLOBAL BOND
------------------- ------------------- --------------------
<S> <C> <C> <C>
- - Active trading No No Yes
- - Borrowing for Yes (up to 5%) Yes (up to 331/3%) Yes (up to 331/3%)
temporary or
emergency
purposes
- - Fixed income
securities:
U.S. government Yes Yes
securities
Investment grade Yes See principle Yes
corporate bonds investments, above
Junk bonds No Yes (up to 35%) No
Pass-through Yes Yes
securities
- - Convertible Yes
securities
- - Preferred stocks Yes (up to 35%)
- - Structured No No Yes
securities
- - Warrants No Yes (up to 10%) No
- - Rights Yes (up to 10%)
- - Short-term see principal Yes Yes
investments investments, above
- - Defensive Yes
investments
- - Foreign securities [Yes] Yes see principal
investments, above
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE HIGH
HIGH-YIELD BOND INCOME
------------------- ---------------------
<S> <C> <C>
- - Active trading Yes No
- - Borrowing for Yes (up to 331/3%) Yes (up to 331/3%)
temporary or
emergency
purposes
- - Fixed income
securities:
U.S. government Yes
securities
Investment grade
corporate bonds
Junk bonds See principal See principal
investments, above investments, above
Pass-through Yes
securities
- - Convertible Yes
securities
- - Preferred stocks
- - Structured No Yes
securities
- - Warrants Yes No
- - Rights Yes
- - Short-term Yes Yes
investments
- - Defensive Yes
investments
- - Foreign securities Yes (up to 25%) see principal
investments, above
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
CASH MANAGEMENT CORPORATE BOND GLOBAL BOND
------------------- ------------------- --------------------
<S> <C> <C> <C>
Currency Yes
Transactions
- - Illiquid securities Yes (up to 10%) Yes (up to 15%) Yes (up to 15%)
- - Options and futures No Yes (up to 10%) Yes
- - Forward Yes
Commitments
- - Dollar Rolls No Yes Yes
- - Zero-Coupon No Yes (up to 35%) Yes
Bonds
- - Pay-in-Kind Bonds No Yes (up to 35%) No
- - Deferred Interest No Yes Yes
Bonds
- - Firm Commitment Yes Yes Yes
Agreements
- - When-Issued Yes Yes Yes
/Delayed Delivery
Transactions
- - Mortgage Swaps No Yes Yes
- - Securities Lending No Yes (up to 331/3%) Yes (up to 331/3%)
- - Loan Participations No No No
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE HIGH
HIGH-YIELD BOND INCOME
------------------- ---------------------
<S> <C> <C>
Currency Yes
Transactions
- - Illiquid securities Yes (up to 15%) Yes (up to 15%)
- - Options and futures Yes Yes
- - Forward Yes Yes
Commitments
- - Dollar Rolls Yes No
- - Zero-Coupon Yes Yes
Bonds
- - Pay-in-Kind Bonds Yes Yes
- - Deferred Interest Yes Yes
Bonds
- - Firm Commitment Yes Yes
Agreements
- - When-Issued Yes Yes
/Delayed Delivery
Transactions
- - Mortgage Swaps No No
- - Securities Lending Yes (up to 331/3%) Yes (up to 331/3%)
- - Loan Participations No Yes
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
WORLDWIDE HIGH
CASH MANAGEMENT CORPORATE BOND GLOBAL BOND HIGH-YIELD BOND INCOME
------------------- ------------------- -------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
What other potential - credit quality - prepayment - prepayment - euro conversion
risks can affect the - junk bonds - euro conversion - foreign exposure - illiquidity
Portfolio? - prepayment - emerging - euro conversion - derivatives
- foreign markets - emerging - hedging
exposure - illiquidity markets
- euro conversion - derivatives - illiquidity
- emerging - hedging - derivatives
markets - hedging
- illiquidity
- derivatives
- hedging
</TABLE>
37
<PAGE> 39
BALANCED OR ASSET ALLOCATION PORTFOLIOS
<TABLE>
<CAPTION>
SUNAMERICA
BALANCED MFS TOTAL RETURN ASSET ALLOCATION UTILITY
--------------------- ---------------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
What is the conservation of reasonable current income, high total return high current income and
Portfolio's principal long-term capital growth and (including moderate capital
investment goal? conservation of capital income and appreciation
capital gains)
consistent with
preservation of
capital over the
long-term
What are the a balanced portfolio common stocks and fixed- a diversified equity and debt
Portfolio's of stocks and bonds, income securities, with an portfolio that may securities of utility
principal with at least 25% emphasis on income- include common companies
investments invested in fixed producing securities that stocks and other
(under normal income securities appear to have some potential securities with
market for capital enhancement common stock
conditions)? characteristics,
bonds and other
intermediate and
long-term fixed-
income securities
and money
market
instruments
What are the - stock and bond - stock and bond market - stock and bond - stock and bond
Portfolio's market volatility volatility market market volatility
principal risks? - securities - securities selection volatility - securities selection
selection - interest rate fluctuations - securities - interest rate
- interest rate - credit quality selection fluctuations
fluctuations - junk bonds - interest rate - utility industry
fluctuations
- credit quality
- junk bonds
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
SUNAMERICA
BALANCED MFS TOTAL RETURN ASSET ALLOCATION UTILITY
--------------------- ---------------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
What other
investment
strategies can the
Portfolio use?
- - Active trading No No No
- - Borrowing for
temporary or
emergency Yes (up to
purposes Yes (up to 331/3%) Yes (up to 5%) 331/3%) Yes (up to 331/3%)
- - Fixed income
securities:
U.S. Yes Yes [Yes] Yes
government
securities
Investment Yes Yes Yes Yes
grade
corporate
bonds
Junk bonds No Yes (up to 35%) Yes (up to 25% No
of Portfolio's
fixed income
investments)
Senior Yes (at least 25%)
securities
Pass-through Yes Yes Yes
securities
- - Convertible Yes Yes Yes
securities
- - Preferred Yes Yes Yes
stocks
</TABLE>
39
<PAGE> 41
<TABLE>
<CAPTION>
SUNAMERICA
BALANCED MFS TOTAL RETURN ASSET ALLOCATION UTILITY
--------------------- ---------------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
- - Small Yes (up to 20%) Yes Yes Yes
company
stocks
- - Hybrid [No] Yes Yes [No]
instruments
Structured No No Yes No
securities
Indexed Yes
securities
- - Warrants Yes Yes No Yes
- - Rights Yes Yes
- - Short-term Yes Yes Yes Yes
investments
- - Defensive Yes
investments
- - Foreign Yes Yes (up to 20%) Yes Yes
securities
Currency Yes Yes
transactions
- - Illiquid Yes (up to 15%) Yes (up to 15%) Yes (up to 15%) Yes (up to 15%)
securities
- - Options and Yes Yes Yes Yes
futures
- - Forward Yes Yes
Commitments
- - Dollar rolls Yes Yes Yes No
- - Zero-coupon
bonds Yes Yes Yes No
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
SUNAMERICA
BALANCED MFS TOTAL RETURN ASSET ALLOCATION UTILITY
--------------------- ---------------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
- - Pay-in-kind
bonds No Yes No No
- - Deferred
interest bonds Yes Yes Yes No
- - Firm
commitment
agreements Yes Yes Yes Yes
- - When-issued/
delayed-
delivery
transactions Yes Yes Yes Yes
- - Mortgage
swaps No Yes Yes No
- - Securities Yes (up to
lending Yes (up to 33 1/3%) Yes (up to 33 1/3%) 33 1/3%) Yes (up to 33 1/3%)
- - Loan No Yes No No
participations
What other - prepayment - credit quality - credit quality - [prepayment]
potential risks - foreign exposure - junk bonds - junk bonds - foreign exposure
can affect the - euro conversion - prepayment - prepayment - euro conversion
Portfolio? - emerging markets - foreign exposure - foreign - emerging markets
- illiquidity - euro conversion exposure - illiquidity
- derivatives - emerging markets - euro - derivatives
- hedging - illiquidity conversion - hedging
- derivatives - emerging
- hedging markets
- illiquidity
- derivatives
- hedging
</TABLE>
41
<PAGE> 43
EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
GROWTH- FEDERATED
EQUITY INCOME EQUITY INDEX INCOME VALUE
------------------ ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
What is the long-term investment growth of growth of
Portfolio's capital results that capital and capital and
investment goal? appreciation and correspond income income
income with the
performance
of the S&P
500 Index
What are the equity securities common common stocks securities of
Portfolio's expected to pay stocks or securities that the 100
principal above-average included in demonstrate the companies
investments (under dividends the S&P 500 potential for contained in
normal market appreciation "The Leaders
conditions)? and/or dividends List," a list of
100 blue chip
companies
selected by the
Portfolio's
Subadviser
What are the - stock market - stock - stock market - stock market
Portfolio's volatility market volatility volatility
principal risks? - securities volatility - securities - securities
selection - disciplined selection selection
strategy - small market
capitalization
What other
investment
strategies can the
Portfolio use?
- - Active trading No No
</TABLE>
<TABLE>
<CAPTION>
VENTURE VALUE "DOGS" OF WALL STREET ALLIANCE GROWTH
-------------------- -------------------------- --------------------
<S> <C> <C> <C>
What is the growth of capital total return (including long-term growth
Portfolio's capital appreciation and of capital
investment goal? current income)
What are the common stocks 30 high-yielding stocks common stocks
Portfolio's generally issued through a passively or securities with
principal by companies with managed strategy common stock
investments (under market characteristics
normal market capitalizations in that its
conditions)? excess of $250 Subadviser
million believes have the
potential for
appreciation
What are the - stock market - stock market volatility - stock market
Portfolio's volatility - disciplined strategy volatility
principal risks? - securities - non-diversification - securities
selection selection
- small market
capitalization
What other
investment
strategies can the
Portfolio use?
- - Active trading No No No
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
GROWTH- FEDERATED
EQUITY INCOME EQUITY INDEX INCOME VALUE
------------------ ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
- - Borrowing for
temporary or
emergency Yes (up to Yes (up to Yes (up to Yes (up to
purposes 33 1/3%) 33 1/3%) 33 1/3%) 33 1/3%)
- - Fixed income
securities:
U.S. Yes Yes Yes
government
securities
Investment Yes Yes Yes
grade corporate
bonds
Junk bonds Yes No No No
- - Convertible Yes Yes
securities
- - Preferred stocks Yes Yes Yes
- - Small company Yes Yes Yes Yes
stocks
- - Warrants No No No Yes
- - Short-term Yes Yes Yes Yes
investments
- - Defensive Yes Yes Yes Yes
investments
- - Foreign Yes (up to 25%) Yes Yes Yes
securities
Currency
transactions
</TABLE>
<TABLE>
<CAPTION>
VENTURE VALUE "DOGS" OF WALL STREET ALLIANCE GROWTH
-------------------- -------------------------- --------------------
<S> <C> <C> <C>
- - Borrowing for
temporary or
emergency Yes (up to
purposes Yes (up to 33 1/3%) Yes (up to 33 1/3%) 33 1/3%)
- - Fixed income
securities: Yes
U.S. Yes
government
securities
Investment
grade corporate
bonds
Junk bonds No No Yes
- - Convertible Yes
securities
- - Preferred stocks Yes
- - Small company Yes Yes Yes
stocks
- - Warrants No No No
- - Short-term Yes Yes Yes
investments
- - Defensive Yes Yes
investments
- - Foreign Yes Yes Yes (up to 25%)
securities
Currency Yes Yes
transactions
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
GROWTH- FEDERATED
EQUITY INCOME EQUITY INDEX INCOME VALUE
------------------ ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
- - Illiquid Yes (up to 15%) Yes (up to Yes (up to 15%) Yes (up to
securities 15%) 15%)
- - Options and Yes [futures?] Yes (up to Yes Yes
futures 20%)
- - Forward Yes
commitments
- - Other registered Yes
investment
companies
- - Zero-coupon
bonds No No No No
- - Deferred No No
interest bonds No No
- - Firm
commitment
agreements Yes Yes
- - When-issued/
delayed-
delivery
transactions Yes Yes
- - Securities Yes (up to Yes (up to Yes (up to Yes (up to
lending 33 1/3%) 33 1/3%) 33 1/3%) 33 1/3%)
</TABLE>
<TABLE>
<CAPTION>
VENTURE VALUE "DOGS" OF WALL STREET ALLIANCE GROWTH
-------------------- -------------------------- --------------------
<S> <C> <C> <C>
- - Illiquid Yes (up to 15%) Yes (up to 15%) Yes (up to 15%)
securities
- - Options and Yes Yes Yes
futures
- - Forward Yes Yes
commitments
- - Other registered Yes (up to 10%)
investment
companies
- - Zero-coupon
bonds Yes No Yes
- - Deferred
interest bonds Yes No
- - Firm
commitment
agreements Yes Yes Yes
- - When-issued/
delayed-
delivery
transactions Yes Yes Yes
- - Securities Yes (up to
lending Yes (up to 33 1/3%) Yes (up to 33 1/3%) 33 1/3%)
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
GROWTH- FEDERATED
EQUITY INCOME EQUITY INDEX INCOME VALUE
------------------ ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
What other - credit quality - foreign - foreign - foreign
potential risks can - junk bonds exposure exposure exposure
affect the - foreign - euro - euro - euro
Portfolio? exposure conversion conversion conversion
- euro - emerging - emerging - emerging
conversion markets markets markets
- emerging - derivatives - illiquidity - illiquidity
markets - hedging - derivatives - derivatives
- derivatives - hedging - hedging
- hedging
</TABLE>
<TABLE>
<CAPTION>
VENTURE VALUE "DOGS" OF WALL STREET ALLIANCE GROWTH
-------------------- -------------------------- --------------------
<S> <C> <C> <C>
What other - foreign - foreign exposure - foreign
potential risks can exposure - euro conversion exposure
affect the - euro conversion - emerging markets - euro
Portfolio? - emerging - illiquidity conversion
markets - derivatives - emerging
- illiquidity - hedging markets
- derivatives - illiquidity
- hedging - derivatives
- hedging
</TABLE>
45
<PAGE> 47
<TABLE>
<CAPTION>
MFS GROWTH PUTNAM
AND INCOME GROWTH REAL ESTATE
------------------ ----------------- ------------------
<S> <C> <C> <C>
What is the Portfolio's reasonable long-term total return
investment goal? current income growth of through a
and long-term capital combination of
growth of capital growth and
and income income
What are the equity securities common stocks securities of
Portfolios' principal or securities companies
investments (under with common principally
normal market stock engaged in or
conditions)? characteristics related to the
that its real estate
Subadviser industry or that
believes have own significant
above-average real estate assets
growth or that primarily
prospects invest in real
estate financial
instruments
What are the - stock market - stock market - stock market
Portfolio's principal volatility volatility volatility
risks? - securities - securities - securities
selection selection selection
- small market - real estate
capitalization industry
What other investment
strategies can
the Portfolio use?
- - Active trading No No
- - Borrowing for Yes (up to Yes (up to
temporary or 33 1/3%) 33 1/3%)
emergency Yes (up to
purposes 33 1/3%)
</TABLE>
<TABLE>
<CAPTION>
SMALL
COMPANY MFS MID-CAP AGGRESSIVE
VALUE GROWTH GROWTH
---------------- ------------------ -------------------
<S> <C> <C> <C>
What is the Portfolio's capital long-term growth capital
investment goal? appreciation of capital appreciation
What are the equity securities equity securities equity securities
Portfolios' principal of small of companies of small
investments (under capitalization with medium capitalization
normal market companies market growth
conditions)? capitalization that companies
its Subadviser
believes to have
above-average
growth potential
What are the - stock market - stock market - stock market
Portfolio's principal volatility volatility volatility
risks? - securities - securities - securities
selection selection selection
- small market - non- - small market
capitalization diversification capitalization
What other investment
strategies can
the Portfolio use?
- - Active trading Yes
- - Borrowing for Yes (up to Yes (up to Yes (up to
temporary or 33 1/3%) 33 1/3%) 33 1/3%)
emergency
purposes
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
MFS GROWTH PUTNAM
AND INCOME GROWTH REAL ESTATE
------------------ ----------------- ------------------
<S> <C> <C> <C>
- - Fixed income
securities:
U.S. government Yes
securities
Investment grade Yes Yes
corporate bonds
Junk bonds No Yes Yes (up to 5%)
- - Convertible Yes Yes Yes
securities
- - Preferred stocks Yes Yes
- - Small company Yes Yes
stocks
- - Warrants Yes Yes Yes
- - Rights Yes
- - Short-term Yes Yes
investments
- - Defensive Yes Yes Yes
investments
- - Foreign securities Yes (up to 35%) Yes (up to 25%) Yes
Currency Yes
transactions
- - Illiquid securities Yes (up to 15%) Yes (up to 15%) Yes (up to 15%)
- - Options and futures Yes Yes Yes
- - Forward Yes
commitments
</TABLE>
<TABLE>
<CAPTION>
SMALL
COMPANY MFS MID-CAP AGGRESSIVE
VALUE GROWTH GROWTH
---------------- ------------------ -------------------
<S> <C> <C> <C>
- - Fixed income
securities:
U.S. government Yes
securities
Investment grade Yes Yes
corporate bonds
Junk bonds Yes Yes (up to 20%) No
- - Convertible
securities
- - Preferred stocks Yes
- - Small company see principal Yes Yes
stocks investments
above
- - Warrants No No Yes
- - Rights No
- - Short-term Yes Yes
investments
- - Defensive Yes
investments
- - Foreign securities Yes (up to 25%) Yes (up to 35%) Yes
Currency Yes
transactions
- - Illiquid securities Yes (up to 15%) Yes (up to 15%) Yes (up to 15%)
- - Options and futures Yes (futures?) Yes Yes
- - Forward Yes
commitments
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
MFS GROWTH PUTNAM
AND INCOME GROWTH REAL ESTATE
------------------ ----------------- ------------------
<S> <C> <C> <C>
- - REITs Yes
- - Other registered
investment
companies
- - Dollar rolls Yes No No
- - Zero-coupon bonds Yes No No
- - Pay-in-kind bonds
- - Deferred interest
bonds
- - Firm commitment Yes Yes Yes
agreements
- - When-issued/ Yes Yes Yes
delayed-delivery
transactions
- - Securities lending Yes (up to 25%) Yes (up to Yes (up to
33 1/3%) 33 1/3%)
What other potential - foreign - foreign - credit quality
risks can affect the exposure exposure - junk bonds
Portfolio? - euro - euro - prepayment
conversion conversion - foreign
- emerging - emerging exposure
markets markets - euro
- illiquidity - illiquidity conversion
- derivatives - derivatives - emerging
- hedging - hedging markets
- illiquidity
- derivatives
</TABLE>
<TABLE>
<CAPTION>
SMALL
COMPANY MFS MID-CAP AGGRESSIVE
VALUE GROWTH GROWTH
---------------- ------------------ -------------------
<S> <C> <C> <C>
- - REITs
- - Other registered Yes
investment
companies
- - Dollar rolls No Yes No
- - Zero-coupon bonds No Yes No
- - Pay-in-kind bonds
- - Deferred interest
bonds
- - Firm commitment Yes Yes
agreements
- - When-issued/ Yes Yes Yes
delayed-delivery
transactions
- - Securities lending Yes (up to Yes (up to Yes (up to
33 1/3%) 33 1/3%) 33 1/3%)
What other potential - credit quality - credit quality - foreign
risks can affect the - junk bonds - junk bonds exposure
Portfolio? - foreign - foreign - euro
exposure exposure conversion
- euro - euro - emerging
conversion conversion markets
- emerging - emerging - illiquidity
markets markets - derivatives
- derivatives - derivatives - hedging
- hedging - hedging
</TABLE>
48
<PAGE> 50
INTERNATIONAL PORTFOLIOS
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL
GROWTH AND DIVERSIFIED EMERGING
INCOME GLOBAL EQUITIES EQUITIES MARKETS
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
What is the Portfolio's growth of capital long-term growth long-term capital long-term capital
investment goal? and (secondarily) of capital appreciation appreciation
current income
What are the common stocks common stocks or common stocks of common stocks and
Portfolios' principal traded on markets securities of U.S. foreign issuers that, other equity
investments (under outside the U.S. and foreign issuers in the aggregate, securities of
normal market with common stock replicate broad companies that its
conditions)? characteristics that country indices Subadviser believes
demonstrate the have above-average
potential for growth prospectus
appreciation and primarily in
transactions in emerging markets
foreign currencies outside the United
States.
What are the - stock market - stock market - stock market - stock market
Portfolio's principal volatility volatility volatility volatility
risks? - securities - securities - securities - securities
selection selection selection selection
- foreign exposure - foreign exposure - disciplined - foreign exposure
- emerging strategy - emerging
markets - foreign exposure markets
- small market - non-
capitalization diversification
What other investment
strategies can the
Portfolio use?
- - Active trading No No No No
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL
GROWTH AND DIVERSIFIED EMERGING
INCOME GLOBAL EQUITIES EQUITIES MARKETS
---------------------- --------------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
- - Borrowing for Yes (up to 33 1/3%) Yes (up to 33 1/3%) Yes (up to 33 1/3%) Yes (up to 33 1/3%)
temporary or
emergency
purposes
- - Fixed income securities:
U.S. government Yes
securities
Investment grade Yes Yes
corporate bonds
Junk bonds Yes No No Yes
- - Convertible Yes Yes Yes Yes
securities
- - Preferred stocks Yes Yes Yes
- - Small company Yes Yes Yes Yes
stocks
- - Structured Yes No No Yes
securities
- - Warrants Yes No Yes No
- - Rights Yes
- - Short-term Yes Yes Yes Yes
investments
- - Defensive Yes Yes Yes
investments
- - Foreign securities see principal see principal see principal see principal
investments above investments above investments above investments above
Currency Yes
transactions
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL
GROWTH AND DIVERSIFIED EMERGING
INCOME GLOBAL EQUITIES EQUITIES MARKETS
---------------------- --------------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
- - Illiquid securities Yes (up to 15%) Yes (up to 15%) Yes (up to 15%) Yes (up to 15%)
- - Options and futures Yes Yes Yes Yes
- - Forward Yes Yes Yes Yes
commitments
- - Other registered Yes
investment
companies
- - Firm commitment Yes Yes Yes Yes
agreements
- - When-issued Yes Yes Yes Yes
/delayed delivery
transactions
- - Securities lending Yes (up to 33 1/3%) Yes (up to 33 1/3%) Yes (up to 33 1/3%) Yes (up to 33 1/3%)
What other potential - credit quality - euro conversion - euro conversion - credit quality
risks can affect the - junk bonds - emerging - emerging - junk bonds
Portfolio? - prepayment markets markets - euro conversion
- euro conversion - illiquidity - illiquidity - illiquidity
- illiquidity - derivatives - derivatives - derivatives
- derivatives - hedging - hedging - hedging
- hedging
</TABLE>
51
<PAGE> 53
GLOSSARY
INVESTMENT TERMINOLOGY
ACTIVE TRADING means that a Portfolio may engage in frequent trading of
portfolio securities to achieve its investment goal. In addition, because a
Portfolio may sell a security without regard to how long it has held the
security, active trading may have tax consequences for certain shareholders,
involving a possible increase in short-term capital gains or losses. Active
trading may result in high portfolio turnover and correspondingly greater
brokerage commissions and other transaction costs, which will be borne directly
by a Portfolio. During periods of increased market volatility, active trading
may be more pronounced.
The Fund may BORROW for temporary or emergency purposes including to meet
redemptions. Borrowing will cost the Fund interest expense and other fees.
FIXED INCOME SECURITIES provide consistent interest or dividend payments. They
include corporate bonds, notes, debentures, preferred stocks, convertible
securities, U.S. government securities and mortgage-backed and asset-backed
securities. The issuer of a senior fixed income security is obligated to make
payments on this security ahead of other payments to security holders.
INVESTMENT GRADE refers to any security rated "BBB" or above by Standard &
Poor's or "Baa" or above by Moody's. A "JUNK BOND" is a high yield, high risk
bond that does not meet the credit quality standards of investment grade
securities.
U.S. GOVERNMENT SECURITIES are issued or guaranteed by the U.S. government, its
agencies and instrumentalities. Some U.S. government securities are issued or
unconditionally guaranteed by the U.S. Treasury. They are of the highest
possible credit quality. While these securities are subject to variations in
market value due to fluctuations in interest rates, they will be paid in full if
held to maturity. Other U.S. government securities are neither direct
obligations of, nor 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.
PASS-THROUGH SECURITIES involve various debt obligations that are backed by a
pool of mortgages or other assets. Principal and interest payments made on the
underlying asset pools are typically passed through to investors. Types of
pass-through securities include "mortgage-backed securities," "collateralized
mortgage obligations," "commercial mortgage-backed securities," and
"asset-backed securities."
CONVERTIBLE SECURITIES are securities (such as bonds or preferred stocks) that
may be converted into common stock of the same or a different company.
52
<PAGE> 54
PREFERRED STOCK is a class of capital stock that pays dividends at a specified
rate and that has preference over common stock in the payment of dividends and
the liquidation of assets.
SMALL COMPANY STOCKS have a capitalization of under $1 billion.
HYBRID INSTRUMENTS, such as INDEXED and STRUCTURED SECURITIES, can combine the
characteristics of securities, futures, and options. For example, the principal
amount, redemption, or conversion terms of a security could be related to the
market price of some commodity, currency, or securities index. Such securities
may bear interest or pay dividends at below market (or even relatively nominal)
rates. Under certain conditions, the redemption value of such an investment
could be zero.
WARRANTS are rights to buy common stock of a company at a specified price during
the life of the warrant. RIGHTS represent a preemptive right of stockholders to
purchase additional shares of a stock at the time of a new issuance before the
stock is offered to the general public.
SHORT-TERM INVESTMENTS include money market securities such as short-term U.S.
government obligations, repurchase agreements, commercial paper, bankers'
acceptances and certificates of deposit. These securities provide a Portfolio
with sufficient liquidity to meet redemptions and cover expenses.
DEFENSIVE INVESTMENTS include high quality fixed income securities, repurchase
agreements and other money market instruments. A Portfolio will make temporary
defensive investments in response to adverse market, economic, political or
other conditions. When a Portfolio takes a defensive position, it may miss out
on investment opportunities that could have resulted from investing in
accordance with its principal investment strategy. As a result, a Portfolio may
not achieve its investment goal.
FOREIGN SECURITIES are issued by companies located outside of the United States,
including developing countries or emerging markets. Foreign securities may
include American Depositary Receipts (ADRs) or other similar securities that
convert into foreign securities.
CURRENCY TRANSACTIONS include the purchase and sale of currencies to facilitate
securities transactions and forward currency contracts, which are used to hedge
against changes in currency exchange rates.
ILLIQUID SECURITIES are subject to legal or contractual restrictions that may
make them difficult to sell. A security that cannot easily be sold within seven
days will generally be considered illiquid. Certain restricted securities (such
as Rule 144A securities) are not generally considered illiquid because of their
established trading market.
OPTIONS AND FUTURES are contracts involving the right to receive or obligation
to deliver assets or money depending on the performance of one or more
underlying assets or a market or economic index.
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<PAGE> 55
FORWARD COMMITMENTS are commitments to purchase or sell securities at a future
date. A Portfolio purchasing a forward commitment assumes the risk of any
decline in value of the securities beginning on the date of the agreement.
DOLLAR ROLLS are instruments in which a 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.
REITs (real estate investment trusts) are trusts that invest primarily in
commercial real estate or real estate related loans. The value of an interest in
a REIT may be affected by the value and the cash flows of the properties owned
or the quality of the mortgages held by the trust.
A Portfolio may invest in OTHER REGISTERED INVESTMENT COMPANIES, which are
registered in accordance with the federal securities laws.
ZERO-COUPON AND DEFERRED INTEREST BONDS are debt obligations that are issued or
purchased at a significant discount from face value. PAY-IN-KIND BONDS are debt
obligations that 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.
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. At the time of delivery of the securities, the value may be more or
less than the purchase price.
MORTGAGE SWAPS 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.
SECURITIES LENDING involves a loan of securities by a Portfolio in exchange for
cash or collateral. A Portfolio earns interest on the loan while retaining
ownership of the security.
By purchasing a LOAN PARTICIPATION, a Portfolio acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate
borrower. The highly leveraged nature of many such loans may make such loans
especially vulnerable to adverse changes in economic or market conditions. As a
result, a Portfolio may be unable to sell such investments at an opportune time
or may have to resell them at less than fair market value.
RISK TERMINOLOGY
MARKET VOLATILITY: The stock and/or bond markets as a whole could go up or down
(sometimes dramatically). This could affect the value of the securities in a
Portfolio's portfolio.
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<PAGE> 56
SECURITIES SELECTION: A strategy used by a Portfolio, or securities selected by
its portfolio manager, may fail to produce the intended return.
DISCIPLINED STRATEGY: A Portfolio following a disciplined strategy will not
deviate from its passively managed strategy. In the case of "DOGS" OF WALL
STREET PORTFOLIO, this entails buying and holding thirty stocks selected through
objective selection criteria (except to the extent necessary to comply with
applicable federal tax laws). In other cases, it may involve a passively managed
strategy utilized to achieve investment results that correspond to a particular
market index. Such a Portfolio will not sell stocks in its portfolio and buy
different stocks over the course of a year, even if there are adverse
developments concerning a particular stock, company or industry. There can be no
assurance that the strategy will be successful.
INTEREST RATE FLUCTUATIONS: Volatility of the bond market is due principally to
changes in interest rates. As interest rates rise, bond prices typically fall;
and as interest rates fall, bond prices typically rise. Longer-term and lower
coupon bonds tend to be more sensitive to changes in interest rates.
CREDIT QUALITY: The creditworthiness of the issuer is always a factor in
analyzing fixed income securities. An issuer with a lower credit rating will be
more likely than a higher rated issuer to default or otherwise become unable to
honor its financial obligations. This type of issuer will typically issue JUNK
BONDS. In addition to the risk of default, junk bonds may be more volatile, less
liquid, more difficult to value and more susceptible to adverse economic
conditions or investor perceptions than other bonds.
PREPAYMENT: Prepayment risk is the possibility that the principal of the loans
underlying mortgage-backed or other pass-through securities may be prepaid at
any time. As a general rule, prepayments increase during a period of falling
interest rates and decrease during a period of rising interest rates. As a
result of prepayments, in periods of declining interest rates a Portfolio may be
required to reinvest its assets in securities with lower interest rates. In
periods of increasing interest rates, prepayments generally may decline, with
the effect that the securities subject to prepayment risk held by a Portfolio
may exhibit price characteristics of longer-term debt securities.
FOREIGN EXPOSURE: Investors in foreign countries are subject to a number of
risks. A principal risk is that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. In
addition, there may be less publicly available information about a foreign
company and it may not be subject to the same uniform accounting, auditing and
financial reporting standards as U.S. companies. Foreign governments may not
regulate securities markets and companies to the same degree as in the U.S.
Foreign investments will also be affected by local political or economic
developments and governmental actions. Consequently, foreign securities may be
less liquid, more volatile and more difficult to price than U.S. securities.
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<PAGE> 57
NON-DIVERSIFICATION: By concentrating in a smaller number of stocks, a
Portfolio's risk is increased because the effect of each stock on the
Portfolio's performance is greater.
EURO CONVERSION: Effective January 1, 1999, several European countries
irrevocably fixed their existing national currencies to a new single European
currency unit, the "euro." Certain European investments may be subject to
additional risks as a result of this conversion. These risks include adverse tax
and accounting consequences, as well as difficulty in processing transactions.
SunAmerica is aware of such potential problems and is coordinating efforts to
prevent or alleviate their adverse impact on the Portfolios. There can be no
assurance that a Portfolio will not suffer any adverse consequences as a result
of the euro conversion.
EMERGING MARKETS: An emerging market country is one that the World Bank, the
International Finance Corporation, or the United Nations or its authorities has
determined to have a low or middle income economy. While emerging market
countries may change over time depending on market and economic conditions - and
while the list of each Portfolio Manager may vary - at present emerging market
countries are generally considered to include every country in the world except
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,
Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland,
the United Kingdom and the United States. The risks attendant to foreign
exposure are heightened in an emerging market country. Historical experience
indicates that the markets of emerging countries have been more volatile than
more developed markets; however, such markets can provide higher rates of return
to investors.
SMALL MARKET CAPITALIZATION: Companies with smaller market capitalizations
(particularly under $1 billion) tend to be at early stages of development with
limited product lines, market access for products, financial resources, access
to new capital, or depth in management. Consequently, the securities of smaller
companies may not be as readily marketable and may be subject to more abrupt or
erratic market movements.
ILLIQUIDITY: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.
REAL ESTATE INDUSTRY: 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.
In addition, 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, as amended, and to maintain exemption from
registration under the 1940 Act.
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<PAGE> 58
UTILITY INDUSTRY: Risks 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.
DERIVATIVES: A derivative is any financial instrument whose value is based on,
and determined by, another security, index or benchmark (i.e., stock options,
futures, caps, floors, etc.). In recent years, derivative securities have become
increasingly important in the field of finance. Futures and options are now
actively traded on many different exchanges. Forward contracts, swaps, and many
different types of options are regularly traded outside of exchanges by
financial institutions in what are termed "over the counter" markets. Other more
specialized derivative securities often form part of a bond or stock issue. To
the extent a contract is used to hedge another position in the portfolio, there
is a risk that changes in the value of the contract will not match those of the
hedged position. Moreover, while hedging can reduce or eliminate losses, it can
also reduce or eliminate gains. To the extent an option or futures contract is
used to enhance return, rather than as a hedge, a Portfolio will be directly
exposed to the risks of the contract. Gains or losses from non-hedging positions
may be substantially greater than the cost of the position.
HEDGING: Hedging is a strategy in which a Portfolio uses a derivative security
to reduce certain risk characteristics of an underlying security or portfolio of
securities. While hedging strategies can be very useful and inexpensive ways of
reducing risk, they are sometimes ineffective due to unexpected changes in the
market. Hedging also involves the risk that changes in the value of the
derivative will not match those of the instruments being hedged as expected, in
which case any losses on the instruments being hedged may not be reduced.
Examples of hedging strategies are:
- Long Hedge - Strategy in which an investor locks in a future
price on a security/index by buying a futures contract.
- Neutral Hedge - Strategy that is designed to provide the
highest expected return on a portfolio of securities assuming
that the price of a particular investment in the portfolio
remains constant.
- Perfect Hedge - a hedge whose change in value is equal to the
change in value of the underlying security, positive or
negative.
- Short Hedge - Strategy designed to reduce the risk of a
decline in value of a security / index without requiring
ownership of that security.
MANAGEMENT
MANAGER SunAmerica Asset Management Corp. provides investment advice and
management services to the Trust. SunAmerica selects the Subadvisers for
Portfolios and manages certain Portfolios. SunAmerica may terminate any
agreement with another Subadviser without shareholder approval. Moreover,
SunAmerica has received an exemptive order from the Securities and Exchange
Commission that permits SunAmerica, subject to certain conditions, to
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<PAGE> 59
enter into agreements relating to the Trust with Subadvisers approved by the
Board of Trustees without obtaining shareholder approval. The exemptive order
also permits SunAmerica, 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 agreements with Subadvisers or continue the
employment of existing Subadvisers after events that would otherwise cause an
automatic termination of a subadvisory agreement. Shareholders will be notified
of any Subadviser changes. SunAmerica does not presently rely on this exemptive
order. Shareholders of a Portfolio have the right to terminate an agreement with
a Subadviser for that Portfolio at any time by a vote of the majority of the
outstanding voting securities of such Portfolio.
SunAmerica's Fixed Income Investment Team 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.
The Domestic Equity Investment Team is responsible for managing the AGGRESSIVE
GROWTH PORTFOLIO, the equity component of the SUNAMERICA BALANCED PORTFOLIO and
the "DOGS" OF WALL STREET PORTFOLIO.
For the fiscal year ended November 30, 1998, each Portfolio paid SunAmerica a
fee equal to the following percentage of average daily net assets:
<TABLE>
<CAPTION>
PORTFOLIO FEE
--------- ---
<S> <C>
CASH MANAGEMENT PORTFOLIO
CORPORATE BOND PORTFOLIO
GLOBAL BOND PORTFOLIO
HIGH-YIELD BOND PORTFOLIO
WORLDWIDE HIGH INCOME PORTFOLIO
SUNAMERICA BALANCED PORTFOLIO
MFS TOTAL RETURN PORTFOLIO
ASSET ALLOCATION PORTFOLIO
EQUITY INCOME PORTFOLIO
UTILITY PORTFOLIO
EQUITY INCOME PORTFOLIO
EQUITY INDEX PORTFOLIO
GROWTH-INCOME PORTFOLIO
</TABLE>
58
<PAGE> 60
<TABLE>
<S> <C>
FEDERATED VALUE PORTFOLIO
VENTURE VALUE PORTFOLIO
"DOGS" OF WALL STREET PORTFOLIO
ALLIANCE GROWTH PORTFOLIO
MFS GROWTH AND INCOME PORTFOLIO
PUTNAM GROWTH PORTFOLIO
REAL ESTATE PORTFOLIO
SMALL COMPANY VALUE PORTFOLIO
MFS MID-CAP GROWTH PORTFOLIO
AGGRESSIVE GROWTH PORTFOLIO
INTERNATIONAL GROWTH AND INCOME PORTFOLIO
GLOBAL EQUITIES PORTFOLIO
INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO
EMERGING MARKETS PORTFOLIO
</TABLE>
The Trust's fee rates changed with respect to ALLIANCE GROWTH PORTFOLIO, MFS
TOTAL RETURN PORTFOLIO and MFS GROWTH AND INCOME PORTFOLIO, effective December
30, 1998. As of that date, SunAmerica's fee with respect to such Portfolios and
the MFS MID-CAP GROWTH PORTFOLIO as a percentage of average net assets,
including breakpoints, is as follows:
<TABLE>
<CAPTION>
PORTFOLIO FEE
--------- ---
(including breakpoints)
<S> <C>
MFS TOTAL RETURN PORTFOLIO
ALLIANCE GROWTH PORTFOLIO
MFS GROWTH AND INCOME PORTFOLIO
MFS MID-CAP GROWTH PORTFOLIO
</TABLE>
SunAmerica compensated the various Subadvisers out of the advisory fees that it
received from the respective Portfolios.
59
<PAGE> 61
In addition to managing the Trust, SunAmerica, a Delaware corporation organized
in 1982, serves as adviser, manager and/or administrator for Anchor Pathway
Fund, Anchor Series Trust, Style Select Series, Seasons Series Trust, SunAmerica
Income Funds, SunAmerica Money Market Funds, Inc., and SunAmerica Equity Funds.
SunAmerica managed, advised or administered assets of approximately of $15
billion as of October 31, 1998. SunAmerica is located in The SunAmerica Center,
733 Third Avenue, New York, NY 10017.
Information about Subadvisers
SunAmerica has retained unaffiliated Subadvisers to manage certain Portfolios.
The Subadvisers and Portfolio Managers are identified in the following chart,
and the experience of, and other information about, each Subadviser follows the
chart:
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
- --------- ---------- of Portfolio Manager ----------
--------------------------
<S> <C> <C> <C>
CORPORATE Federated Joseph M. Balestrino Mr. Balestrino joined
BOND PORTFOLIO Investment Co-Portfolio Manager and Federated Investors, Inc.
Counseling Vice President ("Federated Investors") an
("Federated") affiliate of Federated, in
1986 as _____. Mr.
Balestrino served as an
Assistant Vice President
of Federated Advisers
from 1991 to 1995. Mr.
Balestrino is a Chartered
Financial Analyst.
Federated Mark E. Durbiano Mr. Durbiano joined
Co-Portfolio Manager Federated Investors in
Senior Vice President 1982 as ____. From 1988
through 1995, Mr.
Durbiano was a Vice
President of Federated
Advisers. Mr. Durbiano is
a Chartered Financial
Analyst.
</TABLE>
60
<PAGE> 62
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
- --------- ---------- of Portfolio Manager ----------
--------------------------
<S> <C> <C> <C>
GLOBAL BOND Goldman Sachs Stephen C. Fitzgerald Mr. Fitzgerald, an
PORTFOLIO Asset Co-Portfolio Manager Executive Director and
Management- Chief Investment Officer
International for international fixed
("GSAM- income in the London
International") office since ____, joined
GSAM-International in
1992 as ____.
GSAM- Andrew F. Wilson Mr. Wilson, an Executive
International Co-Portfolio Manager Director and Portfolio
Manager for international
fixed income in the London
office, joined
GSAM-International in December
1995 as ____. Prior to joining
GSAM-International, Mr. Wilson
spent three years, from ___ to
____, 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.
</TABLE>
61
<PAGE> 63
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WORLDWIDE Morgan Stanley Robert Angevine Mr. Angevine is a
HIGH INCOME Dean Witter Co-Portfolio Manager principal of Morgan
PORTFOLIO Investment Stanley & Co.
Management Incorporated ("Morgan
("MSDW Stanley") and a portfolio
Investment manager of MSDW
Management") Investment Management's
high yield investments. He
joined the firm in 1988 as
____.
- ----------------------------------------------------------------------------------------------------------------------------
MSDW Paul Ghaffari Mr. Ghaffari has been a
Investment Co-Portfolio Manager managing director of
Management Morgan Stanley
since ____ and a portfolio
manager of MSDW Investment
Management's emerging
market debt instruments
since ____. He joined the
firm in 1983 as ____.
- ----------------------------------------------------------------------------------------------------------------------------
MFS TOTAL Massachusetts David M. Calabro Mr. Calabro has been the
RETURN Financial Vice President and head of the portfolio
PORTFOLIO Services Portfolio Manager (MFS) management team since
Company ____ and a manager of the
("MFS") Portfolio's common stock
investments since ____.
Mr. Calabro has been
employed by MFS as a
portfolio manager since
1992 and served as an
analyst and sector
portfolio manager with
Fidelity Investments from
___ to _____.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Geoffry L. Kurinsky Mr. Kurinsky, the
Senior Vice President and manager of the Portfolio's
Portfolio Manager fixed income securities
since ____, has been
employed by MFS as a
portfolio manager since
1987.
- ----------------------------------------------------------------------------------------------------------------------------
MFS Judith N. Lamb Ms. Lamb, the manager of
Vice President and the Portfolio's convertible
Portfolio Manager securities since ____, has
been employed by MFS as a
portfolio manager since
1992 and served as an
analyst with Fidelity
Investments from ___ to
___.
- ----------------------------------------------------------------------------------------------------------------------------
MFS Lisa B. Nurme Ms. Nurme, a manager of
Vice President and the Portfolio's common
Portfolio Manager stock investments since
____, has been employed
by MFS as a portfolio
manager since 1987.
- ----------------------------------------------------------------------------------------------------------------------------
MFS Maura A. Shaughnessy Ms. Shaughnessy, a
Vice President and manager of the Portfolio's
Portfolio Manager common stock
investments since ____, has
been employed by MFS as a
portfolio manager since
1991 and served as an
analyst with Harvard
Management Company from ___
to ____.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
63
<PAGE> 65
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET Goldman Sachs Greg Gigliotti Mr. Gigliotti joined
ALLOCATION Asset Co-Portfolio Manager and GSAM in 1997 as ____.
PORTFOLIO Management Vice President From 1996 to 1997 he
(equity portion) ("GSAM") was a Vice President and
senior analyst at Franklin
Mutual Advisors, Inc., the
asset management division
of Franklin Resources, Inc.
From 1989 to 1996 he was a
Vice President and senior
analyst at Heine Securities
Corporation which was
purchased by Franklin
Resources, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
GSAM Thomas S. Price Mr. Price joined GSAM
Co-Portfolio Manager and in 1997 as ____. From
Vice President 1996 to 1997 he was Vice
President and senior
analyst at Franklin Mutual
Advisors, Inc., the asset
management division of
Franklin Resources, Inc.
From 1993 to 1996 he was a
Vice President and senior
analyst at Heine Securities
Corporation which was
purchased by Franklin
Resources, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE> 66
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GSAM Lawrence S. Sibley Mr. Sibley joined GSAM
Co-Portfolio Manager and in 1997 as _____. From
Vice President 1994 to 1997 he headed
Institutional Equity Sales
at J.P. Morgan Securities
and from 1987 to 1994, he
was a principal of Sanford
C. Bernstein & Co. in its
Institutional Sales
Department.
- ----------------------------------------------------------------------------------------------------------------------------
GSAM Karma Wilson Ms. Wilson joined GSAM
Co-Portfolio Manager and in 1994 as ____. Prior to
Vice President 1994, she was an
investment analyst with
Bankers Trust Australia
Ltd. From ____ to 1992
she was employed at
Arthur Andersen LLP as
_____.
- ----------------------------------------------------------------------------------------------------------------------------
ASSET GSAM Jonathan A. Beinner Mr. Beinner has been
ALLOCATION Co-Portfolio Manager and Head of GSAM's U.S.
PORTFOLIO (fixed Managing Director Fixed Income Department
income portion) since ____. He joined the
Funds Group in 1990 as
____.
- ----------------------------------------------------------------------------------------------------------------------------
GSAM Richard C. Lucy Mr. Lucy has been Vice
Co-Portfolio Manager and President of Goldman,
Vice President Sachs and Co.'s Fixed
Income Department since
____. He joined the
Funds Group as _____ in
1992.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE> 67
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITY Federated Linda A. Duessel Ms. Duessel joined
PORTFOLIO Portfolio Manager and Federated Investors in
Vice President 1991 as _____. She was
an Assistant Vice
President of Federated
Advisers from 1991 until
1995. Ms. Duessel is a
Certified Public
Accountant and a
Chartered Financial
Analyst.
- ----------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME First American Gerald C. Bren Mr. Bren joined First
PORTFOLIO Asset Co-Portfolio Manager American in 1972 as an
Management investment analyst. He
("First received his master's
American") degree in business
administration from the
University of Chicago.
He is a Chartered
Financial Analyst.
- ----------------------------------------------------------------------------------------------------------------------------
First American James Doak Mr. Doak joined First
Portfolio Manager American in 1982 as ____
after serving for two
years, from ___ to ____ as
Vice President of INA
Capital Advisors and ten
years, from ___ to ____, as
Vice President of
Loomis-Sayles & Co. Mr.
Doak received his
bachelor's degree from
Brown University and his
master's degree in business
administration from Wharton
School of Business. He is a
Chartered Financial
Analyst.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE> 68
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First American Albin S. Dubiak Mr. Dubiak began his
Portfolio Manager investment career as a
security trader with The
First National Bank of
Chicago in 1963 before
joining First American as
an investment analyst in
1969. Mr. Dubiak received
his bachelor's degree from
Indiana University and his
master's degree in business
administration from the
University of Arizona.
- ----------------------------------------------------------------------------------------------------------------------------
First American Cori B. Johnson Ms. Johnson joined First
Portfolio Manager American in 1991 as a
securities analyst. She
received her bachelor's
degree from Concordia
College and her master's
degree in business
administration from the
University of Minnesota.
She is a Chartered
Financial Analyst.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE> 69
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First American John M. Murphy Mr. Murphy has been
Chief Investment Officer Chief Investment Officer
(First American) of First American since
___. He joined the
Subadviser in 1984 as
____. He has more than
30 years in the investment
management field as a
______ and served with
Investment Advisers, Inc.
as ___ from ___ to ___
and Blyth, Eastman,
Dillon & Co. as ___ from
___ to ____. Mr. Murphy
received his bachelor's
degree from Regis
College.
- ----------------------------------------------------------------------------------------------------------------------------
First American Roland P. Whitcomb Mr. Whitcomb joined
Portfolio Manager (First First American in 1986 as
American) ____ after serving as an
account executive with
Smith Barney & Co. since
1979. He received his
bachelor's degree from the
University of Chicago.
He is a Chartered
Financial Analyst.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
68
<PAGE> 70
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First American Glenn E. Johnson Mr. Johnson joined First
American in 1989 as ____
and has 13 years of
investment industry
experience. Prior to
joining First American, he
was an analyst with Piper
Jaffray Inc. from ____ to
_____ Mr. Johnson
received his bachelor's
degree and his master's
degree in business
administration from the
University of Minnesota.
He is a Chartered
Financial Analyst.
- ----------------------------------------------------------------------------------------------------------------------------
EQUITY INDEX First American James S. Rovner Mr. Rovner joined First
PORTFOLIO Portfolio Manager American in 1986 as ____
and has managed assets for
institutional and
individual clients for over
15 years, specializing in
equity and balanced
investment strategies.
- ----------------------------------------------------------------------------------------------------------------------------
First American Evan C. Lundquist Mr. Lundquist joined First
Portfolio Manager American in 1993 as ____
and has four years of
investment industry
experience. He has
analytic responsibilities
for paper/forest products,
metals and mining, steel,
engineering and
construction, and building
and appliances industries.
Mr. Lundquist received
his bachelor's degree from
St. Mary's College.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE> 71
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROWTH- Alliance Capital Michael R. Baldwin Co- Mr. Baldwin joined the
INCOME Management Portfolio Manager and company in 1989 as
PORTFOLIO L.P. Vice President (Alliance) ______.
("Alliance")
- ----------------------------------------------------------------------------------------------------------------------------
Alliance Bruce W. Calvert Co- Mr. Calvert joined
Portfolio Manager, Vice Alliance in 1973 as ____.
Chairman and Chief
Investment Officer
- ----------------------------------------------------------------------------------------------------------------------------
Alliance Stephen W. Pelensky Co- Mr. Pelensky joined the
Portfolio Manager and company in 1994 as ____.
Vice President Prior to joining Alliance,
Mr. Pelensky was a
portfolio manager and
analyst with Affinity
Investment Advisors from
___ to ____ and BEA
Associates from ___ to
____.
- ----------------------------------------------------------------------------------------------------------------------------
FEDERATED Federated Scott B. Schermerhorn Mr. Schermerhorn joined
VALUE Co-Portfolio Manager Federated Investors in
PORTFOLIO 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.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
70
<PAGE> 72
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federated Michael P. Donnelly Mr. Donnelly joined
Co-Portfolio Manager and Federated Investors in
Vice President 1989 as an Investment
Analyst. He served as an
Assistant Vice President
of an affiliate of Federated
Investors from 1992 to
1994. Mr. Donnelly is a
Chartered Financial
Analyst.
- ----------------------------------------------------------------------------------------------------------------------------
VENTURE VALUE Davis Selected Christopher C. Davis Mr. Davis has been
PORTFOLIO Advisers, L.P. Portfolio Manager employed by Davis
("Davis Selected since September,
Selected") 1989 as a research
analyst, assistant portfolio
manager, co-portfolio
manager, and portfolio
manager, working side by
side with Shelby M.C.
Davis.
- ----------------------------------------------------------------------------------------------------------------------------
Davis Selected Shelby M.C. Davis [TO BE FILED BY
Chief Investment Officer AMENDMENT]
(Davis)
- ----------------------------------------------------------------------------------------------------------------------------
ALLIANCE Alliance James G. Reilly Senior Mr. Reilly joined the
GROWTH Vice President and company in 1984 as ____.
PORTFOLIO Portfolio Manager
(Alliance)
- ----------------------------------------------------------------------------------------------------------------------------
MFS GROWTH MFS Kevin R. Parke Mr. Parke joined the
AND INCOME Executive Vice President company in 1985 as ____.
PORTFOLIO and Portfolio Manager
(MFS)
- ----------------------------------------------------------------------------------------------------------------------------
MFS John D. Laupheimer, Jr. Mr. Laupheimer joined
Senior Vice President and the company in 1981 as
Portfolio Manager ____.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE> 73
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Mitchell D. Dynan Mr. Dynan joined the
Vice President and company in 1986 as ____.
Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
PUTNAM Putnam C. Beth Cotner Ms. Cotner joined the
GROWTH Investment Senior Vice President and company in 1995 as ____.
PORTFOLIO Management, Co-Portfolio Manager Prior to that time, she was
Inc. ("Putnam") an Executive Vice
President of Kemper
Financial Services from
____ to ____.
- ----------------------------------------------------------------------------------------------------------------------------
Putnam Richard England Mr. England joined the
Senior Vice President and company in 1992 as ____.
Co-Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
Putnam Manuel H. Weiss Mr. Weiss joined the
Senior Vice President and company in 1987 as ____.
Co-Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
Putnam David Santos Mr. Santos joined the
Vice President and Co- company in 1986 as ____.
Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE Davis Selected Andrew A. Davis Mr. Davis has been a Vice
PORTFOLIO [Primary] Portfolio President of Davis Series,
Manager Inc. since ____ and a Co-
President of Davis
Selected's General Partner
since ____. He was the
Vice President and head
of convertible research at
PaineWebber
Incorporated from ____ to
February 1993.
- ----------------------------------------------------------------------------------------------------------------------------
Davis Selected Shelby M.C. Davis See above.
Former Co-Portfolio
Manager, Chief Investment
Officer
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
72
<PAGE> 74
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SMALL First American Albin S. Dubiak See above.
COMPANY Portfolio Manager
VALUE
PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
First American John D. Grangaard [TO BE FILED BY
Portfolio Manager (First AMENDMENT]
American)
- ----------------------------------------------------------------------------------------------------------------------------
First American Michael K. Sabbann [TO BE FILED BY
Portfolio Manager AMENDMENT]
- ----------------------------------------------------------------------------------------------------------------------------
First American Douglas K. Rose [TO BE FILED BY
Portfolio Manager (First AMENDMENT]
American)
- ----------------------------------------------------------------------------------------------------------------------------
First American Ronald L. Buss [TO BE FILED BY
Portfolio Manager (First AMENDMENT]
American)
- ----------------------------------------------------------------------------------------------------------------------------
First American Anthony W. Hipple [TO BE FILED BY
Portfolio Manager AMENDMENT]
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE> 75
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First American Frank G. Magdalen Mr. Magdalen joined First
Portfolio Manager (First American in 1979 as
American) ____. He has 24 years of
investment industry
experience. Prior to
joining First American, he
was with the First
Interstate and Farmers
Group as ____ from ____ to
____. Mr. Magdalen received
his bachelor's degree from
the University of Portland
and his master's degree in
business administration
from the University of
Southern California. He is
a Chartered Financial
Analyst and was President
of the Portland Society of
Financial Analysts from
_____ to _____.
- ----------------------------------------------------------------------------------------------------------------------------
MFS MID-CAP MFS Mark Regan Mr. Regan has been
GROWTH Vice President and employed as a portfolio
PORTFOLIO Portfolio Manager manager by MFS since
1989.
- ----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL Putnam Deborah F. Kuenstner Ms. Kuenster joined
GROWTH AND Senior Vice President and Putnam as ____ in March
INCOME Co-Portfolio Manager 1997. Ms. Kuenstner was
PORTFOLIO Senior Portfolio Manager
at Dupont Pension Fund
Management from ____
to ____.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE> 76
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Putnam George W. Stairs Mr. Stairs joined Putnam
Senior Vice President and as ____ in July 1994.
Co-Portfolio Manager Mr. Stairs was an
Associate at Value Quest
Ltd. from ___ to ____.
- ----------------------------------------------------------------------------------------------------------------------------
GLOBAL Alliance Stephen W. Pelensky See above.
EQUITIES Co-Portfolio Manager
PORTFOLIO
(domestic
equity
component)
- ----------------------------------------------------------------------------------------------------------------------------
GLOBAL Alliance Stephen Beinhacker Mr. Beinhacker joined the
EQUITIES Co-Portfolio Manager, company in 1992 as ____.
PORTFOLIO Director and Vice
(foreign equity President
component)
- ----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL MSDW Barton Biggs Mr. Biggs has been a
DIVERSIFIED Investment Chairman, Chief Director of Morgan
EQUITIES Management Investment Officer and Co- Stanley Dean Witter &
PORTFOLIO Portfolio Manager Co. since ____. He
joined Morgan Stanley in
1973 as a General Partner
and Managing Director and
he has been a member of
Morgan Stanley Dean Witter
& Co.'s Board of Directors
since ___ and of the
Management Committee since ___.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE> 77
<TABLE>
<CAPTION>
Portfolio Subadviser Name, Title and Affiliation Experience
of Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MSDW Francine Bovich Ms. Bovich joined
Investment Managing Director and MSDW Investment
Management Co-Portfolio Manager Management as a
Principal in 1993. Prior to
joining MSDW
Investment Management,
Ms. Bovich was a
Principal and Executive
Vice President of
Westwood Management
Corp. from ____ to ____.
- ----------------------------------------------------------------------------------------------------------------------------
MSDW Ann Thivierge Ms. Thivierge joined the
Investment Principal and Co-Portfolio company in 1986 as an
Management Manager Analyst. From 1992
through 1996 she served
as a Vice President of
MSDW Investment
Management.
- ----------------------------------------------------------------------------------------------------------------------------
EMERGING Putnam Thomas R. Haslett Mr. Haslett joined Putnam
MARKETS Managing Director and as ____ in 1996. He was
PORTFOLIO Co-Portfolio Manager a Managing Director of
Montgomery Asset
Management, Ltd. from
____ to ____.
- ----------------------------------------------------------------------------------------------------------------------------
Putnam J. Peter Grant Mr. Grant joined Putnam
Senior Vice President and in 1973 as _____.
Co-Portfolio Manager
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Description of the Subadvisers
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 totaling over $_____ billion as of December 31, 1998. Its
clients primarily are major corporate employee benefit funds, investment
companies, foundations, endowment funds and public employee retirement systems.
As of December 31, 1998, Alliance was retained as an investment manager of
employee benefit fund assets for ___ of the Fortune 100 companies.
76
<PAGE> 78
DAVIS SELECTED ADVISERS, L.P. Davis Selected is located at 124 East Marcy
Street, Santa Fe, New Mexico 87501. Davis Selected provides advisory services to
other investment companies. As of December 31, 1998, Davis Selected had over
$____ 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 SunAmerica) for the assets of
the Portfolios allocated to it.
FEDERATED INVESTMENT COUNSELING. Federated is located at Federated Investors
Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779. Federated and
its affiliate companies serves as investment adviser to a number of investment
companies and private accounts. As of December 31, 1998, Federated had over
$____ of assets under management.
FIRST AMERICAN ASSET MANAGEMENT. First American is located at 601 Second Avenue
South, Minneapolis, Minnesota 55402. First American has acted as an investment
adviser to First American Investment Funds, Inc. since its inception in 1987 and
has acted as investment adviser to First American Funds, Inc. since 1982 and to
First American Strategy Funds, Inc. since 1996. As of December 31, 1998, First
American was managing accounts with an aggregate value of approximately _____
billion, including mutual fund assets of approximately _____ billion.
GOLDMAN SACHS ASSET MANAGEMENT. GSAM is located at 85 Broad Street, 12th Floor,
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 December 31, 1998, GSAM,
together with its affiliates, acted as investment adviser, administrator or
distributor for approximately $____ billion in assets.
GOLDMAN SACHS ASSET MANAGEMENT-INTERNATIONAL. GSAM-International is located at
Peterborough Court, 133 Fleet Street, London, EC4A 2BB, England. GSAM-
International is 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-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 Organization 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
77
<PAGE> 79
able to draw upon the research and expertise of their affiliate offices, for
portfolio decisions and management with respect to certain portfolio securities.
MASSACHUSETTS FINANCIAL SERVICES COMPANY. MFS is America's oldest mutual fund
organization and, with its predecessor organizations, has a history of money
management dating from 1924 and the founding of the first mutual fund in the
United States. MFS is located at 500 Boylston Street, Boston, Massachusetts,
02116. Net assets under the management of the MFS organization were
approximately [____] billion on behalf of approximately [___] million investment
accounts as of December 31, 1998.
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT. MSDW Investment Management
offers investment management and fiduciary services to taxable and tax-exempt
funds and institutions, international organizations and individuals investing in
U.S. and international equity and fixed income securities. As of December 31,
1998, MSDW Investment Management, together with its institutional investment
management affiliates, had approximately $____ billion of combined assets under
management as investment managers or fiduciary advisers. MSDW Investment
Management is located at 1221 Avenue of the Americas, New York, New York 10020.
PUTNAM INVESTMENT MANAGEMENT, INC. Putnam, a Massachusetts corporation with
principal offices at One Post Office Square, Boston, Massachusetts. Putnam has
been managing mutual funds since 1937 and serves as investment adviser to the
funds in the Putnam Family. Putnam and its affiliates managed approximately $___
billion as of December 31, 1998.
YEAR 2000 Many computer and computer-based systems cannot distinguish the year
2000 from the year 1900 because of the way they encode and calculate dates
(commonly known as the "Year 2000 Issue"). The Year 2000 Issue could potentially
have an adverse impact on the handling of security trades, the payment of
interest and dividends, pricing and account services. We recognize the
importance of the Year 2000 Issue and are taking appropriate steps necessary in
preparation for the year 2000. The Trust's management fully anticipates that
their systems will be adapted in time for the year 2000, and to further this
goal they have coordinated a plan to repair, adapt or replace their systems as
necessary. They have also obtained representations from their outside service
providers that they are doing the same. The Trust's management completed their
plan significantly by the end of the 1998 calendar year and expects to perform
appropriate systems testing during the 1999 calendar year. If the problem has
not been fully addressed, however, the Trust could be negatively impacted. The
Year 2000 Issue could also have a negative impact on the companies in which the
Trust invests, which could hurt the Trust's investment returns.
78
<PAGE> 80
(OUTSIDE BACK COVER)
FOR MORE INFORMATION
The following documents contain more information about the Portfolios
and are available free of charge upon request:
ANNUAL/SEMI-ANNUAL REPORTS. Contain financial
statements, performance data and information on
portfolio holdings. The annual report also contains a
written analysis of market conditions and investment
strategies that significantly affected a Portfolio's
performance for the most recently completed fiscal
year.
STATEMENT OF ADDITIONAL INFORMATION (SAI). Contains
additional information about the Portfolios'
policies, investment restrictions and business
structure. This prospectus incorporates the SAI by
reference.
You may obtain copies of these documents or ask questions about the
Portfolios by contacting:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
1-800-445-7862
-or-
First Sun America Life Insurance Company
Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
1-800-99-NYSUN (New York Shareholders)
1-800-445-SUN2 (all others)
Information about the Portfolios (including the SAI) can be reviewed and copied
at the Public Reference Room of the Securities and Exchange Commission,
Washington, D.C. Call (800) SEC-0330 for information on the operation of the
Public Reference Room. Information about the Portfolios is also available on the
Securities and Exchange Commission's web-site at http://www.sec.gov and copies
may be obtained upon payment of a duplicating fee by writing the Public
Reference Section of the Securities and Exchange Commission, Washington, D.C.
20549-6009.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with any different information.
[Logo]
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, California 90067-6022
First Sun America Life Insurance Company
733 Third Avenue
New York, New York 10017
INVESTMENT COMPANY ACT
File No. 811-7238
79
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Statement of Additional Information
SUNAMERICA SERIES TRUST
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the current Prospectus of SunAmerica Series Trust ("Trust")
dated ______________. This Statement of Additional Information incorporates the
Prospectus by reference. Capitalized terms used herein but not defined have the
meanings assigned to them in the Prospectus. The Prospectus may be obtained
without charge by writing to the Trust at the address below or by calling
_______________________.
P.O. Box 54299
Los Angeles, California 90054-0299
[DATE]
<PAGE> 82
TABLE OF CONTENTS
TOPIC PAGE
THE TRUST..............................................................B-3
INVESTMENT OBJECTIVES AND POLICIES.....................................B-3
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS.......................B-44
INVESTMENT RESTRICTIONS................................................B-47
TRUST OFFICERS AND TRUSTEES............................................B-52
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT...........................B-55
SUBADVISORY AGREEMENTS.................................................B-59
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES.............................B-63
PRICE OF SHARES........................................................B-66
EXECUTION OF PORTFOLIO TRANSACTIONS....................................B-67
GENERAL INFORMATION....................................................B-73
FINANCIAL STATEMENTS...................................................B-74
B-2
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THE TRUST
The Trust, organized as a Massachusetts business trust on September 11,
1992, is an open-end management investment company. 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 in
the future. The Trust commenced operations with __ Portfolios on ___, 19__. On
_______, 19__ the Trustees approved the creation of the ______ Portfolio.
[To be updated]
Shares of the Trust are held by separate accounts of Anchor National
Life Insurance Company, an Arizona corporation, and First SunAmerica Life
Insurance Company, a New York corporation. Anchor National Life Insurance
Company and First SunAmerica Life Insurance Company are wholly-owned
subsidiaries of SunAmerica Life Insurance Company, an Arizona corporation wholly
owned by SunAmerica Inc., a Maryland corporation.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each of the Portfolios are
described in the Prospectus. Certain types of securities in which the Portfolios
may invest and certain investment practices that the Portfolios may employ are
described under "More Information About the Portfolios - Investment Strategies"
in the Prospectus and are discussed more fully below. Unless otherwise
specified, each Portfolio may invest in the following securities. The stated
percentage limitations are applied to an investment at the time of purchase
unless indicated otherwise.
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
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.
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Corporate debt 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 Standard & Poor's Rating Services, a Division of
The McGraw-Hill Companies, Inc. ("Standard & Poor's") (AAA, AA, A or
BBB) or by Moody's Investors Service, Inc. ("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
Standard & Poor's, or Ba or below by Moody's. These securities are
considered speculative.
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 Standard &
Poor's (for example, commercial paper rated P-1 and A-1 by Moody's and Standard
& Poor's, 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 Standard & Poor's, provided the issuer has
commercial paper rated in the highest rating category by Moody's and Standard &
Poor's.
The Corporate Bond 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.
All securities purchased by the Global Bond Portfolio will be rated, at
the time of investment, at least BBB by Standard & Poor's or Baa by Moody's.
However, the Portfolio generally intends to invest at least 50% of its total
assets in securities having the highest applicable credit quality rating.
Unrated securities will be determined by the Subadvisers to be of comparable
quality. The debt securities in which the Portfolio will invest may have fixed,
variable or floating interest rates.
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The High-Yield Bond Portfolio may invest without limitation in bonds
rated as low as Ca by Moody's or C by Standard & Poor's (or unrated but
considered by the Subadviser 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
Standard & Poor's.
From time to time, a portion of the Worldwide High Income 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 Standard &
Poor's ("junk bonds").
The SunAmerica Balanced Portfolio may invest up to 10% of the value of
its total assets (measured at the time of investment) in securities rated as low
as BBB by Standard & Poor's or Baa by Moody's.
The MFS Total Return Portfolio may invest in fixed income securities
rated Baa by Moody's or BBB by Standard & Poor's or Fitch Investors Services,
Inc. ("Fitch") and comparable unrated securities. The Portfolio may also invest
up to 35% in securities rated Baa or lower by Moody's or BB or lower by Standard
& Poor's or Fitch and comparable unrated securities ("junk bonds").
The Asset Allocation Portfolio's fixed income investments will consist
primarily of "investment grade" bonds; that is, bonds that are rated BBB or
better by Standard & Poor's 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
Standard & Poor's or Ca by Moody's. Securities rated BBB or below by Standard &
Poor's or Baa or below by Moody's are considered to have speculative
characteristics.
Fixed income securities purchased by the Utility Portfolio will be
rated at least BBB by Standard & Poor's or Baa by Moody's.
The Equity Income Portfolio may invest up to 25% of its assets in
[convertible debt obligations] rated as low as CCC by Standard & Poor's or
Caa by Moody's or that have been assigned an equivalent rating by another
nationally recognized statistical rating organization.
The Equity Index Portfolio may invest up to 5% of its net assets in
less than investment grade debt obligations.
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The Growth-Income Portfolio may not invest in junk bonds.
The fixed income securities in which the Federated Value Portfolio may
invest must be rated, at the time of purchase, BBB or better by Standard &
Poor's, 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 Venture Value Portfolio may not invest in junk bonds.
The "Dogs" of Wall Street Portfolio may not invest in junk bonds.
The Alliance Growth Portfolio, MFS Growth and Income Portfolio and
Putnam Growth Portfolio may invest in convertible securities rated below BBB by
Standard & Poor's or Baa by Moody's or be determined by the Subadviser to be of
comparable quality (i.e., junk bonds).
The Real Estate Portfolio will generally not purchase securities rated
BB by Standard & Poor's or Ba by Moody's or lower if such purchase would then
cause more than 30% of the Portfolio's net assets to be invested in such
securities. The Real Estate Portfolio does not presently intend to have more
than 5% of its assets invested in fixed income securities rated below BBB by
Standard & Poor's or Baa by Moody's in the near future.
The Small Company Value Portfolio may invest up to 5% of its net assets
in less than investment grade debt obligations.
The MFS Mid-Cap Growth Portfolio may invest up to 20% of its net assets
in non-convertible fixed income securities rated Baa or lower by Moody's or BB
or lower by Standard & Poor's or Fitch and comparable unrated securities.
The Aggressive Growth Portfolio may not invest in junk bonds.
The International Growth and Income Portfolio may invest up to 20% of
its assets in bonds rated as low as C by Moody's or Standard & Poor's.
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The Global Equities Portfolio may not invest in junk bonds.
The International Diversified Equities Portfolio may not invest in junk
bonds.
The Emerging Markets Portfolio may invest in both higher-rated and
lower-rated fixed income securities and is not subject to any restrictions based
on credit rating.
High-Yield Bonds in which the Corporate Bond, High-Yield Bond,
Worldwide High Income, MFS Total Return, Asset Allocation, Equity Income, Real
Estate, Small Company Value, MFS Mid-Cap Growth and Emerging Markets Portfolios
may invest present certain risks, which are discussed below:
Sensitivity to Interest Rate and Economic Changes - High-yield 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 defaults on its obligations to pay interest or principal or enters
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 of high-yield bonds and the Portfolio's net
asset value.
Payment Expectations - High-yield 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
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or dispose of such bonds. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values
and liquidity of high-yield bonds, especially in a thin market.
SunAmerica Asset Management Corp. ("SAAMCo" or 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.
Subject to the limitations described above and below, the following
discussion is a description of the types of money market and fixed income
securities in which the Cash Management Portfolio may invest. The other
Portfolios may invest in these securities as well.
Commercial Bank Obligations. Certificates of deposit (interest-bearing
time deposits), bankers' acceptances (time drafts drawn on a commercial
bank where the bank accepts an irrevocable obligation to pay at
maturity) and documented discount notes (corporate promissory discount
notes accompanied by a commercial bank guarantee to pay at maturity)
representing direct or contingent obligations of commercial banks with
total assets in excess of $1 billion, based on the latest published
reports. The Cash Management Portfolio may also invest in obligations
issued by commercial banks with total assets of less than $1 billion if
the principal amount of these obligations owned by the Cash Management
Portfolio is fully insured by the Federal Deposit Insurance Corporation
("FDIC").
Savings Association Obligations. Certificates of deposit
(interest-bearing time deposits) issued by mutual savings banks or
savings and loan associations with assets in excess of $1 billion and
whose deposits are insured by the FDIC. The Cash Management Portfolio
may also invest in obligations issued by mutual savings banks or
savings and loan associations with total assets of less than $1 billion
if the principal amount of these obligations owned by the Cash
Management Portfolio is fully insured by the FDIC.
Commercial Paper. Short-term notes (up to 9 months) issued by
corporations or governmental bodies. The Cash Management Portfolio may
purchase commercial paper only if judged by the Adviser to be of
suitable investment quality. This includes commercial paper that is (a)
rated in the two highest categories by Standard
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& Poor's, and by Moody's, or (b) other commercial paper deemed on the
basis of the issuer's creditworthiness to be of a quality appropriate
for the Cash Management Portfolio. (No more than 5% of the Cash
Management Portfolio's assets may be invested in commercial paper in
the second highest rating category; no more than the greater of 1% of
the Cash Management Portfolio's assets or $1 million may be invested in
such securities of any one issuer.) See "Description of Commercial
Paper and Bond Ratings" for a description of the ratings. The Cash
Management Portfolio will not purchase commercial paper described in
(b) above if such paper would in the aggregate exceed 15% of its total
assets after such purchase. The commercial paper in which the Cash
Management Portfolio may invest includes variable amount master demand
notes. Variable amount master demand notes permit the Cash Management
Portfolio to invest varying amounts at fluctuating rates of interest
pursuant to the agreement in the master note. These are direct lending
obligations between the lender and borrower, they are generally not
traded, and there is no secondary market. Such instruments are payable
with accrued interest in whole or in part on demand. The amounts of the
instruments are subject to daily fluctuations as the participants
increase or decrease the extent of their participation. Investments in
these instruments are limited to those that have a demand feature
enabling the Cash Management Portfolio unconditionally to receive the
amount invested from the issuer upon seven or fewer days' notice.
Generally, the Cash Management Portfolio attempts to invest in
instruments having a one-day notice provision. In connection with
master demand note arrangements, the Adviser, subject to the direction
of the Trustees, monitors on an ongoing basis the earning power, cash
flow and other liquidity ratios of the borrower, and its ability to pay
principal and interest on demand. The Adviser also considers the extent
to which the variable amount master demand notes are backed by bank
letters of credit. These notes generally are not rated by Moody's or
Standard & Poor's and the Cash Management Portfolio may invest in them
only if it is determined that at the time of investment the notes are
of comparable quality to the other commercial paper in which the
Portfolio may invest. Master demand notes are considered to have a
maturity equal to the repayment notice period unless the Adviser has
reason to believe that the borrower could not make timely repayment
upon demand.
Bankers' Acceptances. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the full amount of the instrument upon maturity.
Variable Amount Master Demand Notes. Variable amount master demand
notes are unsecured demand notes that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest
rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Portfolio and the
issuer, they are not normally traded. Although there is no secondary
market
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in the notes, a Portfolio may demand payment of principal and accrued
interest at any time. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes
(normally manufacturing, retail, financial, and other business
concerns) must satisfy the same criteria as set forth above for
commercial paper. The Adviser or Subadviser will consider the earning
power, cash flow, and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial status and ability
to meet payment on demand.
Corporate Bonds and Notes. The Cash Management Portfolio may purchase
corporate obligations that mature or that may be redeemed in 397 days
or less. These obligations originally may have been issued with
maturities in excess of 397 days. The Cash Management Portfolio may
invest only in corporate bonds or notes of issuers having outstanding
short-term securities rated in the top two rating categories by
Standard & Poor's and Moody's. See "Description of Commercial Paper
and Bond Ratings" for description of investment-grade ratings by
Standard & Poor's and Moody's.
U.S. corporate high-yield fixed income securities. As described above,
a portion of the assets of the Corporate Bond, High-Yield Bond,
Worldwide High Income, MFS Total Return, Asset Allocation, Equity
Income, Real Estate, Small Company Value, MFS Mid-Cap Growth and
Emerging Markets Portfolios will be invested in U.S. corporate
high-yield fixed income securities, which offer a yield above that
generally available on U.S. corporate debt securities in the four
highest rating categories of the recognized rating services. The
Portfolios may acquire fixed income securities of U.S. issuers,
including debt obligations (e.g., bonds, debentures, notes, equipment
lease certificates, equipment trust certificates, conditional sales
contracts, commercial paper and obligations issued or guaranteed by the
U.S. government or any of its political subdivisions, agencies or
instrumentalities) and preferred stock. These fixed income securities
may have equity features, such as conversion rights or warrants, and
the Portfolios may invest up to 10% of their total assets in equity
features, such as conversion rights or warrants, and the Portfolios may
invest up to 10% of their total assets in equity securities other than
preferred stock (e.g., common stock, warrants and rights and limited
partnership interests). The Portfolios may not invest more than 5% of
their total assets at the time of acquisition in either of (1)
equipment lease certificates, equipment trust certificates, equipment
trust certificates and conditional sales contracts or (2) limited
partnership interests.
Emerging country fixed income securities. [Each] of the Portfolios may
invest their assets, to varying degrees, in emerging country fixed
income securities, which are debt securities of government and
government-related issuers
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located in emerging countries (including participations in loans
between governments and financial institutions), and of entities
organized to restructure outstanding debt of such issuers and debt
securities of corporate issuers located in or organized under the laws
of emerging countries. As used with respect to these Portfolios, an
emerging country is any country that the International Bank for
Reconstruction and Development (more commonly known as the World Bank)
has determined to have a low or middle income economy. There are
currently over 150 countries considered to be emerging countries. The
countries generally include every nation in the world except the United
States, Canada, Japan, Australia, Singapore, New Zealand and most
nations located in Western Europe. Not withstanding the foregoing, with
respect to the Emerging Market Portfolio in addition to the exclusions
listed above, the following countries should also be excluded from the
countries considered emerging markets: Austria, Belgium, Denmark,
Finland, France, Germany, Ireland, Italy, the Netherlands, Norway,
Spain, Sweden, Switzerland and the United Kingdom.
In selecting emerging country debt securities for investment by the
Portfolio, the Subadviser will apply a market risk analysis
contemplating assessment of factors such as liquidity, volatility, tax
implications, interest rate sensitivity, counterparty risks and
technical market considerations. Currently, investing in many emerging
country securities is not feasible or may involve unacceptable
political risks. The Portfolios expect that their investments in
emerging country debt securities will be made primarily in some or all
of the following emerging countries:
Argentina Indonesia Poland
Brazil Malaysia Portugal
Chile Mexico South Africa
Czech Republic Morocco Thailand
Egypt Pakistan Turkey
Greece Peru Uruguay
Hungary Philippines Venezuela
As opportunities to invest in debt securities in other emerging
countries develop, the Portfolios expect to expand and further
diversify the emerging countries in which they invest. While the
Portfolios generally are not restricted in the portion of their assets
that may be invested in a single country or region, it is anticipated
that, under normal circumstances, each Portfolio's assets will be
invested in at least three countries.
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A Portfolio's investments in government and government-related and
restructured debt securities will consist of (i) debt securities or
obligations issued or guaranteed by governments, governmental agencies
or instrumentalities and political subdivisions located in emerging
countries (including participation in loans between governments and
financial institutions), (ii) debt securities or obligations issued by
government owned, controlled or sponsored entities located in emerging
countries, and (iii) interests in issuers organized and operated for
the purpose of restructuring the investment characteristics of
instruments issued by any of the entities described above. Such type of
restructuring involves the deposit with or purchase by an entity of
specific instruments and the issuance by that entity of one or more
classes of securities backed by, or representing an interest in, the
underlying instruments. Certain issuers of such structured securities
may be deemed to be "investment companies" as defined in the Investment
Company Act of 1940, as amended, (the "1940 Act"). As a result, a
Portfolio's investment in such securities may be limited by certain
investment restrictions contained in the 1940 Act.
A Portfolio's investments in debt securities of corporate issuers in
emerging countries may include debt securities or obligations issued
(i) by banks located in emerging countries or by branches of emerging
country banks located outside the country or (ii) by companies
organized under the laws of an emerging country. Determinations as to
eligibility will be made by the Subadviser based on publicly available
information and inquiries made to the issuer. A Portfolio may also
invest in certain debt obligations customarily referred to as "Brady
Bonds," which are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with
debt restructuring under a plan introduced by former U.S. Secretary of
the Treasury Nicholas F. Brady (the "Brady Plan").
Brady Plan debt restructurings have been implemented to date in
Argentina, Brazil, Bulgaria, Costa Rica, Croatia, the Dominican
Republic, Ecuador, Jordan, Mexico, Morocco, Nigeria, Panama, Peru, the
Philippines, Poland, Slovenia, Uruguay and Venezuela. Brady Bonds have
been issued only relatively recently, and for that reason do not have a
long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the
U.S. dollar) and are actively traded in over-the-counter secondary
markets. U.S. dollar-denominated, collateralized Brady Bonds, which may
be fixed-rate bonds or floating-rate bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon
bonds having the same maturity as the bonds. Brady Bonds are often
viewed as having three or four valuation components: the collateralized
repayment of principal at final maturity; the collateralized interest
payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these
uncollateralized
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amounts constituting the "residual risk"). In light of the residual
risk of Brady Bonds and the history of defaults of countries issuing
Brady Bonds with respect to commercial bank loans by public and private
entities, investments in Brady Bonds may be viewed as speculative.
Emerging country debt securities held by a Portfolio will take the form
of bonds, notes, bills, debentures, convertible securities, warrants,
bank debt obligations, short-term paper, mortgage-backed and other
asset-backed securities, loan participations, loan assignments and
interests issued by entities organized and operated for the purpose of
restructuring the investment characteristics of instruments issued by
emerging country issuers. U.S. dollar-denominated emerging country debt
securities held by a Portfolio will generally be listed but not traded
on a securities exchange, and non-U.S. dollar-denominated securities
held by the Portfolios may or may not be listed or traded on a
securities exchange. A Portfolio may invest in mortgage-backed
securities and in other asset-backed securities issued by
non-governmental entities such as banks and other financial
institutions. Mortgage-backed securities include mortgage pass-through
securities and collateralized mortgage obligations. Asset-backed
securities are collateralized by such assets as automobile or credit
card receivables and are securitized either in a pass-through structure
or in a pay-through structure similar to a collateralized mortgage
obligation.
Investments in emerging country debt securities entail special
investment risks. Many of the emerging countries listed above may have
less stable political environments than more developed countries. Also,
it may be more difficult to obtain a judgment in a court outside the
United States.
Global fixed income securities. Certain of the Portfolios may invest
their assets, to varying degrees, in global fixed income securities.
These are debt securities denominated in currencies of countries
displaying high real yields. Such securities include government
obligations issued or guaranteed by U.S. or foreign governments and
their political subdivisions, authorities, agencies or
instrumentalities, and by supranational entities (such as the World
Bank, The European Economic Community, The Asian Development Bank and
the European Coal and Steel Community), Eurobonds, and corporate bonds
with varying maturities denominated in various currencies. In this
portion of a Portfolio, the Subadviser seeks to minimize investment
risk by investing in a high quality portfolio of debt securities, the
majority of which will be rated in one of the two highest rating
categories by a nationally recognized statistical rating organization.
U.S. government securities in which a Portfolio may invest include
obligations issued or guaranteed by the U.S. government, such as U.S.
Treasury securities, as well as those backed by
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the full faith and credit of the United States, such as obligations of
the Government National Mortgage Association and The Export-Import
Bank. A Portfolio may also invest in obligations issued or guaranteed
by U.S. government agencies or instrumentalities where the Portfolio
must look principally to the issuing or guaranteeing agency for
ultimate repayment. Investment in foreign government securities for
this portion of a Portfolio will be limited to those of developed
nations that the Subadviser believes to pose limited credit risk. These
countries currently include Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland, Italy, Japan, Luxembourg,
the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland and the United Kingdom. Corporate and supranational
obligations selected for this portion of the portfolio will be limited
to those rated A or better by Moody's, Standard & Poor's or IBCA Ltd.
In selecting securities for this portion of a Portfolio, the Subadviser
of the Portfolio evaluates the currency, market and individual features
of the securities being considered for investment. The Subadviser
believes that countries displaying the highest real yields will over
time generate a high total return, and, accordingly, the Subadviser's
focus for this portion of a Portfolio will be to analyze the relative
rates of real yield of twenty global fixed income markets. In selecting
securities, the Subadviser will first identify the global markets in
which each Portfolio's assets will be invested by ranking such
countries in order of highest real yield. In this portion of its
portfolio, each Portfolio will invest its assets primarily in fixed
income securities denominated in the currencies of countries within the
top quartile of the Subadviser's ranking.
The Subadviser's assessment of the global fixed income markets is based
on an analysis of real interest rates. The Subadviser calculates real
yield for each global market by adjusting current nominal yields of
securities in each such market for inflation prevailing in each country
using an analysis of past and projected (one-year) inflation rates for
that country. The Subadviser expects to review and update on a regular
basis its real yield ranking of countries and market sectors and to
alter the allocation of this portion of a Portfolio's investments among
markets as necessary when changes to real yields and inflation
estimates significantly alter the relative rankings of the countries
and market sectors.
In addition, the Global Bond Portfolio may invest in trust preferred
securities. A trust preferred or capital security is a long dated bond
(for example, 30 years) with preferred features. The preferred features
are that payment of interest can be deferred for a specified period
without initiating a default event. From a bondholder's viewpoint, the
securities are senior in claim to standard preferred but are junior to
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other bondholders. From the issuer's viewpoint, the securities are
attractive because their interest is deductible for tax purposes like
other types of debt instruments.
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 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
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GNMA certificates. 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.
U.S. TREASURY INFLATION PROTECTION SECURITIES. The Equity Income,
Equity Index and Small Company Value Portfolios may invest in U.S. Treasury
inflation-protection securities, which are issued by the United States
Department of Treasury ("Treasury") with a nominal return linked to the
inflation rate in prices. The index used to measure inflation is the
non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All
Urban Consumers ("CPI-U").
The value of the principal is adjusted for inflation, and pays interest
every six months. The interest payment is equal to a fixed percentage of the
inflation-adjusted value of the principal. The final payment of principal of the
security will not be less than the original par amount of the security at
issuance.
The principal of the inflation-protection security is indexed to the
non-seasonally adjusted CPI-U. To calculate the inflation-adjusted principal
value for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index ratio
for any date is the ratio of the reference CPI applicable to such date to the
reference CPI applicable to the original issue date. Semiannual coupon interest
is determined by multiplying the
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inflation-adjusted principal amount by one-half of the stated rate of interest
on each interest payment date.
Inflation-adjusted principal or the original par amount, whichever is
larger, is paid on the maturity date as specified in the applicable offering
announcement. If at maturity the inflation-adjusted principal is less than the
original principal value of the security, an additional amount is paid at
maturity so that the additional amount plus the inflation-adjusted principal
equals the original principal amount. Some inflation-protection securities may
be stripped into principal and interest components. In the case of a stripped
security, the holder of the stripped principal component would receive this
additional amount. The final interest payment, however, will be based on the
final inflation-adjusted principal value, not the original par amount.
The reference CPI for the first day of any calendar month is the CPI-U
for the third preceding calendar month. (For example, the reference CPI for
December 1 is the CPI-U reported for September of the same year, which is
released in October.) The reference CPI for any other day of the month is
calculated by a linear interpolation between the reference CPI applicable to the
first day of the month and the reference CPI applicable to the first day of the
following month.
Any revisions the Bureau of Labor Statistics (or successor agency)
makes to any CPI-U number that has been previously released will not be used in
calculations of the value of outstanding inflation-protection securities. In the
case that the CPI-U for a particular month is not reported by the last day of
the following month, the Treasury will announce an index number based on the
last year-over-year CPI-U inflation rate available. Any calculations of the
Treasury's payment obligations on the inflation-protection security that need
that month's CPI-U number will be based on the index number that the Treasury
has announced. If the CPI-U is rebased to a different year, the Treasury will
continue to use the CPI-U series based on the base reference period in effect
when the security was first issued as long as that series continues to be
published. If the CPI-U is discontinued during the period the
inflation-protection security is outstanding, the Treasury will, in consultation
with the Bureau of Labor Statistics (or successor agency), determine an
appropriate substitute index and methodology for linking the discontinued series
with the new price index series. Determinations of the Secretary of the Treasury
in this regard are final.
Inflation-protection securities will be held and transferred in either
of two book-entry systems: the commercial book-entry system (TRADES) and
TREASURY DIRECT. The securities will be maintained and transferred at their
original par amount, i.e., not at their inflation-adjusted value. STRIPS
components will be maintained and transferred in TRADES at their value based on
the original par amount of the fully constituted security.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Worldwide High Income
Portfolio may invest in fixed and floating rate loans ("Loans") arranged through
private negotiations between an issuer of sovereign or corporate debt
obligations and one or more financial institutions ("Lenders"). The Portfolio's
investments in Loans are expected in most instances to be in the form of
participations in Loans ("Participations") and assignments of all or a portion
of Loans ("Assignments") from third
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parties. In the case of Participations, the Portfolio will have the right to
receive payments of principal, interest and any fees to which it is entitled
only from the Lender selling the Participation and only upon receipt by the
Lender of the payments from the borrower. In the event of the insolvency of the
Lender selling a Participation, the Portfolio may be treated as a general
creditor of the Lender and may not benefit from any set-off between the Lender
and the borrower. The Portfolio will acquire Participations only if the Lender
interpositioned between the Portfolio and the borrower is determined by the
Subadviser to be creditworthy. When the Portfolio purchases Assignments from
Lenders it will acquire direct rights against the borrower on the Loan. Because
Assignments are arranged through private negotiations between potential
assignees and potential assignors, however, the rights and obligations acquired
by the Portfolio as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender. Because there is no liquid
market for such securities, the Portfolio anticipates that such securities could
be sold only to a limited number of institutional investors. The lack of a
liquid secondary market may have an adverse impact on the value of such
securities and the Portfolio's ability to dispose of particular Assignments or
Participations when necessary to meet the Portfolio's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations also may make it more difficult for the Portfolio
to assign a value to these securities for purposes of valuing the Portfolio and
calculating its net asset value.
The MFS Total Return Portfolio may invest a portion of its assets in
loan participations whereby the Portfolio may acquire some or all of the
interest of a bank or other lending institution in a loan to a corporate
borrower. Many of these loans are secured, and most impose restrictive covenants
that must be met by the borrower. These loans are made generally to finance
internal growth, mergers, acquisitions, stock repurchases, leveraged buyouts and
other corporate activities. Such loans may be in default at the time of
purchase. The Portfolio may also purchase trade or other claims against
companies, which generally represent money owed by the company to a supplier of
goods or services. These claims may also be purchased at a time when the company
is in default. Certain of the loan participations acquired by the Portfolio may
involve revolving credit facilities or other standby financing commitments that
obligate the Portfolio to pay additional cash on a certain date or on demand.
The highly leveraged nature of many such loans may make such loans
especially vulnerable to adverse changes in economic or market conditions. Loan
participations and other direct investments may not be in the form of securities
or may be subject to restrictions on transfer, and there may be no liquid market
for such securities, as described above.
STRUCTURED INVESTMENTS. The Global Bond Portfolio, Asset Allocation
Portfolio, Worldwide High Income Portfolio, International Growth and Income
Portfolio and the Emerging Markets Portfolio may each invest a portion of its
assets in entities organized and operated solely for the purpose of
restructuring the investment characteristics of sovereign debt obligations. This
type of
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restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans)
and the issuance by that entity of one or more classes of securities
("Structured Securities") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Securities to create securities
with different investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Securities is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Securities of the type in
which the Portfolio anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. The Portfolio is permitted to invest in a class of
Structured Securities that is either subordinated or unsubordinated to the right
of payment of another class. Subordinated Structured Securities typically have
higher yields and present greater risks than unsubordinated Structured
Securities. Structured Securities are typically sold in private placement
transactions, and there currently is no active trading market for Structured
Securities.
A Portfolio's investments in government and government-related and
restructured debt instruments are subject to special risks, including the
inability or unwillingness to repay principal and interest, requests to
reschedule or restructure outstanding debt and requests to extend additional
loan amounts.
CORPORATE ASSET-BACKED SECURITIES. These securities, issued by trusts
and special purpose corporations, are backed by a pool of assets, such as credit
card and automobile loan receivables, representing the obligations of a number
of different parties.
Corporate asset-backed securities present certain risks. For instance,
in the case of credit card receivables, these securities may not have the
benefit of any security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of automobile receivables permit
the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support that fall into two categories:
(i) liquidity protection and (ii) protection against losses resulting from
ultimate default by an obligor on the underlying assets. Liquidity protection
refers to the provision of
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advances, generally by the entity administering the pool of assets, to ensure
that the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default ensures payment
through insurance policies or letters of credit obtained by the issuer or
sponsor from third parties. A Portfolio will not pay any additional or separate
fees for credit support. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.
STRIPPED MORTGAGE-BACKED SECURITIES. The Corporate Bond, Global Bond,
High-Yield Bond, Asset Allocation and Emerging Markets 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 greater risk that the initial investment will not be
fully recouped.
BORROWING AND OTHER FORMS OF LEVERAGE. All of the Portfolios (except
the Cash Management Portfolio, the MFS Total Return Portfolio, the MFS Growth
and Income Portfolio and the MFS Mid-Cap Growth 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, the MFS Total Return Portfolio, the
MFS Growth and Income Portfolio and the MFS Mid-Cap Growth Portfolio may not
borrow money except for temporary emergency purposes, and then in an amount not
in excess of 5% of the value of the Portfolio's total assets with respect to the
Cash Management Portfolio and the MFS Total Return Portfolio, and as permitted
by law with respect to the MFS Growth and Income Portfolio and the MFS Mid-Cap
Growth Portfolio. 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.
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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 will maintain a segregated account of cash or
other liquid assets securing the borrowing for the benefit of the lenders. 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.
INVESTMENT IN SMALL COMPANIES. The SunAmerica Balanced, Venture Value,
Small Company Value and Aggressive Growth Portfolios and certain other
Portfolios may invest in small companies having market capitalizations of under
$1 billion. While such companies may realize more substantial growth than
larger, more established companies, they may also be subject to some additional
risks. The securities of these small companies may not be readily marketable,
making it difficult to dispose of shares when desirable. 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 then 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. In addition, 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.
SHORT SALES. Each Portfolio (other than the Cash Management and "Dogs"
of Wall Street Portfolios) may make short sales, including "short sales against
the box." A short sale is effected by selling a security that a Portfolio does
not own. A short sale is against the box to the extent that a Portfolio
contemporaneously owns, or has the right to obtain without payment, securities
identical to those sold short. A short sale against the box of an "appreciated
financial position" (e.g., appreciated stock) generally is treated as a sale by
the Portfolio for federal income tax purposes. A Portfolio generally will
recognize any gain (but not loss) for federal income tax purposes at the time
that it makes a short sale against the box. A Portfolio may not enter into a
short sale against the box, if, as a result, more than 25% of its total assets
would be subject to such short sales.
When a Portfolio makes a short sale, the proceeds it receives from the
sale will be held on behalf of a broker until the Portfolio replaces the
borrowed securities. To deliver the securities to
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the buyer, a Portfolio will need to arrange through a broker to borrow the
securities and, in so doing, a Portfolio will become obligated to replace the
securities borrowed at their market price at the time of replacement, whatever
that price may be. A Portfolio may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
A Portfolio's obligation to replace the securities borrowed in
connection with a short sale will be secured by collateral in the form of cash
or liquid securities held in a segregated account in the name of the broker. In
addition, such Portfolio will place in a segregated account an amount of cash or
liquid securities equal to the difference, if any, between (1) the market value
of the securities sold at the time they were sold short and (2) any cash or
liquid securities deposited as collateral with the broker in connection with the
short sale (not including the proceeds of the short sale). In the event that the
value of the collateral deposited with the broker, plus the value of the assets
in the segregated account should fall below the value of the securities sold
short, additional amounts to cover the difference will be placed in the
segregated accounts. Short sales by the Portfolio involve certain risks and
special considerations. Possible losses from short sales differ from losses that
could be incurred from a purchase of a security, because losses from short sales
may be unlimited, whereas losses from purchases can equal only the total amount
invested.
INVERSE FLOATERS. The Corporate Bond, MFS Total Return, Asset
Allocation and Emerging Markets 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.
ILLIQUID SECURITIES. Each of the Portfolios may invest no more than 15%
(10% in the case of the Cash Management Portfolio) of its net assets, determined
as of the date of purchase, in illiquid securities including repurchase
agreements that have a maturity of longer than seven days or in other securities
that are illiquid by virtue of the absence of a readily available market or
legal or contractual restrictions on resale. Historically, illiquid securities
have included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), securities that are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period. Securities that have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty
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satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them, resulting in
additional expense and delay. There generally will be a lapse of time between a
mutual fund's decision to sell an unregistered security and the registration of
such security promoting sale. Adverse market conditions could impede a public
offering of such securities. When purchasing unregistered securities, the
Portfolios will seek to obtain the right of registration at the expense of the
issuer.
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act for which there is a readily available market will not be
deemed to be illiquid. The Adviser or Subadviser, as the case may be, will
monitor the liquidity of such restricted securities subject to the supervision
of the Board of Trustees of the Trust. In reaching liquidity decisions, the
Adviser, or Subadviser, as the case may be, will consider, inter alia, pursuant
to guidelines and procedures established by the Trustees, the following factors:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
The Cash Management Portfolio may invest in commercial paper issues,
including securities issued by major corporations without registration under the
Securities Act in reliance on the exemption from such registration afforded by
Section 3(a)(3) thereof, and commercial paper issued in reliance on the
so-called private placement exemption from registration afforded by Section 4(2)
of the Securities Act ("Section 4(2) paper"). Section 4(2) paper is restricted
as to disposition under the federal securities laws in that any resale must
similarly be made in an exempt transaction. Section 4(2) paper is normally
resold to other institutional investors through or with the assistance of
investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Section 4(2) paper that is issued by a company that files reports
under the Securities Exchange Act of 1934 is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described above. The Cash Management
Portfolio's 10% limitation on investments in illiquid securities includes
Section 4(2) paper other than Section 4(2) paper that the Adviser has determined
to be liquid pursuant to guidelines established by the Trustees. The Portfolio's
Board of Trustees delegated to the Adviser the function of making day-to-day
determinations of liquidity with respect to Section 4(2) paper, pursuant to
guidelines approved by the Trustees that require the Adviser to take into
account the same factors described above for other restricted securities and
require the Adviser to perform the same monitoring and reporting functions.
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REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase
agreements with sellers who are member firms (or a subsidiary thereof) of the
New York Stock Exchange (the "NYSE") or members of the Federal Reserve System,
recognized primary U.S. government securities dealers or institutions that the
Adviser or Subadviser, as the case may be, has determined to be of comparable
creditworthiness. The securities that the Portfolio purchases and holds through
its agent are U.S. government securities, the values of which are equal to or
greater than the repurchase price agreed to be paid by the seller. The
repurchase price may be higher than the purchase price, the difference being
income to the Portfolio, or the purchase and repurchase prices may be the same,
with interest at a standard rate due to the Portfolio together with the
repurchase price on repurchase. In either case, the income to the Portfolio is
unrelated to the interest rate on the U.S. government securities.
The repurchase agreement provides that in the event the seller fails to
pay the price agreed upon on the agreed upon delivery date or upon demand, as
the case may be, the Portfolio will have the right to liquidate the securities.
If at the time the Portfolio is contractually entitled to exercise its right to
liquidate the securities, the seller is subject to a proceeding under the
bankruptcy laws or its assets are otherwise subject to a stay order, the
Portfolio's exercise of its right to liquidate the securities may be delayed and
result in certain losses and costs to the Portfolio. The Portfolio has adopted
and follows procedures intended to minimize the risks of repurchase agreements.
For example, the Portfolio enters into repurchase agreements only after the
Adviser or Subadviser, as the case may be, has determined that the seller is
creditworthy, and the Adviser or Subadviser, as the case may be, monitors that
seller's creditworthiness on an ongoing basis. Moreover, under such agreements,
the value of the securities (which are marked to market every business day) is
required to be greater than the repurchase price, and the Portfolio has the
right to make margin calls at any time if the value of the securities falls
below the agreed upon margin.
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 with brokers, dealers, domestic and foreign banks or other financial
institutions that have been determined by the Adviser or Subadviser to be
creditworthy. In a reverse repurchase agreement, the Portfolio sells a security
and agrees to repurchase it at a mutually agreed upon date and price, reflecting
the interest rate effective for the term of the agreement. It may also be viewed
as the borrowing of money by the Portfolio. The Portfolio's investment of the
proceeds of a reverse repurchase agreement is the speculative factor known as
leverage. A Portfolio will enter into a reverse repurchase agreement only if the
interest income from investment of the proceeds is expected to be greater than
the interest expense of the transaction and the proceeds are invested for a
period no longer than the term of the agreement. The Portfolio will maintain a
separate account with a segregated portfolio of cash or liquid securities in an
amount at least equal to its purchase obligations under these agreements
(including accrued interest). In the event that the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
buyer or its trustee or receiver may receive an extension of
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time to determine whether to enforce the Portfolio's repurchase obligation, and
the Portfolio's use of proceeds of the agreement may effectively be restricted
pending such decision. Reverse repurchase agreements are considered to be
borrowings and are subject to the percentage limitations on borrowings. See
"Investment Restrictions."
REITS. REITs, in which certain of the Portfolios may invest, pool
investors' funds for investment primarily in income producing real estate or
real estate related loans or interests. A REIT is not taxed on income
distributed to shareholders if it complies with various requirements relating to
its organization, ownership, assets and income and with the requirement that it
distribute to its shareholders at least 95% of its taxable income (other than
net capital gains) for each taxable year. REITs can generally be classified as
Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs invest the majority
of their assets directly in real property and derive their income primarily from
rents. Equity REITs can also realize capital gains by selling property that has
appreciated in value. Mortgage REITs invest the majority of their assets in real
estate mortgages and derive their income primarily from interest payments.
Hybrid REITs combine the characteristics of both Equity REITs and Mortgage
REITs. 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, as
amended (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.
ZERO-COUPON, PAY-IN-KIND AND DEFERRED INTEREST BONDS. The Corporate
Bond, Global Bond, High-Yield Bond, Worldwide High Income, SunAmerica Balanced,
MFS Total Return, Asset Allocation, Venture Value MFS Growth and Income and MFS
Mid-Cap Growth Portfolios may invest in zero-coupon bonds as well as deferred
interest bonds, or other obligations that contain "original issue discount" for
federal income tax purposes. In addition, the Corporate Bond, High-Yield Bond
Worldwide High Income MFS Total Return and MFS Mid-Cap Growth Portfolios may
invest in pay-in-kind securities. Zero-coupon, deferred interest and capital
appreciation bonds are debt obligations that are issued or purchased at a
significant discount from face value. Pay-in-kind bonds are debt obligations
that 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
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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.
FLOATING RATE OBLIGATIONS. These securities have a coupon rate that
changes at least annually and generally more frequently. The coupon rate is set
in relation to money market rates. The obligations, issued primarily by banks,
other corporations, governments and semi-governmental bodies, may have a
maturity in excess of one year. In some cases, the coupon rate may vary with
changes in the yield on Treasury bills or notes or with changes in LIBOR (London
Interbank Offering Rate). The Adviser considers floating rate obligations to be
liquid investments because a number of U.S. and foreign securities dealers make
active markets in these securities.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED AND DELAYED-DELIVERY
TRANSACTIONS. Each Portfolio (except Equity Index Portfolio) may purchase
securities on a when-issued basis and each Portfolio except the Cash Management,
MFS Total Return, MFS Growth and Income and MFS Mid-Cap Growth Portfolios may
purchase securities on a firm commitment 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 purchase securities on a when-issued or
delayed-delivery basis only 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 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 Corporate Bond, Global Bond, MFS Total Return, Asset
Allocation and Emerging Markets Portfolios from interest rate fluctuations and
to hedge against fluctuations in the fixed income market in which each such
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 enter into interest-rate swaps only
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.
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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 Standard & Poor's or Aa or P-1 or better by Moody's, or is
determined to be of equivalent quality by the applicable Subadviser.
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.
COVERED OPTIONS. Each Portfolio may write (sell) covered call and put
options on any securities in which it may invest. The Small Company Value and
Equity Income Portfolios may
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each write covered call options covering up to 25% of the equity securities it
owns. A Portfolio may purchase and write such options on securities that are
listed on national domestic securities exchanges (and, for certain Portfolios,
foreign securities exchanges) or traded in the over-the-counter market. A call
option written by a Portfolio obligates a Portfolio to sell specified securities
to the holder of the option at a specified price if the option is exercised at
any time before the expiration date. All call options written by a Portfolio are
covered, which means that a Portfolio will own the securities subject to the
option as long as the option is outstanding. The purpose of writing covered call
options is to realize greater income than would be realized on portfolio
securities transactions alone. However, in writing covered call options for
additional income, a Portfolio may forego the opportunity to profit from an
increase in the market price of the underlying security.
A Portfolio will receive a premium from writing a put or call option,
which increases the Portfolio's gross income in the event the option expires
unexercised or is closed out at a profit. If the value of an index on which the
Portfolio has written a call option falls or remains the same, the Portfolio
will realize a profit in the form of the premium received (less transaction
costs) that could offset all or a portion of any decline in the value of the
securities it owns. If the value of the index rises, however, the Portfolio will
realize a loss in its call option position, which will reduce the benefit of any
unrealized appreciation in the Portfolio's stock investments. By writing a put
option, the Portfolio assumes the risk of a decline in the index. To the extent
that the price changes of securities owned by a Portfolio correlate with changes
in the value of the index, writing covered put options on indices will increase
the Portfolio's losses in the event of a market decline, although such losses
will be offset in part by the premium received for writing the option.
A put option written by a Portfolio would obligate a Portfolio to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. All put options
written by a Portfolio would be covered, which means that the Portfolio would
have deposited cash, U.S. government securities or other high-grade debt
securities (i.e., securities rated in one of the top three categories by Moody's
or Standard & Poor's, or, if unrated, deemed by the Adviser or Subadviser to be
of comparable credit quality) with a value at least equal to the exercise price
of the put option in a segregated account. The purpose of writing such options
is to generate additional income for a Portfolio. However, in return for the
option premium, a Portfolio accepts the risk that it may be required to purchase
the underlying securities at a price in excess of the securities' market value
at the time of purchase.
The MFS Mid-Cap Growth Portfolio may cover call options on stock
indices by owning securities whose price changes, in the opinion of the Adviser,
are expected to be similar to those of the index, or by having an absolute and
immediate right to acquire such securities without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities in its portfolio.
Nevertheless, where the Portfolio covers a call option on a stock index through
ownership of securities, such securities may not match the composition of the
index and, in that event, the Portfolio will not be fully covered and could be
subject to risk of loss in the event of adverse changes in the value of the
index.
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Each 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. None of the
Equity Income, Small Company Value and Equity Index Portfolios will invest more
than 5% of the value of their total assets in purchased options, provided that
options which are "in the money" at the time of purchase may be excluded from
this 5% limitation. A call option is "in the money" if the exercise price is
lower than the current market price of the underlying security or index, and a
put option is "in the money" if the exercise price is higher than the current
market price.
The purchase of call options on stock indices may be used by a
Portfolio to attempt to reduce the risk of missing a broad market advance, or an
advance in an industry or market segment, at a time when the Portfolio holds
uninvested cash or short-term debt securities awaiting investment. When
purchasing call options for this purpose, the Portfolio will also bear the risk
of losing all or a portion of the premium paid, and related transaction costs,
if the value of the index does not rise. The purchase of call options on stock
indices when the Portfolio is substantially fully invested is a form of
leverage, up to the amount of the premium and related transaction costs, and
involves risks of loss and of increased volatility similar to those involved in
purchasing calls on securities the Portfolio owns.
A Portfolio also may purchase put options on stock indices to hedge its
investments against a decline in value. By purchasing a put option on a stock
index, the Portfolio will seek to offset a decline in the value of securities it
owns through appreciation of the put option. If the value of the Portfolio's
investments does not decline as anticipated, or if the value of the option does
not increase, the Portfolio's loss will be limited to the premium paid for the
option, plus related transaction costs. The success of this strategy will
largely depend on the accuracy of the correlation between the changes in value
of the index and the changes in value of the Portfolio's security holdings.
YIELD CURVE OPTIONS. Each Portfolio (other than the Cash Management,
Equity Income, [MFS Growth and Income], Small Company Value and Equity Index
Portfolios) may purchase or write yield curve options for other than hedging
purposes (i.e., in an effort to increase their current income) if, in the
judgment of the Subadviser, the particular Portfolio will be able to profit from
movements in the spread between the yields of the underlying securities. The
trading of yield curve options is subject to all of the risks associated with
the trading of other types of options. In addition, however, such options
present risk of loss even if the yield of one of the underlying securities
remains constant, if the spread moves in a direction or to an extent not
anticipated. Yield curve options written by the MFS Mid-Cap Growth Portfolio
will be covered if the Portfolio holds another call (or put) option on the
spread between the same two securities and maintains in a segregated account
with its custodian cash or cash equivalents sufficient to cover the Portfolio's
net liability under the two options. Therefore, the Portfolio's liability for
such a covered option is generally limited to the difference between the amount
of the Portfolio's liability under the
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option written by the Portfolio less the value of the option held by the
Portfolio. Yield curve options may also be the counterparty with which the
option is traded and applicable laws and regulations. Yield curve options are
traded over-the-counter and because they have been only recently introduced,
established trading markets for these securities have not yet developed. Because
these securities are traded over-the-counter, the Securities and Exchange
Commission ("SEC") has taken the position that yield curve options are illiquid
and, therefore, cannot exceed the SEC illiquidity ceiling.
Each other Portfolio that may enter into yield curve options
transactions will cover such transactions as described above.
PORTFOLIO STRATEGIES RELATED TO FOREIGN SECURITIES. Each Portfolio may
engage in various portfolio strategies to reduce certain risks of their
respective investments and/or to attempt to enhance return. Each Portfolio may
engage in strategies including the purchase and sale of forward foreign currency
exchange contracts, currency and financial index futures contracts (including,
in the case of the International Growth and Income, Global Equities Portfolios
and Emerging Markets, stock index futures) and options thereon, put and call
options on currencies and financial indices, and combinations thereof. The
Adviser or Subadviser will use such techniques as market conditions warrant.
Each Portfolio's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed. New financial products and
risk management techniques continue to be developed and these Portfolios may use
these new investments and techniques to the extent consistent with their
investment objective and policies.
In addition to direct investment, the Portfolios that may invest in
foreign securities may also invest in American Depositary Receipts ("ADRs") and
in other Depositary Receipts, including Global Depositary Receipts ("GDRs"),
European Depositary Receipts ("EDRs") and others (which, together with ADRs,
GDRs and EDRs, are hereinafter collectively referred to as "Depositary
Receipts"), to the extent that such Depositary Receipts become available. ADRs
are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
with the depositary. ADRs include American Depositary Shares and New York Shares
and may be "sponsored" or "unsponsored." Sponsored ADRs are established jointly
by a depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a depositary without participation by the underlying issuer.
GDRs, EDRs and other types of Depositary Receipts are typically issued by
foreign depositaries, although they may also be issued by U.S. depositaries, and
evidence ownership interests in a security or pool of securities issued by
either a foreign or a U.S. corporation. Holders of unsponsored Depositary
Receipts generally bear all the costs associated with establishing the
unsponsored Depositary Receipt. The depositary of unsponsored Depositary
Receipts is under no obligation to distribute shareholder communications
received from the underlying issuer or to pass through to the holders of the
unsponsored Depositary Receipt voting rights with respect to the deposited
securities or pool
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of securities. Depositary Receipts are not necessarily denominated in the same
currency as the underlying securities to which they may be connected. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. A Portfolio may invest in
sponsored and unsponsored Depositary Receipts. For purposes of a Portfolio's
investment policies, the Portfolio's investments in Depositary Receipts will be
deemed to be investments in the underlying securities. The Portfolios also may
invest in securities denominated in European Currency Units ("ECUs"). An "ECU"
is a "basket" consisting of specified amounts of currencies of certain of the
twelve member states of the European Community. The specific amount of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community from time to time to reflect changes in relative values of
the underlying currencies. In addition, the Portfolios may invest in securities
denominated in other currency "baskets."
The Portfolios may also invest in emerging country securities. As used
with respect to these Portfolios and as described above under "Emerging Country
Fixed Income Securities," the term "emerging country" applies to any country
that, in the opinion of the relevant Subadviser, is generally considered to be
an emerging or developing country by the international financial community,
including the International Bank for Reconstruction and Development (more
commonly known as the World Bank) and the International Finance Corporation.
There are currently over 150 countries that are generally considered to be
emerging countries by the international financial community. These countries
generally include every nation in the world except the United States, Canada,
Japan, Australia, New Zealand, Singapore (with the exception of the Emerging
Markets Portfolio) and most nations located in Western Europe. Not withstanding
the foregoing with respect to the Emerging Markets Portfolio, the Subadviser
believes that in addition to the exclusions listed above, the following
countries should also be excluded from the countries considered emerging
markets: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy,
the Netherlands, Norway, Spain, Sweden and Switzerland. Currently, investing in
many emerging countries is not feasible or may involve unacceptable political
risks.
The International Diversified Equities Portfolio will focus its
investments on those emerging market countries in which it believes the
economies are developing strongly and in which the markets are becoming more
sophisticated. With respect to the portions of such Portfolio that is invested
in emerging country equity securities, the Portfolio invests primarily in some
or all of the following countries:
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Argentina Indonesia Portugal Thailand
Brazil Mexico South Africa Turkey
India Philippines South Korea
As markets in other countries develop, the International Diversified
Equities Portfolio expects to expand and further diversify the emerging
countries in which it invests. The Portfolio does not intend to invest in any
security in a country where the currency is not freely convertible to U.S.
dollars, unless the Portfolio has obtained the necessary governmental licensing
to convert such currency or other appropriately licensed or sanctioned
contractual guarantee to protect such investment against loss of that currency's
external value, or the Portfolio has a reasonable expectation at the time the
investment is made that such governmental licensing or other appropriately
licensed or sanctioned guarantee would be obtained or that the currency in which
the security is quoted would be freely convertible at the time of any proposed
sale of the security by the Portfolio.
An emerging country security is one issued by a company that, in the
opinion of the respective Subadviser, has one or more of the following
characteristics: (i) it is organized under the laws of, or has its principal
office in, an emerging country, or (ii) alone or on a consolidated basis it
derives 50% or more of its annual revenue from business in emerging countries.
An emerging market security may also include a company that has its principal
securities trading market in an emerging country. The respective Subadviser will
base determinations as to eligibility on publicly available information and
inquiries made to the companies.
FOREIGN CURRENCY AND FINANCIAL INDEX TRANSACTIONS - FORWARD EXCHANGE
AND FUTURES CONTRACTS, OPTIONS AND OPTIONS ON FUTURES CONTRACTS. Currency
exchange rate fluctuations are a major area of risk and opportunity for the
Global Bond, Worldwide High Income, International Growth and Income, Global
Equities, International Diversified Equities and Emerging Markets Portfolios,
and is of some risk to the other Portfolios. Each Portfolio (other than the Cash
Management Portfolio) may enter into contracts for the purchase or sale for
future delivery of foreign currencies ("forward currency exchange contracts"),
financial and foreign currency futures contracts or contracts based on financial
indices ("futures contracts") and may purchase and write put and call options to
buy or sell currencies and to buy or sell futures contracts ("options on futures
contracts").
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. A forward foreign currency
contract is an obligation to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A "sale" of a
foreign currency futures contract means entering into a contract to deliver the
foreign currencies called for by the contract at a specified price on a
specified date. A "purchase" of a foreign currency futures contract means
entering into a contract
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to acquire the foreign currencies called for by the contract at a specified
price on a specified date.
Each Portfolio (other than the Cash Management and [Equity Index]
Portfolios and except as described below), may purchase and write put and call
options on currencies for the purpose of protecting against declines in the U.S.
dollar 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.
The MFS Mid-Cap Growth Portfolio may also enter into transactions in
forward contracts for other than hedging purposes, which presents greater profit
potential but also involves increased risk. For example, if the Subadviser
believes that the value of a particular foreign currency will increase or
decrease relative to the value of the U.S. dollar, the Portfolio may purchase or
sell such currency, respectively, through a forward contract. If the expected
changes in the value of the currency occur, the Portfolio will realize profits
that will increase its gross income. Where exchange rates do not move in the
direction or to the extent anticipated, however, the Portfolio may sustain
losses that will reduce its gross income. Such transactions, therefore, could be
considered speculative.
The MFS Mid-Cap Growth Portfolio has established procedures that
require the use of segregated assets or "cover" in connection with the purchase
and sale of such contracts. In those instances in which the Portfolio satisfies
this requirement through segregation of assets, it will maintain liquid assets,
which will be marked to market on a daily basis, in an amount equal to the value
of its commitments under forward contracts.
An exchange-traded futures contract relating to foreign currency, or a
financial index, is similar to a forward foreign currency exchange contract but
has a standardized size and exchange date. A Portfolio may either accept or make
delivery of the currency at the maturity of such a contract or, prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. The purchaser of a futures contract on an index agrees to
take or make delivery of an amount of cash equal to the difference between a
specified dollar multiple of the value of the index on the expiration date of
the contract and the price at which the contract was originally struck.
No physical delivery of the securities underlying the index is made.
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A significant portion of the Portfolios' currency transactions will be
over-the-counter transactions. Over-the-counter currency instruments are subject
to the risk that the counterparty to such instruments will default on its
obligations. Since over-the-counter currency instruments are not guaranteed by
an exchange or clearinghouse, a default on the instrument would deprive the
Portfolio of unrealized profits, transaction costs or the benefits of a currency
hedge or force the Portfolio to cover its purchase or sale commitments, if any,
at the current market price. A Portfolio will not enter into such transactions
unless the credit quality of the unsecured senior debt or the claims-paying
ability of the counterparty is considered to be investment grade by the Adviser
or Subadviser.
Each Portfolio (other than the Cash Management Portfolio) may enter
into futures contracts in anticipation of, or to protect against, fluctuations
in currency exchange rates. A Portfolio might, for example, enter into a futures
contract when it wanted to hold securities denominated in a particular currency
but anticipated, and wished to be protected against, a decline in that currency
against the U.S. dollar. Similarly, it might enter into futures contracts to
"lock in" the U.S. dollar price of non-U.S. dollar denominated securities that
it anticipated purchasing. Although futures contracts typically will involve the
purchase and sale of a foreign currency against the U.S. dollar, a Portfolio
also may enter into currency contracts not involving the U.S. dollar.
In connection with these futures transactions, the Trust has filed a
notice of eligibility with the Commodity Futures Trading Commission ("CFTC")
that exempts the Trust from CFTC registration as a "commodity pool operator" as
defined under the Commodity Exchange Act. Pursuant to this notice, each
Portfolio will observe certain CFTC guidelines with respect to its futures
transactions that, among other things, require the Portfolio to use futures for
bona fide "hedging" purposes only (as defined by CFTC rules), and, in the case
of futures transactions for non-bona fide hedging purposes, to limit initial
margin deposits to no more than 5% of its net assets after taking into account
unrealized profits and unrealized losses on any such contracts. In addition,
subject to the limitation on margin deposits described above, a Portfolio may
engage in futures transactions for non-bona fide hedging purposes, provided that
the total value of such long futures positions will not exceed the sum of (a)
cash or cash equivalents set aside in an identifiable manner for this purpose,
(b) cash proceeds on existing investments due within 30 days, and (c) accrued
profits on such futures or options positions.
Parties to futures contracts and holders and writers of options on
futures can enter into offsetting closing transactions, similar to closing
transactions on options, by selling or purchasing, respectively, an instrument
identical to the instrument held or written. Positions in futures and options on
futures may be closed only on an exchange or board of trade where there appears
to be a liquid secondary market. However, there can be no assurance that such a
market will exist for a particular contract at a particular time. Secondary
markets for options on futures are currently in the development stage, and no
Portfolio will trade options on futures on any exchange or board of trade
unless, in the judgment of the Adviser or applicable Subadviser, the markets for
such options have developed sufficiently that the liquidity risks for such
options are not greater than the corresponding risks for futures.
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Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a future or related option can vary from
the previous day's settlement price; once that limit is reached, no trades may
be made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If a Portfolio were unable to liquidate a futures or related options
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Portfolio would continue to
be subject to market risk with respect to its position. In addition, except in
the case of purchased options, the Portfolio would continue to be required to
make daily variation margin payments and might be required to maintain the
position being hedged by the future or option or to maintain cash or securities
in a segregated account.
Certain characteristics of the futures market might increase the risk
that movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options markets
are subject to daily variation margin calls and might be compelled to liquidate
futures or related option positions whose prices are moving unfavorably to avoid
being subject to further calls. These liquidations could increase price
volatility of the instruments and distort the normal price relationship between
the futures or options and the investments being hedged. Also, because initial
margin deposit requirements in the futures markets are less onerous than margin
requirements in the securities markets, there might be increased participation
by speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in both
the futures and securities markets involving arbitrage, "program trading" and
other investment strategies might result in temporary price distortions.
In connection with the purchase of futures contracts, a Portfolio will
deposit and maintain in a segregated account with the Trust's custodian an
amount of cash or liquid securities equal to its obligations under the futures
contracts less any amounts maintained in a margin account with the Trust's
futures broker.
The MFS Mid-Cap Growth Portfolio may cover the writing of call options
on futures contracts (a) through purchases of the underlying futures contract,
(b) through ownership of the instrument, or instruments included in the index,
underlying the futures contract, or (c) through the holding of a call on the
same futures contract and in the same principal amount as the call written where
the exercise price of the call held (i) is equal to or less than the exercise
price of the call written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in liquid assets in a
segregated account with its custodian. The Portfolio may cover the writing of
put options on futures contracts (a) through sales of the underlying futures
contract, (b) through segregation of liquid assets in an amount equal to the
value of the security or index underlying the futures contract, or (c) through
the holding of a put on the same futures contract and in the same principal
amount as the put written where the exercise price of the put held (i) is equal
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to or greater than the exercise price of the put written or (ii) is less than
the exercise price of the put written if the difference is maintained by the
Portfolio in liquid assets in a segregated account with its custodian. Put and
call options on futures contracts written by the Portfolio may also be covered
in such other manner as may be in accordance with the rules of the exchange on
which, or the counterparty with which, the option is traded, and applicable laws
and regulations. Upon the exercise of a call option on a futures contract
written by the Portfolio, the Portfolio will be required to sell the underlying
futures contract, which, if the Portfolio has covered its obligation through the
purchase of such contract, will serve to liquidate its futures position.
Similarly, where a put option on a futures contract written by the Portfolio is
exercised, the Portfolio will be required to purchase the underlying futures
contract, which, if the Portfolio has covered its obligation through the sale of
such contract, will close out its futures position.
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.
The Global Bond, Worldwide High Income, MFS Total Return, Asset
Allocation, Real Estate, International Growth and Income, Global Equities,
International Diversified Equities and Emerging Markets 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. Each Portfolio may attempt to accomplish objectives similar to
those involved in their use of futures contracts by purchasing or selling put or
call options on currencies, currency futures contracts, and financial index
futures (including, in the case of the MFS Mid-Cap Growth
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and Global Equities Portfolios, stock index futures). A foreign currency put
option gives the Portfolio as purchaser the right (but not the obligation) to
sell a specified amount of currency at the exercise price until the expiration
of the option. A call option gives the Portfolio as purchaser the right (but not
the obligation) to purchase a specified amount of currency at the exercise price
until its expiration. A Portfolio might purchase a currency put option, for
example, to protect itself during the contract period against a decline in the
U.S. dollar value of a currency in which it holds or anticipates holding
securities. If the currency's value should decline against the U.S. dollar, the
loss in currency value should be offset, in whole or in part, by an increase in
the value of the put. If the value of the currency instead should rise against
the U.S. dollar, any gain to the Portfolio would be reduced by the premium it
had paid for the put option. A currency call option might be purchased, for
example, in anticipation of, or to protect against, a rise in the value against
the U.S. dollar of a currency in which a Portfolio anticipates purchasing
securities.
Currency options may be either listed on an exchange or traded
over-the-counter ("OTC options"). Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation), and have standardized strike prices
and expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates. OTC options differ from exchange-traded options in
that OTC options are transacted with dealers directly and not through a clearing
corporation (which guarantees performance). Consequently, there is a risk of
non-performance by the dealer. Since no exchange is involved, OTC options are
valued on the basis of a quote provided by the dealer. A Portfolio will not
purchase an OTC option unless it is believed that daily valuations for such
options are readily obtainable. In the case of OTC options, there can be no
assurance that a liquid secondary market will exist for any particular option at
any specific time.
An option on a securities index is similar to an option on a security
except that, rather than the right to take or make delivery of a security at a
specified price, an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
chosen index is greater than (in the case of a call) or less than (in the case
of a put) the exercise price of the option.
Options on futures contracts to be written or purchased by a Portfolio
will be traded on U.S. or foreign exchanges or over-the-counter. These
investment techniques will be used only to hedge against anticipated future
changes in market conditions or exchange rates that otherwise might either
adversely affect the value of a Portfolio's securities or adversely affect the
prices of securities a Portfolio intends to purchase at a later date.
The MFS Mid-Cap Growth Portfolio may effect a closing transaction in
the case of a written call option that will permit the Portfolio to write
another call option on the underlying security with either a different exercise
price or expiration date or both, or in the case of a written put option will
permit the Portfolio to write another put option to the extent that the exercise
price thereof is secured
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by deposited cash or short-term securities. Such transactions permit the
Portfolio to generate additional premium income, which will partially offset
declines in the value of portfolio securities or increases in the cost of
securities to the acquired. Also, effecting a closing transaction will permit
the proceeds from the concurrent sale of any securities subject to the option to
be used for other investments of the Portfolio, provided that another option on
such security is not written. If the Portfolio desires to sell a particular
security from its portfolio on which it has written a call option, it will
effect a closing transaction in connection with the option prior to or
concurrent with the sale of the security.
The Portfolio will realize a profit from a closing transaction if the
premium paid in connection with the closing of an option written by the
Portfolio is less than the premium received from writing the option, or if the
premium received in connection with the closing of an option purchased by the
Portfolio is more than the premium paid for the original purchase. Conversely,
the Portfolio will suffer a loss if the premium paid or received in connection
with a closing transaction is more or less, respectively, than the premium
received or paid in establishing the option position. Because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from the closing out of a
call option previously written by the Portfolio is likely to be offset in whole
or in part by appreciation of the underlying security owned by the Portfolio.
The Portfolio may write options in connection with buy-and-write
transactions; that is, the Portfolio may purchase a security and then write a
call option against that security. The exercise price of the call option the
Portfolio determines to write will depend upon the expected price movement of
the underlying security. The exercise price of a call option may be below
("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money") the
current value of the underlying security at the time the option is written. If
the call options are exercised in such transactions, the Portfolio's maximum
gain will be the premium received by it for writing the option, adjusted upwards
or downwards by the difference between the Portfolio's purchase price of the
security and the exercise price, less related transaction costs. If the options
are not exercised and the price of the underlying security declines, the amount
of such decline will be offset in part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk return
characteristics to buy-and-write transactions. Put options could be used by the
Portfolio in the same market environments that call options would be used in
equivalent buy-and-write transactions.
The Portfolio may write a combination of a put and call option on the
same security, a practice known as a "straddle." By writing a straddle, the
Portfolio undertakes a simultaneous obligation to sell and purchase the same
security in the event that one of the options is exercised.
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If the price of the security subsequently rises sufficiently above the exercise
price to cover the amount of the premium and transaction costs, the call will
likely be exercised and the Portfolio will be required to sell the underlying
security at a below market price. This loss may be offset, however, in whole or
in part, by the premiums received on the writing of the two options. Conversely,
if the price of the security declines by a sufficient amount, the put will
likely be exercised. The writing of straddles will likely be effective,
therefore, only where the price of a security remains stable and neither the
call nor the put is exercised. In an instance where one of the options is
exercised, the loss on the purchase or sale of the underlying security may
exceed the amount of the premiums received.
By writing a call option, the Portfolio limits its opportunity to
profit from any increase in the market value of the underlying security above
the exercise price of the option. By writing a put option, the Portfolio assumes
the risk that it may be required to purchase the underlying security for an
exercise price above its then current market value, resulting in a capital loss
unless the security subsequently appreciates in value. The writing of options on
securities will be undertaken by the Portfolio for purposes in addition to
hedging, and could involve certain risks not present in the case of hedging
transactions. Moreover, even where options are written for hedging purposes,
such transactions will constitute only a partial hedge against declines in the
value of portfolio securities or against increases in the value of securities to
be acquired, up to the amount of the premium.
CERTAIN RISK FACTORS AFFECTING UTILITY COMPANIES. The Utility and Real
Estate Portfolios may invest in equity and debt securities of utility companies.
There are certain risks and considerations affecting utility companies, and the
holders of utility company securities, that an investor should take into account
when investing in those securities. Factors that may adversely affect utility
companies include: difficulty in financing large construction programs during
inflationary periods; technological innovations that may cause existing plants,
equipment, or products to become less competitive or obsolete; the impact of
natural or man-made disaster (especially on regional utilities); increased costs
or reductions in production due to the unavailability of appropriate types of
fuels; seasonally or occasionally reduced availability or higher cost of natural
gas; and reduced demand due to energy conservation among consumers. These
revenues of domestic and foreign utility companies generally reflect the
economic growth and developments in the geographic areas in which they do
business. Furthermore, utility securities tend to be interest rate sensitive.
In addition, most utility companies in the United States and in foreign
countries are subject to government regulation. Generally, the purpose of such
regulation is to ensure desirable levels of service and adequate capacity to
meet public demand. To this end, prices are often regulated to enable consumers
to obtain service at what is perceived to be a fair price, while attempting to
provide utility companies with a rate of return sufficient to attract capital
investment necessary for continued operation and necessary growth. Utility
regulators permit utilities to diversify outside of their original geographic
regions and their traditional lines of business. While the Subadviser of the
relevant Portfolio believes that these opportunities will permit certain utility
companies to earn more than their traditional regulated rates of return, other
companies may be forced to defend their core
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business and may be less profitable. Of course, there can be no assurance that
the regulatory policies described in this paragraph will continue in the future.
In addition to the effects of regulation described in the previous
paragraph, utility companies may also be adversely affected by the following
regulatory considerations: (i) the development and implementation of a national
energy policy; (ii) the differences between regulatory policies of different
jurisdictions (or different regulators that have concurrent jurisdiction); (iii)
shifts in regulatory policies; (iv) adequacy of rate increases; and (v) future
regulatory legislation.
Foreign utility companies may encounter different risks and
opportunities than those located in the United States. Foreign utility companies
may be more heavily regulated than their United States counterparts. Many
foreign utility companies currently use fuels that cause more pollution than
fuels used by United States utilities. In the future, it may be necessary for
such foreign utility companies to invest heavily in pollution control equipment
or otherwise meet pollution restrictions. Rapid growth in certain foreign
economies may encourage the growth of utility industries in those countries.
In addition to the foregoing considerations, which affect most utility
companies, there are specific considerations that affect specific utility
industries:
Electric. The electric utility industry is composed of
companies engaged in the generation, transmission, and sale of
electric energy. Electric utility companies may be affected
either favorably or unfavorably, depending upon the
circumstances, by the following: fuel costs; financing costs;
size of the region in which sales are made; operating costs;
environmental and safety regulations; changes in the
regulatory environment; and the length of time needed to
complete major construction projects.
In the United States, the construction and operation of
nuclear power facilities is subject to a high degree of
regulatory oversight by the Nuclear Regulatory Commission and
state agencies with concurrent jurisdiction. In addition, the
design, construction, licensing, and operation of nuclear
power facilities are often subject to lengthy delays and
unanticipated costs due to changes in regulatory policy,
regional political actions, and lawsuits. Furthermore, during
rate authorizations, utility regulators may disallow the
inclusion in electric rates of the higher operating costs and
expenditures resulting from these delays and unanticipated
costs, including the costs of a nuclear facility that a
utility company may never be able to use.
Telecommunications. The telephone industry is large and highly
concentrated. The greatest portion of this segment is
comprised of companies that distribute telephone services and
provide access to the telephone networks. While many telephone
companies have diversified into other
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businesses in recent years, the profitability of telephone
utility companies could be adversely affected by increasing
competition, technological innovations, and other structural
changes in the industry.
Cable television companies are typically local monopolies,
subject to scrutiny by both utility regulators and municipal
governments. Emerging technologies and legislation encouraging
local competition are combining to threaten these monopolies
and may slow future growth rates of these companies. The radio
telecommunications segment of this industry, including
cellular telephone, is in its early developmental phase and is
characterized by emerging, rapidly growing companies.
Gas. Gas transmission and distribution companies are
undergoing significant changes. In the United States, the
Federal Energy Regulatory Commission is reducing its
regulation of interstate transmission of gas. While gas
utility companies have in the recent past been adversely
affected by disruptions in the oil industry, increased
concentration, and increased competition, the Subadviser
believes that environmental considerations should benefit the
gas industry in the future.
Water. Water utility companies purify, distribute, and sell
water. This industry is highly fragmented because most of the
water supplies are owned by local authorities. Water utility
companies are generally mature and are experiencing little or
no per capita volume growth. The Subadviser believes that
favorable investment opportunities may result if anticipated
consolidation and foreign participation in this industry
occurs.
CONVENTIONAL MORTGAGE PASS-THROUGH SECURITIES. Conventional mortgage
pass-through securities represent participation interests in pools of mortgage
loans that are issued by trusts formed by originators of the institutional
investors in mortgage loans (or represent custodial arrangements administered by
such institutions). These originators and institutions include commercial banks,
savings and loan associations, credit unions, savings banks, insurance
companies, investment banks or special purpose subsidiaries of the foregoing.
For federal income tax purposes, such trusts are generally treated as grantor
trusts or real estate mortgage conduits ("REMIC") and, in either case, are
generally not subject to any significant amount of federal income tax at the
entity level.
The mortgage pools underlying conventional mortgage pass-throughs
consist of conventional mortgage loans evidenced by promissory notes secured by
first mortgages or first deeds of trust or other similar security instruments
creating a first lien on residential or mixed residential and commercial
properties. Conventional mortgage pass-throughs (whether fixed or adjustable
rate)
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provide for monthly payments that are a "pass-through" of the monthly interest
and principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees or other amount paid to
any guarantor, administrator and/or servicer of the underlying mortgage loans. A
trust fund with respect to which a REMIC election has been made may include
regular interests in other REMICs, which in turn will ultimately evidence
interests in mortgage loans.
Conventional mortgage pools generally offer a higher rate of interest
than government and government-related pools because of the absence of any
direct or indirect government or agency payment guarantees. However, timely
payment of interest and principal of mortgage loans in these pools may be
supported by various forms of insurance or guarantees, including individual
loans, title, pool and hazard insurance and letters of credit. The insurance and
guarantees may be issued by private insurers and mortgage poolers. Although the
market for such securities is becoming increasingly liquid, mortgage-related
securities issued by private organizations may not be readily marketable.
DOLLAR ROLLS. These are instruments in which a 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 prices 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. 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. The Corporate Bond, Global Bond, High-Yield Bond,
SunAmerica Balanced, MFS Total Return, Asset Allocation, MFS Growth and Income
and MFS Mid-Cap Growth Portfolios may invest in dollar rolls.
CERTAIN COLLATERALIZED MORTGAGE OBLIGATIONS. Principal and interest on
the underlying mortgage assets may be allocated among the several classes of
collateralized mortgage obligations ("CMOs") in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the mortgage assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are structured to apply principal payments and
prepayments of the mortgage assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
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A wide variety of CMOs may be issued in the parallel pay or sequential
pay structures. These securities include accrual certificates (also known as
"Z-Bonds"), which accrue interest at a specified rate only until all other
certificates having an earlier final distribution date have been retired and are
converted thereafter to an interest-paying security, and planned amortization
class ("PAC") certificates, which are parallel pay CMOs, which generally require
that specified amounts of principal be applied on each payment date to one or
more classes of CMOs (the "PAC Certificates"), even though all other principal
payments and prepayments of the mortgage assets are then required to be applied
to one or more other classes of the certificates. The scheduled principal
payments for the PAC Certificates generally have the highest priority on each
payment date after interest due has been paid to all classes entitled to receive
interest currently. Shortfalls, if any, are added to the amount payable on the
next payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to create
PAC tranches, one or more tranches generally must be created that absorb most of
the volatility in the underlying mortgage assets. These tranches tend to have
market prices and yields that are much more volatile than the PAC classes.
WARRANTS. The Corporate Bond, High-Yield Bond, SunAmerica Balanced, MFS Total
Return, Utility, Federated Value, MFS Growth and Income, Putnam Growth, Real
Estate, Aggressive Growth, International Growth and Income, International
Diversified Equities and Emerging Markets 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. Such
investments can generally provide a greater potential for profit or loss than
investments of equivalent amounts in the underlying common stock. The prices of
warrants do not necessarily move with the prices of the underlying securities.
If the holder does not sell the warrant, it risks the loss of its entire
investment if the market price of the underlying stock does not, before the
expiration date, exceed the exercise price of the warrant plus the cost thereof.
Investment in warrants is a speculative activity. Warrants pay no dividends and
confer no rights (other than the right to purchase the underlying stock) with
respect to the assets of the issuer. Although the Portfolios may not invest
directly in warrants, such Portfolios may invest in securities that are acquired
as part of a unit consisting of a combination of fixed income and equity
securities or securities to which warrants are attached.
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NON-DIVERSIFIED STATUS. The Global Bond, Worldwide High Income, "Dogs"
of Wall Street, MFS Mid-Cap Growth and International Diversified Equities
Portfolios have registered as "non-diversified" investment companies. As a
result, under the 1940 Act, the Portfolios are limited only by their own
investment restrictions as to the percentage of their assets that may be
invested in the securities of any one issuer. However, in spite of the
flexibility under the 1940 Act, the Portfolios would still have to meet
quarterly diversification requirements under the Code in order for the
Portfolios to qualify as a regulated investment company. As a result of the
Code's diversification requirements, the Portfolios may not have the latitude to
take full advantage of the relative absence of 1940 Act diversification
requirements.
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
COMMERCIAL PAPER RATINGS. Moody's employs the designations "P-1," "P-2"
and "P-3" to indicate commercial paper having the highest capacity for timely
repayment. Issuers rated P-1 have a superior capacity for repayment of
short-term promissory obligations. P-1 repayment capacity will normally be
evidenced by the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity. Issues rated P-2
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
Standard & Poor's ratings of commercial paper are graded into four
categories ranging from A for the highest quality obligations to D for the
lowest. A - Issues assigned its highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with numbers 1, 2, and 3 to indicate the relative degree of safety. A-1 - This
designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues rated A-1 that are determined
to possess overwhelming safety characteristics will be denoted with a plus (+)
sign designation. A-2 - Capacity for timely payments on issues with this
designation is strong. However, the relative degree of safety is not as high as
for issues designated A-1.
Duff & Phelps Rating Co. ("Duff & Phelps") commercial paper ratings are
consistent with the short-term rating criteria utilized by money market
participants. Duff & Phelps commercial paper ratings refine the traditional 1
category. The majority of commercial issuers carry the higher short-term rating
yet significant quality differences within that tier do exist. As a consequence,
Duff & Phelps has incorporated gradations of 1+ and 1- to assist investors in
recognizing those differences.
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Duff 1+ - Highest certainty of time repayment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations. Duff 1 - Very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor. Duff 1- - High certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small. Duff 2 - Good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small. Duff 3 - Satisfactory liquidity and other
protection factors, qualify issue as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected. Duff 4
- - Speculative investment characteristics. Liquidity is not sufficient to insure
against disruption in debt service. Operating factors and market access may be
subject to a high degree of variation. Duff 5 - Default.
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. The short-term rating places greater emphasis than a long-term
rating on the existence of liquidity necessary to meet the issuer's obligations
in a timely manner. Fitch short-term ratings are as follows: F-1+ Exceptionally
Strong Credit Quality - Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment. F-1 Very Strong Credit Quality
- -Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+. F-2 Good Credit Quality - Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings. F-3 Fair Credit Quality -Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse changes could cause these securities to be
rated below investment grade. F-5 Weak Credit Quality - Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions. D Default Issues assigned this rating are in actual or
imminent payment default. LOC - The symbol LOC indicates that the rating is
based on a letter of credit issued by a commercial bank.
Thomson BankWatch, Inc. ("BankWatch") short-term ratings apply only to
unsecured instruments that have a maturity of one year or less. These short-term
ratings specifically assess the likelihood of an untimely payment of principal
and interest. TBW-1 is the highest category, which indicates a very high degree
of likelihood that principal and interest will be paid on a timely basis. TBW-2
is the second highest category and, while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated TBW-1.
CORPORATE DEBT SECURITIES. Moody's rates the long-term debt securities
issued by various entities from "Aaa" to "C." Aaa - Best quality. These
securities carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
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<PAGE> 126
larger, or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are more unlikely to impair the fundamentally strong position of
these issues. Aa - High quality by all standards. They are rated lower than the
best bond because margins of protection may not be as large as in Aaa
securities, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present that make the long-term risks appear
somewhat greater. A - Upper medium grade obligations. These bonds possess many
favorable investment attributes. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future. Baa Medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well. Ba - Have speculative elements; future cannot be
considered as well assured. The protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both good and bad
times over the future. Bonds in this class are characterized by uncertainty of
position. B - Generally lack characteristics of the desirable investment
assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small. Caa - Of poor standing.
Issues may be in default or there may be present elements of danger with respect
to principal or interest. Ca - Speculative in a high degree; often in default or
have other marked shortcomings. C - Lowest rated class of bonds; can be regarded
as having extremely poor prospects of ever attaining any real investment
standings.
Standard & Poor's rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality. AAA -
Highest rating. Capacity to pay interest and repay principal is extremely
strong. AA - High grade. Very strong capacity to pay interest and repay
principal. Generally, these bonds differ from AAA issues only in a small degree.
A - Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions than debt in higher rated categories. BBB - Regarded as
having adequate capacity to pay interest and repay principal. These bonds
normally exhibit adequate protection parameters, but adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal than for debt in higher rated categories. BB, B,
CCC, CC, C - Regarded, on balance, as predominately speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While this debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. C1 - Reserved for income bonds on which no
interest is being paid. D - In default and payment of interest and/or repayment
of principal is in arrears.
Fitch rates the long-term debt securities issued by various entities in
categories "AAA" to "D" according to quality. AAA is considered to be investment
grade and of the highest credit quality. The ability to pay interest and repay
principal is exceptionally strong. AA is considered to be investment grade and
of very high credit quality. The ability to pay interest and repay principal is
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very strong, although not quite as strong as AAA issues. A is considered to be
investment grade and of high credit quality. The ability to pay interest and
repay principal is strong, but these issues may be more vulnerable to adverse
changes in economic conditions and circumstances than higher rated issues. BBB
is considered to be investment grade and of satisfactory credit quality. The
ability to pay interest and repay principal is adequate. These issues are more
likely to be affected by adverse changes in economic conditions and
circumstances and, therefore, impair timely payment. The likelihood that the
ratings of these issues will fall below investment grade is higher than for
issues with higher ratings. BB is considered speculative. The ability to pay
interest and repay principal may be affected over time by adverse economic
changes. B is considered highly speculative. The probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue. CCC issues are considered to have certain identifiable
characteristics, which may lead to default. The ability to meet obligations
requires an advantageous business and economic environment. CC issues are
minimally protected and default in payment of interest and/or principal seems
probable over time. Issues rated C are in imminent default in payment of
interest or principal. DDD, DD, and D issues are in default on interest and/or
principal payments and are extremely speculative. Plus(+) and minus(-) signs are
used with a rating symbol to indicate the relative position within the rating
category.
Duff & Phelps rates long-term debt specifically to credit quality,
i.e., the likelihood of timely payment for principal and interest. AAA is
considered the highest quality. AA is considered high quality. A is regarded as
good quality. BBB is considered to be investment grade and of satisfactory
credit quality. BB and B are considered to be non-investment grade and CCC is
regarded as speculative. Ratings in the long-term debt categories may include a
plus(+) or minus(-) designation, which indicates where within the respective
category the issue is placed.
BankWatch rates the long-term debt securities issued by various
entities either AAA or AA. AAA is the highest category, which indicates the
ability to repay principal and interest on a timely basis is very high. AA is
the second highest category, which indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category. Ratings in the long-term debt categories
may include a plus (+) or minus (-) designation, which indicates where within
the respective category the issue is placed.
INVESTMENT RESTRICTIONS
The Trust has adopted certain investment restrictions for each
Portfolio that cannot be changed without approval by a majority of its
outstanding voting securities. Such majority is defined as the vote of the
lesser of (i) 67% or more of the outstanding shares of the Portfolios present at
a meeting, if the holders of more than 50% of the outstanding shares are present
in person or by proxy or (ii) more than 50% of the outstanding shares of the
Portfolios.
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INVESTMENT RESTRICTIONS OF THE CASH MANAGEMENT PORTFOLIO
The Cash Management Portfolio has adopted the following restrictions
that are fundamental policies. These fundamental policies, as well as the Cash
Management Portfolio's investment objective, cannot be changed without approval
by a majority of its outstanding voting securities. All percentage limitations
expressed in the following investment restrictions are measured immediately
after the relevant transaction is made. The Cash Management Portfolio may not:
1. Invest more than 5% of the value of its total assets in the
securities of any one issuer, provided that this limitation shall apply only to
75% of the value of the Portfolio's total assets, and, provided further, that
the limitation shall not apply to obligations of the government of the U.S. or
of any corporation organized as an instrumentality of the U.S. under a general
act of Congress.
2. As to 75% of its total assets, purchase more than 10% of the
outstanding voting class of securities of an issuer.
3. Invest more than 25% of the Portfolio's total assets in the
securities of issuers in the same industry. Obligations of the U.S. government,
its agencies and instrumentalities, are not subject to this 25% limitation on
industry concentration. In addition, the Portfolio may, if deemed advisable,
invest more than 25% of its assets in the obligations of domestic commercial
banks.
4. Make loans to others except: (a) for the purchase of the debt
securities listed above under its Investment Policies; or (b) as otherwise
permitted by exemptive order of the SEC.
5. Borrow money, except for temporary purposes, and then in an amount
not in excess of 5% of the value of the Portfolio's total assets. Moreover, in
the event that the asset coverage for such borrowings falls below 300%, the
Portfolio will reduce within three days the amount of its borrowings in order to
provide for 300% asset coverage.
6. Sell securities short except to the extent that the Portfolio
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short.
7. Act as underwriter of securities issued by others, engage in
distribution of securities for others, or make investments in other companies
for the purpose of exercising control or management.
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In addition to the foregoing, the Cash Management Portfolio has adopted
the following non-fundamental policies (which may be changed by the Trustees
without shareholder approval). Under these restrictions, the Cash Management
Portfolio may not:
a. Enter into any repurchase agreement maturing in more than seven days
or invest in any other illiquid security if, as a result, more than 10% of the
Portfolio's total assets would be so invested.
b. Pledge or hypothecate its assets.
c. Invest in puts, calls, straddles, spreads or any combination
thereof, except as permitted by the Prospectus and Statement of Additional
Information, as amended from time to time.
d. Invest in securities of other investment companies except to the
extent permitted by applicable law and the Prospectus and Statement of
Additional Information, as amended from time to time.
e. Invest more than 5% of its assets (measured at the time of purchase)
in the securities of any one issuer (other than the U.S. government); provided
however, that the Cash Management Portfolio may invest, as to 25% of its assets,
more than 5% of its assets in certain high quality securities (in accordance
with Rule 2a-7 under the 1940 Act) of a single issuer for a period of up to
three business days. Notwithstanding fundamental investment restriction Number 1
above, in order to comply with Rule 2a-7 under the 1940 Act, the Cash Management
Portfolio has adopted this more restrictive policy. The purchase by the Cash
Management Portfolio of securities that have "put" or "stand-by" commitment
features are not considered "puts" for purposes of non-fundamental investment
restriction C above.
INVESTMENT RESTRICTIONS OF THE CORPORATE BOND PORTFOLIO, GLOBAL BOND
PORTFOLIO, HIGH-YIELD BOND PORTFOLIO, WORLDWIDE HIGH INCOME PORTFOLIO,
SUNAMERICA BALANCED PORTFOLIO, MFS TOTAL RETURN PORTFOLIO, ASSET
ALLOCATION PORTFOLIO, UTILITY PORTFOLIO, EQUITY INCOME PORTFOLIO,
EQUITY INDEX PORTFOLIO, GROWTH-INCOME PORTFOLIO, FEDERATED VALUE
PORTFOLIO, VENTURE VALUE PORTFOLIO, "DOGS" OF WALL STREET PORTFOLIO,
ALLIANCE GROWTH PORTFOLIO, MFS GROWTH AND INCOME PORTFOLIO, PUTNAM
GROWTH PORTFOLIO, REAL ESTATE PORTFOLIO, SMALL COMPANY VALUE PORTFOLIO,
MFS MID-CAP GROWTH PORTFOLIO, AGGRESSIVE GROWTH PORTFOLIO,
INTERNATIONAL GROWTH AND INCOME PORTFOLIO, GLOBAL EQUITIES PORTFOLIO,
INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO AND EMERGING MARKETS
PORTFOLIO
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<PAGE> 130
The Corporate Bond Portfolio, Global Bond Portfolio, High-yield Bond Portfolio,
Worldwide High Income Portfolio, SunAmerica Balanced Portfolio, MFS Total Return
Portfolio, Asset Allocation Portfolio, Utility Portfolio, Equity Income
Portfolio, Equity Index Portfolio, Growth-Income Portfolio, Federated Value
Portfolio, Venture Value Portfolio, "Dogs" of Wall Street Portfolio, Alliance
Growth Portfolio, MFS Growth and Income Portfolio, Putnam Growth Portfolio, Real
Estate Portfolio, Small Company Value Portfolio, MFS Mid-Cap Growth Portfolio,
Aggressive Growth Portfolio, International Growth and Income Portfolio, Global
Equities Portfolio, International Diversified Equities Portfolio and Emerging
Markets Portfolio have each adopted the following investment restrictions that
are fundamental policies. These fundamental policies cannot be changed without
the approval of the holders of a majority of the outstanding voting securities
of the respective Portfolio. All percentage limitations expressed in the
following investment restrictions are measured immediately after the relevant
transaction is made. These Portfolios may not:
1. Other than the Global Bond, Worldwide High Income, "Dogs" of Wall
Street, MFS Mid-Cap Growth and International Diversified Equities Portfolios,
invest more than 5% of the value of the total assets of a Portfolio in the
securities of any one issuer, provided that this limitation shall apply only to
75% of the value of the Portfolio's total assets and, provided further, that the
limitation shall not apply to obligations issued or guaranteed by the government
of the United States or of any of its agencies or instrumentalities.
2. As to 75% of its total assets, purchase more than 10% of any class
of the outstanding voting securities of an issuer. This restriction does not
apply to the Global Bond, Worldwide High Income, "Dogs" of Wall Street, MFS
Mid-Cap Growth and International Diversified Equities Portfolios.
3. Invest more than 25% of the Portfolio's total assets in the
securities of issuers in the same industry, except that the Utility Portfolio
will invest at least 25% of its total assets in the securities of utility
companies, the Real Estate Portfolio will invest at least 25% of its total
assets in the securities of real estate companies and the "Dogs" of Wall Street
Portfolio may invest more than 25% of its assets in the securities of issuers in
the same industry to the extent such investments would be selected according to
stock selection criteria. Obligations of the U.S. government, its agencies and
instrumentalities are not subject to this 25% limitation on industry
concentration. The Portfolio may, if deemed advisable, invest more than 25% of
its assets in the obligations of domestic commercial banks. With respect to all
Portfolios other than the Utility Portfolio, as to utility companies, the gas,
electric, water and telephone businesses will be considered separate industries.
4. Invest in real estate (including in the case of all Portfolios
except the Equity Income, Equity Index, Real Estate and Small Company Value
Portfolios limited partnership interests, but excluding in the case of all
Portfolios securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein); provided that a Portfolio may hold or
sell real estate
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<PAGE> 131
acquired as a result of the ownership of securities. This limitation shall not
prevent a Portfolio from investing in securities secured by real estate or
interests therein.
5. Purchase commodities or commodity contracts; except that any
Portfolio may engage in transactions in put and call options on securities,
indices and currencies, forward and futures contracts on securities, indices and
currencies, put and call options on such futures contracts, forward commitment
transactions, forward foreign currency exchange contracts, interest-rate,
mortgage and currency swaps and interest-rate floors and caps.
6. Borrow money, except to the extent permitted by applicable law or
regulatory approval.
7. Purchase securities or evidences of interest therein on margin,
except that the Portfolios may obtain such short-term credit as may be necessary
for the clearance of any transaction.
8. Make loans to others except for (a) the purchase of debt securities;
(b) entering into repurchase agreements; (c) the lending of its portfolio
securities; and (d) as otherwise permitted by exemptive order of the Securities
Exchange Commission.
In addition to the foregoing, the Corporate Bond, Global Bond,
High-Yield Bond, Worldwide High Income, SunAmerica Balanced, MFS Total Return,
Asset Allocation, Utility, Equity Income, Equity Index, Growth-Income, Federated
Value, Venture Value, "Dogs" of Wall Street, Alliance Growth, Small Company
Value, Real Estate, MFS Growth and Income, Putnam Growth, MFS Mid-Cap Growth,
Aggressive Growth, International Growth and Income, Global Equities,
International Diversified Equities and Emerging Markets Portfolios have each
adopted the following non-fundamental policies (which may be changed by the
Trustees without shareholder approval). Under these restrictions, such
Portfolios may not:
a. Enter into any repurchase agreement maturing in more than seven days
or investing in any other illiquid security if, as a result, more than 15% of a
Portfolio's total assets would be so invested.
b. Invest in securities of other investment companies, except to the
extent permitted by applicable law and the Prospectus and Statement of
Additional Information, as amended from time to time.
c. Other than the Emerging Markets Portfolio, pledge, mortgage or
hypothecate its assets, except to the extent necessary to secure permitted
borrowings and, to the extent related to the segregation of assets in connection
with the writing of covered put and call options and the purchase of securities
or currencies on a forward commitment or delayed-delivery basis and collateral
and initial or variation margin arrangements with respect to forward contracts,
options, futures contracts
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and options on futures contracts. In addition, the Corporate Bond, High-Yield
Bond, Worldwide High Income, SunAmerica Balanced, Utility, Federated Value and
Aggressive Growth Portfolios may pledge assets in reverse repurchase agreements.
d. Invest in companies for the purpose of exercising control or
management.
e. Engage in underwriting of securities issued by others, except to the
extent it may be deemed to be acting as an underwriter in the purchase and
resale of portfolio securities.
f. Sell securities short except to the extent permitted by applicable
law.
g. Invest in puts, calls, straddles, spreads or any combination
thereof, except as permitted by the Prospectus and Statement of Additional
Information, as amended from time to time.
h. Issue any senior securities except as permitted by the 1940 Act,
other than, with respect to Equity Income, Equity Index and Small Company Value
Portfolios, as set forth in investment restriction number 6 and except to the
extent that issuing options or purchasing securities on a when-issued basis may
be deemed to constitute issuing a senior security.
TRUST OFFICERS AND TRUSTEES
The Trustees and executive officers of the Trust, their ages and
principal occupations for the past five years are set forth below. Each Trustee
also serves as a trustee of the Anchor Pathway Fund and Seasons Series Trust.
Unless otherwise noted, the address of each executive officer and trustee is 1
SunAmerica Center, Los Angeles, California 90067-6022.
<TABLE>
<CAPTION>
Name, Age and Position(s) Principal Occupation(s) During Past Five Years
------------------------- ----------------------------------------------
Held with the Trust
-------------------
<S> <C>
JAMES K. HUNT, * 47, Executive Vice President, SunAmerica Investments, Inc. (1993
Trustee, Chairman and President to present); President, SunAmerica Corporate Finance (since
January 1994); Trustee Anchor Pathway Fund ("APF") and
Seasons Series Trust ("Seasons").
</TABLE>
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<PAGE> 133
<TABLE>
<CAPTION>
Name, Age and Position(s) Principal Occupation(s) During Past Five Years
------------------------- ----------------------------------------------
Held with the Trust
-------------------
<S> <C>
MONICA C. LOZANO, 42 Associate Publisher, La Opinion (newspaper publishing
Trustee concern) since 1995: Director, First Interstate Bank of
3257 Purdue Avenue California from 1994-1996; Editor, La Opinion, from
Los Angeles, CA 90066 1991-1995.
ALLAN L. SHER, 67, Retired; Trustee, APF and Seasons.
Trustee
WILLIAM M. WARDLAW, 52, Principal, Freeman Spogli & Co. (investment banking)
Trustee (1988-present); Vice President and Director, MCC
International Holdings (cable) (since April 1998);
Trustee, APF and Seasons.
SCOTT L. ROBINSON, 52, Senior Vice President and Controller, SunAmerica Inc. (since
Senior Vice President, Treasurer and Controller 1991); Senior Vice President of Anchor National (since
1988); Senior Vice President, Treasurer and Controller, APF
and Seasons; Joined SunAmerica in 1978.
</TABLE>
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<PAGE> 134
<TABLE>
<CAPTION>
Name, Age and Position(s) Principal Occupation(s) During Past Five Years
------------------------- ----------------------------------------------
Held with the Trust
-------------------
<S> <C>
SUSAN L. HARRIS, 41, Senior Vice President (since November 1995), Secretary
Vice President, Counsel and Secretary (since 1995) and General Counsel-Corporate Affairs (since
December 1994), SunAmerica; Senior Vice President and
Secretary, Anchor National (since 1990); Vice President,
Counsel and Secretary, APF and Seasons; joined SunAmerica in
1985.
PETER C. SUTTON, 34 Senior Vice President, SAAMCo (since April 1997); Treasurer
Vice President and Assistant Treasurer (since February 1996), SunAmerica Equity Funds, SunAmerica
The SunAmerica Center Income Funds and SunAmerica Money Market Funds, Inc.
733 Third Avenue ("SunAmerica Mutual Funds" or "SAMF"), Anchor Series Trust
New York, NY 10017-3204 ("AST") and Style Select Series, Inc. ("Style Select"); Vice
President and Assistant Treasurer, APF (since October 1994)
and Seasons (since April 1997); formerly Vice President,
SAAMCo (1994-1997); Controller, SAMF and AST (1993-1996);
Assistant Controller, SAMF and AST (1990-1993); joined
SAAMCo in 1990.
ROBERT M. ZAKEM, 40 Senior Vice President, General Counsel and Assistant
Vice President and Assistant Secretary Secretary, SAAMCo (since April 1993); Secretary and Chief
The SunAmerica Center Compliance Officer, SAMF and AST (since 1993), Style Select
733 Third Avenue (since 1996); Executive Vice President, General Counsel and
New York, NY 10017-3204 Director, SunAmerica Capital Services, Inc. (since February
1993); Vice President, General Counsel and Assistant
Secretary, SunAmerica Fund Services, Inc. (since January
1994); Vice President and Assistant Secretary, APF (since
September 1993) and Seasons (since April 1997).
</TABLE>
* A trustee who may be deemed to be an "interested person" of the Trust as
that term is defined in the 1940 Act.
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<PAGE> 135
The Trustees of the Trust are responsible for the overall supervision
of the operation of the Trust and each Portfolio and perform various duties
imposed on directors/trustees of investment companies by the 1940 Act and under
the Trust's Declaration of Trust. The Trust pays no salaries or compensation to
any of its officers, all of whom are officers or employees of Anchor National
Life Insurance Company or its affiliates. An annual fee of $7,000, plus $500 for
each meeting attended, and expenses are paid to each Trustee who is not an
officer or employee of Anchor National Life Insurance Company or its affiliates
for attendance at meetings of the Board of Trustees. All other Trustees receive
no remuneration from the Trust.
The following table sets forth information summarizing the compensation
of each of the Trustees for his services as Trustee for the fiscal year ended
November 30, 1998.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT TOTAL COMPENSATION FROM
COMPENSATION FROM BENEFITS ACCRUED AS REGISTRANT AND FUND COMPLEX
REGISTRANT PART OF FUND EXPENSES PAID TO TRUSTEES*
TRUSTEE
<S> <C> <C> <C>
William M. Wardlaw - - -
Allan L. Sher - - -
</TABLE>
* Information is as of November 30, 1998 for the two funds in the complex
that pay fees to these Trustees (the Trust and Anchor Pathway Fund).
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
The Trust, on behalf of each Portfolio, entered into an Investment
Advisory and Management Agreement with SunAmerica Asset Management Corp. to
handle the management of the Trust and its day to day affairs. The Adviser is a
wholly-owned subsidiary of American International Group, Inc. ("AIG"), the
leading U.S.-based international insurance organization.
AIG, a Delaware corporation, is a holding company which through its
subsidiaries is primarily engaged in a broad range of insurance and insurance
related activities and financial services in the United States and abroad. AIG,
through its subsidiaries, is also engaged in a range
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<PAGE> 136
of financial services activities. AIG's asset management operations are carried
out primarily by AIG Global Investment Group, Inc., a direct wholly owned
subsidiary of AIG, and its affiliates (collectively, "AIG Global"). AIG Global
manages the investment portfolios of various AIG subsidiaries, as well as third
party assets, and is responsible for product design and origination, marketing
and distribution of third party asset management products, including offshore
and private investment funds and direct investment. As of June 30, 1998, AIG
Global managed more than $86 billion of assets, of which approximately $10.8
billion represented assets of unaffiliated third parties. AIG Capital Management
Corp., an indirect wholly-owned subsidiary of AIG Global Investment Group, Inc.,
serves as investment adviser to The AIG Money Market Fund, a separate series of
The Advisors' Inner Circle Fund, a registered investment company. In addition,
AIG Global Investment Corp., an AIG Global group company, serves as the
sub-investment adviser to an unaffiliated registered investment company. AIG
companies do not otherwise provide investment advice to any registered
investment companies.
The Investment Advisory and Management Agreement provides that the
Adviser shall act as investment adviser to the Trust, manage the Trust's
investments, administer its business affairs, furnish offices, necessary
facilities and equipment, provide clerical, bookkeeping and administrative
services, and permit any of the Adviser's officers or employees to serve without
compensation as Trustees or officers of the Trust if duly elected to such
positions. Under the Agreement, the Trust agrees to assume and pay certain
charges and expenses of its operations, including: direct charges relating to
the purchase and sale of portfolio securities, interest charges, fees and
expenses of independent legal counsel and independent accountants, cost of stock
certificates and any other expenses (including clerical expenses) of issue,
sale, repurchase or redemption of shares, expenses of registering and qualifying
shares for sale, expenses of printing and distributing reports, notices and
proxy materials to shareholders, expenses of data processing and related
services, shareholder recordkeeping and shareholder account service, expenses of
printing and distributing prospectuses and statements of additional information,
expenses of annual and special shareholders' meetings, fees and disbursements of
transfer agents and custodians, expenses of disbursing dividends and
distributions, fees and expenses of Trustees who are not employees of the
Adviser or its affiliates, membership dues in the Investment Company Institute
or any similar organization, all taxes and fees to federal, state or other
governmental agencies, insurance premiums and extraordinary expenses such as
litigation expenses.
Each Portfolio pays its actual expenses for custodian services and a
portion of the Custodian's costs determined by the ratio of portfolio assets to
the total assets of the Trust, brokerage commissions or transaction costs, and
registration fees. Subject to supervision of the Board of Trustees, fees for
independent accountants, legal counsel, costs of reports of notices to
shareholders will be allocated based on the relative net assets of each
Portfolio. With respect to audit or legal fees clearly attributable to one
Portfolio, they will be assessed, subject to review by the Board of Trustees,
against that Portfolio.
The Investment Advisory and Management Agreement, after initial
approval with respect to each Portfolio, continues in effect for a period of two
years, in accordance with its terms, unless
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<PAGE> 137
terminated, and thereafter may be renewed from year to year as to each Portfolio
for so long as such renewal is specifically approved at least annually by (i)
the Board of Trustees, or by the vote of a majority (as defined in the 1940 Act)
of the outstanding voting securities of each relevant Portfolio, and (ii) the
vote of a majority of Trustees who are not parties to the Agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person, at a meeting called for the purpose of voting on such approval. The
Agreement provides that it may be terminated by either party without penalty
upon the specified written notice contained in the Agreement. The Agreement also
provides for automatic termination upon assignment.
Under the terms of the Advisory Agreement, the Adviser is not liable to
the Trust, or to any other person, for any act or omission by it or for any
losses sustained by the Trust or its shareholders, except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
As compensation for its services, the Adviser receives from the Trust a
fee, accrued daily and payable monthly, based on the net assets of each
Portfolio. The following table sets forth the total advisory fees received by
the Adviser from each Portfolio pursuant to the Investment Advisory and
Management Agreement for the fiscal years ended November 30, 1998, 1997 and
1996.
ADVISORY FEES
<TABLE>
<CAPTION>
PORTFOLIO 1998 1997 1996
--------- ---- ---- ----
<S> <C> <C> <C>
Cash Management $718,297 $694,655
Corporate Bond
(formerly, Fixed Income) $325,988 $230,031
Global Bond $550,533 $458,390
High-Yield Bond $1,000,566 $638,948
Worldwide High Income $915,682 $368,821
SunAmerica Balanced $178,845 $20,449*
MFS Total Return
(formerly Balanced/Phoenix Investment
Counsel) ** $558,675 $354,683
Asset Allocation $2,556,963 $1,616,647
Utility $100,647 $13,890*
Growth-Income $2,784,063 $1,476,902
Federated Value $237,339 $23,973*
Venture Value $5,952,702 $2,305,064
Alliance Growth *** $3,145,937 $1,522,222
MFS Growth and Income (formerly
Growth/Phoenix Investment Counsel)** $1,299,894 $1,072,976
Putnam Growth
(formerly Provident Growth) $1,565,910**** $1,073,769
Real Estate* $58,800 --
Aggressive Growth $506,503 $65,277*
International Growth and Income* $125,310 --
Global Equities $2,337,577 $1,627,510
</TABLE>
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<PAGE> 138
<TABLE>
<CAPTION>
PORTFOLIO 1998 1997 1996
--------- ---- ---- ----
<S> <C> <C> <C>
International Diversified Equities $2,127,386 $1,025,593
Emerging Markets* $99,436 -
</TABLE>
For the fiscal year ended November 30, 1998, the Adviser voluntarily waived fees
or reimbursed expenses as follows:
[TO BE FILED BY AMENDMENT]
* For the period 6/2/97 (commencement of operations) through 11/30/97
** Until December 30, 1998, the Advisory Agreement with respect to the MFS
Total Return Portfolio (formerly the Balanced/Phoenix Investment Counsel
Portfolio) and the MFS Growth and Income Portfolio (formerly the Growth/Phoenix
Investment Counsel Portfolio) provided for an advisory fee payable by each
Portfolio to the Adviser at the following annual rates: .70% on the first $50
million; .65% on the next $100 million; .60% on the next $150 million; .55% on
the next $200 million; .50% over $500 million. The Advisory Agreement was
amended as of December 30, 1998 to provide for the following annual fee rates
with respect to the MFS Total Return Portfolio : .70% on the first $50 million
and .65% over $50 million. The Advisory Agreement was amended as of December 30,
1998 to provide for the following annual fee rate with respect to the MFS Growth
and Income Portfolio: .70% on the first $600 million; .65% on the next $900
million and .60% thereafter.
*** Until December 30, 1998, the Advisory Agreement with respect to the
Alliance Growth Portfolio provided for an advisory fee payable by the Portfolio
to the Adviser at the following annual rates: .70% on the first $50 million;
.65% on the next $100 million; .60% over $150 million; .55% on the next $200
million and .50% thereafter. The Advisory Agreement relating to the Alliance
Growth Portfolio was amended as of December 30, 1998 to provide for the
following annual fee rates: .70% on the first $50 million; .65% on the next $100
million and .60% over $150 million.
**** Until April 15, 1997, the Advisory Agreement with respect to the Putnam
Growth Portfolio provided for an advisory fee payable to the Adviser at the
following annual rates: .85% on the first $50 million of average daily net
assets; .80% on the next $100 million; .70% on the next $100 million; .65% on
the next $100 million; and .60% over $350 million. The Advisory Agreement
relating to the Putnam Growth Portfolio was amended as of April 15, 1997 to
provide for the following annual fee rates: .85% on the first $150 million of
average daily net assets; .80% on the next $150 million; and .70% over $300
million.
Personal Trading. The Trust and the Adviser have adopted a written Code
of Ethics (the "SunAmerica Code"), which prescribes general rules of conduct and
sets forth guidelines with respect to personal securities trading by "Access
Persons" thereof. An Access Person as defined in the SunAmerica Code is an
individual who is a trustee, director, officer, general partner or advisory
person of the Trust or the Adviser. The guidelines on personal securities
trading include: (i) securities being considered for purchase or sale, or
purchased or sold, by any Investment Company advised by the Adviser, (ii)
Initial Public Offerings, (iii) private placements, (iv) blackout periods, (v)
short-term trading profits, (vi) gifts, and (vii) services as a director. These
guidelines are substantially similar to those contained in the Report of the
Advisory Group on Personal Investing issued by the Investment Company
Institute's Advisory Panel. The Adviser reports to the Board of Trustees on a
quarterly basis, as to whether there were any violations of the SunAmerica Code
by Access Persons of the Trust or any Subadviser during the quarter.
B-58
<PAGE> 139
The Subadvisers have adopted a written Code of Ethics, the provisions
of which are materially similar to those in the SunAmerica Code, and have, with
the exception of Putnam Investment Management, Inc., undertaken to comply with
the provisions of the SunAmerica Code to the extent such provisions are more
restrictive. Further, the Subadvisers report to the Adviser on a quarterly
basis, as to whether there were any Code of Ethics violations by employees
thereof who may be deemed Access Persons of the Trust. In turn, the Adviser
reports to the Board of Trustees as to whether there were any violations of the
SunAmerica Code by Access Persons of the Trust or any Subadviser.
SUBADVISORY AGREEMENTS
Alliance Capital Management L.P. ("Alliance"), Davis Selected Advisers
L.P. ("Davis Selected"), Federated Investment Counseling ("Federated"), First
American Asset Management Group ("First American"), Goldman Sachs Asset
Management ("GSAM"), Goldman Sachs Asset Management International
("GSAM-International"), Morgan Stanley Dean Witter Investment Management ("MSDW
Investment Management"), Massachusetts Financial Services Company ("MFS") and
Putnam Investment Management, Inc. ("Putnam") act as Subadvisers to certain of
the Trust's Portfolios pursuant to various 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.
Alliance is ___. Federated is ____ of ____ ("Federated Investors").
With over $139.5 billion invested across more than 300 funds under management
and/or administration as of December 31, 1997, Federated Investors is one of the
largest mutual fund investment managers in the U.S. First American is a division
of U.S. Bank National Association. GSAM is a separate division of Goldman, Sachs
& Co. GSAM-International is an affiliate of Goldman, Sachs & Co. MFS is _____.
MSDW Investment Management is _____. Putnam is ______.
The Adviser pays each Subadviser a monthly fee with respect to each
Portfolio for which the Subadviser performs services, computed on average daily
net assets, at the following annual rates:
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO FEE
---------- --------- ---
<S> <C> <C>
Alliance Alliance Growth Portfolio (as of .35% on the first $50 million
January 1, 1999) .30% on the next $100 million
.25% on the next $150 million
</TABLE>
B-59
<PAGE> 140
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO FEE
---------- --------- ---
<S> <C> <C>
Growth-Income Portfolio .35% on the first $50 million
.30% on the next $100 million
.25% on the next $150 million
.20% on the next $200 million
.15% thereafter
Global Equities Portfolio .50% on the first $50 million
.40% on the next $100 million
.30% on the next $150 million
.25% thereafter
Davis Selected Venture Value and Real Estate .45% on the first $100 million
Portfolios .40% on the next $400 million
.35% thereafter
Federated Corporate Bond .30% on the first $25 million
Portfolio .25% on the next $25 million
.20% on the next $100 million
.15% thereafter
Federated Value and Utility Portfolios .55% on the first $20 million
.35% on the next $30 million
.25% on the next $100 million
.20% on the next $350 million
.15% thereafter
First American Equity Income Portfolio .30%
Small Cap Value Portfolio .80%
Equity Index Portfolio .125%
GSAM Asset Allocation Portfolio .40% on the first $50 million
.30% on the next $100 million
.25% on the next $100 million
.20% thereafter
GSAM-International Global Bond Portfolio .40% on the first $50 million
.30% on the next $100 million
.25% on the next $100 million
.20% thereafter
MFS (as of January 1, 1999) MFS Growth and Income .40% on the first $300 million
Portfolio .375% on the next $300 million
.35% on the next $300 million
.325% on the next $600 million
.25% over $1.5 billion
MFS Total Return Portfolio .375%
MFS Mid-Cap Growth Portfolio [TO BE PROVIDED]
MSDW Investment Management International Diversified Equities and .65% on the first $350 million
Worldwide High Income Portfolios .60% thereafter
Putnam Putnam Growth Portfolio .50% on the first $150 million
.45% on the next $150 million
.35% thereafter
Emerging Markets Portfolio 1.00% on the first $150 million
.95% on the next $150 million
.85% thereafter
</TABLE>
B-60
<PAGE> 141
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO FEE
---------- --------- ---
<S> <C> <C>
International Growth and Income .65% on the first $150 million
Portfolio .55% on the next $150 million
.45% thereafter
</TABLE>
The following table sets forth the fees paid to the Subadvisers and to
Phoenix Investment Counsel, Inc., as former Subadviser to the MFS Growth and
Income and MFS Total Return Portfolios, for the fiscal years ended November 30,
1998, 1997 and 1996.
SUBADVISORY FEES
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO 1998 1997 1996
---------- --------- ---- ---- ----
<S> <C> <C> <C> <C>
Alliance Growth#
$1,280,957 $691,140
Alliance
Growth-Income
$1,161,812 $673,445
Global Equities
$1,109,352 $811,790
Davis Selected Venture Value
$3,126,351 $1,252,661
Real Estate $33,075++ -
Federated Corporate Bond $128,651 $48,744**
Federated Value
$146,523 $17,580*
Utility $73,542 $10,186*
Asset Allocation
GSAM $1,088,896 $743,084
GSAM International Global Bond
$281,015 $238,488
MSDW Investment Management Worldwide High Income
$595,193 $239,733
International Diversified
Equities
$1,382,736 $666,635
Growth/Phoenix Investment $599,956 $505,458
Phoenix Investment Counsel #
Counsel, Inc.
Balanced/Phoenix
Investment Counsel)##
$271,312 $176,158
Provident Investment
Counsel, Inc.+ Provident Growth
$284,164+++ $614,720
</TABLE>
B-61
<PAGE> 142
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO 1998 1997 1996
---------- --------- ---- ---- ----
<S> <C> <C> <C> <C>
Putnam International Growth and
Income $81,451++ -
Emerging Markets
$79,549++ -
Putnam Growth $618,584 -
</TABLE>
* For the period 6/3/96 (commencement of operations) through 11/30/96
** For the period 6/3/96 through 11/30/96
# Prior to January 1, 1999, the Subadvisory fee for Alliance Growth
Portfolio was as calculated at the following annual rates: .35% on the
first $50 million; .30% on the next $100 million; .25% on the next $150
million; .20% on the next $200 million and .15% over $500 million.
## Prior to January 1, 1999, Phoenix Investment Counsel served as
Subadviser to the MFS Growth and Income and MFS Total Return Portfolios
(formerly Growth/Phoenix Investment Counsel and Balanced/Phoenix
Investment Counsel Portfolios). The Subadvisory fee was calculated at
the following rates for both Portfolios: .35% on the first $50 million;
.30% on the next $100 million; .25% on the next $150 million; .20% on
the next $200 million and .15% over $500 million.
+ Until April 15, 1997, Provident Investment Counsel, Inc. served as
Subadviser to the Putnam Growth Portfolio (formerly named the Provident
Growth Portfolio). The Subadvisory fee was calculated at the following
annual rates: .50% on the first $50 million of average daily net assets;
.45% on the next $100 million; .35% on the next $100 million; .30% on
the next $100 million; .25% over $350 million.
++ For the period 6/2/97 (commencement of operations) through 11/30/97
+++ For the period 12/1/96 through 4/14/97 (termination of operations)
The Subadvisory Agreements, after initial approval with respect to a
Portfolio, continue in effect for a period of two years, in accordance with
their terms, unless terminated, and may thereafter be renewed from year to year
as to a Portfolio for so long as such continuance is specifically approved at
least annually in accordance with the requirements of the 1940 Act. The
Subadvisory Agreements provide that they will terminate in the event of an
assignment (as defined in the 1940 Act) or upon termination of the Advisory
Agreement. The Subadvisory Agreements may be terminated by the Trust, the
Adviser or the respective Subadviser upon the specified written notice contained
in the Agreement.
B-62
<PAGE> 143
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; and (b)
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 or the securities of other regulated investment companies); and (c)
distribute at least 90% of its investment company taxable income (including
short-term capital gains).
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 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.
The Real Estate Portfolio may invest in REITs that hold residual
interests in real estate mortgage investment conduits ("REMICs"). Under Treasury
regulations that have not yet been issued, but may apply retroactively, a
portion of the Portfolio's income from a REIT that is attributable to the REIT's
residual interest in a REMIC (referred to in the Code as an "excess inclusion")
will not be subject to federal income tax. These regulations are also expected
to provide that excess inclusion income of a regulated investment company in
proportion to the dividends
B-63
<PAGE> 144
received by such shareholders, with the same consequences as if the shareholders
held the related REMIC residual interest directly.
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, the "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. The Portfolio may
make a "mark-to-market" election with respect to any stock it holds of a PFIC,
if such stock is marketable (as defined by the Code for purposes of such
election). 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. Such mark-to-market gain will be treated as ordinary income.
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 its 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.
Income received by a Portfolio from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries. Income
tax treaties between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the effective
rate of foreign tax to which a Portfolio will be subject, since the amount of
that Portfolio' assets to be invested in various countries is not known.
Shareholders are urged to consult their tax advisors regarding specific
questions as to Federal, state and local taxes.
The Cash Management, Corporate Bond, Aggressive Growth and Emerging
Markets Portfolios had capital loss carry-forwards of $___, $_______, $_________
and $_______, respectively, at November 30, 1998. To the extent not yet
utilized, such losses will be available to each of the Portfolios to offset
future gains through 2004 and 2005. The utilization of such losses will be
subject to annual limitations under the Code.
B-64
<PAGE> 145
SHARES OF THE TRUST
The Trust consists of twenty-six separate Portfolios, each of which
offers a single class of shares. 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% 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.
In matters affecting only a particular Portfolio, the matter shall have
been effectively acted upon by a majority vote of that Portfolio even though:
(1) the matter has not been approved by a majority vote of any other Portfolio;
or (2) the matter has not been approved by a majority vote of the Trust.
Shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Trust. The risk of a shareholder incurring any financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations. The Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Trust
and provides that notice of the disclaimer must be given in each agreement,
obligation or instrument entered into or executed by the Trust or Trustees. The
Declaration of Trust provides for indemnification of any shareholder held
personally liable for the obligations of the Trust and also provides for the
Trust to reimburse the shareholder for all legal and other expenses reasonably
incurred in connection with any such claim or liability.
B-65
<PAGE> 146
PRICE OF SHARES
Shares of the Trust are currently offered only to the Variable Separate
Account. The Trust is open for business on any day the NYSE is open for
business. Shares are valued each day as of the close of regular trading on the
NYSE (generally, 4:00 p.m., Eastern time). Each Portfolio calculates the net
asset value of its shares separately by dividing the total value of its net
assets by the shares outstanding. The net asset value of a Portfolio's shares
will also be computed on each other day in which there is a sufficient degree of
trading in such portfolio's securities that the net asset value of its shares
might be materially affected by changes in the values of the portfolio
securities; provided, however, that on such day the Trust receives a request to
purchase or redeem such Portfolio's shares. The days and times of such
computation may, in the future, be changed by the Trustees in the event that the
portfolio securities are traded in significant amounts in markets other than the
NYSE, or on days or at times other than those during which the NYSE is open for
trading.
Stocks and convertible bonds and debentures traded on the NYSE are
valued at the last sale price on such exchange on the day of valuation, or if
there is no sale on the day of valuation, at the last-reported bid price.
Non-convertible bonds and debentures and other long-term debt securities
normally are valued at prices obtained for the day of valuation from a bond
pricing service, when such prices are available. In circumstances where the
Adviser or Subadviser deems it appropriate to do so, an over-the-counter or
exchange quotation (at the mean of representative quoted bid or asked prices for
such securities or, if such prices are not available, at prices for securities
of comparable maturity, quality and type) may be used. Securities traded
primarily on securities exchanges outside the United States are valued at the
last sale price on such exchanges on the day of valuation, or if there is no
sale on the day of valuation, at the last-reported bid price. U.S. Treasury
bills, and other obligations issued by the U.S. Government, its agencies or
instrumentalities, certificates of deposit issued by banks, corporate short-term
notes and other short-term investments with original or remaining maturities in
excess of 60 days are valued at the mean of representative quoted bid and asked
prices for such securities or, if such prices are not available, for securities
of comparable maturity, quality and type. Short-term securities with 60 days or
less to maturity are amortized to maturity based on their cost to the Trust if
acquired within 60 days of maturity or, if already held by the Trust on the 60th
day, are amortized to maturity based on the value determined on the 61st day.
Options on currencies purchased by a Portfolio are valued at their last bid
price in the case of listed options or at the average of the last bid prices
obtained from dealers in the case of OTC options. Futures contracts involving
foreign currencies traded on exchanges are valued at their last sale or
settlement price as of the close of such exchanges or if no sales are reported,
at the mean between the last reported bid and asked prices. Other securities are
valued on the basis of last sale or bid price (if a last sale price is not
available) in what is, in the opinion of the Adviser or Subadviser, the broadest
and most representative market, that may be either a securities exchange or the
over-the-counter market. Where quotations are not readily available, securities
are valued at fair value as determined in good faith by the Board of Trustees.
The fair value of all other assets is added to the value of securities to arrive
at the respective Portfolio's total assets.
A Portfolio's liabilities, including proper accruals of expense items,
are deducted from total assets. The net asset value of the respective Portfolio
is divided by the total number of shares outstanding to arrive at the net asset
value per share.
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<PAGE> 147
EXECUTION OF PORTFOLIO TRANSACTIONS
It is the policy of the Trust, in effecting transactions in portfolio
securities, to seek the best execution at the most favorable prices. The
determination of what may constitute best execution involves a number of
considerations, including the economic result to the Trust (involving both price
paid or received and any commissions and other costs), the efficiency with which
the transaction is effected where a large block is involved, the availability of
the broker to stand ready to execute potentially difficult transactions and the
financial strength and stability of the broker. Such considerations are
judgmental and are considered in determining the overall reasonableness of
brokerage commissions paid.
A factor in the selection of brokers is the receipt of research
services -- analyses and reports concerning issuers, industries, securities,
economic factors and trends -- and other statistical and factual information.
Research and other statistical and factual information provided by brokers is
considered to be in addition to and not in lieu of services required to be
performed by the Adviser or Subadviser.
The Adviser or Subadviser may cause a Portfolio to pay such
broker-dealers commissions that exceed what other broker-dealers may have
charged, if in its view the commissions are reasonable in relation to the value
of the brokerage and/or research services provided by the broker-dealer. The
extent to which commissions may reflect the value of research services cannot be
presently determined. To the extent that research services of value are provided
by broker-dealers with or through whom the Adviser or Subadviser places the
Trust's portfolio transactions, the Adviser or Subadviser may be relieved of
expenses it might otherwise bear. Research services furnished by broker-dealers
may not be used by the Adviser or Subadviser in connection with the Trust and
could be useful and of value to the Adviser or Subadviser in serving other
clients as well as the Trust. Research services obtained by the Adviser or
Subadviser as a result of the placement of portfolio brokerage of other clients
could also be useful and of value in serving the Trust.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of a security usually includes a profit to
the dealer. In underwritten offerings, securities are purchased at a fixed
price, which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which case
no commissions or discounts are paid. The Trust has obtained exemptive orders
from the SEC, permitting the Trust in certain circumstances to deal with
securities dealers (that may be deemed to be affiliated persons of affiliated
persons of the Trust solely because of a subadvisory relationship with one or
more Portfolios) as a principal in purchases and sales of certain securities,
and to pay commissions, fees or other remuneration to such securities dealers in
connection with the sale of securities to or by any of the Portfolios on a
securities exchange without complying with certain of the requirements of Rule
17e-1 under the 1940 Act.
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<PAGE> 148
Subject to the above considerations, the Adviser or a Subadviser may
use broker-dealer affiliates of the Adviser or a Subadviser, as a broker for any
Portfolio. In order for such broker-dealer to effect any portfolio transactions
for a Portfolio, the commissions, fees or other remuneration received by the
broker-dealer must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. This standard would
allow such broker-dealer to receive no more than the remuneration that would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Trustees of the Trust, including a majority of the
non-interested Trustees, have adopted procedures which are reasonably designed
to provide that any commissions, fees or other remuneration paid to such
broker-dealers are consistent with the foregoing standard. These types of
brokerage transactions are also subject to such fiduciary standards as may be
imposed upon the broker-dealers by applicable law.
For the fiscal year ended November 30, 1998, each of the ___ Portfolios
acquired no securities of brokers or dealers that executed its portfolio
transactions during the year, and the ____ Portfolios acquired $ ____ from the
following brokers or dealers that executed its portfolio transactions:
The following tables set forth the brokerage commissions paid by the
Portfolios and the amounts of the brokerage commissions paid to affiliated
broker-dealers of such Portfolios for the fiscal years ended November 30, 1998,
1997 and 1996.
1998 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
AGGREGATE AMOUNT PAID TO PERCENTAGE OF COMMISSIONS PERCENTAGE OF
PORTFOLIO BROKERAGE AFFILIATED PAID AMOUNT OF
COMMISSIONS BROKER-DEALERS TO AFFILIATED TRANSACTIONS
BROKER-DEALERS INVOLVING PAYMENT
OF COMMISSIONS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Management
- ---------------------------------------------------------------------------------------------------------------------
Corporate Bond
- ---------------------------------------------------------------------------------------------------------------------
Global Bond
- ---------------------------------------------------------------------------------------------------------------------
High-Yield Bond
- ---------------------------------------------------------------------------------------------------------------------
Worldwide High Income
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 149
<TABLE>
<CAPTION>
AGGREGATE AMOUNT PAID TO PERCENTAGE OF COMMISSIONS PERCENTAGE OF
PORTFOLIO BROKERAGE AFFILIATED PAID AMOUNT OF
COMMISSIONS BROKER-DEALERS TO AFFILIATED TRANSACTIONS
BROKER-DEALERS INVOLVING PAYMENT
OF COMMISSIONS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SunAmerica Balanced
- ---------------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio
(formerly Balanced/Phoenix
Investment Counsel)
- ---------------------------------------------------------------------------------------------------------------------
Asset Allocation
- ---------------------------------------------------------------------------------------------------------------------
Utility
- ---------------------------------------------------------------------------------------------------------------------
Growth-Income
- ---------------------------------------------------------------------------------------------------------------------
Federated Value
- ---------------------------------------------------------------------------------------------------------------------
Venture Value
- ---------------------------------------------------------------------------------------------------------------------
Alliance Growth
- ---------------------------------------------------------------------------------------------------------------------
MFS Growth and Income
Portfolio (formerly
Growth/Phoenix Investment
Counsel)
- ---------------------------------------------------------------------------------------------------------------------
Putnam Growth
(formerly Provident Growth)
- ---------------------------------------------------------------------------------------------------------------------
Real Estate
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth
- ---------------------------------------------------------------------------------------------------------------------
International Growth and
Income
- ---------------------------------------------------------------------------------------------------------------------
Global Equities
- ---------------------------------------------------------------------------------------------------------------------
International Diversified
Equities
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
B-69
<PAGE> 150
1997 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
AGGREGATE BROKERAGE AMOUNT PAID TO AFFILIATED PERCENTAGE PAID TO
PORTFOLIO COMMISSIONS BROKER-DEALERS AFFILIATED BROKER-DEALERS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Management -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Corporate Bond -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Global Bond -- -- --
- ---------------------------------------------------------------------------------------------------------------------
High-Yield Bond $90 -- --
- ---------------------------------------------------------------------------------------------------------------------
Worldwide High Income -- -- --
- ---------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced $73,801 -- --
- ---------------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio (formerly $153,408 [--] [--]
Balanced/Phoenix Investment Counsel)
- ---------------------------------------------------------------------------------------------------------------------
Asset Allocation $618,233 $77,151 12.48%
- ---------------------------------------------------------------------------------------------------------------------
Utility $40,772 -- --
- ---------------------------------------------------------------------------------------------------------------------
Growth-Income $547,081 -- --
- ---------------------------------------------------------------------------------------------------------------------
Federated Value $77,121 -- --
- ---------------------------------------------------------------------------------------------------------------------
Venture Value $634,966 $87,696 [13.81%]
- ---------------------------------------------------------------------------------------------------------------------
Alliance Growth $1,020,216 -- --
- ---------------------------------------------------------------------------------------------------------------------
MFS Growth and Income Portfolio $731,747 [$1,220] [.17%]
(formerly Growth/Phoenix Investment
Counsel)
- ---------------------------------------------------------------------------------------------------------------------
Putnam Growth
(formerly Provident Growth) $241,968 $920 .38%
- ---------------------------------------------------------------------------------------------------------------------
Real Estate* $53,466 -- --
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth $251,919 -- --
- ---------------------------------------------------------------------------------------------------------------------
International Growth and Income * $120,957 -- --
- ---------------------------------------------------------------------------------------------------------------------
Global Equities $1,376,002 -- --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
B-70
<PAGE> 151
<TABLE>
<CAPTION>
AGGREGATE BROKERAGE AMOUNT PAID TO AFFILIATED PERCENTAGE PAID TO
PORTFOLIO COMMISSIONS BROKER-DEALERS AFFILIATED BROKER-DEALERS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Diversified Equities $269,652 -- --
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets* $80,600 -- -
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the period June 2, 1997 (commencement of operations) through November
30, 1997.
1996 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
AGGREGATE AMOUNT PAID TO PERCENTAGE PAID
PORTFOLIO BROKERAGE AFFILIATED TO AFFILIATED
COMMISSIONS BROKER-DEALERS BROKER-DEALERS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Management -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Corporate Bond -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Global Bond -- -- --
- ---------------------------------------------------------------------------------------------------------------------
High-Yield Bond $753 -- --
- ---------------------------------------------------------------------------------------------------------------------
Worldwide High Income
-- -- --
- ---------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced* $10,184 -- --
- ---------------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio (formerly
Balanced/Phoenix Investment Counsel) $99,713 [--] [--]
- ---------------------------------------------------------------------------------------------------------------------
Asset Allocation $256,864 $23,078 8.98%
- ---------------------------------------------------------------------------------------------------------------------
Utility* $9,359 -- --
- ---------------------------------------------------------------------------------------------------------------------
Growth-Income $469,309 -- --
- ---------------------------------------------------------------------------------------------------------------------
Federated Value* $14,785 -- --
- ---------------------------------------------------------------------------------------------------------------------
Venture Value $413,771 $3,792 0.92%
- ---------------------------------------------------------------------------------------------------------------------
Alliance Growth $672,137 -- --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
B-71
<PAGE> 152
<TABLE>
<CAPTION>
AGGREGATE AMOUNT PAID TO PERCENTAGE PAID
PORTFOLIO BROKERAGE AFFILIATED TO AFFILIATED
COMMISSIONS BROKER-DEALERS BROKER-DEALERS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Growth and Income Portfolio
(formerly Growth/Phoenix Investment $483,274 [--] [--]
Counsel)
- ---------------------------------------------------------------------------------------------------------------------
Putnam Growth $144,932 -- --
(formerly Provident Growth)
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth* $34,130 -- --
- ---------------------------------------------------------------------------------------------------------------------
Global Equities $1,022,821 -- --
- ---------------------------------------------------------------------------------------------------------------------
International Diversified Equities
$256,477 -- --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the period 6/3/96 (commencement of operations) through November 30,
1996.
The policy of the Trust with respect to brokerage is reviewed by the
Board of Trustees from time to time. Because of the possibility of further
regulatory developments affecting the securities exchanges and brokerage
practices generally, the foregoing practices may be modified.
The Adviser and the Subadvisers and their respective affiliates may
manage, or have proprietary interests in, accounts with similar or dissimilar or
the same investment objectives as one or more Portfolios of the Trust. Such
account may or may not be in competition with a Portfolio for investments.
Investment decisions for such accounts are based on criteria relevant to such
accounts; portfolio decisions and results of the Portfolio's investments may
differ from those of such other accounts. There is no obligation to make
available for use in managing the Portfolio any information or strategies used
or developed in managing such accounts. In addition, when two or more accounts
seek to purchase or sell the same assets, the assets actually purchased or sold
may be allocated among accounts on a good faith equitable basis at the
discretion of the account's adviser. In some cases, this system may adversely
affect the price or size of the position obtainable for a Portfolio.
If determined by the Adviser or Subadviser to be beneficial to the
interests of the Trust, partners and/or employees of the Adviser or Subadvisers
may serve on investment advisory committees, which will consult with the Adviser
regarding investment objectives and strategies for the Trust. In connection with
serving on such a committee, such persons may receive information regarding a
Portfolio's proposed investment activities which is not generally available to
unaffiliated market participants, and there will be no obligation on the
B-72
<PAGE> 153
part of such persons to make available for use in managing the Portfolio any
information or strategies known to them or developed in connection with their
other activities.
It is possible that a Portfolio's holdings may include securities of
entities for which a subadviser or its affiliate performs investment banking
services as well as securities of entities in which a subadviser or its
affiliate makes a market. From time to time, such activities may limit a
Portfolio's flexibility in purchases and sales of securities. When a subadviser
or its affiliate is engaged in an underwriting or other distribution of
securities of an entity, the subadviser may be prohibited from purchasing or
recommending the purchase of certain securities of that entity for the
Portfolio.
GENERAL INFORMATION
Custodian - State Street Bank and Trust Company ("State Street"), 225
Franklin Street, Boston, Massachusetts 02110, serves as the Trust's custodian.
In this capacity, State Street maintains the portfolio securities held by the
Trust, administers the purchase and sale of portfolio securities and performs
certain other duties. State Street also serves as transfer agent and dividend
disbursing agent for the Trust.
Independent Accountants and Legal Counsel - PricewaterhouseCoopers LLP
1177 Avenue of the Americas, New York, New York 10036, is the Trust's
independent accountants. PricewaterhouseCoopers, LLP performs an annual audit of
the Trust's financial statements and provides tax consulting, tax return
preparation and accounting services relating to filings with the SEC. The firm
of Swidler Berlin Shereff Friedman, LLP, 919 Third Avenue, New York, NY 10022
has been selected as legal counsel to the Trust.
Reports to Shareholders - Persons having a beneficial interest in the
Trust are provided at least semi-annually with reports showing the investments
of the Portfolios, financial statements and other information.
Shareholder and Trustee Responsibility - Shareholders of a
Massachusetts business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the Trust. The risk of a
shareholder incurring any financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations. The Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides that
notice of the disclaimer must be given in each agreement, obligation or
instrument entered into or executed by the Trust or Trustees. The Declaration of
Trust provides for indemnification of any shareholder held personally liable for
the obligations of the Trust and also provides for the Trust to reimburse the
shareholder for all legal and other expenses reasonably incurred in connection
with any such claim or liability.
B-73
<PAGE> 154
Under the Declaration of Trust, the trustees or officers are not liable
for actions or failure to act; however, they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The Trust
provides indemnification to its trustees and officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.
Registration Statement - A registration statement has been filed with
the SEC under the Securities Act of 1933, as amended, and the 1940 Act. The
Prospectus and this Statement of Additional Information do not contain all
information set forth in the registration statement, its amendments and exhibits
thereto, that the Trust has filed with the SEC, Washington, D.C., to all of
which reference is hereby made.
FINANCIAL STATEMENTS
Set forth following this Statement of Additional Information are the
audited financial statements of the Trust with respect to the fiscal year ended
November 30, 1998.
[TO BE FILED BY AMENDMENT]
B-74
<PAGE> 155
PART C
OTHER INFORMATION
Item 23. Exhibits.
Exhibits.
(a) Declaration of Trust, as amended. Incorporated herein by reference to
Exhibit 1 of Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form N-1A (File No. 811-7238) filed on
February 29, 1996.
(b) By-Laws. Incorporated herein by reference to Exhibit 2 of
Post-Effective Amendment No. 6 to the Registrant's Registration
Statement on Form N-1A (File No. 811-7238) filed on February 29, 1996.
(c) Inapplicable.
(d) (i) Investment Advisory and Management Agreement between Registrant
and SunAmerica Asset Management Corp.*
(ii) Subadvisory Agreement between SunAmerica and Alliance Capital
Management L.P.*
(iii) Subadvisory Agreement between SunAmerica and Davis Selected
Advisers, L.P.*
(iv) Subadvisory Agreement between SunAmerica and Federated Investment
Counseling.*
C-1
<PAGE> 156
(v) Subadvisory Agreement between SunAmerica and First American Asset
Management, Inc.*
(vi) Subadvisory Agreement between SunAmerica and Goldman Sachs Asset
Management.*
(vii) Subadvisory Agreement between SunAmerica and Goldman Sachs Asset
Management International.*
(viii) Subadvisory Agreement between SunAmerica and Massachusetts
Financial Services Company.*
(ix) Subadvisory Agreement between SunAmerica and Morgan Stanley Dean
Witter Investment Management*
(x) Subadvisory Agreement between SunAmerica and Putnam Investment
Management, Inc.*
(e) Inapplicable.
(f) Inapplicable.
(g) Custodian Agreement. Incorporated herein by reference
to Post-Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A (File No. 811-7238)
filed on February 28, 1997.
C-2
<PAGE> 157
(h) (i) Fund Participation Agreement between Registrant and Anchor
National Life Insurance Company, on behalf of itself and
Variable Separate Account. Incorporated herein by reference
to Exhibit 9 of Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form N-1A (File No.
811-7238) filed on February 29, 1996.
(ii) Transfer Agency and Service Agreement filed between the
Registrant and State Street Bank and Trust Company.
Incorporated herein by reference to Exhibit 9(a) of
Post-Effective Amendment No. 12 to the Registrant's
Registration Statement on Form N-1A (File No. 811-7238)
filed on May 7, 1997.
(i) Inapplicable.
(j) Inapplicable.
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Inapplicable.
(o) (i) Inapplicable
C-3
<PAGE> 158
(ii) Power of Attorney for Monica C. Lozano*
- -----------------------
* To be filed by amendment.
Item 24. Persons Controlled by or Under Common Control with the Fund.
To be filed by amendment.
Item 25. Indemnification.
Article VI of the Registrant's By-Laws relating to the
indemnification of officers and trustees is quoted below:
ARTICLE VI
INDEMNIFICATION
The Trust shall provide any indemnification required
by applicable law and shall indemnify trustees, officers,
agents and employees as follows:
(a) the Trust shall indemnify any Trustee or officer of the
Trust who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative (other than action by or in the right of the
Trust) by reason of the fact that such Person is or was such
Trustee or officer or an employee or agent of the Trust, or
is or was serving at the request of the Trust as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably
incurred by such Person in connection with such action, suit
or proceeding, provided such Person acted in good faith an
in a manner such Person reasonably believed to be in or not
opposed to the best interests of the Trust, and, with
respect to any criminal action or proceeding, had no
reasonable cause to believe such Person's conduct was
unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent, shall not, of itself,
create a presumption that the Person did not reasonably
believe his or her actions to be in or not opposed to the
best interests of the Trust, and, with respect to any
criminal action or proceeding, had reasonable cause to
believe that such Person's conduct was unlawful.
C-4
<PAGE> 159
(b) The Trust shall indemnify any Trustee or officer of the
Trust who was or is a part or is threatened to be made a
party to any threatened, pending or completed action or suit
by or in the right of the Trust to procure a judgment in its
favor by reason of the fact that such Person is or was such
Trustee or officer or an employee or agent of the Trust, or
is or was serving at the request of the Trust as a director,
officer, employee or agent of another corporation,
partnership, joint venture, Trust or other enterprise,
against expenses (including attorneys' fees), actually and
reasonably incurred by such Person in connection with the
defense or settlement of such action or suit if such Person
acted in good faith and in a manner such Person reasonably
believed to be in or not opposed to the best interests of
the Trust, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such
Person shall have been adjudged to be liable for negligence
or misconduct in the performance of such Person's duty to
the Trust unless and only to the extent that the court in
which such action or suit was brought, or any other court
having jurisdiction in the premises, shall determine upon
application that, despite the adjudication of liability but
in view of all circumstances of the case, such Person is
fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
(c) To the extent that a Trustee or officer of the Trust has
been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subparagraphs (a)
or (b) above or in defense of any claim, issue or matter
therein, such Person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred
by such Person in connection therewith, without the
necessity for the determination as to the standard of
conduct as provided in subparagraph (d).
(d) Any indemnification under subparagraph (a) or (b) (unless
ordered by a court) shall be made by the Trust only as
authorized in the specific case upon a determination that
indemnification of the Trustee or officer is proper in view
of the standard of conduct set forth in subparagraph (a) or
(b). Such determination shall be made (i) by the Board by a
majority vote of a quorum consisting of Trustees who were
disinterested and not parties to such action, suit or
proceedings, or (ii) if such a quorum of disinterested
Trustees so directs, by independent legal counsel in a
written opinion, and any determination so made shall be
conclusive and binding upon all parties.
(e) Expenses incurred in defending a civil or criminal action,
writ or proceeding may be paid by the Trust in advance of
the final disposition of such action, suit or proceeding, as
authorized in the particular case, upon receipt of an
undertaking by or on behalf of the Trustee or officer to
repay such amount unless it shall ultimately be determined
that such Person is entitled to be
C-5
<PAGE> 160
indemnified by the Trust as authorized herein. Such
determination must be made by disinterested Trustees or
independent legal counsel. Prior to any payment being made
pursuant to this paragraph, a majority of quorum of
disinterested, non-party Trustees of the Trust, or an
independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts that
there is reason to believe that the indemnitee ultimately
will be found entitled to indemnification.
(f) Agents and employees of the Trust who are not Trustees or
officers of the Trust may be indemnified under the same
standards and procedures set forth above, in the discretion
of the Board.
(g) Any indemnification pursuant to this Article shall not be
deemed exclusive of any other rights to which those
indemnified may be entitled and shall continue as to a
Person who has ceased to be a Trustee or officer and shall
inure to the benefit of the heirs, executors and
administrators of such a Person.
(h) Nothing in the Declaration or in these By-Laws shall be
deemed to protect any Trustee or officer of the Trust
against any liability to the Trust or to its Shareholders to
which such Person would otherwise be subject by reason of
willful malfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Person's office.
(i) The Trust shall have power to purchase and maintain
insurance on behalf of any Person against any liability
asserted against or incurred by such Person, whether or not
the Trust would have the power to indemnify such Person
against such liability under the provisions of this Article.
Nevertheless, insurance will not be purchased or maintained
by the Trust if the purchase or maintenance of such
insurance would result in the indemnification of any Person
in contravention of any rule or regulation and/or
interpretation of the Securities and Exchange Commission.
* * * * * * * * * * * * * *
The Investment Advisory and Management Agreement
provides that in absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved
in the conduct of office on the part of the Investment Adviser
(and its officers, directors, agents, employees, controlling
persons, shareholders and any other person or entity
affiliated with the Investment Adviser to perform or assist in
the performance of its obligations under each Agreement) the
Investment Adviser shall not be subject to liability to the
Trust or to any shareholder of the Trust for any act or
omission in the course of, or connected with, rendering
services, including
C-6
<PAGE> 161
without limitation, any error of judgment or mistake or law or
for any loss suffered by any of them in connection with the
matters to which each Agreement relates, except to the extent
specified in Section 36(b) of the Investment Company Act of
1940 concerning loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services.
Certain of the Subadvisory Agreements provide for similar
indemnification of the Subadviser by the Investment Adviser.
SunAmerica Inc., the parent of Anchor National Life
Insurance Company, provides, without cost to the Fund,
indemnification of individual trustees. By individual letter
agreement, SunAmerica Inc. indemnifies each trustee to the
fullest extent permitted by law against expenses and
liabilities (including damages, judgments, settlements, costs,
attorney's fees, charges and expenses) actually and reasonably
incurred in connection with any action which is the subject of
any threatened, asserted, pending or completed action, suit or
proceeding, whether civil, criminal, administrative,
investigative or otherwise and whether formal or informal to
which any trustee was, is or is threatened to be made a party
by reason of facts which include his being or having been a
trustee, but only to the extent such expenses and liabilities
are not covered by insurance.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended, may be permitted
to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser.
SunAmerica Asset Management Corp. ("SunAmerica"), the
Investment Adviser of the Trust, is primarily in the business
of providing investment management, advisory and
administrative services. Reference is made to the most recent
Form ADV and schedules thereto of SunAmerica on file with the
Commission (File No. 801-19813) for a description of the names
and employment of the directors and officers of SunAmerica and
other required information.
C-7
<PAGE> 162
Alliance Capital Management L.P., Davis Selected
Advisers, L.P., Federated Investment Counseling, First
American Asset Management Group, Goldman Sachs Asset
Management, Goldman Sachs Asset Management International,
Morgan Stanley Dean Witter Investment Management,
Massachusetts Financial Services Company and Putnam Investment
Management, Inc., and the Subadvisers of certain of the
Portfolios of the Trust, are primarily engaged in the business
of rendering investment advisory services. Reference is made
to the most recent Form ADV and schedules thereto on file with
the Commission for a description of the names and employment
of the directors and officers of Alliance Capital Management
L.P., Davis Selected Advisers, L.P., Federated Investment
Counseling, First American Asset Management, Inc., Goldman
Sachs Asset Management, Goldman Sachs Asset Management
International, Morgan Stanley Dean Witter Investment
Management, Massachusetts Financial Services Company and
Putnam Investment Management, Inc., and other required
information:
<TABLE>
<CAPTION>
File No.
--------
<S> <C>
Alliance Capital Management L.P. 801-32361
Davis Selected Advisers, L.P. 801-31648
Federated Investment Counseling 801-34611
First American Asset Management, Inc. 801-24113
Goldman Sachs & Co. 801-16048
Goldman Sachs Asset Management International 801-38157
Massachusetts Financial Services Company 801-17352
Morgan Stanley Dean Witter Investment
Management 801-15757
Putnam Investment Management, Inc. 801-7974
</TABLE>
Item 27. Principal Underwriters.
There is no Principal Underwriter for the Registrant.
Item 28. Location of Accounts and Records.
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, acts as custodian,
transfer agent and dividend paying agent. It maintains books,
records and accounts pursuant to the instructions of the
Trust.
SunAmerica Asset Management Corp., is located at The
SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204. Alliance Capital Management
C-8
<PAGE> 163
L.P. is located at 1345 Avenue of the Americas, New York, New
York 10105. Davis Selected Advisers, L.P. is located at 124
East Marcy Street, Sante Fe, New Mexico 87501. Federated
Investment Counseling is located at Federated Investors Tower,
1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779.
First American Asset Management Group is located at U.S.
Bancorp, 601 Second Avenue South, Minneapolis, Minnesota
55402. Goldman Sachs Asset Management is located at 85 Broad
Street, 12th Floor, New York, New York 10004. Goldman Sachs
Asset Management International is located at Peterborough
Court, 133 Fleet Street, London EC4A 2BB, England.
Massachusetts Financial Services Company is located at 500
Boylston Street, Boston, Massachusetts 02116. Morgan Stanley
Dean Witter Investment Management is located at 1221 Avenue of
the Americas, 22nd Floor, New York, New York 10020. Putnam
Investment Management, Inc., is located at One Post Office
Square, Boston, Massachusetts 02109. Each of the Investment
Adviser and Subadvisers maintain the books, accounts and
records required to be maintained pursuant to Section 31(a) of
the Investment Company Act of 1940 and the rules promulgated
thereunder.
Item 29. Management Services.
Inapplicable.
C-9
<PAGE> 164
Item 30. Undertakings.
Inapplicable.
C-10
<PAGE> 165
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused the Post-Effective Amendment No. 19 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, and State of New York, on the 15th day of January, 1999.
SUNAMERICA SERIES TRUST
By: /s/ Peter C. Sutton
----------------------------------
Peter C. Sutton
Vice President and Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Post-Effective Amendment No. 19 to Registrant's Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated:
<TABLE>
<S> <C> <C>
Trustee, Chairman and
President January 15, 1999
* (Principal Executive Officer)
- ----------------------------
James K. Hunt
Senior Vice President,
* Treasurer and Controller January 15, 1999
- ---------------------------- (Principal Financial and
Scott L. Robinson Accounting Officer)
* Trustee January 15, 1999
- -----------------------------
Allan L. Sher
* Trustee January 15, 1999
- -----------------------------
William M. Wardlaw
*By: /s/ Robert M. Zakem January 15, 1999
--------------------------
Robert M. Zakem
Attorney-in-Fact
</TABLE>
C-11
