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As filed with the Securities and Exchange Commission on April 14, 2000
Securities Act File No. 33-52742
Investment Company Act File Act 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. 21 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 23
(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
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
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)
|X| on (April 20, 2000) pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) pursuant to paragraph (a)(1)
|_| 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.
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PROSPECTUS
APRIL 20, 2000
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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
-- Telecom Utility Portfolio
-- Equity Income Portfolio
-- Equity Index Portfolio
-- Growth-Income Portfolio
-- Federated Value Portfolio
-- Davis 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.
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- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TRUST HIGHLIGHTS............................................ 3
Q&A....................................................... 3
ACCOUNT INFORMATION......................................... 33
ADDITIONAL INFORMATION ABOUT THE "DOGS" OF WALL STREET
PORTFOLIO................................................. 34
Investment Strategy for the "Dogs" of Wall Street
Portfolio.............................................. 34
MORE INFORMATION ABOUT THE PORTFOLIOS....................... 34
Investment Strategies..................................... 34
GLOSSARY.................................................... 42
Investment Terminology.................................... 42
Risk Terminology.......................................... 45
MANAGEMENT.................................................. 48
Investment Adviser and Manager............................ 48
Information about the Subadvisers......................... 49
Portfolio Management...................................... 50
Custodian, Transfer and Dividend-Paying Agent............. 61
FINANCIAL HIGHLIGHTS........................................ 61
FOR MORE INFORMATION........................................ 67
</TABLE>
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Q&A
FIXED INCOME PORTFOLIOS typically seek to provide high current income
consistent with the preservation of capital by investing in fixed
income securities.
YIELD is the annual dollar income received on an investment expressed
as a percentage of the current or average price.
INCOME is interest payments from bonds or dividends from stocks.
TOTAL RETURN is a measure of performance which combines all elements
of return including income and capital gain or loss; it represents the
change in value of an investment over a given period expressed as a
percentage of the initial investment.
"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.
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TRUST HIGHLIGHTS
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The following questions and answers are designed to give you an
overview of SunAmerica Series Trust (the "Trust") and to provide you
with information about the Trust's twenty-six separate investment
series ("Portfolios") and their investment goals and principal
strategies. More complete investment information is provided in the
charts, under "More Information About the Portfolios," which begin
on page 35, and the glossary that follows on page 42.
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>
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PORTFOLIO INVESTMENT GOAL PRINCIPAL INVESTMENT STRATEGY
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<S> <C> <C> <C>
Cash Management high current yield while invests in a diversified selection
Portfolio preserving capital of money market instruments
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Corporate Bond high total return with invests primarily in investment
Portfolio only moderate price risk grade fixed income securities
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Global Bond Portfolio high total return, invests in high quality fixed
emphasizing current income securities of U.S. and
income and, to a lesser foreign issuers and transactions in
extent, capital foreign currencies
appreciation
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High-Yield Bond high current income and, invests primarily in intermediate
Portfolio secondarily, capital and long-term corporate
appreciation obligations, emphasizing
high-yield, high-risk fixed income
securities (junk bonds) with a
primary focus on "B" rated
high-yield bonds
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Worldwide High Income high current income and, invests primarily in high-yield,
Portfolio secondarily, capital high-risk fixed income securities
appreciation (junk bonds) of issuers located
throughout the world
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</TABLE>
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BALANCED PORTFOLIOS typically try to balance three different
investment goals: capital appreciation, income and capital
preservation by investing in a mixture of stocks, bonds and money
market instruments.
ASSET ALLOCATION is a varying combination, depending on market
conditions and risk level, of stocks, bonds, money market instruments
and other assets.
CAPITAL APPRECIATION/GROWTH is an increase in the market value of
securities held.
INDEX PORTFOLIOS typically are comprised of securities that make up or
replicate a target index; the primary objective is to mirror the
investment results of the index.
A "VALUE" PHILOSOPHY -- that of investing in securities that are
believed to be undervalued in the market -- often reflects a
contrarian approach in that the potential for superior relative
performance is believed to be highest when fundamentally solid
companies are out of favor. The selection criteria is usually
calculated to identify stocks of companies with solid financial
strength and generous dividend yields that have low price-earnings
ratios and have generally been overlooked by the market, or companies
undervalued within an industry or market capitalization category.
BALANCED OR ASSET ALLOCATION PORTFOLIOS
<TABLE>
<CAPTION>
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PORTFOLIO INVESTMENT GOAL PRINCIPAL INVESTMENT STRATEGY
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<S> <C> <C> <C>
SunAmerica Balanced conservation of maintains at all times a balanced
Portfolio principal portfolio of stocks and bonds, with
at least 25% invested in fixed
income securities
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MFS Total Return reasonable current invests primarily in common stocks
Portfolio income, long-term and fixed income securities, with
capital growth and an emphasis on income-producing
conservation of capital securities that appear to have some
potential for capital enhancement
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Asset Allocation high total return invests in a diversified portfolio
Portfolio (including income and that may include common stocks and
capital gains) other securities with common stock
consistent with long- characteristics, bonds and other
term preservation of intermediate and long-term fixed
capital income securities and money market
instruments
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Telecom Utility high current income and invests primarily in equity and
Portfolio moderate capital debt securities of utility
appreciation companies
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</TABLE>
EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
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PORTFOLIO INVESTMENT GOAL PRINCIPAL INVESTMENT STRATEGY
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<S> <C> <C> <C>
Equity Income long-term capital invests primarily in equity
Portfolio appreciation and income securities that are expected to pay
above-average dividends
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Equity Index Portfolio investment results that invests primarily in common stocks
correspond with the included in the S&P 500(R)
performance of the
Standard & Poor's 500(R)
Composite Stock Price
Index ("S&P 500(R)")
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Growth-Income growth of capital and invests primarily in common stocks
Portfolio income or securities that demonstrate the
potential for appreciation and/or
dividends
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Federated Value growth of capital and invests primarily in the securities
Portfolio income of high quality companies
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Davis Venture Value growth of capital invests primarily in common stocks
Portfolio of companies with market
capitalizations of at least $5
billion
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"Dogs" of Wall Street total return (including invests in thirty high dividend
Portfolio capital appreciation and yielding common stocks selected
current income) annually from the Dow Jones
Industrial Average and the broader
market (see "Additional information
about the "Dogs" of Wall Street
Portfolio" for a detailed
description of the Portfolio's
Investment Strategy)
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Alliance Growth long-term growth of invests primarily in equity
Portfolio capital securities of a limited number of
large, carefully selected, high
quality U.S. companies that are
judged likely to achieve superior
earnings
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</TABLE>
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A "GROWTH" PHILOSOPHY -- that of investing in securities believed to
offer the potential for capital appreciation -- focuses on securities
of companies that are considered to have a historical record of
above-average growth rate, significant growth potential, above-average
earnings growth or value, the ability to sustain earnings growth, or
that offer proven or unusual products or services, or operate in
industries experiencing increasing demand.
MARKET CAPITALIZATION represents the total market value of the
outstanding securities of a corporation.
INTERNATIONAL PORTFOLIOS typically seek capital appreciation by
investing significantly in securities traded in markets outside the
U.S.
AN "EMERGING MARKET" COUNTRY is generally a country with a low or
middle income economy or that is in the early stages of its
industrialization cycle.
EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
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PORTFOLIO INVESTMENT GOAL PRINCIPAL INVESTMENT STRATEGY
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<S> <C> <C> <C>
MFS Growth and Income reasonable current invests primarily in equity
Portfolio income and long-term securities
growth of capital and
income
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Putnam Growth long-term growth of invests primarily in common stocks
Portfolio capital or securities with common stock
characteristics that its Subadviser
believes have above-average growth
prospects
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Real Estate Portfolio total return through a invests primarily in securities of
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
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Small Company Value capital appreciation invests in a broadly diversified
Portfolio portfolio of equity securities of
small companies generally with
market capitalizations of less than
$1 billion
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MFS Mid-Cap Growth long-term growth of invests primarily in equity
Portfolio capital securities of medium-sized
companies that its Subadviser
believes have above-average growth
potential
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Aggressive Growth capital appreciation invests primarily in equity
Portfolio securities of high growth companies
including small and medium sized
growth companies with market
capitalizations of $1.5 billion to
$10 billion
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</TABLE>
INTERNATIONAL PORTFOLIOS
<TABLE>
<CAPTION>
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PORTFOLIO INVESTMENT GOAL PRINCIPAL INVESTMENT STRATEGY
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<S> <C> <C> <C>
International Growth growth of capital and, invests primarily in common stocks
and Income Portfolio secondarily, current traded on markets outside the U.S.
income
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Global Equities long-term growth of invests primarily in common stocks
Portfolio capital or securities with common stock
characteristics of U.S. and foreign
issuers that demonstrate the
potential for appreciation and
engages in transactions in foreign
currencies
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International long-term capital invests (in accordance with country
Diversified Equities appreciation and sector weightings determined by
Portfolio its Subadviser) in common stocks of
foreign issuers that, in the
aggregate, replicate broad country
and sector indices
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Emerging Markets long-term capital invests primarily in common stocks
Portfolio appreciation and other equity securities of
companies that its Subadviser
believes have above-average growth
prospects primarily in emerging
markets outside the U.S.
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</TABLE>
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Q: WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIOS?
A: The following section describes the principal risks of each Portfolio, while
the charts beginning on page 35 describe various additional risks.
Risks of Investing in Equity Securities
The EQUITY INCOME, EQUITY INDEX, GROWTH-INCOME, FEDERATED VALUE, DAVIS
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 TELECOM 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. Growth stocks are historically volatile, which will
particularly affect the GROWTH-INCOME, ALLIANCE GROWTH, MFS GROWTH AND
INCOME, PUTNAM GROWTH, MFS MID-CAP GROWTH, AGGRESSIVE GROWTH and
INTERNATIONAL GROWTH AND INCOME PORTFOLIOS. 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, or vice
versa. 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 TELECOM 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. In addition,
individual bonds selected for any of these Portfolios may underperform the
market generally.
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, EQUITY INCOME, REAL ESTATE, SMALL
COMPANY VALUE and MFS MID-CAP PORTFOLIOS also invest significantly in junk
bonds. While the Adviser and 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.
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 be subject to
changes in interest rates. The CASH MANAGEMENT PORTFOLIO does not seek to
maintain a stable net asset value of $1.00.
Risks of Investing Internationally
Except for the CASH MANAGEMENT PORTFOLIO, 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
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<PAGE> 8
risks affect all the Portfolios except for the CASH MANAGEMENT PORTFOLIO and
are primary risks of 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 SMALL COMPANY
VALUE, GROWTH-INCOME, ALLIANCE GROWTH, PUTNAM GROWTH, AGGRESSIVE GROWTH,
INTERNATIONAL GROWTH AND INCOME and EMERGING MARKETS PORTFOLIOS.
Risks of a "Passively Managed" Strategy
Each of the EQUITY INDEX and "DOGS" OF WALL STREET 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 TELECOM 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' historic
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. Most of the
Portfolio's investments are, and likely will continue to be, interests in
Real Estate Investment Trusts (REITs).
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 securities of a single company than can some
other mutual funds. By concentrating in a smaller number of securities, a
Portfolio's risk is increased because the effect of each security 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.
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<PAGE> 9
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 calendar year to calendar year, and comparing the
Portfolios' average annual returns to those of an appropriate market index.
Fees and expenses incurred at the contract level are not reflected in the
bar charts and tables. If these amounts were reflected, returns would be
less than those shown. Of course, past performance is not necessarily an
indication of how a Portfolio will perform in the future. Performance
information for the MFS MID-CAP GROWTH PORTFOLIO is not shown because the
Portfolio has not been in existence for a full calendar year.
- --------------------------------------------------------------------------------
CASH MANAGEMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CASH MANAGEMENT PORTFOLIO
-------------------------
<S> <C>
1994 3.8
1995 5.48
1996 4.91
1997 5.22
1998 5.05
1999 4.87
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
1.36% (quarter ended 06/30/95) and the lowest return for a quarter was 0.64%
(quarter ended 03/31/94). For the most recent calendar quarter ended 03/31/00,
the return was 1.29%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Cash Management Portfolio 4.87% 5.11% 4.57%
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is February 9, 1993.
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CORPORATE BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1994 -3.19
1995 17.78
1996 4.49
1997 10.90
1998 6.05
1999 -1.85
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
5.94% (quarter ended 06/30/95) and the lowest return for a quarter was -2.89%
(quarter ended 03/31/94). For the most recent calendar quarter ended 03/31/00,
the return was 1.44%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Corporate Bond Portfolio -1.85% 7.27% 5.40%
- ------------------------------------------------------------------------------------------------
Lipper Corporate BBB Rated Index(2) -1.60% 7.35% 5.48%
- ------------------------------------------------------------------------------------------------
Lehman Brothers Corporate Bond Index(3) -1.94% 8.18% 6.11%
- ------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index(4) -0.81% 7.74% 5.84%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is July 1, 1993. The since inception
returns for the comparative indices are as of the inception date month end.
(2) The Lipper Corporate BBB Rated Index is an average of variable annuity
accounts that include at least 65% of assets in corporate and government
debt issues in the top four grades.
(3) The Lehman Brothers Corporate Bond Index includes all publicly issued,
fixed rate, nonconvertible investment grade, dollar-denominated,
SEC-registered corporate debt.
(4) The Lehman Brothers Aggregate Index combines several Lehman Brothers
fixed-income indices to give a broad view of the bond market -- 70%
reflects the Government/Corporate Bond Index, 29% reflects the
Mortgage-Backed Securities Index and 1% reflects the Asset-Backed
Securities Index.
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- --------------------------------------------------------------------------------
GLOBAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1994 -4.65
1995 17.64
1996 9.36
1997 10.03
1998 10.87
1999 8.09
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
5.66% (quarter ended 09/30/98) and the lowest return for a quarter was -3.97%
(quarter ended 03/31/94). For the most recent calendar quarter ended 03/31/00,
the return was 2.22%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Global Bond Portfolio 8.09% 9.20% 6.99%
- ------------------------------------------------------------------------------------------------
J.P. Morgan Global Government Bond Index(2) 0.73% 9.77% 8.64%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is July 1, 1993. The since inception
return for the comparative index is as of the inception date month end.
(2) The J.P. Morgan Global Government Bond Index tracks the performance of
bonds throughout the world, including issues from Europe, Australia, the
Far East and the United States.
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- --------------------------------------------------------------------------------
HIGH-YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH-YIELD BOND PORTFOLIO
-------------------------
<S> <C>
1994 -5.52
1995 14.24
1996 14.57
1997 14.42
1998 -2.95
1999 6.50
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
7.38% (quarter ended 09/30/97) and the lowest return for a quarter was -8.40%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 0.95%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
High-Yield Bond Portfolio 6.50% 9.13% 7.55%
- ------------------------------------------------------------------------------------------------
Merrill Lynch High-Yield Master Index(2) 1.55% 9.60% 9.07%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is February 9, 1993. The since inception
return for the comparative index is as of the inception date month end.
(2) The Merrill Lynch High-Yield Master Index includes publicly placed,
nonconvertible, coupon-bearing U.S. domestic debt with a maturity of at
least one year. Par amounts of all issues at the beginning and ending of
each reporting period must be at least $10,000. Issues included in the
index must have a rating that is less than investment grade but not in
default.
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- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WORLDWIDE HIGH INCOME PORTFOLIO
-------------------------------
<S> <C>
1995 -20.97
1996 25.32
1997 15.54
1998 -17.07
1999 19.31
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
12.07% (quarter ended 06/30/95) and the lowest return for a quarter was -24.35%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 2.44%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Worldwide High Income Portfolio 19.31% 11.62% 10.74%
- --------------------------------------------------------------------------------------------------
First Boston High Yield Bond Index(2) 3.28% 9.07% 8.72%
- --------------------------------------------------------------------------------------------------
J.P. Morgan EMBI Plus(3) 21.59% 16.54% 14.62%
- --------------------------------------------------------------------------------------------------
Blended Index(4) 6.88% 12.31% 11.26%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is October 28, 1994. The since inception
returns for the comparative indices are as of the inception date month end.
(2) The First Boston High Yield Bond Index is a trader-priced portfolio
constructed to mirror the public high-yield debt market. Securities in the
index are rated B or lower.
(3) The J.P. Morgan Emerging Markets Bond Index (EMBI) Plus is a
market-weighted index composed of all Brady Bonds outstanding; it includes
Argentina, Brazil, Mexico, Nigeria, the Philippines, and Venezuela.
(4) The Blended Index combines 50% of the First Boston High Yield Index and 50%
of the J.P. Morgan Emerging Markets Bond Index Plus.
12
<PAGE> 14
- --------------------------------------------------------------------------------
SUNAMERICA BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUN AMERICA BALANCED PORTFOLIO
------------------------------
<S> <C>
1997 24.48
1998 24.61
1999 21.40
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
15.55% (quarter ended 12/31/98) and the lowest return for a quarter was -5.24%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 4.23%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR INCEPTION(1)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
SunAmerica Balanced Portfolio 21.40% 22.67%
- -----------------------------------------------------------------------------------------
S&P 500(R)(2) 21.03% 26.60%
- -----------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index(3) -0.81% 6.60%
- -----------------------------------------------------------------------------------------
Blended Index(4) 11.54% 17.41%
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is June 3, 1996. The since inception
returns for the comparative indices are as of the inception date month end.
(2) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market-weighted, the index will reflect
changes in larger companies more heavily than those in smaller companies.
(3) The Lehman Brothers Aggregate Index combines several Lehman Brothers
fixed-income indices to give a broad view of the bond market -- 70%
reflects the Government/Corporate Bond Index, 29% reflects the
Mortgage-Backed Securities Index and 1% reflects the Asset-Backed
Securities Index.
(4) The Blended Index consists of 55% S&P 500(R) Index, 35% Lehman Brothers
Aggregate Index, and 10% Treasury Bills. Treasury Bills are short-term
securities with maturities of one-year or less issued by the U.S.
Government.
13
<PAGE> 15
- --------------------------------------------------------------------------------
MFS TOTAL RETURN PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MFS TOTAL RETURN PORTFOLIO
--------------------------
<S> <C>
1995 27.64
1996 9.94
1997 16.90
1998 19.53
1999 2.88
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
13.55% (quarter ended 12/31/98) and the lowest return for a quarter was -4.95%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 1.68%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
MFS Total Return Portfolio(2) 2.88% 15.07% 14.46%
- -------------------------------------------------------------------------------------------------
S&P 500(R)(3) 21.03% 28.56% 26.90%
- -------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index(4) -0.81% 7.74% 7.56%
- -------------------------------------------------------------------------------------------------
Blended Index(5) 11.54% 18.77% 17.84%
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is October 28, 1994. The since inception
returns for the comparative indices are as of the inception date month end.
(2) Prior to January 1, 1999, the MFS Total Return Portfolio was named the
Balanced Phoenix Investment Counsel Portfolio.
(3) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market weighted, the index will reflect
changes in larger companies more heavily than those in smaller companies.
(4) The Lehman Brothers Aggregate Index combines several Lehman Brothers
fixed-income indices to give a broad view of the bond market -- 70%
reflects the Government/Corporate Bond Index, 29% reflects the
Mortgage-Backed Securities Index and 1% reflects the Asset-Backed
Securities Index.
(5) The Blended Index consists of 35% Lehman Brothers Aggregate Index, 55% S&P
500 Index, and 10% Treasury Bills. Treasury Bills are short-term securities
with maturities of one-year or less issued by the U.S. Government.
14
<PAGE> 16
- --------------------------------------------------------------------------------
ASSET ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO
--------------------------
<S> <C>
1994 -0.26
1995 26.29
1996 18.95
1997 21.81
1998 3.32
1999 9.44
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
11.05% (quarter ended 06/30/97) and the lowest return for a quarter was -8.76%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 2.20%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Asset Allocation Portfolio 9.44% 15.65% 12.77%
- ------------------------------------------------------------------------------------------------
S&P 500(R)(2) 21.03% 28.56% 21.76%
- ------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Index(3) -0.81% 7.74% 5.84%
- ------------------------------------------------------------------------------------------------
Blended Index(4) 12.00% 20.09% 15.37%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is July 1, 1993. The since inception
returns for the comparative indices are as of the inception date month end.
(2) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market-weighted, the index will reflect
changes in larger companies more heavily than those in smaller companies.
(3) The Lehman Brothers Aggregate Index combines several Lehman Brothers
fixed-income indices to give a broad view of the bond market--70% reflects
the Government/Corporate Bond Index, 29% reflects the Mortgage-Backed
Securities Index and 1% reflects the Asset-Backed Securities Index.
(4) The Blended Index consists of 40% Lehman Brothers Aggregate Index and 60%
S&P 500 Index.
15
<PAGE> 17
- --------------------------------------------------------------------------------
TELECOM UTILITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TELECOM UTILITY PORTFOLIO
-------------------------
<S> <C>
1997 25.73
1998 14.04
1999 1.78
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
12.85% (quarter ended 12/31/97) and the lowest return for a quarter was -6.67%
(quarter ended 03/31/99). For the most recent calendar quarter ended 03/31/00,
the return was 5.15%.
- --------------------------------------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR INCEPTION(1)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
Telecom Utility Portfolio(2) 1.78% 13.93%
- -----------------------------------------------------------------------------------------
S&P 500(R)(3) 21.03% 26.60%
- -----------------------------------------------------------------------------------------
Blended Index(4) 21.41% 28.64%
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is June 3, 1996. The since inception
returns for the comparative indices are as of the inception date month end.
(2) Prior to April 10, 2000, the Telecom Utility Portfolio was named the
Utility Portfolio.
(3) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market-weighted, the index will reflect
changes in larger companies more heavily than those in smaller companies.
(4) The Blended Index is comprised of 35% S&P Utility Index and 65% for the S&P
Communications Service Index, on a market capitalization weighted basis.
The S&P Utility Index is presently comprised of 40 stocks from the electric
and natural gas industries. The S&P Communications Service Index is
comprised of the companies listed in the telecommunications sectors of the
S&P 400, 500, and 600. Created in July of 1996, the S&P Communications
Service Index includes cellular and wireless service providers including
pagers, long distance providers and the telephone group companies (local
service providers).
16
<PAGE> 18
- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO
-----------------------
<S> <C>
1999 4.16
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
4.94% (quarter ended 12/31/99) and the lowest return for a quarter was -7.71%
(quarter ended 09/30/99). For the most recent calendar quarter ended 03/31/00,
the return was -2.48%.
- --------------------------------------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR INCEPTION(1)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
Equity Income Portfolio 4.16% 8.93%
- -----------------------------------------------------------------------------------------
S&P 500(R)(2) 21.03% 26.61%
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is December 14, 1998. The since inception
return for the comparative index is as of the inception date month end.
(2) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market-weighted, the index will reflect
changes in larger companies more heavily than those in smaller companies.
17
<PAGE> 19
- --------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INDEX PORTFOLIO
----------------------
<S> <C>
1999 17.14
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
14.57% (quarter ended 12/31/99) and the lowest return for a quarter was -7.18%
(quarter ended 09/30/99). For the most recent calendar quarter ended 03/31/00,
the return was 2.08%.
- --------------------------------------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR INCEPTION(1)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
Equity Index Portfolio 17.14% 24.75%
- -----------------------------------------------------------------------------------------
S&P 500(R)(2) 21.03% 26.61%
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is December 14, 1998. The since inception
return for the comparative index is as of the inception date month end.
(2) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market-weighted, the index will reflect
changes in larger companies more heavily than those in smaller companies.
18
<PAGE> 20
- --------------------------------------------------------------------------------
GROWTH-INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH-INCOME PORTFOLIO
-----------------------
<S> <C>
1994 -2.61
1995 34.10
1996 24.06
1997 33.91
1998 30.74
1999 30.04
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
28.51% (quarter ended 12/31/98) and the lowest return for a quarter was -14.39%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 4.88%.
- --------------------------------------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE PAST FIVE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Growth-Income Portfolio 30.04% 30.52% 22.22%
- ------------------------------------------------------------------------------------------------
S&P 500(R)(2) 21.03% 28.56% 21.37%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is February 9, 1993. The since inception
return for the comparative index is as of the inception date month end.
(2) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market-weighted, the Index will reflect
changes in larger companies more heavily than those in smaller companies.
19
<PAGE> 21
- --------------------------------------------------------------------------------
FEDERATED VALUE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED VALUE PORTFOLIO
-------------------------
<S> <C>
1997 31.43
1998 17.96
1999 6.19
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
16.10% (quarter ended 12/31/98) and the lowest return for a quarter was -11.49%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was -2.23%.
- --------------------------------------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR PAST ONE RETURN SINCE
ENDED DECEMBER 31, 1999) YEAR INCEPTION(1)
<S> <C> <C>
- --------------------------------------------------------------------------------------
Federated Value Portfolio 6.19% 17.52%
- --------------------------------------------------------------------------------------
S&P 500(R)(2) 21.03% 26.60%
- --------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is June 3, 1996. The since inception
return for the comparative index is as of the inception date month end.
(2) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market-weighted, the index will reflect
changes in larger companies more heavily than those in smaller companies.
20
<PAGE> 22
- --------------------------------------------------------------------------------
DAVIS VENTURE VALUE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DAVIS VENTURE VALUE PORTFOLIO
-----------------------------
<S> <C>
1995 37.45
1996 24.76
1997 34.32
1998 13.73
1999 16.11
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
21.07% (quarter ended 12/31/98) and the lowest return for a quarter was -14.87%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 9.85%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED PAST ONE PAST FIVE RETURN SINCE
DECEMBER 31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Davis Venture Value Portfolio(2) 16.11% 24.92% 23.75%
- ----------------------------------------------------------------------------------------------------
S&P 500(R)(3) 21.03% 28.56% 26.90%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is October 28, 1994. The since inception
return for the comparative index is as of the inception date month end.
(2) Prior to April 10, 2000, the Davis Venture Value Portfolio was named the
Venture Value Portfolio.
(3) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market-weighted, the index will reflect
changes in larger companies more heavily than those in smaller companies.
21
<PAGE> 23
---------------------------------------------------------------------------
"DOGS" OF WALL STREET PORTFOLIO
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
DOGS OF WALL STREET PORTFOLIO
-----------------------------
<S> <C>
1999 -7.08
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
15.56% (quarter ended 06/30/99) and the lowest return for a quarter was -9.92%
(quarter ended 09/30/99). For the most recent calendar quarter ended 03/31/00,
the return was -9.60%.
- --------------------------------------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE PAST ONE RETURN SINCE
CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR INCEPTION(1)
<S> <C> <C>
- -----------------------------------------------------------------------------------------
"Dogs" of Wall Street Portfolio -7.08% -4.64%
- -----------------------------------------------------------------------------------------
S&P 500(R)(2) 21.03% 20.50%
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is April 1, 1998. The since inception
return for the comparative index is as of the inception date month end.
(2) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market-weighted, the Index will reflect
changes in larger companies more heavily than those of smaller companies.
22
<PAGE> 24
- --------------------------------------------------------------------------------
ALLIANCE GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1994 -2.16
1995 43.79
1996 29.11
1997 31.43
1998 52.23
1999 33.07
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
32.57% (quarter ended 12/31/98) and the lowest return for a quarter was -12.54%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 7.01%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED DECEMBER PAST ONE PAST FIVE RETURN SINCE
31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Alliance Growth Portfolio 33.07% 37.66% 27.69%
- ------------------------------------------------------------------------------------------------------------
Russell 1000 Growth Index(2) 33.16% 32.41% 23.75%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is February 9, 1993. The since inception
return for the comparative index is as of the inception date month end.
(2) The Russell 1000 Growth Index consists of stocks with a
greater-than-average growth orientation. Companies in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend
yields and higher forecasted growth values.
23
<PAGE> 25
- --------------------------------------------------------------------------------
MFS GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1994 -8.01
1995 32.10
1996 15.99
1997 23.22
1998 29.28
1999 5.93
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
22.03% (quarter ended 12/31/98) and the lowest return for a quarter was -8.93%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 2.01%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED DECEMBER PAST ONE PAST FIVE RETURN SINCE
31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
MFS Growth and Income Portfolio(2) 5.93% 20.92% 15.05%
- ------------------------------------------------------------------------------------------------------------
S&P 500(R)(3) 21.03% 28.56% 21.37%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is February 9, 1993. The since inception
return for the comparative index is as of the inception date month end.
(2) Prior to January 1, 1999 the MFS Growth and Income Portfolio was named the
Growth Phoenix Investment Counsel Portfolio.
(3) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market-weighted, the index will reflect
changes in larger companies more heavily than those in smaller companies.
24
<PAGE> 26
- --------------------------------------------------------------------------------
PUTNAM GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1994 -1.57
1995 24.75
1996 20.37
1997 32.48
1998 34.76
1999 29.71
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
25.28% (quarter ended 12/31/98) and the lowest return for a quarter was -12.26%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 2.98%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED DECEMBER PAST ONE PAST FIVE RETURN SINCE
31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Putnam Growth Portfolio(2) 29.71% 28.31% 20.01%
- ------------------------------------------------------------------------------------------------------------
S&P 500(R)(3) 21.03% 28.56% 21.37%
- ------------------------------------------------------------------------------------------------------------
Russell 1000 Growth Index(4) 33.16% 32.41% 23.75%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is February 9, 1993. The since inception
returns for the comparative indices are as of the inception date month end.
(2) Prior to April 7, 1997, the Putnam Growth Portfolio was known as the
Provident Growth Portfolio, managed by Provident Investment Counsel.
(3) The S&P 500(R) Index tracks the performance of 500 stocks representing a
sampling of the largest foreign and domestic stocks traded publicly in the
United States. Because it is market-weighted, the index will reflect
changes in larger companies more heavily than those in smaller companies.
(4) The Russell 1000 Growth Index consists of stocks with a
greater-than-average growth orientation. Companies in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend
yields and higher forecasted growth values.
25
<PAGE> 27
- --------------------------------------------------------------------------------
REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1998 -14.11
1999 -7.42
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
11.98% (quarter ended 06/30/99) and the lowest return for a quarter was -11.07%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 1.25%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAST ONE RETURN SINCE
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR INCEPTION(1)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Real Estate Portfolio -7.42% -2.92%
- ----------------------------------------------------------------------------------------------------------
Morgan Stanley REIT Index(2) -4.54% -2.30%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is June 2, 1997. The since inception
return for the comparative index is as of the inception date month end.
(2) The Morgan Stanley Real Estate Investment Trust (REIT) Index is a
capitalization-weighted index with dividends reinvested of mostly actively
traded real estate investment trusts and is designed to be a measure of
real estate equity performance. The index was developed with a base value
of 200 as of December 31, 1994.
26
<PAGE> 28
- --------------------------------------------------------------------------------
SMALL COMPANY VALUE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL COMPANY VALUE PORTFOLIO
-----------------------------
<S> <C>
1999 6.15
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
19.24% (quarter ended 06/30/99) and the lowest return for a quarter was -14.29%
(quarter ended 03/31/99). For the most recent calendar quarter ended 03/31/00,
the return was 8.08%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAST ONE RETURN SINCE
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR INCEPTION(1)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Small Company Value Portfolio 6.15% 10.41%
- ----------------------------------------------------------------------------------------------------------
Russell 2000 Value Index(2) 21.25% 27.31%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is December 14, 1998. The since inception
return for the comparative index is as of the inception date month end.
(2) The Russell 2000 Value Index is a subset of the Russell 2000 Index that
includes companies with lower price-to-book ratios and lower forecasted
growth values. The Russell 2000 Index measures the performance of the 2,000
smallest companies in the broad equity market Russell 3000 Index, and
represents approximately 8% of the total market capitalization of the
Russell 3000 Index.
27
<PAGE> 29
- --------------------------------------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1997 12.35
1998 17.43
1999 84.66
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
53.68% (quarter ended 12/31/99) and the lowest return for a quarter was -17.31%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 8.30%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAST ONE RETURN SINCE
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR INCEPTION(1)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Aggressive Growth Portfolio 84.66% 30.10%
- ----------------------------------------------------------------------------------------------------------
Russell 2000 Index(2) 21.25% 11.15%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is June 3, 1996. The since inception
return for the comparative index is as of the inception date month end.
(2) The Russell 2000 Index is comprised of the smallest 2000 companies in the
Russell 3000 Index, representing approximately 11% of the Russell 3000
total market capitalization. The Index was developed with a base value of
$135,000 as of December 31, 1986.
28
<PAGE> 30
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1998 10.83
1999 24.18
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
14.81% (quarter ended 12/31/98) and the lowest return for a quarter was -17.57%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 2.87%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAST ONE RETURN SINCE
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR INCEPTION(1)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
International Growth and Income Portfolio 24.18% 15.87%
- ----------------------------------------------------------------------------------------------------------
MSCI EAFE Index(2) 27.31% 16.44%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is June 2, 1997. The since inception
return for the comparative index is as of the inception date month end.
(2) The Morgan Stanley Capital International (MSCI) Europe, Australia, and Far
East (EAFE) Index represents the foreign stocks of 20 developed market
countries in Europe, Australia and the Far East.
29
<PAGE> 31
- --------------------------------------------------------------------------------
GLOBAL EQUITIES PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL EQUITIES PORTFOLIO
-------------------------
<S> <C>
1994 -0.30
1995 19.16
1996 14.18
1997 15.06
1998 22.86
1999 30.94
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
25.50% (quarter ended 12/31/98) and the lowest return for a quarter was -18.20%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 7.94%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED DECEMBER PAST ONE PAST FIVE RETURN SINCE
31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Global Equities Portfolio 30.94% 20.29% 16.99%
- ------------------------------------------------------------------------------------------------------------
MSCI World Index(2) 25.34% 20.25% 18.39%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is February 9, 1993. The since inception
return for the comparative index is as of the inception date month end.
(2) The Morgan Stanley Capital International (MSCI) World Index measures the
performance of companies representative of the market structure of 22
developed market countries in North America, Europe and Asia/Pacific
regions.
30
<PAGE> 32
- --------------------------------------------------------------------------------
INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO
--------------------------------------------
<S> <C>
1995 10.34
1996 9.31
1997 6.37
1998 18.53
1999 24.59
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
15.91% (quarter ended 03/31/98) and the lowest return for a quarter was -12.33%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was -3.69%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED PAST ONE PAST FIVE RETURN SINCE
DECEMBER 31, 1999) YEAR YEARS INCEPTION(1)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
International Diversified Equities Portfolio 24.59% 13.63% 12.38%
- -----------------------------------------------------------------------------------
MSCI EAFE Index(2) 27.31% 13.15% 11.75%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is October 28, 1994. The since inception
return for the comparative index is as of the inception date month end.
(2) The Morgan Stanley Capital International (MSCI) Europe, Australia, and Far
East (EAFE) Index represents the foreign stocks of 20 developed market
countries in Europe, Australia and the Far East.
31
<PAGE> 33
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1998 -24.27
1999 77.45
</TABLE>
During the period shown in the bar chart, the highest return for a quarter was
38.80% (quarter ended 12/31/99) and the lowest return for a quarter was -22.17%
(quarter ended 09/30/98). For the most recent calendar quarter ended 03/31/00,
the return was 1.62%.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAST ONE RETURN SINCE
AVERAGE ANNUAL TOTAL RETURNS (AS OF THE CALENDAR YEAR ENDED DECEMBER 31, 1999) YEAR INCEPTION(1)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio 77.45% 4.52%
- ----------------------------------------------------------------------------------------------------------
MSCI Emerging Markets Free Index(2) 66.42% -0.66%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inception date for the Portfolio is June 2, 1997. The since inception
return for the comparative index is as of the inception date month end.
(2) The Morgan Stanley Capital International (MSCI) Emerging Markets--Free
Index measures the performance of companies representative of the market
structure of 25 emerging market countries in Europe, Latin America, and the
Pacific Basin. The MSCI EMF Index excludes closed markets and those shares
in otherwise free markets which are not purchasable by foreigners.
32
<PAGE> 34
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Shares of the Portfolios are not offered directly to the public. Instead, shares
are currently issued and redeemed only in connection with investments in and
payments under variable annuity contracts and variable life insurance policies
(Variable Contracts) of Anchor National Life Insurance Company, First SunAmerica
Life Insurance Company, AIG Life Insurance Company and American International
Life Assurance Company of New York (Life Companies), each of which is affiliated
with the Trust's investment adviser and manager, SunAmerica Asset Management
Corp. (SAAMCo). All shares of the Trust are owned by "Separate Accounts" of the
Life Companies. So if you would like to invest in a Portfolio, you must purchase
a Variable Contract from one of the Life Companies. 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 Contract and the
Portfolios available to you 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 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.
33
<PAGE> 35
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE "DOGS" OF WALL STREET PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY FOR THE "DOGS" OF WALL STREET PORTFOLIO
The "DOGS" OF WALL STREET PORTFOLIO employs a passively managed "buy and hold"
strategy that annually selects the following 30 stocks: (1) the 10 highest
yielding common stocks in the Dow Jones Industrial Average 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
stocks in the Portfolio will not change over the course of the year, even if
there are adverse developments concerning a particular stock, an industry, the
economy or the stock market generally. The annual selection of the thirty stocks
that meet these criteria takes place no later than January 15th, 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 Adviser invests the additional funds in the selected
stocks based on each stock's respective percentage of the Portfolio's assets.
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 will fluctuate throughout the course
of the year. 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.
- --------------------------------------------------------------------------------
MORE INFORMATION ABOUT THE PORTFOLIOS
- --------------------------------------------------------------------------------
INVESTMENT STRATEGIES
Each Portfolio has its own investment goal and principal strategy for pursuing
it as described in the charts beginning on page 3. The charts below summarize
information about each Portfolio's investments. We have included a glossary to
define the investment and risk terminology used in the charts throughout this
Prospectus. Unless otherwise indicated, investment restrictions, including
percentage limitations, apply at the time of purchase.
34
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FIXED INCOME PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------------------------
CASH HIGH-YIELD WORLDWIDE HIGH
MANAGEMENT CORPORATE BOND GLOBAL BOND BOND INCOME
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
What are the - Fixed income - Fixed income - Fixed income - Fixed income - Foreign
Portfolio's securities: securities: securities: securities: securities:
principal - U.S. treasury - corporate - U.S. and non- - junk bonds - emerging
investments? bills bonds U.S. government - convertible market
- agency discount - investment grade securities bonds government
notes fixed income - investment grade - preferred stocks securities
- commercial paper securities corporate bonds - zero coupon and - emerging market
- corporate debt - junk bonds - mortgage and deferred interest corporate debt
instruments (up to 35%) asset-backed bonds instruments
- Short-term - U.S. government securities - Eurobonds
investments securities - Short-term - Brady bonds
investments - Junk bonds
- Currency
transactions
- Foreign
securities
- -----------------------------------------------------------------------------------------------------------------------------
In what other types N/A - Fixed income - Options and - Equity - Currency
of investments may securities: futures securities: transactions
the Portfolio - preferred - Forward - convertible - Illiquid
significantly securities commitments securities securities (up to
invest? - zero coupon, - Mortgage and - warrants 15%)
deferred interest-rate - Fixed income - Borrowing for
interest and PIK swaps securities: temporary or
bonds - Hybrid - U.S. emergency
(up to 35%) instruments government purposes
- Foreign - Deferred securities (up to 33 1/3%)
securities interest bonds - investment grade
- When-issued and - Inverse floaters bonds
delayed delivery - Illiquid - Foreign
transactions securities (up to securities
- Illiquid 15%) - PIK bonds
securities (up to - Pass-through - Short-term
15%) securities investments
- Pass-through - Borrowing for
securities temporary or
- Convertible emergency
securities purposes
(up to 33 1/3%)
- -----------------------------------------------------------------------------------------------------------------------------
What other types of N/A - Short-term - Mortgage dollar -Borrowing for - Hybrid
investments may the investments rolls temporary or instruments
Portfolio use as - Defensive - Zero coupon, emergency - Options and
part of efficient investments deferred purposes Futures
portfolio - Options and interest and PIK (up to 33 1/3%) - Forward
management or to futures bonds - Illiquid commitments
enhance return? (up to 10%) - Firm commitments securities (up to
- Borrowing for and when-issued 15%)
temporary or or delayed -- - Loan
emergency delivery participations
purposes transactions - Short sales
(up to 33 1/3%) - Forward - Rights
- Securities commitments
lending (up to - Loan
33 1/3%) participations
- Securities
lending (up to
33 1/3%)
- Interest rate
swaps, caps,
floors and
collars
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FIXED INCOME PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------------------------
CASH HIGH-YIELD WORLDWIDE HIGH
MANAGEMENT CORPORATE BOND GLOBAL BOND BOND INCOME
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
What risks normally - Interest rate - Credit quality - Interest rate - Credit quality - Foreign exposure
affect the fluctuations - Interest rate fluctuations - Interest rate - Credit quality
Portfolio? - Security fluctuations - Credit quality fluctuations - Illiquidity
selection - Market - Currency - Security - Securities
volatility volatility selection selections
- Small and medium - Derivatives - Market - Market
sized companies - Market volatility volatility
- Security volatility - Currency
selection - Non-diversified volatility
status - Non-diversified
- Foreign exposure status
- Hedging
- Security
selection
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
BALANCED OR ASSET ALLOCATION PORTFOLIOS
- ----------------------------------------------------------------------------------------------------------------------
SUNAMERICA
BALANCED MFS TOTAL RETURN ASSET ALLOCATION TELECOM UTILITY
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
What are the - Equity securities: - Equity securities - Equity securities: - Equity securities:
Portfolio's - common stocks (at least 40%, but not - common stocks - mid-cap stocks
principal - Fixed income more than 75%): - convertible - large-cap stocks
investments? securities: - common stocks securities - small-cap stocks
- U.S. government - convertible - warrants - REITs
securities securities - rights
- corporate debt - rights - Fixed income
instruments - Fixed income securities:
securities (at least - U.S. government
25%): securities
- U.S. government - investment grade
securities corporate bonds
- pass-through - preferred stocks
securities - junk bonds (up to
- corporate debt 25% of fixed income
instruments investments)
- preferred stocks - senior securities
- Loan participations - pass-through
- Equity swaps securities
- Emerging markets - REITs
- Registered
investment companies
- Foreign securities
- Hybrid Instruments:
- WEBs and SPDRs
- Illiquid securities
(up to 15%)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
BALANCED OR ASSET ALLOCATION PORTFOLIOS
- ----------------------------------------------------------------------------------------------------------------------
SUNAMERICA
BALANCED MFS TOTAL RETURN ASSET ALLOCATION TELECOM UTILITY
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In what other types - Equity securities: - Foreign securities: - Equity securities: - Equity securities:
of investments may - small-cap stocks (up to 20%): - small-cap stocks - convertible
the Portfolio (up to 20%) - Brady bonds - convertible securities
significantly - short-term - depositary receipts securities - Fixed income
invest? investments - fixed income - Foreign securities: securities:
(up to 10%) securities (U.S. - ADRs, GDRs and EDRs - Corporate bonds
- Defensive dollar denominated) - emerging markets - investment grade
investments - Junk bonds - Equity swaps fixed income
- Foreign securities (up to 20%) - Hybrid securities securities
- Illiquid securities - Securities lending - Currency - preferred stocks
(up to 15%) (up to 33 1/3%) transactions
- Futures
- Forward commitments
- Mortgage dollar
rolls
- Deferred interest
bonds
- ----------------------------------------------------------------------------------------------------------------------
What other types of - Options and futures - Municipal bonds - Options and futures - Short-term
investments may the - Currency - Warrants - Short-term investments
Portfolio use as transactions - Zero-coupon, investments - Defensive
part of efficient - Borrowing for deferred interest and - Firm commitment investments
portfolio management temporary or PIK bonds when agreements - Options and futures
or to enhance emergency purposes issued and - When issued and - Borrowing for
return? (up to 33 1/3%) delayed-delivery delayed-delivery temporary or
- Securities lending transactions transactions emergency purposes
(up to 33 1/3%) - Hybrid instruments - Zero coupon bonds (up to 33 1/3%)
- Inverse floaters - Interest rate swaps, - Securities lending
- Options and futures caps, floors and (up to 33 1/3%)
- Currency collars
transactions - Securities lending
- Forward commitments (up to 33 1/3%)
- Registered - Loan participations
investment companies - Defensive
- Short-term investments
investments - Borrowing for
- Defensive temporary or emergency
investments purposes (up to
- Borrowing for 33 1/3%)
temporary or
emergency purposes
(up to 33 1/3%)
- ----------------------------------------------------------------------------------------------------------------------
What risks normally - Market volatility - Security selection - Market volatility - Market volatility
affect the - Interest rate - Market volatility - Securities selection - Utility industry
Portfolio? fluctuations - Foreign exposure - Interest rate
- Credit quality - Interest rate fluctuations
- Currency volatility fluctuations - Credit quality
- Foreign exposure - Illiquidity - Currency volatility
- Derivatives - Credit quality - Foreign exposure
- Hedging - Active trading - Derivatives
- Prepayment - Hedging
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
EQUITY PORTFOLIOS
- ----------------------------------------------------------------------------------------------------------------------
EQUITY INCOME EQUITY INDEX GROWTH-INCOME FEDERATED VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
What are the - Equity securities: - Equity securities: - Equity securities: - Equity securities:
Portfolio's - common stocks - common stocks - large-cap stocks - large-cap stocks
principal - mid-cap stocks
investments?
- ----------------------------------------------------------------------------------------------------------------------
In what other types - Equity securities: N/A - Foreign securities - Equity securities:
of investments may - small-cap stocks (up to 25%) - mid-cap stocks
the Portfolio - convertible - Foreign securities:
significantly securities - ADRs
invest? - Fixed income
securities:
- U.S. government
securities
- preferred stocks
- Foreign securities
(up to 25%)
- ----------------------------------------------------------------------------------------------------------------------
What other types of - Short-term - Short-term - Short-term - Short-term
investments may the investments investments investments investments
Portfolio use as - Defensive - Defensive - Defensive - Defensive
part of efficient investments investments investments investments
portfolio management - Options and futures - Options and futures - Borrowing for - Options and futures
or to enhance - Borrowing for (up to 20%) temporary or - Borrowing for
return? temporary or - Borrowing for emergency purposes temporary or
emergency purposes temporary or (up to 33 1/3%) emergency purposes
(up to 33 1/3%) emergency purposes - Options and futures (up to 33 1/3%)
- Securities lending (up to 33 1/3%) - Securities lending
(up to 33 1/3%) - Securities lending (up to 33 1/3%)
- Illiquid securities (up to 33 1/3%)
(up to 15%) - Illiquid securities
- Forward commitments (up to 15%)
- Registered - Foreign securities
investment companies - Small-cap stocks
- Firm commitments - Registered
- When issued and investment companies
delayed-delivery - Firm commitments
transactions - When issued and
- Junk bonds delayed-delivery
transactions
- ----------------------------------------------------------------------------------------------------------------------
What risks normally - Market volatility - Market volatility - Market volatility - Market volatility
affect the - Securities selection - Passively-managed - Securities selection - Securities selection
Portfolio? - Active trading strategy - Active trading
- Active trading - Growth stocks
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
EQUITY PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------------------
MFS GROWTH AND
DAVIS VENTURE VALUE "DOGS" OF WALL STREET ALLIANCE GROWTH INCOME
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
What are the - Equity securities: - Equity securities: - Equity securities: - Equity securities
Portfolio's - large-cap stocks - large-cap stocks - large-cap stocks (at least 65%):
principal - common stocks
investments? - convertible
securities
- Fixed income
securities:
- preferred stocks
- Foreign securities:
- depositary receipts
- -----------------------------------------------------------------------------------------------------------------------
In what other types - Mid-cap stocks N/A - Foreign securities - Foreign securities
of investments may - Foreign securities (up to 25%) (up to 20%)
the Portfolio - Securities lending
significantly (up to 33 1/3%)
invest?
- -----------------------------------------------------------------------------------------------------------------------
What other types of - Short-term - Short-term - Short-term - Pass-through
investments may the investments investments investments securities
Portfolio use as - Defensive - Defensive investments - Defensive - Warrants
part of efficient investments - Borrowing for investments - Zero-coupon,
portfolio management - U.S. government temporary or - Borrowing for deferred interest and
or to enhance securities emergency purposes temporary or PIK bonds
return? (up to 33 1/3%) emergency purposes - Short sales
- Options and futures (up to 33 1/3%) - when issued and
- Options and futures delayed-delivery
transactions
- Futures
- Currency
transactions
- Forward commitments
- Registered
investment companies
- Illiquid securities
(up to 15%)
- Short-term
investments
- Defensive
investments
- Borrowing for
temporary or
emergency purposes
(up to 33 1/3%)
- Rights
- Emerging markets
- -----------------------------------------------------------------------------------------------------------------------
What risks normally - Market volatility - Market volatility - Market volatility - Market volatility
affect the - Securities selection - Securities selection - Securities selection - Securities selection
Portfolio? - Non-diversified - Active trading - Medium sized
status - Growth stocks companies
- Illiquidity - Growth stocks
- Passively managed
strategy
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 41
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY MFS MID-CAP AGGRESSIVE
PUTNAM GROWTH REAL ESTATE VALUE GROWTH GROWTH
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
What are the - Equity - Equity - Equity - Equity - Equity
Portfolio's securities securities: securities: securities (at securities:
principal - mid-cap stocks - small-cap stocks least 65%): - small-cap stocks
investments? - small-cap stocks - common stocks - mid-cap stocks
- Fixed income - mid-cap stocks - convertible
securities: - convertible securities
- preferred stocks securities - warrants
- REITs - Fixed income - Defensive
securities: investments
- preferred - Options and
stocks futures
- Foreign
securities:
- depositary
receipts
- -----------------------------------------------------------------------------------------------------------------------------
In what other types N/A - Convertible - Fixed income - Foreign N/A
of investments may stocks securities: securities (up to
the Portfolio - Foreign - U.S. government 20%)
significantly securities securities - junk bonds
invest? - Junk bonds - corporate debt (up to 10%)
(up to 5%) instruments - Securities
- Corporate bonds - preferred stocks lending (up to
- junk bonds 30%)
- Foreign
securities (up to
25%)
- -----------------------------------------------------------------------------------------------------------------------------
What other types of - Short-term - Short-term - Short-term - Warrants - Borrowing for
investments may the investments investments investments - Corporate debt temporary or
Portfolio use as - Currency - Defensive - Defensive instruments emergency
part of efficient transactions investments investments - U.S. government purposes
portfolio - Defensive - U.S. government - Borrowing for securities (up to 33 1/3%)
management or to investments securities temporary or - Zero-coupon, - Illiquid
enhance return? - Borrowing for emergency deferred securities (up to
temporary or purposes interest and PIK 33 1/3%)
emergency (up to 33 1/3%) bonds - Short-term
purposes - Securities - Short sales Investments
- Options and lending (up to - When issued and
futures 33 1/3%) delayed-delivery
- Warrants - Illiquid transactions
- Hybrid securities (up to - Options and
instruments 15%) futures
- Forward - Currency
commitments transactions
- Registered - Forward
investment commitments
companies - Registered
- Firm commitments investment
- When issued and companies
delayed-delivery - Illiquid
transactions securities (up to
- REITs 15%)
- Convertible - Short-term
securities investments
- Warrants - Defensive
- Rights investments
- Borrowing for
temporary or
emergency
purposes (up to
33 1/3%)
- Rights
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY MFS MID-CAP AGGRESSIVE
PUTNAM GROWTH REAL ESTATE VALUE GROWTH GROWTH
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
What risks normally - Market - Market - Market - Market - Market
affect the volatility volatility volatility volatility volatility
Portfolio? - Securities - Securities - Securities - Securities - Securities
selection selection selection selection selection
- Growth stocks - Real estate - Small companies - medium sized - Illiquidity
industry - Active trading companies - Interest rate
- Small and medium - Foreign exposure fluctuations
sized companies - Emerging markets - Small and medium
- Growth stocks sized companies
- Active trading - Credit quality
- Non-diversified - Derivatives
status - Hedging
- Emerging markets
- Active trading
- Growth stocks
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
INTERNATIONAL PORTFOLIOS
- ----------------------------------------------------------------------------------------------------------------------
INTERNATIONAL INTERNATIONAL
GROWTH AND INCOME GLOBAL EQUITIES DIVERSIFIED EQUITIES EMERGING MARKETS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
What are the - Equity securities: - Equity securities: - Equity securities - Equity securities:
Portfolio's - large-cap stocks - large-cap stocks - Foreign securities - small-cap stocks
principal (foreign) - mid-cap stocks - mid-cap stocks
investments? - Foreign securities - Foreign securities - Foreign securities
- ----------------------------------------------------------------------------------------------------------------------
In what other types - Equity securities: N/A - Equity securities: - Hybrid instruments
of investments may - mid-cap stocks - convertible - Equity swaps
the Portfolio (foreign) securities
significantly - Foreign securities: - Warrants
invest? - emerging markets - Rights
- Fixed income
securities:
- U.S. government
securities
- preferred stocks
- ----------------------------------------------------------------------------------------------------------------------
What other types of - Equity securities: - Short-term - Short-term N/A
investments may the - small-cap stocks investments investments
Portfolio use as (foreign) - Currency - Defensive
part of efficient - large-cap stocks transactions investments
portfolio management (U.S.) - Defensive - Currency
or to enhance - Currency investments transactions
return? transactions - Borrowing for - Illiquid securities
- Short-term temporary or emergency (up to 15%)
investments purposes (up to - Options and futures
33 1/3%) - Forward commitments
- Options and futures - Registered
investment companies
- Firm commitment
agreements
- Securities lending
(up to 33 1/3%)
- ----------------------------------------------------------------------------------------------------------------------
What risks normally - Currency volatility - Market volatility - Market volatility - Currency volatility
affect the - Foreign exposure - Securities selection - Foreign exposure - Foreign exposure
Portfolio? - Market volatility - Active trading - Non-diversified - Emerging markets
- Securities selection - Currency volatility status - Growth stocks
- Hedging - Foreign exposure - Emerging markets - Market volatility
- Growth stocks - Growth stocks - Securities selection
- Currency volatility
- Sector risk
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 43
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
INVESTMENT TERMINOLOGY
BORROWING FOR TEMPORARY OR EMERGENCY PURPOSES involves the borrowing of cash or
securities by a Portfolio in limited circumstances, including to meet
redemptions. Borrowing will cost a Portfolio interest expense and other fees.
Borrowing may exaggerate changes in a Portfolio's net asset value and the cost
may reduce a Portfolio's return.
CURRENCY TRANSACTIONS include the purchase and sale of currencies to facilitate
the settlement of securities transactions and forward currency contracts, which
are used to hedge against changes in currency exchange rates.
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.
EQUITY SECURITIES, such as COMMON STOCKS, represent shares of equity ownership
in a corporation. Common stocks may or may not receive dividend payments.
Certain securities have common stock characteristics, including certain
convertible securities such as CONVERTIBLE PREFERRED STOCK, CONVERTIBLE BONDS,
WARRANTS and RIGHTS, and may be classified as equity securities. Investments in
equity securities and securities with equity characteristics include:
- LARGE-CAP STOCKS are common stocks of large companies that generally have
market capitalizations of over $9.5 billion, although there may be some
overlap among capitalization categories. Market capitalization categories
may change based on market conditions or changes in market capitalization
classifications as defined by agencies such as Standard & Poor's (S&P),
the Frank Russell Company (Russell), Morningstar, Inc. (Morningstar) or
Lipper, Inc. (Lipper).
- MID-CAP STOCKS are common stocks of medium sized companies that generally
have market capitalizations ranging from $1.5 billion to $9.5 billion,
although there may be some overlap among capitalization categories.
Market capitalization categories may change based on market conditions or
changes in market capitalization classifications as defined by agencies
such as S&P, Russell, Morningstar or Lipper. With respect to the MFS
MID-CAP GROWTH PORTFOLIO, the Subadviser will consider companies with
market capitalizations equaling or exceeding $250 million but not
exceeding the top range of the Russell MidCap(TM) Growth Index to be
medium sized companies.
- SMALL-CAP STOCKS are common stocks of small companies that generally have
market capitalizations of $1.5 billion or less, although there may be
some overlap among capitalization categories. Market capitalization
categories may change based on market conditions or changes in market
capitalization classifications as defined by agencies such as S&P,
Russell, Morningstar, or Lipper.
- CONVERTIBLE SECURITIES are securities (such as bonds or preferred stocks)
that may be converted into common stock of the same or a different
company.
- 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.
EQUITY SWAPS are exchanges of the total return on a stock for the total return
on another asset, usually a diversified equity or fixed income index.
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.
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<PAGE> 44
FIXED INCOME SECURITIES are broadly classified as securities that provide for
periodic payment, typically interest or dividend 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. The issuer of a SENIOR FIXED INCOME SECURITY is obligated to make
payments on this security ahead of other payments to security holders.
Investments in fixed income securities include:
- 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.
- CORPORATE DEBT INSTRUMENTS (BONDS, NOTES AND DEBENTURES) are securities
representing a debt of a corporation. The issuer is obligated to repay a
principal amount of indebtedness at a stated time in the future and in
most cases to make periodic payments of interest at a stated rate.
- An INVESTMENT GRADE FIXED INCOME SECURITY is rated in one of the top four
rating categories by a debt rating agency (or is considered of comparable
quality by the Adviser or Subadviser). The two best-known debt rating
agencies are S&P and Moody's Investors Service, Inc.( Moody's).
INVESTMENT GRADE refers to any security rated "BBB" or above by S&P 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 an investment grade security.
- 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.
- PREFERRED STOCKS receive dividends at a specified rate and have
preference over common stock in the payment of dividends and the
liquidation of assets.
- ZERO-COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS. Zero coupon and
deferred interest bonds are debt obligations issued or purchased at a
significant discount from face value. A step-coupon bond is one in which
a change in interest rate is fixed contractually in advance.
Payable-in-kind ("PIK 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.
FOREIGN SECURITIES are issued by companies located outside of the United States,
including emerging markets. Foreign securities may include foreign corporate and
government bonds, foreign equity securities, foreign investment companies,
passive foreign investment companies (PFICs), American Depositary Receipts
(ADRs) or other similar securities that represent interests in foreign equity
securities, such as European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs). An EMERGING MARKET country is generally one with a low or
middle income or economy or that is in the early stages of its industrialization
cycle. For fixed income investments, an emerging market includes those where the
sovereign credit rating is below investment grade. Emerging market countries may
change over time depending on market and economic conditions and the list of
emerging market countries may vary by Adviser or Subadviser.
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
43
<PAGE> 45
the date of the agreement. Similarly, a Portfolio selling such securities does
not participate in further gains or losses on the date of the agreement.
HYBRID INSTRUMENTS, such as INDEXED (i.e., Standard and Poor's Depositary
Receipts and World Equity Benchmark Shares) 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.
ILLIQUID/RESTRICTED 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.
INTEREST RATE SWAPS, CAPS, FLOORS AND COLLARS. Interest rate swaps involve the
exchange by a Portfolio with another party of their respective commitments to
pay or receive interest, such as an exchange of fixed-rate payments for floating
rate payments. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined interest rate, to
receive payment 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 the 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.
INVERSE FLOATERS are leveraged inverse floating rate debt instruments. 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.
LOAN PARTICIPATIONS are investments in which 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.
OPTIONS AND FUTURES are contracts involving the right to receive or the
obligation to deliver assets or money depending on the performance of one or
more underlying assets or a market or economic index. An option gives its owner
the right, but not the obligation, to buy ("call") or sell ("put") a specified
amount of a security at a specified price within in a specified time period. A
futures contract is an exchange-traded legal contract to buy or sell a standard
quantity and quality of a commodity, financial instrument, index, etc. at a
specified future date and price.
REGISTERED INVESTMENT COMPANIES are investments by a Portfolio in other
investment companies which are registered in accordance with the federal
securities laws.
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.
ROLL TRANSACTIONS involve the sale of mortgage or other asset-backed securities
("roll securities") with the commitment to purchase substantially similar (same
type, coupon and maturity) but not identical securities on a specified future
date.
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<PAGE> 46
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.
SHORT SALES: A short sale involves the selling of a security which the
Portfolio does not own in anticipation of a decline in the market value of the
security. In such transactions the Portfolio borrows the security for delivery
to the buyer and must eventually replace the borrowed security for return to the
lender. The Portfolio bears the risk that price at the time of replacement may
be greater than the price at which the security was sold.
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.
RISK TERMINOLOGY
ACTIVE TRADING: A strategy used whereby the Portfolio may engage in frequent
trading of portfolio securities to achieve its investment goal. 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. 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. During periods of increased market volatility, active trading
may be more pronounced. In the "Financial Highlights" section we provide each
Portfolio's portfolio turnover rate for each of the last five fiscal years.
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.
CURRENCY VOLATILITY: The value of a Portfolio's foreign investments may
fluctuate due to changes in currency rates. A decline in the value of foreign
currencies relative to the U.S. dollar generally can be expected to depress the
value of the Portfolio's non-U.S. dollar denominated securities.
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, the
Portfolio will be exposed to the risks associated with hedging as describe in
this glossary. 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.
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.
These risks are heightened when an issuer is in an EMERGING MARKET.
Historically, the markets of EMERGING MARKET countries have been more volatile
than more developed markets; however, such markets can provide higher rates of
return to investors.
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<PAGE> 47
GROWTH STOCKS: Growth stocks can be volatile for several reasons. Since the
issuers usually reinvest a high portion of earnings in their own business,
growth stocks may lack the comfortable dividend yield associated with value
stocks that can cushion total return in a bear market. Also, growth stocks
normally carry a higher price/earnings ratio than many other stocks.
Consequently, if earnings expectations are not met, the market price of growth
stocks will often go down more than other stocks. However, the market frequently
rewards growth stocks with price increases when expectations are met or
exceeded.
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.
ILLIQUIDITY: There may not be a market for certain securities making it
difficult or impossible to sell at the time and the price that the seller would
like.
INTEREST RATE FLUCTUATIONS: The volatility of fixed income securities is due
principally to changes in interest rates. The market value of bonds and other
fixed income securities usually tends to vary inversely with the level of
interest rates. As interest rates rise the value of such securities typically
falls, and as interest rates fall, the value of such securities typically rise.
Longer-term and lower coupon bonds tend to be more sensitive to changes in
interest rates.
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.
NON-DIVERSIFIED STATUS: Portfolios registered as "non-diversified" investment
companies can invest a larger portion of their assets in the stock of a single
company than can diversified investment companies, and thus they can concentrate
in a smaller number of securities. A non-diversified investment company's risk
may increase because the effect of each security on the Portfolio's performance
is greater.
PASSIVELY MANAGED STRATEGY: A Portfolio following a passively managed strategy
will not deviate from its investment 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.
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.
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> 48
SECURITIES SELECTION: A strategy used by a Portfolio, or securities selected by
its portfolio manager, may fail to produce the intended return.
SMALL AND MEDIUM SIZED COMPANIES: Companies with smaller market capitalizations
(particularly under $1.5 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. Securities of medium sized companies are also usually
more volatile and entail greater risks than securities of large companies.
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.
47
<PAGE> 49
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND MANAGER
SunAmerica Asset Management Corp. (SAAMCo) serves as investment adviser and
manager for all the Portfolios of the Trust. SAAMCo selects the Subadvisers for
Portfolios, manages the investments for certain Portfolios, provides various
administrative services and supervises the daily business affairs of each
Portfolio.
SAAMCo has received an exemptive order from the Securities and Exchange
Commission that permits SAAMCo, subject to certain conditions, to enter into
agreements relating to the Trust with Subadvisers approved by the Board of
Trustees without obtaining shareholder approval. The exemptive order also
permits SAAMCo, subject to the approval of the Board but without shareholder
approval, to employ new Subadvisers for new or existing Portfolios, change the
terms of particular 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. SAAMCo does not presently rely on this exemptive order with
respect to the Trust. 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.
SAAMCo, located at The SunAmerica Center, 733 Third Avenue, New York, New York,
10017, is a corporation organized under the laws of the state of Delaware. In
addition to serving as investment adviser and manager of the Trust, SAAMCo
serves as adviser, manager and/or administrator for Anchor Pathway Fund, Anchor
Series Trust, Brazos Mutual Funds, Seasons Series Trust, SunAmerica Style Select
Series, Inc., SunAmerica Equity Funds, SunAmerica Income Funds, SunAmerica Money
Market Funds, Inc. and SunAmerica Strategic Investment Series, Inc.
For the fiscal year ended January 31, 2000, each Portfolio paid SAAMCo a fee
equal to the following percentage of average daily net assets:
<TABLE>
<CAPTION>
PORTFOLIO FEE
--------- ---
<S> <C>
Cash Management Portfolio.................... 0.49%
Corporate Bond Portfolio..................... 0.62%
Global Bond Portfolio........................ 0.69%
High-Yield Bond Portfolio.................... 0.62%
Worldwide High Income Portfolio.............. 1.00%
SunAmerica Balanced Portfolio................ 0.62%
MFS Total Return Portfolio................... 0.66%
Asset Allocation Portfolio................... 0.58%
Utility Portfolio............................ 0.75%
Equity Income Portfolio...................... 0.65%
Equity Index Portfolio....................... 0.40%
Growth-Income Portfolio...................... 0.53%
Federated Value Portfolio.................... 0.71%
Davis Venture Value Portfolio................ 0.71%
"Dogs" of Wall Street Portfolio.............. 0.60%
Alliance Growth Portfolio.................... 0.60%
MFS Growth and Income Portfolio.............. 0.70%
Putnam Growth Portfolio...................... 0.76%
Real Estate Portfolio........................ 0.80%
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
PORTFOLIO FEE
--------- ---
<S> <C>
Small Company Value Portfolio................ 1.00%
MFS Mid-Cap Growth Portfolio................. 0.75%
Aggressive Growth Portfolio.................. 0.70%
International Growth and Income Portfolio.... 0.98%
Global Equities Portfolio.................... 0.72%
International Diversified Equities
Portfolio.................................. 1.00%
Emerging Markets Portfolio................... 1.25%
</TABLE>
INFORMATION ABOUT 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 whose clients primarily are
major corporate employee benefit funds, investment companies, foundations,
endowment funds and public employee retirement systems. Alliance serves as
investment manager of employee benefit fund assets for 31 of the Fortune 100
companies.
DAVIS SELECTED ADVISERS, L.P. (Davis Selected) is located at 2949 East Elvira
Road, Suite 101, Tucson, AZ 85706. Davis Selected provides advisory services to
other investment companies. The Subadvisory Agreement with Davis Selected
provides that Davis Selected may delegate any of its responsibilities under the
agreement to one of its affiliates, including Davis Selected Advisers -- NY,
Inc., a wholly-owned subsidiary; however Davis Selected remains ultimately
responsible (subject to supervision by SAAMCo) for the assets of the 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.
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.
GOLDMAN SACHS ASSET MANAGEMENT (GSAM), an affiliate of Goldman, Sachs & Co.
(Goldman Sachs), is located at 32 Old Slip, New York, NY 10005. Goldman Sachs
registered as an investment adviser in 1981. 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.
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL (GSAM-International), an affiliate
of Goldman Sachs, is located at Procession House, 55 Ludgate Hill, London
EC4M7JW, England. GSAM-International has been a member of the Investment
Management Regulatory Organization Limited, a United Kingdom self-regulatory
organization, since 1990 and a registered investment adviser since 1991. In
performing their subadvisory services, GSAM and GSAM-International, while
remaining ultimately responsible for the management of the Portfolio, are able
to draw upon the research and expertise of their affiliate offices, for
portfolio decisions and management with respect to certain portfolio securities.
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.
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<PAGE> 51
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT, D/B/A MORGAN STANLEY ASSET
MANAGEMENT (MSAM) 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. MSAM is located at 1221 Avenue of the Americas, New York, New York
10020.
PUTNAM INVESTMENT MANAGEMENT, INC. (Putnam), is 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.
SAAMCo compensated the various Subadvisers out of the advisory fees that it
received from the respective Portfolios. SAAMCo may terminate any agreement with
another Subadviser without shareholder approval.
PORTFOLIO MANAGEMENT
The primary investment manager(s) and/or management team(s) for each portfolio
is set forth in the following table.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Management Portfolio SAAMCo - Fixed Income Investment The Fixed Income
Team Investment Team has
been responsible for
the management of this
portfolio since its
inception in 1993.
----------------------------------------------------------------------------------------------------------------
Corporate Bond Portfolio Federated - Joseph M. Balestrino Mr. Balestrino joined
Co-Portfolio Manager and Federated in 1986 as a
Senior Vice President Project Manager in the
Product Design
Department and became
an Assistant Vice
President and
Investment Analyst in
1991. He became a Vice
President and
portfolio manager in
1995 and a Senior Vice
President in 1998.
- Mark E. Durbiano Mr. Durbiano joined
Co-Portfolio Manager Federated in 1982 as
Senior Vice President an Investment Analyst
and became a Vice
President and
portfolio manager in
1988. He has been a
Senior Vice President
since 1996.
----------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Bond Portfolio GSAM-International - Stephen C. Fitzgerald Mr. Fitzgerald,
Senior Portfolio Manager Managing Director and
Chief Investment
Officer for
International Fixed
Income in the London
office since November
1998, joined GSAM
International in 1992
as an Executive
Director and Portfolio
Manager.
- Andrew F. Wilson Mr. Wilson, a Managing
Senior Portfolio Manager Director and senior
portfolio manager for
international fixed
income in the London
office, joined GSAM
International in
December 1995 as an
Executive Director and
portfolio manager.
- Kevin Zhao Mr. Zhao joined GSAM-
Executive Director and International in
Senior Portfolio Manager December 1994. From
1993 to 1994 he was a
proprietary trader for
Goldman Sachs where he
traded global bonds,
currencies, equities
and various derivative
products.
----------------------------------------------------------------------------------------------------------------
High-Yield Bond Portfolio SAAMCo - John W. Risner Mr. Risner joined
Vice President and SAAMCo in 1997 as a
Portfolio Manager Vice President and
portfolio manager.
Prior to joining
SAAMCo, he served as
Senior Portfolio
Manager of the Value
Line Aggressive Income
Trust and the Value
Line Convertible Fund
from 1992 to 1997.
----------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Worldwide High Income MSAM - Robert Angevine Mr. Angevine is a
Portfolio Principal and Co-Portfolio Principal of MSAM and
Manager a portfolio manager of
MSAM's high-yield
investments. He joined
the firm in 1988 as a
portfolio manager.
- Gordon W. Loery Mr. Loery has been a
Co-Portfolio Manager Principal and
portfolio manager of
MSAM since 1996. Mr.
Loery joined MSAM in
1990 as a fixed income
analyst.
- Stephen F. Esser Mr. Esser is a
Managing Director and Managing Director of
Co-Portfolio MSAM and has been a
Manager portfolio manager with
MSAM's affiliate
Miller Anderson &
Sherrerd, LLP since
1988.
- Abigail McKenna Ms. McKenna is a
Principal and Principal and
Co-Portfolio Manager portfolio manager of
MSAM. She was a Senior
Portfolio Manager at
MetLife Investment
Management Corp. from
1995 to 1996 and a
Limited Partner at
Weiss Peck & Greer
from 1991 to 1995. Ms.
McKenna joined MSAM in
1996.
----------------------------------------------------------------------------------------------------------------
SunAmerica Balanced SAAMCo - Francis D. Gannon Mr. Gannon has been a
Portfolio Senior Vice President and portfolio manager with
Portfolio Manager SAAMCo since 1996. He
joined SAAMCo in 1993
as an equity analyst.
----------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio MFS - David M. Calabro Mr. Calabro joined MFS
Senior Vice President and in 1992 as a Vice
Portfolio Manager President and equity
analyst. He became a
portfolio manager in
1993 and was promoted
to Senior Vice
President in 1998.
----------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- Geoffrey L. Kurinsky Mr. Kurinsky, the
x Senior Vice President and manager of the
Portfolio Manager Portfolio's fixed
income securities,
joined MFS in 1987 as
a research analyst. He
became a Vice
President and
portfolio manager in
1989. In 1993, he was
promoted to Senior
Vice President.
- Constantinos G. Mokas Mr. Mokas, manager of
Vice President and the Portfolio's
Portfolio Manager convertible
securities, joined MFS
in 1990 as a research
analyst. He was
promoted to Assistant
Vice President in
1994, Vice President
in 1996 and portfolio
manager in 1998.
- Lisa B. Nurme Ms. Nurme, a manager
Senior Vice President and of the Portfolio's
Portfolio Manager common stock
investments, became a
portfolio manager in
1995 and was promoted
to Senior Vice
President in 1998.
- Kenneth J. Enright Mr. Enright, a manager
Vice President and of the Portfolio's
Portfolio Manager common stock portion,
joined MFS in 1986 as
a research analyst. He
became an Assistant
Vice President in
1987, Vice President
in 1988, and portfolio
manager in 1993.
----------------------------------------------------------------------------------------------------------------
Asset Allocation Portfolio GSAM - Eileen Rominger Ms. Rominger joined
Managing Director GSAM as a senior
and Senior Portfolio portfolio manager in
Manager 1999. From 1981 to
(value portion) 1999 she was employed
at Oppenheimer
Capital, most recently
as a senior portfolio
manager.
----------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 55
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- George D. Adler Mr. Adler joined GSAM
Vice President and Senior in 1997 as a portfolio
Portfolio Manager manager. From 1990 to
(equity portion) 1997, he was a
portfolio manager at
Liberty Investment
Management, Inc.
("Liberty").
- Robert G. Collins Mr. Collins joined
Vice President and Senior GSAM in 1997 as a
Portfolio Manager portfolio manager.
(equity portion) From 1991 to 1997, he
was a portfolio
manager at Liberty.
- Herbert E. Ehlers Mr. Ehlers joined GSAM
Managing Director and in 1997 as a senior
Senior Portfolio Manager portfolio manager and
(equity portion) Chief Investment
Officer of the Growth
Equity Team. From 1994
to 1997, he was the
Chief Investment
Officer and Chairman
at Liberty. He was a
portfolio manager and
president at Liberty's
predecessor firm,
Eagle Asset Management
("Eagle"), from 1984
to 1994.
- Gregory H. Ekizian Mr. Ekizian joined
Vice President and Senior GSAM in 1997 as a
Portfolio Manager portfolio manager and
(equity portion) Co-Chair of the Growth
Equity Investment
Committee in 1997.
From 1990 to 1997, he
was a portfolio
manager at Liberty and
its predecessor firm,
Eagle.
- David G. Shell Mr. Shell joined GSAM
Vice President and Senior in 1997 as a Vice
Portfolio Manager President and
(equity portion) portfolio manager.
From 1987 to 1997, he
was a portfolio
manager at Liberty and
its predecessor firm,
Eagle.
----------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 56
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- Ernest C. Segundo, Jr. Mr. Segundo joined
Vice President and Senior GSAM in 1997 as a
Portfolio Manager portfolio manager.
(equity portion) From 1992 to 1997, he
was a portfolio
manager at Liberty.
- Jonathan A. Beinner Mr. Beinner has been
Managing Director and Managing Director of
Co-Head U.S. Fixed Income GSAM's U.S. Fixed
(fixed income portion) Income Department
since 1997. He joined
the Fixed Income Group
in 1990 as an
associate portfolio
manager.
- C. Richard Lucy Mr. Lucy has been Co-
Managing Director (fixed Managing Director of
income portion) and GSAM's Fixed Income
Co-Head
U.S. Fixed Income Department since 1997.
He joined the Fixed
Income Group in 1992
as a Vice President
and portfolio manager.
----------------------------------------------------------------------------------------------------------------
Telecom Utility Portfolio Federated - Linda A. Duessel Ms. Duessel joined
Co-Portfolio Manager and Federated in 1991 as
Senior Vice President an Investment Analyst
and Assistant Vice
President. She became
a Vice President and
portfolio manager in
1995, and a Senior
Vice President in
2000.
- Steven J. Lehman Mr. Lehman joined
Co-Portfolio Manager and Federated in 1997 as a
Vice President Vice President and
portfolio manager.
From 1985 to 1997, he
served as a portfolio
manager and Vice
President at First
Chicago NBD.
----------------------------------------------------------------------------------------------------------------
Equity Income Portfolio First American - Gerald C. Bren Mr. Bren joined First
Co-Portfolio Manager American in 1972 as an
investment analyst. He
became a portfolio
manager in 1987. He is
a Chartered Financial
Analyst.
----------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 57
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- Cori B. Johnson Ms. Johnson joined
Portfolio Manager First American in 1991
as a securities
analyst. She became a
portfolio manager in
1993. She is a
Chartered Financial
Analyst.
----------------------------------------------------------------------------------------------------------------
Equity Index Portfolio First American - James S. Rovner Mr. Rovner joined
Portfolio Manager First American in 1986
as a portfolio manager
and has managed assets
for institutional and
individual clients for
over 15 years,
specializing in equity
and balanced
investment strategies.
- Evan C. Lundquist Mr. Lundquist joined
Portfolio Manager First American in 1998
as an analyst and
portfolio manager. He
has analytic
responsibilities for
paper/forest products,
metals and mining,
steel, engineering and
construction, and
building and
appliances industries.
----------------------------------------------------------------------------------------------------------------
Growth-Income Portfolio Alliance - Michael R. Baldwin Mr. Baldwin joined the
Portfolio Manager and company in 1989 as a
Senior Vice President research analyst. He
became a portfolio
manager in 1991 and
was promoted to Senior
Vice President and
Associate Director of
Research in 1996.
----------------------------------------------------------------------------------------------------------------
Federated Value Portfolio Federated - Arthur J. Barry Mr. Barry joined
Co-Portfolio Manager and Federated in 1994 as
Vice President an Investment Analyst
and was promoted to an
Assistant Vice
President and
portfolio manager in
April 1997. He was
then promoted to Vice
President in 1998.
----------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE> 58
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- Michael P. Donnelly Mr. Donnelly joined
Co-Portfolio Manager and Federated in 1989 as
Senior Vice President an Investment Analyst.
He served as an
Assistant Vice
President of an
affiliate of Federated
from 1992 to 1994, a
Vice President from
1994 to 1999, and a
Senior Vice President
since 1999.
----------------------------------------------------------------------------------------------------------------
Davis Venture Value Davis Selected - Christopher C. Davis Mr. Davis has been
Portfolio Portfolio Manager employed by Davis
Selected since 1989 as
a research analyst,
assistant portfolio
manager, co-portfolio
manager, and portfolio
manager.
- Kenneth C. Feinberg Mr. Feinberg has been
Portfolio Manager employed by Davis
Selected since 1994 as
a research analyst,
assistant portfolio
manager, and portfolio
manager.
----------------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street SAAMCo - Francis D. Gannon See above.
Portfolio Senior Vice President and
Portfolio Manager
----------------------------------------------------------------------------------------------------------------
Alliance Growth Portfolio Alliance - James G. Reilly Mr. Reilly joined the
Executive Vice President company in 1984 as a
and Portfolio Manager research analyst. He
became a portfolio
manager in 1993 and
was promoted to an
Executive Vice
President in 1999.
----------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE> 59
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Growth and Income MFS - John D. Laupheimer, Jr. Mr. Laupheimer joined
Portfolio Senior Vice President and MFS in 1981 as a
Portfolio Manager research analyst. He
became an Investment
Officer in 1988,
Assistant Vice
President in 1984,
Vice President in
1986, portfolio
manager in 1987,
Senior Vice President
in 1995 and Director
of Equity Research in
1999.
- Mitchell D. Dynan Mr. Dynan joined MFS
Senior Vice President and in 1986 as a research
Portfolio Manager analyst. He became an
Assistant Vice
President in 1987,
Vice President in
1988, portfolio
manager in 1995 and
Senior Vice President
in 1999.
----------------------------------------------------------------------------------------------------------------
Putnam Growth Portfolio Putnam - C. Beth Cotner Ms. Cotner joined the
Managing Director and company in 1995 as
Chief Investment Officer Senior Vice President
and Senior Portfolio
Manager. Prior to that
time, she was an
Executive Vice
President of Kemper
Financial Services
from 1984 to 1995.
- Richard England Mr. England joined the
Senior Vice President and company in 1992 as a
Senior Portfolio Manager Global Equity Analyst.
In 1994, he was
promoted to Associate
Director of Research
and then joined the
Growth Equity Team in
1996 as a Senior
Portfolio Manager.
- Manuel H. Weiss Mr. Weiss joined the
Senior Vice President and company in 1987 as a
Senior Portfolio Manager portfolio manager to
head the quantitative
effort in the
development of the
Core Growth Equity
product.
----------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 60
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- David J. Santos Mr. Santos joined the
Senior Vice President and company in 1986 as a
Portfolio Manager Pricing Operations
Manager and moved to
the investment
management side in
1991. He became a
portfolio manager in
1992.
----------------------------------------------------------------------------------------------------------------
Real Estate Portfolio Davis Selected - Andrew A. Davis Mr. Davis has been
Portfolio Manager employed by Davis
Selected since 1994 as
a research analyst,
assistant portfolio
manager, co-portfolio
manager and portfolio
manager.
----------------------------------------------------------------------------------------------------------------
Small Company Value First American - Albin S. Dubiak Mr. Dubiak is the
Portfolio Portfolio Manager leader of the
Investment team that
manages this
portfolio. He joined
First American in 1969
as an investment
analyst and became a
portfolio manager is
1985.
- Frank G. Magdalem Mr. Magdalem joined
Portfolio Manager First American in 1979
as an investment
analyst and became a
portfolio manager in
1991. He is a
Chartered Financial
Analyst.
----------------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth MFS - Mark Regan Mr. Regan joined MFS
Portfolio Senior Vice President and as a research analyst
Portfolio Manager in 1989. He was named
investment officer in
1990, Assistant Vice
President in 1991,
Vice President in
1992, portfolio
manager in 1998 and
Senior Vice President
in 1999.
----------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 61
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- David E. Sette-Ducati Mr. Sette-Ducati
Vice President and joined MFS in 1995 as
Portfolio a research analyst. He
Manager became an Investment
Officer in 1997, Vice
President in 1999, and
portfolio manager in
February 2000.
----------------------------------------------------------------------------------------------------------------
Aggressive Growth Portfolio SAAMCo - Donna M. Calder Ms. Calder joined the
Vice President and firm in 1998 as a Vice
Portfolio Manager President and
portfolio manager.
Prior to joining
SAAMCo, she was the
founder and General
Partner of Manhattan
Capital Partners, L.P.
from 1991 to 1995.
----------------------------------------------------------------------------------------------------------------
International Growth and Putnam - Deborah F. Kuenstner Ms. Kuenster joined
Income Portfolio Chief Investment Officer Putnam as a Senior
and Managing Director Vice President and
Senior Portfolio
Manager in March 1997.
Ms. Kuenstner was
Senior Portfolio
Manager at Dupont
Pension Fund
Management from 1989
to 1997.
- George W. Stairs Mr. Stairs joined
Senior Vice President and Putnam as a Global
Portfolio Manager Equity research
analyst in 1994. In
1997, he became a
Senior Vice President
and Portfolio Manager.
Mr. Stairs was an
Associate at Value
Quest Ltd. from 1992
to 1994.
----------------------------------------------------------------------------------------------------------------
Global Equities Portfolio Alliance - Stephen Beinhacker Mr. Beinhacker joined
Portfolio Manager, the company in 1992 as
Director and Senior Vice Director of
President International
Quantitative Stock
Analysis and portfolio
manager. He was
promoted to Senior
Vice President in
1998.
----------------------------------------------------------------------------------------------------------------
</TABLE>
60
<PAGE> 62
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME AND TITLE OF EXPERIENCE
ADVISER/ PORTFOLIO MANAGER (AND/
SUBADVISER OR MANAGEMENT TEAM)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Diversified MSAM - Barton Biggs Mr. Biggs has been a
Equities Portfolio Chairman, Chief Investment Chairman and a
Officer and Co-Portfolio Director of MSAM since
Manager 1980 and a Managing
Director of Morgan
Stanley & Co.
Incorporated since
1975.
- Ann Thivierge Ms. Thivierge joined
Managing Director and MSAM in 1986 and is
Co-Portfolio Manager currently a Managing
Director.
----------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio Putnam - Thomas R. Haslett Mr. Haslett joined
Managing Director, Chief Putnam as Managing
Investment Officer and Co- Director, Chief
Portfolio Manager Investment Officer and
portfolio manager in
1996. He was a
Managing Director of
Montgomery Asset
Management, Ltd. from
1992 to 1996.
- J. Peter Grant Mr. Grant joined
Senior Vice President and Putnam in 1973 as a
Co-Portfolio Manager Vice President and
research analyst. He
became a portfolio
manager in 1974 and a
Senior Vice President
in 1997.
----------------------------------------------------------------------------------------------------------------
</TABLE>
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT
State Street Bank and Trust Company, Boston, Massachusetts, acts as Custodian of
the Trust's assets as well as Transfer and Dividend Paying Agent and in so doing
performs certain bookkeeping, data processing and administrative services.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following Financial Highlights tables 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 Trust's annual report to shareholders, which is available upon
request.
61
<PAGE> 63
- ---------------------
SUNAMERICA SERIES TRUST
FINANCIAL HIGHLIGHTS*
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET NET TOTAL DIVIDENDS DIVIDENDS NET NET
ASSET INVEST- NET REALIZED FROM DECLARED FROM FROM NET ASSET ASSETS
VALUE MENT & UNREALIZED INVEST- NET REALIZED VALUE END OF
PERIOD BEGINNING INCOME GAIN (LOSS) ON MENT INVESTMENT GAIN ON END OF TOTAL PERIOD
ENDED OF PERIOD (LOSS)** INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN*** (000'S)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Management Portfolio
11/30/95 $10.47 $0.56 $ 0.01 $ 0.57 $(0.34) $ -- $10.70 5.59% $ 90,731
11/30/96 10.70 0.53 (0.02) 0.51 (0.45) -- 10.76 4.92 91,247
11/30/97 10.76 0.53 0.01 0.54 (0.56) -- 10.74 5.22 156,119
11/30/98 10.74 0.54 (0.02) 0.52 (0.68) -- 10.58 5.05 223,640
1/31/99# 10.58 0.08 0.01 0.09 -- -- 10.67 0.85 277,370
1/31/00 10.67 0.51 -- 0.51 (0.24) -- 10.94 4.85 466,588
Corporate Bond Portfolio
11/30/95 9.75 0.60 1.00 1.60 (0.53) -- 10.82 17.01 29,475
11/30/96 10.82 0.65 0.03 0.68 (0.41) -- 11.09 6.51 37,207
11/30/97 11.09 0.77 0.21 0.98 (0.53) -- 11.54 9.26 62,272
11/30/98 11.54 0.77 (0.02) 0.75 (0.46) -- 11.83 6.61 143,561
1/31/99# 11.83 0.12 0.04 0.16 -- -- 11.99 1.35 158,804
1/31/00 11.99 0.81 (1.15) (0.34) (0.53) -- 11.12 (2.75) 184,309
Global Bond Portfolio
11/30/95 9.83 0.60 0.97 1.57 (0.38) -- 11.02 16.40 59,759
11/30/96 11.02 0.59 0.54 1.13 (0.75) -- 11.40 10.94 68,221
11/30/97 11.40 0.52 0.38 0.90 (0.75) (0.04) 11.51 8.43 89,043
11/30/98 11.51 0.49 0.78 1.27 (0.79) (0.22) 11.77 11.75 115,428
1/31/99# 11.77 0.07 0.11 0.18 -- -- 11.95 1.53 122,306
1/31/00 11.95 0.42 (0.66) (0.24) (0.47) (0.41) 10.83 (1.86) 127,145
High-Yield Bond Portfolio
11/30/95 10.32 1.11 0.12 1.23 (1.02) -- 10.53 12.64 82,174
11/30/96 10.53 0.98 0.48 1.46 (0.95) -- 11.04 14.86 113,229
11/30/97 11.04 1.04 0.48 1.52 (0.74) -- 11.82 14.53 195,639
11/30/98 11.82 1.14 (1.24) (0.10) (0.66) (0.08) 10.98 (1.26) 284,580
1/31/99# 10.98 0.18 (0.02) 0.16 -- -- 11.14 1.46 293,037
1/31/00 11.14 1.09 (0.55) 0.54 (1.14) -- 10.54 5.09 310,032
Worldwide High Income Portfolio
11/30/95 9.95 1.10 0.47 1.57 (0.10) -- 11.42 16.02 21,515
11/30/96 11.42 1.25 1.60 2.85 (0.87) (0.05) 13.35 26.87 49,204
11/30/97 13.35 0.98 0.68 1.66 (0.90) (0.91) 13.20 14.17 125,224
11/30/98 13.20 1.07 (2.61) (1.54) (0.61) (0.74) 10.31 (13.74) 121,290
1/31/99# 10.31 0.16 (0.35) (0.19) -- -- 10.12 (1.84) 116,977
1/31/00 10.12 1.13 0.67 1.80 (1.33) -- 10.59 19.22 124,404
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES TO INCOME TO
AVERAGE NET AVERAGE PORTFOLIO
ASSETS NET ASSETS TURNOVER
--------------------------------------
<C> <C> <C>
Cash Management Portfolio
0.67% 5.32% --%
0.62 4.90 --
0.63 5.06 --
0.58 4.97 --
0.62+ 5.02+ --
0.53 4.82 --
Corporate Bond Portfolio
0.96++ 5.93++ 412
0.97 6.11 338
0.91 6.99 49
0.77 6.61 15
0.80+ 6.16+ 4
0.71 7.05 37
Global Bond Portfolio
0.95 5.89 339
0.89 5.44 223
0.90 4.70 360
0.85 4.27 210
0.97+ 3.65+ 30
0.84 3.68 189
High-Yield Bond Portfolio
0.80 10.80 174
0.77 9.41 107
0.75 9.26 243
0.69 9.75 128
0.72+ 9.71+ 17
0.67 10.00 105
Worldwide High Income Portfolio
1.30 10.46 176
1.18 10.45 177
1.10 7.58 146
1.08@ 8.90 158
1.11+@ 9.57+@ 12
1.12@ 10.68@ 116
</TABLE>
- ---------------
* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Does not reflect expenses that apply to the separate accounts of the
insurance companies. If such expenses had been included, total return
would have been lower for each period presented.
# The Portfolio changed its fiscal year ended from November 30 to
January 31.
+ Annualized
@ Net of custody credits of 0.01%, 0.01% and 0.02%, for the periods ending
November 30, 1998, January 31, 1999 and January 31, 2000, respectively.
++ During the below stated periods, the investment adviser waived a
portion of or all fees and assumed a portion of or all expenses for the
portfolios. If all fees and expenses had been incurred by the
portfolios, the ratio of expenses to average net assets and the ratio
of net investment income (loss) to average net assets would have been
as follows:
<TABLE>
<CAPTION>
EXPENSES NET INVESTMENT INCOME (LOSS)
--------------------------------------------- ---------------------------------------------
11/95 11/96 11/97 11/98 1/99+ 1/00 11/95 11/96 11/97 11/98 1/99+ 1/00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------- ---------------------------------------------
Cash Management....... 0.67% 0.62% 0.63% 0.58% 0.62% 0.53% 5.32% 4.90% 5.06% 4.97% 5.02% 4.82%
Corporate Bond........ 0.97 0.97 0.91 0.77 0.80 0.71 5.92 6.11 6.99 6.61 6.16 7.05
Global Bond........... 0.95 0.89 0.90 0.85 0.97 0.84 5.89 5.44 4.70 4.27 3.65 3.68
High-Yield Bond....... 0.80 0.77 0.75 0.69 0.72 0.67 10.80 9.41 9.26 9.75 9.71 10.00
Worldwide High
Income.............. 1.30 1.18 1.10 1.08 1.11 1.12 10.46 10.45 7.58 8.90 9.57 10.68
</TABLE>
62
<PAGE> 64
- ---------------------
SUNAMERICA SERIES TRUST
FINANCIAL HIGHLIGHTS* (continued)
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET NET TOTAL DIVIDENDS DIVIDENDS NET NET
ASSET INVEST- NET REALIZED FROM DECLARED FROM FROM NET ASSET ASSETS
VALUE MENT & UNREALIZED INVEST- NET REALIZED VALUE END OF
PERIOD BEGINNING INCOME GAIN (LOSS) ON MENT INVESTMENT GAIN ON END OF TOTAL PERIOD
ENDED OF PERIOD (LOSS)** INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN*** (000'S)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SunAmerica Balanced Portfolio
6/3/96-
11/30/96 $10.00 $0.10 $ 1.03 $ 1.13 $ -- $ -- $11.13 11.30% $ 10,224
11/30/97 11.13 0.23 2.15 2.38 (0.04) (0.02) 13.45 21.48 44,621
11/30/98 13.45 0.30 2.33 2.63 (0.11) (0.36) 15.61 19.81 149,242
1/31/99# 15.61 0.05 1.58 1.63 -- -- 17.24 10.44 194,878
1/31/00 17.24 0.36 1.80 2.16 (0.12) (0.22) 19.06 12.76 509,054
MFS Total Return Portfolio
11/30/95 9.96 0.34 2.23 2.57 (0.05) -- 12.48 25.89 32,429
11/30/96 12.48 0.34 1.31 1.65 (0.19) (0.31) 13.63 13.75 70,021
11/30/97 13.63 0.37 1.39 1.76 (0.23) (0.41) 14.75 13.52 95,721
11/30/98 14.75 0.36 1.56 1.92 (0.31) (1.40) 14.96 13.54 131,440
1/31/99# 14.96 0.06 0.82 0.88 -- -- 15.84 5.88 145,332
1/31/00 15.84 0.48 (0.38) 0.10 (0.29) (1.77) 13.88 0.29 208,919
Asset Allocation Portfolio
11/30/95 10.32 0.42 2.24 2.66 (0.20) (0.04) 12.74 26.10 199,836
11/30/96 12.74 0.48 2.00 2.48 (0.31) (0.39) 14.52 20.27 316,388
11/30/97 14.52 0.44 2.55 2.99 (0.40) (0.90) 16.21 21.97 526,585
11/30/98 16.21 0.48 0.08 0.56 (0.35) (1.61) 14.81 2.85 713,045
1/31/99# 14.81 0.07 0.15 0.22 -- -- 15.03 1.49 724,516
1/31/00 15.03 0.40 0.37 0.77 (0.48) (0.80) 14.52 5.51 699,063
Utility Portfolio
6/3/96-
11/30/96 10.00 0.24 0.51 0.75 -- -- 10.75 7.50 6,299
11/30/97 10.75 0.36 1.91 2.27 (0.09) (0.02) 12.91 21.26 24,366
11/30/98 12.91 0.42 1.62 2.04 (0.16) (0.33) 14.46 15.98 68,049
1/31/99# 14.46 0.08 0.03 0.11 -- -- 14.57 0.76 77,323
1/31/00 14.57 0.48 0.23 0.71 (0.24) (0.62) 14.42 5.01 120,159
Equity Income Portfolio
12/14/98-
1/31/99 10.00 0.03 0.54 0.57 (0.03) -- 10.54 5.70 5,287
1/31/00 10.54 0.22 (0.08) 0.14 (0.18) (0.25) 10.25 1.29 6,670
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES TO INCOME TO
AVERAGE NET AVERAGE PORTFOLIO
ASSETS NET ASSETS TURNOVER
---------------------------------------
<S> <C> <C> <C>
SunAmerica Balanced Portfolio
1.00%+++ 1.92%+++ 40%
1.00 1.82 143
0.78 2.10 111
0.74+@ 1.73+@ 26
0.66 2.01 197
MFS Total Return Portfolio
0.98++ 3.08++ 153
0.84 2.74 194
0.82 2.63 271
0.77 2.43 106
0.81+ 2.40+ 86
0.75@ 3.18@ 116
Asset Allocation Portfolio
0.81 3.62 207
0.74 3.66 200
0.68 2.88 176
0.64 3.15 156
0.66+ 2.60+ 30
0.63 2.70 191
Utility Portfolio
1.05+++ 4.41+++ 24
1.05++ 3.15++ 77
1.01 3.04 72
0.93+ 3.02+ 12
0.84 3.31 121
Equity Income Portfolio
0.95+++ 1.87+++ 14
0.95++ 2.05++ 34
</TABLE>
- ---------------
* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Does not reflect expenses that apply to the separate accounts of the
insurance companies. If such expenses had been included, total return
would have been lower for each period presented.
# The Portfolio changed its fiscal year ended from November 30 to January
31.
+ Annualized
@ Net of custody credits of 0.01%
++ During the below stated periods, the investment adviser waived a
portion of or all fees and assumed a portion of or all expenses for the
portfolios. If all fees and expenses had been incurred by the
portfolios, the ratio of expenses to average net assets and the ratio
of net investment income (loss) to average net assets would have been
as follows:
<TABLE>
<CAPTION>
EXPENSES NET INVESTMENT INCOME (LOSS)
-------------------------------------------- ---------------------------------------------
11/95 11/96 11/97 11/98 1/99+ 1/00 11/95 11/96 11/97 11/98 1/99+ 1/00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------- ---------------------------------------------
SunAmerica Balanced.... --% 1.43% 1.00% 0.78% 0.74% 0.66% --% 1.49% 1.82% 2.10% 1.73% 2.01%
MFS Total Return....... 1.11 0.84 0.82 0.77 0.81 0.75 2.95 2.74 2.63 2.43 2.40 3.18
Asset Allocation....... 0.81 0.74 0.68 0.64 0.66 0.63 3.62 3.66 2.88 3.15 2.60 2.70
Utility................ -- 1.93 1.24 1.01 0.93 0.84 -- 3.53 2.96 3.04 3.02 3.31
Equity Income.......... -- -- -- -- 3.47 1.56 -- -- -- -- (0.65) 1.44
</TABLE>
63
<PAGE> 65
- ---------------------
SUNAMERICA SERIES TRUST
FINANCIAL HIGHLIGHTS* (continued)
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET NET TOTAL DIVIDENDS DIVIDENDS NET
ASSET INVEST- NET REALIZED FROM DECLARED FROM FROM NET ASSET
VALUE MENT & UNREALIZED INVEST- NET REALIZED VALUE
PERIOD BEGINNING INCOME GAIN (LOSS) ON MENT INVESTMENT GAIN ON END OF TOTAL
ENDED OF PERIOD (LOSS)** INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN***
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Index Portfolio
12/14/98-
1/31/99 $10.00 $0.01 $ 1.17 $ 1.18 $(0.03) $ -- $11.15 11.81%
1/31/00 11.15 0.12 0.67 0.79 (0.06) -- 11.88 7.05
Growth-Income Portfolio
11/30/95 10.33 0.17 3.31 3.48 (0.10) -- 13.71 33.89
11/30/96 13.71 0.18 3.48 3.66 (0.12) (0.43) 16.82 27.41
11/30/97 16.82 0.17 4.69 4.86 (0.13) (0.73) 20.82 30.11
11/30/98 20.82 0.17 4.33 4.50 (0.13) (0.96) 24.23 21.91
1/31/99# 24.23 0.02 3.63 3.65 -- -- 27.88 15.06
1/31/00 27.88 0.16 4.75 4.91 (0.15) (1.40) 31.24 18.37
Federated Value Portfolio
6/3/96-
11/30/96 10.00 0.07 1.01 1.08 -- -- 11.08 10.80
11/30/97 11.08 0.13 2.72 2.85 (0.03) -- 13.90 25.75
11/30/98 13.90 0.17 2.35 2.52 (0.06) (0.30) 16.06 18.22
1/31/99# 16.06 0.02 0.54 0.56 -- -- 16.62 3.49
1/31/00 16.62 0.20 (0.14) 0.06 (0.12) (0.69) 15.87 0.17
Venture Value Portfolio
11/30/95 9.78 0.17 3.55 3.72 (0.03) -- 13.47 38.17
11/30/96 13.47 0.18 3.46 3.64 (0.09) (0.12) 16.90 27.44
11/30/97 16.90 0.19 4.73 4.92 (0.09) (0.26) 21.47 29.62
11/30/98 21.47 0.20 2.23 2.43 (0.12) (0.68) 23.10 11.36
1/31/99# 23.10 0.03 1.25 1.28 -- -- 24.38 5.54
1/31/00 24.38 0.13 3.06 3.19 (0.20) (0.93) 26.44 13.42
"Dogs" of Wall Street Portfolio
4/1/98-
11/30/98 10.00 0.11 (0.30) (0.19) -- -- 9.81 (1.90)
1/31/99# 9.81 0.02 (0.23) (0.21) -- -- 9.60 (2.14)
1/31/00 9.60 0.21 (1.12) (0.91) (0.05) (0.26) 8.38 (10.02)
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE PORTFOLIO
(000'S) ASSETS NET ASSETS TURNOVER
---------------------------------------------------
<C> <C> <C> <C>
Equity Index Portfolio
$ 11,168 0.55%+++ 0.75%+++ --%
63,487 0.55++ 1.02++ 1
Growth-Income Portfolio
171,281 0.77 1.42 59
325,463 0.72 1.21 82
622,062 0.65 0.89 44
1,019,590 0.60 0.78 53
1,206,113 0.60+ 0.55+ 16
1,828,340 0.56 0.56 43
Federated Value Portfolio
12,460 1.05+++ 1.26+++ 30
59,024 1.03 1.03 46
145,900 0.83 1.13 51
159,176 0.86+ 0.75+ 4
208,488 0.77 1.17 34
Venture Value Portfolio
154,908 1.00++ 1.43++ 18
516,413 0.85 1.21 22
1,140,053 0.79 0.98 22
1,725,411 0.75 0.89 25
1,840,354 0.77+ 0.86+ 5
2,303,994 0.74 0.51 23
"Dogs" of Wall Street Portfolio
65,283 0.85+++ 2.04+++ --
78,062 0.85+ 0.93+ 58
98,924 0.67 2.11 51
</TABLE>
- ---------------
* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Does not reflect expenses that apply to the separate accounts of the
insurance companies. If such expenses had been included, total return
would have been lower for each period presented.
# The Portfolio changed its fiscal year ended from November 30 to
January 31.
+ Annualized
++ During the below stated periods, the investment adviser waived a
portion of or all fees and assumed a portion of or all expenses for the
portfolios. If all fees and expenses had been incurred by the
portfolios, the ratio of expenses to average net assets and the ratio
of net investment income (loss) to average net assets would have been
as follows:
<TABLE>
<CAPTION>
EXPENSES NET INVESTMENT INCOME (LOSS)
--------------------------------------------- ---------------------------------------------
11/95 11/96 11/97 11/98 1/99+ 1/00 11/95 11/96 11/97 11/98 1/99+ 1/00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------- ---------------------------------------------
Equity Index ......... --% --% --% --% 1.80% 0.85% --% --% --% --% 0.50% 0.72%
Growth-Income......... 0.77 0.72 0.65 0.60 0.60 0.56 1.42 1.21 0.89 0.78 0.55 0.56
Federated Value....... -- 1.57 1.03 0.83 0.86 0.77 -- 0.74 1.03 1.13 0.75 1.17
Venture Value......... 1.02 0.85 0.79 0.75 0.77 0.74 1.41 1.21 0.98 0.89 0.86 0.51
"Dogs" of Wall
Street................ -- -- -- 0.92 0.85 0.67 -- -- -- 1.97 0.93 2.11
</TABLE>
64
<PAGE> 66
- ---------------------
SUNAMERICA SERIES TRUST
FINANCIAL HIGHLIGHTS* (continued)
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET NET TOTAL DIVIDENDS DIVIDENDS NET
ASSET INVEST- NET REALIZED FROM DECLARED FROM FROM NET ASSET
VALUE MENT & UNREALIZED INVEST- NET REALIZED VALUE
PERIOD BEGINNING INCOME GAIN (LOSS) ON MENT INVESTMENT GAIN ON END OF TOTAL
ENDED OF PERIOD (LOSS)** INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN***
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Growth Portfolio
11/30/95 $10.64 $ 0.07 $ 5.08 $ 5.15 $(0.03) $(0.13) $15.63 48.91%
11/30/96 15.63 0.08 4.07 4.15 (0.04) (1.01) 18.73 28.05
11/30/97 18.73 0.16 4.76 4.92 (0.05) (1.04) 22.56 27.80
11/30/98 22.56 0.07 7.77 7.84 (0.06) (2.30) 28.04 35.92
1/31/99# 28.04 0.00 7.22 7.22 -- -- 35.26 25.75
1/31/00 35.26 (0.04) 4.46 4.42 (0.05) (3.05) 36.58 14.09
MFS Growth and Income Portfolio
11/30/95 10.01 0.12 3.14 3.26 (0.13) -- 13.14 32.92
11/30/96 13.14 0.11 2.16 2.27 (0.11) (0.91) 14.39 18.40
11/30/97 14.39 0.11 2.48 2.59 (0.10) (1.26) 15.62 19.78
11/30/98 15.62 0.02 2.61 2.63 (0.12) (2.76) 15.37 17.82
1/31/99# 15.37 0.01 1.60 1.61 -- -- 16.98 10.47
1/31/00 16.98 0.10 0.11 0.21 (0.03) (3.81) 13.35 1.77
Putnam Growth Portfolio
11/30/95 10.05 (0.01) 3.09 3.08 (0.03) -- 13.10 30.66
11/30/96 13.10 -- 2.61 2.61 -- -- 15.71 19.92
11/30/97 15.71 0.03 3.93 3.96 -- (0.52) 19.15 26.01
11/30/98 19.15 0.01 4.15 4.16 (0.02) (3.08) 20.21 22.56
1/31/99# 20.21 (0.01) 3.33 3.32 -- -- 23.53 16.43
1/31/00 23.53 (0.02) 3.76 3.74 (0.01) (0.78) 26.48 16.51
Real Estate Portfolio
6/2/97-
11/30/97 10.00 0.16 1.37 1.53 -- -- 11.53 15.30
11/30/98 11.53 0.45 (1.93) (1.48) (0.16) (0.01) 9.88 (13.04)
1/31/99# 9.88 0.09 (0.36) (0.27) -- -- 9.61 (2.73)
1/31/00 9.61 0.39 (1.14) (0.75) (0.33) -- 8.53 (8.03)
Small Company Value Portfolio
12/14/98-
1/31/99 10.00 -- 0.05 0.05 (0.02) -- 10.03 0.49
1/31/00 10.03 (0.04) 0.58 0.54 -- (0.05) 10.52 5.37
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE PORTFOLIO
(000'S) ASSETS NET ASSETS TURNOVER
---------------------------------------------------
<C> <C> <C> <C>
Alliance Growth Portfolio
$ 167,870 0.79% 0.51% 138%
381,367 0.71 0.51 121
704,533 0.65 0.37 110
1,396,140 0.58 0.27 90
1,864,924 0.63+ (0.01)+ 11
2,875,413 0.63 (0.11) 77
MFS Growth and Income Portfolio
149,910 0.76 1.01 229
186,368 0.74 0.82 164
218,496 0.73 0.77 217
238,298 0.70 0.17 105
266,069 0.75+ 0.38+ 76
337,222 0.75 0.66 64
Putnam Growth Portfolio
115,276 0.93 (0.05) 52
160,073 0.90 (0.02) 63
234,726 0.91 0.18 125
398,863 0.86 0.09 75
494,813 0.86+ (0.19)+ 10
783,896 0.80 (0.09) 76
Real Estate Portfolio
29,565 1.25+++ 3.25+++ 7
59,102 0.95 4.21 26
58,504 1.01+ 5.63+ 6
53,766 0.92 4.24 61
Small Company Value Portfolio
5,024 1.40+++ 0.12+++ 6
5,226 1.40++ (0.40)++ 65
</TABLE>
- ---------------
* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Does not reflect expenses that apply to the separate accounts of the
insurance companies. If such expenses had been included, total return
would have been lower for each period presented.
# The Portfolio changed its fiscal year ended from November 30 to January
31.
+ Annualized
++ During the below stated periods, the investment adviser waived a portion
of or all fees and assumed a portion of or all expenses for the
portfolios. If all fees and expenses had been incurred by the
portfolios, the ratio of expenses to average net assets and the ratio of
net investment income (loss) to average net assets would have been as
follows:
<TABLE>
<CAPTION>
EXPENSES NET INVESTMENT INCOME (LOSS)
--------------------------------------------- ---------------------------------------------
11/95 11/96 11/97 11/98 1/99+ 1/00 11/95 11/96 11/97 11/98 1/99+ 1/00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------- ---------------------------------------------
Alliance Growth....... 0.79% 0.71% 0.65% 0.58% 0.63% 0.63% 0.51% 0.51% 0.37% 0.27% (0.01)% (0.11)%
MFS Growth and
Income................ 0.76 0.74 0.73 0.70 0.75 0.75 1.01 0.82 0.77 0.17 0.38 0.66
Putnam Growth......... 0.93 0.90 0.91 0.86 0.86 0.80 (0.05) (0.02) 0.18 0.09 (0.19) (0.09)
Real Estate........... -- -- 1.36 0.95 1.01 0.92 -- -- 3.14 4.21 5.63 4.24
Small Company Value... -- -- -- -- 3.87 2.25 -- -- -- -- (2.35) (1.25)
</TABLE>
65
<PAGE> 67
- ---------------------
SUNAMERICA SERIES TRUST
FINANCIAL HIGHLIGHTS* (continued)
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET NET TOTAL DIVIDENDS DIVIDENDS NET
ASSET INVEST- NET REALIZED FROM DECLARED FROM FROM NET ASSET
VALUE MENT & UNREALIZED INVEST- NET REALIZED VALUE
PERIOD BEGINNING INCOME GAIN (LOSS) ON MENT INVESTMENT GAIN ON END OF TOTAL
ENDED OF PERIOD (LOSS)** INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN***
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MFS Mid-Cap Growth Portfolio
4/1/99-
1/31/00 $10.00 $(0.01) $ 5.84 $ 5.83 $ -- $(0.23) $15.60 58.26%
Aggressive Growth Portfolio
6/3/96-
11/30/96 10.00 0.02 0.34 0.36 -- -- 10.36 3.60
11/30/97 10.36 0.01 1.40 1.41 (0.01) -- 11.76 13.62
11/30/98 11.76 0.04 0.52 0.56 -- -- 12.32 4.76
1/31/99# 12.32 -- 3.20 3.20 -- -- 15.52 25.97
1/31/00 15.52 -- 8.59 8.59 (0.03) (1.36) 22.72 60.62
International Growth and Income Portfolio
6/2/97-
11/30/97 10.00 0.03 0.38 0.41 -- -- 10.41 4.10
11/30/98 10.41 0.13 0.86 0.99 (0.03) (0.06) 11.31 9.58
1/31/99# 11.31 -- 0.40 0.40 (0.02) (0.19) 11.50 3.56
1/31/00 11.50 0.15 1.97 2.12 (0.45) (0.89) 12.28 17.99
Global Equities Portfolio
11/30/95 11.67 0.12 1.64 1.76 (0.08) (0.29) 13.06 15.58
11/30/96 13.06 0.14 2.19 2.33 (0.14) (0.33) 14.92 18.21
11/30/97 14.92 0.09 1.79 1.88 (0.13) (0.69) 15.98 13.30
11/30/98 15.98 0.07 2.40 2.47 (0.19) (1.36) 16.90 15.34
1/31/99# 16.90 0.00 1.71 1.71 -- -- 18.61 10.12
1/31/00 18.61 0.06 4.00 4.06 (0.21) (1.37) 21.09 23.67
International Diversified Equities Portfolio
11/30/95 9.78 0.07 0.38 0.45 (0.08) -- 10.15 4.63
11/30/96 10.15 0.05 1.43 1.48 (0.26) -- 11.37 14.85
11/30/97 11.37 0.09 0.28 0.37 (0.31) (0.10) 11.33 3.52
11/30/98 11.33 0.15 1.93 2.08 (0.40) (0.15) 12.86 18.33
1/31/99# 12.86 (0.01) 0.22 0.21 -- -- 13.07 1.63
1/31/00 13.07 0.13 1.91 2.04 (0.21) (0.08) 14.82 15.85
Emerging Markets Portfolio
6/2/97-
11/30/97 10.00 0.06 (2.03) (1.97) -- -- 8.03 (19.70)
11/30/98 8.03 0.04 (1.78) (1.74) (0.07) -- 6.22 (21.86)
1/31/99# 6.22 0.01 -- 0.01 (0.01) -- 6.22 0.20
1/31/00 6.22 (0.03) 4.81 4.78 -- -- 11.00 76.86
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE PORTFOLIO
(000'S) ASSETS NET ASSETS TURNOVER
-------------------------------------------------
<C> <C> <C> <C>
MFS Mid-Cap Growth Portfolio
$ 81,636 1.15%+++@ (0.13)%+++@ 108%
Aggressive Growth Portfolio
35,124 1.05+++ 0.46+++ 47
103,603 0.90 (0.13) 221
133,183 0.83 0.32 268
182,313 0.82+ 0.13+ 29
450,073 0.75 0.02 131
International Growth and Income Portfolio
42,844 1.60+++ 0.61+++ 19
128,344 1.46 1.12 51
142,497 1.46+ (0.10) 10
253,962 1.21 1.16 75
Global Equities Portfolio
165,752 1.14 1.02 106
246,482 1.03 1.04 70
341,639 0.95 0.58 115
420,358 0.88 0.46 92
463,138 0.86+ (0.04)+ 12
632,495 0.84 0.30 94
International Diversified Equities Portfolio
48,961 1.70++ 0.76++ 52
157,008 1.59 0.47 53
248,927 1.35 0.82 56
354,174 1.26 1.18 40
373,785 1.26+ (0.43)+ 7
464,988 1.22 0.95 65
Emerging Markets Portfolio
19,979 1.90+++ 1.33+++ 49
31,685 1.90++ 0.61++ 96
32,708 1.90+++ 0.60+++ 22
102,740 1.90@ (0.41)@ 145
</TABLE>
- ---------------
* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Does not reflect expenses that apply to the separate accounts of the
insurance companies. If such expenses had been included, total return
would have been lower for each period presented.
# The Portfolio changed its fiscal year ended from November 30 to January
31.
+ Annualized
@ Net of custody credits of 0.02% and 0.01% on the MFS Mid-Cap Growth and
Emerging Markets Portfolios, respectively.
++ During the below stated periods, the investment adviser waived a portion
of or all fees and assumed a portion of or all expenses for the
portfolios. If all fees and expenses had been incurred by the
portfolios, the ratio of expenses to average net assets and the ratio of
net investment income (loss) to average net assets would have been as
follows:
<TABLE>
<CAPTION>
EXPENSES NET INVESTMENT INCOME (LOSS)
--------------------------------------------- ---------------------------------------------
11/95 11/96 11/97 11/98 1/99+ 1/00 11/95 11/96 11/97 11/98 1/99+ 1/00
--------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MFS Mid-Cap Growth............ --% --% --% --% --% 1.17% --% --% --% --% --% (0.15)%
Aggressive Growth............. -- 1.09 0.90 0.83 0.82 0.75 -- 0.42 (0.13) 0.32 0.13 0.02
International Growth and
Income........................ -- -- 2.02 1.46 1.46 1.21 -- -- 0.19 1.12 (0.10) 1.16
Global Equities............... 1.14 1.03 0.95 0.88 0.86 0.84 1.02 1.04 0.58 0.46 (0.04) 0.30
International Diversified
Equities...................... 2.09 1.59 1.35 1.26 1.26 1.22 0.37 0.47 0.82 1.18 (0.43) 0.95
Emerging Markets.............. -- -- 2.60 2.01 2.29 1.90 -- -- 0.63 0.50 0.21 (0.41)
</TABLE>
66
<PAGE> 68
- --------------------------------------------------------------------------------
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
at no charge by calling (800) 445-7862 or by writing the Trust at P.O. Box
54299, Los Angeles, California 90054-0299.
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 electronic request at the
following e-mail address: [email protected], or 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.
INVESTMENT COMPANY ACT
- - File No. 811-7238
67
<PAGE> 69
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 April 20, 2000. This Statement of Additional Information incorporates the
Prospectus by reference. The Trust's audited financial statements are
incorporated into this Statement of Additional Information by reference to its
2000 annual report to shareholders. You may request a copy of the Prospectus
and/or annual report at no charge by calling (800) 445-7862 or writing the Trust
at the address below. Capitalized terms used herein but not defined have the
meanings assigned to them in the Prospectus.
P.O. Box 54299
Los Angeles, California 90054-0299
(800) 445-SUN2
April 20, 2000
<PAGE> 70
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TOPIC PAGE
- ----- ----
<S> <C>
THE TRUST...................................................................................................... B-3
INVESTMENT OBJECTIVES AND POLICIES............................................................................. B-3
SUPPLEMENTAL INVESTMENT/RISK CHARTS............................................................................ B-4
SUPPLEMENTAL GLOSSARY.......................................................................................... B-8
SUPPLEMENTAL INFORMATION ABOUT DERIVATIVES AND THEIR USE....................................................... B-40
SUPPLEMENTAL INFORMATION CONCERNING HIGH-YIELD, HIGH RISK
BONDS AND SECURITIES RATINGS................................................................................... B-42
SUPPLEMENTAL INFORMATION CONCERNING UTILITY COMPANIES.......................................................... B-46
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS............................................................... B-48
INVESTMENT RESTRICTIONS........................................................................................ B-51
TRUST OFFICERS AND TRUSTEES.................................................................................... B-56
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT................................................................... B-58
SUBADVISORY AGREEMENTS......................................................................................... B-64
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES..................................................................... B-67
SHARES OF THE TRUST............................................................................................ B-69
PRICE OF SHARES................................................................................................ B-70
EXECUTION OF PORTFOLIO TRANSACTIONS............................................................................ B-71
GENERAL INFORMATION............................................................................................ B-78
</TABLE>
B-2
<PAGE> 71
<TABLE>
<S> <C>
FINANCIAL STATEMENTS.................................................................................. B-79
</TABLE>
B-3
<PAGE> 72
THE TRUST
The Trust commenced operations on February 9, 1993 with the Cash
Management, High-Yield Bond, Growth-Income, Alliance Growth, Growth/Phoenix
Investment Counsel, Provident Growth and the Global Equities Portfolios. The
Fixed Income, Global Bond and Asset Allocation Portfolios commenced operations
on July 1, 1993. The Trustees subsequently approved the addition of the
following Portfolios: (a) Balanced/Phoenix Investment Counsel, International
Diversified Equities, Worldwide High Income, and Venture Value Portfolios
effective October 21, 1994; (b) SunAmerica Balanced, Aggressive Growth,
Federated Value, and Federated Utility Portfolios effective June 1, 1996; (c)
Emerging Markets, International Growth and Income, and Real Estate Portfolios
effective April 7, 1997; (d) "Dogs" of Wall Street Portfolio effective February
1, 1998; (e) Equity Income, Equity Index, and Small Company Value Portfolios
effective September 1, 1998; (f) and the MFS Mid-Cap Growth Portfolio effective
January 1, 1999. Effective January 12, 1999, the Trust's fiscal year end changed
from November 30 to January 31.
The Trustees approved the renaming of the following Portfolios: (a)
Fixed Income Portfolio to Corporate Bond Portfolio effective June 1, 1996; (b)
Federated Utility Portfolio to Utility Portfolio effective June 3, 1996; (c)
Provident Growth Portfolio to Putnam Growth Portfolio effective April 7, 1997;
(d) the Growth/Phoenix Investment Counsel Portfolio and Balanced/Phoenix
Investment Counsel Portfolio to MFS Growth and Income Portfolio and MFS Total
Return Portfolio, respectively effective January 1, 1999; and (e) Utility
Portfolio and Venture Value Portfolio to Telecom Utility Portfolio and Davis
Venture Value Portfolio, respectively effective April 10, 2000.
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.
Shares of the Trust are held by separate accounts of Anchor National
Life Insurance Company, an Arizona corporation, First SunAmerica Life Insurance
Company, a New York corporation, AIG Life Insurance Company, a Delaware
corporation and American Life Assurance Company of New York, 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, which is a wholly-owned subsidiary of
SunAmerica Inc., a Delaware corporation, which in turn is a wholly-owned
subsidiary of American International Group, Inc. ("AIG"), a Delaware
corporation. AIG Life Insurance Company and American Life Assurance Company of
New York are also wholly-owned subsidiaries of AIG.
INVESTMENT OBJECTIVES AND POLICIES
The investment goal and principal investment strategy for each of the
Portfolios, along with certain types of investments the Portfolios make under
normal market conditions and for efficient portfolio management, are described
under "More Information About the Portfolios - Investment
B-4
<PAGE> 73
Strategies" in the Prospectus. The following charts and information supplements
the information contained in the prospectus and also provides information
concerning investments the Portfolios make on an periodic basis which includes
infrequent investments or investments in which the Portfolios reserve the right
to invest. We have also included a supplemental glossary to define investment
and risk terminology used in the charts below that does not otherwise appear in
the Prospectus under the section entitled "Glossary." In addition, the
supplemental glossary also provides additional and/or more detailed information
about certain investment and risk terminology that appears in the Prospectus
under the section entitled "Glossary." Unless otherwise indicated, investment
restrictions, including percentage limitations, apply at the time of purchase.
SUPPLEMENTAL INVESTMENT/RISK CHARTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FIXED INCOME PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------------------------------
CASH MANAGEMENT CORPORATE BOND GLOBAL BOND HIGH-YIELD BOND WORLDWIDE HIGH
INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
In what other types - Borrowing for - Hybrid N/A - Options and - U.S. government
of investments may temporary or instruments futures securities
the Portfolio emergency - Warrants - Hybrid securities - Loan
periodically invest? purposes (up to 10%) participations
(up to 5%) - Rights
- Illiquid securities (up to 10%)
(up to 10%) - Dollar rolls
- Firm commitment
agreements
- Interest rate
swaps, caps,
floors and collars
- Registered
investment
companies
- REITs
- Currency
transactions
- ------------------------------------------------------------------------------------------------------------------------------------
What other types of - Credit quality - Derivatives - Illiquidity - Currency - Currency
risks may - Foreign exposure Prepayment volatility volatility
potentially or - Hedging Foreign - Foreign exposure - Illiquidity
periodically affect - Active trading exposure - Illiquidity
the portfolio? - Illiquidity - Active trading
- Prepayment
- Emerging
markets
- Currency
volatility
- Real estate
industry
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-5
<PAGE> 74
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCED OR ASSET ALLOCATION PORTFOLIOS
- ------------------------------------------------------------------------------------------------------------------------------------
SUNAMERICA BALANCED MFS TOTAL RETURN ASSET ALLOCATION TELECOM UTILITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In what other types - N/A - N/A - Borrowing for temporary - U.S. government
of investments may or emergency purposes securities
the Portfolio (up to 33 1/3%) - Junk bonds
periodically invest? - Warrants
- Rights
- Foreign securities
- Zero coupon bonds
- Deferred interest
bonds
- Pay-in-kind bonds
- Firm commitment
agreements
- When-issued and
delayed delivery
transactions
- Illiquid securities (up
to 15%)
- Registered investment
companies
- ------------------------------------------------------------------------------------------------------------------------------------
What other types of - Emerging markets - N/A - Prepayment - Securities selection
risks may - Emerging markets - Derivatives
potentially or - Illiquidity - Foreign exposure
periodically affect - Hedging
the portfolio? - Active trading
- Credit
quality
- Interest
rate
fluctuations
- Illiquidity
- Real
estate
industry
- Small
and
medium
sized
companies
- Emerging
markets
- Value
investing
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-6
<PAGE> 75
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIOS
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME EQUITY INDEX GROWTH-INCOME FEDERATED VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In what other types N/A N/A - Short sales - U.S. government
of investments may - Convertible securities securities
the Portfolio - Warrants - Corporate bonds
periodically invest? - Preferred stocks - Investment grade fixed
- Illiquid securities income securities
(up to 15%) - Preferred stocks
- Currency transactions - Small-cap stocks
- Warrants
- Illiquid securities (up to
15%)
- Registered investment
companies
- Firm commitment
agreements
- When-issued and
delayed delivery
transactions
- REITs
- Zero coupon bonds
- Convertible securities
- Deferred interest bonds
- ------------------------------------------------------------------------------------------------------------------------------------
What other types of N/A N/A - Foreign exposure - Securities selection
risks may - Derivatives
potentially or - Foreign exposure
periodically affect - Hedging
the portfolio? - Active trading
- Credit
quality
- Illiquidity
- Emerging
markets
- Small
and
medium
sized
companies
- Real
estate
industry
- Value
investing
- Sector
risk
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-7
<PAGE> 76
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIOS
- ------------------------------------------------------------------------------------------------------------------------------------
DAVIS VENTURE VALUE "DOGS" OF WALL STREET ALLIANCE GROWTH MFS GROWTH AND
INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In what other types - Equity securities - Illiquid securities - Short sales N/A
of investments may - small-cap stocks (up to 15%) - Convertible securities
the Portfolio - Fixed income securities - Illiquid securities
periodically invest? - investment grade (up to 15%)
corporate bonds - Forward commitments
- Options - Currency transactions
- Illiquid securities
(up to 15%)
- Registered investment
companies
(up to 10%)
- Currency transactions
- Borrowing for
temporary or
emergency purposes
(up to 33 1/3%)
- ------------------------------------------------------------------------------------------------------------------------------------
What other types of - Foreign exposure N/A - Foreign exposure N/A
risks may - Hedging
potentially or - Illiquidity
periodically affect - Interest rate
the portfolio? fluctuations
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIOS
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM GROWTH REAL ESTATE SMALL COMPANY MFS MID-CAP AGGRESSIVE GROWTH
VALUE GROWTH
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
In what other - Illiquid securities - Fixed income N/A N/A - U.S. government
types of (up to 15%) securities: securities
investments - investment grade - Corporate debt
may the corporate bonds instruments
Portfolio - Options - Preferred stocks
periodically - Registered - Rights
invest? investment - Defensive
companies investments
- Securities lending - Foreign securities
- Illiquid securities - Forward
- Currency commitments
transactions - Currency
- Borrowing for transactions
temporary or - Securities lending
emergency (up to 33 1/3 %)
purposes - REITs
(up to 33 1/3%) - Registered
investment
companies
- Firm commitment
agreements
- When-issued and
delayed delivery
transactions
</TABLE>
B-8
<PAGE> 77
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM GROWTH REAL ESTATE SMALL COMPANY MFS MID-CAP AGGRESSIVE GROWTH
VALUE GROWTH
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
What other - Foreign exposure N/A Credit N/A
types of risks N/A - Hedging quality
may potentially - Illiquidity
or periodically - Interest rate
affect the fluctuations
portfolio? - Credit quality
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL PORTFOLIOS
- ---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL GROWTH GLOBAL EQUITIES INTERNATIONAL EMERGING MARKETS
AND INCOME DIVERSIFIED EQUITIES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In what other types - Equity securities: - Short sales - Borrowing for - Hybrid instruments
of investments may - convertible - Convertible securities temporary or - Structured notes
the Portfolio securities - Illiquid securities emergency purposes Swaps
periodically invest? - warrants (up to 15%) (up to 33 1/3%) - Illiquid securities
- Fixed income (up to 15%)
securities: - Borrowing for
- investment grade temporary or
securities emergency purposes
- Hybrid instruments (up to 33 1/3%)
- Illiquid securities - Currency transactions
(up to 15%) - Forward commitment
- Forward commitment
- ---------------------------------------------------------------------------------------------------------------------------
What other types - Derivatives - Illiquidity - Credit quality - Derivative
of risks may - Growth stocks - Illiquidity - Growth stocks
potentially or - Illiquidity - Derivatives - Illiquidity
periodically affect - Small and medium - Hedging - Small and medium
the portfolio? sized companies sized companies
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL GLOSSARY
SHORT-TERM INVESTMENTS, including both U.S. and non-U.S. dollar denominated
money market instruments, are invested in for reasons that may include (a) for
liquidity purposes (to meet redemptions and expenses); (b) to generate a return
on idle cash held by a Portfolio during periods when an Adviser/Subadviser is
unable to locate favorable investment opportunities; or (c) for temporary
defensive purposes. The CASH MANAGEMENT PORTFOLIO invests principally in
short-term investments. Common short-term investments include, but are not
limited to:
Money Market Securities - Money Market securities may include
securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, repurchase
B-9
<PAGE> 78
agreements, commercial paper, bankers' acceptances, time deposits and
certificates of deposit.
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. 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 12 months) issued by
corporations or governmental bodies, including variable amount master
demand notes. 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 & 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.
Extendable Commercial Notes ("ECNs") - ECNs are very similar to
commercial paper except that with ECNs the issuer has the option to
extend maturity to 390 days. ECNs are issued at a discount rate with
an initial redemption of not more than 90 days from the date of issue.
The issuer of an ECN has the option to extend maturity to 390 days. If
ECNs are not redeemed by the issuer on the initial redemption date the
issuer will pay a premium (step-up) rate based on the ECNs' credit
rating at the time. THE CASH MANAGEMENT PORTFOLIO may purchase ECNs
only if judged by the Adviser to be of suitable investment quality.
This includes ECNs that are (a) rated in the two highest categories by
Standard & Poor's and by Moody's, or (b) other ECNs 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 ECNs 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 ECNs described in (b) above if
such paper would in the aggregate exceed 15% of its total assets after
such purchase.
Variable Amount Master Demand Notes permit a 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. The CASH
MANAGEMENT PORTFOLIO'S 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.
B-10
<PAGE> 79
In connection with master demand note arrangements, the
Adviser/Subadviser, 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/Subadviser 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 a 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 a Portfolio may invest. Master
demand notes are considered to have a maturity equal to the repayment
notice period unless the Adviser/Subadviser has reason to believe that
the borrower could not make timely repayment upon demand.
Corporate Bonds and Notes - A 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 such period. 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.
Government Securities - Debt securities maturing within one year
of the date of purchase include adjustable-rate mortgage securities
backed by GNMA, FNMA, FHLMC and other non-agency issuers. Although
certain floating or variable rate obligations (securities whose coupon
rate changes at least annually and generally more frequently) have
maturities in excess of one year, they are also considered short-term
debt securities. See "U.S. Government Securities," above.
Repurchase Agreements. A Portfolio will enter into repurchase
agreements involving only securities in which it could otherwise
invest and with selected banks and securities dealers whose financial
condition is monitored by the Adviser/Subadviser, subject to the
guidance of the Board of Trustees. In such agreements, the seller
agrees to repurchase the security at a mutually agreed-upon time and
price. The period of maturity is usually quite short, either overnight
or a few days, although it may extend over a number of months. The
repurchase price is in excess of the purchase price by an amount that
reflects an agreed-upon rate of return effective for the period of
time a Portfolio's money is invested in the security. Whenever a
Portfolio enters into a repurchase agreement, it obtains appropriate
collateral. The instruments held as collateral are valued daily and if
the value of the instruments declines, the Portfolio will require
additional collateral. If the seller under the repurchase agreement
defaults, the Portfolio may incur a loss if the value of the
collateral securing the repurchase agreement has declined, and may
incur disposition costs in connection with liquidating the collateral.
In addition, if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the
Portfolio may be delayed or limited. The Trustees have established
guidelines to be used by the Adviser/Subadviser in connection with
transactions in repurchase agreements and will
B-11
<PAGE> 80
regularly monitor each Portfolio's use of repurchase agreements. A
Portfolio will not invest in repurchase agreements maturing in more
than seven days if the aggregate of such investments along with other
illiquid securities exceeds 15% (10% with respect to the CASH
MANAGEMENT PORTFOLIO) of the value of its net assets. However, there
is no limit on the amount of a Portfolio's net assets that may be
subject to repurchase agreements having a maturity of seven days or
less for temporary defensive purposes.
MORTGAGE-BACKED SECURITIES include investments in mortgage-related
securities, including certain U.S. government securities such as GNMA, FNMA or
FHLMC certificates (as defined below), and private mortgage-related securities,
which represent an undivided ownership interest in a pool of mortgages. The
mortgages backing these securities include conventional thirty-year fixed-rate
mortgages, fifteen-year fixed-rate mortgages, graduated payment mortgages and
adjustable rate mortgages. The U.S. government or the issuing agency guarantees
the payment of interest and principal of these securities. However, the
guarantees do not extend to the securities' yield or value, which are likely to
vary inversely with fluctuations in interest rates. These certificates are in
most cases pass-through instruments, through which the holder receives a share
of all interest and principal payments, including prepayments, on the mortgages
underlying the certificate, net of certain fees.
The yield on mortgage-backed securities is based on the average expected
life of the underlying pool of mortgage loans. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through certificates.
Mortgage-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying mortgage obligations. Thus, the
actual life of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally result from
the sale of the underlying property or the refinancing or foreclosure of
underlying mortgages. The occurrence of prepayments is affected by a wide range
of economic, demographic and social factors and, accordingly, it is not possible
to predict accurately the average life of a particular pool. Yield on such pools
is usually computed by using the historical record of prepayments for that pool,
or, in the case of newly-issued mortgages, the prepayment history of similar
pools. The actual prepayment experience of a pool of mortgage loans may cause
the yield realized by the Portfolio to differ from the yield calculated on the
basis of the expected average life of the pool.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as does the value of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The reinvestment of scheduled
principal payments and unscheduled prepayments that the Portfolio receives may
occur at higher or lower rates than the original investment, thus affecting the
yield of the Portfolio. Monthly interest payments received by the Portfolio have
a compounding effect, which may increase the yield to shareholders more than
debt obligations that pay interest semi-annually. Because of those factors,
mortgage-backed securities may be less effective than U.S.
B-12
<PAGE> 81
Treasury bonds of similar maturity at maintaining yields during periods of
declining interest rates. Accelerated prepayments adversely affect yields for
pass-through securities purchased at a premium (i.e., at a price in excess of
principal amount) and may involve additional risk of loss of principal because
the premium may not have been fully amortized at the time the obligation is
repaid. The opposite is true for pass-through securities purchased at a
discount. A Portfolio may purchase mortgage-backed securities at a premium or at
a discount.
The following is a description of GNMA, FNMA and FHLMC certificates, the
most widely available mortgage-backed securities:
GNMA Certificates. GNMA Certificates are mortgage-backed securities
that evidence an undivided interest in a pool or pools of mortgages. GNMA
Certificates that a Portfolio may purchase are the modified pass-through
type, which entitle the holder to receive timely payment of all interest
and principal payments due on the mortgage pool, net of fees paid to the
issuer and GNMA, regardless of whether or not the mortgagor actually makes
the payment.
GNMA guarantees the timely payment of principal and interest on
securities backed by a pool of mortgages insured by the Federal Housing
Administration ("FHA") or the FMHA, or guaranteed by the Veterans
Administration. The GNMA guarantee is authorized by the National Housing
Act and is backed by the full faith and credit of the United States. The
GNMA is also empowered to borrow without limitation from the U.S. Treasury
if necessary to make any payments required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosure
will usually result in the return of the greater part of principal
investment long before the maturity of the mortgages in the pool.
Foreclosures impose no risk to principal investment because of the GNMA
guarantee, except to the extent that a Portfolio has purchased the
certificates at a premium in the secondary market.
FHLMC Certificates. The FHLMC issues two types of mortgage
pass-through securities: mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs") (collectively, "FHLMC
Certificates"). PCs resemble GNMA Certificates in that each PC represents a
pro rata share of all interest and principal payments made and owed on the
underlying pool. The FHLMC guarantees timely monthly payment of interest
(and, under certain circumstances, principal) of PCs and the ultimate
payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal
once a year in guaranteed minimum payments. The expected average life of
these securities is approximately ten years. The FHLMC guarantee is not
backed by the full faith and credit of the U.S. Government.
B-13
<PAGE> 82
FNMA Certificates. The FNMA issues guaranteed mortgage pass-through
certificates ("FNMA Certificates"). FNMA Certificates represent a pro rata
share of all interest and principal payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest and principal
on FNMA Certificates. The FNMA guarantee is not backed by the full faith
and credit of the U.S. Government.
Other types of mortgage-backed securities include:
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 loans
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 REMICs
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) 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.
Collateralized Mortgage Obligations ("CMOs") are fully collateralized
bonds that are the general obligations of the issuer thereof (e.g., the
U.S. government, a U.S. government instrumentality, or a private issuer).
Such bonds generally are secured by an assignment to a trustee (under the
indenture pursuant to which the bonds are issued) of collateral consisting
of a pool of mortgages. Payments with respect to the underlying mortgages
generally are made to the trustee under the indenture. Payments of
principal and interest on the underlying mortgages are not passed through
to the holders of the
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CMOs as such (i.e., the character of payments of principal and interest is
not passed through, and therefore payments to holders of CMOs attributable
to interest paid and principal repaid on the underlying mortgages do not
necessarily constitute income and return of capital, respectively, to such
holders), but such payments are dedicated to payment of interest on and
repayment of principal of the CMOs.
Principal and interest on the underlying mortgage assets may be
allocated among the several classes of 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 those that 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.
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 to
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.
Stripped Mortgage-Backed Securities ("SMBS") are often structured with
two classes that receive different proportions of the interest and
principal distributions on a pool of mortgage assets. SMBS have greater
market volatility than other types of U.S. government securities in which a
Portfolio invests. A common type of SMBS has one class receiving some of
the interest and all or most of the principal (the "principal only" class)
from the mortgage pool, while the other class will receive all or most of
the interest (the "interest only" class). The yield to maturity on an
interest only class is extremely sensitive not only to changes in
prevailing interest rates, but also to the rate of principal payments,
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including principal prepayments, on the underlying pool of mortgage assets,
and a rapid rate of principal payment may have a material adverse effect on
a Portfolio's yield. While interest-only and principal-only securities are
generally regarded as being illiquid, such securities may be deemed to be
liquid if they can be disposed of promptly in the ordinary course of
business at a value reasonably close to that used in the calculation of a
Portfolio's net asset value per share. Only government interest-only and
principal-only securities backed by fixed-rate mortgages and determined to
be liquid under guidelines and standards established by the Trustees may be
considered liquid securities not subject to a Portfolio's limitation on
investments in illiquid securities.
ASSET-BACKED 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.
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 servicer 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.
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 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.
MUNICIPAL BONDS. Fixed income securities include, among other things,
municipal bonds which are issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies or instrumentalities, the interest on which is
exempt from federal income tax ("Municipal Bonds"). Municipal Bonds include debt
securities
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which pay interest income that is subject to the alternative minimum tax. A
Portfolio may invest in Municipal Bonds whose issuers pay interest on the Bonds
from revenues from projects such as multifamily housing, nursing homes, electric
utility systems, hospitals or life care facilities.
U.S. TREASURY INFLATION PROTECTION SECURITIES 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
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.
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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 include investments 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"). 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 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 Adviser/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 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.
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SHORT SALES are 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 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 are leveraged inverse floating rate debt instruments. 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
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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 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 (except in the case of "Rule 144A securities," as
described below).
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).
Commercial paper issues in which a Portfolio may invest include securities
issue 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
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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.
REITS 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.
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.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. When-issued or
delayed-delivery transactions call for the purchase or sale of securities at an
agreed-upon price on a specified future date. Although a Portfolio will enter
into such transactions for the purpose of acquiring securities for its portfolio
or for delivery pursuant to options contracts it has entered into, the Portfolio
may dispose of a commitment prior to settlement. When such transactions are
negotiated, the price (which is
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generally expressed in yield terms) is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date. During
the period between commitment by a Portfolio and settlement (generally within
two months but not to exceed 120 days), no payment is made for the securities
purchased by the purchaser, and no interest accrues to the purchaser from the
transaction. Such securities are subject to market fluctuation, and the value at
delivery may be less than the purchase price. A Portfolio will maintain a
segregated account with its custodian, consisting of cash or liquid securities
at least equal to the value of purchase commitments until payment is made. A
Portfolio will likewise segregate liquid assets in respect of securities sold on
a delayed delivery basis.
A Portfolio will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When a Portfolio engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure to do so may result in a Portfolio losing
the opportunity to obtain a price and yield considered to be advantageous. If a
Portfolio chooses to (i) dispose of the right to acquire a when-issued security
prior to its acquisition or (ii) dispose of its right to deliver or receive
against a firm commitment, it may incur a gain or loss. (At the time a Portfolio
makes a commitment to purchase or sell a security on a when-issued or firm
commitment basis, it records the transaction and reflects the value of the
security purchased, or if a sale, the proceeds to be received in determining its
net asset value.)
To the extent a Portfolio engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling securities
consistent with its investment objectives and policies and not for the purposes
of investment leverage. A Portfolio enters into such transactions only with the
intention of actually receiving or delivering the securities, although (as noted
above) when-issued securities and firm commitments may be sold prior to the
settlement date. In addition, changes in interest rates in a direction other
than that expected by the Adviser/Subadviser before settlement of a purchase
will affect the value of such securities and may cause a loss to a Portfolio.
When-issued transactions and firm commitments may be used to offset
anticipated changes in interest rates and prices. For instance, in periods of
rising interest rates and falling prices, a Portfolio might sell securities in
its portfolio on a forward commitment basis to attempt to limit its exposure to
anticipated falling prices. In periods of falling interest rates and rising
prices, a Portfolio might sell portfolio securities and purchase the same or
similar securities on a when-issued or forward commitment basis, thereby
obtaining the benefit of currently higher cash yields. An example of a
when-issued or delayed delivery security is a "to be announced" or "TBA"
mortgage-backed security. A TBA mortgage-backed security transaction arises when
a mortgage-backed security is purchased or sold with the specific pools to be
announced on a future settlement date, with no definitive maturity date. The
actual principal amount and maturity date will be determined upon settlement
date.
HYBRID INSTRUMENTS, including indexed or structured securities, combine the
elements of futures contracts or options with those of debt, preferred equity or
a depository instrument. Generally, a
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Hybrid Instrument will be a debt security, preferred stock, depository share,
trust certificate, certificate of deposit or other evidence of indebtedness on
which a portion of or all interest payments, and/or the principal or stated
amount payable at maturity, redemption or retirement, is determined by reference
to prices, changes in prices, or differences between prices, of securities,
currencies, intangibles, goods, articles or commodities (collectively
"Underlying Assets") or by another objective index, economic factor or other
measure, such as interest rates, currency exchange rates, commodity indices, and
securities indices (collectively "Benchmarks"). Thus, Hybrid Instruments may
take a variety of forms, including, but not limited to, debt instruments with
interest or principal payments or redemption terms determined by reference to
the value of a currency or commodity or securities index at a future point in
time, preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms related to a
particular commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Portfolio may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transactions
costs associated with buying and currency-hedging the foreign bond positions.
One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument
whose redemption price is linked to the average three year interest rate in a
designated group of countries. The redemption price formula would provide for
payoffs of greater than par if the average interest rate was lower than a
specified level, and payoffs of less than par if rates were above the specified
level. Furthermore, the Portfolio could limit the downside risk of the security
by establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest rates were
to rise significantly. The purpose of this arrangement, known as a structured
security with an embedded put option, would be to give the Portfolio the desired
European bond exposure while avoiding currency risk, limiting downside market
risk, and lowering transactions costs. Of course, there is no guarantee that the
strategy will be successful and the Portfolio could lose money if, for example,
interest rates do not move as anticipated or credit problems develop with the
issuer of the Hybrid.
The risks of investing in Hybrid Instruments reflect a combination of the
risks of investing in securities, options, futures and currencies. Thus, an
investment in a Hybrid Instrument may entail significant risks that are not
associated with a similar investment in a traditional debt instrument that has a
fixed principal amount, is denominated in U.S. dollars or bears interest either
at a fixed rate or a floating rate determined by reference to a common,
nationally published Benchmark. The risks of a particular Hybrid Instrument
will, of course, depend upon the terms of the instrument, but may include,
without limitation, the possibility of significant changes in the Benchmarks or
the prices of Underlying Assets to which the instrument is linked. Such risks
generally depend upon factors unrelated to the operations or credit quality of
the issuer of the Hybrid Instrument, which may not be readily foreseen by the
purchaser, such as economic and political events, the supply and demand for the
Underlying Assets and interest rate movements. In recent years, various
Benchmarks and prices for Underlying Assets have been highly volatile, and such
volatility may be expected in the
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future. Reference is also made to the discussion of futures, options, and
forward contracts herein for a discussion of the risks associated with such
investments.
Hybrid Instruments are potentially more volatile and carry greater market
risks than traditional debt instruments. Depending on the structure of the
particular Hybrid Instrument, changes in a Benchmark may be magnified by the
terms of the Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid
Instrument and the Benchmark or Underlying Asset may not move in the same
direction or at the same time.
Hybrid Instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, Hybrid Instruments may
bear interest at above market rates but bear an increased risk of principal loss
(or gain). The latter scenario may result if "leverage" is used to structure the
Hybrid Instrument. Leverage risk occurs when the Hybrid Instrument is structured
so that a given change in a Benchmark or Underlying Asset is multiplied to
produce a greater value change in the Hybrid Instrument, thereby magnifying the
risk of loss as well as the potential for gain.
Hybrid Instruments may also carry liquidity risk since the instruments are
often "customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. Under certain conditions, the redemption (or sale)
value of such an investment could be zero. In addition, because the purchase and
sale of Hybrid Instruments could take place in an over-the-counter market
without the guarantee of a central clearing organization or in a transaction
between the Portfolio and the issuer of the Hybrid Instrument, the
creditworthiness of the counterparty or issuer of the Hybrid Instrument would be
an additional risk factor the Portfolio would have to consider and monitor.
Hybrid Instruments also may not be subject to regulation of the CFTC, which
generally regulates the trading of commodity futures by U.S. persons, the
Securities and Exchange Commission (the "SEC"), which regulates the offer and
sale of securities by and to U.S. persons, or any other governmental regulatory
authority.
The various risks discussed above, particularly the market risk of such
instruments, may in turn cause significant fluctuations in the net asset value
of the Portfolio. Accordingly, a Portfolio that so invests will limit its
investments in Hybrid Instruments to 10% of its total assets.
Hybrid Instruments include:
Structured investments which are organized and operated solely for the
purpose of restructuring the investment characteristics of sovereign debt
obligations. This type of 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
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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 typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. Investments in Structured Securities are generally
of 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. 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.
WEBs. World Equity Benchmark Shares ("WEBS") are shares of an investment
company that invests substantially all of its assets in securities included
in the MSCI indices for specified countries. The market prices of WEBS are
expected to fluctuate in accordance with both changes in the net asset
values of their underlying indices and supply and demand of WEBS on the
American Stock Exchange. In the event substantial market or other
disruptions affecting WEBS should occur in the future, the liquidity and
value of Portfolio's shares could also be substantially and adversely
affected, and the Fund's ability to provide investment results
approximating the performance of securities in the EAFE Index could be
impaired.
SPDRs. Standard & Poor's Depositary Receipts ("SPDRs") are American Stock
Exchange-traded securities that represent ownership in the SPDR Trust, a
trust established to accumulate and hold a portfolio of common stocks
intended to track the price performance and dividend yield of the S&P 500.
SPDRs may be used for several reasons, including but not limited to
facilitating the handling of cash flows or trading, or reducing transaction
costs. The use of SPDRs would introduce additional risk, as the price
movement of the instrument does not perfectly correlate with the price
action of the underlying index.
INTEREST-RATE SWAPS, MORTGAGE SWAPS, CAPS, FLOORS AND COLLARS. Entering
into interest-rate swaps or mortgage swaps or purchasing interest-rate caps,
floors or collars is often done to protect against interest rate fluctuations
and hedge against fluctuations in the fixed income market. A Portfolio will
generally 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. 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
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correlation between their respective portfolio investments and their
interest-rate positions. 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. 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.
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.
EQUITY SWAPS are typically entered into for the purpose of investing in a
market without owning or taking physical custody of securities in circumstances
in which direct investment is restricted for legal reasons or is otherwise
impracticable. The counterparty to an equity swap contract will typically be a
bank, investment banking firm or broker/dealer. The counterparty will generally
agree to pay the Portfolio the amount, if any, by which the notional amount of
the equity swap contract would have increased in value had it been invested in
the particular stocks, plus the dividends that would have been received on those
stocks. The Portfolio will agree to pay to the counterparty a floating rate of
interest on the notional amount of the equity swap contract plus the amount, if
any, by which that notional amount would have decreased in value had it been
invested in such stocks. Therefore, the return to the Portfolio on any equity
swap contract should be the gain or loss on the notional amount plus dividends
on the stocks less the interest paid by the Portfolio on the notional amount.
A Portfolio will enter into equity swaps only on a net basis, which means
that the two payment streams are netted out, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. Payments
may be made at the conclusion of an equity swap contract
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or periodically during its term. Equity swaps do not involve the delivery of
securities or other underlying assets. Accordingly, the risk of loss with
respect to equity swaps is limited to the net amount of payments that a
Portfolio is contractually obligated to make. If the other party to an equity
swap defaults, the Portfolio's risk of loss consists of the net amount of
payment that the Portfolio is contractually entitled to receive, if any. The net
amount of the excess, if any, of the Portfolio's obligations over its
entitlements with respect to each equity swap will be accrued on a daily basis
and an amount of cash or liquid assets, having an aggregate net asset value at
least equal to such accrued excess will be maintained in a segregated account by
the Portfolio's custodian. Inasmuch as these transactions are entered into for
hedging purposes or are offset by segregated cash or liquid assets, as permitted
by applicable law, the Portfolio believes that transactions do not constitute
senior securities under the Act and, accordingly, will not treat them as being
subject to the Portfolio's borrowing restrictions.
SECURITIES LENDING. Consistent with applicable regulatory requirements,
each Portfolio except the CASH MANAGEMENT PORTFOLIO may lend portfolio
securities in amounts up to 331/3% of total assets to brokers, dealers and other
financial institutions, provided that such loans are callable at any time by the
Portfolio and are at all times secured by cash or equivalent collateral. In
lending its portfolio securities, a Portfolio receives income while retaining
the securities' potential for capital appreciation. The advantage of such loans
is that a Portfolio continues to receive the interest and dividends on the
loaned securities while at the same time earning interest on the collateral,
which will be invested in high-quality short-term debt securities, including
repurchase agreements. A loan may be terminated by the borrower on one business
day's notice or by a Portfolio at any time. If the borrower fails to maintain
the requisite amount of collateral, the loan automatically terminates, and the
Portfolio could use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. 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/Subadviser to be creditworthy. On termination of the
loan, the borrower is required to return the securities to a Portfolio; and any
gain or loss in the market price of the loaned security during the loan would
inure to the Portfolio. Each such Portfolio will pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.
Since voting or consent rights accompany loaned securities pass to the
borrower, each such Portfolio will follow the policy of calling the loan, in
whole or in part as may be appropriate, to permit the exercise of such rights if
the matters involved would have a material effect on the Portfolio's investment
in the securities that are the subject of the loan.
BORROWING. All of the Portfolios (except the CASH MANAGEMENT PORTFOLIO) are
authorized to borrow money to the extent permitted by applicable law. The 1940
Act permits each Portfolio to borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. In seeking to enhance performance, a
Portfolio may borrow for investment purposes and may pledge assets to secure
such borrowings. The CASH MANAGEMENT PORTFOLIO may not borrow money except for
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temporary emergency purposes, and then in an amount not in excess of 5% of the
value of the Portfolio's total assets. In the event that asset coverage for a
Portfolio's borrowings falls below 300%, the Portfolio will reduce within three
days the amount of its borrowings in order to provide for 300% asset coverage.
To the extent a Portfolio borrows for investment purposes, borrowing
creates leverage which is a speculative characteristic. Although a Portfolio is
authorized to borrow, it will do so only when the Adviser/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.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements may be entered
into with brokers, dealers, domestic and foreign banks or other financial
institutions that have been determined by the Adviser/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
with the Custodian 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 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."
ROLL TRANSACTIONS involve the sale of mortgage or other asset-backed
securities ("roll securities") with the commitment to purchase 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. The Portfolio is compensated by the difference between the
current sales price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. The Portfolio also could be compensated through
the receipt of fee income equivalent to a lower forward price. A
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"covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position that matures on
or before the forward settlement date of the dollar roll transaction. A
Portfolio will enter only into covered rolls. Because "roll" transactions
involve both the sale and purchase of a security, they may cause the reported
portfolio turnover rate to be higher than that reflecting typical portfolio
management activities.
Roll transactions involve certain risks, including the following: 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 that the Portfolio is required to
repurchase may be worth less than an instrument that the Portfolio originally
held. Successful use of roll transactions will depend upon the
Adviser/Subadviser's ability to predict correctly interest rates and in the case
of mortgage dollar rolls, mortgage prepayments. For these reasons, there is no
assurance that dollar rolls can be successfully employed.
SECTOR RISK. Companies with similar characteristics may be grouped together
in broad categories called sectors. Sector risk is the possibility that a
certain sector may underperform other sectors or the market as a whole. As a
Portfolio allocates more of its portfolio holdings to a particular sector, the
Portfolio's performance will be more susceptible to any economic, business or
other developments which generally affect that sector.
STANDBY COMMITMENTS. Standby commitments are put options that entitle
holders to same day settlement at an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise. A Portfolio may acquire standby commitments to enhance the liquidity
of portfolio securities, but only when the issuers of the commitments present
minimal risk of default. Ordinarily, the Portfolio may not transfer a standby
commitment to a third party, although it could sell the underlying municipal
security to a third party at any time. A Portfolio may purchase standby
commitments separate from or in conjunction with the purchase of securities
subject to such commitments. In the latter case, the Portfolio would pay a
higher price for the securities acquired, thus reducing their yield to maturity.
Standby commitments will not affect the dollar-weighted average maturity of the
Portfolio, or the valuation of the securities underlying the commitments.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. The
Adviser/Subadviser may rely upon its evaluation of a bank's credit in
determining whether to support an instrument supported by a letter of credit.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the commitments
are exercised; the fact that standby commitments are not marketable by the
Portfolios; and the possibility that the maturities of the underlying securities
may be different from those of the commitments.
VALUE INVESTING. Due to their relatively low valuations, value stocks are
typically less volatile than growth stocks. For instance, the price of a value
stock may experience a smaller increase on a forecast of higher earnings, a
positive fundamental development, or positive market development. Further, value
stocks tend to have higher dividends than growth stocks. This means they depend
less on price changes for returns and may lag behind growth stocks in an "up"
market.
WARRANTS 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.
ADRS, GDRS, AND EDRS. Foreign securities include, among other things,
American Depositary Receipts ("ADRs") and 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 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.
BRADY BONDS. Foreign securities include, among other things, Brady Bonds
which are securities created through the exchange of existing commercial bank
loans to public and private entities in certain emerging markets for new bonds
in connection with debt restructurings under a debt restructuring 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, Dominican Republic, Ecuador,
Jordan, Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland,
Slovenia, Uruguay and Venezuela. Brady Bonds have been
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issued only 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, why 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 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.
OPTIONS AND FUTURES are contracts involving the right to receive or the
obligation to deliver assets or money depending on the performance of one or
more underlying assets or a market or economic index. An option gives its owner
the right, but not the obligation, to buy ("call") or sell ("put") a specified
amount of a security at a specified price within in a specified time period. A
futures contract is an exchange-traded legal contract to buy or sell a standard
quantity and quality of a commodity, financial instrument, index, etc. at a
specified future date and price. Options and Futures (defined below) are
generally used for either hedging or income enhancement purposes.
Options can either purchased or written (i.e., sold). 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. After any such sales up to 25% of a Portfolio's total
assets may be subject to calls. All call options written by a Portfolio must be
"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 put option written by a Portfolio obligates 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 must be "covered," which means that the Portfolio will deposit 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 following is more detailed information concerning options, futures and
options on futures:
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Options on Securities. When a Portfolio writes (i.e., sells) a
call option ("call") on a security it receives a premium and agrees to sell
the underlying security to a purchaser of a corresponding call on the same
security during the call period (usually not more than 9 months) at a fixed
price (which may differ from the market price of the underlying security),
regardless of market price changes during the call period. A Portfolio has
retained the risk of loss should the price of the underlying security
decline during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, a
Portfolio may purchase a corresponding call in a "closing purchase
transaction." A profit or loss will be realized, depending upon whether the
net of the amount of the option transaction costs and the premium received
on the call written was more or less than the price of the call
subsequently purchased. A profit may also be realized if the call expires
unexercised, because a Portfolio retains the underlying security and the
premium received. If a Portfolio could not effect a closing purchase
transaction due to lack of a market, it would hold the callable securities
until the call expired or was exercised.
When a Portfolio purchases a call (other than in a closing
purchase transaction), it pays a premium and has the right to buy the
underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. A Portfolio
benefits only if the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and the premium paid and the call
is exercised. If the call is not exercised or sold (whether or not at a
profit), it will become worthless at its expiration date and a Portfolio
will lose its premium payment and the right to purchase the underlying
investment.
A put option on securities gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying investment at
the exercise price during the option period. Writing a put covered by
segregated liquid assets equal to the exercise price of the put has the
same economic effect to a Portfolio as writing a covered call. The premium
a Portfolio receives from writing a put option represents a profit as long
as the price of the underlying investment remains above the exercise price.
However, a Portfolio has also assumed the obligation during the option
period to buy the underlying investment from the buyer of the put at the
exercise price, even though the value of the investment may fall below the
exercise price. If the put expires unexercised, a Portfolio (as the writer
of the put) realizes a gain in the amount of the premium. If the put is
exercised, a Portfolio must fulfill its obligation to purchase the
underlying investment at the exercise price, which will usually exceed the
market value of the investment at that time. In that case, a Portfolio may
incur a loss, equal to the sum of the sale price of the underlying
investment and the premium received minus the sum of the exercise price and
any transaction costs incurred.
A Portfolio may effect a closing purchase transaction to
realize a profit on an outstanding put option it has written or to prevent
an underlying security from being put.
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Furthermore, effecting such a closing purchase transaction will permit a
Portfolio to write another put option to the extent that the exercise price
thereof is secured by the deposited assets, or to utilize the proceeds from
the sale of such assets for other investments by the Portfolio. A Portfolio
will realize a profit or loss from a closing purchase transaction if the
cost of the transaction is less or more than the premium received from
writing the option.
When a Portfolio purchases a put, it pays a premium and has
the right to sell the underlying investment to a seller of a corresponding
put on the same investment during the put period at a fixed exercise price.
Buying a put on an investment a Portfolio owns enables the Portfolio to
protect itself during the put period against a decline in the value of the
underlying investment below the exercise price by selling such underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and as a result the put is not exercised or resold, the put will
become worthless at its expiration date, and the Portfolio will lose its
premium payment and the right to sell the underlying investment pursuant to
the put. The put may, however, be sold prior to expiration (whether or not
at a profit).
Buying a put on an investment a Portfolio does not own permits
the Portfolio either to resell the put or buy the underlying investment and
sell it at the exercise price. The resale price of the put will vary
inversely with the price of the underlying investment. If the market price
of the underlying investment is above the exercise price and as a result
the put is not exercised, the put will become worthless on its expiration
date. In the event of a decline in the stock market, a Portfolio could
exercise or sell the put at a profit to attempt to offset some or all of
its loss on its portfolio securities.
When writing put options on securities, to secure its
obligation to pay for the underlying security, a Portfolio will deposit in
escrow liquid assets with a value equal to or greater than the exercise
price of the underlying securities. A Portfolio therefore forgoes the
opportunity of investing the segregated assets or writing calls against
those assets. As long as the obligation of a Portfolio as the put writer
continues, it may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring a Portfolio to take delivery
of the underlying security against payment of the exercise price. A
Portfolio has no control over when it may be required to purchase the
underlying security, since it may be assigned an exercise notice at any
time prior to the termination of its obligation as the writer of the put.
This obligation terminates upon expiration of the put, or such earlier time
at which a Portfolio effects a closing purchase transaction by purchasing a
put of the same series as that previously sold. Once a Portfolio has been
assigned an exercise notice, it is thereafter not allowed to effect a
closing purchase transaction.
The purchase of a spread option gives a Portfolio the right to
put, or sell, a security that it owns at a fixed dollar spread or fixed
yield spread in relationship to another security that the Portfolio does
not own, but which is used as a benchmark. The risk to a Portfolio in
purchasing covered spread options is the cost of the premium paid for the
spread
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option and any transaction costs. In addition, there is no assurance that
closing transactions will be available. The purchase of spread options will
be used to protect a Portfolio against adverse changes in prevailing credit
quality spreads, i.e., the yield spread between high quality and lower
quality securities. Such protection is provided only during the life of the
spread option.
Options on Foreign Currencies. Puts and calls are also written
and purchased on foreign currencies. A call written on a foreign currency
by a Portfolio is "covered" if the Portfolio owns the underlying foreign
currency covered by the call or has an absolute and immediate right to
acquire that foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other foreign currency held in
its portfolio. A put option is "covered" if the Portfolio deposits with its
custodian cash or liquid securities with a value at least equal to the
exercise price of the put option. A call written by a Portfolio on a
foreign currency is for cross-hedging purposes if it is not covered, but is
designed to provide a hedge against a decline in the U.S. dollar value of a
security the Portfolio owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change
in the exchange rate. In such circumstances, a Portfolio collateralizes the
option by maintaining in a segregated account with the Trust's custodian,
cash or liquid securities in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked-to-market daily.
As with other kinds of option transactions, the writing of an
option on currency will constitute only a partial hedge, up to the amount
of the premium received. A Portfolio could be required to purchase or sell
currencies at disadvantageous exchange rates, thereby incurring losses. 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 a Portfolio's position, the Portfolio may forfeit the
entire amount of the premium plus related transaction costs.
Options on Securities Indices. Puts and calls on broadly-based
securities indices are similar to puts and calls on securities except that
all settlements are in cash and gain or loss depends on changes in the
index in question (and thus on price movements in the securities market
generally) rather than on price movements in individual securities or
Futures. When a Portfolio buys a call on a securities index, it pays a
premium. During the call period, upon exercise of a call by a Portfolio, a
seller of a corresponding call on the same investment will pay the
Portfolio an amount of cash to settle the call if the closing level of the
securities index upon which the call is based is greater than the exercise
price of the call. That cash payment is equal to the difference between the
closing price of the index and the exercise price of the call times a
specified multiple (the "multiplier") which determines the total dollar
value for each point of difference. When a Portfolio buys a put on a
securities index, it pays a premium and has the right during the put period
to require a seller of a corresponding put, upon the Portfolio's exercise
of its put, to deliver to the Portfolio an
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amount of cash to settle the put if the closing level of the securities
index upon which the put is based is less than the exercise price of the
put. That cash payment is determined by the multiplier, in the same manner
as described above as to calls.
Yield curve options. 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 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. Portfolio that may enter into yield curve options
transactions will cover such transactions as described above.
Reset Options are options on U.S. Treasury securities which
provide for periodic adjustment of the strike price and may also provide
for the periodic adjustment of the premium during the term of each such
option. Like other types of options, these transactions, which may be
referred to as "reset" options or "adjustable strike" options grant the
purchaser the right to purchase (in the case of a call) or sell (in the
case of a put), a specified type of U.S. Treasury security at any time up
to a stated expiration date for, in certain instances, on such date). In
contrast to other types of options, however, the price at which the
underlying security may be purchased or sold under a "reset" option is
determined at various intervals during the term of the option, and such
price fluctuates from interval to interval based on changes in the market
value of the underlying security. As a result, the strike price of a
"reset" option, at the time of exercise, may be less advantageous than if
the strike price had been fixed at the initiation of the option. In
addition, the premium paid for the purchase of the option may be determined
at the termination, rather than the initiation, of the option. If the
premium for a reset option written by the Series is pad at termination, the
Series assumes the risk that (i) the premium may be less than the premium
which would otherwise have been received at the initiation of the option
because of such factors as the volatility in yield of the underlying
Treasury security over the term of the option and adjustments made to the
strike price of the option, and (ii) the option purchaser may default on
its obligation to pay the premium at the termination of the option.
Conversely, where the Series purchases a reset option, it could be required
to pay a higher premium than would have been the case at the initiation of
the option.
Futures. Interest rate futures contracts, foreign currency
futures contracts and stock and bond index futures contracts, including
futures on U.S. government securities (together, "Futures") are used
primarily for hedging purposes and from time to time for income
enhancement. Upon entering into a Futures transaction, a Portfolio will be
required to deposit an initial margin payment with the futures commission
merchant (the "futures broker"). Futures are also often used to adjust
exposure to various equity or fixed income
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markets or as a substitute for investments in underlying cash markets. The
initial margin will be deposited with the Trust's custodian in an account
registered in the futures broker's name; however the futures broker can
gain access to that account only under specified conditions. As the Future
is marked to market to reflect changes in its market value, subsequent
margin payments, called variation margin, will be paid to or by the futures
broker on a daily basis. Prior to expiration of the Future, if a Portfolio
elects to close out its position by taking an opposite position, a final
determination of variation margin is made, additional cash is required to
be paid by or released to the Portfolio, and any loss or gain is realized
for tax purposes. All Futures transactions are effected through a
clearinghouse associated with the exchange on which the Futures are traded.
Interest rate futures contracts are purchased or sold
generally for hedging purposes to attempt to protect against the effects of
interest rate changes on a Portfolio's current or intended investments in
fixed-income securities. For example, if a Portfolio owned long-term bonds
and interest rates were expected to increase, that Portfolio might sell
interest rate futures contracts. Such a sale would have much the same
effect as selling some of the long-term bonds in that Portfolio's
portfolio. However, since the Futures market is more liquid than the cash
market, the use of interest rate futures contracts as a hedging technique
allows a Portfolio to hedge its interest rate risk without having to sell
its portfolio securities. If interest rates did increase, the value of the
debt securities in the portfolio would decline, but the value of that
Portfolio's interest rate futures contracts would be expected to increase
at approximately the same rate, thereby keeping the net asset value of that
Portfolio from declining as much as it otherwise would have. On the other
hand, if interest rates were expected to decline, interest rate futures
contracts may be purchased to hedge in anticipation of subsequent purchases
of long-term bonds at higher prices. Since the fluctuations in the value of
the interest rate futures contracts should be similar to that of long-term
bonds, a Portfolio could protect itself against the effects of the
anticipated rise in the value of long-term bonds without actually buying
them until the necessary cash became available or the market had
stabilized. At that time, the interest rate futures contracts could be
liquidated and that Portfolio's cash reserves could then be used to buy
long-term bonds on the cash market.
Purchases or sales of stock or bond index futures contracts
are used for hedging purposes to attempt to protect a Portfolio's current
or intended investments from broad fluctuations in stock or bond prices.
For example, a Portfolio may sell stock or bond index futures contracts in
anticipation of or during a market decline to attempt to offset the
decrease in market value of the Portfolio's securities portfolio that might
otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the Futures
position. When a Portfolio is not fully invested in the securities market
and anticipates a significant market advance, it may purchase stock or bond
index futures contracts in order to gain rapid market exposure that may, in
part or entirely, offset increases in the cost of securities that the
Portfolio intends to purchase. As such purchases are made, the
corresponding positions in stock or bond index futures contracts will be
closed out.
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Foreign currency futures contracts are generally entered into for
hedging or income enhancement purposes to attempt to protect a Portfolio's
current or intended investments from fluctuations in currency exchange
rates. Such fluctuations could reduce the dollar value of portfolio
securities denominated in foreign currencies, or increase the cost of
foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains
constant. For example, a Portfolio may sell futures contracts on a foreign
currency when it holds securities denominated in such currency and it
anticipates a decline in the value of such currency relative to the dollar.
In the event such decline occurs, the resulting adverse effect on the value
of foreign-denominated securities may be offset, in whole or in part, by
gains on the Futures contracts. However, if the value of the foreign
currency increases relative to the dollar, the Portfolio's loss on the
foreign currency futures contract may or may not be offset by an increase
in the value of the securities since a decline in the price of the security
stated in terms of the foreign currency may be greater than the increase in
value as a result of the change in exchange rates.
Conversely, a Portfolio could protect against a rise in the dollar
cost of foreign-denominated securities to be acquired by purchasing Futures
contracts on the relevant currency, which could offset, in whole or in
part, the increased cost of such securities resulting from a rise in the
dollar value of the underlying currencies. When a Portfolio purchases
futures contracts under such circumstances, however, and the price of
securities to be acquired instead declines as a result of appreciation of
the dollar, the Portfolio will sustain losses on its futures position,
which could reduce or eliminate the benefits of the reduced cost of
portfolio securities to be acquired.
Options on Futures include options on interest rate futures contracts,
stock and bond index futures contracts and foreign currency futures
contracts.
The writing of a call option on a Futures contract constitutes a
partial hedge against declining prices of the securities in the portfolio.
If the Futures price at expiration of the option is below the exercise
price, the Portfolio will retain the full amount of the option premium,
which provides a partial hedge against any decline that may have occurred
in the portfolio holdings. The writing of a put option on a Futures
contract constitutes a partial hedge against increasing prices of the
securities or other instruments required to be delivered under the terms of
the Futures contract. If the Futures price at expiration of the put option
is higher than the exercise price, a Portfolio will retain the full amount
of the option premium that provides a partial hedge against any increase in
the price of securities the Portfolio intends to purchase. If a put or call
option a Portfolio has written is exercised, the Portfolio will incur a
loss, which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its Options on Futures
positions, a Portfolio's losses from exercised Options on Futures may to
some extent be reduced or increased by changes in the value of portfolio
securities.
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A Portfolio may purchase Options on Futures for hedging purposes,
instead of purchasing or selling the underlying Futures contract. For
example, where a decrease in the value of portfolio securities is
anticipated as a result of a projected market-wide decline or changes in
interest or exchange rates, a Portfolio could, in lieu of selling a Futures
contract, purchase put options thereon. In the event that such decrease
occurs, it may be offset, in whole or part, by a profit on the option. If
the market decline does not occur, the Portfolio will suffer a loss equal
to the price of the put. Where it is projected that the value of securities
to be acquired by a Portfolio will increase prior to acquisition, due to a
market advance or changes in interest or exchange rates, a Portfolio could
purchase call Options on Futures, rather than purchasing the underlying
Futures contract. If the market advances, the increased cost of securities
to be purchased may be offset by a profit on the call. However, if the
market declines, the Portfolio will suffer a loss equal to the price of the
call but the securities the Portfolio intends to purchase may be less
expensive.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS ("Forward Contracts") involves
bilateral obligations of one party to purchase, and another party to sell, a
specific currency at a future date (which may be any fixed number of days from
the date of the contract agreed upon by the parties), at a price set at the time
the contract is entered into. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. No price is paid or received upon the purchase or sale of a
Forward Contract. Portfolios may use Forward Contracts to reduce certain risks
of their respective investments and/or to attempt to enhance return.
Forward Contracts are generally used to protect against uncertainty in the
level of future exchange rates. The use of Forward Contracts does not eliminate
fluctuations in the prices of the underlying securities a Portfolio owns or
intends to acquire, but it does fix a rate of exchange in advance. In addition,
although Forward Contracts limit the risk of loss due to a decline in the value
of the hedged currencies, at the same time they limit any potential gain that
might result should the value of the currencies increase.
Forward Contracts may also be entered into with respect to specific
transactions. For example, when a Portfolio enters into a contract for the
purchase or sale of a security denominated in (or affected by fluctuations in,
in the case of ADRs) a foreign currency, or when a Portfolio anticipates receipt
of dividend payments in a foreign currency, the Portfolio may desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such payment by entering into a Forward Contract, for a fixed amount of U.S.
dollars per unit of foreign currency, for the purchase or sale of the amount of
foreign currency involved in the underlying transaction. A Portfolio will
thereby be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the currency exchange rates during
the period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are made or
received.
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Forward Contracts are also used to lock in the U.S. dollar value of
portfolio positions ("position hedge"). In a position hedge, for example, when a
Portfolio believes that foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a Forward Contract to sell an amount
of that foreign currency approximating the value of some or all of the portfolio
securities denominated in (or affected by fluctuations in, in the case of ADRs)
such foreign currency, or when a Portfolio believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into a
Forward Contract to buy that foreign currency for a fixed dollar amount. In this
situation a Portfolio may, in the alternative, enter into a Forward Contract to
sell a different foreign currency for a fixed U.S. dollar amount where the
Portfolio believes that the U.S. dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a decline in the
U.S. dollar value of the currency in which portfolio securities of the Portfolio
are denominated ("cross-hedged"). A Portfolio may also hedge investments
denominated in a foreign currency by entering into forward currency contracts
with respect to a foreign currency that is expected to correlate to the currency
in which the investments are denominated ("proxy hedging").
The Portfolios will cover outstanding forward currency contracts by
maintaining either liquid portfolio securities denominated in the currency
underlying the forward contract or the currency being hedged, or by owning a
corresponding opposite forward position (long or short position, as the case may
be) in the same underlying currency with the same maturity date
("Covering/Closing Forwards"). To the extent that a Portfolio is not able to
cover its forward currency positions with either underlying portfolio securities
or with Covering/Closing Forwards, or to the extent to any portion of a position
is either not covered by a corresponding opposite position or is "out of the
money" in the case where settlement prices are different on the short and long
positions, the Trust's custodian will place cash or liquid securities in a
separate account of the Portfolio having a value equal to the aggregate amount
of the Portfolio's commitments under Forward Contracts entered into with respect
to position hedges and cross-hedges. If the value of the securities placed in a
separate account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Portfolio's commitments with respect to such contracts. As an alternative
to maintaining all or part of the separate account, a Portfolio may purchase a
call option permitting the Portfolio to purchase the amount of foreign currency
being hedged by a forward sale contract at a price no higher than the Forward
Contract price or the Portfolio may purchase a put option permitting the
Portfolio to sell the amount of foreign currency subject to a forward purchase
contract at a price as high or higher than the Forward Contract price.
Unanticipated changes in currency prices may result in poorer overall
performance for a Portfolio than if it had not entered into such contracts.
The precise matching of the Forward Contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the Forward Contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Portfolio to purchase additional foreign currency on the spot (i.e., cash)
market (and bear the expense of such purchase), if the market value of the
security is less than the amount of foreign currency a Portfolio is obligated to
deliver and if a decision is made to sell the security and make delivery of
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the foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency a Portfolio is obligated
to deliver. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward Contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing a Portfolio to sustain
losses on these contracts and transactions costs.
At or before the maturity of a Forward Contract requiring a Portfolio to
sell a currency, the Portfolio may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Portfolio will obtain, on the same maturity date,
the same amount of the currency that it is obligated to deliver. Similarly, a
Portfolio may close out a Forward Contract requiring it to purchase a specified
currency by entering into a second contract entitling it to sell the same amount
of the same currency on the maturity date of the first contract. A Portfolio
would realize a gain or loss as a result of entering into such an offsetting
Forward Contract under either circumstance to the extent the exchange rate or
rates between the currencies involved moved between the execution dates of the
first contract and offsetting contract.
The cost to a Portfolio of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because Forward Contracts are usually
entered into on a principal basis, no fees or commissions are involved. Because
such contracts are not traded on an exchange, a Portfolio must evaluate the
credit and performance risk of each particular counterparty under a Forward
Contract.
Although a Portfolio values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. A Portfolio may convert foreign currency from time to time,
and investors should be aware of the costs of currency conversion. Foreign
exchange dealers do not charge a fee for conversion, but they do seek to realize
a profit based on the difference between the prices at which they buy and sell
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
PORTFOLIO TRADING. A Portfolio may engage in portfolio trading when it is
believed by the Manager that the sale of a security owned and the purchase of
another security of better value can enhance principal and/or increase income. A
security may be sold to avoid any prospective decline in market value in light
of what is evaluated as an expected rise in prevailing yields, or a security may
be purchased in anticipation of a market rise (a decline in prevailing yields).
A security also may be sold and a comparable security purchased coincidentally
in order to take advantage of what is believed to be a disparity in the normal
yield and price relationship between the two securities.
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In addition, each Portfolio may invest in securities and other instruments
that do not presently exist but may be developed in the future, provided that
each such investment is consistent with the Portfolio's investment objectives,
policies and restrictions and is otherwise legally permissible under federal and
state laws. The Prospectus and SAI, as appropriate, will be amended or
supplemented as appropriate to discuss any such new investments.
SUPPLEMENTAL INFORMATION ABOUT DERIVATIVES AND THEIR USE
The Trust's custodian, or a securities depository acting for the custodian,
will act as the Portfolio's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the securities on which the Portfolio has
written options or as to other acceptable escrow securities, so that no margin
will be required for such transaction. OCC will release the securities on the
expiration of the option or upon a Portfolio's entering into a closing
transaction.
An option position may be closed out only on a market that provides
secondary trading for options of the same series and there is no assurance that
a liquid secondary market will exist for any particular option. A Portfolio's
option activities may affect its turnover rate and brokerage commissions. The
exercise by a Portfolio of puts on securities will result in the sale of related
investments, increasing portfolio turnover. Although such exercise is within a
Portfolio's control, holding a put might cause the Portfolio to sell the related
investments for reasons that would not exist in the absence of the put. A
Portfolio will pay a brokerage commission each time it buys a put or call, sells
a call, or buys or sells an underlying investment in connection with the
exercise of a put or call. Such commissions may be higher than those that would
apply to direct purchases or sales of such underlying investments. Premiums paid
for options are small in relation to the market value of the related
investments, and consequently, put and call options offer large amounts of
leverage. The leverage offered by trading in options could result in a
Portfolio's net asset value being more sensitive to changes in the value of the
underlying investments.
In the future, each Portfolio may employ derivatives and strategies that
are not presently contemplated but which may be developed, to the extent such
investment methods are consistent with a Portfolio's investment objectives,
legally permissible and adequately disclosed.
Regulatory Aspects of Derivatives. Each Portfolio that utilizes such
instruments must operate within certain restrictions as to its long and short
positions in Futures and options thereon under a rule (the "CFTC Rule") adopted
by the Commodity Futures Trading Commission (the "CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Portfolio from registration with
the CFTC as a "commodity pool operator" (as defined in the CEA) if it complies
with the CFTC Rule. In particular, the Portfolio may (i) purchase and sell
Futures and options thereon for bona fide hedging purposes, as defined under
CFTC regulations, without regard to the percentage of the Portfolio's assets
committed to margin and option premiums, and (ii) enter into non-hedging
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transactions, provided that the Portfolio may not enter into such non-hedging
transactions if, immediately thereafter, the sum of the amount of initial margin
deposits on the Portfolio's existing Futures positions and option premiums would
exceed 5% of the fair value of its portfolio, after taking into account
unrealized profits and unrealized losses on any such transactions. Margin
deposits may consist of cash or securities acceptable to the broker and the
relevant contract market.
Transactions in options by a Portfolio are subject to limitations
established by each of the exchanges governing the maximum number of options
that may be written or held by a single investor or group of investors acting in
concert, regardless of whether the options were written or purchased on the same
or different exchanges or are held in one or more accounts or through one or
more exchanges or brokers. Thus, the number of options a Portfolio may write or
hold may be affected by options written or held by other entities, including
other investment companies having the same or an affiliated investment adviser.
Position limits also apply to Futures. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain other
sanctions. Due to requirements under the 1940 Act, when a Portfolio purchases a
Future, the Portfolio will maintain, in a segregated account or accounts with
its custodian bank, cash or liquid securities in an amount equal to the market
value of the securities underlying such Future, less the margin deposit
applicable to it.
Possible Risk Factors in Derivatives. Participation in the options or
Futures markets and in currency exchange transactions involves investment risks
and transaction costs to which a Portfolio would not be subject absent the use
of these strategies. If the Adviser/Subadviser's predictions of movements in the
direction of the securities, foreign currency and interest rate markets are
inaccurate, the adverse consequences to a Portfolio may leave the Portfolio in a
worse position than if such strategies were not used. There is also a risk in
using short hedging by selling Futures to attempt to protect against decline in
value of the portfolio securities (due to an increase in interest rates) that
the prices of such Futures will correlate imperfectly with the behavior of the
cash (i.e., market value) prices of the Portfolio's securities. The ordinary
spreads between prices in the cash and Futures markets are subject to
distortions due to differences in the natures of those markets. First, all
participants in the Futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close Futures contracts through offsetting
transactions, which could distort the normal relationship between the cash and
Futures markets. Second, the liquidity of the Futures markets depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the Futures markets could be reduced, thus producing distortion. Third, from
the point-of-view of speculators, the deposit requirements in the Futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the Futures markets may
cause temporary price distortions.
If a Portfolio establishes a position in the debt securities markets as a
temporary substitute for the purchase of individual debt securities (long
hedging) by buying Futures and/or calls on such Futures or on debt securities,
it is possible that the market may decline; if the Adviser/Subadviser
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then determines not to invest in such securities at that time because of
concerns as to possible further market decline or for other reasons, the
Portfolio will realize a loss that is not offset by a reduction in the price of
the debt securities purchased.
SUPPLEMENTAL INFORMATION CONCERNING HIGH-YIELD, HIGH-RISK BONDS AND SECURITIES
RATINGS.
HIGH-YIELD, HIGH-RISK BONDS may 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 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.
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The following are additional restrictions and/or requirements concerning
the ratings of securities:
- 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, and only up to 35% of net assets. 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. If a security satisfies the
Portfolio's minimum rating requirement at the time of purchase
and is subsequently downgraded below such rating, the
Portfolio will not be required to dispose of such security.
This is so even if the downgrade causes the average credit
quality of the Portfolio to be lower than that stated in the
Prospectus. Furthermore, during this period, the subadviser
will only buy securities at or above the Portfolio's average
rating requirement.
- 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").
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- 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 20% 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.
- 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 FEDERATED VALUE 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 ALLIANCE GROWTH 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 not invest more than 5% of its
assets in junk bonds.
- The SMALL COMPANY VALUE PORTFOLIO may invest up to 5% of its
net assets in less than investment grade debt obligations.
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- 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 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.
- 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.
- The TELECOM UTILITY PORTFOLIO, EQUITY INDEX PORTFOLIO,
GROWTH-INCOME PORTFOLIO, DAVIS VENTURE VALUE PORTFOLIO, "DOGS"
OF WALL STREET PORTFOLIO, MFS GROWTH AND INCOME PORTFOLIO,
AGGRESSIVE GROWTH PORTFOLIO, INTERNATIONAL DIVERSIFIED
EQUITIES PORTFOLIO AND GLOBAL EQUITIES PORTFOLIO may not
invest in junk bonds.
U.S. CORPORATE HIGH-YIELD FIXED INCOME SECURITIES offer a yield above
that generally available on U.S. corporate debt securities in the four highest
rating categories of the recognized rating services, 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 Portfolios may invest up to 10% of their total assets in equity
features, such as conversion rights or warrants, subject to the following:
- The CORPORATE BOND, HIGH-YIELD BOND AND WORLDWIDE HIGH INCOME
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 CASH MANAGEMENT, GLOBAL BOND, WORLDWIDE HIGH INCOME,
EQUITY INCOME, EQUITY INDEX, DAVIS VENTURE VALUE, "DOGS" OF
WALL STREET, GLOBAL EQUITY, AND EMERGING MARKETS PORTFOLIOS
may not invest in warrants.
- The CASH MANAGEMENT, GLOBAL BOND, TELECOM UTILITY, EQUITY
INCOME, EQUITY INDEX, GROWTH-INCOME, FEDERATED VALUE, DAVIS
VENTURE VALUE, "DOGS" OF WALL STREET AND ALLIANCE GROWTH
PORTFOLIOS will not invest in rights.
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.
SUPPLEMENTAL INFORMATION CONCERNING UTILITY COMPANIES
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CERTAIN RISK FACTORS AFFECTING UTILITY COMPANIES. The Telecom 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 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:
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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 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
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opportunities may result if anticipated consolidation and foreign
participation in this industry occurs.
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.
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
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- - 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 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
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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
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
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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.
INVESTMENT RESTRICTIONS OF THE CASH MANAGEMENT PORTFOLIO
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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.
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.
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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, TELECOM UTILITY PORTFOLIO, EQUITY INCOME PORTFOLIO, EQUITY INDEX
PORTFOLIO, GROWTH-INCOME PORTFOLIO, FEDERATED VALUE PORTFOLIO, DAVIS
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
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, Telecom Utility Portfolio, Equity Income
Portfolio, Equity Index Portfolio, Growth-Income Portfolio, Federated Value
Portfolio, Davis 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
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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 Telecom 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 Telecom 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 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.
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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 SEC.
In addition to the foregoing, the Corporate Bond, Global Bond, High-Yield
Bond, Worldwide High Income, SunAmerica Balanced, MFS Total Return, Asset
Allocation, Telecom Utility, Equity Income, Equity Index, Growth-Income,
Federated Value, Davis 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 and options on futures contracts. In addition, the
Corporate Bond, High-Yield Bond, Worldwide High Income, SunAmerica Balanced,
Telecom 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.
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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)
Held with the Trust Principal Occupation(s) During Past Five Years
- ------------------- ----------------------------------------------
<S> <C>
JAMES K. HUNT, *48, 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").
MONICA C. LOZANO, 43 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, 68, Retired; Trustee, APF and Seasons.
Trustee
WILLIAM M. WARDLAW, 53, Principal, Freeman Spogli & Co. (investment banking)
Trustee (1988-present); Vice President and Director, MCC
International Holdings (cable) (since April
1998); Trustee, APF and Seasons.
SUSAN L. HARRIS, 43, Senior Vice President (since November 1995), Secretary
Vice President, Counsel and Secretary (since 1995) and General Counsel-Corporate Affairs (since
December 1994), SAAMCo; Senior Vice President and
Secretary, Anchor National (since 1990); Vice
President, Counsel and Secretary, APF and
Seasons; joined SAAMCo in 1985.
PETER C. SUTTON, 35 Senior Vice President, SAAMCo (since April
</TABLE>
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<TABLE>
<CAPTION>
Name, Age and Position(s)
Held with the Trust Principal Occupation(s) During Past Five Years
- ------------------- ----------------------------------------------
<S> <C>
Vice President, Treasurer and Controller 1997); Treasurer (since February 1996), SunAmerica Equity Funds,
SunAmerica Income Funds and SunAmerica Money Market Funds, Inc.
The SunAmerica Center ("SunAmerica Mutual Funds" or "SAMF"), Anchor Series Trust
733 Third Avenue ("AST") and Style Select Series, Inc. ("Style Select"); Vice
New York, NY 10017-3204 President and Assistant Treasurer, Brazos Mutual Funds
(since May 1999); Vice President, Treasurer and
Controller, APF and Seasons (since February
2000); 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, 42 Senior Vice President, General Counsel and Assistant
Vice President and Assistant Secretary Secretary, SAAMCo (since April 1993); Secretary and Chief
Compliance Officer, SAMF and AST (since 1993), Style Select
The SunAmerica Center (since 1996); Executive Vice President, General Counsel and
733 Third Avenue Director, SunAmerica Capital Services, Inc. (since February
New York, NY 10017-3204 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.
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
January 31, 2000.
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<PAGE> 127
<TABLE>
<CAPTION>
COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------
AGGREGATE PENSION OR RETIREMENT TOTAL COMPENSATION FROM
TRUSTEE COMPENSATION FROM BENEFITS ACCRUED AS REGISTRANT AND FUND
REGISTRANT PART OF FUND EXPENSES COMPLEX PAID TO TRUSTEES*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William M. Wardlaw $6,750 - $18,000
Allan L. Sher $6,750 - $18,000
Monica C. Lozano $6,750 - $18,000
</TABLE>
* Complex includes SAST, Seasons and APF.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
The Trust, on behalf of each Portfolio, entered into an Investment Advisory
and Management Agreement with SAAMCo 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 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. 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
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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 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 at the following annual rates:
PORTFOLIO FEE RATE
- --------- --------
Alliance Growth Portfolio* .70% to $50MM
.65% next $100MM
.60% over $150MM
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PORTFOLIO FEE RATE
- --------- --------
Growth-Income Portfolio .70% to $50MM
.65% next $100MM
.60% next $150MM
.55% next $200MM
.50% over $500MM
Putnam Growth Portfolio .85% to $150MM
.80% next $150MM
.70% over $300MM
Global Equities Portfolio .90% to $50MM
.80% next $100MM
.70% next $150MM
.65% over $300MM
Davis Venture Value Portfolio .80% to $100MM
.75% next $400MM
.70% over $500MM
Asset Allocation Portfolio .75% to $50MM
.65% next $100MM
.60% next $100MM
.55% over $250MM
Global Bond Portfolio .75% to $50MM
.65% next $100MM
.60% next $100MM
.55% over $250MM
High-Yield Bond Portfolio .70% to $50MM
.65% next $100MM
.60% next $100MM
.55% over $250MM
Corporate Bond Portfolio .70% to $50MM
.60% next $100MM
.55% next $100MM
.50% over $250MM
International Diversified Equities Portfolio 1.00% of Net Assets
Worldwide High Income Portfolio 1.00% of Net Assets
Cash Management Portfolio .55% to $100MM
.50% next $200MM
.45% over $300MM
Federated Value Portfolio .75% to $150MM
.60% next $350MM
.50% over $500MM
Telecom Utility Portfolio .75% to $150MM
.60% next $350MM
.50% over $500MM
Aggressive Growth Portfolio .75% to $100MM
.675% next $150MM
.625% next $250MM
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PORTFOLIO FEE RATE
- --------- --------
.600% over$500MM
SunAmerica Balanced Portfolio .70% to $50MM
.65% next $100MM
.60% next $150MM
.55% next $200MM
.50% over $500MM
International Growth and Income Portfolio 1.00% to $150MM
.90% next $150MM
.80% over $300MM
Emerging Markets Portfolio 1.25% of Net Assets
Real Estate Portfolio .80% to $100MM
.75% next $400MM
.70% over $500MM
"Dogs" of Wall Street Portfolio .60% of Net Assets
MFS Growth and Income Portfolio** .70% to $600MM
.65% next $900MM
.60% over $1.5B
MFS Total Return Portfolio** .70% to $50MM
.65% over $50MM
MFS Mid-Cap Growth .75% to $600MM
.70% next $900MM
.65% over $1.5B
Equity Income Portfolio .65% of Net Assets
Equity Index Portfolio .40% of Net Assets
Small Company Value Portfolio 1.00% of Net Assets
- -----------------
* Prior to January 1, 1999, 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.
** Prior to January 1, 1999, 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 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 and 1997 and for the
period December 1, 1998 through January 31, 1999 (new fiscal year end), as well
as for the fiscal year ended January 31, 2000
ADVISORY FEES
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<TABLE>
<CAPTION>
PORTFOLIO 2000 1999(+) 1998 1997
--------- ---- ----- ---- ----
<S> <C> <C> <C> <C>
Cash Management $ 2,237,779 $ 224,945 $ 1,059,551 $ 718,297
Corporate Bond $ 1,095,735 $ 161,457 $ 654,148 $ 325,988
Global Bond $ 871,938 $ 139,771 $ 728,940 $ 550,533
High-Yield Bond $ 1,927,896 $ 305,048 $ 1,667,268 $ 1,000,566
Worldwide High Income $ 1,192,526 $ 198,398 $ 1,333,369 $ 915,682
SunAmerica Balanced $ 2,096,493 $ 189,910 $ 570,440 $ 178,845
MFS Total Return (++)
$ 1,224,166 $ 157,567 $ 762,995
$ 558,675
Asset Allocation $ 4,180,150 $ 716,334 $ 3,758,570 $ 2,556,963
Equity Income $ 38,116 $ 4,546(+++) -- --
Telecom Utility $ 763,860 $ 93,546 $ 372,897 $ 100,647
Equity Index $ 123,376 $ 5,763(+++) -- --
Growth-Income $ 7,933,020 $ 1,024,303 $ 4,533,481 $ 2,784,063
Federated Value $ 1,400,196 $ 193,283 $ 764,690 $ 237,339
Davis Venture Value $ 14,964,215 $ 2,175,195 $ 10,509,956 $ 5,952,702
Alliance Growth (*) $ 13,621,029 $ 1,551,967 $ 5,626,794 $ 3,145,937
MFS Growth and Income(++)
$ 2,126,722 $ 288,906 $ 1,467,118 $ 1,299,894
Putnam Growth
$ 4,697,170 $ 593,614 $ 2,581,835 $ 1,565,910(**)
Real Estate $ 470,856 $ 81,013 $ 398,357 $ 58,800(***)
Small Company Value $ 51,037 $ 6,831(+++) -- --
Aggressive Growth $ 1,689,376 $ 188,017 $ 826,035 $ 506,503
International Growth and Income $ 1,932,120 $ 231,046 $ 922,124 $ 125,310(***)
Global Equities $ 3,613,901 $ 545,025 $ 2,893,944 $ 2,337,577
International Diversified Equities $ 4,025,530 $ 612,770 $ 3,095,975 $ 2,127,386
Emerging Markets $ 735,084 $ 67,951 $ 341,627 $ 99,436(***)
"Dogs" of Wall Street $ 626,409 $ 87,628 $ 126,908 --
MFS Mid-Cap Growth $ 140,877(++) -- -- --
</TABLE>
+ For the period 12/1/98 through 1/31/99 (new fiscal year end)
++ Prior to January 1, 1999, 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.
+++ For the period 4/1/98 (commencement of operations) through 1/31/99.
* Prior to January 1, 1999, 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 (formerly Provident 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.
*** For the period 6/2/97 (commencement of operations) through 11/30/97.
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<PAGE> 132
++ For the period 4/1/99 (commencement of operations) through 1/31/00.
For certain Portfolios, the Adviser has voluntarily agreed to waive
fees or reimburse expenses, if necessary, to keep annual operating expenses at
or below the lesser of the following percentages of each of the following
Portfolio's average net assets: Equity Income Portfolio - 0.95%; Equity Index
Portfolio - 0.55%; Small Company Value Portfolio - 1.40%; Emerging Markets
Portfolio - 1.90%; and MFS Mid-Cap Growth Portfolio - 1.15%; the Adviser also
may voluntarily waive or reimburse additional amounts to increase the investment
return to a Portfolio's investors. The Adviser may terminate all such waivers
and/or reimbursements at any time. Further, any waivers or reimbursements made
by the Adviser (after June 3, 1996) with respect to a Portfolio are subject to
recoupment from that Portfolio within the following two years, provided that the
Portfolio is able to effect such payment to the Adviser and remain in compliance
with the foregoing expense limitations.
For the fiscal year ended January 31, 2000, the Adviser voluntarily
waived fees or reimbursed expenses, which are not included as part of the table
as follows: Equity Income Portfolio - $35,799; Equity Index Portfolio - $92,559;
MFS Mid-Cap Growth Portfolio - $4,045; and Small Company Value - $43,169.
Certain Portfolios had recoupments for the fiscal year ended January 31, 2000,
and such recoupments, which are not included as part of the advisory fee table,
were as follows: Emerging Markets Portfolio - $75,700 and "Dogs" of Wall Street
Portfolio - $1,193.
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.
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. and Davis Selected Advisers,
LP, 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
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<PAGE> 133
Alliance Capital Management L.P. ("Alliance"), Davis Selected Advisers
L.P. ("Davis Selected"), Federated Investment Counseling ("Federated"), First
American Asset Management ("First American"), Goldman Sachs Asset Management
("GSAM"), Goldman Sachs Asset Management International ("GSAM-International"),
Morgan Stanley Dean Witter Investment Management d/b/a Morgan Stanley Asset
Management ("MSAM"), 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 a majority-owned subsidiary of AXA Financial, Inc.
Federated is a wholly owned subsidiary of Federated Investors, Inc. First
American is a division of U.S. Bank National Association. As of September 1,
1999, the Investment Management Division ("IMD") was established as a new
operating division of Goldman, Sachs & Co. GSAM is a unit of IMD. GSAM
International is an affiliate of Goldman, Sachs & Co. MSAM is a subsidiary of
Morgan Stanley Dean Witter and Co.
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(*) .35% on the first $50 million
.30% on the next $100 million
.25% thereafter
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 Davis 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 Telecom Utility .55% on the first $20 million
Portfolios .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% of Net Assets
</TABLE>
B-65
<PAGE> 134
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO FEE
- ---------- --------- ---
<S> <C> <C>
Small Company Value Portfolio .80% of Net Assets
Equity Index Portfolio .125% of Net Assets
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(**) 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% thereafter
MFS Total Return Portfolio .375% of Net Assets
MFS Mid-Cap Growth Portfolio .40% on the first $50 million
.30% on the next $100 million
.25% on the next $100 million
.20% thereafter
MSAM 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
International Growth and Income .65% on the first $150 million
Portfolio .55% on the next $150 million
.45% thereafter
</TABLE>
* 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 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.
The following table sets forth the fees paid to the Subadvisers, and to Phoenix
Investment Counsel, Inc. and Provident Investment Counsel, Inc. as former
Subadvisers, for the fiscal years ended November 30, 1998, 1997 and 1996 and for
the period December 1, 1998 through January 31, 1999 (new fiscal year end), as
well as fiscal year ended January 31, 2000.
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<PAGE> 135
SUBADVISORY FEES
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO 2000 1999(+) 1998 1997
---------- --------- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Alliance Alliance Growth++ $ 5,733,762 $ 603,017 $ 2,038,038 $1,280,957
Growth-Income $ 2,729,906 $ 366,743 $ 1,710,044 $1,161,812
Global Equities $ 1,605,346 $ 246,211 $ 1,328,440 $1,109,352
Davis Selected Davis Venture Value $ 7,632,108 $ 1,113,077 $ 5,404,978 $3,126,351
Real Estate $ 264,856 $ 45,570 $ 219,647 $ 33,075(+++)
Federated Corporate Bond $ 377,246 $ 57,239 $ 238,882 $ 128,651
Federated Value $ 556,732 $ 79,715 $ 344,897 $ 146,523
Telecom Utility $ 344,620 $ 46,470 $ 192,017 $ 73,542
First American Asset Equity Income $ 17,592 $ 2,098(*) -- --
Management
Equity Index $ 38,555 $ 1,801(*) -- --
Small Company Value $ 40,830 $ 5,465(*) -- --
GSAM Asset Allocation $ 1,679,145 $ 287,509 $ 1,525,843 $1,088,896
GSAM International Global Bond $ 429,356 $ 69,083 $ 363,357 $ 281,015
MFS MFS Growth and Income $ 1,212,484 $ 88,285 -- --
MFS Total Return $ 691,827 $ 45,323 -- --
MFS Mid-Cap Growth $ 73,003(***) -- -- --
MSAM Worldwide High Income $ 775,142 $ 128,059 $ 866,690 $ 595,193
International Diversified
Equities $ 2,590,115 $ 397,302 $ 2,012,245 $1,382,736
Phoenix Investment MFS Growth and Income
Counsel, Inc.(**) (formerly Growth/Phoenix
Investment Counsel) -- $ 60,957 $ 669,632 $ 599,956
MFS Total Return (formerly
Balanced/Phoenix Investment
Counsel -- $ 36,628 $ 365,613 $ 271,312
Provident Investment Putnam Growth (formerly -- -- -- $ 284,164(++)
Counsel, Inc.(+) Provident Growth)
Putnam International Growth and
Income $ 1,238,806 $ 150,180 $ 565,251 $ 81,451(+++)
Emerging Markets $ 588,068 $ 54,361 $ 273,302 $ 79,549(+++)
Putnam Growth $ 2,536,085 $ 328,656 $ 1,472,238 $ 618,584
</TABLE>
+ For the period 12/1/98 through 1/31/99 (new fiscal year end).
++ 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.
+++ For the period 6/2/97 (commencement of operations) through 11/30/97.
* For the period 12/14/98 (commencement of operations) through 1/31/99.
** 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.
*** For the period 4/1/99 (commencement of operations) through 1/31/00.
B-67
<PAGE> 136
+ Prior to April 15, 1997, Provident Investment Counsel, Inc. served as
Subadviser to the Putnam Growth Portfolio (formerly 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 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.
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.
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<PAGE> 137
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 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.
For the fiscal year ended January 31, 2000, the Corporate Bond,
Global Bond, High Yield Bond, Worldwide High Income, Equity Income, MFS Growth
and Income, Real Estate and Emerging Markets Portfolios had capital loss
carry-forwards of $1,244,271, $2,524,770, $11,652,345, $29,920,449, $67,110,
$2,233,544, $8,675,657 and $1,679,121, respectively. To the extent not yet
utilized, such losses will be available to each of the Portfolios to offset
future gains through 2004 and 2008. The utilization of such losses will be
subject to annual limitations under the Code.
SHARES OF THE TRUST
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<PAGE> 138
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 of Trust 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.
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<PAGE> 139
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.
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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.
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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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, and for the period
December 1, 1998 through January 31, 1999 (new fiscal year end) the Portfolios
acquired no securities of brokers or dealers that executed its portfolio
transactions during the fiscal year.
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 January 31, 2000,
November 30, 1998 and 1997, as well as the period December 1, 1998 through
January 31, 1999.
2000 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
PERCENTAGE OF AMOUNT
OF TRANSACTIONS
PERCENTAGE OF INVOLVING PAYMENT OF
AMOUNT PAID TO COMMISSIONS PAID COMMISSIONS THROUGH
AGGREGATE BROKERAGE AFFILIATED TO AFFILIATED AFFILIATED
PORTFOLIO COMMISSIONS BROKER-DEALERS(*) BROKER-DEALERS BROKER-DEALERS
--------- ----------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash Management --- --- --- ---
Corporate Bond $ 351 --- --- ---
Global Bond --- --- --- ---
High-Yield Bond $ 770 --- --- ---
Worldwide High Income $ 518 --- --- ---
SunAmerica Balanced $ 244,959 --- --- ---
MFS Total Return Portfolio
(formerly Balanced/Phoenix
Investment Counsel) $ 184,004 --- --- ---
</TABLE>
B-73
<PAGE> 142
<TABLE>
<CAPTION>
PERCENTAGE OF AMOUNT
OF TRANSACTIONS
PERCENTAGE OF INVOLVING PAYMENT OF
AMOUNT PAID TO COMMISSIONS PAID COMMISSIONS THROUGH
AGGREGATE BROKERAGE AFFILIATED TO AFFILIATED AFFILIATED
PORTFOLIO COMMISSIONS BROKER-DEALERS(*) BROKER-DEALERS BROKER-DEALERS
--------- ----------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Asset Allocation $ 2,692,225 $ 77,357 2.87% 2.08%
Equity Income $ 6,474 --- --- ---
Telecom Utility $ 358,061 --- -- ---
Equity Index $ 21,660 --- -- --
Growth-Income $ 1,568,820 --- -- ---
Federated Value $ 192,687 --- --- ---
Davis Venture Value $ 1,251,727 $ 9,603 0.77% 0.69%
Alliance Growth $ 2,831,086 --- -- ---
MFS Growth and Income
Portfolio (formerly
Growth/Phoenix Investment $ 456,832 --- --- ---
Counsel)
Putnam Growth
(formerly Provident Growth) $ 631,393 -- --- ---
Real Estate $ 187,761 --- ---
Small Company Value $ 10,281 --- ---
Aggressive Growth $ 333,636 --- ---
International Growth and $ 773,397 --- ---
Income
Global Equities $ 1,588,213 --- ---
International Diversified $ 365,969 --- ---
Equities
Emerging Markets $ 714,722 --- ---
"Dogs" of Wall Street $ 188,595 --- ---
MFS Mid-Cap Growth $ 101,342 --- ---
</TABLE>
* The affiliated broker-dealers that effected transactions with the
indicated portfolios included Goldman Sachs & Co. and Shelby Cullom &
Davis.
B-74
<PAGE> 143
1999 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
PERCENTAGE OF AMOUNT
OF TRANSACTIONS
PERCENTAGE OF INVOLVING PAYMENT OF
AMOUNT PAID TO COMMISSIONS PAID COMMISSIONS THROUGH
AGGREGATE BROKERAGE AFFILIATED TO AFFILIATED AFFILIATED
PORTFOLIO COMMISSIONS(*) BROKER-DEALERS(*) BROKER-DEALERS(*) BROKER-DEALERS(*)
--------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash Management -- -- -- --
Corporate Bond -- -- -- --
Global Bond -- -- -- --
High-Yield Bond -- -- -- --
Worldwide High Income -- -- -- --
SunAmerica Balanced $ 20,508 -- -- --
MFS Total Return Portfolio $ 104,590 -- -- --
(formerly Balanced/Phoenix
Investment Counsel)
Asset Allocation $ 308,929 $ 32,590 10.5% 7.77%
Equity Income $ 8,370 -- -- --
Telecom Utility $ 26,459 -- -- --
Equity Index $ 7,045 -- -- --
Growth-Income $ 411,348 -- -- --
Federated Value $ 23,384 -- -- --
Davis Venture Value $ 246,044 $ 5,130 2.1% 4.17%
Alliance Growth $ 323,300 -- -- --
MFS Growth and Income
</TABLE>
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<TABLE>
<CAPTION>
PERCENTAGE OF AMOUNT
OF TRANSACTIONS
PERCENTAGE OF INVOLVING PAYMENT OF
AMOUNT PAID TO COMMISSIONS PAID COMMISSIONS THROUGH
AGGREGATE BROKERAGE AFFILIATED TO AFFILIATED AFFILIATED
PORTFOLIO COMMISSIONS(*) BROKER-DEALERS(*) BROKER-DEALERS(*) BROKER-DEALERS(*)
--------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Portfolio (formerly $ 333,737 -- -- --
Growth/Phoenix Investment
Counsel)
Putnam Growth $ 68,229 -- -- --
(formerly Provident Growth)
Real Estate $ 37,343 -- -- --
Small Company Value $ 9,881 -- -- --
Aggressive Growth $ 56,850 -- -- --
International Growth and -- -- --
Income $ 78,648
Global Equities $ 155,404 -- -- --
International Diversified $ 39,214 -- -- --
Equities
Emerging Markets $ 47,618 -- -- --
"Dogs" of Wall Street $ 109,583 -- -- --
</TABLE>
* For period December 1, 1998 through January 31, 1999 (new fiscal year
end).
1998 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
PERCENTAGE OF AMOUNT
OF TRANSACTIONS
PERCENTAGE OF INVOLVING PAYMENT OF
AMOUNT PAID TO COMMISSIONS PAID COMMISSIONS THROUGH
AGGREGATE BROKERAGE AFFILIATED TO AFFILIATED AFFILIATED
PORTFOLIO COMMISSIONS BROKER-DEALERS BROKER-DEALERS BROKER-DEALERS
--------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash Management -- -- -- --
Corporate Bond $ 391 -- -- --
</TABLE>
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<PAGE> 145
<TABLE>
<CAPTION>
PERCENTAGE OF AMOUNT
OF TRANSACTIONS
PERCENTAGE OF INVOLVING PAYMENT OF
AMOUNT PAID TO COMMISSIONS PAID COMMISSIONS THROUGH
AGGREGATE BROKERAGE AFFILIATED TO AFFILIATED AFFILIATED
PORTFOLIO COMMISSIONS BROKER-DEALERS BROKER-DEALERS BROKER-DEALERS
--------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Global Bond -- -- -- --
High-Yield Bond -- -- -- --
Worldwide High Income -- -- -- --
SunAmerica Balanced $ 141,473 -- -- --
MFS Total Return Portfolio $ 125,555 $ 95 -- --
(formerly Balanced/Phoenix
Investment Counsel)
Asset Allocation $ 1,153,926 $ 100,571 8.72% 9.16%
Telecom Utility $ 139,718 -- -- --
Growth-Income $ 984,054 $ 1,000 0.10% 0.06%
Federated Value $ 214,317 -- -- --
Davis Venture Value $ 1,124,621 $ 9,576 0.85% 0.98%
Alliance Growth $ 1,701,859 -- -- --
MFS Growth and Income $ 423,830 $ 360 0.08% 0.04%
Portfolio (formerly
Growth/Phoenix Investment
Counsel)
Putnam Growth $ 433,115 $ 610 0.14% 0.15%
(formerly Provident Growth)
Real Estate $ 119,289 $ 222 0.19% 0.24%
Aggressive Growth $ 424,154 -- -- --
International Growth and $ 336,662 -- -- --
Income
Global Equities $ 1,215,172 $ 2,030 0.17% 0.23%
International Diversified $ 239,147 -- -- --
Equities
Emerging Markets $ 202,758 -- -- --
</TABLE>
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<PAGE> 146
<TABLE>
<CAPTION>
PERCENTAGE OF AMOUNT
OF TRANSACTIONS
PERCENTAGE OF INVOLVING PAYMENT OF
AMOUNT PAID TO COMMISSIONS PAID COMMISSIONS THROUGH
AGGREGATE BROKERAGE AFFILIATED TO AFFILIATED AFFILIATED
PORTFOLIO COMMISSIONS* BROKER-DEALERS* BROKER-DEALERS* BROKER-DEALERS*
--------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
"Dogs" of Wall Street $ 82,855 -- --
</TABLE>
1997 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
AGGREGATE AMOUNT PAID TO PERCENTAGE PAID
BROKERAGE AFFILIATED TO AFFILIATED
PORTFOLIO COMMISSIONS BROKER-DEALERS 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%
Telecom Utility $ 40,772 -- --
Growth-Income $ 547,081 -- --
Federated Value $ 77,121 -- --
Davis 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)
</TABLE>
B-78
<PAGE> 147
<TABLE>
<CAPTION>
AGGREGATE AMOUNT PAID TO PERCENTAGE PAID
BROKERAGE AFFILIATED TO AFFILIATED
PORTFOLIO COMMISSIONS BROKER-DEALERS BROKER-DEALERS
--------- ----------- -------------- --------------
<S> <C> <C> <C>
Putnam Growth $ 241,968 $ 920 .38%
(formerly Provident Growth)
Real Estate(*) $ 53,466 -- --
Aggressive Growth $ 251,919 -- --
International Growth and Income (*) $ 120,957 -- --
Global Equities $ 1,376,002 -- --
International Diversified Equities $ 269,652 -- --
Emerging Markets(*) $ 80,600 -- -
</TABLE>
* For the period June 2, 1997 (commencement of operations) through November 30,
1997.
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 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
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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, The Chrysler Building, 405 Lexington
Avenue, New York, NY 10174 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.
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.
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<PAGE> 149
FINANCIAL STATEMENTS
The Trust's audited financial statements are incorporated into this
Statement of Additional Information by reference to its 2000 annual report to
shareholders. You may request a copy of the Annual Report at no charge by
calling (800) 445-7862 or writing the Trust at P.O. Box 54299, Los Angeles,
California 90054-0299.
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<PAGE> 150
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. Incorporated herein by
reference to Post-Effective Amendment No. 20 to the Registrant's
Registration Statement on Form N-1A filed on March 30, 1999.
(ii) Subadvisory Agreements. Incorporated herein by reference to
Post-Effective Amendment No. 20 to the Registrant's Registration
Statement on Form N-1A filed on March 30, 1999.
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(e) Inapplicable.
(f) Inapplicable.
(g) Custodian Agreement. Incorporated herein by reference to Exhibit 8 of
Post-Effective Amendment No. 10 to the Registrant's Registration
Statement on Form N-1A (File No. 811-7238) filed on February 28, 1997.
(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) Opinion of Counsel.
(j) Consent of Independent Accountants.
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Inapplicable.
(p) Code of Ethics.
Item 24. Persons Controlled by or Under Common Control with the Registrant.
There are no persons controlled by or under common control with the
Registrant.
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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 director 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.
(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
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<PAGE> 153
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 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.
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<PAGE> 154
(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 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
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<PAGE> 155
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.
Alliance Capital Management L.P., Davis Selected
Advisers, L.P., Federated Investment Counseling, First
American Asset Management, Goldman Sachs Asset Management,
Goldman Sachs Asset Management International, Massachusetts
Financial Services Company, Morgan Stanley Dean Witter
Investment Management d/b/a Morgan Stanley Asset Management,
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, Goldman Sachs Asset Management, Goldman Sachs
Asset Management International, Massachusetts Financial
Services
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<PAGE> 156
Company, Morgan Stanley Dean Witter Investment Management
d/b/a Morgan Stanley Asset Management, 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 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 d/b/a Morgan Stanley
Asset 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 L.P. is located at
1345 Avenue of the Americas, New York, New York 10105. Davis
Selected Advisers, L.P. is located at 2949 East Elvira Road,
Suite 101, Tucson, AZ 85706. Federated Investment Counseling
is located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. First American Asset
Management is located at U.S. Bancorp, 601 Second Avenue
South, Minneapolis, Minnesota 55402. Goldman Sachs Asset
Management is located at 32 Old Slip, New York, New York
10005. Goldman Sachs Asset Management International is located
at Procession House, 55 Ludgate Hill, London EC4M7JW, England.
Massachusetts Financial Services Company is located at 500
Boylston Street, Boston, Massachusetts 02116. Morgan Stanley
Dean Witter Investment Management d/b/a Morgan Stanley Asset
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
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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.
Item 30. Undertakings.
Inapplicable.
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<PAGE> 158
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of the Post-Effective
Amendment No. 21 to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933, as amended, and has duly caused the Post-Effective
Amendment No. 21 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 12th day of April, 2000.
SUNAMERICA SERIES TRUST
By: /s/ Robert M. Zakem
--------------------------
Robert M. Zakem
Vice President and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Post-Effective Amendment No. 21 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 April 12, 2000
James K. Hunt President
(Principal Executive Officer)
*
- ------------------ Vice President,
Peter C. Sutton Treasurer and Controller
(Principal Financial and Accounting
Officer)
*
- ----------------- Trustee
Monica Lozano
* Trustee
- ----------------
Allan L. Sher
* Trustee
- ------------------
William M. Wardlaw
*By: /s/Robert M. Zakem April 12, 2000
--------------------
Robert M. Zakem
Attorney-in-Fact
</TABLE>
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<PAGE> 159
SUNAMERICA SERIES TRUST
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
(i) Opinion of Counsel.
(j) Consent of Independent Accountants.
(p) Code of Ethics.
<PAGE> 1
Exhibit (i)
April 12, 2000
Gentlemen:
This opinion is being furnished in connection with the filing
by SunAmerica Series Trust, a Massachusetts business trust (the "Trust"), of
Post-Effective Amendment No. 21 (the "Amendment") to the Registration Statement
on Form N-1A (the "Registration Statement") which registers an indefinite number
of shares of beneficial interest of each series of the Trust without par value,
(the "Shares") under the Securities Act of 1933, as amended (the "1933 Act"),
pursuant to the Trust's Registration Statement.
As counsel for the Trust, I am familiar with the proceedings
taken by the Trust in connection with the authorization, issuance and sale of
the Shares. In addition, I have examined the Trust's Declaration of Trust,
By-Laws and such other documents that have been deemed relevant to the matters
referred to herein.
Based upon the foregoing, I am of the opinion that, upon
issuance and sale of the Shares in the manner referred to in the Amendment, the
Shares will be legally issued, fully paid and nonassessable shares of beneficial
interest of the Trust. However, I note that as set forth in the Registration
Statement, shareholders of SunAmerica Series Trust might, under certain
circumstances, be liable for transactions effected by the Trust.
I hereby consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the Amendment, and to the
filing of this opinion under the securities laws of any state.
Very truly yours,
SunAmerica Asset Management Corp.
By: /s/ Robert M. Zakem
------------------------------------
Name: Robert M. Zakem
Title: Senior Vice President
and General Counsel
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Exhibit (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated March 15, 2000, relating to the
financial statements and financial highlights which appears in the January 31,
2000 Annual Report to Shareholders of 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, Telecom Utility Portfolio (formerly
Utility Portfolio), Equity Income Portfolio, Equity Index Portfolio,
Growth-Income Portfolio, Federated Value Portfolio, Davis Venture Value
Portfolio (formerly 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 (constituting the twenty-six portfolios
of the SunAmerica Series Trust), which are also incorporated by reference into
the Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "General Information - Independent
Accountants and Legal Counsel" in such Registration Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 12, 2000
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Exhibit (p)
CODE OF ETHICS
FOR
SUNAMERICA ASSET MANAGEMENT CORP.
SUNAMERICA CAPITAL SERVICES, INC.
AND
ANCHOR SERIES TRUST
STYLE SELECT SERIES, INC.
SUNAMERICA EQUITY FUNDS
SUNAMERICA INCOME FUNDS
SUNAMERICA MONEY MARKET FUNDS, INC.
SUNAMERICA SERIES TRUST
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
SEASONS SERIES TRUST
<PAGE> 2
I. PURPOSE
SunAmerica Asset Management Corp. has a fiduciary duty to Investment
Company and investment advisory clients which requires each employee to
act solely for the benefit of clients. This Code of Ethics (the "Code")
has been adopted in accordance with Rule 17j-1(b) under the Investment
Company Act of 1940, as amended (the "Act"). Rule 17j-1 under the Act
generally proscribes fraudulent or manipulative practices with respect to
purchases or sales of securities held or to be acquired by investment
companies, if effected by associated persons of such companies. The
purpose of this Code is to provide regulations and procedures consistent
with the Act, and Rule 17j-1 thereunder, designed to give effect to the
general prohibitions set forth in Rule 17j-1(a) as follows:
A. It shall be unlawful for any affiliated person of or principal
underwriter for a registered investment company, or any affiliated
person of an investment adviser of or principal underwriter for a
registered investment company in connection with the purchase or
sale, directly or indirectly, by such person of a security held or
to be acquired, as defined in the Rule, by such registered
investment company --
1. To employ any device, scheme or artifice to defraud such
registered investment company;
2. To make to such registered investment company any untrue
statement of a material fact or omit to state to such
registered investment company a material fact necessary in
order to make the statements made, in light of the
circumstances under which they are made, not misleading;
3. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any such
registered investment company; or
4. To engage in any manipulative practice with respect to such
registered investment company.
Also, each employee has a duty to act in the best interest of the firm.
In addition to the various laws and regulations covering our activities,
it is clearly in our best interest as a professional investment advisory
organization to avoid potential conflicts of interest or even the
appearance of such conflict with respect to the conduct of our officers
and employees. While it is not possible to anticipate all instances of
potential conflict, the standard is clear.
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II. GENERAL PRINCIPLES
In light of our professional and legal responsibilities, we believe it is
appropriate to restate and periodically distribute the firm's Code to all
employees. Our aim is to be as flexible as possible in our organization
and our internal procedures, while simultaneously protecting our
organization and our clients from the damage that could arise from a
situation involving a real or apparent conflict of interest. While it is
not possible to specifically define and prescribe rules regarding all
possible cases in which conflicts might arise, this Code is designed to
set forth our policy regarding employee conduct in those situations in
which conflicts are most likely to develop. As a general principle, it is
imperative that those who work for or on behalf of an Investment Company,
avoid any such situation that might comprise, or call into question,
their exercise of fully independent judgement in the interests of
shareholders. If you have any doubt as to the propriety of any activity,
you should consult the General Counsel.
III. DEFINITIONS
A. "Adviser" means SunAmerica Asset Management Corp.
B. "Investment Company" means a company registered as such under the
Act, any series thereof or any component of such series for which
the Adviser is an investment adviser.
C. "Access person" means any trustee, director, officer, general
partner or advisory person of the Investment Company or Adviser.
(For purposes of this Code, the term "Access Person" shall mean only
those trustees/directors, officers, general partners or advisory
persons of the Investment Company or Adviser who, with respect to
any Investment Company or advisory client, make a recommendation,
participate in the determination of which recommendation shall be
made, or whose principal function or duties relate to the
determination of which recommendation shall be made to any
Investment Company or advisory client, or who, in connection with
their duties, obtain any information concerning such recommendations
which are being made to the Investment Company or advisory client.)
D. "Advisory person" means (i) any employee of the Investment Company
or Adviser or any company in a control relationship to such
Investment Company or the Adviser, who in connection with his or her
regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a security by an
Investment Company, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii)
any natural person in a control relationship, or deemed by the
Review Officer to be
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in a control relationship, to the Investment Company or Adviser who
obtains information concerning the recommendations made to an
Investment Company with regard to the purchase or sale of a
security.
E. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
F. "Beneficial ownership" shall be interpreted to include any person
who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares a direct or
indirect pecuniary interest in the security. As set forth in Rule
16a-1(a)(2) of the Securities Exchange Act of 1934, their term
"pecuniary interest" in securities shall mean the opportunity,
directly or indirectly, to profit or share in any profit derived
from a transaction in the subject securities.
G. "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act.
H. "Disinterested director or trustee" means a director or trustee of
an Investment Company who is not an "interested person" of an
Investment Company within the meaning of Section 2(a)(19) of the
Act.
I. "Purchase or sale of a security" includes, inter alia, the writing
of an option to purchase or sell a security, the conversion of a
convertible security, and the exercise of a warrant for the purchase
of a security.
J. "Review Officer" means the officer of the Adviser designated from
time-to-time by the Adviser to receive and review reports of
purchases and sales by Access Persons.
K. "Security" shall have the meaning set forth in Section 2(a)(36) of
the Act, except that it shall not include shares of registered
open-end investment companies, securities issued by the United
States Government, short-term debt securities which are "government
securities" within the meaning of Section 2(a)(16) of the Act,
bankers' acceptances, bank certificates of deposit and commercial
paper.
L. "Security held or to be acquired" by a registered Investment Company
means any security as defined in Rule 17j-1(e) under the Act which,
within the most recent 15 days, (i) is or has been held by such
company, or (ii) is being or has
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been considered by such company or its Adviser for purchase by such
company.
M. "Personal securities transaction" means (i) transactions for your own
account, including IRA's, or (ii) transactions for an account in
which you have indirect beneficial ownership, unless you have no
direct or indirect influence or control over the account. Accounts
involving family (including husband, wife, minor children or other
dependent relatives), or accounts in which you have a beneficial
interest (such as a trust of which you are an income or principal
beneficiary) are included within the meaning of "indirect beneficial
interest."
IV. INCORPORATION OF INVESTMENT SUB-ADVISERS' CODES OF ETHICS
Those provisions of an Investment Sub-Adviser's Code of Ethics applicable
to persons who, in connection with their regular functions or duties,
make, participate in, or obtain information regarding the purchase or
sale of a security, or whose functions relate to the making of any
recommendation with respect to such purchase or sale by registered
investment companies managed by such Investment Sub-Adviser are hereby
incorporated herein by reference as additional provisions of this Code of
Ethics (to the extent such provisions are in addition to or more
restrictive than the provision set forth in this Code) applicable to
those officers, trustees, directors and advisory personnel of the Adviser
or Investment Company who have direct responsibility of investments of
the Investment Company, except that approval or disclosure required
thereunder shall be obtained from or made to the officer designated in
Section IX. A violation of an Investment Sub-Adviser's Code of Ethics
shall constitute a violation of this Code.
V. EXEMPTED TRANSACTIONS
A. Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
B. Purchases or sales of securities which are not eligible for purchase
or sale by the Investment Company (e.g., SunAmerica Inc.);
C. Purchases or sales which are non-volitional on the part of either the
Access Person or the Investment Company. Non-volitional transactions
include gifts to you over which you have no control of the timing or
transactions which result from corporate action applicable to all
similar security holders (such as splits, tender offers, mergers,
stock dividends, etc.);
D. Purchases which are part of an automatic dividend reinvestment plan;
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E. Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such rights
so acquired;
F. Purchases or sales approved by a majority vote of those trustees or
directors having no interest in the transaction upon a showing of
good cause. Good cause will be deemed to exist where unexpected
hardship occasions the need for additional funds. A change in
investment objectives will not be deemed "good cause;" and
G. Purchases or sales which receive the prior approval of the Review
Officer because they are only remotely potentially harmful to the
Investment Company because they would be very unlikely to affect a
highly institutional market, or because they clearly are not related
economically to the securities to be purchased, sold or held by the
Investment Company.
H. The Review Officer can grant exemptions from the personal trading
restrictions in this Code upon determining that the transaction for
which an exemption is requested would not violate any policy
embodied in this Code and that an exemption is appropriate to avoid
an injustice to the employee in the particular factual situation
presented. Factors to be considered may include: the size and
holding period of the employee's position in the security, the
market capitalization of the issuer, the liquidity of the security,
the reason for the employee's requested transaction, the amount and
timing of client trading in the same or a related security, and
other relevant factors.
Any employee wishing an exemption should submit a written request to
the Review Officer setting forth the pertinent facts and reasons why
the employee believes that the exemption should be granted. Employees
are cautioned that exemptions are intended to be exceptions, and
repetitive exemptive applications by an employee will not be well
received.
VI. RESTRICTIONS AND PROCEDURES ON PERSONAL SECURITIES TRANSACTIONS
A. Prohibited Purchases and Sales - Except as otherwise provided in
Section V hereof:
1. No Access Person shall purchase or sell, directly or indirectly,
any security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial
ownership and which to his or her actual knowledge at the time
of such purchase or sale:
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(a) is being considered for purchase or sale by an Investment
Company; or
(b) is being purchased or sold by an Investment Company.(1)
2. No Access Person shall reveal to any other person (except in the
normal course of his or her duties on behalf of an Investment
Company) any information regarding securities transactions by an
Investment Company or consideration by an Investment Company or
the Adviser of any such securities transaction.
3. No Access Person shall recommend any securities transaction
by an Investment Company without having disclosed his or her
interest, if any, in such securities or the issuer thereof,
including without limitation (i) his or her direct or indirect
beneficial ownership of any securities or such issuer, (ii)
any contemplated transaction by such person in such
securities, (iii) any position with such issuer or its
affiliates and (iv) any present or proposed business
relationship between such issuer or its affiliates, on the one
hand, and such person or any party in which such person has a
significant interest, on the other; provided, however, that in
the event the interest of such Access Person in such
securities or issuer is not material to his or her personal
net worth and any contemplated transaction by such person in
such securities cannot reasonably be expected to have a
material adverse effect on any such transaction by the company
or on the market for the securities generally, such Access
Person shall not be required to disclose his or her interest
in the securities or issuer thereof in connection with any
such recommendation.
B. Initial Public Offerings: No Access Person shall acquire any
securities in an initial public offering, in order to preclude any
possibility of their profiting improperly from their positions on
behalf of an Investment Company.
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(1) The Adviser, and any and all Access Persons or Advisory
Persons thereof, shall not be deemed to have actual knowledge,
for purposes hereof, of securities transactions effected for
any company, series thereof, or component of such series, for
which the Adviser is the investment adviser, but for which the
portfolio management is performed by an entity which is not an
affiliate of SunAmerica Inc.
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C. Private Placements: No Advisory Person shall acquire any securities
in a private placement without the prior approval of the Review
Person. This prior approval should take into account, among other
factors, whether the investment opportunity should be reserved for
an Investment Company and its shareholders, and whether the
opportunity is being offered to an individual by virtue of his or
her position with the Investment Company. Advisory Persons who have
been authorized to acquire securities in a private placement should
disclose such private placement investment if he or she plays a
material role in an Investment Company's subsequent investment
decision regarding the same issuer. In the foregoing circumstances,
the Investment Company's decision to purchase securities of the
issuer shall be subject to an independent review by Advisory Persons
with no personal interest in such issuer.
D. Blackout Periods: No Access Person shall execute a securities
transaction, other than an exempted transaction, on a day during
which any Investment Company in the complex has a pending "buy" or
"sell" order in that same security and no Access Person shall execute
such securities transaction until one trading day after such
Investment Company order is executed or withdrawn. In addition, no
portfolio manager shall purchase or sell a security within at least
seven calendar days before and after an Investment Company that he or
she manages trades in that security.
E. Short-Term Trading Profits: Subject to the other provisions of this
Code, while there is no prohibition on short-term trading profits,
the Review Officer will monitor quarterly reports and address abuses
of short-term trading profits on a case-by-case basis.
F. Gifts: No Access Person shall receive any gift or other thing of more
than de minimis value ($100) from any person or entity that does
business with or on behalf of the Investment Company.
G. Service as a Director: No Access Person shall serve on the boards of
directors of publicly traded companies, absent prior authorization
based upon a determination that the board service would be consistent
with the interests of the Investment Company and its shareholders.
See "Other Conflicts of Interest - Outside Activities."
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H. Other Conflicts of Interest: Employees should also be aware that
areas other than personal securities transactions or gifts and
sensitive payments may involve conflicts of interest. The following
should be regarded as examples of situations involving real or
potential conflicts rather than a complete list of situations to
avoid.
1. "INSIDE INFORMATION" - Specific reference is made to the firm's
policy of the use of "inside information" which applies to
personal securities transactions as well as to client
transactions.
2. "USE OF INFORMATION" - Information acquired in connection with
employment by the organization may not be used in any way which
might be contrary to or in competition with the interests of
clients. Employees are reminded that certain clients have
specifically required their relationship with us to be treated
confidentially.
3. "DISCLOSURE OF INFORMATION" - Information regarding actual or
contemplated investment decisions, research priorities or client
interests should not be disclosed to persons outside our
organization and in no way can be used for personal gain.
4. "OUTSIDE ACTIVITIES" - All outside relationships such as
directorships or trusteeships of any kind or membership in
investment organizations (e.g., an investment club) should be
discussed with the President and/or General Counsel prior to the
acceptance of such position.
As a general matter, directorships in unaffiliated public
companies or companies which may reasonably be expected to
become public companies will not be authorized because of the
potential for conflicts which may impede our freedom to act in
the best interests of clients. Service with charitable
organizations generally will be authorized, subject to
considerations related to time required during working hours and
use of proprietary information.
VII. DISINTERESTED DIRECTORS OR TRUSTEES
A director or trustee of an Investment Company who is not an officer of
such Investment Company or an officer, employee or director of the
Adviser need only report a transaction in a security if the director or
trustee, at the time of that transaction, knew or, in the ordinary course
of fulfilling his official duties as a director or trustee of the
Investment Company, should have known that, during the 15-day period
immediately
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preceding the date of the transaction by the director or trustee, the
security was under active consideration by the Investment Company.
VIII. COMPLIANCE PROCEDURES
A. Preclearance: All Advisory Persons are to "preclear" personal
securities investments prior to execution through the firm's Head
Trader, or such other person as is designated from time-to-time by
the Review Officer. This includes bonds, stocks (including
closed-end funds), convertibles, preferreds, options on securities,
warrants, rights, etc. for domestic and foreign securities whether
publicly traded or privately placed. In addition, any portfolio
manager wishing to effect a personal securities transaction which
might be viewed as contrary to a position held in any portfolio for
which he or she serves as portfolio manager must preclear such
transaction with the firm's Review Officer, in addition to the
normal preclearance procedure. The only exceptions to this
requirement are automatic dividend reinvestment plan acquisitions,
financial futures and options on futures, automatic employee stock
purchase plan acquisitions, transactions in open-end mutual funds,
U.S. Government securities, commercial paper, or exempted
transactions. Please note, however, that most of these transactions
must be reported even though they do not have to be precleared. The
Review Officer may require other persons to preclear personal
securities transactions as he or she may deem necessary and
appropriate for compliance with this Code. See the Section "IX" for
reporting obligations.
B. Records of Securities Transactions: All Advisory Persons are to
direct their brokers to supply to a designated compliance official,
on a timely basis, duplicate copies of confirmations of all personal
securities transactions and copies of periodic statements for all
securities accounts.
C. Post-Trade Monitoring: The Review Officer shall review all personal
securities transactions by Access Persons to ensure that no conflict
exists with Investment Company trades.
D. Disclosure of Personal Holdings: Access Persons are required to
disclose all personal securities holdings upon commencement of
employment and thereafter on an annual basis.
E. Certification of Compliance With Code of Ethics: All Access Persons
are required to certify annually that they have read and understand
the Code and recognize that they are subject thereto. Further, Access
Persons are required to certify annually that they have complied with
the requirements of the Code
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and that they have disclosed or reported all personal securities
transactions required to be disclosed or reported pursuant to the
requirements of the Code.
F. Review by the Board of Directors or Trustees: Management will prepare
a report to the Board of Directors or Trustees (1) quarterly that
identifies any violations requiring significant remedial action
during the past quarter; and (2) annually that a) summarizes existing
procedures concerning personal investing and any changes in the
procedures made during the past year, and b) identifies any
recommended changes in existing restrictions or procedures based upon
the Investment Company's experience under the Code, evolving industry
practices, or developments in applicable laws or regulations.
The Board of Directors or Trustees will review the operations of this
policy and make recommendations if necessary, as stated in Section
"X" at least once a year.
IX. REPORTING
The Securities and Exchange Commission requires that a record of all
personal securities transactions be kept available for inspection, and
that these records be maintained on at least a quarterly basis. To comply
with these rules, it is necessary to have every Access Person file a
quarterly report (on the form attached hereto as Exhibit 1) within 10
calendar days after the end of each calendar quarter(2). Quarterly Report
forms will be distributed to all employees on the last business day of
each quarter. Completed forms should be sent to the Review Officer. The
forms and transactions in all personal accounts will be reviewed each
quarter on a confidential basis.
The quarterly report must include the required information for all
personal securities transactions as defined above, except transactions in
open-end mutual funds, U.S. Government securities or commodities. Except
as noted above, exempted transactions must also be reported and the
nature of the transaction clearly specified in the report.
Quarterly reports must be filed by all Access Persons even if there were
no reportable transactions during the quarter. (Write "none" and return
with your signature.)
The report required by this section shall state: (i) the title and amount
of the security involved; (ii) the date and nature of the transaction
(i.e., purchase, sale or other
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(2) Advisory Persons who are required to provide copies of confirmations
and periodic statements pursuant to Section VIII.B hereof are only
required to certify in such report that no other transactions were
executed during the quarter.
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acquisition or disposition); (iii) the price at which the transaction was
effected; and (iv) the name of the broker, dealer or bank with or through
whom the transaction was effected. A copy of the broker's confirmation
may be submitted in lieu of the required report.
The report may also contain a statement declaring that the reporting or
recording of any transaction shall not be construed as an admission that
the Access Person making the report has any direct or indirect Beneficial
Ownership in the Security to which the report relates.
X. AUDIT BY REVIEW OFFICER
Adherence to the Code is considered a basic condition of employment with
our organization. The Review Officer will monitor compliance with the
Code and review such violations of the Code as may occur and determine
what action or sanctions are appropriate in the event of a violation. The
Review Officer will report, periodically and upon request, to the Boards
of Directors or Trustees of the various Investment Companies for which
the Adviser serves as investment adviser.
Again, we emphasize the importance of Advisory Persons obtaining prior
clearance of all personal securities transactions, filing the quarterly
reports promptly and avoiding other situations which might involve even
the appearance of a conflict of interest. Questions regarding
interpretation of this policy or questions related to specific situations
should be directed to the Review Officer.
XI. SANCTIONS
Upon discovering a violation of this Code, the Adviser may impose such
sanctions as it deems appropriate, including, among other things, a
letter of censure or suspension or termination of the employment of the
violator. All material violations of this Code and any sanctions imposed
with respect thereto shall be reported periodically to the Board of
Directors or Trustees of the Investment Company with respect to whose
securities the violation occurred.
XII. ADDITIONAL DISCLOSURE
General disclosure concerning Access Persons engaging in personal
securities transactions, restrictions and procedures as well as a
statement from the Investment Company addressing any conflicts of
interest that might arise has been incorporated into Investment Company's
Statement of Additional Information ("SAI").
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XIII. EFFECTIVE DATE
This Code was adopted at a meeting of the Boards of Directors/Trustees of
the Investment Companies. This Code shall become effective on February
26, 1997 and remain in effect until amended or replaced by the Boards of
Directors/Trustees by subsequent action.
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