Previous studies have shown that simulated sea surface temperature (SST) responses to the southern annular mode (SAM) in phase 3 of the Coupled Model Intercomparison Project (CMIP3) climate models compare poorly to the observed response. The reasons behind these model inaccuracies are explored. The ocean mixed layer heat budget is examined in four of the CMIP3 models and by using observations- reanalyses. The SST response to the SAM is predominantly driven by sensible and latent heat flux and Ekman heat transport anomalies. The radiative heat fluxes play a lesser but nonnegligible role. Errors in the simulated SST responses are traced back to deficiencies in the atmospheric response to the SAM. The models exaggerate the surface wind response to the SAM leading to large unrealistic Ekman transport anomalies. During the positive phase of the SAM, this results in excessive simulated cooling in the 40°-65°S latitudes. Problems with the simulated wind stress responses, which relate partly to errors in the simulated winds themselves and partly to the transfer coefficients used in the models, are a key cause of the errors in the SST response. In the central Pacific sector (90°-150°W), errors arise because the simulated SAM is too zonally symmetric. Substantial errors in the net shortwave radiation are also found, resulting from a poor repre- sentation of the changes in cloud cover associated with the SAM. The problems in the simulated SST re- sponses shown by this study are comparable to deficiencies previously identified in the CMIP3 multimodel mean. Therefore, it is likely that the deficiencies identified here are common to other climate models.