<PAGE>
As filed with the Securities and Exchange Commission on November 14, 1996
File Nos. 333-11283; 811-07797
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. __ [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 1 [X]
(Check appropriate box or boxes)
STYLE SELECT SERIES, INC.
(Exact Name of Registrant as specified in Charter)
The SunAmerica Center, 733 Third Avenue
New York, New York 10017-3204
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 858-8850
Robert M. Zakem
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
Margery K. Neale, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration Statement
The Registrant has previously elected to register an indefinite number of shares
of its Aggressive Growth, Mid-Cap Growth, Value and International Equity
Portfolios under the Securities Act of 1933 pursuant to Section 24(f) under the
Investment Company Act of 1940. In accordance with Rule 24f-2(a)(3) a filing
fee of $500 has previously been paid.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
N-1A Item No. Location in Prospectus
- ------------- ----------------------
Part A
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Item 1. Cover Page ............................. Cover Page
Item 2. Synopsis................................ Summary of Expenses
Item 3. Condensed Financial Information......... Not Applicable
Item 4. General Description of Registrant....... Investment Objectives and
Policies; Management of the
Fund; Investment Techniques
and Risk Factors; General
Information
Item 5. Management of the Fund.................. Management of the
Fund; Portfolio Transactions,
Brokerage and Turnover
Item 5A. Management's Discussion of Fund
Performance............................. Not Applicable
Item 6. Capital Stock and Other Securities...... Dividends, Distributions and
Taxes; Purchase of Shares;
Redemption of Shares; General
Information
Item 7. Purchase of Securities Being Offered.... Purchase of Shares;
Determination of Net Asset
Value; General Information
Item 8. Redemption or Repurchase................ Redemption of Shares
Item 9. Pending Legal Proceedings............... Not Applicable
Part B
Item 10. Cover Page.............................. Cover Page
Item 11. Table of Contents....................... Cover Page
Item 12. General Information and History......... The Fund; Additional
Information
Item 13. Investment Objectives and Policies...... Investment Objectives and
Policies; Investment
Restrictions; Portfolio
Transactions and Brokerage
Item 14. Management of the Fund................. Directors and Officers
Item 15. Control Persons and Principal Holders
of Securities.......................... Not Applicable
Item 16. Investment Advisory and Other Services. Advisers, Distributor and
Administrator
Item 17. Brokerage Allocation .................. Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities..... Dividends, Distributions and
Taxes; Description of Shares
<PAGE>
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered.............. Additional Information
Regarding Purchase of Shares;
Additional Information
Regarding Redemption of
Shares; Determination of Net
Asset Value; Retirement Plans
Item 20. Tax Status............................ Dividends, Distributions and
Taxes
Item 21. Underwriters.......................... Advisers, Distributor and
Administrator
Item 22. Calculations of Performance Data...... Performance Data
Item 23. Financial Statements.................. Statement of Assets and
Liabilities
Part C
Information required to be included is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
Subject to Completion, dated November 14, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commmission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
STYLE SELECT SERIES
The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204
General Marketing and Shareholder Information
(800) 858-8850
Style Select Series, Inc. (the "Fund") is an open-end management
investment company. The Fund currently offers four separate investment
portfolios (each, a "Portfolio"). Each Portfolio is managed by
SunAmerica Asset Management Corp. ("SunAmerica"). The assets of each Portfolio
are normally allocated among at least three investment advisers (each, an
"Adviser"), each of which will be independently responsible for advising its
respective portion of the Portfolio's assets. The Advisers may include
SunAmerica, and otherwise will consist of professional investment advisers
selected by SunAmerica subject to the review and approval of the Fund's Board of
Directors. In choosing Advisers, SunAmerica will seek to obtain, within each
Portfolio's overall objective, several separate and distinct investment styles.
An investor may invest in one or more of the following Portfolios:
Aggressive Growth Portfolio seeks long-term growth of capital by investing
primarily in equity securities of companies which have a market capitalization
of less than $1 billion, or of companies which have a market capitalization
of between $1 billion and $5 billion. The Advisers for Aggressive Growth
Portfolio are Janus Capital Corporation, SunAmerica and Warburg, Pincus
Counsellors, Inc.
Mid-Cap Growth Portfolio seeks long-term growth of capital by investing
primarily in equity securities of companies which have a market capitalization
of $1 billion - $5 billion. The Advisers for Mid-Cap Growth Portfolio are
Miller Anderson & Sherrerd, LLP, Pilgrim Baxter & Associates, Ltd. and T. Rowe
Price Associates, Inc.
Value Portfolio seeks long-term growth of capital by investing primarily in
equity securities using a "value" style of investing. The Advisers for Value
Portfolio are Davis Selected Advisers, L.P., Neuberger&Berman, L.P. and Strong
Capital Management, Inc.
International Equity Portfolio seeks long-term growth of capital by
investing in equity securities of issuers in countries other than the United
States. The Advisers for International Equity Portfolio are Rowe Price-Fleming
International, Inc., Strong Capital Management, Inc. and Warburg, Pincus
Counsellors, Inc.
As a result of the market risk inherent in any investment, there is no
assurance that the investment objective of any of the Portfolios will be
achieved.
Each Portfolio currently offers Class A shares and Class B shares. The
offering price is the next-determined net asset value per share, plus for each
class a sales charge which, at the investor's option, may be (i) imposed at the
time of purchase (Class A shares) or (ii) deferred (purchases of Class B shares,
and purchases of Class A shares in excess of $1 million). Class B shares may be
subject to a declining contingent deferred sales charge ("CDSC") imposed on
redemptions made within six years of purchase. Class B shares of each Portfolio
will convert automatically to Class A shares on the first business day of the
month following the seventh anniversary of purchase. Each class makes
distribution and account maintenance and service fee payments under a
distribution plan adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "1940 Act"). See "Purchase of Shares."
Shares of the Portfolios are not obligations of or guaranteed by the United
States Government, are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are
not insured by the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other governmental agency.
This Prospectus explains concisely what you should know before investing in
any of the Portfolios. Please read it carefully before investing and retain it
for future reference. You can find more detailed information about the Fund in
the Statement of Additional Information dated ____________, 1996, which is
incorporated by reference into this Prospectus. The Statement of Additional
Information may be obtained without charge by contacting the Fund at the address
or telephone number listed above.
-------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------------------------------------
Prospectus dated ______, 1996
<PAGE>
------------
TABLE OF CONTENTS
Page
-----
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Summary of Expenses. . . . . . . . . . . . . . . . . . . . . . 1
Style Select Investing . . . . . . . . . . . . . . . . . . . . 4
Investment Objectives and Policies . . . . . . . . . . . . . . 5
Aggressive Growth Portfolio. . . . . . . . . . . . . . . . . . 6
Mid-Cap Growth Portfolio . . . . . . . . . . . . . . . . . . . 6
Value Portfolio. . . . . . . . . . . . . . . . . . . . . . . . 9
International Equity Portfolio . . . . . . . . . . . . . . . .10
Advisers' Historical Performance Data. . . . . . . . . . . . .12
Investment Techniques and Risk Factors . . . . . . . . . . . .22
Management of the Fund . . . . . . . . . . . . . . . . . . . .41
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . .55
Redemption of Shares . . . . . . . . . . . . . . . . . . . . .61
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . .64
Portfolio Transactions, Brokerage and Turnover . . . . . . . .66
Determination of Net Asset Value . . . . . . . . . . . . . . .68
Performance Data . . . . . . . . . . . . . . . . . . . . . . .68
Dividends, Distributions and Taxes . . . . . . . . . . . . . .69
General Information. . . . . . . . . . . . . . . . . . . . . .73
<PAGE>
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to Class A shares and Class B shares follows:
<TABLE>
<CAPTION>
Aggressive Mid-Cap International
Growth Portfolio Growth Portfolio Value Portfolio Equity Portfolio
------------------ ---------------- --------------- ----------------
Class Class Class Class Class Class Class Class
A B A B A B A B
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Initial Sales Load(1) 5.75% None 5.75% None 5.75% None 5.75% None
Maximum Sales Load on Reinvested None None None None None None None None
Dividends
Maximum Deferred Sales Load(2) None 4.00% None 4.00% None 4.00% None 4.00%
Redemption Fees(3) None None None None None None None None
Exchange Fees None None None None None None None None
Annual Portfolio Operating Expenses
(net of fee waivers/expense
reimbursements)(4) (as a percentage of
average net assets)
Management Fees 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.10% 1.10%
12b-1 Fees(5)............ 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
Other Expenses........... .43% .43% .43% .43% .43% .43% .58% .58%
Total Operating Expenses.............. 1.78% 2.43% 1.78% 2.43% 1.78% 2.43% 2.03% 2.68%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
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(1) The front-end sales charge on Class A shares decreases with the size of
the purchase to 0% for purchases of $1,000,000 or more. See "Purchase
of Shares."
(2) Purchases of Class A shares in excess of $1,000,000 will be subject to
a CDSC on redemptions made within one year of purchase. The CDSC on
Class B shares applies only if a redemption occurs within six years from
their purchase date.
(3) A $15.00 fee may be imposed for wire redemptions.
(4) The information provided represents estimated amounts for the current
fiscal year.
(5) 0.25% of the 12b-1 fee comprises an Account Maintenance and Service Fee.
A portion of the Account Maintenance and Service Fee is paid for
continuous personal service to investors in the Portfolios, such as
responding to shareholder inquiries, quoting net asset values, providing
current marketing material and attending to other shareholder matters.
Shareholders who own their shares for an extended period of
time may pay more in Rule 12b-1 distribution fees than the economic
equivalent of the maximum front-end sales charge permitted under the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc.
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<PAGE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment over various
time periods assuming (1) a 5% annual rate of return and (2) redemption at the
end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Aggressive Growth Portfolio
(Class A shares)......... $75 $110
(Class B shares)*........ $65 $106
Mid-Cap Growth Portfolio
(Class A shares)......... $75 $110
(Class B shares)*........ $65 $106
Value Portfolio
(Class A shares)......... $75 $110
(Class B shares)*........ $65 $106
International Equity Portfolio
(Class A shares)......... $77 $118
(Class B shares)*........ $67 $113
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Aggressive Growth Portfolio
(Class A shares)......... $75 $110
(Class B shares)*........ $25 $ 76
Mid-Cap Growth Portfolio
(Class A shares)......... $75 $110
(Class B shares)*........ $25 $ 76
Value Portfolio
(Class A shares)......... $75 $110
(Class B shares)*........ $25 $ 76
International Equity Portfolio
(Class A shares)......... $77 $118
(Class B shares)*........ $27 $ 83
</TABLE>
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* Class B shares convert to Class A shares on the first business day of the
month following the seventh anniversary of the purchase of such Class B
shares.
The foregoing examples, including the 5% return and the expenses used, are
intended to assist investors in understanding the costs and expenses that a
shareholder in the Fund will bear directly or indirectly, and should not be
considered a representation of past or future performance or expenses. For
-2-
<PAGE>
more complete descriptions of the various costs and expenses, see "Purchase of
Shares." Actual expenses may be greater or less than those shown.
-3-
<PAGE>
STYLE SELECT INVESTING
Each Portfolio of the Fund is intended to provide investors with access to
the individual investment styles of several different professional investment
advisers, each seeking the same investment objective with respect to a separate
portion of the Portfolio's assets. Normally, the investment decisions for each
Portfolio will be made by at least three Advisers, which may include SunAmerica.
SunAmerica will select Advisers that it believes will provide each Portfolio
with the highest quality investment services, while obtaining, within each
Portfolio's overall investment objective, separate and distinct investment
styles.
Initially, SunAmerica will allocate the assets of each Portfolio equally
among the Advisers for that Portfolio. Subsequently, allocations of new cash
flow (and of redemption requests) will be made equally among the Advisers of
each Portfolio unless SunAmerica determines, subject to the review of the Fund's
Board of Directors (the "Board" or the "Directors"), that a different allocation
of assets would be in the best interests of a Portfolio and its shareholders.
The Fund expects that differences in investment returns among the portions of a
Portfolio managed by different Advisers will cause the actual percentage of a
Portfolio's assets managed by each Adviser to vary over time. In general, a
Portfolio's assets once allocated to one Adviser will not be reallocated (or
"rebalanced") to another Adviser for the Portfolio. However, SunAmerica reserves
the right, subject to the review of the Board, to reallocate assets from one
Adviser to another when deemed in the best interests of a Portfolio and its
shareholders.
From time to time, SunAmerica, with the approval of the Board, may add a new
Adviser for a Portfolio, replace an Adviser or reduce the number of Advisers for
a Portfolio. See "Management of the Fund."
-4-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Portfolio is long-term growth of capital,
and each Portfolio seeks to achieve its investment objective primarily through
investment in equity securities. There can be no assurance that any Portfolio's
investment objective will be met or that the net return on an investment in a
Portfolio will exceed that which could have been obtained through other
investment or savings vehicles. The section "Investment Techniques and Risk
Factors" contains a discussion of certain types of other securities in which
each Portfolio may make a significant investment and certain investment
techniques that each Adviser for the Portfolios may use. In addition, that
section contains a discussion of certain of the principal risks attendant to an
investment in the Portfolios. Although each Adviser for a Portfolio is permitted
to invest in the various types of securities and use the investment techniques
indicated in that section, no Adviser is required to invest in any particular
type of permitted security or to use any particular investment technique.
Rather, each Adviser is given full discretion to manage its portion of the
assets of a Portfolio according to its own investment style.
Except as specifically indicated, each Portfolio's respective investment
objective and the investment policies and strategies described herein are not
fundamental policies of the Portfolio and may be changed by the Board without
the approval of shareholders. Certain investment restrictions may not be changed
without a majority vote of the outstanding voting securities of that Portfolio.
Each Portfolio's fundamental investment restrictions are described in the
Statement of Additional Information. For purposes of any investment policies or
restrictions discussed below, the percentage limitations of each Portfolio
will be applied by each Adviser to the portion of the Portfolio's assets managed
by that Adviser and will be determined at the time of an investment. SunAmerica,
however, is ultimately responsible for overseeing compliance by the Advisers,
and will in such capacity verify that in the aggregate the investments of each
Portfolio complies with applicable percentage limitations.
-5-
<PAGE>
Each Portfolio is "non-diversified" (as such term is defined under the 1940
Act), subject, however, to certain tax diversification requirements. See
"Dividends, Distributions and Taxes."
AGGRESSIVE GROWTH PORTFOLIO
The Aggressive Growth Portfolio, advised by Janus Capital Corporation ("Janus"),
SunAmerica and Warburg, Pincus Counsellors, Inc. ("Warburg"), will invest, under
normal circumstances, in securities of companies believed by the Adviser to
have significant growth potential or to have above-average earnings growth or
value. Such companies will generally be companies that typically have a market
capitalization of less than $1 billion ("Small Cap Companies") or medium-sized
companies that typically have a market capitalization between $1 billion and $5
billion ("Mid-Cap Companies".)
Small Cap Companies generally will be companies that, although not "start-up"
companies, have been in business for a shorter period of time than Mid-Cap
Companies. Small Cap Companies frequently will be in businesses or industries
involving new, recently developed products, services, or technologies. While
some Small Cap Companies may be listed for trading on a securities exchange, it
is expected that a significant portion of such companies will be traded
over-the-counter.
Mid-Cap Companies generally will be companies that have a substantial
record of operations (i.e., in business for at least five years) and are listed
for trading on the New York Stock Exchange ("NYSE") or another national or
international stock exchange.
There is no requirement that any minimum percentage of assets of the
Portfolio be maintained in securities of either Small Cap Companies or Mid-Cap
Companies. In general, to the extent that more of the Portfolio's assets are
invested in Small-Cap Companies, the Portfolio's net asset value will be
subject to more volatility than if such assets were invested in larger
companies. See "Investment in Small Companies" in "Investment Techniques and
Risk Factors."
Under normal conditions, at least 65% of the Portfolio's total assets
will be invested in equity securities (including common and preferred stocks
and other securities having equity features, such as convertible securities,
warrants and rights). In addition, the Portfolio may invest up to 35% of its
total assets in debt securities that the Adviser expects have the potential for
capital appreciation. The Portfolio may invest in such debt securities rated
below investment grade, that is, below "BBB" by S&P, or below "Baa" by Moody's,
or if unrated, determined by the Adviser to be of equivalent quality. See
"Fixed Income Securities" in "Investment Techniques and Risk Factors" below for
a discussion of the risks associated with investing in such securities.
MID-CAP GROWTH PORTFOLIO
The Mid-Cap Growth Portfolio, advised by Miller Anderson & Sherrerd, LLP
("MAS"), Pilgrim Baxter & Associates, Ltd. ("PBHG") and T. Rowe Price
Associates, Inc. ("T. Rowe Price"), will invest, under normal circumstances, at
least 65% of the Portfolio's total assets in the securities of Mid-Cap
Companies. Such companies are considered by the Adviser to have a historical
record of above-average growth rate; to have the ability to sustain earnings
growth; to offer proven products or services; or to operate in industries
experiencing increasing demand. The Adviser may select certain of such
securities because it considers them to be undervalued in the market. Under
normal circumstances, at least 65% of the Portfolio's total assets will be
invested in the securities of Mid-Cap Companies.
-6-
<PAGE>
Mid-Cap Companies generally will be companies that have a substantial record
of operations (i.e., in business for at least five years) and are listed for
trading on the New York Stock Exchange ("NYSE") or another national or
international stock exchange. Such companies, however, may be less seasoned
than companies with market capitalizations in excess of $5 billion ("Large Cap
Companies"), but are believed by the Adviser to offer greater potential for
growth. In general, the securities of Mid-Cap Companies may be more volatile
than those of Large Cap Companies.
Under normal market conditions, at least 65% of the Portfolio's total assets
will be invested in equity securities (including common and preferred stocks
and other securities having equity
-7-
<PAGE>
features, such as convertible securities, warrants and rights). In addition,
the Portfolio may invest up to 35% of its total assets in equity securities of
issuers other than Mid-Cap Companies and in debt securities that
the Adviser expects have the potential for capital appreciation. The Portfolio
may invest in such debt securities rated as low as "BBB" by S&P, or
"Baa" by Moody's or if unrated, determined by the Adviser to be of equivalent
quality. See "Fixed Income Securities" in "Investment Techniques and Risk
Factors" below for a discussion of the risks associated with investing in such
securities.
-8-
<PAGE>
VALUE PORTFOLIO
The Value Portfolio, advised by Davis Selected Advisers, L.P. ("Davis"),
Neuberger&Berman, L.P. ("Neuberger&Berman") and Strong Capital Management, Inc.
("Strong") (which has subcontracted with Schafer Capital Management, Inc.
("Schafer") to act as Adviser to its portion of the Value Portfolio), will
invest, under normal circumstances, in securities that the Adviser believes are
selling at a price that is low relative to their worth. Investments will be
identified based upon factors such as undervalued assets or earnings potential,
favorable operating or price to cash flow ratios, a low price to earnings ratio
and, although current income will not always be a significant factor in
selecting securities, a high dividend yield. In addition, the Adviser may take
into account such other factors as an issuer's product demand and development,
resources for expansion, quality of management and overall favorable business
prospects.
While the Adviser seeks to identify investments with the potential for
above-average appreciation, there is a risk that other investors will not
recognize the intrinsic worth of a security owned by the Portfolio for a long
period, if at all. In addition, there is the risk that a security judged to be
undervalued by the Adviser is actually appropriately priced due to fundamental
problems with the issuer's business prospects that are not yet apparent.
Under normal conditions, at least 65% of the Portfolio's total assets will be
invested in equity securities (including common and preferred stocks and other
securities having equity features, such as convertible securities, warrants and
rights). The Portfolio will invest in securities of companies without regard to
their market capitalization. However, investing in smaller companies may have
greater risks than investing in larger companies. See "Investment in Small
Companies" in "Investment Techniques and Risk Factors." In addition, the
Portfolio may invest
-9-
<PAGE>
up to 35% of its total assets in debt securities that the Adviser expects to
have the potential for capital appreciation. The Portfolio may invest in such
debt securities rated below investment grade, that is, below "BBB" by S&P, or
below "Baa" by Moody's, or if unrated, determined by the Adviser to be of
equivalent quality. See "Fixed Income Securities" in "Investment Techniques and
Risk Factors" below for a discussion of the risks associated with investing in
such securities.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio, advised by Warburg, Rowe Price-Fleming
International, Inc. ("Rowe-Fleming") and Strong, will invest, under normal
circumstances, in securities of non-U.S. issuers. Country selection is a
significant part of each Adviser's investment process. The Portfolio is
permitted to invest in any country where it is legal for U.S. investors to
invest.
The Portfolio will invest in securities of companies without regard to their
market capitalization. However, investing in smaller companies may have greater
risks than investing in larger companies. See "Investment in Small Companies" in
"Investment Techniques and Risk
-10-
<PAGE>
Factors." The Portfolio may also invest in companies located in countries
considered to be emerging markets. The term "emerging markets" applies to any
country that is generally considered to be an emerging or developing country by
the international financial community. Investment in foreign securities in
general, and in emerging markets in particular, involves certain risks not
present when investing in United States securities. See "Foreign Securities" in
"Investment Techniques and Risk Factors."
Under normal conditions, at least 65% of the Portfolio's total assets will be
invested in equity securities (including common and preferred stocks and other
securities having equity features, such as convertible securities, warrants and
rights) of issuers in at least three countries other than the United States. The
Portfolio may purchase securities on foreign stock exchanges, on U.S. stock
exchanges, or in the over-the-counter market. In addition, the Portfolio may
invest in securities in the form of sponsored or unsponsored American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") or other similar securities representing a right to obtain
underlying securities of foreign issuers. The Portfolio may invest up to 35% of
its total assets in debt securities that the Adviser expects have the potential
for capital appreciation. The Portfolio may invest in such debt securities rated
below investment grade, that is below "BBB" by S&P, or below "Baa" by Moody's,
or if unrated, determined by the Adviser to be of equivalent quality. See "Fixed
Income Securities" in "Investment Techniques and Risk Factors" below for a
discussion of the risks associated with investing in such securities.
-11-
<PAGE>
ADVISERS' HISTORICAL PERFORMANCE DATA
Set forth below is historical performance data relating to each of the
Advisers selected by SunAmerica for the Portfolios. The performance information
presented below is based on data provided by each Adviser relating to all of the
accounts managed by that Adviser that have investment objectives and policies
similar (although not necessarily identical) to the relevant Portfolio and are
advised by that Adviser using investment styles and strategies substantially
similar to those to be employed by that Adviser in advising its portion of the
Portfolio. THE PERFORMANCE INFORMATION SET FORTH BELOW DOES NOT REPRESENT THE
PERFORMANCE OF THE FUND OR ANY PORTFOLIO. The Fund is newly organized and has
no performance record of its own. The following performance should not be
considered a prediction of future performance of the Fund or any Portfolio. The
performance of a particular Portfolio may be higher or lower than that shown
below.
All of the historical performance information reflects annualized total
return over the stated period of time. Total return shows how much an investment
has increased (decreased) over a specified period of time and includes capital
appreciation and income.
All information relies on data supplied by the Advisers or Lipper
Analytical Services, Inc. and believed by the Fund to be reliable. However, such
information has not been verified, and unless otherwise indicated in the
endnotes to the tables set forth below, has not been audited. In certain cases
as indicated, the total return for a particular Adviser's composite performance
has been calculated in accordance with Performance Presentation Standards of the
-12-
<PAGE>
Association for Investment Management and Research ("AIMR"). If not otherwise
stated, performance has not been calculated in accordance with AIMR.
Performance figures for any particular Adviser do not necessarily reflect all
of the Adviser's assets under management and may not accurately reflect the
performance of all accounts managed by the Adviser.
The performance information is presented net of actual fees charged by the
individual Advisers, except as otherwise noted. If the performance figures are
net of actual fees, they do not reflect the operating expenses of the Portfolio
(such as Rule 12b-1 fees) or any applicable sales charge. In the event that the
performance figures are not net of actual fees, they are instead presented net
of annualized expenses projected for the particular Portfolio for its initial
fiscal period, but do not reflect any sales charge. Such annualized expenses may
be higher or lower than actual fees charged to the accounts reflected in the
data, so that the performance depicted below may be higher or lower than the
actual performance experienced by such accounts.
Certain of the client accounts that are included in an Adviser's past
performance record may not be registered investment companies. Such accounts
would not be subject to the same types of expenses to which the Fund is subject,
nor to the specific tax diversification and other restrictions and investment
limitations imposed on the Fund and its Portfolios by the 1940 Act or Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). The performance
results that include accounts that are not registered investment companies might
have been less favorable had they been subject to regulation as investment
companies under the relevant federal laws.
In addition to the individual investment performance of each Adviser for
the periods indicated, the following tables reflect the combined performance of
all of the Advisers for each Portfolio. The combined information is presented
only with respect to periods during which
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all Advisers to a Portfolio were managing accounts similar to the Portfolio,
and reflects an equal one-third allocation to each Adviser at all times during
the period in question. All performance information set forth below is premised
on the assumption that, had the Portfolio been in existence, each Adviser would
have been selected by SunAmerica to manage the particular Portfolio at all
times during the period for which performance information is presented and that
each Portfolio would have in fact been allocated in equal one-third portions to
each of the Advisers for the periods for which combined historical information
is presented.
Advisers for Aggressive Growth Portfolio
- ------------------------------------------------------------
Average Annual Total Returns
Periods Ended June 30, 1996
One Year
Lipper Small Company Growth Group 30.6%
Combined Adviser Performance 41.4%
Janus 49.8%
SunAmerica 40.8%
Warburg 34.0%
Three Year
Lipper Small Company Growth Group 18.3%
Combined Adviser Performance 25.3%
Janus 31.2%
SunAmerica 23.7%
Warburg 20.8%
Five Year
Lipper Small Company Growth Group 19.0%
Combined Adviser Performance 24.7%
Janus 28.0%
SunAmerica 23.1%
Warburg 22.5%
________________________________________________________________________
Total Return on $10,000
Six Years Ended June 30, 1996
Combined Lipper Small
Adviser Company Growth
Performance Group
1990 $10,000 $10,000
1991 $10,660 $10,510
1992 $12,547 $12,065
1993 $16,349 $15,118
1994 $16,169 $15,405
1995 $22,701 $19,195
1996 $32,099 $25,069
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AGGRESSIVE GROWTH PORTFOLIO ENDNOTES
Style Select Series - Aggressive Growth Portfolio
The Advisers for the Aggressive Growth Portfolio are Janus, SunAmerica and
Warburg. The performance results for each Adviser were supplied by such Adviser
and were prepared as set forth below under "Advisers' Past Performance."
Advisers' Past Performance (Bar Chart)
Individual Adviser Performance
Except as otherwise noted below, an Adviser's performance is presented net of
actual fees. The Portfolio's fees and expenses may be greater than those
charged by the individual Advisers. Accordingly, the Portfolio's actual
performance may be lower.
Janus
Janus' historical performance data covers six and one-half years and
reflects the performance of the Janus Aggressive Growth composite. The
annualized return since inception of the composite is 26% as of June
30, 1996. The composite includes all aggressive growth equity accounts
with assets above $5 million for which Janus has discretionary
authority, including one aggressive growth mutual fund. As of June 30,
1996, the composite included 11 accounts with aggregate assets of $536
million, which represented 1.4% of total assets under management.
Accounts enter the composite upon their first full quarter under
management in which assets exceed $5 million. The composite returns
are presented net of actual fees. The performance history is
calculated in accordance with the standards set forth by AIMR.
SunAmerica
SunAmerica's historical performance data covers 9 1/4 years and
reflects the performance of the SunAmerica Small Company Growth Fund
(Class A shares), a mutual fund. The annualized return since inception
of the SunAmerica Small Company Growth Fund as of June 30, 1996 for
Class A shares is 14.7%. According to SunAmerica, this fund reflects
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the only comparable vehicle managed by SunAmerica in the small
capitalization growth strategy with a performance record over one
year. As of June 30, 1996, the SunAmerica Small Company Growth Fund
Class A's net assets totaled $147.2 million. As of such date, the net
assets of Class B of the SunAmerica Small Company Growth Fund totaled
$96.7 million. Class B return for the one year ending June 30, 1996 is
39.8% and since inception, September 24, 1993, 20.7%.
Warburg
Warburg's historical performance data covers 8 1/4 years and reflects
the performance of the Warburg Emerging Growth Fund, a mutual fund.
The annualized return since inception of the Warburg Emerging Growth
Fund is 18% as of June 30, 1996. As of June 30, 1996, the Warburg
Emerging Growth Fund's net assets totaled $968.3 million. According to
Warburg, this fund is the only retail vehicle managed by Warburg with
a small capitalization growth strategy.
Combined Adviser Performance
Performance for the 5-year, 3-year and 1-year composite bar charts reflects a
combined composite weighted equally among Janus Aggressive Growth composite,
SunAmerica Small Company Growth A Fund, and Warburg Emerging Growth Fund. The
performance for each Adviser is presented net of actual fees paid by each
account included in the composite.
Lipper Small Company Growth Mutual Fund Group
Developed by Lipper Analytical Services, Inc., the Lipper Small Company Growth
Mutual Fund Group reflects a group of 429 mutual funds which limit their
investments to companies on the basis of the size of the company. This group
was selected because the investment parameters of the Aggressive Growth
Portfolio are consistent with the criteria Lipper used to include funds in this
group.
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Growth of a $10,000 Investment (Mountain Chart)
The "Growth of a $10,000 Investment" composite chart reflects six years of
performance data and reflects a combined composite weighted 33% Janus Emerging
Growth composite, 33% SunAmerica Small Company Growth Fund and 33% Warburg
Pincus Emerging Growth Fund. Returns for all time periods are net of actual
fees.
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Advisers for Mid-Cap Growth Portfolio
- ------------------------------------------------------------------
Average Annual Total Returns
Periods Ended June 30, 1996
One Year
Lipper Mid-Cap Growth Group 25.3%
Combined Adviser Performance 42.1%
MAS 44.0%
PBHG 48.0%
T. Rowe Price 34.4%
Three Year
Lipper Mid-Cap Growth Group 16.6%
Combined Adviser Performance 22.8%
MAS 22.1%
PBHG 23.5%
T. Rowe Price 22.4%
Five Year
Lipper Mid-Cap Growth Group 17.9%
MAS 19.7%
PBHG 21.8%
- ------------------------------------------------------------------
Total Return on $10,000
Four Years Ended June 30, 1996
Lipper
Combined Mid-Cap
Adviser Growth
Performance Group
1992 $10,000 $10,000
1993 $12,790 $12,470
1994 $12,854 $12,620
1995 $16,684 $15,762
1996 $23,709 $19,750
MID-CAP GROWTH PORTFOLIO ENDNOTES
Style Select Series - Mid-Cap Growth Portfolio
The Advisers for the Mid-Cap Growth Portfolio are MAS, PBHG and T. Rowe Price.
The performance results for each Adviser were supplied by such Adviser
and were prepared as set forth below under "Advisers' Past Performance."
Advisers' Past Performance (Bar Chart)
Individual Adviser Performance
Except as otherwise noted below, an Adviser's performance is presented net of
actual fees. The Portfolio's fees and expenses may be greater than those
charged by the individual Advisers. Accordingly, the Portfolio's actual
performance may be lower.
MAS
MAS' historical performance data covers six and one-quarter years and
reflects the performance of the MAS Mid Cap Growth Fund, a mutual
fund. The annualized return since inception of MAS Mid-Cap Growth Fund
is 21.1% as of June 30, 1996. According to MAS, this fund is the only
account managed by MAS with a mid cap growth strategy. As of June 30,
1996, the MAS Mid-Cap Growth Fund's net assets totaled $459.1 million.
PBHG
PBHG's historical performance data covers ten years and reflects the
performance of the PBHG Mid Cap composite, which as of June 30, 1996,
included five unrestricted mid cap equity accounts totaling $1.23
billion or 10% of all equity assets under management, and 100% of all
mid cap equity accounts under management, according to PBHG. The
annualized ten-year return of the composite is 15.2% as of June 30,
1996. The performance history is calculated in accordance with the
standards set forth by AIMR.
T. Rowe Price
T. Rowe Price's historical performance data covers four years and
reflects the performance of a single no-load mutual fund. The
annualized return since inception of the fund is 25.9% as of June 30,
1996. According to T. Rowe Price, this fund is the only account
managed by T. Rowe Price with a mid cap growth strategy and assets
of at least $100 million. As of June 30, 1996, the fund's net assets
totaled $611.2 million.
Combined Adviser Performance
Performance on the 3-year and 1-year composite bar charts reflects a combined
composite weighted equally among MAS Mid Cap Growth Fund, PBHG Mid Cap
Composite and the T. Rowe Price fund.
Lipper Mid-Cap Mutual Fund Group
Developed by Lipper Analytical Services, Inc., the Lipper Mid-Cap Mutual Fund
Group reflects a group of 167 mutual funds which limit their investments to
companies with average market capitalizations and/or revenues between $800
million and the average market capitalization of the Wilshire 4500 Index (as
captured by the Vanguard Index Extended Market Fund). This group was selected
because the investment parameters of the Mid-Cap Growth Portfolio are
consistent with the criteria Lipper used to include funds in this group.
Growth of a $10,000 Investment (Mountain Chart)
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The "Growth of a $10,000 Investment" composite chart reflects four years of
performance data, and reflects a combined composite weighted 33% MAS Mid Cap
Growth Fund, 33% PBHG Mid Cap Composite and 34% the T. Rowe Price fund.
Returns for all time periods are net of actual fees.
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Advisers for Value Portfolio
- -------------------------------------------------
Average Annual Total Returns
Periods Ended June 30, 1996
One Year
Lipper Equity-Income Group 21.8%
Combined Adviser Performance 22.1%
Davis 22.2%
Neuberger&Berman 24.8%
Strong/Schafer 19.1%
Three Year
Lipper Equity-Income Group 12.8%
Combined Adviser Performance 16.3%
Davis 16.7%
Neuberger&Berman 17.0%
Strong/Schafer 15.0%
Five Year
Lipper Equity-Income Group 13.7%
Combined Adviser Performance 17.8%
Davis 19.0%
Neuberger&Berman 17.2%
Strong/Schafer 16.8%
Ten Year
Lipper Equity-Income Group 10.7%
Combined Adviser Performance 13.6%
Davis 15.8%
Neuberger&Berman 12.9%
Strong/Schafer 11.9%
Total Return on $10,000
Ten Years Ended June 30, 1996
Combined Lipper
Adviser Equity-Income
Performance Group
1986 $10,000 $10,000
1987 $11,830 $11,530
1988 $11,215 $11,265
1989 $13,480 $12,909
1990 $15,125 $13,723
1991 $15,851 $14,560
1992 $18,752 $16,729
1993 $22,821 $19,322
1994 $23,984 $19,612
1995 $29,381 $22,730
1996 $35,874 $27,686
VALUE PORTFOLIO ENDNOTES
Style Select Series - Value Portfolio
The Advisers for the Value Portfolio are Davis, Neuberger&Berman and Strong
(subcontracted to Schafer and referred to for the purposes of this Endnote as
"Strong/Schafer"). The performance results for each Adviser were supplied by
such Adviser and were prepared as set forth below under "Advisers' Past
Performance."
Advisers' Past Performance (Bar Chart)
Except as otherwise noted below, an Adviser's performance is presented net of
actual fees. The Portfolio's fees and expenses may be greater than those
charged by the individual Advisers. Accordingly, the Portfolio's actual
performance may be lower.
Davis
Davis's historical performance data covers ten years and reflects the
performance of the Davis New York Venture Fund, a mutual fund.
According to Davis, this fund represents the only retail vehicle
managed by Davis with a value strategy within the firm. As of June 30,
1996, Davis New York Venture Fund's net assets totaled $2,150.6
million.
Neuberger&Berman
Neuberger&Berman's historical performance data covers ten years and
reflects the performance of the Neuberger&Berman Partners Fund, a
mutual fund. According to Neuberger&Berman, the Neuberger&Berman
Partners Fund represents the only vehicle managed by Neuberger&Berman
in accordance with the same strategy as the Value Portfolio within the
firm. As of June 30, 1996, the Neuberger&Berman Partners Fund's net
assets totaled $2,000.2 million.
Strong/Schafer
Strong/Schafer's historical performance data covers ten years and
reflects the performance of the Schafer Capital Equity composite. As
of June 30, 1996, the composite included 2 accounts, a separately
managed account and a mutual fund, totaling $400 million or 100% of
Schafer's total assets under management. The returns for the Schafer
Capital Equity composite were supplied to the Fund gross of fees, but
have been adjusted to give effect to the level of annualized expenses
projected for the Value Portfolio during the initial fiscal period,
which is 1.78%.
Combined Adviser Performance
Performance on all of the composite bar charts reflects a combined composite
weighted equally among Davis New York Venture Fund, Neuberger&Berman Partners
Fund, and Schafer Capital Equity composite. The returns for the Davis New York
Venture Fund and the Neuberger&Berman Partners Fund are net of actual expenses.
The gross returns for the Schafer Capital Equity Composite have been adjusted
to give effect to the level of annualized expense projected for the Value
Portfolio during the initial fiscal period, which is 1.78%.
Lipper Equity Income Mutual Fund Group - Average Performance
Developed by Lipper Analytical Services, Inc., the Lipper Equity Income Mutual
Fund Group reflects a group of 177 mutual funds which seek relatively high
current income and growth of income through investing 60% or more of assets in
equities. This group was selected because the investment parameters of the
Value Portfolio are consistent with the criteria Lipper used to include funds
in this group.
Growth of a $10,000 Investment (Mountain Chart)
The "Growth of a $10,000 Investment" composite chart reflects ten years of
performance data, weighted 34% Davis New York Venture Fund, 33%
Neuberger&Berman Partners Fund and 33% Schafer Capital Equity composite.
Returns for the Davis New York Venture Fund and the Neuberger&Berman Partners
Fund are net of actual expenses. Gross returns for the Schafer Capital Equity
Composite have been adjusted to give effect to the level of annualized expense
projected for the Value Portfolio during the initial fiscal period, which is
1.78%.
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Advisers for International Equity Portfolio
- ----------------------------------------------------------------------
Average Annual Total Returns
Periods Ended June 30, 1996
One Year
Lipper International Group 15.5%
Combined Adviser Performance 21.2%
Warburg 23.7%
Rowe-Fleming 16.3%
Strong 23.7%
Three Year
Lipper International Group 12.3%
Combined Adviser Performance 15.3%
Warburg 15.9%
Rowe-Fleming 13.7%
Strong 16.0%
Four Year
Lipper International Group 10.3%
Warburg 13.8%
Rowe-Fleming 11.8%
Total Return on $10,000
Four Years Ended June 30, 1996
Combined Lipper
Adviser International
Performance Group
1992 $10,000 $10,000
1993 $10,920 $10,740
1994 $13,901 $12,995
1995 $13,790 $13,151
1996 $16,713 $15,190
INTERNATIONAL EQUITY PORTFOLIO ENDNOTES
Style Select Series - International Equity Portfolio
The Advisers for the International Equity Portfolio are Rowe-Fleming, Strong
and Warburg. The performance results for each Adviser were supplied by such
Adviser and were prepared as set forth below under "Advisers' Past
Performance."
Advisers' Past Performance (Bar Chart)
Individual Adviser Performance
Except as otherwise noted below, an Adviser's performance is presented net of
actual fees. The Portfolio's fees and expenses may be greater than those
charged by the individual Advisers. Accordingly, the Portfolio's actual
performance may be lower.
Rowe-Fleming
Rowe-Fleming's historical performance data covers ten years and
reflects the performance of the Mainstream International Equities
composite managed by Rowe-Fleming. As of December 31, 1995, the
composite included 15 accounts totaling $3.35 billion in assets, or
38% of all assets under management. The annualized ten-year return of
the composite is 11.8% as of June 30, 1996. The performance history
provided by Rowe-Fleming's is calculated in accordance with the
standards set forth by AIMR. The returns for the Mainstream
International Equities composite were supplied to the Fund gross of
fees but have been adjusted to give effect to the level of annualized
expense projected for the International Equity Portfolio during the
initial fiscal period, which is 2.03%.
Strong
Strong's historical performance data covers four and one-quarter years
and reflects the performance of the Strong International Equity
composite which, as of June 30, 1996, included 4 separate accounts
totaling $399 million, or 2% of the firm's total assets under
management, as well as two mutual funds, the Strong International
Stock Fund and the Strong International Stock Fund II. The annualized
return since inception of the composite is 14.5% as of June 30, 1996.
According to Strong, the composite reflects all accounts managed by
the firm within their international investment discipline. The returns
for the Strong International Equity composite were supplied to the
Fund gross of fees, but have been adjusted to give effect to the level
of annualized expense projected for the International Equity Portfolio
during the initial fiscal period, which is 2.03%.
Warburg
Warburg's historical performance data covers seven years and reflects
the performance of the Warburg International Equity Fund, a mutual
fund. The annualized return since inception of the Fund is 13.6% as of
June 30, 1996. As of June 30, 1996, the Warburg International Equity
Fund's net assets totaled $2,943.8 million. According to Warburg, the
Warburg International Equity Fund is the only retail vehicle managed
by Warburg with an international strategy.
Combined Adviser Performance
Performance on the 3-year and one-year composite bar charts reflects a combined
composite weighted equally among Rowe-Fleming Mainstream International Equities
composite, Strong International Equity composite and Warburg International
Equity Fund. The gross returns for the Rowe-Fleming Mainstream International
Equities composite and the Strong International Equity composite have been
adjusted to give effect to the level of annualized expense projected for the
International Equity Portfolio during the initial fiscal period, which is
2.03%. The returns for the Warburg International Equity Fund are net of actual
fees.
Lipper International Mutual Fund Group- Average Performance
Developed by Lipper Analytical Services, Inc., the Lipper International Mutual
Fund Group reflects a group of 373 mutual funds which invest in securities
whose primary trading markets are outside of the United States. This group was
selected because the investment parameters of the International Equity
Portfolio are consistent with the criteria Lipper used to include funds in this
group.
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<PAGE>
Growth of a $10,000 Investment (Mountain Chart)
The "Growth of a $10,000 Investment" composite chart reflects four years of
performance data, and reflects a combined composite weighted 33% Strong
International Equity composite, 33% Rowe-Fleming Mainstream International
Equities composite and 34% Warburg International Equity Fund. The gross returns
for the Strong International Equity composite and the Rowe-Fleming Mainstream
International Equities composite have been adjusted to give effect to the level
of annualized expense projected for the International Equities Portfolio during
the initial fiscal period, which is 2.03%. The returns for the Warburg
International Equity Fund is presented net of actual fund expenses.
INVESTMENT TECHNIQUES AND RISK FACTORS
Unless otherwise specified, each Portfolio may invest in the following
securities. As used herein, the term "Adviser" shall mean either SunAmerica or
one of the Advisers chosen by SunAmerica. Also, the stated percentage
limitations are applied to an investment at the time of purchase unless
otherwise indicated.
Convertible Securities, Preferred Stocks, Warrants and Rights -- Convertible
securities may be debt securities or preferred stock with a conversion
feature. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than non-convertible
securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree. In
recent years, convertibles have been developed which combine higher or lower
current income with options and other features. Generally, preferred stock has a
specified dividend and ranks after bonds and before common stocks in its claim
on income for dividend payments and on assets should the company be liquidated.
While most preferred stocks pay a dividend, a Portfolio may purchase preferred
stock where the issuer has omitted, or is in danger of omitting, payment of its
dividend. Such investments would be made primarily for their capital
appreciation potential. Warrants are options to buy a stated number of shares of
common stock at a specified price any time during the life of the warrants
(generally two or more years). 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, allowing the
stockholder to retain the same ownership percentage after the new stock
offering.
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Investment in Small Cap Companies -- The Aggressive Growth Portfolio will,
and each other Portfolio may, invest in small companies having market
capitalizations of under $1 billion. It may be difficult to obtain reliable
information and financial data on such companies and the securities of these
small companies may not be readily marketable, making it difficult to dispose of
shares when desirable. Securities of small or emerging growth companies may be
subject to more abrupt or erratic market movements than larger, more established
companies or the market average in general. A risk of investing in smaller,
emerging companies is that they often are at an earlier stage of development and
therefore have limited product lines, market access for such products, financial
resources and depth in management than larger, more established companies, and
their securities may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, certain smaller issuers may face difficulties in obtaining
the capital necessary to continue in operation and may go into bankruptcy, which
could result in a complete loss of an investment. Smaller companies also may be
less significant factors within their industries and may have difficulty
withstanding competition from larger companies. While smaller companies may be
subject to these additional risks, they may also realize more substantial growth
than larger, more established companies.
Foreign Securities -- Each Portfolio (other than the International Equity
Portfolio) is authorized to invest up to 30% of its total assets, and the
International Equity Portfolio may invest without limitation, in foreign
securities. Each Portfolio may also invest in U.S. dollar denominated securities
of foreign issuers, including ADRs, as well as EDRs, GDRs or other similar
securities convertible into securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities into which
they may be
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<PAGE>
converted. Each Portfolio also may invest in securities denominated
in European Currency Units (ECUs). An ECU is a "basket" consisting of specified
amounts of currencies of certain of the twelve member states of the European
Community. In addition, the Portfolio may invest in securities denominated in
other currency "baskets." See the Statement of Additional Information for a
further discussion of these types of securities.
Risks of Foreign Securities. Foreign investments may be affected favorably or
unfavorably by changes in currency rates and exchange-control regulations and
costs will be incurred in connection with conversions between various
currencies. The value of a security may fluctuate as a result of currency
exchange rates in a manner unrelated to the underlying value of the security.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies may be less liquid or more volatile than securities of U.S. companies,
and foreign brokerage commissions and custodian fees are generally higher than
in the U.S. In addition, there is generally less governmental regulation of
stock exchanges, brokers and listed companies abroad than in the U.S.
Investments in foreign securities may also be subject to other risks, different
from those affecting U.S. investments, including local political or economic
developments, expropriation or nationalization of assets, confiscatory taxation
and imposition of withholding taxes on income from sources within such
countries.
Emerging Markets. Investments may be made from time to time in
issuers domiciled in, or government securities of, developing countries or
emerging markets. Although there is no universally accepted definition, a
developing country is generally considered to be a country in the
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initial stages of its industrialization cycle with a low per capita gross
national product. Historical experience indicates that the markets of developing
countries or emerging markets have been more volatile than the markets of
developed countries; however, such markets can provide higher rates of return to
investors. Investment in an emerging market country may involve certain risks,
including a less diverse and mature economic structure, a less stable political
system, an economy based on only a few industries or dependent on international
aid or development assistance, the vulnerability to local or global trade
conditions, extreme debt burdens, or volatile inflation rates.
Foreign Currency Transactions. Each Portfolio has the ability to hold a
portion of its assets in foreign currencies and to enter into forward foreign
currency exchange contracts. It may also purchase and sell exchange-traded
futures contracts relating to foreign currency and purchase and sell put and
call options on currencies and futures contracts.
Each Portfolio may enter into forward foreign currency exchange contracts
to reduce the risks of fluctuations in exchange rates; however, these
contracts cannot eliminate all such risks and do not eliminate fluctuations in
the prices of the Portfolio's portfolio securities.
Each Portfolio may purchase and write put and call options on currencies
for the purpose of protecting against declines in the U.S. dollar
value of foreign portfolio securities and against increases in the U.S. dollar
cost of foreign securities to be acquired. The purchase of an option on currency
may constitute an effective hedge against exchange rate fluctuations; however,
in the event of exchange rate movements adverse to a Portfolio's position, the
Portfolio may forfeit the entire amount of the premium plus related transaction
costs. As with other kinds of option transactions, however, the writing of an
option on currency will constitute only a partial hedge, up
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to the amount of the premium received, and a Portfolio could be required to
purchase or sell currencies at disadvantageous exchange rates, thereby
incurring losses.
Each Portfolio may enter into forward foreign currency exchange contracts,
currency options and currency swaps for non-hedging purposes when an Adviser
anticipates that a foreign currency will appreciate or depreciate in value, but
securities denominated in that currency do not present attractive investment
opportunities or are not included in such portfolio. The Portfolio may use
currency contracts and options to cross-hedge, which involves selling or
purchasing instruments in one currency to hedge against changes in exchange
rates for a different currency with a pattern of correlation. To limit any
leverage in connection with currency contract transactions for hedging or
non-hedging purposes, a Portfolio will segregate cash or liquid securities in an
amount sufficient to meet its payment obligations in these transactions or
otherwise "cover" the obligation. Initial margin deposits made in connection
with currency futures transactions or premiums paid for currency options traded
over-the-counter or on a commodities exchange may each not exceed 5% of a
Portfolio's total assets in the case of non-bona fide hedging transactions.
Each Portfolio may enter into currency swaps. Currency swaps involve the
exchange by a Portfolio with another party of their respective rights to make or
receive payments in specified currencies. Currency swaps usually involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. A Portfolio will maintain in a
segregated account with its custodian cash or liquid securities equal to the net
amount, if any, of the excess of the Portfolio's
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<PAGE>
obligations over its entitlements with respect to swap transactions. To the
extent that the net amount of a swap is held in a segregated account
consisting of cash or liquid securities, the Fund believes that swaps do not
constitute senior securities under the 1940 Act and, accordingly, they will
not be treated as being subject to the Portfolio's borrowing restrictions. The
use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If an Adviser is incorrect in its forecasts
of market values and currency exchange rates, the investment performance of a
Portfolio would be less favorable than it would have been if this investment
technique were not used.
Foreign Investment Companies. The International Equity Portfolio may invest
in foreign investment companies to the extent set forth below. Some of the
countries in which the Portfolio invests may not permit direct investment by
foreign investors such as the Portfolio. Investments in such countries may only
be permitted through foreign government-approved or authorized investment
vehicles, which may include other investment companies. In addition, it may be
less expensive and more expedient for the Portfolio to invest in a foreign
investment company in a country that permits direct foreign investment.
Investing through such vehicles may involve frequent or layered fees or expenses
and may also be subject to limitation under the 1940 Act. Under the 1940 Act, a
fund may invest up to 10% of its assets in shares of other investment companies
and up to 5% of its assets in any one investment company as long as the
investment does not represent more than 3% of the voting stock of the acquired
investment company. The Portfolio does not intend to invest in such investment
companies unless, in the judgment of the
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Adviser, the potential benefits of such investments justify the payment of
any associated fees and expenses.
Fixed Income Securities -- Fixed income securities are broadly characterized
as those that provide for periodic payments to the holder of the security at a
stated rate. Most fixed income securities, such as bonds, represent indebtedness
of the issuer and provide for repayment of principal at a stated time in the
future. Others do not provide for repayment of a principal amount, although they
may represent a priority over common stockholders in the event of the issuer's
liquidation. Many fixed income securities are subject to scheduled retirement,
or may be retired or "called" by the issuer prior to their maturity dates. The
interest rate on certain fixed income securities, known as "variable rate
obligations," is determined by reference to or is a percentage of an objective
standard, such as a bank's prime rate, the 90-day Treasury bill rate, or the
rate of return on commercial paper or bank certificates of deposit, and is
periodically adjusted. Certain variable rate obligations may have a demand
feature entitling the holder to resell the securities at a predetermined amount.
The interest rate on certain fixed income securities, called "floating rate
instruments," changes whenever there is a change in a designated base rate.
The market values of fixed income securities tend to vary inversely with the
level of interest rates -- when interest rates rise, their values will tend to
decline; when interest rates decline, their values generally will tend to rise.
The potential for capital appreciation with respect to variable rate obligations
or floating rate instruments will be less than with respect to fixed-rate
obligations. Long-term instruments are generally more sensitive to these changes
than short-term instruments. The market value of fixed income securities and
therefore their yield is also affected by the perceived ability of the issuer to
make timely payments of principal and interest.
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U.S. Government Securities -- Securities guaranteed by the U.S. government
include the following: (1) direct obligations of the U.S. Treasury (such as
Treasury bills, notes and bonds) and (2) federal agency obligations guaranteed
as to principal and interest by the U.S. Treasury (such as Government National
Mortgage Association certificates and Federal Housing Administration
debentures). For these securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. government. They are of the highest
possible credit quality. These securities are subject to variations in market
value due to fluctuations in interest rates, but if held to maturity, are
guaranteed by the U.S. government to be paid in full.
Securities issued by U.S. government instrumentalities and certain federal
agencies are neither direct obligations of, nor are they guaranteed by, the U.S.
Treasury. However, they involve federal sponsorship in one way or another. For
example, some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but are
not limited to, the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, Federal Land Banks, Farmers Home Administration, Central
Bank for Cooperatives, Federal Intermediate Credit Banks and Federal Home Loan
Banks.
Corporate Debt Instruments -- These instruments, such as bonds, represent
the obligation of the issuer to repay a principal amount of indebtedness at a
stated time in the future and, in the usual case, to make periodic interim
payments of interest at a stated rate.
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Investment Grade -- A designation applied to intermediate and long-term
corporate debt securities rated within the highest four rating categories
assigned by S&P (AAA, AA, A or BBB) or by Moody's (Aaa, Aa, A or Baa), or,
if unrated, considered by the Adviser to be of comparable quality. The
ability of the issuer of an investment grade debt security to pay interest
and to repay principal is considered to vary from extremely strong (for the
highest ratings) through adequate (for the lowest ratings given above),
although the lower-rated investment grade securities may be viewed as having
speculative elements as well.
High-Yield, High Risk Bonds -- A designation applied to intermediate and
long-term corporate debt securities that are not investment grade; commonly
referred to as "junk bonds". These include bonds rated below BBB by S&P, or
Baa by Moody's, or which are unrated but considered by the Adviser to be of
equivalent quality. These securities are considered speculative. See the
Statement of Additional Information for a complete description of bond
ratings.
The Mid-Cap Growth Portfolio may invest in debt securities rated as low as "BBB"
by S&P, "Baa" by Moody's, or unrated securities determined by the Adviser to be
of comparable quality. The Aggressive Growth, Value and International Equity
Portfolios may invest in debt securities rated below investment grade (i.e.,
below "BBB" by S&P, or below "Baa" by Moody's, or if unrated, determined by the
Adviser to be of equivalent quality).
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Risk Factors Relating to High-Yield, High-Risk Bonds -- High-yield, high-risk
bonds are subject to greater fluctuations in value than are higher rated bonds
because the values of high-yield bonds tend to reflect short-term corporate,
economic and market developments and investor perceptions of the issuer's credit
quality to a greater extent. Although under normal market conditions longer-term
securities yield more than shorter-term securities, they are subject to greater
price fluctuations. Fluctuations in the value of a Portfolio's investments will
be reflected in its net asset value per share. The growth of the high-yield bond
market paralleled a long economic expansion, followed by an economic downturn
which severely disrupted the market for high-yield bonds and adversely affected
the value of outstanding bonds and the ability of the issuers to repay principal
and interest. The economy may affect the market for high-yield bonds in a
similar fashion in the future including an increased incidence of defaults on
such bonds. From time to time, legislation may be enacted which could have a
negative effect on the market for high-yield bonds.
High-yield bonds present the following risks:
Sensitivity to Interest Rate and Economic Changes -- High-yield, high-risk
bonds are very sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay interest
or principal or entered into bankruptcy proceedings, a Portfolio may incur
losses or expenses in seeking recovery of amounts owed to it. In addition,
periods of economic uncertainty and changes can be expected to result in
increased
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volatility of market prices (and therefore yields) of high-yield bonds
and the Portfolio's net asset value.
Payment Expectations -- High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest-rate market, an Adviser would have to replace the security with a
lower-yielding security, resulting in a decreased return for investors.
Conversely, a high-yield bond's value will decrease in a rising interest rate
market, as will the value of the Portfolio's assets. If the Portfolio
experiences unexpected net redemptions, this may force it to sell high-yield
bonds without regard to their investment merits, thereby decreasing the asset
base upon which expenses can be spread and possibly reducing the Portfolio's
rate of return.
Liquidity and Valuation -- There may be little trading in the secondary
market for particular bonds, which may affect adversely a Portfolio's ability to
value accurately or dispose of such bonds. Under such circumstances, the task of
accurate valuation becomes more difficult and judgment would play a greater role
due to the relative lack of reliable and objective data. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of high-yield bonds, especially in a thin market.
Each Adviser attempts to reduce these risks through diversification of the
assets under its control 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 component is downgraded, the
Advisers, as appropriate, will evaluate the security and determine whether to
retain or dispose of it.
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Asset-Backed Securities -- These securities represent an interest in
a pool of consumer or other types of loans. Payments of principal and
interest on the underlying loans are passed through to the holders of
asset-backed securities over the life of the securities. See the Statement
of Additional Information.
Zero Coupon Bonds, Step-Coupon Bonds, Deferred Interest Bonds and PIK Bonds.
Fixed income securities in which a Portfolio may invest also include zero
coupon bonds, step-coupon bonds, deferred interest bonds and bonds on which the
interest is payable in kind ("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. PIK bonds are debt obligations which provide
that the issuer thereof may, at its option, pay interest on such bonds in cash
or in the form of additional debt obligations. Such investments may experience
greater volatility in market value due to changes in interest rates and other
factors than debt obligations which make regular payments of interest. A
Portfolio will accrue income on such investments for tax and accounting
purposes, as required, which is distributable to shareholders and which,
because no cash is received at the time of accrual, may require the liquidation
of other portfolio securities under disadvantageous circumstances to satisfy
the Portfolio's distribution obligations.
Short-Term and Temporary Defensive Investments -- In addition to their
primary investments, each Portfolio may also invest up to 25% of its total
assets in both U.S. and non-U.S. dollar denominated money market instruments
(a) for liquidity purposes (to meet redemptions and expenses) or (b) to
generate a return on idle cash held in a Portfolio's portfolio during periods
when an Adviser is unable to locate favorable investment opportunities. For
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temporary defensive purposes, each Portfolio may invest up to 100% of its total
assets in cash and short term fixed income securities, including corporate debt
obligations and money market instruments rated in one of the two highest
categories by a nationally recognized statistical rating organization (or
determined by the Adviser to be of equivalent quality). In addition, Janus and
Neuberger&Berman may invest idle cash of the assets under their control in
money market mutual funds that they manage. Such an investment may entail
additional fees. See the Statement of Additional Information for a description
of short-term debt securities and the Appendix to the Statement of Additional
Information for a description of securities ratings.
Repurchase Agreements -- Under these types of agreement, a Portfolio buys a
security and obtains a simultaneous commitment from the seller to repurchase the
security at a specified time and price. The seller must maintain collateral with
the Fund's custodian (or at an appropriate sub-custodian in the case of tri-or
quad-party repurchase agreements) equal to at least 102% of the repurchase
price, plus accrued interest. A Portfolio will only enter into repurchase
agreements involving securities in which it could otherwise invest and with
selected banks and securities dealers whose financial condition is monitored by
the Adviser, subject to the guidance of the Directors. If the seller under the
repurchase agreement defaults, the Portfolio may incur a loss if the value of
the collateral securing the repurchase agreement has declined, and may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, realization of the
collateral by the Portfolio may be delayed or limited.
Hedging and Income Enhancement Strategies -- Each Portfolio may write
covered calls to enhance income. After writing such a covered call up to 25% of
a Portfolio's total assets
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may be subject to calls. All such calls written by a Portfolio must be "covered"
while the call is outstanding (i.e., the Portfolio must own the securities
subject to the call or other securities acceptable for applicable escrow
requirements). For hedging purposes or income enhancement, each Portfolio may
use interest rate futures, and stock and bond index futures, including futures
on U.S. government securities (together, "Futures"); forward contracts on
foreign currencies; and call and put options on equity and debt securities,
Futures, stock and bond indices and foreign currencies (all of the foregoing are
referred to as "Hedging Instruments"). All puts and calls on securities,
interest rate futures or stock and bond index futures or options on such Futures
purchased or sold by a Portfolio will be listed on a national securities or
commodities exchange or on U.S. over-the-counter markets.
Each Portfolio may use spread transactions for any lawful purpose consistent
with the Portfolio's investment objective such as hedging or managing
risk, but not for speculation. A Portfolio may purchase covered spread options
from securities dealers. Such covered spread options are not presently
exchange-listed or exchange-traded. 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 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 only provided during the life
of the spread option.
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Special Risks of Hedging and Income Enhancement Strategies. 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 Advisers' 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. Risks inherent in the use
of options, foreign currency and Futures contracts and options on Futures
contracts include (1) dependence on the Advisers' ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and Futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of the Portfolio to
purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for the Portfolio to sell a
portfolio security at a disadvantageous time, due to the need for the Portfolio
to maintain "cover" or to segregate securities in connection with hedging
transactions. A transaction is "covered" when the Portfolio owns the security
subject to the option on such security, or some other security acceptable for
applicable escrow requirements. See the Statement of Additional Information for
further information concerning income enhancement and hedging strategies and the
regulation requirements relating thereto.
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Illiquid and Restricted Securities -- No more than 15% of the value of a
Portfolio's net assets may be invested in securities which are illiquid,
including repurchase agreements that have a maturity of longer than seven days,
interest rate swaps, currency swaps, caps, floors and collars. For this purpose,
not all securities which are restricted are deemed to be illiquid. For example,
restricted securities which the Board of Directors, or the Adviser pursuant to
guidelines established by the Board of Directors, has determined to be
marketable, such as securities eligible for sale under Rule 144A promulgated
under the Securities Act of 1933, as amended, or certain private placements of
commercial paper issued in reliance on an exemption from such Act pursuant to
Section 4(2) thereof, may be deemed to be liquid for purposes of this
restriction. This investment practice could have the effect of increasing the
level of illiquidity in the Portfolio to the extent that qualified institutional
buyers (as defined in Rule 144A) become for a time uninterested in purchasing
these restricted securities. In addition, a repurchase agreement which by its
terms can be liquidated before its nominal fixed-term on seven days or less
notice is regarded as a liquid instrument. Subject to the applicable limitation
on illiquid securities investments, a Portfolio may acquire securities issued by
the U.S. government, its agencies or instrumentalities in a private placement.
See "Illiquid Securities" in the Statement of Additional Information for a
further discussion of investments in such securities.
Hybrid Instruments -- These instruments, including indexed or 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
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below market (or even relatively nominal) rates. Under certain conditions, the
redemption value of such an investment could be zero.
Borrowing -- As a matter of fundamental policy each Portfolio is authorized
to borrow up to 33 1/3% of its total assets from banks for temporary or
emergency purposes. In seeking to enhance investment performance, each
Portfolio may borrow money for investment purposes and may pledge assets to
secure such borrowings. This is the speculative factor known as leverage. This
practice may help increase the net asset value of the assets of a Portfolio in
an amount greater than would otherwise be the case when the market values of the
securities purchased through borrowing increase. In the event the return on an
investment of borrowed monies does not fully recover the costs of such
borrowing, the value of the Portfolio's assets would be reduced by a greater
amount than would otherwise be the case. The effect of leverage will therefore
tend to magnify the gains or losses to the Portfolio as a result of investing
the borrowed monies. During periods of substantial borrowings, the value of the
Portfolio's assets would be reduced due to the added expense of interest on
borrowed monies. Each Portfolio is authorized to borrow, and to pledge assets to
secure such borrowings, up to the maximum extent permissible under the 1940 Act
(i.e., presently 50% of net assets). The time and extent to which a Portfolio
may employ leverage will be determined by the Adviser in light of changing facts
and circumstances, including general economic and market conditions, and will be
subject to applicable lending regulations of the Board of Governors of the
Federal Reserve Board.
Securities Lending -- Each Portfolio may lend portfolio securities in amounts
up to 33 1/3% of its respective total assets to brokers, dealers and other
financial institutions, provided such loans are callable at any time by the
Portfolio and are at all times secured by cash or
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equivalent collateral. By lending its portfolio securities, a Portfolio will
receive income while retaining the securities' potential for capital
appreciation. As with any extensions of credit, there are risks of delay in
recovery and, in some cases, even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will be made only to firms deemed by the Adviser to be creditworthy.
The proceeds of such loans will be invested in high-quality short-term debt
securities, including repurchase agreements.
When-Issued, Delayed Delivery and Forward Transactions -- These generally
involve the purchase of a security with payment and delivery at some time in the
future - i.e., beyond normal settlement. A Portfolio does not earn interest on
such securities until settlement and bears the risk of market value fluctuations
in between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner.
One form of when-issued or delayed delivery security that each Portfolio may
purchase 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.
Short Sales -- Each Portfolio may sell a security it does not own in
anticipation of a decline in the market value of that security (short sales).
To complete such a transaction, a Portfolio must borrow the security to make
delivery to the buyer. The Portfolio then is obligated to replace the security
borrowed by purchasing it at market price at the time of replacement. The price
at such time may be more or less than the price at which the security was sold
by the Portfolio. Until the security is replaced, the Portfolio is required to
pay to the lender any dividends or interest which accrue during the period of
the loan. To borrow the security, the
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Portfolio also may be required to pay a premium, which would increase the cost
of the security sold. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the short
position is closed out. Until the Portfolio replaces a borrowed security, the
Portfolio will maintain daily a segregated account, containing cash or liquid
securities, at such a level that (i) the amount deposited in the account plus
the amount deposited with the broker as collateral will equal the current value
of the security sold short and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not be less
than the market value of the security at the time it was sold short. A Portfolio
will incur a loss as a result of the short sale if the price of the security
increases between the date of the short sale and the date on which the Portfolio
replaces the borrowed security. A Portfolio will realize a gain if the security
declines in price between those dates. This result is the opposite of what one
would expect from a cash purchase of a long position in a security. The amount
of any gain will be decreased, and the amount of any loss increased, by the
amount of any premium, dividends or interest the Portfolio may be required to
pay in connection with a short sale.
Each Portfolio may make "short sales against the box." A short sale is against
the box to the extent that the Portfolio contemporaneously owns, or has the
right to obtain without payment, securities identical to those sold short. A
Portfolio may not enter into a short sale, including a short sale against the
box, if, as a result, more than 25% of its net assets would be subject to such
short sales.
Special Situations -- A "special situation" arises when, in the opinion of
the Adviser, the securities of a particular issuer will be recognized and
appreciate in value due to a specific
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development with respect to that issuer. Developments creating a special
situation might include, among others, a new product or process, a technological
breakthrough, a management change or other extraordinary corporate event, or
differences in market supply of and demand for the security. Investment in
special situations may carry an additional risk of loss in the event that the
anticipated development does not occur or does not attract the expected
attention.
Future Developments -- Each Portfolio may invest in securities and other
instruments which 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 will be amended or supplemented as
appropriate to discuss any such new investments.
See the Statement of Additional Information for further information
concerning these and other types of securities and investment techniques
in which the Portfolio may from time to time invest, including dollar rolls,
standby commitments and reverse repurchase agreements.
MANAGEMENT OF THE FUND
Directors. The Directors of the Fund are responsible for the overall
supervision of the operations of the Fund and each Portfolio and
perform various duties imposed on directors of investment companies by
the 1940 Act and by the State of Maryland.
SunAmerica Asset Management Corp. SunAmerica is an indirect wholly owned
subsidiary of SunAmerica Inc., an investment-grade financial services company
which has over $35 billion in assets. SunAmerica Inc.'s principal executive
offices are located at 1 SunAmerica Center, Century City, Los Angeles, CA
90067-6022. In addition to managing the Fund and
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serving as an Adviser to the Aggressive Growth Portfolio, SunAmerica and its
affiliates serve as adviser, manager and/or administrator for Anchor Pathway
Fund, Anchor Series Trust, SunAmerica Equity Funds, SunAmerica Income Funds,
SunAmerica Money Market Funds, Inc., and SunAmerica Series Trust. SunAmerica and
its affiliates managed, advised and/or administered assets of approximately $8.5
billion as of October 31, 1996 for investment companies, individuals, pension
accounts, and corporate and trust accounts.
SunAmerica selects the Advisers for and/or manages the investments of each
Portfolio, provides various administrative services and supervises the
Portfolio's daily business affairs, subject to general review by the Directors.
The Investment Advisory and Management Agreement entered into between SunAmerica
and the Fund, on behalf of each Portfolio (the "Management Agreement")
authorizes SunAmerica to manage the assets of each Portfolio and/or to retain
the Advisers to do so. SunAmerica monitors the activities of the Advisers, and
from time to time will recommend the replacement of an Adviser on the basis of
investment performance or other considerations.
The annual rate of the investment advisory fee payable to SunAmerica that
applies to each of the Aggressive Growth, Mid-Cap Growth and Value Portfolio is
1.00% of Assets. The annual rate of the investment advisory fee payable to
SunAmerica that applies to the International Equity Portfolio is 1.10% of
Assets. The term "Assets" means the average daily net assets of the Portfolio.
The investment advisory fees are accrued daily and paid monthly, and may be
higher than those charged to other funds.
SunAmerica has voluntarily agreed to waive fees or reimburse expenses, if
necessary, to keep annual operating expenses at or below the
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following percentages of each Portfolio's average net assets: Aggressive Growth
Portfolio 1.90% for Class A shares and 2.55% for Class B shares, Mid-Cap
Portfolio 1.90% for Class A shares and 2.55% for Class B shares, Value
Portfolio 1.90% for Class A shares and 2.55% for Class B shares and
International Equity Portfolio 2.15% for Class A shares and 2.80% for Class B
shares. SunAmerica also may voluntarily waive or reimburse additional amounts to
increase the investment return to a Portfolio's investors. SunAmerica may
terminate all such waivers and/or reimbursements at any time. Further, any
waivers or reimbursements made by SunAmerica 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 SunAmerica and
remain in compliance with the foregoing expense limitations.
The Advisers. The organizations described below act as Advisers to the
respective Portfolio pursuant to agreements with SunAmerica (each, a
"Subadvisory Agreement" and collectively the "Subadvisory Agreements"). The
duties of each Adviser include furnishing continuing advice and recommendations
to the relevant portion of the respective Portfolio regarding securities to be
purchased and sold. Each Adviser, therefore, generally formulates the continuing
program for management of the Assets under its control consistent with the
Portfolio's investment objectives and the investment policies established by the
Board. Because each Adviser manages its portion of its respective Portfolio
independently of the Portfolio's other Advisers, the same security may be held
in two different portions of the same Portfolio, or may be acquired for one
portion of the Portfolio at the time that the Adviser to another portion of the
Portfolio deems it appropriate to dispose of the security from that other
portion. Under some market conditions, one or more of the Advisers may believe
that temporary, defensive investments in short-term instruments or cash are
appropriate when another Adviser or Advisers believe continued exposure to the
equity markets is appropriate for their portions of the Portfolio.
Each of the Advisers (other than SunAmerica) is independent of SunAmerica and
discharges its responsibilities subject to the oversight and supervision of
SunAmerica, which pays the Advisers' fees. Each Adviser is paid monthly by
SunAmerica a fee equal to a percentage of the Assets of the Portfolio allocated
to the Adviser. Assuming a level of Assets of $100 million for each Portfolio,
it is estimated that the aggregate annual rates of the fees payable by
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SunAmerica to the Advisers for each Portfolio the first year of operation will
be the following, expressed as a percentage of the Assets of each Portfolio:
Aggressive Growth Portfolio, .37%; Mid-Cap Growth Portfolio, .50%; Value
Portfolio, .50%; and International Equity Portfolio, .63%. There can be no
assurance that the Portfolio will achieve a level of Assets in the amount
estimated.
SunAmerica may terminate any Subadvisory Agreement without shareholder
approval. Moreover, SunAmerica has applied for an exemptive order from the
Securities and Exchange Commission which, if received, would permit SunAmerica,
subject to certain conditions, to enter into Subadvisory Agreements relating to
the Fund with Advisers approved by the Board without obtaining shareholder
approval. The exemptive order also permits SunAmerica, subject to the approval
of the Board but without shareholder approval, to employ new Advisers for new or
existing Portfolios, change the terms of particular Subadvisory Agreements or
continue the employment of existing Advisers after events that would otherwise
cause an automatic termination of a Subadvisory Agreement. Shareholders of a
Portfolio have the right to terminate a Subadvisory Agreement for such Portfolio
at any time by a vote of the majority of the outstanding voting securities of
such Portfolio. Shareholders will be notified of any Adviser changes. The order
also permits the Fund to disclose to shareholders the Advisers' fees only in the
aggregate for each Portfolio.
<PAGE>
Aggressive Growth Portfolio.
The Advisers for the Aggressive Growth Portfolio are
Janus, SunAmerica and Warburg.
Janus Capital Corporation. Janus is a Colorado corporation located at 100
Fillmore Street, Denver, Colorado 80296-4923, and serves as investment adviser
or subadviser to mutual funds and individual, corporate, charitable and
retirement accounts. Kansas City Southern Industries, Inc. ("KCSI") owns
approximately 83% of the outstanding voting stock of Janus. Thomas H. Bailey,
President and Chairman of the Board of Janus, owns approximately 12% of its
voting stock and, by agreement with KCSI,
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selects a majority of Janus' Board. As of June 30, 1996, Janus had under
management more than $39 billion in assets.
Scott W. Schoelzel serves as Portfolio Manager for Janus' portion of the
Aggressive Growth Portfolio. Mr. Schoelzel joined Janus in January 1994. From
1991 to 1993, Mr. Schoelzel was a portfolio manager with Founders Asset
Management, Inc. Prior to 1991, he was a general partner of Ivy Lane
Investments in Denver, Colorado (a real estate investment partnership).
SunAmerica Asset Management Corp. SunAmerica is described above. Audrey L.
Snell serves as Portfolio Manager for SunAmerica's portion of the Aggressive
Growth Portfolio. Ms. Snell is a Senior Vice President of SunAmerica and has
been a portfolio manager with the firm since 1991.
Warburg, Pincus Counsellors, Inc. Warburg is a professional investment
counseling firm, incorporated in Delaware in 1970. Located at 466 Lexington
Avenue, New York, New York 10017-3147, Warburg provides investment services to
investment companies, employee benefit plans, endowment funds, foundations and
other institutions and individuals. As of February 29, 1996, Warburg managed
approximately $14.0 billion in assets. Warburg is a wholly-owned subsidiary of
Warburg, Pincus Counsellors G.P. ("Warburg, G.P."), a New York general
partnership. E.M. Warburg, Pincus & Co., Inc. controls Warburg through its
ownership of a class of voting preferred stock of Warburg.
The Portfolio Managers of Warburg's portion of the Aggressive Growth
Portfolio are Elizabeth B. Dater and Stephen J. Lurito. Ms. Dater is a
managing director of E.M. Warburg, Pincus & Co., Inc. and has been a
Portfolio Manager of Warburg since 1978. Mr. Lurito is a managing
director of E.M. Warburg, Pincus & Co., Inc. and has been a Portfolio
Manager of Warburg since 1987, before which time he was a research
analyst at Sanford C. Bernstein & Company, Inc.
Mid-Cap Growth Portfolio.
The Advisers for the Mid-Cap Growth Portfolio are MAS, PBHG and
T. Rowe Price.
Miller Anderson & Sherrerd, LLP. MAS, a Pennsylvania limited liability
partnership founded in 1969, is located at One Tower Bridge, West Conshohocken,
Pennsylvania 19428. MAS provides investment services to employee benefit
plans, endowment funds, foundations and other institutional investors. Morgan
Stanley Group Inc. is MAS's sole general partner, and Morgan Stanley Asset
Management Holdings, Inc. and two other wholly-owned subsidiaries of Morgan
Stanley Group Inc. are MAS's limited partners. As of April 19, 1996, MAS
had in excess of $35 billion in assets under management.
Arden C. Armstrong and John D. Connolly serve as Portfolio Managers for
MAS's portion of the Mid-Cap Growth Portfolio. Ms. Armstrong joined MAS as a
Portfolio Manager in 1986. Mr. Connolly served as Vice President and Chief
Investment Strategist at Dean Witter Reynolds from 1984 to 1990 and joined
MAS as a Portfolio Manager in 1990.
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Pilgrim Baxter & Associates, Ltd. PBHG, a Delaware corporation, is located
at 1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087, and is a
professional investment management firm and registered investment adviser that,
along with its predecessors, has been in business since 1982. PBHG provides
advisory services to pension and profit-sharing plans, charitable institutions,
corporations, individual investors, trusts and estates, and other investment
companies. The controlling shareholder of PBHG is United Asset Management
Corporation ("UAM"), an NYSE listed holding company principally engaged, through
affiliated firms, in providing institutional investment management services and
acquiring institutional investment management firms. UAM's corporate
headquarters are located at One International Place, Boston, Massachusetts
02110. As of June 30, 1996, PBHG had assets under management of approximately
$12 billion.
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Gary L. Pilgrim, Bruce J. Muzina and James D. McCall serve as Portfolio
Managers for PBHG's portion of the Mid-Cap Growth Portfolio. Mr. Pilgrim has
served as the Chief Investment Officer for PBHG for the past six
years, and has been its President since 1993. He is also a chartered financial
analyst. Mr. Muzina joined PBHG in 1985 from Citibank, where he was Vice
President/Portfolio Manager of U.S. equity portfolios for international
institutional accounts. Mr. McCall, also a chartered financial analyst, was
Vice President of Provident Mutual Management, Inc. from May 1986 to March 1992,
and the Vice President of the Trust Investment Division for First Maryland Bank
Corporation from May 1992 to October 1994. He joined PBHG in November 1994.
T. Rowe Price Associates, Inc. T. Rowe Price is a Maryland corporation
located at 100 East Pratt Street, Baltimore, Maryland 21202. Founded in 1937 by
the late Thomas Rowe Price, Jr., T. Rowe Price and its affiliates managed over
$75 billion for over three and a half million individual and institutional
investor accounts as of December 31, 1995. T. Rowe Price is a publicly traded
company.
T. Rowe Price's portion of the Mid-Cap Growth Portfolio is advised by an
Investment Advisory Committee composed of Brian W.H. Berghuis, Chairman, Marc
L. Baylin, James A.C. Kennedy and John F. Wakeman. Mr. Berghuis has day-to-day
responsibility for managing the assets and works with the committee in
developing and executing the investment program. Mr. Berghuis has been
managing investments since 1988, and joined T. Rowe Price in 1985.
Value Portfolio
The Advisers for the Value Portfolio are Davis, Neuberger&Berman and Strong.
Schafer, pursuant to a subcontract with Strong, serves as Adviser to Strong's
portion of Value Portfolio.
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Davis Selected Advisers, L.P. Davis is a Colorado limited partnership,
located at 124 East March Street, Santa Fe, New Mexico 87501, and .
Venture Advisers, Inc. is Davis' sole general partner. Shelby M.C.
Davis is the controlling shareholder of the general partner. As of June 30,
1996 Davis had assets under management of approximately $5.3 billion. In
performing its investment advisory services, Davis, while remaining ultimately
responsible for its management of the portion of the assets of the Value
Portfolio allocated to it, is able to draw on the portfolio management,
research and market expertise of its affiliates (including Davis Selected
Advisers -- NY, Inc.) in performing such services.
Shelby M.C. Davis serves as the primary Portfolio Manager for Davis' portion
of the Value Portfolio. Since 1969, he has been a director of Davis' general
partner. Christopher C. Davis serves as the portfolio co-manager. He has been
employed by Davis since September 1989 as an assistant portfolio manager and
research analyst.
Neuberger&Berman, L.P. Neuberger&Berman is a New York limited partnership,
located at 605 Third Avenue, New York, New York 10158-0180. Neuberger&Berman has
been in the investment advisory business since 1939. As of September 30, 1995
Neuberger&Berman and its affiliates, had assets under management of
approximately $37.6 billion.
Michael M. Kassen and Robert I. Gendelman serve as Portfolio Managers to
Neuberger&Berman's portion of the Value Portfolio. Mr. Kassen has been Managing
Director since January 1994 and a Vice President and Portfolio Manager since
June 1990, of Neuberger&Berman Management, Inc. and a general partner of
Neuberger&Berman since January 1993. Mr. Gendelman is a senior portfolio manager
for Neuberger&Berman and an Assistant Vice President of Neuberger&Berman
Management, Inc. He was a portfolio manager for another mutual fund manager
from 1992 to 1993 and was managing partner of an investment partnership from
1988 to 1992.
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Strong Capital Management, Inc. Strong is a Wisconsin corporation, with a
principal mailing address at P.O. Box 2936, Milwaukee, Wisconsin 53201, and
since it began conducting business in 1974, Strong's principal business has been
providing continuous investment supervision for individuals and institutional
accounts, such as pension funds and profit-sharing plans, as well as mutual
funds, several of which are funding vehicles for variable insurance products.
Mr. Richard S. Strong is the controlling shareholder of Strong. As of July 31,
1996, Strong had over $20 billion under management. Pursuant to an agreement
between Strong and Schafer, under which Schafer manages Strong's portion of
Value Portfolio, SunAmerica pays an advisory fee directly to Strong, and Strong
pays Schafer's fee.
Schafer Capital Management, Inc. Schafer is a Delaware corporation, located
at 645 Fifth Avenue, New York, New York 10022, and serves as investment adviser
to a number of equity accounts. An affiliate of Schafer, Schafer Cullen Capital
Management, Inc. serves as investment adviser to equity accounts for
individuals, tax-exempt equity accounts, charitable foundation accounts and
other equity accounts. David K. Schafer is Schafer's controlling person (within
the meaning of the 1940 Act) and sole shareholder. As of July 31, 1996, Schafer
had assets under management of approximately $395 million.
David K. Schafer serves as the Portfolio Manager of Strong's portion of the
Value Portfolio. Mr. Schafer has been in the investment management business for
more than twenty-five years. Mr. Schafer founded Schafer in 1984, and is the
President of Schafer and also a minority shareholder of Schafer Cullen Capital
Management, Inc.
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International Equity Portfolio
The Advisers for the International Equity Portfolio are Rowe-Fleming,
Strong and Warburg.
Rowe Price-Fleming International, Inc. Rowe-Fleming is a Maryland corporation,
incorporated in 1979 as a joint venture between T. Rowe Price and Robert
Flemings Holding Limited ("Flemings"). It is located at 100 East Pratt Street,
Baltimore, Maryland 21202. T. Rowe Price, Flemings and Jardine Fleming Group
Limited ("Jardine Fleming") are the owners of Rowe-
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Fleming. The common stock of Rowe-Fleming is 50% owned by a wholly owned
subsidiary of T. Rowe Price, 25% by a subsidiary of Flemings, and 25% by Jardine
Fleming. (Half of Jardine Fleming is owned by Flemings and half by Jardine
Matheson Holdings Limited.) T. Rowe Price has the right to elect a majority of
the Board of Directors of Rowe-Fleming, and Flemings has the right to elect the
remaining directors, one of whom will be nominated by Jardine Fleming. As of
December 31, 1995, Rowe-Fleming managed over $22 billion of foreign assets.
The Portfolio Managers for Rowe-Fleming's portion of the International Equity
Portfolio are Martin G. Wade, Christopher D. Alderson, Peter B. Askew, Mark
Bickford-Smith, Mark J.T. Edwards, John R. Ford and James B.M. Seddon. Martin
Wade joined Rowe-Fleming in 1979 and has 26 years of experience with the Fleming
Group in research, client service, and investment management. (Fleming Group
includes Flemings and/or Jardine Fleming.) Christopher Alderson joined
Rowe-Fleming in 1988 and has nine years of experience with the Fleming Group in
research and portfolio management. Peter Askew joined Rowe-Fleming in 1988 and
has 20 years of experience managing multi-currency fixed income portfolios. Mark
Bickford-Smith joined Rowe-Fleming in 1995 and has ten years of experience in
investment management with the Fleming Group in Tokyo. Mark Edwards joined
Rowe-Fleming in 1986 and has 14 years of experience in financial analysis. John
Ford joined Rowe-Fleming in 1982 and has 15 years of experience with Fleming
Group in research and portfolio management. James Seddon joined Rowe-Fleming in
1987 and has 10 years of experience in portfolio management.
Strong Capital Management, Inc. For a description of Strong, see "Value
Portfolio" above. Anthony L.T. Cragg serves as Portfolio Manager for Strong's
portion of the International
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Equity Portfolio. Mr. Cragg joined Strong in April 1993 to develop Strong's
international investment activities. During the prior seven years, he helped
establish Dillon, Read International Asset Management, where he was in charge of
Japanese, Asian, and Australian investments.
Warburg, Pincus Counsellors, Inc. For a description of Warburg, see
"Aggressive Growth Portfolio" above. Richard H. King is Portfolio Manager of
Warburg's portion of the International Equity Portfolio, and Nicholas P.W.
Horsley, P. Nicholas Edwards, Harold W. Ehrlich and Vincent J. McBride are
associate portfolio managers. From 1984 until 1988, Mr. King was chief
investment officer and a director at Fiduciary Trust Company International S.A.
in London, with responsibility for all international equity management and
investment strategy. From 1982 to 1984 he was a director in charge of Far East
Equity Investments at N.M. Rothschild International Asset Management, a London
merchant bank. He has been a managing director of E.M. Warburg, Pincus & Co.,
Inc. since 1989.
The Distributor. SunAmerica Capital Services, Inc. (the "Distributor"), an
indirect wholly owned subsidiary of SunAmerica, Inc., acts as distributor of the
shares of each Portfolio pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of each Portfolio. The Distributor receives
all initial and deferred sales charges in connection with the sale of Fund
shares, all or a portion of which it may reallow to other broker-dealers. The
Distributor and other broker-dealers pay commissions to salespersons, as well as
the cost of printing and mailing prospectuses to potential investors and of any
advertising expenses incurred by them in connection with their distribution of
Portfolio shares.
The Distributor, at its expense, may from time to time provide additional
compensation to broker-dealers (including in some instances, exclusively to
Royal Alliance Associates, Inc., SunAmerica Securities, Inc. and/or Advantage
Capital Corporation, affiliates of the Distributor) in connection with sales of
shares of the Fund. Such compensation may include (i) full re-allowance of the
front-end sales charge on Class A shares; (ii) additional compensation with
respect to the sale of Class A or Class B shares; or (iii) financial assistance
to broker-dealers in connection with conferences, sales or training programs for
their employees, seminars for the public, advertising campaigns regarding one or
more of the Portfolios, and/or other broker-dealer sponsored special events. In
some instances, this compensation will be made available only to certain
broker-dealers whose representatives have sold a significant amount of shares of
the Fund. Compensation may also include payment for travel expenses, including
lodging, incurred in connection with trips
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taken by invited registered representatives for meetings or seminars of a
business nature. Dealers who receive bonuses or other incentives may be deemed
to be underwriters under the Securities Act of 1933.
Certain laws and regulations limit the ability of banks and other depository
institutions to underwrite and distribute securities. However, in the opinion of
SunAmerica based upon the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services to
investment companies of the type contemplated by the Distribution Plans (as
described below). The Directors will consider appropriate modifications to the
operations of the Portfolios, including discontinuance of payments under the
Distribution Plans to banks and other depository institutions, in the event such
institutions can no longer provide the services called for under their
agreements. Banks and other financial services firms may be subject to various
state laws regarding services described, and may be required to register as
dealers pursuant to state law.
Distribution Plans. Rule 12b-1 under the 1940 Act permits an investment
company directly or indirectly to pay expenses associated with the distribution
of its shares in accordance with a plan adopted by the investment company's
board of directors and approved by its shareholders. Pursuant to such rule, the
Directors and the shareholders of each class of shares of each Portfolio have
adopted distribution plans hereinafter referred to as the "Class A Plan" and the
"Class B Plan," and collectively as the "Distribution Plans." In adopting each
Distribution Plan, the Directors determined that there was a reasonable
likelihood that each such Plan would benefit the Portfolios and the shareholders
of the respective class. The sales
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charge and distribution fees of a particular class will not be used to subsidize
the sale of shares of any other class.
Under the Class A Plan, the Distributor may receive payments from a Portfolio
at an annual rate of up to 0.10% of average daily net assets of such Portfolio's
Class A shares to compensate the Distributor and certain securities firms for
providing sales and promotional activities for distributing that class of
shares. Under the Class B Plan, the Distributor may receive payments from a
Portfolio at the annual rate of up to 0.75% of the average daily net assets of
such Portfolio's Class B shares, respectively, to compensate the Distributor and
certain securities firms for providing sales and promotional activities for
distributing that class of shares. The distribution costs for which the
Distributor may be reimbursed out of such distribution fees include fees paid to
broker-dealers that have sold Portfolio shares, commissions, and other expenses
such as those incurred for sales literature, prospectus printing and
distribution and compensation to wholesalers. It is possible that in any given
year the amount paid to the Distributor under the Class A Plan or Class B Plan
may exceed the Distributor's distribution costs as described above. The
Distribution Plans provide that each class of shares of each Portfolio may also
pay the Distributor an account maintenance and service fee of up to 0.25% of the
aggregate average daily net assets of such class of shares for payments to
broker-dealers for providing continuing account maintenance. In this regard,
some payments are used to compensate broker-dealers with account maintenance and
service fees in an amount up to 0.25% per year of the assets maintained in a
Portfolio by their customers.
Administrator. The Fund has entered into a Service Agreement under the terms
of which SunAmerica Fund Services, Inc. ("SAFS"), an indirect wholly owned
subsidiary of SunAmerica,
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Inc., assists the transfer agent in providing shareholder service and may
receive reimbursement from the Fund of its costs in providing such services
through a fee approved annually by the Directors. For providing services
rendered, SAFS receives an annual fee of 0.22%, subject to annual approval by
the Directors.
PURCHASE OF SHARES
General. Shares of each of the Portfolios are sold at the respective net asset
value next calculated after receipt of a purchase order, plus a sales charge,
which, at the election of the investor, may be imposed either (i) at the time of
purchase (Class A shares), or (ii) on a deferred basis (Class B shares and
certain Class A shares).
The minimum initial investment in each Portfolio is $500 and the minimum
subsequent investment is $100. However, for Individual Retirement Accounts
("IRAs"), Keogh Plan accounts and accounts for other qualified plans, the
minimum initial investment is $250 and the minimum subsequent investment is $25.
The decision as to which class is most beneficial to an investor depends on
the amount and intended length of the investment. Investors making large
investments, qualifying for a reduced initial sales charge, might consider Class
A shares because there is a lower distribution fee than Class B shares.
Investors making small investments might consider Class B shares because 100% of
the purchase price is invested immediately. Shareholders who purchase $1,000,000
or more of shares of the Portfolios should purchase only Class A shares. Dealers
may receive different levels of compensation depending on which class of shares
they sell.
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Upon making an investment in shares of a Portfolio, an open account
will be established under which shares of the applicable Portfolio and
additional shares acquired through reinvestment of dividends and
distributions will be held for each shareholder's account by State
Street Bank and Trust Company ("State Street") and its affiliate,
National Financial Data Services ("NFDS") (collectively, the "Transfer
Agent"). Shareholders will not be issued certificates for their shares
unless they specifically so request in writing, but no certificate is
issued for fractional shares. Shareholders receive quarterly
statements from the Transfer Agent that report each transaction
affecting their accounts. Further information may be obtained by
calling Shareholder/Dealer Services at (800) 858-8850.
Class A Shares. Class A shares are offered at net asset value plus
an initial sales charge, which varies with the size of the purchase as
follows:
Concession to
Sales Charge Dealers
---------------------- ---------
% of % of % of
Offering Net Amount Offering
Size of Purchase Price Invested Price
------------------ ----- -------- -----
Less than $50,000. . . . . . . . . . 5.75% 6.10% 5.00%
$50,000 but less than $100,000 . . . 4.75% 4.99% 4.00%
$100,000 but less than $250,000. . . 3.75% 3.90% 3.00%
$250,000 but less than $500,000. . . 3.00% 3.09% 2.25%
$500,000 but less than $1,000,000. . 2.10% 2.15% 1.35%
$1,000,000 or more . . . . . . . . . None None see below
No sales charge is payable at the time of purchase on investments of
$1 million or more. Nevertheless, the Distributor will pay a
commission to any dealer who initiates or is responsible for such an
investment, in the amount of 1.00% of the amount invested. Redemptions
of such shares within the twelve months following their purchase will
be subject to a CDSC at the rate of 1.00% of the lesser of the net
asset value of the shares being redeemed (exclusive of reinvested
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dividends and distributions) or the total cost of such shares. This
CDSC is paid to the Distributor. Redemptions of such shares held
longer than twelve months would not be subject to a CDSC. However,
one-half of the commission paid with respect to such a purchase is
subject to forfeiture by the dealer in the event the redemption occurs
during the second year from the date of purchase. In determining
whether a deferred sales charge is payable, it is assumed that shares
purchased with reinvested dividends and distributions and then other
shares held the longest are redeemed first.
To the extent that sales are made for personal investment purposes,
the sales charge is waived as to Class A shares purchased by current
or retired officers, directors, and other full-time employees of
SunAmerica, Inc. and its affiliates, as well as members of the selling
group and family members of the foregoing. In addition, the sales
charge is waived with respect to shares purchased by "wrap accounts"
for the benefit of clients of broker-dealers, financial institutions
or financial planners adhering to certain standards established by the
Distributor. Shares purchased under this waiver are subject to certain
limitations described in the Statement of Additional Information.
Complete details concerning how an investor may purchase shares at
reduced sales charges may be obtained by contacting Shareholder/Dealer
Services at (800) 858-8850.
There are certain special purchase plans for Class A shares which
can reduce the amount of the initial sales charge to investors in the
Portfolios. For more information about "Rights of Accumulation," the
"Letter of Intent," "Combined Purchase Privilege," "Reduced Sales
Charges for Group Purchases" and the "Net Asset Value Transfer
Program," see the Statement of Additional Information.
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Class B Shares. Class B shares are offered at net asset value. Certain
redemptions of Class B shares within the first six years of the date
of purchase are subject to a CDSC. The charge is assessed on an amount
equal to the lesser of the then-current market value or the purchase
price of the shares being redeemed. No charge is assessed on shares
derived from reinvestment of dividends or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is determined in the manner that results in the lowest
possible rate being charged. Therefore, it is assumed that the
redemption is first of any Class A shares in the shareholder's
Portfolio account, second of any Class B shares in such account that
are not subject to a CDSC (i.e., shares representing reinvested
dividends and distributions), third of Class B shares held for more
than six years and fourth of such shares held the longest during the
six-year period. The CDSC will not be applied to dollar amounts
representing an increase in the net asset value of the shares being
redeemed since the time of purchase of such redeemed shares. The
amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the
time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of
shares, all payments during a month are aggregated and deemed to have
been made on the first day of the month. The following table sets
forth the rates of the CDSC.
Contingent Deferred Sales
Charge as a Percentage of
Year Since Purchase Dollars Invested or
Payment Was Made Redemption Proceeds
------------------ ---------------------
First. . . . . . . . . . . . . 4%
Second . . . . . . . . . . . . 4%
Third. . . . . . . . . . . . . 3%
Fourth . . . . . . . . . . . . 3%
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Fifth. . . . . . . . . . . . . 2%
Sixth. . . . . . . . . . . . . 1%
Seventh and thereafter . . . . 0%
The CDSC will be waived in connection with redemptions that are (a)
requested within one year of the death or the initial determination of
disability of a shareholder; (b) taxable distributions or loans to
participants made by qualified retirement plans or retirement accounts
(not including rollovers) for which SunAmerica serves as fiduciary
(e.g., prepares all necessary tax reporting documents); provided that,
in the case of a taxable distribution, the plan participant or
accountholder has attained the age of 59 1/2 at the time the redemption
is made; and (c) made pursuant to a Systematic Withdrawal Plan, up to
a maximum amount of 12% per year from a shareholder account based on
the value of the account at the time the Plan is established,
provided, however, that all dividends and capital gains distributions
are reinvested in Portfolio shares. See the Statement of Additional
Information for further information concerning conditions with respect
to (a) above. For Federal income tax purposes, the amount of the CDSC
will reduce the amount realized on the redemption of shares,
concomitantly reducing gain or increasing loss. For information on the
imposition and waiver of the CDSC contact Shareholder/Dealer Services
at (800) 858-8850.
Conversion Feature. Class B shares (including a pro-rata portion of
the Class B shares purchased through the reinvestment of dividends and
distributions) will convert automatically to Class A shares on the
first business day of the month following the seventh anniversary of
the issuance of such Class B shares. Subsequent to the conversion of a
Class B share to a Class A share, such shares will no longer be
subject to the higher distribution fee of Class B shares. Such
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conversion will be on the basis of the relative net asset values of
Class B shares and Class A shares, without the imposition of any sales
load, fee or charge.
Additional Purchase Information. All purchases are confirmed to each
shareholder. The Fund reserves the right to reject any purchase order and may at
any time discontinue the sale of any class of shares of any Portfolio.
Shares of the Portfolios may be purchased through the Distributor or
SAFS, by check or federal funds wire and through a dollar cost averaging
program. Checks should be made payable to the specific Portfolio of the Fund or,
for retirement plan accounts for which SunAmerica or its affiliates serve as
fiduciary, to "Resources Trust Company." Payments to open new accounts should be
mailed to SunAmerica Fund Services, Inc., Mutual Fund Operations, The SunAmerica
Center, 733 Third Avenue, New York, New York 10017-3204, together with a
completed New Account Application. Payment for subsequent purchases should be
mailed to SunAmerica Fund Services, Inc., c/o NFDS, P.O. Box 419373, Kansas
City, Missouri 64141-6373 and the shareholder's account number for the Portfolio
should appear on the check. SAFS reserves the right to reject any check made
payable other than in the manner indicated above. Under certain circumstances,
the Fund will accept a multi-party check (e.g., a check made payable to the
shareholder by another party and then endorsed by the shareholder to the Fund in
payment for the purchase of shares); however, the processing of such a check may
be subject to a delay. The Fund does not verify the authenticity of the
endorsement of such multi-party check, and acceptance of the check by the Fund
should not be
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considered verification thereof. Neither the Fund nor its affiliates will be
held liable for any losses incurred as a result of a fraudulent endorsement.
Shares will be priced at the net asset value next determined after the order is
placed with the Distributor or SAFS. See "Additional Information Regarding
Purchase of Shares" in the Statement of Additional Information for more
information regarding these services and the procedures involved and when orders
are deemed to be placed.
REDEMPTION OF SHARES
Shares of any Portfolio may be redeemed at any time at their net asset value
next determined, less any applicable CDSC, after receipt by the Fund of a
redemption request in proper form. Any capital gain or loss realized by a
shareholder upon any redemption of shares will be recognized for federal income
tax purposes. See "Dividends, Distributions and Taxes."
Regular Redemption. Shareholders may redeem their shares by sending a written
request to SAFS, Mutual Fund Operations, The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204. All written requests for redemption must be
endorsed by the shareholder(s) with signature(s) guaranteed by an "eligible
guarantor institution" which includes: banks, brokers, dealers, credit unions,
securities and exchange associations, clearing agencies and savings
associations. Guarantees must be signed by an authorized signatory of the
eligible guarantor and the words "Signature Guaranteed" must appear with the
signature. Signature guarantees by notaries will not be accepted. SAFS may
request further documentation from corporations, executors, administrators,
trustees or guardians.
Repurchase Through The Distributor. The Distributor is authorized, as agent
for the Portfolios, to offer to repurchase shares which are presented by
telephone to the Distributor by
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investment dealers. Orders received by dealers must be at least $500. The
repurchase price is the net asset value per share of the applicable class of
shares of a Portfolio next determined after the repurchase order is received,
less any applicable CDSC. Repurchase orders received by the Distributor after
4:00 P.M., Eastern time, will be priced based on the next business day's close.
Dealers may charge for their services in connection with the repurchase, but
neither the Portfolios nor the Distributor imposes any such service charge. The
offer to repurchase may be suspended at any time, as described below.
Telephone Redemption. The Fund accepts telephone requests for redemption of
shares with a value of less than $100,000. The proceeds of a telephone
redemption may be sent by wire to the shareholder's bank account as set forth in
the New Account Application Form or in a subsequent written authorization.
Shareholders utilizing the redemption through the electronic funds transfer
method will incur a $15.00 transaction fee. The Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Failure to do so may result in liability to the Fund for losses incurred due to
unauthorized or fraudulent telephone instructions. Such procedures include, but
are not limited to, requiring some form of personal identification prior to
acting upon instructions received by telephone and/or tape recording of
telephone instructions.
A shareholder making a telephone redemption should call Shareholder/Dealer
Services at (800) 858-8850, and state (i) the name of the shareholder(s)
appearing on the Fund's records, (ii) his or her account number with the Fund,
(iii) the name of the Portfolio, (iv) the amount to be redeemed and (v) the name
of the person(s) requesting the redemption. The Fund reserves the right to
terminate or modify the telephone redemption service at any time.
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Systematic Withdrawal Plan. Shareholders who have invested at least $5,000
in any of the Portfolios may provide for the periodic payment from the account
pursuant to the Systematic Withdrawal Plan. At the shareholder's election, such
payment may be made directly to the shareholder or to a third party on a
monthly, quarterly, semi-annual or annual basis. The minimum periodic payment is
$50. Maintenance of a withdrawal plan concurrently with purchases of additional
shares may be disadvantageous to a shareholder because of the sales charge
applicable to such purchases. Shareholders who have been issued share
certificates will not be eligible to participate in the Systematic Withdrawal
Plan and will have to comply with certain additional procedures in order to
redeem shares. Further information may be obtained by calling Shareholder/Dealer
Services at (800) 858-8850.
General. Normally payment is made on the next business day for shares
redeemed, but in any event, payment is made by check within seven days after
receipt by the Transfer Agent of share certificates or of a redemption request,
or both, in proper form. Under unusual circumstances, the Portfolio may suspend
repurchases or postpone payment for up to seven days or longer, as permitted by
the federal securities laws.
At various times, a Portfolio may be requested to redeem shares for which it
has not yet received good payment. A Portfolio may delay or cause to be delayed
the mailing of a redemption check until such time as good payment (e.g., cash or
certified check drawn on a United States bank) has been collected for the
purchase of such shares, which will not exceed 15 days.
Because of the high cost of maintaining smaller shareholder accounts, the
Portfolio may redeem, on at least 60 days' written notice and without
shareholder consent, any account that has a net
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asset value of less than $500 ($250 for retirement plan accounts), as of the
close of business on the day preceding such notice, unless such shareholder
increases the account balance to at least $500 during such 60-day period. In the
alternative, the applicable Portfolio may impose a $2.00 monthly charge on
accounts below the minimum account size.
If a shareholder redeems shares of any class of a Portfolio and then within
one year from the date of redemption decides the shares should not have been
redeemed, the shareholder may use all or any part of the redemption proceeds to
reinstate, free of sales charges (Class A shares) and with the crediting of any
CDSC paid with respect to such reinstated shares at the time of redemption
(Class B shares), all or any part of the redemption proceeds in shares of the
Portfolio at the then-current net asset value. Reinstatement may affect the tax
status of the prior redemption.
EXCHANGE PRIVILEGE
General. Shareholders in any of the Portfolios may exchange their shares for
the same class of shares of any other Portfolio or other SunAmerica Fund that
offers such class at the respective net asset value per share. Before making an
exchange, a shareholder should obtain and review the prospectus of the fund
whose shares are being acquired. All exchanges are subject to applicable minimum
initial investment requirements and can only be effected if the shares to be
acquired are qualified for sale in the state in which the shareholder resides.
Exchanges of shares generally will constitute a taxable transaction except for
IRAs, Keogh Plans and other qualified or tax-exempt accounts. The exchange
privilege may be terminated or modified upon 60 days'
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written notice. Further information about the exchange privilege may be obtained
by calling Shareholder/Dealer Services at (800) 858-8850.
If a shareholder acquires Class A shares through an exchange from another
SunAmerica Fund where the original purchase of such fund's Class A shares was
not subject to an initial sales charge because the purchase was in excess of $1
million, such shareholder will remain subject to the 1% CDSC, if any, applicable
to such redemptions. In such event, the period for which the original shares
were held prior to the exchange will be "tacked" with the holding period of the
shares acquired in the exchange for purposes of determining whether the 1% CDSC
is applicable upon a redemption of any of such shares.
A shareholder who acquires Class B shares through an exchange from another
fund in the SunAmerica Family of Mutual Funds will retain liability for any CDSC
outstanding on the date of the exchange. In such event, the period for which the
original shares were held prior to the exchange will be "tacked" with the
holding period of the shares acquired in the exchange for purposes of
determining what, if any, CDSC is applicable upon a redemption of any of such
shares.
Restrictions on Exchanges. Because excessive trading (including short-term
"market timing" trading) can hurt a Portfolio's performance, each Portfolio may
refuse any exchange sell order (1) if it appears to be a market timing
transaction involving a significant portion of a Portfolio's assets or (2) from
any shareholder account if previous use of the exchange privilege is considered
excessive. Accounts under common ownership or control, including, but not
limited to, those with the same taxpayer identification number and those
administered so as to redeem or
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purchase shares based upon certain predetermined market indications, will be
considered one account for this purpose.
In addition, a Portfolio reserves the right to refuse any exchange purchase
order if, in the judgment of SunAmerica, the Portfolio would be unable to invest
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. A shareholder's purchase exchange
may be restricted or refused if the Portfolio receives or anticipates
simultaneous orders affecting significant portions of the Portfolio's assets. In
particular, a pattern of exchanges that coincide with a "market timing" strategy
may be disruptive to the Portfolio and may therefore be refused.
Finally, as indicated under "Purchase of Shares", the Fund and Distributor
reserve the right to refuse any order for the purchase of shares.
PORTFOLIO TRANSACTIONS,
BROKERAGE AND TURNOVER
The Advisers are responsible for decisions to buy and sell securities for the
Portfolios, selection of broker-dealers and negotiations of commission rates for
their respective portion of the relevant Portfolio. 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 the security usually includes a profit to the dealer). In underwritten
offerings, securities are purchased at a fixed price which includes an
underwriter's concession or discount. On occasion, certain money market
securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
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As a general matter, the Advisers select broker-dealers which, in
their best judgment, provide prompt and reliable execution at
favorable security prices and reasonable commission rates. The
Advisers may select broker-dealers which provide them with research
services and may cause a Portfolio to pay such broker-dealers
commissions which exceed those which other broker-dealers may have
charged, if in the Adviser's view the commissions are reasonable in
relation to the value of the brokerage and/or research services
provided by the broker-dealer. Brokerage arrangements may take into
account the distribution of Fund shares by broker-dealers, subject to
best price and execution. The Advisers may effect portfolio
transactions through an affiliated broker-dealer, acting as agent and
not as principal, in accordance with Rule 17e-1 under the 1940 Act and
other applicable securities laws.
Each Portfolio has no limitation regarding its policy with respect
to portfolio turnover. The portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities,
excluding short-term securities, by the average monthly value of the
Portfolio's long-term portfolio securities. Under certain market
conditions, the investment policies of the Portfolios may result in
high portfolio turnover. Because each of the Advisers to each
Portfolio manages its portion of the Portfolio's assets independently,
it is possible that the same security may be purchased and sold on the
same day by two or more Advisers to the same Portfolio, resulting in
higher brokerage commissions for the Portfolio. Notwithstanding the
foregoing, however, the portfolio turnover rates for the Portfolio are
not expected to exceed 200%. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction
costs which will be borne directly by the Portfolio. In addition, high
portfolio turnover may result
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in increased short-term capital gains, which, when distributed to shareholders,
are currently treated as ordinary income.
DETERMINATION OF NET ASSET VALUE
Each Portfolio calculates the net asset value of each class of its shares
separately by dividing the total value of each class's net assets by the shares
of each class outstanding. Shares are valued each day as of the close of regular
trading on the NYSE. 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 Directors.
PERFORMANCE DATA
Each Portfolio may advertise performance data that reflect its total
investment return. A brief summary of the computations is provided below and a
detailed discussion is in the Statement of Additional Information. Total return
is based on historical earnings and is not intended to indicate future
performance.
Total return performance data may be advertised by each Portfolio. The average
annual total return may be calculated for one-, five- and ten-year periods or
for the lesser period since inception. These performance data represent the
average annual percentage changes of a hypothetical $1,000 investment and
assumes the reinvestment of all dividends and distributions and includes sales
charges and recurring fees that are charged to shareholder accounts. A
Portfolio's advertisements may also reflect total return performance data
calculated by means of
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cumulative, aggregate, average, year-to-date, or other total return figures.
Further, the Portfolio may advertise total return performance for periods of
time in addition to those noted above.
Although expenses for Class B shares may be higher than those for Class A
shares, the performance of Class B shares may be higher than the performance of
Class A shares after giving effect to the impact of the sales charges and 12b-1
fees applicable to each class of shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. Dividends from net investment income are paid at
least annually. Dividends and distributions generally are taxable in the year in
which they are paid, except any dividends paid in January which were declared in
the previous calendar quarter will be treated as paid in December of the
previous year. Dividends and distributions are paid in additional shares based
on the next determined net asset value, unless the shareholder elects in
writing, not less than five business days prior to the payment date, to receive
such amounts in cash.
In addition to having the dividends and distributions of a Portfolio
reinvested in shares of such Portfolio, a shareholder may, if he or she so
elects on the New Account Application Form, have dividends and distributions
invested in the same class of shares of any other SunAmerica Mutual Fund or any
other Portfolio of the Fund at the then-current net asset value of such fund(s).
The excess of net realized long-term capital gains over net capital losses
("net capital gains"), if any, will be distributed to the shareholders at least
annually. Each Portfolio's policy is to offset any prior year capital loss carry
forward against any realized capital gains, and accordingly,
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no distribution of capital gains will be made until gains have been realized in
excess of any such loss carry forward.
Taxes. Each Portfolio intends to qualify and elect to be taxed as a regulated
investment company under the Code. While so qualified, the Fund and each of the
Portfolios will not be subject to U.S. Federal income tax on the portion of its
investment company taxable income and net capital gains distributed to its
shareholders.
Dividends of net investment income and distributions of any net realized
short-term capital gain, whether paid in cash or reinvested in shares of
the Portfolios, are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and
options) are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares.
To the extent a Portfolio's income is derived from certain dividends
received from domestic corporations, a portion of the dividends paid to
corporate shareholders of such Portfolios will be eligible for the 70%
dividends-received deduction. It generally is not anticipated that
dividends paid by the International Equity Portfolio will qualify for
the dividends-received deduction.
Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens or foreign entities generally will be subject to a 30%
United States withholding tax under existing provisions of the Code applicable
to foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
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Income and capital gains received by each Portfolio with respect to foreign
investments may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes. Shareholders may be able to claim U.S. foreign tax credits
with respect to such taxes, subject to certain provisions and limitations
contained in the Code. If more than 50% in value of the Portfolio's total assets
at the close of its taxable year consists of securities of foreign corporations,
the Portfolio will be eligible and may choose to file an election with the
Internal Revenue Service pursuant to which shareholders of the Portfolio may
include their proportionate share of such withholding taxes in their U.S. income
tax returns as gross income, treat such proportionate share as taxes paid by
them, and deduct such proportionate share in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their U.S. income taxes.
No deductions for foreign taxes, however, may be claimed by non-corporate
shareholders who do not itemize deductions. Of course, certain retirement
accounts which are not subject to tax cannot claim foreign tax credits on
investments in foreign securities held in the Fund. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Portfolio's election described
in this paragraph but may not be able to claim a credit or deduction against
such U.S. tax for the foreign taxes treated as having been paid by such
shareholder. The Portfolio will report annually to its shareholders the amount
per share of such withholding taxes. It is not anticipated that the Portfolios,
other than the International Equity Portfolio, will qualify to elect to pass
foreign taxes through to their shareholders.
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class A shares. A shareholder's basis in the
Class A shares acquired will be
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the same as such shareholder's basis in the Class B shares converted, and the
holding period of the acquired Class A shares will include the holding period
for the converted Class B shares.
A shareholder who holds shares as a capital asset generally will recognize
a capital gain or loss upon the sale or exchange of such shares, which
will be a long-term capital gain or loss if such shares were held for
more than one year. However, any loss realized by a shareholder who held
shares for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
If a shareholder exercises the exchange privilege within 90 days of acquiring
such shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent the sales charge paid to the Fund
reduces any charges the shareholder would have owed upon the purchase of the new
shares in the absence of the exchange privilege. Instead, such sales charge will
be treated as an amount paid for the new shares. See "Exchange Privilege".
A loss realized on a sale or exchange of shares of the Fund will be disallowed
if other Fund shares are acquired (whether through the automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
Under certain provisions of the Code, some shareholders may be subject to
a 31% withholding tax on ordinary income dividends, capital gains distributions
and redemption payments ("backup withholding"). Generally, shareholders subject
to backup withholding will be those for whom no certified taxpayer
identification number is on file with the Fund or who, to the
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Fund's knowledge, have furnished an incorrect number. When establishing an
account, an investor must certify under penalty of perjury that such number is
correct and that the investor is not otherwise subject to backup withholding.
Statements as to the tax status of distributions to shareholders of the Fund
will be mailed annually. Shareholders are urged to consult their own tax
advisers regarding specific questions as to federal, state or local taxes.
Foreign shareholders are also urged to consult their own tax advisers regarding
the foreign tax consequences of ownership of interests in a Portfolio. See
"Dividends, Distributions and Taxes" in the Statement of Additional Information.
GENERAL INFORMATION
Reports to Shareholders. The Fund sends to its shareholders audited annual and
unaudited semi-annual reports for the Portfolios. The financial statements
appearing in annual reports are audited by independent accountants. In addition,
the Transfer Agent sends to each shareholder having an account directly with the
Fund a statement confirming transactions in the account.
Organization. The Fund, a corporation organized under the laws of the state of
Maryland on July 3, 1996, is an open-end management investment company, commonly
referred to as a mutual fund. The total number of shares which the Fund has
authority to issue is one billion (1,000,000,000) shares of common stock (par
value $0.0001 per share), amounting in aggregate par value to one hundred
thousand dollars ($100,000.00). All of such shares of common stock are initially
classified into four separate Portfolios known as the Aggressive Growth
Portfolio, the Mid-Cap Growth Portfolio, the Value Portfolio and the
International Equity Portfolio. All
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of the shares of each such Portfolio are initially classified into four classes:
Class A, Class B, Class C or Class Z. Each such Portfolio initially consists of
twenty-five million (25,000,000) shares of each class. Only Class A and Class B
shares are currently being offered to the public.
The Fund does not hold annual shareholder meetings. The Directors are required
to call a meeting of shareholders for the purpose of voting upon the question of
removal of any Directors when so requested in writing by the shareholders of
record holding at least 10% of the Fund's outstanding shares. Each share of each
Portfolio has equal voting rights on each matter pertaining to that Portfolio or
matters to be voted upon by the Fund, except as noted above. Each share of each
Portfolio is entitled to participate equally with the other shares of that
Portfolio in dividends and other distributions and the proceeds of any
liquidation, except that, due to the differing expenses borne by the classes,
such dividends and proceeds are likely to be lower for Class B shares than for
Class A shares. See the Statement of Additional Information for more information
with respect to the distinctions among classes.
Independent Accountants and Legal Counsel. Price Waterhouse LLP has been
selected as independent accountants for the Fund. The firm of Shereff, Friedman,
Hoffman & Goodman, LLP has been selected as legal counsel for the Fund.
Shareholder Inquiries. All inquiries regarding the Fund should be directed to
the Fund at the telephone number or address on the cover page of this
Prospectus. For questions concerning share ownership, dividends, transfer of
ownership or share redemption, contact SAFS, Mutual Fund Operations, The
SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204, or call
Shareholder/Dealer Services at (800) 858-8850.
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No person is authorized to give any information or to make any
representations, other than those contained in this Prospectus or the
Statement of Additional Information and, if given or made, such other
information or representations must not be relied upon as having been
authorized by the Fund, SunAmerica, any Adviser or the Distributor.
This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby in any
jurisdiction in which such offer to sell or solicitation of an offer to
buy may not lawfully be made.
---------------
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Subject to Completion, dated November 14, 1996
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not be
sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Statement of Additional Information
shall not constitute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
State.
STYLE SELECT SERIES
Statement of Additional Information
dated __________, 1996
The SunAmerica Center General Marketing and
733 Third Avenue Shareholder Information
New York, NY 10017-3204 (800) 858-8850
Style Select Series, Inc. (the "Fund") is a mutual fund consisting
of four different investment portfolios: the Aggressive Growth Portfolio, the
Mid-Cap Growth Portfolio, the Value Portfolio and the International Equity
Portfolio (each, a "Portfolio"). Each Portfolio is managed by SunAmerica Asset
Management Corp. ("SunAmerica"). The assets of each Portfolio are normally
allocated among at least three investment advisers (each, an "Adviser"), each
of which will be independently responsible for advising its respective portion
of the Portfolio's assets. The Advisers may include SunAmerica, and otherwise
will consist of professional investment advisers selected by SunAmerica subject
to the review and approval of the Fund's Board of Directors. In choosing
Advisers, SunAmerica will seek to obtain, within each Portfolio's overall
objective, several separate and distinct investment styles.
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Fund's Prospectus dated _______, 1996.
To obtain a Prospectus, please call the Fund at (800) 858-8850. Capitalized
terms used herein but not defined have the meanings assigned to them in the
Prospectus.
<PAGE>
TABLE OF CONTENTS
Page
The Fund ................................................................. B-3
Investment Objectives and Policies ....................................... B-3
Portfolio Turnover ....................................................... B-31
Investment Restrictions .................................................. B-31
Directors and Officers ................................................... B-34
Advisers, Distributor and
Administrator .......................................................... B-35
Portfolio Transactions and Brokerage ..................................... B-40
Additional Information Regarding Purchase of Shares....................... B-42
Additional Information Regarding Redemption of Shares..................... B-47
Determination of Net Asset Value ......................................... B-47
Performance Data ......................................................... B-48
Dividends, Distributions and Taxes ....................................... B-52
Retirement Plans ......................................................... B-57
Description of Shares .................................................... B-57
Additional Information ................................................... B-60
<PAGE>
Financial Statements...................................................... B-61
Appendix.................................................................. B-62
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the Prospectus, and, if given or made
such other information or representations must not be relied upon as having
been authorized by the Fund, SunAmerica, any Adviser or the Distributor. This
Statement of Additional Information and the Prospectus do not constitute an
offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction in which such an offer to sell or
solicitation of an offer to buy may not lawfully be made.
B-2
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THE FUND
The Fund, organized as a Maryland corporation on July 3, 1996, is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Fund consists of four Portfolios,
each consisting of Class A, Class B, Class C and Class Z shares. Only Class A
and Class B Shares are currently being offered to the public.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each of the Portfolios are
described in the Fund's Prospectus. Certain types of securities in which the
Portfolios may invest and certain investment practices which the Portfolios may
employ, which are described under "Investment Techniques and Risk Factors" in
the Prospectus, are discussed more fully below.
Warrants. A Portfolio may invest in warrants which give the holder of
the warrant a right to purchase a given number of shares of a particular issue
at a specified price until expiration. Such investments generally can 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, he risks the loss of his 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.
Investment in Small, Unseasoned Companies. As described in the
Prospectus, each Portfolio may invest in the securities of small companies
having market capitalizations under $1 billion. These securities may have a
limited trading market, which may adversely affect their disposition and can
result in their being priced lower than might otherwise be the case. If other
investment companies and investors who invest in such issuers trade the same
securities when a Portfolio attempts to dispose of its holdings, the Portfolio
may receive lower prices than might otherwise be obtained.
Companies with market capitalization of $1 billion to $5 billion
("Mid-Cap Companies") may also suffer more significant losses as well as
realize more substantial growth than larger, more established issuers. Thus,
investments in such companies tend to be more volatile and somewhat speculative.
Foreign Securities. Investments in foreign securities offer potential
benefits not available from investments solely in securities of domestic issuers
by offering the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or business
cycles different from those of the U.S., or to reduce fluctuations in portfolio
value by taking advantage of foreign stock markets that do not move in a manner
parallel to U.S. markets.
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Each Portfolio may invest in securities of foreign issuers in the form
of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
Global Depositary Receipts (GDRs) or other similar securities convertible into
securities of foreign issuers. ADRs are securities, typically issued by a U.S.
financial institution, that evidence ownership interests in a security or a
pool of securities issued by a foreign issuer and deposited with the depository.
ADRs may be sponsored or unsponsored. A sponsored ADR is issued by a depository
which has an exclusive relationship with the issuer of the underlying security.
An unsponsored ADR may be issued by any number of U.S. depositories. Holders of
unsponsored ADRs generally bear all the costs associated with establishing the
unsponsored ADR. The depository of an unsponsored ADR is under no obligation to
distribute shareholder communications received from the underlying issuer or to
pass through to the holders of the unsponsored ADR voting rights with respect to
the deposited securities or pool of securities. A Portfolio may invest in
either type of ADR. Although the U.S. investor holds a substitute receipt of
ownership rather than direct stock certificates, the use of the depository
receipts in the United States can reduce costs and delays as well as potential
currency exchange and other difficulties. The Portfolio may purchase securities
in local markets and direct delivery of these ordinary shares to the local
depository of an ADR agent bank in the foreign country. Simultaneously, the ADR
agents create a certificate which settles at the Fund's custodian in three
days. The Portfolio may also execute trades on the U.S. markets using existing
ADRs. A foreign issuer of the security underlying an ADR is generally not
subject to the same reporting requirements in the United States as a domestic
issuer. Accordingly the information available to a U.S. investor will be
limited to the information the foreign issuer is required to disclose in its
own country and the market value of an ADR may not reflect undisclosed material
information concerning the issuer of the underlying security. For purposes of
a Portfolio's investment policies, the Portfolio's investments in these types of
securities will be deemed to be investments in the underlying securities.
Generally ADRs, in registered form, are dollar denominated securities designed
for use in the U.S. securities markets, which represent and may be converted
into the underlying foreign security. EDRs, in bearer form, are designed for
use in the European securities markets.
Investments in foreign securities, including securities of developing
countries, present special additional investment risks and considerations not
typically associated with investments in domestic securities, including
reduction of income by foreign taxes; fluctuation in value of foreign portfolio
investments due to changes in currency rates and control regulations (e.g.,
currency blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers; less volume on foreign exchanges than on U.S. exchanges; greater
volatility and less liquidity on foreign markets than in the U.S.; less
regulation of foreign issuers, stock exchanges and brokers than the U.S.;
greater difficulties in commencing lawsuits; higher brokerage commission rates
than the U.S.; increased possibilities in some countries of expropriation,
confiscatory taxation, political, financial or social instability or adverse
diplomatic developments; and differences (which may be favorable or unfavorable)
between the U.S. economy and foreign economies.
B-4
<PAGE>
Passive Foreign Investment Companies ("PFICs"). The Aggressive Growth
Portfolio and International Equity Portfolio may invest in PFICs, which are
any foreign corporations which generate certain amounts of passive income or
hold certain amounts of assets for the production of passive income. Passive
income includes dividends, interest, royalties, rents and annuities. To the
extent that a Portfolio invests in PFICs, income tax regulations may require
the Portfolio to recognize income associated with the PFIC prior to the actual
receipt of any such income.
U.S. Government Securities. A Portfolio may invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
government and, as such, are backed by the "full faith and credit" of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances. A Portfolio may also invest
in securities issued by agencies of the U.S. government or instrumentalities of
the U.S. government. These obligations, including those which are guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. Obligations of the Government National
Mortgage Association ("GNMA"), the Farmers Home Administration and the
Export-Import Bank are backed by the full faith and credit of the United
States. In the case of securities not backed by the full faith and credit of
the United States, a component must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to
assert a claim against the United States if the agency or instrumentality does
not meet its commitments.
A Portfolio may, in addition to the U.S. government securities noted
above, invest in mortgage-backed securities (including private mortgage-backed
securities), such as GNMA, FNMA or FHLMC certificates (as defined below), 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. 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. 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.
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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. 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
which 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 or the Farmers' Home Administration, 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 Federal Home Loan Mortgage Corporation
("FHLMC") issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs") (collectively, "FHLMC Certificates"). PCs resemble
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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.
FNMA Certificates. The Federal National Mortgage Association ("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.
Conventional mortgage pass-through securities ("Conventional Mortgage
Pass-Throughs") 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
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becoming increasingly liquid, mortgage-related securities issued by private
organizations may not be readily marketable.
Another type of mortgage-backed security in which each Portfolio may
invest is a collateralized mortgage obligation ("CMO"). CMOs are fully
collateralized bonds which 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 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 which 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 only accrue interest at a specified rate 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
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the volatility in the underlying mortgage assets. These tranches tend to have
market prices and yields which are much more volatile than the PAC classes.
Each Portfolio may also invest in stripped mortgage-backed securities.
Stripped mortgage-backed securities are often structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. Stripped mortgage-backed securities have greater market
volatility than other types of U.S. Government securities in which a component
invests. A common type of stripped mortgage-backed security 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, 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 Directors may be considered liquid securities not subject to
a Portfolio's limitation on investments in illiquid securities.
Certain Risk Factors Relating to High-Yield Bonds. These bonds
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 exercises 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
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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.
Asset-Backed Securities. Each Portfolio may invest in asset-backed
securities. These securities, issued by trusts and special purpose corporations,
are backed by a pool of assets, such as credit card and automobile loan
receivables, representing the obligations of a number of different parties.
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 which 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.
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Short-Term Debt Securities. As described in the Prospectus, in
addition to its primary investments, a Portfolio may also invest in the
following types of money market and short-term fixed-income securities:
Money Market Securities - Money Market securities
may include securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, repurchase
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 with total assets in excess of $1 billion,
based on the latest published reports. A 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 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. A 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 Portfolio is fully insured
by the FDIC.
Commercial Paper - Short-term notes (up to 12
months) issued by corporations or governmental bodies. A
Portfolio may only purchase commercial paper 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 Corporation ("Standard &
Poor's") and by Moody's Investors Service ("Moody's"), or (b)
other commercial paper deemed on the basis of the issuer's
creditworthiness to be of a quality appropriate for the
Portfolio. See "Description of Commercial Paper and Bond
Ratings" for a description of the ratings. A Portfolio will
not purchase commercial paper described in (b) above if such
paper would in the aggregate exceed 15% of its total assets
after such purchase. The commercial paper in which a
component may invest includes variable amount master demand
notes. 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
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amounts of the instruments are subject to daily fluctuations
as the participants increase or decrease the extent of their
participation. Investments in these instruments are limited
to those that have a demand feature enabling the Portfolio
unconditionally to receive the amount invested from the
issuer upon seven or fewer days' notice. In connection with
master demand note arrangements, the Adviser, subject to the
direction of the Directors, monitors on an ongoing basis, the
earning power, cash flow and other liquidity ratios of the
borrower, and its ability to pay principal and interest on
demand. The Adviser also considers the extent to which the
variable amount master demand notes are backed by bank
letters of credit. These notes generally are not rated by
Moody's or Standard & Poor's and 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 the Portfolio may invest. Master demand notes
are considered to have a maturity equal to the repayment
notice period unless the Adviser has reason to believe that
the borrower could not make timely repayment upon demand.
Corporate Bonds and Notes - A Portfolio may purchase
corporate obligations that mature or that may be redeemed in
one year or less. These obligations originally may have been
issued with maturities in excess of one year. A 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".
Repurchase Agreements. A Portfolio may enter into repurchase
agreements with banks, brokers or securities dealers. 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 which 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
collateral having a value equal to at least 102% of the repurchase price,
including accrued interest. 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 defaults and the value of the collateral
securing the repurchase agreements declines, the Portfolio may incur a loss. In
addition, if bankruptcy proceedings are commenced
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with respect to the seller of the security, realization of the collateral by
the Portfolio may be delayed or limited. The Directors have established
guidelines to be used by the Adviser in connection with transactions in
repurchase agreements and will 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% 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.
Hedging and Income Enhancement Strategies. Each Portfolio may write
(i.e., sell) call options ("calls") on securities that are traded on U.S. and
foreign securities exchanges and over-the-counter markets to enhance income
through the receipt of premiums from expired calls and any net profits from
closing purchase transactions. After writing such a covered call, up to 25% of a
Portfolio's total assets may be subject to calls. All such calls written by a
Portfolio must be "covered" while the call is outstanding (i.e., the Portfolio
must own the securities subject to the call or other securities acceptable for
applicable escrow requirements). Calls on Futures (defined below) used to
enhance income must be covered by deliverable securities or by liquid assets
segregated to satisfy the Futures contract. If a call written by the Portfolio
is exercised, the Portfolio forgoes any profit from any increase in the market
price above the call price of the underlying investment on which the call was
written.
Primarily for hedging purposes, and from time to time for income
enhancement, each Portfolio may use interest rate futures contracts, foreign
currency futures contracts and stock and bond index futures contracts, including
futures on U.S. government securities (together, "Futures"); forward contracts
on foreign currencies ("Forward Contracts"); and call and put options on equity
and debt securities, Futures, stock and bond indices and foreign currencies (all
the foregoing referred to as "Hedging Instruments"). Hedging Instruments may be
used to attempt to: (i) protect against possible declines in the market value of
a Portfolio's portfolio resulting from downward trends in the equity and debt
securities markets (generally due to a rise in interest rates); (ii) protect a
Portfolio's unrealized gains in the value of its equity and debt securities
which have appreciated; (iii) facilitate selling securities for investment
reasons; (iv) establish a position in the equity and debt securities markets as
a temporary substitute for purchasing particular equity and debt securities; or
(v) reduce the risk of adverse currency fluctuations.
A Portfolio's strategy of hedging with Futures and options on Futures
will be incidental to its activities in the underlying cash market. When hedging
to attempt to protect against declines in the market value of the portfolio, to
permit a Portfolio to retain unrealized gains in the value of portfolio
securities which have appreciated, or to facilitate selling securities for
investment reasons, a Portfolio could: (i) sell Futures; (ii) purchase puts on
such Futures or securities; or (iii) write calls on securities held by it or on
Futures. When hedging to attempt to protect against the possibility that
portfolio securities are not fully included in a rise in value of the debt
securities market, a Portfolio could: (i) purchase Futures, or (ii) purchase
calls on such Futures or on
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securities. When hedging to protect against declines in the dollar value of a
foreign currency-denominated security, a Portfolio could: (i) purchase puts on
that foreign currency and on foreign currency Futures; (ii) write calls on that
currency or on such Futures; or (iii) enter into Forward Contracts at a lower
rate than the spot ("cash") rate. Additional information about the Hedging
Instruments the Portfolio may use is provided below.
Options
Options on Securities. As noted above, each Portfolio may write and
purchase call and put options on equity and debt securities.
When a Portfolio writes a 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
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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. 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
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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.
Options on Foreign Currencies. Each Portfolio may write and purchase
puts and calls 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 which 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 Fund'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.
Options on Securities Indices. As noted above, each Portfolio may
write and purchase call and put 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 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.
Futures and Options on Futures
Futures. 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"). The initial margin will be deposited with the
Fund'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.
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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 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.
As noted above, each Portfolio may purchase and sell foreign currency
futures contracts for hedging or income enhancement purposes to attempt to
protect its 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
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foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant.
Each Portfolio may sell futures contracts on a foreign currency, for example,
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, each 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. As noted above, the Portfolio may purchase and
write options on interest rate futures contracts, stock and bond index futures
contracts, forward contracts and foreign currency futures contracts. (Unless
otherwise specified, options on interest rate futures contracts, options on
stock and bond index futures contracts and options on foreign currency futures
contracts are collectively referred to as "Options on Futures.")
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 which provides a
partial hedge against any increase in the price of securities which 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.
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
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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 which the Portfolio
intends to purchase may be less expensive.
Forward Contracts
A Forward Contract 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.
A Portfolio may use Forward Contracts 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.
A Portfolio may enter into Forward Contracts with respect to specific
transactions. For example, when a Portfolio enters into a contract for the
purchase or sale of a security denominated in 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.
A Portfolio may also use Forward Contracts 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 such foreign currency,
or when a Portfolio believes
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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 Portfolio will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in the currency underlying
the forward contract or the currency being hedged. To the extent that a
Portfolio is not able to cover its forward currency positions with underlying
portfolio securities, the Fund'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 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.
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<PAGE>
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.
Additional Information About Hedging Instruments and Their Use
The Fund's custodian, or a securities depository acting for the
custodian, will act as the Portfolios' 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 which 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 cause 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 which 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
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<PAGE>
of a put or call. Such commissions may be higher than those which 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 Hedging Instruments 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 Hedging Instruments
Each Portfolio 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 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
which 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 which 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.
Tax Aspects of Hedging Instruments
Each Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). One of the
tests for such qualification is that
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less than 30% of its gross income must be derived from gains realized on the
sale of stock, securities and certain financial instruments held for less than
three months. This limitation may limit the ability of a Portfolio to engage
in options transactions and, in general, to hedge investment risk or close out
a hedge position.
Possible Risk Factors in Hedging
In addition to the risks discussed in the Prospectus and above, there
is 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 uses Hedging Instruments to establish 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
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 on the Hedging Instruments that is not offset by a
reduction in the price of the debt securities purchased.
Illiquid and Restricted Securities. No more than 15% of the value of a
Portfolio's net assets, determined as of the date of purchase, may be invested
in illiquid securities including repurchase agreements which have a maturity of
longer than seven days, interest-rate swaps, currency swaps, caps, floors and
collars, 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 which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities
which 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
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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 will generally
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, each of the Portfolios will seek to obtain the right of
registration at the expense of the issuer (except in the case of Rule 144A
securities).
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 may be deemed
to be liquid. The Adviser will monitor the liquidity of such restricted
securities subject to the supervision of the Directors. In reaching liquidity
decisions the Adviser will consider, inter alia, pursuant to guidelines and
procedures established by the Directors, 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's net assets may be
invested include securities issued by major corporations without registration
under the Securities Act in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called private placement exemption from registration which is afforded by
Section 4(2) of the Securities Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Section 4(2) paper that is issued by a company that files reports
under the Securities Exchange Act of 1934 is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described above. A Portfolio's 15%
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 Directors. The Directors have
delegated to the Advisers
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the function of making day-to-day determinations of liquidity with respect
to Section 4(2) paper, pursuant to guidelines approved by the Directors that
require the Advisers to take into account the same factors described above for
other restricted securities and require the Advisers to perform the same
monitoring and reporting functions.
Hybrid Instruments; Indexed/Structured Securities. Hybrid Instruments,
including indexed or structured securities, have been developed and combine the
elements of futures contracts or options with those of debt, preferred equity or
a depository instrument. Generally, a 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
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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 which are unrelated to the operations or credit quality of
the issuer of the Hybrid Instrument and 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 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. 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
counter party or issuer of the Hybrid Instrument would be an additional risk
factor which 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, each Portfolio will limit its investments
in Hybrid Instruments to 10% of total assets at the time of purchase. However,
because of their volatility, it is possible that a Portfolio's investment in
B-26
<PAGE>
Hybrid Instruments will account for more than 10% of the Portfolio's return
(positive or negative).
When-Issued Securities and Firm Commitment Agreement. A Portfolio may
purchase or sell securities on a "when-issued" or "delayed delivery" basis and
may purchase securities on a firm commitment basis. 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-issued" or
"delayed delivery" refers to securities whose terms and indenture are available
and for which a market exists, but which are not available for immediate
delivery. When such transactions are negotiated, the price (which is 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 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
B-27
<PAGE>
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.
Loans of Portfolio Securities. Consistent with applicable regulatory
requirements, each 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 short-term obligations. 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 only be made to firms deemed by the Adviser to be creditworthy.
On termination of the loan, the borrower is required to return the securities to
a component; and any gain or loss in the market price of the loaned security
during the loan would inure to the Portfolio. Each 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.
Loans of portfolio securities will only be made to firms deemed by the Adviser
to be creditworthy.
Since voting or consent rights which accompany loaned securities pass
to the borrower, each 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 which are the subject of the loan.
Reverse Repurchase Agreements. A Portfolio may enter into reverse
repurchase agreements with brokers, dealers, domestic and foreign banks or other
financial institutions that have been determined by the Adviser 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
B-28
<PAGE>
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."
Dollar Rolls. Each Portfolio may enter into "dollar rolls" in which a
Portfolio sells mortgage or other asset-backed securities ("Roll Securities")
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Portfolio foregoes principal and
interest paid on the Roll Securities. 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 "covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction. A
Portfolio will only enter 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.
Dollar rolls 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 which the Portfolio is required to
repurchase may be worth less than an instrument which the Portfolio originally
held. Successful use of dollar rolls will depend upon the Adviser's 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.
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 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
B-29
<PAGE>
marketable by the Portfolio; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
Interest-Rate Swaps, Mortgage Swaps, Caps, Collars and Floors. In
order to protect the value of portfolios from interest rate fluctuations and to
hedge against fluctuations in the fixed income market in which certain of the
Portfolios' investments are traded, the Portfolio may enter into interest-rate
swaps and mortgage swaps or purchase or sell interest-rate caps, floors or
collars. The Portfolio will enter into these hedging transactions primarily to
preserve a return or spread on a particular investment or portion of the
portfolio and to protect against any increase in the price of securities the
Portfolio anticipates purchasing at a later date. The Portfolio may also enter
into interest-rate swaps for non-hedging purposes. Interest-rate swaps are
individually negotiated, and the Portfolio expects to achieve an acceptable
degree of correlation between its portfolio investments and interest-rate
positions. A Portfolio will only enter into interest-rate swaps 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. 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. 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. All of these investments may be
deemed to be illiquid for purposes of the Portfolio's limitation on investment
in such securities. Inasmuch as these investments are entered into for good
faith hedging purposes, and inasmuch as segregated accounts will be established
with respect to such transactions, the Fund believes such obligations do not
constitute senior securities and accordingly, will not treat them as being
subject to its borrowing restrictions. The net amount of the excess, if any, of
the Portfolio's obligations over its entitlements with respect to each
interest-rate swap will be accrued on a daily basis and an amount of cash or
liquid securities having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by a custodian that
satisfies the requirements of the 1940 Act. The Portfolio will also establish
and maintain such segregated accounts with respect to its total obligations
under any interest-rate swaps that are not entered into on a net basis and with
respect to any interest-rate caps, collars and floors that are written by the
Portfolio.
A Portfolio will enter into these transactions only with banks and
recognized securities dealers believed by the Adviser to present minimal credit
risk in accordance with guidelines established by the Board of Directors. If
there is a default by the other party to such a transaction, the Portfolio will
have to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.
The swap market has grown substantially in recent years with
a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap
B-30
<PAGE>
documentation. Caps, collars and floors are more recent innovations for
which documentation is less standardized, and accordingly, they are less
liquid than swaps.
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
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.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated for each Portfolio by
dividing (a) the lesser of purchases or sales of portfolio securities for the
fiscal year by (b) the monthly average of the value of portfolio securities
owned during the fiscal year. For purposes of this calculation, securities which
at the time of purchase had a remaining maturity of one year or less are
excluded from the numerator and the denominator. Transactions in Futures or the
exercise of calls written by a Portfolio may cause the Portfolio to sell
portfolio securities, thus increasing its turnover rate. The exercise of puts
also may cause a sale of securities and increase turnover; although such
exercise is within a Portfolio's control, holding a protective put might cause
the Portfolio to sell the underlying securities for reasons which would not
exist in the absence of the put. A Portfolio will pay a brokerage commission
each time it buys or sells a security in connection with the exercise of a put
or call. Some commissions may be higher than those which would apply to direct
purchases or sales of portfolio securities. Because each of the Advisers to each
Portfolio manages its portion of the Portfolio's assets independently, it is
possible that the same security may be purchased and sold on the same day by two
or more Advisers to the same Portfolio, resulting in higher brokerage
commissions for the Portfolio. It is not anticipated that the annual rate of
portfolio turnover will exceed 200%.
High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs which will be borne directly by a
Portfolio. High portfolio turnover may also involve a possible increase in
short-term capital gains or losses.
INVESTMENT RESTRICTIONS
The Fund has adopted for each Portfolio certain investment
restrictions that are fundamental policies and cannot be changed without the
approval of the holders of a majority of that Portfolio's outstanding shares.
Such majority is defined as the vote of the lesser of (i) 67% or more of the
outstanding shares present at a meeting, if the holders of more than 50% of the
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<PAGE>
outstanding shares are present in person or by proxy or (ii) more than 50% of
the B-31 outstanding shares. All percentage limitations expressed in the
following investment restrictions are measured immediately after the relevant
transaction is made. Each Portfolio may not:
1. 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.
2. Invest in real estate (including limited partnership interests but
excluding securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein); provided that a Portfolio may hold or
sell real estate acquired as a result of the ownership of securities.
3. Purchase or sell commodities or commodity contracts, except to the
extent that the Portfolio may do so in accordance with applicable law and the
Prospectus and Statement of Additional Information, as they may be amended from
time to time, and without registering as a commodity pool operator under the
Commodity Exchange Act. Any Portfolio may engage in transactions in put and call
options on securities, indices and currencies, spread transactions, 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 and may purchase hybrid instruments.
4. Make loans to others except for (a) the purchase of debt
securities; (b) entering into repurchase agreements; and (c) the lending of its
portfolio securities.
5. Borrow money, except that (i) each Portfolio may borrow from banks
in amounts up to 331/3% of its total assets for temporary or emergency purposes,
(ii) each Portfolio may borrow for investment purposes to the maximum extent
permissible under the 1940 Act (i.e., presently 50% of net assets), and (iii) a
Portfolio may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. This policy shall not
prohibit a Portfolio's engaging in reverse repurchase agreements, dollar rolls
and similar investment strategies described in the Prospectus and Statement of
Additional Information, as they may be amended from time to time.
6. Issue senior securities as defined in the 1940 Act, except that
each Portfolio may enter into repurchase agreements, reverse repurchase
agreements, dollar rolls, lend its portfolio securities and borrow money from
banks, as described above, and engage in similar investment strategies described
in the Prospectus and Statement of Additional Information, as they may be
amended from time to time.
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<PAGE>
7. Engage in underwriting of securities issued by others, except to
the extent that the Portfolio may be deemed to be an underwriter in connection
with the disposition of portfolio securities of the Portfolio.
The following additional restrictions are not fundamental policies and
may be changed by the Directors without a vote of shareholders. Each Portfolio
may not:
8. Purchase securities on margin, provided that margin deposits in
connection with futures contracts, options on futures contracts and other
derivative instruments shall not constitute purchasing securities on margin.
9. 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, a Portfolio may pledge assets in
reverse repurchase agreements, dollar rolls and similar investment strategies
described in the Prospectus and Statement of Additional Information, as they may
be amended from time to time.
10. Invest in securities of other registered investment companies,
except by purchases in the open market, involving only customary brokerage
commissions and as a result of which not more than 10% of its total assets
(determined at the time of investment) would be invested in such securities, or
except as part of a merger, consolidation or other acquisition.
11. 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 net assets would be so
invested. Restricted securities eligible for resale pursuant to Rule
144A under the Securities Act that have a readily available market,
and commercial paper exempted from registration under the Securities
Act pursuant to Section 4(2) of that Act that may be offered and sold
to "qualified institutional buyers" as defined in Rule 144A, which the
Adviser has determined
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<PAGE>
to be liquid pursuant to guidelines established by the Directors, will not be
considered illiquid for purposes of this 15% limitation on illiquid securities.
DIRECTORS AND OFFICERS
The following table lists the Directors and executive officers of the
Fund, their ages, business addresses, and principal occupations during the past
five years. The SunAmerica Mutual Funds consist of SunAmerica Equity Funds,
SunAmerica Income Funds, SunAmerica Money Market Funds, and Style Select Series,
Inc. An asterisk indicates those Directors who are interested persons of the
Fund within the meaning of the 1940 Act.
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- ------------------------ ------------- ------------------------------------
<S> <C> <C>
S. James Coppersmith, 63 Director Director/Trustee of the Boston Stock
Emerson College Exchange, Uno Restaurant Corp.,
100 Beacon Street Waban Corp., Kushner-Locke Co.,
Boston, MA 02116 Chayron Inc.; Chairman of the Board
of Emerson College; formerly,
President and General Manager,
WCVB-TV, a division of the Hearst
Corporation, from 1982 to 1994
(retired); Director/Trustee of the
SunAmerica Mutual Funds and
Anchor Series Trust.
Samuel M. Eisenstat, 56 Chairman of the Attorney in private practice; President
430 East 86th Street Board and Chief Executive Officer, Abjac
New York, NY 10028 Energy Corporation; Director/Trustee
of Atlantic Realty Trust, UMB Bank
and Trust (a subsidiary of United
Mizrachi Bank), North European
Royalty Trust, Volt Information
Sciences Funding, Inc. (a subsidiary of
Volt Information Sciences, Inc.) and
Venture Partners International (an
Israeli venture capital fund); Chairman
of the Boards of the
Directors/Trustees of the SunAmerica
Mutual Funds and Anchor Series Trust.
Stephen J. Gutman, 53 Director Partner and Chief Operating Officer of
515 East 79th Street B.B. Associates LLC (menswear
New York, NY 10021 specialty retailing and other activities)
since May 1989; Director/Trustee of
the SunAmerica Mutual Funds and
Anchor Series Trust.
</TABLE>
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- ------------------------ ------------- ------------------------------------
<S> <C> <C>
Peter A. Harbeck*, 42 Director and Director and President, SunAmerica
The SunAmerica Center President Asset Management Corp.
733 Third Avenue ("SunAmerica"); Director SunAmerica
New York, NY 10017-3204 Capital Services, Inc. ("SACS"), since
February 1993; Director and
President, SunAmerica Fund Services,
Inc. ("SAFS"), since May 1988;
President of the SunAmerica Mutual
Funds and Anchor Series Trust;
Executive Vice President and Chief
Operating Officer, SunAmerica, from
May 1988 to August 1995; Executive
Vice President SACS, from November
1991 to August 1995; Director,
Resources Trust Company.
Peter McMillan III*, 38 Director Executive Vice President and Chief
1 SunAmerica Center Investment Officer, SunAmerica
Century City Investments, Inc. since August 1989;
Los Angeles, CA 90067 Director/Trustee of the SunAmerica
Mutual Funds; Director, Resources
Trust Company.
Sebastiano Sterpa, 67 Director Founder of Sterpa Realty, Inc., a full
Suite 200 service real estate firm since 1962;
200 West Glenoaks Blvd. Chairman of the Sterpa Group, real
Glendale, CA 91202 estate investments and management
company; Director/Trustee of the
SunAmerica Mutual Funds.
Stanton J. Feeley, 59 Executive Vice Executive Vice President and Chief
The SunAmerica Center President Investment Officer, SunAmerica, since
733 Third Avenue February 1992; formerly, Senior
New York, NY 10017-3204 Portfolio Manager, Delaware
Management Company, Inc., from
December 1987 to February 1992.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- ------------------------ ------------- ------------------------------------
<S> <C> <C>
P. Christopher Leary, 36 Vice President Senior Vice President, SunAmerica,
The SunAmerica Center since January 1994; Vice President
733 Third Avenue and Senior Portfolio Manager,
New York, NY 10017-3204 SunAmerica, since June 1991; Fixed
Income Portfolio Manager,
SunAmerica, since October 1990.
Nancy Kelly, 45 Vice President Vice President and Head Trader,
The SunAmerica Center SunAmerica, since April 1994;
733 Third Avenue Formerly Vice President, Whitehorne
New York, NY 10017-3204 & Co. Ltd. (1991-1994); Sales Trader,
Lynch, Jones and Ryan (1992-1994).
Robert M. Zakem, 38 Secretary Senior Vice President and General
The SunAmerica Center Counsel, SunAmerica since April
733 Third Avenue 1993; Executive Vice President and
New York, NY 10017-3204 Director, SACS, since February 1993;
Vice President, SAFS, since January
1994; Assistant Secretary,
SunAmerica Series Trust and Anchor
Pathway Fund, since September 1993;
Secretary SunAmerica Income Funds;
formerly, Vice President and Associate
General Counsel, SunAmerica, March
1992 to April 1993; Associate, Piper
& Marbury from 1989 to 1992.
Peter C. Sutton, 31 Treasurer Vice President, SunAmerica, since
The SunAmerica Center September 1994; Treasurer,
733 Third Avenue SunAmerica Mutual Funds, since
New York, NY 10017-3204 February 1996; Vice President,
SunAmerica Series Trust, Anchor
Pathway Fund, since October 1994;
Controller, SunAmerica Mutual Funds
(March 1993 to February 1996);
Assistant Controller, SunAmerica
Mutual Funds (1990-1993).
</TABLE>
Directors and officers of the Fund are also Directors and officers of
some or all of the other investment companies managed, administered or advised
by SunAmerica, and distributed by SunAmerica Capital Services ("SACS" or the
"Distributor") and other affiliates of SunAmerica Inc.
The Fund pays each Director who is not an interested person of the
Fund or SunAmerica (each a "disinterested" Director) annual compensation in
addition to reimbursement of out-of-pocket expenses in connection with
attendance at meetings of the Directors. Specifically, each disinterested
Director receives a pro rata portion (based upon the Fund's net assets) of the
aggregate of $40,000 in annual compensation for acting as director or trustee to
all the retail funds in the SunAmerica Mutual Funds.
In addition, each disinterested Director also serves on the Audit
Committee of the Board of Directors. Each member of the Audit Committee receives
an aggregate of $5,000 in annual compensation for serving on the Audit
Committees of all of the SunAmerica Funds, a pro rata portion of which, based
on relative net assets, is borne by the Fund. The Fund also has a Nominating
Committee, comprised solely of disinterested Directors, which recommends to the
Directors those persons to be nominated for election as Directors by
shareholders and selects and proposes nominees for election by Directors
between shareholders' meetings. Members of the Nominating Committee serve
without compensation.
The Directors (and Trustees) of the SunAmerica Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement Plan
(the "Retirement Plan") effective January 1, 1993 for the unaffiliated
Directors. The Retirement Plan provides generally that if a disinterested
Director who has at least 10 years of consecutive service as a disinterested
Director of any of the
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<PAGE>
SunAmerica Mutual Funds (an "Eligible Director") retires after reaching age 60
but before age 70 or dies while a Director, such person will be eligible to
receive a retirement or death benefit from each SunAmerica mutual fund with
respect to which he or she is an Eligible Director. As of each birthday, prior
to the 70th birthday, each Eligible Director will be credited with an amount
equal to (i) 50% of his or her regular fees (excluding committee fees) for
services as a disinterested Director of each SunAmerica mutual fund for the
calendar year in which such birthday occurs, plus (ii) 8.5% of any amounts
credited under clause (i) during prior years. An Eligible Director may receive
any benefits payable under the Retirement Plan, at his or her election, either
in one lump sum or in up to fifteen annual installments.
As of the date of this Statement of Additional Information,
the Directors and officers of the Fund owned in the aggregate less than 1% of
the Fund's total outstanding shares.
The following table sets forth information summarizing the
compensation that the Fund estimates that it will pay each disinterested
Director for his services as Director for the fiscal year ending October 31,
1997. The Directors who are interested persons of the Fund receive no
compensation.
ESTIMATED COMPENSATION TABLE*
<TABLE>
<Captions>
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued from Registrant and
Compensation as Part of Fund Fund Complex Paid
Director from Registrant Expenses** to Directors**
<S> <C> <C> <C>
S. James Coppersmith $7,200 N/A $65,000
Samuel M. Eisenstat $7,520N/A $69,000
Stephen J. Gutman $7,200N/A $65,000
Sebastiano Sterpa $7,200N/A $43,333***
</TABLE>
- -------------
* Assumes assets of $400 million at fiscal year end.
** Information is for the five investment companies in the complex which
pay fees to these directors/trustees. The complex consists of the SunAmerica
Mutual Funds, Style Select Series and Anchor Series Trust.
*** Mr. Sterpa is not a trustee of Anchor Series Trust.
ADVISERS, DISTRIBUTOR AND ADMINISTRATOR
SunAmerica Asset Management Corp. SunAmerica, organized as a Delaware
corporation in 1982, is located at The SunAmerica Center, 733 Third Avenue,
New York, NY 10017-3204, and acts as the investment manager to each of the
Portfolios pursuant to the Investment Advisory and Management Agreement
dated September 17, 1996 (the "Management Agreement") with the Fund, on behalf
of each Portfolio. SunAmerica is an indirect wholly owned subsidiary of
SunAmerica Inc. SunAmerica Inc. is incorporated in the State of Maryland and
maintains its principal executive offices at 1 SunAmerica Center, Century City,
Los Angeles, CA 90067-6022, telephone (310) 772- 6000.
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<PAGE>
Under the Management Agreement, and except as delegated to the
Advisers under the Subadvisory Agreements (as defined below), SunAmerica manages
the investment of the assets of each Portfolio and obtains and evaluates
economic, statistical and financial information to formulate and implement
investment policies for each Portfolio. Any investment program undertaken by
SunAmerica will at all times be subject to the policies and control of the
Directors. SunAmerica also provides certain administrative services to each
Portfolio.
Except to the extent otherwise specified in the Management Agreement,
each Portfolio pays, or causes to be paid, all other expenses of the Fund and
each of the Portfolios, including, without limitation, charges and expenses of
any registrar, custodian, transfer and dividend disbursing agent; brokerage
commissions; taxes; engraving and printing of share certificates; registration
costs of the Portfolios and their shares under Federal and state securities
laws; the cost and expense of printing, including typesetting, and distributing
Prospectuses and Statements of Additional Information respecting the Portfolios,
and supplements thereto, to the shareholders of the Portfolios; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; all expenses incident to any
dividend, withdrawal or redemption options; fees and expenses of legal counsel
and independent accountants; membership dues of industry associations; interest
on borrowings of the Portfolios; postage; insurance premiums on property or
personnel (including Officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Fund's operation.
The annual rate of the investment advisory fees that apply to each
Portfolio are set forth in the Prospectus.
The Management Agreement with respect to each Portfolio was approved
by the Directors, including the Directors who are not parties to the Management
Agreement or "interested persons" of any such party, on September 17, 1996, and
by the sole initial shareholder of each Portfolio on _____, 1996.
SunAmerica has voluntarily agreed to waive fees or reimburse expenses, if
necessary, to keep annual operating expenses at or below the following
percentages of each Portfolio's average net assets: Aggressive Growth Portfolio
1.90% for Class A shares and 2.55% for Class B shares, Mid-Cap Portfolio 1.90%
for Class A shares and 2.55% for Class B shares, Value Portfolio 1.90% for
Class A shares and 2.55% for Class B shares and International Equity Portfolio
2.15% for Class A shares and 2.80% for Class B shares. SunAmerica also may
voluntarily waive or reimburse additional amounts to increase the investment
return to a Portfolio's investors. SunAmerica may terminate all such waivers
and/or reimbursements at any time. Further, any waivers or reimbursements made
by SunAmerica 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 SunAmerica and remain in compliance with the
foregoing expense limitations.
The Management Agreement will continue in effect with respect to each
Portfolio until September 16, 1998 unless terminated, and thereafter from year
to year, if approved at least annually by
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vote of a majority of the Directors or by the holders of a majority of the
respective Portfolio's outstanding voting securities. Any such continuation
also requires approval by a majority of the Directors who are not parties
to the Management Agreement or "interested persons" of any such party as
defined in the 1940 Act by vote cast in person at a meeting called for such
purpose. The Management Agreement may be terminated with respect to a Portfolio
at any time, without penalty, on 60 days' written notice by the Directors, by
the holders of a majority of the respective Portfolio's outstanding voting
securities or by SunAmerica. The Management Agreement automatically terminates
with respect to each Portfolio in the event of its assignment (as defined in
the 1940 Act and the rules thereunder).
Under the terms of the Management Agreement, SunAmerica is not liable
to the Portfolios, or their shareholders, for any act or omission by it or for
any losses sustained by the Portfolios or their shareholders, except in the case
of willful misfeasance, bad faith, gross negligence or reckless disregard of
duty.
The Advisers. The organizations identified in the Prospectus act as Advisers to
the Fund and its Portfolios pursuant to the Subadvisory Agreements with
SunAmerica.
As described in the Prospectus, SunAmerica will initially allocate the
assets of each Portfolio equally among the Advisers for that Portfolio, and
subsequently, allocations of new cash flow and of redemption requests will be
made equally among the Advisers of each Portfolio unless SunAmerica determines,
subject to the review of the Directors, that a different allocation of assets
would be in the best interests of a Portfolio and its shareholders. The Fund
expects that differences in investment returns among the portions of a Portfolio
managed by different Advisers will cause the actual percentage of a Portfolio's
assets managed by each Adviser to vary over time. In general, a Portfolio's
assets once allocated to one Adviser will not be reallocated (or "rebalanced")
to another Adviser for the Portfolio. However, SunAmerica reserves the right,
subject to the review of the Board, to reallocate assets from one Adviser to
another when deemed in the best interests of a Portfolio and its shareholders.
In some instances, where a reallocation results in any rebalancing of the
Portfolio from a previous allocation, the effect of the reallocation will be
to shift assets from a better performing Adviser to a portion of the Portfolio
with a relatively lower total return.
Each Adviser is paid monthly by SunAmerica a fee equal to a percentage
of the average daily net assets of the Portfolio allocated to the Adviser.
Assuming a level of average daily net assets of $100 million for each Portfolio,
it is estimated that the aggregate annual rates of the fees payable by
SunAmerica to the Advisers for each Portfolio the first year of operation will
be the following, expressed as a percentage of the average daily net assets of
each Portfolio: Aggressive Growth Portfolio, .37%; Mid-Cap Growth Portfolio,
.50%; Value Portfolio, .50%; and International Equity Portfolio, .63%. There can
be no assurance that the Portfolios will achieve a level of average daily net
assets in the amounts estimated.
The Subadvisory Agreements were approved by the Directors, including a
majority of the Directors who are not parties to the Subadvisory Agreements or
"interested persons" of any such party, on September 17, 1996, and by the sole
initial shareholder of each Portfolio on _____, 1996. The Subadvisory Agreement
between Strong and Schafer was approved by the Directors, including a majority
of the Directors who are not parties to the Subadvisory Agreement or "interested
persons" of any such party, on September 17, 1996, and becomes effective upon
commencement of operation of the Fund.
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The Subadvisory Agreements will continue in effect for a period of two
years from the date of their execution, unless terminated sooner. They may be
renewed from year to year thereafter, so long as 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 Management
Agreement. Under the terms of the Subadvisory Agreements, no Adviser is liable
to the Portfolios, or their shareholders, for any act or omission by it or for
any losses sustained by the Portfolios or their shareholders, except in the case
of willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties.
Personal Trading. The Fund and SunAmerica have adopted a written Code of Ethics
(the "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 Code is an individual who is a trustee,
director, officer, general partner or advisory person of the Fund or SunAmerica.
Among 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 SunAmerica, (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. SunAmerica reports to the
Board of Directors on a quarterly basis, as to whether there were any violations
of the Code by Access Persons of the Fund or SunAmerica during the quarter.
The Advisers have each adopted a written Code of Ethics, and have
represented that the provisions of such Code of Ethics are substantially similar
to those in the Code. Further, the Advisers report to SunAmerica 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 Fund insofar as such violations
related to the Fund. In turn, SunAmerica reports to the Board of Directors as to
whether there were any violations of the Code by Access Persons of the Fund or
SunAmerica.
The Distributor. The Fund, on behalf of each Portfolio, has entered into a
distribution agreement (the "Distribution Agreement") with the Distributor, a
registered broker-dealer and an indirect wholly owned subsidiary of SunAmerica
Inc., to act as the principal underwriter of the shares of each Portfolio. The
address of the Distributor is The SunAmerica Center, 733 Third Avenue, New York,
NY 10017-3204. The Distribution Agreement provides that the Distributor has the
exclusive right to distribute shares of the Portfolios through its registered
representatives and authorized broker-dealers. The Distribution Agreement also
provides that the Distributor will pay the promotional expenses, including the
incremental cost of printing prospectuses, annual reports and other periodic
reports respecting each Portfolio, for distribution to persons who are not
shareholders of such Portfolio and the costs of preparing and distributing any
other supplemental sales literature. However, certain promotional expenses may
be borne by the Portfolio (see "Distribution Plans" below).
The Distribution Agreement with respect to each Portfolio was approved
by the Directors, including a majority of those Directors who are not
"interested persons" of the Fund, on September 17, 1996. The Distribution
Agreement will remain in effect until September 16, 1998 unless terminated, and
thereafter from year to year if such continuance is approved at least annually
by the Directors, including a majority of the Directors who are not "interested
persons" of the Fund. The Fund and the Distributor each has the right to
terminate the Distribution Agreement with respect to a
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Portfolio on 60 days' written notice, without penalty. The Distribution
Agreement will terminate automatically in the event of its assignment as
defined in the 1940 Act and the rules thereunder.
The Distributor may, from time to time, pay additional commissions or
promotional incentives to brokers, dealers or other financial services firms
that sell shares of the Portfolios. In some instances, such additional
commissions, fees or other incentives may be offered only to certain firms,
including Royal Alliance Associates and SunAmerica Securities, affiliates of the
Distributor, that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Portfolios, or of other funds
underwritten by the Distributor. In addition, the terms and conditions of any
given promotional incentive may differ from firm to firm. Such differences will,
nevertheless, be fair and equitable, and based on such factors as size,
geographic location, or other reasonable determinants, and will in no way affect
the amount paid to any investor.
Distribution Plans. As indicated in the Prospectus, the Directors of the Fund
have adopted Distribution Plans (the "Class A Plan" and the "Class B Plan" and
collectively, the "Distribution Plans"). Reference is made to "Management of
the Fund - Distribution Plans" in the Prospectus for certain information with
respect to the Distribution Plans.
Under the Class A Plan, the Distributor may receive payments from a
Portfolio at an annual rate of up to 0.10% of average daily net assets of such
Portfolio's Class A shares to compensate the Distributor and certain securities
firms for providing sales and promotional activities for distributing that class
of shares. Under the Class B Plan, the Distributor may receive payments from a
Portfolio at the annual rate of up to 0.75% of the average daily net assets of
such Portfolio's Class B shares to compensate the Distributor and certain
securities firms for providing sales and promotional activities for distributing
that class of shares. The distribution costs for which the Distributor may be
reimbursed out of such distribution fees include fees paid to broker-dealers
that have sold Portfolio shares, commissions and other expenses such as sales
literature, prospectus printing and distribution and compensation to
wholesalers. It is possible that in any given year the amount paid to the
Distributor under the Class A Plan or the Class B Plan will exceed the
Distributor's distribution costs as described above. The Distribution Plans
provide that each class of shares of each Portfolio may also pay the Distributor
an account maintenance and service fee of up to 0.25% of the aggregate average
daily net assets of such class of shares for payments to broker-dealers for
providing continuing account maintenance. In this regard, some payments are used
to compensate broker-dealers with trail commissions or account maintenance and
service fees in an amount up to 0.25% per year of the assets maintained in a
Portfolio by their customers.
The Distribution Plans with respect to each Portfolio were approved on
September 17, 1996 by the Directors, including a majority of the Directors who
are not "interested persons" of the Fund and who have no direct or indirect
financial interest in the operation of the Distribution Plans (the "Independent
Directors").
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Continuance of the Distribution Plans with respect to each Portfolio
is subject to annual approval by vote of the Directors, including a majority of
the Independent Directors. A Distribution Plan may not be amended to increase
materially the amount authorized to be spent thereunder with respect to a class
of shares of a Portfolio, without approval of the shareholders of the affected
class of shares of the Portfolio. In addition, all material amendments to the
Distribution Plans must be approved by the Directors in the manner described
above. A Distribution Plan may be terminated at any time with respect to a
Portfolio without payment of any penalty by vote of a majority of the
Independent Directors or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the affected class of shares of the
Portfolio. So long as the Distribution Plans are in effect, the election and
nomination of the Independent Directors of the Fund shall be committed to the
discretion of the Independent Directors. In the Directors' quarterly review of
the Distribution Plans, they will consider the continued appropriateness of, and
the level of, compensation provided in the Distribution Plans. In their
consideration of the Distribution Plans with respect to a Portfolio, the
Directors must consider all factors they deem relevant, including information as
to the benefits of the Portfolio and the shareholders of the relevant class of
the Portfolio.
The Administrator. The Fund has entered into a Service Agreement, under the
terms of which SunAmerica Fund Services ("SAFS"), an indirect wholly owned
subsidiary of SunAmerica Inc., acts as a servicing agent assisting State Street
Bank and Trust Company ("State Street") in connection with certain services
offered to the shareholders of each of the Portfolios. Under the terms of the
Service Agreement, SAFS may receive reimbursement of its costs in providing such
shareholder services. SAFS is located at The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204.
The Directors, including a majority of the Directors who are not
parties to the Service Agreement or "interested persons", as that term is
defined in the 1940 Act, approved the Service Agreement with respect to each
Portfolio, on September 17, 1996. The Service Agreement will remain in effect
until September 16, 1998 and from year to year thereafter provided its
continuance is approved annually by vote of the Directors including a majority
of the disinterested Directors.
Pursuant to the Service Agreement, as compensation for services
rendered, SAFS will receive a fee from the Fund subject to review and approval
by the Directors. This fee represents the full cost of providing shareholder and
transfer agency services to the Fund. From this fee, SAFS pays a fee to State
Street, and its affiliate, National Financial Data Services ("NFDS" and with
State Street, the "Transfer Agent") (other than out-of-pocket charges which
would be paid by the Fund). For further information regarding the Transfer Agent
see the section entitled "Additional Information" below.
PORTFOLIO TRANSACTIONS AND BROKERAGE
As discussed in the Prospectus, the Advisers are responsible for
decisions to buy and sell securities for each respective Portfolio, selection of
broker-dealers and negotiation of commission rates. Purchases and sales of
securities on a securities exchange are effected through broker-dealers who
charge a negotiated commission for their services. Orders may be directed to
any
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broker-dealer including, to the extent and in the manner permitted by
applicable law, an affiliated brokerage subsidiary of SunAmerica or another
Adviser.
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 the 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.
An Adviser's primary consideration in effecting a security transaction
is to obtain the best net price and the most favorable execution of the order.
However, the Adviser may select broker-dealers that provide it with research
services and may cause a Portfolio to pay such broker-dealers commissions that
exceed those that 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. Certain research services
furnished by brokers may be useful to the Adviser with clients other than the
Fund. No specific value can be determined for research services furnished
without cost to the Adviser by a broker. The Advisers are of the opinion that
because the material must be analyzed and reviewed by its staff, its receipt
does not tend to reduce expenses, but may be beneficial in supplementing the
Adviser's research and analysis. Therefore, it may tend to benefit the Portfolio
by improving the quality of the Adviser's investment advice. The investment
advisory fees paid by the Portfolio are not reduced because the Adviser receives
such services. When making purchases of underwritten issues with fixed
underwriting fees, the Adviser may designate the use of broker-dealers who have
agreed to provide the Adviser with certain statistical, research and other
information.
Subject to applicable law and regulations, consideration may also be
given to the willingness of particular brokers to sell shares of a Portfolio as
a factor in the selection of brokers for transactions effected on behalf of a
Portfolio, subject to the requirement of best price and execution.
Although the objectives of other accounts or investment companies that
the Adviser manages may differ from those of the Portfolio, it is possible that,
at times, identical securities will be acceptable for purchase by one or more of
the Portfolios and one or more other accounts or investment companies that the
Adviser manages. However, the position of each account or company in the
securities of the same issue may vary with the length of the time that each
account or company may choose to hold its investment in those securities. The
timing and amount of purchase by each account and company will also be
determined by its cash position. If the purchase or sale of a security is
consistent with the investment policies of one or more of the Portfolios and one
or more of these other accounts or companies is considered at or about the same
time, transactions in such securities will be allocated in a manner deemed
equitable by the Adviser. The Adviser may combine such transactions, in
accordance with applicable laws and regulations. However, simultaneous
transactions could adversely affect the ability of a Portfolio to obtain or
dispose of the full amount of a security, which it seeks to purchase or sell, or
the price at which such security can be purchased or sold.
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ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES
Shares of each of the Portfolios are sold at the respective net asset
value next determined after receipt of a purchase order, plus a sales charge,
which, at the election of the investor, may be imposed either (i) at the time of
purchase (Class A shares), or (ii) on a deferred basis (Class B shares and
certain Class A shares). Reference is made to "Purchase of Shares" in the
Prospectus for certain information as to the purchase of Portfolio shares.
Waiver of Contingent Deferred Sales Charges. As discussed under "Purchase of
Shares" in the Prospectus, CDSCs may be waived on redemptions of Class B shares
under certain circumstances. The conditions set forth below are applicable with
respect to the following situations with the proper documentation:
Death. CDSCs may be waived on redemptions within one year following
the death (i) of the sole shareholder on an individual account, (ii) of a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii) of
the beneficiary of a Uniform Gifts to Minors Act, Uniform Transfers to Minors
Act or other custodial account. The CDSC waiver is also applicable in the case
where the shareholder account is registered as community property. If, upon the
occurrence of one of the foregoing, the account is transferred to an account
registered in the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year of the death. If
the Class B shares are not redeemed within one year of the death, they will
remain Class B shares and be subject to the applicable CDSC, when redeemed.
Disability. CDSCs may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of
the Internal Revenue Code of 1986, as amended). To be eligible for such waiver,
(i) the disability must arise after the purchase of shares and (ii) the disabled
shareholder must have been under age 65 at the time of the initial determination
of disability. If the account is transferred to a new registration and then a
redemption is requested, the applicable CDSC will be charged.
Purchases through the Distributor. An investor may purchase shares of a
Portfolio through dealers which have entered into selected dealer agreements
with the Distributor. An investor's dealer who has entered into a distribution
arrangement with the Distributor is expected to forward purchase orders and
payment promptly to the Portfolio. Orders received by the Distributor before the
close of business will be executed at the offering price determined at the close
of regular trading on the New York Stock Exchange (the "NYSE") that day. Orders
received by the Distributor after the close of business will be executed at the
offering price determined after the close of the NYSE on the next trading day.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the fifth business day following the
investment. A Portfolio will not be responsible for delays caused by dealers.
Purchase by Check. In the case of a new account, purchase orders by check must
be submitted directly by mail to SunAmerica Fund Services, Mutual Fund
Operations, The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204,
together with payment for the purchase price of such shares and a completed New
Account Application. Shares of each Portfolio may be
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<PAGE>
purchased directly through the Transfer Agent. Upon receipt of the completed
New Account Application and payment check, the Transfer Agent will purchase
full and fractional shares of the applicable Portfolio at the net asset value
next computed after the check is received, plus the applicable sales charge.
Certified checks are not necessary, but checks are accepted subject to
collection at full face value in United States funds and must be drawn on a
bank located in the United States. There are restrictions on the redemption
of shares purchased by check for which funds are being collected. (See
"Redemption of Shares.")
Purchase through SAFS. SAFS will effect a purchase order on behalf of a customer
who has an investment account upon confirmation of a verified credit balance at
least equal to the amount of the purchase order (subject to the minimum $500
investment requirement for wire orders). If such order is received at or prior
to 4:00 P.M., Eastern time, on a day the NYSE is open for business, the purchase
of shares of a Portfolio will be effected on that day. If the order is received
after 4:00 P.M., Eastern time, the order will be effected on the next business
day.
Purchase by Federal Funds Wire. An investor may make purchases by having his or
her bank wire Federal funds to the Fund's Transfer Agent. Federal funds purchase
orders will be accepted only on a day on which the Fund and the Transfer Agent
are open for business. In order to insure prompt receipt of a Federal funds
wire, it is important that these steps be followed:
1. You must have an existing SunAmerica Fund Account before wiring
funds. To establish an account, complete the New Account
Application and send it via facsimile to SunAmerica Fund Services
at: (212) 551-5343.
2. Call SunAmerica Fund Services' Shareholder/Dealer Services, toll
free at (800) 858-8850, extension 5125 to obtain your new account
number.
3. Instruct the bank to wire the specified amount to the Transfer
Agent: State Street Bank and Trust Company, Boston, MA,
ABA# 0110-00028; DDA# 99029712, SunAmerica [name of Portfolio,
Class __] (include shareholder name and account number).
Waiver of Sales Charges with Respect to Certain Purchases of Class A Shares. To
the extent that sales are made for personal investment purposes, the sales
charge is waived as to Class A shares purchased by current or retired officers,
directors, and other full-time employees of SunAmerica and its affiliates, as
well as members of the selling group and family members of the foregoing. In
addition, the sales charge is waived with respect to shares purchased by certain
qualified retirement plans or employee benefit plans (other than IRAs), which
are sponsored or administered by SunAmerica or an affiliate thereof. Further,
the sales charge is waived with respect to shares purchased by "wrap accounts"
for the benefit of clients of broker-dealers, financial institutions, financial
planners or registered investment advisers adhering to the following standards
established by the Distributor: (i) the broker-dealer, financial institution or
financial planner charges its client(s) an advisory fee based on the assets
under management on an annual basis, and (ii) such broker-dealer, financial
institution or financial planner does not advertise that shares of the Portfolio
may be purchased by clients at net asset value. Shares purchased under this
waiver may not be resold except to the Portfolio. Shares are offered at net
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asset value to the foregoing persons because of anticipated economies in sales
effort and sales related expenses. Reductions in sales charges apply to
purchases or shares by a "single person" including an individual; members of a
family unit comprising husband, wife and minor children; or a trustee or other
fiduciary purchasing for a single fiduciary account. Complete details concerning
how an investor may purchase shares at reduced sales charges may be obtained by
contacting the Distributor.
Reduced Sales Charges (Class A Shares only). As discussed under "Purchase of
Shares" in the Prospectus, investors in Class A shares of a Portfolio may be
entitled to reduced sales charges pursuant to the following special purchase
plans made available by the Fund.
Combined Purchase Privilege. The following persons may qualify for the
sales charge reductions or eliminations by combining purchases of Portfolio
shares into a single transaction:
(i) an individual, or a "company" as defined in Section 2(a)(8) of the
1940 Act (which includes corporations which are corporate affiliates of each
other);
(ii) an individual, his or her spouse and their minor children,
purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account (including a pension, profit-sharing, or
other employee benefit trust created pursuant to a plan qualified under Section
401 of the Internal Revenue Code);
(iv) tax-exempt organizations qualifying under Section 501(c)(3) of
the Internal Revenue Code (not including 403(b) plans);
(v) employee benefit plans of a single employer or of affiliated
employers, other than 403(b) plans; and
(vi) group purchases as described below.
A combined purchase currently may also include shares of other funds
in the SunAmerica Mutual Funds (other than money market funds) purchased at the
same time through a single investment dealer, if the dealer places the order for
such shares directly with the Distributor.
Rights of Accumulation. A purchaser of Portfolio shares may qualify
for a reduced sales charge by combining a current purchase (or combined
purchases as described above) with shares previously purchased and still owned;
provided the cumulative value of such shares (valued at cost or current net
asset value, whichever is higher), amounts to $50,000 or more. In determining
the shares previously purchased, the calculation will include, in addition to
other Class A shares of the particular Portfolio that were previously purchased,
shares of the other classes of the same Portfolio, as well as shares of any
class of any other Portfolio or of any of the other Portfolios advised by
SunAmerica, as long as such shares were sold with a sales charge or acquired in
exchange for shares purchased with such a sales charge.
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The shareholder's dealer, if any, or the shareholder, must notify the
Distributor at the time an order is placed of the applicability of the reduced
charge under the Right of Accumulation. Such notification must be in writing by
the dealer or shareholder when such an order is placed by mail. The reduced
sales charge will not be granted if: (a) such information is not furnished at
the time of the order; or (b) a review of the Distributor's or the Transfer
Agent's records fails to confirm the investor's represented holdings.
Letter of Intent. A reduction of sales charges is also available to an
investor who, pursuant to a written Letter of Intent which is set forth in the
New Account Application in the Prospectus, establishes a total investment goal
in Class A shares of one or more Portfolios to be achieved through any number of
investments over a thirteen-month period, of $50,000 or more. Each investment in
such Portfolios made during the period will be subject to a reduced sales charge
applicable to the goal amount. The initial purchase must be at least 5% of the
stated investment goal and shares totaling 5% of the dollar amount of the Letter
of Intent will be held in escrow by the Transfer Agent, in the name of the
investor. Shares of any class of shares of any Portfolio, or of other funds
advised by SunAmerica which impose a sales charge at the time of purchase, which
the investor intends to purchase or has previously purchased during a 30-day
period prior to the date of execution of the Letter of Intent and still owns,
may also be included in determining the applicable reduction; provided, the
dealer or shareholder notifies the Distributor of such prior purchase(s).
The Letter of Intent does not obligate the investor to purchase, nor
the Fund to sell, the indicated amounts of the investment goal. In the event the
investment goal is not achieved within the thirteen-month period, the investor
is required to pay the difference between the sales charge otherwise applicable
to the purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
is authorized by the Letter of Intent to liquidate a sufficient number of
escrowed shares to obtain such difference. If the goal is exceeded and purchases
pass the next sales charge break-point, the sales charge on the entire amount of
the purchase that results in passing that break-point, and on subsequent
purchases, will be subject to a further reduced sales charge in the same manner
as set forth above under "Rights of Accumulation," but there will be no
retroactive reduction of sales charges on previous purchases. At any time while
a Letter of Intent is in effect, a shareholder may, by written notice to the
Distributor, increase the amount of the stated goal. In that event, shares of
the applicable Portfolio purchased during the previous 90-day period and still
owned by the shareholder will be included in determining the applicable sales
charge. The 5% escrow and the minimum purchase requirement will be applicable to
the new stated goal. Investors electing to purchase shares of one or more of the
Portfolios pursuant to this purchase plan should carefully read such Letter of
Intent.
Reduced Sales Charge for Group Purchases. Members of qualified groups
may purchase Class A shares of the Portfolios under the combined purchase
privilege as described above.
To receive a rate based on combined purchases, group members must
purchase Class A shares of a Portfolio through a single investment dealer
designated by the group. The designated dealer must transmit each member's
initial purchase to the Distributor, together with payment and
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completed New Account Application. After the initial purchase, a member may
send funds for the purchase of Class A shares directly to the Transfer Agent.
Purchases of a Portfolio's shares are made at the public offering price based
on the net asset value next determined after the Distributor or the Transfer
Agent receives payment for the Class A shares. The minimum investment
requirements described above apply to purchases by any group member.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association, or other
organized groups of persons (the members of which may include other qualified
groups) provided that: (i) the group has at least 25 members of which at least
ten members participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some purpose in addition
to the purchase of investment company shares at a reduced sales charge; (iv) the
group's sole organizational nexus or connection is not that the members are
credit card customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to provide its
designated investment dealer access to the group's membership by means of
written communication or direct presentation to the membership at a meeting on
not less frequently than an annual basis; (vi) the group or its investment
dealer will provide annual certification, in form satisfactory to the Transfer
Agent, that the group then has at least 25 members and that at least ten members
participated in group purchases during the immediately preceding 12 calendar
months; and (vii) the group or its investment dealer will provide periodic
certification, in form satisfactory to the Transfer Agent, as to the eligibility
of the purchasing members of the group.
Members of a qualified group include: (i) any group which meets the
requirements stated above and which is a constituent member of a qualified
group; (ii) any individual purchasing for his or her own account who is carried
on the records of the group or on the records of any constituent member of the
group as being a good standing employee, partner, member or person of like
status of the group or constituent member; or (iii) any fiduciary purchasing
shares for the account of a member of a qualified group or a member's
beneficiary. For example, a qualified group could consist of a trade association
which would have as its members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the individuals,
the sole proprietors and their employees, the members of the partnership and
their employees, and the corporations and their employees, as well as the
trustees of employee benefit trusts acquiring a Portfolio's shares for the
benefit of any of the foregoing.
Interested groups should contact their investment dealer or the
Distributor. The Fund reserves the right to revise the terms of or to suspend or
discontinue group sales with respect to shares of the Portfolio at any time.
Net Asset Value Transfer Program. Investors may purchase Class A
shares of a Portfolio at net asset value to the extent that the investment
represents the proceeds from a redemption of a non-SunAmerica mutual fund in
which the investor either (a) paid a front-end sales load or (b) was subject to,
or paid a CDSC on the redemption proceeds. Nevertheless, the Distributor will
pay a commission to any dealer who initiates or is responsible for such an
investment, in the amount of .50% of the amount invested, subject, however, to
forfeiture in the event of a redemption during the fiscal year from the date of
purchase. In addition, it is essential that a NAV Transfer Program Form
accompany the New Account Application to indicate that the
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investment is intended to participate in the Net Asset Value Transfer Program.
This program may be revised or terminated without notice by the Distributor.
For current information, contact Shareholder/Dealer Services at (800) 858-8850.
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for
certain information as to the redemption of Portfolio shares.
If the Directors determine that it would be detrimental to the best
interests of the remaining shareholders of a Portfolio to make payment wholly or
partly in cash, the Fund, having filed with the SEC a notification of election
pursuant to Rule 18f-1 on behalf of each of the Portfolios, may pay the
redemption price in whole, or in part, by a distribution in kind of securities
from a Portfolio in lieu of cash. In conformity with applicable rules of the
SEC, the Portfolios are committed to pay in cash all requests for redemption, by
any shareholder of record, limited in amount with respect to each shareholder
during any 90-day period to the lesser of (i) $250,000, or (ii) 1% of the net
asset value of the applicable Portfolio at the beginning of such period. If
shares are redeemed in kind, the redeeming shareholder would incur brokerage
costs in converting the assets into cash. The method of valuing portfolio
securities is described below in the section entitled "Determination of Net
Asset Value," and such valuation will be made as of the same time the redemption
price is determined.
DETERMINATION OF NET ASSET VALUE
Each Portfolio calculates the net asset value of its shares separately
by dividing the total value of each class's net assets by the shares of such
class outstanding. Shares are valued each day the NYSE is open as of the close
of regular trading. 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 Fund 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 Directors 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.
Securities that are actively traded over-the-counter, including listed
securities for which the primary market is believed by the Adviser to be
over-the-counter, are valued on the basis of the bid prices provided by
principal market makers. Securities listed on the NYSE or other national
securities exchanges, other than those principally traded over-the-counter, are
valued on the basis of the last sale price on the exchange on which they are
primarily traded. However, if the last sale price on the NYSE is different than
the last sale price on any other exchange, the NYSE price will be used. If there
are no sales on that day, then the securities are valued at the bid price on the
NYSE or other primary exchange for that day. Options traded on national
securities exchanges are valued at the last sale price on such exchanges
preceding the valuation, and Futures and options thereon, which are traded on
commodities exchanges, are valued at their last sale price as of the close of
such commodities exchanges.
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Securities that are traded on foreign exchanges are ordinarily valued
at the last quoted sales price available before the time when the assets are
valued. If a securities price is available from more than one foreign exchange,
a Portfolio uses the exchange that is the primary market for the security.
Values of portfolio securities primarily traded on foreign exchanges are already
translated into U.S. dollars when received from a quotation service.
The above procedures need not be used to determine the value of debt
securities owned by a Portfolio if, in the opinion of the Directors, some other
method would more accurately reflect the fair market value of such debt
securities in the quantities owned by such Portfolio. Securities for which
quotations are not readily available and other assets are appraised at fair
value, as determined pursuant to procedures adopted in good faith by the
Directors. Short-term debt securities are valued at their current market value
or fair value, which for securities with remaining maturities of 60 days or less
has been determined in good faith by the Directors to be represented by
amortized cost value, absent unusual circumstances. A pricing service may be
utilized to value the Portfolio's assets under the procedures set forth above.
Any use of a pricing service will be approved and monitored by the Directors.
The value of all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the mean between the bid and
offered prices of such currencies against U.S. dollars last quoted by any large
New York bank which is a dealer in foreign currency.
The values of securities held by the Portfolios, and other assets used
in computing net asset value, are determined as of the time trading in such
securities is completed each day, which in the case of foreign securities may be
at a time prior to the close of regular trading on the NYSE. On occasion, the
values of foreign securities and exchange rates may be affected by events
occurring between the time as of which determinations of such values or exchange
rates are made and the close of regular trading on the NYSE. When such events
materially affect the values of securities held by the Portfolio or their
liabilities, such securities and liabilities will be valued at fair value as
determined in good faith by the Directors.
PERFORMANCE DATA
Each Portfolio may advertise performance data that reflects various
measures of total return and each Portfolio may advertise data that reflects
yield. An explanation of the data presented and the methods of computation that
will be used are as follows.
A Portfolio's performance may be compared to the historical returns of
various investments, performance indices of those investments or economic
indicators, including, but not limited to, stocks, bonds, certificates of
deposit, money market funds and U.S. Treasury Bills. Certain of these
alternative investments may offer fixed rates of return and guaranteed principal
and may be insured.
Average annual total return is determined separately for Class A and
Class B shares in accordance with a formula specified by the SEC. Average annual
total return is computed by finding the average annual compounded rates of
return for the 1-, 5-, and 10-year periods or for the lesser included periods of
effectiveness. The formula used is as follows:
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P(1 + T)n = ERV
P = a hypothetical initial purchase payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5-, or 10- year periods at the end of the
1-, 5-, or 10-year periods (or fractional portion thereof).
The above formula assumes that:
1. The maximum sales load (i.e., either the front-end sales load in
the case of the Class A shares or the deferred sales load that
would be applicable to a complete redemption of the investment at
the end of the specified period in the case of the Class B shares)
is deducted from the initial $1,000 purchase payment;
2. All dividends and distributions are reinvested at net asset value;
and
3. Complete redemption occurs at the end of the 1-, 5-, or 10- year
periods or fractional portion thereof with all nonrecurring
charges deducted accordingly.
Each Portfolio may advertise cumulative, rather than average return,
for each class of its shares for periods of time other than the 1-, 5-, and
10-year periods or fractions thereof, as discussed above. Such return data will
be computed in the same manner as that of average annual total return, except
that the actual cumulative return will be computed.
Comparisons
Each Portfolio may compare its total return or yield to similar
measures as calculated by various publications, services, indices, or averages.
Such comparisons are made to assist in evaluating an investment in a Portfolio.
The following references may be used:
a) Dow Jones Composite Average or its component averages -- an
unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks (Dow Jones Utilities
Average), and 20 transportation company stocks (Dow Jones Transportation
Average). Comparisons of performance assume reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component indices -- an
unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40
utilities stocks, and 20 transportation stocks. Comparisons of performance
assume reinvestment of dividends.
Standard & Poor's 100 Stock Index -- an unmanaged index based on the
prices of 100 blue chip stocks, including 92 industrials, one utility, two
transportation companies, and five financial institutions. The Standard & Poor's
100 Stock Index is a smaller, more flexible index for options trading.
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c) The New York Stock Exchange composite or component indices --
unmanaged indices of all industrial, utilities, transportation, and finance
stocks listed on the New York Stock Exchange.
d) Wilshire 5000 Equity Index or its component indices -- represents
the return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
e) Lipper: Mutual Fund Performance Analysis, Fixed Income Analysis,
and Mutual Fund Indices -- measures total return and average current yield for
the mutual fund industry. Ranks individual mutual fund performance over
specified time periods assuming reinvestment of all distributions, exclusive of
sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies,
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar -- analyzes
price, risk and total return for the mutual fund industry.
h) Financial publications: Wall Street Journal, Business Week,
Changing Times, Financial World, Forbes, Fortune, Money, Pension and Investment
Age, United Mutual Fund Selector, and Wiesenberger Investment Companies Service,
and other publications containing financial analyses which rate mutual fund
performance over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the
U.S. Bureau of Labor Statistics -- a statistical measure of periodic change in
the price of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson
Associates -- historical measure of yield, price, and total return for common
and small company stock, long-term government bonds, treasury bills, and
inflation.
k) Savings and Loan Historical Interest Rates as published in the U.S.
Savings & Loan League Fact Book.
l) Shearson-Lehman Municipal Bond Index and Government/Corporate Bond
Index -- unmanaged indices that track a basket of intermediate and long-term
bonds. Reflect total return and yield and assume dividend reinvestment.
m) Salomon GNMA Index published by Salomon Brothers Inc. -- Market
value of all outstanding 30-year GNMA Mortgage Pass-Through Securities that
includes single family and graduated payment mortgages.
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Salomon Mortgage Pass-Through Index published by Salomon Brothers Inc.
- --Market value of all outstanding agency mortgage pass-through securities that
includes 15- and 30-year FNMA, FHLMC and GNMA Securities.
n) Value Line Geometric Index -- broad based index made up of
approximately 1700 stocks each of which have an equal weighting.
o) Morgan Stanley Capital International EAFE Index -- an arithmetic,
market value-weighted average of the performance of over 900 securities on the
stock exchanges of countries in Europe, Australia and the Far East.
p) Goldman Sachs 100 Convertible Bond Index -- currently includes 67
bonds and 33 preferred stocks. The original list of names was generated by
screening for convertible issues of $100 million or more in market
capitalization. The index is priced monthly.
q) Salomon Brothers High Grade Corporate Bond Index -- consists of
publicly issued, non-convertible corporate bonds rated "AA" or "AAA". It is a
value-weighted, total return index, including approximately 800 issues.
r) Salomon Brothers Broad Investment Grade Bond Index -- is a
market-weighted index that contains approximately 4700 individually priced
investment grade corporate bonds rated "BBB" or better, U.S. Treasury/agency
issues and mortgage pass-through securities.
s) Salomon Brothers World Bond Index -- measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:
<TABLE>
<S> <C>
Australian Dollars Netherlands Guilders
Canadian Dollars Swiss Francs
European Currency Units UK Pound Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
</TABLE>
t) J.P. Morgan Global Government Bond Index -- a total return,
market capitalization- weighted index, rebalanced monthly, consisting of the
following countries: Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, The Netherlands, Spain, Sweden, the United Kingdom, and the United
States.
u) Shearson Lehman LONG-TERM Treasury Bond Index -- is comprised of
all bonds covered by the Shearson Lehman Hutton Treasury Bond Index with
maturities of 10 years or greater.
v) NASDAQ Industrial Index -- is comprised of more than 3,000
industrial issues. It is a value-weighted index calculated on pure change only
and does not include income.
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w) The MSCI Combined Far East Free ex Japan Index -- a market
capitalization weighted index comprised of stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Singapore and Thailand. Korea is included in this
index at 20% of its market capitalization.
x) First Boston High Yield Index -- generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
y) Morgan Stanley Capital International World Index -- An arithmetic,
market value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of countries in Europe, Australia, the Far East, Canada
and the United States.
z) Russell 2000 and 3000 Indices -- represents the top 2,000 and the
next 3,000 stocks traded on the New York Stock Exchange, American Stock Exchange
and National Association of Securities Dealers Automated Quotations, by market
capitalizations.
aa) Russell Midcap Growth Index -- contains those Russell Midcap
securities with a greater-than-average growth orientation. The stocks are also
members of the Russell 1000 Growth Index, the securities in which tend to
exhibit higher price-to-book and price earnings ratios, lower dividend yields
and higher forecasted growth values than the Value universe.
In assessing such comparisons of performance, an investor should keep
in mind that the composition of the investments in the reported indices and
averages is not identical to a Portfolio's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by a Portfolio to calculate
its figures. Specifically, a Portfolio may compare its performance to that of
certain indices which include securities with government guarantees. However, a
Portfolio's shares do not contain any such guarantees. In addition, there can be
no assurance that a Portfolio will continue its performance as compared to such
other standards.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. Each Portfolio intends to distribute to the
registered holders of its shares substantially all of its net investment income,
which includes dividends, interest and net short-term capital gains, if any, in
excess of any net long-term capital losses. Each Portfolio intends to distribute
any net long-term capital gains in excess of any net short-term capital losses.
The current policy of each Portfolio is to pay investment income dividends, if
any, at least annually. Each Portfolio intends to pay net capital gains, if any,
annually. In determining amounts of capital gains to be distributed, any capital
loss carry-forwards from prior years will be offset against capital gains.
Distributions will be paid in additional Portfolio shares based on the
net asset value at the close of business on the Ex or reinvestment date, unless
the shareholder notifies the Portfolio at least five business days prior to the
payment date to receive such distributions in cash.
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Taxes. Each Portfolio intends to qualify and elect to be taxed as a regulated
investment company under Subchapter M of the Code for each taxable year. In
order to be qualified as a regulated investment company, each Portfolio
generally must, among other things, (a) derive at least 90% of its gross income
from dividends, interest, proceeds from loans of stock or securities and certain
other related income; (b) derive less than 30% of its gross income from the sale
or other disposition of stock or securities held less than 3 months; and (c)
diversify its holdings so that, at the end of each fiscal quarter, (i) 50% of
the market value of each Portfolio's assets is represented by cash, government
securities, securities of other regulated investment companies and other
securities limited, in respect of any one issuer, to an amount no greater than
5% of each Portfolio's assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than government
securities or the securities of other regulated investment companies).
As a regulated investment company, each Portfolio will not be subject
to U.S. Federal income tax on its income and capital gains which it distributes
as dividends or capital gains distributions to shareholders provided that it
distributes to shareholders at least 90% of its investment company taxable
income for the taxable year. Each Portfolio intends to distribute sufficient
income to meet this qualification requirement.
Under the Code, amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To avoid the tax, each Portfolio must distribute
during each calendar year (1) at least 98% of its ordinary income (not taking
into account any capital gains or losses) for the calendar year, (2) at least
98% of its capital gains in excess of its capital losses for the 12-month period
ending on October 31 of the calendar year, and (3) all ordinary income and net
capital gains for the previous years that were not distributed during such
years. To avoid application of the excise tax, each Portfolio intends to make
distributions in accordance with the calendar year distribution requirement. A
distribution will be treated as paid on December 31 of the calendar year if
declared by a Portfolio in October, November or December of such year,
payable to shareholders of record on a date in such month and paid by such
Portfolio during January of the following year. Any such distributions paid
during January of the following year will be taxable to shareholders as of such
December 31, rather than the date on which the distributions are received.
Distributions of net investment income and short-term capital gains
are taxable to the shareholder as ordinary dividend income regardless of whether
the shareholder receives such distributions in additional shares or in cash. The
portion of such dividends received from each Portfolio that will be eligible for
the dividends received deduction for corporations will be determined on the
basis of the amount of each Portfolio's gross income, exclusive of capital gains
from sales of stock or securities, which is derived as dividends from domestic
corporations, other than certain tax-exempt corporations and certain real estate
investment trusts, and will be designated as such in a written notice to
shareholders mailed not later than 60 days after the end of each fiscal year. It
is not anticipated that the dividends paid by the International Equity Portfolio
will be eligible for the dividends-received deduction. Distributions of net
long-term capital gains, if any, are taxable as long-term capital gains
regardless of whether the shareholder receives such distributions in additional
shares or in cash or how long the investor has held his or her shares, and are
not eligible for the dividends received deduction for corporations.
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Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending upon its basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term capital gain or loss if the shares
have been held for more than one year. Generally, any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of. Any loss realized by a shareholder on the sale of shares
of a Portfolio held by the shareholder for six months or less will be treated
for tax purposes as a long-term capital loss to the extent of any distributions
of net capital gains received by the shareholder with respect to such shares.
Under certain circumstances (such as the exercise of an exchange
privilege), the tax effect of sales load charges imposed on the purchase of
shares in a regulated investment company is deferred if the shareholder does not
hold the shares for at least 90 days.
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's assets to be invested in various countries is not known. It is
not anticipated that any Portfolio (other than the International Equity
Portfolio) will qualify to pass through to its shareholders the ability to claim
as a foreign tax credit their respective shares of foreign taxes paid by such
Portfolio. If more than 50% in value of the Portfolio's total assets at the
close of its taxable year consists of securities of foreign corporations, the
Portfolio will be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Portfolio will be required
to include their proportionate share of such foreign taxes in their U.S.
income tax returns as gross income, treat such proportionate share as taxes paid
by them, and deduct such proportionate share in computing their taxable incomes
or, alternatively, use them as foreign tax credits against their U.S. income
taxes. No deductions for foreign taxes, however, may be claimed by non-corporate
shareholders who do not itemize deductions. Of course, certain retirement
accounts which are not subject to tax cannot claim foreign tax credits on
investments in foreign securities held in the Portfolio. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Portfolio's election described
in this paragraph but may not be able to claim a credit or deduction against
such U.S. tax for the foreign taxes treated as having been paid by such
shareholder.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Portfolio accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time such Portfolio actually collects such receivables
or pays such liabilities are treated as ordinary income or ordinary loss.
Similarly, gains or losses on forward foreign currency exchange contracts,
foreign currency gains or losses from futures contracts that are not "regulated
futures contracts" and from unlisted non-equity options, gains or losses from
sale of currencies or dispositions of debt securities denominated in a foreign
currency attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security and the date of disposition
generally also are treated as ordinary gain or loss. These gains, referred to
under the Code as "Section 988" gains or losses, increase or
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decrease the amount of each Portfolio's investment company taxable income
available to be distributed to its shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, a Portfolio would not be able to make any ordinary
dividend distributions, and any distributions made in the same taxable year may
be recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Portfolio shares. In certain cases, a Portfolio may
be entitled to elect to treat foreign currency gains on forward or futures
contracts, or options thereon, as capital gains.
The Code includes special rules applicable to the listed non-equity
options, regulated futures contracts, and options on futures contracts which a
Portfolio may write, purchase or sell. Such options and contracts are classified
as Section 1256 contracts under the Code. The character of gain or loss
resulting from the sale, disposition, closing out, expiration or other
termination of Section 1256 contracts, except forward foreign currency exchange
contracts, is generally treated as long-term capital gain or loss to the extent
of 60% thereof and short-term capital gain or loss to the extent of 40% thereof
("60/40 gain or loss"). Such contracts, when held by a Portfolio at the end of a
fiscal year, generally are required to be treated as sold at market value on the
last day of such fiscal year for Federal income tax purposes
("marked-to-market"). Over-the-counter options are not classified as Section
1256 contracts and are not subject to the marked-to-market rule or to 60/40 gain
or loss treatment. Any gains or losses recognized by a Portfolio from
transactions in over-the-counter options generally constitute short-term capital
gains or losses. When call options written, or put options purchased, by a
Portfolio are exercised, the gain or loss realized on the sale of the underlying
securities may be either short-term or long-term, depending on the holding
period of the securities. In determining the amount of gain or loss, the sales
proceeds are reduced by the premium paid for the puts or increased by the
premium received for calls.
A substantial portion of each Portfolio's transactions in options,
futures contracts and options on futures contracts, particularly its hedging
transactions, may constitute "straddles" which are defined in the Code as
offsetting positions with respect to personal property. A straddle consisting of
a listed option, futures contract, or option on a futures contract and of U.S.
Government securities would constitute a "mixed straddle" under the Code. The
Code generally provides with respect to straddles (i) "loss deferral" rules
which may postpone recognition for tax purposes of losses from certain closing
purchase transactions or other dispositions of a position in the straddle to the
extent of unrealized gains in the offsetting position, (ii) "wash sale" rules
which may postpone recognition for tax purposes of losses where a position is
sold and a new offsetting position is acquired within a prescribed period, (iii)
"short sale" rules which may terminate the holding period of securities owned by
a Portfolio when offsetting positions are established and which may convert
certain losses from short-term to long-term, and (iv) "conversion transaction"
rules which recharacterize capital gains as ordinary income. The Code provides
that certain elections may be made for mixed straddles that can alter the
character of the capital gain or loss recognized upon disposition of positions
which form part of a straddle. Certain other elections also are provided in the
Code; no determination has been reached to make any of these elections.
Each Portfolio may purchase debt securities (such as zero-coupon or
pay-in-kind securities) that contain original issue discount. Original issue
discount that accrues in a taxable year is treated as earned by a Portfolio and
therefore is subject to the distribution requirements of
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the Code. Because the original issue discount earned by the Portfolio in a
taxable year may not be represented by cash income, the Portfolio may have to
dispose of other securities and use the proceeds to make distributions to
shareholders.
A Portfolio may be required to backup withhold U.S. Federal income tax
at the rate of 31% of all taxable distributions payable to shareholders who fail
to provide their correct taxpayer identification number or fail to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's U.S. Federal
income tax liability. Any distributions of net investment income or short-term
capital gains made to a foreign shareholder will be subject to U.S. withholding
tax of 30% (or a lower treaty rate if applicable to such shareholder).
The Fund may, from time to time, invest in "passive foreign investment
companies" (PFICs). A 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 the Fund acquires and holds stock in a PFIC
beyond the end of the year of its acquisition, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or of any gain from disposition of the stock (collectively, PFIC income),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders.
Proposed Treasury regulations provide that the Fund may make a "mark-to-market"
election with respect to any stock it holds of a PFIC. If the election is in
effect, at the end of the Fund's taxable year, the Fund will recognize the
amount of gains, if any, with respect to PFIC stock. No loss will be recognized
on PFIC stock. Alternatively, the Fund 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 Fund will be required to include in income each
year its pro rata share of the qualified electing fund's annual ordinary
earnings and net capital gain, even if they are not distributed to the Fund;
those amounts would be subject to the distribution requirements applicable to
the Fund described above. It may be very difficult, if not impossible, to make
this election because of certain requirements thereof.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect.
Shareholders are urged to consult their tax advisors regarding specific
questions as to Federal, state and local taxes. In addition, foreign investors
should consult with their own tax advisors regarding the particular tax
consequences to them of an investment in each Portfolio. Qualification as a
regulated investment company under the Code for tax purposes does not entail
government supervision of management and investment policies.
B-56
<PAGE>
RETIREMENT PLANS
Shares of each Portfolio are eligible to be purchased in conjunction
with various types of qualified retirement plans. The summary below is only a
brief description of the Federal income tax laws for each plan and does not
purport to be complete. Further information or an application to invest in
shares of a Portfolio by establishing any of the retirement plans described
below may be obtained by calling Retirement Plans at (800) 858-8850. However, it
is recommended that a shareholder considering any retirement plan consult a tax
adviser before participating.
Pension and Profit-Sharing Plans. Sections 401(a) and 401(k) of the Code permit
business employers and certain associations to establish pension and profit
sharing plans for employees. Shares of a Portfolio may be purchased by those who
would have been covered under the rules governing old H.R. 10 (Keogh) Plans, as
well as by corporate plans. Each business retirement plan provides tax
advantages for owners and participants. Contributions made by the employer are
tax-deductible, and participants do not pay taxes on contributions or earnings
until withdrawn.
Tax-Sheltered Custodial Accounts. Section 403(b)(7) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Sections 501(c)(3) of the Code, to
purchase shares of a Portfolio and, subject to certain limitations, exclude the
amount of purchase payments from gross income for tax purposes.
Individual Retirement Accounts (IRA). Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program, including
Simplified Employee Pension Plans, commonly referred to as SEP-IRA. These IRAs
are subject to limitations with respect to the amount that may be contributed,
the eligibility of individuals to make contributions, the amount if any,
entitled to be contributed on a deductible basis, and the time in which
distributions would be allowed to commence. In addition, certain distributions
from some other types of retirement plans may be placed on a tax-deferred basis
in an IRA.
Salary Reduction Simplified Employee Pension. This plan was introduced by a
provision of the Tax Reform Act of 1986 as a unique way for small employers to
provide the benefit of retirement planning for their employees. Contributions
are deducted from the employee's paycheck before tax deductions and are
deposited into an IRA by the employer. These contributions are not included in
the employee's income and therefore are not reported or deducted on his or her
tax return.
DESCRIPTION OF SHARES
Ownership of the Fund is represented by shares of common stock. The
total number of shares which the Fund has authority to issue is one billion
(1,000,000,000) shares of common stock (par value $0.0001 per share), amounting
in aggregate par value to one hundred thousand dollars ($100,000.00).
Currently, four Portfolios of shares of the Fund have been authorized
pursuant to the Articles: the Aggressive Growth Portfolio, the Mid-Cap Growth
Portfolio, the Value Portfolio and the International Equity Portfolio. Each
Portfolio has been divided into four classes of shares, designated as Class A,
Class B, Class C and Class Z. The Directors may authorize the creation of
B-57
<PAGE>
additional Portfolios of shares so as to be able to offer to investors
additional investment portfolios within the Fund that would operate
independently from the Fund's present portfolios, or to distinguish among
shareholders, as may be necessary, to comply with future regulations or other
unforeseen circumstances. Each Portfolio of the Fund's shares represents the
interests of the shareholders of that Portfolio in a particular portfolio of
Fund assets. In addition, the Directors may authorize the creation of additional
classes of shares in the future, which may have fee structures different from
those of existing classes and/or may be offered only to certain qualified
investors.
Shareholders are entitled to a full vote for each full share held. The
Directors have terms of unlimited duration (subject to certain removal
procedures) and have the power to alter the number of Directors, and appoint
their own successors, provided that at all times at least a majority of the
Directors have been elected by shareholders. The voting rights of shareholders
are not cumulative, so that holders of more than 50% of the shares voting can,
if they choose, elect all Directors being elected, while the holders of the
remaining shares would be unable to elect any Directors. Although the Fund need
not hold annual meetings of shareholders, the Directors may call special
meetings of shareholders for action by shareholder vote as may be required by
the 1940 Act or the Articles. Also, a shareholders meeting must be called, if so
requested in writing by the holders of record of 10% or more of the outstanding
shares of the Fund. In addition, the Directors may be removed by the action of
the holders of record of two-thirds or more of the outstanding shares. All
Portfolios of shares will vote with respect to certain matters, such as election
of Directors. When all Portfolios are not affected by a matter to be voted upon,
such as approval of investment advisory agreements or changes in a Portfolio's
policies, only shareholders of the Portfolios affected by the matter may be
entitled to vote.
The classes of shares of a given Portfolio are identical in all
respects, except that (i) each class may bear differing amounts of certain
class-specific expenses, (ii) Class A shares are subject to an initial sales
charge, a distribution fee and an ongoing account maintenance and service fee,
(iii) Class B shares are subject to a CDSC, a distribution fee and an ongoing
account maintenance and service fee, (iv) Class B shares convert automatically
to Class A shares on the first business day of the month seven years after the
purchase of such Class B Shares, (v) each class has voting rights on matters
that pertain to the Rule 12b-1 plan adopted with respect to such class, except
that under certain circumstances, the holders of Class B shares may be entitled
to vote on material changes to the Class A Rule 12b-1 plan, and (vi) each class
of shares will be exchangeable only into the same class of shares of any other
Portfolio or other SunAmerica Funds that offer that class. All shares of the
Fund issued and outstanding and all shares offered by the Prospectus when
issued, are fully paid and non-assessable. Shares have no preemptive or other
subscription rights and are freely transferable on the books of the Fund. In
addition, shares have no conversion rights, except as described above.
The Articles provide that no Director, officer, employee or agent of
the Fund is liable to the Fund or to a shareholder, nor is any Director,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his or its own bad
faith, willful misfeasance, gross negligence or reckless disregard of his
duties. It also provide that all third persons shall look solely to the Fund's
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, the Articles
B-58
<PAGE>
provides that a Director, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
The Fund shall continue, without limitation of time, subject to the provisions
in the Articles concerning termination by action of the shareholders.
B-59
<PAGE>
ADDITIONAL INFORMATION
Computation of Offering Price per Share
The following is the offering price calculation for Class A and Class
B shares of each Portfolio, based on the value of each Portfolio's net assets
and number of shares outstanding on the date its shares are first offered for
sale to public investors.
<TABLE>
<Captions>
Aggressive Growth Portfolio Mid-Cap Growth Portfolio
--------------------------- ------------------------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Assets .............. $12,500 $12,500 $12,500 $12,500
Number of Shares 1,000 1,000 1,000 1,000
Outstanding ............
Net Asset Value Per $12.50 $12.50 $12.50 $12.50
Share (net assets
divided by number
of shares) .............
Sales charge for 0.76 None 0.76 None
Class A Shares:
5.75% of offering
price (6.10% of net
asset value per
share)* ................
Offering Price .......... $13.26 $12.50 $13.26 $12.50
</TABLE>
<TABLE>
<Captions>
Value Portfolio International Equity Portfolio
--------------------------- ------------------------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Assets............... $12,500 $12,500 $12,500 $12,500
Number of Shares 1,000 1,000 1,000 1,000
Outstanding.............
Net Asset Value Per $12.50 $12.50 $12.50 $12.50
Share (net assets
divided by number
of shares) .............
Sales charge for 0.76 None 0.76 None
Class A Shares:
5.25% of offering
price (5.54 of net
asset value per
share)*.................
Offering Price........... $13.26 $12.50 $13.26 $12.50
</TABLE>
- --------
* Rounded to nearest one-hundredth percent; assumes maximum sales charge is
applicable
** Class B shares are not subject to an initial sales charge but may be
subject to a CDSC on redemption of shares within six years of purchase.
B-60
<PAGE>
Reports to Shareholders. The Fund sends audited annual and unaudited semi-annual
reports to shareholders of each of the Portfolios. Price Waterhouse LLP serves
as the Fund's independent accountants, and in that capacity, audits the annual
financial statements of the Fund. In addition, the Transfer Agent sends a
statement to each shareholder having an account directly with the Fund to
confirm transactions in the account.
Custodian and Transfer Agency. State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, MA 02171, serves as Custodian and Transfer Agent
for the Portfolios and in those capacities maintains certain financial and
accounting books and records pursuant to agreements with the Fund. Transfer
agent functions are performed for State Street by National Financial Data
Services, P.O. Box 419572, Kansas City, MO 64141-6572, an affiliate of State
Street.
Independent Accountants and Legal Counsel. Price Waterhouse LLP, 1177 Avenue of
the Americas, New York, NY 10036, has been selected to serve as the Fund's
independent accountants and in that capacity examines the annual financial
statements of the Fund. The firm of Shereff, Friedman, Hoffman & Goodman, LLP,
919 Third Avenue, New York, NY 10022, has been selected as legal counsel to the
Fund.
FINANCIAL STATEMENTS
Set forth following this Statement of Additional Information is
the Statement of Assets and Liabilities of Style Select Series, Inc., as of
November 12, 1996.
B-61
<PAGE>
APPENDIX
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
Description of Moody's Investor's Service's Corporate Ratings
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge."
Interest payments are protected by a large 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 most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in
Aaa securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as
upper medium grade obligations. Factors giving
security to principal and interest are considered
adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate, and therefore not well
safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in
this class.
B Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal
payments or of maintenance of other terms of the contract
over any long period of time may be small.
B-62
<PAGE>
Caa Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements
of danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class
of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of the generic rating
category.
Description of Moody's Commercial Paper Ratings
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representations as to whether such commercial paper is by any other
definition "commercial paper" or is exempt from registration under the
Securities Act.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Moody's makes no representation that such
obligations are exempt from registration under the Securities Act, nor does it
represent that any specific note is a valid obligation of a rated issuer or
issued in conformity with any applicable law. Moody's employs the following
three designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries
-- High rates of return on funds employed
-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation
-- Well established access to a range of financial markets
and assured sources of alternate liquidity.
B-63
<PAGE>
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
level of debt protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or entities, then the
name or names of such supporting entity or entities are listed within
parentheses beneath the name of the issuer, or there is a footnote referring the
reader to another page for the name or names of the supporting entity or
entities. In assigning ratings to such issuers, Moody's evaluates the financial
strength of the indicated affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment. Moody's makes no representation and gives no opinion on
the legal validity or enforceability of any support arrangement. You are
cautioned to review with your counsel any questions regarding particular support
arrangements.
Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Description of Standard & Poor's Corporate Debt Ratings
A Standards & Poor's corporate or municipal rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligers such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
B-64
<PAGE>
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature of and provisions of the
obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the highest-rated
issues only in small degree.
A Debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay
principal for debt in this category than for debt in
higher-rated categories.
Debt rated BB, B, CCC, CC and C are regarded as
having predominantly speculative characteristics
with respect to capacity to pay interest and repay
principal. BB indicates the least degree of
speculation and C the highest degree of speculation.
While such debt will likely have some quality and
protective characteristics, these are outweighed by
large uncertainties or major risk exposure to
adverse conditions.
BB Debt rated BB has less near-term vulnerability to default
than other speculative grade debt. However, it faces
major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and
principal payment. The BB rating category is also used
for debt subordinated to senior debt that is assigned an
actual or implied BBB- rating.
B-65
<PAGE>
BDebt rated B has a greater vulnerability to default
but presently has the capacity to meet interest
payments and principal repayments. Adverse business,
financial or economic conditions would likely impair
capacity or willingness to pay interest and repay
principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an
actual or implied BB or BB- rating.
CCC Debt rated CCC has a current identifiable vulnerability
to default, and is dependent upon favorable business,
financial and economic conditions to meet timely payments
of interest and repayments of principal. In the event of
adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay
principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC The rating CC is typically applied to debt subordinated
to senior debt which is assigned an actual or implied CCC
rating.
C The rating C is typically applied to debt
subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy
petition has been filed but debt service payments
are continued.
CI The rating CI is reserved for income bonds on which no
interest is being paid.
D Debt rated D is in default. The D rating is assigned
on the day an interest or principal payment is missed. The
D rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
Plus (+) or minus (-): The ratings of AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
these ratings categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the
underlying deposit collateral is insured by the Federal
Savings & Loan Insurance Corp. or the Federal Deposit Insurance
Corp. and interest is adequately collateralized.
B-66
<PAGE>
*Continuance of the rating is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
NR Indicates that no rating has been requested, that there
is insufficient information on which to base a rating or
that Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
Debt Obligations of Issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the credit-worthiness of the obligor but do not take
into account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Description of Standard & Poor's Commercial Paper Ratings.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of not more
than 365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest.
AIssues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category
are delineated with the 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 determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this
designation is strong. However, the relative degree of
safety is not as high as for issues designated "A-1".
A-3 Issues carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat
more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher
designations.
BIssues rated "B" are regarded as having only adequate
capacity for timely payment. However, such capacity may
be damaged by changing conditions or short-term adversities.
B-67
<PAGE>
CThis rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
DThis rating indicates that the issue is either in default
or is expected to be in default upon maturity.
The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based on current information furnished to
Standard & Poor's by the issuer or obtained from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information.
B-68
<PAGE>
Style Select Series, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of Style Select Series, Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Aggressive Growth
Portfolio, Mid-Cap Growth Portfolio, Value Portfolio and International Equity
Portfolio (constituting Style Select Series, Inc., hereafter referred to as the
"Fund") at November 12, 1996, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Fund's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this financial
statement in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 12, 1996
B-69
<PAGE>
<TABLE>
Style Select Series, Inc.
Statement of Assets and Liabilities at November 12, 1996
<CAPTION>
Aggressive Mid-Cap International
Growth Growth Value Equity
Portfolio Portfolio Portfolio Portfolio
---------- --------- --------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Cash $ 25,000 $ 25,000 $ 25,000 $ 25,000
Deferred organization expenses (Note 1) 75,000 75,000 75,000 75,000
-------- -------- -------- --------
Total Assets 100,000 100,000 100,000 100,000
-------- -------- -------- --------
LIABILITIES:
Organizational expenses payable (Note 1) 75,000 75,000 75,000 75,000
Commitments (Notes 1 and 2) -0- -0- -0- -0-
-------- -------- -------- --------
Total Liabilities 75,000 75,000 75,000 75,000
-------- -------- -------- --------
Net Assets $ 25,000 $ 25,000 $ 25,000 $ 25,000
======== ======== ======== ========
Net Asset Value Per Share
Class A (25,000,000 shares authorized per class)
($12,500/1,000 net assets and shares outstanding for each
portfolio respectively) $ 12.50 $ 12.50 $ 12.50 $ 12.50
======== ======== ======== ========
Class B (25,000,000 shares authorized per class)
($12,500/1,000 net assets and shares outstanding for each
portfolio respectively) $ 12.50 $ 12.50 $ 12.50 $ 12.50
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements
B-70
<PAGE>
NOTES TO FINANCIAL STATEMENT
Note 1.Organization
Style Select Series, Inc. (the "Fund") is an open-end management investment
company that was organized as a Maryland corporation on July 3, 1996. To date
the Fund has had no transactions other than those relating to organizational
matters and the sale of 8,000 shares of common stock at a price of $12.50 per
share for $100,000 to SunAmerica Asset Management Corp. ("SunAmerica"). The
Fund is registered under the Investment Company Act of 1940, as amended (the
"Act"). Organizational expenses of the Fund incurred prior to the offering of
the Fund's shares will be paid by SunAmerica. It is currently estimated that
SunAmerica will incur, and be reimbursed by the Fund for, approximately $300,000
in organizational expenses. These expenses will be deferred and amortized by
the Fund on a straight-line basis over a period not to exceed five years from
the commencement of the Fund's operations. In the event that, at any time
during the five year period beginning with the commencement of operations, the
initial shares acquired by SunAmerica are redeemed, by any holder thereof, the
redemption proceeds payable in respect of such shares will be reduced by the pro
rata share (based on the proportionate share of the initial shares redeemed to
the total number of original shares outstanding at the time of the redemption)
of the then unamortized deferred organizational expenses as of the date of such
redemption.
The Fund currently offers four separate investment
portfolios (each a "Portfolio"): Aggressive Growth Portfolio, Mid-Cap Growth
Portfolio, Value Portfolio and International Equity Portfolio. The investment
objectives for each of the Portfolios are as follows:
Aggressive Growth Portfolio seeks long-term growth of
capital by investing primarily in equity securities which have a market
capitalization of less than $1 billion.
Mid-Cap Growth Portfolio seeks long-term growth of
capital by investing primarily in equity securities which have a market
capitalization of $1billion to $5 billion.
Value Portfolio seeks long-term growth of capital by
investing primarily in equity securities using a "value" style of investing.
International Equity Portfolio seeks long-term growth
of capital by investing in equity securities of issuers in countries other than
the United States.
Each Portfolio currently offers two classes of shares.
Class A shares are offered at net asset value per share plus an initial sales
charge. Class B shares are offered without an initial sales charge, although a
declining contingent sales charge may be imposed on redemptions made within six
years of purchase. Additionally, any purchases of Class A shares in excess of
$1,000,000 will be subject to a contingent deferred sales charge on redemptions
made within one year of purchase. Class B shares of each Portfolio will convert
automatically to Class A shares on the first business day of the month after
seven years from the issuance of such Class B shares and at such time will be
subject to the lower distribution fee applicable to Class A shares. Each class
of shares bears the same voting, dividend, liquidation and other rights and
conditions and each makes distribution and account maintenance and service fee
payments under the distribution plans pursuant to Rule 12b-1 under the Act,
except that Class B shares are subject to higher distribution fee rates.
Note 2. Investment Advisory and Management Agreement
The Fund, on behalf of each Portfolio, has entered into an Investment Advisory
and Management Agreement (the "Agreement") with SunAmerica, an indirect wholly
owned subsidiary of SunAmerica Inc. Under the Agreement, SunAmerica provides
continuous supervision of the respective Portfolios and administers their
corporate affairs, subject to general review by the Board of Directors (the
"Directors"). In connection therewith, SunAmerica furnishes the Fund with
office facilities, maintains certain of the Fund's books and records, and pays
for the salaries and expenses of all personnel, including officers of the Fund
who are employees of SunAmerica and its affiliates. The investment advisory and
management fee payable by each Portfolio to SunAmerica as full compensation for
services and facilities furnished to the Fund is as follows: 1.00% of the
average daily net assets of the Aggressive Growth, Mid-Cap Growth and Value
Portfolios, respectively, and 1.10% of the average daily net assets of the
International Equity Portfolio.
B-72
<PAGE>
The organizations described below act as advisors to the Fund pursuant to
Subadvisory Agreements with SunAmerica. Under the Subadvisory Agreements, the
advisors manage the investment and reinvestment of the assets of the respective
Portfolios for which they are responsible. Each of the following advisors is
independent of SunAmerica (with the exception of the Aggressive Growth
Portfolio, for which SunAmerica acts as an advisor) and discharges its
responsibilities subject to the policies of the Directors and the oversight and
supervision of SunAmerica, which pays the advisors' fees. The advisors for
Aggressive Growth Portfolio are Janus Capital Corporation; SunAmerica; and
Warburg, Pincus Counsellors, Inc. The advisors for Mid-Cap Growth Portfolio are
Miller Anderson & Sherrerd, LLP; Pilgrim Baxter & Associates, Ltd.; and T. Rowe
Price Associates, Inc. The advisors for Value Portfolio are Davis Selected
Advisers, L.P.; Neuberger & Berman, L.P.; and Strong Capital Management, Inc.
The advisors for International Equity Portfolio are Rowe Price-Fleming
International, Inc.; Strong Capital Management, Inc.; and Warburg, Pincus
Counsellors, Inc. Each advisor is paid monthly by SunAmerica a fee equal to a
percentage of the average daily net assets of the Portfolio allocated to the
advisor. Assuming a level of average daily net assets of $100 million for each
Portfolio, it is estimated that the aggregate annual rates of the fees payable
by SunAmerica to the advisors for each Portfolio the first year of operation
will be the following, expressed as a percentage of the average daily net assets
of each Portfolio: Aggressive Growth Portfolio, .37%; Mid-Cap Growth Portfolio,
.50%; Value Portfolio, .50%; and International Equity Portfolio, .63%. There
can be no assurance that the Portfolios will achieve a level of average daily
net assets in the amount estimated.
Note 3. Distribution Agreement and Service Agreement
The Fund, on behalf of each Portfolio, has entered into a Distribution Agreement
with SunAmerica Capital Services, Inc. ("SACS" or the "Distributor"), an
indirect wholly owned subsidiary of SunAmerica Inc. Each Portfolio has adopted
a Distribution Plan (the "Plan") in accordance with the provisions of Rule
12b-1 under the Act. Rule 12b-1 under the Act permits an investment company
directly or indirectly to pay expenses associated with the distribution of its
shares ("distribution expenses") in accordance with a plan adopted by the
investment company's Board of Directors. Pursuant to such rule, the Directors
and the shareholders of each class of shares of each Portfolio have adopted
Distribution Plans hereinafter referred to as the "Class A Plan" and the "Class
B Plan." In adopting the Class A Plan and the Class B Plan, the Directors
determined that there was a reasonable likelihood that each such Plan would
benefit the Fund and the shareholders of the respective class. The sales charge
and distribution fees of a particular class will not be used to subsidize the
sale of shares of any other class.
Under the Class A Plan and Class B Plan, the
Distributor receives payments from a Portfolio at an annual rate of up to 0.10%
and 0.75%, respectively, of average daily net assets of such Portfolio's Class A
or Class B shares to compensate the Distributor and certain securities firms for
providing sales and promotional activities for distributing that class of
shares. The distribution costs for which the Distributor may be reimbursed out
of such distribution fees include fees paid to broker-dealers that have sold
Portfolio shares, commissions, and other expenses such as those incurred for
sales literature, prospectus printing and distribution and compensation to
wholesalers. It is possible that in any given year the amount paid to the
Distributor under the Class A Plan or Class B Plan may exceed the Distributor's
distribution costs as described above. The Distribution Plans provide that each
class of shares of each Portfolio may also pay the Distributor an account
maintenance and service fee up to an annual rate of 0.25% of the aggregate
average daily net assets of such class of shares for payments to broker-dealers
for providing continuing account maintenance. SACS also receives sales charges
on each Portfolio's Class A shares, portions of which are reallowed to
affiliated broker-dealers and non-affiliated broker-dealers. Further, SACS
receives the proceeds of contingent deferred sales charges paid by investors in
connection with certain redemptions of each Portfolio's Class B shares.
The Fund, on behalf of each Portfolio, has entered into a Service Agreement
with SunAmerica Fund Services, Inc. ("SAFS"), an indirect wholly owned
subsidiary of SunAmerica Inc. Under the Service Agreement, SAFS
performs certain shareholder account functions by assisting the
Portfolios' transfer agent in connection with the services that it
offers to the shareholders of the Portfolios. The Service Agreement,
which permits the Portfolios to reimburse SAFS for costs incurred in
providing such services, is approved annually by the Directors.
B-73
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements.
The Financial Highlights set forth in Part A of the Prospectus:
None
Contained in Part B of Registrant's Statement of Additional Information:
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
(b) Exhibit Number
<S> <C>
(1)(A) Articles of Incorporation of Registrant, as amended.*
(1)(B) Articles Supplementary.*
(1)(C) Articles of Amendment.*
(1)(D) Articles of Amendment dated November 13, 1996.
(2) By-Laws of Registrant.*
(3) Voting Trust Agreement. Inapplicable.
(4) Instruments Defining Rights of Shareholders. Incorporated by
reference to Exhibits 1 and 2 above.
(5)(a) Investment Advisory and Management Agreement between Registrant
and SunAmerica Asset Management Corp.
(5)(b) Form of Subadvisory Agreement.
(6) Distribution Agreement.
(7) Disinterested Trustees and Directors' Retirement Plan
(8) Custodian Agreement.
(9)(a) Service Agreement between Registrant and SunAmerica Fund
Services.
(9)(b) Transfer Agency Agreement
(10) Opinion and Consent of Counsel.
(11) Consent of Independent Accountants.
(12) Financial Statements Omitted from Item 23. Inapplicable.
(13) Initial Capitalization Agreement. Inapplicable.
(14) Model Retirement Plan. Inapplicable.
(15) Rule 12b-1 Plans.
C-1
<PAGE>
(16) Performance Computations. Inapplicable.
(17)(a) Other Exhibits
Powers of Attorney.
Peter A. Harbeck
Peter C. Sutton
Peter McMillan III
S. James Coppersmith
Samuel M. Eisenstat
Stephen J. Gutman
Sebastiano Sterpa
(17)(b) Financial Data Schedules. Inapplicable.
(18) 18f-3 Plan.
</TABLE>
- --------------------------
*Filed electronically as the identically-numbered exhibit to the Fund's initial
Registration Statement (File No. 333-11283)
Item 25. Persons Controlled by or Under Common Control with Registrant.
The Registrant sold 8,000 shares of the Registrant to SunAmerica
Asset Management Corp.
Item 26. Number of Holders of Securities.
As of November 13, 1996, the number of record holders of Style Select
Series was as follows:
Portfolio Title of Class Number of Record Holders
- --------- -------------- ------------------------
Aggressive Growth PortfolioClass A One
Class B One
Mid-Cap Growth PortfolioClass A One
Class B One
Value PortfolioClass A One
Class B One
International Equity PortfolioClass A One
Class B One
Item 27. Indemnification.
Article V of the Registrant's By-Laws relating to the indemnification of
officers and directors is quoted below.
ARTICLE V
INDEMNIFICATION
5.01 Indemnification of Directors and Officers. The Corporation shall
indemnify any person 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 a proceeding by or
in the right of the Corporation in which such person shall have been adjudged to
be liable to the Corporation), by reason of being or having been a director or
officer of the Corporation, or serving or having served at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another entity in which the Corporation has an interest as a shareholder,
creditor or otherwise (a "Covered Person"), against all liabilities, including
but not limited to amounts paid in satisfaction of judgements, in compromise or
as fines and penalties, and reasonable expenses (including attorneys' fees)
actually incurred by the Covered Person in connection with any such action, suit
or proceeding, except (i) liability in connection with any proceeding in which
it is determined that (A) the act or omission of the Covered Person was material
to the matter giving rise to the proceeding, and was committed in bad faith or
was
C-2
<PAGE>
the result of active and deliberate dishonesty, or (B) the Covered Person
actually received an improper personal benefit in money, property or services,
or (C) in the case of any criminal proceeding, the Covered Person had reasonable
cause to believe that the act or omission was unlawful, and (ii) liability to
the Corporation or its security holders to which the Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office (any or all of the conduct referred to in clauses (i) and (ii) being
hereinafter referred to as "Disabling Conduct").
5.02 Procedure for Indemnification. Any indemnification under Section
5.01 shall (unless ordered by a court) be made by the Corporation only as
authorized for a specific proceeding by (i) a final decision on the merits by a
court or other body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of the proceeding against the Covered Person for insufficiency of
evidence of any Disabling Conduct, or (iii) a reasonable determination, based
upon a review of the facts, by a majority of a quorum of the directors who are
neither "interested persons" of the Corporation as defined in the Investment
Company Act of 1940 nor parties to the proceeding ("Disinterested Non-Party
Directors"), or an independent legal counsel in a written opinion, that the
Covered Person was not liable by reason of Disabling Conduct. The termination of
any proceeding by judgement, order or settlement shall not create a presumption
that the Covered Person did not meet the required standard of conduct; the
termination of any proceeding by conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment, shall create
a rebuttable presumption that the Covered Person did not meet the required
standard of conduct. Any determination pursuant to this Section 5.02 shall not
prevent recovery from any Covered Person of any amount paid to him in accordance
with this By-Law as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to be liable by reason of
Disabling Conduct.
5.03 Advance Payment of Expenses. Reasonable expenses (including
attorneys' fees) incurred by a Covered Person may be paid or reimbursed by the
Corporation in advance of the final disposition of an action, suit or proceeding
upon receipt by the Corporation of (i) a written affirmation by the Covered
Person of his good faith belief that the standard of conduct necessary for
indemnification under this By-Law has been met and (ii) a written undertaking by
or on behalf of the Covered Person to repay the amount if it is ultimately
determined that such standard of conduct has not been met, so long as either (A)
the Covered Person has provided a security for his undertaking, (B) the
Corporation is insured against losses arising by reason of any lawful advances,
or (C) a majority of a quorum of the Disinterested Non-Party Directors, or an
independent legal counsel in a written opinion, has determined, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.
5.04 Exclusivity, Etc. The indemnification and advance of expenses
provided by this By-Law shall not be deemed exclusive of any other rights to
which a Covered Person seeking indemnification or advance or expenses may be
entitled under any law (common or statutory), or any agreement, vote of
stockholders or disinterested directors, or other provision that is
C-3
<PAGE>
consistent with law, both as to action in an official capacity and as to action
in another capacity while holding office or while employed by or acting as agent
for the Corporation, shall continue in respect of all events occurring while the
Covered Person was a director or officer after such Covered Person has ceased to
be a director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such Covered Person. The Corporation shall not
be liable for any payment under this By-Law in connection with a claim made by a
director or officer to the extent such director or officer has otherwise
actually received payment, under an insurance policy, agreement, vote or
otherwise, of the amounts otherwise indemnifiable hereunder. All rights to
indemnification and advance of expenses under the Charter and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this
By-Law is in effect. Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of any Covered Person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights to indemnification or advance of expenses of a Covered
Person or the obligations of the Corporation arising hereunder with respect to
events occurring, or claims made, while this ByLaw or any provision hereof is in
force.
5.05 Insurance. The Corporation may purchase and maintain insurance on
behalf of any Covered Person against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such;
provided, however, that the Corporation shall not purchase insurance to
indemnify any Covered Person against liability for Disabling Conduct.
5.06 Severability: Definitions. The invalidity or unenforceability of
any provision of this Article V shall not affect the validity or enforceability
of any other provision hereof. The phrase "this By-Law" in this Article V means
this Article V in its entirety.
Section 8 of the Article of Incorporation provides as follows:
(5) The Corporation shall indemnify (i) its directors and
officers, whether serving the Corporation or at its request any other entity, to
the full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under the
procedures and to the full extent permitted by law, and (ii) other employees and
agents to such extent as shall be authorized by the Board of Directors or the
By-Laws of the Corporation and as permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such By-Laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. The right of
indemnification provided hereunder shall not be construed to protect any
director or officer of the Corporation against any liability to the Corporation
or its security holders to which he would otherwise be subject by reason of
willful
C-4
<PAGE>
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
(6) To the fullest extent permitted by Maryland statutory or decisional
law, as amended or interpreted, no director or officer of the Corporation shall
be personally liable to the Corporation or its stockholders for money damages;
provided, however, that this provision shall not be construed to protect any
director or officer against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. No amendment, modification or repeal of this provision
shall adversely affect any right or protection provided hereunder that exists at
the time of such amendment, modification or repeal.
Item 28. Business and other Connections of Investment Adviser.
SunAmerica Asset Management Corp. ("SunAmerica"), the Investment
Adviser of the Registrant, 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.
Miller Anderson & Sherrerd, LLP, Pilgrim Baxter & Associates, Ltd., T.
Rowe Price Associates, Inc., Davis Selected Advisers, L.P.,
Neuberger&Berman, L.P., Strong Capital Management, Inc., Schafer
Capital Management, Inc., Janus Capital Corporation, Warburg, Pincus
Counsellors, Inc. and Rowe-Price Fleming International, Inc., the
Advisers of certain of the Portfolios of the Registrant, 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 the Advisers, and other
required information:
File No.
Miller Anderson & Sherrerd, LLP 801-10437
Pilgrim Baxter & Associates, Ltd. 801-48872
T. Rowe Price Associates, Inc. 801-856
Davis Selected Advisers, L.P. 801-31648
Neuberger&Berman, L.P. 801-3908
Strong Capital Management 801-10724
Schafer Capital Management 801-25825
Warburg, Pincus Counsellors, Inc. 801-07321
C-5
<PAGE>
Janus Capital Corporation 801-13991
Rowe-Price Fleming International 801-14713
Item 29. Principal Underwriters.
(a) The principal underwriter of the Registrant also acts as
principal underwriter for:
SunAmerica Income Funds
SunAmerica Money Market Funds, Inc.
SunAmerica Equity Funds
(b) The following persons are the officers and directors of
SunAmerica Capital Services, Inc., the principal underwriter of
Registrant's Shares:
Name and Principal Position Position with the
Business Address With Underwriter Registrant
---------------- ---------------- ----------
Peter A. Harbeck Director President &
The SunAmerica Center Director
733 Third Avenue
New York, NY 10017-3204
Gary W. Krat Director None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Joseph M. Tumbler Director None
SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022
J. Steven Neamtz President None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Robert M. Zakem Executive Vice Secretary and
The SunAmerica Center President and Chief Compliance
733 Third Avenue Director Officer
New York, NY 10017-3204
Susan L. Harris Secretary None
SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022
Steven E. Rothstein Treasurer None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
(c) Inapplicable.
Item 30. Location of Accounts and Records.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, and its affiliate, National Financial Data
Services, collectively act as custodian, transfer agent and dividend
paying agent. They maintain books, records and accounts pursuant to the
instructions of the Fund.
SunAmerica Asset Management Corp. ("SunAmerica"), is located at The
SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204.
SunAmerica has contracted with Callan Associates, Inc. ("Callan") to
compile historical performance data relating to the Advisers, both
individually and on a composite basis. Registrant's records relating
thereto are maintained by Callan. Callan is located at 71 Stevenson
Street, Suite 1300, San Francisco, CA 94105.
Miller Anderson & Sherrerd, LLP is located at One Tower Bridge, West
Conshohocken, Pennsylvania 19428.
Pilgrim Baxter & Associates, Ltd. is located at 1255 Drummers Lane,
Suite 300, Wayne, Pennsylvania 19087.
T. Rowe Price Associates, Inc. is located at 100 East Pratt Street,
Baltimore, Maryland 21202.
Davis Selected Advisers, L.P. is located at 124 East March Street,
Santa Fe, New Mexico, 87501.
C-6
<PAGE>
Neuberger&Berman, L.P. is located at 605 Third Avenue, New York, New
York 10158-0180.
Strong Capital Management, Inc. has a principal mailing address at
P.O. Box 2936, Milwaukee, Wisconsin 53201.
Schafer Capital Management, Inc. is located at 645 Fifth Avenue, New
York, New York 10022.
Janus Capital Corporation is located at 100 Fillmore Street, Denver,
Colorado 80296-4923.
Warburg, Pincus Counsellors, Inc. is located at 466 Lexington Avenue,
New York, New York, 10017-3147.
Rowe Price-Fleming International, Inc. is located at 100 East Pratt
Street, Baltimore, Maryland 21202.
Each of the Advisers maintains the books, accounts and records required
to be maintained pursuant to Section 31(a) of the Investment Company
Act of 1940 and the rules promulgated thereunder.
Item 31. Management Services.
None.
Item 32. Undertakings.
Registrant hereby undertakes to:
File a post-effective amendment, using financial statements which may
not be certified, within four to six months of the effective date of this
Registration Statement.
The Registrant will furnish each investor to whom a Prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
the Pre-Effective Amendment No. 1 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 14th of November, 1996.
STYLE SELECT SERIES, INC.
Registrant
By: /s/ Peter A. Harbeck
---------------------------
Peter A. Harbeck, President
Pursuant to the requirements of the Securities Act of 1933, the
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A has
been signed below by the following persons in their respective capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
Signatures Title Date
--------------- ----
/s/ Peter A. Harbeck President and Director November 14, 1996
--------------------(Principal Executive
Peter A. Harbeck Officer)
* Treasurer
--------------------(Principal Accounting
Peter C. Sutton and Financial Officer)
* Director
--------------------
Peter McMillan III
* Director
--------------------
S. James Coppersmith
* Director
--------------------
Samuel M. Eisenstat
* Director
--------------------
Stephen J. Gutman
* Director
--------------------
Sebastiano Sterpa
*By: /s/ Robert M. Zakem November 14, 1996
---------------------------------
Robert M. Zakem, Attorney-in-Fact
</TABLE>
C-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
NumberDescription
------- -----------
<S> <C>
(1)(d) Articles of Amendment, dated November 13, 1996.
(5)(a) Investment Advisory and Management Agreement between Registrant
and SunAmerica Asset Management Corp.
(5)(b) Form of Subadvisory Agreement.
(6) Distribution Agreement.
(7) Disinterested Trustees and Directors' Retirement Plan
(8) Custodian Agreement.
(9)(a) Service Agreement between Registrant and SunAmerica Fund
Services.
(9)(b) Transfer Agency Agreement
(10) Opinion and Consent of Counsel.
(11) Consent of Independent Accountants.
(15)(a) Aggressive Growth Portfolio Class A Rule 12b-1 Plan
(b) Aggressive Growth Portfolio Class B Rule 12b-1 Plan
(c) Mid-Cap Growth Portfolio Class A Rule 12b-1 Plan
(d) Mid-Cap Growth Portfolio Class B Rule 12b-1 Plan
(e) Value Portfolio Class A Rule 12b-1 Plan
(f) Value Portfolio Class B Rule 12b-1 Plan
(g) International Equity Portfolio Class A Rule 12b-1 Plan
(h) International Equity Portfolio Class B Rule 12b-1 Plan
17(A) Powers of Attorney for Officers and Directors
Peter C. Sutton
Peter McMillan III
S. James Coppersmith
Samuel M. Eisenstat
Stephen J. Gutman
Sebastiano Sterpa
Peter A. Harbeck
(18) 18f-3 Plan.
</TABLE>
<PAGE>
STYLE SELECT SERIES, INC.
ARTICLES OF AMENDMENT
STYLE SELECT SERIES, INC., a Maryland corporation having its principal
office in Baltimore City, Maryland (which is hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended to provide
as follows:
The name of the "Growth Portfolio" series of capital stock of
the Corporation is hereby changed to "Mid-Cap Growth Portfolio."
SECOND: The amendment does not change the outstanding capital stock
of the Corporation or the aggregate par value thereof.
THIRD: The foregoing amendment to the Charter of the Corporation has
been approved by the Board of Directors and is limited to a change expressly
permitted by Section 2-605 of the Maryland General Corporation Law to be made
without action by the stockholders.
FOURTH: The Corporation is registered as an open-end company under
the Investment Company Act of 1940.
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and attested by its
Secretary on this 13 day of November, 1996.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
--------------------------
Peter A. Harbeck
President
ATTEST:
/s/ Robert M. Zakem
- --------------------------
Robert M. Zakem, Secretary
<PAGE>
The undersigned, President of Style Select Series, Inc., who executed
on behalf of said Corporation the foregoing Articles of Amendment of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation and further certifies that, to the best of his knowledge
information and belief, the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/s/ Peter A. Harbeck
--------------------------
Peter A. Harbeck
President
<PAGE>
STYLE SELECT SERIES, INC.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT is dated as of
September 17, 1996 by and between Style Select Series, Inc., a Maryland
corporation (the "Corporation"), and SUNAMERICA ASSET MANAGEMENT CORP., a
Delaware corporation (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company and may issue shares of common stock, par value $.0001 per share, in
separately designated Portfolio representing separate funds with their own
investment objectives, policies and purposes (each, a "Fund" and collectively,
the "Funds"); and
WHEREAS, the Adviser is engaged in the business of rendering
investment management, advisory and administrative services and is registered
as an investment adviser under the Investment Advisers Act of 1940; and
WHEREAS, the Corporation desires to retain the Adviser to furnish
investment management, advisory and administrative services to the Corporation
and the Funds and the Adviser is willing to furnish such services;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Duties of the Adviser. The Adviser shall manage the affairs of the
Funds including, but not limited to, continuously providing the Funds with
investment management, including investment research, advice and supervision,
determining which securities shall be purchased or sold by the Funds, making
purchases and sales of securities on behalf of the Funds and determining how
voting and other rights with respect to securities owned by the Funds shall be
exercised, subject in each case to the control of the Board of Directors of the
Corporation (the "Directors") and in accordance with the objectives, policies
and principles set forth in Corporation's Registration Statement and
<PAGE>
the Funds' current Prospectus and Statement of Additional Information, as
amended from time to time, the requirements of the Act and other applicable law.
In performing such duties, the Adviser (i) shall provide such office space, such
bookkeeping, accounting, clerical, secretarial and administrative services
(exclusive of, and in addition to, any such service provided by any others
retained by the Funds or Corporation on behalf of the Funds) and such executive
and other personnel as shall be necessary for the operations of the Funds, (ii)
shall be responsible for the financial and accounting records required to be
maintained by the Funds (including those maintained by Corporation's custodian)
and (iii) shall oversee the performance of services provided to the Funds by
others, including the custodian, transfer and shareholder servicing agent. The
Corporation understands that the Adviser also acts as the manager of other
investment companies.
Subject to Section 36 of the Act, the Adviser shall not be liable to
the Funds or Corporation for any error of judgment or mistake of law or for any
loss arising out of any investment or for any act or omission in the management
of the Funds and the performance of its duties under this Agreement except for
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties under
this Agreement.
2. Retention by Adviser of Sub-Advisers, etc. In carrying out its
responsibilities hereunder, the Adviser may employ, retain or otherwise avail
itself of the services of other persons or entities including, without
limitation, affiliates of the Adviser, on such terms as the Adviser shall
determine to be necessary, desirable or appropriate. Without limiting the
generality of the foregoing, and subject to the requirements of Section 15 of
the Act, the Adviser may retain one or more sub-advisers to manage all or a
portion of the investment portfolio of a Fund, at the Adviser's own cost and
expense. Retention of one or more sub-advisers, or the employment or retention
of other persons or entities to perform services, shall in no way reduce the
responsibilities or obligations of the Adviser under this Agreement and the
Adviser shall be responsible for all acts and omissions of such sub-advisers,
or other persons or entities, in connection with the performance of the
Adviser's duties hereunder.
3. Expenses. The Adviser shall pay all of its expenses arising from
the performance of its obligations under Section 1 and
- 2 -
<PAGE>
shall pay any salaries, fees and expenses of the Corporation's Directors and
Officers who are employees of the Adviser. The Adviser shall not be required to
pay any other expenses of the Funds, including, but not limited to, direct
charges relating to the purchase and sale of portfolio securities, interest
charges, fees and expenses of independent attorneys and auditors, taxes and
governmental fees, cost of share 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 filing reports and other documents
filed with governmental agencies, expenses of printing and distributing
prospectuses, 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 Directors who are not
employees of the Adviser or its affiliates, membership dues in the Investment
Company Institute, insurance premiums and extraordinary expenses such as
litigation expenses.
4. Compensation of the Adviser. (a) As full compensation for the
services rendered, facilities furnished and expenses paid by the Adviser under
this Agreement, the Corporation agrees to pay to the Adviser a fee at the
annual rates set forth in Schedule A hereto with respect to each Fund indicated
thereon. Such fee shall be accrued daily and paid monthly as soon as
practicable after the end of each month (i.e., the applicable annual fee rate
divided by 365 is applied to each prior days' net assets in order to calculate
the daily accrual). For purposes of calculating the Adviser's fee with respect
to any Fund, the average daily net asset value of a Fund shall be determined by
taking an average of all determinations of such net asset value during the
month. If the Adviser shall serve for less than the whole of any month the
foregoing compensation shall be prorated.
(b) Upon any termination of this Agreement on a day other
than the last day of the month, the fee for the period from the beginning of
the month in which termination occurs to the date of termination shall be
prorated according to the proportion which such period bears to the full month.
- 3 -
<PAGE>
5. Portfolio Transactions. The Adviser is responsible for decisions to
buy or sell securities and other investments for a portion of the assets of
each Portfolio, broker-dealers and futures commission merchants' selection, and
negotiation of brokerage commission and futures commission merchants' rates. As
a general matter, in executing Portfolio transactions, the Adviser may employ
or deal with such broker-dealers or futures commission merchants as may, in the
Adviser's best judgement, provide prompt and reliable execution of the
transactions at favorable prices and reasonable commission rates. In selecting
such broker-dealers or futures commission merchants, the Adviser shall consider
all relevant factors including price (including the applicable brokerage
commission, dealer spread or futures commission merchant rate), the size of the
order, the nature of the market for the security or other investment, the
timing of the transaction, the reputation, experience and financial stability
of the broker-dealer or futures commission merchant involved, the quality of
the service, the difficulty of execution, the execution capabilities and
operational facilities of the firm involved, and, in the case of securities,
the firm's risk in positioning a block of securities. Subject to such policies
as the Directors may determine and consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the Adviser shall
not be deemed to have acted unlawfully or to have breached any duty created by
this Agreement or otherwise solely by reason of the Adviser's having caused a
Portfolio to pay a member of an exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of an exchange, broker or dealer would have charged
for effecting that transaction, if the Adviser determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such member of an exchange, broker
or dealer viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to such Portfolio and to other
clients as to which the Adviser exercises investment discretion. In accordance
with Section 11(a) of the 1934 Act and Rule 11a2-2(T) thereunder, and subject
to any other applicable laws and regulations including Section 17(e) of the Act
and Rule 17e-1 thereunder, the Adviser may engage its affiliates or any other
subadviser to the Corporation and its respective affiliates, as broker-dealers
or futures commission merchants to effect Portfolio transactions in securities
and other investments for a Portfolio. The Adviser will promptly communicate to
the officers and the Directors of the Corporation such information relating to
Portfolio transactions as they may reasonably request. To the extent consistent
with applicable law, the Adviser may aggregate purchase or sell orders for the
Portfolio with contemporaneous purchase or sell orders of other clients of the
Adviser or its affiliated persons. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Adviser in the manner the Adviser determines to be equitable and
consistent with its and its affiliates' fiduciary obligations to the Portfolio
and to such other clients. The Adviser hereby acknowledges that such
aggregation of orders may not result in more favorable pricing or lower
brokerage commissions in all instances.
6. Term of Agreement. This agreement shall continue in full force and
effect for two years from the date hereof, and shall
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<PAGE>
continue in full force and effect from year to year thereafter if such
continuance is approved in the manner required by the Act and the Adviser has
not notified the Corporation in writing at least 60 days prior to the
anniversary date of the previous continuance that it does not desire such
continuance. With respect to each Fund, this Agreement may be terminated at any
time, without payment of penalty by the Fund or the Corporation, on 60 days
written notice to the Adviser, by vote of the Directors, or by vote of a
majority of the outstanding voting securities (as defined by the Act) of the
Fund, voting separately from any other Portfolio of the Corporation. The
termination of this Agreement with respect to any Fund or the addition of any
Fund to Schedule A hereto (in the manner required by the Act) shall not affect
the continued effectiveness of this Agreement with respect to each other Fund
subject hereto. This Agreement shall automatically terminate in the event of its
assignment (as defined by the Act).
The Corporation hereby agrees that if (i) the Adviser ceases
to act as investment manager and adviser to the Corporation and (ii) the
continued use of the Corporation's present name would create confusion in the
context of the Adviser's business, then the Corporation will use its best
efforts to change its name in order to delete the word "SunAmerica" from its
name.
7. Liability of the Adviser. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
("disabling conduct") hereunder on the part of the Adviser (and its officers,
directors, agents, employees, controlling persons, shareholders and any other
person or entity affiliated with the Adviser) the Adviser shall not be subject
to liability to the Corporation or to any shareholder of the Corporation for
any act or omission in the course of, or connected with, rendering services
hereunder, including without limitation, any error of judgment or mistake of
law or for any loss suffered by any of them in connection with the matters to
which this Agreement relates, except to the extent specified in Section 36(b)
of the Act concerning loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services. Except for such disabling
conduct, the Corporation shall indemnify the Adviser (and its officers,
directors, partners, agents, employees, controlling persons, shareholders and
any other person or entity affiliated with the Adviser) (collectively, the
"Indemnified
- 5 -
<PAGE>
Parties") from any liability arising from the Adviser's conduct under this
Agreement.
Indemnification to the Adviser or any of its personnel or
affiliates shall be made when (i) a final decision on the merits rendered, by a
court or other body before whom the proceeding was brought, that the person to
be indemnified was not liable by reason of disabling conduct or, (ii) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum of the Directors
who are neither "interested persons" of the Corporation as defined in section
2(a)(19) of the Act nor parties to the proceeding ("disinterested, non-party
Directors") or (b) an independent legal counsel in a written opinion. The
Corporation may, by vote of a majority of the disinterested, non-party
Directors advance attorneys' fees or other expenses incurred by an Indemnified
Party in defending a proceeding upon the undertaking by or on behalf of the
Indemnified Party to repay the advance unless it is ultimately determined that
he is entitled to indemnification. Such advance shall be subject to at least
one of the following: (1) the person to be indemnified shall provide a security
for his undertaking, (2) the Corporation shall be insured against losses
arising by reason of any lawful advances, or (3) a majority of a quorum of the
disinterested, non-party Directors 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 person to be indemnified ultimately will be
found entitled to indemnification.
8. Non-Exclusivity. Nothing in this Agreement shall limit or restrict
the right of any director, officer or employee of the Adviser who may also be a
Director, officer or employee of the Corporation to engage in any other
business or devote his or her time and attention in part to the management or
other aspects of any business, whether of a similar or dissimilar nature, nor
limit or restrict the right of the Adviser to engage in any other business or
to render services of any kind to any other corporation, firm, individual or
association.
9. Amendments. This Agreement may be amended by mutual consent in
writing, but the consent of the Corporation must be obtained in conformity with
the requirements of the Act.
- 6 -
<PAGE>
10. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of New York and the applicable provisions of the
Act. To the extent the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Act, the
latter shall apply.
11. Separate Portfolio. Pursuant to the provisions of the
Declaration, each Fund is a separate Portfolio of the Corporation, and all
debts, liabilities, obligations and expenses of a particular Fund shall be
enforceable only against the assets of that Fund and not against the assets of
any other Fund or of the Corporation as a whole.
IN WITNESS WHEREOF, the Corporation and the Adviser have caused this
Agreement to be executed by their duly authorized officers as of the date first
above written.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
------------------------------
Name: Peter A. Harbeck
Title: President
SUNAMERICA ASSET MANAGEMENT CORP.
By: /s/ Robert M. Zakem
------------------------------
Name: Robert M. Zakem
Title: Senior Vice President
- 7 -
<PAGE>
SCHEDULE A
FEE RATE
(as a % of average
PORTFOLIO daily net asset value)
- --------- ----------------------
Aggressive Growth Portfolio 1.00% of Net Assets
Growth Portfolio 1.00% of Net Assets
Value Portfolio 1.00% of Net Assets
International Equity Portfolio 1.10% of Net Assets
<PAGE>
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of by and
between , a Delaware corporation (the "Adviser"), and
a Maryland corporation (the "Subadviser").
WITNESSETH:
WHEREAS, the Adviser and a Maryland
corporation (the "Corporation"), have entered into an Investment Advisory and
Management Agreement dated as of , 199 , (the "Advisory Agreement")
pursuant to which the Adviser has agreed to provide investment management,
advisory and administrative services to the Corporation; and
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company
and may issue shares of common stock, par value $.0001 per share, in separately
designated series representing separate funds with their own investment
objectives, policies and purposes; and
WHEREAS, the Subadviser is engaged in the business of rendering
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended;
WHEREAS, the Adviser desires to retain the Subadviser to furnish
investment advisory services to the investment series of the Corporation listed
on Schedule A attached hereto (the "Portfolio"), and the Subadviser is willing
to furnish such services; and
WHEREAS, one-third of all purchases into the Portfolio listed on
Schedule A attached hereto and one-third of all redemptions from such Portfolio
will be allocated to the Subadviser;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
<PAGE>
1. Duties of the Subadviser. The Adviser hereby appoints the
Subadviser, in furtherance of its Investment Advisory and Management Agreement
with the Corporation, to manage the investment and reinvestment of a portion of
the assets of each Portfolio listed on Schedule A attached hereto. The
Subadviser will determine in its discretion and subject to the oversight and
review of the Adviser, the securities to be purchased or sold, will provide the
Adviser with records concerning the Portfolio's investment activity which the
Subadviser is required to maintain in connection therewith, and will render
regular reports to the Adviser and to officers and Directors of the Corporation
concerning its discharge of the foregoing responsibilities. The Subadviser
shall discharge the foregoing responsibilities subject to the control of the
officers and the Directors of the Corporation and in compliance with such
policies as the Directors of the Corporation may from time to time establish,
and in compliance with (a) the objectives, policies, and limitations for the
Portfolio set forth in the Corporation's current prospectus and statement of
additional information, and (b) applicable laws and regulations.
The Subadviser agrees that it will operate and manage the
portion of the assets allocated to it of each of the Portfolio set forth in
Schedule A at all times in compliance with applicable federal and state laws
governing its operations and investments. The Subadviser agrees to manage such
allocated assets in the Portfolio in compliance with (a) the provisions of the
Act and rules adopted thereunder; (b) the diversification requirements specified
in Subchapter M, Chapter 1 of the Code; and (c) applicable federal and state
securities, commodities and banking laws, provided that the Adviser shall
provide the Subadviser with written direction as to the requirements of
applicable federal and state banking laws. For purposes of the preceding
sentence, disclosure in the Corporation's prospectus and/or statement of
additional information of applicable state insurance laws and regulations and
applicable federal and state banking laws and regulations shall constitute
"written direction" thereof. The Subadviser represents and warrants that to the
extent that any statements or omissions regarding the Subadviser made in any
Registration Statement for the shares of the Corporation, or any amendment or
supplement thereto, are made in reliance upon and in conformity with written
information furnished by the Subadviser expressly for use therein, such
Registration Statement and any amendments or supplements thereto will, when they
become effective, conform in all material respects to the requirements of the
Securities Act of 1933 and the rules and regulations of the
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<PAGE>
Commission thereunder (the "1933 Act") and the Act and will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading. In addition, the Adviser represents and warrants that the
Registration Statement for the shares of the Corporation, or any amendment or
supplement thereto, other than statements or omissions regarding the Subadviser
provided in writing by the Subadviser expressly for use therein, will, when
they become effective, conform in all material respects to the requirements of
the 1933 Act and the Act and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
The Subadviser accepts such appointment and agrees, at its own
expense, to render the services set forth herein and to provide the office
space, furnishings, equipment and personnel required by it to perform such
services on the terms and for the compensation provided in this Agreement.
2. Portfolio Transactions. The Subadviser is responsible for
decisions to buy or sell securities and other investments for a portion of the
assets of each Portfolio, broker-dealers and futures commission merchants'
selection, and negotiation of brokerage commission and futures commission
merchants' rates. As a general matter, in executing Portfolio transactions, the
Subadviser may employ or deal with such broker-dealers or futures commission
merchants as may, in the Subadviser's best judgement, provide prompt and
reliable execution of the transactions at favorable prices and reasonable
commission rates. In selecting such broker-dealers or futures commission
merchants, the Subadviser shall consider all relevant factors including price
(including the applicable brokerage commission, dealer spread or futures
commission merchant rate), the size of the order, the nature of the market for
the security or other investment, the timing of the transaction, the reputation,
experience and financial stability of the broker-dealer or futures commission
merchant involved, the quality of the service, the difficulty of execution, the
execution capabilities and operational facilities of the firm involved, and, in
the case of securities, the firm's risk in positioning a block of securities.
Subject to such policies as the Directors may determine and consistent with
Section 28(e) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), the Subadviser
-3-
<PAGE>
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of the Subadviser's
having caused a Portfolio to pay a member of an exchange, broker or dealer an
amount of commission for effecting a securities transaction in excess of the
amount of commission another member of an exchange, broker or dealer would have
charged for effecting that transaction, if the Subadviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such member of an exchange,
broker or dealer viewed in terms of either that particular transaction or the
Subadviser's overall responsibilities with respect to such Portfolio and to
other clients as to which the Subadviser exercises investment discretion. In
accordance with Section 11(a) of the 1934 Act and Rule 11a2-2(T) thereunder, and
subject to any other applicable laws and regulations including Section 17(e) of
the Act and Rule 17e-1 thereunder, the Subadviser may engage its affiliates, the
Adviser and its affiliates or any other subadviser to the Corporation and its
respective affiliates, as broker-dealers or futures commission merchants to
effect Portfolio transactions in securities and other investments for a
Portfolio. The Subadviser will promptly communicate to the Adviser and to the
officers and the Directors of the Corporation such information relating to
Portfolio transactions as may be mutually agreed with the Subadviser.
3. Compensation of the Subadviser. The Subadviser shall not be
entitled to receive any payment from the Corporation and shall look solely and
exclusively to the Adviser for payment of all fees for the services rendered,
facilities furnished and expenses paid by it hereunder. As full compensation
for the Subadviser under this Agreement, the Adviser agrees to pay the
Subadviser a fee at the annual rates set forth in Schedule A hereto with respect
to the portion of the assets managed by the Subadviser for each Portfolio listed
thereon. Such fee shall be accrued daily and paid monthly as soon as
practicable after the end of each month (i.e., the applicable annual fee rate
divided by 365 applied to each prior days' net assets in order to calculate the
daily accrual), but in no event later than the 15th day of the following month.
If the Subadviser shall provide its services under this Agreement for less than
the whole of any month, the foregoing compensation shall be prorated.
-4-
<PAGE>
4. Other Services. At the request of the Corporation or the
Adviser, the Subadviser in its discretion may make available to the Corporation,
office facilities, equipment, personnel and other services. Such office
facilities, equipment, personnel and services shall be provided for or rendered
by the Subadviser and billed to the Corporation or the Adviser at the
Subadviser's cost.
5. Reports. The Corporation, the Adviser and the Subadviser
agree to furnish to each other, if applicable, current prospectuses, statements
of additional information, proxy statements, reports of shareholders, certified
copies of their financial statements, and such other information with regard to
their affairs and that of the Corporation as each may reasonably request.
6. Status of the Subadviser. The services of the Subadviser to
the Adviser and the Corporation are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to others so long as its
services to the Corporation are not impaired thereby. The Subadviser shall be
deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the
Corporation in any way or otherwise be deemed an agent of the Corporation.
7. Services to Other Clients. Nothing contained in this
Agreement shall limit or restrict (i) the freedom of the Subadviser, or any
affiliated persons thereof, to render investment management and corporate
administrative services to other investment companies, to act as investment
manager or investment counselor to other persons, firms, or corporations, or to
engage in any other business activities, or (ii) the right of any director,
officer, or employee of the Subadviser, who may also be a director, officer, or
employee of the Company, to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any other
business, whether of a similar nature or a dissimilar nature.
8. Certain Records. The Subadviser hereby undertakes and agrees
to maintain, in the form and for the period required by Rule 31a-2 under the
Act, all records relating to the investments of the Portfolio that are required
to be maintained by the Corporation pursuant to the requirements of Rule 31a-1
of the Act. Any records
-5-
<PAGE>
required to be maintained and preserved pursuant to the provisions of Rule 31a-1
and Rule 31a-2 promulgated under the Act which are prepared or maintained by the
Subadviser on behalf of the Corporation are the property of the Corporation and
will be surrendered promptly to the Corporation or the Adviser on request.
The Subadviser agrees that all accounts, books and other
records maintained and preserved by it as required hereby shall be subject at
any time, and from time to time, to such reasonable periodic, special and other
examinations by the Securities and Exchange Commission, or any governmental
agency or other instrumentality having regulatory authority over the
Corporation, and upon reasonable request and during normal business hours the
Corporation's auditors, the Corporation or any representative of the
Corporation, the Adviser.
9. Reference to the Subadviser. Subject to the terms of a
separate Logo Licensing Agreement, neither the Corporation nor the Adviser or
any affiliate or agent thereof shall make reference to or use the name of the
Subadviser or any of its affiliates in any advertising or promotional materials
without the prior approval of the Subadviser, which approval shall not be
unreasonably withheld.
10. Liability of the Subadviser. (a) In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties ("disabling conduct") hereunder on the part of the Subadviser (and its
officers, directors, agents, employees, controlling persons, shareholders and
any other person or entity affiliated with the Subadviser) the Subadviser shall
not be subject to liability to the Corporation or to any shareholder of the
Corporation for any act or omission in the course of, or connected with,
rendering services hereunder, including without limitation, any error of
judgment or mistake of law or for any loss suffered by any of them in connection
with the matters to which this Agreement relates, except to the extent specified
in Section 36(b) of the Act concerning loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services. Except for such
disabling conduct, the Adviser shall indemnify the Subadviser (and its officers,
directors, partners, agents, employees, controlling persons, shareholders and
any other person or entity affiliated with the Subadviser) (collectively, the
"Indemnified Parties") from any liability arising from the Subadviser's conduct
under this Agreement. Subadviser hereby
-6-
<PAGE>
indemnifies, defends and protects Adviser and holds Adviser harmless, from and
against any and all liability arising out of Subadviser's disabling conduct.
(b) The Subadviser agrees to indemnify and hold harmless
the Adviser and its affiliates and each of its directors and officers and each
person, if any, who controls the Adviser within the meaning of Section 15 of the
1933 Act against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), to which the Adviser or its affiliates or
such directors, officers or controlling person may become subject under the 1933
Act, under other statutes, at common law or otherwise, which may be based upon
(i) any wrongful act or material breach of this Agreement by the Subadviser
arising from the Subadviser's disabling conduct, or (ii) any failure by the
Subadviser to comply with the representations and warranties set forth in
Section 1 of this Agreement; provided, however, that in no case is the
Subadviser's indemnity in favor of any person deemed to protect such other
persons against any liability to which such person would otherwise be subject by
reasons of willful misfeasance, bad faith, or gross negligence in the
performance of his, her or its duties or by reason of his, her or its reckless
disregard of obligation and duties under this Agreement.
(c) The Subadviser shall not be liable to the Adviser for
(i) any acts of the Adviser or any other subadviser to the Portfolio with
respect to the portion of the assets of a Portfolio not managed by the
Subadviser and (ii) acts of the Subadviser which result from acts of the
Adviser, including, but not limited to, a failure of the Adviser to provide
accurate and current information with respect to any records maintained by the
Adviser or any other subadviser to a Portfolio, which records are not also
maintained by the Subadviser. The Adviser agrees that the Subadviser shall
manage the portion of the assets of a Portfolio allocated to it as if it was a
separate operating Portfolio and shall comply with subsections (a) and (b) of
Section I of this Subadvisory Agreement (including, but not limited to, the
investment objectives, policies and restrictions applicable to a Portfolio and
qualifications of a Portfolio as a regulated investment company under the Code)
with respect to the portion of assets of a Portfolio allocated to the Subadviser
as if it was a separate operating Portfolio. The Adviser shall defend,
indemnify and hold harmless the Indemnified Parties from any liability arising
from the conduct of the Adviser
-7-
<PAGE>
or other subadviser with respect to the portion of a Portfolio's assets not
allocated to the Subadviser.
11. Permissible Interests. Directors and agents of the
Corporation are or may be interested in the Subadviser (or any successor
thereof) as directors, partners, officers, or shareholders, or otherwise;
directors, partners, officers, agents, and shareholders of the Subadviser are or
may be interested in the Corporation as directors, or otherwise; and the
Subadviser (or any successor) is or may be interested in the Corporation in some
manner.
12. Term of the Agreement. This Agreement shall continue in full
force and effect with respect to each Portfolio until two years from the date
hereof, and from year to year thereafter so long as such continuance is
specifically approved at least annually (i) by the vote of a majority of those
Directors of the Corporation who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Directors of the Corporation or by vote
of a majority of the outstanding voting securities of the Portfolio voting
separately from any other series of the Corporation.
With respect to each Portfolio, this Agreement may be
terminated at any time, without payment of a penalty by the Portfolio or the
Corporation, by vote of a majority of the Directors, or by vote of a majority of
the outstanding voting securities (as defined in the Act) of the Portfolio,
voting separately from any other series of the Corporation, or by the Adviser,
on not less than 30 nor more than 60 days' written notice to the Subadviser.
With respect to each Portfolio, this Agreement may be terminated by the
Subadviser at any time, without the payment of any penalty, on 90 days' written
notice to the Adviser and the Corporation; provided, however, that this
Agreement may not be terminated by the Subadviser unless another subadvisory
agreement has been approved by the Corporation in accordance with the Act, or
after six months' written notice, whichever is earlier. In the event of such a
termination, the Adviser will use its best efforts, and cause the Corporation to
use its best efforts, to engage another subadviser for the Portfolio as soon as
possible. Notwithstanding the foregoing, the Subadviser may terminate the
Agreement on 60 days' written notice to the Adviser and the
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<PAGE>
Corporation, in the event of a breach of this Agreement by the Adviser. The
termination of this Agreement with respect to any Portfolio or the addition of
any Portfolio to Schedule A hereto (in the manner required by the Act) shall not
affect the continued effectiveness of this Agreement with respect to each other
Portfolio subject hereto. This Agreement shall automatically terminate in the
event of its assignment (as defined by the Act).
This Agreement will also terminate in the event that the
Advisory Agreement by and between the Corporation and the Adviser is terminated.
13. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
14. Amendments. This Agreement may be amended by mutual consent
in writing, but the consent of the Corporation must be obtained in conformity
with the requirements of the Act.
15. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of New York and the applicable provisions of the
Act. To the extent the applicable laws of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Act, the
latter shall control.
16. Separate Series. Pursuant to the provisions of the Articles
of Incorporation, each Portfolio is a separate series of the Corporation, and
all debts, liabilities, obligations and expenses of a particular Portfolio shall
be enforceable only against the assets of that Portfolio and not against the
assets of any other Portfolio or of the Corporation as a whole.
18. Notices. All notices shall be in writing and deemed properly
given when delivered or express delivery service by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
Subadviser:
-9-
<PAGE>
Adviser: SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue, Third Floor
New York, NY 10017-3204
Attention: Robert M. Zakem
Senior Vice President and
General Counsel
- 10 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of the date first above
written.
SUNAMERICA ASSET MANAGEMENT CORP.
By: ____________________________________
Name: Peter A. Harbeck
Title: President
By: ____________________________________
Name:
Title:
- 11 -
<PAGE>
SCHEDULE A
Fee
(as percentage of average
daily net assets the Subadviser
Portfolio manages for the Portfolio)
- --------- --------------------------
- 12 -
<PAGE>
STYLE SELECT SERIES, INC.
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT is dated as of September 17, 1996 by and
between STYLE SELECT SERIES, INC., a Maryland corporation (the "Corporation")
and SUNAMERICA CAPITAL SERVICES, INC., a Delaware corporation (the
"Distributor").
W I T N E S S E T H:
WHEREAS, the Corporation is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, the Corporation is authorized to issue shares of common stock, par
value $.0001 per share (the "Shares"), in separately designated series
representing separate funds with their own investment objectives, policies and
restrictions (the "Portfolios") and has registered the Shares of the Portfolios
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a registration statement on Form N-1A (the "Registration Statement"), including
a prospectus (the "Prospectus") and a statement of additional information (the
"Statement of Additional Information"); and
WHEREAS, the Corporation has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the Investment Company Act on behalf of each Fund (the
"Distribution Plans") and may enter into related agreements providing for the
distribution of the Shares of the Portfolios; and
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
WHEREAS, the Corporation wishes to engage the services of the Distributor
as distributor of the Shares of the Portfolios and the Distributor is willing to
serve in that capacity;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
<PAGE>
1. EXCLUSIVE DISTRIBUTOR. The Portfolios hereby agree that the Distributor
shall and for the period of this Agreement be exclusive agent for distribution
within the United States and its territories, and the Distributor agrees to use
its best efforts during such period to effect such distribution of the Shares ;
provided, however, that nothing herein shall prevent a Fund, if it so elects,
from selling or otherwise distributing its Shares directly to any persons other
than dealers. In connection therewith, it is contemplated that the Distributor
will enter into agreements with selected securities dealers. The Portfolios
understand that the Distributor also acts as agent for distribution of shares of
capital stock or beneficial interest, as the case may be, of other open-end
investment companies which have entered into management and advisory agreements
with the Portfolios' current investment adviser.
2. SALE OF THE SHARES. The Distributor is authorized as agent for the
Portfolios and not as principal, to sell the Shares to other purchasers on such
terms as may be provided in the then current Prospectus of the Portfolios;
provided, however, that no sales shall be confirmed by the Distributor at any
time when, according to advice received by the Distributor from a Fund, the
officers of the Corporation have for any reason sufficient to them temporarily
or permanently suspended or discontinued the sale and issuance of such Fund's
Shares. Each sale shall be effected by the Distributor only at the applicable
price, plus the applicable sales charge, if any, determined by a Fund in the
manner prescribed in its then current Prospectus. The Distributor shall, insofar
as they concern it, comply with all applicable laws, rules and regulations
including, without limiting the generality of the foregoing, all rules or
regulations made or adopted pursuant to Section 22 of the Act by the Securities
and Exchange Commission or any securities association registered under the
Exchange Act.
The Portfolios agree, as long as the Shares may legally be issued, to fill
all orders confirmed by the Distributor in accordance with the provisions of
this Agreement.
3. EXPENSES; COMPENSATION. The Distributor agrees promptly to pay or
reimburse the Portfolios for all expenses (except expenses incurred by the
Portfolios in connection with the preparation, printing and distribution of any
prospectus or report or other communication to shareholders, to the extent that
such
-2-
<PAGE>
expenses are incurred to effect compliance with the Federal or state laws or to
enable such distribution to shareholders) (a) of printing and distributing
copies of any prospectus and of preparing, printing and distributing any other
material used by the Distributor in connection with offering the Shares for
sale, and (b) of advertising in connection with such offering. The Portfolios
agree to pay all expenses in connection with the registration of the Shares
under the Securities Act , all fees and related expenses which may be incurred
in connection with the qualification of the Shares for sale in such states (as
well as the District of Columbia, Puerto Rico and other territories) as the
Distributor may designate, and all expenses in connection with maintaining
facilities for the issue and transfer of the Shares, of supplying information,
prices and other data to be furnished by it hereunder and through its agents of
all data processing and related services related to the share distribution
activity contemplated hereby.
As compensation for its services hereunder, the Portfolios agree to pay to the
Distributor all amounts received as sales charges as described in the
Portfolios' most current Prospectus. Out of such sales charges, the Distributor
may allow such concessions or reallowances to dealers as it may from time to
time determine.
The Corporation agrees to execute such documents and to furnish such information
as may be reasonably necessary, in the discretion of the Board of Directors
("Directors") of the Corporation, in connection with the qualification of the
Shares for sale in such states (as well as the District of Columbia, Puerto Rico
and other territories) as the Distributor may designate. The Distributor also
agrees to pay all fees and related expenses connected with its own qualification
as a broker or dealer under Federal or state laws and, except as otherwise
specifically provided in this Agreement or agreed to by the Corporation, all
other expenses incurred by the Distributor in connection with the sale of the
Shares as contemplated in this Agreement (including the expenses of qualifying
the Corporation as a dealer or broker under the laws of such states as may be
designated by the Distributor, if deemed necessary or advisable by the
Corporation).
4. PROSPECTUS AND OTHER INFORMATION. The Corporation represents and warrants to
and agrees with the Distributor that:
-3-
<PAGE>
(a) The Registration Statement, including the Prospectus and Statement of
Additional Information, relating to the Shares has been filed under both the Act
and the Securities Act and has become effective.
(b) At all times during the term of this Agreement, except when the
officers of the Corporation have suspended or discontinued the sale and issuance
of the Shares of a Fund as contemplated by Section 2 hereof, the Registration
Statement, Prospectus and Statement of Additional Information will conform in
all material respects to the requirements of the Act and the rules and
regulations of the Securities and Exchange Commission, and none of such
documents will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, except that the foregoing does not apply to
any statements or omissions in any of such documents based upon written
information furnished to the Corporation by the Distributor specifically for use
therein.
(c) The Corporation agrees to prepare and furnish to the Distributor from
time to time, a copy of the Prospectus, and authorizes the Distributor to use
such Prospectus, in the form furnished to the Distributor from time to time, in
connection with the sale of the Shares. The Corporation also agrees to furnish
the Distributor from time to time, for use in connection with the sale of such
Shares, such information (including the Statement of Additional Information)
with respect to the Portfolios and the Shares as the Distributor may reasonably
request.
5. INDEMNIFICATION.
(a) The Corporation will indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor within the meaning of the Act
against any losses, claims, damages or liabilities to which the Distributor or
such controlling person may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, Prospectus or
Statement of Additional Information or any other written sales material prepared
by the Corporation or the Portfolios which is utilized by the
-4-
<PAGE>
Distributor in connection with the sale of Shares of the Fund or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or (in the case of the Registration Statement,
Prospectus and Statement of Additional Information) necessary to make the
statement therein not misleading or (in the case of such other sales material)
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse the Distributor and
each such controlling person for any legal or other expenses reasonably incurred
by the Distributor or such controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Corporation or the Portfolios will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, Prospectus or Statement of
Additional Information in conformity with written information furnished to the
Corporation by the Distributor specifically for use therein; and provided,
further, that nothing herein shall be so construed as to protect the Distributor
against any liability to the Corporation or the Portfolios, or the security
holders of the Portfolios to which the Distributor would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence, in the performance
of its duties, or by reason of the reckless disregard by the Distributor of its
obligations and duties under this Agreement. This indemnity provision will be in
addition to any liability which the Corporation may otherwise have.
(b) The Distributor will indemnify and hold harmless the Corporation, each
of its Directors and officers and each person, if any, who controls the
Corporation within the meaning of the Act, against any losses, claims, damages
or liabilities to which the Corporation or any such Director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, Prospectus or
Statement of Additional Information or any sales material not prepared by the
Corporation or the Portfolios which is utilized in connection with the sale of
the Shares or arise out of or are based upon the omissions or the alleged
omission to state therein a material fact
-5-
<PAGE>
required to be stated therein or (in the case of the Registration Statement,
Prospectus and Statement) necessary to make the statements therein not
misleading or (in the case of such other sales material) necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made, in the case of the Registration Statement, Prospectus and
Statement of Additional Information to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in conformity with written information furnished to the
Corporation by the Distributor specifically for use therein; and the Distributor
will reimburse any legal or other expenses reasonably incurred by the
Corporation or any such Director, officer or controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action. This indemnity provision will be in addition to any liability which the
Distributor may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from liability
which it may have to any indemnified party otherwise than under this Section. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish, to
assume the defense thereof, with counsel satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
6. TERM OF AGREEMENT. This Agreement shall continue in full force and
effect for two years from the date hereof, and shall continue in full force and
effect from year to year thereafter if such continuance is approved in the
manner required by the Act, and the Distributor has not have notified the
Corporation in writing at least 60 days prior to the anniversary date of the
previous continuance that it does not desire such continuance. This
-6-
<PAGE>
Agreement may be terminated at any time, without payment of penalty by the
Corporation on 60 days' written notice to the Distributor by vote of the
Directors of the Corporation or by vote of a majority of the outstanding voting
securities of the Corporation (as defined by the Act). This Agreement shall
automatically terminate in the event of its assignment (as defined by the Act).
7. MISCELLANEOUS. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. Anything herein to the
contrary notwithstanding, this Agreement shall not be construed to require or to
impose any duty upon either of the parties to do anything in violation of any
applicable laws or regulations.
-7-
<PAGE>
IN WITNESS WHEREOF, the Corporation and the Distributor have caused this
Agreement to be executed by their duly authorized officers as of the date above
written.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
Peter A. Harbeck
President
SUNAMERICA CAPITAL SERVICES, INC.
By: /s/ Robert M. Zakem
Robert M. Zakem
Executive Vice President
-8-
<PAGE>
-9-
<PAGE>
SunAmerica Disinterested Trustees' and Directors'
Retirement Plan
Section 1. Adoption and Purpose. The SunAmerica Fund or the Anchor Series
Trust designated on Schedule A, as the case may be (the "Adopting Fund"), has
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement Plan
(the "Plan"). The purpose of this Plan is to provide, in accordance with the
following terms, deferred compensation in the nature of pension benefits for (i)
Trustees of the Adopting Fund, if it is organized as a Massachusetts business
trust, and (ii) Directors of the Adopting Fund, if it is organized as a
corporation, who in either such case are not "interested persons" (as that term
is defined in the Investment Company Act of 1940, as amended). Such
disinterested Trustees or disinterested Directors are referred to herein
collectively as "Trustees."
Section 2. Effective Date. This Plan shall be effective as of January 1,
1993.
Section 3. Participation. Each Trustee shall become a participant in this
Plan ("Participant") upon the earlier of (a) attainment of age 55 and completion
of ten consecutive years of service as a Trustee of any of the SunAmerica Funds
or the Anchor Series Trust or (b) attainment of age 60 and completion of five
consecutive years of service as a Trustee of any of the SunAmerica Funds or the
Anchor Series Trust. Notwithstanding the foregoing, a Trustee who was a Trustee
on January 1, 1993, and who at that time, was under age 55, shall become a
Participant in this Plan upon completion of ten consecutive years of service,
without regard to his age at the time of completion of such service. Years of
service shall include service prior to the adoption of this Plan, and service as
a Trustee of any predecessor fund of an Adopting Fund.
Section 4. Eligibility for Benefits. Any Participant shall be eligible for
the benefits described in Section 5 of the Plan upon (i) his death or disability
(within the meaning of Subsection 5(c) of the Plan) while a Trustee or (ii) the
termination of his tenure as a Trustee, other than by removal for cause, after
becoming a Participant, as provided in Section 3 of the Plan, and on or before
his 70th birthday. No benefits shall be payable to any Trustee whose service as
a Trustee terminates otherwise than as provided in this Section 4. Failure to
satisfy the requirements of this Section 4 shall result in forfeiture of any
benefits to which a Trustee
<PAGE>
might otherwise have been entitled under this Plan.
Section 5. Benefits.
(a) Amount. As of each of the first ten birthdays, prior to his 70th
birthday, on which he is both a Trustee and a Participant, each Participant
shall be credited with an amount equal to 50% of his regular fees,
excluding separate committee meeting fees, for his services as a Trustee of
the Adopting Fund for the calendar year in which such birthday occurs (but
in no event shall such amount be less than 50% of the regular fees,
excluding separate committee meeting fees, in effect for 1993). As of each
birthday, prior to his 70th birthday, on which he is both a Trustee and a
Participant, each Participant shall also be credited with an amount equal
to 8.50% of any amount credited under this Section 5(a) as of any previous
birthday. Following a Participant's satisfaction of the requirements of
Section 4 for eligibility for benefits under the Plan, any amounts
previously credited under this Section 5 that have not been distributed as
of any subsequent birthday of the Participant (or any subsequent
corresponding date on which the Participant's birthday would have occurred
if he were alive) shall be credited as of such subsequent birthday or
corresponding date with 8.5% of such undistributed amounts.
(b) Retirement Benefits. On or before the earlier of (i) the last day
of the calendar year immediately preceding the calendar year in which
payment of benefits commences under this Subsection 5(b) or (ii) the date
six months preceding the date on which payment of benefits commences under
this Subsection 5(b), each Participant may elect in writing, in a form and
manner acceptable to the Committee, as defined herein in Section 7, the
form for payment of benefits under the Plan. Any such election may be
revoked and a new election made prior to the earlier of (i) the last day of
the calendar year immediately preceding the calendar year in which payment
of benefits commences under this Subsection 5(b) or (ii) the date six
months preceding the date on which payment of benefits commences under this
Subsection 5(b), but any election in effect as of the earlier of such dates
shall be irrevocable. No Participant may make more than one election in any
calendar year, and all elections shall be subject to approval by the
Committee. A Participant may elect to receive such benefits in the form of
either (i) a lump sum or (ii) quarterly, semi-annual or annual installments
for a period of 5, 10 or 15
<PAGE>
years, as the Participant may elect, with payment of each installment on
the quarterly, semiannual or annual anniversary of the initial payment
hereunder. The amount of each installment shall be a quotient, the
numerator of which is the aggregate amount credited to the Participant
under Subsection 5(a) as of the date for payment under this Subsection
5(b), reduced by the amount of all previous payments under the Plan, and
the denominator of which is the number of installments remaining. Payment
of benefits shall commence as soon as practicable following the
Participant's satisfaction of the requirements of Section 4 by reason of
the termination of his tenure as a Trustee. If no election is in effect at
such time, benefits shall be paid in a lump SUM.
(c) Disability Benefits. If a Participant satisfies the requirements
of Section 4 by becoming disabled while a Trustee, all amounts credited to
him under Subsection 5(a) shall be paid to him as soon as practicable in
accordance with his election for the form for payment of retirement
benefits. If no election is in effect at such time, benefits shall be paid
in a lump sum. A Participant shall be disabled if the Committee determines,
in its sole discretion, that he is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of
long-continued and indefinite duration.
(d) Death Benefits. If a Participant dies after satisfying the
requirements of Section 4 (or satisfies such requirements by reason of his
death) but before receiving all amounts credited to him under Subsection
5(a), any such remaining amounts shall be paid to the beneficiary
designated in writing by the Participant, which designation shall be in a
form and manner acceptable to the Committee, with payment commencing as
soon as practicable after the Participant's death. Payment to the
Participant's designated beneficiary shall be in a lump sum or installments
for a period of years, in accordance with the Participant's election for
the form for payment of retirement benefits. If no election is in effect at
such time, benefits shall be paid in a lump sum. If the Participant fails
to execute a valid beneficiary designation, any amounts otherwise payable
to a designated beneficiary under this Subsection 5(d) shall be paid in a
lump sum to the Participant's estate as soon as practicable after the
Participant's death. If the Committee is unable to locate the
<PAGE>
Participant's beneficiary within two years following the Participant's
death, any amounts otherwise payable to the beneficiary under this
Subsection 5(d) shall be paid in a lump sum to the Participant's estate.
Notwithstanding any provision of this Subsection 5(d) or any beneficiary
designation by the Participant to the contrary, any Participant's surviving
spouse whose interests in marital property are determined under the
community property laws of any state shall receive 50% of amounts otherwise
payable under this Subsection 5(d), and the remainder of such amounts shall
be paid in accordance with this Subsection 5(d).
Section 6. Participants' Rights Unfunded and Unsecured. This Plan shall not
be deemed to create any trust, escrow or other funding arrangement. The right of
any Participant to benefits under this Plan shall be an unsecured claim against
the general assets of the Adopting Fund. If the Adopting Fund is merged with any
other SunAmerica Fund(s), the obligations of the Adopting Fund under this Plan
shall become obligations of the merged fund and shall be aggregated with any
similar pre-merger obligations of the other SunAmerica Fund(s) involved in the
merger under any similar retirement plan. If the Adopting Fund is liquidated,
all amounts credited to a Participant under Section 5(a) as of the liquidation
date shall be paid to him in a lump sum as soon as practicable, provided that if
the Participant has not yet reached age 60, such amounts shall be discounted to
reflect payment prior to age 60, using the interest rates used by the Pension
Benefit Guaranty Corporation as of the date of distribution to determine the
present value of a lump sum distribution on termination of a tax-qualified
pension plan.
Section 7. Administration. This Plan shall be administered by a committee
(the "Committee"), the members of which shall be appointed by the Board of
Trustees or Board of Directors of the Adopting Fund. The Committee shall be
responsible for the interpretation of the Plan and establishment of the rules
and regulations governing Plan administration. Any decision or action made or
taken by the Committee, arising out of or in connection with the construction,
administration or interpretation of the Plan or of its rules and regulations,
shall be conclusive and binding upon all Participants. In making any such
decision or taking any such action, the Committee shall have full and complete
discretion and authority to make eligibility determinations, construe provisions
of the Plan and resolve factual issues. All expenses of administering the Plan
shall be paid by the Adopting Fund and shall
<PAGE>
not affect the Participants, right to or amount of benefits.
Section 8. Termination of Plan. The Board of Trustees of the Adopting Fund
may terminate the Plan at any time. Upon termination of the Plan, benefits shall
continue to be credited and paid in accordance with Section 5 hereof to, or in
respect of, any deceased Participant or any Trustee or former Trustee who is a
Participant as of the date of termination of the Plan. No other payments shall
be made to any person under the Plan after the date of termination of the Plan.
Section 9. Amendment of Plan. The Board of Trustees or Board of Directors
of the Adopting Fund may, without the consent of any Participant, amend the Plan
at any time and from time to time, provided, however, that no amendment shall
divest any Participant of rights to which he would have been entitled under
Section 8 if the Plan had been terminated on the effective date of such
amendment.
Section 10. Rights Non-Assignable. The rights of a Participant to receive
payments under Section 5 shall not be assignable, nor shall they be subject to
garnishment, attachment, or any other legal process of creditors of a
Participant. Nothing in the Plan shall create any benefit, right, cause of
action, assignment, transfer or encumbrance in favor of any spouse, heirs or the
estate of any Participant. Notwithstanding the provisions of this Section 10,
each Participant agrees, as a condition of participation, to hold the Adopting
Fund, its officers, Board of Trustees or Board of Directors, employees and
agents harmless from any claim that may arise out of the Adopting Fund's
compliance with an order of any state or Federal court, whether such order
effects a judgment of such court or is issued to enforce a judgment or order of
another court.
Section 11. Withholding of Taxes. The Adopting Fund shall have the right to
retain from distributions payable to a Participant amounts required by any
government to be withheld and paid to such government with respect to such
payments.
Section 12. No Agreement to Retain Trustees. Nothing in this Plan shall be
construed to provide any Trustee with an agreement or understanding, express or
implied, that the Trustee shall be retained as a Trustee for any specified
period of time or that the Board of Trustees or Board of Directors of the
Adopting Fund shall nominate the Trustee for reelection.
<PAGE>
Section 13. Acceptance. The acceptance of payments under this Plan by any
Participant constitutes his acceptance of the terms of the Plan and his
agreement to be bound thereby.
<PAGE>
SUNAMERICA DIRECTORS'/TRUSTEES' RETIREMENT PLAN
ENROLLMENT APPLICATION FORM
1. PERSONAL DATA
Name:________________________________ Date Elected:______________________
Address:_____________________________ Social Securities Number:__________
_____________________________________ Telephone Number:__________________
City, State, Zip:____________________ Birthdate:_________________________
2. METHOD OF PAYMENT OF BENEFITS (Please Check One)
(a)___Lump Sum or
(b)___Quarterly, ___Semi-Annual or ___Annual installments made over a period of:
___5 years ___10 years ___15 years
Any such election may be revoked and a new election made prior to the
earlier of (i) the last day of the calendar year immediately preceding the
calendar year in which payment of benefits commences under Subsection 5(b)of the
Plan or (ii) the date six months preceding the date on which payment of benefits
commences under Subsection 5(b), but any election in effect as of the earlier of
such dates shall be irrevocable.
You may make only one election per calendar year, and all elections are
subject to approval by the Committee.
3. DESIGNATION OF BENEFICIARY
Name:____________________________________________________________
Address:_________________________________________________________
Telephone:_______________________________________________________
Social Security Number:__________________________________________
<PAGE>
If you fail to designate a beneficiary or your beneficiary cannot be
located within two (2) years after your death, any death benefits shall be paid
to your estate in accordance with the provisions of Subsection 5(d) of the Plan.
Notwithstanding any beneficiary designation, if you are subject to the
community property laws of any state, 50% of the amount of the death benefits
shall be payable to your surviving spouse under Subsection 5(d) of the Plan.
Any beneficiary named which can be located by reasonable efforts within two
(2) years after your death will receive payments in accordance with your
election for the method of payment of benefits in Part 2 above.
This Form automatically revokes any prior beneficiary designations you have
made.
___________________________________ _________________
Participant's Signature Date
Acknowledgment
I understand that I shall become a participant in the Retirement Plan in
accordance with the provisions of Section 3 of the Plan.
Signature __________________________ Date_____________
<PAGE>
CUSTODIAN CONTRACT
Between
STYLE SELECT SERIES, INC.
and
STATE STREET BANK AND TRUST COMPANY
GlobalSeriesCorp
21N
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By It...................1
2. Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian in the United States......................................2
2.1 Holding Securities.............................................2
2.2 Delivery of Securities.........................................2
2.3 Registration of Securities.....................................4
2.4 Bank Accounts..................................................5
2.5 Availability of Federal Funds..................................5
2.6 Collection of Income...........................................5
2.7 Payment of Fund Monies.........................................5
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased......................................................7
2.9 Appointment of Agents..........................................7
2.10 Deposit of Fund Assets in U.S. Securities System...............7
2.11 Fund Assets Held in the Custodian's Direct
Paper System...................................................8
2.12 Segregated Account.............................................9
2.13 Ownership Certificates for Tax Purposes.......................10
2.14 Proxies.......................................................10
2.15 Communications Relating to Portfolio Securities...............10
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States...........................................11
3.1 Appointment of Foreign Sub-Custodians.........................11
3.2 Assets to be Held.............................................11
3.3 Foreign Securities Systems....................................11
3.4 Holding Securities............................................11
3.5 Agreements with Foreign Banking Institutions..................12
3.6 Access of Independent Accountants of the Fund.................12
3.7 Reports by Custodian..........................................12
3.8 Transactions in Foreign Custody Account.......................12
3.9 Liability of Foreign Sub-Custodians...........................13
3.10 Liability of Custodian........................................13
3.11 Reimbursement for Advances....................................13
3.12 Monitoring Responsibilities...................................14
3.13 Branches of U.S. Banks........................................14
3.14 Tax Law.......................................................14
<PAGE>
4. Payments for Sales or Repurchase or Redemptions of Shares of the Fund..14
5. Proper Instructions....................................................15
6. Actions Permitted Without Express Authority............................15
7. Evidence of Authority..................................................16
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income..........................16
9. Records................................................................16
10. Opinion of Fund's Independent Accountants..............................17
11. Reports to Fund by Independent Public Accountants......................17
12. Compensation of Custodian..............................................17
13. Responsibility of Custodian............................................17
14. Effective Period, Termination and Amendment............................19
15. Successor Custodian....................................................19
16. Interpretive and Additional Provisions.................................20
17. Additional Funds.......................................................20
18. Massachusetts Law to Apply.............................................21
19. Prior Contracts........................................................21
20. Shareholder Communications.............................................21
<PAGE>
CUSTODIAN CONTRACT
This Contract between Style Select Series, Inc., a corporation
organized and existing under the laws of the State of Maryland, having its
principal place of business at The SunAmerica Center, 733 Third Avenue, New
York, New York 10017-3204 hereinafter called the "Fund", and State Street Bank
and Trust Company, a Massachusetts trust company, having its principal place of
business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter
called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in four series, the
Growth Portfolio, Value Portfolio, Aggressive Growth Portfolio and International
Equity Portfolio (such series together with all other series subsequently
established by the Fund and made subject to this Contract in accordance with
paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock of
the Fund representing interests in the Portfolios, ("Shares") as may be issued
or sold from time to time. The Custodian shall not be responsible for any
property of a Portfolio held or received by the Portfolio and not delivered to
the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Directors of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities
<PAGE>
depositories designated in Schedule A hereto but only in accordance with the
provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in the
United States including all domestic securities owned by such Portfolio, other
than (a) securities which are maintained pursuant to Section 2.10 in a clearing
agency which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury and certain federal agencies
(each, a "U.S. Securities System") and (b) commercial paper of an issuer for
which State Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the Direct Paper System
of the Custodian (the "Direct Paper System") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a U.S. Securities
System account of the Custodian or in the Custodian's Direct Paper book entry
system account ("Direct Paper System Account") only upon receipt of Proper
Instructions from the Fund on behalf of the applicable Portfolio, which may be
continuing instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the Custodian or
into the name or nominee name of any agent appointed pursuant to Section 2.9 or
into the name or nominee name of any sub-custodian appointed pursuant to Article
1; or for exchange for a
<PAGE>
different number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such case, the
new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for such securities
except as may arise from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions for
conversion contained in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities or the
surrender of interim receipts or temporary securities for definitive securities;
provided that, in any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed upon from
time to time by the Custodian and the Fund on behalf of the Portfolio, which may
be in the form of cash or obligations issued by the United States government,
its agencies or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the Custodian will not
be held liable or responsible for the delivery of securities owned by the
Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by the Fund on
behalf of the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures
<PAGE>
Trading Commission and/or any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with transactions by the
Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the holders of
shares in connection with distributions in kind, as may be described from time
to time in the currently effective prospectus and statement of additional
information of the Fund, related to the Portfolio ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Directors or of the
Executive Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, specifying the securities of the Portfolio
to be delivered, setting forth the purpose for which such delivery is to be
made, declaring such purpose to be a proper corporate purpose, and naming the
person or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian (other
than bearer securities) shall be registered in the name of the Portfolio or in
the name of any nominee of the Fund on behalf of the Portfolio or of any nominee
of the Custodian which nominee shall be assigned exclusively to the Portfolio,
unless the Fund has authorized in writing the appointment of a nominee to be
used in common with other registered investment companies having the same
investment adviser as the Portfolio, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted by the
Custodian on behalf of the Portfolio under the terms of this Contract shall be
in "street name" or other good delivery form. If, however, the Fund directs the
Custodian to maintain securities in "street name", the Custodian shall utilize
its best efforts only to timely collect income due the Fund on such securities
and to notify the Fund on a best efforts basis only of relevant corporate
actions including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank account
or accounts in the United States in the name of each Portfolio of the Fund,
subject only to draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of the
Portfolio, other than cash maintained by the Portfolio in a bank account
established and used in accordance with Rule 17f-3 under the Investment Company
Act of 1940. Funds held by the Custodian for a Portfolio may be deposited by it
to its credit as Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of 1940 and
that each such bank or trust company and the funds to be deposited with each
such bank or trust company shall on behalf of each applicable Portfolio be
approved by vote of a majority of the Board of Directors
<PAGE>
of the Fund. Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian shall, upon
the receipt of Proper Instructions from the Fund on behalf of a Portfolio, make
federal funds available to such Portfolio as of specified times agreed upon from
time to time by the Fund and the Custodian in the amount of checks received in
payment for Shares of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments with
respect to registered domestic securities held hereunder to which each Portfolio
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other payments with
respect to bearer domestic securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and shall credit
such income, as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and present
for payment all coupons and other income items requiring presentation as and
when they become due and shall collect interest when due on securities held
hereunder. Income due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund on
behalf of the applicable Portfolio, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out monies of a
Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but only (a)
against the delivery of such securities or evidence of title to such options,
futures contracts or options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940, as amended, to act
as a custodian and has been designated by the Custodian as its agent for this
purpose) registered in the name of the Portfolio or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form for transfer;
(b) in the case of a purchase effected through a U.S. Securities System, in
accordance with the conditions set forth in Section 2.10 hereof; (c) in the case
of a purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of repurchase agreements
entered into between the Fund on behalf of the Portfolio and the Custodian, or
another bank, or a broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the Portfolio of
securities owned by the Custodian along with written evidence of the agreement
by the Custodian to repurchase such securities from the
<PAGE>
Portfolio or (e) for transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for the account
of the Portfolio: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the Fund whether or not such expenses are
to be in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions from the Fund on behalf of the Portfolio, a certified
copy of a resolution of the Board of Directors or of the Executive Committee of
the Fund signed by an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except
as specifically stated otherwise in this Contract, in any and every case where
payment for purchase of domestic securities for the account of a Portfolio is
made by the Custodian in advance of receipt of the securities purchased in the
absence of specific written instructions from the Fund on behalf of such
Portfolio to so pay in advance, the Custodian shall be absolutely liable to the
Fund for such securities to the same extent as if the securities had been
received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust company
which is itself qualified under the Investment Company Act of 1940, as amended,
to act as a custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
<PAGE>
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities depository, or in
the book-entry system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as "U.S. Securities
System" in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented in an account
("Account") of the Custodian in the U.S. Securities System which shall not
include any assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall identify by
book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the U.S. Securities System that
such securities have been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such payment and transfer for
the account of the Portfolio. The Custodian shall transfer securities sold for
the account of the Portfolio upon (i) receipt of advice from the U.S. Securities
System that payment for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to reflect such
transfer and payment for the account of the Portfolio. Copies of all advices
from the U.S. Securities System of transfers of securities for the account of
the Portfolio shall identify the Portfolio, be maintained for the Portfolio by
the Custodian and be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund on behalf of the Portfolio confirmation of each
transfer to or from the account of the Portfolio in the form of a written advice
or notice and shall furnish to the Fund on behalf of the Portfolio copies of
daily transaction sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be, required by
Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the Portfolio for any
loss or damage to the Portfolio resulting from use of the U.S. Securities System
by reason of any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it may have
against the U.S. Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of
<PAGE>
the Custodian with respect to any claim against the U.S. Securities System or
any other person which the Custodian may have as a consequence of any such loss
or damage if and to the extent that the Portfolio has not been made whole for
any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by a Portfolio in the Direct Paper
System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the Fund on behalf
of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account ("Account")
of the Custodian in the Direct Paper System which shall not include any assets
of the Custodian other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the Custodian to
reflect such payment and transfer of securities to the account of the Portfolio.
The Custodian shall transfer securities sold for the account of the Portfolio
upon the making of an entry on the records of the Custodian to reflect such
transfer and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio, in the
form of a written advice or notice, of Direct Paper on the next business day
following such transfer and shall furnish to the Fund on behalf of the Portfolio
copies of daily transaction sheets reflecting each day's transaction in the U.S.
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund may
reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper Instructions
from the Fund on behalf of each applicable Portfolio establish and maintain a
segregated account or accounts for and on behalf of each such Portfolio, into
which account or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to Section 2.10
hereof, (i) in accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures
<PAGE>
Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio, (ii) for purposes of segregating
cash or government securities in connection with options purchased, sold or
written by the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release No.
10666, or any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but only, in
the case of clause (iv), upon receipt of, in addition to Proper Instructions
from the Fund on behalf of the applicable Portfolio, a certified copy of a
resolution of the Board of Directors or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments with respect to
domestic securities of each Portfolio held by it and in connection with
transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of the
Portfolio or a nominee of the Portfolio, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver to the
Portfolio such proxies, all proxy soliciting materials and all notices relating
to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written information (including, without limitation, pendency of
calls and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options written by
the Fund on behalf of the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from issuers of
the securities being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Portfolio desires to take action with respect
to any tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside of
the United States
<PAGE>
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the foreign
banking institutions and foreign securities depositories designated on Schedule
A hereto ("foreign sub-custodians"). Upon receipt of "Proper Instructions", as
defined in Section 5 of this Contract, together with a certified resolution of
the Fund's Board of Directors, the Custodian and the Fund may agree to amend
Schedule A hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-custodian. Upon
receipt of Proper Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining custody of the
Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other assets
maintained in the custody of the foreign sub-custodians to: (a) "foreign
securities", as defined in paragraph (c)(1) of Rule 17f-5 under the Investment
Company Act of 1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to effect the
Portfolio's foreign securities transactions. The Custodian shall identify on its
books as belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in a clearing agency which acts as a securities depository or in a
book-entry system for the central handling of securities located outside of the
United States (each a "Foreign Securities System") only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof (Foreign Securities Systems and U.S. Securities
Systems are collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash property
of the Fund which are maintained in such account shall identify by book-entry
those securities and other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign
banking institution shall provide that: (a) the assets of each Portfolio will
not be subject to any right, charge, security interest, lien or claim of any
kind in favor of the foreign banking institution or its creditors or agent,
except a claim of payment for their safe custody or administration; (b)
beneficial ownership for the assets of each Portfolio will be freely
transferable without the payment of money or value other than for custody or
administration; (c) adequate records will be maintained identifying the assets
as belonging to each applicable Portfolio; (d) officers of or
<PAGE>
auditors employed by, or other representatives of the Custodian, including to
the extent permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the Custodian; and
(e) assets of the Portfolios held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund, the
Custodian will use its best efforts to arrange for the independent accountants
of the Fund to be afforded access to the books and records of any foreign
banking institution employed as a foreign sub-custodian insofar as such books
and records relate to the performance of such foreign banking institution under
its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and other
assets of the Portfolio(s) held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Portfolio(s)
securities and other assets and advices or notifications of any transfers of
securities to or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio indicating,
as to securities acquired for a Portfolio, the identity of the entity having
physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise provided in
paragraph (b) of this Section 3.8, the provision of Sections 2.2 and 2.7 of this
Contract shall apply, mutatis mutandis to the foreign securities of the Fund
held outside the United States by foreign sub-custodians. (b) Notwithstanding
any provision of this Contract to the contrary, settlement and payment for
securities received for the account of each applicable Portfolio and delivery of
securities maintained for the account of each applicable Portfolio may be
effected in accordance with the customary established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer. (c) Securities
maintained in the custody of a foreign sub-custodian may be maintained in the
name of such entity's nominee to the same extent as set forth in Section 2.3 of
this Contract, and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian shall
require the institution to exercise reasonable care in the performance of its
duties and to indemnify, and hold harmless, the Custodian and each Fund from and
against any loss, damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At the
election of the Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking institution as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Fund has not been made whole for any such loss, damage,
cost, expense, liability or claim.
<PAGE>
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth with
respect to sub-custodians generally in this Contract and, regardless of whether
assets are maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated by paragraph
3.13 hereof, the Custodian shall not be liable for any loss, damage, cost,
expense, liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where the
sub-custodian has otherwise exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except such loss
as may result from (a) political risk (including, but not limited to, exchange
control restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses (excluding
a bankruptcy or insolvency of State Street London Ltd. not caused by political
risk) due to Acts of God, nuclear incident or other losses under circumstances
where the Custodian and State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio including the
purchase or sale of foreign exchange or of contracts for foreign exchange, or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolios assets to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian will promptly inform the
Fund in the event that the Custodian learns of a material adverse change in the
financial condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the subject
of an exemptive order from the Securities and Exchange Commission is notified by
such foreign sub-custodian that there appears to be a substantial likelihood
that its shareholders' equity will decline below $200 million (U.S. dollars or
the equivalent thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this Contract,
the provisions hereof shall not apply where the custody of the Portfolios assets
are maintained in a foreign branch of a banking institution which is a "bank" as
defined by Section 2(a)(5) of the Investment Company Act of 1940 meeting the
qualification set forth in Section 26(a) of said Act. The appointment of any
such branch as a sub-custodian shall be governed by paragraph 1 of this
Contract. (b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained
<PAGE>
in an interest bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of the Custodian,
State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as custodian
of the Fund by the tax law of the United States of America or any state or
political subdivision thereof. It shall be the responsibility of the Fund to
notify the Custodian of the obligations imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of jurisdictions other than those mentioned
in the above sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to any claim
for exemption or refund under the tax law of jurisdictions for which the Fund
has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt
of instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Directors
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of
<PAGE>
Directors of the Fund accompanied by a detailed description of procedures
approved by the Board of Directors, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and the Custodian are satisfied
that such procedures afford adequate safeguards for the Portfolios' assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires a
segregated asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund on behalf of
the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Portfolio except as otherwise directed
by the Board of Directors of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Directors of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio
<PAGE>
or, if directed in writing to do so by the Fund on behalf of the Portfolio,
shall itself keep such books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also calculate daily the net income
of the Portfolio as described in the Fund's currently effective prospectus
related to such Portfolio and shall advise the Fund and the Transfer Agent daily
of the total amounts of such net income and, if instructed in writing by an
officer of the Fund to do so, shall advise the Transfer Agent periodically of
the division of such net income among its various components. The calculations
of the net asset value per share and the daily income of each Portfolio shall be
made at the time or times described from time to time in the Fund's currently
effective prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
<PAGE>
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
<PAGE>
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Directors has approved the initial use
of the Direct Paper System by such Portfolio; provided further, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Articles of
Incorporation, and further provided, that the Fund on behalf of one or more of
the Portfolios may at any time by action of its Board of Directors (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
<PAGE>
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Directors of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Articles of Incorporation
of the Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
<PAGE>
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the Growth Portfolio, Value Portfolio, Aggressive Growth Portfolio
and International Equity Portfolio with respect to which it desires to have the
Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. Shareholder Communications
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether the Fund authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose stock the Fund owns. If the Fund tells the Custodian
"no", the Custodian will not provide this information to requesting companies.
If the Fund tells the Custodian "yes" or do not check either "yes" or "no"
below, the Custodian is required by the rule to treat the Fund as consenting to
disclosure of this information for all securities owned by the Fund or any funds
or accounts established by the Fund. For the Fund's protection, the Rule
prohibits the requesting company from using the Fund's name and address for any
purpose other than corporate communications. Please indicate below whether the
Fund consent or object by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 17th day of September, 1996.
ATTEST STYLE SELECT SERIES, INC.
/s/ Robert M. Zakem By /s/ Peter A. Harbeck
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ Francine Hayes By /s/ Ronald E. Logue
Executive Vice President
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of Style Select
Series, Inc. for use as sub-custodians for the Fund's securities and other
assets:
(Insert banks and securities depositories)
Certified:
/s/ Robert M. Zakem
Fund's Authorized Officer
Date: 10/22/96
<PAGE>
STYLE SELECT SERIES, INC.
SERVICE AGREEMENT
This AGREEMENT made as of this 17th day of September, 1996 by and
between Style Select Series, Inc., a Maryland corporation having its principal
place of business at The SunAmerica Center, 733 Third Avenue, New York, New
York 10017-3204 (hereinafter called the "Corporation") and SunAmerica Fund
Services, Inc., a Delaware corporation, having its principal place of business
at The SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204
(hereinafter called "Fund Services").
W I T N E S S E T H:
WHEREAS, the Corporation desires to appoint Fund Services as its agent
in connection with certain shareholder servicing activities, and Fund Services
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Terms of Appointment; Duties of Fund Services
A. Subject to the terms and conditions set forth in this Agreement,
the Corporation hereby employs and appoints Fund Services to act, and Fund
Services agrees to act, as servicing agent to assist State Street Bank and
Trust Company and its affiliates, the Corporation's transfer agent (the
"Transfer Agent") for the authorized and issued shares of common stock, $.0001
par value of the Corporation (the "Shares"), in connection with certain
services offered to the shareholders of the Corporation (the "Shareholders") as
set out in the current prospectus of the Corporation, as may be amended from
time to time, as on file with the Securities and Exchange Commission.
B. Fund Services agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time between the Corporation, the Transfer Agent and Fund Services, Fund
Services shall:
<PAGE>
(i) receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
therefor to the custodian of the Corporation authorized
pursuant to the Articles of Incorporation of the Corporation
(the "Custodian"):
(ii) pursuant to purchase orders, assist the Transfer Agent to
issue the appropriate number of Shares and hold such Shares
in the appropriate Shareholder account;
(iii) receive for acceptance, redemption requests and redemption
directions and deliver the appropriate documentation
therefor to the Custodian;
(iv) at the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders;
(v) assist the Transfer Agent to effect transfers of Shares by
the registered owners thereof upon receipt of appropriate
documentation;
(vi) assist the Transfer Agent to prepare and transmit payments
for dividends and distributions declared by the
Corporation; and
(vii) assist the Transfer Agent to maintain records of account
for the Corporation and its Shareholders as to the
foregoing.
2. Services with Respect to the Registration of Shares.
On each day on which an issuance or redemption of Shares occurs,
Fund Services shall assist the Transfer Agent to prepare for the Corporation
account records opening, crediting, debiting and closing affected Shareholders'
accounts as necessary to reflect the issuances or redemptions occurring on that
day. All credits to Shareholders' accounts shall be for the price of the Shares
at the time of purchase, determined in accordance with the Corporation's
current prospectus.
3. Share Price for Purchase and Redemption
A. Fund Services shall assist the Transfer Agent to identify all
share transactions which involve purchase and redemption orders
-2-
<PAGE>
that are processed at a time other than the time of the computation of net
asset value per share next computed after receipt of such orders, and shall
compute the net effect upon the Corporation of such transactions so identified
on a daily and cumulative basis.
B. Fund Services shall supply to the Corporation monthly reports
summarizing the transactions identified pursuant to paragraph A. above, and the
daily and cumulative net effects of such transactions, and shall advise the
Corporation at the end of each month of the net cumulative effect at such time.
4. Books and Records
Fund Services shall prepare for the Corporation and assist the
Transfer Agent in maintaining records showing for each Shareholder's account
the following:
A. The name, address and tax identification number of such
Shareholder;
B. The number of Shares held by such Shareholder;
C. Historical information including dividends paid and date and
price for all transactions;
D. Any stop or restraining order placed against such account;
E. Information with respect to the withholding of any portion of
income dividends or capital gains distributions;
F. Any dividend or distribution reinvestment election,
withdrawal plan application, and correspondence relating to
the current maintenance of the account;
G. The certificate numbers and denominations of any share
certificates issued to such Shareholder; and
H. Any additional information required by Fund Services to
perform the services contemplated by this Agreement.
Any such records required to be maintained by the Corporation pursuant
to Rule 31a-1 under the Investment Company Act of 1940,
<PAGE>
as amended (the "Act") or any successor rule shall be preserved by the Transfer
Agent or Fund Services for the periods prescribed by Rule 31a-2 under the Act
or any successor rule. Such record retention shall be at the expense of the
Corporation. Fund Services may, at its option at any time, turn over to the
Corporation and cease to retain records created and maintained by Fund Services
pursuant to this Agreement which are no longer required by Fund Services to
perform the services contemplated by this Agreement. If not turned over to the
Corporation, such records shall be preserved by Fund Services for six years
from the year of creation, during the first two of which years such records
shall be in readily accessible form. At the conclusion of such six-year period,
such records shall either be turned over to the Corporation or destroyed in
accordance with the Corporation's authorization.
5. Information To Be Furnished To The Corporation
Fund Services shall assist the Transfer Agent to furnish to the
Corporation periodically as agreed upon between the Corporation, Fund Services
and the Transfer Agent the following information:
A. Copies of the daily transaction register for each business
day of the Corporation;
B. Copies of all dividend, distribution and reinvestment
blotters;
C. Schedules of the quantities of Shares distributed in each
state for purposes of any state's laws or regulations as
specified in instructions given to Fund Services from time
to time by the Corporation or its agents;
D. Reports on transactions described in Paragraph 3 of this
Agreement.
E. Such other information, including Shareholder lists, and
statistical information as may be requested by the
Corporation from time to time.
6. Confirmations and Statements of Account
-4-
<PAGE>
Fund Services shall assist the Transfer Agent to prepare and mail to
each Shareholder at his address as set forth on the transfer books of the
Corporation such confirmations of the Corporation for each purchase or sale of
Shares by each Shareholder and periodic statements of such Shareholder's
account with the Corporation as may be specified from time to time by the
Corporation.
7. Correspondence
Fund Services shall respond to correspondence from Shareholders
relating to their accounts with the Corporation and such other correspondence
as may from time to time be mutually agreed upon by the Corporation, the
Transfer Agent and Fund Services.
8. Proxies
Fund Services shall assist the Transfer Agent to mail to Shareholders
notices of meetings, proxy statements, forms of proxy and other material
supplied to it by the Corporation in connection with Shareholder meetings of
the Corporation and shall receive, examine and tabulate returned proxies and
certify such tabulations to the Corporation in such written form as the
Corporation may require.
9. Fees And Charges
A. For the services rendered by Fund Services as described above,
subject to the conditions described below, the Corporation shall pay to Fund
Services a fee calculated and payable monthly based upon the annual rate of
.22% of average daily net assets. Fund Services shall also be reimbursed for
the cost of forms used by it in communicating with Shareholders of the
Corporation or specially prepared for use in connection with its services
hereunder, as well as the cost of postage, telephone and telegraph (or similar
electronic media) used in communicating with Shareholders of the Corporation.
It is agreed in this regard that Fund Services, prior to ordering any form
shall obtain the written consent of the Corporation. All forms for which Fund
Services has received reimbursement from the Corporation shall be the property
of the Corporation. Such fees and out-of-pocket expenses and advances described
herein may be changed from time to time subject
-5-
<PAGE>
to mutual written agreement between the Corporation and Fund Services.
B. No fee shall be payable to Fund Services pursuant to this Agreement
in the event that the Board of Directors of the Corporation (the "Directors")
determines that Fund Services did not provide the services required by this
Agreement or provided services which were inadequate as determined by the
Directors, in its sole discretion.
10. Compliance With Government Rules And Regulations
The Corporation understands and agrees that it shall be solely
responsible for ensuring that each prospectus of the Corporation complies with
all applicable provisions of, or regulations adopted pursuant to, the
Securities Act of 1933, as amended (the "Securities Act"), the Act, and any
other laws, rules and regulations of Federal, state or foreign governmental
authorities having jurisdiction in connection with the offering or sale of
Shares.
11. Representations and Warranties of Fund Services
Fund Services represents and warrants to the Corporation that:
A. It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
B. It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
C. All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
D. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
12. Representations and Warranties of the Corporation
The Corporation represents and warrants to Fund Services that:
-6-
<PAGE>
A. It is a business trust duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
B. It is empowered under applicable laws and by its Declaration of
Corporation and By-Laws to enter into and perform this Agreement.
C. All proceedings required by said Declaration of Corporation and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
D. It is an investment company registered under the Act .
E. A registration statement under the Securities Act is currently
effective and will remain effective, and appropriate state securities law
filings have been made and will continue to be made, with respect to all Shares
of the Corporation being offered for sale; information to the contrary will
result in immediate notification to Fund Services.
13. Indemnification
A. Fund Services shall not be responsible for, and the Corporation
shall indemnify and hold Fund Services harmless from and against, any and all
losses, damages, costs, charges, reasonable counsel fees, payments, expenses
and liability arising out of or attributable to:
(a) All actions of Fund Services or its agents or
subcontractors required to be taken pursuant to this Agreement, provided that
such actions are taken in good faith and without negligence or willful
misconduct.
(b) The Corporation's refusal or failure to comply with the
terms of this Agreement, or which arise out of the Corporation's lack of good
faith, negligence or willful misconduct which arise out of the breach of any
representation or warranty of the Corporation hereunder.
(c) The reliance on or use by Fund Services or its agents or
subcontractors of information, records and documents which (i) are received by
Fund Services or its agents or subcontractors and furnished to it by or on
behalf of the
-7-
<PAGE>
Corporation, and (ii) have been prepared or maintained by the Corporation.
(d) The reliance on, or the carrying out by Fund Services or
its agents or subcontractors of any instructions or requests of the Corporation
representative.
(e) The offer or sale of Shares in violation of any
requirement under the Federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by any
Federal agency or any state with respect to the offer or sale of such Shares in
such state.
B. Fund Services shall indemnify and hold the Corporation harmless
from Fund Services refusal or failure to comply with the terms of this
Agreement, or which arise out of Fund Services lack of good faith, negligence
or willful misconduct or which arise out of the breach of any representation or
warranty of Fund Services or its agents or subcontractors hereunder.
C. At any time Fund Services may apply to any officer of the
Corporation for instructions, and may consult with outside legal counsel with
respect to any matter arising in connection with the services to be performed
by Fund Services under this Agreement, and Fund Services and its agents or
subcontractors shall not be liable and shall be indemnified by the Corporation
for any action taken or omitted by it in reliance upon such instructions or
upon the opinion of such counsel. Fund Services, its agents and subcontractors
shall be protected and indemnified in acting upon any paper or document
furnished by or on behalf of the Corporation, reasonably believed to be genuine
and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided Fund Services or
its agents or subcontractors by telephone, in person, machine readable input,
telex, CRT data entry or other similar means authorized by the Corporation, and
shall not be held to have notice of any change of authority of any person,
until receipt of written notice thereof from the Corporation. Fund Services,
its agents and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the appropriate officer or officers of the
Corporation, and the proper
-8-
<PAGE>
countersignature of any former transfer agent or registrar, or of a co-transfer
agent or co-registrar.
D. In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to
the other for any damages resulting from such failure to perform or otherwise
from such causes.
E. Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
F. In order that the indemnification provisions contained in this
Paragraph 13 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in
any case in which the other party may be required to indemnify it except with
the other party's prior written consent.
14. Further Actions
Each party agrees to perform such further acts and execute and deliver
such further documents as are necessary to effectuate the purposes hereof.
15. Amendment, Termination and Delegation of Obligations
Upon its approval by the Directors and appropriate execution, this
Agreement shall remain in effect for two years and thereafter automatically for
successive one-year periods, provided that such continuance is specifically
approved at least annually by a vote of a majority of the Directors and by a
majority of the members who are not parties to this Agreement or interested
persons, as defined in the Act, of any such party. The Directors shall approve
and
-9-
<PAGE>
renew this Agreement upon determining that the fees provided by Paragraph 9 of
this Agreement are fair and reasonable in light of the usual and customary
charges made by others for services of the same nature and quality. This
Agreement may be modified or amended from time to time by written agreement
between the parties hereto. This Agreement may be terminated at any time by one
hundred twenty (120) days' written notice given by one party to the other. Upon
termination hereof, the Corporation shall pay to Fund Services such
compensation as may be due as of the date of such termination, and shall
likewise reimburse Fund Services in accordance herewith for its costs, expenses
and disbursements.
16. Assignment
A. Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the written consent of the other party.
B. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
17. New York Law to Apply
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ATTEST: STYLE SELECT SERIES, INC.
/s/ Abbe P. Stein By: /s/ Peter A. Harbeck
Peter A. Harbeck, President
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<PAGE>
ATTEST: SUNAMERICA FUND SERVICES, INC.
/s/ Abbe P. Stein By: /s/ Robert M. Zakem
Robert M. Zakem, Vice President
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<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
STYLE SELECT SERIES, INC.
and
STATE STREET BANK AND TRUST COMPANY
1G - Domestic Corp/Series
<PAGE>
TABLE OF CONTENTS
Page
1. Terms of Appointment; Duties of the Bank..............1
2. Fees and Expenses....................................3
3. Representations and Warranties of the Bank...........4
4. Representations and Warranties of the Fund...........4
5. Data Access and Proprietary Information..............5
6. Indemnification......................................6
7. Standard of Care.....................................7
8. Covenants of the Fund and the Bank...................7
9. Termination of Agreement.............................8
10. Additional Funds.....................................9
11. Assignment...........................................9
12. Amendment............................................9
13. Massachusetts Law to Apply...........................9
14. Force Majeure........................................9
15. Consequential Damages...............................10
16. Merger of Agreement.................................10
17. Counterparts........................................10
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 17th day of September, 1996, by and between STYLE
SELECT SERIES, INC., a Maryland corporation, having its principal office and
place of business at The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in four series, the Growth
Portfolio, Value Portfolio, Aggressive Growth Portfolio and International
Equity Portfolio (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Article 10, being herein referred to as a "Portfolio", and collectively as the
"Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as
its transfer agent, dividend disbursing agent, custodian of certain retirement
plans and agent in connection with certain other activities, and the Bank
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this
Agreement, the Fund, on behalf of the Portfolios, hereby
employs and appoints the Bank to act as, and the Bank agrees to
act as its transfer agent for the Fund's authorized and issued
shares of its common stock, $0.0001 par value, ("Shares"),
dividend disbursing agent, custodian of certain retirement
plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of
each of the respective Portfolios of the Fund ("Shareholders")
and set out in the currently effective prospectus and statement
of additional information ("prospectus") of the Fund on behalf
of the applicable Portfolio, including without limitation any
<PAGE>
periodic investment plan or periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
by agreement between the Fund on behalf of each of the
Portfolios, as applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation thereof to the Custodian of the Fund
authorized pursuant to the Articles of Incorporation
of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii)
and (iii) above, the Bank shall execute transactions
directly with broker-dealers authorized by the Fund
who shall thereby be deemed to be acting on behalf of
the Fund;
(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over in
the appropriate manner such monies as instructed by
the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the
applicable Portfolio;
<PAGE>
(viii) Issue replacement certificates for those
certificates alleged to have been lost, stolen or
destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at
its option, may issue replacement certificates in
place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and
maintain pursuant to SEC Rule 17Ad-10(e) a record of
the total number of shares of the Fund which are
authorized, based upon data provided to it by the
Fund, and issued and outstanding. The Bank shall
also provide the Fund on a regular basis with the
total number of shares which are authorized and
issued and outstanding and shall have no obligation,
when recording the issuance of shares, to monitor the
issuance of such shares or to take cognizance of any
laws relating to the issue or sale of such shares,
which functions shall be the sole responsibility of
the Fund.
(b) In addition to and neither in lieu nor in
contravention of the services set forth in the above paragraph (a), the Bank
shall: (i) perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and, as relevant, agent
in connection with accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all Shareholder accounts,
preparing Shareholder meeting lists, mailing proxies, mailing Shareholder
reports and prospectuses to current Shareholders, withholding taxes on U.S.
resident and non-resident alien accounts, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms required with respect to
dividends and distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information and (ii)
<PAGE>
provide a system which will enable the Fund to monitor the total number of
Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt
from blue sky reporting for each State and (ii) verify the
establishment of transactions for each State on the system
prior to activation and thereafter monitor the daily activity
for each State. The responsibility of the Bank for the Fund's
blue sky State registration status is solely limited to the
initial establishment of transactions subject to blue sky
compliance by the Fund and the reporting of such transactions
to the Fund as provided above.
(d) Procedures as to who shall provide certain of these
services in Section 1 may be established from time to time by
agreement between the Fund on behalf of each Portfolio and
the Bank per the attached service responsibility schedule.
The Bank may at times perform only a portion of these
services and the Fund or its agent may perform these services
on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of
the Fund (i.e., escheatment services) which may be agreed
upon in writing between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial
fee schedule attached hereto. Such fees and out-of-pocket expenses and
advances identified under Section 2.2 below may be changed from time to
time subject to mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, tabulating proxies, records
storage, or
<PAGE>
advances incurred by the Bank for the items set out in the fee schedule
attached hereto. In addition, any other expenses incurred by the Bank at
the request or with the consent of the Fund, will be reimbursed by the
Fund on behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies,
Fund reports and other mailings to all shareholder accounts shall be
advanced to the Bank by the Fund at least seven (7) days prior to the
mailing date of such materials.
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a corporation duly organized and existing and in good standing
under the laws of the State of Maryland.
4.2 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
<PAGE>
4.3 All corporate proceedings required by said Articles of Incorporation and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of the Fund being
offered for sale.
5. Data Access and Proprietary Information
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability
to access certain Fund-related data ("Customer Data") maintained by the
Bank on data bases under the control and ownership of the Bank ("Data
Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Fund agrees to treat
all Proprietary Information as proprietary to the Bank and further agrees
that it shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting the
foregoing, the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be designated
in writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any
<PAGE>
portion of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such fact and
dispose of such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder
from being retransmitted to any other computer facility or other
location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under other
federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make no
claim against the Bank arising out of the contents of such third-party
data, including, but not limited to, the accuracy thereof. DATA ACCESS
SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE
BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information, then in such event the Bank shall be
entitled to rely on the validity and authenticity of such instruction
without undertaking any
<PAGE>
further inquiry as long as such instruction is undertaken in conformity
with security procedures established by the Bank from time to time.
6. Indemnification
6.1 The Bank shall not be responsible for, and the Fund shall on behalf of
the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required
to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the
Fund hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records, documents or services which (i) are received
by the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Fund or any other person or
firm on behalf of the Fund including but not limited to any previous
transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.
<PAGE>
(f) The negotiation and processing by the Bank of checks not made
payable to the order of the Bank, the Fund, the Fund's management
company, transfer agent or distributor or the retirement account
custodian or trustee for a plan account investing in Shares, which
checks are tendered to the Bank for the purchase of Shares (i.e.,
checks made payable to prospective or existing Shareholders, such
checks are commonly known as "third party checks").
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund on behalf of the
applicable Portfolio for any action taken or omitted by it in reliance
upon such instructions or upon the opinion of such counsel. The Bank, its
agents and subcontractors shall be protected and indemnified in acting
upon any paper or document furnished by or on behalf of the Fund,
reasonably believed to be genuine and to have been signed by the proper
person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of
authority of any person, until receipt of written notice thereof from the
Fund. The Bank, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the
officers of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or
co-registrar.
6.3 In order that the indemnification provisions contained in this Section 6
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund
of such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend
against said claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or make any compromise in any case in
which the Fund may be required to indemnify the
<PAGE>
Bank except with the Fund's prior written consent.
7. Standard of Care
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
8. Covenants of the Fund and the Bank
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish to
the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund
and all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared
or maintained by the Bank relating to the services to be performed by the
Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules,
and will be
<PAGE>
surrendered promptly to the Fund on and in accordance with its request.
8.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
8.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
9. Termination of Agreement
9.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s). Additionally,
the Bank reserves the right to charge for any other reasonable expenses
associated with such termination and/or a charge equivalent to the
average of three (3) months' fees.
10. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the Growth Portfolio, Value Portfolio, Aggressive Growth
Portfolio and International Equity Portfolio with respect to which it
desires to have the Bank render services as transfer agent under the
terms hereof, it shall so notify the Bank in writing, and if the Bank
agrees in writing to provide such services, such series of Shares shall
become a Portfolio hereunder.
11. Assignment
<PAGE>
11.1 Except as provided in Section 11.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"), (ii) a
BFDS subsidiary duly registered as a transfer agent pursuant to Section
17A(c)(2) or (iii) a BFDS affiliate; provided, however, that the Bank
shall be as fully responsible to the Fund for the acts and omissions of
any subcontractor as it is for its own acts and omissions.
12. Amendment
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
13. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of
Massachusetts.
14. Force Majeure
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably
<PAGE>
beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise
from such causes.
15. Consequential Damages
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
16. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
17. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
STYLE SELECT SERIES, INC.
BY: /s/ Peter A. Harbeck
ATTEST:
/s/ Robert M. Zakem
STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Loges
Executive Vice President
ATTEST:
/s/ Francine Hayes
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Responsibility
--------------
Service Performed Bank Fund
- ----------------- ---- ----
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
15. Withhold taxes on U.S. resident
and non-resident alien accounts.
Responsibility
--------------
Service Performed Bank Fund
- ----------------- ---- ----
16. Prepare and file U.S. Treasury
Department forms.
<PAGE>
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Section 1.2 (a), (b) and
(c) of the Agreement.
STYLE SELECT SERIES, INC.
BY: /s/ Peter A. Harbeck
ATTEST:
/s/ Robert M. Zakem
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E.Logue
Executive Vice President
ATTEST:
/s/ Francine Hayes
<PAGE>
EXHIBIT 10
Shereff, Friedman, Hoffman & Goodman Letterhead
November 13, 1996
VIA TELECOPIER AND FIRST CLASS MAIL
Style Select Series, Inc.
The Sun America Center
733 Third Avenue
New York, New York 10017-3204
Ladies and Gentlemen:
Style Select Series, Inc. (the "Corporation"), on behalf of each of its
series, Aggressive Growth Portfolio; Mid-Cap Growth Portfolio, Value Portfolio
and International Equity Portfolio, proposes to issue and sell an indefinite
number of shares of common stock (the "Shares"), par value $0.0001 per share, in
the manner and on the terms set forth in its Registration Statement on Form N-1A
filed with the Securities and Exchange Commission (File Nos. 811-07797;
333-11283) (the "Registration Statement").
We have, as counsel, participated in various proceedings relating to the
Corporation and to the Shares. We have examined copies, either certified or
otherwise proved to our satisfaction to be genuine, of its Articles of
Incorporation, as amended to date, and By-Laws, as currently in effect, and
other documents relating to its organization and operation. In addition, we have
received written confirmation from personnel of the Maryland State Department of
Assessments and Taxation that the Corporation is in good standing under the laws
of the State of Maryland ("Good Standing Certificate"). We have also reviewed
the Registration Statement and all amendments filed as of the date of this
opinion and the documents filed as exhibits thereto. We are generally familiar
with the business affairs of the Corporation.
Based upon the foregoing, it is our opinion that:
1. The Corporation has been duly incorporated and is validly existing under
the laws of the State of Maryland.
2. The Corporation is authorized to issue up to one billion (1,000,000,000)
Shares. Under Maryland law, (a) the number of Shares may be increased or
decreased by action of the Board of Directors, and (b) Shares which are
<PAGE>
Style Select Series, Inc.
November 13, 1996
Page 2
issued and subsequently redeemed by the Corporation are, by virtue of
such redemption, restored to the status of authorized and unissued
Shares.
3. Subject to the effectiveness of the Registration Statement and in
compliance with applicable state securities laws, upon the issuance of
the Shares for a consideration not less than the par value thereof as
required by the Investment Company Act of 1940, as amended, and in
accordance with the terms of the Registration Statement, such Shares
will be legally issued and outstanding and fully paid and
non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as a part of the Registration Statement and with any state
securities commission where such filing is required. We also consent to the
reference to our firm as counsel in the prospectus and statement of additional
information filed as a part thereof. In giving this consent we do not admit that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended.
We are members of the Bar of the State of New York and do not hold
ourselves out as being conversant with the laws of any jurisdiction other than
those of the United States of America and the State of New York. We note that we
are not licensed to practice law in the State of Maryland, and to the extent
that any opinion expressed herein involves the law of Maryland, such opinion
should be understood to be based solely upon our review of the published
statutes of that State and, where applicable, published cases, rules or
regulations of regulatory bodies of that State. Our opinion as to the due
incorporation and valid existence of the Corporation is based on our review of
the Good Standing Certificate.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman, LLP
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
SFH&G:MKN:JLS:SSD
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the
registration statement on Form N-1A (the "Registration Statement") of
our report dated November 12, 1996, relating to the statement of assets
and liabilities of Style Select Series, Inc., which appears in such
Statement of Additional Information, and to the incorporation by
reference of our report into the Prospectus which constitutes part of
this Registration Statement. We also consent to the references to us
under the headings "Reports to Shareholders" and "Independent
Accountants and Legal Counsel" in such Statement of Additional
Information and to the reference to us under the heading "Independent
Accountants and Legal Counsel" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November12, 1996
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS A SHARES)
PLAN OF DISTRIBUTION adopted as of the 17th day of September, 1996, by
Style Select Series, Inc., a Maryland corporation (the "Corporation"), on behalf
of the Class A shares of its separately designated series, Aggressive Growth
Portfolio (the "Portfolio").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company; and
WHEREAS, the Portfolio is a separately designated investment series of the
Corporation with its own investment objective, policies and purposes offering
four separate classes of shares of common stock, par value $.0001 per share, of
the Corporation (the "Shares"); and
WHEREAS, the Corporation has entered into a Distribution Agreement with
SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which the
Distributor acts as the exclusive distributor and representative of the
Corporation in the offer and sale of the Shares to the public; and
WHEREAS, the Corporation desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Portfolio will pay an account maintenance fee and a distribution fee
to the Distributor with respect to Class A shares of the Portfolio; and
WHEREAS, the Board of Directors of the Corporation (the "Directors") as a
whole, and the Directors who are not interested persons of the Corporation and
who have no direct or indirect financial interest in the operation of this Plan
or in any agreement relating hereto (the "12b-1 Directors"), having determined,
in the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act, that there
is a reasonable likelihood that this Plan will benefit the Portfolio and its
Class A shareholders, have approved this Plan by votes cast in person at a
meeting called for the purpose of voting hereon and on any agreements related
hereto;
NOW THEREFORE, the Corporation on behalf of the Portfolio hereby adopts
this Plan on the following terms:
1. Distribution Activities. The Portfolio shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.10% of average daily net assets attributable to Class A shares of the
Portfolio to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion and
marketing of the Class A shares. Such expenditures may consist of sales
commissions to financial consultants for selling Class A shares, compensation,
sales incentives and payments to sales and marketing personnel, and the payment
of expenses incurred in its sales and promotional activities, including
advertising expenditures related to the Class A shares of the Portfolio and the
costs of preparing and distributing promotional materials with respect to such
Class A shares. Payment of the distribution fee described in this Section 1
shall be subject to any limitations set forth in applicable regulations of the
National Association of Securities Dealers, Inc. Nothing herein shall prohibit
the Distributior from collecting
<PAGE>
distribution fees in any given year, as provided hereunder, in excess of
expenditures made in such year for sales and promotional activities with
respect to the Portfolio.
2. Account Maintenance Activities. The Portfolio shall pay the Distributor
an account maintenance fee under the Plan at the end of each month at the annual
rate of up to 0.25% of average daily net assets attributable to Class A shares
of the Portfolio to compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Portfolio hereby authorizes the
Distributor to enter into agreements with Securities Firms to provide
compensation to such Securities Firms for activities and services of the type
referred to in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
agreements shall provide that the Securities Firms shall deliver to the
Distributor such information as is reasonably necessary to permit the
Distributor to comply with the reporting requirements set forth in Section 5
hereof.
4. Related Agreements. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide:
(a) that such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the 12b-1 Directors or, by vote of a
majority of the outstanding voting securities (as defined in the Act) of Class A
shares of the Portfolio, on not more than 60 days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
5. Quarterly Reports. The Treasurer of the Corporation shall provide to the
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended pursuant to this Plan with respect to Class A shares of
the Portfolio and any related agreement and the purposes for which such
expenditures were made.
6. Term and Termination. (a) This Plan shall become effective as of the
date hereof, and, unless terminated as herein provided, shall continue from year
to year thereafter, so long as such continuance is specifically approved at
least annually by votes, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of both the (i) the Directors of the
Corporation, and (ii) the 12b-1 Directors.
(b) This Plan may be terminated at any time by vote of a majority of
the 12b-1 Directors or by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the Portfolio.
7. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Sections 1 and 2 hereof unless such amendment
is approved by a vote of a majority of the outstanding voting securities (as
defined in the Act) of Class A shares of the Portfolio, and no material
amendment to this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
- 2 -
<PAGE>
8. Selection and Nomination of Directors. While this Plan is in effect, the
selection and nomination of those Directors of the Corporation who are not
interested persons of the Corporation shall be committed to the discretion of
such disinterested Directors.
9. Recordkeeping. The Corporation shall preserve copies of this Plan and
any related agreement and all reports made pursuant to Section 5 hereof for a
period of not less than six years from the date of this Plan, any such related
agreement or such reports, as the case may be, the first two years in an easily
accessible place.
10. Definition of Certain Terms. For purposes of this Plan, the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the Act and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted to either the Corporation or the principal
underwriter of the Shares by the Securities and Exchange Commission, or its
staff under the Act.
11. Separate Series. Pursuant to the provisions of the Articles of
Incorporation the Portfolio is a separate series of the Corporation, and all
debts, liabilities and expenses of Class A shares of the Portfolio shall be
enforceable only against the assets of Class A shares of the Portfolio and not
against the assets of any other series or class of shares or of the Corporation
as a whole.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed as
of the day and year first written above.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
Peter A. Harbeck
President
- 3 -
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 17th day of September, 1996, by
Style Select Series, Inc., a Maryland corporation (the "Corporation"), on behalf
of the Class B shares of its separately designated series, Aggressive Growth
Portfolio (the "Portfolio").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company; and
WHEREAS, the Portfolio is a separately designated investment series of the
Corporation with its own investment objective, policies and purposes offering
four separate classes of shares of common stock, par value $.0001 per share, of
the Corporation (the "Shares"); and
WHEREAS, the Corporation has entered into a Distribution Agreement with
SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which the
Distributor acts as the exclusive distributor and representative of the
Corporation in the offer and sale of the Shares to the public; and
WHEREAS, the Corporation desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Portfolio will pay an account maintenance fee and a distribution fee
to the Distributor with respect to Class B shares of the Portfolio; and
WHEREAS, the Board of Directors of the Corporation (the "Directors") as a
whole, and the Directors who are not interested persons of the Corporation and
who have no direct or indirect financial interest in the operation of this Plan
or in any agreement relating hereto (the "12b-1 Directors"), having determined,
in the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act, that there
is a reasonable likelihood that this Plan will benefit the Portfolio and its
Class B shareholders, have approved this Plan by votes cast in person at a
meeting called for the purpose of voting hereon and on any agreements related
hereto;
NOW THEREFORE, the Corporation on behalf of the Portfolio hereby adopts
this Plan on the following terms:
1. Distribution Activities. The Portfolio shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.75% of average daily net assets attributable to Class B shares of the
Portfolio to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion and
marketing of the Class B shares. Such expenditures may consist of sales
commissions to financial consultants for selling Class B shares, compensation,
sales incentives and payments to sales and marketing personnel, and the payment
of expenses incurred in its sales and promotional activities, including
advertising expenditures related to the Class B shares of the Portfolio and the
costs of preparing and distributing promotional materials with respect to such
Class B shares. Payment of the distribution fee described in this Section 1
shall be subject to any limitations set forth in applicable regulations of the
National Association of Securities Dealers, Inc. Nothing herein shall prohibit
the Distributior from collecting
<PAGE>
distribution fees in any given year, as provided hereunder, in excess of
expenditures made in such year for sales and promotional activities with
respect to the Portfolio.
2. Account Maintenance Activities. The Portfolio shall pay the Distributor
an account maintenance fee under the Plan at the end of each month at the annual
rate of up to 0.25% of average daily net assets attributable to Class B shares
of the Portfolio to compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Portfolio hereby authorizes the
Distributor to enter into agreements with Securities Firms to provide
compensation to such Securities Firms for activities and services of the type
referred to in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
agreements shall provide that the Securities Firms shall deliver to the
Distributor such information as is reasonably necessary to permit the
Distributor to comply with the reporting requirements set forth in Section 5
hereof.
4. Related Agreements. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide:
(a) that such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the 12b-1 Directors or, by vote of a
majority of the outstanding voting securities (as defined in the Act) of Class B
shares of the Portfolio, on not more than 60 days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
5. Quarterly Reports. The Treasurer of the Corporation shall provide to the
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended pursuant to this Plan with respect to Class B shares of
the Portfolio and any related agreement and the purposes for which such
expenditures were made.
6. Term and Termination. (a) This Plan shall become effective as of the
date hereof, and, unless terminated as herein provided, shall continue from year
to year thereafter, so long as such continuance is specifically approved at
least annually by votes, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of both the (i) the Directors of the
Corporation, and (ii) the 12b-1 Directors.
(b) This Plan may be terminated at any time by vote of a majority of
the 12b-1 Directors or by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the Portfolio.
7. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Sections 1 and 2 hereof unless such amendment
is approved by a vote of a majority of the outstanding voting securities (as
defined in the Act) of Class B shares of the Portfolio, and no material
amendment to this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
- 2 -
<PAGE>
8. Selection and Nomination of Directors. While this Plan is in effect, the
selection and nomination of those Directors of the Corporation who are not
interested persons of the Corporation shall be committed to the discretion of
such disinterested Directors.
9. Recordkeeping. The Corporation shall preserve copies of this Plan and
any related agreement and all reports made pursuant to Section 5 hereof for a
period of not less than six years from the date of this Plan, any such related
agreement or such reports, as the case may be, the first two years in an easily
accessible place.
10. Definition of Certain Terms. For purposes of this Plan, the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the Act and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted to either the Corporation or the principal
underwriter of the Shares by the Securities and Exchange Commission, or its
staff under the Act.
11. Separate Series. Pursuant to the provisions of the Articles of
Incorporation, the Portfolio is a separate series of the Corporation, and all
debts, liabilities and expenses of Class B shares of the Portfolio shall be
enforceable only against the assets of Class B shares of the Portfolio and not
against the assets of any other series or class of shares or of the Corporation
as a whole.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed as
of the day and year first written above.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
Peter A. Harbeck
President
- 3 -
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS A SHARES)
PLAN OF DISTRIBUTION adopted as of the 17th day of September, 1996, by
Style Select Series, Inc., a Maryland corporation (the "Corporation"), on behalf
of the Class A shares of its separately designated series, Growth Portfolio (the
"Portfolio").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company; and
WHEREAS, the Portfolio is a separately designated investment series of the
Corporation with its own investment objective, policies and purposes offering
four separate classes of shares of common stock, par value $.0001 per share, of
the Corporation (the "Shares"); and
WHEREAS, the Corporation has entered into a Distribution Agreement with
SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which the
Distributor acts as the exclusive distributor and representative of the
Corporation in the offer and sale of the Shares to the public; and
WHEREAS, the Corporation desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Portfolio will pay an account maintenance fee and a distribution fee
to the Distributor with respect to Class A shares of the Portfolio; and
WHEREAS, the Board of Directors of the Corporation (the "Directors") as a
whole, and the Directors who are not interested persons of the Corporation and
who have no direct or indirect financial interest in the operation of this Plan
or in any agreement relating hereto (the "12b-1 Directors"), having determined,
in the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act, that there
is a reasonable likelihood that this Plan will benefit the Portfolio and its
Class A shareholders, have approved this Plan by votes cast in person at a
meeting called for the purpose of voting hereon and on any agreements related
hereto;
NOW THEREFORE, the Corporation on behalf of the Portfolio hereby adopts
this Plan on the following terms:
1. Distribution Activities. The Portfolio shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.10% of average daily net assets attributable to Class A shares of the
Portfolio to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion and
marketing of the Class A shares. Such expenditures may consist of sales
commissions to financial consultants for selling Class A shares, compensation,
sales incentives and payments to sales and marketing personnel, and the payment
of expenses incurred in its sales and promotional activities, including
advertising expenditures related to the Class A shares of the Portfolio and the
costs of preparing and distributing promotional materials with respect to such
Class A shares. Payment of the distribution fee described in this Section 1
shall be subject to any limitations set forth in applicable regulations of the
National Association of Securities Dealers, Inc. Nothing herein shall prohibit
the Distributior from collecting
<PAGE>
distribution fees in any given year, as provided hereunder, in excess of
expenditures made in such year for sales and promotional activities with
respect to the Portfolio.
2. Account Maintenance Activities. The Portfolio shall pay the Distributor
an account maintenance fee under the Plan at the end of each month at the annual
rate of up to 0.25% of average daily net assets attributable to Class A shares
of the Portfolio to compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Portfolio hereby authorizes the
Distributor to enter into agreements with Securities Firms to provide
compensation to such Securities Firms for activities and services of the type
referred to in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
agreements shall provide that the Securities Firms shall deliver to the
Distributor such information as is reasonably necessary to permit the
Distributor to comply with the reporting requirements set forth in Section 5
hereof.
4. Related Agreements. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide:
(a) that such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the 12b-1 Directors or, by vote of a
majority of the outstanding voting securities (as defined in the Act) of Class A
shares of the Portfolio, on not more than 60 days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
5. Quarterly Reports. The Treasurer of the Corporation shall provide to the
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended pursuant to this Plan with respect to Class A shares of
the Portfolio and any related agreement and the purposes for which such
expenditures were made.
6. Term and Termination. (a) This Plan shall become effective as of the
date hereof, and, unless terminated as herein provided, shall continue from year
to year thereafter, so long as such continuance is specifically approved at
least annually by votes, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of both the (i) the Directors of the
Corporation, and (ii) the 12b-1 Directors.
(b) This Plan may be terminated at any time by vote of a majority of
the 12b-1 Directors or by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the Portfolio.
7. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Sections 1 and 2 hereof unless such amendment
is approved by a vote of a majority of the outstanding voting securities (as
defined in the Act) of Class A shares of the Portfolio, and no material
amendment to this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
- 2 -
<PAGE>
8. Selection and Nomination of Directors. While this Plan is in effect, the
selection and nomination of those Directors of the Corporation who are not
interested persons of the Corporation shall be committed to the discretion of
such disinterested Directors.
9. Recordkeeping. The Corporation shall preserve copies of this Plan and
any related agreement and all reports made pursuant to Section 5 hereof for a
period of not less than six years from the date of this Plan, any such related
agreement or such reports, as the case may be, the first two years in an easily
accessible place.
10. Definition of Certain Terms. For purposes of this Plan, the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the Act and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted to either the Corporation or the principal
underwriter of the Shares by the Securities and Exchange Commission, or its
staff under the Act.
11. Separate Series. Pursuant to the provisions of the Articles of
Incorporation the Portfolio is a separate series of the Corporation, and all
debts, liabilities and expenses of Class A shares of the Portfolio shall be
enforceable only against the assets of Class A shares of the Portfolio and not
against the assets of any other series or class of shares or of the Corporation
as a whole.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed as
of the day and year first written above.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
Peter A. Harbeck
President
- 3 -
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 17th day of September, 1996, by
Style Select Series, Inc., a Maryland corporation (the "Corporation"), on behalf
of the Class B shares of its separately designated series, Growth Portfolio (the
"Portfolio").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company; and
WHEREAS, the Portfolio is a separately designated investment series of the
Corporation with its own investment objective, policies and purposes offering
four separate classes of shares of common stock, par value $.0001 per share, of
the Corporation (the "Shares"); and
WHEREAS, the Corporation has entered into a Distribution Agreement with
SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which the
Distributor acts as the exclusive distributor and representative of the
Corporation in the offer and sale of the Shares to the public; and
WHEREAS, the Corporation desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Portfolio will pay an account maintenance fee and a distribution fee
to the Distributor with respect to Class B shares of the Portfolio; and
WHEREAS, the Board of Directors of the Corporation (the "Directors") as a
whole, and the Directors who are not interested persons of the Corporation and
who have no direct or indirect financial interest in the operation of this Plan
or in any agreement relating hereto (the "12b-1 Directors"), having determined,
in the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act, that there
is a reasonable likelihood that this Plan will benefit the Portfolio and its
Class B shareholders, have approved this Plan by votes cast in person at a
meeting called for the purpose of voting hereon and on any agreements related
hereto;
NOW THEREFORE, the Corporation on behalf of the Portfolio hereby adopts
this Plan on the following terms:
1. Distribution Activities. The Portfolio shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.75% of average daily net assets attributable to Class B shares of the
Portfolio to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion and
marketing of the Class B shares. Such expenditures may consist of sales
commissions to financial consultants for selling Class B shares, compensation,
sales incentives and payments to sales and marketing personnel, and the payment
of expenses incurred in its sales and promotional activities, including
advertising expenditures related to the Class B shares of the Portfolio and the
costs of preparing and distributing promotional materials with respect to such
Class B shares. Payment of the distribution fee described in this Section 1
shall be subject to any limitations set forth in applicable regulations of the
National Association of Securities Dealers, Inc. Nothing herein shall prohibit
the Distributior from collecting
<PAGE>
distribution fees in any given year, as provided hereunder, in excess of
expenditures made in such year for sales and promotional activities with
respect to the Portfolio.
2. Account Maintenance Activities. The Portfolio shall pay the Distributor
an account maintenance fee under the Plan at the end of each month at the annual
rate of up to 0.25% of average daily net assets attributable to Class B shares
of the Portfolio to compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Portfolio hereby authorizes the
Distributor to enter into agreements with Securities Firms to provide
compensation to such Securities Firms for activities and services of the type
referred to in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
agreements shall provide that the Securities Firms shall deliver to the
Distributor such information as is reasonably necessary to permit the
Distributor to comply with the reporting requirements set forth in Section 5
hereof.
4. Related Agreements. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide:
(a) that such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the 12b-1 Directors or, by vote of a
majority of the outstanding voting securities (as defined in the Act) of Class B
shares of the Portfolio, on not more than 60 days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
5. Quarterly Reports. The Treasurer of the Corporation shall provide to the
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended pursuant to this Plan with respect to Class B shares of
the Portfolio and any related agreement and the purposes for which such
expenditures were made.
6. Term and Termination. (a) This Plan shall become effective as of the
date hereof, and, unless terminated as herein provided, shall continue from year
to year thereafter, so long as such continuance is specifically approved at
least annually by votes, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of both the (i) the Directors of the
Corporation, and (ii) the 12b-1 Directors.
(b) This Plan may be terminated at any time by vote of a majority of
the 12b-1 Directors or by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the Portfolio.
7. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Sections 1 and 2 hereof unless such amendment
is approved by a vote of a majority of the outstanding voting securities (as
defined in the Act) of Class B shares of the Portfolio, and no material
amendment to this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
- 2 -
<PAGE>
8. Selection and Nomination of Directors. While this Plan is in effect, the
selection and nomination of those Directors of the Corporation who are not
interested persons of the Corporation shall be committed to the discretion of
such disinterested Directors.
9. Recordkeeping. The Corporation shall preserve copies of this Plan and
any related agreement and all reports made pursuant to Section 5 hereof for a
period of not less than six years from the date of this Plan, any such related
agreement or such reports, as the case may be, the first two years in an easily
accessible place.
10. Definition of Certain Terms. For purposes of this Plan, the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the Act and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted to either the Corporation or the principal
underwriter of the Shares by the Securities and Exchange Commission, or its
staff under the Act.
11. Separate Series. Pursuant to the provisions of the Articles of
Incorporation, the Portfolio is a separate series of the Corporation, and all
debts, liabilities and expenses of Class B shares of the Portfolio shall be
enforceable only against the assets of Class B shares of the Portfolio and not
against the assets of any other series or class of shares or of the Corporation
as a whole.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed as
of the day and year first written above.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
Peter A. Harbeck
President
- 3 -
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS A SHARES)
PLAN OF DISTRIBUTION adopted as of the 17th day of September, 1996, by
Style Select Series, Inc., a Maryland corporation (the "Corporation"), on behalf
of the Class A shares of its separately designated series, Value Portfolio (the
"Portfolio").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company; and
WHEREAS, the Portfolio is a separately designated investment series of the
Corporation with its own investment objective, policies and purposes offering
four separate classes of shares of common stock, par value $.0001 per share, of
the Corporation (the "Shares"); and
WHEREAS, the Corporation has entered into a Distribution Agreement with
SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which the
Distributor acts as the exclusive distributor and representative of the
Corporation in the offer and sale of the Shares to the public; and
WHEREAS, the Corporation desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Portfolio will pay an account maintenance fee and a distribution fee
to the Distributor with respect to Class A shares of the Portfolio; and
WHEREAS, the Board of Directors of the Corporation (the "Directors") as a
whole, and the Directors who are not interested persons of the Corporation and
who have no direct or indirect financial interest in the operation of this Plan
or in any agreement relating hereto (the "12b-1 Directors"), having determined,
in the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act, that there
is a reasonable likelihood that this Plan will benefit the Portfolio and its
Class A shareholders, have approved this Plan by votes cast in person at a
meeting called for the purpose of voting hereon and on any agreements related
hereto;
NOW THEREFORE, the Corporation on behalf of the Portfolio hereby adopts
this Plan on the following terms:
1. Distribution Activities. The Portfolio shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.10% of average daily net assets attributable to Class A shares of the
Portfolio to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion and
marketing of the Class A shares. Such expenditures may consist of sales
commissions to financial consultants for selling Class A shares, compensation,
sales incentives and payments to sales and marketing personnel, and the payment
of expenses incurred in its sales and promotional activities, including
advertising expenditures related to the Class A shares of the Portfolio and the
costs of preparing and distributing promotional
<PAGE>
materials with respect to such Class A shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set forth in
applicable regulations of the National Association of Securities Dealers, Inc.
Nothing herein shall prohibit the Distributior from collecting distribution fees
in any given year, as provided hereunder, in excess of expenditures made in such
year for sales and promotional activities with respect to the Portfolio.
2. Account Maintenance Activities. The Portfolio shall pay the Distributor
an account maintenance fee under the Plan at the end of each month at the annual
rate of up to 0.25% of average daily net assets attributable to Class A shares
of the Portfolio to compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Portfolio hereby authorizes the
Distributor to enter into agreements with Securities Firms to provide
compensation to such Securities Firms for activities and services of the type
referred to in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
agreements shall provide that the Securities Firms shall deliver to the
Distributor such information as is reasonably necessary to permit the
Distributor to comply with the reporting requirements set forth in Section 5
hereof.
4. Related Agreements. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide:
(a) that such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the 12b-1 Directors or, by vote of a
majority of the outstanding voting securities (as defined in the Act) of Class A
shares of the Portfolio, on not more than 60 days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
5. Quarterly Reports. The Treasurer of the Corporation shall provide to the
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended pursuant to this Plan with respect to Class A shares of
the Portfolio and any related agreement and the purposes for which such
expenditures were made.
6. Term and Termination. (a) This Plan shall become effective as of the
date hereof, and, unless terminated as herein provided, shall continue from year
to year thereafter, so long as such continuance is specifically approved at
least annually by votes, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of both the (i) the Directors of the
Corporation, and (ii) the 12b-1 Directors.
(b) This Plan may be terminated at any time by vote of a majority of
the 12b-1 Directors or by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the Portfolio.
7. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Sections 1 and 2 hereof unless such amendment
is approved
-2-
<PAGE>
by a vote of a majority of the outstanding voting securities (as defined in the
Act) of Class A shares of the Portfolio, and no material amendment to this Plan
shall be made unless approved in the manner provided for the annual renewal of
this Plan in Section 6(a) hereof.
8. Selection and Nomination of Directors. While this Plan is in effect, the
selection and nomination of those Directors of the Corporation who are not
interested persons of the Corporation shall be committed to the discretion of
such disinterested Directors.
9. Recordkeeping. The Corporation shall preserve copies of this Plan and
any related agreement and all reports made pursuant to Section 5 hereof for a
period of not less than six years from the date of this Plan, any such related
agreement or such reports, as the case may be, the first two years in an easily
accessible place.
10. Definition of Certain Terms. For purposes of this Plan, the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the Act and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted to either the Corporation or the principal
underwriter of the Shares by the Securities and Exchange Commission, or its
staff under the Act.
11. Separate Series. Pursuant to the provisions of the Articles of
Incorporation the Portfolio is a separate series of the Corporation, and all
debts, liabilities and expenses of Class A shares of the Portfolio shall be
enforceable only against the assets of Class A shares of the Portfolio and not
against the assets of any other series or class of shares or of the Corporation
as a whole.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed as
of the day and year first written above.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
Peter A. Harbeck
President
- 3 -
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 17th day of September, 1996, by
Style Select Series, Inc., a Maryland corporation (the "Corporation"), on behalf
of the Class B shares of its separately designated series, Value Portfolio (the
"Portfolio").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company; and
WHEREAS, the Portfolio is a separately designated investment series of the
Corporation with its own investment objective, policies and purposes offering
four separate classes of shares of common stock, par value $.0001 per share, of
the Corporation (the "Shares"); and
WHEREAS, the Corporation has entered into a Distribution Agreement with
SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which the
Distributor acts as the exclusive distributor and representative of the
Corporation in the offer and sale of the Shares to the public; and
WHEREAS, the Corporation desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Portfolio will pay an account maintenance fee and a distribution fee
to the Distributor with respect to Class B shares of the Portfolio; and
WHEREAS, the Board of Directors of the Corporation (the "Directors") as a
whole, and the Directors who are not interested persons of the Corporation and
who have no direct or indirect financial interest in the operation of this Plan
or in any agreement relating hereto (the "12b-1 Directors"), having determined,
in the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act, that there
is a reasonable likelihood that this Plan will benefit the Portfolio and its
Class B shareholders, have approved this Plan by votes cast in person at a
meeting called for the purpose of voting hereon and on any agreements related
hereto;
NOW THEREFORE, the Corporation on behalf of the Portfolio hereby adopts
this Plan on the following terms:
1. Distribution Activities. The Portfolio shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.75% of average daily net assets attributable to Class B shares of the
Portfolio to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion and
marketing of the Class B shares. Such expenditures may consist of sales
commissions to financial consultants for selling Class B shares, compensation,
sales incentives and payments to sales and marketing personnel, and the payment
of expenses incurred in its sales and promotional activities, including
advertising expenditures related to the Class B shares of the Portfolio and the
costs of preparing and distributing promotional
<PAGE>
materials with respect to such Class B shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set forth in
applicable regulations of the National Association of Securities Dealers, Inc.
Nothing herein shall prohibit the Distributor from collecting distribution fees
in any given year, as provided hereunder, in excess of expenditures made in
such year for sales and promotional activities with respect to the Portfolio.
2. Account Maintenance Activities. The Portfolio shall pay the Distributor
an account maintenance fee under the Plan at the end of each month at the annual
rate of up to 0.25% of average daily net assets attributable to Class B shares
of the Portfolio to compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Portfolio hereby authorizes the
Distributor to enter into agreements with Securities Firms to provide
compensation to such Securities Firms for activities and services of the type
referred to in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
agreements shall provide that the Securities Firms shall deliver to the
Distributor such information as is reasonably necessary to permit the
Distributor to comply with the reporting requirements set forth in Section 5
hereof.
4. Related Agreements. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide:
(a) that such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the 12b-1 Directors or, by vote of a
majority of the outstanding voting securities (as defined in the Act) of Class B
shares of the Portfolio, on not more than 60 days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
5. Quarterly Reports. The Treasurer of the Corporation shall provide to the
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended pursuant to this Plan with respect to Class B shares of
the Portfolio and any related agreement and the purposes for which such
expenditures were made.
6. Term and Termination. (a) This Plan shall become effective as of the
date hereof, and, unless terminated as herein provided, shall continue from year
to year thereafter, so long as such continuance is specifically approved at
least annually by votes, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of both the (i) the Directors of the
Corporation, and (ii) the 12b-1 Directors.
(b) This Plan may be terminated at any time by vote of a majority of
the 12b-1 Directors or by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the Portfolio.
7. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Sections 1 and 2 hereof unless such amendment
is approved
- 2 -
<PAGE>
by a vote of a majority of the outstanding voting securities (as defined in the
Act) of Class B shares of the Portfolio, and no material amendment to this Plan
shall be made unless approved in the manner provided for the annual renewal of
this Plan in Section 6(a) hereof.
8. Selection and Nomination of Directors. While this Plan is in effect, the
selection and nomination of those Directors of the Corporation who are not
interested persons of the Corporation shall be committed to the discretion of
such disinterested Directors.
9. Recordkeeping. The Corporation shall preserve copies of this Plan and
any related agreement and all reports made pursuant to Section 5 hereof for a
period of not less than six years from the date of this Plan, any such related
agreement or such reports, as the case may be, the first two years in an easily
accessible place.
10. Definition of Certain Terms. For purposes of this Plan, the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the Act and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted to either the Corporation or the principal
underwriter of the Shares by the Securities and Exchange Commission, or its
staff under the Act.
11. Separate Series. Pursuant to the provisions of the Articles of
Incorporation, the Portfolio is a separate series of the Corporation, and all
debts, liabilities and expenses of Class B shares of the Portfolio shall be
enforceable only against the assets of Class B shares of the Portfolio and not
against the assets of any other series or class of shares or of the Corporation
as a whole.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed as
of the day and year first written above.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
Peter A. Harbeck
President
- 3 -
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS A SHARES)
PLAN OF DISTRIBUTION adopted as of the 17th day of September, 1996, by
Style Select Series, Inc., a Maryland corporation (the "Corporation"), on behalf
of the Class A shares of its separately designated series, International Equity
Portfolio (the "Portfolio").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company; and
WHEREAS, the Portfolio is a separately designated investment series of the
Corporation with its own investment objective, policies and purposes offering
four separate classes of shares of common stock, par value $.0001 per share, of
the Corporation (the "Shares"); and
WHEREAS, the Corporation has entered into a Distribution Agreement with
SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which the
Distributor acts as the exclusive distributor and representative of the
Corporation in the offer and sale of the Shares to the public; and
WHEREAS, the Corporation desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Portfolio will pay an account maintenance fee and a distribution fee
to the Distributor with respect to Class A shares of the Portfolio; and
WHEREAS, the Board of Directors of the Corporation (the "Directors") as a
whole, and the Directors who are not interested persons of the Corporation and
who have no direct or indirect financial interest in the operation of this Plan
or in any agreement relating hereto (the "12b-1 Directors"), having determined,
in the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act, that there
is a reasonable likelihood that this Plan will benefit the Portfolio and its
Class A shareholders, have approved this Plan by votes cast in person at a
meeting called for the purpose of voting hereon and on any agreements related
hereto;
NOW THEREFORE, the Corporation on behalf of the Portfolio hereby adopts
this Plan on the following terms:
1. Distribution Activities. The Portfolio shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.10% of average daily net assets attributable to Class A shares of the
Portfolio to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion and
marketing of the Class A shares. Such expenditures may consist of sales
commissions to financial consultants for selling Class A shares, compensation,
sales incentives and payments to sales and marketing personnel, and the payment
of expenses incurred in its sales and promotional activities, including
advertising expenditures related to the Class A shares of the Portfolio and the
costs of preparing and distributing promotional
<PAGE>
materials with respect to such Class A shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set forth in
applicable regulations of the National Association of Securities Dealers, Inc.
Nothing herein shall prohibit the Distributior from collecting distribution
fees in any given year, as provided hereunder, in excess of expenditures made
in such year for sales and promotional activities with respect to the
Portfolio.
2. Account Maintenance Activities. The Portfolio shall pay the Distributor
an account maintenance fee under the Plan at the end of each month at the annual
rate of up to 0.25% of average daily net assets attributable to Class A shares
of the Portfolio to compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Portfolio hereby authorizes the
Distributor to enter into agreements with Securities Firms to provide
compensation to such Securities Firms for activities and services of the type
referred to in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
agreements shall provide that the Securities Firms shall deliver to the
Distributor such information as is reasonably necessary to permit the
Distributor to comply with the reporting requirements set forth in Section5
hereof.
4. Related Agreements. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide:
(a) that such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the 12b-1 Directors or, by vote of a
majority of the outstanding voting securities (as defined in the Act) of Class A
shares of the Portfolio, on not more than 60 days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
5. Quarterly Reports. The Treasurer of the Corporation shall provide to the
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended pursuant to this Plan with respect to Class A shares of
the Portfolio and any related agreement and the purposes for which such
expenditures were made.
6. Term and Termination. (a) This Plan shall become effective as of the
date hereof, and, unless terminated as herein provided, shall continue from year
to year thereafter, so long as such continuance is specifically approved at
least annually by votes, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of both the (i) the Directors of the
Corporation, and (ii) the 12b-1 Directors.
(b) This Plan may be terminated at any time by vote of a majority of
the 12b-1 Directors or by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the Portfolio.
7. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Sections 1 and 2 hereof unless such amendment
is approved
- 2 -
<PAGE>
by a vote of a majority of the outstanding voting securities (as defined in the
Act) of Class A shares of the Portfolio, and no material amendment to this Plan
shall be made unless approved in the manner provided for the annual renewal of
this Plan in Section 6(a) hereof.
8. Selection and Nomination of Directors. While this Plan is in effect, the
selection and nomination of those Directors of the Corporation who are not
interested persons of the Corporation shall be committed to the discretion of
such disinterested Directors.
9. Recordkeeping. The Corporation shall preserve copies of this Plan and
any related agreement and all reports made pursuant to Section 5 hereof for a
period of not less than six years from the date of this Plan, any such related
agreement or such reports, as the case may be, the first two years in an easily
accessible place.
10. Definition of Certain Terms. For purposes of this Plan, the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the Act and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted to either the Corporation or the principal
underwriter of the Shares by the Securities and Exchange Commission, or its
staff under the Act.
11. Separate Series. Pursuant to the provisions of the Articles of
Incorporation the Portfolio is a separate series of the Corporation, and all
debts, liabilities and expenses of Class A shares of the Portfolio shall be
enforceable only against the assets of Class A shares of the Portfolio and not
against the assets of any other series or class of shares or of the Corporation
as a whole.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed as
of the day and year first written above.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
Peter A. Harbeck
President
- 3 -
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 17th day of September, 1996, by
Style Select Series, Inc., a Maryland corporation (the "Corporation"), on behalf
of the Class B shares of its separately designated series, International Equity
Portfolio (the "Portfolio").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company; and
WHEREAS, the Portfolio is a separately designated investment series of the
Corporation with its own investment objective, policies and purposes offering
four separate classes of shares of common stock, par value $.0001 per share, of
the Corporation (the "Shares"); and
WHEREAS, the Corporation has entered into a Distribution Agreement with
SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which the
Distributor acts as the exclusive distributor and representative of the
Corporation in the offer and sale of the Shares to the public; and
WHEREAS, the Corporation desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Portfolio will pay an account maintenance fee and a distribution fee
to the Distributor with respect to Class B shares of the Portfolio; and
WHEREAS, the Board of Directors of the Corporation (the "Directors") as a
whole, and the Directors who are not interested persons of the Corporation and
who have no direct or indirect financial interest in the operation of this Plan
or in any agreement relating hereto (the "12b-1 Directors"), having determined,
in the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act, that there
is a reasonable likelihood that this Plan will benefit the Portfolio and its
Class B shareholders, have approved this Plan by votes cast in person at a
meeting called for the purpose of voting hereon and on any agreements related
hereto;
NOW THEREFORE, the Corporation on behalf of the Portfolio hereby adopts
this Plan on the following terms:
1. Distribution Activities. The Portfolio shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.75% of average daily net assets attributable to Class B shares of the
Portfolio to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion and
marketing of the Class B shares. Such expenditures may consist of sales
commissions to financial consultants for selling Class B shares, compensation,
sales incentives and payments to sales and marketing personnel, and the payment
of expenses incurred in its sales and promotional activities, including
advertising expenditures related to the Class B shares of the Portfolio and the
costs of preparing and distributing promotional
<PAGE>
materials with respect to such Class B shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set forth in
applicable regulations of the National Association of Securities Dealers, Inc.
Nothing herein shall prohibit the Distributior from collecting distribution
fees in any given year, as provided hereunder, in excess of expenditures made
in such year for sales and promotional activities with respect to the
Portfolio.
2. Account Maintenance Activities. The Portfolio shall pay the Distributor
an account maintenance fee under the Plan at the end of each month at the annual
rate of up to 0.25% of average daily net assets attributable to Class B shares
of the Portfolio to compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Portfolio hereby authorizes the
Distributor to enter into agreements with Securities Firms to provide
compensation to such Securities Firms for activities and services of the type
referred to in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
agreements shall provide that the Securities Firms shall deliver to the
Distributor such information as is reasonably necessary to permit the
Distributor to comply with the reporting requirements set forth in Section 5
hereof.
4. Related Agreements. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide:
(a) that such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the 12b-1 Directors or, by vote of a
majority of the outstanding voting securities (as defined in the Act) of Class B
shares of the Portfolio, on not more than 60 days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
5. Quarterly Reports. The Treasurer of the Corporation shall provide to the
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended pursuant to this Plan with respect to Class B shares of
the Portfolio and any related agreement and the purposes for which such
expenditures were made.
6. Term and Termination. (a) This Plan shall become effective as of the
date hereof, and, unless terminated as herein provided, shall continue from year
to year thereafter, so long as such continuance is specifically approved at
least annually by votes, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of both the (i) the Directors of the
Corporation, and (ii) the 12b-1 Directors.
(b) This Plan may be terminated at any time by vote of a majority of
the 12b-1 Directors or by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the Portfolio.
7. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Sections 1 and 2 hereof unless such amendment
is approved
-2-
<PAGE>
by a vote of a majority of the outstanding voting securities (as defined in the
Act) of Class B shares of the Portfolio, and no material amendment to this Plan
shall be made unless approved in the manner provided for the annual renewal of
this Plan in Section 6(a) hereof.
8. Selection and Nomination of Directors. While this Plan is in effect, the
selection and nomination of those Directors of the Corporation who are not
interested persons of the Corporation shall be committed to the discretion of
such disinterested Directors.
9. Recordkeeping. The Corporation shall preserve copies of this Plan and
any related agreement and all reports made pursuant to Section 5 hereof for a
period of not less than six years from the date of this Plan, any such related
agreement or such reports, as the case may be, the first two years in an easily
accessible place.
10. Definition of Certain Terms. For purposes of this Plan, the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the Act and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted to either the Corporation or the principal
underwriter of the Shares by the Securities and Exchange Commission, or its
staff under the Act.
11. Separate Series. Pursuant to the provisions of the Articles of
Incorporation, the Portfolio is a separate series of the Corporation, and all
debts, liabilities and expenses of Class B shares of the Portfolio shall be
enforceable only against the assets of Class B shares of the Portfolio and not
against the assets of any other series or class of shares or of the Corporation
as a whole.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed as
of the day and year first written above.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
Peter A. Harbeck
President
- 3 -
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Directors of
Style Select Series, Inc. do hereby severally constitute and appoint Peter A.
Harbeck, Peter C. Sutton and Robert M. Zakem or any of them, the true and
lawful agents and attorneys-in-fact of the undersigned with respect to all
matters arising in connection with the Registration Statement on Form N-1A and
any and all amendments (including post-effective amendments) thereto, with full
power and authority to execute said Registration Statement for and on behalf of
the undersigned, in our names and in the capacity indicated below, and to file
the same, together with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission. The undersigned hereby
gives to said agents and attorneys-in-fact full power and authority to act in
the premises, including, but not limited to, the power to appoint a substitute
or substitutes to act hereunder with the same power and authority as said
agents and attorneys-in-fact would have if personally acting. The undersigned
hereby ratify and confirm all that said agents and attorneys-in-fact, or any
substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Peter A. Harbeck Director and President September 17, 1996
- ------------------------- (Principal Executive Officer)
Peter A. Harbeck
/s/ Peter C. Sutton Treasurer (Principal September 17, 1996
- -------------------- Financial and Accounting Officer)
Peter C. Sutton
/s/ S. James Coppersmith Director September 17, 1996
- -------------------------
S. James Coppersmith
/s/ Samuel M. Eisenstat Director September 17, 1996
- ------------------------
Samuel M. Eisenstat
/s/ Stephen J. Gutman Director September 17, 1996
- ---------------------
Stephen J. Gutman
/s/ Sebastiano Sterpa Director September 17, 1996
- ---------------------
Sebastiano Sterpa
/s/ Peter McMillan III Director September 17, 1996
- ----------------------
Peter McMillan III
</TABLE>
<PAGE>
STYLE SELECT SERIES, INC.
PLAN PURSUANT TO RULE 18F-3
Style Select Series, Inc. (the "Corporation") hereby adopts
this plan pursuant to Rule 18f-3 under the Investment Company Act
of 1940, as amended (the "1940 Act"), setting forth the separate
arrangement and expense allocation of each class of shares. Any
material amendment to this plan is subject to prior approval of the
Board of Directors, including a majority of the disinterested
Directors.
CLASS CHARACTERISTICS
<TABLE>
<S> <C>
CLASS A SHARES: Class A shares are subject to an initial sales
charge, and a distribution fee pursuant to
Rule 12b-1 under the 1940 Act ("Rule 12b-1
fee") payable at the annual rate of 0.10% of
the average daily net assets of the class, and
an account maintenance fee under the Rule 12b-
1 Plan payable at the annual rate of up to
0.25% of the average daily net assets of the
class. The initial sales charge is waived or
reduced for certain eligible investors.
CLASS B SHARES: Class B shares are not subject to an initial
sales charge but are subject to a contingent
deferred sales charge which will be imposed on
certain redemptions, a Rule 12b-1 fee payable
at the annual rate of up to 0.75% of the
average daily net assets of the class, and an
account maintenance fee under the Rule 12b-1
Plan payable at the annual rate of up to 0.25%
of the average daily net assets of the class.
The contingent deferred sales charge is waived
for certain eligible investors. Class B
shares automatically convert to Class A shares
on the first business day of the month
following the seventh anniversary of the
issuance of such Class B shares.
CLASS C SHARES: Class C shares are not subject to an initial
sales charge but are subject to a low
</TABLE>
<PAGE>
<TABLE>
<S> <C>
contingent deferred sales charge which will be
imposed on certain redemptions, a Rule 12b-1
fee payable at the annual rate of up to 0.75%
of the average annual net assets of the
class, and an account maintenance fee under
the Rule 12b-1 Plan payable at the annual rate
of up to 0.25% of the average daily net assets
of the class.
CLASS Z SHARES: Class Z shares are not subject to either an
initial or contingent deferred sales charge
nor are they subject to any Rule 12b-1 fee.
</TABLE>
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses,
and expenses not allocated to a particular class, will be
allocated to each class on the basis of the total value of
each class of shares in relation to the total value of each
class of shares of each series of the Corporation (each a
"Portfolio" and collectively, the "Portfolios").
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by each Portfolio to
each class of shares, to the extent paid, will be paid on the
same day and at the same time, and will be determined in the
same manner and will be in the same amount, except that the
amount of the dividends and other distributions declared and
paid by a particular class may be different from that paid by
another class because of Rule 12b-1 fees and other expenses
borne exclusively by that class.
EXCHANGE PRIVILEGE
Each class of shares is generally exchangeable for the same
class of shares of any other Portfolio or other SunAmerica
Mutual Fund (subject to certain minimum investment
requirements) at the relative net asset value per share.
- 2 -
<PAGE>
CONVERSION FEATURES
Class B shares will convert automatically to Class A shares on
the first business day of the month following the seventh
anniversary of the issuance of such Class B shares.
Conversions will be effected at the relative net asset values
of Class B and Class A shares, without the imposition of any
sales load, fee or charge. Class C and Class Z shares will
have no conversion rights.
GENERAL
A. Each class of shares shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to its
arrangement and shall have separate voting rights on any
matter submitted to shareholders in which the interests of one
class differ from the interests of any other class.
B. On an ongoing basis, the Directors, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise,
will monitor the Corporation for the existence of any material
conflicts among the interests of its several classes. The
Directors, including a majority of the disinterested
Directors, shall take such action as is reasonably necessary
to eliminate any such conflicts that may develop. SunAmerica
Asset Management Corp., the Corporation's investment manager
and adviser, will be responsible for reporting any potential
or existing conflicts to the Directors.
C. For purposes of expressing an opinion on the financial
statements of the Corporation, the methodology and procedures
for calculating the net asset value and
dividends/distributions of the classes and the proper
allocation of income and expenses among such classes will be
examined annually by the Corporation's independent auditors
who, in performing such examination, shall consider the
factors set forth in the relevant auditing standards adopted,
from time to time, by the American Institute of Certified
Public Accountants and Financial Accounting Standards Board.
-3-
<PAGE>
Dated: September 17, 1996
-4-
