<PAGE>
As filed with the Securities and Exchange Commission on August 5, 1997
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.
Post-Effective Amendment No. 4
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 5
(Check appropriate box or boxes)
STYLE SELECT SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
733 Third Avenue, The SunAmerica Center
New York, NY 10017
(Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (800) 858-8850
Robert M. Zakem, Esq.
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue
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
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
- ---on May 30, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
- ---
X on October 20, 1997 pursuant to paragraph (a) of Rule 485
- ---
-----------------------
The Registrant has previously elected to register an indefinite number
of shares 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.
<PAGE>
STYLE SELECT SERIES, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 481(b)
Under the Securities Act of 1933
Part A
Item No. Registration Statement Caption Caption in Prospectus
1. Cover Page Cover Page
2. Synopsis - Fee Table *
3. Financial Highlights *
4. General description of Registrant Style Select Investing;
Investment Objectives and
Policies; General
Information
5. Management of the Fund Management of the Fund
6. Capital Stock and Other Securities Dividends, Distributions
and Taxes
7. Purchase of Securities Being Purchase of Shares
Offered
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings *
Part B Registration Statement Caption Caption in Statement
Item No. of Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Fund
13. Investment Objectives and Policies Investment Objectives and
Policies; Investment
Restrictions
14. Management of the Fund Directors and Officers
15. Contact Persons and Principal The Fund
Holders of Securities
16. Investment Advisory and Other Advisers, Distributor
Services and Administrator;
Additional Information
17. Brokerage Allocation and Other Portfolio Transactions,
Practices Brokerage and Turnover
18. Capital Stock and Other Securities *
19. Purchase, Redemption and Pricing Additional Information
of Securities Being Offered Regarding Purchase of
Shares; Additional
Information Regarding
Redemption of Shares
Determination of Net
Asset Value
<PAGE>
20. Tax Status Dividends, Distributions
and Taxes
21. Underwriters *
22. Calculation of Performance Data *
23. Financial Statements Financial Statements
* Omitted from the Prospectus or Statement of Additional Information because
the item is not applicable.
Part C
The information required to be included in Part C is set forth under
the Appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
PROSPECTUS OF [DATE TO BE PROVIDED], 1997
------------------------------------------------------------------------
Style Select Series
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 eight separate investment portfolios
(each, a "Portfolio"). The Fund 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 is 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, a distinct investment style.
An investor may invest in one or more of the following Portfolios:
THE GROWTH PORTFOLIOS
LARGE-CAP GROWTH PORTFOLIO seeks long-term growth of capital by investing
generally in equity securities of large-sized companies. The Advisers for
Large-Cap Growth Portfolio are Janus Capital Corporation ("Janus"), L. Roy Papp
& Associates ("Papp") and Montag & Caldwell, Inc. ("Montag & Caldwell").
MID-CAP GROWTH PORTFOLIO seeks long-term growth of capital by investing
generally in equity securities of medium-sized companies. The Advisers for
Mid-Cap Growth Portfolio are Miller Anderson & Sherrerd, LLP ("MAS"), Pilgrim
Baxter & Associates, Ltd. ("Pilgrim Baxter") and T. Rowe Price Associates, Inc.
("T. Rowe Price").
AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital by investing
generally in equity securities of small and medium-sized companies. The
Advisers for Aggressive Growth Portfolio are Janus, SunAmerica and Warburg,
Pincus Counsellors, Inc. ("Warburg").
THE BLEND PORTFOLIO
LARGE-CAP BLEND PORTFOLIO seeks long-term growth of capital and a reasonable
level of current income by investing in equity securities of large-sized
companies. The Advisers for Large-Cap Blend Portfolio are Lazard Asset
Management ("Lazard"), SunAmerica and T. Rowe Price.
1
<PAGE>
THE VALUE PORTFOLIOS
LARGE-CAP VALUE PORTFOLIO seeks long-term growth of capital by investing in
equity securities of large-sized companies using a "value" style of investing.
The Advisers for Large-Cap Value Portfolio are David L. Babson & Co., Inc.
("Babson"), Davis Selected Advisers, L.P. ("Davis"), and Wellington Management
Company, LLP ("Wellington Management").
VALUE PORTFOLIO seeks long-term growth of capital by investing in equity
securities (without regard to the size of the issuer), using a "value" style of
investing. The Advisers for Value Portfolio are Davis, Neuberger&Berman, LLC
("Neuberger&Berman") and Strong Capital Management, Inc. ("Strong"). Strong has
subcontracted with Schafer Capital Management, Inc. ("Schafer," and together
with Strong, "Strong/Schafer") to act as Adviser to its portion of the Value
Portfolio.
SMALL-CAP VALUE PORTFOLIO seeks long-term growth of capital by investing in
equity securities of small-sized companies using a "value" style of
investing. The Advisers for Small-Cap Value Portfolio are Berger
Associates, Inc. ("Berger"), Lazard and The Glenmede Trust Company
("Glenmede"). Berger has subcontracted with Perkins, Wolf, McDonnell &
Company ("PWM," and together with Berger, "Berger/PWM") to act as Adviser
to its portion of the SmallCap Value Portfolio.
THE INTERNATIONAL PORTFOLIO
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. ("Rowe-Fleming"), Strong and Warburg.
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, Class B and Class C 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 and Class C 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. Class C shares may be
subject to a CDSC imposed on redemptions made within one year 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
2
<PAGE>
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 [DATE TO BE
PROVIDED], 1997, 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 NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
CONTENTS
- ---------------------------------------------
1 Prospectus
4 Summary of Expenses
8 Financial Highlights
9 Style-Based Investing
9 Investment Objectives and Policies
10 The Growth Portfolios
12 The Large-Cap Blend Portfolio
13 The Value Portfolios
15 The International Equity Portfolio
15 Advisers' Historical Performance Data
46 Investment Techniques and Risk Factors
57 Management of the Fund
68 Purchase of Shares
73 Redemption of Shares
75 Exchange Privilege
76 Portfolio Transactions, Brokerage and Turnover
77 Determination of Net Asset Value
77 Performance Data
78 Dividends, Distributions and Taxes
80 General Information
3
<PAGE>
<PAGE>
Summary of Expenses
- --------------------------------------------------------------------------------
A general comparison of the sales arrangements and other expenses applicable to
Class A, Class B and Class C shares follows:
<TABLE>
<CAPTION>
LARGE-CAP
GROWTH MID-CAP GROWTH
PORTFOLIO PORTFOLIO
---------------------------------------------------------
Class Class Class Class Class Class
A B C A B C
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction
Expenses
Maximum Initial
Sales Load(1) 5.75% None None 5.75% None None
Maximum Sales
Load on Reinvested
Dividends None None None None None None
Maximum Deferred
Sales Load(2) None 4.00% 1.00% None 4.00% 1.00%
Redemption Fees(3) None None None None None None
Exchange Fees 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%
12b-1 Fees (5) 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
Other Expenses .43% .43% .43% .43% .43% .43%
Total Operating
Expenses 1.78% 2.43% 2.43% 1.78% 2.43% 2.43%
===== ===== ===== ===== ===== =====
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH LARGE-CAP BLEND
PORTFOLIO PORTFOLIO
------------------------------------------------------------
Class Class Class Class Class Class
A B C A B C
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction
Expenses
Maximum Initial
Sales Load(1) 5.75% None None 5.75% None None
Maximum Sales
Load on Reinvested
Dividends None None None None None None
Maximum Deferred
Sales Load(2) None 4.00% 1.00% None 4.00% 1.00%
Redemption Fees(3) None None None None None None
Exchange Fees 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%
12b-1 Fees (5) 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
Other Expenses .43% .43% .43% .43% .43% .43%
Total Operating
Expenses 1.78% 2.43% 2.43% 1.78% 2.43% 2.43%
===== ===== ===== ===== ===== =====
- ----------------------------------------------------------------------------------
</TABLE>
(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. The CDSC on Class C shares applies only on
redemptions made within one year of purchase.
(3) A $15.00 fee may be imposed for wire redemptions.
(4) Effective June 17, 1997, with respect to the Mid-Cap Growth Portfolio
and Aggressive Growth Portfolio, and the date of commencement of
operations with respect to the Large-Cap Growth Portfolio and Large-Cap
Blend Portfolio, SunAmerica has voluntarily agreed to waive fees or
reimburse expenses, if necessary, to keep operating expenses at or
below an annual rate of 1.78% of the average daily net assets of Class
A shares and 2.43% of the average daily net assets of Class B and Class
C shares for each such Portfolio. Prior to June 17, 1997, with respect
to the Mid-Cap Growth Portfolio and Aggressive Growth Portfolio,
SunAmerica voluntarily agreed to waive fees or reimburse expenses to
keep annual operating expenses at or below an annual rate of 1.90% of
the average daily net assets of Class A shares and 2.55% of the average
daily net assets of Class B and Class C shares for each such Portfolio.
The information provided in the table represents estimated amounts for
the current fiscal year net of current fee waivers/expense
reimbursements. Absent such fee waivers/expense reimbursements,
estimated annual Portfolio operating expenses would be: Large-Cap
Growth Portfolio, Class A, 2.15%, Large-Cap Growth Portfolio, Class B,
2.85%, Large-Cap Growth Portfolio, Class C, 3.57%, Mid-Cap Growth
Portfolio, Class A, 2.00%, Mid-Cap Growth Portfolio, Class B, 2.62%,
Mid-Cap Growth Portfolio, Class C, 2.92%, Aggressive Growth Portfolio,
Class A, 1.96%, Aggressive Growth Portfolio, Class B, 2.60%, Aggressive
Growth Portfolio, Class C, 2.81%, Large-Cap Blend Portfolio, Class A,
2.15%, Large-Cap Blend Portfolio, Class B, 2.85%, and Large-Cap Blend
Portfolio, Class C, 3.57%.
(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. Class B or Class C 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 Conduct Rules of the National Association of
Securities Dealers, Inc.
4
<PAGE>
Summary of Expenses (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LARGE-CAP
VALUE PORTFOLIO VALUE PORTFOLIO
--------------------------------------------------------------------
Class Class Class Class Class Class
A B C A B C
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction
Expenses
Maximum Initial
Sales Load(1) 5.75% None None 5.75% None None
Maximum Sales
Load on Reinvested
Dividends None None None None None None
Maximum Deferred
Sales Load(2) None 4.00% 1.00% None 4.00% 1.00%
Redemption Fees(3) None None None None None None
Exchange Fees 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%
12b-1 Fees (5) 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
Other Expenses .43% .43% .43% .43% .43% .43%
Total Operating
Expenses 1.78% 2.43% 2.43% 1.78% 2.43% 2.43%
===== ===== ===== ===== ===== =====
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SMALL-CAP INTERNATIONAL
VALUE PORTFOLIO EQUITY PORTFOLIO
---------------------------------------------------------------
Class Class Class Class Class Class
A B C A B C
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction
Expenses
Maximum Initial
Sales Load(1) 5.75% None None 5.75% None None
Maximum Sales
Load on Reinvested
Dividends None None None None None None
Maximum Deferred
Sales Load(2) None 4.00% 1.00% None 4.00% 1.00%
Redemption Fees(3) None None None None None None
Exchange Fees 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% 1.10% 1.10% 1.10%
12b-1 Fees (5) 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
Other Expenses .43% .43% .43% .58% .58% .58%
Total Operating
Expenses 1.78% 2.43% 2.43% 2.03% 2.68% 2.68%
===== ===== ===== ===== ===== =====
- --------------------------------------------------------------------------------------
</TABLE>
(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. The CDSC on Class C shares applies only on
redemptions made within one year of purchase.
(3) A $15.00 fee may be imposed for wire redemptions.
(4) Effective June 17, 1997, with respect to the Value Portfolio and
International Equity Portfolio, and the date of commencement of
operations with respect to the Large-Cap Value Portfolio and Small-Cap
Value Portfolio, SunAmerica has voluntarily agreed to waive fees or
reimburse expenses, if necessary, to keep operating expenses at or
below an annual rate of 1.78% of the average daily net assets of Class
A shares and 2.43% of the average daily net assets of Class B and Class
C shares for each such Portfolio (other than the International Equity
Portfolio) and 2.03% of the average daily net assets of Class A shares
and 2.68% of the average daily net assets of Class B and Class C shares
for the International Equity Portfolio. Prior to June 17 , 1997,
SunAmerica voluntarily agreed to waive fees or reimburse expenses to
keep annual operating expenses at or below an annual rate of 1.90% of
the average daily net assets of Class A shares and 2.55% of the average
daily net assets of Class B and Class C shares for the Value Portfolio
and 2.15% of the average daily net assets of Class A shares and 2.80%
of the average daily net assets of Class B and Class C shares for the
International Equity Portfolio. The information provided in the table
represents estimated amounts for the current fiscal year net of the
current fee waivers/expense reimbursements. Absent such fee
waivers/expense reimbursements, estimated annual Portfolio operating
expenses would be: Large-Cap Value Portfolio, Class A, 2.13%, Large-Cap
Value Portfolio, Class B, 2.81%, Large-Cap Value Portfolio, Class C,
3.41%, Value Portfolio, Class A, 1.94%, Value Portfolio, Class B,
2.57%, Value Portfolio, Class C, 2.71%, Small-Cap Value Portfolio,
Class A, 2.15%, Small-Cap Value Portfolio, Class B, 2.89%, Small-Cap
Value Portfolio, Class C, 3.77%, International Equity Portfolio, Class
A, 2.40%, International Equity Portfolio, Class B, 3.10%, and
International Equity Portfolio, Class C, 4.13%.
(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. Class B or Class C 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 Conduct Rules of the National Association of
Securities Dealers, Inc.
5
<PAGE>
EXAMPLE:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 You would pay the following expenses on the same
investment over various time periods assuming (1) a 5% investment, assuming no redemption:
annual rate of return and (2) redemption at the end of each
time period:
1 YEAR 3 YEARS 1 YEAR 3 YEARS
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Large-Cap Growth Portfolio Large-Cap Growth Portfolio
(Class A shares) $75 $110 (Class A shares) $75 $110
(Class B shares)* $65 $106 (Class B shares)* $25 $76
(Class C shares) $35 $76 (Class C shares) $25 $76
Mid-Cap Growth Portfolio Mid-Cap Growth Portfolio
(Class A shares) $75 $110 (Class A shares) $75 $110
(Class B shares)* $65 $106 (Class B shares)* $25 $76
(Class C shares) $35 $76 (Class C shares) $25 $76
Aggressive Growth Portfolio Aggressive Growth Portfolio
(Class A shares) $75 $110 (Class A shares) $75 $110
(Class B shares)* $65 $106 (Class B shares)* $25 $76
(Class C shares) $35 $76 (Class C shares) $25 $76
Large-Cap Blend Portfolio Large-Cap Blend Portfolio
(Class A shares) $75 $110 (Class A shares) $75 $110
(Class B shares)* $65 $106 (Class B shares)* $25 $76
(Class C shares) $35 $76 (Class C shares) $25 $76
Large-Cap Value Portfolio Large-Cap Value Portfolio
(Class A shares) $75 $110 (Class A shares) $75 $110
(Class B shares)* $65 $106 (Class B shares)* $25 $76
(Class C shares) $35 $76 (Class C shares) $25 $76
Value Portfolio Value Portfolio
(Class A shares) $75 $110 (Class A shares) $75 $110
(Class B shares)* $65 $106 (Class B shares)* $25 $76
(Class C shares) $35 $76 (Class C shares) $25 $76
Small-Cap Value Portfolio Small-Cap Value Portfolio
(Class A shares) $75 $110 (Class A shares) $75 $110
(Class B shares)* $65 $106 (Class B shares)* $25 $76
(Class C shares) $35 $76 (Class C shares) $25 $76
International Equity Portfolio International Equity Portfolio
(Class A shares) $77 $118 (Class A shares) $77 $118
(Class B shares)* $67 $113 (Class B shares)* $27 $83
(Class C shares) $37 $83 (Class C shares) $27 $83
</TABLE>
- --------------------------------------------------------------------------------
* 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.
6
<PAGE>
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 more
complete descriptions of the various costs and expenses, see "Purchase of
Shares." Actual expenses may be greater or less than those shown.
7
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The following unaudited Financial Highlights are for the period November 19,
1996 (commencement of operations) through April 30, 1997 with respect to Class A
and Class B shares, and for the period March 6, 1997 (initial offering of Class
C shares) through April 30, 1997, with respect to Class C shares of the Mid-Cap
Growth Portfolio, Aggressive Growth Portfolio, Value Portfolio and International
Equity Portfolio. These Financial Highlights should be read in conjunction with
the unaudited financial statements and notes thereto, which are included in the
Statement of Additional Information and are incorporated by reference herein.
Shares of the Large-Cap Growth Portfolio, Large-Cap Blend Portfolio, Large-Cap
Value Portfolio and Small-Cap Value Portfolio will be first offered as of the
date of this Prospectus.
<TABLE>
<CAPTION>
Net gain
(loss) on
Net Asset Investments Dividends Net Asset
Value Net (both Total from from net Distributions Value,
beginning Investment realized and Investment Investment from capital Total end of
Period Ended of period Income (1) unrealized) operations Income gains distributions period
------------ --------- ---------- ----------- ---------- ------ ----- ------------- ------
MID-CAP GROWTH PORTFOLIO
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
11/19/96-4/30/97. $12.50 $(0.06) $(1.42) $(1.48) $ --- $ --- $ --- $11.02
Class B
-------
11/19/96-4/30/97. 12.50 (0.10) (1.41) (1.51) ----- ----- ----- 10.99
Class C
-------
3/06/97-4/30/97.. 11.93 (0.03) (0.91) (0.94) ----- ----- ----- 10.99
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
11/19/96-4/30/97. $12.50 $(0.02) $0.03 $0.01 $---- $---- $---- $12.51
Class B
-------
11/19/96-4/30/97. 12.50 (0.06) 0.04 (0.02) ----- ----- ----- 12.48
Class C
-------
3/06/97-4/30/97.. 13.38 (0.01) (0.88) (0.89) ----- ----- ----- 12.49
<CAPTION>
VALUE PORTFOLIO
- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
11/19/96-4/30/97. $12.50 $0.01 $1.03 $1.04 $---- $---- $---- $13.54
Class B
-------
11/19/96-4/30/97. 12.50 (0.04) 1.04 1.00 ----- ----- ----- 13.50
Class C
-------
3/06/97-4/30/97.. 13.56 (0.02) (0.04) (0.06) ----- ----- ----- 13.50
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
11/19/96-4/30/97. $12.50 $0.02 $(0.04) $(0.02) $---- $---- $---- $12.48
Class B
-------
11/19/96-4/30/97. 12.50 0.02 (0.08) (0.06) ----- ----- ----- 12.44
Class C
-------
3/06/97-4/30/97.. 12.60 0.03 (0.18) (0.15) ----- ----- ----- 12.45
</TABLE>
<TABLE>
<CAPTION>
Ratio of net
Net Assets Ratio of investment
Total end of expenses to Income to Average
Return period average net average net Portfolio commission per
Period Ended (2) (000's) assets (3)(4) assets (3)(4) turnover share (5)
------------ --- ------- ------------- ------------- -------- ---------
MID-CAP GROWTH PORTFOLIO
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97. (11.84)% $21,055 1.90% (1.04)% 38% $0.0472
11/19/96-4/30/97. (12.08) 15,551 2.55 (1.76) 38 0.0472
3/06/97-4/30/97.. (7.88) 855 2.55 (1.80) 38 0.0472
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97. 0.08% $31,278 1.90% (0.27)% 95% $0.0544
11/19/96-4/30/97. (0.16) 18,723 2.55 (0.91) 95 0.0544
3/06/97-4/30/97.. (6.65) 1,161 2.55 (0.64) 95 0.0544
<CAPTION>
VALUE PORTFOLIO
- ---------------
<S> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97. 8.32% $35,691 1.90% 0.16% 16% $0.0600
11/19/96-4/30/97. 8.00 25,641 2.55 (0.62) 16 0.0600
3/06/97-4/30/97.. (0.44) 1,875 2.55 (0.83) 16 0.0600
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97. (0.16)% $22,995 2.15% 0.32% 14% $0.0175
11/19/96-4/30/97. (0.48) 14,123 2.80 0.31 14 0.0175
3/06/97-4/30/97.. (1.19) 1,095 2.80 1.39 14 0.0175
</TABLE>
- --------------------------------------------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Annualized
(4) Net of the following expense reimbursements (based on average net
assets):
Mid-CaplGrowth Portfolio, Class A....................28%
Mid-Cap Growth Portfolio, Class B....................44%
Mid-Cap Growth Portfolio, Class C..................3.16%
Aggressive Growth Portfolio, Class A.................22%
Aggressive Growth Portfolio, Class B.................35%
Aggressive Growth Portfolio, Class C...............2.14%
Value Portfolio, Class A.............................26%
Value Portfolio, Class B.............................36%
Value Portfolio, Class C...........................1.67%
International Equity Portfolio, Class A..............35%
International Equity Portfolio, Class B..............53%
International Equity Portfolio, Class C............3.22%
(5) The average commission per share is derived by taking the agency
commissions paid on equity securities trades and dividing by the number
of shares purchased and sold
8
<PAGE>
Style-Based Investing
- ------------------------------------------------------------------------------
Each Portfolio of the Fund is intended to provide investors with access to
several different professional investment advisers, each seeking the same
investment objective and utilizing a similar investment style 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, a
distinct investment style.
SunAmerica will generally allocate investments in each Portfolio (and
redemption requests) equally among its three Advisers. 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. SunAmerica
intends, on a quarterly basis, to review the asset allocation in each
Portfolio to ensure that no portion of assets managed by an Adviser exceeds
that portion managed by any other Adviser to the Portfolio by more than 5%.
If such a condition exists, SunAmerica will then re-allocate cash flows
among the three Advisers, differently from the manner described above, so
as to effect a re-balancing of the Portfolio's asset allocation. SunAmerica
does not intend, but reserves the right, to effect such a re-balancing of
asset allocation by re-allocating assets from one Adviser to another.
Re-balancing may involve re-directing cash flows from a better performing
Adviser to one with relatively lower returns.
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."
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 invest 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 discretion.
9
<PAGE>
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.
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."
The Growth Portfolios
- ------------------------------------------------------------------------------
The Growth Portfolios consist of the Large-Cap Growth Portfolio, Mid-Cap
Growth Portfolio and Aggressive Growth Portfolio. Under normal conditions,
at least 65% of each Growth 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 issuers of such securities are companies considered by the
respective Advisers to have a historical record of above-average growth
rate; to have significant growth potential, above-average earnings growth
or value or the ability to sustain earnings growth; to offer proven or
unusual products or services; or to operate in industries experiencing
increasing demand. The Advisers may select certain of such securities
because they consider them to be undervalued in the market. Each of the
Growth Portfolios may also invest in debt securities that the Advisers
expect have the potential for capital appreciation which are rated as low
as "BBB" by Standard & Poor's Corporation, a Division of the McGraw-Hill
Companies ("S&P"), or "Baa" by Moody's Investors Service ("Moody's") or, if
unrated, determined by the Adviser to be of equivalent quality. The
Large-Cap Growth Portfolio and the Aggressive Growth Portfolio may also
invest in debt securities rated below "BBB" or "Baa" or unrated securities
of comparable quality (junk bonds). See "Fixed Income Securities" in
"Investment Techniques and Risk Factors" below for a discussion of the
risks associated with investing in such securities. The investment polices
and strategies specific to each of the Growth Portfolios are described
below.
Large-Cap Growth Portfolio. The Large-Cap Growth Portfolio, advised by
Janus, Papp and Montag & Caldwell, will invest, under normal circumstances,
at least 65% of the Portfolio's total assets in the securities of companies
that typically have a market capitalization in excess of $5 billion
("Large-Cap Companies"). Large-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
10
<PAGE>
on the New York Stock Exchange ("NYSE"), American Stock Exchange ("AMEX")
or on another national or international stock exchange or, in some cases,
are traded over-the-counter.
The Portfolio may also invest up to 35% of its total assets in securities
of issuers other than Large-Cap Companies. These investments may include
equity securities of companies with market capitalizations below $5
billion, including companies with market capitalizations of less than $1
billion, and debt securities that the Advisers expect have the potential
for capital appreciation. See "Investment in Small-Cap Companies" and
"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 MAS,
Pilgrim Baxter and T. Rowe Price, will invest, under normal circumstances,
at least 65% of the Portfolio's total assets in the securities of
medium-sized companies that typically have a market capitalization between
$1 billion and $5 billion ("Mid-Cap Companies").
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 NYSE or another national or international stock exchange or, in
some cases, are traded over-the-counter. Such companies, however, may be less
seasoned than Large-Cap Companies, as defined in "Large-Cap Growth
Portfolio," above. In general, the securities of Mid-Cap Companies may be
more volatile than those of Large-Cap Companies.
The Portfolio may also invest up to 35% of its total assets in securities
of issuers other than Mid-Cap Companies. These investments may include
equity securities of Large-Cap Companies and companies with market
capitalizations of less than $1 billion, and debt securities that the
Advisers expect have the potential for capital appreciation. See
"Investment in Small-Cap Companies" and "Fixed Income Securities" in
"Investment Techniques and Risk Factors" below for a discussion of the
risks associated with investing in such securities.
Aggressive Growth Portfolio. The Aggressive Growth Portfolio, advised by
Janus, SunAmerica and Warburg, will invest in equity securities to
aggressively and selectively seek long-term total return, without regard to
the market capitalization of an issuer. Generally, the Portfolio will
invest in securities of companies that typically have a market
capitalization of less than $1 billion ("Small-Cap Companies") or Mid-Cap
Companies, as defined in "Mid-Cap Growth Portfolio," above. The Advisers
may also purchase securities of Large-Cap Companies, as defined in
"LargeCap Growth Portfolio," above.
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 or Large-Cap Companies. Small-Cap Companies frequently will be
in businesses or industries involving new, recently developed products,
services, or technologies, or may be in businesses that are out of favor
with or have not yet been discovered by the broader investment community.
While some Small-Cap Companies
11
<PAGE>
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.
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
may be subject to more volatility than if such assets were invested in
larger companies. See "Investment in Small-Cap Companies" in "Investment
Techniques and Risk Factors." In addition, the Portfolio may invest up to
35% of its total assets in debt securities that the Advisers expect have
the potential for capital appreciation. See "Fixed Income Securities" in
"Investment Techniques and Risk Factors" below for a discussion of the
risks associated with investing in such securities.
The Blend Portfolio
- ------------------------------------------------------------------------------
The Fund currently offers one Blend Portfolio, the Large-Cap Blend
Portfolio, the investment policies and strategies of which are described
below.
Large-Cap Blend Portfolio. The Large-Cap Blend Portfolio, advised by
Lazard, SunAmerica and T. Rowe Price, will invest, under normal
circumstances, at least 65% of the Portfolio's total assets in equity
securities (including common and preferred stocks and other securities
having equity features, such as convertible securities, warrants and
rights) of Large-Cap Companies. Large-Cap Companies typically have a market
capitalization in excess of $5 billion. Large-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 NYSE,
AMEX or on another national or international stock exchange or, in some
cases, are traded over-the-counter. An Adviser will normally select
securities of companies whose earnings are expected by the Adviser to grow
and to be able to support a growing dividend payment, as well as securities
that do not pay dividends currently but offer prospects of appreciation and
future income. Investments will be identified based upon factors including
undervalued assets or earnings potential, favorable operating or price to
cash flow ratios, a below-average price to book value ratio, a
below-average price to earnings ratio and, although current income will not
always be a significant factor in selecting securities, an above-average
dividend yield. Investments will also be identified based upon other
factors including above-average earnings growth and cash flow sufficient to
support growing dividends, as well as the prospect for capital appreciation
and future dividend payments with respect to securities that do not
currently pay dividends.
The Large-Cap Blend Portfolio may invest up to 35% of its total assets in
securities of issuers other than Large-Cap Companies. These investments may
include equity securities of companies with market capitalizations below $5
billion, including companies with market capitalizations of less than $1
billion. These investments may also include debt securities that the
Advisers expect to have the potential for capital appreciation, including
debt securities rated below "BBB" by S&P, or "Baa" by Moody's, or, if
unrated, determined by the Advisers to be of equivalent quality
12
<PAGE>
(junk bonds). See "Investment in Small-Cap Companies" and "Fixed Income
Securities" in "Investment Techniques and Risk Factors" below for a
discussion of the risks associated with investing in such securities.
The Value Portfolios
- ------------------------------------------------------------------------------
The Value Portfolios consist of the Large-Cap Value Portfolio, Value
Portfolio and Small-Cap Value Portfolio. Under normal circumstances, at
least 65% of each Value 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 Advisers will normally select securities that they believe are
selling at a price that is low relative to their worth. Investments will be
identified based upon factors including undervalued assets or earnings
potential, favorable operating or price to cash flow ratios, a
below-average price to book value ratio, a below-average price to earnings
ratio and, although current income will not always be a significant factor
in selecting securities, an above-average dividend yield. In addition, the
Advisers may take into account such other factors as an issuer's product
demand and development, resources for expansion, quality of management,
overall favorable business prospects and industry fundamentals. While the
Advisers seek 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 Value Portfolios for a long
period, if at all. In addition, there is the risk that a security judged to
be undervalued by the Advisers is actually appropriately priced due to
fundamental problems with the issuer's business prospects that are not yet
apparent. Each of the Value Portfolios may invest in debt securities that
the Advisers expect to have the potential for capital appreciation, which
are rated as low as "BBB" by S&P, or "Baa" by Moody's, or, if unrated,
determined by the Advisers to be of equivalent quality. The Value Portfolio
and Small-Cap Value Portfolio may also invest in debt securities rated
below "BBB" or "Baa" or unrated securities of comparable quality (junk
bonds). See "Fixed Income Securities" in "Investment Techniques and Risk
Factors" below for a discussion of the risks associated with investing in
such securities. The investment policies and strategies specific to each of
the Value Portfolios are described below.
Large-Cap Value Portfolio. The Large-Cap Value Portfolio, advised by
Babson, Davis and Wellington Management, will invest, under normal
circumstances, at least 65% of the Portfolio's assets in securities of
Large-Cap Companies that the Advisers believe are selling at a price that
is low relative to their worth. Large-Cap Companies typically have a market
capitalization in excess of $5 billion. Large-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 NYSE,
AMEX or on another national or international stock exchange or, in some
cases, are traded over-the-counter.
The Portfolio may also invest up to 35% of its total assets in securities
of issuers other than Large-Cap Companies. These investments may include
equity companies with market capitalizations below $5 billion, including
companies with market capitalizations of less than $1
13
<PAGE>
billion, and debt securities that the Advisers expect to have the potential
for capital appreciation. See "Investment in Small-Cap Companies" and
"Fixed Income Securities" in "Investment Techniques and Risk Factors" below
for a discussion of the risks associated with investing in such securities.
Value Portfolio. The Value Portfolio, advised by Davis, Neuberger&Berman, and
Strong/Schafer, will invest, under normal circumstances, in securities that
the Advisers believe are selling at a price that is low relative to their
worth, without regard to the market capitalization of the issuer. It is
anticipated that a significant portion of the Portfolio's assets as a whole
will generally be invested in securities of Mid-Cap Companies, which
typically have a market capitalization between $1 billion and $5 billion;
however, any particular Adviser may not necessarily invest a significant
portion of the Portfolio's assets allocated to it in such companies.
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 NYSE, AMEX or on another national or
international stock exchange or, in some cases, are traded
over-the-counter. Investing in such companies may have greater risks than
investing in larger companies.
The Portfolio may also invest up to 35% of its total assets in debt securities
that the Advisers expect to have the potential for capital appreciation. See
"Fixed Income Securities" in "Investment Techniques and Risk Factors."
Small-Cap Value Portfolio. The Small-Cap Value Portfolio, advised by
Berger/PWM, Lazard and Glenmede, will invest under normal circumstances, at
least 65% of the Portfolio's total assets in securities of Small-Cap
Companies that the Advisers believe are selling at a price that is low
relative to their worth. Small-Cap Companies typically have a market
capitalization of less than $1 billion. 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 or Large-Cap Companies. Small-Cap
Companies frequently will be in businesses or industries involving new,
recently developed products, services, or technologies, or may be in
businesses that are out of favor with or have not yet been discovered by
the broader investment community. 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. In
general, to the extent that the Portfolio's assets are invested in
Small-Cap Companies, the Portfolio's net asset value may be subject to more
volatility than if such assets were invested in larger companies. See
"Investment in Small-Cap Companies" in "Investment Techniques and Risk
Factors."
The Portfolio may also invest up to 35% of its total assets in equity
securities of issuers other than Small-Cap Companies and in debt securities
that the Advisers expect have the potential for capital appreciation. See
"Fixed Income Securities" in "Investment Techniques and Risk Factors" below
for a discussion of the risks associated with investing in such securities.
14
<PAGE>
The International Portfolio
- ------------------------------------------------------------------------------
The Fund currently offers one International Portfolio, the International
Equity Portfolio, the investment policies and strategies of which are
described below.
International Equity Portfolio. The International Equity Portfolio, advised by
Warburg, 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-Cap Companies" in "Investment Techniques and Risk Factors." The
Portfolio may also invest from time to time in companies located in
countries considered to be emerging markets (i.e., those generally
considered to be in emerging or developing countries). 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 Advisers expect 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 Advisers to be of equivalent quality
(junk bonds). See "Fixed Income Securities" in "Investment Techniques and
Risk Factors" below for a discussion of the risks associated with investing
in such securities.
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 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
15
<PAGE>
THE FUND OR ANY PORTFOLIO. The Fund is recently organized and the Mid-Cap
Growth, Aggressive Growth, Value and International Equity Portfolios have
performance records of less than a year. The Large-Cap Growth, Large-Cap
Blend, Large-Cap Value and Small-Cap Value Portfolios will commence
operations on or about the date of this Prospectus. 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. Total return information with
respect to the Mid-Cap Growth Portfolio, Aggressive Growth Portfolio, Value
Portfolio and International Equity Portfolio for the period from November
19, 1996 (commencement of investment operations) through April 30, 1997 is
included under "Financial Highlights."
All of the Advisers' 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. The term "annualized total
return" signifies that cumulative total returns for a stated time period
(i.e., 1, 3, 5 or 10 years) have been annualized over such period. In order
to present the total return information in a consistent manner, all returns
were calculated by geometrically linking quarterly total return data for
the relevant number of quarters and annualizing the result over the
equivalent number of years.
All information relies on data supplied by the Advisers or Morningstar,
Inc. ("Morningstar") 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 Association for Investment Management and Research
("AIMR"). If not so stated, the performance, while having been calculated
in accordance with AIMR methodology, has not been independently verified or
audited. 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 in the following tables is presented net of
actual fees charged by the individual Advisers, except as otherwise noted,
but does not reflect the imposition of any sales loads or charges, if
applicable. If sales loads or charges were reflected, where applicable,
performance results would have been less. 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 year ending October 31, 1997, but do not
reflect any sales charge. Such annualized expenses are higher than actual
fees charged to the accounts reflected in the data, so that the performance
results depicted below are less than the actual performance results
experienced by such accounts.
16
<PAGE>
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 results 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
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.
Notwithstanding these assumptions, SunAmerica may change Advisers and the
allocation of assets among the different Advisers within a single
Portfolio. In addition, the allocation of assets among the Advisers of a
Portfolio is expected to vary relative to the performance of each portion
of the Portfolio. The combined Adviser performance chart is hypothetical,
and is not an actually managed portfolio. The chart does not represent an
estimate of what a Portfolio's performance would have been had it operated
during the relevant periods shown.
Finally, for each period presented, the investment performance for the
Advisers of each Portfolio, and, in certain cases, combined hypothetical
information for such Advisers, is compared to the average performance of a
group of similar mutual funds tracked by Morningstar. Morningstar
calculates its group averages by taking a mathematical average of the
returns of the funds included in the group.
Advisers for Large-Cap Growth Portfolio
- ------------------------------------------------------------------------------
The Advisers for the Large-Cap Growth Portfolio are:
Janus Capital Corporation (Janus)
L. Roy Papp & Associates (Papp)
Montag & Caldwell, Inc. (Montag & Caldwell)
The performance results supplied by each Adviser were prepared as set forth
below under "Individual Adviser Performance."
17
<PAGE>
ANNUALIZED TOTAL RETURNS
- -------------------------------------------------------------------------------
Periods Ended June 30, 1997
Advisers' Past Performance (Bar Chart)
1 Year
Morningstar Large Growth Category 24.9%
Combined Adviser Performance 36.3%
Janus Earnings Growth composite 27.9%
Papp 39.8%
Montag & Caldwell Institutional Equity composite 41.3%
3 Years
Morningstar Large Growth Category 24.2%
Combined Adviser Performance 32.7%
Janus Earnings Growth composite 28.7%
Papp 35.3%
Montag & Caldwell Institutional Equity composite 34.1%
5 Years
Morningstar Large Growth Category 16.7%
Combined Adviser Performance 21.2%
Janus Earnings Growth composite 17.8%
Papp 21.6%
Montag & Caldwell Institutional Equity composite 23.9%
18
<PAGE>
NOTES (Large-Cap Growth Portfolio)
- -------------------------------------------------------------------------------
Individual Adviser Performance
Except as otherwise noted below, an Adviser's performance is presented net
of actual fees, but does not reflect the imposition of any sales loads or
charges, if applicable. If sales loads or charges were reflected, where
applicable, performance results would have been less. The Portfolio's fees
and expenses may be greater than those charged by the individual Advisers.
Accordingly, the Portfolio's actual performance results may be less.
Janus
Janus' historical performance data covers 9 1/2 years and reflects the
performance of the Janus Earnings Growth composite. The annualized return
since inception of the composite is 20.0% as of June 30, 1997. The
composite includes all large-cap earnings growth equity accounts with
assets above $5 million for which Janus has discretionary authority.
Accounts enter the composite upon their first full quarter under management
in which assets exceed $5 million. As of June 30, 1997, the composite
included 40 accounts with aggregate assets of $11.8 billion, which
represented 19.9% of total assets under management. The composite returns
are presented net of actual fees. None of the accounts included in the
composite bears any sales loads or charges. The performance history is
calculated in accordance with the standards set forth by AIMR.
Papp
Papp's historical performance data covers 5 1/2 years and reflects the
performance of a single account, which is a no-load mutual fund. The
annualized return since inception of the account is 18.6% as of June 30,
1997. As of June 30, 1997, the account's net assets totalled $158.5
million. According to Papp, this account reflects the performance of the
only investment vehicle managed by Papp with a strategy similar to the
growth strategy to be utilized by Papp in managing its portion of the
Large-Cap Growth Portfolio.
Montag & Caldwell
Montag & Caldwell's historical performance data covers 10 years and
reflects the performance of the Montag & Caldwell Institutional Equity
composite. The annualized ten-year return of the composite is 22.4% as of
June 30, 1997. The composite includes all discretionary, institutional,
tax-exempt equity accounts with assets of $1 million or greater. As of June
30, 1997, the composite included 114 accounts with aggregate assets of $4.7
billion, which represented 40% of total assets under management. The
composite returns are presented net of actual fees. None of the accounts
included in the composite bears any sales load or charges. The performance
history is calculated in accordance with the standards set forth by AIMR.
19
<PAGE>
Combined Adviser Performance
Performance on the 1-year, 3-year and 5-year composite bar charts reflects
a combined composite weighted equally among the Janus Earnings Growth
composite, Papp account and Montag & Caldwell Institutional Equity
composite. The performance for each Adviser is presented net of actual fees
paid by each account included in the composite, but does not reflect the
imposition of any sales loads or charges, if applicable. If sales loads or
charges were reflected, where applicable, performance results would have
been less.
Morningstar Large Growth Category
Developed by Morningstar, the Morningstar Large Growth Category currently
reflects a group of 209 mutual funds which have portfolios with median
market capitalizations, price/earnings ratios, and price/book ratios
similar to those expected for the Large-Cap Growth Portfolio.
GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------------------------------------------
Five Years Ended June 30, 1997
Growth of a $10,000 Investment (Mountain Chart)
Combined Morningstar
Adviser Large Growth
Performance Category
1992 $10,000 $10,000
1993 $10,950 $11,390
1994 $11,169 $11,299
1995 $14,687 $14,135
1996 $19,182 $17,344
1997 $26,144 $21,662
NOTE (Large-Cap Growth Portfolio)
- -------------------------------------------------------------------------------
Growth of a $10,000 Investment
The "Growth of a $10,000 Investment" composite chart reflects five years of
performance data, and reflects a combined composite weighted equally among
the Janus Earnings Growth composite, Papp account and Montag & Caldwell
Institutional Equity composite. Returns for all
20
<PAGE>
time periods are net of actual fees, but do not reflect the imposition of
any sales loads or charges, if applicable. If sales loads or charges were
reflected, where applicable, performances results would have been less.
Advisers for Mid-Cap Growth Portfolio
- -------------------------------------------------------------------------------
The Advisers for the Mid-Cap Growth Portfolio are:
Miller Anderson & Sherrerd, LLP (MAS)
Pilgrim Baxter & Associates, Ltd. (Pilgrim Baxter)
T. Rowe Price Associates, Inc. (T. Rowe Price)
The performance results supplied by each Adviser were prepared as set forth
below under "Individual Adviser Performance."
ANNUALIZED TOTAL RETURNS
- -------------------------------------------------------------------------------
Periods Ended December 31, 1996
Advisers' Past Performance (Bar Chart)
1 Year
Lipper Mid-Cap Group 17.4%
Combined Adviser Performance 19.3%
MAS 18.8%
Pilgrim Baxter 13.7%
T. Rowe Price 24.8%
3 Years
Lipper Mid-Cap Group 14.9%
Combined Adviser Performance 18.1%
MAS 15.3%
Pilgrim Baxter 17.8%
T. Rowe Price 20.8%
21
<PAGE>
5 Years
Lipper Mid-Cap Group 14.3%
MAS 13.3%
Pilgrim Baxter 15.2%
NOTES (Mid-Cap Growth Portfolio)
- -------------------------------------------------------------------------------
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 results may be less.
MAS
MAS' historical performance data covers 6 3/4 years and reflects the
performance of a single account. The annualized return since inception of
the account is 19.1% as of December 31, 1996. According to MAS, this is the
only account managed by MAS with a mid-cap growth strategy. As of December
31, 1996, the account's net assets totalled $407 million.
Pilgrim Baxter
Pilgrim Baxter's historical performance data covers 10 years and reflects
the performance of the Pilgrim Baxter Mid-Cap composite, which, as of
December 31, 1996, included eight unrestricted mid-cap equity accounts
totaling $1.2 billion or 8.3% of all equity assets under management, and
100% of all mid-cap equity accounts under management, according to Pilgrim
Baxter. The annualized ten-year return of the composite is 15.8% as of
December 31, 1996. The composite returns are presented net of actual fees.
None of the accounts included in the composite bears any sales loads or
charges. 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 4 1/2 years and reflects
the performance of a single account. The annualized return since inception
of the account is 25.5% as of December 31, 1996. According to T. Rowe
Price, this is the only account managed by T. Rowe Price with a mid-cap
growth strategy and assets of at least $100 million. As of December 31,
1996, the account's net assets totalled $1 billion.
22
<PAGE>
Combined Adviser Performance
Performance on the 1-year and 3-year composite bar charts reflects a
combined composite weighted equally among the MAS account, Pilgrim Baxter
Mid-Cap composite and T. Rowe Price account. The performance for each
Adviser is presented net of actual fees paid by each account included in
the composite.
Lipper Mid-Cap Mutual Fund Group
Developed by Lipper Analytical Services, Inc., the Lipper Mid-Cap Mutual
Fund Group currently reflects a group of 186 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
- -------------------------------------------------------------------------------
Four Years Ended December 31, 1996
Growth of a $10,000 Investment (Mountain Chart)
Combined Adviser Lipper Mid-Cap
Performance Group
1992 $10,000 $10,000
1993 $12,030 $11,640
1994 $11,705 $11,419
1995 $16,610 $15,016
1996 $19,815 $17,629
NOTE (Mid-Cap Growth Portfolio)
- -------------------------------------------------------------------------------
Growth of a $10,000 Investment
The "Growth of a $10,000 Investment" composite chart reflects four years of
performance data, and reflects a combined composite weighted equally among
the MAS account, Pilgrim Baxter Mid-Cap composite and T. Rowe Price
account. Returns for all time periods are net of actual fees.
23
<PAGE>
Advisers for Aggressive Growth Portfolio
- --------------------------------------------------------------------------------
The Advisers for the Aggressive Growth Portfolio are:
Janus Capital Corporation (Janus)
SunAmerica Asset Management Corp. (SunAmerica)
Warburg, Pincus Counsellors, Inc. (Warburg)
The performance results supplied by each Adviser were prepared as set forth
below under "Individual Adviser Performance."
ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
Periods Ended December 31, 1996
1 Year
Lipper Small Company Growth 19.8%
Group
Combined Adviser Performance 13.8%
Janus 16.4%
SunAmerica 14.9%
Warburg 9.9%
3 Years
Lipper Small Company Growth 15.8%
Group
Combined Adviser Performance 21.9%
Janus 27.2%
SunAmerica 21.8%
Warburg 16.6%
5 Years
Lipper Small Company Growth 15.2%
Group
Combined Adviser Performance 18.8%
24
<PAGE>
Janus 20.2%
SunAmerica 19.8%
Warburg 16.0%
NOTES (Aggressive Growth Portfolio)
- --------------------------------------------------------------------------------
Individual Adviser Performance
Except as otherwise noted below, an Adviser's performance is presented net of
actual fees, but does not reflect the imposition of any sales loads or charges,
if applicable. If sales loads or charges were reflected, where applicable,
performance results would have been less. The Portfolio's fees and expenses may
be greater than those charged by the individual Advisers. Accordingly, the
Portfolio's actual performance results may be less.
Janus
Janus' historical performance data covers 7 years and reflects the performance
of the Janus Aggressive Growth composite. The annualized return since inception
of the composite is 23.8% as of December 31, 1996. The composite includes all
aggressive growth equity accounts with assets above $5 million for which Janus
has discretionary authority. As of December 31, 1996, the composite included 13
accounts with aggregate assets of $592 million, which represented 1.3% 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. None of the accounts included in the
composite bears any sales loads or charges. The performance history is
calculated in accordance with the standards set forth by AIMR.
SunAmerica
SunAmerica's historical performance data covers 9 3/4 years and reflects the
performance of a single account, which is a front-end load mutual fund. The
average annual total return for the 1, 3 and 5 year periods and since inception
of the account as of December 31, 1996 are 8.31%, 19.43%, 18.44% and 14.84%,
respectively. These figures reflect the imposition of a 5.75% sales charge.
According to SunAmerica, this mutual fund reflects the only comparable vehicle
managed by SunAmerica in the small capitalization growth strategy with a
performance record over one year. As of December 31, 1996, the fund's net assets
totalled $163.2 million.
Warburg
Warburg's historical performance data covers 8 3/4 years and reflects the
performance of a single account. The annualized return since inception of the
account is 16.9% as of December 31, 1996.
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<PAGE>
The account's net assets totalled $1.2 billion as of the same date. According to
Warburg, this account is the only U.S. retail vehicle managed by Warburg with a
small capitalization growth strategy.
Combined Adviser Performance
Performance for the 1-year, 3-year and 5-year composite bar charts reflects a
combined composite weighted equally among the Janus Aggressive Growth composite,
SunAmerica account, and Warburg account. The performance for each Adviser in the
table is presented net of actual fees paid by each account included in the
composite, but does not reflect the imposition of any sales loads or charges, if
applicable. If sales loads or charges were reflected, where applicable,
performance results would have been less.
Lipper Small Company Growth Mutual Fund Group
Developed by Lipper Analytical Services, Inc., the Lipper Small Company Growth
Mutual Fund Group currently reflects a group of 443 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.
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Seven Years Ended December 31, 1996
Growth of a $10,000 Investment (Mountain Chart)
Combined Lipper Small
Adviser Company Growth
Performance Group
1989 $10,000 $10,000
1990 $ 8,820 $ 9,100
1991 $14,227 $13,705
1992 $16,062 $15,390
1993 $18,600 $17,945
1994 $19,120 $17,766
1995 $29,579 $23,237
1996 $33,661 $27,838
26
<PAGE>
NOTE (Aggressive Growth Portfolio)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
The "Growth of a $10,000 Investment" composite chart reflects seven years of
performance data and reflects a combined composite weighted equally among the
Janus Aggressive Growth composite, SunAmerica account and Warburg account.
Returns for all time periods are net of actual fees, but do not reflect the
imposition of any sales loads or charges, if applicable. If sales loads or
charges were reflected, where applicable, performance results would have been
less.
Advisers for Large-Cap Blend Portfolio
- --------------------------------------------------------------------------------
The Advisers for the Large-Cap Blend Portfolio are:
Lazard Asset Management (Lazard)
SunAmerica Asset Management Corp. (SunAmerica)
T. Rowe Price Associates, Inc. (T. Rowe Price)
The performance results supplied by each Adviser were prepared as set forth
below under "Individual Adviser Performance."
ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
Periods Ended June 30, 1997
Advisers' Past Performance (Bar Chart)
1 Year
Morningstar Large Blend Category 28.7%
Combined Adviser Performance 29.6%
Lazard U.S. Equity composite 27.9%
SunAmerica 31.8%
T. Rowe Price 29.1%
27
<PAGE>
3 Years
Morningstar Large Blend Category 23.0%
Combined Adviser Performance 25.3%
Lazard U.S. Equity composite 24.7%
SunAmerica 26.8%
T. Rowe Price 24.1%
5 Years
Morningstar Large Blend Category 17.1%
Lazard U.S. Equity composite 18.5%
T. Rowe Price 18.5%
10 Years
Morningstar Large Blend Category 12.8%
Lazard U.S. Equity composite 10.5%
T. Rowe Price 13.1%
NOTES (Large-Cap Blend Portfolio)
- --------------------------------------------------------------------------------
Individual Adviser Performance
Except as otherwise noted below, an Adviser's performance is presented net of
actual fees, but does not reflect the imposition of any sales loads or charges,
if applicable. If sales loads or charges were reflected, where applicable,
performance results would have been less. The Portfolio's fees and expenses may
be greater than those charged by the individual Advisers. Accordingly, the
Portfolio's actual performance results may be less.
Lazard
Lazard's historical performance data covers 10 years and reflects the
performance of Lazard's U.S. Equity composite. The composite includes all fully
discretionary, fee paying, institutional U.S. tax exempt accounts with a U.S.
equity mandate and a minimum of $5 million in assets under
28
<PAGE>
management by Lazard for a specified period. As of June 30, 1997, the composite
included 58 accounts totaling over $6.8 billion in assets under management. The
returns for the Lazard U.S. 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 Class A Shares of the Large-Cap Blend Portfolio during the initial
fiscal period, which is 1.78%. None of the accounts included in the composite
bears any sales loads or charges. The performance history is calculated in
accordance with the standards set forth by AIMR.
SunAmerica
SunAmerica's historical performance data covers 3 years and reflects the
performance of a single account, which is a front-end load mutual fund. The
average annual total return for the 1 and 3 year periods of the account as of
June 30, 1997 are 24.20% and 24.49%, respectively. (Average annual total return
provided for the 3 year period is provided as of 2 years and 364 days since
inception of the account. Average annual total return for the 3 year period of
the account as of July 1, 1997 is 24.51%). These figures reflect the imposition
of a 5.75% sales charge. According to SunAmerica, this mutual fund reflects the
only comparable vehicle managed by SunAmerica with a growth and income strategy
and a performance record over one year. As of June 30, 1997, the fund's net
assets totalled $40.8 million.
T. Rowe Price
T. Rowe Price's historical performance data covers 10 years and reflects the
performance of a single account, which is a no-load mutual fund. According to T.
Rowe Price, this account represents the only investment vehicle managed by T.
Rowe Price in accordance with the same particular growth and income strategy to
be utilized by T. Rowe Price in managing its portion of the Large-Cap Blend
Portfolio. As of June 30, 1997, the account's net assets totalled over $3.0
billion.
Combined Adviser Performance
Performance on the 1-year and 3-year composite bar charts reflects a combined
composite weighted equally among the Lazard U.S. Equity composite, SunAmerica
account and T. Rowe Price account. The returns for the SunAmerica account and T.
Rowe Price account are presented net of actual fees, but do not reflect the
imposition of any sales loads or charges, if applicable. If sales loads or
charges were reflected, where applicable, performance would have been lower. The
gross returns for the Lazard U.S. Equity composite have been adjusted to give
effect to the level of annualized expenses projected for Class A shares of the
Large-Cap Blend Portfolio during the initial fiscal period, which is 1.78%.
29
<PAGE>
Morningstar Large Blend Category
Developed by Morningstar, the Morningstar Large Blend Category currently
reflects a group of 679 mutual funds which have portfolios with median market
capitalizations, price/earnings ratios, and price/book ratios similar to those
expected for the Large-Cap Blend Portfolio.
GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------------------------------------------
Three Years Ended June 30, 1997
Growth of a $10,000 Investment (Mountain Chart)
Combined Adviser Morningstar Large
Performance Blend Category
1994 $10,000 $10,000
1995 $12,960 $12,090
1996 $16,485 $14,871
1997 $19,650 $19,139
NOTE (Large-Cap Blend Portfolio)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
The "Growth of a $10,000 Investment" composite chart reflects three years of
performance data, and reflects a combined composite weighted equally among the
Lazard U.S. Equity composite, SunAmerica account and T. Rowe Price account. The
gross returns for the Lazard U.S. Equity composite have been adjusted to give
effect to the level of annualized expenses projected for Class A shares of the
Large-Cap Blend Portfolio during the initial fiscal period, which is 1.78%.
Returns for the SunAmerica account and T. Rowe Price account are net of actual
expenses, but do not reflect the imposition of any sales loads or charges, if
applicable. If sales loads or charges were reflected, where applicable,
performances results would have been less.
Advisers for Large-Cap Value Portfolio
- --------------------------------------------------------------------------------
The Advisers for the Large-Cap Value Portfolio are:
David L. Babson & Co., Inc. (Babson)
Davis Selected Advisers, L.P. (Davis)
Wellington Management Company, LLP (Wellington Management)
30
<PAGE>
The performance results supplied by each Adviser were prepared as set forth
below under "Individual Adviser Performance."
ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
Periods Ended June 30, 1997
Advisers' Past Performance
1 Year
Morningstar Large Value Category 28.5%
Combined Adviser Performance 31.5%
Babson Value composite 27.4%
Davis New York Venture 39.3%
composite
Wellington Management 28.0%
Value/Yield composite
3 Years
Morningstar Large Value Category 23.0%
Combined Adviser Performance 25.2%
Babson Value composite 24.1%
Davis New York Venture 28.4%
composite
Wellington Management 22.9%
Value/Yield composite
5 Years
Morningstar Large Value Category 17.1%
Combined Adviser Performance 20.8%
Babson Value composite 20.4%
31
<PAGE>
Davis New York Venture 22.9%
composite
Wellington Management 18.9%
Value/Yield composite
10 Years
Morningstar Large Value Category 12.4%
Combined Adviser Performance 15.2%
Babson Value composite 13.9%
Davis New York Venture 18.7%
composite
Wellington Management 12.9%
Value/Yield composite
NOTES (Large-Cap Value Portfolio)
- --------------------------------------------------------------------------------
Individual Adviser Performance
Except as otherwise noted below, an Adviser's performance is presented net of
actual fees, but does not reflect the imposition of any sales loads or charges,
if applicable. If sales loads or charges were reflected, where applicable,
performance results would have been less. The Portfolio's fees and expenses may
be greater than those charged by the individual Advisers. Accordingly, the
Portfolio's actual performance results may be less.
Babson
Babson's historical performance data covers 10 years and reflects the
performance of the Babson Value composite, which, according to Babson,
represents all of the large capitalization value accounts under management by
Babson. Composite returns with respect to the period prior to 1995 are based on
results from a single account, which is a no-load mutual fund, and, with respect
to the period from 1995 to present, are based on results from fully
discretionary separate accounts and no-load mutual funds advised by Babson. As
of June 30, 1997, the composite included 10 accounts with aggregate assets of
$1.3 billion. The composite returns are presented net of Babson's standard
investment advisory fee, as well as commissions and other expenses a client
would have paid (other than applicable custodial fees). The performance history
is calculated in accordance with the standards set forth by AIMR.
32
<PAGE>
Davis
Davis' historical performance data covers 10 years and reflects the performance
of the Davis New York Venture composite. As of June 30, 1997, the composite
included three separately managed accounts (two of which are front-end load
mutual funds) totaling $6.4 billion in assets under management. The composite
returns are presented net of actual fees. The performance of the accounts
included in the composite does not reflect the imposition of any sales loads or
charges. The performance history is calculated in accordance with the standards
set forth in AIMR. According to Davis, it will utilize the same style of value
investing for the portion of the Large-Cap Value Portfolio allocated to it as it
employs with respect to its portion of the Value Portfolio.
Wellington Management
Wellington Management's historical performance data covers 10 years and reflects
the performance of the Wellington Management Value/Yield Total Composite -
Discretionary Accounts. The composite includes only fully discretionary,
fee-paying, tax-exempt accounts of at least $5 million in net assets. As of June
30, 1997, the composite included 14 separately managed accounts totaling $3.4
billion of assets under management. The returns for the composite were supplied
to the Fund gross of certain fees, but have been adjusted to give effect to the
level of annualized expenses projected for Class A shares of the Large-Cap Value
Portfolio during its initial fiscal period, which is 1.78%. None of the accounts
in the composite bears any sales loads or charges. The performance history is
calculated in accordance with the standards set forth by AIMR.
Combined Adviser Performance
Performance on all of the composite bar charts reflects a combined composite
weighted equally among the Babson Value composite, Davis New York Venture
composite and Wellington Management Value/Yield Total Composite - Discretionary
Accounts. The returns in the tables for the Babson Value composite and Davis New
York Venture composite are net of actual fees paid by each account included in
the composite, but do not reflect the imposition of any sales loads or charges,
if applicable. If sales loads or charges were reflected, where applicable,
performance results would have been less. The gross returns for the Wellington
Management Value/Yield Total Composite - Discretionary Accounts have been
adjusted to give effect to the level of annualized expenses projected for Class
A Shares of the Large-Cap Value Portfolio during its initial fiscal period,
which is 1.78%.
33
<PAGE>
Morningstar Large Value Category
Developed by Morningstar, the Morningstar Large Value Category reflects a group
of 294 mutual funds which have portfolios with median market capitalizations,
price/earnings ratios, and price/book ratios similar to those expected for the
Large-Cap Value Portfolio.
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Ten Years Ended June 30, 1997
Growth of a $10,000 Investment (Mountain Chart)
Combined Adviser Morningstar Large
Performance Value Category
1987 $10,000 $10,000
1988 $ 9,700 $ 9,600
1989 $11,465 $11,261
1990 $12,876 $12,173
1991 $13,828 $12,757
1992 $16,069 $14,633
1993 $19,170 $16,886
1994 $21,068 $17,342
1995 $25,302 $20,706
1996 $31,425 $25,117
1997 $41,325 $31,170
NOTES (Large-Cap Value Portfolio)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
The "Growth of a $10,000 Investment" composite chart reflects ten years of
performance data, weighted equally among the Babson Value composite, Davis New
York Venture composite and Wellington Management Value/Yield Total Composite -
Discretionary Accounts. Returns for the Babson Value composite and Davis New
York Venture composite are net of actual fees, but do not reflect the imposition
of any sales loads or charges, if applicable. If sales loads or charges were
reflected, where applicable, performance results would have been less. The gross
returns for
34
<PAGE>
the Wellington Management Value/Yield Total Composite - Discretionary Accounts
have been adjusted to give effect to the level of annualized expenses projected
for Class A shares of the Large-Cap Value Portfolio during its initial fiscal
period, which is 1.78%.
Advisers for Value Portfolio
- --------------------------------------------------------------------------------
The Advisers for the Value Portfolio are:
Davis Selected Advisers, L.P. (Davis)
Neuberger&Berman, LLC (Neuberger&Berman)
Strong Capital Management, Inc. (subcontracted to Schafer Capital Management,
Inc., together with Strong Capital Management, Inc. referred to as
"Strong/Schafer").
The performance results supplied by each Adviser were prepared as set forth
below under "Individual Adviser Performance."
ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
Periods Ended December 31, 1996
Advisers' Past Performance (Bar Chart)
1 Year
Lipper Equity Income Group 18.6%
Combined Adviser Performance 24.9%
Davis 26.5%
Neuberger&Berman 26.5%
Strong/Schafer 21.7%
3 Years
Lipper Equity Income Group 14.5%
Combined Adviser Performance 18.2%
Davis 20.4%
35
<PAGE>
Neuberger&Berman 18.8%
Strong/Schafer 15.3%
5 Years
Lipper Equity Income Group 13.3%
Combined Adviser Performance 17.3%
Davis 17.8%
Neuberger&Berman 18.1%
Strong/Schafer 15.8%
10 Years
Lipper Equity Income Group 11.9%
Combined Adviser Performance 15.3%
Davis 17.4%
Neuberger&Berman 14.7%
Strong/Schafer 13.3%
NOTES (Value Portfolio)
- --------------------------------------------------------------------------------
Individual Adviser Performance
Except as otherwise noted below, an Adviser's performance is presented net of
actual fees, but does not reflect the imposition of any sales loads or charges,
if applicable. If sales loads or charges were reflected, where applicable,
performance results would have been less. The Portfolio's fees and expenses may
be greater than those charged by the individual Advisers. Accordingly, the
Portfolio's actual performance results may be less.
Davis
Davis' historical performance data covers 10 years and reflects the performance
of a single account, which is a front-end load mutual fund. The average annual
total return for the 1, 3, 5
36
<PAGE>
and 10 year periods ended December 31, 1996 are 16.77%, 20.56%, 18.50% and
15.39%, respectively. These figures reflect the imposition of a 4.75% sales
charge. The performance data of this account represents the only performance
information for a retail vehicle managed by Davis with a strategy similar to the
value strategy utilized by Davis in managing its portion of the Value Portfolio.
As of December 31, 1996, the account's net assets totalled $3.47 billion.
Neuberger&Berman
Neuberger&Berman's historical performance data covers 10 years and reflects the
performance of a single account. According to Neuberger&Berman, although there
are other value-styled accounts managed by the firm, this account represents the
only vehicle managed by Neuberger&Berman in accordance with the same particular
value strategy as the Value Portfolio. As of December 31, 1996, the account's
net assets totalled $3.2 billion.
Strong/Schafer
Strong/Schafer's historical performance data covers 10 years and reflects the
performance of the Schafer Capital Equity composite. As of December 31, 1996,
the composite included 3 separately managed accounts totaling $595 million of
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 Class A shares of the Value
Portfolio during its initial fiscal year ending October 31, 1997, which is
1.78%. None of the accounts in the composite bears any sales loads or charges.
Combined Adviser Performance
Performance on all of the composite bar charts reflects a combined composite
weighted equally among the Davis account, Neuberger&Berman account, and Schafer
Capital Equity composite. The returns in the tables for the Davis account and
Neuberger&Berman account are net of actual expenses, but do not reflect the
imposition of any sales loads or charges, if applicable. If sales loads or
charges were reflected, where applicable, performance results would have been
less. The gross returns for the Schafer Capital Equity composite have been
adjusted to give effect to the level of annualized expenses projected for Class
A shares of the Value Portfolio during its initial fiscal year ending October
31, 1997, 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 currently reflects a group of 180 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.
37
<PAGE>
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Ten Years Ended December 31, 1996
Growth of a $10,000 Investment (Mountain Chart)
Combined Adviser Lipper Equity
Performance Income Group
1986 $10,000 $10,000
1987 $ 9,880 $10,200
1988 $11,629 $11,567
1989 $14,885 $13,799
1990 $13,962 $12,985
1991 $18,639 $16,426
1992 $21,305 $18,019
1993 $25,076 $20,434
1994 $24,373 $19,923
1995 $33,172 $25,860
1996 $41,432 $30,670
NOTE (Value Portfolio)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
The "Growth of a $10,000 Investment" composite chart reflects ten years of
performance data, weighted equally among the Davis account, Neuberger&Berman
account and Schafer Capital Equity composite. Returns for the Davis account and
Neuberger&Berman account are net of actual expenses, but do not reflect the
imposition of any sales loads or charges, if applicable. If sales loads or
charges were reflected, where applicable, performance results would have been
less. Gross returns for the Schafer Capital Equity composite have been adjusted
to give effect to the level of annualized expenses projected for Class A shares
of the Value Portfolio during the initial fiscal period, which is 1.78%.
Advisers for Small-Cap Value Portfolio
- --------------------------------------------------------------------------------
The Advisers for the Small-Cap Value Portfolio are:
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<PAGE>
Berger Associates, Inc. (subcontracted to Perkins, Wolf, McDonnel & Company,
together with Berger Associates, Inc. referred to as "Berger/PWM")
Lazard Asset Management (Lazard)
The Glenmede Trust Company (Glenmede)
The performance results supplied by each Adviser were prepared as set forth
below under "Individual Adviser Performance."
ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
Periods Ended June 30, 1997
Advisers' Past Performance (Bar Chart)
1 Year
Morningstar Small Value Category 24.1%
Combined Adviser Performance 35.0%
Berger/PWM 34.2%
Lazard U.S. Small Cap Equity 36.5%
composite
Glenmede 33.5%
3 Years
Morningstar Small Value Category 20.6%
Combined Adviser Performance 24.6%
Berger/PWM 22.6%
Lazard U.S. Small Cap Equity 27.9%
composite
Glenmede 22.8%
39
<PAGE>
5 Years
Morningstar Small Value Category 18.0%
Combined Adviser Performance 21.5%
Berger/PWM 21.4%
Lazard U.S. Small Cap Equity 21.5%
composite
Glenmede 20.9%
NOTES (Small-Cap Value Portfolio)
- --------------------------------------------------------------------------------
Individual Adviser Performance
Except as otherwise noted below, an Adviser's performance is presented net of
actual fees, but does not reflect the imposition of any sales loads or charges,
if applicable. If sales loads or charges were reflected, where applicable,
performance results would have been less. The Portfolio's fees and expenses may
be greater than those charged by the individual Advisers. Accordingly, the
Portfolio's actual performance results may be less.
Berger/PWM
Berger/PWM's historical performance data covers approximately 9 3/4 years and
reflects the performance of a single account, which is a no-load mutual fund.
The annualized return since inception of the account is 15.2% as of June 30,
1997. As of the same date, the account's net assets totalled $67 million.
According to Berger, this account represents the only retail investment vehicle
offered by Berger and continuously managed by PWM with a small capitalization
value strategy comparable to the style that PWM will utilize in investing
Berger's portion of the Small-Cap Value Portfolio.
Lazard
Lazard's historical performance data covers 10 years and reflects the
performance of the Lazard U.S. Small Cap Equity composite. The annualized
ten-year return of the composite is 17.0% as of June 30, 1997. The composite
includes all full discretionary, fee paying, institutional U.S. tax exempt
accounts with a U.S. Small Cap Equity investment mandate and a minimum of $5
million in assets under management by Lazard for a specified period. As of June
30, 1997, the composite included 21 accounts totaling $1.7 billion in assets
under management. The returns for the Lazard U.S. Small Cap 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 Class A shares of the
Small-Cap Value Portfolio during the initial fiscal period, which is 1.78%. None
of the accounts included in
40
<PAGE>
the composite bears any sales loads or charges. The performance history is
calculated in accordance with the standards set forth by AIMR
Glenmede
Glenmede's historical performance data covers approximately 6 years and reflects
the performance of a single account, which is a no-load fund. The annualized
return since inception of the account is 17.6% as of June 30, 1997. The minimum
initial investment in the account is $1 million. As of June 30, 1997, the
account's net assets totalled $400 million. Each investor in the account is
charged a separate management fee based on such investor's assets under
management. The returns for the Glenmede account were supplied to the Fund gross
of fees, but have been adjusted to give effect to the level of annualized
expenses projected for Class A shares of the Small-Cap Value Portfolio during
the initial fiscal period, which is 1.78%. According to Glenmede, this account
represents the only investment vehicle managed by Glenmede with a value strategy
similar to the strategy Glenmede will utilize in managing its portion of the
Small-Cap Value Portfolio.
Combined Adviser Performance
Performance on the 1-year, 3-year and 5-year composite bar charts reflects a
combined composite weighted equally among the Berger/PWM account, Lazard U.S.
Small Cap Equity composite and Glenmede account. The performance for the
Berger/PWM account is presented net of actual fees, but does not reflect the
imposition of any sales loads or charges, if applicable. If sales loads or
charges were reflected, where applicable, performance results would have been
less. The gross returns for the Lazard U.S. Small Cap Equity composite and
Glenmede account have been adjusted to give effect to the level of annualized
expenses projected for Class A shares of the Small-Cap Value Portfolio during
the initial fiscal period, which is 1.78%.
Morningstar Small Value Category
Developed by Morningstar, the Morningstar Small Value Category currently
reflects a group of 182 mutual funds which have portfolios with median market
capitalizations, price/earnings ratios, and price/book ratios similar to those
expected for the Small-Cap Value Portfolio.
41
<PAGE>
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Six Years Ended June 30, 1997
Growth of a $10,000 Investment (Mountain Chart)
Combined Adviser Morningstar Small
Performance Value Category
1991 $10,000 $10,000
1992 $11,080 $11,580
1993 $13,772 $14,197
1994 $15,191 $15,091
1995 $18,077 $17,536
1996 $21,783 $21,307
1997 $29,407 $26,442
NOTES (Small-Cap Value Portfolio)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
The "Growth of a $10,000 Investment" composite chart reflects six years of
performance data, weighted equally among the Berger/PWM account, Lazard U.S.
Small Cap Equity composite and Glenmede account. Returns for the Berger/PWM
account are net of actual expenses, but do not reflect the imposition of any
sales loads or charges, if applicable. If sales loads or charges were reflected,
where applicable, performance results would have been less. The gross returns
for the Lazard U.S. Small Cap Equity composite and Glenmede account have been
adjusted to give effect to the level of annualized expenses projected for Class
A shares of the Small-Cap Value Portfolio during the initial fiscal period,
which is 1.78%.
Advisers for International Equity Portfolio
- --------------------------------------------------------------------------------
The Advisers for the International Equity Portfolio are:
Rowe Price-Fleming International, Inc. (Rowe-Fleming)
Strong Capital Management, Inc. (Strong)
Warburg, Pincus Counsellors, Inc. (Warburg)
The performance results supplied by each Adviser were prepared as set forth
below under "Individual Adviser Performance."
42
<PAGE>
ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
Periods Ended December 31, 1996
Advisers' Past Performance (Bar Chart)
1 Year
Lipper International Group 11.6%
Combined Adviser Performance 10.8%
Rowe-Fleming 13.6%
Strong 8.3%
Warburg 10.5%
3 Years
Lipper International Group 6.5%
Combined Adviser Performance 6.3%
Rowe-Fleming 7.3%
Strong 4.5%
Warburg 6.9%
5 Years
Lipper International Group 9.5%
Rowe-Fleming 10.6%
Warburg 12.1%
NOTES (International Equity Portfolio)
- --------------------------------------------------------------------------------
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
results may be less.
43
<PAGE>
Rowe-Fleming
Rowe-Fleming's historical performance data covers 10 years and reflects the
performance of the Mainstream International Equities composite managed by
Rowe-Fleming. As of December 31, 1996, the composite included 19 accounts
totaling $4.4 billion in assets, or 39.4% of all assets under management. The
annualized ten-year return of the composite is 10.1% as of December 31, 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 expenses projected
for Class A shares of the International Equity Portfolio during its initial
fiscal year ending October 31, 1997, which is 2.03%. None of the accounts
included in the composite bears any sales loads or charges.
Strong
Strong's historical performance data covers 4 3/4 years and reflects the
performance of the Strong International Equity composite which, as of December
31, 1996, included 5 separate accounts totaling $405 million, or 2% of the
firm's total assets under management. The annualized return since inception of
the composite is 11.6% as of December 31, 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 expenses projected for Class A shares of the
International Equity Portfolio during its initial fiscal year ending October 31,
1997, which is 2.03%. None of the accounts included in the composite bears any
sales loads or charges.
Warburg
Warburg's historical performance data covers 7 1/2 years and reflects the
performance of a single account. The annualized return since inception of the
account is 12.8% as of December 31, 1996. As of December 31, 1996, the account's
net assets totalled $3 billion. According to Warburg, the account is the only
proprietary retail vehicle managed by Warburg with an international strategy.
Combined Adviser Performance
Performance on the 1-year and 3-year composite bar charts reflects a combined
composite weighted equally among the Rowe-Fleming Mainstream International
Equities composite, Strong International Equity composite and Warburg account.
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 expenses projected for Class A shares of
the International Equity Portfolio during its initial fiscal year ending October
31, 1997, which is 2.03%. The returns for the Warburg account are net of actual
fees.
44
<PAGE>
Lipper International Mutual Fund Group--Average Performance
Developed by Lipper Analytical Services, Inc., the Lipper International Mutual
Fund Group currently reflects a group of 369 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.
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Four Years Ended December 31, 1996
Growth of a $10,000 Investment (Mountain Chart)
Combined Adviser Lipper International
Performance Group
1992 $10,000 $10,000
1993 $14,620 $13,900
1994 $14,459 $13,761
1995 $15,833 $15,027
1996 $17,543 $16,770
NOTE (International Equity Portfolio)
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
The "Growth of a $10,000 Investment" composite chart reflects four years of
performance data, and reflects a combined composite weighted equally among the
Strong International Equity composite, Rowe-Fleming Mainstream International
Equities composite and Warburg account. 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
expenses projected for Class A shares of the International Equities Portfolio
during its initial fiscal year ending October 31, 1997, which is 2.03%. The
returns for the Warburg account are net of actual fees.
45
<PAGE>
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.
Investment in Small-Cap Companies--Each 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 and less market liquidity than securities of larger,
more established companies or the market averages in general. In addition,
certain smaller issuers may have a higher probability of facing 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.
46
<PAGE>
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 will 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 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, each Portfolio may invest in securities denominated in
other currency "baskets." Each Portfolio may also seek to gain exposure to
certain foreign markets, including developing countries or emerging markets,
where direct investment may be difficult or impracticable through investment in
domestic closed-end mutual funds which invest predominately in such markets. See
the Statement of Additional Information for a further discussion of foreign
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 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. See "Foreign Investment
Companies" below for a discussion of investing in investment companies which
invest in emerging markets.
47
<PAGE>
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 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 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
48
<PAGE>
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--Each Portfolio may invest in domestic closed-end
investment companies which invest in certain foreign markets, including
developing countries or emerging markets. The Large-Cap Growth, Aggressive
Growth and International Equity Portfolios may also invest in foreign investment
companies which invest in such markets. Some of the countries in which the
Portfolios invest may not permit direct investment by foreign investors such as
the Portfolios. 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 Portfolios to invest in investment companies 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 Portfolios do not
intend to invest in such investment companies unless, in the judgment of the
Advisers, the potential benefits of such investments justify the payment of any
associated fees and expenses. See "Foreign Securities" and "Emerging Markets"
above and the Statement of Additional Information.
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.
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<PAGE>
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.
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.
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.
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<PAGE>
The Mid-Cap Growth Portfolio and Large-Cap Value 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
Large-Cap Growth, Aggressive Growth, Large-Cap Blend, Value, Small-Cap
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.
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 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
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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 thinly traded 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.
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.
REITs -- Each of the Large-Cap Blend and each of the Value Portfolios may
invest in Real Estate Investment Trusts ("REITs"), which are trusts that
invest primarily in commercial real estate or real estate related loans.
The value of an interest in a REIT may be affected by the value and the
cash flows of the properties owned or the quality of the mortgages held by
the trust.
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 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
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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 agreements, 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% (100% if such collateral is cash) 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 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.
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,
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redemption, or conversion terms of a security could be related to the
market price of some commodity, currency, or securities index. Such
securities may bear interest or pay dividends at below market (or even
relatively nominal) rates. Under certain conditions, the redemption value
of such an investment could be zero.
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 331/3% of its respective total assets to brokers, dealers and other
financial institutions, provided such loans are callable at any time by the
Portfolio and are at all times secured by cash or equivalent collateral. By
lending its portfolio securities, a Portfolio will receive income while
retaining the securities' potential for capital appreciation. As with any
extensions of credit, there are risks of delay in recovery and, in some
cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities
will be made only to firms deemed by the Adviser 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.
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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 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 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.
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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, as of June 30, 1997, held more than $46 billion in assets.
SunAmerica Inc.'s principal executive offices are located at 1 SunAmerica
Center, Los Angeles, CA 90067-6022. In addition to managing the Fund and
serving as an Adviser to the Aggressive Growth Portfolio and Large-Cap
Blend Portfolio, SunAmerica serves as adviser, manager and/or administrator
for Anchor Pathway Fund, Anchor Series Trust, Seasons Series Trust,
SunAmerica Equity Funds, SunAmerica Income Funds, SunAmerica Money Market
Funds, Inc., and SunAmerica Series Trust. SunAmerica managed, advised
and/or administered assets in excess of $10 billion as of June 30, 1997 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, style
drift, or other considerations.
The annual rate of the investment advisory fee payable to SunAmerica that
applies to each of the Growth Portfolios, Large-Cap Blend Portfolio and
Value Portfolios 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.
Effective June 17, 1997, with respect to the Mid-Cap Growth Portfolio,
Aggressive Growth Portfolio, Value Portfolio and International Equity
Portfolio, and the date of commencement of operations with respect to the
Large-Cap Growth Portfolio, Large-Cap Blend Portfolio, LargeCap Value
Portfolio and Small-Cap Value Portfolio, SunAmerica has voluntarily agreed
to waive fees or reimburse expenses, if necessary, to keep operating
expenses at or below an annual rate of 1.78% of the Assets of Class A
shares and 2.43% of the Assets of Class B and Class C shares for
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each such Portfolio (other than the International Equity Portfolio) and
2.03% of the Assets of Class A shares and 2.68% of the Assets of Class B
and Class C shares for the International Equity Portfolio. Prior to June
17, 1997, with respect to the Mid-Cap Growth Portfolio, Aggressive Growth
Portfolio, Value Portfolio and International Equity Portfolio, SunAmerica
voluntarily agreed to waive fees or reimburse expenses to keep annual
operating expenses at or below an annual rate of 1.90% of the Assets of
Class A shares and 2.55% of the Assets of Class B and Class C shares for
each such Portfolio (other than the International Equity Portfolio) and
2.15% of the Assets of Class A shares and 2.80% of the Assets of Class B
and Class C shares for the International Equity Portfolio. 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 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: Large-Cap Growth Portfolio, .48%; Mid-Cap
Growth Portfolio, .50%; Aggressive Growth Portfolio, .36%; Large-Cap Blend
Portfolio, .30%; LargeCap Value Portfolio, .41%; Value Portfolio, .50%;
Small-Cap Value Portfolio, .53%; and International Equity Portfolio, .63%.
There can be no assurance that the Portfolio will achieve a level of Assets
in the amount estimated.
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SunAmerica may terminate any Subadvisory Agreement without shareholder
approval. Moreover, SunAmerica has received an exemptive order from the
Securities and Exchange Commission which permits 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.
Large-Cap Growth Portfolio
The Advisers for the Large-Cap Growth Portfolio are Janus, Papp and Montag &
Caldwell.
Janus Capital Corporation. Janus is a Colorado corporation located at 100
Fillmore Street, Denver, Colorado 80206-4923, 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, selects a majority of
Janus' Board. As of June 30, 1997, Janus had under management approximately
$60 billion in assets.
Thomas F. Marsico is responsible for the day-to-day management of Janus' portion
of the Large-Cap Growth Portfolio. Mr. Marsico has served as a portfolio
manager for Janus since 1988.
L. Roy Papp & Associates. Papp is an Arizona partnership located at 4400
North 32nd Street, Suite 280, Phoenix, Arizona 85018, Papp serves as
investment adviser to individuals, trusts, retirement plans, endowments,
and foundations. As of June 30, 1997, assets under management exceeded $800
million.
L. Roy Papp and Rosellen C. Papp, partners of Papp, serve as the portfolio
managers of Papp's portion of the Large-Cap Growth Portfolio. Except for
two years when he was United States director of, and ambassador to, the
Asian Development Bank, Manila, Philippines, Mr. Papp has been in the money
management field since 1955. He has served as managing general partner of
Papp since 1989. Rosellen C. Papp has been the Director of Research of Papp
since 1981.
Montag & Caldwell, Inc. Montag & Caldwell is a Georgia corporation located
at 3343 Peachtree Road, Suite 1100, Atlanta, Georgia 30326-1022. Montag &
Caldwell was founded in 1945 and is an indirect, wholly owned subsidiary of
Alleghany Corporation. Montag & Caldwell serves as investment adviser to
employee benefit, endowment, charitable and other institutional clients, as
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well as high net worth individuals. As of June 30, 1997, Montag & Caldwell
had in excess of $12 billion in assets under management.
Montag & Caldwell's portion of the Large-Cap Growth Portfolio is advised by
an investment management team headed by Ronald E. Canakaris. He has been in
the money management business since 1970 and has served as President and
Chief Investment Officer of Montag & Caldwell since 1984.
Mid-Cap Growth Portfolio
The Advisers for the Mid-Cap Growth Portfolio are MAS, Pilgrim Baxter 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. MAS is a subsidiary of Morgan Stanley, Dean
Witter, Discover & Co., a financial services company with three major
businesses: full service brokerage, credit services and asset management.
As of June 30, 1997, MAS had in excess of $42 billion in assets under
management.
Arden C. Armstrong serves as Portfolio Manager for MAS's portion of the Mid-Cap
Growth Portfolio. Ms. Armstrong joined MAS as a Portfolio Manager in 1986.
Pilgrim Baxter & Associates, Ltd. Pilgrim Baxter, 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.
Pilgrim Baxter 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
Pilgrim Baxter 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, 1997, Pilgrim Baxter had assets under management of approximately $14.7
billion.
Bruce J. Muzina serves as primary manager and Gary L. Pilgrim serves as
co-manager for Pilgrim Baxter's portion of the Mid-Cap Growth Portfolio. Mr.
Muzina joined Pilgrim Baxter in 1985 from Citibank, where he was Vice
President/Portfolio Manager of U.S. equity portfolios for international
institutional accounts. Mr. Pilgrim has served as the Chief Investment Officer
for Pilgrim Baxter for the past six years, and has been its President since
1993. In addition, he is a chartered financial analyst.
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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 $95
billion for over four and a half million individual and institutional investor
accounts as of June 30, 1997. 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 T. Rowe Price's portion of the investment program. Mr.
Berghuis has been managing investments since joining T. Rowe Price in 1985.
Aggressive Growth Portfolio
The Advisers for the Aggressive Growth Portfolio are Janus, SunAmerica and
Warburg.
Janus Capital Corporation. For a description of Janus, see "Large-Cap Growth
Portfolio," above. 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.
SunAmerica Asset Management Corp. For a description of SunAmerica, see
"SunAmerica Asset Management Corp." 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 June 30, 1997,
Warburg managed approximately $17.9 billion in assets. Warburg is a wholly
owned subsidiary of Warburg, Pincus Counsellors G.P., a New York general
partnership.
The Portfolio Managers of Warburg's portion of the Aggressive Growth Portfolio
are Elizabeth B. Dater and Stephen J. Lurito. Ms. Dater is a senior managing
director of Warburg and has been a Portfolio Manager of Warburg since 1978. Mr.
Lurito is a managing director of Warburg and has been a Portfolio Manager of
Warburg since 1987.
Large-Cap Blend Portfolio
Lazard Asset Management. Lazard is a division of Lazard Freres & Co. LLC, a New
York limited liability company. Located at 30 Rockefeller Plaza, New York, New
York 10020, Lazard provides investment management services to individual and
institutional clients. As of June 30,
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1997, Lazard and its affiliated companies managed client discretionary
accounts with assets totalling approximately $53 billion.
Lazard manages assets on a team basis. Herbert W. Gullquist is primarily
responsible for the day-to-day management of the investment team which is
responsible for Lazard's portion of the LargeCap Blend Portfolio. Mr.
Gullquist is Vice Chairman of Lazard and has been with Lazard since 1982.
SunAmerica Asset Management Corp. For a description of SunAmerica, see
"SunAmerica Asset Management Corp." above. Gerald P. Sullivan serves as
Portfolio Manager for SunAmerica's portion of the Large-Cap Blend
Portfolio. Prior to joining SunAmerica as an equity analyst in February
1995, Mr. Sullivan spent two years as a portfolio manager for Texas
Commerce Investment Management. Prior to his time at Texas Commerce, he
spent four years as a director for the Southmore Foundation, Inc. and as an
adjunct professor at Rice University in Houston, Texas.
T. Rowe Price Associates, Inc. For a description of T. Rowe Price, see "Mid-Cap
Growth Portfolio" above. T. Rowe Price's portion of the Large-Cap Blend
Portfolio is advised by an Investment Advisory Committee composed of Stephen W.
Boesel, Chairman, Andrew M. Brooks, Artur B. Cecil III, Gregory A. McCrickard,
Mark J. Vaselkiv, and Richard T. Whitney. The committee chairman has day-to-day
responsibility for managing T. Rowe Price's portion of the Large-Cap Blend
Portfolio and works with the committee in developing and executing the
Portfolio's investment program. Mr. Boesel has been chairman of such committee
since 1987. He has been managing investments since joining T. Rowe Price in
1973.
Large-Cap Value Portfolio
The Advisers for the Large-Cap Value Portfolio are Babson, Davis and Wellington
Management.
David L. Babson & Co., Inc. Babson is a Massachusetts corporation, located
at One Memorial Drive, Cambridge, Massachusetts 02142. Babson is a wholly
owned subsidiary of DLB Acquisition Corp., a holding company, which is
controlled by Mass Mutual Holding Company, a holding company and wholly
owned subsidiary of Massachusetts Mutual Life Insurance Company, a mutual
life insurance company. Babson provides investment advisory services to a
substantial number of institutional and other investors, including other
registered investment companies. As of June 30, 1997, Babson had over $16.5
billion in assets under management.
Ronald W. Whitridge is primarily responsible for the day-to-day management of
the portion of the Large-Cap Value Portfolio allocated to Babson. Mr. Whitridge
has been employed by Babson in portfolio management for over twenty years.
Davis Selected Advisers, L.P. Davis is a Colorado limited partnership, located
at 124 East Marcy Street, Santa Fe, New Mexico 87501, and Venture Advisers, Inc.
is Davis' sole general partner.
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Shelby M.C. Davis is the controlling shareholder of the general partner. As
of June 30, 1997, Davis had assets under management of approximately $10.7
billion. In performing its investment advisory services, Davis, while
remaining ultimately responsible for its management of the portion of the
assets of the Large-Cap 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.
Christopher C. Davis is responsible for the day-to-day management of Davis'
portion of the Large-Cap Value Portfolio. He joined Davis in September 1989
as an assistant portfolio manager and research analyst.
Wellington Management Company, LLP. Wellington Management is a
Massachusetts limited liability partnership, located at 75 State Street,
Boston Massachusetts 02109. Wellington Management is a professional
investment counseling firm which provides investment services to investment
companies, employee benefit plans, endowments, foundations, and other
institutions and individuals. The following persons are managing partners
of Wellington Management: Robert W. Doran, Duncan M. McFarland and John R.
Ryan. As of June 30, 1997, Wellington Management had investment management
authority with respect to approximately $147.5 billion of assets.
Wellington Management's Value/Yield Team manages the day-to-day operations
of the portion of the Large-Cap Value Portfolio allocated to it. The
Value/Yield Team, headed by John R. Ryan, is comprised of five specialized
fundamental analysts. The group is supported by Wellington Management's
twenty-eight industry analysts and specialized fundamental, quantitative
and technical analysts, macroanalysts and traders. Mr. Ryan is a Senior
Vice President and Managing Partner of Wellington Management, and has been
with the firm for sixteen years.
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.
Davis Selected Advisers, L.P. For a description of Davis, see "Large-Cap Value
Portfolio" above. Christopher C. Davis, formerly co-manager for the Davis
portion of the Value Portfolio, assumed full responsibility for the management
of Davis' portion effective February 19, 1997. Prior to February 19, 1997,
Shelby M.C. Davis served as co-manager of the Davis portion of the Value
Portfolio. He will continue to consult with Christopher Davis in his capacity of
Chief Investment Officer of Davis. For a description of the biographical
information of Christopher C. Davis, see "Large-Cap Value Portfolio" above.
Neuberger&Berman, LLC. Neuberger&Berman is a Delaware limited liability company
located at 605 Third Avenue, New York, New York 10158-0180. Neuberger&Berman
has been in the
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investment advisory business since 1939. As of June 30, 1997, Neuberger&Berman
and its affiliates had assets under management of approximately $44.7 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 principal 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. and a principal of Neuberger&Berman since December 1996. 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.
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 June 30, 1997, Strong had over $23 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 June 30, 1997, Schafer had assets under management of
approximately $600 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.
Small-Cap Value Portfolio
The Advisers for the Small-Cap Value Portfolio are Berger, Lazard and
Glenmede. PWM, pursuant to a subcontract with Berger, serves as Adviser to
Berger's portion of Small-Cap Value Portfolio.
Berger Associates, Inc. Berger is a Delaware corporation, located at 210
University Boulevard, Suite 900, Denver Colorado 80206, and serves as investment
adviser or sub-adviser to mutual
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<PAGE>
funds, pension and profit-sharing plans, and institutional and private
investors. Kansas City Southern Industries, Inc. ("KCSI") owns
approximately 87% of the outstanding shares of Berger. KCSI is a publicly
traded holding company with principal operations in rail transportation,
through its subsidiary The Kansas City Southern Railway Company, and
financial asset management businesses. As of June 30, 1997, Berger had
assets under management of more than $3.1 billion. Pursuant to an agreement
between Berger and PWM under which PWM manages Berger's portion of the
Small-Cap Value Portfolio, SunAmerica pays an advisory fee directly to
Berger, and Berger pays PWM's fee.
Perkins, Wolf, McDonnell & Company. PWM, located at 53 West Jackson
Boulevard, Suite 818, Chicago, Illinois 60604, was organized as a Delaware
corporation in 1980 under the name MacPer-Wolf Co. to operate as a
securities broker-dealer. In September 1983, it changed its name to
Perkins, Wolf, McDonnell & Company. PWM is a member of the National
Association of Securities Dealers, Inc. and, in 1984, registered with the
Securities and Exchange Commission as an investment adviser. As of June 30,
1997, PWM had assets under management of approximately $117 million.
Robert H. Perkins is primarily responsible for the investment management of
the portion of the Small-Cap Value Portfolio allocated to Berger. Mr.
Perkins owns 49% of PWM's outstanding common stock and serves as President
and Chief Investment Officer and as a director of PWM.
Lazard Asset Management. For a description of Lazard and the biographical
information of Herbert W. Gullquist, the Portfolio Manager primarily
responsible for the day-to-day management of the portion of the Small-Cap
Value Portfolio allocated to Lazard, see "Large-Cap Blend Portfolio" above.
The Glenmede Trust Company. Glenmede is a privately-owned, independent
trust company devoted exclusively to investment management and trust
services. Glenmede is a wholly-owned subsidiary of The Glenmede Corporation
and is located at One Liberty Place, 1650 Market Street, Suite 1200,
Philadelphia, Pennsylvania 19103. As of June 30, 1997, Glenmede had
approximately $11.6 billion in assets under management.
Robert J. Mancuso, CFA, is the primary portfolio manager responsible for
Glenmede's portion of the Small-Cap Value Portfolio. Scott R. Abernethy, CFA,
Thomas R. Angers, CFA, Barry D. Kohout, CFA, and Anthony J. Albuquerque are
Glenmede's equity research analysts. Mr. Mancuso joined Glenmede in 1992 and
has 18 years of experience in equity research and portfolio management.
International Equity Portfolio
The Advisers for the International Equity Portfolio are Rowe-Fleming, Strong and
Warburg.
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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-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 June 30, 1997, Rowe-Fleming
managed over $25 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 J.T. Edwards, John R. Ford, James B.M. Seddon, Benedict R.F.
Thomas, and David J.L. Warren. Martin Wade joined Rowe-Fleming in 1979 and
has 27 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
10 years of experience with the Fleming Group in research and portfolio
management. Peter Askew joined Rowe-Fleming in 1988 and has 21 years of
experience managing multi-currency fixed income portfolios. Mark Edwards
joined Rowe-Fleming in 1986 and has 15 years of experience in financial
analysis. John Ford joined Rowe-Fleming in 1982 and has 16 years of
experience with Fleming Group in research and portfolio management. James
Seddon joined Rowe-Fleming in 1987 and has 11 years of experience in
portfolio management. Benedict Thomas joined Price-Fleming in 1988 and has
7 years of portfolio management experience. David Warren joined
Price-Fleming in 1984 and has 16 years of experience in equity research,
fixed income research, and 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 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. Mr.
King, a senior managing director of Warburg, has been with Warburg since 1989.
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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., Keogler,
Morgan & Company and/or Advantage Capital Management 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, Class B or Class C 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 taken by invited registered
representatives for meetings or seminars of a business nature. In addition,
the following types of non-cash compensation may be offered through sales
contests: (i) travel mileage on major air carriers; (ii) tickets for
entertainment events (such as concerts or sporting events); or (iii)
merchandise (such as clothing, trophies, clocks, pens or other electronic
equipment). Broker-dealers may not use sales of the Funds' shares to
qualify for this compensation to the extent receipt of such compensation
may be prohibited by the laws of any state or any self-regulatory agency,
such as, for example, the National Association of Securities Dealers, Inc.
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.
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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," the "Class B Plan" and the "Class C
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 each 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, 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 and Class C Plans, 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 and
Class C shares, respectively, to compensate the Distributor and certain
securities firms for providing sales and promotional activities for
distributing each such 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, Class B Plan or Class C 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, Inc., assists the transfer agent in
providing shareholder services. Pursuant to the Service Agreement, as
compensation for services rendered, SAFS receives a fee from the Fund,
calculated and payable monthly, at an annual rate of 0.22% of average daily
net assets (in addition to out-of-pocket charges reimbursed by the Fund).
See the Statement of Additional Information for further information.
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
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imposed either (i) at the time of purchase (Class A shares), or (ii) on a
deferred basis (Class B and Class C 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
should consult their investment adviser for help in determining which class
of shares is most appropriate for them. Generally, 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 and
Class C shares. Shareholders who purchase $1,000,000 or more of shares of
the Portfolios should purchase only Class A shares. Investors making small
investments might consider Class B or Class C shares because 100% of the
purchase price is invested immediately. Investors should consider the CDSC
period and any conversion rights in the context of their investment time
frame. For example, while Class C shares have a shorter CDSC period than
Class B shares, Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing distribution fee. Accordingly, Class B
shares may be more appropriate than Class C shares for investors with a
longer term investment time frame. Dealers may receive different levels of
compensation depending on which class of shares they sell.
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 regular 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:
<TABLE>
<CAPTION>
Sales Charge Concession to Dealers
----------------------------------------------------- ---------------------
% of Net Amount
Size of Purchase % of Offering Price Invested % of Offering Price
---------------- ------------------- ---------------------- -------------------
<S> <C> <C> <C>
Less than $50,000.............. 5.75% 6.10% 5.00%
$50,000 but less than
$100,000....................... 4.75% 4.99% 4.00%
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<PAGE>
<CAPTION>
Sales Charge Concession to Dealers
----------------------------------------------------- ---------------------
<S> <C> <C> <C>
$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
</TABLE>
No sales charge is payable at the time of purchase on investments of $1
million or more. In addition, subject to the conditions listed below,
shares may be purchased at net asset value, without payment of a sales
charge, by employee benefit plans qualified under Sections 401 or 457 of
the Code, or employee benefit plans created pursuant to Section 403(b) of
the Code and sponsored by nonprofit organizations defined under Section
501(c)(3) of the Code (collectively, "Plans"). A Plan will qualify for
purchases at net asset value provided that (a) the initial amount invested
in one or more of the Portfolios (or in combination with the shares of
other funds in the SunAmerica Mutual Funds, which consist of the SunAmerica
Equity Funds, SunAmerica Income Funds and SunAmerica Money Market Funds) is
at least $1,000,000, (b) the sponsor signs a $1,000,000 Letter of Intent,
(c) such shares are purchased by an employer-sponsored plan with at least
100 eligible employees, or (d) the purchases are by trustees or other
fiduciaries for certain employer-sponsored plans, the trustee, fiduciary or
administrator for which has an agreement with the Distributor with respect
to such purchases and all such transactions for the plan are executed
through a single omnibus account. 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 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 or certain other advisory accounts for the benefit
of clients of broker-dealers, financial institutions, registered investment
advisers or financial planners adhering to certain standards established by
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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 shared 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" and "Reduced Sales
Charges for Group Purchases," see the Statement of Additional Information.
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
Year Since Purchase Percentage of Dollars Invested or
Payment Was Made Redemption Proceeds
---------------- -------------------
First.................................... 4%
Second................................... 4%
Third.................................... 3%
Fourth................................... 3%
Fifth.................................... 2%
Sixth.................................... 1%
Seventh and thereafter................... 0%
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Conversion Feature--Class B Shares. 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 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.
Class C Shares. Class C shares are offered at net asset value. Certain
redemptions of Class C shares within the first year of the date of purchase
are subject to a CDSC of 1%. The method for calculating any such CDSC will
be the same method used for calculating the CDSC for Class B shares. See
"Class B Shares" above.
Waiver of CDSC. The CDSC applicable to Class B and Class C shares will be
waived, subject to certain conditions, in connection with redemptions that
are (a) requested within one year of the death of the shareholder of an
individual account or of a joint tenant where the surviving joint tenant is
the deceased's spouse; (b) requested within one year after the shareholder
of an individual account or a joint tenant on a spousal joint account
becomes disabled; or the initial determination of disability of a
shareholder; (c) 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 (d) 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 information on the waiver of the CDSC contact
Shareholder/Dealer services at (800) 858-8850.
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.
Other CDSC Information. 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 of the CDSC contact Shareholder/Dealer Services at (800)
858-8850.
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
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specific Portfolio of the Fund. If the payment is for a retirement plan
account for which the Adviser serves as fiduciary, please indicate on the
check that payment is for such an account. 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. For fiduciary
retirement plan accounts, both initial and subsequent purchases should be
mailed to SunAmerica Fund Services, Inc., Mutual Fund Operations, The
SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204. 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 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, subject to certain loss deferral rules. See
"Dividends, Distributions and Taxes."
General. Normally payment is made by check mailed 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.
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. Requests for redemption of shares
with a value of less than $100,000 will be made by check payable to the
shareholders(s) and mailed to the address of record. All written requests
for redemption of shares with a value of $100,000 or more, or those mailed
to an address other than the address of record, must be endorsed by the
shareholder(s) with signature(s) guaranteed by an "eligible guarantor
institution" which includes: banks, brokers, dealers, credit unions,
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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 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 the Fund's close of
business, 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 check payable to the Shareholder(s) and mailed to
the address of record 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.
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.
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Other Redemption Information. 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 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 and Class C 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' 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
fund in the SunAmerica Family of Mutual Funds 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.
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A shareholder who acquires Class B or Class C 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 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 negotiation 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.
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
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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 in increased short-term
capital gains, which, when distributed to shareholders, are currently
treated as ordinary income.
Determination of Net Asset Value
- ------------------------------------------------------------------------------
Each Portfolio is open for business on any day the NYSE is open for regular
trading. Shares are valued each day as of the close of regular trading on
the NYSE (generally, 4:00 p.m., Eastern time). Each Portfolio calculates
the net asset value of each class of its shares separately by dividing the
total value of each class's net assets by the shares outstanding of each
class. 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 and Class C shares may be higher than those
for Class A shares, the performance of Class B and Class C 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. For each Portfolio other than the Large-Cap
Blend Portfolio, dividends from net investment income, if any, are to be
paid at least annually. For the Large-Cap Blend Portfolio, dividends from
net investment income, if any, are to be paid quarterly. 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 to be 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 amounts in excess of $10 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, 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, with respect to each Portfolio, 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, 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 ("ordinary income dividends"), 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
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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.
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 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.
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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 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 classified into eight separate Portfolios known as the Large-Cap
Growth Portfolio, the Mid-Cap Growth Portfolio, the Aggressive Growth
Portfolio, the Large-Cap Blend Portfolio, the Large-Cap Value Portfolio,
the Value Portfolio, the Small-Cap Value Portfolio and the International
Equity Portfolio. All of the shares of each such Portfolio are initially
classified into
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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, Class B and Class C shares are currently being offered
to the public.
As of July 11, 1997, SunAmerica Inc., Los Angeles, CA 90067, owned
beneficially or was the owner of record of 28.48% and 30.25% of the shares
of Mid-Cap Growth Portfolio and International Equity Portfolio,
respectively. A shareholder who owns beneficially, directly or indirectly,
25% or more of a Portfolio's outstanding voting securities may be deemed to
"control" (as defined in the 1940 Act) that Portfolio.
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 Director 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. 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 and Class C 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.
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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STYLE SELECT SERIES
Statement of Additional Information
dated [DATE TO BE PROVIDED], 1997
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
eight different investment portfolios: the Large-Cap Growth Portfolio, the
Mid-Cap Growth Portfolio, the Aggressive Growth Portfolio, the Large-Cap Blend
Portfolio, the Large-Cap Value Portfolio, the Value Portfolio, the Small-Cap
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 [DATE TO BE
PROVIDED], 1997. 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.
TABLE OF CONTENTS
Page
The Fund .............................................................B-2
Investment Objectives and Policies....................................B-2
Portfolio Turnover...................................................B-29
Investment Restrictions............................................. B-30
Directors and Officers...............................................B-32
Advisers, Distributor and Administrator..............................B-37
Portfolio Transactions and Brokerage.................................B-42
Additional Information Regarding Purchase of Shares..................B-43
Additional Information Regarding Redemption of Shares................B-49
Determination of Net Asset Value.....................................B-49
Performance Data.....................................................B-50
Dividends, Distributions and Taxes...................................B-54
Retirement Plans.....................................................B-59
Description of Shares................................................B-60
Additional Information...............................................B-61
Financial Statements.................................................B-63
Appendix.......................................................Appendix-1
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.
<PAGE>
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 eight Portfolios,
each consisting of Class A, Class B, Class C and Class Z shares. Only Class A,
Class B and Class C 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 a 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.
Passive Foreign Investment Companies ("PFICs"). The Large-Cap Growth
Portfolio, Aggressive Growth Portfolio and International Equity Portfolio may
invest in PFICs, which are any
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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.
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
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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 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.
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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 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
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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
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
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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 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.
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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.
Loan Participations. Each Portfolio may invest in loan participations.
Loan participations are loans sold by the lending bank to an investor. The loan
participant borrower may be a company with highly-rated commercial paper that
finds it can obtain cheaper funding through an loan participation than with
commercial paper and can also increase the company's name recognition in the
capital markets. Loan participations often generate greater yield than
commercial paper.
The borrower of the underlying loan will be deemed to be the issuer
except to the extent the Portfolio derives its rights from the intermediary bank
which sold the loan participations. Because loan participations are undivided
interests in a loan made by the issuing bank, the Portfolio may not have the
right to proceed against the loan participations borrower without the consent of
other
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holders of the loan participations. In addition, loan participations will be
treated as illiquid if, in the judgment of the Adviser, they can not be sold
within seven days.
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), including Eurodollar certificates of
deposit (certificates of deposit issued by domestic or foreign banks
located outside the U.S.) and Yankee certificates of deposit
(certificates of deposit issued by branches of foreign banks located in
the U.S.), domestic and foreign 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
U.S. 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"). A
Portfolio may also invest in notes and obligations issued by foreign
branches of U.S. and foreign commercial banks.
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 domestic and foreign 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
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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 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"
above. A Portfolio may also purchase securities issued or guaranteed by
a foreign government, its agencies or instrumentalities. See "Foreign
Securities" above.
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
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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% (100% if such collateral is
cash) 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
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
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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 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
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covered by segregated liquid assets equal to the exercise price of the put has
the same economic effect to a Portfolio as writing a covered call. The premium a
Portfolio receives from writing a put option represents a profit as long as the
price of the underlying investment remains above the exercise price. However, a
Portfolio has also assumed the obligation during the option period to buy the
underlying investment from the buyer of the put at the exercise price, even
though the value of the investment may fall below the exercise price. If the put
expires unexercised, a Portfolio (as the writer of the put) realizes a gain in
the amount of the premium. If the put is exercised, a Portfolio must fulfill its
obligation to purchase the underlying investment at the exercise price, which
will usually exceed the market value of the investment at that time. In that
case, a Portfolio may incur a loss, equal to the sum of the sale price of the
underlying investment and the premium received minus the sum of the exercise
price and any transaction costs incurred.
A Portfolio may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an underlying
security from being put. 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
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of the exercise price. A Portfolio has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
This obligation terminates upon expiration of the put, or such earlier time at
which a Portfolio effects a closing purchase transaction by purchasing a put of
the same series as that previously sold. Once a Portfolio has been assigned an
exercise notice, it is thereafter not allowed to effect a closing purchase
transaction.
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
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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. 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
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portfolio securities denominated in foreign currencies, or increase the cost of
foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant.
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 interest or
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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 that the U.S. dollar may suffer a substantial decline
against a foreign currency, it may enter into a Forward Contract to buy
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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.
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,
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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 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.
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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 "Internal Revenue
Code"). One of the tests for such qualification is that 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.
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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 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
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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 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
B-23
<PAGE>
Instrument will be a debt security, preferred stock, depository share, trust
certificate, certificate of deposit or other evidence of indebtedness on which a
portion of or all interest payments, and/or the principal or stated amount
payable at maturity, redemption or retirement, is determined by reference to
prices, changes in prices, or differences between prices, of securities,
currencies, intangibles, goods, articles or commodities (collectively
"Underlying Assets") or by another objective index, economic factor or other
measure, such as interest rates, currency exchange rates, commodity indices, and
securities indices (collectively "Benchmarks"). Thus, Hybrid Instruments may
take a variety of forms, including, but not limited to, debt instruments with
interest or principal payments or redemption terms determined by reference to
the value of a currency or commodity or securities index at a future point in
time, preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms related to a
particular commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Portfolio may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transactions
costs associated with buying and currency-hedging the foreign bond positions.
One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument
whose redemption price is linked to the average three year interest rate in a
designated group of countries. The redemption price formula would provide for
payoffs of greater than par if the average interest rate was lower than a
specified level, and payoffs of less than par if rates were above the specified
level. Furthermore, the Portfolio could limit the downside risk of the security
by establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest rates were
to rise significantly. The purpose of this arrangement, known as a structured
security with an embedded put option, would be to give the Portfolio the desired
European bond exposure while avoiding currency risk, limiting downside market
risk, and lowering transactions costs. Of course, there is no guarantee that the
strategy will be successful and the Portfolio could lose money if, for example,
interest rates do not move as anticipated or credit problems develop with the
issuer of the Hybrid.
The risks of investing in Hybrid Instruments reflect a combination of
the risks of investing in securities, options, futures and currencies. Thus, an
investment in a Hybrid Instrument may entail significant risks that are not
associated with a similar investment in a traditional debt instrument that has a
fixed principal amount, is denominated in U.S. dollars or bears interest either
at a fixed rate or a floating rate determined by reference to a common,
nationally published Benchmark. The risks of a particular Hybrid Instrument
will, of course, depend upon the terms of the instrument, but may include,
without limitation, the possibility of significant changes in the Benchmarks or
the prices of Underlying Assets to which the instrument is linked. Such risks
generally depend upon factors 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.
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<PAGE>
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
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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 outstanding shares
are present in person or by proxy or (ii) more than 50% of the 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.
Governmentits 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
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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.
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
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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 invest 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 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 and SunAmerica Money Market Funds. An asterisk indicates
those Directors who are interested persons of the Fund within the meaning of the
1940 Act.
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- -------------------
S. James Coppersmith, 64 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,
(1982-1994) (retired); Director/Trustee
of the SunAmerica Mutual Funds and
Anchor Series Trust ("AST").
- --------------------------------------------------------------------------------
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Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- -------------------
Samuel M. Eisenstat, 57 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 AST.
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) (1989 to present);
Director/Trustee of the SunAmerica
Mutual Funds and AST.
Peter A. Harbeck,*43 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"), (1993
to present); Director and President,
SunAmerica Fund Services, Inc.
("SAFS"), (1988 to present); President,
SunAmerica Mutual Funds and AST;
Executive Vice President and Chief
Operating Officer, SunAmerica, (1988-
1995); Executive Vice President, SACS,
(1991-1995); Director, Resources Trust
Company.
Peter McMillan III,*39 Director Executive Vice President and Chief
1 SunAmerica Center Investment Officer, SunAmerica
Los Angeles, CA 90067 Investments, Inc., (1989 to present);
Director/Trustee of the SunAmerica
Mutual Funds; Director, Resources Trust
Company.
- --------------------------------------------------------------------------------
B-33
<PAGE>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- -------------------
Sebastiano Sterpa, 67 Director Founder of Sterpa Realty, Inc., a full
Suite 200 service real estate firm (1962); Chairman
200 West Glenoaks Blvd. of the Sterpa Group, real estate
Glendale, CA 91202 investments and management company
(1962 to present); Director/Trustee of
the SunAmerica Mutual Funds.
Robert M. Zakem, 39 Secretary Senior Vice President, General Counsel
The SunAmerica Center and Assistant Secretary, SunAmerica (1993
733 Third Avenue to present); Executive Vice President,
New York, NY 10017-3204 General Counsel, Assistant Secretary and
Director, SACS, (1993 to present); Vice
President, General Counsel and Assistant
Secretary, SAFS, (1994 to present); Vice
President and Assistant Secretary,
SunAmerica Series Trust and Anchor
Pathway Fund, (1993 to present);
Vice President and Assistant Secretary,
Seasons Series Trust (1997 to present);
Secretary, SunAmerica Mutual Funds and
AST; formerly, Vice President and
Associate General Counsel,
SunAmerica, (1992-1993); Associate,
Piper & Marbury (1989-1992).
Peter C. Sutton, 33 Treasurer Senior Vice President, SunAmerica,
The SunAmerica Center (1997 to present); Treasurer,
733 Third Avenue SunAmerica Mutual Funds and AST
New York, NY 10017-3204 (1996 to present); Vice President,
SunAmerica Series Trust, Anchor Pathway
Fund (1994 to present); Vice President,
Seasons Series Trust (1997 to present);
formerly, Vice President, SunAmerica
(1994-1997); Controller, SunAmerica
Mutual Funds and AST (1993-1996);
Assistant Controller, SunAmerica Mutual
Funds and AST (1990-1993).
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.
B-34
<PAGE>
The Fund pays each Director who is not an interested person of the
Fund, SunAmerica or any Adviser, nor a party to any Management Agreement or
Subadvisory Agreement (collectively, the "Disinterested Directors") 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 an aggregate of up to $60,000 in annual
compensation for acting as director or trustee to the SunAmerica Mutual Funds,
Anchor Series Trust ("AST") and/or the Fund, a pro rata portion of which, based
on relative net assets, is borne by the Fund.
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 up to $5,000 in annual compensation for serving on the Audit
Committees of the SunAmerica Mutual Funds, AST and/or the Fund, 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, AST and
the Fund 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 SunAmerica Mutual Funds, AST or the Fund
(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.
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.
B-35
<PAGE>
ESTIMATED COMPENSATION TABLE*
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual from Registrant and
Compensation Accrued as Part of Benefits Upon Fund Complex Paid
Director from Fund Fund Expenses** Retirement**+ to Directors**
<S> <C> <C> <C> <C>
S. James Coppersmith $3,200 N/A $29,670 $65,000
Samuel M. Eisenstat*** $3,500 N/A $46,089 $69,000
Stephen J. Gutman $3,200 N/A $60,912 $65,000
Sebastiano Sterpa $3,200 N/A $7,900 $43,333****
</TABLE>
* Assumes Fund 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, AST and the Fund.
*** Mr. Eisenstat receives additional compensation for serving as Chairman
of each of the boards in the complex, $300 of which is payable by the
Fund.
**** Mr. Sterpa is not a trustee of AST.
+ Assuming participant elects to receive benefits in 15 yearly
installments.
As of July 11, 1997, the Directors and officers of the Fund owned in
the aggregate less than 1% of the Fund's total outstanding shares.
The following shareholders owned of record or beneficially 5% or more
of the indicated Portfolio Class' shares outstanding as of July 11, 1997:
Mid-Cap Growth Portfolio - Class A - SunAmerica, Inc., Los Angeles, CA 90067 -
owned beneficially 56%; Class B - Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL 32246 - owned of record 8%; Class C - Merrill Lynch, Pierce,
Fenner & Smith, Inc., Jacksonville, FL 32246 - owned of record 29%, Paine Webber
for benefit of Tramco, Inc. Profit Sharing Plant Trust, Wichita, KS 67214 -
owned of record 20%; Anne P. Bailey, Denver, CO 80235 - owned of record 6%;
Aggressive Growth Portfolio - Class A - SunAmerica Inc., Los Angeles, CA 90067 -
owned beneficially 42%; Class B - Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL 32246 - owned of record 7%; Class C - Merrill Lynch, Pierce,
Fenner & Smith, Inc., Jacksonville, FL 32246 - owned of record 43%; Paine Webber
for benefit of Tramco, Inc. Profit Sharing Plan Trust, Wichita, KS 67214 owned
of record 15%; Value Portfolio - Class A - SunAmerica, Inc., Los Angeles, CA
90067 - owned beneficially 37%; Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL 32246 - owned of record 5%; Class B - Merrill Lynch, Pierce,
Fenner & Smith, Inc., Jacksonville, FL 32246 - owned of record 7%; Class C -
Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL 32246 - owned
beneficially 28%; Paine Webber for benefit of Tramco, Inc. Profit Sharing Plan
Trust, Wichita, KS 67214 - owned of record 11%; and International Equity
Portfolio - Class A - SunAmerica Inc., Los Angeles, CA 90067 owned beneficially
57%; Class B - Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
32246 - owned of record 9%; Class C - Merrill Lynch, Pierce, Fenner & Smith,
Inc., Jacksonville, FL 32246 - owned of record 52%.
As of July 11, 1997, SunAmerica Inc., Los Angeles, CA 90067, owned
beneficially or of record
B-36
<PAGE>
28.48% and 30.25% of the shares of Mid-Cap Growth Portfolio and International
Equity Portfolio, respectively. A shareholder who owns beneficially, directly or
indirectly, 25% or more of a Portfolio's outstanding voting securities may be
deemed to "control" (as defined in the 1940 Act) that Portfolio.
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 (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, Los Angeles, CA 90067-6022, telephone (310)
772-6000.
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 the Mid-Cap Portfolio, the
Aggressive Growth Portfolio, the Value Portfolio and International Equity
Portfolio was approved by the Directors, including the Disinterested Directors,
on September 17, 1996, and by the sole initial shareholder of each such
Portfolio on November 15, 1996. The Management Agreement with respect to the
Large-Cap Growth Portfolio, the Large-Cap Blend Portfolio, the Large-Cap Value
Portfolio and the Small-Cap Value Portfolio was approved by the Directors,
including the Disinterested Directors, on [DATE TO BE
B-37
<PAGE>
PROVIDED], 1997, and by the sole initial shareholder of each such Portfolio on
[DATE TO BE PROVIDED], 1997.
Effective June 17, 1997, with respect to the Mid-Cap Growth Portfolio,
Aggressive Growth Portfolio, Value Portfolio and International Equity Portfolio,
and the date of commencement of operations with respect to the Large-Cap Growth
Portfolio, Large-Cap Blend Portfolio, Large-Cap Value Portfolio and Small-Cap
Value Portfolio, SunAmerica has voluntarily agreed to waive fees or reimburse
expenses, if necessary, to keep operating expenses at or below an annual rate of
1.78% of the Assets of Class A shares and 2.43% of the Assets of Class B and
Class C shares for each such Portfolio (other than the International Equity
Portfolio) and 2.03% of the Assets of Class A shares and 2.68% of the Assets of
Class B and Class C shares for the International Equity Portfolio. Prior to June
17, 1997, with respect to the Mid-Cap Growth Portfolio, Aggressive Growth
Portfolio, Value Portfolio and International Equity Portfolio, SunAmerica
voluntarily agreed to waive fees or reimburse expenses to keep annual operating
expenses at or below an annual rate of 1.90% of the Assets of Class A shares and
2.55% of the Assets of Class B and Class C shares for each such Portfolio (other
than the International Equity Portfolio) and 2.15% of the Assets of Class A
shares and 2.80% of the Assets of Class B and Class C shares for the
International Equity Portfolio. 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, for a period of two years from the date of execution unless
terminated sooner, and thereafter from year to year, if approved at least
annually by 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 Disinterested Directors
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
B-38
<PAGE>
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: Large-Cap Growth Portfolio, .48%; Mid-Cap Growth Portfolio,
.50%; Aggressive Growth Portfolio, .36%; Large-Cap Blend Portfolio, .30%;
Large-Cap Value Portfolio, .41%; Value Portfolio, .50%; Small-Cap Value
Portfolio, .53% 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 with respect to the Mid-Cap Growth
Portfolio, Aggressive Growth Portfolio, Value Portfolio, and International
Equity Portfolio were approved by the Directors, including the Disinterested
Directors, on September 17, 1996, and by the sole initial shareholder of each
such Portfolio on November 15, 1996. The Subadvisory Agreement with respect to
the Value Portfolio between Strong and Schafer was approved by the Directors,
including the Disinterested Directors, on September 17, 1996, and became
effective upon commencement of operation of the Fund. The Subadvisory Agreements
with respect to the Large-Cap Growth Portfolio, Large-Cap Blend Portfolio,
Large-Cap Value Portfolio and Small-Cap Value Portfolio, including the
Subadvisory Agreement with respect to the Small-Cap Value Portfolio between
Berger and PWM, were approved by the Directors, including the Disinterested
Directors, on [DATE TO BE PROVIDED], 1997, and by the sole initial shareholder
of each such Portfolio on [DATE TO BE PROVIDED], 1997.
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.
The guidelines on personal securities trading include: (i) securities being
considered for purchase or sale, or purchased
B-39
<PAGE>
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 the Mid-Cap Growth
Portfolio, Aggressive Growth Portfolio, Value Portfolio and International Equity
Portfolio was approved by the Directors, including the Disinterested Directors,
on September 17, 1996. The Distribution Agreement with respect to the Large-Cap
Growth Portfolio, Large-Cap Blend Portfolio, Large-Cap Value Portfolio and
Small-Cap Value Portfolio was approved by the Directors, including the
Disinterested Directors, on [DATE TO BE PROVIDED], 1997. The Distribution
Agreement with respect to each Portfolio will remain in effect for two years
from the date of execution unless terminated sooner, and thereafter from year to
year if such continuance is approved at least annually by the Directors,
including a majority of the Disinterested Directors. The Fund and the
Distributor each has the right to terminate the Distribution Agreement with
respect to a 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
B-40
<PAGE>
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," the "Class B Plan" and the
"Class C 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 and Class C Plans, 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 and Class C shares to compensate the
Distributor and certain securities firms for providing sales and promotional
activities for distributing each such 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, the Class B Plan
or the Class C 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 Class A and Class B Distribution Plans with respect to the Mid-Cap
Growth Portfolio, Aggressive Growth Portfolio, Value Portfolio and International
Equity Portfolio were approved on September 17, 1996 by the Directors, including
the Directors who are not "interested persons" of the Fund and who have no
direct or indirect financial interest in the operation of Distribution Plans of
the Fund (the "Independent Directors"). The Class C Distribution Plan with
respect to each such Portfolio was so approved by the Directors, including the
Independent Directors, on February 26, 1997. The Class A, Class B and Class C
Distribution Plans with respect to the Large-Cap Growth Portfolio, Large-Cap
Blend Portfolio, Large-Cap Value Portfolio and Small-Cap Value Portfolio were
approved on [DATE TO BE PROVIDED], 1997 by the Directors, including Independent
Directors.
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
B-41
<PAGE>
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 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 on September 17, 1996 with respect to the
Mid-Cap Growth Portfolio, Aggressive Growth Portfolio, Value Portfolio and
International Equity Portfolio, and on [DATE TO BE PROVIDED], 1997 with respect
to the Large-Cap Growth Portfolio, Large-Cap Blend Portfolio, Large-Cap Value
Portfolio and Small-Cap Value Portfolio. The Service Agreement will remain in
effect for two years from the date of approval with respect to each Portfolio
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
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
B-42
<PAGE>
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.
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 and Class C
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.
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Waiver of Contingent Deferred Sales Charges. As discussed under "Purchase of
Shares" in the Prospectus, the CDSC may be waived on redemptions of Class B and
Class C 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
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. A CDSC 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). 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. Checks should be made payable to the specific Portfolio or to
"SunAmerica Funds." If the payment is for a retirement plan account for which
SunAmerica serves as fiduciary, please note on the check that payment is for
such an account. In the case of a new account, purchase orders by check must be
submitted directly by mail to SunAmerica Fund Services, Inc., Mutual Fund
Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204, together with payment for the purchase price of such shares and 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 Fund account number should
appear on the check. For fiduciary retirement plan accounts, both initial and
subsequent purchases should be mailed to SunAmerica Fund Services, Inc., Mutual
Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204. Certified checks are not necessary but checks are accepted subject
to collection at full face value in United States
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funds and must be drawn on a bank located in the United States. 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. Subsequent purchases of shares of each Fund may be purchased directly
through the Transfer Agent. 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 considered verification thereof. Neither the Fund nor its
affiliates will be held liable for any losses incurred as a result of a
fraudulent endorsement. There are restrictions on the redemption of shares
purchases by check for which funds are being collected. (See "Redemption of the
Shares" in the Prospectus.)
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. Such plans
may include certain employee benefit plans qualified under Sections 401 or 457
of the Internal Revenue Code, or employee benefit plans created pursuant to
Section 403(b) of the Internal Revenue Code and sponsored by nonprofit
organizations defined
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under Section 501(c)(3) of the Internal Revenue Code (collectively, "Plans"). A
Plan will qualify for purchases at net asset value provided that (a) the initial
amount invested in one or more of the Portfolios (or in combination with the
shares of other SunAmerica Mutual Funds) is at least $1,000,000, (b) the sponsor
signs a $1,000,000 Letter of Intent, (c) such shares are purchased by an
employer-sponsored plan with at least 100 eligible employees, or (d) the
purchases are by trustees or other fiduciaries for certain employer-sponsored
plans, the trustee, fiduciary or administrator for which has an agreement with
the Distributor with respect to such purchases and all such transactions for the
plan are executed through a single omnibus account. 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
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.
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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.
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
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<PAGE>
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 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.
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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.
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
The Fund is open for business on any day the NYSE is open for regular
trading. Shares are valued each day as of the close of regular trading on the
NYSE (generally, 4:00 p.m., Eastern time). Each Portfolio calculates the net
asset value of its shares separately by dividing the total value of each class's
net assets by the shares of such class outstanding. The net asset value of a
Portfolio's shares will also be computed on each other day in which there is a
sufficient degree of trading in such Portfolio's securities that the net asset
value of its shares might be materially affected by changes in the values of the
portfolio securities; provided, however, that on such day the 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
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<PAGE>
traded on commodities exchanges, are valued at their last sale price as of the
close of such commodities exchanges.
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, Class
B and Class C 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 or Class C 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
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institutions. The Standard & Poor's 100 Stock Index is a smaller, more flexible
index for options trading.
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, Principia and other publications by
Morningstar, Inc. -- 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:
Australian Dollars Netherlands Guilders
Canadian Dollars Swiss Francs
European Currency Units UK Pound Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
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 other than the Large-Cap Blend Portfolio,
is to pay investment income dividends, if any, at least annually. Large-Cap
Blend Portfolio's current policy is to pay investment income dividends, if any,
on a quarterly basis. 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 dividends total in excess of $10.00 per distribution period and the
shareholder notifies the Portfolio at least five business days prior to the
payment date to receive such distributions in cash.
B-54
<PAGE>
Taxes. Each Portfolio intends to qualify and elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue 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 Internal Revenue 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.
B-55
<PAGE>
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 Internal Revenue 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 Internal Revenue Code as "Section 988" gains or losses,
increase or decrease the amount of each Portfolio's investment company taxable
income available to
B-56
<PAGE>
be distributed to its shareholders as ordinary income. Additionally, if Internal
Revenue 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 Internal Revenue 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 Internal Revenue
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 Internal
Revenue 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 Internal Revenue Code. The Internal Revenue 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 Internal
Revenue 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 Internal Revenue 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 the Internal
B-57
<PAGE>
Revenue 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).
Each of the Large-Cap Growth Portfolio, Aggressive Growth Portfolio and
International Equity Portfolio 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 any such Portfolio acquires
and holds stock in a PFIC beyond the end of the year of its acquisition, the
Portfolio will be subject to federal income tax on a portion of any "excess
distribution" received on the stock or of any gain from disposition of the stock
(collectively, PFIC income), plus interest thereon, even if the Portfolio
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Portfolio's investment
company taxable income and, accordingly, will not be taxable to it to the extent
that income is distributed to its shareholders. Proposed Treasury regulations
provide that the Portfolio may make a "mark-to-market" election with respect to
any stock it holds of a PFIC. If the election is in effect, at the end of the
Fund's taxable year, the Portfolio will recognize the amount of gains, if any,
with respect to PFIC stock. No loss will be recognized on PFIC stock.
Alternatively, the Portfolio may elect to treat any PFIC in which it invests as
a "qualified electing fund," in which case, in lieu of the foregoing tax and
interest obligation, the Portfolio will be required to include in income each
year its pro rata share of the qualified electing fund's annual ordinary
earnings and net capital gain, even if they are not distributed to the
Portfolio; those amounts would be subject to the distribution requirements
applicable to the Portfolio described above. It may be very difficult, if not
impossible, to make this election because of certain requirements thereof.
Each of the Large-Cap Blend and Value Portfolios may invest in real
estate investment trusts ("REITs") that hold residual interests in real estate
mortgage investment conduits ("REMICs"). Under Treasury regulations that have
not yet been issued, but may apply retroactively, a portion of the Portfolio's
income from a REIT that is attributable to the REIT's residual interest in a
REMIC (referred to in the Internal Revenue Code as an "excess inclusion") will
be subject to federal income tax. These regulations are also expected to provide
that excess inclusion income of a regulated investment company, such as the
Fund, will be allocated to shareholders of the regulated investment company in
proportion to the dividends received by such shareholders, with the same
consequences as if the shareholders held the related REMIC residual interest
directly. In general, excess inclusion income allocated to shareholders (i)
cannot be offset by net operating losses (subject to a limited exception for
certain thrift institutions), (ii) will constitute unrelated business taxable
income to entities (including a qualified pension plan, an individual retirement
account, a 401(k) plan, a Keogh
B-58
<PAGE>
plan or other tax-exempt entity) subject to tax on unrelated business income,
thereby potentially requiring such an entity that is allocated excess inclusion
income, and otherwise might not be required to file a tax return, to file a tax
return and pay tax on such income, and (iii) in the case of a foreign
shareholder, will not qualify for any reduction in U.S. federal withholding tax.
In addition, if at any time during any taxable year a "disqualified
organization" (as defined in the Internal Revenue Code) is a record holder of a
share in a regulated investment company, then the regulated investment company
will be subject to a tax equal to that portion of its excess inclusion income
for the taxable year that is allocable to the disqualified organization,
multiplied by the highest federal income tax rate imposed on corporations.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Internal Revenue 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 Internal Revenue Code for tax purposes
does not entail government supervision of management and investment policies.
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 Internal
Revenue 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.
Savings Incentive Match Plan for Employees (SIMPLE). The SIMPLE was created to
make establishing employee retirement plans practical for small businesses.
Generally, the plan permits employers with 100 or fewer employees who do not
maintain another employer-sponsored retirement plan to establish a SIMPLE Plan.
Contributions made by the employer are tax deductible and contributions are
deducted from the employee's paycheck before tax deductions and are deposited
into a SIMPLE Plan by the employer.
Tax-Sheltered Custodial Accounts. Section 403(b)(7) of the Internal Revenue Code
permits public school employees and employees of certain types of charitable,
educational and scientific organizations specified in Section 501(c)(3) of the
Internal Revenue Code, to purchase shares of a
B-59
<PAGE>
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 Internal Revenue 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, eight Portfolios of shares of the Fund have been authorized
pursuant to the Articles: the Large-Cap Growth Portfolio, the Mid-Cap Growth
Portfolio, the Aggressive Growth Portfolio, the Large-Cap Blend Portfolio, the
Large-Cap Value Portfolio, the Value Portfolio, the Small-Cap 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 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,
B-60
<PAGE>
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) Class C shares are subject to a CDSC, and
an ongoing account maintenance and service fee, (vi) 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 (vii) 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 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.
ADDITIONAL INFORMATION
Computation of Offering Price per Share
The following is the offering price calculation for each Class of
shares of the Mid-Cap Growth Portfolio, Aggressive Growth Portfolio, Value
Portfolio and International Equity Portfolio. The Class A and Class B
calculations are based on the value of each such Portfolio's net assets and
number of shares outstanding on April 30, 1997. The Class C calculations are
based on the estimated value of each such Portfolio's net assets and number of
Class C shares outstanding on the date such shares were first offered for sale
to public investors.
B-61
<PAGE>
<TABLE>
<CAPTION>
Mid-Cap Growth Portfolio Aggressive Growth Portfolio
------------------------ ---------------------------
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Assets.... $21,054,557 $15,551,069 $855,241 $31,277,613 $18,722,750 $1,161,162
Number of 1,910,365 1,415,269 77,837 2,499,347 1,500,130 92,971
Shares
Outstanding..
Net Asset $11.02 $10.99 $10.99 $12.51 $12.48 $12.49
Value Per
Share (net
assets
divided by
number
of shares) ..
Sales charge 0.67 None None 0.76 None None
for
Class A
Shares:
5.75% of
offering
price (6.10%
of net
asset value
per
share)*......
Offering Price $11.69 $10.99 $10.99 $13.27 $12.48 $12.49
<CAPTION>
Value Portfolio International Equity Portfolio
--------------- ------------------------------
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Assets ... $35,690,592 $25,641,412 $1,875,057 $22,994,862 $14,123,293 $1,094,630
Number of 2,636,181 1,898,972 138,863 1,841,936 1,134,927 87,909
Shares
Outstanding .
Net Asset $13.54 $13.50 $13.50 $12.48 $12.44 $12.45
Value Per
Share (net
assets
divided by
number
of shares) ..
Sales charge 0.83 None None 0.76 None None
for
Class A
Shares:
5.25% of
offering
price (5.54 of
net
asset value
per
share)* .....
Offering Price $14.37 $13.50 $13.50 $13.24 $12.44 $12.45
..............
</TABLE>
- -----------------------
* Rounded to nearest one-hundred percent; assumes maximum sales charge is
applicable.
Reports to Shareholders. The Fund sends audited annual and unaudited semi-annual
reports to shareholders of each of the Portfolios. In addition, the Transfer
Agent sends a statement to each shareholder having an account directly with the
Fund to confirm transactions in the account.
- -----------------------
* Rounded to nearest one-hundredth percent; assumes maximum sales charge
is applicable
B-62
<PAGE>
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 the Fund, as of November 12, 1996 and the
unaudited financial statements for the period ended April 30, 1997.
B-63
<PAGE>
Style Select Series, Inc.
Statement of Assets and Liabilities at November 12, 1996
- --------------------------------------------------------------------------------
<TABLE>
<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-64
<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 $1 billion
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
B-65
<PAGE>
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.
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.
B-66
<PAGE>
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-67
<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-68
<PAGE>
APPENDIX
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
Description of Moody's Investors 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.
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.
Appendix-1
<PAGE>
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.
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
Appendix-2
<PAGE>
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.
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
Appendix-3
<PAGE>
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 Debt 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.
Appendix-4
<PAGE>
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.
* 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.
Appendix-5
<PAGE>
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.
A Issues 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.
B Issues 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.
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D This rating indicates that the issue is either in default or
is expected to be in default upon maturity.
Appendix-6
<PAGE>
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.
Appendix-7
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements.
Set forth in the Statement of Additional Information are
the unaudited financial statements of Style Select
Series, Inc. with respect to Registrant's six month
period ended April 30, 1997. The Financial Highlights are
set forth in of the Prospectus under the caption
"Financial Highlights."
(b) Exhibit Number
(1)(a) Articles of Incorporation of Registrant, as amended, are
incorporated by reference to Exhibit 1(A) of Pre-
Effective Amendment No. 1 on form N1-A, filed with the
Securities and Exchange Commission on November 14, 1996.
(1)(b) Articles Supplementary are incorporated by reference to
Exhibit 1(B) of Pre-Effective Amendment No. 1 on form N1-
A, filed with the Securities and Exchange Commission on
November 14, 1996.
(1)(c) Articles of Amendment are incorporated by reference to
Exhibit 1(C) of Pre-Effective Amendment No. 1 on form N1-
A, filed with the Securities and Exchange Commission on
November 14, 1996.
(1)(d) Articles of Amendment dated November 13, 1996 are
incorporated by reference to Exhibit 1(D) of Pre-
Effective Amendment No. 1 on form N1-A, filed with the
Securities and Exchange Commission on November 14, 1996.
(2) By-Laws of Registrant are incorporated by reference to
Exhibit 2 of Pre-Effective Amendment No. 1 on form N1-A,
filed with the Securities and Exchange Commission on
November 14, 1996.
(3) Voting Trust Agreement. Inapplicable.
(4) Instruments Defining Rights of Shareholders are
incorporated by reference to Exhibits 1 and 2 above and
incorporated by reference to Exhibit 4 of Pre-Effective
Amendment No. 1 on form N1-A, filed with the Securities
and Exchange Commission on November 14, 1996.
(5)(a) Investment Advisory and Management Agreement between
Registrant and SunAmerica Asset Management Corp. is
incorporated by reference to Exhibit 5(a) of Pre-
Effective Amendment No. 1 on form N1-A, filed with the
Securities and Exchange Commission on November 14, 1996.
<PAGE>
(5)(b)(1) Subadvisory Agreement between SunAmerica and Miller, Anderson &
Sherrerd, LLP.
(5)(b)(2) Subadvisory Agreement between SunAmerica and Pilgrim Baxter &
Associates.
(5)(b)(3) Subadvisory Agreement between SunAmerica and T. Rowe Price Associates,
Inc.
(5)(b)(4) Subadvisory Agreement between SunAmerica and Janus Capital
Corporation.
(5)(b)(5) Subadvisory Agreement between SunAmerica and Warburg, Pincus
Counsellors, Inc.
(5)(b)(6) Subadvisory Agreement between SunAmerica and Davis Selected Advisers,
L.P.
(5)(b)(7) Subadvisory Agreement between SunAmerica and Neuberger&Berman, L.P.
(5)(b)(8) Subadvisory Agreement between SunAmerica and Strong Capital
Management, Inc.
(5)(b)(9) Subadvisory Agreement between SunAmerica and Rowe Price-Fleming
International, Inc.
(6) Distribution Agreement is incorporated by reference to
Exhibit 6 of Pre-Effective Amendment No. 1 on form N1-A,
filed with the Securities and Exchange Commission on
November 14, 1996.
(7) Disinterested Trustees and Directors' Retirement Plan is
incorporated by reference to Exhibit 7 of Pre-Effective
Amendment No. 1 on form N1-A, filed with the Securities
and Exchange Commission on November 14, 1996.
(8) Custodian Agreement is incorporated by reference to
Exhibit 8 of Pre-Effective Amendment No. 1 on form N1-A,
filed with the Securities and Exchange Commission on
November 14, 1996.
(9)(a) Service Agreement between Registrant and SunAmerica Fund
Services Inc. is incorporated by reference to Exhibit
9(a) of Pre-Effective Amendment No. 1 on form N1-A, filed
with the Securities and Exchange Commission on November
14, 1996.
(9)(b) Transfer Agency Agreement is incorporated by reference to
Exhibit 9(b) of Pre-Effective Amendment No. 1 on form N1-
A, filed with the Securities and Exchange Commission on
November 14, 1996.
(10) Opinion and Consent of Counsel is/are incorporated by
reference to Exhibit 10 of Pre-Effective Amendment No. 1
on form N1-A, filed with the Securities and Exchange
Commission on November 14, 1996.
(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 Plan for Class C Shares is incorporated by
reference to Exhibit 15 of Post-Effective Amendment No.
2 on form N-1A, filed with the Securities and Exchange
Commission on March 3, 1997.
Rule 12b-1 Plans for Class A Shares and Class B Shares
are incorporated by reference to Exhibit 15 of Pre-
Effective Amendment No. 1 on form N1-A, filed with the
Securities and Exchange Commission on November 14, 1996.
C-2
<PAGE>
(16) Performance Computations. Inapplicable.
(17)(a) Other Exhibits.
Powers of Attorney of Trustees and Officers are
incorporated by reference to Exhibit 5(a) of Pre-
Effective Amendment No. 1 on form N1-A, filed with the
Securities and Exchange Commission on November 14, 1996.
(17)(b) Financial Data Schedules.
(18) 18f-3 Plan is incorporated by reference to Exhibit 18 of
Pre-Effective Amendment No. 1 on form N1-A, filed with
the Securities and Exchange Commission on November 14,
1996.
Item 25. Persons Controlled by or Under Common Control with
Registrant.
SunAmerica Life Insurance Company; Anchor National Life
Insurance Company; Saamsun Holdings Corp.; SAM Holdings Corp.
and SunAmerica Asset Management Corp.
Item 26. Number of Holders of Securities.
As of July 15, 1997, the number of record holders of Style
Select Series was as follows:
Number of
Portfolio Title of Class Record Holders
Aggressive Growth Class A 3,337
Portfolio Class B 3,505
Class C 200
Mid-Cap Growth Class A 1,503
Portfolio Class B 2,542
Class C 169
Value Portfolio Class A 2,841
Class B 3,796
Class C 252
International Equity Class A 1,419
Portfolio Class B 2,632
Class C 173
Item 27. Indemnification.
Article V of the Registrant's By-Laws relating to the
indemnification of officers and directors is quoted below.
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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 attorney's 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 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
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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 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
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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 By-Law 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 un-
enforceability 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
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
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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.
Janus Capital Corporation, L. Roy Papp & Associates, Montag &
Caldwell, Inc., Miller Anderson & Sherrerd, LLP, Pilgrim Baxter
& Associates, Ltd., T. Rowe Price Associates, Inc., Warburg, Pincus
Counsellors, Inc., Lazard Asset Management, David L. Babson & Co., Inc.,
Davis Selected Advisers, L.P., Wellington Management, LLP,
Neuberger&Berman, L.P., Strong Capital Management, Inc., Schafer Capital
Management, Inc., Berger Associates, Inc., Perkins, Wolf, McDonnell &
Company, The Glenmede Trust Company, and Rowe-Price Fleming International,
Inc., the current and/or proposed 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 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 following
Advisers, and other required information:
File No.
Janus Capital Corporation 801-13991
L. Roy Papp & Associates 801-35594
Montag & Caldwell, Inc. 801-15398
Miller Anderson & Sherrerd, LLP 801-10437
Pilgrim Baxter & Associates, Ltd. 801-48872
T. Rowe Price Associates, Inc. 801-856
Warburg, Pincus Counsellors, Inc. 801-07321
Lazard Asset Management 801-6568
David L. Babson & Co., Inc. 801-241
Davis Selected Advisers, L.P. 801-31648
Wellington Management, LLP 801-15908
Neuberger&Berman, L.P. 801-3908
Strong Capital Management 801-10724
Schafer Capital Management 801-25825
Berger Associates, Inc. 801-9451
Perkins, Wolf, McDonnell & Company 801-19974
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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 H. Krat Director None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Joseph M. Tumbler Director None
SunAmerica Inc.
1 SunAmerica Center
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 Chief
The SunAmerica Center President Compliance Officer
733 Third Avenue and Director
New York, NY 10017-3204
Susan L. Harris Secretary None
SunAmerica Inc.
1 SunAmerica Center
Los Angeles, CA 90067-6022
Steven E. Rothstein Treasurer None
The SunAmerica Center
733 Third Avenue
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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.
Janus Capital Corporation is located at 100 Fillmore Street,
Denver, Colorado 80206-4923.
L. Roy Papp & Associates is located at 4400 North 32nd Street, Suite 280,
Phoenix, Arizona 85018.
Montage & Caldwell, Inc. is located at 3343 Peachtree Road, NE, Suite 1100,
Atlanta, Georgia 30326-1022.
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.
Warburg, Pincus Counsellors, Inc. is located at 466 Lexington
Avenue, New York, New York, 10017-3147
Lazard Asset Management is located at 30 Rockefeller Plaza, New York, New
York 10020.
David L. Babson & Co. Inc. is located at One Memorial Drive, Cambridge,
Massachusetts 02142-1300.
Davis Selected Advisers, L.P. is located at 124 East March
Street, Santa Fe, New Mexico, 87501.
Wellington Management Company, LLP is located at 75 State Street, Boston,
Massachusetts 02109.
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 is located at 645 Fifth Avenue, New
York, New York 10022.
Berger Associates Investment Management Services is located at 210
University Boulevard, Suite 900, Denver, Colorado 80206.
Perkins, Wolf, McDonnell & Company is located at 53 West Jackson
Boulevard, Suite 818, Chicago, Illinois 60604.
The Glenmede Trust Co. is located at One Liberty Place, 1650 Market Street,
Suite 1200, Philadelphia, Pennsylvania 19103-7391.
Rowe Price-Fleming International, Inc. is located at 100 East
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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 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, and the State of New York, on the 5th day of August, 1997.
STYLE SELECT SERIES, INC.
By: /s/Peter A. Harbeck
Peter A. Harbeck
President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 3 to the Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated.
/s/Peter A. Harbeck President and Director August 5, 1997
Peter A. Harbeck (Principal Executive Officer)
* Treasurer August 5, 1997
Peter C. Sutton (Principal Accounting
and Financial Officer)
* Trustee August 5, 1997
S. James Coppersmith
* Trustee August 5, 1997
Samuel M. Eisenstat
* Trustee August 5, 1997
Stephen J. Gutman
*By: /s/Robert M. Zakem
Robert M. Zakem, Attorney-in-Fact
<PAGE>
STYLE SELECT SERIES, INC.
EXHIBIT INDEX
Exhibit No. Name
5(b)(1) Subadvisory Agreement between SunAmerica and Miller, Anderson &
Sherrerd, LLP.
(2) Subadvisory Agreement between SunAmerica and Pilgrim Baxter &
Associates.
(3) Subadvisory Agreement between SunAmerica and T. Rowe Price Associates,
Inc.
(4) Subadvisory Agreement between SunAmerica and Janus Capital
Corporation.
(5) Subadvisory Agreement between SunAmerica and Warburg, Pincus
Counsellors, Inc.
(6) Subadvisory Agreement between SunAmerica and Davis Selected Advisers,
L.P.
(7) Subadvisory Agreement between SunAmerica and Neuberger&Berman, L.P.
(8) Subadvisory Agreement between SunAmerica and Strong Capital
Management, Inc.
(9) Subadvisory Agreement between SunAmerica and Rowe Price-Fleming
International, Inc.
11 Consent of Accountants
27 Financial Data Schedules
<PAGE>
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of September 17, 1996
by and between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and MILLER ANDERSON & SHERRERD, LLP, a Pennsylvania limited
liability partnership (the "Subadviser").
WITNESSETH:
WHEREAS, the Adviser and Style Select Series, Inc., a Maryland
corporation (the "Corporation"), have entered into an Investment Advisory and
Management Agreement dated as of September 17, 1996, (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; and
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;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Duties of the Subadviser. The Adviser hereby engages the services
of the Subadviser in furtherance of its Investment Advisory and Management
Agreement with the Corporation. Pursuant to this Subadvisory Agreement and
subject to the oversight and review of the Adviser, the Subadviser will 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 its activities which the Adviser or the Corporation is required to
maintain, 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.
<PAGE>
The Subadviser represents and warrants to the Adviser that
the portion of the assets which it manages of the Portfolio set forth in
Schedule A will at all times be operated and managed in compliance with all
applicable federal and state laws governing its operations and investments.
Without limiting the foregoing, the Subadviser represents and warrants (1)
qualification, election and maintenance of such election by each Portfolio to
be treated as a "regulated investment company" under subchapter M, chapter 1 of
the Internal Revenue Code of 1986, as amended (the "Code"), and (2) compliance
with (a) the provisions of the Act and rules adopted thereunder; (b) applicable
federal and state securities, commodities and banking laws; and (c) the
distribution requirements necessary to avoid payment of any excise tax pursuant
to Section 4982 of the Code. The Subadviser further represents and warrants
that to the extent that any statements or omissions made in any Registration
Statement for shares of the Corporation, or any amendment or supplement
thereto, are made in reliance upon and in conformity with 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 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 necessary to make the statements therein, in light of
the circumstance under which they were made not misleading.
The Subadviser accepts such employment 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, the selection of broker-dealers and futures commission
merchants', 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 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
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<PAGE>
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 they may reasonably request. To the extent consistent
with applicable law, the Subadviser may aggregate purchase or sell orders for
the Portfolio with contemporaneous purchase or sell orders of other clients of
the Subadviser 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 Subadviser in the manner the Subadviser
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.
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 to 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). 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. 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 as agreed upon by the
Corporation or the Adviser and the Subadviser.
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.
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<PAGE>
7. 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
that Act. Any records 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, the Corporation's
auditors, the Corporation or any representative of the Corporation, the
Adviser, or any governmental agency or other instrumentality having regulatory
authority over the Corporation.
8. Reference to the Subadviser. 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.
9. Liability of the Subadviser. (a) In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations
or duties hereunder on the part of the Subadviser (and its officers, directors,
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.
(b) The Adviser agrees to indemnify and hold harmless the
Subadviser and its affiliates and each of their directors and officers and each
persons, if any, who controls the Subadviser within the meaning of Section 15
of the 1933 Act against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses), to which the
Subadviser or its affiliates or such directors, officers or controlling person
may become subject under the 1933 Act, under an other statute, at common law or
otherwise, which may be based upon any breach of this Agreement by the Adviser;
provided, however, that in no case is the Adviser's indemnity in favor of any
persons deemed to protect such person against any liability to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his, here or its duties or by reasons
of his, her or its reckless disregard of obligations and duties under this
Agreement.
(c) 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 reasonable 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) breach of this
-4-
<PAGE>
Agreement by the Subadviser, 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.
(d) 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 Subadviser or (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 Adviser or any other
subadviser to a Portfolio, which records are not also maintained by or
otherwise available to the Subadviser upon reasonable request. The Adviser
agrees that 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 Subadviser. The Adviser shall indemnify the
Indemnified Parties from any liability arising from the conduct of the Adviser
and any other subadviser with respect to the portion of a Portfolio's assets
not allocated to Subadviser.
10. 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.
11. 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. 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
-5-
<PAGE>
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.
12. 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.
13. 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.
14. 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.
15. Separate Series. Pursuant to the provisions of the Articles of
Incorporation and the General Laws of the State of Maryland, 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.
16. Notices. All notices shall be in writing and deemed properly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
Subadviser: Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, PA 19428-0868
Attention: Scott Burney
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
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.
-6-
<PAGE>
By: _______________________________
Name: Peter A. Harbeck
Title: President
MILLER ANDERSON & SHERRERD, LLP
By: _______________________________
Name:
Title:
-7-
<PAGE>
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of September 17, 1996
by and between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and PILGRIM BAXTER & ASSOCIATES, a Delaware corporation (the
"Subadviser").
WITNESSETH:
WHEREAS, the Adviser and Style Select Series, Inc., a Maryland
corporation (the "Corporation"), have entered into an Investment Advisory and
Management Agreement dated as of September 17, 1996, (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; and
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;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Duties of the Subadviser. The Adviser hereby engages the services
of the Subadviser in furtherance of its Investment Advisory and Management
Agreement with the Corporation. Pursuant to this Subadvisory Agreement and
subject to the oversight and review of the Adviser, the Subadviser will 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 its activities which the Adviser or the Corporation is required to
maintain, 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.
<PAGE>
The Subadviser represents and warrants to the Adviser that
the portion of the assets which it manages of the Portfolio set forth in
Schedule A will at all times be operated and managed in compliance with all
applicable federal and state laws governing its operations and investments.
Without limiting the foregoing, the Subadviser represents and warrants (1)
qualification, election and maintenance of such election by each Portfolio to
be treated as a "regulated investment company" under subchapter M, chapter 1 of
the Internal Revenue Code of 1986, as amended (the "Code"), and (2) compliance
with (a) the provisions of the Act and rules adopted thereunder; (b) applicable
federal and state securities, commodities and banking laws; and (c) the
distribution requirements necessary to avoid payment of any excise tax pursuant
to Section 4982 of the Code. The Subadviser further represents and warrants
that to the extent that any statements or omissions made in any Registration
Statement for shares of the Corporation, or any amendment or supplement
thereto, are made in reliance upon and in conformity with 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 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.
The Subadviser accepts such employment 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 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
<PAGE>
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 they may
reasonably request. To the extent consistent with applicable law, the
Subadviser may aggregate purchase or sell orders for the Portfolio with
contemporaneous purchase or sell orders of other clients of the Subadviser 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 Subadviser in the manner the Subadviser 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.
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 to 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). 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. 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. 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
<PAGE>
investments of the Portfolio that are required to be maintained by the
Corporation pursuant to the requirements of Rule 31a-1 of that Act. Any records
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, the Corporation's
auditors, the Corporation or any representative of the Corporation, the
Adviser, or any governmental agency or other instrumentality having regulatory
authority over the Corporation.
8. Reference to the Subadviser. 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.
9. 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.
(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 breach of this Agreement by the
Subadviser, 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
<PAGE>
Portfolio not managed by 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 Adviser or any other subadviser to a Portfolio, which records are
not also maintained by or otherwise available to the Subadviser upon reasonable
request. The Adviser agrees that 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 Subadviser.
The Adviser shall indemnify the Indemnified Parties from any liability arising
from the conduct of the Adviser and any other subadviser with respect to the
portion of a Portfolio's assets not allocated to Subadviser.
10. 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.
11. 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. 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.
12. 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.
<PAGE>
13. 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.
14. 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.
15. Separate Series. Pursuant to the provisions of the Articles of
Incorporation and the General Laws of the State of Maryland, 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.
16. Notices. All notices shall be in writing and deemed properly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
Subadviser: Pilgrim Baxter & Associates
1255 Drummers Lane
Wayne, PA 19087
Attention: Amy Yuter
Chief Compliance Officer
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
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
PILGRIM BAXTER & ASSOCIATES
<PAGE>
By: __________________________________
Name: Harold J. Baxter
Title: Chairman and
Chief Executive Officer
<PAGE>
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of September 17, 1996
by and between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and T. ROWE PRICE ASSOCIATES, INC., a Maryland corporation (the
"Subadviser").
WITNESSETH:
WHEREAS, the Adviser and Style Select Series, Inc., a Maryland
corporation (the "Corporation"), have entered into an Investment Advisory and
Management Agreement dated as of September 17, 1996, (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:
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
<PAGE>
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 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
- 2 -
<PAGE>
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 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. 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
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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 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
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<PAGE>
Agreement. Subadviser hereby 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 or other subadviser with respect to the
portion of a Portfolio' 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.
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<PAGE>
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 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: T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, MD 20202
Attention: John H. Cammack,
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<PAGE>
Vice President
with a copy to: T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, MD 20202
Attention: Henry H. Hopkins
Legal Counsel
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
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<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
T. ROWE PRICE ASSOCIATES, INC.
By: ____________________________________
Name:
Title:
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<PAGE>
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of September 17, 1996
by and between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and JANUS CAPITAL CORPORATION, a Colorado corporation (the
"Subadviser").
WITNESSETH:
WHEREAS, the Adviser and Style Select Series, Inc., a Maryland
corporation (the "Corporation"), have entered into an Investment Advisory and
Management Agreement dated as of September 17, 1996, (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 (the "Advisers Act"); and
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;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. (a) Duties of the Subadviser. The Adviser hereby engages the
services of the Subadviser in furtherance of its Investment Advisory and
Management Agreement with the Corporation. Pursuant to this Subadvisory
Agreement and subject to the oversight and review of the Adviser, the
Subadviser will 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, and shall furnish the Adviser
with such monthly, quarterly, and annual reports concerning transactions and
performance of each Portfolio in the form as reasonably requested by the
Adviser. The Subadviser shall also provide the Adviser with such other
information and reports as may reasonably be requested by the Adviser from time
to time, other than proprietary information, and provided the Subadviser shall
not be responsible for portfolio accounting, nor shall it be required to
generate information derived from portfolio accounting data. 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
<PAGE>
forth in the Corporation's current prospectus and statement of additional
information, and (b) applicable laws and regulations.
The Subadviser agrees to manage the portion of the assets
allocated to it of each of the Portfolio set forth in Schedule A (1) in
compliance with all applicable federal and state laws governing its operations
and investments. Without limiting the foregoing, the Subadviser agrees to
manage each Portfolio (1) so that it qualifies to be treated as a "regulated
investment company" under subchapter M, chapter 1 of the Code, and (2) in
compliance with (a) the provisions of the Act and rules adopted thereunder; (b)
applicable federal and state securities, commodities and banking laws; and (c)
the distribution requirements necessary to avoid payment of any excise tax
pursuant to Section 4982 of the Code. For purposes of compliance with this
paragraph, the Subadviser shall be entitled to treat the portion of the assets
of each Portfolio that it manages as though such portion constituted the entire
Portfolio, and the Subadviser shall not be responsible in any way for the
compliance of other portions of the Portfolio or for compliance of the
Portfolio as a whole with this paragraph.
(b) The Subadviser shall be responsible for the preparation
and filing of Schedule 13G and Form 13F on behalf of the Portfolio. The
Subadviser shall not be responsible for the preparation or filing of any
reports required of the Portfolio by any governmental or regulatory agency,
except as expressly agreed to in writing. The Subadviser shall vote proxies
received in connection with securities held by the Portfolio.
(c) The Subadviser accepts such employment 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.
(d) The Adviser shall timely furnish Subadviser with such
information as may be reasonably necessary for or requested by Subadviser to
perform its responsibilities under this Agreement. The Subadviser shall
establish and maintain brokerage accounts or other accounts necessary for the
purchase or sale of various forms of securities and the Adviser shall take such
actions as Subadviser deems advisable or necessary to enable Subadviser to
establish such account on behalf of the Corporation.
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
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<PAGE>
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 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 they may reasonably request.
3. (a) 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 to 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). If the Subadviser shall provide its services
under this Agreement for less than the whole of any month, the foregoing
compensation shall be prorated.
(b) Expenses. Adviser, the Corporation and the Portfolio
shall assume and pay their respective organizational, operational, and business
expenses not specifically assumed or agreed to be paid by Subadviser pursuant
to this Agreement. Subadviser shall pay its own organizational, operational,
and business expenses but shall not be obligated to pay any expenses of
Adviser, the Corporation, or the Portfolio, including without limitation, (a)
interest and taxes; (b) brokerage commissions and other costs in connection
with the purchase or sale of securities or other investment instruments for the
Portfolio; and (c) custodian fees and expenses.
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,
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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. The Subadviser may
provide advice to or take action with respect to other clients, which advice or
action, including the timing and nature of such action, may differ from or be
identical to advice given or action taken with respect to the Portfolio. In the
event of such activities, the transactions and associated costs will be
allocated among such clients (including the Portfolio) in a manner that the
Subadviser believes to be equitable to the accounts involved and consistent
with such accounts' objectives, policies and limitations.
7. Certain Records. While the Subadviser is not being engaged to serve
as the Corporation's official record keeper, the Subadviser nevertheless hereby
undertakes and agrees to maintain, in the form and for the period required by
Section 204 of the Advisers Act and Rule 204-2 thereunder, all records relating
to the investments of the Portfolio that are required to be maintained by the
Subadviser pursuant to the requirements of Rule 204-2 under the Advisers Act.
The Subadviser will also, in connection with the purchase and sale of
securities for each Portfolio, arrange for the transmission to the custodian
for the Corporation on a daily basis, such confirmation, trade tickets, and
other documents and information, that identify securities to be purchased or
sold on behalf of the Portfolio, as may be reasonably necessary to enable the
custodian to perform its administrative and recordkeeping responsibilities with
respect to the Portfolio.
The Subadviser agrees that all accounts, books and other
records maintained and preserved by it with respect to the Portfolio 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, the Corporation's auditors, the Corporation or any
representative of the Corporation, the Adviser, or any governmental agency or
other instrumentality having regulatory authority over the Corporation.
8. Confidentiality and Proprietary Rights. The Adviser will not,
directly or indirectly, and will not permit its affiliates, employees,
officers, directors, agents, contractors, or the Corporation to, in any form or
by any means, use, disclose, or furnish, to any person or entity, records or
information concerning the business of the Subadviser, except as necessary for
the performance of its duties under this Agreement or the Advisory Agreement,
or as required by law upon prior written notice to the Subadviser. The
Subadviser is the sole owner of the name and mark "Janus." The Adviser shall
not, and shall not permit the Corporation to, without prior written consent of
the Subadviser, use the name or mark "Janus" or make representations regarding
the Subadviser or its affiliates. Upon termination of this Agreement for any
reasons, the Adviser shall immediately cease, and the Adviser shall cause the
Corporation to immediately cease, all use of the Janus name or any Janus mark.
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<PAGE>
9. 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) neither the
Subadviser nor its officers, directors, agents, employees, controlling persons,
shareholders, and any other person or entity affiliated with the Subadviser
shall be subject to liability 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 (1) the Subadviser's conduct under this Agreement, or
(2) any untrue statement of a material fact in the Corporation's registration
statement or omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such statement or
omission was made in reliance on information furnished by the Adviser.
(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 resulting from Subadviser's disabling conduct , or (ii) any untrue
statement of a material fact in the Corporation's registration statement or
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement or omission was
made in reliance on information furnished by the Subadviser; 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 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. The Adviser shall indemnify the
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Indemnified Parties from any liability arising from the conduct of the
Adviser and any other subadviser with respect to the portion of a Portfolio's
assets not allocated to the Subadviser.
10. 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.
11. 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 Portfolio 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. Notwithstanding the foregoing, the
Subadviser may terminate the Agreement upon 60 days' written notice in the
event of a breach of the 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. The obligations contained in Section 9 shall survive termination of
this Agreement.
12. 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.
13. 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.
14. 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.
15. Separate Series. Pursuant to the provisions of the Articles of
Incorporation, each Portfolio is a separate Portfolio of the Corporation, and
all debts, liabilities, obligations and
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<PAGE>
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.
16. Notices. All notices shall be in writing and deemed properly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
Subadviser: Janus Capital Corporation
100 Fillmore Street
Denver, CO 80206-4923
Attention: David C. Tucker
General Counsel
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
- 7 -
<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
JANUS CAPITAL CORPORATION
By: ____________________________________
Name:
Title:
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<PAGE>
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of September 17, 1996,
by and between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and WARBURG, PINCUS COUNSELLORS, INC., a Delaware corporation (the
"Subadviser").
WITNESSETH:
WHEREAS, the Adviser and Style Select Series, Inc., a Maryland
corporation (the "Corporation"), have entered into an Investment Advisory and
Management Agreement dated as of September 17, 1996, (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; and
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;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Duties of the Subadviser. The Adviser hereby engages the services
of the Subadviser in furtherance of its Investment Advisory and Management
Agreement with the Corporation. Pursuant to this Subadvisory Agreement and
subject to the oversight and review of the Adviser, the Subadviser will 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 its activities which the Adviser or the Corporation is required to
maintain, 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 communicate to Subadviser, 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 as
provided to Subadviser, and (b) applicable laws and regulations.
<PAGE>
The Subadviser represents and warrants to the Adviser that
the portion of each Portfolio set forth in Schedule A managed by it will at all
times be operated and managed in compliance with all applicable federal and
state laws governing its operations and investments. Without limiting the
foregoing and subject to Section 9(c) hereof, the Subadviser represents and
warrants (1) that the management of the assets of a Portfolio managed by it
will be designed to achieve qualification by each Portfolio to be treated as a
"regulated investment company" under subchapter M, chapter 1 of the Internal
Revenue Code of 1986, as amended (the "Code"), and (2) compliance with (a) the
provisions of the Act and rules adopted thereunder that relate to the
investment of Portfolio assets, including depositing those assets in custody
with institutions designated by the Corporation; and (b) applicable federal and
state securities and commodities laws (other than state securities laws
relating to the amount of Portfolio shares that may be sold in a particular
state); provided that for purposes of Section 17(a), (d) and (e), Subadviser
shall effect compliance only in relation to affiliated persons identified to it
by the Adviser and its own affiliates. The Subadviser further represents and
warrants that only with respect to any statements or omissions made in any
Registration Statement for shares of the Corporation, or any amendment or
supplement thereto, made in reliance upon and in conformity with 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 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.
The Subadviser accepts such employment 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 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 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
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<PAGE>
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 they may
reasonably request. To the extent consistent with applicable law, the
Subadviser may aggregate purchase or sell orders for the Portfolio with
contemporaneous purchase or sell orders of other clients of the Subadviser 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 Subadviser in the manner the Subadviser 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.
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 to 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). 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. 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
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<PAGE>
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. 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
that Act. Any records 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, the Corporation's
auditors, the Corporation or any representative of the Corporation, the
Adviser, or any governmental agency or other instrumentality having regulatory
authority over the Corporation.
8. Reference to the Subadviser. 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.
9. 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 Adviser, its officers, directors,
agents, employees, controlling persons or shareholders or 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 and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses) arising from the Subadviser's providing services under this
Agreement.
(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 reasonable 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 breach of this Agreement by the Subadviser;
provided, however, that in no case is the Subadviser's indemnity
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<PAGE>
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 its
officers, directors, agents, employees, controlling persons or shareholders or
to the Corporation or its shareholders 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 Subadviser and (ii) acts of the Subadviser which
result from or are based upon 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 Adviser or any other subadviser to a
Portfolio, which records are not also maintained by the Subadviser or, to the
extent such records relate to the portion of the assets managed by the
Subadviser, otherwise available to the Subadviser upon reasonable request. The
Adviser agrees that 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) only with respect to the portion
of assets of a Portfolio allocated to Subadviser. The Adviser shall indemnify
the Indemnified Parties from any and all losses, claims, damages, liabilities
or litigation (including reasonable legal and other expenses) arising from the
conduct of the Adviser, the Corporation and any other subadviser with respect
to the portion of a Portfolio's assets not allocated to Subadviser and with
respect to any other portfolio of the Corporation.
10. 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.
11. 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. 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
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<PAGE>
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.
12. Severability. This Agreement constitutes the entire Agreement
between the parties hereto. 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.
13. Survival. Section 9 and the right to receive amounts due under
Section 3 shall survive termination of this Agreement.
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 and the General Laws of the State of Maryland, 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.
17. Notices. All notices shall be in writing and deemed properly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
Subadviser: Warburg, Pincus Counsellors, Inc.
335 Madison Avenue, 15th Floor
New York, NY 10017
Attention: Brady T. Lipp
with a copy to: Eugene P. Grace
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
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of the date first above
written.
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<PAGE>
SUNAMERICA ASSET MANAGEMENT CORP.
By: ____________________________________
Name: Peter A. Harbeck
Title: President
WARBURG, PINCUS COUNSELLORS, INC.
By: ____________________________________
Name: Eugene P. Grace
Title: Senior Vice President
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<PAGE>
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of September 17, 1996
by and between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and DAVIS SELECTED ADVISERS, L.P., a Colorado limited partnership
(the "Subadviser").
WITNESSETH:
WHEREAS, the Adviser and Style Select Series, Inc., a Maryland
corporation (the "Corporation"), have entered into an Investment Advisory and
Management Agreement dated as of September 17, 1996, (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; and
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;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Duties of the Subadviser. (a) The Adviser hereby engages the
services of the Subadviser in furtherance of its Investment Advisory and
Management Agreement with the Corporation. Pursuant to this Subadvisory
Agreement and subject to the oversight and review of the Adviser, the
Subadviser will 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 its activities which the Adviser or the Corporation is
required to maintain, 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.
<PAGE>
The Subadviser represents and warrants to the Adviser that
the portion of the assets which it manages of the Portfolio set forth in
Schedule A will at all times be operated and managed in compliance with the
current prospectus and statement of additional information. The Subadviser
further represents and warrants that to the extent that any statements or
omissions made in any Registration Statement for shares of the Corporation, or
any amendment or supplement thereto, are made in reliance upon and in
conformity with 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
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.
The Subadviser accepts such employment 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.
(b) In performing its investment advisory services,
Subadviser, while remaining ultimately responsible for management of the
portion of the assets of the Portfolio allocated to it, may draw on the
research and market expertise of its affiliate offices, including Davis
Selected Advisers - NY, Inc., its New York affiliate, for portfolio decisions
and management.
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 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
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<PAGE>
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 they may reasonably request.
To the extent consistent with applicable law, the Subadviser may aggregate
purchase or sell orders for the Portfolio with contemporaneous purchase or sell
orders of other clients of the Subadviser 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 Subadviser in the
manner the Subadviser 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.
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 to 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). 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. 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 a mutually
agreed-upon fee.
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. 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
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requirements of Rule 31a-1 of that Act. Any records 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, which are not otherwise available to 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 relating to the Corporation, or any Portfolio thereof, 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, the Corporation's auditors, the Corporation
or any representative of the Corporation, the Adviser, or any governmental
agency or other instrumentality having regulatory authority over the
Corporation.
8. Reference to the Subadviser. 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.
9. 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.
(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 breach of this Agreement by the
Subadviser, 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.
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(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 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 Adviser or any other
subadviser to a Portfolio, which records are not also maintained by or
otherwise available to the Subadviser upon reasonable request. The Adviser
agrees that 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 Subadviser. The Adviser shall indemnify the
Indemnified Parties from any liability arising from the conduct of the Adviser
and any other subadviser with respect to the portion of a Portfolio's assets
not allocated to Subadviser.
10. 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.
11. 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. 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.
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<PAGE>
12. 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.
13. 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.
14. 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.
15. Separate Series. Pursuant to the provisions of the Articles of
Incorporation and the General Laws of the State of Maryland, 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.
16. Notices. All notices shall be in writing and deemed properly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
Subadviser: Davis Selected Advisers, L.P.
124 E. Marcy Street
P.O. Box 1688
Sante Fe, NM 87504-1688
Attention:
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
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
DAVIS SELECTED ADVISERS, L.P.
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<PAGE>
By: _______________________________
Name: Carl L. Luff
Title: President
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<PAGE>
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of September 17, 1996
by and between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and NEUBERGER&BERMAN, L.P., a New York limited partnership (the
"Subadviser").
WITNESSETH:
WHEREAS, the Adviser and Style Select Series, Inc., a Maryland
corporation (the "Corporation"), have entered into an Investment Advisory and
Management Agreement dated as of September 17, 1996, (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; and
WHEREAS, the Adviser desires to retain the Subadviser to furnish
investment advisory services to a portion of the investment series of the
Corporation listed on Schedule A attached hereto (the "Portfolio"), and the
Subadviser is willing to furnish such services;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Duties of the Subadviser. The Adviser hereby engages the services
of the Subadviser in furtherance of its Investment Advisory and Management
Agreement with the Corporation. Pursuant to this Subadvisory Agreement and
subject to the oversight and review of the Adviser, the Subadviser will manage
the investment and reinvestment of a portion of the assets of each Portfolio
listed on Schedule A attached hereto. The Subadviser's responsibility with
regard to the management of assets shall commence and end as it receives notice
that assets had been allocated to or removed from the Subadviser's management.
The daily report to the Subadviser of the custodian for the Portfolio showing
the net increase or decrease in the assets allocated to the Subadviser for
management shall normally constitute such notice. 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 its activities which the Adviser or the Corporation is required to
maintain, 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
<PAGE>
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
which are communicated to the Subadviser, and (b) applicable laws and
regulations.
The Subadviser represents and warrants to the Adviser that
the portion of the assets which it manages of the Portfolio set forth in
Schedule A will at all times be operated and managed in compliance with all
applicable federal and state laws governing its operations and investments.
Without limiting the foregoing, the Subadviser represents and warrants its
management of such portion of the assets will meet requirements for (1)
qualification, election and maintenance of such election by the Portfolio of
which it is part to be treated as a "regulated investment company" under
subchapter M, chapter 1 of the Internal Revenue Code of 1986, as amended (the
"Code"), and (2) compliance with (a) the provisions of the Act and rules
adopted thereunder; (b) applicable federal and state securities, commodities
and banking laws; and (c) the distribution requirements necessary to avoid
payment of any excise tax pursuant to Section 4982 of the Code. The Subadviser
further represents and warrants that to the extent that any statements or
omissions made in any Registration Statement for shares of the Corporation, or
any amendment or supplement thereto, are made in reliance upon and in
conformity with 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
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.
The Subadviser accepts such employment 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 and shall
make all investment decisions and shall enter all orders to buy or sell
securities and other investments using such broker-dealers and futures
commission merchants' as it shall select. The Subadviser is responsible for the
negotiation of brokerage commission and futures commission merchants' rates for
such transactions. As a general matter, in effecting 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 shall not be deemed to have acted
unlawfully or to have breached any duty
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<PAGE>
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 itself,
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 they may reasonably request.
To the extent consistent with applicable law, the Subadviser may aggregate
purchase or sell orders for the Portfolio with contemporaneous purchase or sell
orders of other clients of the Subadviser 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 Subadviser in the
manner the Subadviser 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 and that in some instances the price paid or received may be less
favorable and/or the number of shares purchased or sold may be less than the
number of shares which would otherwise be purchased or sold for such portion of
the assets.
3. Compensation of the Subadviser. Aside from commissions on
securities transactions effected by the Subadviser or its affiliates in its
capacity as broker, 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 to 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). 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. 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.
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<PAGE>
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. 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
that Act. Any records 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 except that Subadviser may keep and use copies
thereof to comply with its legal ad regulatory obligations including its record
keeping obligations with regard to performance statistics.
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, the Corporation's
auditors, the Corporation or any representative of the Corporation, the
Adviser, or any governmental agency or other instrumentality having regulatory
authority over the Corporation.
8. Reference to the Subadviser. 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.
9. 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) and except when
such exculpation is otherwise prohibited as a matter of law, 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, or except as otherwise prohibited
as a matter of law, 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.
(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,
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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 breach of this
Agreement by the Subadviser, 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 shall the Subadviser's indemnity
in favor of any person indemnify such other person against any liability to
which such person would otherwise be subject a) by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his, her or
its duties or b) by reason of his, her or its reckless disregard of obligation
and duties under this Agreement or c) for which indemnification or exculpation
is not permitted as a matter of law.
(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 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 Adviser or any other
subadviser to a Portfolio, which records are not also maintained by or
otherwise available to the Subadviser upon reasonable request. The Adviser
agrees that 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 Subadviser. The Adviser shall indemnify the
Indemnified Parties from any liability arising from the conduct of the Adviser
and any other subadviser with respect to the portion of a Portfolio's assets
not allocated to Subadviser.
10. 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.
11. 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
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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. 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.
12. 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.
13. 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.
14. 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.
15. Separate Series. Pursuant to the provisions of the Articles of
Incorporation and the General Laws of the State of Maryland, 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.
16. Notices. All notices shall be in writing and deemed properly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
Subadviser: Neuberger&Berman, L.P.
605 Third Avenue
New York, NY 10158-0001
Attention: C. Carl Randolph, Esq.
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
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of the date first above
written.
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SUNAMERICA ASSET MANAGEMENT CORP.
By: ____________________________________
Name: Peter A. Harbeck
Title: President
NEUBERGER&BERMAN, L.P.
By: ____________________________________
Name:
Title:
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SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of September 17, 1996
by and between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and STRONG CAPITAL MANAGEMENT, INC., a Wisconsin corporation (the
"Subadviser").
WITNESSETH:
WHEREAS, the Adviser and Style Select Series, Inc., a Maryland
corporation (the "Corporation"), have entered into an Investment Advisory and
Management Agreement dated as of September 17, 1996, (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; and
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;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Duties of the Subadviser. (a) The Adviser hereby engages the
services of the Subadviser in furtherance of its Investment Advisory and
Management Agreement with the Corporation. Pursuant to this Subadvisory
Agreement and subject to the oversight and review of the Adviser, the
Subadviser will 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 its activities which the Adviser or the Corporation is
required to maintain, 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.
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The Subadviser represents and warrants to the Adviser that
the portion of the assets which it manages of the Portfolio set forth in
Schedule A will at all times be operated and managed in compliance with all
applicable federal and state laws governing its operations and investments.
Without limiting the foregoing, the Subadviser represents and warrants that
with respect to management of that portion of the assets which it manages of
the Portfolio set forth in Schedule A (1) each such Portfolio shall qualify to
be treated as a "regulated investment company" under subchapter M, chapter 1 of
the Internal Revenue Code of 1986, as amended (the "Code"), and (2) compliance
with (a) the provisions of the Act and rules adopted thereunder; and (b)
applicable federal and state securities, commodities and banking laws. The
Subadviser further represents and warrants that no statements or omissions made
in any Registration Statement for shares of the Corporation, or any amendment
or supplement thereto, made in reliance upon and in conformity with information
furnished by the Subadviser expressly for use therein, will result in the
Registration Statement and any amendments or supplements thereto containing any
untrue statement of a material fact or omitting to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(b) Acceptance of Employment. The Subadviser accepts such
employment 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. The Subadviser shall direct the custodian as to how
to vote such proxies as may be necessary or advisable in connection with any
matters submitted to a vote of shareholders of securities held by the
Portfolio.
(c) Survival of Representations and Warranties. All
representations and warranties made by the Subadviser and the Adviser pursuant
to this Section 1 hereof shall survive for the duration of this Agreement and
the parties hereto shall promptly notify each other in writing upon becoming
aware that any of the foregoing representations and warranties are no longer
true.
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.
The Subadviser is authorized, subject to the supervision of the Adviser and the
Board of Directors of the Corporation, to establish and maintain accounts on
behalf of the Corporation. 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 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
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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 they may reasonably request.
To the extent consistent with applicable law, the Subadviser may aggregate
purchase or sell orders for the Portfolio with contemporaneous purchase or sell
orders of other clients of the Subadviser 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 Subadviser in the
manner the Subadviser 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.
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 to 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 but in no event later than fifteen (15) days 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). Payment
shall be by wire transfer if so requested by Subadviser. 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. 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 and such
other information with regard to their affairs and that of the Corporation as
each may reasonably request.
5. 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.
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6. 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
that Act. Any records 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 relating 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, the
Corporation's auditors, the Corporation or any representative of the
Corporation, the Adviser, or any governmental agency or other instrumentality
having regulatory authority over the Corporation.
7. Reference to the Subadviser. 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.
8. 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.
(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 reasonable 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 breach of this
Agreement by the Subadviser, 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.
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(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 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 Adviser or any other
subadviser to a Portfolio, which records are not also maintained by or
otherwise available to the Subadviser upon reasonable request. The Adviser
agrees that 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 Subadviser. The Adviser shall indemnify the
Indemnified Parties from any liability arising from the conduct of the Adviser
and any other subadviser with respect to the portion of a Portfolio's assets
not allocated to Subadviser.
9. Appointment of Sub-Subadviser. Subadviser may appoint such other
sub- subadvisers to advise the Portfolio listed in Schedule A and to carry out
Subadviser's obligations hereunder as Subadviser may deem appropriate, provided
that Subadviser shall remain liable pursuant to this Agreement for the actions
of said sub-subadvisers.
10 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.
11. 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, upon the earlier of
(i) 90 days' written notice to the Adviser and the Corporation, provided, that
another subadvisory agreement has been approved by the Corporation in
accordance with the Act, or (ii) after six months' written notice. 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).
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<PAGE>
This Agreement will also terminate in the event that the
Advisory Agreement by and between the Corporation and the Adviser is
terminated.
12. 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.
13. 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.
14. 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.
15. Separate Series. Pursuant to the provisions of the Articles of
Incorporation and the General Laws of the State of Maryland, 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.
16. Notices. All notices hereunder shall be given in writing (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or by overnight delivery to the respective parties as follows:
Subadviser: Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051
Attention: Thomas P. Lemke
General Counsel
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
17. Waiver. No waiver of any provisions of this Agreement will be
binding unless in writing and executed by the party granting such waiver. Any
valid waiver of a provision set forth herein shall not constitute a waiver of
any other provision of this Agreement. In addition, any such waiver shall
constitute a present waiver of such provision and shall not constitute a
permanent future waiver of such provision.
18. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
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<PAGE>
19. Entire Agreement. This Agreement contains the full and complete
understanding between the parties with respect to the transactions covered and
contemplated hereunder, and supersedes all prior agreements and understandings
between the parties relating to the subject matter hereof, whether oral or
written, expressed or implied.
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<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
STRONG CAPITAL MANAGEMENT, INC.
By: ____________________________________
Name: Thomas P. Lemke
Title: General Counsel
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<PAGE>
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of September 17, 1996
by and between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and ROWE PRICE-FLEMING INTERNATIONAL, INC., a Maryland corporation
(the "Subadviser").
WITNESSETH:
WHEREAS, the Adviser and Style Select Series, Inc., a Maryland
corporation (the "Corporation"), have entered into an Investment Advisory and
Management Agreement dated as of September 17, 1996, (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:
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
<PAGE>
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 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
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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 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. 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
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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 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
- 4 -
<PAGE>
Agreement. Subadviser hereby 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 or other subadviser with respect to the
portion of a Portfolio' 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.
- 5 -
<PAGE>
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 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:
- 6 -
<PAGE>
with a copy to:
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
- 7 -
<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
ROWE PRICE-FLEMING INTERNATIONAL, INC.
By: ____________________________________
Name: Nancy M. Morris
Title: Vice President
- 8 -
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 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.
We also consent to the reference to us under the heading "Additional Information
- - Independent Accountants and Legal Counsel" in such Statement of Additional
Information and to the reference to us under the heading "General Information
- -Independent Accountants and Legal Counsel" in the Prospectus which constitutes
part of this Registration Statement.
/s/Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
July 17, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 031
<NAME> STYLE SELECT SERIES AGGRESSIVE GROWTH CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-19-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 52,020,341<F1>
<INVESTMENTS-AT-VALUE> 52,418,079<F1>
<RECEIVABLES> 1,461,049<F1>
<ASSETS-OTHER> 63,694<F1>
<OTHER-ITEMS-ASSETS> 18,837<F1>
<TOTAL-ASSETS> 53,961,659<F1>
<PAYABLE-FOR-SECURITIES> 2,679,087<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 121,047<F1>
<TOTAL-LIABILITIES> 2,800,134<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 52,418,629<F1>
<SHARES-COMMON-STOCK> 2,499,347<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> (62,301)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,592,541)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 397,738<F1>
<NET-ASSETS> 51,161,525<F1>
<DIVIDEND-INCOME> 53,152<F1>
<INTEREST-INCOME> 180,976<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 296,429<F1>
<NET-INVESTMENT-INCOME> (62,301)<F1>
<REALIZED-GAINS-CURRENT> (1,592,541)<F1>
<APPREC-INCREASE-CURRENT> 397,738<F1>
<NET-CHANGE-FROM-OPS> (1,257,104)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,577,461<F2>
<NUMBER-OF-SHARES-REDEEMED> (78,114)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 51,136,525<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 143,475<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 334,442<F1>
<AVERAGE-NET-ASSETS> 23,920,846<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> (.02)<F2>
<PER-SHARE-GAIN-APPREC> .03<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.51<F2>
<EXPENSE-RATIO> 1.90<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Aggressive Growth Fund as
a whole.
<F2>Information given pertains to Style Select Aggressive Growth Fund Class A.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 032
<NAME> STYLE SELECT SERIES AGGRESSIVE GROWTH CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-19-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 52,020,341<F1>
<INVESTMENTS-AT-VALUE> 52,418,079<F1>
<RECEIVABLES> 1,461,049<F1>
<ASSETS-OTHER> 63,694<F1>
<OTHER-ITEMS-ASSETS> 18,837<F1>
<TOTAL-ASSETS> 53,961,659<F1>
<PAYABLE-FOR-SECURITIES> 2,679,087<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 121,047<F1>
<TOTAL-LIABILITIES> 2,800,134<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 52,418,629<F1>
<SHARES-COMMON-STOCK> 1,500,130<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> (62,301)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,592,541)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 397,738<F1>
<NET-ASSETS> 51,161,525<F1>
<DIVIDEND-INCOME> 53,152<F1>
<INTEREST-INCOME> 180,976<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 296,429<F1>
<NET-INVESTMENT-INCOME> (62,301)<F1>
<REALIZED-GAINS-CURRENT> (1,592,541)<F1>
<APPREC-INCREASE-CURRENT> 397,738<F1>
<NET-CHANGE-FROM-OPS> (1,257,104)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,556,525<F2>
<NUMBER-OF-SHARES-REDEEMED> (56,395)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 51,136,525<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 143,475<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 334,442<F1>
<AVERAGE-NET-ASSETS> 7,958,852<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> (.06)<F2>
<PER-SHARE-GAIN-APPREC> .04<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.48<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Aggressive Growth Fund as a
whole.
<F2>Information given pertains to Style Select Aggressive Growth Fund Class B.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 033
<NAME> STYLE SELECT SERIES AGGRESSIVE GROWTH CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> MAR-06-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 52,020,341<F1>
<INVESTMENTS-AT-VALUE> 52,418,079<F1>
<RECEIVABLES> 1,461,049<F1>
<ASSETS-OTHER> 63,694<F1>
<OTHER-ITEMS-ASSETS> 18,837<F1>
<TOTAL-ASSETS> 53,961,659<F1>
<PAYABLE-FOR-SECURITIES> 2,679,087<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 121,047<F1>
<TOTAL-LIABILITIES> 2,800,134<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 52,418,629<F1>
<SHARES-COMMON-STOCK> 92,971<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> (62,301)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,592,541)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 397,738<F1>
<NET-ASSETS> 51,161,525<F1>
<DIVIDEND-INCOME> 53,152<F1>
<INTEREST-INCOME> 180,976<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 296,429<F1>
<NET-INVESTMENT-INCOME> (62,301)<F1>
<REALIZED-GAINS-CURRENT> (1,592,541)<F1>
<APPREC-INCREASE-CURRENT> 397,738<F1>
<NET-CHANGE-FROM-OPS> (1,257,104)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 93,888<F2>
<NUMBER-OF-SHARES-REDEEMED> (917)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 51,136,525<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 143,475<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 334,442<F1>
<AVERAGE-NET-ASSETS> 722,343<F2>
<PER-SHARE-NAV-BEGIN> 13.38<F2>
<PER-SHARE-NII> (.01)<F2>
<PER-SHARE-GAIN-APPREC> (.88)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.49<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Aggressive Growth Fund as a
whole.
<F2>Information given pertains to Style Select Aggressive Growth Fund Class C.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 011
<NAME> STYLE SELECT SERIES MID-CAP GROWTH CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-19-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 39,463,936<F1>
<INVESTMENTS-AT-VALUE> 37,338,301<F1>
<RECEIVABLES> 894,861<F1>
<ASSETS-OTHER> 63,694<F1>
<OTHER-ITEMS-ASSETS> 606<F1>
<TOTAL-ASSETS> 38,297,462<F1>
<PAYABLE-FOR-SECURITIES> 754,571<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 82,024<F1>
<TOTAL-LIABILITIES> 836,595<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 41,347,623<F1>
<SHARES-COMMON-STOCK> 1,910,365<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> (144,086)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,617,035)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (2,125,635)<F1>
<NET-ASSETS> 37,460,867<F1>
<DIVIDEND-INCOME> 22,603<F1>
<INTEREST-INCOME> 76,076<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 242,765<F1>
<NET-INVESTMENT-INCOME> (144,086)<F1>
<REALIZED-GAINS-CURRENT> (1,617,035)<F1>
<APPREC-INCREASE-CURRENT> (2,125,635)<F1>
<NET-CHANGE-FROM-OPS> (3,886,756)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,542,032<F2>
<NUMBER-OF-SHARES-REDEEMED> (631,667)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 37,435,867<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 117,215<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 282,564<F1>
<AVERAGE-NET-ASSETS> 19,339,364<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> (0.06)<F2>
<PER-SHARE-GAIN-APPREC> (1.42)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 11.02<F2>
<EXPENSE-RATIO> 1.90<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Mid-Cap Growth Fund as a whole.
<F2>Information given pertains to Style Select Mid-Cap Growth Fund Class A.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 012
<NAME> STYLE SELECT SERIES MID-CAP GROWTH CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-19-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 39,463,936<F1>
<INVESTMENTS-AT-VALUE> 37,338,301<F1>
<RECEIVABLES> 894,861<F1>
<ASSETS-OTHER> 63,694<F1>
<OTHER-ITEMS-ASSETS> 606<F1>
<TOTAL-ASSETS> 38,297,462<F1>
<PAYABLE-FOR-SECURITIES> 754,571<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 82,024<F1>
<TOTAL-LIABILITIES> 836,595<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 41,347,623<F1>
<SHARES-COMMON-STOCK> 1,415,269<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> (144,086)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,617,035)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (2,125,635)<F1>
<NET-ASSETS> 37,460,867<F1>
<DIVIDEND-INCOME> 22,603<F1>
<INTEREST-INCOME> 76,076<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 242,765<F1>
<NET-INVESTMENT-INCOME> (144,086)<F1>
<REALIZED-GAINS-CURRENT> (1,617,035)<F1>
<APPREC-INCREASE-CURRENT> (2,125,635)<F1>
<NET-CHANGE-FROM-OPS> (3,886,756)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,472,651<F2>
<NUMBER-OF-SHARES-REDEEMED> (57,382)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 37,435,867<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 117,215<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 282,564<F1>
<AVERAGE-NET-ASSETS> 6,737,593<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> (0.10)<F2>
<PER-SHARE-GAIN-APPREC> (1.41)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 10.99<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Mid-Cap Growth Fund as a whole.
<F2>Information given pertains to Style Select Mid-Cap Growth Fund Class B.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 013
<NAME> STYLE SELECT SERIES MID-CAP GROWTH CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> MAR-06-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 39,463,936<F1>
<INVESTMENTS-AT-VALUE> 37,338,301<F1>
<RECEIVABLES> 894,861<F1>
<ASSETS-OTHER> 63,694<F1>
<OTHER-ITEMS-ASSETS> 606<F1>
<TOTAL-ASSETS> 38,297,462<F1>
<PAYABLE-FOR-SECURITIES> 754,571<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 82,024<F1>
<TOTAL-LIABILITIES> 836,595<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 41,347,623<F1>
<SHARES-COMMON-STOCK> 77,837<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> (144,086)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,617,035)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (2,125,635)<F1>
<NET-ASSETS> 37,460,867<F1>
<DIVIDEND-INCOME> 22,603<F1>
<INTEREST-INCOME> 76,076<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 242,765<F1>
<NET-INVESTMENT-INCOME> (144,086)<F1>
<REALIZED-GAINS-CURRENT> (1,617,035)<F1>
<APPREC-INCREASE-CURRENT> (2,125,635)<F1>
<NET-CHANGE-FROM-OPS> (3,886,756)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 78,106<F2>
<NUMBER-OF-SHARES-REDEEMED> (269)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 37,435,867<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 117,215<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 282,564<F1>
<AVERAGE-NET-ASSETS> 496,419<F2>
<PER-SHARE-NAV-BEGIN> 11.93<F2>
<PER-SHARE-NII> (0.03)<F2>
<PER-SHARE-GAIN-APPREC> (0.91)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 10.99<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Mid-Cap Growth Fund as a whole.
<F2>Information given pertains to Style Select Mid-Cap Growth Fund Class C.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 021
<NAME> STYLE SELECT SERIES VALUE CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-19-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 61,116,507<F1>
<INVESTMENTS-AT-VALUE> 63,298,131<F1>
<RECEIVABLES> 1,342,871<F1>
<ASSETS-OTHER> 63,694<F1>
<OTHER-ITEMS-ASSETS> 2,578<F1>
<TOTAL-ASSETS> 64,707,274<F1>
<PAYABLE-FOR-SECURITIES> 1,353,760<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 146,453<F1>
<TOTAL-LIABILITIES> 1,500,213<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 60,880,606<F1>
<SHARES-COMMON-STOCK> 2,636,181<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> (10,719)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 155,550<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,181,624<F1>
<NET-ASSETS> 63,207,061<F1>
<DIVIDEND-INCOME> 213,423<F1>
<INTEREST-INCOME> 88,163<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 312,305<F1>
<NET-INVESTMENT-INCOME> (10,719)<F1>
<REALIZED-GAINS-CURRENT> 155,550<F1>
<APPREC-INCREASE-CURRENT> 2,181,624<F1>
<NET-CHANGE-FROM-OPS> 2,326,455<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,542,032<F2>
<NUMBER-OF-SHARES-REDEEMED> (631,667)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 63,182,061<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 149,345<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 357,078<F1>
<AVERAGE-NET-ASSETS> 23,606,902<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> .01<F2>
<PER-SHARE-GAIN-APPREC> 1.03<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 13.54<F2>
<EXPENSE-RATIO> 1.90<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Value Fund as a whole.
<F2>Information given pertains to Style Select Value Fund Class A.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 022
<NAME> STYLE SELECT SERIES VALUE CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-19-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 61,116,507<F1>
<INVESTMENTS-AT-VALUE> 63,298,131<F1>
<RECEIVABLES> 1,342,871<F1>
<ASSETS-OTHER> 63,694<F1>
<OTHER-ITEMS-ASSETS> 2,578<F1>
<TOTAL-ASSETS> 64,707,274<F1>
<PAYABLE-FOR-SECURITIES> 1,353,760<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 146,453<F1>
<TOTAL-LIABILITIES> 1,500,213<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 60,880,606<F1>
<SHARES-COMMON-STOCK> 1,898,972<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> (10,719)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 155,550<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,181,624<F1>
<NET-ASSETS> 63,207,061<F1>
<DIVIDEND-INCOME> 213,423<F1>
<INTEREST-INCOME> 88,163<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 312,305<F1>
<NET-INVESTMENT-INCOME> (10,719)<F1>
<REALIZED-GAINS-CURRENT> 155,550<F1>
<APPREC-INCREASE-CURRENT> 2,181,624<F1>
<NET-CHANGE-FROM-OPS> 2,326,455<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,472,651<F2>
<NUMBER-OF-SHARES-REDEEMED> (57,382)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 63,182,061<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 149,345<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 357,078<F1>
<AVERAGE-NET-ASSETS> 9,495,550<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> (.04)<F2>
<PER-SHARE-GAIN-APPREC> 1.04<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 13.50<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Value Fund as a whole.
<F2>Information given pertains to Style Select Value Fund Class B.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 023
<NAME> STYLE SELECT SERIES VALUE CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> MAR-06-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 61,116,507<F1>
<INVESTMENTS-AT-VALUE> 63,298,131<F1>
<RECEIVABLES> 1,342,871<F1>
<ASSETS-OTHER> 63,694<F1>
<OTHER-ITEMS-ASSETS> 2,578<F1>
<TOTAL-ASSETS> 64,707,274<F1>
<PAYABLE-FOR-SECURITIES> 1,353,760<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 146,453<F1>
<TOTAL-LIABILITIES> 1,500,213<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 60,880,606<F1>
<SHARES-COMMON-STOCK> 138,863<F2>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> (10,719)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 155,550<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,181,624<F1>
<NET-ASSETS> 63,207,061<F1>
<DIVIDEND-INCOME> 213,423<F1>
<INTEREST-INCOME> 88,163<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 312,305<F1>
<NET-INVESTMENT-INCOME> (10,719)<F1>
<REALIZED-GAINS-CURRENT> 155,550<F1>
<APPREC-INCREASE-CURRENT> 2,181,624<F1>
<NET-CHANGE-FROM-OPS> 2,326,455<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 78,106<F2>
<NUMBER-OF-SHARES-REDEEMED> (269)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 63,182,061<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 149,345<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 357,078<F1>
<AVERAGE-NET-ASSETS> 989,154<F2>
<PER-SHARE-NAV-BEGIN> 13.56<F2>
<PER-SHARE-NII> (.02)<F2>
<PER-SHARE-GAIN-APPREC> (.04)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 13.50<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Value Fund as a whole.
<F2>Information given pertains to Style Select Value Fund Class C.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 041
<NAME> STYLE SELECT INTERNATIONAL EQUITY CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-19-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 37,326,969<F1>
<INVESTMENTS-AT-VALUE> 37,023,094<F1>
<RECEIVABLES> 1,399,290<F1>
<ASSETS-OTHER> 525,037<F1>
<OTHER-ITEMS-ASSETS> 110,317<F1>
<TOTAL-ASSETS> 39,057,738<F1>
<PAYABLE-FOR-SECURITIES> 321,629<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 523,324<F1>
<TOTAL-LIABILITIES> 844,953<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 38,314,682<F1>
<SHARES-COMMON-STOCK> 1,841,936<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> 38,459<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 79,148<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (219,504)<F1>
<NET-ASSETS> 38,212,785<F1>
<DIVIDEND-INCOME> 228,370<F1>
<INTEREST-INCOME> 80,390<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 270,301<F1>
<NET-INVESTMENT-INCOME> 38,459<F1>
<REALIZED-GAINS-CURRENT> 79,148<F1>
<APPREC-INCREASE-CURRENT> (219,504)<F1>
<NET-CHANGE-FROM-OPS> (101,897)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,391,485<F2>
<NUMBER-OF-SHARES-REDEEMED> (549,549)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 38,187,785<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 129,340<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 318,262<F1>
<AVERAGE-NET-ASSETS> 20,300,455<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> 0.02<F2>
<PER-SHARE-GAIN-APPREC> (0.04)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.48<F2>
<EXPENSE-RATIO> 2.15<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select International Equity Fund as a
whole.
<F2>Information given pertains to Style Select International Equity Fund
Class A.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 042
<NAME> STYLE SELECT INTERNATIONAL EQUITY CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-19-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 37,326,969<F1>
<INVESTMENTS-AT-VALUE> 37,023,094<F1>
<RECEIVABLES> 1,399,290<F1>
<ASSETS-OTHER> 525,037<F1>
<OTHER-ITEMS-ASSETS> 110,317<F1>
<TOTAL-ASSETS> 39,057,738<F1>
<PAYABLE-FOR-SECURITIES> 321,629<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 523,324<F1>
<TOTAL-LIABILITIES> 844,953<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 38,314,682<F1>
<SHARES-COMMON-STOCK> 1,134,927<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> 38,459<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 79,148<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (219,504)<F1>
<NET-ASSETS> 38,212,785<F1>
<DIVIDEND-INCOME> 228,370<F1>
<INTEREST-INCOME> 80,390<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 270,301<F1>
<NET-INVESTMENT-INCOME> 38,459<F1>
<REALIZED-GAINS-CURRENT> 79,148<F1>
<APPREC-INCREASE-CURRENT> (219,504)<F1>
<NET-CHANGE-FROM-OPS> (101,897)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,160,928<F2>
<NUMBER-OF-SHARES-REDEEMED> (26,001)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 38,187,785<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 129,340<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 318,262<F1>
<AVERAGE-NET-ASSETS> 5,860,465<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> 0.02<F2>
<PER-SHARE-GAIN-APPREC> (0.08)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.44<F2>
<EXPENSE-RATIO> 2.80<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select International Equity Fund as a
whole.
<F2>Information given pertains to Style Select International Equity Fund
Class B.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 043
<NAME> STYLE SELECT INTERNATIONAL EQUITY CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> MAR-06-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 37,326,969<F1>
<INVESTMENTS-AT-VALUE> 37,023,094<F1>
<RECEIVABLES> 1,399,290<F1>
<ASSETS-OTHER> 525,037<F1>
<OTHER-ITEMS-ASSETS> 110,317<F1>
<TOTAL-ASSETS> 39,057,738<F1>
<PAYABLE-FOR-SECURITIES> 321,629<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 523,324<F1>
<TOTAL-LIABILITIES> 844,953<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 38,314,682<F1>
<SHARES-COMMON-STOCK> 87,909<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> 38,459<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 79,148<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (219,504)<F1>
<NET-ASSETS> 38,212,785<F1>
<DIVIDEND-INCOME> 228,370<F1>
<INTEREST-INCOME> 80,390<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 270,301<F1>
<NET-INVESTMENT-INCOME> 38,459<F1>
<REALIZED-GAINS-CURRENT> 79,148<F1>
<APPREC-INCREASE-CURRENT> (219,504)<F1>
<NET-CHANGE-FROM-OPS> (101,897)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 87,909<F2>
<NUMBER-OF-SHARES-REDEEMED> 0<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 38,187,785<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 129,340<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 318,262<F1>
<AVERAGE-NET-ASSETS> 490,933<F2>
<PER-SHARE-NAV-BEGIN> 12.60<F2>
<PER-SHARE-NII> 0.03<F2>
<PER-SHARE-GAIN-APPREC> (0.18)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.45<F2>
<EXPENSE-RATIO> 2.80<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select International Equity Fund as a
whole.
<F2>Information given pertains to Style Select International Equity Fund
Class C.
</FN>
</TABLE>
