As filed with the Securities and Exchange Commission on February 15, 2000
Securities Act File No. 333-11283
Investment Company Act File Act No. 811-07797
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
PRE-EFFECTIVE AMENDMENT NO. |_|
POST-EFFECTIVE AMENDMENT NO. 20 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 21
(Check appropriate box or boxes)
SUNAMERICA STYLE SELECT SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
The SunAmerica Center
733 Third Avenue
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 - 3rd Floor
New York, NY 10017-3204
(Name and Address for Agent for Service)
Copy to:
Margery K. Neale, Esq.
Swidler Berlin Shereff Friedman, LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph(b)
|_| on (date) pursuant to paragraph(b)
|_| 60 days after filing pursuant to paragraph(a)(1)
|_| on (date) pursuant to paragraph(a)(1)
|X| 75 days after filing pursuant to paragraph(a)(2)
|_| on (date) pursuant to paragraph(a)(2) of Rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
This Registration Statement incorporates by reference the Prospectus and
Statement of Additional Information as contained in Post-Effective Amendment No.
20 to Registrant's Registration Statement under the Securities Act of 1933 on
Form N-1A filed on November 1, 1999.
<PAGE>
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, 2000 PROSPECTUS
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SUNAMERICA STYLE SELECT SERIES(R)
o FOCUSED TECHNET PORTFOLIO
The Securities and Exchange Commission has
not approved or disapproved these securities
or passed upon the adequacy of this
prospectus. Any representation to the
contrary is a criminal offense.
[SUNAMERICA MUTUAL FUNDS LOGO]
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TABLE OF CONTENTS
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FUND HIGHLIGHTS................................................................2
SHAREHOLDER ACCOUNT INFORMATION................................................5
MORE INFORMATION ABOUT THE PORTFOLIO..........................................12
INVESTMENT STRATEGIES....................................................12
GLOSSARY.................................................................13
INVESTMENT TERMINOLOGY...............................................13
RISK TERMINOLOGY.....................................................14
FUND MANAGEMENT..........................................................15
INFORMATION ABOUT ADVISERS....................................................16
[SUNAMERICA MUTUAL FUNDS LOGO]
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FUND HIGHLIGHTS
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Q&A
A FOCUS strategy is one in which an Adviser actively invests in a small number
of holdings which constitute its favorite stock-picking ideas at any given
moment. A focus philosophy reflects the belief that, over time, the performance
of most investment managers' "highest confidence" stocks exceeds that of their
more diversified portfolios. Each Adviser may invest in up to 10 securities.
Each Adviser may invest in additional financial securities for the purpose of
cash management or to hedge a security in the Portfolio.
When deemed appropriate by an Adviser, the Portfolio may engage in ACTIVE
TRADING when it frequently trades its portfolio securities to achieve its
investment goal.
The "GROWTH" ORIENTED philosophy to which the Portfolio subscribes--that of
investing in securities believed to offer the potential for long-term growth of
capital--focuses on securities considered to have a historical record of
above-average earnings growth; to have significant growth potential; to have
above-average earnings growth or the ability to sustain earnings growth; to
offer proven or unusual products or services; or to operate in industries
experiencing increasing demand.
MARKET CAPITALIZATION represents the total market value of the outstanding
securities of a corporation.
The following questions and answers are designed to give you an overview of
SunAmerica Style Select Series, Inc. (the "Fund"), and to provide you with
information about one of the Fund's separate Portfolios and its investment goal,
principal investment strategy, and principal investment technique. The
investment goal may be changed without shareholder approval, although you will
receive notice of any change. There can be no assurance that the Portfolio's
investment goal will be met or that the net return on an investment in the
Portfolio will exceed what could have been obtained through other investment or
savings vehicles. More complete investment information is provided in chart
form, under "More Information About the Portfolio," which is on page 13 and the
glossary that follows on page 15.
Q: WHAT IS THE PORTFOLIO'S INVESTMENT GOAL, STRATEGY AND TECHNIQUE?
A:
<TABLE>
<CAPTION>
PRINCIPAL
INVESTMENT INVESTMENT PRINCIPAL INVESTMENT
PORTFOLIO GOAL STRATEGY TECHNIQUES
- --------- ---------- ---------- --------------------
<S> <C> <C> <C>
Focused long-term growth and active trading of primarily
TechNet growth of focus domestic, but also foreign,
Portfolio capital equity securities of companies
that demonstrate the potential
for long-term growth of capital and
that the Advisers believe will
benefit significantly from
technological advances or
improvements, without regard to
market capitalization.
</TABLE>
The Portfolio has three different professional Advisers, each with its own
investment methodology within a particular investment style. Each Adviser
manages a separate portion of the Portfolio using focus and growth strategies.
SunAmerica Asset Management Corp. ("SunAmerica") is the Portfolio's investment
manager and will initially allocate the assets of the Portfolio equally among
the Advisers. SunAmerica will also allocate new cash from share purchases and
redemption requests equally among the Advisers, unless SunAmerica determines,
subject to the review of the Board, that a different allocation of assets would
be in the best interests of the Portfolio and its shareholders.
SunAmerica intends, on a quarterly basis, to review the asset allocation in the
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 generally will then re-allocate cash flows among
the Advisers so as to effect a re-balancing of the Portfolio's asset allocation.
In addition, SunAmerica reserves the right, subject to the review of the Board,
to reallocate assets from one Adviser to another when it would be in the best
interests of the Portfolio and its shareholders to do so. In some instances, 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.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S TECHNIQUES
The Portfolio will primarily invest in companies whose principal businesses the
Advisers believe will significantly benefit from advances or improvements in
technology ("technology companies"). Technology companies include companies in
many industries that rely extensively on technology in their product development
or operations, are expected to benefit from technological advances and
improvements, or may be experiencing growth in sales and earnings driven by
technology related research, products or service. The broad industry categories
in which technology companies may be found include computer software and
hardware, network and capital broadcasting, internet and internet related
businesses, the development, production, sale, and distribution of goods or
services used in the broadcast and media industries, communications services or
equipment, the design, manufacture, or sale of electric components, defense and
data storage and retrieval, healthcare and biotechnology. The relative size of
the Portfolio's investment in these industries will vary from time to time, and
at times, a particular industry may not be represented in the Portfolio's
holdings of these particular industries.
The Portfolio may invest in non-U.S. companies, but in the event that the
Portfolio's holdings in non-U.S. companies exceeds 35% of net assets, SunAmerica
may require every Adviser to reduce proportionately the non-U.S. holdings.
Q: WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO?
A: The following section describes the principal risks of the Portfolio, while
the chart on page 13 describes various additional risks.
2
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RISKS OF INVESTING IN EQUITY SECURITIES
The Portfolio invests primarily in equity securities. As with any equity fund,
the value of your investment in the Portfolio may fluctuate in response to stock
market movements. You should be aware that the performance of different types of
equity stocks may decline under varying market conditions--for example, "value"
stocks may perform poorly under circumstances in which "growth" stocks in
general have continued to rise. In addition, individual stocks selected for the
Portfolio may underperform the market generally.
RISKS OF NON-DIVERSIFICATION
The Portfolio is non-diversified, which means that it can invest a larger
portion of its assets in the stock of a single company than can some other
mutual funds. By concentrating in a smaller number of stocks, the Portfolio's
risk is increased because the effect of each stock on the Portfolio's
performance is greater.
RISKS OF INVESTING IN SMALL COMPANIES
Stocks of smaller companies may be more volatile than, and not as readily
marketable as, those of larger companies.
RISKS OF INVESTING IN TECHNOLOGY COMPANIES
Technology companies may react similarly to certain market pressures and events.
They may be significantly affected by short product cycles, aggressive pricing
of products and services, competition from new market entrants, changes in
governmental regulation and obsolescence of existing technology. As a result,
the Portfolio's returns may be considerably more volatile than a fund that does
not invest in technology companies.
ADDITIONAL PRINCIPAL RISKS
Shares of the Portfolio are not bank deposits and are not guaranteed or insured
by any bank, SunAmerica or SunAmerica's affiliates, any government entity or the
Federal Deposit Insurance Corporation. As with any mutual fund, there is no
guarantee that the Portfolio will be able to achieve its investment goals. If
the value of the assets of the Portfolio goes down, you could lose money.
Q: HOW HAS THE PORTFOLIO PERFORMED HISTORICALLY?
A: Performance information for the Portfolio is not shown because it has been
in existence for less than one year.
Q: WHAT ARE THE PORTFOLIO'S EXPENSES?
A: The following table describes the fees and expenses that you may pay if you
buy and hold shares of the Portfolio.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS II
------- ------- --------
<S> <C> <C> <C>
SHAREHOLDER FEES (FEES PAID
DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)(1)............... 5.75% None 1.00%
Maximum Deferred Sales Charge (Load) (as a
percentage of amount redeemed)(2).................... None 4.00% 1.00%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends................................. None None None
Redemption Fee(3).................................... None None None
Exchange Fee......................................... None None None
Maximum Account Fee.................................. None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees...................................... 1.25% 1.25% 1.25%
Distribution and Service (12b-1) Fees(4)............. 0.35% 1.00% 1.00%
Other Expenses(5)....................................
----- ----- -----
Total Annual Fund Operating Expenses(5)..............
===== ===== =====
Expense Reimbursement(5).............................
Net Expenses(6)...................................... 1.97% 2.62% 2.62%
===== ===== =====
</TABLE>
(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1 million or more.
(2) Purchases of Class A shares over $1 million will be subject to a contingent
deferred sales charge (CDSC) on redemptions made within two years of
purchase. The CDSC on Class B shares applies only if shares are redeemed
within six years of their purchase. The CDSC on Class II shares applies
only if shares are redeemed within eighteen months of their purchase. See
page 5 for more information on the CDSC's.
(3) A $15.00 fee is imposed on wire and overnight mail redemptions.
(4) Because these fees are paid out of the Portfolio's assets on an on-going
basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
(5) Estimated.
(6) The Board of Directors, including a majority of the Independent Directors,
approved the Investment Advisory and Management Agreement subject to the
net expense ratios set forth above. SunAmerica may not increase such
ratios, which are contractually required by agreement with the Board of
Directors, without the approval of the Directors, including a majority of
the Independent Directors. The expense waivers and fee reimbursements will
continue indefinitely, subject to termination by the Directors, including a
majority of the Independent Directors.
3
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FUND HIGHLIGHTS
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EXAMPLE
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and that your investment has a 5% return each year and that
the Portfolio's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions and the net expenses shown in
the fee table your costs would be:
If you redeemed your investment at the end of the periods indicated:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
FOCUSED TECHNET PORTFOLIO
(Class A shares)................. $ $
(Class B shares).................
(Class II shares)................
<CAPTION>
If you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
FOCUSED TECHNET PORTFOLIO
(Class A shares).................
(Class B shares).................
(Class II shares)................
</TABLE>
4
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SHAREHOLDER ACCOUNT INFORMATION
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SELECTING A SHARE CLASS
The Portfolio offers three classes of shares through this Prospectus: Class A,
Class B and Class II shares.
Each class of shares has its own cost structure, so you can choose the one best
suited to your investment needs. Your broker or financial advisor can help you
determine which class is right for you.
CLASS A
o Front-end sales charges, as described below. There are several ways to
reduce these charges, also described below.
o Lower annual expenses than Class B or Class II shares.
CLASS B
o No front-end sales charge; all your money goes to work for you right away.
o Higher annual expenses than Class A shares.
o Deferred sales charge on shares you sell within six years of purchase, as
described below.
o Automatic conversion to Class A shares approximately one year after such
time that no CDSC would be payable upon redemption, as described below,
thus reducing future annual expenses.
CLASS II
o Front-end sales charge, as described below.
o Higher annual expenses than Class A shares.
o Deferred sales charge on shares you sell within eighteen months of
purchase, as described below.
o No conversion to Class A.
CALCULATION OF SALES CHARGES
CLASS A. Sales Charges are as follows:
<TABLE>
<CAPTION>
Sales Charge Concession to Dealers
------------------------------------------------------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
YOUR INVESTMENT PRICE INVESTED 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%
$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 1.00%
</TABLE>
INVESTMENTS OF $1 MILLION OR MORE. Class A shares are available with no
front-end sales charge. However, a 1% CDSC is imposed on any shares you sell
within one year of purchase and a 0.50% CDSC is charged on any shares you sell
after the first year and within the second year after purchase.
CLASS B. Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a CDSC on shares you sell within six
years of buying them. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
Class B deferred charges:
Years after purchase CDSC on shares being sold
1st or 2nd year........... 4.00%
3rd or 4th year........... 3.00%
5th year.................. 2.00%
6th year.................. 1.00%
7th year and thereafter... None
CLASS II. Sales Charges are as follows:
Sales Charge Concession to Dealers
---------------------------------------------------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
PRICE INVESTED PRICE
---------------------------------------------------
1.00% 1.01% 1.00%
There is also a CDSC of 1% on shares you sell within 18 months after you buy
them.
DETERMINATION OF CDSC. Each CDSC is based on the original purchase cost or the
current market value of the shares being sold, whichever is less. There is no
CDSC on shares you purchase through reinvestment of dividends. To keep your CDSC
as low as possible, each time you place a request to sell shares we will first
sell any shares in your account that are not subject to a CDSC. If there are not
enough of these shares available, we will sell shares that have the lowest CDSC.
FOR PURPOSES OF THE CDSC, WE COUNT ALL PURCHASES YOU MAKE DURING A CALENDAR
MONTH AS HAVING BEEN MADE ON THE FIRST DAY OF THAT MONTH.
5
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SHAREHOLDER ACCOUNT INFORMATION
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SALES CHARGE REDUCTIONS AND WAIVERS
WAIVERS FOR CERTAIN INVESTORS. Various individuals and institutions may purchase
CLASS A shares without front-end sales charges, including:
o financial planners, institutions, broker-dealer representatives or
registered investment advisers utilizing Fund shares in fee-based
investment products under an agreement with the Distributor (this
waiver may also apply to front-end sales charges of Class II shares)
o participants in certain retirement plans that meet applicable
conditions, as described in the Statement of Additional Information
o Fund Directors and other individuals, and their families, who are
affiliated with the Portfolio or any fund distributed by SunAmerica
Capital Services, Inc.
o selling brokers and their employees and sales representatives and
their families
o participants in "Net Asset Value Transfer Program"
We will generally waive the CDSC for CLASS B or CLASS II shares in the following
cases:
o within one year of the shareholder's death or becoming disabled
o taxable distributions from or loans to participants made by qualified
retirement plans or retirement accounts (not including rollovers) for
which SunAmerica Fund Services, Inc. serves as a fiduciary
o Fund Directors and other individuals, and their families, who are
affiliated with any Portfolio or any fund distributed by Sunamerica
Capital Services, Inc.
o to make payments through the Systematic Withdrawal Plan (subject to
certain conditions)
o participants in "Net Asset Value Transfer Program"
REDUCING YOUR CLASS A SALES CHARGES. There are several special purchase plans
that allow you to combine multiple purchases of Class A shares of SunAmerica
Mutual Funds to take advantage of the breakpoints in the sales charge schedule.
For information about the "Rights of Accumulation," "Letter of Intent,"
"Combined Purchase Privilege," and "Reduced Sales Charges for Group Purchases,"
contact your broker or financial advisor, or consult the Statement of Additional
Information.
TO UTILIZE: IF YOU THINK YOU MAY BE ELIGIBLE FOR A SALES CHARGE REDUCTION OR
CDSC WAIVER, CONTACT YOUR BROKER OR FINANCIAL ADVISOR.
REINSTATEMENT PRIVILEGE. If you sell shares of the Portfolio, within one year
after the sale, you may invest some or all of the proceeds of the sale in the
same share class of the Portfolio without a sales charge. A shareholder may use
the reinstatement privilege only one time after selling such shares. If you paid
a CDSC when you sold your shares, we will credit your account with the dollar
amount of the CDSC at the time of sale. All accounts involved must be registered
in the same name(s).
DISTRIBUTION AND SERVICE (12B-1) FEES
Each class of shares of each Portfolio has its own 12b-1 plan that provides for
distribution and account maintenance and service fees (payable to the
Distributor) based on a percentage of average daily net assets, as follows:
ACCOUNT MAINTENANCE AND
CLASS DISTRIBUTION FEE SERVICE FEE
A 0.10% 0.25%
B 0.75% 0.25%
II 0.75% 0.25%
Because 12b-1 fees are paid out of the Portfolio's assets on an ongoing basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much you want to invest. The minimum initial investment for
each class of the Portfolio is as follows:
o non-retirement account: $500
o retirement account: $250
o dollar cost averaging: $500 to open; you must invest at least $25
a month The minimum subsequent investment for the Portfolio is as
follows:
o non-retirement account: $100
o retirement account: $25
3. Complete the appropriate parts of the Account Application, carefully
following the instructions. If you have questions, please contact your
broker or financial advisor or call Shareholder/Dealer Services at
1-800-858-8850, extension 5125.
4. Complete the appropriate parts of the Supplemental Account Application. By
applying for additional investor services now, you can avoid the delay and
inconvenience of having to submit an additional application if you want to
add services later.
5. Make your initial investment using the chart on the next page. You can
initiate any purchase, exchange or sale of shares through your broker or
financial advisor.
6
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BUYING SHARES
OPENING AN ACCOUNT
BY CHECK
o Make out a check for the investment amount, payable to the Focused
TechNet Portfolio or SunAmerica Funds.
o Deliver the check and your completed Account Application (and
Supplemental Account Application, if applicable) to your broker or
financial advisor, or mail them to:
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue New York, New York 10017-3204.
ADDING TO AN ACCOUNT
o Make out a check for the investment amount payable to the Focused
TechNet Portfolio or SunAmerica Funds.
o Include the stub from your Fund statement or a note specifying the
Focused TechNet Portfolio, your share class, your account number and
the name(s) in which the account is registered.
o Indicate the Focused TechNet Portfolio and account number in the memo
section of your check.
o Deliver the check and your stub to your broker or financial advisor,
or mail them to:
NON-RETIREMENT ACCOUNTS:
SunAmerica Fund Services, Inc.
c/o NFDS
P.O. Box 419373 Kansas City, Missouri 64141-6373
RETIREMENT ACCOUNTS:
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
OPENING AN ACCOUNT
BY WIRE
o Deliver your completed application to your broker or financial advisor
or fax it to SunAmerica Fund Services, Inc. at 212-551-5585.
o Obtain your account number by referring to your statement or by
calling your broker or financial advisor or Shareholder/Dealer
Services at 1-800-858-8850, ext. 5125.
ADDING TO AN ACCOUNT
o Instruct your bank to wire the amount of your investment to:
State Street Bank & Trust Company
Boston, MA
ABA #0110-00028
DDA # 99029712
Specify the Focused TechNet Portfolio, your choice of share class, your new
Portfolio number and account number and the name(s) in which the account is
registered. Your bank may charge a fee to wire funds.
o Instruct your bank to wire the amount of your investment to:
State Street Bank & Trust Company
Boston, MA
ABA #0110-00028
DDA # 99029712
Specify the Focused TechNet Portfolio, your share class, your Portfolio number,
account number and the name(s) in which the account is registered. Your bank may
charge a fee to wire funds.
TO OPEN OR ADD TO AN ACCOUNT USING DOLLAR COST AVERAGING, SEE "ADDITIONAL
INVESTOR SERVICES."
7
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SHAREHOLDER ACCOUNT INFORMATION
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SELLING SHARES
HOW
THROUGH YOUR BROKER OR FINANCIAL ADVISOR
o Accounts of any type.
o Sales of any amount.
REQUIREMENTS
o Call your broker or financial advisor to place your order to sell
shares.
- --------------------------------------------------------------------------------
HOW
BY MAIL
o Accounts of any type.
o Include all signatures and any additional documents that may be
required (see next page).
REQUIREMENTS
o Write a letter of instruction indicating the Focused TechNet
Portfolio, your share class, your account number, the name(s) in which
the account is registered and the dollar value or number of shares you
wish to sell.
o Sales of $100,000 or more require the letter of instruction to have a
signature guarantee.
o A check will normally be mailed on the next business day to the
name(s) and address in which the account is registered, or otherwise
according to your letter of instruction.
o Mail the materials to:
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
- --------------------------------------------------------------------------------
HOW
BY PHONE
o Most accounts.
o Sales of less than $100,000.
REQUIREMENTS
o Call Shareholder/Dealer Services at 1-800-858-8850, extension 5125
between 8:30 a.m. and 7:00 p.m. (Eastern time) on most business days.
Indicate the Focused TechNet Portfolio, the name of the person
requesting the redemption, your share class, your account number, the
name(s) in which the account is registered and the dollar value or
number of shares you wish to sell.
o A check will be mailed to the name(s) and address in which the account
is registered.
- --------------------------------------------------------------------------------
HOW
BY WIRE
o Request by mail to sell any amount (accounts of any type).
o Request by phone to sell less than $100,000.
REQUIREMENTS
o Proceeds will normally be wired on the next business day. A $15 fee
will be deducted from your account.
TO SELL SHARES THROUGH A SYSTEMATIC WITHDRAWAL PLAN, SEE "ADDITIONAL INVESTOR
SERVICES."
8
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SELLING SHARES IN WRITING. In certain circumstances, you will need to make your
request to sell shares in writing. Corporations, executors, administrators,
trustees or guardians may need to include additional items with a request to
sell shares. You may also need to include a signature guarantee, which protects
you against fraudulent orders. You will need a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling shares worth $100,000 or more
o you are requesting payment other than by a check mailed to the address
of record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
o a broker or securities dealer
o a federal savings, cooperative or other type of bank
o a savings and loan or other thrift institution
o a credit union
o a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
TRANSACTION POLICIES
VALUATION OF SHARES. The net asset value per share (NAV) for the Portfolio and
each class is determined each business day at the close of regular trading on
the New York Stock Exchange (generally 4:00 p.m., Eastern time) by dividing the
net assets of each class by the number of such class's outstanding shares.
Investments for which market quotations are readily available are valued at
market at their price as of the close of regular trading on the New York Stock
Exchange for the day. All other securities and assets are valued at fair value
following procedures approved by the Directors.
BUY AND SELL PRICES. When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable CDSCs.
EXECUTION OF REQUESTS. The Portfolio is open on those days when the New York
Stock Exchange is open for regular trading. We execute buy and sell requests at
the next NAV to be calculated after the Portfolio receives your request in good
order. If the Portfolio or the Distributor receives your order before the
Portfolio's close of business (generally 4:00 p.m., Eastern time), you will
receive that day's closing price. If the Portfolio or the Distributor receives
your order after that time, you will receive the next business day's closing
price. If you place your order through a broker or financial advisor, you should
make sure the order is transmitted to the Portfolio before the Portfolio's close
of business. The Portfolio and the Distributor reserve the right to reject any
order to buy shares.
During periods of extreme volatility or market crisis, the Portfolio may
temporarily suspend the processing of sell requests, or may postpone payment of
proceeds for up to three business days or longer, as allowed by federal
securities laws.
The Portfolio may invest in securities that are primarily listed on foreign
exchanges that trade on weekends or other days when the Portfolio does not price
its shares. As a result, the value of the Portfolio's shares may change on days
when you will not be able to purchase or redeem your shares.
If the Portfolio determines that it would be detrimental to the best interests
of the remaining shareholders of the Portfolio to make payment of redemption
proceeds wholly or partly in cash, the Portfolio may pay the redemption price by
a distribution in kind of securities from the Portfolio in lieu of cash.
At various times, the Portfolio may be requested to redeem shares for which it
has not yet received good payment. The 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.
TELEPHONE TRANSACTIONS. For your protection, telephone requests are recorded in
order to verify their accuracy. In addition, Shareholder/Dealer Services will
take measures to verify the identity of the caller, such as asking for name,
account number, social security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, the Portfolio is responsible
for any loss that may occur to any account due to an unauthorized telephone
call. Also for your protection, telephone transactions are not permitted on
accounts whose names or addresses have changed within the past 30 days. At times
of peak activity, it may be difficult to place requests by phone. During these
times, consider sending your request in writing.
EXCHANGES. You may exchange shares of the Portfolio for shares of the same class
of any other fund distributed by SunAmerica Capital Services, Inc. Before making
an exchange, you should review a copy of the prospectus of the fund into which
you would like to exchange. All exchanges are subject to applicable minimum
investment requirements. A Systematic Exchange Program is described under
"Additional Investor Services."
9
<PAGE>
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SHAREHOLDER ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
If you exchange shares that were purchased subject to a CDSC, the CDSC will
continue to apply following the exchange. In determining the CDSC applicable to
shares being sold after an exchange, we will take into account the length of
time you held those shares prior to the exchange.
To protect the interests of other shareholders, we may cancel the exchange
privileges of any investors that, in the opinion of the Portfolio, are using
market timing strategies or making excessive exchanges. The Portfolio may change
or cancel its exchange privilege at any time, upon 60 days' written notice to
its shareholders. The Portfolio may also refuse any exchange order.
CERTIFICATED SHARES. Most shares are electronically recorded. If you wish to
have certificates for your shares, please call Shareholder/Dealer Services at
1-800-858-8850 extension 5125, for further information. You may sell or exchange
certificated shares only by returning the certificates to the Portfolio, along
with a letter of instruction and a signature guarantee. The Portfolio does not
issue certificates for fractional shares.
MULTI-PARTY CHECKS. The Fund may agree to accept a "multi-party check" in
payment for Portfolio shares. This is a check made payable to the investor by
another party and then endorsed over to the Portfolio by the investor. If you
use a multi-party check to purchase shares, you may experience processing
delays. In addition, the Fund is not responsible for verifying the authenticity
of any endorsement and assumes no liability for any losses resulting from a
fraudulent endorsement.
ADDITIONAL INVESTOR SERVICES
To select one or more of these additional services, complete the relevant
part(s) of the Supplemental Account Application. To add a service to an existing
account, contact your broker or financial advisor, or call Shareholder/Dealer
Services at 1-800-858-8850, extension 5125.
DOLLAR COST AVERAGING lets you make regular investments from your bank account
to the Portfolio or any other fund distributed by SunAmerica Capital Services of
your choice. You determine the frequency and amount of your investments, and you
can terminate your participation at any time.
SYSTEMATIC WITHDRAWAL PLAN may be used for routine bill payment or periodic
withdrawals from your account. To use:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account
(buying shares during a period when you are also selling shares of the
same fund is not advantageous to you, because of sales charges).
o Specify the payee(s) and amount(s). The payee may be yourself or any
other party (which may require a signature guarantee), and there is no
limit to the number of payees you may have, as long as they are all on
the same payment schedule. Each withdrawal must be at least $50.
o Determine the schedule: monthly, quarterly, semi-annually, annually or
in certain selected months.
o Make sure your dividends and capital gains are being reinvested.
You cannot elect the systematic withdrawal plan if you have requested
certificates for your shares.
SYSTEMATIC EXCHANGE PROGRAM may be used to exchange shares of the Portfolio
periodically for the same class of shares of one or more other fund distributed
by SunAmerica Capital Services, Inc,. To use:
o Specify the SunAmerica Mutual Fund(s) from which you would like money
withdrawn and into which you would like money invested.
o Determine the schedule: monthly, quarterly, semi-annually, annually or
in certain selected months.
o Specify the amount(s). Each exchange must be worth at least $50.
o Accounts must be registered identically; otherwise a signature
guarantee will be required.
ASSET PROTECTION PLAN (OPTIONAL) Anchor National Life Insurance Company offers
an Asset Protection Plan to certain investors in the Portfolio. The benefits of
this optional coverage payable at death will be related to the amounts paid to
purchase Portfolio shares and to the value of the Portfolio shares held for the
benefit of the insured persons. However, to the extent the purchased shares are
redeemed prior to death, coverage with respect to these shares will terminate.
Purchasers of the Asset Protection Plan are required to authorize periodic
redemptions of Portfolio shares to pay the premiums for this coverage. These
redemptions will not be subject to CDSCs, but will have the same tax
consequences as any other Portfolio redemptions.
The Asset Protection Plan will be available to eligible persons who enroll for
the coverage within a limited time period after shares in the Portfolio are
initially purchased or transferred. In addition, coverage cannot be made
available unless Anchor National knows for whose benefit shares are purchased.
For instance, coverage cannot be made available for shares registered in the
name of your broker unless the broker provides Anchor National with information
regarding the beneficial owners of the shares. In addition, coverage is
available only to shares purchased on behalf of natural persons between 21 and
75 years of age; coverage is not available with respect to shares purchased for
a retirement account. Other restrictions on the coverage apply. This coverage
may not be available in all states and may be subject to additional restrictions
or limitations. Purchasers of shares should also make themselves familiar with
the impact on the Asset
10
<PAGE>
Protection Plan coverage of purchasing additional shares, reinvestment of
dividends and capital gains distributions and redemptions.
Anchor National is a SunAmerica company.
Please call 1-800-858-8850, extension 5660 for more information, including the
cost of the Asset Protection Plan option.
RETIREMENT PLANS. SunAmerica Mutual Funds offer a range of qualified retirement
plans, including IRAs, Simple IRAs, Roth IRAs, SEPs, SARSEPs, 401(k) plans,
403(b) plans and other pension, educational and profit-sharing plans. Using
these plans, you can invest in any fund distributed by SunAmerica Capital
Services, Inc. with a low minimum investment of $250 or, for some group plans,
no minimum investment at all. To find out more, call Retirement Plans at
1-800-858-8850, extension 5134.
DIVIDEND, distribution AND ACCOUNT POLICIES
ACCOUNT STATEMENTS. In general, you will receive account statements as follows:
o after every transaction that affects your account balance (except a
dividend reinvestment or automatic purchase from or automatic
redemption to your bank account)
o after any changes of name or address of the registered owner(s)
o in all other circumstances, annually
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS. The Portfolio generally distributes most or all of its net earnings
in the form of dividends. Income dividends, if any, are paid at least annually
by the Portfolio.
DIVIDEND REINVESTMENTS. Your dividends and distributions, if any, will be
automatically reinvested in additional shares of the same share class on which
they were paid. Alternatively, dividends and distributions may be reinvested in
any other fund distributed by SunAmerica Capital Services, Inc. or paid in cash
(if more than $10). You will need to complete the relevant part of the Account
Application to elect one of these other options. For existing accounts, contact
your broker or financial advisor or call Shareholder/Dealer Services at
1-800-858-8850, extension 5125 to change dividend and distribution payment
options.
TAXABILITY OF DIVIDENDS. As long as the Portfolio meets the requirements for
being a tax-qualified regulated investment company, which the Portfolio intends
to do, it pays no federal income tax on the earnings that it distributes to
shareholders.
Consequently, dividends you receive from the Portfolio, whether reinvested or
taken as cash, are generally considered taxable. Distributions of the
Portfolio's long-term capital gains are taxable as capital gains; dividends from
other sources are generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
"BUYING INTO A DIVIDEND." You should note that if you purchase shares just
before a distribution, you will be taxed for that distribution like other
shareholders, even though that distribution represents simply a return of part
of your investment. You may wish to defer your purchase until after the record
date for the distribution, so as to avoid this tax impact.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions. If you hold Class B shares, you will not have a taxable event when
they convert into Class A shares.
OTHER TAX CONSIDERATIONS. If you are neither a lawful permanent resident nor a
citizen of the U.S. or if you are a foreign entity, ordinary income dividends
paid to you (which include distributions of net short-term capital gains) will
generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate
applies.
By law, the Portfolio must withhold 31% of your distributions and proceeds if
you have not provided a taxpayer identification number or social security
number.
This section summarizes some of the consequences under current federal tax law
of an investment in the Portfolio. It is not a substitution for professional tax
advice. Consult your tax advisor about the potential tax consequences of an
investment in the Portfolio under all applicable laws.
SMALL ACCOUNTS. If you draw down an account so that its total value is less than
$500 ($250 for retirement plan accounts), you may be asked to purchase more
shares within 60 days. If you do not take action, the Fund may close out your
account and mail you the proceeds. Alternatively, you may be charged a $2.00
monthly charge to maintain your account. Your account will not be closed if its
drop in value is due to Portfolio performance or the effects of sales charges.
11
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MORE INFORMATION ABOUT THE PORTFOLIO
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FUND INVESTMENT STRATEGIES
The Portfolio has an investment goal and a strategy for pursuing it. The chart
summarizes information about the Portfolio's investment approach. Following this
chart is a glossary that further describes the investment and risk terminology
that we use. Please review the glossary in conjunction with this chart.
<TABLE>
<CAPTION>
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FOCUSED TECHNET
<S> <C>
What is the Portfolio's investment goal? Long-term growth of capital
- -----------------------------------------------------------------------------------------------------------------------------------
What investment strategies Growth and focus
does the Portfolio use to implement
its investment goal?
- -----------------------------------------------------------------------------------------------------------------------------------
What are the Portfolio's principal o Active trading of equity securities of companies that offer
investment techniques? the potential for capital appreciation and that the Advisers
believe will benefit significantly from technological advances
or improvements, without regard to market capitalization
- -----------------------------------------------------------------------------------------------------------------------------------
In what other types of securities o Foreign securities
may the Portfolio significantly invest?
- -----------------------------------------------------------------------------------------------------------------------------------
In what type of securities may o Short-term investments
the Portfolio normally invest as (up to 10%)
part of efficient portfolio o Defensive instruments
management or for return o Options and futures
enhancement purposes? o Special situations
- -----------------------------------------------------------------------------------------------------------------------------------
What risks normally may o Stock market volatility
affect the Portfolio? o Securities selection
o Small market capitalization
o Technology company
o Foreign exposure
o Derivatives
o Hedging
o Emerging markets
o Non-diversification
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
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GLOSSARY
LARGE-CAP COMPANIES and MID-CAP COMPANIES generally have a substantial record of
operations (i.e., in business for at least five years) and are listed for
trading on the New York Stock Exchange or another national or international
stock exchange or, in some cases, are traded over the counter. SMALL-CAP
COMPANIES generally will be companies that have been in business for a shorter
period of time.
INVESTMENT TERMINOLOGY
CAPITAL APPRECIATION is growth of the value of an investment.
ACTIVE TRADING means that the Portfolio may engage, when the Adviser deems
appropriate, in frequent trading of portfolio securities to achieve its
investment goal. In addition, because the Portfolio may sell a security without
regard to how long it has held the security, active trading may have tax
consequences for certain shareholders, involving a possible increase in
short-term capital gains or losses. Active trading may result in high portfolio
turnover and correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Portfolio. During periods of
increased market volatility, active trading may be more pronounced.
EQUITY SECURITIES include common and preferred stocks, convertible securities,
warrants and rights.
LARGE-CAP COMPANIES are those with market caps within the Morningstar, Inc.
Large-Cap category. Currently, this range is $9.5 billion or higher.
MID-CAP COMPANIES are those with market caps within the Morningstar, Inc.
Mid-Cap category. Currently, this range is between $1.5 billion and 9.5 billion.
SMALL-CAP COMPANIES are those with market caps within the Morningstar, Inc.
Small-Cap category. Currently, this range is $1.5 billion or less.
FOREIGN SECURITIES are issued by companies located outside of the United States
and include securities issued by companies located in emerging markets. Foreign
securities may include American Depositary Receipts (ADRs) or other similar
securities that convert into foreign securities.
SHORT-TERM INVESTMENTS include money market securities such as short-term U.S.
government obligations, repurchase agreements, commercial paper, bankers'
acceptances and certificates of deposit. These securities provide the Portfolio
with sufficient liquidity to meet redemptions and cover expenses.
DEFENSIVE INVESTMENTS include high quality fixed income securities and money
market instruments. The Portfolio will make temporary defensive investments in
response to adverse market, economic, political or other conditions. When the
Portfolio takes a defensive position, it may miss out on investment
opportunities that could have resulted from investing in accordance with its
principal investment strategy. As a result, the Portfolio may not achieve its
investment goal.
OPTIONS AND FUTURES are derivative instruments involving the right to receive or
obligation to deliver assets or money depending on the performance of one or
more underlying assets or financial instruments.
A SPECIAL SITUATION arises when, in the opinion of the Adviser, the securities
of a particular issuer will be recognized and appreciated 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.
Investments 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.
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MORE INFORMATION ABOUT THE PORTFOLIO
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RISK TERMINOLOGY
STOCK MARKET VOLATILITY: The stock market as a whole could go up or down
(sometimes dramatically). This could affect the value of the securities in the
Portfolio's portfolio.
SECURITIES SELECTION: A strategy used by the Portfolio, or securities selected
by an Adviser, may fail to produce the intended return.
SMALL MARKET CAPITALIZATION: Companies with smaller market capitalizations tend
to be at early stages of development with limited product lines, market access
for products, financial resources, access to new capital, or depth in
management. It may be difficult to obtain reliable information and financial
data about these companies. Consequently, the securities of smaller companies
may not be as readily marketable and may be subject to more abrupt or erratic
market movements.
TECHNOLOGY COMPANY: The industries in which technology companies may be found
can be significantly affected by short product cycles, aggressive pricing of
products and services, competition from new market entrants, worldwide
scientific and technological developments and changes in governmental regulation
and policies.
FOREIGN EXPOSURE: Investors in foreign countries are subject to a number of
risks. A principal risk is that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. In
addition, there may be less publicly available information about a foreign
company and it may not be subject to the same uniform accounting, auditing and
financial reporting standards as U.S. companies. Foreign governments may not
regulate securities markets and companies to the same degree as the U.S.
government. Foreign investments will also be affected by local political or
economic developments and governmental actions. Consequently, foreign securities
may be less liquid, more volatile and more difficult to price than U.S.
securities. These risks are heightened when the issuer is in an emerging market.
DERIVATIVES: Derivatives are subject to general risks relating to heightened
sensitivity to market volatility, interest rate fluctuations, illiquidity and
creditworthiness of the counterparty to the derivatives transactions.
HEDGING: Hedging is a strategy in which the Adviser uses a derivative security
to reduce certain risk characteristics of an underlying security or portfolio of
securities. While hedging strategies can be very useful and inexpensive ways of
reducing risk, they are sometimes ineffective due to unexpected changes in the
market. Moreover, while hedging can reduce or eliminate losses, it can also
reduce or eliminate gains.
EMERGING MARKETS: An emerging market country is one that the World Bank, the
International Finance Corporation or the United Nations or its authorities has
determined to have a low or middle income economy. Historical experience
indicates that the markets or emerging market countries have been more volatile
than more developed markets; however, such markets can provide higher rates of
return to investors.
NON-DIVERSIFICATION: The Portfolio will hold up to thirty securities. As a
result, its performance may be affected more by a decline in the market price of
one stock than would be the case if the Portfolio were more diversified.
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FUND MANAGEMENT
MANAGER: SunAmerica Asset Management Corp. selects the Advisers for the
Portfolio, may manage certain portions of the Portfolio directly, provides
various administrative services, and supervises the daily business affairs of
the Portfolio. The Advisers are responsible for decisions to buy and sell
securities for the Portfolio, selection of broker-dealers and negotiation of
commission rates for their respective portion of the Portfolio. SunAmerica may
terminate any agreement with another Adviser without shareholder approval.
Moreover, SunAmerica has received an exemptive order from the Securities and
Exchange Commission that permits SunAmerica, subject to certain conditions, to
enter into agreements relating to the Portfolio with Advisers approved by the
Board of Directors 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 agreements with Advisers or continue the
employment of existing Advisers after events that would otherwise cause an
automatic termination of a subadvisory agreement. Shareholders of the Portfolio
have the right to terminate an agreement with an Adviser at any time by a vote
of the majority of the outstanding voting securities of the 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
the Portfolio. The annual rate of the investment advisory fee payable to
SunAmerica is 1.25% of average daily net assets. Payments to the Advisers for
their services is made by SunAmerica, not by the Portfolio.
SunAmerica, located in The SunAmerica Center, 733 Third Avenue, New York, New
York 10017, was organized in 1982 under the laws of Delaware, and manages,
advises and/or administers assets in excess of $26 billion as of December 31,
1999. In addition to managing the Portfolio, SunAmerica serves as adviser,
manager and/or administrator for Anchor Pathway Fund, Anchor Series Trust,
Brazos Mutual Funds, Seasons Series Trust, SunAmerica Equity Funds, Inc.,
SunAmerica Income Funds, SunAmerica Money Market Funds, Inc., SunAmerica Series
Trust and SunAmerica Strategic Investment Series, Inc.
15
<PAGE>
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INFORMATION ABOUT ADVISERS
- --------------------------------------------------------------------------------
THE ADVISERS AND PORTFOLIO MANAGER FOR THE PORTFOLIO ARE DESCRIBED BELOW:
DESCRIPTION OF THE ADVISERS
AMERINDO INVESTMENT ADVISORS, INC. Amerindo is a California corporation with its
principal office located at One Embarcadero Center, Suite 2300, San Francisco,
California 94111. As of September 30, 1999, Amerindo had approximately $3.1
billion in assets under management.
DRESDNER RCM GLOBAL INVESTORS LLC. Dresdner is an indirect wholly owned
subsidiary of Dresdner Bank AG, an international banking organization, and is
located at Four Embarcadero Center, San Francisco, California 94111. As of
December 31, 1999, Dresdner had approximately $87.2 billion in total assets
under management.
<TABLE>
<CAPTION>
NAME, TITLE AND AFFILIATION OF
PORTFOLIO MANAGER EXPERIENCE
- ------------------------------ ----------
<S> <C>
DONNA CALDER PRIOR TO JOINING SUNAMERICA AS A PORTFOLIO MANAGER
PORTFOLIO MANAGER (SUNAMERICA) IN FEBRUARY 1998, MS. CALDER SERVED AS A GENERAL
PARTNER OF MANHATTAN CAPITAL PARTNERS, L.P.
SOOHWAN KIM, CFA SOOHWHAN KIM JOINED SUNAMERICA AS A SENIOR RESEARCH ANALYST IN
SENIOR TECHNOLOGY ANALYST JULY OF 1999. FROM 1993 TO JUST PRIOR TO HIS JOINING
(SUNAMERICA) SUNAMERICA, HE WAS A VICE PRESIDENT, ANALYST AT CITIBANK GLOBAL
ASSET MANAGEMENT. FROM 1992 TO 1993, HE SERVED AS AN ECONOMIST
WITH THE UNION BANK OF SWITZERLAND.
WALTER C. PRICE, JR. MR. PRICE JOINED DRESDNER IN 1974 AS A SENIOR SECURITIES
PORTFOLIO MANAGER (DRESDNER) ANALYST AND BECAME A PRINCIPAL IN 1978. MR. PRICE HAS
ANALYTICAL RESPONSIBILITY FOR MUCH OF DRESDNER'S TECHNOLOGY AREA.
HUACHEN CHEN MR. CHEN JOINED DRESDNER IN 1985 AS A SECURITIES ANALYST.
PORTFOLIO MANAGER (DRESDNER) HE BECAME A PRINCIPAL IN 1994 AND CURRENTLY HAS RESEARCH AND
MONEY MANAGEMENT RESPONSIBILITIES FOR TECHNOLOGY AND
ELECTRICAL EQUIPMENT AREAS.
ALBERT W. VILAR MR. VILAR, THE PRESIDENT OF AMERINDO, FOUNDED AMERINDO
PORTFOLIO MANAGER/ANALYST IN 1979 AND HAS BEEN A PRINCIPAL SINCE THAT TIME.
(AMERINDO) MR. VILAR BECAME A DIRECTOR OF AMERINDO IN 1985.
GARY A. TANAKA MR. TANAKA, THE EXECUTIVE VICE PRESIDENT OF AMERINDO,
PORTFOLIO MANAGER/TRADE FOUNDED AMERINDO IN 1980 AND HAS BEEN A PRINCIPAL
(AMERINDO) SINCE THAT TIME. MR. TANAKA BECAME A DIRECTOR OF AMERINDO
IN 1985.
</TABLE>
16
<PAGE>
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INFORMATION ABOUT ADVISERS
- --------------------------------------------------------------------------------
DISTRIBUTOR. SunAmerica Capital Services, Inc. distributes the Portfolio's
shares. The Distributor, a SunAmerica company, receives the initial and deferred
sales charges, all or a portion of which may be re-allowed to other
broker-dealers. In addition, the Distributor receives fees under the Portfolio's
12b-1 plans.
The Distributor, at its expense, may from time to time provide additional
compensation to broker-dealers (including in some instances, affiliates of the
Distributor) in connection with sales of shares of the Portfolio. This
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 II 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 the Portfolio, 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 number of shares of the Portfolio.
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 Portfolio's shares to qualify for this compensation to the extent receipt of
such compensation may be prohibited by applicable law or the rules of any
self-regulatory agency, such as 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
the Distributor 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 Portfolio's 12b-1 plans.
Banks and other financial services firms may be subject to various state laws
regarding these services, and may be required to register as dealers pursuant to
state law.
ADMINISTRATOR. SunAmerica Fund Services, Inc. assists the Portfolio's transfer
agent in providing shareholder services. The Administrator, a SunAmerica
company, is paid a monthly fee by the Portfolio for its services at the annual
rate of 0.22% of average daily net assets. This fee represents the full cost of
providing shareholder and transfer agency services to the Portfolio.
SunAmerica, the Distributor and Administrator are all located in The SunAmerica
Center, 733 Third Avenue, New York, New York 10017.
17
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<PAGE>
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<PAGE>
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FOR MORE INFORMATION
- --------------------------------------------------------------------------------
The following documents contain more information about the Portfolio and are
available free of charge upon request:
ANNUAL AND SEMI-ANNUAL REPORTS. Contain financial statements, performance
data and information on portfolio holdings. The annual reports also contain
a written analysis of market conditions and investment strategies that
significantly affected the Portfolio's performance during the last
applicable period.
STATEMENT OF ADDITIONAL INFORMATION (SAI). Contains additional information
about the Portfolio's policies, investment restrictions and business
structure. This prospectus incorporates the SAI by reference.
You may obtain copies of these documents or ask questions about the Portfolio by
contacting:
SunAmerica Fund Services, Inc.
Mutual Fund Operations
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
1-800-858-8850, extension 5125
or
by calling your broker or financial advisor.
Information about the Portfolio (including the SAI) can be reviewed and copied
at the Public Reference Room of the Securities and Exchange Commission,
Washington, D.C. Call 1-202-942-8090 for information on the operation of the
Public Reference Room. Information about the Portfolio is also available on the
Securities and Exchange Commission's web-site at http://www.sec.gov and copies
may be obtained upon payment of a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Public Reference
Section of the Securities and Exchange Commission, Washington, D.C. 20549-0102.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with any different information.
DISTRIBUTOR: Sun America Capital Services
INVESTMENT COMPANY ACT
File No. 811-07797
<PAGE>
SUNAMERICA STYLE SELECT SERIES(R)
FOCUSED TECHNET PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DATED ____________, 2000
The SunAmerica Center General Marketing and
733 Third Avenue Shareholder Information
New York, NY 10017-3204 (800) 858-8850
Focused TechNet Portfolio (the "Portfolio") is one of eleven separate
investment portfolios of SunAmerica Style Select Series, Inc. (the
"Corporation"). The Portfolio is managed by SunAmerica Asset Management Corp.
("SunAmerica"). The assets of the Portfolio are normally allocated among at
least three advisers (each, an "Adviser"), each of which is independently
responsible for advising its respective portion of the Portfolio's assets by
selecting, for the Portfolio, up to ten of its favorite securities that the
Adviser believes will significantly benefit from advancements or improvements in
technology. The Advisers may include SunAmerica and otherwise will consist of
professional investment advisers selected by SunAmerica subject to the review
and approval of the Corporation's Board of Directors. In choosing Advisers,
SunAmerica will seek to obtain, within the Portfolio's overall objective, a
distinct investment style. This Statement of Additional Information relates only
to the Focused TechNet Portfolio.
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Portfolio's Prospectus dated
_________________, 2000. To obtain a Prospectus free of charge, please call the
Corporation at (800) 858-8850. The Prospectus is incorporated by reference into
this Statement of Additional Information and this Statement of Additional
Information is incorporated by reference into the Prospectus. The Corporation's
audited financial statements are incorporated into this Statement of Additional
Information by reference to its 1999 annual report to shareholders. You may
request a copy of the annual report at no charge by calling (800) 858-8850 or
writing the Corporation at SunAmerica Fund Services, Inc., Mutual Fund
Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204. Capitalized terms used herein but not defined have the meanings
assigned to them in the Prospectus.
TABLE OF CONTENTS
PAGE
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THE CORPORATION..................................................... B-3
INVESTMENT OBJECTIVES AND POLICIES.................................. B-3
INVESTMENT RESTRICTIONS............................................. B-24
DIRECTORS AND OFFICERS.............................................. B-26
ADVISERS, DISTRIBUTOR AND ADMINISTRATOR............................. B-30
PORTFOLIO TRANSACTIONS AND BROKERAGE................................ B-34
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES................. B-35
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES............... B-40
EXCHANGE PRIVILEGE.................................................. B-41
DETERMINATION OF NET ASSET VALUE.................................... B-42
PERFORMANCE DATA.................................................... B-42
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................. B-46
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PAGE
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RETIREMENT PLANS.................................................... B-50
DESCRIPTION OF SHARES............................................... B-51
FINANCIAL STATEMENTS................................................ B-54
APPENDIX ........................................................... APPENDIX-1
No dealer, salesperson 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 Corporation, SunAmerica, any Adviser or SunAmerica Capital
Services (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.
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THE CORPORATION
The Corporation, organized as a Maryland corporation on July 3, 1996,
is a non-diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"). On
_________________, 2000, the Directors approved the creation of the Focused
TechNet Portfolio, one of eleven separate investment portfolios of the
Corporation (collectively, the "Portfolios").
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of the Portfolio are described in
the Portfolio's Prospectus. Certain types of securities in which the Portfolio
may invest and certain investment practices the Portfolio may employ, which are
described under "More Information about the Portfolio - Investment Strategies"
in the Prospectus, are discussed more fully below. Unless otherwise specified,
the Portfolio may invest in the following securities. The stated percentage
limitations are applied to an investment at the time of purchase unless
indicated otherwise.
TECHNOLOGY COMPANIES. The Portfolio will primarily invest in companies
whose principal businesses the Advisers believe will significantly benefit from
advances or improvements in technology ("technology companies"). Many of the
industries in which technology companies are found have exhibited and continue
to exhibit rapid growth, both through increasing demand for existing products
and services and the broadening of the technology market. In general, the stocks
of large capitalized companies that are well established in the technology
market can be expected to grow with the market. The expansion of technology and
its related industries, however, also provides a favorable environment for
investment in Small-cap to Mid-cap companies. The Portfolio's investment policy
is not limited to any minimum capitalization requirement and the Portfolio may
hold securities without regard to the capitalization of the issuer.
Companies in the rapidly changing fields of technology face special
risks. For example, their products or services may not prove commercially
successful or may become obsolete quickly. The value of the Portfolio's shares
may be susceptible to factors affecting technology companies and to greater risk
and market fluctuation than in investment in a Corporation that invests in a
broader range of portfolio securities not focused on any particular market
segment. Technology companies may be subject to greater governmental regulation
than many other companies and changes in governmental policies and the need for
regulatory approvals may have a material adverse effect on these companies.
Additionally, these companies may be subject to risks of developing
technologies, competitive pressure and other factors and are dependent upon
consumer and business acceptance as new technologies evolve.
WARRANTS AND RIGHTS. The 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. Rights represent a preemptive right of stockholders to
purchase additional shares of a stock at the time of a new issuance before the
stock is offered to the general public, allowing the stockholder to retain the
same ownership percentage after the new stock offering.
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CONVERTIBLE SECURITIES AND PREFERRED STOCKS. 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 that 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, the 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.
INVESTMENT IN SMALL, UNSEASONED COMPANIES. As described in the
Prospectus, the Portfolio may invest in the securities of small companies. While
such companies may realize more substantial growth than larger, more established
companies, they may also be subject to some additional risks. 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. 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 as compared to larger,
more established companies, and their securities may be subject to more abrupt
or erratic market movements than securities of larger, more established
companies or the market averages in general. In addition, certain smaller
issuers may face difficulties in obtaining the capital necessary to continue in
operation and may go into bankruptcy, which could result in a complete loss of
an investment. Smaller companies also may be less significant factors within
their industries and may have difficulty withstanding competition from larger
companies. If other investment companies and investors who invest in such
issuers trade the same securities when the Portfolio attempts to dispose of its
holdings, the Portfolio may receive lower prices than might otherwise be
obtained.
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.
The Portfolio may invest in securities of foreign issuers in the form
of American Depositary Receipts (ADRs). 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 that 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.
The 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
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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 that settles at the
Corporation'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 the 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.
Investments in foreign securities, including securities of emerging
market 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
and custodian fees than the U.S.; increased possibilities in some countries of
expropriation, confiscatory taxation, political, financial or social instability
or adverse diplomatic developments; the imposition of foreign taxes on
investment income derived from such countries; and differences (which may be
favorable or unfavorable) between the U.S. economy and foreign economies.
The performance of investments in securities denominated in a foreign
currency ("non-dollar securities") will depend on, among other things, the
strength of the foreign currency against the dollar and the interest rate
environment in the country issuing the foreign currency. Absent other events
that could otherwise affect the value of non-dollar securities (such as a change
in the political climate or an issuer's credit quality), appreciation in the
value of the foreign currency generally can be expected to increase the value of
the Portfolio's non-dollar securities in terms of U.S. dollars. A rise in
foreign interest rates or decline in the value of foreign currencies relative to
the U.S. dollar generally can be expected to depress the value of the
Portfolio's non-dollar securities. Currencies are evaluated on the basis of
fundamental economic criteria (e.g., relative inflation levels and trends,
growth rate forecasts, balance of payments status and economic policies) as well
as technical and political data.
Because the Portfolio may invest in securities that are listed
primarily on foreign exchanges that trade on weekends or other days when the
Corporation does not price its shares, the value of the Portfolio's shares may
change on days when a shareholder will not be able to purchase or redeem shares.
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
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of deposit, and is periodically adjusted. Certain variable rate obligations may
have a demand feature entitling the holder to resell the securities at a
predetermined amount. The interest rate on certain fixed income securities,
called "floating rate instruments," changes whenever there is a change in a
designated base rate.
The market values of fixed income securities tend to vary inversely
with the level of interest rates -- when interest rates rise, their values will
tend to decline; when interest rates decline, their values generally will tend
to rise. The potential for capital appreciation with respect to variable rate
obligations or floating rate instruments will be less than with respect to
fixed-rate obligations. Long-term instruments are generally more sensitive to
these changes than short-term instruments. The market value of fixed income
securities and therefore their yield are also affected by the perceived ability
of the issuer to make timely payments of principal and interest.
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. The 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.
INVESTMENT GRADE. A designation applied to intermediate and long-term
corporate debt securities rated within the highest four rating categories
assigned by Standard & Poor's (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.
U.S. GOVERNMENT SECURITIES. The 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. 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.
The 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 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 ("FMHA") and the Export-Import Bank are backed by the full faith
and credit of the United States.
The Portfolio may also invest in securities issued by U.S. government
instrumentalities and certain federal agencies that 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 ("FNMA"), the Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Land Banks, Central Bank for
Cooperatives, Federal Intermediate Credit Banks and Federal Home Loan
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Banks. In the case of securities not backed by the full faith and credit of the
United States, the Portfolio 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.
The 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 further discussed
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. The U.S. government or the issuing
agency guarantees the payment of interest and principal of these securities.
However, the guarantees do not extend to the securities' yield or value, which
are likely to vary inversely with fluctuations in interest rates. These
certificates are in most cases pass-through instruments, through which the
holder receives a share of all interest and principal payments, including
prepayments, on the mortgages underlying the certificate, net of certain fees.
The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through certificates.
Mortgage-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying mortgage obligations. Thus, the
actual life of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally result from
the sale of the underlying property or the refinancing or foreclosure of
underlying mortgages. The occurrence of prepayments is affected by a wide range
of economic, demographic and social factors and, accordingly, it is not possible
to predict accurately the average life of a particular pool. Yield on such pools
is usually computed by using the historical record of prepayments for that pool,
or, in the case of newly-issued mortgages, the prepayment history of similar
pools. The actual prepayment experience of a pool of mortgage loans may cause
the yield realized by the Portfolio to differ from the yield calculated on the
basis of the expected average life of the pool.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as does the value of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The reinvestment of scheduled
principal payments and unscheduled prepayments that the Portfolio receives may
occur at higher or lower rates than the original investment, thus affecting the
yield of the Portfolio. Monthly interest payments received by the Portfolio have
a compounding effect, which may increase the yield to shareholders more than
debt obligations that pay interest semi-annually. Because of those factors,
mortgage-backed securities may be less effective than U.S. 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. The
Portfolio may purchase mortgage-backed securities at a premium or at a discount.
The following is a description of GNMA, FNMA and FHLMC certificates,
the most widely available mortgage-backed securities: GNMA Certificates. GNMA
Certificates are mortgage-backed securities that evidence an undivided interest
in a pool or pools of mortgages. GNMA Certificates that the 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
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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 FMHA, or guaranteed by the Veterans Administration. The
GNMA guarantee is authorized by the National Housing Act and is backed by the
full faith and credit of the United States. The GNMA is also empowered to borrow
without limitation from the U.S. Treasury if necessary to make any payments
required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosure will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that the
Portfolio has purchased the certificates at a premium in the secondary market.
FHLMC CERTIFICATES. FHLMC issues two types of mortgage pass-through
securities: mortgage participation certificates ("PCs") and guaranteed mortgage
certificates ("GMCs") (collectively, "FHLMC Certificates"). PCs resemble GNMA
Certificates in that each PC represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. The FHLMC guarantees
timely monthly payment of interest (and, under certain circumstances, principal)
of PCs and the ultimate payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal once
a year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years. The FHLMC guarantee is not backed by the
full faith and credit of the U.S. government.
FNMA CERTIFICATES. 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 real estate mortgage investment conduits ("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.
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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 the Portfolio may
invest is a collateralized mortgage obligation ("CMO"). CMOs are fully
collateralized bonds that are the general obligations of the issuer thereof
(e.g., the U.S. government, a U.S. government instrumentality, or a private
issuer). Such bonds generally are secured by an assignment to a trustee (under
the indenture pursuant to which the bonds are issued) of collateral consisting
of a pool of mortgages. Payments with respect to the underlying mortgages
generally are made to the trustee under the indenture. Payments of principal and
interest on the underlying mortgages are not passed through to the holders of
the 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 structured to apply principal payments and
prepayments of the mortgage assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of CMOs may be issued in the parallel pay or sequential
pay structures. These securities include accrual certificates (also known as
"Z-Bonds"), which accrue interest at a specified rate only until all other
certificates having an earlier final distribution date have been retired and are
converted thereafter to an interest- paying security, and planned amortization
class ("PAC") certificates, which are parallel pay CMOs that generally require
that specified amounts of principal be applied on each payment date to one or
more classes of CMOs (the "PAC Certificates"), even though all other principal
payments and prepayments of the mortgage assets are then required to be applied
to one or more other classes of the certificates. The scheduled principal
payments for the PAC Certificates generally have the highest priority on each
payment date after interest due has been paid to all classes entitled to receive
interest currently. Shortfalls, if any, are added to the amount payable on the
next payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to create
PAC tranches, one or more tranches generally must be created to absorb most of
the volatility in the underlying mortgage assets. These tranches tend to have
market prices and yields that are much more volatile than the PAC classes.
The 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
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U.S. government securities in which the Portfolio invests. A common type of
stripped mortgage-backed security has one class receiving some or none of the
interest and all or most of the inter 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 the 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 the 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
the Portfolio's limitation on investments in illiquid securities.
ASSET-BACKED SECURITIES. The 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. Therefore, there is the possibility that the issuer of the
asset-backed security may be unable to meet its payments, in whole or in part,
to the holders of the asset-backed securities, including the Corporation. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support that fall into two categories:
(i) liquidity protection and (ii) protection against losses resulting from
ultimate default by an obligor on the underlying assets. Liquidity protection
refers to the provision of advances, generally by the entity administering the
pool of assets, to ensure that the receipt of payments on the underlying pool
occurs in a timely fashion. Protection against losses resulting from ultimate
default ensures payment through insurance policies or letters of credit obtained
by the issuer or sponsor from third parties. The 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.
ZERO COUPON BONDS, STEP-COUPON BONDS, DEFERRED INTEREST BONDS AND PIK
BONDS. Fixed income securities in which the 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
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which a change in interest rate is fixed contractually in advance. PIK bonds are
debt obligations that provide that the issuer thereof may, at its option, pay
interest on such bonds in cash or in the form of additional debt obligations.
Such investments may experience greater volatility in market value due to
changes in interest rates and other factors than debt obligations that make
regular payments of interest. The Portfolio will accrue income on such
investments for tax and accounting purposes, as required, that 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.
LOAN PARTICIPATIONS. The 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 a 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
that 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 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, the Portfolio may also invest up to 10% of its total
assets in 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 the Portfolio's portfolio during periods when an Adviser is unable
to locate favorable investment opportunities. For temporary defensive purposes,
the 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). The types of short-term and temporary defensive
investments in which the Portfolio may invest are described below:
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. The 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").
The Portfolio may also invest in notes and obligations issued by
foreign branches of U.S. and foreign commercial banks.
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SAVINGS ASSOCIATION OBLIGATIONS - Certificates of deposit
(interest-bearing time deposits) issued by mutual savings banks or
savings and loan associations with assets in excess of $1 billion and
whose deposits are insured by the FDIC. The 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. The Portfolio
may purchase commercial paper only if judged by the Adviser to be of
suitable investment quality. This includes commercial paper that is (a)
rated in the two highest categories by Standard & Poor's and by
Moody's, or (b) other commercial paper deemed on the basis of the
issuer's creditworthiness to be of a quality appropriate for the
Portfolio. See the Appendix for a description of the ratings. The
Portfolio will not purchase commercial paper described in (b) above if
such paper would in the aggregate exceed 15% of its total assets after
such purchase. The commercial paper in which the Portfolio may invest
includes variable amount master demand notes. Variable amount master
demand notes permit the 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 the
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 - The 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. The 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 the
Appendix for a 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. The Portfolio
may also purchase securities issued or guaranteed by a foreign
government, its agencies or instrumentalities. See "Foreign Securities"
above.
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REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase
agreements involving only securities in which it could otherwise invest and with
selected banks, brokers and securities dealers whose financial condition is
monitored by the Adviser, subject to the guidance of the Board of Directors. In
such agreements, the seller agrees to repurchase the security at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
either overnight or a few days, although it may extend over a number of months.
The repurchase price is in excess of the purchase price by an amount that
reflects an agreed-upon rate of return effective for the period of time the
Portfolio's money is invested in the security. Whenever the Portfolio enters
into a repurchase agreement, it obtains collateral having a value equal to at
least 102% (100% if such collateral is in the form of 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 under the repurchase agreement defaults,
the Portfolio may incur a loss if the value of the collateral securing the
repurchase agreements has declined and may incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization of the
collateral by the Portfolio may be delayed or limited. The Directors have
established guidelines to be used by the Adviser in connection with transactions
in repurchase agreements and will regularly monitor the Portfolio's use of
repurchase agreements. The 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 the Portfolio's net assets that may be
subject to repurchase agreements having a maturity of seven days or less for
temporary defensive purposes.
DIVERSIFICATION. The Portfolio is classified as "non-diversified" for
purposes of the 1940 Act, which means that it is not limited by the 1940 Act
with regard to the portion of assets that may be invested in the securities of a
single issuer. To the extent the Portfolio makes investments in excess of 5% of
its assets in the securities of a particular issuer, its exposure to the risks
associated with that issuer is increased.
Because the Portfolio invests in a limited number of issuers, the
performance of particular securities may adversely affect the Portfolio's
performance or subject the Portfolio to greater price volatility than that
experienced by diversified investment companies. The Portfolio intends to
maintain the required level of diversification and otherwise conduct its
operations in order to qualify as a "regulated investment company" for purposes
of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company under the Code, the Portfolio must, among other
things, diversify its holdings so that, at the end of each quarter of the
taxable year, (i) at least 50% of the market value of the Portfolio's assets is
represented by cash, U.S. government securities, the securities of other
regulated investment companies and other securities, with such other securities
of any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of the Portfolio's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. government securities or the securities of other regulated investment
companies).
In the unlikely event application of the Portfolio's strategy would
result in a violation of these requirements of the Code, the Portfolio would be
required to deviate from its strategy to the extent necessary to avoid losing
its status as a regulated investment company.
DERIVATIVES STRATEGIES. The Portfolio may write (i.e., sell) call
options ("calls") on securities that are traded on U.S. exchanges and
over-the-counter markets. After writing such a covered call, up to 25% of the
Portfolio's total assets may be subject to calls. All such calls written by the
Portfolio must be "covered" while the
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call is outstanding (i.e., the Portfolio must own the securities subject to the
call or other securities acceptable for applicable escrow requirements). 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.
In addition, the Portfolio could experience capital losses, which might
cause previously distributed short- term capital gains to be re-characterized as
a non-taxable return of capital to shareholders.
The Portfolio may also write put options ("puts"), which give the
holder of the option the right to sell the underlying security to the Portfolio
at the stated exercise price. The Portfolio will receive a premium for writing a
put option that increases the Portfolio's return. The Portfolio writes only
covered put options, which means that so long as the Portfolio is obligated as
the writer of the option it will, through its custodian, have deposited and
maintained cash or liquid securities denominated in U.S. dollars or non-U.S.
currencies with a securities depository with a value equal to or greater than
the exercise price of the underlying securities.
For hedging purposes, the Portfolio may use interest rate futures
contracts and stock and bond index futures contracts, including futures on U.S.
government securities (together, "Futures"); and call and put options on equity
and debt securities, Futures, stock and bond indices. All puts and calls on
securities, interest rate Futures or stock and bond index Futures or options on
such Futures purchased or sold by the Portfolio will normally be listed on
either (1) a national securities or commodities exchange or (2) over-the-counter
markets. Because the markets for these instruments are relatively new and still
developing, the ability of the Portfolio to engage in such transactions may be
limited. Derivatives may be used to attempt to: (i) protect against possible
declines in the market value of the Portfolio's portfolio resulting from
downward trends in the equity and debt securities markets (generally due to a
rise in interest rates); (ii) protect the Portfolio's unrealized gains in the
value of its equity and debt securities that have appreciated; (iii) facilitate
selling securities for investment reasons; or (iv) establish a position in the
equity and debt securities markets as a temporary substitute for purchasing
particular equity and debt securities.
The Portfolio's use of Futures and options on Futures will be
incidental to its activities in the underlying cash market. When hedging to
attempt to protect against declines in the market value of the portfolio, to
permit the Portfolio to retain unrealized gains in the value of portfolio
securities that have appreciated, or to facilitate selling securities for
investment reasons, the 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, the Portfolio could: (i) purchase Futures, or (ii) purchase
calls on such Futures or on securities. Additional information about the
derivatives the Portfolio may use is provided below.
OPTIONS
OPTIONS ON SECURITIES. As noted above, the Portfolio may write and
purchase call and put options on equity and debt securities.
When the 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.
The Portfolio has retained the risk of loss should the price of the underlying
security increase during the call period, which may be offset to some extent by
the premium.
To terminate its obligation on a call it has written, the Portfolio may
purchase a corresponding call in a
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"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 the Portfolio retains the underlying security and the
premium received. If the 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 the 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. The 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 the Portfolio will lose its premium payment and the right to
purchase the underlying investment.
A put option on securities gives the purchaser the right to sell, and
the writer the obligation to buy, the underlying investment at the exercise
price during the option period. Writing a put covered by segregated liquid
assets equal to the exercise price of the put has the same economic effect to
the Portfolio as writing a covered call. The premium the 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, the 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,
the Portfolio (as the writer of the put) realizes a gain in the amount of the
premium. If the put is exercised, the 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, the
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.
The 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 the 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. The 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 the 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 the 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 that the 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, the Portfolio could exercise or sell the put at a profit to
attempt to offset some or all of its loss
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on its portfolio securities.
When writing put options on securities, to secure its obligation to pay
for the underlying security, the Portfolio will deposit in escrow liquid assets
with a value equal to or greater than the exercise price of the underlying
securities. The Portfolio therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets. As long as the
obligation of the Portfolio as the put writer continues, it may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring the Portfolio to take delivery of the underlying security against
payment of the exercise price. The 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 the Portfolio effects a closing purchase transaction
by purchasing a put of the same series as that previously sold. Once the
Portfolio has been assigned an exercise notice, it is thereafter not allowed to
effect a closing purchase transaction.
The Portfolio may use spread transactions for any lawful purpose
consistent with the Portfolio's investment objective. The 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 the 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
the 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 the Portfolio against adverse changes in
prevailing credit quality spreads, i.e., the yield spread between high quality
and lower quality securities. Such protection is provided only during the life
of the spread option.
OPTIONS ON SECURITIES INDICES. As noted above, the 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 the Portfolio buys a call on a securities index, it pays a premium. During
the call period, upon exercise of a call by the 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 the
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, the Portfolio will
be required to deposit an initial margin payment with the futures commission
merchant (the "futures broker"). The initial margin will be deposited with the
Corporation'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
the 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
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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
the Portfolio's current or intended investments in fixed-income securities. For
example, if the Portfolio owned long-term bonds and interest rates were expected
to increase, the 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
the 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 the 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 the Portfolio's
interest rate futures contracts would be expected to increase at approximately
the same rate, thereby keeping the net asset value of the 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, the 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 the 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 the Portfolio's current or intended
investments from broad fluctuations in stock or bond prices. For example, the
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 the 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.
OPTIONS ON FUTURES. As noted above, the Portfolio may purchase and
write options on interest rate futures contracts, stock and bond index futures
contracts and forward contracts. (Unless otherwise specified, options on
interest rate futures contracts, options on stock and bond index 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, the
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities the Portfolio
intends to purchase. If a put or call option the Portfolio has written is
exercised, the Portfolio will incur a loss that 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, the Portfolio's losses from exercised Options on Futures
may to some extent be reduced or increased by changes in the value of portfolio
securities.
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The Portfolio may purchase Options on Futures for hedging purposes,
instead of purchasing or selling the underlying Futures contract. For example,
where a decrease in the value of portfolio securities is anticipated as a result
of a projected market-wide decline or changes in interest or exchange rates, the
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 the Portfolio will
increase prior to acquisition, due to a market advance or changes in interest or
exchange rates, the Portfolio could purchase call Options on Futures, rather
than purchasing the underlying Futures contract. If the market advances, the
increased cost of securities to be purchased may be offset by a profit on the
call. However, if the market declines, the Portfolio will suffer a loss equal to
the price of the call but the securities the Portfolio intends to purchase may
be less expensive.
ADDITIONAL INFORMATION ABOUT DERIVATIVES AND THEIR USE
The Corporation'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 the Portfolio's entering into
a closing transaction.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The Portfolio's
option activities may affect its turnover rate and brokerage commissions. The
exercise by the Portfolio of puts on securities will result in the sale of
related investments, increasing portfolio turnover. Although such exercise is
within the Portfolio's control, holding a put might cause the Portfolio to sell
the related investments for reasons that would not exist in the absence of the
put. The Portfolio will pay a brokerage commission each time it buys a put or
call, sells a call, or buys or sells an underlying investment in connection with
the exercise of a put or call. Such commissions may be higher than those that
would apply to direct purchases or sales of such underlying investments.
Premiums paid for options are small in relation to the market value of the
related investments, and consequently, put and call options offer large amounts
of leverage. The leverage offered by trading in options could result in the
Portfolio's net asset value being more sensitive to changes in the value of the
underlying investments.
In the future, the Portfolio may employ strategies that are not
presently contemplated but which may be developed, to the extent such investment
methods are consistent with the Portfolio's investment objectives, legally
permissible and adequately disclosed.
REGULATORY ASPECTS OF DERIVATIVES
The 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
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<PAGE>
securities acceptable to the broker and the relevant contract market.
Transactions in options by the Portfolio are subject to limitations
established by each of the exchanges governing the maximum number of options
that may be written or held by a single investor or group of investors acting in
concert, regardless of whether the options were written or purchased on the same
or different exchanges or are held in one or more accounts or through one or
more exchanges or brokers. Thus, the number of options the 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 the Portfolio purchases
a Future, the Portfolio will segregate cash or liquid securities in an amount
equal to the market value of the securities underlying such Future, less the
margin deposit applicable to it.
POSSIBLE RISK FACTORS IN HEDGING
Participation in the options or Futures markets involves investment
risks and transaction costs to which the Portfolio would not be subject absent
the use of these strategies. If the Adviser's predictions of movements in the
direction of the securities and interest rate markets are inaccurate, the
adverse consequences to the Portfolio may leave the Portfolio in a worse
position than if such strategies were not used. There is also a risk in using
short hedging by selling Futures to attempt to protect against decline in value
of the portfolio securities (due to an increase in interest rates) that the
prices of such Futures will correlate imperfectly with the behavior of the cash
(i.e., market value) prices of the Portfolio's securities. The ordinary spreads
between prices in the cash and Futures markets are subject to distortions due to
differences in the natures of those markets. First, all participants in the
Futures markets are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
Futures contracts through offsetting transactions that 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 the Portfolio establishes a position in the debt securities markets
as a temporary substitute for the purchase of individual debt securities (long
hedging) by buying Futures and/or calls on such Futures or on debt securities,
it is possible that the market may decline; if the Adviser 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 derivatives 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
the Portfolio's net assets determined as of the date of purchase may be invested
in illiquid securities, including repurchase agreements that 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 that are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities that
have not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
B-19
<PAGE>
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them, resulting in
additional expense and delay. There will generally be a lapse of time between a
mutual fund's decision to sell an unregistered security and the registration of
such security promoting sale. Adverse market conditions could impede a public
offering of such securities. When purchasing unregistered securities, the
Portfolio will seek to obtain the right of registration at the expense of the
issuer (except in the case of Rule 144A securities, as described below).
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
For example, restricted securities that 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, 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 that by its
terms can be liquidated before its nominal fixed-term on seven days or less
notice is regarded as a liquid instrument. 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). Subject to the applicable
limitation on illiquid securities investments, the Portfolio may acquire
securities issued by the U.S. government, its agencies or instrumentalities in a
private placement.
Commercial paper issues in which the 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 afforded by Section
4(2) of the Securities Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Section 4(2) paper that is issued by a company that files reports
under the Securities Exchange Act of 1934 is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described above. The 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.
B-20
<PAGE>
SHORT SALES. The 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, the 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 that 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. The 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. The
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.
The 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.
The 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.
BORROWING. As a matter of fundamental policy the Portfolio is
authorized to borrow up to 331/3% of its total assets for temporary or emergency
purposes. In seeking to enhance investment performance, the 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 the 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. The
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 the 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.
In seeking to enhance investment performance, the Portfolio may
increase its ownership of securities by borrowing at fixed rates of interest up
to the maximum extent permitted under the 1940 Act (presently 50% of net assets)
and investing the borrowed funds, subject to the restrictions stated in the
Prospectus. Any such borrowing will be made only pursuant to the requirements of
the 1940 Act and will be made only to the extent that the value of the
Corporation's assets less its liabilities, other than borrowings, is equal to at
least 300% of all borrowings including the proposed borrowing. If the value of
the Portfolio's assets, so computed, should fail to meet the 300% asset coverage
requirement, the Portfolio is required, within three business days, to reduce
its bank debt to the extent necessary to meet such requirement and may have to
sell a portion of its investments at a time when independent investment judgment
would not dictate such sale. Interest on money borrowed is an expense the
Portfolio would
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<PAGE>
not otherwise incur, so that it may have little or no net investment income
during periods of substantial borrowings. Since substantially all of the
Portfolio's assets fluctuate in value, but borrowing obligations are fixed when
the Portfolio has outstanding borrowings, the net asset value per share of the
Portfolio correspondingly will tend to increase and decrease more when the
Portfolio's assets increase or decrease in value than would otherwise be the
case. The Portfolio's policy regarding use of leverage is a fundamental policy,
which may not be changed without approval of the shareholders of the Portfolio.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Portfolio may lend portfolio securities in amounts up to 33
1/3% 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, the Portfolio receives income while retaining the securities'
potential for capital appreciation. The advantage of such loans is that the
Portfolio continues to receive the interest and dividends on the loaned
securities while at the same time earning interest on the collateral, which will
be invested in high-quality short-term debt securities, including repurchase
agreements. A loan may be terminated by the borrower on one business day's
notice or by the Portfolio at any time. If the borrower fails to maintain the
requisite amount of collateral, the loan automatically terminates, and the
Portfolio could use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will be made only to
firms deemed by the Adviser to be creditworthy. On termination of the loan, the
borrower is required to return the securities to the Portfolio; and any gain or
loss in the market price of the loaned security during the loan would inure to
the Portfolio. The Portfolio will pay reasonable finders', administrative and
custodial fees in connection with a loan of its securities or may share the
interest earned on collateral with the borrower.
Since voting or consent rights that accompany loaned securities pass to
the borrower, the Portfolio will follow the policy of calling the loan, in whole
or in part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Portfolio's investment in
the securities that are the subject of the loan.
REVERSE REPURCHASE AGREEMENTS. The 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. The 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. The Portfolio may enter into "dollar rolls" in which the
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,
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<PAGE>
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 that matures on or before the forward settlement date of the
dollar roll transaction. The Portfolio will enter into only 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 the Portfolio is required to
repurchase may be worth less than an instrument 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. The 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. The 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. The Portfolio will enter into interest-rate swaps only on a net
basis, which means that the two payment streams are netted out, with the
Portfolio receiving or paying, as the case may be, only the net amount of the
two payments. Interest-rate swaps do not involve the delivery of securities,
other underlying assets or principal. Accordingly, the risk of loss with respect
to interest-rate swaps is limited to the net amount of interest payments that
the Portfolio is contractually obligated to make. If the other party to an
interest-rate swap defaults, the Portfolio's risk of loss consists of the net
amount of interest payments that the Portfolio is contractually entitled to
receive. The use of interest-rate swaps is a highly specialized activity, which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. All of these investments may be
deemed to be
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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, SunAmerica 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.
The 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 a
reference pool or pools of mortgages.
The purchase of an interest-rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest-rate cap. The purchase of an interest-rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest-rate floor.
FUTURE DEVELOPMENTS. The Portfolio may invest in securities and other
instruments that do not presently exist but may be developed in the future,
provided that each such investment is consistent with the Portfolio's investment
objectives, policies and restrictions and is otherwise legally permissible under
federal and state laws. The Prospectus and Statement of Additional Information
will be amended or supplemented as appropriate to discuss any such new
investments.
INVESTMENT RESTRICTIONS
The Corporation has adopted for the Portfolio certain investment
restrictions that are fundamental policies and cannot be changed without the
approval of the holders of a majority of the 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. The Portfolio may not:
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<PAGE>
1. Invest more than 25% of the Portfolio's total assets in the
securities of issuers in the same industry. Obligations of the
U.S. Government, its agencies and instrumentalities are not
subject to this 25% limitation on industry concentration.
2. Invest in real estate (including limited partnership interests
but excluding securities of companies, such as real estate
investment trusts, that deal in real estate or interests
therein); provided that the 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. The Portfolio may engage in
transactions in put and call options on securities and
indices, spread transactions, forward and futures contracts on
securities and indices, put and call options on such futures
contracts, forward commitment transactions, interest rate,
mortgage and currency swaps and interest rate floors and caps
and may purchase hybrid instruments.
4. Make loans to others except for (a) the purchase of debt
securities; (b) entering into repurchase agreements; (c) the
lending of its portfolio securities; and (d) as otherwise
permitted by exemptive order of the SEC.
5. Borrow money, except that (i) the Portfolio may borrow in
amounts up to 331/3% of its total assets for temporary or
emergency purposes, (ii) the Portfolio may borrow for
investment purposes to the maximum extent permissible under
the 1940 Act (i.e., presently 50% of net assets), and (iii)
the 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 the
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 the Portfolio may enter into repurchase agreements,
reverse repurchase agreements, dollar rolls, lend its
portfolio securities and borrow money, 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 Portfolio primarily invests in companies whose principal businesses
are believed to be in a position to significantly benefit from advances or
improvements in technology (previously defined as "technology companies").
Technology companies may be found in many different industries, and for purposes
of investment restriction no. 1, "industry" is determined by reference to the
DIRECTORY OF COMPANIES FILING ANNUAL REPORTS WITH THE SECURITIES AND EXCHANGE
COMMISSION, published by the Securities and Exchange Commission.
The following additional restrictions are not fundamental policies and
may be changed by the Directors without a vote of shareholders. The Portfolio
may not:
8. Purchase securities on margin, provided that margin deposits
in connection with futures contracts,
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<PAGE>
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, the Portfolio may pledge assets in reverse
repurchase agreements, dollar rolls and similar investment
strategies described in the Prospectus and Statement of
Additional Information, as they may be amended from time to
time.
10. Invest in securities of other registered investment companies,
except by purchases in the open market, involving only
customary brokerage commissions and as a result of which not
more than 10% of its total assets (determined at the time of
investment) would be invested in such securities, or except as
part of a merger, consolidation or other acquisition.
11. Enter into any repurchase agreement maturing in more than
seven days or investing in any other illiquid security if, as
a result, more than 15% of the 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
Corporation, their ages, business addresses, and principal occupations during
the past five years. For the purposes of this Statement of Additional
Information, the SunAmerica Mutual Funds ("SAMF") consist of SunAmerica Equity
Funds, SunAmerica Income Funds, SunAmerica Money Market Funds, Inc., SunAmerica
Strategic Investment Series, Inc. and the Corporation. An asterisk indicates
those Directors who are interested persons of the Corporation within the meaning
of the 1940 Act.
<TABLE>
<CAPTION>
Position Principal Occupations
NAME, AGE AND ADDRESS WITH THE CORPORATION DURING PAST 5 YEARS
- --------------------- -------------------- -------------------
<S> <C> <C>
S. James Coppersmith, 66 Director Retired; formerly, President and General
7 Elmwood Road Manager, WCVB-TV, a division of the
Marblehead, MA 01945 Hearst Corporation, (1982 to 1994);
Director/Trustee of SAMF and Anchor Series
Trust ("AST").
Samuel M. Eisenstat, 59 Chairman of the Board Attorney, solo practitioner; Chairman of the
430 East 86th Street Boards of Directors/Trustees of SAMF and
New York, NY AST.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupations
NAME, AGE AND ADDRESS WITH THE CORPORATION DURING PAST 5 YEARS
- --------------------- -------------------- -------------------
<S> <C> <C>
Stephen J. Gutman, 56 Director Partner and Managing Member of B.B.
515 East 79th Street Associates LLC (menswear specialty
New York, NY 10021 retailing and other activities) since June
1988; Director/Trustee of SAMF and AST.
Peter A. Harbeck, *45 Director and President Director and President, SunAmerica Asset
The SunAmerica Center Management Corp. ("SunAmerica");
733 Third Avenue Director, SunAmerica Capital Service, Inc.
New York, NY ("SACS"), since August 1993; Director and
President, SunAmerica Fund Services, Inc.
("SAFS"), since May 1988; President, SAMF
and AST; Executive Vice President and Chief
Operating Officer, SunAmerica, from May 1988
to August 1995; Executive Vice President,
SACS, from November 1991 to August 1995;
Director, Resources Trust Company.
Sebastiano Sterpa, 70 Director Founder and Chairman of the Board of the
73473 Mariposa Drive Sterpa Group (real estate) since 1962;
Palm Desert, CA 92260 Director, Real Estate Business Service
and Countrywide Financial; Director/ Trustee
of SAMF.
J. Steven Neamtz, 39 Vice President Executive Vice President, SunAmerica,
The SunAmerica Center since April 1996; Director and President,
733 Third Avenue SACS, since April 1996; formerly,
New York, NY 10017-3204 Executive Vice President, New England
Funds, L.P. from July 1990 to April 1996.
Peter C. Sutton, 35 Treasurer Senior Vice President, SunAmerica, since
The SunAmerica Center April 1997; Treasurer, SAMF and AST,
733 Third Avenue since February 1996; Vice President and
New York, NY 10017-3204 Assistant Treasurer of SAST and APF, since
1994; Vice President, Seasons, since April 1997;
formerly, Vice President, SunAmerica, from 1994
to 1997; Controller, SAMF and AST, from March 1993
to February 1996; Assistant Controller, SAMF
and AST, from 1990 to 1993.
</TABLE>
B-27
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupations
NAME, AGE AND ADDRESS WITH THE CORPORATION DURING PAST 5 YEARS
- --------------------- -------------------- -------------------
<S> <C> <C>
Robert M. Zakem, 42 Secretary Senior Vice President and General
The SunAmerica Center Counsel, SunAmerica, since April 1993;
733 Third Avenue Executive Vice President, General
New York, NY 10017-3204 Counsel and Director, SACS, since August 1993;
Vice President, General Counsel and Assistant
Secretary, SAFS, since January 1994; Vice President,
SunAmerica Series Trust, Anchor Pathway and
Seasons Series Trust; Assistant Secretary,
SunAmerica Series Trust and Anchor Pathway Fund,
since September 1993; Assistant Secretary,
Seasons Series Trust, since April 1997; formerly,
Vice President and Associate General Counsel,
SunAmerica, from March 1992 to April 1993.
</TABLE>
* A Director who may be deemed to be an interested person as that term is
defined in the 1940 Act.
The Directors of the Corporation are responsible for the overall
supervision of the operation of the Corporation and each Portfolio and perform
various duties imposed on directors of investment companies by the 1940 Act and
under the Corporation's articles of incorporation. Directors and officers of the
Corporation 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. The Corporation pays each Director who is not an interested
person of the Corporation, 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 SAMF and/or AST, a
pro rata portion of which, based on relative net assets, is borne by the
Corporation.
In addition, each Disinterested Director also serves on the Audit
Committee of the Board of Directors. The Audit Committee is charged with
recommending to the full Board the engagement or discharge of the Corporation's
independent accountants; directing investigations into matters within the scope
of the independent accountants' duties; reviewing with the independent
accountants the audit plan and results of the audit; approving professional
services provided by the independent accountants and other accounting firms;
reviewing the independence of the independent accountants; considering the range
of audit and non-audit fees; and preparing and submitting Committee minutes to
the full Board. Each member of the Audit Committee receives an aggregate of up
to $5,000 in annual compensation for serving on the Audit Committees of SAMF
and/or AST, a pro rata portion of which, based on relative net assets, is borne
by the Corporation. The Corporation 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.
B-28
<PAGE>
The Directors (and Trustees) of SAMF and AST have adopted the
SunAmerica Disinterested Trustees' and Directors' Retirement Plan (the
"Retirement Plan") effective January 1, 1993 for the Disinterested 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
SAMF or AST (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. With respect to Sebastiano Sterpa, the
Disinterested Directors have determined to make an exception to existing policy
and allow Mr. Sterpa to remain on the Board past age 70, until he has served for
ten years. Mr. Sterpa will cease accruing retirement benefits upon reaching age
70, although such benefits will continue to accrue interest as provided for in
the Retirement Plan. 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 Corporation paid each Disinterested Director for his services as
Director for the fiscal year ended October 31, 1999. The Directors who are
interested persons of the Corporation receive no compensation.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual from Registrant
Compensation Accrued as Part of Benefits Upon and Corporation Complex
Director from Corporation Corporation Expenses* Retirement*+ Paid to Directors*
<S> <C> <C> <C> <C>
S. James Coppersmith $9,302 $41,035 $29,670 $65,000
Samuel M. Eisenstat** 9,740 36,130 46,083 69,000
Stephen J. Gutman 9,302 37,402 60,912 65,000
Sebastiano Sterpa*** 9,399 25,201 7,900 43,333
</TABLE>
* Information is for the six investment companies in the complex that pay
fees to these directors/trustees. The complex consists of SAMF and AST.
** Mr. Eisenstat receives additional compensation for serving as Chairman
of each of the boards in the complex, $300 of which is payable by the
Corporation.
*** Mr. Sterpa is not a trustee of AST.
+ Assuming participant elects to receive benefits in 15 yearly
installments.
As of February 1, 2000, the Directors and officers of the Corporation
owned in the aggregate less than 1% of each class of each Portfolio's total
outstanding shares.
B-29
<PAGE>
ADVISERS, PERSONAL SECURITIES TRADING, DISTRIBUTOR AND ADMINISTRATOR
SUNAMERICA ASSET MANAGEMENT CORP. SunAmerica, which was 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 the
Portfolio pursuant to the Investment Advisory and Management Agreement (the
"Management Agreement") with the Corporation, on behalf of the Portfolio.
SunAmerica is a wholly-owned subsidiary of SunAmerica Inc., which in turn is a
wholly-owned subsidiary of American International Group, Inc. ("AIG"), the
leading U.S.-based international insurance organization. AIG, a Delaware
corporation, is a holding company that through its subsidiaries is primarily
engaged in a broad range of insurance and insurance related activities and
financial services in the United States and abroad. AIG, through its
subsidiaries, is also engaged in a range of financial services activities. As of
December 31, 1999, SunAmerica managed, advised and/or administered more than $26
billion of assets.
Under the Management Agreement, and except as delegated to the Advisers
under the Subadvisory Agreements (as defined below), SunAmerica selects and
manages the investment of the Portfolio, provides various administrative
services and supervises the Corporation's daily business affairs, subject to
general review by the Directors.
Except to the extent otherwise specified in the Management Agreement,
the Portfolio pays, or causes to be paid, all other expenses of the Corporation
and the Portfolio, 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 Portfolio 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 regarding the Portfolio,
and supplements thereto, to the shareholders of the Portfolio; 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 Portfolio; postage; insurance premiums on property or
personnel (including Officers and Directors) of the Corporation that 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 Corporation's operation.
The annual rate of the investment advisory fee payable to SunAmerica is
1.25% of average daily net assets. Payments to the Advisers for their services
are made by SunAmerica, not by the Portfolio. SunAmerica has received an
exemptive order that, among other things, permits the Portfolio to disclose the
Advisers' fees only in the aggregate. The highest aggregate annual rate of fees
payable by SunAmerica to the Advisers of the Portfolio for the first year of
operation - I.E., the fee rate charged on the first dollar held by each
Portfolio - is [---%] of the average daily net assets of the Portfolio.
SunAmerica has agreed to waive fees or reimburse expenses, if
necessary, to keep operating expenses at or below an annual rate of 1.97% of the
assets of Class A shares and 2.62% of the assets of Class B and Class II shares
for the Portfolio. SunAmerica also may voluntarily waive or reimburse additional
amounts to increase the investment return to the Portfolio's investors. Further,
any waivers or reimbursements made by SunAmerica with respect to the Portfolio
are subject to recoupment from the 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 potential
reimbursements are accounted for as possible contingent liabilities that are not
recordable
B-30
<PAGE>
on the balance sheet of the Portfolio until collection is probable, but appear
as footnote disclosure to the Portfolio's financial statements. At such time as
it appears probable that the Portfolio is able to effect such reimbursement and
that SunAmerica intends to seek such reimbursement, the amount of the
reimbursement will be accrued as an expense of the Portfolio for that current
period.
The Management Agreement continues in effect with respect to the
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 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 the Portfolio at any time, without penalty, on 60
days' written notice by the Directors, by the holders of a majority of the
Portfolio's outstanding voting securities or by SunAmerica. The Management
Agreement automatically terminates with respect to the 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 Portfolio, or its shareholders, for any act or omission by it or for any
losses sustained by the Portfolio or their shareholders, except in the case of
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
THE ADVISERS. Dresdner RCM Global Investors ("Dresdner") and Amerindo Investment
Advisors Inc. ("Amerindo") act as Advisers to the Portfolio pursuant to various
subadvisory agreements with SunAmerica. SunAmerica also advises a portion of the
Portfolio as an Adviser.
Dresdner and Amerindo are independent of SunAmerica and discharge their
responsibilities subject to the policies of the Directors and the supervision of
SunAmerica, which pays Dresdner's and Amerindo's fees. Dresdner is a
[wholly-owned subsidiary] of [_______________]. Amerindo is a California
corporation.
As described in the Prospectus, SunAmerica will initially allocate the
assets of the Portfolio equally among the Advisers, and subsequently allocations
of new cash flow and of redemption requests will be made equally among the
Advisers of the Portfolio unless SunAmerica determines, subject to the review of
the Directors, that a different allocation of assets would be in the best
interests of the Portfolio and its shareholders. The Corporation expects that
differences in investment returns among the portions of the Portfolio managed by
different Advisers will cause the actual percentage of the Portfolio's assets
managed by each Adviser to vary over time. In general, the 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 the Portfolio and its shareholders.
In addition, SunAmerica intends, on a quarterly basis, to review the asset
allocation in the 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 reallocate cash
flows among the Advisers so as to effect a rebalancing of the Portfolio's asset
allocation. 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. The aggregate annual rates, as a percentage
of daily net assets, of the fees payable by SunAmerica to the Advisers for the
Portfolio may vary according to the level of assets of the Portfolio.
The Subadvisory Agreements continue in effect for a period of two years
from the date of their execution, unless terminated sooner. Thereafter, they may
be renewed from year to year, 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
B-31
<PAGE>
the Management Agreement. Under the terms of the Subadvisory Agreements, no
Adviser is liable to the Portfolio, or its shareholders, for any act or omission
by it or for any losses sustained by the Portfolio or its shareholders, except
in the case of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties. SunAmerica may terminate any agreement with
an Adviser without shareholder approval. Moreover, SunAmerica has received an
exemptive order from the SEC that permits SunAmerica, subject to certain
conditions, to enter into agreements relating to the Corporation with Advisers
approved by the Board of Directors 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
funds, change the terms of particular agreements with Advisers or continue the
employment of existing Advisers after events that would otherwise cause an
automatic termination of a subadvisory agreement. Shareholders will be notified
of any Adviser changes.
PERSONAL SECURITIES TRADING. The Corporation and SunAmerica have
adopted a written Code of Ethics (the "Code of Ethics"), which prescribes
general rules of conduct and sets forth guidelines with respect to personal
securities trading by "Access Persons" thereof. An Access Person is defined in
the SunAmerica Code as an individual who is a trustee, director, officer,
general partner or advisory person of the Corporation or SunAmerica. The topics
covered in the guidelines on personal securities trading include: (i) securities
being considered for purchase or sale, or purchased or sold, by any investment
company advised by SunAmerica, (ii) initial public offerings, (iii) private
placements, (iv) blackout periods, (v) short-term trading profits, (vi) gifts,
and (vii) services as a director. Access Persons may invest in securities,
including securities in which the Corporation may invest, subject to the
limitations set forth in the Code of Ethics. The guidelines and restrictions in
the Code of Ethics comply with Rule 17j-1 under the 1940 Act and 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 SunAmerica Code by Access Persons of the
Corporation 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 SunAmerica Code and comply with Rule 17j-1 under the 1940 Act.
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 Corporation insofar as such violations related to the
Corporation. In turn, SunAmerica reports to the Board of Directors as to whether
there were any violations of the SunAmerica Code by Access Persons of the
Corporation or SunAmerica.
THE DISTRIBUTOR. The Corporation, 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 AIG, to act as the principal underwriter in connection with the continuous
offering of each class of shares of each Portfolio. The address of the
Distributor is The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204.
The Distribution Agreement provides that the Distributor has the exclusive right
to distribute shares of the Portfolios through its registered representatives
and authorized broker-dealers. The Distribution Agreement also provides that the
Distributor will pay the promotional expenses, including the incremental cost of
printing prospectuses, annual reports and other periodic reports respecting each
Portfolio, for distribution to persons who are not shareholders of such
Portfolio and the costs of preparing and distributing any other supplemental
sales literature. However, certain promotional expenses may be borne by the
Portfolio (see "Distribution Plans" below).
The Distribution Agreement with respect to each Portfolio 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
Corporation and the Distributor each has the right to terminate the Distribution
Agreement with respect to the Portfolio on 60 days' written notice, without
penalty. The Distribution Agreement will terminate automatically in the event of
its assignment as defined
B-32
<PAGE>
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, SunAmerica Securities, Inc., Koegler Morgan
& Company, Financial Service Corporation and Advantage Capital Corporation,
affiliates of the Distributor, that sell or are expected to sell during
specified time periods certain minimum amounts of shares of the Portfolios, or
of other funds underwritten by the Distributor. In addition, the terms and
conditions of any given promotional incentive may differ from firm to firm. Such
differences will, nevertheless, be fair and equitable, and based on such factors
as size, geographic location, or other reasonable determinants, and will in no
way affect the amount paid to any investor.
DISTRIBUTION PLANS. As indicated in the Prospectus, the Directors of
the Corporation have adopted Distribution Plans (the "Class A Plan," the "Class
B Plan" and the "Class II Plan" and collectively, the "Distribution Plans")
pursuant to Rule 12b-1 under the 1940 Act. Reference is made to "Fund
Management-Distributor" in the Prospectus for certain information with respect
to the Distribution Plans.
Under the Class A Plan, the Distributor may receive payments from the
Portfolio at an annual rate of up to 0.10% of average daily net assets of the
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 II Plans, the Distributor may receive
payments from the Portfolio at the annual rate of up to 0.75% of the average
daily net assets of the Portfolio's Class B and Class II 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 II Plan will exceed the Distributor's distribution costs as
described above. The Distribution Plans provide that each class of shares of the
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.
Continuance of the Distribution Plans with respect to the Portfolio is
subject to annual approval by vote of the Directors, including a majority of the
Disinterested Directors who have no direct or indirect financial interest in the
operation of the Plans or in any agreements related to the Plans (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 the 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 the
Portfolio without payment of any penalty by vote of a majority of the
Independent Directors or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the affected class of shares of the
Portfolio. So long as the Distribution Plans are in effect, the election and
nomination of the Independent Directors of the Corporation 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 the 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.
B-33
<PAGE>
THE ADMINISTRATOR. The Corporation has entered into a Service
Agreement, under the terms of which SunAmerica Fund Services ("SAFS"), an
indirect wholly-owned subsidiary of AIG, acts as a servicing agent assisting
State Street Bank and Trust Company ("State Street") in connection with certain
services offered to the shareholders of the Portfolio. 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 Service Agreement will remain in effect for two years from the date
of approval with respect to the 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 receives a fee from the Corporation, computed and payable monthly
based upon an annual rate of 0.22% of average daily net assets. This fee
represents the full cost of providing shareholder and transfer agency services
to the Corporation. 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 that would be paid by the
Corporation). 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 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-analyses and reports concerning issuers, industries, securities,
economic factors and trends-and may cause the 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. The
research services consist of assessments and analysis of the business or
prospects of a company, industry or economic sector. Certain research services
furnished by brokers may be useful to the Adviser with respect to clients other
than the Corporation and not all of these services may be used by the Adviser in
connection with the Corporation. 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
B-34
<PAGE>
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 the Portfolio
as a factor in the selection of brokers for transactions effected on behalf of
the 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 the Portfolio
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 the Portfolio 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 the 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. Because each of the Advisers to the 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 Portfolio, resulting in higher brokerage commissions for the Portfolio.
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES
Upon making an investment in shares of the Portfolio, an open account
will be established under which shares of the Portfolio and additional shares
acquired through reinvestment of dividends and distributions will be held for
each shareholder's account by 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, extension 5125.
Shareholders who have met the Portfolio's minimum initial investment
may elect to have periodic purchases made through a dollar cost averaging
program. At the shareholder's election, such purchases may be made from their
bank checking or savings account on a monthly, quarterly, semi-annual or annual
basis. Purchases can be made via electronic funds transfer through the Automated
Clearing House or by physical draft check. Purchases made via physical draft
check require an authorization card to be filed with the shareholder's bank.
Shares of the Portfolio 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 (i) may be imposed at the time of purchase (Class A
shares), (ii) may be deferred (Class B shares, and purchases of Class A shares
in excess of $1 million) or (iii) may contain elements of a sales charge that is
both imposed at the time of purchase and deferred (Class II shares). Reference
is made to "Shareholder Account Information" in the Prospectus for certain
information as to the purchase of Portfolio shares.
B-35
<PAGE>
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. As discussed under
"Shareholder Account Information" in the Prospectus, the CDSC may be waived on
redemptions of Class B and Class II 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 or Class II shares are not redeemed within one year of the death,
they will remain Class B shares or Class II shares, as applicable, 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 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 the
Portfolio through dealers who 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 regular trading 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. The Portfolio will not be responsible for delays
caused by dealers.
PURCHASE BY CHECK. Checks should be made payable to the Focused TechNet
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 Portfolio 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 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 Portfolio at the net asset value next computed after
the check is received, plus the applicable sales charge. Subsequent purchases of
shares of the Portfolio 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 Corporation 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 Corporation in payment for the
purchase of shares); however, the processing of such a check may be subject to a
delay. The Corporation does not
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verify the authenticity of the endorsement of such multi-party check, and
acceptance of the check by the Corporation should not be considered verification
thereof. Neither the Corporation 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 purchased by check for which funds are being
collected. (See "Shareholder Account Information" 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 the Corporation's close of business, the purchase of shares of a Corporation
will be effected on that day. If the order is received after the Corporation's
close of business, 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 Corporation's Transfer Agent. Federal funds
purchase orders will be accepted only on a day on which the Corporation 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 SAFS at:
(212) 551- 5585.
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 Focused TechNet
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),
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 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 the Portfolio, one or
more of the other Portfolios (or in combination with the shares of other SAMF)
is at least $750,000, (b) the sponsor signs a $750,000 Letter of Intent, (c)
such shares are purchased by an employer-sponsored plan with at least 75
eligible employees, or (d) the purchases are by trustees or other fiduciaries
for certain employer-sponsored plans, the trustee, fiduciary or administrator
that 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
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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 "Shareholder
Account Information" in the Prospectus, investors in Class A shares of the
Portfolio may be entitled to reduced sales charges pursuant to the following
special purchase plans made available by the Corporation.
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:
1. an individual, or a "company" as defined in Section 2(a)(8) of
the 1940 Act (which includes corporations that are corporate
affiliates of each other);
2. an individual, his or her spouse and their minor children,
purchasing for his, her or their own account;
3. 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 Code);
4. tax-exempt organizations qualifying under Section 501(c)(3) of
the Code (not including 403(b) plans);
5. employee benefit plans of a single employer or of affiliated
employers, other than 403(b) plans; and
6. group purchases as described below.
A combined purchase currently may also include shares of other funds in
SAMF (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 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" establishes a total
investment goal in Class A shares of one or more Portfolios to be achieved
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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 that 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 Corporation to sell, the indicated amounts of the investment goal. In the
event the investment goal is not achieved within the thirteen-month period, the
investor is required to pay the difference between the sales charge otherwise
applicable to the purchases made during this period and sales charges actually
paid. Such payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the Letter of Intent to liquidate a sufficient
number of escrowed shares to obtain such difference. If the goal is exceeded and
purchases pass the next sales charge break-point, the sales charge on the entire
amount of the purchase that results in passing that break-point, and on
subsequent purchases, will be subject to a further reduced sales charge in the
same manner as set forth above under "Rights of Accumulation," but there will be
no retroactive reduction of sales charges on previous purchases. At any time
while a Letter of Intent is in effect, a shareholder may, by written notice to
the Distributor, increase the amount of the stated goal. In that event, shares
of the applicable Portfolio purchased during the previous 90-day period and
still owned by the shareholder will be included in determining the applicable
sales charge. The 5% escrow and the minimum purchase requirement will be
applicable to the new stated goal. Investors electing to purchase shares of one
or more of the Portfolios pursuant to this purchase plan should carefully read
such Letter of Intent.
REDUCED SALES CHARGE FOR GROUP PURCHASES. Members of qualified groups
may purchase Class A shares of the Portfolio under the combined purchase
privilege as described above.
To receive a rate based on combined purchases, group members must
purchase Class A shares of the 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 the
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 at least annually access to the group's membership
by means of written communication or direct presentation to the membership at a
meeting; (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.
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Members of a qualified group include: (i) any group that meets the
requirements stated above and 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 that 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 the Portfolio's shares for the benefit of any of the foregoing.
Interested groups should contact their investment dealer or the
Distributor. The Corporation reserves the right to revise the terms of or to
suspend or discontinue group sales with respect to shares of the Portfolio at
any time.
NET ASSET VALUE TRANSFER PROGRAM. Investors may purchase shares of the
Portfolio at net asset value to the extent that the investment represents the
proceeds from a redemption of a non-SunAmerica mutual fund in which the investor
either (a) paid a front-end sales load or (b) was subject to, or paid a CDSC on
the redemption proceeds. Shareholders may purchase either Class A, Class B or
Class II shares through the program to the extent that they previously held
shares of a non-SunAmerica Mutual Fund with a similar load structure to the
respective SunAmerica Mutual Fund share class. With respect to sales of Class A
shares through the program, the Distributor will pay a 0.50% commission and
0.25% service fee to any dealer who initiates or is responsible for such an
investment. With respect to sales of Class B shares through the program, they
will receive 0.50% of the amount invested as commission and 0.25% as a service
fee, payable beginning the 13th month following the purchase of such shares.
(Class B shares will convert to Class A shares as provided in the prospectus.).
These payments are subject, however, to forfeiture in the event of a redemption
during the first year from the date of purchase. No commission shall be paid on
sales of Class II shares, but dealers will receive a 1% service fee, commencing
immediately and paid quarterly. In addition, it is essential that a Net Asset
Value Transfer Program Form accompany the New Account Application to indicate
that the investment is intended to participate in the Net Asset Value Transfer
Program. This program may be revised or terminated without notice by the
Distributor. For current information, contact Shareholder/Dealer Services at
(800) 858-8850, extension 5125.
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
Reference is made to "Shareholder Account Information" 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 the Portfolio to make payment wholly
or partly in cash, the Corporation may pay the redemption price in whole, or in
part, by a distribution in kind of securities from the Portfolio in lieu of
cash. 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.
The Distributor is authorized, as agent for the Portfolio, to offer to
repurchase shares that 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 the Portfolio next-determined after the repurchase order is received,
less any applicable CDSC. Repurchase orders received by the Distributor after
the Portfolio's close of business will be priced based on the next business
day's close. Dealers may charge for their
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services in connection with the repurchase, but neither the Portfolio nor the
Distributor imposes any such charge. The offer to repurchase may be suspended at
any time.
EXCHANGE PRIVILEGE
Shareholders in the Portfolio may exchange their shares for the same
class of shares of any other Portfolio or other SunAmerica Mutual Funds that
offer 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 or subsequent investment requirements.
Notwithstanding the foregoing, shareholders may elect to make periodic exchanges
on a monthly, quarterly, semi- annual and annual basis through the Systematic
Exchange Program. Through this program, the minimum exchange amount is $50 and
there is no fee for exchanges made. All exchanges can be effected only 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, extension 5125.
If a shareholder acquires Class A shares through an exchange from
another SunAmerica Mutual Fund where the original purchase of such fund's Class
A shares was not subject to an initial sales charge because the purchase was in
excess of $1 million, such shareholder will remain subject to the CDSC, if any,
as described in the Prospectus 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 CDSC is applicable upon a redemption of any
of such shares.
A shareholder who acquires Class B or Class II shares through an
exchange from another SunAmerica Mutual Fund will retain liability for any
deferred sales charge 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 and the timing of conversion of Class B shares to Class A. A
shareholder's CDSC schedule will not change if such shareholder exchanges Class
C or Class II shares purchased prior to December 1, 1998 for Class II shares
(which currently have a longer CDSC schedule).
Because excessive trading (including short-term "market timing"
trading) can hurt the Portfolio's performance, the Portfolio may refuse any
exchange sell order (1) if it appears to be a market timing transaction
involving a significant portion of the 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, the Portfolio reserves the right to refuse any exchange
purchase order if, in the judgment of the Adviser, 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.
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DETERMINATION OF NET ASSET VALUE
The Corporation 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). The 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 such class.
Investments for which market quotations are readily available are valued at
their price as of the close of regular trading on the New York Stock Exchange
for the day. All other securities and assets are valued at fair value following
procedures approved by the Directors.
Stocks are valued based upon closing sales prices reported on
recognized securities exchanges or, for listed securities having no sales
reported and for unlisted securities, upon last reported bid prices.
Non-convertible bonds, debentures, other long-term debt securities and
short-term securities with original or remaining maturities in excess of 60
days, are normally valued at prices obtained for the day of valuation from a
bond pricing service of a major dealer in bonds, when such prices are available;
however, in circumstances in which the Adviser deems it appropriate to do so, an
over-the-counter or exchange quotation at the mean of representative bid or
asked prices may be used. Securities traded primarily on securities exchanges
outside the United States are valued at the last sale price on such exchanges on
the day of valuation, or if there is no sale on the day of valuation, at the
last-reported bid price. If a security's price is available from more than one
foreign exchange, the Portfolio uses the exchange that is the primary market for
the security. Short-term securities with 60 days or less to maturity are
amortized to maturity based on their cost to the Corporation if acquired within
60 days of maturity or, if already held by the Corporation on the 60th day, are
amortized to maturity based on the value determined on the 61st day. Options
traded on national securities exchanges are valued as of the close of the
exchange on which they are traded. Futures and options traded on commodities
exchanges are valued at their last sale price as of the close of such exchange.
Other securities are valued on the basis of last sale or bid price (if a last
sale price is not available) in what is, in the opinion of the Adviser, the
broadest and most representative market, that may be either a securities
exchange or the over-the-counter market. Where quotations are not readily
available, securities are valued at fair value as determined in good faith in
accordance with procedures adopted by the Board of Directors. The fair value of
all other assets is added to the value of securities to arrive at the
Portfolio's total assets.
The Portfolio's liabilities, including proper accruals of expense
items, are deducted from total assets.
PERFORMANCE DATA
The Portfolio may advertise performance data that reflects various
measures of total return and the 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.
The 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 II 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:
(a) The maximum sales load (i.e., either the front-end
sales load in the case of the Class A or Class II
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 II shares) is deducted from the
initial $1,000 purchase payment;
(b) All dividends and distributions are reinvested at net
asset value; and
(c) Complete redemption occurs at the end of the 1-, 5-,
or 10- year periods or fractional portion thereof
with all nonrecurring charges deducted accordingly.
The 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
The 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 the
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 Composite Stock Price 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.
c) Standard & Poor's 100 Stock Index -- an unmanaged index
based on the prices of 100 blue chip stocks, including
92 industrials, one utility, two transportation
companies, and five financial institutions. The
Standard & Poor's 100 Stock Index is a smaller, more
flexible index for options trading.
d) The NYSE composite or component indices -- unmanaged
indices of all industrial,
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utilities, transportation, and finance stocks listed on
the NYSE.
e) 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.
f) 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.
g) 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.
h) Mutual Fund Source Book, Principia and other
publications and information services provided by
Morningstar, Inc. -- analyzes price, risk and total
return for the mutual fund industry.
i) Financial publications: Wall Street Journal,
BusinessWeek, 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 that rate mutual fund performance
over specified time periods.
j) 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.
k) 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.
l) Savings and Loan Historical Interest Rates as published
in the U.S. Savings & Loan League Fact Book.
m) 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.
n) 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.
o) 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.
p) Value Line Geometric Index -- broad based index made up
of approximately 1700
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stocks each of which have an equal weighting.
q) 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.
r) 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.
s) 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.
t) 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.
u) 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
v) 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.
w) 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.
x) 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.
y) 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.
z) First Boston High Yield Index -- generally includes
over 180 issues with an
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<PAGE>
average maturity range of seven to ten years with a
minimum capitalization of $100 million. All issues are
individually trader-priced monthly.
aa) 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.
bb) Russell 2000 and 3000 Indices -- represents the top
2,000 and the top 3,000 stocks, respectively, traded on
the NYSE, American Stock Exchange and National
Association of Securities Dealers Automated Quotations,
by market capitalizations.
cc) 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 the 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 the Portfolio to calculate
its figures. Specifically, the Portfolio may compare its performance to that of
certain indices that include securities with government guarantees. However, the
Portfolio's shares do not contain any such guarantees. In addition, there can be
no assurance that the Portfolio will continue its performance as compared to
such other standards.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The 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. The Portfolio intends to distribute
any net capital gains from the sale of assets held for more than 12 months in
excess of any net short-term capital losses. The current policy of the Portfolio
is to pay investment income dividends, if any, at least annually. The 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-dividend 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.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, no interest will accrue
on amounts represented by uncashed dividend or distribution checks.
TAXES. The Portfolio intends to qualify and elect to be taxed as a regulated
investment company under Subchapter
B-46
<PAGE>
M of the Code for each taxable year. In order to be qualified as a regulated
investment company, the Portfolio generally must, among other things, (a) derive
at least 90% of its gross income from the sales or other disposition of
securities, dividends, interest, proceeds from loans of stock or securities and
certain other related income; and (b) diversify its holdings so that, at the end
of each fiscal quarter, (i) 50% of the market value of the 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 the 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, the 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. The Portfolio intends to distribute sufficient
income to meet this qualification requirement.
Under the Code, amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To avoid the tax, the 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, the Portfolio intends to make distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid during the calendar year if actually paid during such year.
Additionally, a distribution will be treated as paid on December 31 of a
calender year if it is declared by the Portfolio in October, November or
December of such year, payable to shareholders of record on a date in such month
and paid by the 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 the Portfolio that will be eligible for
the dividends received deduction for corporations will be determined on the
basis of the amount of the 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.
Distributions of net capital gains (i.e., the excess of net capital gains from
the sale of assets held for more than 12 months over net short-term capital
losses, and including such gains from certain transactions in futures and
options), if any, are taxable as capital gains to the shareholders, whether or
not reinvested and regardless of the length of time a shareholder has owned his
or her shares. The maximum capital gains rate for individuals is 20% with
respect to assets held for more than 12 months. The maximum capital gains rate
for corporate shareholders currently is the same as the maximum tax rate for
ordinary income.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on 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. In the case of an individual, any such capital gain will be
treated as short-term capital gain, taxable at the same rates as ordinary income
if the shares were held for not more than 12 months and capital gain taxable at
the maximum rate of 20% if such shares were held for more than 12 months. In the
case of a corporation, any such capital gain will be treated as long-term
capital gain, taxable at the same rates as ordinary income, if such
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<PAGE>
shares were held for more than 12 months. Any such loss will be treated as
long-term capital loss if such shares were held for more than 12 months. A loss
recognized on the sale or exchange of shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any
long-term capital gains distribution with respect to such shares.
Generally, any loss realized on a sale or exchange of shares of the
Portfolio will be disallowed if other shares of the Portfolio 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 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 the 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 the Portfolio will be subject, since the amount of
that Portfolio's assets to be invested in various countries is not known. 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, subject to certain limitations and the Portfolio and the
shareholders satisfying certain holding period requirements, use them as foreign
tax credits against their U.S. income taxes. No deductions for foreign taxes,
however, may be claimed by non- corporate shareholders who do not itemize
deductions. Of course, certain retirement accounts which are not subject to tax
cannot claim foreign tax credits on investments in foreign securities held in
the Portfolio. A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income resulting from
the Portfolio's election described in this paragraph but may not be able to
claim a credit or deduction against such U.S. tax for the foreign taxes treated
as having been paid by such shareholder.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Portfolio accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Portfolio actually collects such receivables
or pays such liabilities are treated as ordinary income or ordinary loss.
Similarly, gains or losses on forward foreign currency exchange contracts,
foreign currency gains or losses from futures contracts that are not "regulated
futures contracts" and from unlisted non-equity options, gains or losses from
sale of currencies or dispositions of debt securities denominated in a foreign
currency attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security and the date of disposition
generally also are treated as ordinary gain or loss. These gains, referred to
under the Code as "Section 988" gains or losses, increase or decrease the amount
of the Portfolio's investment company taxable income available to be distributed
to its shareholders as ordinary income. Additionally, if Code Section 988 losses
exceed other investment company taxable income during a taxable year, the
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, the Portfolio may be entitled to elect to
treat foreign currency gains on forward or futures contracts, or options
thereon, as capital gains.
The Code includes special rules applicable to the listed non-equity
options, regulated futures contracts, and
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<PAGE>
options on futures contracts which the Portfolio may write, purchase or sell.
Such options and contracts are classified as Section 1256 contracts under the
Code. The character of gain or loss resulting from the sale, disposition,
closing out, expiration or other termination of Section 1256 contracts, except
forward foreign currency exchange contracts, is generally treated as long-term
capital gain or loss to the extent of 60% thereof and short-term capital gain or
loss to the extent of 40% thereof ("60/40 gain or loss"). Such contracts, when
held by the 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 the
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 the 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 the Portfolio's transactions in options,
futures contracts and options on futures contracts, particularly its hedging
transactions, may constitute "straddles" which are defined in the Code as
offsetting positions with respect to personal property. A straddle consisting of
a listed option, futures contract, or option on a futures contract and of U.S.
Government securities would constitute a "mixed straddle" under the Code. The
Code generally provides with respect to straddles (i) "loss deferral" rules
which may postpone recognition for tax purposes of losses from certain closing
purchase transactions or other dispositions of a position in the straddle to the
extent of unrealized gains in the offsetting position, (ii) "wash sale" rules
which may postpone recognition for tax purposes of losses where a position is
sold and a new offsetting position is acquired within a prescribed period, (iii)
"short sale" rules which may terminate the holding period of securities owned by
the Portfolio when offsetting positions are established and which may convert
certain losses from short-term to long-term, and (iv) "conversion transaction"
rules which recharacterize capital gains as ordinary income. The Code provides
that certain elections may be made for mixed straddles that can alter the
character of the capital gain or loss recognized upon disposition of positions
which form part of a straddle. Certain other elections also are provided in the
Code; no determination has been reached to make any of these elections.
Code Section 1259 requires the recognition of gain (but not loss) if
the Portfolio makes a "constructive sale" of an appreciated financial position
(e.g., stock). The Portfolio generally will be considered to make a constructive
sale of an appreciated financial position if it sells the same or substantially
identical property short, enters into a futures or forward contract to deliver
the same or substantially identical property, or enters into certain other
similar transactions.
The 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 the Portfolio
and therefore is subject to the distribution requirements of the Code. Because
the original issue discount earned by the Portfolio in a taxable year may not be
represented by cash income, the Portfolio may have to dispose of other
securities and use the proceeds to make distributions to shareholders.
The 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).
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<PAGE>
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect.
Shareholders are urged to consult their tax advisors regarding specific
questions as to Federal, state and local taxes. In addition, foreign investors
should consult with their own tax advisors regarding the particular tax
consequences to them of an investment in the Portfolio. Qualification as a
regulated investment company under the Code for tax purposes does not entail
government supervision of management and investment policies.
RETIREMENT PLANS
Shares of the 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 the Portfolio by establishing any of the retirement plans described
below may be obtained by calling Retirement Plans at (800) 858-8850. However, it
is recommended that a shareholder considering any retirement plan consult a tax
adviser before participating.
PENSION AND PROFIT-SHARING PLANS. Sections 401(a) and 401(k) of the Code permit
business employers and certain associations to establish pension and profit
sharing plans for employees. Shares of the Portfolio may be purchased by those
who would have been covered under the rules governing old H.R. 10 (Keogh) Plans,
as well as by corporate plans. Each business retirement plan provides tax
advantages for owners and participants. Contributions made by the employer are
tax-deductible, and participants do not pay taxes on contributions or earnings
until withdrawn.
TAX-SHELTERED CUSTODIAL ACCOUNTS. Section 403(b)(7) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code, to purchase
shares of the Portfolio and, subject to certain limitations, exclude the amount
of purchase payments from gross income for tax purposes.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA). Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program, including
Simplified Employee Pension Plans, commonly referred to as SEP-IRA. Section 408A
of the Code treats Roth IRAs as IRAs subject to certain special rules applicable
thereto. 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 (SARSEP). 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.
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES ("SIMPLE IRA"). This plan was
introduced by a provision of the Small Business Job Protection Act of 1996 to
provide small employers with a simplified tax-favored retirement plan.
Contributions are deducted from the employee's paycheck before taxes and are
deposited into a SIMPLE IRA by the employer, who must make either matching
contributions or non-elective contributions. Contributions are tax-
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<PAGE>
deductible for the employer and participants do not pay taxes on contributions
on earnings until they are withdrawn.
ROTH IRA. This plan, introduced by Section 302 of the Taxpayer Relief Act of
1997, generally permits individuals with adjusted gross income of up to $95,000,
and married couples with joint adjusted gross income of up to $150,000, to
contribute to a "Roth IRA." Contributions are not tax-deductible, but
distribution of assets (contributions and earnings) held in the account for at
least five years may be distributed tax-free under certain qualifying
conditions.
EDUCATION IRA. Established by the Taxpayer Relief Act of 1997, under Section 530
of the Code, this plan permits individuals to contribute to an IRA on behalf of
any child under the age of 18. Contributions are not tax-deductible but
distributions are tax-free if used for qualified educational expenses.
DESCRIPTION OF SHARES
Ownership of the Corporation is represented by shares of common stock.
The total number of shares that the Corporation 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, shares of eleven Portfolios of the Corporation have been
authorized pursuant to the Corporation's Articles of Incorporation ("Articles"):
the Large-Cap Growth Portfolio, the Mid-Cap Growth Portfolio, the Aggressive
Growth Portfolio, the Large-Cap Value Portfolio, the Value Portfolio, the
Small-Cap Value Portfolio, the Focus Portfolio, the Focused Growth and Income
Portfolio, the Focused TechNet Portfolio, the Focused Value Portfolio and the
International Equity Portfolio. The Large-Cap Growth Portfolio, the Mid-Cap
Growth Portfolio, the Focused Growth and Income Portfolio, the Focused TechNet
Portfolio and the Focused Value Portfolio are divided into three classes of
shares, designated as Class A, Class B and Class II. The Aggressive Growth
Portfolio, Large-Cap Value Portfolio, Value Portfolio, Small-Cap Value
Portfolio, Focus Portfolio, and International Equity Portfolio are divided into
four classes of shares, designated as Class A, Class B, Class II 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
Corporation that would operate independently from the Corporation'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
Corporation's shares represents the interests of the shareholders of that
Portfolio in a particular portfolio of Corporation 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
Corporation 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. Also, a shareholders meeting must be called, if so
requested in writing by the holders of record of 10% or more of the outstanding
shares of the Corporation. 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
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approval of investment advisory agreements or changes in the Portfolio's
policies, only shareholders of the Portfolios affected by the matter may be
entitled to vote.
The classes of shares of the 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 II shares are subject to an initial sales
charge, a distribution fee, an ongoing account maintenance and service fee and a
CDSC, (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 Corporation 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 Corporation. In addition, shares
have no conversion rights, except as described above.
The Articles provide, to the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted (as limited by the 1940
Act) that no Director or officer of the Corporation shall be personally liable
to the Corporation or to stockholders for money damages. The Articles provide
that the Corporation shall indemnify (i) the Directors and officers, whether
serving the Corporation or 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 (as limited by the 1940 Act), 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 Corporation's By-laws and be permitted by law. The duration of
the Corporation shall be perpetual.
ADDITIONAL INFORMATION
COMPUTATION OF OFFERING PRICE PER SHARE.
The following is the offering price calculation for each Class of
shares of the Portfolio. The Class A, Class B and Class II calculations are
based on the estimated value of the Portfolio's net assets and number of shares
outstanding on the date such shares are first offered for sale to public
investors.
<TABLE>
<CAPTION>
FOCUSED TECHNET PORTFOLIO
----------------------------------------------------------
CLASS A CLASS B CLASS II
------- ------- --------
<S> <C> <C> <C>
Net Assets............................. $12,500 $12,500 $12,500
Number of Shares
Outstanding............................ 1000 1000 1000
Net Asset Value Per
Share (net assets
divided by number of
shares)................................ $12.50 $12.50 $12.50
</TABLE>
B-52
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<TABLE>
<CAPTION>
FOCUSED TECHNET PORTFOLIO
----------------------------------------------------------
CLASS A CLASS B CLASS II
------- ------- --------
<S> <C> <C> <C>
Sales charge for Class A Shares:
5.75% of offering
price (6.10% of net
asset value per
share)*................................ $0.76 -- --
Sales charge for Class II Shares:
1.00% of offering
price (1.01% of net
asset value per
share)*................................ -- -- $0.13
Offering Price......................... $13.26 -- $12.63
</TABLE>
- ------------------------------------
* Rounded to nearest one-hundredth percent; assumes maximum sales charge
is applicable.
REPORTS TO SHAREHOLDERS. The Corporation sends audited annual and unaudited
semi-annual reports to shareholders of the Portfolio. In addition, the Transfer
Agent sends a statement to each shareholder having an account directly with the
Corporation to confirm transactions in the account.
CUSTODIAN AND TRANSFER AGENCY. State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, MA 02171, serves as Custodian and Transfer Agent
for the Portfolio and in those capacities maintains certain financial and
accounting books and records pursuant to agreements with the Corporation.
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. PricewaterhouseCoopers LLP, 1177
Avenue of the Americas, New York, NY 10036, has been selected to serve as the
Corporation's independent accountants and in that capacity examines the annual
financial statements of the Corporation. The firm of Swidler Berlin Shereff
Friedman, LLP, The Chrysler Building, 405 Lexington Avenue, New York, New York
10174, has been selected as legal counsel to the Corporation.
FINANCIAL STATEMENTS
The Corporation's audited financial statements are incorporated into this
Statement of Additional Information by reference to its 1999 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 858-8850 or writing the Corporation at SunAmerica Fund Services,
Inc., Mutual Fund Operations, The SunAmerica Center, 733 Third Avenue, New York,
New York 10017-3204.
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APPENDIX
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
DESCRIPTION OF MOODY'S CORPORATE RATINGS
AAA Bonds 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 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 that
make the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds rated A possess many favorable investment attributes and
are considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but
elements may be present that suggest a susceptibility to
impairment sometime in the future.
BAA Bonds 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 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 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 rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect
to principal or interest.
CA Bonds rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds 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.
B-55
<PAGE>
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 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.
Appendix-2
<PAGE>
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 that 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 that exist with the issuer; and (8) recognition by management of
obligations that 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 Standard & 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 obligors 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 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.
Appendix-3
<PAGE>
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 that 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.
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 that is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior
debt that 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
Appendix-4
<PAGE>
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.
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 designated "A-1" that are 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."
Appendix-5
<PAGE>
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.
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-6
<PAGE>
PART C
OTHER INFORMATION
Item 23: Exhibits.
(a) (i) Articles of Incorporation, as Amended. Incorporated herein by
reference to Exhibit 1(A) of the Registrant's Registration
Statement on Form N-1A (File No. 333-11283) filed on August
30, 1996.
(ii) Articles Supplementary dated August 1, 1996. Incorporated
herein by reference to Exhibit 1(B) of the Registrant's
Registration Statement on Form N-1A (File No. 333- 11283)
filed on August 30, 1996.
(iii) Articles of Amendment dated August 19, 1996. Incorporated
herein by reference to Exhibit 1(C) of the Registrant's
Registration Statement on Form N-1A (File No. 333- 11283)
filed on August 30, 1996.
(iv) Articles of Amendment dated November 13, 1996. Incorporated
herein by reference to Exhibit 1(D) of Pre-Effective Amendment
No. 1 to the Registrant's Registration Statement on Form N-1A
(File No. 333-11283) filed on November 14, 1996.
(b) By-Laws. Incorporated herein by reference to Exhibit 2 of the
Registrant's Registration Statement on Form N-1A (File No. 333-11283)
filed on August 30, 1996.
(c) Instruments Defining Rights of Shareholders. Incorporated herein by
reference to Exhibits (a) and (b) above.
(d) (i) Investment Advisory Agreement between Registrant and
SunAmerica Asset Management Corp. ("SAAMCo"). To be filed by
amendment.
(ii) (A) Subadvisory Agreement between SAAMCo and Amerindo
Investment Advisors, Inc. To be filed by amendment.
(ii) (B) Subadvisory Agreement between SAAMCo and Dresdner RCM
Global Investors LLC. To be filed by amendment.
(e) (i) Distribution Agreement. Incorporated herein by reference to
the identically numbered Exhibit of Post-Effective Amendment
No. 13 to the Registrant's Registration Statement on Form N-1A
(File No. 333-11283) filed on February 26, 1999.
(ii) Form of Selling Agreement. Incorporated herein by reference to
Exhibit (e)(ii) of Post-Effective Amendment No. 12 to the
Registrant's Registration Statement on Form N-1A (File No.
333-11283) filed on December 30, 1998.
(f) Disinterested Trustees and Directors' Retirement Plan. Incorporated
herein by reference to Exhibit 7 of Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement on Form N-1A (File No.
333-11283) filed on November 14, 1996.
(g) Custodian Agreement. Incorporated herein by reference to Exhibit 8 of
Pre-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form N-1A (File No. 333- 11283) filed on November 14,
1996.
(h) (i) Service Agreement. Incorporated herein by reference to Exhibit
9(a) of Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A (File No.
C-1
<PAGE>
333-11283) filed on November 14, 1996.
(ii) Transfer Agency Agreement. Incorporated herein by reference to
Exhibit 9(b) of Pre- Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A (File No.
333-11283) filed on November 14, 1996.
(i) Opinion of Counsel to the Registrant. To be filed by amendment.
(j) Consent of Independent Accountants. Incorporated herein by reference to
the identically numbered Exhibit of Post-Effective Amendment No. 18 to
the Registrant's Registration Statement on Form N-1A (File No.
333-11283) filed on October 29, 1999.
(k) Not applicable.
(l) Not applicable.
(m) Distribution Plans. To be filed by amendment.
(n) Not applicable.
(o) (i) 18f-3 Plan. Incorporated herein by reference to Exhibit
5(b)(15) of Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File No.
333-11283) filed on June 15, 1998.
(ii) Powers of Attorney. Incorporated herein by reference to
Exhibit 17(a) of Pre- Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A (File No.
333-11283) filed on November 14, 1996.
Item 24. Persons Controlled by or Under Common Control with Registrant
There are no persons controlled by or under common control with
Registrant.
Item 25. 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 judgments, 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").
C-2
<PAGE>
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 judgment, order or settlement shall not create a presumption
that the Covered Person did not meet the required standard of conduct; the
termination of any proceeding by conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment, shall create
a rebuttable presumption that the Covered Person did not meet the required
standard of conduct. Any determination pursuant to this Section 5.02 shall not
prevent recovery from any Covered Person of any amount paid to him in accordance
with this By-Law as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to be liable by reason of
Disabling Conduct.
5.03 ADVANCE PAYMENT OF EXPENSES. Reasonable expenses (including
attorneys' fees) incurred by a Covered Person may be paid or reimbursed by the
Corporation in advance of the final disposition of an action, suit or proceeding
upon receipt by the Corporation of (i) a written affirmation by the Covered
Person of his good faith belief that the standard of conduct necessary for
indemnification under this By-Law has been met and (ii) a written undertaking by
or on behalf of the Covered Person to repay the amount if it is ultimately
determined that such standard of conduct has not been met, so long as either (A)
the Covered Person has provided a security for his undertaking, (B) the
Corporation is insured against losses arising by reason of any lawful advances,
or (C) a majority of a quorum of the Disinterested Non-Party Directors, or an
independent legal counsel in a written opinion, has determined, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.
5.04 EXCLUSIVITY, ETC. The indemnification and advance of expenses
provided by this By-Law shall not be deemed exclusive of any other rights to
which a Covered Person seeking indemnification or advance or expenses may be
entitled under any law (common or statutory), or any agreement, vote of
stockholders or disinterested directors, or other provision that is consistent
with law, both as to action in an official capacity and as to action in another
capacity while holding office or while employed by or acting as agent for the
Corporation, shall continue in respect of all events occurring while the Covered
Person was a director or officer after such Covered Person has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such Covered Person. The Corporation shall not
be liable for any payment under this By-Law in connection with a claim made by a
director or officer to the extent such director or officer has otherwise
actually received payment, under an insurance policy, agreement, vote or
otherwise, of the amounts otherwise indemnifiable hereunder. All rights to
indemnification and advance of expenses under the Charter and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this
By-Law is in effect. Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of any Covered Person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights to indemnification or advance of expenses of a Covered
Person or the obligations of the Corporation arising hereunder with respect to
events occurring, or claims made, while this 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.
C-3
<PAGE>
5.06 SEVERABILITY: DEFINITIONS. The invalidity or unenforceability of
any provision of this Article V shall not affect the validity or enforceability
of any other provision hereof. The phrase "this By-Law" in this Article V means
this Article V in its entirety.
Section 8 of the Article of Incorporation provides as follows:
(5) The Corporation shall indemnify (i) its directors and
officers, whether serving the Corporation or at its request any other entity, to
the full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under the
procedures and to the full extent permitted by law, and (ii) other employees and
agents to such extent as shall be authorized by the Board of Directors or the
By-Laws of the Corporation and as permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such By-Laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. The right of
indemnification provided hereunder shall not be construed to protect any
director or officer of the Corporation against any liability to the Corporation
or its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
(6) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or officer of the
Corporation shall be personally liable to the Corporation or its stockholders
for money damages; provided, however, that this provision shall not be construed
to protect any director or officer against any liability to the Corporation or
its security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. No amendment, modification or repeal of
this provision shall adversely affect any right or protection provided hereunder
that exists at the time of such amendment, modification or repeal.
Item 26. Business and other Connections of Investment Adviser
SunAmerica 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.
American Century Investment Management, Inc.; Amerindo Investment
Advisors, Inc.; Bankers Trust Company; Berger LLC.; David L. Babson &
Co., Inc.; Davis Selected Advisers, L.P.; Dresdner RCM Global Investors
LLC; Bramwell Capital Management, Inc.; EQSF Advisers, Inc.; Janus
Capital Corporation; Jennison Associates LLC; Lazard Asset Management;
Marsico Capital Management, LLC; Miller Anderson & Sherrerd, LLP;
Montag & Caldwell, Inc.; Neuberger Berman, LLC; Perkins, Wolf,
McDonnell & Company; Rowe-Price Fleming International, Inc.; T. Rowe
Price Associates, Inc.; Credit Suisse Asset Management, LLC; and
Wellington Management Company, LLP; the Advisers of certain of the
Portfolios of the Registrant, are primarily engaged in the business of
rendering investment advisory services. Reference is made to the 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.
--------
American Century Investment Management, Inc. 801-08174
Amerindo Investment Advisors, Inc. [801-]
Berger LLC 801-09451
Thornburg Investment Management, Inc. 801-00241
Davis Selected Advisers, L.P. 801-31648
Fred Alger Management, Inc. [801-]
Dresdner RCM Global Investors LLC; [801-]
C-4
<PAGE>
FILE NO.
--------
EQSF Advisers, Inc. [ ]
Janus Capital Corporation 801-13991
Jennison Associates LLC 801-05608
Lazard Asset Management 801-6568
Marsico Capital Management, LLC 801-54914
Miller Anderson & Sherrerd, LLP 801-10437
Montag & Caldwell, Inc. 801-15398
Neuberger Berman, LLC 801-03908
Perkins, Wolf, McDonnell & Company 801-19974
Rowe-Price Fleming International, Inc 801-14713
T. Rowe Price Associates, Inc. 801-00856
Credit Suisse Asset Management, Inc. 801-07321
Reference is made to Post-Effective Amendment No. 26 to BT Investment
Funds' Registration Statement on Form N-1A (File No. 33-07404) filed on
October 26, 1998 for a description of the names and employment of the
directors and officers of Bankers Trust Company.
Item 27. 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
SunAmerica Strategic Investment Series, Inc.
(b) The following persons are the officers and directors of
SunAmerica Capital Services, Inc., the principal underwriter
of Registrant's Shares:
<TABLE>
<CAPTION>
Name and Principal
BUSINESS ADDRESS POSITION WITH UNDERWRITER POSITION WITH THE REGISTRANT
------------------ ------------------------- ----------------------------
<S> <C> <C>
Peter A. Harbeck Director Director and President
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
J. Steven Neamtz President and Director Vice President
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Robert M. Zakem Executive Vice President, General Secretary and Chief Compliance
The SunAmerica Center Counsel and Director Officer
733 Third Avenue
New York, NY 10017-3204
Susan L. Harris Secretary None
SunAmerica, Inc.
1 SunAmerica Center
Los Angeles, CA 90067-6022
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Name and Principal
BUSINESS ADDRESS POSITION WITH UNDERWRITER POSITION WITH THE REGISTRANT
------------------ ------------------------- ----------------------------
<S> <C> <C>
Debbie Potash-Turner Chief Financial Officer and None
The SunAmerica Center Controller
733 Third Avenue
New York, NY 10017-3204
</TABLE>
(c) Not applicable.
Item 28. 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.
American Century Investment Management, Inc. is located at the American
Century Tower, 4500 Main Street, Kansas City, Missouri 64111.
Amerindo Investment Advisors, Inc. is located at One Embarcadero
Center, Suite 2300, San Francisco, California 94111.
Bankers Trust Company is located at 130 Liberty Street (One Bankers
Trust Plaza), New York 10006.
Berger LLC is located at 210 University Boulevard, Suite 900, Denver,
Colorado 80206.
Thornburg Investment Management, Inc. is located at19 East Marcy
Street, Santa Fe, New Mexico, 87501.
Davis Selected Advisers, L.P. is located at 124 East Marcy Street,
Santa Fe, New Mexico 87501.
Dresdner RCM Global Investors LLC is located at Four Embarcadero
Center, San Francisco, California 94111.
Fred Alger Management, Inc. is located at 1 World Trade Center, New
York, New York 10048.
EQSF Advisers, Inc. is located at 767 Third Avenue, New York, New York
10017.
Janus Capital Corporation is located at 100 Fillmore Street, Denver,
Colorado 80206-4923.
Jennison Associates LLC is located at 466 Lexington Avenue, New York,
NY 10017.
Lazard Asset Management is located at 30 Rockefeller Plaza, New York,
New York 10112.
Marsico Capital Management, LLC is located at 1200 17th Street, Suite
1300, Denver, CO 80202.
Miller Anderson & Sherrerd, LLP is located at One Tower Bridge, West
Conshohocken, Pennsylvania 19428.
Montag & Caldwell, Inc. is located at 3343 Peachtree Road, NE, Suite
1100, Atlanta, Georgia 30326-1022.
Neuberger Berman, LLC is located at 605 Third Avenue, New York, New
York 10158-0180.
C-6
<PAGE>
Perkins, Wolf, McDonnell & Company is located at 53 West Jackson
Boulevard, Suite 818, Chicago, Illinois 60604.
Rowe Price-Fleming International, Inc. is located at 100 East Pratt
Street, Baltimore, Maryland 21202.
T. Rowe Price Associates, Inc. is located at 100 East Pratt Street,
Baltimore, Maryland 21202.
Credit Suisse Asset Management, Inc. is located at 466 Lexington
Avenue, New York, New York, 10017- 3147.
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 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
(the "1933 Act") and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Post-Effective Amendment No. 20 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 15th day
of February, 2000.
SunAmerica Style Select Series, Inc.
By: *
--------------------------
Peter A. Harbeck
President
Pursuant to the requirements of the 1933 Act, the Post-Effective
Amendment No. 20 to the Registrant's Registration Statement on Form N-1A has
been signed below by the following persons in the capacities and on the date
indicated:
<TABLE>
<S> <C> <C>
* President and Director
- ------------------------------------ (Principal Executive Officer)
Peter A. Harbeck
/s/ Peter C. Sutton Treasurer February 15, 2000
- ------------------------------------ (Principal Financial and
Peter C. Sutton Accounting Officer)
* Director
- ------------------------------------
S. James Coppersmith
* Director
- ------------------------------------
Samuel M. Eisenstat
* Director
- ------------------------------------
Stephen J. Gutman
* Director
- ------------------------------------
Sebastiano Sterpa
*BY: /s/ Peter C. Sutton February 15, 2000
- ----------------------------
</TABLE>
- -----
Attorney-in-Fact
Peter C. Sutton
