UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21770
---------------------------------------------
SunAmerica Focused Alpha Growth Fund, Inc.
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(Exact name of registrant as specified in charter)
Harborside Financial Center, 3200 Plaza 5 Jersey City, NJ 07311
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(Address of principal executive offices) (Zip code)
Vincent M. Marra
Senior Vice President & Chief Operating Officer
AIG SunAmerica Asset Management Corp.
Harborside Financial Center,
3200 Plaza 5
Jersey City, NJ 07311
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(Name and address of agent for service)
Registrant's telephone number, including area code: (201) 324-6464
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Date of fiscal year end: December 31
--------------------------
Date of reporting period: December 31, 2005
-------------------------
Item 1. Reports to Stockholders
SunAmerica Focused Alpha Growth Fund, Inc. Annual Report at
December 31, 2005.
SUNAMERICA FOCUSED ALPHA GROWTH FUND
THOMAS F. MARSICO PHOTO RONALD BARON PHOTO
[MARSICO CAPITAL MANAGEMENT, LLC LOGO] [BARON LOGO]
2005 ANNUAL REPORT
[AIG SUNAMERICA MUTUAL FUNDS LOGO]
DECEMBER 31, 2005 ANNUAL REPORT
SUNAMERICA FOCUSED ALPHA GROWTH FUND
SUNAMERICA FOCUSED ALPHA GROWTH FUND (FGF)
TABLE OF CONTENTS
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<Table>
PRESIDENT'S LETTER.......................................... 1
FUND REVIEW................................................. 2
STATEMENT OF ASSETS AND LIABILITIES......................... 3
STATEMENT OF OPERATIONS..................................... 4
STATEMENT OF CHANGES IN NET ASSETS.......................... 5
FINANCIAL HIGHLIGHTS........................................ 6
PORTFOLIO OF INVESTMENTS.................................... 7
NOTES TO FINANCIAL STATEMENTS............................... 9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 14
APPROVAL OF ADVISORY AGREEMENTS............................. 15
DIVIDEND REINVEST AND CASH PURCHASE PLAN.................... 18
DIRECTORS AND OFFICERS INFORMATION.......................... 20
SHAREHOLDER TAX INFORMATION................................. 22
</Table>
December 31, 2005 ANNUAL REPORT
PRESIDENT'S LETTER
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Dear Shareholders:
We are pleased to present the first annual report for the SunAmerica
Focused Alpha Growth Fund and thank you for including this strategic
investment solution in your investment plan.
SunAmerica Focused Alpha Growth Fund is unique. What sets it apart
from its competitors in the marketplace is its multi-managed, focused
approach in a closed-end fund structure. The Fund seeks to provide growth
of capital. Two renowned growth managers contribute some of their favorite
stock picks, blending large and small to mid-cap growth investing.
We are optimistic that the Fund's focused, multi-manager strategy
will deliver strong results over the long-term. For years, pension funds
and other large institutional investors have used more than one investment
adviser to manage their equity portfolios. By doing so, these institutions
draw on the combined talents of what they consider the most capable
managers for each investment style and asset class. This best of breed
approach provides the potential for strong, consistent performance through
a variety of market cycles.
With SunAmerica Focused Alpha Growth Fund, you have the best thinking
of two of Wall Street's best known growth style equity managers: Marsico
Capital Management, LLC and BAMCO, Inc. In recent years, growth style
equity investing has underperformed its historical performance against
value. Marsico Capital Management specializes in large-cap growth
investing; BAMCO specializes in small-mid-cap growth investing.
Commentary from the Fund's portfolio teams at each of these managers
is enclosed in this report. It provides useful information on the Fund's
performance and I urge you to read it.
We value your ongoing confidence in us and look forward to serving
your investment needs in the future.
Sincerely,
/s/ Peter A. Harbeck
Peter A. Harbeck
President and CEO
AIG SunAmerica Asset Management Corp.
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Past performance is no guarantee of future results.
1
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
FUND REVIEW (UNAUDITED)
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SUNAMERICA FOCUSED ALPHA GROWTH FUND
For the fiscal period commencing July 29, 2005 through December 31, 2005,
the SunAmerica Focused Alpha Growth Fund's Net Asset Value (NAV) returned
5.27%, outperforming its benchmark, the Russell 3000 Growth Index, which
returned 1.36% in the same period*. The Fund's market price returned
-12.42% during the same period. As of December 31, 2005, the Fund's NAV
was $19.59 and its market share price was $17.03.
BELOW: TOM MARSICO AND TEAM PORTFOLIO MANAGERS AT MARSICO CAPITAL
MANAGEMENT, LLC ("MARSICO"), DISCUSS THE FUND'S PERFORMANCE OVER THE
REPORTING PERIOD. MARSICO MANAGES THE LARGE-CAP PORTION OF THE FUND'S
PORTFOLIO.
Equity markets in the past six-months were buoyed to some extent by good
overall economic news -- including stable long-term interest rates,
constrained overall inflation and generally stronger-than-expected Gross
Domestic Product (GDP) growth. However, uncertainty regarding short-term
interest rates and sharply rising energy prices created an overhang for
stocks. This was exacerbated by two devastating hurricanes, concern about
consumer discretionary spending, worries about housing markets, and
geopolitical uncertainties -- particularly in Iraq and Iran.
In keeping with the Fund's focused investing strategy, stock selection had
the largest impact on the Fund's performance. A position in Burlington
Northern Santa Fe Corp. was the largest individual contributor in the
period, returning +31%. Holdings in Google, Apple Computer and
UnitedHealth Group also outperformed, as did a position in Chicago
Mercantile Exchange, fueled in part by higher trading volumes. On the flip
side, holdings in MGM Mirage and Caterpillar created a drag on
performance, as did a significant overweight in Consumer Discretionary
holdings. Most holdings in this sector underperformed due to concerns
regarding the potential impact on the consumer of higher gasoline and home
heating prices.
BELOW: RON BARON AND TEAM PORTFOLIO MANAGERS AT BAMCO, INC., DISCUSS THE
FUND'S PERFORMANCE OVER THE REPORTING PERIOD. BAMCO, INC. MANAGES THE
SMALL-MID CAP PORTION OF THE FUND'S PORTFOLIO.
The economy continued to grow during the reporting period, albeit at a
slower pace than previous years. Generally speaking, company fundamentals
were solid and earning results were acceptable. Higher energy prices, a
pickup of inflation and the rapid rise of short-term interest rates slowed
economic growth and raised market concerns regarding future economic
growth.
The top three stocks that positively impacted the Fund were transportation
consolidators: Expeditors International Washington, Inc., Nuveen
Investments and Wynn Resorts. The latter's outperformance was fueled in
large part by its success with its Las Vegas casino and the ongoing
development of a gambling mecca on the island of Macau, off China. In
general, the Fund's holdings in the recreation and resorts segment of the
economy, including gaming and lottery tickets, were its best performers.
Positions in the consumer services sector were especially hard hit by
higher energy prices, and did create a drag on the Fund's performance. In
addition, the performance of Centene Corp. lagged as medical expenses were
higher than expected and Red Robin Gourmet Burgers failed to perform as
anticipated.
------------------
* NAV performance reflects performance without imposition of initial sales
charge in connection with the initial public offering of the Fund and
would be lower if included.
The Russell 3000 Growth Index measures the performance of those Russell
3000 Index companies with higher price-to-book ratios and higher
forecasted growth values. Russell 3000 Index consists of the 3,000
largest U.S. companies based on total market capitalization. Indices are
not managed and an investor cannot invest directly into an index. Past
performance is no guarantee of future results.
2
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES -- DECEMBER 31, 2005
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<Table>
ASSETS:
Long-term investment securities, at value (unaffiliated)*... $393,851,157
Short-term investment securities, at value
(unaffiliated)*........................................... 5,697,000
------------
Total investments......................................... 399,548,157
------------
Receivable for:
Dividends and interest.................................... 200,198
Investments sold.......................................... 159,805
Prepaid expenses and other assets........................... 366
------------
Total assets.............................................. 399,908,526
------------
LIABILITIES:
Payable for:
Investment advisory and management fees................... 345,584
Directors' fees and expenses.............................. 2,616
Administration fees....................................... 13,823
Other accrued expenses.................................... 133,306
Due to custodian............................................ 606,418
------------
Total liabilities......................................... 1,101,747
------------
Net assets.............................................. $398,806,779
============
NET ASSETS REPRESENTED BY:
Common stock, $.001 par value (200,000,000 shares
authorized)............................................... $ 20,355
Additional paid-in capital.................................. 377,320,721
------------
377,341,076
Accumulated undistributed net investment income (loss)
(unaffiliated)............................................ --
Accumulated undistributed net realized gain (loss) on
investments (unaffiliated)................................ (249,038)
Unrealized appreciation (depreciation) on investments
(unaffiliated)............................................ 21,714,752
Unrealized foreign exchange gain (loss) on other assets and
liabilities............................................... (11)
------------
Net Assets................................................ $398,806,779
============
NET ASSET VALUES:
Net assets.................................................. $398,806,779
Shares outstanding.......................................... 20,355,236
Net asset value per share................................... $ 19.59
============
*COST
Long-term investment securities (unaffiliated)............ $372,136,405
============
Short-term investment securities (unaffiliated)........... $ 5,697,000
============
</Table>
See Notes to Financial Statements
3
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
STATEMENT OF OPERATIONS -- FOR THE PERIOD JULY 29, 2005* TO DECEMBER 31, 2005
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<Table>
INVESTMENT INCOME:
Dividends (unaffiliated).................................... $ 983,393
Interest (unaffiliated)..................................... 480,231
-----------
Total investment income+................................ 1,463,624
-----------
EXPENSES:
Investment advisory and management fees..................... 1,673,931
Administration fees......................................... 66,960
Custodian and accounting fees............................... 39,005
Reports to shareholders..................................... 25,666
Audit and tax fees.......................................... 26,316
Legal fees.................................................. 36,029
Directors' fees and expenses................................ 17,245
Other expenses.............................................. 31,633
-----------
Total expenses before custody credits................... 1,916,785
Custody credits eaned on cash balances.................. (855)
-----------
Net expenses............................................ 1,915,930
-----------
Net investment income (loss)................................ (452,306)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES:
Net realized gain (loss) on investments (unaffiliated)...... (249,038)
-----------
Change in unrealized appreciation (depreciation) on
investments (unaffiliated)................................ 21,714,752
Change in unrealized foreign exchange gain (loss) on other
assets and liabilities.................................... (11)
-----------
Net unrealized gain (loss) on investments and foreign
currencies................................................ 21,714,741
-----------
Net realized and unrealized gain (loss) on investments and
foreign currencies........................................ 21,465,703
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $21,013,397
===========
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+ Net of foreign withholding taxes on interest and dividends
of........................................................ $ 1,063
===========
* Commencement of operations
</Table>
See Notes to Financial Statements
4
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
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<Table>
<Caption>
FOR THE PERIOD
JULY 29, 2005*
THROUGH
DECEMBER 31, 2005
-----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss).............................. $ (452,306)
Net realized gain (loss) on investments and foreign
currencies.............................................. (249,038)
Net unrealized gain (loss) on investments and foreign
currencies.............................................. 21,714,741
------------
Net increase (decrease) in net assets resulting from
operations................................................ 21,013,397
------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................... --
Net realized gain on securities........................... --
Return of capital......................................... (10,177,618)
------------
Total distributions to shareholders......................... (10,177,618)
------------
SHARE TRANSACTIONS (NOTE 7):
Proceeds from sales of shares issued in initial public
offering................................................ 353,350,000
Proceeds from the underwriters' over-allotment option of
common shares exercised................................. 35,335,000
Offering costs for common shares charged to additional
paid-in capital......................................... (814,000)
------------
Net increase in net assets from share transactions.......... 387,871,000
------------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 398,706,779
NET ASSETS:
Beginning of period......................................... $ 100,000
End of period+.............................................. $398,806,779
============
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+Includes accumulated undistributed net investment income
(loss).................................................... $ --
============
</Table>
* Commencement of operations
See Notes to Financial Statements
5
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
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<Table>
<Caption>
JULY 29, 2005* TO
DECEMBER 31, 2005
-----------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 19.10(1)
INVESTMENT OPERATIONS:
Net investment income (loss)@............................... (0.02)
Net realized and unrealized gain (loss) on investments...... 1.05
--------
Total from investment operations.......................... 1.03
--------
DISTRIBUTIONS FROM:
Net investment income....................................... --
Net realized gains.......................................... --
Return of capital........................................... (0.50)
--------
Total distributions....................................... (0.50)
CAPITAL SHARE TRANSACTIONS:
Offering costs for common shares charged to additional
paid-in capital........................................... (0.04)
--------
NET ASSET VALUE, END OF PERIOD.............................. $ 19.59
========
NET ASSET VALUE TOTAL RETURN(2)#............................ 5.27%
MARKET VALUE, END OF PERIOD................................. $ 17.03
MARKET VALUE TOTAL RETURN(3)#............................... (12.42)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period ($000's).......................... $398,807
Ratio of expenses to average net assets..................... 1.17%+
Ratio of net investment income to average net assets........ (0.28)+
Portfolio turnover rate..................................... 28%
</Table>
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* Commencement of operations
@ Calculated based upon average shares outstanding
# Total return is not annualized.
+ Annualized
(1) Net asset value, beginning of period, reflects a deduction of $0.90 per
share sales charge from the initial offering price of $20.00.
(2) Based on net asset value per share, dividends and distributions, if any,
are assumed for purposes of this calculation to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. NAV performance
reflects performance without imposition of initial sales charge in
connection with the initial public offering of the Fund and would be lower
if included.
(3) Based on market value per share, dividends and distributions, if any, are
assumed for purposes of this calculation to be reinvested at prices
obtained under the Fund's dividend reinvestment plan.
See Notes to Financial Statements
6
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
PORTFOLIO PROFILE -- DECEMBER 31, 2005 -- (UNAUDITED)
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<Table>
INDUSTRY ALLOCATION*
Leisure & Tourism......................................... 15.7%
Financial Services........................................ 11.9
Health Services........................................... 11.7
Retail.................................................... 10.6
Telecommunications........................................ 9.2
Computers & Business Equipment............................ 8.9
Transportation............................................ 8.6
Internet Content.......................................... 4.7
Pharmaceuticals........................................... 4.7
Business Services......................................... 4.0
Education................................................. 3.1
Energy Sources............................................ 1.8
Insurance................................................. 1.6
Time Deposit.............................................. 1.4
Utilities................................................. 1.2
Medical Products.......................................... 1.1
-----
100.2%
=====
</Table>
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* Calculated as a percentage of net assets.
7
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2005
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<Table>
<Caption>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- ---------------------------------------------------------------------
COMMON STOCK -- 98.8%
BUSINESS SERVICES -- 4.0%
ChoicePoint, Inc.+................ 140,000 $ 6,231,400
Hewitt Associates, Inc., Class
A+.............................. 160,000 4,481,600
SEI Investments Co. .............. 140,000 5,180,000
------------
15,893,000
------------
COMPUTERS & BUSINESS
EQUIPMENT -- 8.9%
Apple Computer, Inc.+............. 492,058 35,374,050
------------
EDUCATION -- 3.1%
DeVry, Inc.+...................... 374,000 7,480,000
Education Management Corp.+....... 150,000 5,026,500
------------
12,506,500
------------
ENERGY SOURCES -- 1.8%
Encore Acquisition Co.+........... 225,000 7,209,000
------------
FINANCIAL SERVICES -- 11.9%
Chicago Mercantile Exchange
Holdings, Inc. ................. 73,893 27,154,938
Jefferies Group, Inc. ............ 150,000 6,747,000
Nuveen Investments, Inc., Class
A............................... 150,000 6,393,000
The First Marblehead Corp. ....... 215,000 7,064,900
------------
47,359,838
------------
HEALTH SERVICES -- 11.7%
Centene Corp.+.................... 200,000 5,258,000
Manor Care, Inc. ................. 160,000 6,363,200
UnitedHealth Group, Inc. ......... 560,770 34,846,248
------------
46,467,448
------------
INSURANCE -- 1.6%
Axis Capital Holdings, Ltd. ...... 200,000 6,256,000
------------
INTERNET CONTENT -- 4.7%
Google, Inc., Class A+............ 44,824 18,595,685
------------
LEISURE & TOURISM -- 15.7%
Boyd Gaming Corp. ................ 225,000 10,723,500
Four Seasons Hotels, Inc. ........ 150,000 7,462,500
MGM MIRAGE+....................... 737,124 27,030,337
Scientific Games Corp., Class
A+.............................. 180,000 4,910,400
Wynn Resorts, Ltd.+............... 225,000 12,341,250
------------
62,467,987
------------
</Table>
<Table>
<Caption>
SHARES/PRINCIPAL VALUE
SECURITY DESCRIPTION AMOUNT (NOTE 2)
- ---------------------------------------------------------------------
MEDICAL PRODUCTS -- 1.1%
Edwards Lifesciences Corp.+....... 110,000 $ 4,577,100
------------
PHARMACEUTICALS -- 4.7%
Genentech, Inc.+.................. 204,467 18,913,197
------------
RETAIL -- 10.6%
Dick's Sporting Goods, Inc.+...... 250,000 8,310,000
Lowe's Cos., Inc. ................ 510,814 34,050,861
------------
42,360,861
------------
TELECOMMUNICATIONS -- 9.2%
Motorola, Inc. ................... 841,441 19,008,152
QUALCOMM, Inc. ................... 413,108 17,796,693
------------
36,804,845
------------
TRANSPORTATION -- 8.6%
Burlington Northern Santa Fe
Corp. .......................... 405,946 28,749,096
Expeditors International of
Washington, Inc. ............... 80,000 5,400,800
------------
34,149,896
------------
UTILITIES -- 1.2%
ITC Holdings Corp. ............... 175,000 4,915,750
------------
TOTAL LONG-TERM INVESTMENT
SECURITIES
(cost $372,136,405)............. 393,851,157
------------
SHORT-TERM INVESTMENT
SECURITIES -- 1.4%
Time Deposit with State Street
Bank & Trust Co.
3.40% due 01/03/06
(cost $5,697,000)............... $5,697,000 5,697,000
------------
TOTAL INVESTMENTS
(cost $377,833,405)(1)............ 100.2% 399,548,157
LIABILITIES IN EXCESS OF OTHER
ASSETS............................ (0.2) (741,378)
---------- ------------
NET ASSETS.......................... 100.0% $398,806,779
========== ============
</Table>
- ------------
+ Non-income producing securities
(1) See Note 5 for cost of investments on a tax basis
See Notes to Financial Statements
8
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005
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Note 1. Organization of the Fund
SunAmerica Focused Alpha Growth Fund, Inc. (the "Fund") is a non-diversified
closed-end management investment company. The Fund was organized as a
Maryland corporation on May 18, 2005 and is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act"). The Fund sold 5,236 of
its common stock shares ("Shares") on July 18, 2005 to AIG SunAmerica Asset
Management Corp. (the "Adviser" or "SAAMCo"), an indirect wholly-owned
subsidiary of America International Group, Inc. ("AIG"). Investment
operations commenced on July 29, 2005 upon settlement of the sale of
18,500,000 shares in the amount of $353,350,000 (net of underwriting fees
and expenses of $16,650,000). In addition, on August 25, 2005 and September
13, 2005, the Fund issued 1,200,000 and 650,000 shares in the amount of
$22,920,000 and $12,415,000 (net of underwriting fees and expenses of
$1,080,000 and $585,000) in conjunction with the exercise of the
underwriters' over-allotment option. SAAMCo has agreed to pay organizational
expenses and then offering costs of the Fund to the extent they exceed $.04
per share of the Fund's common stock.
The Fund's investment objective is to provide growth of capital. The Fund
seeks to pursue this objective by employing a concentrated stock picking
strategy in which the Fund, through subadvisers selected by the Adviser,
actively invests primarily in a small number of equity securities (i.e.,
common stocks) and to a lesser extent equity-related securities (i.e.,
preferred stocks, convertible securities, warrants and rights) primarily in
the U.S. markets.
INDEMNIFICATIONS: Under the Fund's organizational documents, its officers
and directors are indemnified against certain liability arising out of the
performance of their duties to the Fund. In addition, in the normal course
of business the Fund enters into contracts that may contain the obligation
to indemnify others. The Fund's maximum exposure under these arrangements is
unknown. Currently, however, the Fund expects the risk of loss to be remote.
Note 2. Significant Accounting Policies
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from these estimates. The
following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements:
SECURITY VALUATION: Stocks are generally valued based upon closing sales
prices reported on recognized securities exchanges. Stocks listed on the
NASDAQ are valued using the NASDAQ Official Closing Price ("NOCP").
Generally, the NOCP will be the last sale price unless the reported trade
for the stock is outside the range of the bid/ask price. In such cases, the
NOCP will be normalized to the nearer of the bid or ask price. For listed
securities having no sales reported and for unlisted securities, such
securities will be valued based upon the last reported bid price.
As of the close of regular trading on the New York Stock Exchange,
securities traded primarily on security 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 exchange, the
Fund uses the exchange that is the primary market for the security. However,
depending on the foreign market, closing prices may be up to 15 hours old
when they are used to price the Fund's shares, and the Fund may determine
that certain closing prices are unreliable. This determination will be based
on review of a number of factors, including developments in foreign markets,
the performance of U.S. securities markets, and the performance of
instruments trading in U.S. markets that represent foreign securities and
baskets of foreign securities. If the Fund determines that closing prices do
not reflect the fair value of the securities, the Fund will adjust the
previous closing prices in accordance with pricing procedures approved by
the Board of Directors to reflect what it believes to be the fair value of
the securities as of the close of regular trading on the New York Stock
Exchange. The Fund may also fair value securities in other situations, for
example, when a particular foreign market is closed but the Fund is open.
For foreign
9
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005 -- (CONTINUED)
- --------------------------------------------------------------------------------
equity securities, the Fund uses an outside pricing service to provide it
with closing market prices and information used for adjusting those prices.
Short-term securities with 60 days or less to maturity are amortized to
maturity based on their cost to the Fund if acquired within 60 days of
maturity or, if already held by the Fund on the 60th day, are amortized to
maturity based on the value determined on the 61st day.
Securities for which market quotations are not readily available or if a
development/significant event occurs that may significantly impact the value
of the security, then these securities are valued, as determined pursuant to
procedures adopted in good faith by the Board of Directors.
REPURCHASE AGREEMENTS: For repurchase agreements, the Fund's custodian takes
possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark to market
basis to ensure that the value, including accrued interest, is at least 102%
of the repurchase price. In the event of default of the obligation to
repurchase, a Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. If the seller defaults and the
value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by
the Fund may be delayed or limited. At December 31, 2005, the Fund did not
enter into any repurchase agreements.
SECURITIES TRANSACTIONS, INVESTMENT INCOME, EXPENSES, DIVIDENDS AND
DISTRIBUTIONS TO SHAREHOLDERS: Security transactions are recorded on a trade
date basis. Realized gains and losses on sales of investments are calculated
on the identified cost basis. Interest income is accrued daily except when
collection is not expected. Dividend income is recorded on the ex-dividend
date except for certain dividends from foreign securities, which are
recorded as soon as the Fund is informed after the ex-dividend date. Foreign
income and capital gains may be subject to foreign withholding taxes and
capital gains taxes at various rates. Under applicable foreign law, a
withholding of tax may be imposed on interest, dividends, and capital gains
at various rates. Interest earned on cash balances held at the custodian are
shown as custody credits on the Statement of Operations.
The Fund intends to make a level dividend distribution each quarter to
common stock shareholders after payment of interest on any outstanding
borrowings or dividends on any outstanding preferred shares. The level
dividend rate may be modified by the Board of Directors from time to time.
The Fund's final distribution for each calendar year will include any
remaining net investment income undistributed during the year, as well as
any undistributed net realized capital gain. If the amount of the Fund's net
investment income and net realized capital gains, if any, determined as of
the close of the Fund's taxable year, is less than the aggregate amount of
the Fund's distributions, the difference will generally be a tax-free return
of capital distributed from the Fund's assets. The total distributions made
in any calendar year generally would be treated as ordinary dividend income
(except to the extent derived from any long-term capital gain) to the extent
of the Fund's current and accumulated earnings and profits. Distributions in
excess of the earnings and profits would first be a tax-free return of
capital to the extent of the adjusted tax basis in the shares. After such
adjusted tax basis is reduced to zero, the distribution would constitute
capital gain (assuming the shares are held as capital assets). This
distribution policy may, under certain circumstances, have certain adverse
consequences to the Fund and its shareholders because it may result in a
return of capital resulting in less of a shareholder's assets being invested
in the Fund and, over time, increase the Fund's expense ratio. The
distribution policy also may cause the Fund to sell a security at a time it
would not otherwise do so in order to manage the distribution of income and
gain.
The Fund intends to comply with the requirements of the Internal Revenue
Code, as amended, applicable to regulated investment companies and
distribute all of their taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal tax provisions are
required.
10
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005 -- (CONTINUED)
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars. Assets and liabilities denominated in foreign
currencies and commitments under forward foreign currency contracts are
translated into U.S. dollars based on the exchange rate of such currencies
against U.S. dollars on the date of the valuation. The Fund does not isolate
that portion of the results of operations arising as a result of changes in
the foreign exchange rates from the changes in the market prices of
securities held at the end of the period. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the changes in
the market prices of Fund securities sold during the year.
Change in unrealized foreign exchange gains and losses on other assets and
liabilities located in the Statement of Operations include foreign exchange
gains and losses from currency gains or losses between the trade and
settlement dates of securities transactions, the difference between the
amounts of interest, dividends and foreign withholding taxes recorded on a
Fund's books and the U.S. dollar equivalent amounts actually received or
paid and changes in the unrealized foreign exchange gains and losses
relating to other assets and liabilities arising as a result of changes in
the exchange rate.
Note 3. Investment Advisory and Management Agreement
Pursuant to its investment advisory agreement ("Advisory Agreement") with
the Fund, SAAMCo overseas the administration of certain aspects of the
business and affairs of the Fund, and selects, contracts with and
compensates the Subadvisers to manage the Fund's assets. SAAMCo monitors the
compliance of the Subadvisers with the investment objective and related
policies of the Fund, reviews the performance of the Subadvisers, and
reports periodically on such performance to the Board of Directors. Pursuant
to the Advisory Agreement, the Fund will pay SAAMCo a monthly fee at the
annual rate of 1.00% of the average daily total assets of the Fund.
Marsico Capital Management, LLC ("Marsico"), a wholly-owned subsidiary of
Bank of America, and BAMCO, Inc., a wholly-owned subsidiary of Baron Capital
Group, Inc. ("Baron") have been retained by SAAMCo as the Subadvisers to the
Fund to manage the investment and reinvestment of the Fund's assets.
Pursuant to the investment subadvisory agreements ("Subadvisory Agreements")
between SAAMCo and Marsico and Baron, respectively, Marsico and Baron select
the investments made by the Fund. Marsico will manage the large-cap portion
of the Fund and is entitled to receive a fee at the annual rate of 0.40% of
the Fund's average daily total assets managed in the large-cap portion of
the Fund. Baron will manage the small-and mid-cap portion of the Fund and is
entitled to receive a fee at the annual rate of 0.60% of the Fund's average
daily total assets managed in the small- and mid-cap portion of the Fund.
Each Subadviser is paid by SAAMCo.
SAAMCo serves as administrator to the Fund. Under the Administrative
Services Agreement, SAAMCo is responsible for performing administrative
services in connection with the operations of the Fund, subject to the
supervision of the Fund's Board of Directors. SAAMCo will provide the Fund
with regulatory reporting, all necessary office space, equipment, personnel
and facilities for handling the affairs of the Fund. SAAMCo's administrative
services include recordkeeping, supervising the activities of the Fund's
custodian and transfer agent, providing assistance in connection with the
Directors' and shareholders' meetings and other administrative services
necessary to conduct the Fund's affairs. For its services as administrator,
SAAMCo is entitled to receive a monthly fee at the annual rate of 0.04% of
the Fund's average daily total assets.
11
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005 -- (CONTINUED)
- --------------------------------------------------------------------------------
Note 4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales and maturities of long-term
investments during the period ended December 31, 2005, were as follows:
<Table>
Purchases (excluding U.S. government securities)............ $476,876,057
Sales and maturities (excluding U.S. government
securities)............................................... 104,490,615
Purchases of U.S. government securities..................... --
Sales and maturities of U.S. government securities.......... --
</Table>
Note 5. Federal Income Taxes
The following details the tax basis distributions as well as the components
of distributable earnings. The tax basis components of distributable
earnings differ from the amounts reflected in the Statement of Assets and
Liabilities due to temporary book/tax differences primarily arising from
wash sales.
<Table>
<Caption>
DISTRIBUTABLE EARNINGS TAX DISTRIBUTIONS
- -------------------------------------------- ----------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2005
- ---------------------------------------------------------------------------------
LONG-TERM GAINS/ UNREALIZED LONG-TERM
ORDINARY CAPITAL LOSS APPRECIATION ORDINARY CAPITAL RETURN OF
INCOME CARRYOVER (DEPRECIATION) INCOME GAINS CAPITAL
- -------- ---------------- -------------- -------- --------- -----------
$ -- $(225,073) $21,690,776 $ -- $ -- $10,177,618
</Table>
At December 31, 2005, for Federal income tax purposes, the Fund had a
capital loss carryforward of $225,073, which will expire in the year 2013,
and is available to offset future capital gains, if any.
The amounts of aggregate unrealized gain (loss) and the cost of investment
securities for federal tax purposes, including short-term securities were as
follows:
<Table>
Cost (tax basis)............................................ $377,857,370
============
Appreciation................................................ $ 30,987,128
Depreciation................................................ (9,296,341)
------------
Net unrealized appreciation (depreciation).................. $ 21,690,787
============
</Table>
For the period ended December 31, 2005, reclassifications were made to
increase accumulated net investment income by $10,629,924 with an offsetting
adjustment to additional paid-in capital. The reclassifications arising from
book/tax differences were primarily due to net investment loss and return of
capital.
Note 6. Transactions with Affiliates
For the period ended December 31, 2005 the Fund incurred brokerage
commissions with Baron Capital Partners LLC, an affiliated broker, of
$24,416.
12
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2005 -- (CONTINUED)
- --------------------------------------------------------------------------------
Note 7. Capital Share Transactions
Transactions in capital shares of the Fund were as follows:
<Table>
<Caption>
FOR THE PERIOD
JULY 29, 2005*
DECEMBER 31, 2005
-------------------------
SHARES AMOUNT
---------- ------------
Initial seed capital, July 18, 2005......................... 5,236 $ 100,000
Common shares issued in connection with initial public
offering.................................................. 18,500,000 353,350,000
Common shares issued from underwriters' over-allotment
option exercised.......................................... 1,850,000 35,335,000
---------- ------------
Net increase............................................ 20,355,236 $388,785,000
========== ============
</Table>
----------------
* Commencement of operations
Note 8. Other Information
On February 9, 2006, American International Group, Inc. ("AIG"), the parent
company and an affiliated person of AIG SunAmerica Asset Management Corp.
("Adviser"), announced that it had consented to the settlement of an
injunctive action instituted by the Securities and Exchange Commission
("SEC"). In its complaint, the SEC alleged that AIG violated Section 17(a)
of the Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)
and 13(b)(5) of the Securities Exchange Act of 1934, as amended, and Rules
10b-5, 12b-20, 13a-1 and 13b2-1 promulgated thereunder, in connection with
AIG's accounting and public reporting practices. The conduct described in
the complaint did not involve any conduct of AIG or its subsidiaries related
to their investment advisory or distribution activities with respect to the
assets of the Fund.
AIG, without admitting or denying the allegations in the complaint (except
as to jurisdiction), consented to the entry of an injunction against further
violations of the statutes referred to above. Absent exemptive relief
granted by the SEC, the entry of such an injunction would prohibit AIG and
its affiliated persons from, among other things, serving as an investment
adviser of any registered investment management company or principal
underwriter for any registered open-end investment company pursuant to
Section 9(a) of the Investment Company Act of 1940, as amended ("1940 Act").
Certain affiliated persons of AIG, including the Adviser, received a
temporary order from the SEC pursuant to Section 9(c) of the 1940 Act with
respect to the entry of the injunction, granting exemptive relief from the
provisions of Section 9(a) of the 1940 Act. The temporary order permits AIG
and its affiliated persons, including AIG's investment management
subsidiaries, to serve as investment adviser, sub-adviser, principal
underwriter or sponsor of the Fund. The Adviser expects that a permanent
exemptive order will be granted, although there is no assurance the SEC will
issue the order.
Additionally, AIG and its subsidiaries reached a resolution of claims and
matters under investigation with the United State Department of Justice
("DOJ"), the Attorney General of the State of New York ("NYAG") and the New
York State Department of Insurance ("DOI"), regarding accounting, financial
reporting and insurance brokerage practices of AIG and its subsidiaries, as
well as claims relating to the underpayment of certain workers compensation
premium taxes and other assessments.
As a result of the settlements with the SEC, the DOJ, the NYAG and the DOI,
AIG will make payments totaling approximately $1.64 billion. In addition, as
part of its settlements, AIG has agreed to retain for a period of three
years an Independent Consultant who will conduct a review that will include
the adequacy of AIG's internal controls over financial reporting and the
remediation plan that AIG has implemented as a result of its own internal
review.
Subject to receipt of permanent relief, the Adviser believes that the
settlements are not likely to have a material adverse effect on its ability
to perform investment advisory services relating to the Fund.
13
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of SunAmerica Focused Alpha Growth
Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of SunAmerica Focused Alpha Growth
Fund, Inc. (the "Fund") at December 31, 2005, and the results of its operations,
the changes in its net assets and the financial highlights for the period July
29, 2005 (commencement of operations) through December 31, 2005, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Houston, Texas
February 17, 2006
14
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
APPROVAL OF ADVISORY AGREEMENTS -- DECEMBER 31, 2005 -- (UNAUDITED)
- --------------------------------------------------------------------------------
APPROVAL OF ADVISORY AGREEMENT AND SUBADVISORY AGREEMENTS:
The Board of Directors (the "Board"), including the Directors that are not
interested persons of the Fund (the "Disinterested Directors"), approved the
Investment Advisory and Management Agreement between the Fund and SAAMCo (the
"Advisory Agreement") for an initial period of two years, at a meeting held on
June 17, 2005. At this same meeting the Board also approved Subadvisory
Agreements between Baron Asset Management Company, Inc. ("BAMCO") and SAAMCo,
and Marsico Capital Management, LLC ("Marsico") and SAAMCo with respect to the
Fund. The Advisory Agreement and Subadvisory Agreements are collectively
referred to as the "Advisory Agreements." Additionally, SAAMCo, BAMCO and
Marsico are collectively referred to as the "Advisers."
In accordance with Section 15(c) of the Investment Company Act of 1940, as
amended (the "1940 Act"), the Board received materials for its consideration of
the following: (1) the nature, extent and quality of services to be provided by
Advisers; (2) the costs of services to be provided and benefits realized by the
Advisers, including a comparison of fees with those of other advisers; (3) the
terms of the Advisory Agreements; (4) economies of scale; (5) the Advisers'
overall organization, including the management personnel and operations; and (6)
the investment performance of the Subadvisors as compared to their appropriate
indices. Experienced counsel that is independent of SAAMCo provided guidance to
the Disinterested Directors. These factors, as described in more detail below
were considered by the Board.
NATURE, EXTENT AND QUALITY OF SERVICES
The Board, including the Disinterested Directors, considered the nature, quality
and extent of services to be provided by the Advisers. In making its evaluation,
the Board considered that SAAMCo would act as investment manager and adviser to
the Fund, and would be responsible for managing the daily business affairs of
the Fund including obtaining and evaluating economic, statistical, and financial
information and to formulate and implement investment policies for the Fund.
Additionally, SAAMCo would be responsible for monitoring and reviewing the
activities of the Subadvisers. Finally, the Board noted that SAAMCo would
provide administrative services to the Fund pursuant to a separate
Administrative Services Agreement.
The Board also considered the nature, quality and extent of services to be
provided by each Subadviser. The Board considered that the Subadvisers are
responsible for providing investment management services, including investment
research, advice and supervision, and determining which securities shall be
purchased or sold by the Fund. The Board reviewed each Subadviser's history,
structure and size, and investment experience. The Board was informed that in
SAAMCo's opinion, each Subadviser has the size, visibility and resources to
attract and retain highly qualified investment professionals. Given that the
Fund is a multi-managed fund, the Board also considered how the proposed
Subadviser's style would fit with and complement the other Subadviser to the
Fund. With respect to administrative services to be provided by the Subadviser,
the Board considered that each Subadviser provides general assistance in
marketing and has developed internal procedures for monitoring compliance with
investment objectives, policies and restrictions of the Fund as set forth in the
prospectus.
The Board concluded that it was satisfied with the nature, quality and extent of
the services to be provided by the Advisers and that there was a reasonable
basis on which to conclude that the Advisers would be capable of providing the
high quality of investment management services expected by the Board.
THE AMOUNT AND STRUCTURE OF THE ADVISORY FEES
The Board, including the Disinterested Directors, received and reviewed
information regarding the fees paid by the Fund to SAAMCo for investment
advisory and management services. The Board considered this information in order
to determine the reasonableness of the fees in light of the nature and quality
of SAAMCo's services and any additional benefits received by SAAMCo or its
affiliates in connection with providing such services to the Fund. The Board
also considered the
15
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
APPROVAL OF ADVISORY AGREEMENTS -- DECEMBER 31,
2005 -- (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
subadvisory fees, and compared the fees to those of other advisers. With respect
to the subadvisory fees the Board also considered any indirect costs and
benefits of providing such subadvisory services.
To assist in analyzing the reasonableness of the fees, the Board received
reports prepared independently by Lipper. The reports compared the advisory and
subadvisory fees paid out by the Fund and SAAMCo, respectively, to fees paid by
Funds within its peer group. For the Advisory fee, which is to be paid by the
Fund to SAAMCo, the Board considered that the proposed fee was neither the
highest nor the lowest advisory fee within the Fund's peer group, but was also
less than a tenth of a percent higher than the peer group's median fee. The
Board requested additional information on Fund expenses to be provided by
SAAMCo. Specifically, the Board requested comparative fee information be
obtained from Lipper addressing actual total expenses, as well as actual and
allowable 12b-1 and non-12b-1 fees.
In a memo prepared by SAAMCo and presented to the Board, SAAMCo stated that the
advisory fee rates for each Subadviser were negotiated based on the
consideration of a variety of factors, including: the value of the services
provided, the competitive environment in which the portfolio is marketed; the
investment characteristics of the portfolio relative to other similar funds in
its category as tracked by Lipper and fees charged to comparable portfolios.
In considering the Subadvisory fees, the Board, including the Disinterested
Directors, considered that the Fund pays a fee to SAAMCo pursuant to the
Advisory Agreement, and that, in turn, SAAMCo rather than the Fund pays a fee to
each Subadvisor. Therefore, the Board considered the amount retained by SAAMCo
and the fee paid to the Subadviser with respect to the different services
provided by the Subadviser.
On the basis of the information considered, the Board was satisfied that the
advisory and subadvisory fees were fair in light of the usual and customary
charges made for services of similar nature and quality.
TERMS OF THE ADVISORY AGREEMENTS
The Board, including the Disinterested Directors, received a draft of the
proposed Advisory Agreements. The Board considered that the Agreements will
continue in effect for a period of two years from the date of their execution,
unless terminated sooner. The Board further considered that they may be renewed
from year to year, so long as their continuance is specifically approved at
least annually in accordance with the requirements if the 1940 Act and that the
Agreements provide that they will terminate in the event of an assignment (as
defined in the 1940 Act) or upon termination of the Advisory Agreement.
In reviewing the terms of the Advisory Agreement the Board considered that
SAAMCo pays all of its own expenses in connection with the performance of its
duties, as well as the salaries, fees and expenses of the Directors and Officers
who are employees of SAAMCo. The Board also considered the termination and
liability provisions of the Advisory Agreement.
With respect to the Subadvisory Agreements, the Board further considered, that
under the terms of the Subadvisory Agreement, no Subadviser is liable to the
Fund, or its shareholders, for any act or omission by it or for any losses
sustained by the Fund, or its shareholders, except in the case of willful
misfeaseance, bad faith, gross negligence or reckless disregard of obligations
or duties. The Board also considered that each Subadvisory Agreement provides
that the Subadviser will pay all of its own expenses in connection with the
performance of its duties as well as the cost of maintaining the staff and
personnel as necessary for it to perform its obligations.
ECONOMIES OF SCALE
The Board, including the Disinterested Directors, considered whether the
shareholders would benefit from economies of scale and whether there is a
potential for future realization of economies of scale with respect to the
Funds. The Board concluded that any potential economies of scale are being
shared between shareholders and SAAMCo in an appropriate manner. The Board
considered that the Funds in the AIG SunAmerica complex share common resources
and as a result,
16
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
APPROVAL OF ADVISORY AGREEMENTS -- DECEMBER 31,
2005 -- (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
an increase in the overall size of the complex could permit each fund to incur
lower expenses than they otherwise would achieve as stand-alone entities. The
Board also considered the anticipated efficiencies in the processes of the AIG
SunAmerica complex as it adds labor and capital to expand the scale of
operations.
The Board considered that the advisory fee structure of the Advisory Agreements
was reasonable and that no changes were currently necessary to further reflect
economies of scale. The Board noted that it would continue to review fees,
including breakpoints and expense caps in connection with contract renewals.
COMPLIANCE
The Board considered each Adviser's Code of Ethics, as well as their compliance
and regulatory history, including information concerning their involvement in
any regulatory actions or investigations. In addition, the Board considered each
Adviser's compliance staff, which would be responsible for providing compliance
functions for each respective Adviser. The Board further considered that
SAAMCo's compliance staff would be responsible for providing compliance
functions on behalf of the Fund.
THE OVERALL ORGANIZATION OF THE ADVISER
The Board, including the Disinterested Directors, considered the benefits to
shareholders of investing in a Fund that is part of a family of funds offering a
variety of types of mutual funds and shareholder services. The Board also
considered SAAMCo's experience in providing management and investment advisory
services to individuals, pension, corporate and trust accounts, including
approximately 130 mutual funds (not including the Fund), and the fact that
SAAMCo currently manages, advises and/or administers approximately $41 billion.
The Board also considered SAAMCo's relationships with its affiliates and the
resources available to them.
INVESTMENT PERFORMANCE
The Board, including the Disinterested Directors, received information regarding
investment performance of the proposed Subadvisers. The Board considered
information prepared by SAAMCo, based on information provided by Morningstar, an
independent provider of investment company data. Specifically, the Board
considered each subadvisers historical performance, as measured by net total
return as compared to appropriate their indices. For Marsico, the Board
considered that its net total return on a similarly managed focused style
account had outperformed both the Russell 1000 Growth Index and the Lipper
Large-Cap Growth Index for each of the last six calendar years. For Baron, the
Board also considered that its net total return on a similarly managed focused
style account had outperformed the Russell 2500 Growth Index and the Lipper
Small-Cap Growth Index over each of the past three years.
CONCLUSION
Based on their evaluation of all material factors and assisted by the advice of
independent counsel, the Board, including the Disinterested Directors, were
satisfied that the terms of the Advisory Agreements were fair and in the best
interest of the Fund and its shareholders, and that the advisory and subadvisory
fee rates provided in the Advisory Agreements are acceptable in light of the
usual and customary charges made for services of similar nature and quality. In
arriving at a decision to approve the Advisory Agreements, the Board did not
identify any single factor or group of factors as being more important than the
others, but considered all factors together.
17
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN -- DECEMBER 31, 2005 -- (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund has adopted a Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), through which all net investment income dividends and capital gains
distributions are paid to Common Stock Shareholders in the form of additional
shares of the Fund's Common Stock (plus cash in lieu of any fractional shares
which otherwise would have been issuable), unless a Common Stock Shareholder
elects to receive cash as provided below. In this way, a Common Stock
Shareholder can maintain an undiluted investment in the Fund and still allow the
Fund to pay out the required distributable income.
No action is required on the part of a registered Common Stock Shareholder to
receive a distribution in shares of Common Stock of the Fund. A registered
Common Stock Shareholder may elect to receive an entire distribution in cash by
notifying Computershare Trust Co., N.A. ("Computershare"), P.O. Box 43010
Providence, RI 02940-3010, the Plan Agent and the Fund's transfer agent and
registrar, in writing so that such notice is received by Computershare no later
than 10 days prior to the record date for distributions to Common Stock
Shareholders. Computershare will set up an account for shares acquired through
the Plan for each Common Stock Shareholder who has not elected to receive
distributions in cash ("Participant") and hold such shares in non-certificated
form.
Those Common Stock Shareholders whose shares are held by a broker or other
financial intermediary may receive distributions in cash by notifying their
broker or other financial intermediary.
Computershare will set up an account for shares acquired pursuant to the Plan
for Participants who have not so elected to receive dividends and distributions
in cash. The shares of Common Stock will be acquired by the Plan Agent for the
Participants' accounts, depending upon the circumstances described below, either
(i) through receipt of additional unissued but authorized shares of Common Stock
from the Fund ("Additional Common Stock") or (ii) by purchase of outstanding
shares of Common Stock on the open market on the New York Stock Exchange or
elsewhere. If on the payment date for a dividend or distribution, the net asset
value per share of Common Stock is equal to or less than the market price per
share of Common Stock plus estimated brokerage commissions, Computershare shall
receive Additional Common Stock, including fractions, from the Fund for each
Participant's account. The number of shares of Additional Common Stock to be
credited shall be determined by dividing the dollar amount of the dividend or
distribution by the greater of (i) the net asset value per share of Common Stock
on the payment date, or (ii) 95% of the market price per share of the Common
Stock on the payment date. If the net asset value per share of Common Stock
exceeds the market price plus estimated brokerage commissions on the payment
date for a dividend or distribution, Computershare (or a broker-dealer selected
by Computershare) shall endeavor to apply the amount of such dividend or
distribution on each Participant's shares of Common Stock to purchase shares of
Common Stock on the open market. Such purchases will be made on or shortly after
the payment date for such dividend or distribution but in no event will
purchases be made on or after the ex-dividend date for the next dividend or
distribution. The weighted average price (including brokerage commissions) of
all shares of Common Stock purchased by Computershare shall be the price per
share of Common Stock allocable to each Participant. If, before Computershare
has completed its purchases, the market price plus estimated brokerage
commissions exceeds the net asset value of the shares of Common Stock as of the
payment date, the purchase price paid by Computershare may exceed the net asset
value of the Common Stock, resulting in the acquisition of fewer shares of
Common Stock than if such dividend or distribution had been paid in shares of
Common Stock issued by the Fund. Participants should note that they will not be
able to instruct Computershare to purchase shares of Common Stock at a specific
time or at a specific price.
18
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN -- DECEMBER 31,
2005 -- (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
There is no charge to Common Stock Shareholders for receiving their
distributions in the form of additional shares of the Fund's Common Stock.
Computershare's fees for handling distributions in stock are paid by the Fund.
There are no brokerage charges with respect to shares issued directly by the
Fund as a result of distributions payable in stock. If a Participant elects by
written notice to Computershare to have Computershare sell part or all of the
shares held by Computershare in the Participant's account and remit the proceeds
to the Participant, Computershare is authorized to deduct a $2.50 transaction
fee plus brokerage commissions from the proceeds.
Common Stock Shareholders who receive distributions in the form of stock are
subject to the same Federal, state and local tax consequences as are Common
Stock Shareholder who elect to receive their distributions in cash. A Common
Stock Shareholder's basis for determining gain or loss upon the sale of stock
received in a distribution from the Fund will be equal to the total dollar
amount of the distribution paid to the Common Stock Shareholder in the form of
additional shares.
19
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
DIRECTORS AND OFFICERS INFORMATION -- DECEMBER 31, 2005 -- (UNAUDITED)
- --------------------------------------------------------------------------------
The following table contains basic information regarding the Directors and
Officers that oversee operations of the Fund and other investment companies
within the Fund Complex.
<Table>
<Caption>
NUMBER OF
FUNDS
IN FUND
POSITION TERM OF COMPLEX
NAME, HELD WITH OFFICE AND OVERSEEN
ADDRESS AND SUNAMERICA LENGTH OF PRINCIPAL OCCUPATIONS BY
DATE OF BIRTH* COMPLEX TIME SERVED DURING PAST 5 YEARS DIRECTOR(1)
-------------- ---------- ----------- ----------------------------------- -----------
DIRECTORS
Jeffrey S. Burum Director June 2005 to Founder and CEO of National Housing 42
DOB: February 27, 1963 present Development Corporation (January
2000 to present); Founder, Owner
and Partner of Colonies Crossroads,
Inc. (January 2000 to present);
Owner and Managing Member of
Diversified Pacific Development
Group, LLC (June 1990 to present)
Judith L. Craven Director June 2005 to Retired 91
DOB: October 6, 1945 present
William F. Devin Director June 2005 to Retired 91
DOB: December 30, 1938 present
Samuel M. Eisenstat DOB: Chairman of June 2005 to Attorney, solo practitioner; 52
March 7, 1940 the Board present
Stephen J. Gutman Director June 2005 to Associate, Corcoran Group (Real 52
DOB: May 10, 1943 present Estate) (2003 to present); Partner
and Member of Managing Directors,
Beau Brummell -- Soho LLC
(Licensing of menswear specialty
retailing and other activities)
(June 1988 to present)
Peter A. Harbeck(3) Director May 2005 to President, CEO and Director, 100
DOB: January 23, 1954 present SAAMCo. (August 1995 to present);
Director, AIG SunAmerica Capital
Services, Inc. ("SACS") (August
1993 to present) President and CEO,
AIG Advisor Group, Inc. (June 2004
to present)
William J. Shea Director June 2005 to President and CEO, Conseco, Inc. 52
DOB: February 9, 1948 present (Financial Services) (2001-2004);
Chairman of the Board of Centennial
Technologies, Inc. (1998 to 2001);
Vice Chairman, Bank Boston
Corporation (1993-1998)
<Caption>
NAME,
ADDRESS AND OTHER DIRECTORSHIPS HELD
DATE OF BIRTH* BY DIRECTOR(2)
-------------- -----------------------------------
DIRECTORS
Jeffrey S. Burum None
DOB: February 27, 1963
Judith L. Craven Director. A.G. Belo Corporation
DOB: October 6, 1945 (1992 to present); Director, Sysco
Corporation (1996 to present);
Director, Luby's Inc. (1998 to
present); Director, University of
Texas Board of Regents (May 2001 to
present)
William F. Devin Member of the Board of Governors,
DOB: December 30, 1938 Boston Stock Exchange (1985-
Present);
Samuel M. Eisenstat DOB: Director of North European Oil
March 7, 1940 Royalty Trust.
Stephen J. Gutman None
DOB: May 10, 1943
Peter A. Harbeck(3) None
DOB: January 23, 1954
William J. Shea Chairman of the Board, Royal and
DOB: February 9, 1948 SunAlliance, U.S.A., Inc. (March
2005 to present); Director, Boston
Private Holdings (October 2004 to
present)
</Table>
20
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
DIRECTORS AND OFFICERS INFORMATION -- DECEMBER 31,
2005 -- (UNAUDITED) -- (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
FUNDS
IN FUND
POSITION TERM OF COMPLEX
NAME, HELD WITH OFFICE AND OVERSEEN
ADDRESS AND SUNAMERICA LENGTH OF PRINCIPAL OCCUPATIONS BY
DATE OF BIRTH* COMPLEX TIME SERVED DURING PAST 5 YEARS DIRECTOR(1)
-------------- ---------- ----------- ----------------------------------- -----------
OFFICERS
Vincent M. Marra President May 2005 to Senior Vice President and Chief N/A
DOB: May 28, 1950 present Operating Officer, SAAMCo (February
2003 to Present); Chief
Administrative Officer, Chief
Operating Officer and Chief
Financial Officer, Carret & Co.,
LLC (June 2002 to February 2003);
President and Chief Operating
Officer, Bowne Digital Solutions
(1999 to May 2002)
Donna M. Handel Treasurer May 2005 to Senior Vice President, SAAMCo N/A
DOB: June 25, 1966 present (December 2004 to Present); Vice
President, SAAMCo (1997 to December
2004), Assistant Treasurer (1993 to
2002)
Gregory N. Bressler Secretary August 2005 Senior Vice President and General N/A
DOB: November 17, 1966 and Chief to present Counsel, SAAMCo (June 2005 to
Legal present); Vice President and
Officer Director of U.S. Asset Management
Compliance, Goldman Sachs Asset
Management (June 2004 to June
2005); Deputy General Counsel,
Credit Suisse Asset Management
(June 2002 to June 2004); Counsel,
Credit Suisse Asset Management
(January 2000 to June 2002)
<Caption>
NAME,
ADDRESS AND OTHER DIRECTORSHIPS HELD
DATE OF BIRTH* BY DIRECTOR(2)
-------------- -----------------------------------
OFFICERS
Vincent M. Marra N/A
DOB: May 28, 1950
Donna M. Handel N/A
DOB: June 25, 1966
Gregory N. Bressler N/A
DOB: November 17, 1966
</Table>
- ---------------
<Table>
* The business address for each Director and Officer is the
Harborside Financial Center, 3200 Plaza 5, Jersey City, NJ
07311-4992.
(1) The "Fund Complex" consists of all registered investment
company portfolios for which SAAMCo serves as investment
adviser or business manager. The "Fund Complex" includes the
SunAmerica Money Market Funds, Inc. (2 funds), SunAmerica
Equity Funds (9 funds), SunAmerica Income Funds (6 funds),
SunAmerica Focused Series, Inc. (17 portfolios), SunAmerica
Focused Alpha Growth Fund, Inc. (1 fund), SunAmerica Focused
Alpha Large-Cap Fund, Inc. (1 fund), Anchor Series Trust (9
portfolios), SunAmerica Senior Floating Rate Fund, Inc. (1
fund), SunAmerica Series Trust (32 portfolios), VALIC
Company I (33 portfolios), VALIC Company II (15 funds),
Seasons Series Trust (24 portfolios) and AIG Series Trust (6
portfolios).
(2) Directorships of companies required to report to the
Securities and Exchange Commission under the Securities
Exchange Act of 1934 (i.e. "public companies") or other
investment companies registered under the Investment Company
Act of 1940.
(3) Interested Director, as defined within the Investment
Company Act of 1940, because he is an officer and a director
of the advisor and a director of the principal underwriter
of, the Trust.
</Table>
21
SUNAMERICA FOCUSED ALPHA GROWTH FUND, INC.
SHAREHOLDER TAX INFORMATION -- (UNAUDITED)
- --------------------------------------------------------------------------------
Certain tax information regarding the SunAmerica Focused Alpha Growth Fund is
required to be provided to shareholders based upon the Fund's income and
distributions for the taxable year ended December 31, 2005. The information
necessary to complete your income tax returns is included with your Form
1099-DIV mailed to you in January 2006.
During the year ended December 31, 2005 the Funds paid the following dividends
per share:
<Table>
<Caption>
ORDINARY
TOTAL AMOUNT INVESTMENT RETURN OF
PAYABLE DATE RECORD DATE PAID PER SHARE INCOME CAPITAL(1)
------------ ----------- -------------- ---------- ----------
Common Shares:
10/31/2005 10/21/2005 $0.30 $ -- $ 0.30
12/29/2005 12/15/2005 0.20 -- 0.20
----- ---------- ----------
Total Common Stock: $0.50 $ -- $ 0.50
</Table>
- ------------
(1) The amount received as a non-taxable (return of capital) distribution should
be applied to reduce the tax cost of shares. There was a $0.50 per share
return of capital in 2005 on common shares.
22
- --------------------------------------------------------------------------------
(AIG LOGO)
DIRECTORS/TRUSTEES
Samuel M. Eisenstat
Peter A. Harbeck
Dr. Judith L. Craven
William F. Devin
Stephen J. Gutman
Jeffrey S. Burum
William J. Shea
OFFICERS
Vincent M. Marra, President
Donna M. Handel, Treasurer
J. Steven Neamtz, Vice President
Cynthia Gibbons, Vice President
and Chief Compliance Officer
Gregory N. Bressler, Chief Legal Officer and
Secretary
Gregory R. Kingston, Vice President and Assistant
Treasurer
Nori L. Gabert, Vice President
and Assistant Secretary
Corey A. Issing, Assistant Secretary
INVESTMENT ADVISER
AIG Sun America Asset Management Corp.
Harborside Financial Center
3200 Plaza 5
Jersey City, NJ 07311-4992
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
TRANSFER AGENT
Computershare Shareholder Services, Inc.
250 Royall Street
Canton, MA 02021
SHARE REPURCHASES AND TENDER OFFERS
Because shares of closed-end management investment companies frequently trade
at a discount to their net asset values, the Board of Directors has
determined that from time to time it may be in the interest of shareholders
for the Fund to take corrective actions. The Board of Directors, in
consultation with SAAMCo, will review at least annually the possibility of
open market repurchases and/or tender offers for the Shares and will consider
such factors as the market price of the Shares, the net asset value of the
Shares, the liquidity of the assets of the Fund, effect on the Fund's
expenses, whether such transactions would impair the Fund's status as a
regulated investment company or result in a failure to comply with applicable
asset coverage requirements, general economic conditions and such other
events or conditions, which may have a material effect on the Fund's ability
to consummate such transactions. Any such repurchase and/or tender offers are
at the sole discretion of the Board of Directors and there are no assurances
that the Board of Directors will, in fact, decide to undertake either of
these actions or, if undertaken, that such actions will result in the Fund's
Shares trading at a price which is equal to or approximates their net asset
value. In recognition of the possibility that the Shares might trade at a
discount to net asset value and that any such discount may not be in the
interest of shareholders, the Board of Directors, in consultation with
SAAMCo, from time to time may review possible actions to reduce any such
discount.
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine
how to vote proxies related to securities held in the Fund's portfolio, which
is available in the Fund's Form N-CSR. The Fund's N-CSR will be available on
or about March 10, 2006, from the EDGAR database on the U.S. Securities and
Exchange Commission's website at http://www.sec.gov.
PROXY VOTING RECORD ON SUNAMERICA FOCUSED ALPHA GROWTH FUND
Information regarding how SunAmerica Focused Alpha Growth Fund voted
proxies relating to securities held in SunAmerica Focused Alpha Growth
Fund during the twelve month period ended June 30, 2005 is not applicable,
due to the Fund commencing operations on July 29, 2005.
DISCLOSURE OF QUARTERLY PORTFOLIO HOLDINGS
The Fund is required to file its complete schedule of portfolio holdings
with the U.S. Securities and Exchange Commission for its first and third
fiscal quarters on Form N-Q. Once filed, the Fund's Form N-Q will be
available without charge on the U.S. Securities and Exchange Commission's
website at www.sec.gov. You can also obtain copies of Form N-Q by (i)
visiting the U.S. Securities and Exchange Commission's Public Reference
Room in Washington, DC (information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330); (ii) sending
your request and a duplicating fee to the U.S. Securities and Exchange
Commission's Public Reference Room, Washington, DC 20549-0102 or (iii)
sending your request electronically to publicinfo@sec.gov.
This report is submitted solely for the general information of
shareholders of the Fund.
23
[AIG SUNAMERICA MUTUAL FUNDS LOGO]
SunAmerica open-end funds distributed by:
AIG SunAmerica Capital Services, Inc., Harborside Financial Center,
3200 Plaza 5, Jersey City, NJ 07311
800-858-8850 x6003 www.sunamericafunds.com
FGANN-12/05
Item 2. Code of Ethics
The SunAmerica Focused Alpha Growth Fund, Inc. (the "registrant") has
adopted a Code of Ethics applicable to its Principal Executive and
Principal Accounting Officers pursuant to Section 406 of the
Sarbanes-Oxley Act of 2002.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Directors has determined that William J.
Shea, the Chairman of the registrant's Audit Committee, qualifies as
an audit committee financial expert, as defined in the instructions to
Item 3(a) of Form N-CSR. Mr. Shea is considered to be "independent"
for purposes of Item 3(a)(2) of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a)--(d) Aggregate fees billed to the registrant for the last two
fiscal years for professional services rendered by the registrant's
principal accountant were as follows:
<Table>
<Caption>
2004 2005
Audit Fees $ 0 $35,625
Audit-Related Fees $ 0 $ 0
Tax Fees $ 0 $ 7,325
All Other Fees $ 0 $ 0
</Table>
Audit Fees include amounts related to the audit of the registrant's
annual financial statements and services normally provided by the
principal accountant in connection with statutory and regulatory
filings, including the Fund's initial registration statement. Tax Fees
principally include tax compliance, tax advice, tax planning and
preparation of tax returns.
(e)
(1) The registrant's audit committee pre-approves all audit services
provided by the registrant's principal accountant for the registrant
and all non-audit services provided by the registrant's principal
accountant for the registrant, its investment adviser and any entity
controlling, controlled by, or under common control with the
investment adviser ("Adviser Affiliate") that provides ongoing
services to the registrant, if the engagement by the investment
adviser or Adviser Affiliate relates directly to the operations and
financial reporting of the registrant.
(2) No services included in (b)-(d) above were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not Applicable.
(g) The aggregate fees billed for the most recent fiscal year and the
preceding fiscal year by the registrant's principal accountant for
non-audit services rendered to the registrant, its investment adviser,
and Adviser Affiliate that provides ongoing services to the registrant
for 2005 and 2004 were $7,325 and $0, respectively.
(h) Non-audit services rendered to the registrant's investment adviser and
any Adviser Affiliate that were not pre-approved pursuant to Paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X were considered by the
registrant's audit committee as to whether they were compatible with
maintaining the principal accountant's independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Included in Item 1 to the Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
PROXY VOTING POLICIES AND PROCEDURES
Proxy Voting Responsibility. The Fund has adopted policies and procedures
for the voting of proxies relating to portfolio securities. The policies and
procedures were drafted according to recommendations by a proxy voting committee
composed of senior management of the Fund and the Fund's investment adviser. The
policies and procedures enable the Fund to vote proxies in a manner consistent
with the best interests of the Fund's shareholders.
The Fund has retained a proxy voting service, Institutional Shareholder Services
("ISS"), to effect votes on behalf of the Fund according to the Fund's policies
and procedures, and to assist the Fund with record keeping of proxy votes.
Company Management Recommendations. When determining whether to invest in
the securities of a particular company, one of the key factors a portfolio
manager considers is the quality and depth of the company's management. In
holding portfolio securities, the Fund is seeking to maximize the investment
value for shareholders, but not necessarily exercise control over the issuers of
portfolio securities or otherwise advance a particular social agenda. The Fund's
policies and procedures therefore provide that the Fund will generally vote in
support of management recommendations on most corporate matters. When a
corporation's portfolio manager is dissatisfied with a company's management, the
Fund typically will sell the holding.
Case-By-Case Voting Matters. The policies and procedures identify certain
voting matters that will be decided on a case-by-case basis. In these
circumstances, the proxy voting committee generally will rely on the guidance or
a recommendation from the proxy voting service, but may also rely on other
appropriate personnel of the investment adviser (or "SunAmerica" or the
"Adviser") and/or a subadviser of the Fund, or other sources. In these
instances, such person(s) will recommend the vote that will maximize value for,
and is in the best interests of, the Fund's shareholders.
Examples of the Fund's Positions on Voting Matters. Consistent with the
approaches described above, the following are examples of the Fund's voting
positions on specific matters:
- Vote with management recommendations on most corporate and mutual fund
matters;
- Vote on a case-by-case basis on proposals to increase authorized common
stock;
- Vote against the authorization of preferred stock with unspecified
voting, conversion, dividend distribution and other rights ("blank check"
preferred stock);
- Vote on a case-by-case basis regarding finance, merger and acquisition
matters;
- Vote against most shareholder proposals;
- Abstain from voting on social responsibility or environmental matters,
unless the fund's objective is directly related to the social or
environmental matter in question;
- Not vote proxies for index funds/portfolios and passively managed
funds/portfolios; and
- Vote on a case-by-case basis on equity compensation plans.
Conflicts of Interest. Members of the proxy voting committee will resolve
conflicts of interest presented by a proxy vote. In practice, application of the
Fund's proxy voting policies and procedures will in most instances adequately
address any possible conflicts of interest, as the policies and procedures were
pre-determined by the proxy voting committee, and votes are effected according
to the policies and procedures by ISS, an independent third party.
However, if a situation arises where a vote presents a conflict between
the interests of the Fund's shareholders and the interests of SunAmerica, or one
of SunAmerica's affiliates, and the conflict is known to the proxy voting
committee, the proxy voting committee will consult with a Director who is not an
"interested" person, as that term is defined in the Investment Company Act of
1940, as amended, time permitting before casting the vote to ensure that the
Fund votes in the best interests of its shareholders. Any individual with a
known conflict may be required by the proxy voting committee to recuse himself
or herself from being involved in the proxy voting decision. Senior management,
including the proxy voting committee, will evaluate the situation and ensure
that the Fund selects the vote that is in the best interests of the Fund's
shareholders.
Proxy Voting Records. ISS will maintain records of voting decisions for
each vote cast on behalf of the Fund. Pursuant to SEC requirements, beginning in
August of 2004, on an annual basis the Fund will make available on its website
its proxy voting record for the one-year period ending on June 30th. The proxy
voting record will also be available on the SEC's website at http://www.sec.gov.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
BAMCO, Inc. ("BAMCO") and Marsico Capital Management, LLC ("Marsico") are
the Subadvisers to the SunAmerica Focused Alpha Growth Fund, Inc. (the "Fund").
Thomas F. Marsico is the portfolio manager for Marsico and is primarily
responsible for the day-to-day management of the large-cap portion of the Fund's
assets. Ronald Baron is the portfolio manager for BAMCO and is primarily
responsible for the day-to-day management of the small-cap and mid-cap portion
of the Fund's assets.
Mr. Marsico is the Chief Investment Officer of Marsico. Mr. Marsico has
over 20 years of experience as a securities analyst and a portfolio manager.
Prior to forming Marsico, Mr. Marsico served as the portfolio manager of the
Janus Twenty Fund from January 31, 1988 through August 11, 1997 and served in
the same capacity for the Janus Growth and Income Fund from May 31, 1991 (the
Fund's inception date through August 11, 1997.
Mr. Baron is the founder, Chief Executive Officer and Chairman of Baron
Capital Group, Inc. and its subsidiaries. BAMCO, Inc., established in 1987 is
one of its subsidiaries. He began to manage money for others on a discretionary
basis in 1975. In 1982 he established Baron Capital Inc. He has been portfolio
manager of the Baron flagship fund, Baron Asset Fund and of Baron Growth Fund
since their inception. Mr. Baron also manages the SunAmerica Focused Small-Cap
Growth Portfolio.
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGER
The following table indicates the type (Registered Investment Company
("RIC"), Other Pooled Investments ("OPI"), and Other Accounts ("OA"), number of
accounts, and total assets of the accounts which each Portfolio Manager had
day-to-day responsibilities as of December 31, 2005.
Total Assets
Name of Portfolio Number of Managed in
Manager Type of Account Accounts Accounts ($millions)
Thomas F. Marsico RIC 38 $29,166.75
OPI 12 $ 1,555.58
OA 203 $23,951.93
Ronald Baron RIC 7 $10,200
OPI 5 $ 156
OA 54 $ 520
POTENTIAL CONFLICTS OF INTEREST
As shown in the tables above, the Portfolio Managers are responsible for
managing other accounts for other clients, ("Other Client Accounts") in addition
to the Fund. In certain instances, conflicts may arise in their management of
the Fund and such Other Client Accounts. The Portfolio Managers aim to conduct
their activities in such a manner that permits them to deal fairly with each of
their clients on an overall basis in accordance with applicable securities laws
and fiduciary obligations. Notwithstanding, transactions, holdings and
performance, among others, may vary among the Fund and such Other Client
Accounts.
- - Trade Allocations. Conflicts may arise between the Fund and Other Client
Accounts in the allocation of trades among the Fund and the Other Client
Accounts, as the case may be. For example, the Adviser and/or Portfolio
Managers may determine that there is a security that is suitable for the
Fund as well as for Other Client Accounts that have a similar investment
objective. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling that same security, or
the Adviser and/or Portfolio Managers may take "short" positions in Other
Client Accounts with respect to securities held "long" within the Fund, or
vice-versa, which may adversely affect the value of securities held by the
Fund. Such ownership or different interests may cause a conflict of
interest. The Fund, the Adviser and/or subadvisers have adopted policies,
procedures and/or practices regarding the allocation of trades and
brokerage, which address the conflicts associated with managing multiple
accounts for multiple clients (including affiliated clients). Subject to
cash and security availability and lot size, among other factors, the
policies, procedures and/or practices generally require that securities be
allocated among the Fund and Other Client Accounts with a similar
investment objective in a manner that is fair, equitable and consistent
with their fiduciary obligations to each.
- - Allocation of Portfolio Managers' Time. The Portfolio Managers' management
of the Fund and Other Client Accounts may result in the Portfolio
Managers devoting a disproportionate amount of time and attention to the
management of the Fund and Other Client Accounts if the Fund and Other
Client Accounts have different objectives, benchmarks, time horizons, and
fees. Generally, such competing interests for the time and attention of
the Portfolio Managers are managed. Although the Adviser does not track
the time the Portfolio Managers spends on the Fund or a single Other
Client Account, the Adviser and/or subadvisers do periodically assess
whether the Portfolio Managers have adequate time and resources to
effectively manage all of such Portfolio Managers' accounts. In certain
instances, Portfolio Managers may be employed by two or more employers.
Where the Portfolio Manager receives greater
compensation, benefits or incentives from one employer over another, the
Portfolio Managers may favor one employer over the other (or Other Client
Accounts) causing a conflict of interest.
- - Personal Trading by Portfolio Managers. The management of personal
accounts by a Portfolio Manager may give rise to potential conflicts of
interest. While generally, each sub-adviser's Code of Ethics
will impose limits on the ability of a Portfolio Manager to trade for his
or her personal account, especially where such trading might give rise to
a potential conflict of interest, there is no assurance that the Codes of
Ethics will eliminate such conflicts.
PORTFOLIO MANAGER COMPENSATION
MARSICO
Marsico's portfolio managers are generally subject to the compensation
structure applicable to all MCM employees. As such, Mr. Marsico's compensation
consists of a base salary (reevaluated at least annually), and periodic cash
bonuses. Bonuses are typically based on two primary factors: (1) Marsico's
overall profitability for the period, and (2) individual achievement and
contribution.
Portfolio manager compensation takes into account, among other factors,
the overall performance of all accounts for which the manager provides
investment advisory services. Portfolio managers do not receive special
consideration based on the performance of particular accounts. Exceptional
individual efforts are rewarded through greater participation in the bonus pool.
Portfolio manager compensation comes solely from Marsico.
Although Marsico may compare account performance with relevant benchmark
indices, portfolio manager compensation is not directly tied to achieving any
pre-determined or specified level of performance. In order to encourage a
long-term time horizon for managing portfolios, Marsico seeks to evaluate the
portfolio manager's individual performance over periods longer than the
immediate compensation period. In addition, portfolio managers are compensated
based on other criteria, including effectiveness of leadership within Marsico's
Investment Team, contributions to Marsico's overall investment performance,
discrete securities analysis, and other factors. In addition to his salary and
bonus, Mr. Marsico may participate in other Marsico benefits to the same extent
and on the same basis as other Marsico employees.
BAMCO
Mr. Baron's compensation is fixed, based on a three year contract that
expires February 28, 2006. A new multi-year contact is being negotiated. His
compensation includes a fixed base salary and a bonus that is roughly equivalent
to 40% of his base salary. The terms of his contract were based on Mr. Baron's
role as the firm's founder, chief executive officer, chief investment officer
and his position as portfolio manager to the majority of the firm's
assets under management. Consideration was given to Mr. Baron's reputation, the
long-term performance records of the funds under his management and the
profitability of the firm. In addition to his cash compensation, Mr. Baron
benefits from a line of credit that is guaranteed by Baron Capital.
PORTFOLIO MANAGER OWNERSHIP OF FUND SHARES
The following table shows the dollar range of shares beneficially owned by
each Portfolio Manager as of December 31, 2005.
AGGREGATE DOLLAR RANGE OF
DOLLAR RANGE OF EQUITY EQUITY SECURITIES IN ALL
SECURITIES IN EACH REGISTERED INVESTMENT
NAME OF FUND MANAGED BY THE COMPANIES MANAGED BY
PORTFOLIO MANAGER NAMED PORTFOLIO MANAGER SUNAMERICA
Thomas F. Marsico None None
Ronald Baron None None
(b) Not applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
None.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) An evaluation was performed within 90 days of the filing of this
report, under the supervision and with the participation of the
registrant's management, including the President and Treasurer, of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures. Based on that evaluation, the
registrant's management, including the President and Treasurer,
concluded that the registrant's disclosure controls and procedures are
effective.
(b) There was no change in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940 (17 CFR 270.30a-3(d))) that occurred during the
second fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits.
(a) (1) Code of Ethics applicable to its Principal Executive and Principle
Accounting Officers pursuant to Section 406 of the Sarbanes-Oxley Act
of 2002 attached hereto as Exhibit 99.406. Code of Ethics.
(2) Certification pursuant to Rule 30a-2(a) under the Investment
Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit
99.CERT.
(3) Not applicable.
(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 attached hereto as Exhibit 99.906.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SunAmerica Focused Alpha Growth Fund, Inc.
By: /s/ Vincent M. Marra
--------------------
Vincent M. Marra
President
Date: March 10, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Vincent M. Marra
--------------------
Vincent M. Marra
President
Date: March 10, 2006
By: /s/ Donna M. Handel
-------------------
Donna M. Handel
Treasurer
Date: March 10, 2006