<PAGE>
As filed with the Securities and Exchange Commission on December 22, 1998
Securities Act File No.
Investment Company Act File Act No.
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO.
(Check appropriate box or boxes)
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (212) 551-5100
Robert M. Zakem
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(Name and Address for Agent for Service)
Copy to:
Susan L. Harris, Esq.
Senior Vice President and General Counsel
SunAmerica Inc.
1 SunAmerica Center
Los Angeles, CA 90067-6022
Margery K. Neale, Esq.
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, NY 10022
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
<PAGE>
_____, 1999 PROSPECTUS
SUNAMERICA STRATEGIC INVESTMENT SERIES
-Tax Managed Equity Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
[Logo] SUNAMERICA
MUTUAL FUNDS
<PAGE>
TABLE OF CONTENTS
FUND HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
MORE INFORMATION ABOUT THE FUND. . . . . . . . . . . . . . . . . . . . . . . .9
Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . . .9
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Terminology . . . . . . . . . . . . . . . . . . . . . . . 10
Risk Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SHAREHOLDER ACCOUNT INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 13
FUND MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2
<PAGE>
FUND HIGHLIGHTS
The following questions and answers are designed to give you an overview of the
SunAmerica Strategic Investment Series, Inc., and to provide you with
information about the Tax Managed Equity Fund and its investment goal and
principal strategies. More complete investment information is provided in chart
form, under "More Information About the Fund," which is on page 21, and the
glossary that follows on page 23.
Q: What is the Fund's investment goal?
A: The Tax Managed Equity Fund seeks high total return with a view towards
minimizing the impact of capital gains taxes on investors' returns.
Q: How does the Fund pursue this goal?
A: The Tax Managed Equity Fund invests primarily in large and medium-sized
U.S. companies (based on market capitalization) which the Fund believes to
be undervalued. The Fund's industry weightings are similar to those of the
Standard & Poor's 500 Stock Index (S&P 500). The Fund can moderately
underweight or overweight industries when it believes it will benefit
performance.
[Margin note: MARKET CAPITALIZATION represents the total market value of
the outstanding securities of a corporation.]
[Margin note: A "VALUE" ORIENTED PHILOSOPHY - that of investing
principally in securities believed to be undervalued in the market -
reflects a contrarian approach, in that the potential for superior relative
performance is believed to be highest when stocks of fundamentally solid
companies are out of favor.]
The Tax Managed Equity Fund attempts to invest in a tax aware manner. This
is designed to reduce, but not eliminate, capital gains distributions to
shareholders. In doing so, the Fund sells securities when the anticipated
total return benefit justifies the resulting tax liability. This strategy
often includes holding securities long enough to avoid higher, short-term
capital gains taxes, selling shares with a higher cost basis first, and
offsetting gains realized on one security by selling another security at a
capital loss. You should realize, however, that the Fund's tax aware
strategy does not reduce the tax impact of dividends and other ordinary
income received by the Fund, which ultimately will be distributed to you,
or affect your potential tax liability if you sell or exchange shares of
the Fund.
Q: What are the principal risks of investing in the Fund?
A: As with any equity fund, the value of your investment in the Fund may
fluctuate in response to stock market movements, and you could lose money.
Other principal risks include:
3
<PAGE>
- individual stocks selected for the Fund may underperform the
market generally
- maximizing after-tax returns may require trade-offs that affect
pre-tax returns
In addition, shares of the Fund are not bank deposits and are not
guaranteed or insured by any bank, government entity or the Federal
Deposit Insurance Corporation.
Q: What are the Fund's expenses?
A: THE FOLLOWING TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU
BUY AND HOLD SHARES OF THE FUND.
<TABLE>
<CAPTION>
TAX MANAGED EQUITY FUND
---------------------------------------------
CLASS CLASS CLASS
A B II
--------------- -------------- --------------
<S> <C> <C> <C>
SHAREHOLDER FEES (fees paid directly from
your investment)
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering
price)(1). . . . . . . . . . . . . . . . . 5.75% None 1.00%
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed)(2). . None 4.00% 1.00%
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends. . . . . . . . . . None None None
Redemption Fee(3). . . . . . . . . . . . . None None None
Exchange Fee . . . . . . . . . . . . . . . None None None
GROSS ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees. . . . . . . . . . . . . . 0.75% 0.75% 0.75%
Distribution (12b-1) Fees. . . . . . . . . 0.35% 1.00% 1.00%
Other Expenses(4). . . . . . . . . . . . .
--------------- -------------- --------------
Total Gross Annual Fund Operating Expenses
. . . . . . . . . . . . . . . . . . . . . . . 2.05 2.68 2.71
--------------- -------------- --------------
--------------- -------------- --------------
Expense Reimbursement(5) . . . . . . . . . . .
Net Expenses . . . . . . . . . . . . . . . . . 1.45% 2.10% 2.10%
</TABLE>
(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1 million or more.
4
<PAGE>
(2) Purchases of Class A shares over $1 million will be subject to a contingent
deferred sales charge (CDSC) on redemptions made within one year of
purchase. The CDSC on Class B shares applies only if shares are redeemed
within six years of their purchase. The CDSC on Class II shares applies
only if shares are redeemed within eighteen months of their purchase.
(3) A $15.00 fee may be imposed on wire redemptions.
(4) Based on estimated amounts for the current fiscal year.
(5) The Board of Directors, including a majority of the Independent
Directors, approved the Investment Advisory and Management Agreement
subject to the net expense ratio set forth above. SunAmerica may not
increase such ratios without Board approval including a majority of the
Independent Directors.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE FUND
WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE
EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE
FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH YOUR ACTUAL COSTS MAY BE
HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
TAX MANAGED EQUITY FUND
(CLASS A SHARES) . . . . . . . . . . . $771 $1,182
(CLASS B SHARES) . . . . . . . . . . . $671 $1,132
(CLASS II SHARES). . . . . . . . . . . $471 $ 933
</TABLE>
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
TAX MANAGED EQUITY FUND
(CLASS A SHARES) . . . . . . . . . . . $771 $1,182
(CLASS B SHARES) . . . . . . . . . . . $271 $ 832
(CLASS II SHARES). . . . . . . . . . . $371 $ 933
</TABLE>
THE EXPENSES SHOWN IN THE EXAMPLE ARE BASED ON GROSS EXPENSE DATA. ACTUAL
EXPENSES ARE EXPECTED TO BE LESS THAN GROSS EXPENSES BECAUSE OF EXPENSE
WAIVERS AND REIMBURSEMENTS. IF THE ACTUAL EXPENSES WERE USED IN THE
EXAMPLE RATHER THAN GROSS EXPENSES, YOUR COSTS WOULD BE AS FOLLOWS:
5
<PAGE>
IF YOU REDEEM YOUR INVESTMENT AT THE END OF EACH OF THE PERIODS INDICATED:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
TAX MANAGED EQUITY FUND
(CLASS A SHARES) . . . . . . . . . . . $714 $1,007
(CLASS B SHARES) . . . . . . . . . . . $613 $ 958
(CLASS II SHARES). . . . . . . . . . . $411 $ 751
</TABLE>
IF YOU DID NOT REDEEM YOUR SHARES:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
TAX MANAGED EQUITY FUND
(CLASS A SHARES) . . . . . . . . . . . $714 $1,007
(CLASS B SHARES) . . . . . . . . . . . $213 $ 658
(CLASS II SHARES). . . . . . . . . . . $311 $ 751
</TABLE>
Q. How has the Adviser performed in managing accounts with substantially
similar investment objectives, policies and strategies to that of the Fund?
A. J.P. Morgan Investment Management, Inc., the Fund's Adviser, has managed
such accounts since 1984. For more details regarding performance, please see
"Adviser's Historical Performance" below.
ADVISER'S HISTORICAL PERFORMANCE
Set forth below is historical performance data for all accounts managed by
the Fund's Adviser which have investment objectives and policies similar
(although not necessarily identical) to the Fund. The Adviser has managed
the accounts using investment styles and strategies substantially similar to
those to be employed in advising the Fund. THE PERFORMANCE INFORMATION SET
FORTH BELOW DOES NOT REPRESENT THE PERFORMANCE OF THE FUND. This information
is not a prediction of the Fund's future performance. The Fund's performance
may be higher or lower than the performance of the Adviser's other accounts
as presented below.
We have calculated the information in the following manner:
- - We have based all the information presented below on data the Adviser or
6
<PAGE>
Morningstar, Inc. ("Morningstar") supplied, and which we believe is
reliable.
- - All of the Adviser's historical performance information reflects
ANNUALIZED TOTAL RETURN over the stated period of time. "Total return"
shows how much an investment has increased (decreased) and includes capital
appreciation and income. The term "annualized total return" signifies that
cumulative total returns for the stated period (I.E., 1, 3, 5, or 10 years)
have been adjusted to reflect a rate based on one year.
- - In order to present the total return information in a consistent manner,
we calculate all returns by linking quarterly total return data on a
compounded basis for the relevant number of quarters and annualizing the
result over the equivalent number of years.
- - The Adviser's performance is based on composite performance information of
multiple accounts calculated in accordance with Performance Presentation
Standards of the Association for Investment Management and Research
("AIMR") AIMR's method of calculating performance differs from that of
the Securities and Exchange Commission. Unless otherwise indicated, no
one has independently verified or audited the performance data.
- - Performance figures for the Adviser do not necessarily reflect all of the
Adviser's assets under management and may not accurately reflect the
performance of all accounts managed by the Adviser.
- - The Adviser's performance information is presented as a "gross composite."
The gross composite performance return is reduced by the highest annual
expenses charged to any account included in the composite.
- - Certain of the client accounts that we have included in an Adviser's past
performance record are not registered investment companies, and are not
subject to the same expenses or rules and regulations as the Fund (such as,
for example, diversification and liquidity requirements and restrictions on
transactions with affiliates). These differences might have affected the
performance results that include accounts that are not registered investment
companies.
7
<PAGE>
- - For each period presented, we compare the investment performance for the
Adviser to the average performance of a group of similar mutual funds
tracked by Morningstar. Morningstar calculates its group averages by
taking a mathematical average of the returns of the funds included in the
group.
The performance results supplied by the Adviser were prepared as set forth
below under "Individual Adviser Performance."
<TABLE>
<CAPTION>
Period Ending October 31, Morningstar Large Blend J.P. Morgan Tax Aware U.S.
1998 Equity Composite (Gross of
Fees*)
<S> <C> <C>
1 Year 21.7%
3 Years 24.6%
5 Years 20.3%
10 Years 18.0%
Since Inception** 17.7%
* Returns reflect the deduction of the highest fee charged for any account in the composite.
** Inception date is December 1, 1984.
</TABLE>
NOTES
Adviser Performance
The Adviser's performance is presented as a gross composite (i.e., reflecting
the highest annual expenses charged to a particular account in the J.P.
Morgan Tax Aware U.S. Equity Composite (the "Composite"). The Fund's fees and
expenses may be greater than those charged by the Adviser. Accordingly, the
Fund's actual performance results may be less.
The Adviser's historical performance data covers 15 years and reflects the
performance of the Composite (which includes a mutual fund). The Composite
includes all accounts, with investment objectives, policies and strategies
substantially similar to those to be used by the Adviser in managing the
Fund. As of October 31, 1998, the Composite included 102 accounts with
aggregate assets of $427,050,818. The Composite returns were supplied to the
Fund by the Adviser gross of certain fees, but have been adjusted to reflect
the highest fees charged to any account included in the Composite for the
reporting period. None of the accounts included in the Composite bears any
sales loads or charges.
MORNINGSTAR LARGE BLEND CATEGORY
Developed by Morningstar, the Morningstar Large Blend Category currently
reflects a group of __ mutual funds which have portfolios with
[median market captializations, price/earnings ratios, and price/book ratios]
similar to those expected for the Fund.
GROWTH OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
Annual Period Ending Morningstar Large Blend J.P. Morgan Tax Aware U.S.
October 31, 1998 Equity Composite (Gross of
Fees*)
<S> <C> <C>
1984 $10,000 $10,000
1985 $12,910 $13,370
1986 $14,956 $15,924
1987 $15,505 $16,529
1988 $17,575 $18,397
1989 $22,181 $24,451
1990 $21,456 $24,124
1991 $28,183 $32,326
1992 $30,246 $35,009
1993 $33,443 $38,510
1994 $32,978 $38,664
1995 $43,448 $52,776
1996 $52,368 $62,540
1997 $67,089 $82,552
1998 $73,026 $95,183
* Returns reflect the deduction of the highest fee charged for any account in the composite.
</TABLE>
NOTE
Growth of a $10,000 Investment
The "Growth of $10,000" chart reflects 14 years of performance data for the
J.P. Morgan Tax Aware U.S. Equity Composite. The returns for are net of
actual expenses.
8
<PAGE>
MORE INFORMATION ABOUT THE FUND
INVESTMENT STRATEGIES
The Fund has its own investment goal and a strategy for pursuing it. The
chart summarizes information about the Fund's investment approach. We have
included a glossary to define the investment and risk terminology used in the
chart.
<TABLE>
<CAPTION>
TAX MANAGED EQUITY
FUND
----------------------------------------------
<S> <C>
What is the Fund's investment goal? High total return with a view towards minimizing
the impact of capital gains taxes
What are the Fund's principal investments stocks of large and medium-sized U.S.
(under normal market conditions)? companies believed to be undervalued
What are the Fund's principal risks? - stock market volatility
- stock selection
- tax managed strategy may affect pre-tax
returns
What other investment strategies can the Fund use?
- - Small Company stocks Yes
- - Active Trading No
- - Warrants Yes
- - Short-term investments Yes [(up to __%)]
- - Defensive investments Yes
- - Foreign securities Yes
ADRs/EDRs/GDRs Yes
- - Foreign Currency Transactions No
- - Illiquid securities Yes (up to 15%)
- - Borrowing for emergencies Yes (up to 33 1/3%)
9
<PAGE>
- - Options and futures Yes
- - Special situations Yes
</TABLE>
<TABLE>
<CAPTION>
TAX MANAGED EQUITY
FUND
----------------------------------------------
<S> <C>
What other potential risks can affect a Fund? - foreign exposure
- illiquidity
- derivatives
- small market capitalization
- euro conversion
- [hedging]
</TABLE>
GLOSSARY
TERMINOLOGY
TOTAL RETURN is achieved through both growth of capital and income.
LARGE COMPANIES have market capitalizations of over $5 billion.
MEDIUM-SIZED COMPANIES have market capitalizations ranging from $1 billion to $5
billion, although there may be some overlap among capitalization categories.
SMALL COMPANIES have market capitalizations of $1 billion or less, although
there may be some overlap among capitalization categories. The Adviser may
consider an issuer that has a market capitalization in excess of $1 billion
to be "small-cap" if it meets certain relevant criteria.
[Margin note: LARGE COMPANIES and MEDIUM-SIZED COMPANIES generally have a
substantial record of operations (I.E., in business for at least five years) and
are listed for trading on the New York Stock Exchange or another national or
international stock exchange or, in some cases, are traded over the counter.
SMALL COMPANIES generally will be companies that have been in business for a
shorter period of time.]
WARRANTS are rights to buy common stock of a company at a specified price during
the life of the warrant.
ACTIVE TRADING means that the Fund may engage in frequent trading of portfolio
securities to achieve its investment goal. This may result in high portfolio
turnover and increased brokerage costs. In addition, because the Fund may sell
a security without regard to how long it has held the security, active trading
may have tax consequences for certain shareholders, involving a possible
increase in short-term capital gains or losses. Active trading involves
10
<PAGE>
correspondingly greater brokerage commissions and other transaction costs, which
will be borne directly by the Fund. The Fund does not expect to engage in
active trading.
SHORT-TERM INVESTMENTS include money market securities such as short-term U.S.
Government obligations, repurchase agreements, commercial paper, bankers'
acceptances and certificates of deposit. These securities provide the Fund with
sufficient liquidity to meet redemptions and cover expenses.
DEFENSIVE INVESTMENTS include high quality fixed income securities and money
market instruments. The Fund will make temporary defensive investments in
response to adverse market, economic, political or other conditions. When the
Fund takes a defensive position, it may miss out on investment opportunities
that could have resulted from investing in accordance with its principal
investment strategy.
FOREIGN SECURITIES are issued by companies located outside of the United States,
including developing countries or emerging markets. Foreign securities may
include American Depositary Receipts (ADRs) or other similar securities that
convert into foreign securities such as European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs).
CURRENCY TRANSACTIONS include the purchase and sale of currencies to facilitate
securities transactions and forward currency contracts, which are used to hedge
against changes in currency exchange rates. The Fund will not engage in such
transactions.
ILLIQUID SECURITIES are subject to legal or contractual restrictions that may
make them difficult to sell. A security that cannot easily be sold within seven
days will generally be considered illiquid. Certain restricted securities (such
Rule 144A securities) are not generally considered illiquid because of their
established trading market.
OPTIONS AND FUTURES are contracts involving the right to receive or obligation
to deliver assets or money depending on the performance of one or more
underlying assets or a market or economic index.
A SPECIAL SITUATION may arise when the Adviser believes that the securities of a
particular issuer will appreciate in value due to a specific development
relating to that company. A special situation might arise when a company
develops a new product or process, makes a technological breakthrough,
experiences a management change or other extraordinary corporate event, or
benefits from differences in market supply and demand for the security.
Investments in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention.
11
<PAGE>
RISK TERMINOLOGY
TAX MANAGED STRATEGY: A strategy to maximize after-tax returns may entail
certain investment techniques that will affect pre-tax returns. For example,
the Fund may not sell an appreciated security to avoid recognizing a capital
gain only to experience a subsequent decline in value of the security. Thus,
the Fund could miss out on opportunities to sell, and, because its cash may
be otherwise invested, opportunities to make new investments. Moreover, a
tax managed strategy will not eliminate all capital gains. The tax managed
strategy does not reduce the tax impact of dividends and other ordinary
income received by the Fund which ultimately will be distributed to you, or
affect the potential tax liability if an investor sells or exchanges shares,
MARKET VOLATILITY: The stock and/or bond markets as a whole could go up or
down (sometimes dramatically). This could affect the value of the securities in
a Fund's portfolio.
SECURITIES SELECTION: A strategy used by a Fund, or securities selected by its
Adviser, may fail to produce the intended return.
SMALL MARKET CAPITALIZATION: Companies with smaller market capitalizations
(particularly under $1 billion) tend to be at early stages of development with
limited product lines, market access for products, financial resources, access
to new capital, or depth in management. It may be difficult to obtain reliable
information and financial data about these companies. Consequently, the
securities of smaller companies may not be as readily marketable and may be
subject to more abrupt or erratic market movements.
FOREIGN EXPOSURE: Investors in foreign countries are subject to a number of
risks. A principal risk is that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. In
addition, there may be less publicly available information about a foreign
company and it may not be subject to the same uniform accounting, auditing and
financial reporting standards as U.S. companies. Foreign governments may not
regulate securities markets and companies to the same degree as in the U.S.
Foreign investments will also be affected by local political or economic
developments and governmental actions. Consequently, foreign securities may be
less liquid, more volatile and more difficult to price than U.S. securities.
These risks are heightened when the issuer is in a developing country or
emerging market.
EMERGING MARKET: An emerging market country is one that the World Bank, the
International Finance Corporation or the United Nations or its authorities has
determined to have a low or middle income economy with a low per capita gross
national product. Historical experience indicates that the markets of EMERGING
MARKET countries have been more volatile than more developed markets; however,
such markets can provide higher rates of return to investors.
EURO CONVERSION: Effective January 1, 1999, several European countries
irrevocably fixed their existing national currencies to a new single European
currency unit, the "euro." Certain European investments may be subject to
additional risks as a result of this conversion. These risks include adverse
12
<PAGE>
tax and accounting consequences, as well as difficulty in processing
transactions. SunAmerica is aware of such potential problems and is
coordinating efforts to prevent or alleviate their adverse impact on the Fund.
There can be no assurance that a Fund will not suffer any adverse consequences
as a result of the euro conversion.
ILLIQUIDITY: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.
DERIVATIVES: In addition to general risks relating to market volatility,
interest rate fluctuations, creditworthiness of the counterparty to the option
or futures transaction and leverage, options and futures contracts are subject
to certain special risks. To the extent a contract is used to hedge another
position in the portfolio, there is a risk that changes in the value of the
contract will not match those of the hedged position. Moreover, while hedging
can reduce or eliminate losses, it can also reduce or eliminate gains. To the
extent an option or futures contract is used to enhance return, rather than as a
hedge, a Fund will be directly exposed to the risks of the contract. Gains or
losses from non-hedging positions may be substantially greater than the cost of
the position.
HEDGING: Hedging is a strategy in which the Adviser uses a derivative to offset
the risk that other instruments held by a Fund may decrease in value. Gains on
a derivative that reacts in an opposite manner to market movements may
substantially reduce losses on the other investment. While hedging can reduce
losses, it can also reduce or eliminate gains if the market moves in a different
manner than the Adviser anticipates or if the cost of the derivative outweighs
the benefit of the hedge. Hedging also involves the risk that changes in the
value of the derivative will not match
those of the instruments being hedged as expected, in which case any losses on
the instruments being hedged may not be reduced.
SHAREHOLDER ACCOUNT INFORMATION
SELECTING A SHARE CLASS
The Fund offers three classes of shares through this Prospectus: Class A, Class
B and Class II shares.
Each class of shares has its own cost structure, so you can choose the one best
suited to your investment needs. Your broker or financial advisor can help you
determine which class is right for you.
13
<PAGE>
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS II
- --------------------------------------------------------------------------------
- - Front-end sales charges, - No front-end sales - Front-end sales
as described below. sales charge; all charges less, as
There are several ways your money goes to described below.
to reduce these charges, work for you right
also described below. away.
- - Lower annual expenses - Higher annual - Higher annual
than Class B or Class II expenses than Class expenses than
shares. A shares. Class A shares.
- Deferred sales - Deferred sales
charge on shares charge on shares
you sell within six you sell within
years of purchase, eighteen months of
as described below. purchase, as
described below.
- Automatic - No conversion to
conversion to Class Class A.
A shares after
approximately seven
years, thus reducing
future annual
expenses.
CALCULATION OF SALES CHARGES
CLASS A Class A Shares are offered at a price that may include a sales charge.
Sales Charges are as follows:
<TABLE>
<CAPTION>
Sales Charge Concession to Dealers
- --------------------------------------------------------------------------------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
YOUR INVESTMENT PRICE INVESTED PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.75% 4.99% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.00%
$250,000 but less than $500,000 3.00% 3.09% 2.25%
14
<PAGE>
$500,000 but less than $1,000,000 2.10% 2.15% 1.35%
$1,000,000 or more None None 1.00%
</TABLE>
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no
front-end sales charge. However, there is a 1% CDSC on any shares you sell
within one year of purchase.
CLASS B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a CDSC on shares you sell within six
years of buying them. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
Class B deferred charges:
<TABLE>
<CAPTION>
Years after purchase CDSC on shares being sold
<S> <C>
1st or 2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
7th year and thereafter None
</TABLE>
FOR PURPOSES OF THE CDSC, ALL PURCHASES MADE DURING A CALENDAR MONTH ARE COUNTED
AS HAVING BEEN MADE ON THE FIRST DAY OF THAT MONTH.
CLASS II Sales charge are as follows:
<TABLE>
<CAPTION>
Concession to
Sales Charge Dealers
-------------------------------------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
PRICE INVESTED PRICE
-------------------------------------
<S> <C> <C>
1.00% 1.01% 1.00%
</TABLE>
15
<PAGE>
There is CDSC of 1% on shares you sell within eighteen months after you buy
them.
DETERMINATION OF CDSC Each CDSC is based on the original purchase cost or the
current market value of the shares being sold, whichever is less. There is no
CDSC on shares purchased through reinvestment of dividends. To keep your CDSC
as low as possible, each time you place a request to sell shares we will first
sell any shares in your account that are not subject to a CDSC. If there are
not enough of these shares available, we will sell shares that have the lowest
CDSC.
SALES CHARGE REDUCTIONS AND WAIVERS
WAIVERS FOR CERTAIN INVESTORS Various individuals and institutions may purchase
Class A shares without front-end sales charges, including:
- - financial planners, institutions, broker-dealer representatives or
registered investment advisers utilizing Fund shares in fee-based
investment products under an agreement with the Distributor
- - participants in certain retirement plans that meet applicable conditions
- - Fund Directors and other individuals who are affiliated with the Fund or
other SunAmerica Mutual Funds and their families
- - selling brokers and their employees and sales representatives
- - participants in "Net Asset Value Transfer Program"
We will generally waive the CDSC for CLASS B or CLASS II shares in the following
cases:
- - within one year of the shareholder's death or becoming disabled
- - taxable distributions or loans to participants made by qualified retirement
plans or retirement accounts (not including rollovers) for which SunAmerica
serves as fiduciary
- - Fund Directors and other individuals who are affiliated with the Fund or
other SunAmerica Mutual Funds and their families
- - to make taxable distributions from certain retirement plans
- - to make payments through the Systematic Withdrawal Plan (subject to certain
conditions)
REDUCING YOUR CLASS A SALES CHARGES There are several special purchase plans
that allow you to combine multiple purchases of Class A shares of SunAmerica
Mutual Funds to take advantage of the breakpoints in the sales charge schedule.
For information about the "Rights of Accumulation," "Letter of Intent,"
"Combined Purchase Privilege," and "Reduced Sales Charges for Group Purchases,"
contact your broker or financial advisor, or consult the SAI.
TO UTILIZE: IF YOU THINK YOU MAY BE ELIGIBLE FOR A SALES CHARGE REDUCTION OR
CDSC WAIVER, CONTACT YOUR BROKER OR FINANCIAL ADVISOR.
REINSTATEMENT PRIVILEGE If you sell shares of the Fund, you may invest some or
16
<PAGE>
all of the proceeds in the same share class of the Fund within one year without
a sales charge. If you paid a CDSC when you sold your shares, your account will
be credited with the amount of the CDSC. All accounts involved must be
registered in the same name(s).
12b-1 FEES
Each class of shares of the Fund has its own 12b-1 plan that provides for
distribution and service fees (payable to the Distributor) based on a percentage
of average daily net assets, as follows:
<TABLE>
<CAPTION>
Class Distribution Fee Service Fee
----- ---------------- -----------
<S> <C> <C>
A .10% .25%
B .75% .25%
II .75% .25%
</TABLE>
Because 12b-1 fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much you want to invest. The minimum initial investment for
the Fund is as follows:
- non-retirement account: $500
- retirement account: $250
- dollar cost averaging: $500 to open; you must invest at least $25 a
month
The minimum subsequent investments for the Fund is as follows:
- non-retirement account: $100
- retirement account: $25
3. Complete the appropriate parts of the Account Application, carefully
following the instructions. If you have questions, please contact your
broker or financial advisor or call Shareholder/Dealer Services at
1-800-858-8850.
4. Complete the appropriate parts of the Supplemental Account Application. By
17
<PAGE>
applying for additional investor services now, you can avoid the delay and
inconvenience of having to submit an additional application if you want to
add services later.
5. Make your initial investment using the chart on the next page. You can
initiate any purchase, exchange or sale of shares through your broker or
financial advisor.
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
- --------------------------------------------------------------------------------
By
check
- --------------------------------------------------------------------------------
- Make out a check for the - Make out a check for the
investment amount, payable to the investment amount payable to
Fund or SunAmerica Funds. the Fund or SunAmerica Funds.
- Deliver the check and your - Include the stub from your Fund
completed Account Application statement or a note
(and Supplemental Account specifying the Fund name, your
Application, if applicable) share class, your
to your broker or financial account number and the name(s)
advisor, or mail them to: in which the account is
registered.
- Indicate the "Tax Managed
SunAmerica Fund Services, Inc. Equity Fund" and account
Mutual Fund Operations, 3rd Floor number in the memo section of
The SunAmerica Center your check.
733 Third Avenue
New York, New York 10017-3204 - Deliver the check and your stub
or note to your broker or
financial advisor, or mail
them to
Non-Retirement Accounts:
-----------------------
SunAmerica Fund Services, Inc.
c/o NFDS
P.O. Box 419373
Kansas City, Missouri
64141-6373
18
<PAGE>
Retirement Accounts:
-------------------
SunAmerica Fund Services, Inc.
Mutual Fund Operations,
3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
- --------------------------------------------------------------------------------
By
wire
- --------------------------------------------------------------------------------
- Deliver your completed - Instruct your bank to wire the
application to your broker or amount of your investment to:
financial advisor or fax it to
SunAmerica Fund Services, Inc. at State Street Bank & Trust Company
212-551-5585. Boston, MA
ABA #0110-00028
- Obtain your account number by DDA # 99029712
referring to your statement or by
calling your broker or financial Specify the Fund name, your
advisor or Shareholder/Dealer choice of share class, your Fund
Services at 1-800-858-8850, ext. number, account number and the
5125. name(s) in which the account is
registered. Your bank may charge
a fee to wire funds.
- Instruct your bank to wire the
amount of your investment to:
State Street Bank & Trust Company
Boston, MA
ABA #0110-00028
DDA # 99029712
Specify the Fund name, your
choice of share class, your new
Fund number, and account number
and the name(s) in which the
account is registered. Your bank
may charge a fee to wire funds.
TO OPEN OR ADD TO AN ACCOUNT USING DOLLAR COST AVERAGING, SEE "ADDITIONAL
INVESTOR SERVICES."
19
<PAGE>
Selling shares
- --------------------------------------------------------------------------------
How Requirements
Through Your Broker or Financial Advisor
- --------------------------------------------------------------------------------
- Accounts of any type. - Call your broker or financial
- Sales of any amount. advisor to place your order to
sell shares.
By mail
- --------------------------------------------------------------------------------
- Accounts of any type. - Write a letter of instruction
- Sales of any amount. indicating the "Tax Managed
Equity Fund," your share class,
your account number, the name(s)
in which the account is
registered and the dollar value
or number of shares you wish to
sell.
- Include all signatures and any
additional documents that may be
required (see next page).
- Mail the materials to:
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
- A check will be mailed to the
name(s) and address in which the
account is registered, or
otherwise according to your
letter of instruction.
By phone
- --------------------------------------------------------------------------------
- Most accounts.
- Sales of less than $100,000.
20
<PAGE>
- Call Shareholder/Dealer Services
at 1-800-858-8850 between 8:30
a.m. and 7:00 p.m. (Eastern time)
on most business days. State the
Fund name, the name of the person
requesting the redemption, your
share class, your account number,
the name(s) in which the account
is registered and the dollar
value or number of shares you
wish to sell.
- A check will be mailed to the
name(s) and address in which the
account is registered, or to a
different address indicated in a
written authorization previously
provided to the Fund by the
shareholder(s) on the account.
By wire
- --------------------------------------------------------------------------------
- Request by mail to sell any amount - Proceeds will normally be
(accounts of any type). wired on the next business day.
A $15 fee will be deducted from
- Request by phone to sell less than your account.
$100,000.
TO SELL SHARES THROUGH A SYSTEMATIC WITHDRAWAL PLAN, SEE "ADDITIONAL INVESTOR
SERVICES."
SELLING SHARES IN WRITING In certain circumstances, you will need to make your
request to sell shares in writing. Corporations, executors, administrators,
trustees or guardians may need to include additional items with a request to
sell shares. You may also need to include a signature guarantee, which protects
you against fraudulent orders. You will need a signature guarantee if:
- your address of record has changed within the past 30 days
- you are selling more than $100,000 worth of shares
- you are requesting payment other than by a check mailed to the address
of record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
- a broker or securities dealer
- a federal savings, cooperative or other type of bank
- a savings and loan or other thrift institution
- a credit union
- a securities exchange or clearing agency
21
<PAGE>
A notary public CANNOT provide a signature guarantee.
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for the Fund and
class is determined each business day at the close of regular trading on the
New York Stock Exchange (generally 4:00 p.m., Eastern time) by dividing the
net assets of each class by the number of such class's outstanding shares.
Investments for which market quotations are readily available are valued at
market at their closing price. All other securities and assets are valued at
fair value following procedures approved by the Directors.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the
NAV minus any applicable CDSCs.
EXECUTION OF REQUESTS The Fund is open on those days when the New York Stock
Exchange is open. Buy and sell requests are executed at the next NAV to be
calculated after your request is accepted by the Fund. If your order is
received by the Fund or the Distributor before the Fund's close of business
(generally 4:00 p.m., Eastern time), you will receive that day's closing
price. If your order is received after that time, you will receive the next
business day's closing price. If you place your order through a broker or
financial advisor, you should make sure the order is transmitted to the Fund
before its close of business. The Fund will not allow market timing. The
Fund and the Distributor reserve the right to reject any order to buy shares.
In unusual circumstances, the Fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
If the Directors of the Fund determine that it would be detrimental to the
best interest of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole, or
in part, by a distribution in kind of securities from the Fund in lieu of cash.
TELEPHONE TRANSACTIONS For your protection, telephone requests are recorded
in order to verify their accuracy. In addition, Shareholder/Dealer Services
will take measures to verify the identity of the caller, such as asking for
name, account number, social security or other taxpayer ID number and other
relevant information. If appropriate measures are not taken, the Fund is
responsible for any losses that may occur to any account due to an
unauthorized telephone call. Also for your protection, telephone
transactions are not permitted on accounts whose names or addresses have
changed within the past 30 days. At times of peak activity, it may be
difficult to place requests by phone. During these times, consider sending
your request in writing.
EXCHANGES You may exchange shares of the Fund for shares of the same class
of any other SunAmerica Mutual Fund. Before making an exchange, you should
22
<PAGE>
review a copy of the prospectus of the Fund into which you would like to
exchange. All exchanges are subject to applicable minimum investment
requirements. A Systematic Exchange Program is described under "Additional
Investor Services."
If you exchange shares that were purchased subject to a CDSC, the CDSC will
continue to apply following the exchange. In determining the CDSC applicable to
shares being sold after an exchange, we will take into account the length of
time you held those shares prior to the exchange.
To protect the interests of other shareholders, we may cancel the exchange
privileges of any investors that, in the opinion of the Fund, are using market
timing strategies or making excessive exchanges. The Fund may change or cancel
its exchange privilege at any time, upon 60 days' written notice to its
shareholders. The Fund may also refuse any exchange order.
CERTIFICATED SHARES Most shares are electronically recorded. If you wish to
have certificates for your shares, please call Shareholder/Dealer Services at
1-800-858-8850 for further information. You may sell or exchange certificated
shares only by returning the certificates to the Fund, along with a letter of
instruction and a signature guarantee. The Fund does not issue certificates for
fractional shares.
MULTI-PARTY CHECKS The Fund may agree to accept a "multi-party check" in
payment for Fund shares. This is a check made payable to the investor by
another party and then endorsed over to the Fund by the investor. If you use a
multi-party check to purchase shares, you may experience processing delays. In
addition, the Fund is not responsible for verifying the authenticity of any
endorsement and assumes no liability for any losses resulting from a fraudulent
endorsement.
ADDITIONAL INVESTOR SERVICES
To select one or more of these additional services, complete the relevant
part(s) of the Supplemental Account Application. To add a service to an
existing account, contact your broker or financial advisor, or call
Shareholder/Dealer Services at 1-800-858-8850.
DOLLAR COST AVERAGING lets you make regular investments from your bank account
to the SunAmerica Mutual Funds of your choice. You determine the frequency and
amount of your investments, and you can terminate your participation at any
time.
SYSTEMATIC WITHDRAWAL PLAN may be used for routine bill payment or periodic
withdrawals from your account. To use:
- Make sure you have at least $5,000 worth of shares in your account.
- Make sure you are not planning to invest more money in this account
(buying shares during a period when you are also selling shares of the
same Fund is not advantageous to you, because of sales charges).
23
<PAGE>
- Specify the payee(s) and amount(s). The payee may be yourself or any
other party, and there is no limit to the number of payees you may
have, as long as they are all on the same payment schedule. Each
withdrawal must be at least $50.
- Determine the schedule: monthly, quarterly, semi-annually, annually
or in certain selected months.
- Make sure your dividends and capital gains are being reinvested.
You cannot elect the systematic withdrawal plan if you have requested
certificates for your shares.
SYSTEMATIC EXCHANGE PROGRAM may be used to periodically exchange shares of the
Fund for the same class of shares of one or more other SunAmerica Mutual Funds.
To use:
- Specify the SunAmerica Mutual Fund(s) from which you would like money
withdrawn and into which you would like money invested.
- Determine the schedule: monthly, quarterly, semi-annually, annually or
in certain selected months.
- Specify the amount(s). Each exchange must be worth at least $25.
- Accounts must be registered identically; otherwise a signature
guarantee will be required.
ASSET PROTECTION PLAN (OPTIONAL) Anchor National Life Insurance Company offers
an Asset Protection Plan to certain investors in the Fund. The benefits of this
optional coverage payable at death will be related to the amounts paid to
purchase Fund shares and to the value of the Fund shares held for the benefit of
the insured persons. However, to the extent the purchased shares are redeemed
prior to death, coverage with respect to these shares will terminate.
Purchasers of the Asset Protection Plan are required to authorize periodic
redemptions of Fund shares to pay the premiums for this coverage. These
redemptions will not be subject to CDSCs, but will have the same tax
consequences as any other Fund redemptions.
The Asset Protection Plan will be available to eligible persons who enroll for
the coverage within a limited time period after shares in the Fund are initially
purchased or transferred. In addition, coverage cannot be made available unless
Anchor National knows for whose benefit shares are purchased. For instance,
coverage cannot be made available for shares registered in the name of your
broker unless the broker provides Anchor National with information regarding the
beneficial owners of the shares. In addition, coverage is available only to
shares purchased on behalf of natural
persons between 21 and 75 years of age; coverage is not available with respect
to shares purchased for a retirement account. Other restrictions on the
coverage apply. This coverage may not be available in all states and may be
subject to additional restrictions or limitations. Purchasers of shares should
also make themselves familiar with the impact on the Asset Protection Plan
coverage of purchasing additional shares, reinvestment of dividends and capital
gains distributions and redemptions.
24
<PAGE>
Anchor National is a SunAmerica company.
Please call 1-800-858-8850 for more information, including the cost of the Asset
Protection Plan option.
RETIREMENT PLANS SunAmerica Mutual Funds offer a range of qualified retirement
plans, including IRAs, Roth IRAs, Simple IRAs, SARSEPs, 401(k) plans, 403(b)
plans and other pension and profit-sharing plans. Using these plans, you can
invest in any SunAmerica Mutual Fund with a low minimum investment of $250
or, for some group plans, no minimum investment at all. To find out more,
call Shareholder/Dealer Services at 1-800-858-8850.
DIVIDEND AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
- after every transaction that affects your account balance (except a
dividend reinvestment or automatic purchase from your bank account)
- after any changes of name or address of the registered owner(s)
- in all other circumstances, quarterly or annually, depending upon the
Fund
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The Fund generally distributes most or all of its net earnings in the
form of dividends. Income dividends (I.E., dividends out of ordinary income and
short-term capital gains of the fund) if any, are paid annually by the Fund.
Capital gains distributions, if any, are paid annually by the Fund.
DIVIDEND REINVESTMENTS Your dividends and distributions, if any, will be
automatically reinvested in additional shares of the same share class of the
Fund on which they were paid. Alternatively, dividends and distributions may be
reinvested in any other SunAmerica Mutual Fund or paid in cash (if more than
$10). You will need to complete the relevant part of the Account Application to
elect one of these other options. For existing accounts, contact your broker or
financial advisor or call Shareholder/ Dealer Services at 1-800-858-8850 to
change dividend and distribution payment options.
TAXABILITY OF DIVIDENDS As long as the Fund meets the requirements for being a
tax-qualified regulated investment company, as the Fund intends, it pays no
federal income tax on the earnings it distributes to shareholders.
Dividends you receive from the Fund, whether reinvested or taken as cash, are
generally considered taxable. Distributions of the Fund's long-term capital
gains are taxable as capital gains; dividends from the Fund's ordinary income
and short-term capital gains sources are generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
25
<PAGE>
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the
sale price of the shares you sell or exchange, you may have a gain or a loss on
the transaction. You are responsible for any tax liabilities generated by your
transactions. If you hold Class B shares, you will not have a taxable event
when they convert into Class A shares.
SMALL ACCOUNTS If you draw down an account so that its total value is less than
$500 ($250 for retirement plan accounts), you may be asked to purchase more
shares within 60 days. If you do not take action, the Fund may close out your
account and mail you the proceeds. Alternatively, you may be charged a $2.00
monthly charge to maintain your account. Your account will not be closed if its
drop in value is due to Fund performance or the effects of sales charges.
FUND MANAGEMENT
MANAGER SunAmerica Asset Management Corp., located at The SunAmerica Center,
733 Third Avenue, New York, New York 10017, selects the Adviser for the Fund,
provides various administrative services, and supervises the daily business
affairs of the Fund. In addition to managing the Fund, SunAmerica Asset
Management Corp. serves as adviser, manager and/or administrator for Anchor
Pathway Fund, Anchor Series Trust, Style Select Series Inc., Seasons Series
Trust, SunAmerica Equity Funds, SunAmerica Income Funds, SunAmerica Money
Market Funds, Inc., and SunAmerica Series Trust. SunAmerica managed, advised
or administered assets in excess of $16 billion as of November 30, 1998.
The Adviser is responsible for decisions to buy and sell securities for the
Fund, selection of broker-dealers and negotiation of commission rates.
SunAmerica may terminate any agreement with an Adviser without shareholder
approval. Moreover, SunAmerica has received an exemptive order from the
Securities and Exchange Commission that permits SunAmerica, subject to
certain conditions, to enter into agreements relating to the Fund with
Advisers approved by the Board of Directors without obtaining shareholder
approval. The exemptive order also permits SunAmerica, subject to the
approval of the Board but without shareholder approval, to employ new
Advisers for new or existing Funds, change the terms of particular agreements
with Advisers or continue the employment of existing Advisers after events
that would otherwise cause an automatic termination of a subadvisory
agreement. Shareholders of a Fund have the right to terminate an agreement
with an Adviser for that Fund at any time by a vote of the majority of the
outstanding voting securities of such Fund. Shareholders will be notified of
any Adviser changes. The order also permits a Fund to disclose to
26
<PAGE>
shareholders the Advisers' fees only in the aggregate for each Fund.
The Fund pays SunAmerica a fee equal to the following percentage of average
daily net assets:
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
Tax Managed Equity Fund .75%
</TABLE>
The Adviser and Portfolio Managers for the Fund is described below:
Fund Adviser
- ---- -------
Tax Managed Equity Fund J.P. Morgan Investment Management, Inc.
INFORMATION ABOUT THE ADVISER
J.P. MORGAN INVESTMENT MANAGEMENT, INC. MORGAN is a [________] corporation,
located at 60 Wall Street, New York, New York 10260. Morgan provides
investment advisory services to a substantial number of institutional and
other investors, including other registered investment companies. As of
January, 1998, Morgan, together with its parent J.P. Morgan & Co.
Incorporated, had over $240 billion in assets under management.
The Adviser is responsible for decisions to buy and sell securities for the
Fund, selection of broker-dealers and negotiation of commission rates.
NAME, TITLE AND
AFFILIATION OF PORTFOLIO
FUND MANAGER EXPERIENCE
- ----------------------- ----------------------- --------------------------
Tax Managed Equity Fund Terry E. Banet, Vice Mr. Banet has been with
President (J.P. Morgan) the firm since 1985 and
manages other investment
vehicles using the same
strategy as the Fund.
Prior to becoming a
portfolio manager, Mr.
Banet managed tax aware
accounts and helped
develop J.P. Morgan's tax
aware equity process.
27
<PAGE>
Gordon B. Fowler, Mr. Fowler has been with
Managing Director (J.P. the firm since 1981 and
Morgan) manages other investment
vehicles using the same
strategy as the Fund.
Prior to becoming a
portfolio manager, Mr.
Fowler was responsible
for structured equity
products for both
institutional and private
client markets.
DISTRIBUTOR SunAmerica Capital Services, Inc. distributes the Fund's shares.
The Distributor, a SunAmerica company, receives the initial and deferred sales
charges, all or a portion of which may be re-allowed to other broker-dealers.
In addition, the Distributor receives fees under the Fund's 12b-1 plans.
The Distributor, at its expense, may from time to time provide additional
compensation to broker-dealers (including in some instances, affiliates of the
Distributor) in connection with sales of shares of the Fund. This compensation
may include (i) full re-allowance of the front-end sales charge on Class A
shares; (ii) additional compensation with respect to the sale of Class A, Class
B or Class II shares; or (iii) financial assistance to broker-dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding the Fund, and/or other
broker-dealer sponsored special events. In some instances, this compensation
will be made available only to certain broker-dealers whose representatives have
sold a significant number of shares of the Fund. Compensation may also include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives for meetings or seminars of a
business nature. In addition, the following types of non-cash compensation may
be offered through sales contests: (i) travel mileage on major air carriers;
(ii) tickets for entertainment events (such as concerts or sporting events); or
(iii) merchandise (such as clothing, trophies, clocks, pens or other electronic
equipment). Broker-dealers may not use sales of the Fund's shares to qualify
for this compensation to the extent receipt of such compensation may be
prohibited by applicable law or the rules of any self-regulatory agency, such as
the NASD. Dealers who receive bonuses or other incentives may be deemed to be
underwriters under the Securities Act of 1933.
Certain laws and regulations limit the ability of banks and other depository
institutions to underwrite and distribute securities. However, in the opinion
of the Distributor based upon the advice of counsel, these laws and regulations
do not prohibit such depository institutions from providing other services to
investment companies of the type contemplated by the Fund's 12b-1 plans. Banks
and other financial services firms may be subject to various state laws
regarding these services, and may be required to register as dealers pursuant to
state law.
28
<PAGE>
ADMINISTRATOR SunAmerica Fund Services, Inc. assists the Fund's transfer agent
in providing shareholder services. The Administrator, a SunAmerica company, is
paid a monthly fee by the Fund for its services at the annual rate of .22% of
average daily net assets.
The manager, Distributor and Administrator are all located in The SunAmerica
Center, 733 Third Avenue, New York, New York 10017.
YEAR 2000 Many computer and computer-based systems cannot distinguish the year
2000 from the year 1900 because of the way they encode and calculate dates.
This is popularly known as the "Year 2000 Issue." The Year 2000 Issue could
potentially have an adverse impact on the handling of security trades, the
payment of interest and dividends, pricing and account services. We recognize
the importance of the Year 2000 Issue and are taking appropriate steps necessary
in preparation for the year 2000. The Fund's management fully anticipates that
their systems will be adapted in time for the year 2000, and to further this
goal they have coordinated a plan to repair, adapt or replace their systems as
necessary. They have also obtained representations from their outside service
providers that they are doing the same. The Fund's management completed their
plan significantly by the end of the 1998 calendar year and expects to perform
appropriate systems testing during the 1999 calendar year. If the problem has
not been fully addressed, however, the Fund could be negatively impacted. The
Year 2000 Issue could also have a negative impact on the companies in which the
Fund invests, which could hurt the Fund's investment returns.
29
<PAGE>
(OUTSIDE BACK COVER)
FOR MORE INFORMATION
The following document contains more information about the Fund and is
available free of charge upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI). Contains additional
information about the Fund's policies, investment restrictions and
business structure. This prospectus incorporates the SAI by
reference.
You may obtain copies of this document or ask questions about the Fund by
contacting:
SunAmerica Fund Services, Inc.
Mutual Fund Operations
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
1-800-858-8850
or by calling your broker or financial advisor.
Information about the Fund (including the SAI) can be reviewed and copied
at the Public Reference Room of the Securities and Exchange Commission,
Washington, D.C.
Call (800) SEC-0330 for information on the operation of the Public
Reference Room. Information about the Fund is also available on the Securities
and Exchange Commission's web-site at http://www.sec.gov and copies may be
obtained upon payment of a duplicating fee by writing the Public Reference
Section of the Securities and Exchange Commission, Washington, D.C. 20549-6009.
You should rely only on the information contained in this prospectus. No
one is authorized to provide you with any different information.
30
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[Logo] SUNAMERICA
MUTUAL FUNDS
DISTRIBUTOR: SunAmerica Capital Services
INVESTMENT COMPANY ACT
File No. 811-
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SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED [_____], 1999
The SunAmerica Center General Marketing and
733 Third Avenue Shareholder Information
New York, NY 10017-3204 (800) 858-8850
SunAmerica Strategic Investment Series, Inc. (the "Corporation") is a
mutual fund consisting of one investment fund, the Tax Managed Equity Fund
(the "Fund"). The Fund seeks high total return while being sensitive to the
impact of capital gains taxes on investors' returns.
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Corporation's Prospectus dated [_____], 1999. To
obtain a Prospectus free of charge, please call the Corporation at (800)
858-8850. The Prospectus is incorporated by reference into this Statement of
Additional Information. Capitalized terms used herein but not defined have the
meanings assigned to them in the Prospectus.
TABLE OF CONTENTS
PAGE
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HISTORY OF THE FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-2
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . .B-2
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . B-21
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
MANAGER, ADVISER, PERSONAL TRADING, DISTRIBUTOR AND ADMINISTRATOR . . . . B-25
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . B-29
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES. . . . . . . . . . . . B-31
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES. . . . . . . . . . . B-37
EXCHANGE PRIVILEGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-37
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . B-38
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-39
DIVIDENDS, DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . . B-43
RETIREMENT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-47
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . B-48
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . B-50
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . B-50
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPENDIX-1
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Corporation, SunAmerica Asset Management Corp.
("SunAmerica") or the Distributor. This Statement of Additional Information
and the Prospectus do not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction in
which such an offer to sell or solicitation of an offer to buy may not
lawfully be made.
<PAGE>
HISTORY OF THE FUND
The Corporation, an open-end, diversified management investment company
registered under the Investment Company Act of 1940 (the "1940 Act"), was
organized as a Maryland corporation on ______________, 1998. The Corporation
currently consists of one series, the Tax Managed Equity Fund.
SunAmerica serves as manager for the Fund. As described in the
Prospectus, SunAmerica retains the Adviser to assist in management of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in the
Prospectus. Certain types of securities in which the Fund may invest and
certain investment practices that the Fund may employ, are described under "More
Information About the Fund -- Investment Strategies" in the Prospectus and are
discussed more fully below. Unless otherwise specified, the Fund may invest in
the following securities. The stated percentage limitations and quality
requirements are applied to an investment at the time of purchase unless
indicated otherwise.
CONVERTIBLE SECURITIES AND PREFERRED STOCKS. Convertible securities may be
debt securities or preferred stock with a conversion feature. Traditionally,
convertible securities have paid dividends or interest at rates higher than
common stocks but lower than non-convertible securities. They generally
participate in the appreciation or depreciation of the underlying stock into
which they are convertible, but to a lesser degree. In recent years,
convertibles have been developed that combine higher or lower current income
with options and other features. Generally, preferred stock has a specified
dividend and ranks after bonds and before common stocks in its claim on income
for dividend payments and on assets should the company be liquidated. While most
preferred stocks pay a dividend, the Fund may purchase preferred stock where the
issuer has omitted, or is in danger of omitting, payment of its dividend. Such
investments would be made primarily for their capital appreciation potential.
There are no specific quality requirements for convertible debt securities.
ILLIQUID AND RESTRICTED SECURITIES. No more than 15% of the value of the
Fund's net assets, may be invested in illiquid securities including repurchase
agreements that have a maturity of longer than seven days, interest-rate swaps,
currency swaps, caps, floors and collars, or other securities that are illiquid
by virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), securities that are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven days. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period. Securities that have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the
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marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. There will generally be a lapse of time between a mutual fund's decision
to sell an unregistered security and the registration of such security promoting
sale. Adverse market conditions could impede a public offering of such
securities. When purchasing unregistered securities, the Fund will generally
seek to obtain the right of registration at the expense of the issuer (except in
the case of Rule 144A securities, discussed below).
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
For example, restricted securities that the Board of Directors, or the
Adviser pursuant to guidelines established by the Board of Directors, has
determined to be marketable, such as securities eligible for resale under Rule
144A promulgated under the Securities Act, or certain private placements of
commercial paper issued in reliance on an exemption from such Act pursuant to
Section 4(2) thereof, may be deemed to be liquid for purposes of this
restriction. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers (as defined in Rule 144A) become for a time uninterested in purchasing
these restricted securities. In addition, a repurchase agreement that by its
terms can be liquidated before its nominal fixed-term on seven days or less
notice is regarded as a liquid instrument. The Adviser will monitor the
liquidity of such restricted securities subject to the supervision of the
Directors. In reaching liquidity decisions the Adviser will consider, INTER
ALIA, pursuant to guidelines and procedures established by the Directors, the
following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the
marketplace trades (I.E., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
Commercial paper issues in which the Fund's net assets may be invested
include securities issued by major corporations without registration under the
Securities Act in reliance on the exemption from such registration afforded by
Section 3(a)(3) thereof, and commercial paper issued in reliance on the
so-called private placement exemption from registration afforded by Section 4(2)
of the Securities Act ("Section 4(2) paper"). Section 4(2) paper is restricted
as to disposition under the federal securities laws in that any resale must
similarly be made in an exempt transaction. Section 4(2) paper is normally
resold to other institutional investors through or with the assistance of
investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Section 4(2) paper issued by a company that files reports under the
Securities Exchange Act of 1934, as amended, is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described
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above. The Fund's 15% limitation on investments in illiquid securities includes
Section 4(2) paper other than Section 4(2) paper that the Adviser has determined
to be liquid pursuant to guidelines established by the Directors. The Directors
have delegated to the Adviser the function of making day-to-day determinations
of liquidity with respect to Section 4(2) paper, pursuant to guidelines approved
by the Directors that require the Adviser to take into account the same factors
described above for other restricted securities and require the Adviser to
perform the same monitoring and reporting functions.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
selected banks and securities dealers whose financial condition is monitored by
the Adviser, subject to the guidance of the Directors. In such agreements, the
seller agrees to repurchase the security at a mutually agreed-upon time and
price. The period of maturity is usually quite short, either overnight or a few
days, although it may extend over a number of months. The repurchase price is
in excess of the purchase price by an amount that reflects an agreed-upon rate
of return effective for the period of time the Fund's money is invested in the
security. Whenever the Fund enters into a repurchase agreement, it obtains
collateral having a value equal to at least 100% of the repurchase price,
including accrued interest. The instruments held as collateral are valued daily
and if the value of the instruments declines, the Fund will require additional
collateral. If the seller under the repurchase agreement defaults, the Fund may
incur a loss if the value of the collateral securing the repurchase agreement
has declined and may incur disposition costs in connection with liquidating the
collateral. In addition, 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. The Directors have established guidelines to be used by the
Adviser in connection with transactions in repurchase agreements and will
regularly monitor the Fund's use of repurchase agreements. The Fund will not
invest in repurchase agreements maturing in more than seven days if the
aggregate of such investments along with other illiquid securities exceeds 15%
of the value of its net assets. However, there is no limit on the amount of the
Fund's net assets that may be subject to repurchase agreements having a maturity
of seven days or less for temporary defensive purposes.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements. In a reverse repurchase agreement, the Fund sells a security and
agrees to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. The Fund then invests
the proceeds from the transaction in another obligation in which the Fund is
authorized to invest. The Fund's investment of the proceeds of a reverse
repurchase agreement is the speculative factor known as leverage. A Fund will
enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. In the event that the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Fund's repurchase obligation, and the Fund's use of
proceeds of the agreement may effectively be restricted pending such decision.
Reverse repurchase agreements are considered to be borrowings and are subject to
the percentage limitations on borrowings. See "Investment Restrictions."
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FIXED INCOME SECURITIES. The Fund may invest, subject to the credit
quality limitations stated herein and in the Prospectus, in debt securities,
including corporate obligations issued by domestic and foreign corporations and
governments and money market instruments, without regard to the maturities of
such securities.
The Fund generally will not invest in debt securities in the lowest rating
categories ("CC" or lower for Standard & Poor's Ratings Services, a Division of
the McGraw-Hill Companies, Inc. ("Standard & Poor's") or "Ca" or lower for
Moody's Investors Service, Inc. ("Moody's") unless the Adviser believes that the
financial condition of the issuer or the protection afforded the particular
securities is stronger than would otherwise be indicated by such low ratings.
In the event the rating of a debt security is down-graded below the lowest
rating category deemed by the Adviser to be acceptable for the Fund's
investments, the Adviser will determine on a case by case basis the appropriate
action to serve the interest of shareholders, including disposition of the
security.
RISKS OF INVESTING IN LOWER RATED BONDS. As described above, debt
securities in which the Fund may invest may be in the lower rating categories of
recognized rating agencies (that is, ratings of Ba or lower by Moody's or BB or
lower by Standard & Poor's (and comparable unrated securities) (commonly known
as "junk bonds"). For a description of these and other rating categories, see
Appendix. No minimum rating standard is required for a purchase by the Fund.
Such high yield bonds can be expected to provide higher yields, but may be
subject to greater market price fluctuations and risk of loss of principal than
lower yielding, higher rated fixed income securities. High yield bonds may be
issued by less creditworthy companies or by larger, highly leveraged companies.
It should be noted that lower-rated securities are subject to risk factors such
as (a) vulnerability to economic downturns and changes in interest rates; (b)
sensitivity to adverse economic changes and corporate developments; (c)
redemption or call provisions that may be exercised at inopportune times; (d)
difficulty in accurately valuing or disposing of such securities; (e) federal
legislation that could affect the market for such securities; and (f) special
adverse tax consequences associated with investments in certain high-yield,
high-risk bonds.
High yield bonds, like other bonds, may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest
rate market, the Fund would have to replace the security with a lower yielding
security, resulting in lower return for investors. Conversely, a high yield
bond's value will decrease in a rising interest rate market.
There is a thinly traded market for high yield bonds, and recent market
quotations may not be available for some of these bonds. Market quotations are
generally available only from a limited number of dealers and may not represent
firm bids from such dealers or prices for actual sales. As a result, the Fund
may have difficulty valuing the high yield bonds in their portfolios accurately
and disposing of these bonds at the time or price desired. Under such
conditions, judgment may play a greater role in valuing certain of the Fund's
portfolio securities than in the case of securities trading in a more liquid
market.
Ratings assigned by Moody's and Standard & Poor's to high yield bonds, like
other bonds, attempt to evaluate the safety of principal and interest payments
on those bonds. However, such
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ratings do not assess the risk of a decline in the market value of those bonds.
In addition, ratings may fail to reflect recent events in a timely manner and
are subject to change. If a rating with respect to a portfolio security is
changed, the Adviser will determine whether the security will be retained based
upon the factors the Adviser considers in acquiring or holding other securities
in the portfolio. Investment in high yield bonds may make achievement of the
Fund's objective more dependent on the Adviser's own credit analysis than is the
case for higher-rated bonds.
Market prices for high yield bonds tend to be more sensitive than those for
higher-rated securities due to many of the factors described above, including
the credit-worthiness of the issuer, redemption or call provisions, the
liquidity of the secondary trading market and changes in credit ratings, as well
as interest rate movements and general economic conditions. In addition, yields
on such bonds will fluctuate over time. An economic downturn could severely
disrupt the market for high yield bonds. In addition, legislation impacting
high yield bonds may have a materially adverse effect on the market for such
bonds. For example, federally insured savings and loan associations have been
required to divest their investments in high yield bonds.
The risk of default in payment of principal and interest on high yield
bonds is significantly greater than with higher-rated debt securities because
high yield bonds are generally unsecured and are often subordinated to other
obligations of the issuer, and because the issuers of high yield bonds usually
have high levels of indebtedness and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates. Upon a default,
bondholders may incur additional expenses in seeking recovery.
As a result of all these factors, the net asset value of the Fund, to the
extent it invests in high yield bonds, is expected to be more volatile than the
net asset value of funds that invest solely in higher-rated debt securities.
This volatility may result in an increased number of redemptions from time to
time. High levels of redemptions in turn may cause the Fund to sell its
portfolio securities at inopportune times and decrease the asset base upon which
expenses can be spread.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS. Fixed income
securities in which the Fund may invest also include zero coupon bonds, deferred
interest bonds and bonds on which the interest is payable in kind ("PIK bonds").
Zero coupon and deferred interest bonds are debt obligations issued or purchased
at a significant discount from face value. PIK bonds are debt obligations that
provide that the issuer thereof may, at its option, pay interest on such bonds
in cash or in the form of additional debt obligations. Such investments may
experience greater volatility in market value due to changes in interest rates
and other factors than debt obligations that make regular payments of interest.
The Fund will accrue income on such investments for tax and accounting purposes,
as required, which is distributable to shareholders and which, because no cash
is received at the time of accrual, may require the liquidation of other
portfolio securities under disadvantageous circumstances to satisfy the Fund's
distribution obligations.
SHORT-TERM AND TEMPORARY DEFENSIVE INSTRUMENTS. In addition to its primary
investments, the Fund, except as described below, may also invest up to [10]% of
its total assets in money market instruments for liquidity purposes (to meet
redemptions and expenses) or to generate a return on idle cash held by the Fund
during periods when the Adviser is unable to locate favorable
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investment opportunities. For temporary defensive purposes, the Fund may invest
up to 100% of its total assets in cash and short-term fixed income securities,
including corporate debt obligations and money market instruments. When the
Fund invests in any commercial paper, bank obligations or repurchase agreement,
the issuer must have outstanding debt rated A or higher by Moody's or Standard &
Poor's and the issuer's parent corporation, if any, must have outstanding
commercial paper rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no
such ratings are available, the investment must be of comparable quality in the
Adviser's opinion. At the time the Fund invests in any other short-term debt
securities except corporate debt obligations, they must be rated A or higher by
Moody's or Standard & Poor's, or if unrated, the investment must be of
comparable quality in the Adviser's opinion. A description of securities
ratings is contained in the Appendix to this Statement of Additional
Information.
Subject to the limitations described above and below, the following is a
description of the types of money market and fixed income securities in which
the Fund may invest:
U.S. GOVERNMENT SECURITIES: See the section entitled "U.S. Government
Securities" below.
COMMERCIAL PAPER: Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by entities in order to finance
their current operations. The Fund's commercial paper investments may include
variable amount master demand notes and floating rate or variable rate notes.
Variable amount master demand notes and variable amount floating rate notes are
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest pursuant to direct arrangements between the Fund, as
lender, and the borrower. Master demand notes permit daily fluctuations in the
interest rates while the interest rate under variable amount floating rate notes
fluctuates on a weekly basis. These notes permit daily changes in the amounts
borrowed. The Fund has the right to increase the amount under these notes at
any time up to the full amount provided by the note agreement, or to decrease
the amount, and the borrower may repay up to the full amount of the note without
penalty. Because these types of notes are direct lending arrangements between
the lender and the borrower, it is not generally contemplated that such
instruments will be traded, and there is no secondary market for these notes.
Master demand notes are redeemable (and, thus, immediately repayable by the
borrower) at face value, plus accrued interest, at any time. Variable amount
floating rate notes are subject to next-day redemption 14 days after the initial
investment therein. With both types of notes, therefore, the Fund's right to
redeem depends on the ability of the borrower to pay principal and interest on
demand. In connection with both types of note arrangements, the Fund considers
earning power, cash flow and other liquidity ratios of the issuer. These notes,
as such, are not typically rated by credit rating agencies. Unless they are so
rated, the Fund may invest in them only if they meet the quality requirements
set forth above.
BANK OBLIGATIONS: Certificates of deposit are receipts issued by a bank in
exchange for the deposit of funds. The issuer agrees to pay the amount
deposited plus interest to the bearer of the receipt on the date specified on
the certificate. The certificate usually can be traded in the secondary market
prior to maturity. Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount
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of funds to pay for specific merchandise. The draft is the "accepted" by
another bank that, in effect, unconditionally guarantees to pay the face value
of the instrument on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset or it may be sold in the secondary market at
the going rate of discount for a specific maturity. Although maturities for
acceptances can be as long as 270 days, most maturities are six months or less.
The Fund may invest in bankers' acceptances from (i) banks, savings and loan
associations and savings banks which have more than $2 billion in total assets
and are organized under the laws of the United States or any state, (ii) foreign
branches of these banks or of foreign banks of equivalent size (Euros) and (iii)
U.S. branches of foreign banks of equivalent size (Yankees). The Fund will not
invest in obligations for which J.P. Morgan Investment Management, Inc., the
Fund's investment adviser, or any of its affiliated persons, is the ultimate
obligor or accepting bank. The Fund may also invest in obligations of
international banking institutions designed or supported by national governments
to promote economic reconstruction, development or trade between nations (e.g.,
the European Investment Bank, the Inter-American Development Bank, or the World
Bank).
CORPORATE OBLIGATIONS: Corporate debt obligations (including master demand
notes). For a further description of variable amount master demand notes, see
the section entitled "Commercial Paper" above.
REPURCHASE AGREEMENTS: See the section entitled "Repurchase Agreements"
above.
U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
government and, as such, are backed by the "full faith and credit" of the United
States. They differ primarily in their interest rates, the lengths of their
maturities and the dates of their issuances. For these securities, the payment
of principal and interest is unconditionally guaranteed by the U.S. government.
They are of the highest possible credit quality. These securities are subject to
variations in market value due to fluctuations in interest rates, but if held to
maturity, are guaranteed by the U.S. government to be paid in full.
The Fund may also invest in securities issued by agencies of the U.S.
government or instrumentalities of the U.S. government. These obligations,
including those guaranteed by federal agencies or instrumentalities, may or may
not be backed by the "full faith and credit" of the United States. Obligations
of the Government National Mortgage Association ("GNMA"), the Farmer's Home
Administration ("FMHA") and the Export-Import Bank are backed by the full faith
and credit of the United States.
The Fund may also invest in securities issued by U.S. government
instrumentalities and certain federal agencies that are neither direct
obligations of, nor are they guaranteed by, the U.S. Treasury. However, they
involve federal sponsorship in one way or another. For example, some are backed
by specific types of collateral; some are supported by the issuer's right to
borrow from the Treasury; some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer; and others are
supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, the Federal National Mortgage Association ("FNMA"), the Federal Home
Loan Mortgage Corporation
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("FHLMC"), Federal Land Banks, Central Bank for Cooperatives, Federal
Intermediate Credit Banks and Federal Home Loan Banks. In the case of
securities not backed by the full faith and credit of the United States, the
Fund must look principally to the agency issuing or guaranteeing the obligation
for ultimate repayment and may not be able to assert a claim against the United
States if the agency or instrumentality does not meet its commitments.
INVESTMENT IN SMALL, UNSEASONED COMPANIES. The Fund may invest, in the
securities of small companies having market capitalizations under $1 billion.
These securities may have a limited trading market, which may adversely affect
their disposition and can result in their being priced lower than might
otherwise be the case. The securities of these small companies may not be
readily marketable, making it difficult to dispose of shares when desirable. A
risk of investing in smaller, emerging companies is that they often are at an
earlier stage of development and therefore have limited product lines, market
access for such products, financial resources and depth in management as
compared to larger, more established companies, and their securities may be
subject to more abrupt or erratic market movements than securities of larger,
more established companies or the market averages in general. In addition,
certain smaller issuers may face difficulties in obtaining the capital necessary
to continue in operation and may go into bankruptcy, which could result in a
complete loss of an investment. Smaller companies also may be less significant
factors within their industries and may have difficulty withstanding competition
from larger companies. If other investment companies and investors who invest
in such issuers trade the same securities when the Fund attempts to dispose of
its holdings, the Fund may receive lower prices than might otherwise be
obtained. While smaller companies may be subject to these additional risks,
they may also realize more substantial growth than larger, more established
companies.
Companies with market capitalization of $1 billion to $5 billion
("Medium-sized company stocks") may also suffer more significant losses as well
as realize more substantial growth than larger, more established issuers. Thus,
investments in such companies tend to be more volatile and somewhat speculative.
The Fund may invest in the securities of Medium-sized company stocks.
WARRANTS AND RIGHTS. The Fund may invest in warrants, which give the
holder of the warrant a right to purchase a given number of shares of a
particular issue at a specified price until expiration (generally two or more
years). Such investments generally can provide a greater potential for profit
or loss than investments of equivalent amounts in the underlying common stock.
The prices of warrants do not necessarily move with the prices of the underlying
securities. If the holder does not sell the warrant, he risks the loss of his
entire investment if the market price of the underlying stock does not, before
the expiration date, exceed the exercise price of the warrant plus the cost
thereof. Investment in warrants is a speculative activity. Warrants pay no
dividends and confer no rights (other than the right to purchase the underlying
stock) with respect to the assets of the issuer. Rights represent a preemptive
right of stockholders to purchase additional shares of a stock at the time of a
new issuance before the stock is offered to the general public, allowing the
stockholder to retain the same ownership percentage after the new stock
offering.
HYBRID INSTRUMENTS; INDEXED/STRUCTURED SECURITIES. Hybrid Instruments,
including indexed or structured securities, combine the elements of futures
contracts or options with those of debt, preferred equity or a depository
instrument. Generally, a Hybrid Instrument will be a debt
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security, preferred stock, depository share, trust certificate, certificate of
deposit or other evidence of indebtedness on which a portion of or all interest
payments, and/or the principal or stated amount payable at maturity, redemption
or retirement, is determined by reference to prices, changes in prices, or
differences between prices, of securities, currencies, intangibles, goods,
articles or commodities (collectively "Underlying Assets") or by another
objective index, economic factor or other measure, such as interest rates,
currency exchange rates, commodity indices, and securities indices (collectively
"Benchmarks"). Thus, Hybrid Instruments may take a variety of forms, including,
but not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, preferred stock with dividend
rates determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, the Fund may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transactions
costs associated with buying and currency-hedging the foreign bond positions.
One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument
whose redemption price is linked to the average three year interest rate in a
designated group of countries. The redemption price formula would provide for
payoffs of greater than par if the average interest rate was lower than a
specified level, and payoffs of less than par if rates were above the specified
level. Furthermore, the Fund could limit the downside risk of the security by
establishing a minimum redemption price so that the principal paid at maturity
could not be below a predetermined minimum level if interest rates were to rise
significantly. The purpose of this arrangement, known as a structured security
with an embedded put option, would be to give the Fund the desired European bond
exposure while avoiding currency risk, limiting downside market risk, and
lowering transactions costs. Of course, there is no guarantee that the strategy
will be successful and the Fund could lose money if, for example, interest rates
do not move as anticipated or credit problems develop with the issuer of the
Hybrid.
The risks of investing in Hybrid Instruments reflect a combination of the
risks of investing in securities, options, futures and currencies. Thus, an
investment in a Hybrid Instrument may entail significant risks that are not
associated with a similar investment in a traditional debt instrument that has a
fixed principal amount, is denominated in U.S. dollars or bears interest either
at a fixed rate or a floating rate determined by reference to a common,
nationally published Benchmark. The risks of a particular Hybrid Instrument
will, of course, depend upon the terms of the instrument, but may include,
without limitation, the possibility of significant changes in the Benchmarks or
the prices of Underlying Assets to which the instrument is linked. Such risks
generally depend upon factors unrelated to the operations or credit quality of
the issuer of the Hybrid Instrument, which may not be readily foreseen by the
purchaser, such as economic and political events, the supply and demand for the
Underlying Assets and interest rate movements. In recent years, various
Benchmarks and prices for Underlying Assets have been highly volatile, and such
volatility may be expected in the future. Reference is also made to the
discussion of futures, options, and forward contracts herein for a discussion of
the risks associated with such investments.
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Hybrid Instruments are potentially more volatile and carry greater market
risks than traditional debt instruments. Depending on the structure of the
particular Hybrid Instrument, changes in a Benchmark may be magnified by the
terms of the Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid
Instrument and the Benchmark or Underlying Asset may not move in the same
direction or at the same time.
Hybrid Instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, Hybrid Instruments
may bear interest at above market rates but bear an increased risk of principal
loss (or gain). The latter scenario may result if "leverage" is used to
structure the Hybrid Instrument. Leverage risk occurs when the Hybrid
Instrument is structured so that a given change in a Benchmark or Underlying
Asset is multiplied to produce a greater value change in the Hybrid Instrument,
thereby magnifying the risk of loss as well as the potential for gain.
Hybrid Instruments may also carry liquidity risk since the instruments are
often "customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. Under certain conditions, the redemption (or sale)
value of such an investment could be zero. In addition, because the purchase
and sale of Hybrid Instruments could take place in an over-the-counter market
without the guarantee of a central clearing organization or in a transaction
between the Fund and the issuer of the Hybrid Instrument, the creditworthiness
of the counter party or issuer of the Hybrid Instrument would be an additional
risk factor the Fund would have to consider and monitor. Hybrid Instruments
also may not be subject to regulation of the Commodity Futures Trading
Commisssion, which generally regulates the trading of commodity futures by
U.S. persons, the Securities and Exchange Commission (the "SEC"), which
regulates the offer and sale of securities by and to U.S. persons, or any
other governmental regulatory authority.
The various risks discussed above, particularly the market risk of such
instruments, may in turn cause significant fluctuations in the net asset value
of the Fund . Accordingly, the Fund that so invests will limit its investments
in Hybrid Instruments to 10% of total assets at the time of purchase. However,
because of their volatility, it is possible that the Fund's investment in Hybrid
Instruments will account for more than 10% of the Fund's return (positive or
negative).
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase or sell
such securities on a "when-issued" or "delayed delivery" basis. Although the
Fund will enter into such transactions for the purpose of acquiring securities
for its portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-issued"
or "delayed delivery" refers to securities whose terms and indenture are
available and for which a market exists, but which are not available for
immediate delivery. When such transactions are negotiated, the price (which is
generally expressed in yield terms) is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date. During
the period between commitment by the Fund and settlement (generally within two
months but not to exceed 120 days), no payment is made for the securities
purchased by the purchaser, and no interest accrues to the purchaser from the
transaction. Such securities are subject to market
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fluctuation, and the value at delivery may be less than the purchase price. The
Fund will maintain a segregated account with the custodian, consisting of cash,
or liquid securities at least equal to the value of purchase commitments until
payment is made. With respect to securities sold on a delayed-delivery basis,
the Fund will either segregate the securities sold or liquid assets of a
comparable value.
The Fund will engage in when-issued transactions in order to secure what is
considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure to do so may result in the Fund losing the
opportunity to obtain a price and yield considered to be advantageous. If the
Fund chooses to (i) dispose of the right to acquire a when-issued security prior
to its acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss. (At the time the Fund makes a
commitment to purchase or sell a security on a when-issued or forward commitment
basis, it records the transaction and reflects the value of the security
purchased, or if a sale, the proceeds to be received in determining its net
asset value.)
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling securities
consistent with its investment objective and policies and not for the purposes
of investment leverage. The Fund will enter into such transactions only with
the intention of actually receiving or delivering the securities, although (as
noted above) when-issued securities and forward commitments may be sold prior to
the settlement date. In addition, changes in interest rates in a direction
other than that expected by the Adviser before settlement will affect the value
of such securities and may cause a loss to the Fund.
When-issued transactions and forward commitments may be used to offset
anticipated changes in interest rates and prices. For instance, in periods of
rising interest rates and falling prices, the Fund might sell securities in its
portfolio on a forward commitment basis to attempt to limit its exposure to
anticipated falling prices. In periods of falling interest rates and rising
prices, the Fund might sell portfolio securities and purchase the same or
similar securities on a when-issued or forward commitment basis, thereby
obtaining the benefit of currently higher cash yields.
FOREIGN SECURITIES. The Fund may invest up to 5% of its total assets in
equity securities of foreign companies in the S&P Composite Stock Price Index or
listed on a U.S. stock exchange. Investments in foreign securities offer
potential benefits not available from investments solely in securities of
domestic issuers by offering the opportunity to invest in foreign issuers that
appear to offer growth potential, or in foreign countries with economic policies
or business cycles different from those of the U.S., or to reduce fluctuations
in portfolio value by taking advantage of foreign stock markets that do not move
in a manner parallel to U.S. markets.
The Fund may invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs), European Depository Receipts (EDRs), Global
Depository Receipts (GDRs) or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are securities, typically issued by a U.S. financial
institution, that evidence ownership
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interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depository. ADRs may be sponsored or unsponsored. A
sponsored ADR is issued by a depository that has an exclusive relationship with
the issuer of the underlying security. An unsponsored ADR may be issued by any
number of U.S. depositories. Holders of unsponsored ADRs generally bear all the
costs associated with establishing the unsponsored ADR. The depository of an
unsponsored ADR is under no obligation to distribute shareholder communications
received from the underlying issuer or to pass through to the holders of the
unsponsored ADR voting rights with respect to the deposited securities or pool
of securities. The Fund may invest in either type of ADR. Although the U.S.
investor holds a substitute receipt of ownership rather than direct stock
certificates, the use of the depository receipts in the United States can reduce
costs and delays as well as potential currency exchange and other difficulties.
The Fund may purchase securities in local markets and direct delivery of these
ordinary shares to the local depository of an ADR agent bank in the foreign
country. Simultaneously, the ADR agents create a certificate that settles at
the Fund's custodian in five days. The Fund may also execute trades on the U.S.
markets using existing ADRs. A foreign issuer of the security underlying an ADR
is generally not subject to the same reporting requirements in the United States
as a domestic issuer. Accordingly the information available to a U.S. investor
will be limited to the information the foreign issuer is required to disclose in
its own country and the market value of an ADR may not reflect undisclosed
material information concerning the issuer of the underlying security. For
purposes of the Fund's investment policies, the Fund's investments in these
types of securities will be deemed to be investments in the underlying
securities. Generally ADRs, in registered form, are dollar denominated
securities designed for use in the U.S. securities markets, which represent and
may be converted into the underlying foreign security. EDRs, in bearer form,
are designed for use in the European securities markets.
Investments in foreign securities, including securities of emerging
market countries, present special additional investment risks and
considerations not typically associated with investments in domestic
securities, including reduction of income by foreign taxes; fluctuation in
value of foreign portfolio investments due to changes in currency rates and
control regulations (I.E., currency blockage); transaction charges for
currency exchange; lack of public information about foreign issuers; lack of
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic issuers; less volume on foreign exchanges than
on U.S. exchanges; greater volatility and less liquidity on foreign markets
than in the U.S.; less regulation of foreign issuers, stock exchanges and
brokers than the U.S.; greater difficulties in commencing lawsuits; higher
brokerage commission rates and custodian fees than the U.S.; increased
possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic
developments; and differences (which may be favorable or unfavorable) between
the U.S. economy and foreign economies. An emerging market country is one
that the World Bank, the International Finance Corporation or the United
Nations or its authorities has determined to have a low or middle income
economy. Historical experience indicates that the markets of emerging market
countries have been more volatile than more developed markets; however, such
markets can provide higher rates of return to investors. The performance of
investments in securities denominated in a foreign currency ("non-dollar
securities") will depend on, among other things, the strength of the foreign
currency against the dollar and the interest rate environment in the country
issuing the foreign currency. Absent other events that could otherwise
affect the value of non-dollar securities (such
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as a change in the political climate or an issuer's credit quality),
appreciation in the value of the foreign currency generally can be expected to
increase the value of the Fund's non-dollar securities in terms of U.S. dollars.
A rise in foreign interest rates or decline in the value of foreign currencies
relative to the U.S. dollar generally can be expected to depress the value of
the Fund's non-dollar securities. Currencies are evaluated on the basis of
fundamental economic criteria (e.g., relative inflation levels and trends,
growth rate forecasts, balance of payments status and economic policies) as well
as technical and political data. Effective January 1, 1999, several European
countries irrevocably fixed their existing national currencies to a new single
European currency unit, the "euro." Certain European investments may be subject
to additional risks as a result of this conversion. These risks include adverse
tax and accounting consequences, as well as difficulty in processing
transactions. The Adviser is aware of such potential problems and is
coordinating efforts to prevent or alleviate their adverse impact on the
Portfolios. There can be no assurance that the Fund will not suffer any adverse
consequences as a result of the euro conversion.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend portfolio securities in amounts up to 33 1/3% of
total assets to brokers, dealers and other financial institutions, provided that
such loans are callable at any time by the Fund and are at all times secured by
cash or equivalent collateral. In lending its portfolio securities, the Fund
receives income while retaining the securities' potential for capital
appreciation. The advantage of such loans is that the Fund continues to receive
the interest and dividends on the loaned securities while at the same time
earning interest on the collateral, which will be invested in short-term debt
securities, including repurchase agreements. A loan may be terminated by the
borrower on one business day's notice or by the Fund at any time. If the
borrower fails to maintain the requisite amount of collateral, the loan
automatically terminates, and the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will be made only to firms deemed by the Adviser to be creditworthy.
On termination of the loan, the borrower is required to return the securities to
the Fund; and any gain or loss in the market price of the loaned security during
the loan would inure to the Fund. The Fund will pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.
Since voting or consent rights that accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
that are the subject of the loan.
INCOME ENHANCEMENT STRATEGIES. The Fund may write (I.E., sell) call
options ("calls") on securities traded on U.S. and foreign securities exchanges
and over-the-counter markets for hedging and risk management purposes but not
for speculation. After any such sale up to 100% of a Fund's total assets may be
subject to calls. The Fund is required, for all such calls written by a Fund to
deposit cash or securities or a letter of credit as margin and to make mark to
market payments of variation margin as the position becomes unprofitable. If a
call written by the Fund is exercised, the
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Fund forgoes any profit from any increase in the market price above the call
price of the underlying investment on which the call was written.
The Fund also may write put options ("puts"), which give the holder of the
option the right to sell the underlying security to the Fund at the stated
exercise price. The Fund will receive a premium for writing a put option that
increases the Fund's return. The Fund is required, for all such puts written by
a Fund to deposit cash or securities or a letter of credit as margin and to make
mark to market payments of variation margin as the position becomes
unprofitable.
HEDGING STRATEGIES. For hedging purposes as a temporary defensive
maneuver, the Fund, except as described below, may also use stock index futures
contracts ("Futures"); and call and put options on Futures (the foregoing
referred to as "Hedging Instruments"). The Fund is required for these
techniques to deposit cash or securities or a letter of credit as margin and to
make mark to market payments of variation margin as the position becomes
unprofitable. All puts and calls on securities or stock index Futures or
options on such Futures purchased or sold by the Fund will be listed on a
national securities or commodities exchange or on U.S. over-the-counter markets.
Hedging instruments may be used to attempt to: (i) protect against possible
declines in the market value of the Fund's portfolio resulting from downward
trends in the equity securities markets (generally due to a rise in interest
rates); (ii) protect the Fund's unrealized gains if the value of its equity
securities have appreciated; (iii) facilitate selling securities for investment
reasons; or (iv) establish a position in the equity securities markets as a
temporary substitute for purchasing particular equity securities.
OPTIONS
OPTIONS ON SECURITIES. The Fund may write and purchase call and put
options on equity securities.
When the Fund writes a call on a security it receives a premium and agrees
to sell the underlying security to a purchaser of a corresponding call on the
same security during the call period (usually not more than 9 months) at a fixed
price (which may differ from the market price of the underlying security),
regardless of market price changes during the call period.
To terminate its obligation on a call it has written, the Fund may purchase
a corresponding call in a "closing purchase transaction." A profit or loss will
be realized, depending upon whether the net of the amount of the option
transaction costs and the premium received on the call written was more or less
than the price of the call subsequently purchased. A profit may also be
realized if the call expires unexercised, because the Fund retains the
underlying security and the premium received. If the Fund could not effect a
closing purchase transaction due to lack of a market, it would hold the callable
securities until the call expired or was exercised.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period at a fixed exercise price. The Fund benefits only if the call
is sold at a profit or if, during the call period, the market price of the
underlying investment is
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above the sum of the call price plus the transaction costs and the premium paid
and the call is exercised. If the call is not exercised or sold (whether or not
at a profit), it will become worthless at its expiration date and the Fund will
lose its premium payment and the right to purchase the underlying investment.
A put option on securities gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying investment at the exercise price
during the option period. Writing a put covered by segregated liquid assets
equal to the exercise price of the put has the same economic effect to the Fund
as writing a covered call. The premium the Fund receives from writing a put
option represents a profit as long as the price of the underlying investment
remains above the exercise price. However, the Fund has also assumed the
obligation during the option period to buy the underlying investment from the
buyer of the put at the exercise price, even though the value of the investment
may fall below the exercise price. If the put expires unexercised, the Fund (as
the writer of the put) realizes a gain in the amount of the premium. If the put
is exercised, the Fund must fulfill its obligation to purchase the underlying
investment at the exercise price, which will usually exceed the market value of
the investment at that time. In that case, the Fund may incur a loss, equal to
the sum of the sale price of the underlying investment and the premium received
minus the sum of the exercise price and any transaction costs incurred.
The Fund may effect a closing purchase transaction to realize a profit on
an outstanding put option it has written or to prevent an underlying security
from being put. Furthermore, effecting such a closing purchase transaction will
permit the Fund to write another put option to the extent that the exercise
price thereof is secured by the deposited assets, or to utilize the proceeds
from the sale of such assets for other investments by the Fund. The Fund will
realize a profit or loss from a closing purchase transaction if the cost of the
transaction is less or more than the premium received from writing the option.
When the Fund purchases a put, it pays a premium and has the right to sell
the underlying investment to a seller of a corresponding put on the same
investment during the put period at a fixed exercise price. Buying a put on an
investment the Fund owns enables the Fund to protect itself during the put
period against a decline in the value of the underlying investment below the
exercise price by selling such underlying investment at the exercise price to a
seller of a corresponding put. If the market price of the underlying investment
is equal to or above the exercise price and as a result the put is not exercised
or resold, the put will become worthless at its expiration date, and the Fund
will lose its premium payment and the right to sell the underlying investment
pursuant to the put. The put may, however, be sold prior to expiration (whether
or not at a profit).
Buying a put on an investment the Fund does not own permits the Fund either
to resell the put or buy the underlying investment and sell it at the exercise
price. The resale price of the put will vary inversely with the price of the
underlying investment. If the market price of the underlying investment is
above the exercise price and as a result the put is not exercised, the put will
become worthless on its expiration date. In the event of a decline in the stock
market, the Fund could exercise or sell the put at a profit to attempt to offset
some or all of its loss on its portfolio securities.
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When writing put options on securities, to secure its obligation to pay for
the underlying security, the Fund will deposit cash or securities or a letter of
credit as margin and make mark to market payments of variation margin as the
position becomes unprofitable. The Fund therefore forgoes the opportunity of
investing the segregated assets or writing calls against those assets. As long
as the obligation of the Fund as the put writer continues, it may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring the Fund to take delivery of the underlying security against payment
of the exercise price. The Fund has no control over when it may be required to
purchase the underlying security, since it may be assigned an exercise notice at
any time prior to the termination of its obligation as the writer of the put.
This obligation terminates upon expiration of the put, or such earlier time at
which the Fund effects a closing purchase transaction by purchasing a put of the
same series as that previously sold. Once the Fund has been assigned an
exercise notice, it is thereafter not allowed to effect a closing purchase
transaction.
OPTIONS ON SECURITIES INDICES. As noted above, the Fund may write and
purchase call and put options on securities indices. Puts and calls on
broadly-based securities indices are similar to puts and calls on securities
except that all settlements are in cash and gain or loss depends on changes in
the index in question (and thus on price movements in the securities market
generally) rather than on price movements in individual securities. When the
Fund buys a call on a securities index, it pays a premium. During the call
period, upon exercise of a call by the Fund, a seller of a corresponding call on
the same investment will pay the Fund an amount of cash to settle the call if
the closing level of the securities index upon which the call is based is
greater than the exercise price of the call. That cash payment is equal to the
difference between the closing price of the index and the exercise price of the
call times a specified multiple (the "multiplier") which determines the total
dollar value for each point of difference. When the Fund buys a put on a
securities index, it pays a premium and has the right during the put period to
require a seller of a corresponding put, upon the Fund's exercise of its put, to
deliver to the Fund an amount of cash to settle the put if the closing level of
the securities index upon which the put is based is less than the exercise price
of the put. That cash payment is determined by the multiplier, in the same
manner as described above as to calls.
FUTURES AND OPTIONS ON FUTURES
FUTURES. Upon entering into a Futures transaction, the Fund will be
required to deposit an initial margin payment with the futures commission
merchant (the "futures broker"). The initial margin will be deposited with the
Fund's custodian in an account registered in the futures broker's name; however,
the futures broker can gain access to that account only under specified
conditions. As the Future is marked-to-market to reflect changes in its market
value, subsequent margin payments, called variation margin, will be paid to or
by the futures broker on a daily basis. Prior to expiration of the Future, if
the Fund elects to close out its position by taking an opposite position, a
final determination of variation margin is made, additional cash is required to
be paid by or released to the Fund, and any loss or gain is realized for tax
purposes. All Futures transactions are effected through a clearinghouse
associated with the exchange on which the Futures are traded.
Purchases or sales of stock index futures contracts are used for hedging
purposes to attempt to protect the Fund's current or intended investments from
broad fluctuations in stock prices. For
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example, the Fund may sell stock index futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Fund's securities portfolio that might otherwise result. If such decline
occurs, the loss in value of portfolio securities may be offset, in whole or
part, by gains on the Futures position. When the Fund is not fully invested in
the securities market and anticipates a significant market advance, it may
purchase stock index futures contracts in order to gain rapid market exposure
that may, in part or entirely, offset increases in the cost of securities that
the Fund intends to purchase. As such purchases are made, the corresponding
positions in stock index futures contracts will be closed out.
OPTIONS ON FUTURES. As noted above, the Fund may purchase and write
options on stock index futures contracts ("Options on Futures.")
The writing of a call option on a Futures contract constitutes a partial
hedge against declining prices of the securities in the Fund's portfolio. If
the Futures price at expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium, which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a Futures contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures contract. If the
Futures price at expiration of the put option is higher than the exercise price,
the Fund will retain the full amount of the option premium, which provides a
partial hedge against any increase in the price of securities the Fund intends
to purchase. If a put or call option the Fund has written is exercised, the
Fund will incur a loss that will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its Options on Futures
positions, the Fund's losses from exercised Options on Futures may to some
extent be reduced or increased by changes in the value of portfolio securities.
The Fund may purchase Options on Futures for hedging purposes instead of
purchasing or selling the underlying Futures contract. For example, where a
decrease in the value of portfolio securities is anticipated as a result of a
projected market-wide decline or changes in interest or exchange rates, the Fund
could, in lieu of selling a Futures contract, purchase put options thereon. In
the event that such decrease occurs, it may be offset, in whole or part, by a
profit on the option. If the market decline does not occur, the Fund will
suffer a loss equal to the price of the put. Where it is projected that the
value of securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
the Fund could purchase call Options on Futures, rather than purchasing the
underlying Futures contract. If the market advances, the increased cost of
securities to be purchased may be offset by a profit on the call. However, if
the market declines, the Fund will suffer a loss equal to the price of the call,
but the securities that the Fund intends to purchase may be less expensive.
ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE
The Fund's custodian, or a securities depository acting for the custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the
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securities on which the Fund has written options or as to other acceptable
escrow securities, so that no margin will be required for such transaction. OCC
will release the securities on the expiration of the option or upon the Fund's
entering into a closing transaction.
An option position may be closed out only on a market that provides
secondary trading for options of the same series and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund's
option activities may affect its turnover rate and brokerage commissions. The
exercise by the Fund of puts on securities will cause the sale of related
investments, increasing portfolio turnover. Although such exercise is within
the Fund's control, holding a put might cause the Fund to sell the related
investments for reasons that would not exist in the absence of the put. The
Fund will pay a brokerage commission each time it buys a put or call, sells a
call, or buys or sells an underlying investment in connection with the exercise
of a put or call. Such commissions may be higher than those that would apply to
direct purchases or sales of such underlying investments. Premiums paid for
options are small in relation to the market value of the related investments,
and consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options could result in the Fund's net asset
value being more sensitive to changes in the value of the underlying
investments.
In the future, the Fund may employ Hedging Instruments and strategies that
are not presently contemplated but which may be developed, to the extent such
investment methods are consistent with the Fund's investment objective, legally
permissible and adequately disclosed.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS
The Fund must operate within certain restrictions as to its long and short
positions in Futures and options thereon under a rule (the "CFTC Rule") adopted
by the Commodity Futures Trading Commission (the "CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Fund from registration with the
CFTC as a "commodity pool operator" (as defined in the CEA) if it complies with
the CFTC Rule. In particular, the Fund may (i) purchase and sell Futures and
options thereon for bona fide hedging purposes, as defined under CFTC
regulations, without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) enter into non-hedging transactions,
provided, that the Fund may not enter into such non-hedging transactions if,
immediately thereafter, the sum of the amount of initial margin deposits on the
Fund's existing Futures positions and option premiums would exceed 5% of the
fair value of its portfolio, after taking into account unrealized profits and
unrealized losses on any such transactions. The fund intends to engage in
Futures transactions and options thereon only for hedging purposes. Margin
deposits may consist of cash or securities acceptable to the broker and the
relevant contract market.
Transactions in options by the Fund are subject to limitations established
by each of the exchanges governing the maximum number of options that may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
exchanges or brokers. Thus, the number of options the Fund may write or hold
may be affected by options written or held by other entities, including other
investment companies having
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the same or an affiliated investment adviser. Position limits also apply to
Futures. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions. Due to
requirements under the 1940 Act, when the Fund purchases a Future, the Fund will
segregate cash or liquid securities in an amount equal to the market value of
the securities underlying such Future, less the margin deposit applicable to it.
POSSIBLE RISK FACTORS IN HEDGING
Participation in the options or Futures markets and in currency exchange
transactions involves investment risks and transaction costs to which the Fund
would not be subject absent the use of these strategies. If the Adviser's
predictions of movements in the direction of the securities, foreign currency
and interest rate markets are inaccurate, the adverse consequences to the Fund
may leave the Fund in a worse position than if such strategies were not used.
In addition to the risks discussed above, there is also a risk in using
short hedging by selling Futures to attempt to protect against decline in value
of the Fund's portfolio securities (due to an increase in interest rates) that
the prices of such Futures will correlate imperfectly with the behavior of the
cash (I.E., market value) prices of the Fund's securities. The ordinary spreads
between prices in the cash and Futures markets are subject to distortions due to
differences in the natures of those markets. First, all participants in the
Futures markets are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
Futures contracts through offsetting transactions that could distort the normal
relationship between the cash and Futures markets. Second, the liquidity of the
Futures markets depend on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the Futures markets could be reduced, thus
producing distortion. Third, from the point-of-view of speculators, the deposit
requirements in the Futures markets are less onerous than margin requirements in
the securities markets. Therefore, increased participation by speculators in
the Futures markets may cause temporary price distortions.
If the Fund uses Hedging Instruments to establish a position in the debt
securities markets as a temporary substitute for the purchase of individual debt
securities (long hedging) by buying Futures and/or calls on such Futures or on
debt securities, it is possible that the market may decline; if the Adviser then
determines not to invest in such securities at that time because of concerns as
to possible further market decline or for other reasons, the Fund will realize a
loss on the Hedging Instruments that is not offset by a reduction in the price
of the debt securities purchased.
SHORT SALES. The Fund may make "short sales against the box." A short sale
is effected by selling a security that the Fund does not own. A short sale is
against the box to the extent that the Fund contemporaneously owns, or has the
right to obtain without payment, securities identical to those sold short. The
Fund may not enter into a short sale, including a short sale against the box,
if, as a result, more than 25% of its total assets would be subject to such
short sales. The Fund generally will recognize any gain (but not loss) for
federal income tax purposes at the time that it makes a short sale against the
box.
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<PAGE>
LEVERAGE. In seeking to enhance investment performance, the Fund may
increase their ownership of securities by borrowing at fixed rates of interest
up to the maximum extent permitted under the 1940 Act (presently 50% of net
assets) and investing the borrowed funds, subject to the restrictions stated in
the Prospectus. Any such borrowing will be made only pursuant to the
requirements of the 1940 Act and will be made only to the extent that the value
of the Fund's assets less its liabilities, other than borrowings, is equal to at
least 300% of all borrowings including the proposed borrowing. If the value of
the Fund's assets, so computed, should fail to meet the 300% asset coverage
requirement, the Fund is required, within three business days, to reduce its
bank debt to the extent necessary to meet such requirement and may have to sell
a portion of its investments at a time when independent investment judgment
would not dictate such sale. Interest on money borrowed is an expense the Fund
would not otherwise incur, so that it may have little or no net investment
income during periods of substantial borrowings. Since substantially all of the
Fund's assets fluctuate in value, but borrowing obligations are fixed when the
Fund has outstanding borrowings, the net asset value per share of the Fund
correspondingly will tend to increase and decrease more when the Fund's assets
increase or decrease in value than would otherwise be the case. The fund's
policy regarding use of leverage is a fundamental policy, which may not be
changed without approval of the shareholders of the fund.
FUTURE DEVELOPMENTS. The Fund may invest in securities and other
instruments that do not presently exist but may be developed in the future,
provided that each such investment is consistent with the Fund's investment
objective, policies and restrictions and is otherwise legally permissible under
federal and state laws. The Fund's Prospectus and Statement of Additional
Information will be amended or supplemented as appropriate to discuss any such
new investments.
REAL ESTATE INVESTMENT TRUSTS ("REITs"). The Fund may invest in REITs.
REITs are trusts that invest primarily in commercial real estate or real estate
related loans. The value of an interest in a REIT may be affected by the value
and the cash flows of the properties owned or the quality of the mortgages
held by the trust.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that are
fundamental policies and may not be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities. A "majority of the
outstanding voting securities" of the Fund for this purpose means the lesser of
(i) 67% of the shares of the Fund represented at a meeting at which more than
50% of the outstanding shares are present in person or represented by proxy or
(ii) more than 50% of the outstanding shares. Unless otherwise indicated, all
percentage limitations apply only at the time the investment is made; any
subsequent change in any applicable percentage resulting from fluctuations in
value will not be deemed an investment contrary to these restrictions.
Under the following fundamental restrictions the Fund may not:
(1) With respect to 75% of its total assets, invest more than 5% of its
total assets (taken at market value at the time of each investment)
in the securities of any one issuer or purchase more than 10% of the
outstanding voting securities of any one company or more than 10% of
any class of a company's outstanding securities, except that these
restrictions shall not apply to securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities ("U.S. government
securities").
B-21
<PAGE>
(2) Invest more than 25% of the Fund's assets in the securities of issuers
engaged in the same industry.
(3) Borrow money, except that (i) the Fund may borrow in amounts up to
33 1/3% of its total assets for temporary or emergency purposes,
(ii) the Fund may borrow for investment purposes to the maximum
extent permissible under the 1940 Act (I.E., presently 50% of net
assets), and (iii) the Fund may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of portfolio
securities. This policy shall not prohibit the Fund's engaging in
reverse repurchase agreements and similar investment strategies
described in the Prospectus and Statement of Additional Information, as
they may be amended from time to time.
(4) Invest in real estate (including limited partnership interests but
excluding securities of companies, such as real estate investment trusts,
which deal in real estate or interests therein); provided that the Fund
may hold or sell real estate acquired as a result of the ownership of
securities.
(5) Purchase or sell commodities or commodity contracts, except to the
extent that the Fund may do so in accordance with applicable law and the
Prospectus and Statement of Additional Information, as they may be amended
from time to time, and without registering as a commodity pool operator
under the Commodity Exchange Act. The Fund may engage in transactions in
put and call options on securities, indices, futures contracts on
securities and indices, put and call options on such futures contracts, and
may purchase hybrid instruments.
(6) Engage in underwriting of securities issued by others, except to the
extent that the Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities of the Fund.
(7) Make loans to others except for (a) the purchase of debt securities; (b)
entering into repurchase agreements; (c) the lending of its portfolio
securities; and (d) as otherwise permitted by exemptive order of the SEC.
(8) Issue senior securities as defined in the 1940 Act, except that the Fund
may enter into repurchase agreements, reverse repurchase agreements,
lend its portfolio securities and borrow money as described above, and
engage in similar investment strategies described in the Prospectus and
Statement of Additional Information, as they may be amended from time
to time.
The following additional restrictions are not fundamental policies and
may be changed by the Directors without a vote of shareholders. The Fund may
not:
(1) Purchase securities on margin, provided that margin deposits in
connection with futures contracts, options on futures contracts and
other derivative instruments shall not constitute purchasing securities
on margin.
(2) Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and, to the extent related
to the segregation of assets in connection with the writing of covered
put and call options and the purchase of securities on a delayed-
delivery basis and collateral and initial or variation margin
arrangements with respect to options, futures contracts and options on
futures contracts. In addition, a Portfolio may pledge assets in reverse
repurchase agreements and similar investment strategies described in the
Prospectus and Statement of Additional Information, as they may be
amended from time to time.
(3) Enter into any repurchase agreement maturing in more than seven days or
invest in any other illiquid security if, as a result, more than 15% of
the Fund's net assets would be so invested. Restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act that
have a readily available market, and commercial paper exempted from
registration under the Securities Act pursuant to Section 4(2) of that Act
that may be offered and sold to "qualified institutional buyers" as defined
in Rule 144A, which the Adviser has determined to be liquid pursuant to
guidelines established by the Directors, will not be considered illiquid
for purposes of this 15% limitation on illiquid securities.
(4) Invest in securities of other registered investment companies, except by
purchases in the open market, involving only customary brokerage
commissions and as a result of which not more than 10% of its total assets
(determined at the time of investment) would be invested in such
securities, or except as part of a merger, consolidation or other
acquisition.
DIRECTORS AND OFFICERS
The following table lists the Directors and executive officers of the
Corporation, their ages, business addresses, and principal occupations during
the past five years. The SunAmerica Mutual Funds ("SAMF") consist of SunAmerica
Equity Funds, SunAmerica Income Funds, SunAmerica Money Market Funds, Inc., and
Style Select Series, Inc. and SunAmerica Strategic Investment Series, Inc.
An asterisk indicates those Directors who are interested unbold persons of
the Corporation within the meaning of the 1940 Act.
B-22
<PAGE>
[to be filed by amendment]
- --------------------------------------------------------------------------------
The Directors of the Corporation are responsible for the overall
supervision of the operation of the Corporation and the Fund and perform various
duties imposed on directors of investment companies by the 1940 Act and under
the Corporation's Articles of Incorporation. Directors and officers of the
Corporation are also directors and officers of some or all of the other
investment companies managed, administered or advised by SunAmerica, and
distributed by SunAmerica Capital Services, Inc. ("SACS" or the "Distributor")
and other affiliates of SunAmerica Inc.
The Corporation expects to pay each Director who is not an interested
person of the Corporation or SunAmerica (each a "disinterested Director") annual
compensation in addition to reimbursement of out-of-pocket expenses in
connection with attendance at meetings of the Directors. Specifically, each
disinterested Director will receive a pro rata portion (based upon the
B-23
<PAGE>
Corporation's net assets) of an aggregate of $40,000 in annual compensation for
acting as director or trustee to the SunAmerica Mutual Funds and AST. In
addition, Mr. [ ] will receive an aggregate of $2,000 in annual
compensation for serving as Chairman of the Boards of the retail funds in the
SunAmerica Mutual Funds. Officers of the Corporation receive no direct
remuneration in such capacity from the Corporation or the Fund.
In addition, each disinterested Director will serve on the Audit
Committee of the Board of Directors. Each member of the Audit Committee will
receive an aggregate of $5,000 in annual compensation for serving on the Audit
Committees of the SunAmerica Mutual Funds and AST. With respect to the
Corporation, each member of the committee will receive a pro rata portion of
the $5,000 annual compensation, based on the relative net assets of the
Corporation. The Corporation also has a Nominating Committee which will be
comprised solely of disinterested Directors, which recommends to the
Directors those persons to be nominated for election as Directors by
shareholders and selects and proposes nominees for election by Directors
between shareholders' meetings. Members of the [Nominating Committee] will
serve without compensation.
The Directors (and Trustees) of the SunAmerica Mutual Funds
have adopted the SunAmerica Disinterested Trustees' and
Directors' Retirement Plan (the "Retirement Plan") effective January 1, 1993
for the disinterested Directors. The Retirement Plan provides generally that
if a disinterested Director who has at least 10 years of consecutive service
as a disinterested Director of any of the SunAmerica Mutual Funds (an
"Eligible Director") retires after reaching age 60 but before age 70 or dies
while a Director, such person will be eligible to receive a retirement or
death benefit from each SunAmerica Mutual Fund with respect to which he or
she is an Eligible Director. As of each birthday, prior to the 70th birthday,
each Eligible Director will be credited with an amount equal to (i) 50% of
his or her regular fees (excluding committee fees) for services as a
disinterested Director of each SunAmerica Mutual Fund for the calendar year
in which such birthday occurs, plus (ii) 8.5% of any amounts credited under
clause (i) during prior years. An Eligible Director may receive any benefits
payable under the Retirement Plan, at his or her election, either in one lump
sum or in up to fifteen annual installments.
As of [February 21,] 1999, the Directors and officers of the Corporation
owned in the aggregate, less than 1% of each Class of the Corporation's total
outstanding shares.
The following table sets forth information summarizing the expected
compensation of each disinterested Director for his services as Director for the
first full fiscal year and the aggregate compensation paid by the fund complex
to the disinterested Directors, ended September 30, 1998. Neither the Directors
who are interested persons of the Corporation nor any officers of the
Corporation receive any compensation.
B-24
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED FROM REGISTRANT
DIRECTOR COMPENSATION AS PART OF ANNUAL AND FUND
FROM CORPORATION BENEFITS UPON COMPLEX PAID TO
REGISTRANT EXPENSES RETIREMENT DIRECTORS*
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ $ $ $
- --------------------------------------------------------------------------------------
$ $ $ $
- --------------------------------------------------------------------------------------
$ $ $ $
- --------------------------------------------------------------------------------------
$ $ $ $
- --------------------------------------------------------------------------------------
</TABLE>
* Information is as of September 30, 1998 for the five investment companies
in the complex that pay fees to these directors/trustees. The complex
consists of the SunAmerica Mutual Funds and Anchor Series Trust.
[SunAmerica] provided the initial capital for the Corporation by
purchasing [________] shares of the Fund ([________] total), for an aggregate
of [$_________]. Such shares were acquired for investment and can only be
disposed of by redemption. To the extent the organizational expenses of the
Corporation are paid by the Corporation they will be expensed and immediately
charged to net asset value. See "Determination of Net Asset Value."
Prior to the offering of the Fund's shares, [SunAmerica] will be the
Fund's sole shareholder and deemed a controlling person of the Fund.
MANAGER, ADVISER, PERSONAL TRADING, DISTRIBUTOR AND ADMINISTRATOR
SUNAMERICA ASSET MANAGEMENT CORP. SunAmerica, organized as a Delaware
corporation in 1982, is located at The SunAmerica Center, 733 Third Avenue, New
York, NY 10017-3204, and acts as the Investment Manager to the Fund pursuant to
the Investment Advisory and Management Agreement dated ____________, 1999 (the
"Management Agreement") with the Corporation, on behalf of the Fund.
SunAmerica is a wholly-owned subsidiary of American International Group, Inc.
("AIG"), the leading U.S.-based international insurance organization.
AIG, a Delaware corporation, is a holding company that through its
subsidiaries is primarily engaged in a broad range of insurance and insurance
related activities and financial services in the United States and abroad.
AIG, through its subsidiaries, is also engaged in a range of financial services
activities. AIG's asset management operations are carred out primarily by AIG
Global Invesment Group, Inc., a direct wholly owned subsidiary of AIG, and its
affiliates (collectively, "AIG Global"). AIG Global manages the investment
portfolios of various AIG subsidiaries, as well as third party assets, and is
responsible for product design and origination, marketing and distribution
of third party asset management products, including offshore and private
investments funds and direct investment. As of June 30, 1998, AIG Global
managed more than $86 billion of assets, of which approximately $10.8 billion
represented assets of unaffiliated third parties. AIG Capital Management
Corp., an indirect wholly-owned subsidiary of AIG Global Investment Group,
Inc., serves as investment adviser to The AIG Money Market Fund, a separate
series of The Advisors' Inner Circle Fund, a registered investment company.
In addition, AIG Global Investment Corp., an AIG Global group company,
serves as the sub-investment adviser to an unaffiliated registered
investment company. AIG companies do not otherwise provide investment advice
to any registered investment companies. SunAmerica Inc., is incorporated in the
State of Maryland and maintains its principal executive offices at 1 SunAmerica
Center, Los Angeles, CA 90067-6022, telephone (310) 772-6000.
Under the Management Agreement, and except as delegated to the Adviser (as
defined below), SunAmerica manages the investment of the assets of the Fund and
obtains and evaluates economic, statistical and financial information to
formulate and implement investment policies for the Fund. Any investment
program undertaken by SunAmerica will at all times be subject to the policies
and control of the Directors. SunAmerica also provides certain administrative
services to the Fund.
Except to the extent otherwise specified in the Management Agreement, the
Fund pays, or causes to be paid, all other expenses of the Corporation and the
Fund, including, without limitation, charges and expenses of any registrar,
custodian, transfer and dividend disbursing agent; brokerage
B-25
<PAGE>
commissions; taxes; engraving and printing of share certificates; registration
costs of the Fund and its shares under Federal and state securities laws; the
cost and expense of printing, including typesetting, and distributing
Prospectuses and Statements of Additional Information respecting the Fund, and
supplements thereto, to the shareholders of the Fund; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; all expenses incident to any
dividend, withdrawal or redemption options; fees and expenses of legal counsel
and independent accountants; membership dues of industry associations; interest
on borrowings of the Fund; postage; insurance premiums on property or personnel
(including Officers and Directors) of the Corporation that inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Corporation's operation.
The annual rate of the investment advisory fees that apply to the Fund are
set forth in the Prospectus.
The Management Agreement continues in effect with respect to the Fund after
an initial two-year term from year to year provided that such continuance is
specifically approved at least annually by (i) the Board of Directors, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund, and (ii) the vote of a majority of Directors who are not
parties to the Management Agreement or interested persons (as defined in the
1940 Act) of any such party, cast in person, at a meeting called for the purpose
of voting on such approval. The Management Agreement may be terminated with
respect to the Fund at any time, without penalty, on 60 days' written notice by
the Directors, by the holders of a majority of the Fund's outstanding voting
securities or by SunAmerica. The Management Agreement automatically terminates
in the event of its assignment (as defined in the 1940 Act and the rules
thereunder).
Under the terms of the Management Agreement, SunAmerica is not liable to
the 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
misfeasance, bad faith, gross negligence or reckless disregard of duty.
THE ADVISER. J.P. Morgan Investment Management, Inc. ("Morgan"), acts as
Adviser to the Fund pursuant to a subadvisory agreement with SunAmerica (the
"Subadvisory Agreement"). SunAmerica may terminate any agreement with an
Adviser without shareholder approval. Moreover, SunAmerica has received an
exemptive order from the Securities and Exchange Commission that permits
SunAmerica, subject to certain conditions, to enter into agreements relating
to the Fund with Advisers approved by the Board of Directors without
obtaining shareholder approval. The exemptive order also permits SunAmerica,
subject to the approval of the Board but without shareholder approval, to
employ new Advisers for new or existing Funds, change the terms of particular
agreements with Advisers or continue the employment of existing Advisers
after events that would otherwise cause an automatic termination of a
subadvisory agreement. Shareholders will be notified of any Adviser changes.
The Adviser is independent of SunAmerica and discharges its
responsibilities subject to the policies of the Directors and the oversight
and supervision of SunAmerica, which pays the Adviser's fees. Morgan is a
wholly-owned subsidiary of J.P Morgan & Co. Incorporated, a bank holding
company organized under the laws of Delaware.
The Adviser is paid monthly by SunAmerica a fee equal to 0.45% of the
first $200 million, 0.40% of the next $200 million and 0.35% thereafter of
the average daily net assets of the Fund. The Adviser has agreed to waive fees
such that the fee paid to the Adviser through December 31, 1999 will equal 0.40%
of the first $200 million.
The Subadvisory Agreement will continue in effect for a period of two
years from the date of its execution, unless terminated sooner. Thereafter, it
may be renewed from year to year, so long as continuance is specifically
approved at least annually in accordance with the requirements of the
1940 Act. The Subadvisory Agreement provides that it will terminate
in the event of an assignment (as defined in the 1940 Act) or upon
termination of the Management Agreement. Under the terms
B-26
<PAGE>
of the Subadvisory Agreement, the Adviser is not 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 misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties.
PERSONAL TRADING. The Corporation and SunAmerica have adopted a written
Code of Ethics (the "Code"), which prescribes general rules of conduct and sets
forth guidelines with respect to personal securities trading by "Access Persons"
thereof. An Access Person as defined in the Code is an individual who is a
trustee, director, officer, general partner or advisory person of the
Corporation or SunAmerica. The guidelines on personal securities trading
include: (i) securities being considered for purchase or sale, or purchased or
sold, by any investment company advised by SunAmerica, (ii) initial public
offerings, (iii) private placements, (iv) blackout periods, (v) short-term
trading profits, (vi) gifts, and (vii) services as a director. These guidelines
are substantially similar to those contained in the Report of the Advisory Group
on Personal Investing issued by the Investment Company Institute's Advisory
Panel. SunAmerica reports to the Board of Directors on a quarterly basis, as to
whether there were any violations of the Code by Access Persons of the
Corporation or SunAmerica during the quarter.
The Adviser has adopted a written Code of Ethics, and has represented that
the provisions of such Code of Ethics are substantially similar to those in the
Code. Further, the Adviser reports to SunAmerica on a quarterly basis, as to
whether there were any Code of Ethics violations by employees thereof who may be
deemed Access Persons of the Fund insofar as such violations related to the
Fund. In turn, SunAmerica reports to the Board of Directors as to whether there
were any violations of the Code by Access Persons of the Fund or SunAmerica.
THE DISTRIBUTOR. The Corporation, on behalf of each class of the Fund, has
entered into a distribution agreement (the "Distribution Agreement") with
SunAmerica Capital Services, Inc. ("SACS" or the "Distributor"), a registered
broker-dealer and an indirect wholly owned subsidiary of SunAmerica Inc., to act
as the principal underwriter of the shares of the Fund. The address of the
Distributor is The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204.
The Distribution Agreement provides that the Distributor has the exclusive right
to distribute shares of the Fund through its registered representatives and
authorized broker-dealers. The Distribution Agreement also provides that the
Distributor will pay the promotional expenses, including the incremental cost of
printing Prospectuses, annual reports and other periodic reports respecting the
Fund, for distribution to persons who are not shareholders of the Fund and the
costs of preparing and distributing any other supplemental sales literature.
However, certain promotional expenses may be borne by the Fund (see
"Distribution Plans" below).
Continuance of the Distribution Agreement with respect to the Fund is
subject to annual approval by vote of the Directors, including a majority of the
Directors who are not "interested persons" of the Corporation. The Corporation
and the Distributor each has the right to terminate the Distribution Agreement
on 60 days' written notice, without penalty. The Distribution Agreement will
terminate automatically in the event of its assignment as defined in the
1940 Act and the rules thereunder.
B-27
<PAGE>
The Distributor may, from time to time, pay additional commissions or
promotional incentives to brokers, dealers or other financial services firms
that sell shares of the Fund. In some instances, such additional commissions,
fees or other incentives may be offered only to certain firms, including Royal
Alliance Associates, Inc., SunAmerica Securities, Inc., Keogler Morgan &
Company, Financial Service Corporation and Advantage Capital Corporation,
affiliates of the Distributor, that sell or are expected to sell during
specified time periods certain minimum amounts of shares of the Fund, or of
other funds underwritten by the Distributor. In addition, the terms and
conditions of any given promotional incentive may differ from firm to firm.
Such differences will, nevertheless, be fair and equitable, and based on such
factors as size, geographic location, or other reasonable determinants, and will
in no way affect the amount paid to any investor.
DISTRIBUTION PLANS. Rule 12b-1 under the 1940 Act permits an investment
company directly or indirectly to pay expenses associated with the distribution
of its shares in accordance with a plan adopted by the investment company's
board of directors. Pursuant to such rule, the Fund has adopted Distribution
Plans for Class A, Class B and Class II shares (hereinafter referred to as the
"Class A Plan," the "Class B Plan" and the "Class II Plan" and collectively as
the "Distribution Plans").
The sales charge and distribution fees of a particular class will not be
used to subsidize the sale of shares of any other class. Reference is made to
"Shareholder Account Information" in the Prospectus for certain information with
respect to the Distribution Plans.
Under the Class A Plan, the Distributor may receive payments from the Fund
at an annual rate of up to 0.10% of average daily net assets of the Fund's Class
A shares to compensate the Distributor and certain securities firms for
providing sales and promotional activities for distributing that class of
shares. Under the Class B and Class II Plans, the Distributor may receive
payments from the Fund at the annual rate of up to 0.75% of the average daily
net assets of the Fund's Class B or Class II shares to compensate the
Distributor and certain securities firms for providing sales and promotional
activities for distributing that class of shares. The distribution costs for
which the Distributor may be reimbursed out of such distribution fees include
fees paid to broker-dealers that have sold Fund shares, commissions and other
expenses such as sales literature, prospectus printing and distribution and
compensation to wholesalers.
The Distribution Plans provide that each class of shares of the Fund may
also pay the Distributor an account maintenance and service fee of up to 0.25%
of the aggregate average daily net assets of such class of shares for payments
to broker-dealers for providing continuing account maintenance. In this regard,
some payments are used to compensate broker-dealers with trail commissions or
account maintenance and service fees in an amount up to 0.25% per year of the
assets maintained in the Fund by their customers.
It is possible that in any given year the amount paid to the Distributor
under any of the Distribution Plans will exceed the Distributor's distribution
costs as described above.
Continuance of the Distribution Plans with respect to the Fund is subject
to annual approval by vote of the Directors, including a majority of the
disinterested Directors. A Distribution Plan may not be amended to increase
materially the amount authorized to be spent thereunder with respect to
B-28
<PAGE>
a class of shares of the Fund, without approval of the shareholders of the
affected class of shares of the Fund. In addition, all material amendments
to the Distribution Plans must be approved by the Directors in the manner
described above. A Distribution Plan may be terminated at any time without
payment of any penalty by vote of a majority of the disinterested directors
or by vote of a majority of the outstanding voting securities (as defined in
the 1940 Act) of the affected class of shares of the Fund. So long as the
Distribution Plans are in effect, the election and nomination of the
Independent Directors of the Corporation shall be committed to the discretion
of the disinterested Directors. In the Directors' quarterly review of the
Distribution Plans, they will consider the continued appropriateness of, and
the level of, compensation provided in the Distribution Plans. In their
consideration of the Distribution Plans with respect to the Fund, the
Directors must consider all factors they deem relevant, including information
as to the benefits of the Fund and the shareholders of the relevant class of
the Fund.
THE ADMINISTRATOR. The Corporation has entered into a Service Agreement,
under the terms of which SunAmerica Fund Services, Inc. ("SAFS"), an indirect
wholly owned subsidiary of SunAmerica Inc., acts as a servicing agent assisting
State Street Bank and Trust Company ("State Street") in connection with certain
services offered to the shareholders of the Fund. Under the terms of
the Service Agreement, SAFS may receive reimbursement of its costs in providing
such shareholder services. SAFS is located at The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204.
Pursuant to the Service Agreement, as compensation for services rendered,
SAFS receives a fee from the Fund, computed and payable monthly based upon an
annual rate of 0.22% of average daily net assets. This fee represents the full
cost of providing shareholder and transfer agency services to the Corporation.
From this fee, SAFS pays a fee to State Street, and its affiliate, National
Financial Data Services ("NFDS" and with State Street, the "Transfer Agent")
(other than out-of-pocket charges of the Transfer Agent which are paid by the
Corporation). For further information regarding the Transfer Agent, see the
section entitled "Additional Information" below.
The Service Agreement dated ____________, 1999 continues in effect from
year to year provided that such continuance is approved annually by vote of a
majority of the Directors including a majority of the disinterested Directors.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund, selection of broker-dealers and negotiation of commission rates.
Purchases and sales of securities on a securities exchange are effected through
broker-dealers who charge a negotiated commission for their services. Orders may
be directed to any broker-dealer including, to the extent and in the manner
permitted by applicable law, an affiliated brokerage subsidiary of SunAmerica or
the Adviser.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission (although the price of the security usually includes a profit to the
dealer). In underwritten offerings, securities are purchased
B-29
<PAGE>
at a fixed price that includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain money market instruments may be purchased directly from an issuer, in
which case no commissions or discounts are paid.
The Adviser's primary consideration in effecting a security transaction is
to obtain the best net price and the most favorable execution of the order.
However, the Adviser may select broker-dealers that provide it with research
services and may cause the Fund to pay such broker-dealers commissions that
exceed those that other broker-dealers may have charged, if in its view the
commissions are reasonable in relation to the value of the brokerage and/or
research services provided by the broker-dealer. Certain research services
furnished by brokers may be useful to the Adviser with clients other than the
Corporation. No specific value can be determined for research services
furnished without cost to the Adviser by a broker. The Adviser is of the
opinion that because the material must be analyzed and reviewed by its staff,
its receipt does not tend to reduce expenses, but may be beneficial in
supplementing the Adviser's research and analysis. Therefore, it may tend to
benefit the Fund by improving the quality of the Adviser's investment advice.
The investment advisory fee paid by the Fund is not reduced because the Adviser
receives such services. When making purchases of underwritten issues with fixed
underwriting fees, the Adviser may designate the use of broker-dealers who have
agreed to provide the Adviser with certain statistical, research and other
information.
Subject to applicable law and regulations, consideration may also be given
to the willingness of particular brokers to sell shares of the Fund as a factor
in the selection of brokers for transactions effected on behalf of the Fund,
subject to the requirement of best price and execution.
The Adviser may effect portfolio transactions through an affiliated
broker-dealer, acting as an agent and not as principal, in accordance with Rule
17e-1 under the 1940 Act and other applicable securities laws.
Although the objectives of other accounts or investment companies that the
Adviser manages may differ from those of the Fund, it is possible that, at
times, identical securities will be acceptable for purchase by the Fund and one
or more other accounts or investment companies that the Adviser manages.
However, the position of each account or company in the securities of the same
issue may vary with the length of the time that each account or company may
choose to hold its investment in those securities. The timing and amount of
purchase by each account and company will also be determined by its cash
position. If the purchase or sale of a security is consistent with the
investment policies of the Fund and one or more of these other accounts or
companies is considered at or about the same time, transactions in such
securities will be allocated in a manner deemed equitable by the Adviser. The
Adviser may combine such transactions, in accordance with applicable laws and
regulations, where the size of the transaction would enable it to negotiate a
better price or reduced commission. However, simultaneous transactions could
adversely affect the ability of the Fund to obtain or dispose of the full amount
of a security that it seeks to purchase or sell, or the price at which such
security can be purchased or sold.
B-30
<PAGE>
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES
Upon making an investment in shares of the Fund, an open account will be
established under which shares of the Fund and additional shares acquired
through reinvestment of dividends and distributions will be held for each
shareholder's account by the Transfer Agent. Shareholders will not be issued
certificates for their shares unless they specifically so request in writing but
no certificate is issued for fractional shares. Shareholders receive regular
statements from the Transfer Agent that report each transaction affecting their
accounts. Further information may be obtained by calling Shareholder/Dealer
Services at (800) 858-8850.
Shareholders who have met the Fund's minimum initial investment may elect
to have periodic purchases made through a dollar cost averaging program. At the
shareholder's election, such purchases may be made from their bank checking or
savings account on a monthly, quarterly, semi-annual or annual basis. Purchases
can be made via electronic funds transfer through the Automated Clearing House
or by physical draft check. Purchases made via physical draft check require an
authorization card to be filed with the shareholder's bank.
Shares of the Fund are sold at the respective net asset value next
determined after receipt of a purchase order, plus a sales charge, which, at the
election of the investor, may be imposed (i) at the time of purchase (Class A
shares), (ii) on a deferred basis (Class B and certain Class A shares), or
(iii) may contain certain elements of a sales charge that is imposed at the time
of purchase and that is deferred (Class II shares).
WAIVER OF CDSC. As discussed under "Shareholder Account Information" in
the Prospectus, CDSCs may be waived on redemptions of Class B and Class II
shares under certain circumstances. The conditions set forth below are
applicable with respect to the following situations with the proper
documentation:
DEATH. CDSCs may be waived on redemptions within one year following the
death (i) of the sole shareholder on an individual account, (ii) of a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii) of
the beneficiary of a Uniform Gifts to Minors Act, Uniform Transfers to Minors
Act or other custodial account. The CDSC waiver is also applicable in the
case where the shareholder account is registered as community property. If,
upon the occurrence of one of the foregoing, the account is transferred to an
account registered in the name of the deceased's estate, the CDSC will be
waived on any redemption from the estate account occurring within one year of
the death. If the Class B or Class II shares are not redeemed within one
year of the death, they will remain Class B or Class II shares and be subject
to the applicable CDSC, when redeemed.
DISABILITY. CDSCs may be waived on redemptions occurring within one year
after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of
the Code). To be eligible for such waiver, (i) the disability must arise after
the purchase of shares and (ii) the disabled shareholder must have been under
age 65 at the time of the initial determination of disability. If the account
is transferred to a new registration and then a redemption is requested, the
applicable CDSC will be charged.
B-31
<PAGE>
PURCHASES THROUGH THE DISTRIBUTOR. An investor may purchase shares of the Fund
through dealers that have entered into selected dealer agreements with the
Distributor. An investor's dealer who has entered into a distribution
arrangement with the Distributor is expected to forward purchase orders and
payment promptly to the Fund. Orders received by the Distributor before the
Fund's close of business will be executed at the offering price determined at
the close of regular trading on the New York Stock Exchange ("NYSE") that day.
Orders received by the Distributor after the Fund's close of business will be
executed at the offering price determined after the close of regular trading of
the NYSE on the next trading day. The Distributor reserves the right to cancel
any purchase order for which payment has not been received by the fifth business
day following the investment. The Fund will not be responsible for delays
caused by dealers.
PURCHASE BY CHECK. Checks should be made payable to the Fund or to
"SunAmerica Funds." If the payment is for a retirement plan account for which
SunAmerica serves as fiduciary, please note on the check that payment is for
such an account. In the case of a new account, purchase orders by check must be
submitted directly by mail to SunAmerica Fund Services, Inc., Mutual Fund
Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204, together with payment for the purchase price of such shares and a
completed New Account Application. Payment for subsequent purchases should be
mailed to SunAmerica Fund Services, Inc., c/o NFDS, P.O. Box 419373, Kansas
City, Missouri 64141-6373 and the shareholder's Fund account number should
appear on the check. For fiduciary retirement plan accounts, both initial and
subsequent purchases should be mailed to SunAmerica Fund Services, Inc., Mutual
Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204. Certified checks are not necessary but checks are accepted subject
to collection at full face value in United States funds and must be drawn on a
bank located in the United States. Upon receipt of the completed New Account
Application and payment check, the Transfer Agent will purchase full and
fractional shares of the Fund at the net asset value next computed after the
check is received, plus the applicable sales charge. Subsequent purchases of
shares of the Fund may be purchased directly through the Transfer Agent. SAFS
reserves the right to reject any check made payable other than in the manner
indicated above. Under certain circumstances, the Fund will accept a
multi-party check (E.G., a check made payable to the shareholder by another
party and then endorsed by the shareholder to the Fund in payment for the
purchase of shares); however, the processing of such a check may be subject to a
delay. The Fund does not verify the authenticity of the endorsement of such
multi-party check, and acceptance of the check by the Fund should not be
considered verification thereof. Neither the Fund nor its affiliates will be
held liable for any losses incurred as a result of a fraudulent endorsement.
There are restrictions on the redemption of shares purchased by check for which
funds are being collected.
PURCHASE THROUGH SAFS. SAFS will effect a purchase order on behalf of a
customer who has an investment account upon confirmation of a verified credit
balance at least equal to the amount of the purchase order (subject to the
minimum $500 investment requirement for wire orders). If such order is received
at or prior to the Fund's close of business, the purchase of shares of a Fund
will be effected on that day. If the order is received after the Fund's close
of business, the order will be effected on the next business day.
B-32
<PAGE>
PURCHASE BY FEDERAL FUNDS WIRE. An investor may make purchases by having
his or her bank wire federal funds to the Corporation's Transfer Agent. Federal
funds purchase orders will be accepted only on a day on which the Corporation
and the Transfer Agent are open for business. In order to insure prompt receipt
of a federal funds wire, it is important that these steps be followed:
(1) You must have an existing SunAmerica Fund Account before wiring funds.
To establish an account, complete the New Account Application and send
it via facsimile to SunAmerica Fund Services, Inc. at: (212) 551-5585.
(2) Call SunAmerica Fund Services' Shareholder/Dealer Services, toll free
at (800) 858-8850, extension 5125 to obtain your new account number.
(3) Instruct the bank to wire the specified amount to the Transfer Agent:
State Street Bank & Trust Company, Boston, MA, ABA# 0110-00028; DDA#
99029712, Tax Managed Equity Fund [Class __] (include shareholder name
and account number).
WAIVER OF SALES CHARGES WITH RESPECT TO CERTAIN PURCHASES OF CLASS A
SHARES. To the extent that sales are made for personal investment purposes,
the sales charge is waived as to Class A shares purchased by current or
retired officers, directors, and other full-time employees of SunAmerica and
its affiliates, as well as members of the selling group and family members of
the foregoing. In addition, the sales charge is waived with respect to
shares purchased by certain qualified retirement plans or employee benefit
plans (other than IRAs), which are sponsored or administered by SunAmerica or
an affiliate thereof. Such plans may include certain employee benefit plans
qualified under Sections 401 or 457 of the Code, or employee benefit plans
created pursuant to Section 403(b) of the Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Code (collectively, the
"Plans"). A Plan will qualify for purchases at net asset value provided that
(a) the initial amount invested in the Fund (or in combination with the
shares of other SunAmerica Mutual Funds) is at least $1,000,000, (b) the
sponsor signs a $1,000,000 Letter of Intent, (c) such shares are purchased by
an employer-sponsored plan with at least 100 eligible employees, or (d) the
purchases are by trustees or other fiduciaries for certain employer-sponsored
plans, the trustee, fiduciary or administrator of which has an agreement with
the Distributor with respect to such purchases and all such transactions for
the plan are executed through a single omnibus account. Further, the sales
charge is waived with respect to shares purchased by "wrap accounts" for the
benefit of clients of broker-dealers, financial institutions or financial
planners or registered investment advisers adhering to the following
standards established by the Distributor: (i) the broker-dealer, financial
institution or financial planner charges its client(s) an advisory fee based
on the assets under management on an annual basis, and (ii) such
broker-dealer, financial institution or financial planner does not advertise
that shares of the Fund may be purchased by clients at net asset value.
Shares purchased under this waiver may not be resold except to the Fund.
Shares are offered at net asset value to the foregoing persons because of
anticipated economies in sales effort and sales related expenses. Reductions
in sales charges apply to purchases or shares by a "single person" including
an individual; members of a family unit comprising husband, wife and minor
children; or a trustee or other fiduciary purchasing for a single fiduciary
account. Complete details concerning how an investor may purchase shares at
reduced sales charges may be obtained by contacting the Distributor.
B-33
<PAGE>
REDUCED SALES CHARGES (CLASS A SHARES ONLY). As discussed under
"Shareholder Account Information" in the Prospectus, investors in Class A shares
of a Fund may be entitled to reduced sales charges pursuant to the following
special purchase plans made available by the Corporation.
COMBINED PURCHASE PRIVILEGE. The following persons may qualify for the
sales charge reductions or eliminations by combining purchases of Fund shares
into a single transaction:
(i) an individual, or a "company" as defined in Section 2(a)(8) of the
1940 Act (which includes corporations that are corporate affiliates of each
other);
(ii) an individual, his or her spouse and their minor children, purchasing
for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust estate or
single fiduciary account (including a pension, profit-sharing, or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code);
(iv) tax-exempt organizations qualifying under Section 501(c)(3) of the
Code (not including 403(b) plans);
(v) employee benefit plans of a single employer or of affiliated
employers, other than 403(b) plans; and
(vi) group purchases as described below.
A combined purchase currently may also include shares of other funds in the
SunAmerica Mutual Funds (other than money market funds) purchased at the same
time through a single investment dealer, if the dealer places the order for such
shares directly with the Distributor.
RIGHTS OF ACCUMULATION. A purchaser of Fund shares may qualify for a
reduced sales charge by combining a current purchase (or combined purchases as
described above) with shares previously purchased and still owned; provided the
cumulative value of such shares (valued at cost or current net asset value,
whichever is higher), amounts to $50,000 or more. In determining the shares
previously purchased, the calculation will include, in addition to other Class A
shares of the particular fund that were previously purchased, shares of the
other classes of the same fund, as well as shares of any class of any other fund
or of any of the other funds advised by SunAmerica, as long as such shares were
sold with a sales charge or acquired in exchange for shares purchased with such
a sales charge.
The shareholder's dealer, if any, or the shareholder, must notify the
Distributor at the time an order is placed of the applicability of the reduced
charge under the Right of Accumulation. Such notification must be in writing by
the dealer or shareholder when such an order is placed by mail. The reduced
sales charge will not be granted if: (a) such information is not furnished at
the time of the order; or (b) a review of the Distributor's or the Transfer
Agent's records fails to confirm the investor's represented holdings.
B-34
<PAGE>
LETTER OF INTENT. A reduction of sales charges is also available to an
investor who, pursuant to a written Letter of Intent set forth in the New
Account Application in the Prospectus, establishes a total investment goal in
Class A shares of the Fund to be achieved through any number of investments over
a thirteen-month period, of $50,000 or more. Each investment in the Fund made
during the period will be subject to a reduced sales charge applicable to the
goal amount. The initial purchase must be at least 5% of the stated investment
goal and shares totaling 5% of the dollar amount of the Letter of Intent will be
held in escrow by the Transfer Agent, in the name of the investor. Shares of
any class of shares of the Fund, or of other funds advised by SunAmerica, that
impose a sales charge at the time of purchase, which the investor intends to
purchase or has previously purchased during a 30-day period prior to the date of
execution of the Letter of Intent and still owns, may also be included in
determining the applicable reduction; provided, the dealer or shareholder
notifies the Distributor of such prior purchase(s).
The Letter of Intent does not obligate the investor to purchase, nor the
Corporation to sell, the indicated amounts of the investment goal. In the event
the investment goal is not achieved within the thirteen-month period, the
investor is required to pay the difference between the sales charge otherwise
applicable to the purchases made during this period and sales charges actually
paid. Such payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the Letter of Intent to liquidate a sufficient
number of escrowed shares to obtain such difference. If the goal is exceeded
and purchases pass the next sales charge break-point, the sales charge on the
entire amount of the purchase that results in passing that break-point, and on
subsequent purchases, will be subject to a further reduced sales charge in the
same manner as set forth above under "Rights of Accumulation," but there will be
no retroactive reduction of sales charges on previous purchases. At any time
while a Letter of Intent is in effect, a shareholder may, by written notice to
the Distributor, increase the amount of the stated goal. In that event, shares
of the Fund purchased during the previous 90-day period and still owned by the
shareholder will be included in determining the applicable sales charge. The 5%
escrow and the minimum purchase requirement will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to this
purchase plan should carefully read such Letter of Intent.
REDUCED SALES CHARGE FOR GROUP PURCHASES. Members of qualified groups may
purchase Class A shares of the Fund under the combined purchase privilege as
described above.
To receive a rate based on combined purchases, group members must purchase
Class A shares of the Fund through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial purchase to
the Distributor, together with payment and completed New Account Application.
After the initial purchase, a member may send funds for the purchase of Class A
shares directly to the Transfer Agent. Purchases of the Fund's shares are made
at the public offering price based on the net asset value next determined after
the Distributor or the Transfer Agent receives payment for the Class A shares.
The minimum investment requirements described above apply to purchases by any
group member.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association, or other
organized groups of persons (the members of which may include other qualified
groups) provided that: (i) the group has at least 25 members
B-35
<PAGE>
of which at least ten members participate in the initial purchase; (ii) the
group has been in existence for at least six months; (iii) the group has some
purpose in addition to the purchase of investment company shares at a reduced
sales charge; (iv) the group's sole organizational nexus or connection is not
that the members are credit card customers of a bank or broker-dealer, clients
of an investment adviser or security holders of a company; (v) the group agrees
to provide to its designated investment dealer at least annually access to the
group's membership by means of written communication or direct presentation to
the membership at a meeting; (vi) the group or its investment dealer will
provide annual certification, in form satisfactory to the Transfer Agent, that
the group then has at least 25 members and that at least ten members
participated in group purchases during the immediately preceding 12 calendar
months; and (vii) the group or its investment dealer will provide periodic
certification, in form satisfactory to the Transfer Agent, as to the eligibility
of the purchasing members of the group.
Members of a qualified group include: (i) any group that meets the
requirements stated above and which is a constituent member of a qualified
group; (ii) any individual purchasing for his or her own account who is carried
on the records of the group or on the records of any constituent member of the
group as being a good standing employee, partner, member or person of like
status of the group or constituent member; or (iii) any fiduciary purchasing
shares for the account of a member of a qualified group or a member's
beneficiary. For example, a qualified group could consist of a trade
association, which would have as its members individuals, sole proprietors,
partnerships and corporations. The members of the group would then consist of
the individuals, the sole proprietors and their employees, the members of the
partnership and their employees, and the corporations and their employees, as
well as the trustees of employee benefit trusts acquiring the Fund's shares for
the benefit of any of the foregoing.
Interested groups should contact their investment dealer or the
Distributor. The Corporation reserves the right to revise the terms of or to
suspend or discontinue group sales with respect to shares of the Fund at any
time.
NET ASSET VALUE TRANSFER PROGRAM. Investors may purchase Class A shares of
the Fund at net asset value to the extent that the investment represents the
proceeds from a redemption of a non-SunAmerica mutual fund in which the investor
either (a) paid a front-end sales load or (b) was subject to, or paid a CDSC on
the redemption proceeds. Nevertheless, the Distributor will pay a commission to
any dealer who initiates or is responsible for such an investment, in the amount
of .50% of the amount invested, subject, however, to forfeiture in the event of
a redemption during the first year from the date of purchase. In addition, it
is essential that a NAV Transfer Program Form accompany the New Account
Application to indicate that the investment is intended to participate in the
Net Asset Value Transfer Program (formerly, Exchange Program for Investment
Company Shares). This program may be revised or terminated without notice by
the Distributor. For current information, contact Shareholder/Dealer Services
at (800) 858-8850.
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<PAGE>
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
Reference is made to "Shareholder Account Information" in the Prospectus
for certain information as to the redemption of Fund shares.
If the Directors determine that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Corporation, having filed with the SEC a notification of
election pursuant to Rule 18f-1 on behalf of the Fund, may pay the redemption
price in whole, or in part, by a distribution in kind of securities from the
Fund in lieu of cash. In conformity with applicable rules of the SEC, the Funds
are committed to pay in cash all requests for redemption, by any shareholder of
record, limited in amount with respect to each shareholder during any 90-day
period to the lesser of (i) $250,000, or (ii) 1% of the net asset value of the
Fund at the beginning of such period. If shares are redeemed in kind, the
redeeming shareholder would incur brokerage costs in converting the assets into
cash. The method of valuing portfolio securities is described below in the
section entitled "Determination of Net Asset Value," and such valuation will be
made as of the same time the redemption price is determined.
The Distributor is authorized, as agent for the Fund, to offer to
repurchase shares that are presented by telephone to the Distributor by
investment dealers. Orders received by dealers must be at least $500. The
repurchase price is the net asset value per share of the applicable class of
shares of the Fund next-determined after the repurchase order is received, less
any applicable CDSC. Repurchase orders received by the Distributor after the
Fund's close of business will be priced based on the next business day's close.
Dealers may charge for their services in connection with the repurchase, but
neither the Fund nor the Distributor imposes any such charge. The offer to
repurchase may be suspended at any time.
EXCHANGE PRIVILEGE
Shareholders in the Fund may exchange their shares for the same class of
shares of other funds in the SunAmerica Mutual Funds that offer such class at
the respective net asset value per share. Before making an exchange, a
shareholder should obtain and review the prospectus of the fund whose shares are
being acquired. All exchanges are subject to applicable minimum initial or
subsequent investment requirements. Notwithstanding the foregoing, shareholders
may elect to make periodic exchanges on a monthly, quarterly, semi-annual and
annual basis through the Systematic Exchange Program. Through this program, the
minimum exchange amount is $25 and there is no fee for exchanges made. All
exchanges can be effected only if the shares to be acquired are qualified for
sale in the state in which the shareholder resides. Exchanges of shares
generally will constitute a taxable transaction except for IRAs, Keogh Plans and
other qualified or tax-exempt accounts. The exchange privilege may be terminated
or modified upon 60 days' written notice. Further information about the exchange
privilege may be obtained by calling Shareholder/Dealer Services at (800)
858-8850.
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<PAGE>
If a shareholder acquires Class A shares through an exchange from another
SunAmerica Mutual Fund where the original purchase of such fund's Class A shares
was not subject to an initial sales charge because the purchase was in excess of
$1 million, such shareholder will remain subject to the 1% CDSC, if any,
applicable to such redemptions. In such event, the period for which the original
shares were held prior to the exchange will be "tacked" with the holding period
of the shares acquired in the exchange for purposes of determining whether the
1% CDSC is applicable upon a redemption of any of such shares.
A shareholder who acquires Class B or Class II shares through an exchange
from another SunAmerica Mutual Fund will retain liability for any deferred sales
charge outstanding on the date of the exchange. In such event, the period for
which the original shares were held prior to the exchange will be "tacked" with
the holding period of the shares acquired in the exchange for purposes of
determining what, if any, CDSC is applicable upon a redemption of any of such
shares and the timing of conversion of Class B shares to Class A.
Because excessive trading (including short-term "market timing" trading)
can hurt the Fund's performance, the Fund may refuse any exchange sell order (1)
if it appears to be a market timing transaction involving a significant portion
of the Fund's assets or (2) from any shareholder account if previous use of the
exchange privilege is considered excessive. Accounts under common ownership or
control, including, but not limited to, those with the same taxpayer
identification number and those administered so as to redeem or purchase shares
based upon certain predetermined market indications, will be considered one
account for this purpose.
In addition, the Fund reserves the right to refuse any exchange purchase
order if, in the judgment of SunAmerica, the Fund would be unable to invest
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. A shareholder's purchase exchange
may be restricted or refused if the Fund receives or anticipates simultaneous
orders affecting significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincide with a "market timing" strategy may be
disruptive to the Fund and may therefore be refused.
DETERMINATION OF NET ASSET VALUE
The Fund is open for business on any day the NYSE is open for regular
trading. Shares are valued each day as of the close of regular trading on the
NYSE (generally, 4:00 p.m., Eastern time). The Fund calculates the net asset
value of each class of its shares separately by dividing the total value of each
class's net assets by the shares outstanding of such class.
Stocks are stated at value based upon closing sales prices reported on
recognized securities exchanges or, for listed securities having no sales
reported and for unlisted securities, upon last reported bid prices.
Non-convertible bonds, debentures, other long-term debt securities and
short-term securities with original or remaining maturities in excess of 60
days, are normally valued at prices obtained for the day of valuation from a
bond pricing service of a major dealer in bonds, when such prices are available;
however, in circumstances in which the Adviser deems it appropriate to
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<PAGE>
do so, an over-the-counter or exchange quotation at the mean of representative
bid or asked prices may be used. Securities traded primarily on securities
exchanges outside the United States are valued at the last sale price on such
exchanges on the day of valuation, or if there is no sale on the day of
valuation, at the last-reported bid price. If a security's price is available
from more than one foreign exchange, the Fund uses the exchange that is the
primary market for the security. Short-term securities with 60 days or less to
maturity are amortized to maturity based on their cost to the 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. Options
traded on national securities exchanges are valued as of the close of the
exchange on which they are traded. Futures and options traded on commodities
exchanges are valued at their last sale price as of the close of such exchange.
Other securities are valued on the basis of last sale or bid price (if a last
sale price is not available) in what is, in the opinion of the Adviser, the
broadest and most representative market, which may be either a securities
exchange or the over-the-counter market. Where quotations are not readily
available, securities are valued at fair value as determined in good faith in
accordance with procedures adopted by the Board of Directors. The fair value of
all other assets is added to the value of securities to arrive at the Fund's
total assets.
The Fund's liabilities, including proper accruals of expense items, are
deducted from total assets.
PERFORMANCE DATA
The Fund may advertise performance data that reflects various measures of
total return. An explanation of the data presented and the methods of
computation that will be used are as follows.
The Fund's performance may be compared to the historical returns of various
investments, performance indices of those investments or economic indicators,
including, but not limited to, stocks, bonds, certificates of deposit, money
market funds and U.S. Treasury Bills. Certain of these alternative investments
may offer fixed rates of return and guaranteed principal and may be insured.
Average annual total return is determined separately for Class A, Class B
and Class II shares in accordance with a formula specified by the SEC. Average
annual total return is computed by finding the average annual compounded rates
of return for the 1-, 5-, and 10-year periods or for the lesser included periods
of effectiveness. The formula used is as follows:
n
P(1 + T) = ERV
P = a hypothetical initial purchase payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5-, or 10- year periods at
the end of the 1-, 5-, or 10-year periods (or fractional
portion thereof).
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The above formula assumes that:
1. The maximum sales load (I.E., either the front-end sales load in the
case of the Class A shares or Class II shares or the deferred sales
load that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of the Class
B or Class II shares) is deducted from the initial $1,000 purchase
payment;
2. All dividends and distributions are reinvested at net asset value; and
3. Complete redemption occurs at the end of the 1-, 5-, or 10- year
periods or fractional portion thereof with all nonrecurring charges
deducted accordingly.
The Fund may advertise cumulative, rather than average return, for each
class of its shares for periods of time other than the 1-, 5-, and 10-year
periods or fractions thereof, as discussed above. Such return data will be
computed in the same manner as that of average annual total return, except that
the actual cumulative return will be computed.
COMPARISONS
The Fund may compare its total return to similar measures as calculated by
various publications, services, indices, or averages. Such comparisons are made
to assist in evaluating an investment in the Fund. The following references may
be used:
a) Dow Jones Composite Average or its component averages -- an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks (Dow Jones Utilities Average),
and 20 transportation company stocks (Dow Jones Transportation Average).
Comparisons of performance assume reinvestment of dividends.
b) S&P 500 Composite Stock Price Index or its component indices -- an
unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40
utilities stocks, and 20 transportation stocks. Comparisons of performance
assume reinvestment of dividends.
c) Standard & Poor's 100 Stock Index -- an unmanaged index based on the
prices of 100 blue chip stocks, including 92 industrials, one utility, two
transportation companies, and five financial institutions. The Standard &
Poor's 100 Stock Index is a smaller, more flexible index for options trading.
d) The NYSE composite or component indices -- unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the NYSE.
e) Wilshire 5000 Equity Index or its component indices -- represents the
return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
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f) Lipper: Mutual Fund Performance Analysis, Fixed Income Analysis, and
Mutual Fund Indices -- measures total return and average current yield for the
mutual fund industry. Ranks individual mutual fund performance over specified
time periods assuming reinvestment of all distributions, exclusive of sales
charges.
g) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.,
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
h) Mutual Fund Source Book, Principia, and other publications and
information services provided by Morningstar, Inc. -- analyzes price, risk and
total return for the mutual fund industry.
i) Financial publications: Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, Money, Pension and Investment Age,
United Mutual Fund Selector, and Wiesenberger Investment Companies Service, and
other publications containing financial analyses that rate mutual fund
performance over specified time periods.
j) Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics -- a statistical measure of periodic change in the
price of goods and services in major expenditure groups.
k) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates
- -- historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, treasury bills, and inflation.
l) Savings and Loan Historical Interest Rates as published in the U.S.
Savings & Loan League Fact Book.
m) Shearson-Lehman Municipal Bond Index and Government/Corporate Bond
Index -- unmanaged indices that track a basket of intermediate and long-term
bonds. Reflect total return and yield and assume dividend reinvestment.
n) Salomon GNMA Index published by Salomon Brothers Inc. -- Market value
of all outstanding 30-year GNMA Mortgage Pass-Through Securities that includes
single family and graduated payment mortgages.
o) Salomon Mortgage Pass-Through Index published by Salomon Brothers Inc.
- -- Market value of all outstanding agency mortgage pass-through securities that
includes 15- and 30-year FNMA, FHLMC and GNMA Securities.
p) Value Line Geometric Index -- broad based index made up of
approximately 1700 stocks each of which have an equal weighting.
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q) Morgan Stanley Capital International EAFE Index -- an arithmetic,
market value-weighted average of the performance of over 900 securities on the
stock exchanges of countries in Europe, Australia and the Far East.
r) Goldman Sachs 100 Convertible Bond Index -- currently includes 67 bonds
and 33 preferred stocks. The original list of names was generated by screening
for convertible issues of $100 million or more in market capitalization. The
index is priced monthly.
s) Salomon Brothers High Grade Corporate Bond Index -- consists of
publicly issued, non-convertible corporate bonds rated "AA" or "AAA." It is a
value-weighted, total return index, including approximately 800 issues.
t) Salomon Brothers Broad Investment Grade Bond Index -- is a
market-weighted index that contains approximately 4700 individually priced
investment grade corporate bonds rated "BBB" or better, U.S. Treasury/agency
issues and mortgage pass-through securities.
u) Salomon Brothers World Bond Index -- measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:
Australian Dollars Netherlands Guilders
Canadian Dollars Swiss Francs
European Currency Units UK Pound Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
v) J.P. Morgan Global Government Bond Index -- a total return, market
capitalization-weighted index, rebalanced monthly, consisting of the following
countries: Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan,
The Netherlands, Spain, Sweden, the United Kingdom, and the United States.
w) Shearson Lehman Long-Term Treasury Bond Index -- is comprised of all
bonds covered by the Shearson Lehman Hutton Treasury Bond Index with maturities
of 10 years or greater.
x) NASDAQ Industrial Index -- is comprised of more than 3,000 industrial
issues. It is a value-weighted index calculated on pure change only and does
not include income.
y) The MSCI Combined Far East Free ex Japan Index -- a market
capitalization weighted index comprised of stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Singapore and Thailand. Korea is included in this
index at 20% of its market capitalization.
z) First Boston High Yield Index -- generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
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<PAGE>
aa) Morgan Stanley Capital International World Index -- An arithmetic,
market value-weighted average of the performance of over 1,470 securities
listed on the stock exchanges of countries in Europe, Australia, the Far
East, Canada and the United States.
bb) Russell 3000 and 2000 Index -- represents the top 3,000 and the next
2,000 stocks traded on the NYSE, American Stock Exchange and National
Association of Securities Dealers Automated Quotations, by market
capitalizations.
cc) Russell Midcap Growth Index -- contains those Russell Midcap
securities with a greater-than-average growth orientation. The stocks are
also members of the Russell 1000 Growth Index, the securities in which tend
to exhibit higher price-to-book and price earnings rations, lower dividend
yields and higher forecasted growth values than the Value universe.
In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
figures. Specifically, the Fund may compare its performance to that of certain
indices that include securities with government guarantees. However, the Fund's
shares do not contain any such guarantees. In addition, there can be no
assurance that the Fund will continue its performance as compared to such other
standards.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Dividends from net investment income, if any, and
the excess of net realized long-term capital gains over net capital losses
("capital gain distributions"), if any, will be distributed to the registered
holders at least annually. With respect to capital gain distributions, the
Fund's policy is to offset any prior year capital loss carry forward against any
realized capital gains, and accordingly, no distribution of capital gains will
be made until gains have been realized in excess of any such loss carry forward.
Dividends and distributions will be paid in additional Fund shares based on
the net asset value at the Fund's close of business on the dividend date or,
unless the shareholder notifies the Fund at least five business days prior to
the payment date to receive such distributions in excess of $10 in cash.
TAXES. The Fund intends to qualify and elect to be treated as a regulated
investment company ("RIC") under the Code. As long as the Fund so qualifies,
the Fund (but not its shareholders) will not be subject to federal income tax on
the part of its net ordinary income and net realized capital gains that it
distributes to shareholders. The Fund intends to distribute substantially all
of such income.
In order to be qualified as a RIC, the Fund generally must, among other
things, (a) derive at least 90% of its gross income from dividends, interest,
proceeds from loans of stock or securities, or from the sale or other
disposition of stocks or securities and certain other related income; and (b)
diversify its holdings so that, at the end of each fiscal quarter, (i) 50% of
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the market value of the Fund's assets is represented by cash, government
securities, securities of other RICs and other securities limited, in respect of
any one issuer, to an amount no greater than 5% of the Fund's assets and not
greater than 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than government securities or the securities of other
regulated investment companies).
As a RIC, the Fund will not be subject to U.S. Federal income tax on its
income and capital gains that it distributes provided that it distributes to
shareholders at least 90% of its investment company taxable income for the
taxable year. The Fund intends to distribute sufficient income to meet this
qualification requirement.
Under the Code, amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To avoid the tax, the Fund must distribute during each calendar
year (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses for the 12-month period ending on October
31 of the calendar year, and (3) all ordinary income and net capital gains for
the previous years that were not distributed during such years. To avoid
application of the excise tax, the Fund intends to make distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the calendar year if declared by the Fund
in October, November or December of such year, payable to shareholders of record
on a date in such month and paid by the Fund during January of the following
year. Any such distributions paid during January of the following year will be
taxable to shareholders as of such December 31, rather than the date on which
the distributions are received.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income,
whether or not reinvested. The portion of such dividends received from the
Fund that will be eligible for the dividends received deduction for corporations
will be determined on the basis of the amount of the Fund's gross income,
exclusive of capital gains from the sales of stock or securities, which is
derived as dividends from domestic corporations, other than certain tax-exempt
corporations and certain real estate investment trusts, and will be designated
as such in a written notice to shareholders mailed not later than 60 days after
the end of each fiscal year.
Any net capital gains (I.E., the excess of net capital gains from the sale
of assets held for more than 12 months over net short-term capital losses, and
including such gains from certain transactions in futures and options)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals is 20% with respect to assets held for more than 12 months. The
maximum capital gains rate for corporate shareholders currently is the same as
the maximum tax rate for ordinary income.
Upon a sale or exchange of its shares, a shareholder will realize a taxable
gain or loss depending on its basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. In the case of an individual, any such capital gain will
be treated as short-term capital gain, taxable at the same rates as ordinary
income if the shares were held for not more
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than 12 months, and capital gain taxable at the maximum rate of 20%, if such
shares were held for more than 12 months. In the case of a corporation, any
such capital gain will be treated as long-term capital gain, taxable at the same
rates as ordinary income, if such shares were held for more than 12 months. Any
such loss will be treated as long-term capital loss if such shares were held for
more than 12 months. A loss recognized on the sale or exchange of shares held
for six months or less, however, will be treated as long-term capital loss to
the extent of any long-term capital gains distribution with respect to such
shares.
Generally, any loss realized on a sale or exchange of shares of the Fund
will be disallowed if other shares of the Fund are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61 day period
beginning 30 days before and ending 30 days after the date that the shares are
disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.
Under certain circumstances (such as the exercise of an exchange
privilege), the tax effect of sales load charges imposed on the purchase of
shares in a regulated investment company is deferred if the shareholder does not
hold the shares for at least 90 days.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries is not known. It is not anticipated
that the Fund will qualify to pass through to its shareholders the ability to
claim as a foreign tax credit their respective shares of foreign taxes paid by
the Fund.
Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time the Fund accrues interest or other receivables
or accrues expenses or other liabilities denominated in a foreign currency and
the time the Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly, gains or losses on
forward foreign currency exchange contracts, sale of currencies or dispositions
of debt securities denominated in a foreign currency attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the security and the date of disposition generally also are
treated as ordinary gain or loss. These gains, referred to under the Code as
"Section 988" gains or losses, increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to its
shareholders as ordinary income.
The Code includes special rules applicable to the listed non-equity
options, regulated futures contracts, and options on futures contracts that the
Fund may write, purchase or sell. Such options and contracts are classified as
Section 1256 contracts under the Code. The character of gain or loss resulting
from the sale, disposition, closing out, expiration or other termination of
Section 1256 contracts, except forward foreign currency exchange contracts, is
generally treated as long-term capital gain or loss to the extent of 60% thereof
and short-term capital gain or loss to the extent of 40% thereof ("60/40 gain or
loss"). Such contracts, when held by the Fund at the end of a fiscal year,
generally are required to be treated as sold at market value on the last day of
such fiscal year for Federal income tax
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<PAGE>
purposes ("marked-to-market"). Over-the-counter options are not classified as
Section 1256 contracts and are not subject to the marked-to-market rule or to
60/40 gain or loss treatment. Any gains or losses recognized by the Fund from
transactions in over-the-counter options generally constitute short-term capital
gains or losses. When call options written, or put options purchased, by the
Fund are exercised, the gain or loss realized on the sale of the underlying
securities may be either short-term or long-term, depending on the holding
period of the securities. In determining the amount of gain or loss, the sales
proceeds are reduced by the premium paid for the puts or increased by the
premium received for calls.
A substantial portion of the Fund's transactions in options, futures
contracts and options on futures contracts, particularly its hedging
transactions, may constitute "straddles" which are defined in the Code as
offsetting positions with respect to personal property. A straddle consisting
of a listed option, futures contract, or option on a futures contract and of
U.S. Government securities would constitute a "mixed straddle" under the Code.
The Code generally provides with respect to straddles (i) "loss deferral" rules
which may postpone recognition for tax purposes of losses from certain closing
purchase transactions or other dispositions of a position in the straddle to the
extent of unrealized gains in the offsetting position, (ii) "wash sale" rules
which may postpone recognition for tax purposes of losses where a position is
sold and a new offsetting position is acquired within a prescribed period, (iii)
"short sale" rules which may terminate the holding period of securities owned by
the Fund when offsetting positions are established and which may convert certain
losses from short-term to long-term, and (iv) "conversion transaction" rules
which recharacterize capital gains as ordinary income. The Code provides that
certain elections may be made for mixed straddles that can alter the character
of the capital gain or loss recognized upon disposition of positions which form
part of a straddle. Certain other elections also are provided in the Code; no
determination has been reached to make any of these elections.
Code Section 1259 requires the recognition of gain (but not loss) if the
Fund makes a "constructive sale" of an appreciated financial position (E.G.,
stock). The Fund generally will be considered to make a constructive sale of an
appreciated financial position if it sells the same or substantially identical
property short, enters into a futures or forward contract to deliver the same or
identical property short, or enters into other similar transactions.
The Fund may purchase debt securities (such as zero-coupon or pay-in-kind
securities) that contain original issue discount. Original issue discount that
accrues in a taxable year is treated as earned by the Fund and therefore is
subject to the distribution requirements of the Code. Because the original
issue discount earned by the Fund in a taxable year may not be represented by
cash income, the Fund may have to dispose of other securities and use the
proceeds to make distributions to shareholders.
The Fund may be required to backup withhold U.S. Federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide their correct taxpayer identification number or fail to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's U.S. Federal
income tax liability.
Foreign shareholders generally will be subject to a withholding tax at
the rate of 30% (or lower treaty rate) on any ordinary income dividends paid
by the Fund.
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The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect.
Shareholders are urged to consult their tax advisors regarding specific
questions as to Federal, state and local taxes. In addition, foreign investors
should consult with their own tax advisors regarding the particular tax
consequences to them of an investment in the Fund. Qualification as a regulated
investment company under the Code for tax purposes does not entail government
supervision of management and investment policies.
RETIREMENT PLANS
Shares of the Fund are eligible to be purchased in conjunction with various
types of qualified retirement plans. The summary below is only a brief
description of the Federal income tax laws for each plan and does not purport to
be complete. Further information or an application to invest in shares of the
Fund by establishing any of the retirement plans described below may be obtained
by calling Retirement Plans at (800) 858-8850. However, it is recommended that
a shareholder considering any retirement plan consult a tax adviser before
participating.
PENSION AND PROFIT-SHARING PLANS. Sections 401(a) and 401(k) of the Code
permit business employers and certain associations to establish pension and
profit sharing plans for employees. Shares of the Fund may be purchased by
those who would have been covered under the rules governing old H.R. 10 (Keogh)
Plans, as well as by corporate plans. Each business retirement plan provides
tax advantages for owners and participants. Contributions made by the employer
are tax-deductible, and participants do not pay taxes on contributions or
earnings until withdrawn.
TAX-SHELTERED CUSTODIAL ACCOUNTS. Section 403(b)(7) of the Code permits
public school employees and employees of certain types of charitable,
educational and scientific organizations specified in Section 501(c)(3) of the
Code, to purchase shares of the Fund and, subject to certain limitations,
exclude the amount of purchase payments from gross income for tax purposes.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA). Section 408 of the Code permits
eligible individuals to contribute to an individual retirement program,
including Simplified Employee Pension Plans, commonly referred to as SEP-IRA.
These IRAs are subject to limitations with respect to the amount that may be
contributed, the eligibility of individuals, and the time in which distributions
would be allowed to commence. In addition, certain distributions from some
other types of retirement plans may be placed on a tax-deferred basis in an IRA.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION. This plan was introduced by
a provision of the Tax Reform Act of 1986 as a unique way for small employers to
provide the benefit of retirement planning for their employees. Contributions
are deducted from the employee's paycheck before tax deductions and are
deposited into an IRA by the employer. These contributions are not included in
the employee's income and therefore are not reported or deducted on his or her
tax return.
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES ("SIMPLE IRA"). This plan was
introduced by a provision of the Small Business Job Protection Act of 1996 to
provide small employers with a simplified tax-favored retirement plan.
Contributions are deducted from the employee's paycheck
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before taxes and are deposited into a SIMPLE IRA by the employer, who must make
either matching contributions or non-elective contributions. Contributions are
tax-deductible for the employer and participants do not pay taxes on
contributions on earnings until they are withdrawn.
ROTH IRA. This plan, introduced by Section 302 of the Taxpayer Relief Act
of 1997, generally permits individuals with adjusted gross income of up to
$95,000, and married couples with joint adjusted gross income of up to $150,000,
to contribute to a "Roth IRA." Contributions are not tax-deductible, but
distribution of assets (contributions and earnings) held in the account for at
least five years may be distributed tax-free under certain qualifying
conditions.
EDUCATION IRA. Established by the Taxpayer Relief Act of 1997, under
Section 530 of the Code, this plan permits individuals to contribute to an IRA
on behalf of any child under the age of 18. Contributions are not
tax-deductible but distributions are tax-free if used for qualified educational
expenses.
DESCRIPTION OF SHARES
Ownership of the Corporation is represented by transferable shares of
common stock. The total number of shares of which the Fund has authority to
issue is one billion (1,000,000,000) shares of common stock (par value
$0.0001 per share), amounting in aggregate par value to one hundred thousand
dollars ($100,000.00).
Currently, one series of shares of the Corporation has been authorized
pursuant to the Articles of Incorporation of the Corporation (the "Articles"):
the Tax Managed Equity Fund has been divided into three classes of shares,
designated as Class A, Class B and Class II shares. The Directors may
authorize the creation of additional series of shares so as to be able to offer
to investors additional investment portfolios within the Corporation that would
operate independently from the Corporation's present portfolio, or to
distinguish among shareholders, as may be necessary, to comply with future
regulations or other unforeseen circumstances. Each series of the
Corporation's shares represents the interests of the shareholders of that
series in a particular portfolio of Corporation assets. In addition, the
Directors may authorize the creation of additional classes of shares in the
future, which may have fee structures different from those of existing
classes and/or may be offered only to certain qualified investors.
Shareholders are entitled to a full vote for each full share held. The
Directors have terms of unlimited duration (subject to certain removal
procedures) and have the power to alter the number of Directors, and appoint
their own successors, provided that at all times at least a majority of the
Directors have been elected by shareholders. The voting rights of shareholders
are not cumulative, so that holders of more than 50% of the shares voting can,
if they choose, elect all Directors being elected, while the holders of the
remaining shares would be unable to elect any Directors. Although the
Corporation need not hold annual meetings of shareholders, the Directors may
call special meetings of shareholders for action by shareholder vote as may be
required by the 1940 Act. Also, a shareholders meeting must be called, if so
requested in writing by the holders
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of record of 10% or more of the outstanding shares of the Corporation. In
addition, the Directors may be removed by the action of the holders of record of
two-thirds or more of the outstanding shares.
All classes of shares are identical in all respects, except that (i)
each class may bear differing amounts of certain class-specific expenses,
(ii) Class A shares are subject to an initial sales charge, a distribution
fee and an ongoing account maintenance and service fee, (iii) Class B shares
are subject to a CDSC, a distribution fee and an ongoing account maintenance
and service fee, (iv) Class II shares are subject to an initial sales charge,
a CDSC, a distribution fee and an ongoing account maintenance and service
fee; (v) Class B shares convert automatically to Class A shares on the first
business day of the month seven years after the purchase of such Class B
shares, (vi) each class has voting rights on matters that pertain to the Rule
12b-1 plan adopted with respect to such class, except that under certain
circumstances, the holders of Class B shares may be entitled to vote on
material changes to the Class A Rule 12b-1 plan, and (vii) each class of
shares will be exchangeable only into the same class of shares of any of the
other SunAmerica Mutual Funds that offers that class. All shares of the
Corporation issued and outstanding and all shares offered by the Prospectus
when issued are fully paid and non-assessable. Shares have no preemptive or
other subscription rights and are freely transferable on the books of the
Corporation. In addition, shares have no conversion rights, except as
described above.
The Articles provides, to the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted (as limited by the
1940 Act) that no Director or officer of the Corporation shall be personally
liable to the Corporation or to stockholders for money damages. The Articles
provides that the Corporation shall indemnify (i) the directors and officers,
whether serving the Corporation or at its request any other entity, to the
full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force (as limited by the 1940 Act), including
the advance of expenses under the procedures and to the full extent permitted
by law, and (ii) other employees and agents to such extent as shall be
authorized by the Board of Directors or the Corporation's By-Laws and be
permitted by law. The duration of the Corporation shall be perpetual.
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ADDITIONAL INFORMATION
REPORTS TO SHAREHOLDERS. The Corporation sends audited annual and
unaudited semi-annual reports to shareholders of the Fund. In addition, the
Transfer Agent sends a statement to each shareholder having an account directly
with the Corporation to confirm transactions in the account.
CUSTODIAN AND TRANSFER AGENCY. State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, MA 02171, serves as custodian and as Transfer
Agent for the Fund and in those capacities maintains certain financial and
accounting books and records pursuant to agreements with the Corporation.
Transfer agent functions are performed for State Street, by National Financial
Data Services, P.O. Box 419572, Kansas City, MO 64141-6572, an affiliate of
State Street.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL. PricewaterhouseCoopers LLP,
1177 Avenue of the Americas, New York, NY 10036, has been selected to serve as
the Corporation's independent accountants and in that capacity examines the
annual financial statements of the Corporation. The firm of Swidler Berlin
Shereff Friedman, LLP, 919 Third Avenue, New York, NY 10022, has been selected
as legal counsel to the Corporation.
FINANCIAL STATEMENTS
Set forth following this Statement of Additional Information is the
Statement of Assets and Liabilities of SunAmerica Strategic Investment
Series, Inc. as of _________.
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APPENDIX
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
DESCRIPTION OF MOODY'S CORPORATE RATINGS
Aaa Bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make the long-
term risks appear somewhat larger than in Aaa securities.
A Bonds rated A possess many favorable investment attributes and are
considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but
elements may be present that suggest a susceptibility to impairment
sometime in the future.
Baa Bonds rated Baa are considered as medium grade obligations; I.E.,
they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds rated Caa are of poor standing. Such issues may be in
default, or there may be present elements of danger with respect to
principal or interest.
Ca Bonds rated Ca represent obligations that are speculative in a high
degree. Such issues are often in default or have other marked
shortcomings.
Appendix-1
<PAGE>
C Bonds rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of the generic rating
category.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the Securities Act.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations
are exempt from registration under the Securities Act, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well-established industries
-- High rates of return on funds employed
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
level of debt protection measurements and the requirement for relatively high
financial leverage.
Appendix-2
<PAGE>
Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.
Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks that may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships that exist with the issuer; and (8) recognition by management of
obligations that may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
A Standard & Poor's corporate or municipal rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation: (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Appendix-3
<PAGE>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
Debt rated BB, B, CCC, CC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest
and repay principal. BB indicates the least degree of speculation
and C the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposure to adverse
conditions.
BB Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions that could lead to inadequate capacity to meet timely
interest and principal payment. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B Debt rated B has a greater vulnerability to default but presently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC has a current identifiable vulnerability to default
and is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest
and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B
or B- rating.
CC The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior
debt assigned an actual
Appendix-4
<PAGE>
or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed but debt
service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is
being paid.
D Debt rated D is in default. The D rating is assigned on the day an
interest or principal payment is missed. The D rating also will be
used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
Plus (+) or minus (-): The ratings of AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within these
ratings categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is insured by the Federal Savings & Loan Insurance Corp.
or the Federal Deposit Insurance Corp. and interest is adequately
collateralized.
* Continuance of the rating is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard
& Poor's does not rate a particular type of obligation as a matter
of policy.
Debt Obligations of Issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the credit worthiness of the obligor but do not take into
account currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA," "AA," "A," "BBB," commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Appendix-5
<PAGE>
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS.
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of not more
than 365 days. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest.
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative
degree of safety.
A-1 This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
designated "A-1" that are determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effect of changes in circumstances than obligations carrying
the higher designations.
B Issues rated "B" are regarded as having only adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D This rating indicates that the issue is either in default or is
expected to be in default upon maturity.
The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
Appendix-6
<PAGE>
PART C
OTHER INFORMATION
Item 23: Exhibits.
(a) Articles of Incorporation of Registrant.
(b) By-Laws of Registrant.*
(c) Instruments Defining Rights of Shareholders. Incorporated by
reference to Exhibits (a) and (b) above.
(d) Investment Advisory and Management Agreement.*
(e) Distribution Agreement.*
(f) Not applicable.
(g) Custodian Agreement. *
(h) Administration Agreement.*
Service Agreement.*
Form of Dealer Agreement.*
(i) Opinion and Consent of Swidler Berlin Shereff Friedman, LLP,
counsel for Registrant.*
(j) Consent of PricewaterhouseCoopers LLP, independent auditors for
the Registrant.*
(k) None.
(l) [Initial Capital Agreement]. Certificate of SunAmerica Asset
Management Corp.*
(m) Distribution Plans pursuant to Rule 12b-1 (Class A, Class B and
Class II Shares).*
(n) Not applicable.
(o) Rule 18f-3 Plan.*
_____________________________
* To be filed by amendment
C-1
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
Prior to the effective date of this Registration Statement, the
Registrant will sell [________] shares of the Series of the Registrant to
[__________].
Item 25. Indemnification
[Article VI of the Registrant's By-Laws relating to the indemnification of
officers and trustees is quoted below:
ARTICLE VI
INDEMNIFICATION
The Fund shall provide any indemnification required by applicable law and
shall indemnify trustees, officers, agents and employees as follows:
(a) the Fund shall indemnify any director or officer of the Fund who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than action by or in the right of the Fund) by reason of
the fact that such Person is or was such Trustee or officer or an employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another corporation, partnership, joint
venture, Fund or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such Person in connection with such action, suit or proceeding, provided such
Person acted in good faith and in a manner such Person reasonably believed to be
in or not opposed to the best interests of the Fund, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such Person's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the Person did not
reasonably believe his or her actions to be in or not opposed to the best
interests of the Fund, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that such Person's conduct was unlawful.
(b) The Fund shall indemnify any Trustee or officer of the Fund who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Fund to procure a judgment in
its favor by reason of the fact that such Person is or was such Trustee or
officer or an employee or agent of the Fund, or is or was serving at the request
of the Fund as a director, officer, employee or agent of another corporation,
partnership, joint venture, Fund or other enterprise, against expenses
(including attorneys' fees), actually and reasonably incurred by such Person in
connection with the defense or settlement of such action or suit if such Person
acted in good faith and in a manner such Person reasonably believed to be in or
not opposed to the best interests of the Fund, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such Person
shall have been adjudged to be liable for negligence or misconduct in the
performance of such Person's duty to the Fund unless and only to the extent that
the court in which such action or suit was brought, or any other court having
jurisdiction in the premises, shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
Person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.
(c) To the extent that a Trustee or officer of the Fund has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subparagraphs (a) or (b) above or in defense of any
claim, issue or matter therein, such Person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
Person in connection therewith, without the necessity for the determination as
to the standard of conduct as provided in subparagraph (d).
(d) Any indemnification under subparagraph (a) or (b) (unless ordered by a
court) shall be made by the Fund only as authorized in the specific case upon a
determination that indemnification of the Trustee or officer is proper in view
of the standard of
C-2
<PAGE>
conduct set forth in subparagraph (a) or (b). Such determination shall be made
(i) by the Board by a majority vote of a quorum consisting of Trustees who were
disinterested and not parties to such action, suit or proceedings, or (ii) if
such a quorum of disinterested Trustees so directs, by independent legal counsel
in a written opinion; and any determination so made shall be conclusive and
binding upon all parties.
(e) Expenses incurred in defending a civil or criminal action, writ or
proceeding may be paid by the Fund in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case, upon receipt
of an undertaking by or on behalf of the Trustee or officer to repay such amount
unless it shall ultimately be determined that such Person is entitled to be
indemnified by the Fund as authorized herein. Such determination must be made by
disinterested Trustees or independent legal counsel.
Prior to any payment being made pursuant to this paragraph, a majority of
quorum of disinterested, non-party Trustees of the Fund, or an independent legal
counsel in a written opinion, shall determine, based on a review of readily
available facts that there is reason to believe that the indemnitee ultimately
will be found entitled to indemnification.
(f) Agents and employees of the Fund who are not Trustees or officers of
the Fund may be indemnified under the same standards and procedures set forth
above, in the discretion of the Board.
(g) Any indemnification pursuant to this Article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled and
shall continue as to a Person who has ceased to be a Trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
Person.
(h) Nothing in the Declaration or in these By-Laws shall be deemed to
protect any Trustee or officer of the Fund against any liability to the Fund or
to its Shareholders to which such Person would otherwise be subject by reason of
willful malfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Person's office.
(i) The Fund shall have power to purchase and maintain insurance on behalf
of any Person against any liability asserted against or incurred by such Person,
whether or not the Fund would have the power to indemnify such Person against
such liability under the provisions of this Article. Nevertheless, insurance
will not be purchased or maintained by the Fund if the purchase or maintenance
of such insurance would result in the indemnification of any Person in
contravention of any rule or regulation and/or interpretation of the Securities
and Exchange Commission.
* * * * * * * * * * * * * *
The Investment Advisory Agreement provides that in absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of office on the part of the Investment Adviser (and its
officers, directors, agents, employees, controlling persons, shareholders and
any other person or entity affiliated with the Investment Adviser to perform or
assist in the performance of its obligations under each Agreement) the
Investment Adviser shall not be subject to liability to the Fund or to any
shareholder of the Fund for any act or omission in the course of, or connected
with, rendering services, including without limitation, any error of judgment or
mistake or law or for any loss suffered by any of them in connection with the
matters to which each Agreement relates, except to the extent specified in
Section 36(b) of the Investment Company Act of 1940 concerning loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services.
SunAmerica Inc., the parent of Anchor National Life Insurance Company,
provides, without cost to the Fund, indemnification of individual trustees. By
individual letter agreement, SunAmerica Inc. indemnifies each trustee to the
fullest extent permitted by law against expenses and liabilities (including
damages, judgments, settlements, costs, attorney's fees, charges and expenses)
actually and reasonably incurred in connection with any action which is the
subject of any threatened, asserted, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, investigative or otherwise
and whether formal or informal to which any trustee was, is or is threatened to
be made a party by reason of facts which include his being or having been a
trustee.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant
C-3
<PAGE>
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.]
Item 26. Business and other Connections of Investment Adviser
Information concerning the business and other connections of SunAmerica
Asset Management Corp. is incorporated herein by reference to SunAmerica Asset
Management Corp.'s Form ADV (File No. 801-19813), which is currently on file
with the Securities and Exchange Commission. Reference is also made to the
caption "Fund Management" in the Prospectus constituting Part A of the
Registration Statement and "Manager, Adviser, Personal Trading, Distributor
and Administrator" and "Directors and Officers" constituting Part B of the
Registration Statement.
J.P. Morgan Investment Management, Inc., the proposed Adviser, is primarily
engaged in the business of rendering investment advisory services. Reference is
made to the recent Form ADV (File No. 801-21011), which is currently on file
with the Securities and Exchange Commission for a description of the names and
employment of the directors and officers, and other required information.
Item 27. Principal Underwriters
(a) The principal underwriter of the Registrant also acts as
principal underwriter for:
SunAmerica Equity Funds
SunAmerica Income Funds
SunAmerica Money Market Funds, Inc.
Style Select Series, Inc.
(b) The following persons are the officers and directors of SunAmerica
Capital Services, Inc., the principal underwriter of Registrant's
Shares:
<TABLE>
<CAPTION>
Name and Principal Position with the
Business Address Position With Underwriter Registrant
------------------ ------------------------- -----------------
<S> <C> <C>
Peter A. Harbeck Director President
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
J. Steven Neamtz President and Director None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Robert M. Zakem Executive Vice President, Director, Secretary and
The SunAmerica Center General Counsel and Chief Compliance Officer
733 Third Avenue Director
New York, NY 10017-3204
Susan L. Harris Secretary None
SunAmerica, Inc.
1 SunAmerica Center
Los Angeles, CA 90067-
6022
Debbie Potash-Turner Controller None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
</TABLE>
C-4
<PAGE>
(c) Inapplicable.
Item 28. Location of Accounts and Records
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA
02171, and its affiliate, National Financial Data Services, P.O. Box
419572, Kansas City, MO 64141-6572, serve as custodian and as Transfer
Agent for the Fund and in those capacities maintain certain financial and
accounting books and records pursuant to agreements with the Corporation.
SunAmerica Asset Management Corp. is located at 733 Third Avenue, New York,
New York 10017. It maintains the books, accounts and records required to
be maintained pursuant to Section 31(a) of the Investment Company Act of
1940 and the rules promulgated thereunder.
J.P. Morgan Investment Management, Inc. is located at 60 Wall Street,
New York, New York 10260. It maintains the books, accounts and records
required to be maintained pursuant to Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
(the "1933 Act") and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on the 22nd day of December, 1998.
SunAmerica Strategic Investment Series, Inc.
By: /s/ Peter C. Sutton
----------------------
Peter C. Sutton
Treasurer
Pursuant to the requirements of the 1933 Act, this Registration Statement
has been signed below by the following persons in the capacities and on the date
indicated:
/s/ Peter C. Sutton Treasurer December 22, 1998
-------------------- (Principal Financial and
Peter C. Sutton Accounting Officer)
/s/ Robert M. Zakem Director December 22, 1998
--------------------
Robert M. Zakem
/s/ Peter E. Pisapia Director December 22, 1998
--------------------
Peter E. Pisapia
/s/ Peter A. Harbeck President December 22, 1998
-------------------- and Director
Peter A. Harbeck
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
(a) Articles of Incorporation of
registrant
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
ARTICLES OF INCORPORATION
FIRST: The undersigned, Robye Shaw Margolius, whose address is 36
South Charles Street, Baltimore, Maryland 21201, being at least eighteen years
of age, acting as incorporator, does hereby form a corporation under the General
Laws of the State of Maryland.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
THIRD: (a) The purposes for which the Corporation is formed and the
business and objects to be carried on and promoted by it are:
(1) To engage primarily in the business of investing, reinvesting or
trading in securities as an investment company classified under the
Investment Company Act of 1940, as amended (together with the rules and
regulations promulgated thereunder, the "Investment Company Act"), as an
open-end, management company; and
(2) To engage in any one or more businesses or transactions, or to
acquire all or any portion of any entity engaged in any one or more
businesses or transactions, which the Board of Directors may from time to
time authorize or approve, whether or not related to the business described
elsewhere in this Article or to any other business at the time or
theretofore engaged in by the Corporation.
(b) The foregoing enumerated purposes and objects shall be in no way
limited or restricted by reference to, or inference from, the terms of any other
clause of this or any other Article of the Charter of the Corporation, and each
shall be regarded as independent; and they are intended to be and shall be
construed as powers as well as purposes and objects of the Corporation and shall
be in addition to and not in limitation of the general powers of corporations
under the General Laws of the State of Maryland.
FOURTH: The present address of the principal office of the
Corporation in this State is c/o The Corporation Trust Incorporated, 300 East
Lombard Street, Baltimore, Maryland 21202.
FIFTH: The name and address of the resident agent of the Corporation
in this State are The Corporation Trust Incorporated, 300 East Lombard Street,
Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.
SIXTH: (a) The total number of shares of stock which the Corporation
has authority to issue is 1,000,000,000 shares of capital stock (par value
$.0001 per share),
<PAGE>
amounting in aggregate par value to $100,000. All of such shares are initially
classified as "Common Stock," of which 100,000,000 shares are further classified
as a series of Common Stock, designated the "Tax Managed Equity Fund." The
shares of the Tax Managed Equity Fund are initially further classified as three
classes, designated Class A, Class B and Class II, consisting, until further
changed, of 33,333,334 Class A shares, 33,333,333 Class B shares and 33,333,333
Class II shares. The Board of Directors may classify and reclassify any
unissued shares of capital stock by setting or changing in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such shares of stock.
(b) Unless otherwise prohibited by law, so long as the Corporation is
registered as an open-end company under the Investment Company Act, the Board of
Directors shall have the power and authority, without the approval of the
holders of any outstanding shares, to increase or decrease the number of shares
of capital stock, or the number of shares of capital stock of any class or
series, that the Corporation has authority to issue.
(c) The following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the Class A, Class B
and Class II shares of the Tax Managed Equity Fund and the shares of any other
series of Common Stock of the Corporation (unless otherwise provided in the
articles supplementary or other charter document classifying or reclassifying
such shares):
(1) All consideration received by the Corporation from the issue or
sale of shares of a particular series of Common Stock, together with all
assets in which such consideration is invested or reinvested, all income,
earnings, profits and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds or payments
derived from any investment or reinvestment of such proceeds in whatever
form the same may be, shall irrevocably belong to that series for all
purposes and shall be so recorded upon the books of account of the
Corporation. Such consideration, assets, income, earnings, profits and
proceeds, together with any items allocated as provided in the following
sentence, are hereinafter referred to collectively as the "assets belonging
to" that series. In the event that there are any assets, income, earnings,
profits or proceeds which are not identifiable as belonging to a particular
series of Common Stock, such items shall be allocated by or under the
supervision of the Board of Directors to and among one or more of the
series of Common Stock from time to time classified or reclassified, in
such manner and on such basis as the Board of Directors, in its sole
discretion, deems fair and equitable. Each such allocation shall be
conclusive and binding for all purposes. No holder of a particular series
shall have any right or claim against the assets belonging to any other
series, except as a holder of the shares of such other series.
(2) The assets belonging to each series of Common Stock shall be
charged with the liabilities of the Corporation in respect of that series
and all expenses, costs, charges and reserves attributable to that series.
Any liabilities, expenses, costs, charges or
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reserves of the Corporation which are attributable to more than one series
of Common Stock, or are not identifiable as pertaining to any series, shall
be allocated and charged by or under the supervision of the Board of
Directors to and among one or more of the series of Common Stock from time
to time classified or reclassified, in such manner and on such basis as the
Board of Directors, in its sole discretion, deems fair and equitable. Each
such allocation shall be conclusive and binding for all purposes. The
liabilities, expenses, costs, charges and reserves charged to a series of
Common Stock are hereinafter referred to collectively as the "liabilities
of" that series. All persons who have extended credit with respect to, or
who have a claim or contract in respect of, a particular series of Common
Stock shall look only to the assets belonging to that series for payment or
satisfaction of such credit, claim or contract.
(3) The net asset value per share of a particular series of Common
Stock shall be the quotient obtained by dividing the value of the net
assets of that series (being the value of the assets belonging to that
series less the liabilities of that series) by the total number of shares
of that series outstanding, all as determined by or under the supervision
of the Board of Directors in accordance with generally accepted accounting
principles and the Investment Company Act. Subject to the applicable
provisions of the Investment Company Act, the Board of Directors, in its
sole discretion, may prescribe and shall set forth in the By-Laws of the
Corporation, or in a duly adopted resolution of the Board of Directors,
such bases and times for determining the current net asset value per share
of each series of Common Stock, and the net income attributable to such
series, as the Board of Directors deems necessary or desirable. The Board
of Directors shall have full discretion, to the extent not inconsistent
with the Maryland General Corporation Law and the Investment Company Act,
to determine whether any moneys or other assets received by the Corporation
shall be treated as income or capital and whether any item of expense shall
be charged to income or capital, and each such determination shall be
conclusive and binding for all purposes.
(4) Subject to the provisions of law and any preferences of any class
or series of stock from time to time classified or reclassified, dividends,
including dividends payable in shares of another class or series of the
Corporation's capital stock, may be paid on a particular class or series of
Common Stock of the Corporation at such time and in such amounts as the
Board of Directors may deem advisable. Dividends and other distributions
on the shares of a particular series of Common Stock shall be paid only out
of the assets belonging to that series after providing for the liabilities
of that series.
(5) Each share of Common Stock shall have one vote, irrespective of
the class or series thereof, and the exclusive voting power for all
purposes shall be vested in the holders of the Common Stock. All classes
and series of Common Stock shall vote together as a single class; provided,
however, that as to any matter with respect to which a separate vote of a
particular class or series is required by the Investment Company Act or the
Maryland General Corporation Law, such requirement shall apply and, in that
event, the other classes and series entitled to vote on the matter shall
vote together as a single
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class; and provided, further, that the holders of a particular class or
series of Common Stock shall not be entitled to vote on any matter which
does not affect any interest of that class or series, including liquidation
of another series, except as otherwise required by the Investment Company
Act or the Maryland General Corporation Law.
(6) Each holder of Common Stock shall have the right to require the
Corporation to redeem all or any part of his shares of any class or series
at a redemption price equal to the current net asset value per share of
that class or series which is next computed after receipt of a tender of
such shares for redemption, less such redemption fee or deferred sales
charge, if any, as the Board of Directors may from time to time establish
in accordance with the Investment Company Act and the Conduct Rules adopted
by the National Association of Securities Dealers, Inc. Payment of the
redemption price shall be made by the Corporation only from the assets
belonging to the series whose shares are being redeemed. The redemption
price shall be paid in cash; provided, however, that if the Board of
Directors determines, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or undesirable,
the Corporation may, to the extent and in the manner permitted by law, make
payment wholly or partly in securities or other assets, at the value of
such securities or other assets used in such determination of current net
asset value. Notwithstanding the foregoing, the Corporation may suspend
the right of holders of any series of Common Stock to require the
Corporation to redeem their shares during any period or at any time when
and to the extent permitted under the Investment Company Act.
(7) To the extent and in the manner permitted by the Investment
Company Act and the Maryland General Corporation Law, the Board of
Directors may cause the Corporation to redeem, at their current net asset
value, the shares of any series of Common Stock held in the account of any
stockholder having, because of redemptions or exchanges, an aggregate net
asset value specified by the Board of Directors from time to time in its
sole discretion which is less than the minimum initial investment in that
series specified by the Board of Directors from time to time in its sole
discretion.
(8) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or of the liquidation of a
particular series of Common Stock, the holders of each series that is being
liquidated shall be entitled, after payment or provision for payment of the
liabilities of that series and the amount to which the holders of any class
of that series shall be entitled, as a class, to share ratably in the
remaining assets belonging to the series. The holders of shares of any
particular series of Common Stock shall not be entitled thereby to any
distribution upon the liquidation of any other series.
(9) Subject to compliance with the Investment Company Act, the Board
of Directors shall have authority to provide that holders of the Common
Stock of any series and class shall have the right to exchange their shares
for shares of one or more other
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series and classes in accordance with such requirements and procedures as
may be established by the Board of Directors.
(10) Except to the extent provided otherwise by the Charter of the
Corporation, the Class A, Class B and Class II shares of each series of
Common Stock shall represent an equal proportionate interest in the assets
belonging to that series (subject to the liabilities of that series) and
each share of a particular series shall have identical voting, dividend,
liquidation and other rights; provided, however, that notwithstanding
anything in the Charter of the Corporation to the contrary:
(i) The Class A, Class B and Class II shares may be issued and
sold subject to different sales loads or charges, whether initial,
deferred or contingent, or any combination thereof, as may be
established from time to time in accordance with the Investment
Company Act and the Conduct Rules adopted by the National Association
of Securities Dealers, Inc.;
(ii) Expenses, costs and charges which are determined by or
under the supervision of the Board of Directors to be attributable to
a particular class of that series may be charged to that class and
appropriately reflected in the net asset value of, or dividends
payable on, the shares of that class;
(iii) Except as otherwise provided hereinafter, on the seventh
anniversary of the first business day of the month following the month
in which Class B shares were purchased by a holder thereof, such
shares (together with a pro rata portion of any Class B shares
purchased through the reinvestment of dividends or other distributions
paid on all Class B shares held by such holder) shall automatically
convert to Class A shares of the same series on the basis of the
respective net asset values of the Class B shares and the Class A
shares of that series on the conversion date; provided, however, that
conversion of Class B shares represented by stock certificates shall
be subject to tender of such certificates; provided, further, that any
conversion of Class B shares shall be subject to the continuing
availability of an opinion of counsel to the effect that (A) the
assessment of the expenses referred to in subparagraph (ii) above with
respect to the Class B shares does not result in the Corporation's
dividends or distributions constituting "preferential dividends" under
the Internal Revenue Code of 1986, as amended, and (B) such conversion
does not constitute a taxable event under federal income tax law; and
provided, further, that the Board of Directors, in its sole
discretion, may suspend the conversion of Class B shares if such
opinion is no longer available; and
(iv) The Class A, Class B and Class II shares of a particular
series may have such different exchange rights as the Board of
Directors shall provide in compliance with the Investment Company Act.
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(d) Subject to the foregoing and to the Investment Company Act, the
power of the Board of Directors to classify and reclassify any of the shares of
capital stock shall include, without limitation, subject to the provisions of
the Charter of the Corporation, authority to classify or reclassify any unissued
shares of such stock into one or more classes or series of preferred stock,
preference stock, special stock or other stock, and to divide and classify
shares of any class or series into one or more classes or series of such class
or series, by determining, fixing or altering one or more of the following:
(1) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided that, unless
otherwise prohibited by the terms of such or any other class or series, the
number of shares of any class or series may be decreased by the Board of
Directors in connection with any classification or reclassification of
unissued shares and the number of shares of such class or series may be
increased by the Board of Directors in connection with any such
classification or reclassification, and any shares of any class or series
which have been redeemed, purchased, otherwise acquired or converted into
shares of any other class or series shall become part of the authorized
capital stock and be subject to classification and reclassification as
herein provided.
(2) Whether or not and, if so, the rates, amounts and times at which,
and the conditions under which, dividends shall be payable on shares of
such class or series, whether any such dividends shall rank senior or
junior to or on a parity with the dividends payable on any other class or
series of stock, and the status of any such dividends as cumulative,
cumulative to a limited extent or non-cumulative and as participating or
non-participating.
(3) Whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so, the
terms of such voting rights.
(4) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions
thereof, including provision for adjustment of the conversion or exchange
rate in such events or at such times as the Board of Directors shall
determine.
(5) Whether or not shares of such class or series shall be subject to
redemption and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates; and
whether or not there shall be any sinking fund or purchase account in
respect thereof and, if so, the terms thereof.
(6) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation, which rights may vary
depending upon whether such liquidation, dissolution
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or winding up is voluntary or involuntary and, if voluntary, may vary at
different dates, and whether such rights shall rank senior or junior to or
on a parity with such rights of any other class or series of stock.
(7) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of
dividends or making of distributions on, or the acquisition of, or the use
of moneys for purchase or redemption of, any stock of the Corporation, or
upon any other action of the Corporation, including action under this
paragraph and, if so, the terms and conditions thereof.
(8) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of such class
or series, not inconsistent with law and the Charter of the Corporation.
(e) The Corporation may issue and sell fractions of shares of capital
stock having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends, and wherever the words
"share" or "shares" are used in the Charter or By-Laws of the Corporation, they
shall be deemed to include fractions of shares where the context does not
clearly indicate that only full shares are intended.
(f) The Corporation shall not be obligated to issue certificates
representing shares of capital stock. At the time of issue or transfer of
shares without certificates, the Corporation shall provide the stockholder with
such information as may be required under the Maryland General Corporation Law
and the Maryland Uniform Commercial Code - Investment Securities.
SEVENTH: The number of directors of the Corporation shall be three,
which number may be increased or decreased pursuant to the By-Laws of the
Corporation, but shall never be less than the minimum number permitted by the
General Laws of the State of Maryland now or hereafter in force. The names of
the directors who will serve until the first annual meeting and until their
successors are elected and qualified are as follows:
Peter A. Harbeck
Robert M. Zakem
Peter E. Pisapia
EIGHTH: (a) The following provisions are hereby adopted for the
purpose of defining, limiting and regulating the powers of the Corporation and
of the directors and stockholders:
(1) The Board of Directors is hereby empowered to authorize the
issuance from time to time of shares of its capital stock, whether now or
hereafter authorized, or securities convertible into shares of its capital
stock, whether now or hereafter authorized, for such consideration as may
be deemed advisable by the Board of Directors and without any action by the
stockholders.
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(2) No holder of any capital stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any preemptive
right to subscribe for or purchase any capital stock or any other
securities of the Corporation other than such, if any, as the Board of
Directors, in its sole discretion, may determine and at such price or
prices and upon such other terms as the Board of Directors, in its sole
discretion, may fix; and any capital stock or other securities which the
Board of Directors may determine to offer for subscription may, as the
Board of Directors in its sole discretion shall determine, be offered to
the holders of any capital stock or other securities at the time
outstanding to the exclusion of the holders of any or all other capital
stock or other securities at the time outstanding.
(3) The Board of Directors of the Corporation shall, consistent with
applicable law (including, without limitation, the Investment Company Act),
have power in its sole discretion to determine from time to time in
accordance with sound accounting practice or other reasonable valuation
methods what constitutes annual or other net profits, earnings, surplus or
net assets in excess of capital, net asset value, or net asset value per
share; to determine that retained earnings or surplus shall remain in the
hands of the Corporation; to set apart out of any funds of the Corporation
such reserve or reserves in such amount or amounts and for such proper
purpose or purposes as it shall determine and to abolish any such reserve
or any part thereof; to distribute and pay distributions or dividends in
stock, cash or other securities or property, out of surplus or any other
funds or amounts legally available therefor, at such times and to the
stockholders of record on such dates as it may, from time to time,
determine; and to determine whether and to what extent and at what times
and places and under what conditions and regulations the books, accounts
and documents of the Corporation, or any of them, shall be open to the
inspection of stockholders, except as otherwise provided by statute or the
By-Laws of the Corporation, and, except as so provided, no stockholder
shall have any right to inspect any book, account or document of the
Corporation unless authorized to do so by resolution of the Board of
Directors.
(4) Notwithstanding any provision of law requiring the authorization
of any action by a greater proportion than a majority of the total number
of shares of capital stock, such action shall be valid and effective if
authorized by the affirmative vote of the holders of a majority of the
total number of shares of capital stock outstanding and entitled to vote
thereon, except as otherwise provided in the Charter of the Corporation.
(5) The Corporation shall indemnify (i) its directors and officers,
whether serving the Corporation or at its request any other entity, to the
full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force (as limited by the Investment Company
Act), including the advance of expenses under the procedures and to the
full extent permitted by law, and (ii) other employees and agents to such
extent as shall be authorized by the Board of Directors or the
Corporation's By-Laws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of
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Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such bylaws, resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be
permitted by law. No amendment of the Charter of the Corporation or repeal
of any of its provisions shall limit or eliminate the right of
indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.
(6) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted (as limited by the Investment
Company Act), no director or officer of the Corporation shall be personally
liable to the Corporation or its stockholders for money damages. No
amendment of the Charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the limitation of liability provided to
directors and officers hereunder with respect to any act or omission
occurring prior to such amendment or repeal.
(7) The Corporation reserves the right from time to time to make any
amendments of its Charter which may now or hereafter be authorized by law,
including any amendments changing the terms or contract rights, as
expressly set forth in its Charter, of any of its outstanding capital
stock.
(8) For any stockholder proposal to be presented in connection with
an annual meeting of stockholders of the Corporation, including any
proposal relating to the nomination of a director to be elected to the
Board of Directors of the Corporation, the stockholders must have given
timely notice thereof in writing to the Secretary of the Corporation in the
manner and containing the information required by the By-Laws of the
Corporation. Stockholder proposals to be presented in connection with a
special meeting of stockholders will be presented by the Corporation only
to the extent required by Section 2-502 of the Maryland General Corporation
Law and the By-Laws of the Corporation.
(b) The enumeration and definition of particular powers of the Board
of Directors included in the foregoing shall in no way be limited or restricted
by reference to or inference from the terms of any other clause of this or any
other Article of the Charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any powers conferred
upon the Board of Directors under the General Laws of the State of Maryland now
or hereafter in force.
NINTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation,
acknowledging the same to be my act, on this 16th day of December, 1998.
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Witness:
/s/ Pamela I. Christian /s/ Robye Shaw Margolius
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Incorporator
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