<PAGE>
As filed with the Securities and Exchange Commission on March 1, 1999
Securities Act File No. 333-69517
Investment Company Act File Act No. 811-0169
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 1 / /
POST-EFFECTIVE AMENDMENT NO. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 1
(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>
- --------------------------------------------------------------------------------
March 1, 1999 PROSPECTUS
SUNAMERICA STRATEGIC INVESTMENT SERIES
[LOGO] 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.
[SUNAMERICA MUTUAL FUNDS LOGO]
<PAGE>
TABLE OF CONTENTS
- ----------------
<TABLE>
<S> <C>
FUND HIGHLIGHTS.................................................... 2
MORE INFORMATION ABOUT THE FUND.................................... 7
INVESTMENT STRATEGIES.......................................... 7
GLOSSARY....................................................... 8
INVESTMENT TERMINOLOGY..................................... 8
RISK TERMINOLOGY........................................... 9
SHAREHOLDER ACCOUNT INFORMATION.................................... 11
FUND MANAGEMENT.................................................... 20
</TABLE>
[SUNAMERICA MUTUAL FUNDS LOGO]
<PAGE>
FUND HIGHLIGHTS
Q&A
MARKET CAPITALIZATION represents the total market value of the outstanding
securities of a corporation.
A "VALUE" ORIENTED PHILOSOPHY -- that of investing 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 selection
criteria is usually calculated to identify stocks of large, well known
companies with solid financial strength and generous dividend yields that have
low price-earnings ratios and have generally been overlooked by the market.
A "GROWTH" ORIENTED PHILOSOPHY -- that of investing in securities which are
believed to offer the potential for capital appreciation -- focuses on
securities considered to have a historical record of above-average growth
rate; to have significant growth potential; to have above-average earnings
growth or value or the ability to sustain earnings growth; to offer proven or
unusual products or services; or to operate in industries experiencing
increasing demand.
The 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. There can be no assurance that the Fund's investment goal
will be met or that the net return on an investment in the Fund will exceed what
could have been obtained through other investment or savings vehicles. More
complete investment information is provided in chart form, under "More
Information About the Fund," which is on page 7, and the glossary that follows
on page 8.
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 selects to achieve
a blend of growth companies, value companies and companies that have elements
of growth and value. 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.
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:
- 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 (FDIC). As with any mutual fund, there is no guarantee that the
Fund will be able to achieve its investment goals. If the value of the assets
of the Fund goes down, you could lose money.
2
<PAGE>
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>
Class A Class B Class II
------- ------- --------
<S> <C> <C> <C>
Shareholder Fees (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(1) 5.75% None 1.00%
Maximum Deferred Sales Charge
(Load) (as a percentage of amount
redeemed)(2) None 4.00% 1.00%
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None None None
Redemption Fee(3,4) 1.00% 1.00% 1.00%
Exchange Fee(3) 1.00% 1.00% 1.00%
Maximum Account Fee None None None
Annual Fund Operating Expenses
(expenses that are deducted from
Fund assets)
Management Fees 0.85% 0.85% 0.85%
Distribution (12b-1) Fees(5) 0.35% 1.00% 1.00%
Other Expenses(6) 0.85% 0.83% 0.86%
Total Annual Fund Operating
Expenses 2.05% 2.68% 2.71%
Expense Reimbursement(7) 0.60% 0.58% 0.61%
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.
(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) If shares are redeemed or exchanged within one year of purchase, a 1.00%
redemption fee will be assessed on the proceeds of the transaction. This
fee will be paid to the Fund.
(4) A $15.00 fee may be imposed on wire redemptions.
(5) Because these 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.
(6) Based on estimated amounts for the current fiscal year.
(7) 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,
which are contractually required by agreement with the Board of Directors,
without the approval of the Directors, including a majority of the
Independent Directors. The expense waivers and fee reimbursements will
continue indefinitely, subject to termination by the Directors, including a
majority of the Independent Directors.
3
<PAGE>
FUND HIGHLIGHTS
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. 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 and the net
expenses shown in the fee table your costs would be:
If you redeem your investment at the end of the periods indicated:
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
(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>
(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.
4
<PAGE>
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 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 reflect all of the
Adviser's assets under management and do not accurately reflect the
performance of all accounts managed by the Adviser.
- The composite performance return of the Adviser is reduced by the
highest annual investment management fee and expenses charged to any
account included in the composite.
- The private accounts contained in the composite are not subject to
certain investment limitations, diversification requirements, and
other restrictions imposed by the Investment Company Act of 1940 and
the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the private accounts.
- 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 "Adviser Performance."
<TABLE>
<CAPTION>
Annualized Total Return
---------------------------------------------------------------
S&P 500
J.P. MORGAN TAX AWARE U.S. MORNINGSTAR LARGE COMPOSITE STOCK
PERIOD ENDING DECEMBER 31, 1998 EQUITY COMPOSITE* BLEND CATEGORY PRICE INDEX
- ----------------------------------- -------------------------- ----------------- ---------------
<S> <C> <C> <C>
1 Year............................. 30.8% 24.6% 28.6%
3 Years............................ 26.9% 23.4% 27.9%
5 Years............................ 22.9% 19.7% 24.0%
10 Years........................... 19.4% 16.1% 19.0%
Since Inception**.................. 18.5% 15.6% 19.0%
</TABLE>
- ----------------------------------
*Returns reflect the deduction of the highest investment management fees and
expenses charged for any account in the composite.
**Inception date is January 1, 1985.
5
<PAGE>
FUND HIGHLIGHTS
NOTES
ADVISER PERFORMANCE
The Adviser's performance is presented as a composite of multiple accounts as
described above. 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 14 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 December 31, 1998, the Composite included 102 accounts with aggregate
assets of $575,637,585. The Composite returns were supplied to the Fund by the
Adviser gross of certain fees, but have been adjusted to reflect the investment
management fees and expenses 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 429 mutual funds which have portfolios with median market
capitalizations, price/earnings ratios, and price/book ratios similar to those
expected for the Fund.
GROWTH OF A $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
J.P. MORGAN TAX AWARE
ANNUAL PERIOD ENDING U.S.
<S> <C> <C> <C>
31-Oct-98 Morningstar Large S&P 500
Composite Stock Price
Blend Category Equity Composite* Index
1988 $10,000 $10,000 $10,000
1989 $12,263 $13,340 $13,170
1990 $12,205 $13,113 $12,762
1991 $16,045 $17,572 $16,654
1992 $17,226 $19,030 $17,920
1993 $19,055 $20,933 $19,730
1994 $18,794 $21,017 $19,986
1995 $24,767 $28,688 $27,501
1996 $29,859 $33,995 $33,826
1997 $38,252 $44,874 $45,124
1998 $46,511 $58,785 $58,030
</TABLE>
- -------------------------------
*Returns reflect the deduction of the highest investment management fee and
expenses charged for any account in the composite.
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 the J.P. Morgan Tax
Aware U.S. Equity Composite are net of actual expenses.
6
<PAGE>
MORE INFORMATION ABOUT THE FUND
INVESTMENT STRATEGIES
The Fund has its own investment goal and techniques 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>
<S> <C>
TAX MANAGED EQUITY FUND
- ----------------------------------------------------------------------------
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 investment techniques Stocks of large and medium- sized U.S. companies which
(under normal market conditions)? are selected to achieve a blend of growth companies,
value companies and companies that have elements of
growth and value
- -------------------------------------------------------------------------------------
What are the Fund's principal risks? - stock market volatility
- securities selection
- tax managed strategy may affect pre-tax returns
- -------------------------------------------------------------------------------------
What other investment techniques can the Fund use?
- - Small company stocks Yes
- - Active trading No
- - Warrants Yes
- - Short-term investments Yes (up to 35%)
- - Defensive investments Yes
- - Foreign securities Yes
ADRs/EDRs/GDRs Yes
- - Foreign Currency Transactions No
- - Illiquid securities Yes (up to 15%)
- - Borrowing for temporary or emergency purposes Yes (up to 33 1/3%)
- - Options and futures Yes
- - Special situations Yes
- -------------------------------------------------------------------------------------
What other potential - foreign exposure - illiquidity
risks can affect a Fund? - derivatives
- hedging
- small market capitalization
- euro conversion
</TABLE>
7
<PAGE>
MORE INFORMATION ABOUT THE FUND
GLOSSARY
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.
INVESTMENT 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.
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 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. As a result, the Fund may not achieve its investment goal.
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.
The Fund may BORROW for temporary or emergency purposes including to meet
redemptions. Borrowing may exaggerate changes in the net asset value of Fund
8
<PAGE>
shares and in the yield on the Fund's portfolio. Borrowing will cost the Fund
interest expense and other fees. The cost of borrowing may reduce the Fund's
return.
A DERIVATIVE instrument is a contract, such as an option or a future, whose
value is based on the performance of an underlying financial instrument.
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.
RISK TERMINOLOGY
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.
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. In addition, excessive
redemption activity could compromise the ability to pursue the tax managed
strategy.
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.
ILLIQUIDITY: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.
9
<PAGE>
MORE INFORMATION ABOUT THE FUND
DERIVATIVES: Derivatives are subject to general risks relating to market
volatility, interest rate fluctuations, creditworthiness of the counterparty to
the option or futures transaction and leverage. In addition, options and futures
contracts are subject to certain special risks. To the extent an option or
future 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 security
to reduce certain risk characteristics of an underlying security or portfolio of
securities. Gains on a derivative that reacts in an opposite manner to market
movements may substantially reduce losses on the other investment. While hedging
can be a very useful and inexpensive way to reduce risk, hedging is sometimes
ineffective due to unexpected changes in the market. Moreover, hedging can also
reduce or eliminate gains.
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.
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 tax
and accounting consequences, as well as difficulty in processing transactions.
SunAmerica is aware of such potential problems and has coordinated efforts to
prevent or alleviate their adverse impact on the Fund. There can be no assurance
that the Fund will not suffer any adverse consequences as a result of the euro
conversion.
10
<PAGE>
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.
CLASS A
- Front-end sales charges, as described below. There are several ways
to reduce these charges, also described below.
- Lower annual expenses than Class B or Class II shares.
CLASS B
- No front-end sales sales charge; all your money goes to work for
you right away.
- Higher annual expenses than Class A shares.
- Deferred sales charge on shares you sell within six years of
purchase, as described below.
- Automatic conversion to Class A shares after approximately seven
years, thus reducing future annual expenses.
CLASS II
- Front-end sales charges less, as described below.
- Higher annual expenses than Class A shares.
- Deferred sales charge on shares you sell within eighteen months of
purchase, as described below.
- No conversion to Class A.
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>
Concession to
Sales Charge Dealers
---------------------------------------
% OF % OF NET
OFFERING AMOUNT % OF OFFERING
YOUR INVESTMENT PRICE INVESTED PRICE
---------------------------------------
<S> <C> <C> <C>
Less than $50,000.................. 5.75% 6.10% 5.00%
$50,000 but less than $100,000..... 4.75% 4.99% 4.00%
$100,000 but less than $250,000.... 3.75% 3.90% 3.00%
$250,000 but less than $500,000.... 3.00% 3.09% 2.25%
$500,000 but less than
$1,000,000....................... 2.10% 2.15% 1.35%
$1,000,000 or more................. None None 1.00%
</TABLE>
INVESTMENTS OF $1 MILLION OR MORE: Class A shares are available with no
front-end sales charge. However, 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 CDSC on shares being
purchase 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.
11
<PAGE>
SHAREHOLDER ACCOUNT INFORMATION
CLASS II. Sales charge are as follows:
<TABLE>
<CAPTION>
Concession to
Sales Charge Dealers
- ---------------------------------------
% OF % OF NET
OFFERING AMOUNT % OF OFFERING
PRICE INVESTED PRICE
- ---------------------------------------
<S> <C> <C>
1.00% 1.01% 1.00%
</TABLE>
There is CDSC of 1% on shares you sell within 18 months after you buy them.
DETERMINATION OF CDSC: Each CDSC is based on the original purchase cost or the
current market value of the shares being sold, whichever is less. There is no
CDSC on shares 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 (this
waiver may also apply to front-end sales charges of Class II shares)
- 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 and
their families
- 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
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 dollar amount of the CDSC at the time of the sale. All
accounts involved must be registered in the same name(s).
12
<PAGE>
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 0.10% 0.25%
B 0.75% 0.25%
II 0.75% 0.25%
</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
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 investment amount, payable to the Fund or
SunAmerica Funds.
- Deliver the check and your completed Account Application (and
Supplemental Account Application, if applicable) to your broker or
financial advisor, or mail them to:
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
- Make out a check for the investment amount payable to the Fund or
SunAmerica Funds.
- Include the stub from your Fund statement or a note specifying the
Fund name, your share class, your account number and the name(s) in
which the account is registered.
- Indicate the "Tax Managed Equity Fund" and account number in the
memo section of your check.
(continued on next page)
13
<PAGE>
SHAREHOLDER ACCOUNT INFORMATION
- 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
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 application to your broker or financial
advisor or fax it to SunAmerica Fund Services, Inc. at
212-551-5585.
- Obtain your account number by referring to your statement or by
calling your broker or financial advisor or Shareholder/Dealer
Services at 1-800-858-8850, ext. 5125.
- 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.
- 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 Fund number, account
number and the name(s) in which the account is registered. Your bank may charge
a fee to wire funds.
TO OPEN OR ADD TO AN ACCOUNT USING DOLLAR COST AVERAGING, SEE "ADDITIONAL
INVESTOR SERVICES."
14
<PAGE>
SELLING SHARES
HOW REQUIREMENTS
THROUGH YOUR BROKER OR FINANCIAL ADVISOR
.........................................................
- Accounts of any type.
- Sales of any amount.
- Call your broker or financial advisor to place your order to sell shares.
- If shares are redeemed within one year of purchase, a 1.0% redemption fee
will be assessed on redemption proceeds.
BY MAIL
.........................................................
- Accounts of any type.
- Sales of any amount.
- Write a letter of instruction 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 normally be mailed on the next business day to the name(s)
and address in which the account is registered, or otherwise according to
your letter of instruction.
- If shares are redeemed within one year of purchase, a 1.0% redemption fee
will be assessed on redemption proceeds.
BY PHONE
.........................................................
- Most accounts.
- Sales of less than $100,000.
- 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.
15
<PAGE>
SHAREHOLDER ACCOUNT INFORMATION
- 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.
- If shares are redeemed within one year of purchase, a 1.0% redemption fee
will be assessed on redemption proceeds.
BY WIRE
.........................................................
- Request by mail to sell any amount (accounts of any type).
- Request by phone to sell less than $100,000.
- Proceeds will normally be wired on the next business day. A $15 fee will
be deducted from your account.
- If shares are redeemed within one year of purchase, a 1.0% redemption fee
will be assessed on redemption proceeds.
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
A notary public CANNOT provide a signature guarantee.
TO SELL SHARES THROUGH A SYSTEMATIC WITHDRAWAL PLAN, SEE "ADDITIONAL INVESTOR
SERVICES."
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 their price as of
the close of regular trading on the New York Stock Exchange for the day. All
other securities and assets are valued at fair value following procedures
approved by the Directors.
16
<PAGE>
TRANSACTION POLICIES (CONT.)
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 for regular trading. 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.
During periods of extreme volatility or market crisis, 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.
The Fund may invest in securities that are primarily listed on foreign exchanges
that trade on weekends or other days when the Fund does not price its shares. As
a result, the value of the Fund's shares may change on days when you will not be
able to purchase or redeem your shares.
If the Fund determines that it would be detrimental to the best interest of the
remaining shareholders of the Fund to make payment of redemption proceeds wholly
or partly in cash, the Fund may pay the redemption price 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 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. Additionally, if shares are exchanged within one year of purchase,
a 1.0% fee will be assessed on proceeds. 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.
17
<PAGE>
SHAREHOLDER ACCOUNT INFORMATION
ADDITIONAL INVESTOR SERVICES (CONT.)
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).
- 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.
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.
18
<PAGE>
MORE INFORMATION ABOUT THE FUND
TAX, 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
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.
OTHER TAX CONSIDERATIONS. If you are neither a lawful permanent resident nor a
citizen of the U.S. or if you are a foreign entity, ordinary income dividends
paid to you (which includes distributions of net short-term capital gains) will
generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate
applies.
By law, the Fund must withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or social security number.
This section summarizes some of the consequences under current federal tax law
of an investment in the Fund. It is not a substitute for professional tax
advice. Consult your tax advisor about the potential tax consequences of an
investment in the Fund under all applicable laws.
SMALL ACCOUNTS. If you draw down an account so that its total value is less than
$500 ($250 for retirement plan accounts), you may be asked to purchase more
shares within 60 days. If you do not take action, the Fund may close out your
account and mail you the proceeds. Alternatively, you may be charged a $2.00
monthly charge to maintain your account. Your account will not be closed if its
drop in value is due to Fund performance or the effects of sales charges.
19
<PAGE>
MORE INFORMATION ABOUT THE FUND
FUND MANAGEMENT
MANAGER. SunAmerica Asset Management Corp., which was organized in 1982 under
the laws of Delaware, is located at The SunAmerica Center, 733 Third Avenue, New
York, New York 10017, and 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 shareholders the Advisers' fees
only in the aggregate for each Fund.
The Fund pays SunAmerica a fee equal to 0.85% of average daily net assets:
The Adviser and Portfolio Managers for the Fund are described below.
INFORMATION ABOUT THE ADVISER
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("J.P. Morgan") is a Delaware
corporation, located at 522 Fifth Avenue, New York, New York 10036. J.P. Morgan
provides investment advisory services to a substantial number of institutional
and other investors, including other registered investment companies. As of
December 31, 1998, J.P. Morgan, together with its affiliated companies, had
approximately $308 billion in assets under management.
20
<PAGE>
The Adviser is responsible for decisions to buy and sell securities for the
Fund, selection of broker-dealers and negotiation of commission rates.
<TABLE>
<CAPTION>
Name, Title and Affiliation
of Portfolio Manager Experience
- ------------------------------ -------------------------------------------
<S> <C>
Terry Banet, Ms. Banet is a senior portfolio manager for
Vice President (J.P. Morgan) private equity and balanced accounts for
J.P. Morgan's high net worth clients. In
addition, Ms. Banet manages the JP Morgan
Tax Aware Equity Fund. In her 12 years at
J.P. Morgan, Ms. Banet has done extensive
work in product development for both U.S.
and international clients and was key in
helping develop J.P. Morgan's Tax Aware
equity process. She joined J.P. Morgan in
1985 after two years at Coopers & Lybrand.
Ms. Banet earned her B.S. degree from
Lehigh University and holds an M.B.A. from
Wharton.
Gordon B. Fowler, Jr. Mr. Fowler joined J.P. Morgan in 1981 and
Managing Director and Global completed the firm's management training
Head of Private Client program. In 1982, he was assigned as an
Investment Management (J.P. Analyst to the Asset Allocation Consulting
Morgan) Group of J.P. Morgan Investment Management,
Inc. In 1985, he assumed the responsibility
of Portfolio Manager in the Structured
Equity Management Group. In 1991, he was
named Head of the Structured Equity Group.
In 1994, he was named Head of U.S. Private
Client Investment Management and in 1997
Global Head of Private Client Investment
Management. He has been integral to the
development of the tax-aware process for
private clients and has written an article
on Tax-Aware Equity Management which has
been published in the Journal of Portfolio
Management. Mr. Fowler graduated from New
York University's Leonard Stern School of
Business with an M.Sc. degree in Statistics
and Operations Research in 1985. He also
received an A.B. degree from Brown
University in 1981.
</TABLE>
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
21
<PAGE>
MORE INFORMATION ABOUT THE FUND
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.
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 0.22% of
average daily net assets. This fee represents the full cost of providing
shareholder and transfer agency services to the Fund.
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.
22
<PAGE>
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.
<TABLE>
<S> <C>
[SUNAMERICA MUTUAL FUNDS LOGO]
DISTRIBUTOR: SunAmerica Capital Services
INVESTMENT COMPANY ACT
File No. 811-0169
</TABLE>
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 1, 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 March 1, 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
----
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 December 16, 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 J.P. Morgan Investment Management, Inc.
(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). Subject to the
applicable limitation on illiquid securities investments, the Fund may
acquire securities issued by the U.S. government, its agencies or
instrumentalities in a private placement.
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 102% (100% if such collateral is in the form of cash) of the repurchase
price, including accrued interest. The instruments held as collateral are
valued daily and if the value of the instruments declines, the 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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<PAGE>
FIXED INCOME SECURITIES. The Fund may invest, under normal
circumstances, up to 35% of total assets, subject to the credit quality
limitations stated herein, 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.
Fixed income securities are broadly characterized as those that provide
for periodic payments to the holder of the security at a stated rate. Most
fixed income securities, such as bonds, represent indebtedness of the issuer
and provide for repayment of principal at a stated time in the future. Others
do not provide for repayment of a principal amount, although they may
represent a priority over common stockholders in the event of the issuer's
liquidation. Many fixed income securities are subject to scheduled
retirement, or may be retired or "called" by the issuer prior to their
maturity dates. The interest rate on certain fixed income securities, known
as "variable rate obligations," is determined by reference to or is a
percentage of an objective standard, such as a bank's prime rate, the 90-day
Treasury bill rate, or the rate of return on commercial paper or bank
certificates of deposit, and is periodically adjusted. Certain variable rate
obligations may have a demand feature entitling the holder to resell the
securities at a predetermined amount. The interest rate on certain fixed
income securities, called "floating rate instruments," changes whenever there
is a change in a designated base rate.
The market values of fixed income securities tend to vary inversely with
the level of interest rates-when interest rates rise, their values will tend
to decline; when interest rates decline, their values generally will tend to
rise. The potential for capital appreciation with respect to variable rate
obligations or floating rate instruments will be less than with respect to
fixed-rate obligations. Long-term instruments are generally more sensitive to
these changes than short-term instruments. The market value of fixed income
securities and therefore their yield is also affected by the perceived
ability of the issuer to make timely payments of principal and interest.
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 the 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.
DEFERRED INTEREST BONDS AND PIK BONDS. Fixed income securities in which
the Fund may invest also include deferred interest bonds and bonds on which
the interest is payable in kind ("PIK bonds"). 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 35% 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. It may be difficult to obtain reliable
information and financial data on such companies and the securities of these
small companies may not be readily marketable, making it difficult to dispose
of shares when desirable. A risk of investing in smaller, emerging companies
is that they often are at an earlier stage of development and therefore have
limited product lines, market access for such products, financial resources
and depth in management as compared to larger, more established companies,
and their securities may be subject to more abrupt or erratic market
movements than securities of larger, more established companies or the market
averages in general. In addition, certain smaller issuers may face
difficulties in obtaining the capital necessary to continue in operation and
may go into bankruptcy, which could result in a complete loss of an
investment. Smaller companies also may be less significant factors within
their industries and may have difficulty withstanding competition from larger
companies. If other investment companies and investors who invest in such
issuers trade the same securities when the 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
Commission, 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 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 20% 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 Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary 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 Fund. There can be no assurance that the Fund will not
suffer any adverse consequences as a result of the euro conversion.
Because the Fund may invest in securities that are primarily listed on
foreign exchanges that trade on weekends or other days when the Fund does not
price its shares, the value of these shares may change on days when a
shareholder will not be able to purchase or redeem shares.
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 and to enhance income through the receipt of premiums from expired
calls and any net profits from closing purchase transactions. After any such
sale up to 100% of the 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.
The Fund's strategy of hedging with Futures and options on Futures will
be incidental to its activities in the underlying cash market. When hedging
to attempt to protect against declines in the market value of the Fund's
portfolio, to permit the Fund to retain unrealized gains in the value of
portfolio securities that have appreciated, or to facilitate selling
securities for investment reasons, the Fund could: (i) sell Futures; (ii)
purchase puts on such Futures or securities; or (iii) write calls on
securities held by it or on Futures. When hedging to attempt to protect
against the possibility that portfolio securities are not fully included in a
rise in value of the debt securities market, the Fund could: (i) purchase
Futures; or (ii) purchase calls on such Futures or on securities. Additional
information about the Hedging Instruments the Fund may use is provided below.
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. In such instance,
the Fund retains the risk of loss should the price of the underlying security
increase during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, the 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
B-18
<PAGE>
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
B-19
<PAGE>
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 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 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.
B-20
<PAGE>
LEVERAGE. In seeking to enhance investment performance, the Fund may
increase its ownership of securities by borrowing at fixed rates of interest
up to the maximum extent permitted under the 1940 Act (presently 50% of net
assets) and investing the borrowed funds, subject to the restrictions stated in
the Prospectus. Any such borrowing will be made only pursuant to the
requirements of the 1940 Act and will be made only to the extent that the value
of the 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.
SPECIAL SITUATIONS. A "special situation" arises when, in the opinion
of the Adviser, the securities of a particular issuer will be recognized and
appreciate in value due to a specific development with respect to that
issuer. Developments creating a special situation might include, among
others, a new product or process, a technological breakthrough, a management
change or other extraordinary corporate event, or differences in market
supply of and demand for the security. Investment in special situations may
carry an additional risk of loss in the event that the anticipated
development does not occur or does not attract the expected attention.
FUTURE DEVELOPMENTS. 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., Style Select Series, Inc. and SunAmerica Strategic Investment
Series, Inc. An asterisk indicates those Directors who are interested persons
of the Corporation within the meaning of the 1940 Act.
B-22
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal Occupation
Name, Age and Address Position with the Corporation During Past 5 Years
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
S. James Coppersmith, 65 Director Retired; formerly, President and
7 Elmwood Road General Manager, WCVB-TV, a
Marblehead, MA 01945 division of the Hearst Corp.
(1982 to 1994); Director/Trustee
of SAMF and Anchor Series
Trust ("AST").
- -----------------------------------------------------------------------------------------------
Samuel M. Eisenstat, 58 Chairman of the Board Attorney, sole practitioner, Of
430 East 86th Street Counsel, Kramer, Levin,
New York, NY 10028 Naftalis & Frankel; Chairman of
the Boards of Directors/Trustees
of SAMF and AST.
- -----------------------------------------------------------------------------------------------
Stephen J. Gutman, 55 Director Partner and Managing Member
515 East 79th Street of B.B. Associates LLC
New York, NY 10021 (menswear specialty retailing
and other activities) since June
1988; Director/Trustee of SAMF
and AST.
- -----------------------------------------------------------------------------------------------
Peter A. Harbeck*, 44 Director and President Director and President,
The SunAmerica Center SunAmerica; Director,
733 Third Avenue SunAmerica Capital Services,
New York, NY 10017-3204 Inc. ("SACS"), since August
1993; Director and President,
SunAmerica Fund Services,
Inc.("SAFS"), since May 1988;
President, SAMF and AST;
Executive Vice President and
Chief Operating Officer,
SunAmerica, from May 1988 to
August 1995; Executive Vice
President, SACS, from
November 1991 to August 1995;
Director, Resources Trust
Company.
- -----------------------------------------------------------------------------------------------
Sebastiano Sterpa, 69 Director Founder and Chairman of the
73473 Mariposa Drive Board of the Sterpa Group (real
Palm Desert, CA 92260 estate), since 1962; Director,
Real Estate Business Service
and Countrywide Financial;
Director/Trustee of SAMF.
- -----------------------------------------------------------------------------------------------
J. Steven Neamtz*, 38 Vice President Executive Vice President of
The SunAmerica Center SunAmerica, since April 1996;
733 Third Avenue Director and President, SACS,
New York, NY 10017-3204 since April 1996; formerly,
Executive Vice President, New
England Funds, L.P. from July
1990 to April 1996.
- -----------------------------------------------------------------------------------------------
Peter C. Sutton*, 34 Treasurer Senior Vice President,
The SunAmerica Center SunAmerica, since April 1997;
733 Third Avenue Treasurer, SAMF and AST,
New York, NY 10017-3204 since February 1996; Vice
President and Assistant
Treasurer of SAST and APF
since 1994; Vice President,
Seasons Series Trust, since
April 1997; formerly, Vice
President, SunAmerica, from 1994
to 1997; Controller, SAMF and
AST, from March 1993 to February
1996; Assistant Controller,
SAMF and AST, from 1990 to
1993.
- -----------------------------------------------------------------------------------------------
Robert M. Zakem, 41 Secretary and Chief Senior Vice President and
The SunAmerica Center Compliance Officer General Counsel, SunAmerica,
733 Third Avenue since April 1993; Executive
New York, NY 10017-3204 Vice President, General Counsel
and Director, SACS, since
August 1993; Vice President,
General Counsel and Assistant
Secretary, SAFS, since January
1994; Vice President,
SunAmerica Series Trust,
Anchor Pathway and Seasons
Series Trust; Assistant
Secretary, SunAmerica Series
Trust and Anchor Pathway
Fund, since September 1993;
Assistant Secretary, Seasons
Series Trust, since April 1997;
formerly, Vice President and
Associate General Counsel,
SunAmerica, from March 1992
to April 1993.
- -----------------------------------------------------------------------------------------------
</TABLE>
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.
The Corporation pays 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/or AST.
In addition, Mr. Eisenstat receives an aggregate of $2,000 in annual
compensation for serving as Chairman of the Boards of the retail funds in
SAMF. Officers of the Corporation receive no direct remuneration in such
capacity from the Corporation or the Fund.
In addition, each disinterested Director also serves on the Audit
Committee of the Board of Directors. The Audit Committee is charged with
recommending to the full Board the engagement or discharge of the
Corporations's independent accountants; directing investigations into matters
within the scope of the independent accountants' duties; reviewing with the
independent accountants the audit plan and results of the audit; approving
professional services provided by the independent accountants and other
accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit
and non-audit fees; and preparing and submitting committee minutes to the
full Board. Each member of the Audit Committee receives an aggregate of
$5,000 in annual compensation for serving on the Audit Committees of SAMF
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 SAMF and AST have adopted the
SunAmerica Disinterested Trustees' and Directors' Retirement Plan (the
"Retirement Plan") effective January 1, 1993 for the disinterested Directors.
The Retirement Plan provides generally that if a disinterested Director who
has at least 10 years of consecutive service as a disinterested Director of
any of 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. With
respect to Sebastiano Sterpa, the disinterested Directors have determined to
make an exception to existing policy and allow Mr. Sterpa to remain on the
Board past age 70, until he has served for ten years. Mr. Sterpa will cease
accruing benefits upon reaching age 70, although such benefits will continue
to accrue interest as provided for in the Retirement Plan. As of each
birthday, prior to the 70th birthday, each Eligible Director will be credited
with an amount equal to (i) 50% of his or her regular fees (excluding
committee fees) for services as a disinterested Director of each SunAmerica
Mutual Fund for the calendar year in which such birthday occurs, plus (ii)
8.5% of any amounts credited under clause (i) during prior years. An
Eligible Director may receive any benefits payable under the Retirement Plan,
at his or her election, either in one lump sum or in up to fifteen annual
installments.
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, for the year 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>
S. James Coppersmith $ 13,876 $ 40,959 $ 29,670 $ 65,000
- --------------------------------------------------------------------------------------
Samuel M. Eisenstat $ 14,522 $ 35,886 $ 46,083 $ 69,000
- --------------------------------------------------------------------------------------
Stephen J. Gutman $ 13,876 $ 37,147 $ 60,912 $ 65,000
- --------------------------------------------------------------------------------------
Sebastiano Sterpa $ 14,054 $ 25,826 $ 7,900 $ 43,333
- --------------------------------------------------------------------------------------
</TABLE>
* Information is as of September 30, 1998 for the six investment companies
in the complex that pay fees to these directors/trustees. The complex
consists of SAMF and AST.
Prior to the offering of the Fund's shares, SunAmerica was 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 as of
February 18, 1999 (the "Management Agreement") with the Corporation, on
behalf of the Fund. SunAmerica is a wholly-owned subsidiary of SunAmerica,
Inc., an investment-grade financial services company that, as of
January 1999, earns fees or spreads income on, approximately $121
billion in assets. As of January 1, 1999, SunAmerica Inc. became 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 Investment 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.
Under the Management Agreement, SunAmerica manages the affairs of the
Fund including, but not limited to, continuously providing the Fund with
investment management, including investment research, advice and supervision,
determining which securities shall be purchased or sold by the Fund, making
purchases and sales of securities on behalf of the Fund and determining how
voting and other rights with respect to securities owned by the Fund shall be
exercised, subject in each case to the control of the Directors.
In carrying out its responsibilities, Sunamerica may employ, retain or
otherwise avail itself of the services of other persons or entities such as
the Adviser, on such terms as SunAmerica shall determine to be necessary,
desirable or appropriate. SunAmerica may retain one or more advisers to
manage all or a portion of the investment portfolio of the Fund, at
Sunamerica's own cost and expense. Retention of one or more advisers, or the
employment or retention of other persons or entities to perform services,
shall in no way reduce the responsibilities or obligations of Sunamerica
under the Management Agreement and Sunamerica shall be responsible for all
acts and omissions of such advisers, or other persons or entities, in
connection with the performance of Sunamerica's duties.
SunAmerica shall pay all of its expenses arising from the performance of
its obligations under the Management Agreement and shall pay any salaries,
fees and expenses of the Corporation's Directors and Officers who are
employees of SunAmerica. SunAmerica shall not be required to pay any other
expenses of the Fund, including, but not limited to, direct charges relating
to the purchase and sale of portfolio securities, interest charges, fees and
expenses of independent attorneys and auditors, taxes and governmental fees,
cost of share certificates and any other expenses (including clerical
expenses) of issue, sale, repurchase or redemption of shares, expenses of
registering and qualifying shares for sale, expenses of printing and
distributing reports, notices and proxy materials to shareholders, expenses
of data processing and related services, shareholder recordkeeping and
shareholder account service, expenses of printing and filing reports and
other documents filed with governmental agencies, expenses of printing and
distributing prospectuses, expenses of annual and special shareholders
meetings, fees and disbursements of transfer agents and custodians, expenses
of disbursing dividends and distributions, fees and expenses of Directors who
are not employees of SunAmerica or its affiliates, membership dues in the
Investment Company Institute, insurance premiums and extraordinary expenses
such as litigation expenses.
B-25
<PAGE>
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 prior to the anniversay date of the
previous continuance by SunAmerica or on 60 days' written notice prior to the
anniversary date of the previous continuance by SunAmerica or on 60 days'
written notice by the Directors or by the holders of a majority of the Fund's
outstanding voting securities. The Management Agreement automatically
terminates in the event of its assignment (as defined in the 1940 Act and the
rules thereunder).
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties ("disabling conduct") hereunder on
the part of SunAmerica (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or entity affilated
with SunAmerica) SunAmerica shall not be subject to liability to the
Corporation or to any shareholder of the Corporation for any act or omission
in the course of, or connected with, rendering services hereunder, including
without limitation, any error of judgment or mistake of law or for any loss
suffered by any of them in connection with the matters to which the
Management Agreement relates, except to the extent specified in Section 36(b)
of the 1940 Act concerning loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services. Except for such
disabling conduct, the Corporation shall indemnify SunAmerica (and its
officers, directors, partners, agents, employees, controlling persons,
shareholders and any other person or entity affiliated with SunAmerica) from
any liability arising from SunAmerica's conduct under the Management
Agreement.
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 annual rate of fees payable by SunAmerica to the Adviser through
December 31, 1999 will be 0.40%, as a percentage of the average daily net
assets of the Fund. Subsequent to such date, the highest possible annual rate
of fees payable by SunAmerica to the Adviser, - I.E., the fee rate charged
on the first dollar held by the Fund - will be 0.45%. Further, any waivers or
reimbursements made by SunAmerica are subject to recoupment from the Fund
within the following two years, provided that the Fund is able to effect such
payment to SunAmerica and remain in compliance with the foregoing expense
limitations. The potential reimbursements are accounted for as possible
contingent liabilities that are not recordable on the balance sheet of the
Fund until collection is probable, but appear as footnote disclosure to the
Fund's financial statements. At such time as it appears probable that the Fund
is able to effect such reimbursement and that SunAmerica intends to seek such
reimbursement, the amount of the reimbursement will be accrued as an expense
of the Fund for that current period.
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
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<PAGE>
of the Subadvisory Agreement, in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties ("disabling
conduct") on the part of the Adviser (and its officers, directors, agents,
employees, controlling persons, shareholders and any other person or entity
affiliated with the Adviser) the Adviser shall not be subject to liability to
the Corporation or to any shareholder of the Corporation for any act or
omission in the course of, or connected with, rendering services hereunder,
including without limitation, any error of judgment or mistake of law or for
any loss suffered by any of them in connection with the matters to which the
Subadvisory Agreement relates, except to the extent specified in Section 36(b)
of the 1940 Act concerning loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services. Except for such
disabling conduct, SunAmerica shall indemnify the Adviser (and its officers,
directors, partners, agents, employees, controlling persons, shareholders and
any other person or entity affiliated with the Adviser) from any liability
arising from the Adviser's conduct under the Subadvisory Agreement.
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 AIG, 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 in
effect for the period of two years from the date of its execution, unless
terminated sooner. Thereafter, it shall continue in full force and effect
from year to year thereafter if such continuance is approved in accordance
with the requirements of the 1940 Act. The Corporation and the Distributor
each has the right to terminate the Distribution Agreement on 60 days'
written notice prior to the anniversary date of the previous continuance,
without penalty. The Distribution Agreement will terminate automatically in
the event of its assignment as defined in the 1940 Act and the rules
thereunder.
[caad 214] 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
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<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 AIG, acts as a servicing agent
assisting State Street Bank and Trust Company ("State Street") in connection
with certain services offered to the shareholders of the 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 February 18, 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 -- analyses and reports concerning issuers, industries,
securities, economic factors and trends -- 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 and may not be used in
connection with 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.
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<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, as applicable,
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 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
SAMF (other than money market funds) purchased at the same time through a
single investment dealer, if the dealer places the order for such shares
directly with the Distributor.
RIGHTS OF ACCUMULATION. A purchaser of 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.
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<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
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<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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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 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. Investments for
which market quotations are readily available are valued at their price as of
the close of regular trading on the NYSE for the day. All other securities
and assets are valued at fair value following procedures approved by the
Directors.
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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<PAGE>
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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<PAGE>
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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<PAGE>
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, respectively, traded on the NYSE, American Stock Exchange and
National Association of Securities Dealers Automated Quotations, by market
capitalizations.
cc) Russell Midcap Growth Index -- contains those Russell Midcap
securities with a greater-than-average growth orientation. The stocks are
also members of the Russell 1000 Growth Index, the securities in which tend
to exhibit higher price-to-book and price earnings 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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<PAGE>
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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<PAGE>
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 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.
B-46
<PAGE>
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect.
Shareholders are urged to consult their tax advisors regarding specific
questions as to Federal, state and local taxes. In addition, foreign investors
should consult with their own tax advisors regarding the particular tax
consequences to them of an investment in the 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
B-47
<PAGE>
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.
B-48
<PAGE>
In addition, the Directors may be removed by the affirmative vote of a
majority of all the votes entitled to be cast for the election of directors.
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.
B-49
<PAGE>
ADDITIONAL INFORMATION
COMPUTATION OF OFFERING PRICE PER SHARE
The following is the offering price calculation for each Class of shares
of the Fund, based on the value of the Fund's net assets and number of shares
outstanding on the date its shares are first offered for sale to public
investors.
<TABLE>
<CAPTION>
Class A
------------------
<S> <C>
Net Assets $100,000
Number of shares outstanding 8,000
Net Asset Value Per Share
(net assets divided by
number of shares) $12.50
Sales Charge
for Class A shares:
5.75% of offering
price (6.10% of net
asset value per
share.)* 0.76
Offering Price $13.26
* Rounded to nearest one-hundreth percent; assumes maximum sales charge is
applicable.
** Class B shares are not subject to an initial charge. Class B shares may
be subject to a CDSC on redemption of shares within six years of
purchase.
</TABLE>
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 and Statement of Operations of SunAmerica
Strategic Investment Series, Inc. at February 25, 1999.
B-50
<PAGE>
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>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors
of SunAmerica Strategic Investment Series, Inc.
Tax Managed Equity Fund
In our opinion, the accompanying statements of assets and liabilities and of
operations present fairly, in all material respects, the financial position
of SunAmerica Strategic Investment Series, Inc. - Tax Managed Equity Fund
(the "Fund") at February 25, 1999, and the results of its operations for the
day then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 26, 1999
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
TAX MANAGED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 25, 1999
<TABLE>
<S> <C>
ASSETS:
Cash $100,000
Receivable from investment adviser 70,000
Deferred offering costs 75,660
--------
Total Assets 245,660
--------
LIABILITIES:
Payable for organization expense 70,000
Due to adviser 75,660
--------
Total Liabilities: $145,660
--------
Net Assets $100,000
--------
--------
NET ASSETS WERE COMPOSED OF:
Shares of beneficial interest, $.0001 par value $ 1
Paid-in capital 99,999
--------
Net Assets $100,000
--------
--------
Class A (33,333,334 shares authorized):
Net Assets $100,000
Shares of beneficial interest issued
and outstanding 8,000
Net asset value and redemption price per share $ 12.50
Maximum sales charge (5.75% of offering price) 0.76
--------
Maximum offering price to public $ 13.26
--------
--------
</TABLE>
See Notes to Financial Statements
STATEMENT OF OPERATIONS
FOR THE DAY ENDED FEBRUARY 25, 1999
<TABLE>
<S> <C>
Total income $ --
--------
Expenses:
Organization expenses 70,000
--------
Total Expenses (before reimbursements) 70,000
Less: Expenses reimbursed by investment adviser 70,000
--------
Net Expenses --
--------
Net loss $ --
--------
</TABLE>
See Notes to Financial Statements
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
SunAmerica Strategic Investment Series, Inc. (the "Corporation") is an
open-end, diversified management investment company organized as a Maryland
corporation on December 16, 1998. It currently consists of one investment
fund, the Tax Managed Equity Fund (the "Fund") which seeks high total
return with a view towards minimizing the impact of capital gains taxes on
investors' returns. The Corporation is managed by SunAmerica Asset Management
Corp. ("SunAmerica"), an indirect wholly-owned subsidiary of American
International Group, Inc. (AIG). The Fund currently offers three classes of
shares. The cost structure for each class is as follows:
CLASS A SHARES - Offered at net asset value per share plus an initial sales
charge. Any purchases of Class A shares in excess of $1,000,000 will be
subject to a contingent deferred sales charge on redemptions made within one
year of purchase.
CLASS B SHARES - Offered at net asset value per share without an initial
sales charge, although a declining contingent sales charge may be imposed on
redemptions made within six years of purchase. Class B shares will convert
automatically to Class A shares on the first business day of the month after
seven years from the issuance of such Class B shares and at such time will be
subject to the lower distribution fee applicable to Class A shares.
CLASS II SHARES - Offered at net asset value per share plus an initial sales
charge. Certain redemptions made within 18 months of the date of purchase
are subject to a contingent deferred sales charge.
Each class of shares bears the same voting, dividend, liquidation and other
rights and conditions and each makes distribution and account maintenance and
service fee payments under the distribution plans pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act"), except that Class
B shares and Class II shares are subject to higher distribution fee rates.
NOTE 2. ACCOUNTING POLICIES
ORGANIZATION EXPENSES: SunAmerica has agreed to reimburse expenses incurred
and to be incurred in connection with the organization of the Fund, estimated
at $70,000, subject to recoupment from the Fund as described in Note 3 below.
Certain costs incurred and to be incurred in connection with the initial
offering of shares of the Fund, estimated at $75,660 will be paid initially
by the Adviser. The Fund will reimburse the Adviser for such costs, which
will be amortized by the Fund over the period of benefit, not to exceed 12
months from the date the Fund commences operations.
<PAGE>
NOTE 3. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT, DISTRIBUTION AGREEMENT
AND SERVICE AGREEMENT
The Fund has entered into an Investment Advisory and Management Agreement
(the "Agreement") with SunAmerica. Under the Agreement, SunAmerica provides
continuous supervision of the Fund and administers its corporate affairs,
subject to general review by the Board of Directors (the "Directors"). In
connection therewith, SunAmerica furnishes the Fund with office facilities,
maintains certain of the Fund's books and records, and pays for the salaries
and expenses of all personnel, including officers of the Fund who are
employees of SunAmerica and its affiliates. The investment advisory and
management fee payable by the Fund to SunAmerica is computed daily and
payable monthly, at an annual rate of 0.85% of the average daily net assets.
J.P. Morgan Investment Management, Inc. acts as subadviser to the Fund
pursuant to a subadvisory agreement with SunAmerica. Under the subadvisory
agreement, the subadviser manages the investment and reinvestment of the
assets of the Fund. The subadviser 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 subadviser's fees.
SunAmerica has agreed to waive fees or reimburse expenses, if necessary, to
keep annual expenses at or below 1.45% of average daily net assets on Class A
shares and 2.10% of average daily net assets on Class B and Class II shares.
SunAmerica also may voluntarily waive or reimburse additional amounts to
increase the investment return to the Fund's investors. Further, any waivers
or reimbursements made by SunAmerica are subject to recoupment from the Fund
within the following two years, provided that the Fund is able to effect such
payment to SunAmerica and remain in compliance with the foregoing expense
limitations.
The Fund has entered into a Distribution Agreement with SunAmerica Capital
Services, Inc. ("SACS" or the "Distributor"), an indirect wholly-owned
subsidiary of AIG. The Fund has adopted a distribution plan in accordance
with the provisions of Rule 12b-1 under the 1940 Act. Rule 12b-1 permits an
investment company directly or indirectly to pay expenses associated with the
distribution of its shares ("distribution expenses") in accordance with a
plan adopted by the investment company's Board of Directors. Pursuant to such
rule, the Directors have adopted distribution plans hereinafter referred to
as the "Class A Plan," the "Class B Plan" and the "Class II Plan." In
adopting the Class A Plan, the Class B Plan and the Class II Plan, the
Directors determined that there was a reasonable likelihood that each such
Plan would benefit the Fund and the shareholders of the respective class. The
sales charge and distribution fees of a particular class will not be used to
subsidize the sale of shares of any other class.
Under the Class A Plan, the Distributor receives payments from the Fund at an
annual rate of 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 0.75% of the average daily net assets of the
Fund's Class B and Class II shares, respectively, to compensate the
Distributor and certain securities firms for providing sales and promotional
activities and for distributing each such class of shares. The distribution
costs for which the Distributor may be reimbursed out of such distribution
fees
<PAGE>
include fees paid to broker-dealers that have sold Fund shares,
commissions, and other expenses such as those incurred for sales literature,
prospectus printing and distribution and compensation to wholesalers. It is
possible that in any given year the amount paid to the Distributor under the
Class A Plan, Class B Plan or Class II Plan may exceed the Distributor's
distribution costs as described above. The Distribution Plans also provide
that each class of shares of the Fund may also pay the Distributor an account
maintenance and service fee at an annual rate of 0.25% of the aggregate
average daily net assets of such class of shares for payments to
broker-dealers for providing continuing account maintenance.
The Fund has entered into a service agreement with SunAmerica Fund Services,
Inc. ("SAFS"), an indirect wholly-owned subsidiary of AIG. Under the service
agreement, SAFS performs certain shareholder account functions by assisting
the Fund's transfer agent in connection with the services that it offers to
the shareholders of the Fund. The service agreement, which permits the Fund
to compensate SAFS for services rendered based upon an annual rate of 0.22%
of average daily net assets, is approved annually by the Directors.
NOTE 4. DIRECTORS' RETIREMENT PLAN
The Directors (and Trustees) of the SunAmerica Family of Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement Plan
(the "Retirement Plan") effective January 1, 1993 for the unafilliated
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, but in no event
for a period greater than 10 years, each Eligible Director will be credited
with an amount equal to 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. In addition, an amount
equal to 8.5% of any amounts credited under the preceding clause during prior
years, is added to each Eligible Director's account until such Eligible
Trustee reaches his or her 70th birthday. 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.
<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) (1) Investment Advisory and Management Agreement between the
Registrant and SunAmerica Asset Management Corp.**
(2) Subadvisory Agreement between the Registrant and
J.P. Morgan Investment Management, Inc.**
(e) (1) Distribution Agreement between the Registrant and
SunAmerica Capital Services, Inc.**
(2) [Form of] Selling Agreement**
(f) Disinterested Directors Retirement Plan**
(g) Custodian Contract between the Registrant and State Street
Bank and Trust Company.**
(h) (1) Transfer Agency and Service Agreement between the
Registrant and State Street Bank and Trust Company.**
(2) Service Agreement between the Registrant and SunAmerica
Fund Services, Inc.**
(i) Opinion and Consent of Counsel.**
(j) Consent of PricewaterhouseCoopers LLP, independent auditors for
the Registrant.**
(k) None.
(l) Not Applicable
(m) (1) Distribution Plan pursuant to Rule 12b-1 (Class A
Shares).**
(2) Distribution Plan pursuant to Rule 12b-1 (Class B
Shares).**
(3) Distribution Plan pursuant to Rule 12b-1 (Class II
Shares).**
(n) Not applicable.
(o) (1) Rule 18f-3 Plan.**
(2) Power of Attorney**
_____________________________
* Incorporated by reference to Exhibit (a) to the Registrant's
initial Registration Statement on Form N-1A.
** Filed herewith.
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 sold 8000 shares of the Fund of the Registrant to
SunAmerica Asset Management Corp.
Item 25. Indemnification
Article VII of the Registrant's By-Laws relating to the indemnification of
officers and trustees is quoted below:
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than a proceeding by or in the right of the Corporation in which such person
shall have been adjudged to be liable to the Corporation), by reason of being
or having been a director or officer of the Corporation, or serving or having
served at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another entity in which the Corporation has an
interest as a shareholder, creditor or otherwise (a "Covered Person"),
against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
reasonable expenses (including attorney's fees) actually incurred by the
Covered Person in connection with such action, suit or proceeding, except (i)
liability in connection with any proceeding in which it is determined that
(A) the act or omission of the Covered Person was material to the matter
giving rise to the proceeding, and was committed in bad faith or was the
result of active and deliberate dishonesty, or (B) the Covered Person
actually received an improper personal benefit in money, property or
services, or (C) in the case of any criminal proceeding, the Covered Person
had reasonable cause to believe that the act or omission was unlawful, and
(ii) liability to the Corporation or its security holders to which the
Covered Person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office (any or all of the conduct referred to in clauses
(i) and (ii) being hereinafter referred to as "Disabling Conduct").
SECTION 7.02. PROCEDURE FOR INDEMNIFICATION. Any indemnification under
Section 7.01 shall (unless ordered by a court) be made by the Corporation
only as authorized for a specific proceeding by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that
the Covered Person to be indemnified was not liable by reason of Disabling
Conduct, (ii) dismissal of the proceeding against the Covered Person for
insufficiency of evidence of any Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, by a majority of a quorum of
the directors who are neither "interested persons" of the Corporation as
defined in the Investment Company Act nor parties to the proceeding
("Disinterested, Non-party Directors"), or an independent legal counsel in a
written opinion, that the Covered Person was not liable by reason of
Disabling Conduct. The termination of any proceeding by judgment, order or
settlement shall not create a presumption that the Covered Person did not
meet the required standard of conduct; the termination of any proceeding by
conviction, or a plea of nolo contendere or its equivalent, or an entry of an
order of probation prior to judgment, shall create a rebuttable presumption
that the Covered Person did not meet the required standard of conduct. Any
determination pursuant to this Section 7.02 shall not prevent recovery from
any Covered Person of any amount paid to him in accordance with this By-Law
as indemnification if such Covered Person is subsequently adjudicated by a
court of competent jurisdiction to be liable by reason of Disabling Conduct.
SECTION 7.03. ADVANCE PAYMENT OF EXPENSES. Reasonable expenses
(including attorney's fees) incurred by a Covered Person may be paid or
reimbursed by the Corporation in advance of the final disposition of an
action, suit or proceeding upon receipt by the Corporation of (i) a written
affirmation by the Covered Person of his good faith belief that the standard
of conduct necessary for indemnification under this By-Law has been met and
(ii) a written undertaking by or on behalf of the Covered Person to repay the
amount if it is ultimately determined that such standard of conduct has not
been met, so long as either (A) the Covered Person has provided a security
for his undertaking, (B) the Corporation is insured against losses arising by
reason of any lawful advances, or (C) a majority of a quorum of the
Disinterested, Non-party Directors, or an independent legal counself in a
written opinion, has determined, based on a review of readily available facts
(as opposed to a full trial-type inquiry), that there is reason to believe
that the Covered Person ultimately will be found entitled to indemnification.
SECTION 7.04. EXCLUSIVITY, ETC. The indemnification and advance of
expenses provided by this By-Law shall not be deemed exclusive of any other
rights to which a Covered Person seeking indemnification or advance of
expenses may be entitled under any law (common or statutory), or any
agreement, vote of stockholders or disinterested directors, or other
provision that is consistent with law, both as to action in an official
capacity and as to action in another capacity while holding office or while
employed by or acting as agent for the Corporation, shall continue in respect
of all events occurring while the Covered Person was a director or officer
after such Covered Person has ceased to be a director or officer, and shall
inure to the benefit of the estate, heirs, executors and administrators of
such Covered Person. All rights to indemnification and advance of expenses
under the charter and hereunder shall be deemed to be a contract between the
Corporation and each director or officer of the Corporation who serves or
served in such capacity at any time while this By-Law is in effect. Nothing
herein shall prevent the amendment of this By-Law, provided that no such
amendment shall diminish the rights of any Covered Person hereunder with
respect to events occurring or claims made before its adoption or as to
claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights to indemnification or advance of expenses of a Covered
Person or the obligations of the Corporation arising hereunder with respect
to events occurring, or claims made, while this By-Law or any provision
hereof is in force.
SECTION 7.05. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any Covered Person against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such; PROVIDED, HOWEVER, that the Corporation shall not purchase
insurance to indemnify any Covered Person against liability for Disabling
Conduct.
SECTION 7.06. SEVERABILITY: DEFINITIONS. The invalidity or
unenforceability of any provision of this Article VII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article VII means this Article VII in its entirety.
C-2
<PAGE>
* * * * * * * * * * * * * *
Section 8 of the Articles of Incorporation provide as follows:
(5) The Corporation shall indemnify (i) its directors and
officers, whether serving the Corporation or at its request any other
entity, to the full extent required or permitted by the General Laws of
the State of Maryland now or hereafter in force (as limited by the
Investment Company Act), including the advance of expenses under the
procedures and to the full 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 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 contract
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.
The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations
or duties ("disabling conduct") 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, the
Investment Adviser shall not be subject to liability to the Corporation or to
any shareholder of the Corporation for any act or omission in the course of,
or connected with, rendering services, 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 the Investment Advisory 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. Except for such
disabling conduct, the Corporation shall indemnify the Investment Adviser
(and its officers, directors, partners, agents, employees, controlling
persons, shareholders and any other person or entity affiliated with the
Investment Adviser) from any liability arising from the Investment Adviser's
conduct under the Investment Advisory Agreement.
C-3
<PAGE>
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 26th day of February, 1999.
SunAmerica Strategic Investment Series, Inc.
By: /s/ Peter A. Harbeck
----------------------
Peter A. Harbeck
President
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:
* Treasurer
-------------------- (Principal Financial and
Peter C. Sutton Accounting Officer)
* Director
--------------------
S. James Coppersmith
* Director
--------------------
Samuel M. Eisenstat
/s/ Peter A. Harbeck President February 26, 1999
-------------------- and Director
Peter A. Harbeck (Principal Executive
Officer)
* Director
--------------------
Stephen J. Gutman
* Director
--------------------
Sebastiano Sterpa
By /s/ Robert M. Zakem February 26, 1999
--------------------
Robert M. Zakem, Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
(b) By-Laws of Registrant
(d)(1) Investment Advisory and Management Agreement
(d)(2) Subadvisory Agreement
(e)(1) Distribution Agreement
(e)(2) Selling Agreement
(f) Disinterested Directors Retirement Plan
(g) Custodian Contract
(h)(1) Transfer Agency and Service Agreement
(h)(2) [Form of] Service Agreement
(i) Opinion and Consent of Counsel
(j) Consent of Independent Accountants
(m)(1) Distribution Plan (Class A Shares)
(m)(2) Distribution Plan (Class B Shares)
(m)(3) Distribution Plan (Class II Shares)
(o)(1) Rule 18f-3 Plan
(o)(2) Power of Attorney
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
SECTION 1.01. ANNUAL MEETING. The Corporation is not required to hold
an annual meeting of its stockholders in any year in which the election of
directors is not required to be acted upon under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). If the Corporation is
required by the Investment Company Act to hold a meeting of stockholders to
elect directors, such meeting shall be held at a date and time set by the
Board of Directors in accordance with the Investment Company Act and no later
than 120 days after the occurrence of the event requiring the meeting. Any
stockholders' meeting held in accordance with the preceding sentence shall
for all purposes constitute the annual meeting of stockholders for the fiscal
year of the Corporation in which the meeting is held. Except as the charter
or statute provides otherwise, any business may be considered at an annual
meeting without the purpose of the meeting having been specified in the
notice. Failure to hold an annual meeting does not invalidate the
Corporation's existence or affect any otherwise valid corporate acts.
SECTION 1.02. SPECIAL MEETING. At any time in the interval between
annual meetings, a special meeting of stockholders may be called by the
Chairman or the President or by a majority of the Board of Directors by vote
at a meeting or in writing (addressed to the Secretary of the Corporation)
with or without a meeting. Special meetings of the stockholders shall be
called as may be required by law.
SECTION 1.03. PLACE OF MEETINGS. Meetings of stockholders shall be
held at such place in the United States as is set from time to time by the
Board of Directors.
SECTION 1.04. NOTICE OF MEETINGS; WAIVER OF NOTICE. Not less than ten
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at
the meeting and each other stockholder entitled to notice of the meeting.
The notice shall state the time and place of the meeting and, if the meeting
is a special meeting or notice of the purpose is required by statute, the
purpose of the meeting. Notice is given to a stockholder when it is
personally delivered to him, left at his residence or usual place of
business, or mailed to him at his address as it appears on the records of the
Corporation. Notwithstanding the foregoing provisions, each person who is
entitled to notice waives notice if he before or after the meeting signs a
waiver of the notice which is filed with the records of stockholders'
meetings, or is present at the meeting in person or by proxy.
<PAGE>
SECTION 1.05. QUORUM; VOTING. Unless statute or the charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast
at the meeting constitutes a quorum, and majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter
which properly comes before the meeting, except that a plurality of all the
votes cast at a meeting at which a quorum is present is sufficient to elect a
director.
SECTION 1.06. ADJOURNMENTS. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice by a majority vote of the
stockholders present in person or by proxy to a date not more than 120 days
after the original record date. Any business which might have been
transacted at the meeting as originally notified may be deferred and
transacted at any such adjourned meeting at which a quorum shall be present.
SECTION 1.07. GENERAL RIGHT TO VOTE; PROXIES. Unless the charter
provides for a greater or lesser number of votes per share or limits or
denies voting rights, each outstanding share of stock, regardless of class,
is entitled to one vote on each matter submitted to a vote at a meeting of
stockholders; however, a share is not entitled to be voted if any installment
payable on it is overdue and unpaid. In all elections for directors, each
share of stock may be voted for as many individuals as there are directors to
be elected and for whose election the share is entitled to be voted. A
stockholder may vote the stock the stockholder owns of record either in
person or by proxy. A stockholder may sign a writing authorizing another
person to act as proxy. Signing may be accomplished by the stockholder or
the stockholder's authorized agent signing the writing or causing the
stockholder's signature to be affixed to the writing by any reasonable means,
including facsimile signature. A stockholder may authorize another person to
act as proxy by transmitting, or authorizing the transmission of, a telegram,
cablegram, datagram, or other means of electronic transmission to the person
authorized to act as proxy or to a proxy solicitation firm, proxy support
service organization, or other person authorized by the person who will act
as proxy to receive the transmission. The placing of a shareholder's name on
a proxy pursuant to telephonic or electronically transmitted instructions
obtained pursuant to procedures reasonably designed to verify that such
instructions have been authorized by such shareholder shall constitute
execution of such proxy by or on behalf of such shareholder. Unless a proxy
provides otherwise, it is not valid more than 11 months after its date. A
proxy is revocable by a stockholder at any time without condition or
qualification unless the proxy states that it is irrevocable and the proxy is
coupled with an interest. A proxy may be made irrevocable for so long as it
is coupled with an interest. The interest with which a proxy may be coupled
includes an interest in the stock to be voted under the proxy or another
general interest in the Corporation or its assets or liabilities.
SECTION 1.08. LIST OF STOCKHOLDERS. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number of shares held by each and certified by the
transfer agent or by the Secretary, shall be furnished by the Secretary.
-2-
<PAGE>
SECTION 1.09. CONDUCT OF BUSINESS. At all meetings of stockholders,
unless the voting is conducted by inspectors, the proxies and ballots shall
be received, and all questions touching the qualification of voters and the
validity of proxies, the acceptance or rejection of votes and procedures for
the conduct of business not otherwise specified by these By-Laws, the charter
or law, shall be decided or determined by the chairman of the meeting. If
demanded by stockholders, present in person or by proxy, entitled to cast ten
percent in number of votes entitled to be cast, or if ordered by the
chairman, the vote upon any election or question shall be taken by ballot
and, upon like demand or order, the voting shall be conducted by one or more
inspectors, in which event the proxies and ballots shall be received, and all
questions touching the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided, by such
inspectors. Unless so demanded or ordered, no vote need be by ballot and
voting need not be conducted by inspectors. The stockholders at any meeting
may choose an inspector or inspectors to act at such meeting, and in default
of such election the chairman of the meeting may appoint an inspector or
inspectors. No candidate for election as a director at a meeting shall serve
as an inspector thereat.
SECTION 1.10 ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders' meetings an
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent signed by each stockholder entitled to notice of the meeting but
not entitled to vote at it.
SECTION 1.11. ADVANCE NOTICE PROVISIONS FOR ELECTION OF DIRECTORS.
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors of the Corporation. Nominations
of persons for election to the Board of Directors may be made at any annual
meeting of stockholders, or at any special meeting of stockholders called for
the purpose of electing directors, (a) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (b) by any
stockholder of the Corporation (i) who is a stockholder of record on the date
of the giving of the notice provided for in this Section 1.11 and on the
record date for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set forth in this
Section 1.11.
To be timely, a stockholder's notice must be delivered to or mailed and
received by the Secretary at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's
annual meeting; PROVIDED, HOWEVER, that in the event that the date of the
annual meeting is advanced by more than 30 days or delayed by more than 60
days from such anniversary date, notice by the stockholder to be timely must
be so delivered not earlier than the 90th day prior to such annual meeting
and not later than the close of business on the later of the 60th day prior
to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made; and (b) in the case
of a special meeting of stockholders called for the purpose of electing
directors, not later than the close of business on the 10th day following the
day on which notice of the date of the special meeting was mailed or public
disclosure of the date of the special meeting was made, whichever first
occurs.
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To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director, all information relating to such person
that is required to be disclosed in connection with solicitations of proxies
for election of directors pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and address of such stockholder as they appear on the
Corporation's books and of the beneficial owner, if any, on whose behalf the
nomination is made, (ii) the class or series and number of shares of capital
stock of the Corporation which are owned beneficially or of record by such
stockholder and such beneficial owner, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy
at the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant
to Regulation 14A of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent
of each proposed nominee to be named as a nominee and to serve as a director
if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section 1.11. If the chairman of the meeting determines that nomination
was not made in accordance with the foregoing procedures, the chairman shall
declare to the meeting that the nomination was defective and such defective
nomination shall be disregarded. No adjournment or postponement of a meeting
of stockholders shall commence a new period for the giving of notice of a
stockholder proposal hereunder.
SECTION 1.12. ADVANCE NOTICE PROVISIONS FOR BUSINESS TO BE TRANSACTED
AT ANNUAL MEETING. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board of Directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direction of the
Board of Directors (or any duly authorized committee thereof) or (c)
otherwise properly brought before the annual meeting by any stockholder of
the Corporation (i) who is stockholder of record on the date of the giving of
the notice provided for in this Section 1.12 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and
(ii) who complies with the notice procedures set forth in this Section 1.12.
To be timely, a stockholder's notice must be delivered to or mailed and
received by the Secretary at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; PROVIDED, HOWEVER, that
in the event that the date of the annual meeting is advanced by more than 30
days or delayed by more than 60 days from such anniversary date, notice by
the stockholder to be
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timely must be so delivered not earlier than the 90th day prior to such
annual meeting and not later than the close of business on the later of the
60th day prior to such annual meeting or the 10th day following the day on
which public announcement of the date of such meeting is first made.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before
the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address of such stockholder
as they appear on the Corporation's books and of the beneficial owner, if
any, on whose behalf the proposal is made, (iii) the class or series and
number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder and such beneficial owner, (iv)
a description of all arrangements or understandings between such stockholder
and any other person or persons (including their names) in connection with
the proposal of such business by such stockholder and any material interest
of such stockholder in such business, and (v) a representation that such
stockholder intends to appear in person or by proxy at the annual meeting to
bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in Section 1.11 or in this Section 1.12, PROVIDED,
HOWEVER, that once business has been properly brought before the annual
meeting in accordance with such procedures, nothing in Section 1.11 or in
this Section 1.12 shall be deemed to preclude discussion by any stockholder
of any such business. If the chairman of an annual meeting determines that
business was not properly brought before the annual meeting in accordance
with the foregoing procedures, the chairman shall declare to the meeting that
the business was not properly brought before the meeting and such business
shall not be transacted. No adjournment or postponement of a meeting of
stockholders shall commence a new period for the giving of notice of a
stockholder proposal hereunder.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. FUNCTION OF DIRECTORS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
All powers of the Corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to the stockholders by
statute or by the charter or By-Laws. The Board may delegate the duty of
management of the assets and the administration of the day-to-day operations
of the Corporation to one or more entities or individuals pursuant to a
written contract or contracts which have obtained the approvals, including
the approval of renewals thereof, required by the Investment Company Act.
SECTION 2.02. NUMBER OF DIRECTORS. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number
of directors may be less than three but not less than one, and, if there is
stock outstanding and so long as there are fewer than
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three stockholders, the number of directors may be less than three but not
less than the number of stockholders. The Corporation shall have the number
of directors provided in the charter until changed as herein provided. A
majority of the entire Board of Directors may alter the number of directors
set by the charter to not exceeding 25 nor less than the minimum number then
permitted herein, but the action may not affect the tenure of office of any
director.
SECTION 2.03. ELECTION AND TENURE OF DIRECTORS. At each annual
meeting, the stockholders shall elect directors to hold office until the next
annual meeting and until their successors are elected and qualify.
SECTION 2.04. REMOVAL OF DIRECTOR. Unless statute or the charter
provides otherwise, the stockholders may remove any director, with or without
cause, by the affirmative vote of a majority of all the votes entitled to be
cast for the election of directors.
SECTION 2.05. VACANCY ON BOARD. The stockholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of
a director by the stockholders. A director elected by the stockholders to
fill a vacancy which results from the removal of a director serves for the
balance of the term of the removed director. Unless otherwise provided by
statute or the charter, a majority of the remaining directors, whether or not
sufficient to constitute a quorum, may fill a vacancy on the Board of
Directors which results from any cause except an increase in the number of
directors. A majority of the entire Board of Directors may fill a vacancy
which results from an increase in the number of directors. A director
elected by the Board of Directors to fill a vacancy serves until the next
annual meeting of stockholders and until his successor is elected and
qualifies.
SECTION 2.06. REGULAR MEETINGS. After each meeting of stockholders at
which directors shall have been elected, the Board of Directors shall meet as
soon as practicable for the purpose of organization and the transaction of
other business. In the event that no other time and place are specified by
resolution of the Board, the President or the Chairman, with notice in
accordance with Section 2.08, the Board of Directors shall meet immediately
following the close of, and at the place of, such stockholders' meeting. Any
other regular meeting of the Board of Directors shall be held on such date
and at any place as may be designated from time to time by the Board of
Directors.
SECTION 2.07. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman or the President or by a
majority of the Board of Directors by vote at a meeting, or in writing with
or without a meeting. A special meeting of the Board of Directors shall be
held on such date and at any place as may be designated from time to time by
the Board of Directors. In the absence of designation such meeting shall be
held at such place as may be designated in the call.
SECTION 2.08. NOTICE OF MEETING. Except as provided in Section 2.06,
the Secretary shall give notice to each director of each regular and special
meeting of the Board of Directors. The notice shall state the time and place
of the meeting. Notice is given to a director when it is
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delivered personally to him, left at his residence or usual place of
business, or sent by telegraph, facsimile transmission or telephone, at least
24 hours before the time of the meeting or, in the alternative, by mail to
his address as it shall appear on the records of the Corporation, at least 72
hours before the time of the meeting. Unless statute, these By-Laws or a
resolution of the Board of Directors provides otherwise, the notice need not
state the business to be transacted at or the purposes of any regular or
special meeting of the Board of Directors. No notice of any meeting of the
Board of Directors need be given to any director who attends except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened, or to any director who, in a writing executed and filed with the
records of the meeting either before or after the holding thereof, waives
such notice. Any meeting of the Board of Directors, regular or special, may
adjourn from time to time to reconvene at the same or some other place, and
no notice need be given of any such adjourned meeting other than by
announcement.
SECTION 2.09. ACTION BY DIRECTORS. Unless statute or the charter or
the By-Laws requires a greater proportion, the action of a majority of the
directors present at a meeting at which a quorum is present is action of the
Board of Directors. A majority of the entire Board of Directors shall
constitute a quorum for the transaction of business. In the absence of a
quorum, the directors present by majority vote and without notice other than
by announcement may adjourn the meeting from time to time until a quorum
shall attend. At any such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at
the meeting as originally notified. Unless otherwise provided by statute or
regulation, any action required or permitted to be taken at a meeting of the
Board of Directors may be taken without a meeting, if an unanimous written
consent which sets forth the action is signed by each member of the Board and
filed with the minutes of proceedings of the Board.
SECTION 2.10. PARTICIPATION BY TELEPHONE. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Unless provided otherwise by
statute or regulation, participation in a meeting by these means constitutes
presence in person at the meeting.
SECTION 2.11. COMPENSATION. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. Directors who are affiliates of any
entity serving as investment adviser or administrator of the Corporation need
not be paid for attendance at meetings of the board or committees thereof for
which fees are paid to other directors. A director who serves the
Corporation in any other capacity also may receive compensation for such
other services, pursuant to a resolution of the directors.
SECTION 2.12. RESIGNATION. Any director may resign at any time by
sending a written notice of such resignation to the home office of the
Corporation addressed to the Chairman or the
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President. Unless otherwise specified therein such resignation shall take
effect upon receipt thereof by the Chairman or the President.
SECTION 2.13. PRESUMPTION OF ASSENT. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who votes in favor of such action.
ARTICLE III
COMMITTEES
SECTION 3.01. COMMITTEES. The Board of Directors may appoint from
among its members an Executive Committee, an Audit Committee, and other
committees composed of one or more directors and delegate to these committees
any of the powers of the Board of Directors, except the power to declare
dividends or other distributions on stock, elect directors, issue stock
other than as provided in the next sentence, recommend to the stockholders
any action which requires stockholder approval, amend these By-Laws, or
approve any merger or share exchange which does not require stockholder
approval. If the Board of Directors has given general authorization for the
issuance of stock, a committee of the Board, in accordance with a general
formula or method specified by the Board by resolution or by adoption of a
stock option or other plan, may fix the terms of stock subject to
classification or reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
SECTION 3.02. COMMITTEE PROCEDURE. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority
of those present at a meeting at which a quorum is present shall be the act
of the committee. The members of a committee present at any meeting, whether
or not they constitute a quorum, may appoint a director to act in the place
of an absent member. Any action required or permitted to be taken at a
meeting of a committee may be taken without a meeting, if an unanimous
written consent which sets forth the action is signed by each member of the
committee and filed with the minutes of the committee. The members of a
committee may conduct any meeting thereof by telephone in accordance with the
provisions of Section 2.10.
SECTION 3.03. EMERGENCY. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by
the charter and these By-Laws, any two or more
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available members of the then incumbent Executive Committee shall constitute
a quorum of that Committee for the full conduct and management of the affairs
and business of the Corporation in accordance with the provisions of Section
3.01. In the event of the unavailability, at such time, of a minimum of two
members of the then incumbent Executive Committee, the available directors
shall elect an Executive Committee consisting of any two members of the Board
of Directors, whether or not they be officers of the Corporation, which two
members shall constitute the Executive Committee for the full conduct and
management of the affairs of the Corporation in accordance with the foregoing
provisions of this Section. This Section shall be subject to implementation
by resolution of the Board of Directors passed from time to time for that
purpose, and any provisions of these By-Laws (other than this Section) and
any resolutions which are contrary to the provisions of this Section or to
the provisions of any such implementing resolutions shall be suspended until
it shall be determined by any interim Executive Committee acting under this
Section that it shall be to the advantage of the Corporation to resume the
conduct and management of its affairs and business under all the other
provisions of these By-Laws.
ARTICLE IV
OFFICERS
SECTION 4.01. EXECUTIVE AND OTHER OFFICERS. The Corporation shall have
a President, a Secretary and a Treasurer. It may also have a Chairman. The
Board of Directors shall designate who shall serve as chief executive
officer, who shall have general supervision of the business and affairs of
the Corporation, and may designate a chief operating officer, who shall have
supervision of the operations of the Corporation. In the absence of any
designation the Chairman, if there be one, shall serve as chief executive
officer and the President shall serve as chief operating officer. In the
absence of the Chairman, or if there be none, the President shall be the
chief executive officer. The same person may hold both offices. The
Corporation may also have one or more Vice-Presidents, assistant officers and
subordinate officers as may be established by the Board of Directors. A
person may hold more than one office in the Corporation except that no person
may serve concurrently as both President and Vice-President of the
Corporation. The Chairman shall be a director. The other officers may be
directors.
SECTION 4.02. CHAIRMAN. The Chairman, if one be elected, shall preside
at all meetings of the Board of Directors and of the stockholders at which he
shall be present. Unless otherwise specified by the Board of Directors, he
shall be the chief executive officer of the Corporation and perform the
duties customarily performed by chief executive officers, and may perform any
duties of the President. In general, he shall perform all such duties as are
from time to time assigned to him by the Board of Directors.
SECTION 4.03. PRESIDENT. Unless otherwise provided by resolution of
the Board of Directors, the President, in the absence of the Chairman, shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present. Unless otherwise
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specified by the Board of Directors, the President shall be the chief
operating officer of the Corporation and perform the duties customarily
performed by chief operating officers. He may sign and execute, in the name
of the Corporation, all authorized deeds, mortgages, bonds, contracts or
other instruments, except in cases in which the signing and execution thereof
shall have been expressly delegated to some other officer or agent of the
Corporation. In general, he shall perform all duties usually performed by a
president of a corporation and shall perform such other duties and have such
other powers as are from time to time assigned to him by the Board of
Directors or the chief executive officer of the Corporation.
SECTION 4.04. VICE-PRESIDENTS. The Vice-President or Vice-Presidents,
at the request of the chief executive officer or the President, or in the
President's absence or during his inability to act, shall perform the duties
and exercise the functions of the President, and when so acting shall have
the powers of the President. If there be more than one Vice-President, the
Board of Directors may determine which one or more of the Vice-Presidents
shall perform any of such duties or exercise any of such functions, or if
such determination is not made by the Board of Directors, the chief executive
officer or the President may make such determination; otherwise any of the
Vice-Presidents may perform any of such duties or exercise any of such
functions. Each Vice-President shall have such other powers and perform such
other duties and have such additional descriptive designations in their
titles (if any), as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.05. SECRETARY. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any
committees, in books provided for the purpose; he shall see that all notices
are duly given in accordance with the provisions of these By-Laws or as
required by law; he shall be custodian of the records of the Corporation; he
may witness any document on behalf of the Corporation, the execution of which
is duly authorized, see that the corporate seal is affixed where such
document is required or desired to be under its seal, and, when so affixed,
may attest the same. In general, he shall perform all duties incident to the
office of a secretary of a corporation, and shall perform such other duties
and have such other powers as are from time to time assigned to him by the
Board of Directors, the chief executive officer, or the President.
SECTION 4.06. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by
the Board of Directors; he shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation. In general, he shall perform all duties incident to the office
of a treasurer of a corporation, and shall perform such other duties and have
such other powers as are from time to time assigned to him by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.07. ASSISTANT AND SUBORDINATE OFFICERS. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary or
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Treasurer. The assistant or subordinate officers shall have such duties as
are from time to time assigned to them by the Board of Directors, the chief
executive officer, or the President.
SECTION 4.08. ELECTION, TENURE AND REMOVAL OF OFFICERS. The Board of
Directors shall elect the officers of the Corporation. The Board of
Directors may from time to time authorize any committee or officer to appoint
assistant and subordinate officers. Election or appointment of an officer,
employee or agent shall not of itself create contract rights. All officers
shall be elected or appointed to hold their respective offices during the
pleasure of the Board. The Board of Directors (or, as to any assistant or
subordinate officer, any committee or officer authorized by the Board) may
remove an officer at any time. The removal of an officer does not prejudice
any of his contract rights. The Board of Directors (or, as to any assistant
or subordinate officer, any committee or officer authorized by the Board) may
fill a vacancy which occurs in any office for the unexpired portion of the
term.
SECTION 4.09. COMPENSATION. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind,
of all officers of the Corporation. No officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation. The Board of Directors may authorize any committee or officer,
upon whom the power of appointing assistant and subordinate officers may have
been conferred, to fix the salaries, compensation and remuneration of such
assistant and subordinate officers.
ARTICLE V
STOCK
SECTION 5.01. CERTIFICATES FOR STOCK. If the Board of Directors
authorizes the issue of a class or series of stock with certificates, each
holder of shares of that class or series, upon written request therefor in
accordance with such procedures as may be established by the Board from time
to time, is entitled to certificates which represent and certify the shares
of that class or series he holds in the Corporation. Each stock certificate
shall include on its face the name of the Corporation, the name of the
stockholder or other person to whom it is issued, and the class or series of
stock and number of shares it represents. It shall also include on its face
or back (a) a statement of any restrictions on transferability and (b) a
statement which provides in substance that the Corporation will furnish to
any stockholder on request and without charge a full statement of the
designations and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the stock of each class which the Corporation is
authorized to issue, of the differences in the relative rights and
preferences between the shares of each series of a preferred or special class
in series which the Corporation is authorized to issue, to the extent they
have been set, and of the authority of the Board of Directors to set the
relative rights and preferences of subsequent series of a preferred or
special class of stock and any restrictions on transferability. Such request
may be made to the Secretary or to its transfer agent. Upon the issuance of
uncertificated shares of
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capital stock, the Corporation shall send the stockholder a written statement
of the same information required above on the certificate and by the Maryland
Uniform Commercial Code - Investment Securities. It shall be in such form,
not inconsistent with law or with the charter, as shall be approved by the
Board of Directors or any officer or officers designated for such purpose by
resolution of the Board of Directors. Each stock certificate shall be signed
by the Chairman, the President, or a Vice-President, and countersigned by the
Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer.
Each certificate may be sealed with the actual corporate seal or a facsimile
of it or in any other form and the signatures may be either manual or
facsimile signatures. A certificate is valid and may be issued whether or
not an officer who signed it is still an officer when it is issued. A
certificate may not be issued until the stock represented by it is fully
paid, except in the case of stock purchased under a plan, agreement, or
transaction as provided by law and with such statement on future payments as
required by law.
SECTION 5.02. TRANSFERS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of shares of stock; and may
appoint transfer agents and registrars thereof. The duties of transfer agent
and registrar may be combined.
SECTION 5.03. RECORD DATE AND CLOSING OF TRANSFER BOOKS. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted
other rights. The record date may not be prior to the close of business on
the day the record date is fixed nor, subject to Section 1.06, more than 90
days before the date on which the action requiring the determination will be
taken; the transfer books may not be closed for a period longer than twenty
days; and, in the case of a meeting of stockholders, the record date or the
closing of the transfer books shall be at least ten days before the date of
the meeting.
SECTION 5.04. STOCK LEDGER. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number
of shares of stock of each class or series which the stockholder holds. The
stock ledger may be in written form or in any other form which can be
converted within a reasonable time into written form for visual inspection.
The original or a duplicate of the stock ledger shall be kept at the offices
of a transfer agent for the particular class or series of stock, or, if none,
at the principal office in the State of Maryland or the principal executive
offices of the Corporation.
SECTION 5.05. CERTIFICATION OF BENEFICIAL OWNERS. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of
stock registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth
the class of stockholders who may certify, the purpose for which the
certification may be made, the form of certification and the information to
be contained in it, if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or
closing of the stock transfer books within which the certification must be
received by the Corporation, and any
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other provisions with respect to the procedure which the Board considers
necessary or desirable. On receipt of a certification which complies with
the procedure adopted by the Board in accordance with this Section, the
person specified in the certification is, for the purpose set forth in the
certification, the holder of record of the specified stock in place of the
stockholder who makes the certification.
SECTION 5.06. LOST STOCK CERTIFICATES. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate
in place of one which is alleged to have been lost, stolen or destroyed,
including the requirement that the owner furnish a bond as indemnity against
any claim that may be made against the Corporation in respect of the lost,
stolen or destroyed certificate, or the Board of Directors may delegate such
power to any officer or officers of the Corporation. In their discretion,
the Board of Directors or such officer or officers may refuse to issue such
new certificate save upon the order of some court having jurisdiction in the
premises.
ARTICLE VI
FINANCE
SECTION 6.01. CHECKS, DRAFTS, ETC. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in
the name of the Corporation, shall, unless otherwise provided by resolution
of the Board of Directors, be signed by the Chairman, the President, a
Vice-President or an Assistant Vice-President and countersigned by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.
SECTION 6.02. ANNUAL STATEMENT OF AFFAIRS. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a statement of net assets and a
financial statement of operations for the preceding fiscal year. The
statement of affairs shall be placed on file at the Corporation's principal
office within 120 days after the end of the fiscal year.
SECTION 6.03. FISCAL YEAR. The fiscal year of the Corporation shall be
the twelve-calendar-month period ending October 31 in each year, unless
otherwise provided by the Board of Directors.
SECTION 6.04. DIVIDENDS. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the charter of
the Corporation.
SECTION 6.05. NET ASSET VALUE. The net asset value per share of each
class or series of stock shall be determined no less frequently than as of
the end of each month. In valuing portfolio investments for the
determination of the current net asset value per share of any class or
series, securities for which market quotations are readily available shall be
valued at prices
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<PAGE>
which, in the opinion of the Board of Directors or the person designated by
the Board of Directors to make the determination, most nearly represent the
current market value of such securities, and other securities and assets
shall be valued on the basis of their fair value as determined by or pursuant
to the direction of the Board of Directors, which in the case of debt
obligations, commercial paper and repurchase agreements may, but need not, be
determined based on yields for securities of comparable maturity, quality and
type, or using the amortized cost method of valuation.
SECTION 6.06. EMPLOYMENT OF CUSTODIAN. The Corporation shall place and
maintain its securities and similar investments in the custody of one or more
custodians meeting the requirements of the Investment Company Act or may
serve as its own custodian but only in accordance with such rules and
regulations or orders as the Securities and Exchange Commission may from time
to time prescribe for the protection of investors. Securities held by a
custodian may be registered in the name of the Corporation, including the
designation of the particular class or series to which such assets belong, or
any such custodian, or the nominee of either of them. Subject to such rules,
regulations, and orders as the Commission may adopt as necessary or
appropriate for the protection of investors, the Corporation or any
custodian, with the consent of the Corporation, may deposit all or any part
of the securities owned by the Corporation in a system for the central
handling of securities, pursuant to which system all securities of a
particular class or series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of such securities.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than a proceeding by or in the right of the Corporation in which such person
shall have been adjudged to be liable to the Corporation), by reason of being
or having been a director or officer of the Corporation, or serving or having
served at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another entity in which the Corporation has an
interest as a shareholder, creditor or otherwise (a "Covered Person"),
against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
reasonable expenses (including attorney's fees) actually incurred by the
Covered Person in connection with such action, suit or proceeding, except (i)
liability in connection with any proceeding in which it is determined that
(A) the act or omission of the Covered Person was material to the matter
giving rise to the proceeding, and was committed in bad faith or was the
result of active and deliberate dishonesty, or (B) the Covered Person
actually received an improper personal benefit in money, property or
services, or (C) in the case of any criminal proceeding, the Covered Person
had reasonable cause to believe that the act or omission was unlawful, and
(ii) liability to the Corporation or its security holders to which
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<PAGE>
the Covered Person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office (any or all of the conduct referred to
in clauses (i) and (ii) being hereinafter referred to as "Disabling
Conduct").
SECTION 7.02. PROCEDURE FOR INDEMNIFICATION. Any indemnification under
Section 7.01 shall (unless ordered by a court) be made by the Corporation
only as authorized for a specific proceeding by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that
the Covered Person to be indemnified was not liable by reason of Disabling
Conduct, (ii) dismissal of the proceeding against the Covered Person for
insufficiency of evidence of any Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, by a majority of a quorum of
the directors who are neither "interested persons" of the Corporation as
defined in the Investment Company Act nor parties to the proceeding
("Disinterested, Non-party Directors"), or an independent legal counsel in a
written opinion, that the Covered Person was not liable by reason of
Disabling Conduct. The termination of any proceeding by judgment, order or
settlement shall not create a presumption that the Covered Person did not
meet the required standard of conduct; the termination of any proceeding by
conviction, or a plea of nolo contendere or its equivalent, or an entry of an
order of probation prior to judgment, shall create a rebuttable presumption
that the Covered Person did not meet the required standard of conduct. Any
determination pursuant to this Section 7.02 shall not prevent recovery from
any Covered Person of any amount paid to him in accordance with this By-Law
as indemnification if such Covered Person is subsequently adjudicated by a
court of competent jurisdiction to be liable by reason of Disabling Conduct.
SECTION 7.03. ADVANCE PAYMENT OF EXPENSES. Reasonable expenses
(including attorney's fees) incurred by a Covered Person may be paid or
reimbursed by the Corporation in advance of the final disposition of an
action, suit or proceeding upon receipt by the Corporation of (i) a written
affirmation by the Covered Person of his good faith belief that the standard
of conduct necessary for indemnification under this By-Law has been met and
(ii) a written undertaking by or on behalf of the Covered Person to repay the
amount if it is ultimately determined that such standard of conduct has not
been met, so long as either (A) the Covered Person has provided a security
for his undertaking, (B) the Corporation is insured against losses arising by
reason of any lawful advances, or (C) a majority of a quorum of the
Disinterested, Non-party Directors, or an independent legal counsel in a
written opinion, has determined, based on a review of readily available facts
(as opposed to a full trial-type inquiry), that there is reason to believe
that the Covered Person ultimately will be found entitled to indemnification.
SECTION 7.04. EXCLUSIVITY, ETC. The indemnification and advance of
expenses provided by this By-Law shall not be deemed exclusive of any other
rights to which a Covered Person seeking indemnification or advance of
expenses may be entitled under any law (common or statutory), or any
agreement, vote of stockholders or disinterested directors, or other
provision that is consistent with law, both as to action in an official
capacity and as to action in another capacity while holding office or while
employed by or acting as agent for the Corporation, shall continue in respect
of all events occurring while the Covered Person was a director or officer
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<PAGE>
after such Covered Person has ceased to be a director or officer, and shall
inure to the benefit of the estate, heirs, executors and administrators of
such Covered Person. All rights to indemnification and advance of expenses
under the charter and hereunder shall be deemed to be a contract between the
Corporation and each director or officer of the Corporation who serves or
served in such capacity at any time while this By-Law is in effect. Nothing
herein shall prevent the amendment of this By-Law, provided that no such
amendment shall diminish the rights of any Covered Person hereunder with
respect to events occurring or claims made before its adoption or as to
claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights to indemnification or advance of expenses of a Covered
Person or the obligations of the Corporation arising hereunder with respect
to events occurring, or claims made, while this By-Law or any provision
hereof is in force.
SECTION 7.05. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any Covered Person against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such; PROVIDED, HOWEVER, that the Corporation shall not purchase
insurance to indemnify any Covered Person against liability for Disabling
Conduct.
SECTION 7.06. SEVERABILITY: DEFINITIONS. The invalidity or
unenforceability of any provision of this Article VII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article VII means this Article VII in its entirety.
ARTICLE VIII
SUNDRY PROVISIONS
SECTION 8.01. BOOKS AND RECORDS. The Corporation shall keep correct
and complete books and records of its accounts and transactions and minutes
of the proceedings of its stockholders and Board of Directors and of any
executive or other committee when exercising any of the powers of the Board
of Directors. The books and records of the Corporation may be in written
form or in any other form which can be converted within a reasonable time
into written form for visual inspection. Minutes shall be recorded in
written form but may be maintained in the form of a reproduction. The
original or a certified copy of these By-Laws shall be kept at the principal
office of the Corporation.
SECTION 8.02. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the
charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof. If the Corporation is
required to place its corporate seal to a document, it is sufficient to meet
the requirement of any law, rule or regulation relating to a corporate seal
to place the word "Seal" adjacent to the signature of the person authorized
to sign the document on behalf of the Corporation.
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<PAGE>
SECTION 8.03. BONDS. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
SECTION 8.04. VOTING STOCK IN OTHER CORPORATIONS. Stock of other
corporations or associations, registered in the name of the Corporation, may
be voted by the Chairman, the President, a Vice-President, the Treasurer or a
proxy appointed by any of them. The Board of Directors, however, may by
resolution appoint some other person to vote such shares, in which case such
person shall be entitled to vote such shares upon the production of a
certified copy of such resolution.
SECTION 8.05. MAIL. Any notice or other document which is required by
these By-Laws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 8.06. CONTRACTS AND AGREEMENTS. To the extent permitted by
applicable law, and except as otherwise prescribed by the charter or these
By-Laws, the Board of Directors may authorize any officer, employee or agent
of the Corporation to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation. Such authority
may be general or confined to specific instances. A person who holds more
than one office in the Corporation may not act in more than one capacity to
execute, acknowledge or verify an instrument required by law to be executed,
acknowledged or verified by more than one officer.
SECTION 8.07. RELIANCE. Each director, officer, employee and agent of
the Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or
failure to act in reliance in good faith upon the books of account or other
records of the Corporation, upon an opinion of counsel or upon reports made
to the Corporation by any of its officers or employees or by the advisers,
accountants, appraisers or other experts or consultants selected by the Board
of Directors or officers of the Corporation, regardless of whether such
counsel or expert may also be a director.
SECTION 8.08. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. The directors shall have no responsibility to devote their full time
to the affairs of the Corporation. Any director or officer, employee or
agent of the Corporation, in his personal capacity or in a capacity as an
affiliate, employee or agent of any other person, or otherwise, may have
business interests and engage in business activities similar to or in
addition to those of or relating to the Corporation.
SECTION 8.09. AMENDMENTS. Subject to the special provisions of
Section 2.02, (a) any and all provisions of these By-Laws may be altered or
repealed and new bylaws may be adopted at any annual meeting of the
stockholders, or at any special meeting called for that purpose, and (b) the
Board of Directors shall have the power, at any regular or special meeting
thereof, to make and adopt new bylaws, or to amend, alter or repeal any of
these By-Laws of the Corporation.
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SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT is dated as of February
18, 1999, by and between SunAmerica Strategic Investment Series, Inc., a
Maryland corporation (the "Corporation"), and SUNAMERICA ASSET MANAGEMENT CORP.,
a Delaware corporation (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company and
may issue shares of common stock, par value $.0001 per share, in separately
designated Portfolio representing separate funds with their own investment
objectives, policies and purposes (each, a "Fund" and collectively, the
"Funds"); and
WHEREAS, the Adviser is engaged in the business of rendering investment
management, advisory and administrative services and is registered as an
investment adviser under the Investment Advisers Act of 1940; and
WHEREAS, the Corporation desires to retain the Adviser to furnish
investment management, advisory and administrative services to the Corporation
and the Funds and the Adviser is willing to furnish such services;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. DUTIES OF THE ADVISER. The Adviser shall manage the affairs of the
Funds including, but not limited to, continuously providing the Funds with
investment management, including investment research, advice and supervision,
determining which securities shall be purchased or sold by the Funds, making
purchases and sales of securities on behalf of the Funds and determining how
voting and other rights with respect to securities owned by the Funds shall be
exercised, subject in each case to the control of the Board of Directors of the
Corporation (the "Directors") and in accordance with the objectives, policies
and principles set forth in Corporation's Registration Statement and the Funds'
current Prospectus and Statement of Additional Information, as amended from time
to time, the requirements of the Act and other applicable law. In performing
such duties, the Adviser (i) shall provide such office space, such bookkeeping,
accounting, clerical, secretarial and administrative services (exclusive of, and
in addition to, any such service provided by any others retained by the Funds or
Corporation on behalf of the Funds) and such executive and other personnel as
shall be necessary for the operations of the Funds, (ii) shall be responsible
for the financial and accounting records required to be maintained by the Funds
(including those maintained by Corporation's custodian) and (iii) shall oversee
the performance of services provided to the Funds by others, including the
custodian, transfer and shareholder servicing agent. The Corporation
understands that the Adviser also acts as the manager of other investment
companies.
Subject to Section 36 of the Act, the Adviser shall not be liable to the
Funds or Corporation for any error of judgment or mistake of law or for any
loss arising out of any investment or for any
<PAGE>
act or omission in the management of the Funds and the performance of its duties
under this Agreement except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under this Agreement.
2. RETENTION BY ADVISER OF SUB-ADVISERS, ETC. In carrying out its
responsibilities hereunder, the Adviser may employ, retain or otherwise avail
itself of the services of other persons or entities including, without
limitation, affiliates of the Adviser, on such terms as the Adviser shall
determine to be necessary, desirable or appropriate. Without limiting the
generality of the foregoing, and subject to the requirements of Section 15 of
the Act, the Adviser may retain one or more sub-advisers to manage all or a
portion of the investment portfolio of a Fund, at the Adviser's own cost and
expense. Retention of one or more sub-advisers, or the employment or retention
of other persons or entities to perform services, shall in no way reduce the
responsibilities or obligations of the Adviser under this Agreement and the
Adviser shall be responsible for all acts and omissions of such sub-advisers, or
other persons or entities, in connection with the performance of the Adviser's
duties hereunder.
3. EXPENSES. The Adviser shall pay all of its expenses arising from the
performance of its obligations under Section 1 and shall pay any salaries, fees
and expenses of the Corporation's Directors and Officers who are employees of
the Adviser. The Adviser shall not be required to pay any other expenses of the
Funds, including, but not limited to, direct charges relating to the purchase
and sale of portfolio securities, interest charges, fees and expenses of
independent attorneys and auditors, taxes and governmental fees, cost of share
certificates and any other expenses (including clerical expenses) of issue,
sale, repurchase or redemption of shares, expenses of registering and qualifying
shares for sale, expenses of printing and distributing reports, notices and
proxy materials to shareholders, expenses of data processing and related
services, shareholder recordkeeping and shareholder account service, expenses of
printing and filing reports and other documents filed with governmental
agencies, expenses of printing and distributing prospectuses, expenses of annual
and special shareholders meetings, fees and disbursements of transfer agents and
custodians, expenses of disbursing dividends and distributions, fees and
expenses of Directors who are not employees of the Adviser or its affiliates,
membership dues in the Investment Company Institute, insurance premiums and
extraordinary expenses such as litigation expenses.
4. COMPENSATION OF THE ADVISER. (a) As full compensation for the
services rendered, facilities furnished and expenses paid by the Adviser under
this Agreement, the Corporation agrees to pay to the Adviser a fee at the annual
rates set forth in Schedule A hereto with respect to each Fund indicated
thereon. Such fee shall be accrued daily and paid monthly as soon as
practicable after the end of each month (i.e., the applicable annual fee rate
divided by 365 is applied to each prior days' net assets in order to calculate
the daily accrual). For purposes of calculating the Adviser's fee with respect
to any Fund, the average daily net asset value of a Fund shall be determined by
taking an average of all determinations of such net asset value during the
month. If the Adviser shall serve for less than the whole of any month the
foregoing compensation shall be prorated.
(b) Upon any termination of this Agreement on a day other than the
last day of the month, the fee for the period from the beginning of the month in
which termination occurs to the date
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of termination shall be prorated according to the proportion which such period
bears to the full month.
5. PORTFOLIO TRANSACTIONS. The Adviser is responsible for decisions to
buy or sell securities and other investments for a portion of the assets of each
Portfolio, broker-dealers and futures commission merchants' selection, and
negotiation of brokerage commission and futures commission merchants' rates. As
a general matter, in executing Portfolio transactions, the Adviser may employ or
deal with such broker-dealers or futures commission merchants as may, in the
Adviser's best judgement, provide prompt and reliable execution of the
transactions at favorable prices and reasonable commission rates. In selecting
such broker-dealers or futures commission merchants, the Adviser shall consider
all relevant factors including price (including the applicable brokerage
commission, dealer spread or futures commission merchant rate), the size of the
order, the nature of the market for the security or other investment, the timing
of the transaction, the reputation, experience and financial stability of the
broker-dealer or futures commission merchant involved, the quality of the
service, the difficulty of execution, the execution capabilities and operational
facilities of the firm involved, and, in the case of securities, the firm's
risk in positioning a block of securities. Subject to such policies as the
Directors may determine and consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the Adviser shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of the Adviser's having caused a
Portfolio to pay a member of an exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of an exchange, broker or dealer would have charged
for effecting that transaction, if the Adviser determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such member of an exchange, broker
or dealer viewed in terms of either that particular transaction or the Adviser's
overall responsibilities with respect to such Portfolio and to other clients as
to which the Adviser exercises investment discretion. In accordance with
Section 11(a) of the 1934 Act and Rule 11a2-2(T) thereunder, and subject to any
other applicable laws and regulations including Section 17(e) of the Act and
Rule 17e-1 thereunder, the Adviser may engage its affiliates or any other
subadviser to the Corporation and its respective affiliates, as broker-dealers
or futures commission merchants to effect Portfolio transactions in securities
and other investments for a Portfolio. The Adviser will promptly communicate to
the officers and the Directors of the Corporation such information relating to
Portfolio transactions as they may reasonably request. To the extent consistent
with applicable law, the Adviser may aggregate purchase or sell orders for the
Portfolio with contemporaneous purchase or sell orders of other clients of the
Adviser or its affiliated persons. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Adviser in the manner the Adviser determines to be equitable and
consistent with its and its affiliates' fiduciary obligations to the Portfolio
and to such other clients. The Adviser hereby acknowledges that such
aggregation of orders may not result in more favorable pricing or lower
brokerage commissions in all instances.
6. TERM OF AGREEMENT. This agreement shall continue in full force and
effect for two years from the date hereof, and shall continue in full force and
effect from year to year thereafter if such continuance is approved in the
manner required by the Act and the Adviser has not notified the Corporation in
writing at least 60 days prior to the anniversary date of the previous
continuance that it does not desire such continuance. With respect to each
Fund, this Agreement may be terminated at any time, without payment of penalty
by the Fund or the Corporation, on 60 days
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<PAGE>
written notice to the Adviser, by vote of the Directors, or by vote of a
majority of the outstanding voting securities (as defined by the Act) of the
Fund, voting separately from any other Portfolio of the Corporation. The
termination of this Agreement with respect to any Fund or the addition of any
Fund to Schedule A hereto (in the manner required by the Act) shall not affect
the continued effectiveness of this Agreement with respect to each other Fund
subject hereto. This Agreement shall automatically terminate in the event of
its assignment (as defined by the Act).
The Corporation hereby agrees that if (i) the Adviser ceases to act as
investment manager and adviser to the Corporation and (ii) the continued use of
the Corporation's present name would create confusion in the context of the
Adviser's business, then the Corporation will use its best efforts to change its
name in order to delete the word "SunAmerica" from its name.
7. LIABILITY OF THE ADVISER. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
("disabling conduct") hereunder on the part of the Adviser (and its officers,
directors, agents, employees, controlling persons, shareholders and any other
person or entity affiliated with the Adviser) the Adviser shall not be subject
to liability to the Corporation or to any shareholder of the Corporation for any
act or omission in the course of, or connected with, rendering services
hereunder, including without limitation, any error of judgment or mistake of law
or for any loss suffered by any of them in connection with the matters to which
this Agreement relates, except to the extent specified in Section 36(b) of the
Act concerning loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services. Except for such disabling conduct,
the Corporation shall indemnify the Adviser (and its officers, directors,
partners, agents, employees, controlling persons, shareholders and any other
person or entity affiliated with the Adviser) (collectively, the "Indemnified
Parties") from any liability arising from the Adviser's conduct under this
Agreement.
Indemnification to the Adviser or any of its personnel or affiliates
shall be made when (i) a final decision on the merits rendered, by a court or
other body before whom the proceeding was brought, that the person to be
indemnified was not liable by reason of disabling conduct or, (ii) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum of the Directors
who are neither "interested persons" of the Corporation as defined in section
2(a)(19) of the Act nor parties to the proceeding ("disinterested, non-party
Directors") or (b) an independent legal counsel in a written opinion. The
Corporation may, by vote of a majority of the disinterested, non-party Directors
advance attorneys' fees or other expenses incurred by an Indemnified Party in
defending a proceeding upon the undertaking by or on behalf of the Indemnified
Party to repay the advance unless it is ultimately determined that he is
entitled to indemnification. Such advance shall be subject to at least one of
the following: (1) the person to be indemnified shall provide a security for his
undertaking, (2) the Corporation shall be insured against losses arising by
reason of any lawful advances, or (3) a majority of a quorum of the
disinterested, non-party Directors or an independent legal counsel in a written
opinion, shall determine, based on a review of readily available facts, that
there is reason to believe that the person to be indemnified ultimately will be
found entitled to indemnification.
8. NON-EXCLUSIVITY. Nothing in this Agreement shall limit or restrict
the right of any director, officer or employee of the Adviser who may also be a
Director, officer or employee of the Corporation to engage in any other business
or devote his or her time and attention in part to the
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management or other aspects of any business, whether of a similar or dissimilar
nature, nor limit or restrict the right of the Adviser to engage in any other
business or to render services of any kind to any other corporation, firm,
individual or association.
9. AMENDMENTS. This Agreement may be amended by mutual consent in
writing, but the consent of the Corporation must be obtained in conformity with
the requirements of the Act.
10. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of New York and the applicable provisions of the Act. To
the extent the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Act, the
latter shall apply.
11. SEPARATE PORTFOLIO. Pursuant to the provisions of the Declaration,
each Fund is a separate Portfolio of the Corporation, and all debts,
liabilities, obligations and expenses of a particular Fund shall be enforceable
only against the assets of that Fund and not against the assets of any other
Fund or of the Corporation as a whole.
IN WITNESS WHEREOF, the Corporation and the Adviser have caused this
Agreement to be executed by their duly authorized officers as of the date first
above written.
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
By: /s/ Peter A Harbeck
----------------------------
Name: Peter A. Harbeck
Title: President
SUNAMERICA ASSET MANAGEMENT CORP.
By: /s/ Robert M. Zakem
----------------------------
Name: Robert M. Zakem
Title: Senior Vice President
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SCHEDULE A
FEE RATE
(as a % of average
PORTFOLIO daily net asset value)
- --------- ----------------------
Tax Managed Equity Fund 0.85% of Net Assets
<PAGE>
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT is dated as of February 22, 1999 by and
between SUNAMERICA ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), and J.P. MORGAN INVESTMENT MANAGEMENT INC., a Delaware corporation
(the "Subadviser").
WITNESSETH:
WHEREAS, the Adviser and SunAmerica Strategic Investment Series, Inc., a
Maryland corporation (the "Corporation"), have entered into an Investment
Advisory and Management Agreement dated as of February 19,1999 (the "Advisory
Agreement"), pursuant to which the Adviser has agreed to provide investment
management, advisory and administrative services to the Corporation; and
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company and
may issue shares of common stock, par value $.0001 per share, in separately
designated series representing separate funds with their own investment
objectives, policies and purposes; and
WHEREAS, the Subadviser is engaged in the business of rendering investment
advisory services and is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended; and
WHEREAS, the Adviser desires to retain the Subadviser to furnish investment
advisory services to each investment series of the Corporation listed on
Schedule A attached hereto (the "Portfolio"), and the Subadviser is willing to
furnish such services;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. DUTIES OF THE SUBADVISER. (a) The Adviser hereby engages the
services of the Subadviser in furtherance of its Investment Advisory and
Management Agreement with the Corporation. Pursuant to this Subadvisory
Agreement and subject to the oversight and review of the Adviser, the Subadviser
will manage the investment and reinvestment of the assets of each Portfolio
listed on Schedule A attached hereto. The Subadviser will determine in its
discretion and subject to the oversight and review of the Adviser, the
securities to be purchased or sold, will provide the Adviser with records
concerning its activities which the Adviser of the Corporation is required to
maintain, and will render regular reports to the Adviser and to officers and
Directors of the Corporation concerning its discharge of the foregoing
responsibilities. The Subadviser shall discharge the foregoing responsibilities
subject to the control of the officers and the Directors of the Corporation and
in compliance with such policies as the Directors of the Corporation may from
time to time establish, and in compliance with (a) the objectives, policies, and
limitations for the Portfolio set forth in the Corporation's current prospectus
and statement of additional information, and (b) applicable laws and
regulations.
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Consistent with 9(d), the Subadviser represents and warrants to the
Adviser that it will manage the assets of the Portfolio set forth in Schedule A
in compliance with all applicable federal and state laws governing its
operations and investments. Without limiting the foregoing, the Subadviser
represents and warrants that it will manage the assets of the Portfolio in
compliance with (1) applicable provisions of Subchapter M, Chapter 1 of the
Internal Revenue Code of 1986, as amended (the "Code"), (2) the provisions of
the Act and rules adopted thereunder, and (3) applicable federal and state
securities, commodities and banking laws. The Subadviser further represents and
warrants that to the extent that any statements or omissions made in any
Registration Statement for shares of the Corporation, or any amendment or
supplement thereto, are made in reliance upon and in conformity with information
furnished by the Subadviser expressly for use therein, such Registration
Statement and any amendments or supplements thereto will, when they become
effective, conform in all material respects to the requirements of the
Securities Act of 1933 and the rules and regulations of the Commission
thereunder (the "1933 Act") and the Act and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
The Subadviser accepts such employment and agrees, at its own expense,
to render the services set forth herein and to provide the office space,
furnishings, equipment and personnel required by it to perform such services on
the terms and for the compensation provided in this Agreement.
(b) The Subadviser agrees to maintain a level of errors and omissions
or professional liability insurance coverage that is from time to time
satisfactory to the Adviser.
2. PORTFOLIO TRANSACTIONS. The Subadviser is responsible for decisions
to buy or sell securities and other investments for the Portfolio,
broker-dealers and futures commission merchants' selection, and negotiation of
brokerage commission and futures commission merchants' rates. As a general
matter, in executing Portfolio transactions, the Subadviser may employ or deal
with such broker-dealers or futures commission merchants as may, in the
Subadviser's best judgement, provide prompt and reliable execution of the
transactions at favorable prices and reasonable commission rates. In selecting
such broker-dealers or futures commission merchants, the Subadviser shall
consider all relevant factors including price (including the applicable
brokerage commission, dealer spread or futures commission merchant rate), the
size of the order, the nature of the market for the security or other
investment, the timing of the transaction, the reputation, experience and
financial stability of the broker-dealer or futures commission merchant
involved, the quality of the service, the difficulty of execution, the execution
capabilities and operational facilities of the firm involved, and, in the case
of securities, the firm's risk in positioning a block of securities. Subject to
such policies as the Directors may determine and, consistent with Section 28(e)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), the
Subadviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of the Subadviser
having caused a Portfolio to pay a member of an exchange, broker or dealer an
amount of commission for effecting a securities transaction in excess of the
amount of commission another member of an exchange, broker or dealer would have
charged for effecting that transaction, if the Subadviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such member of an exchange,
broker or dealer viewed in terms of either that particular transaction or the
Subadviser's overall responsibilities with respect to such Portfolio and to
other clients as to which
-2-
<PAGE>
the Subadviser exercises investment discretion. In accordance with Section
11(a) of the 1934 Act and Rule 11a2-2(T) thereunder, and subject to any other
applicable laws and regulations including Section 17(e) of the Act and Rule
17e-1 thereunder, the Subadviser may engage its affiliates, the Adviser and its
affiliates or any other subadviser to the corporation and its respective
affiliates, as broker-dealers or futures commission merchants to effect
Portfolio transactions in securities and other investments for a Portfolio. The
Subadviser will promptly communicate to the Adviser and to the officers and the
Directors of the Corporation such information relating to Portfolio transactions
as they may reasonably request. To the extent consistent with applicable law,
the Subadviser may aggregate purchase or sell orders for the Portfolio with
contemporaneous purchase or sell orders of other clients of the Subadviser or
its affiliated persons. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the Subadviser in the manner the Subadviser determines to be equitable
and consistent with its and its affiliates' fiduciary obligations to the
Portfolio and to such other clients. The Adviser hereby acknowledges that such
aggregation of orders may not result in more favorable pricing or lower
brokerage commissions in all instances.
3. COMPENSATION OF THE SUBADVISER. The Subadviser shall not be entitled
to receive any payment from the Corporation and shall look solely and
exclusively to the Adviser for payment of all fees for the services rendered,
facilities furnished and expenses paid by it hereunder. As full compensation
for the Subadviser under this Agreement, the Adviser agrees to pay to the
Subadviser a fee at the annual rates set forth in Schedule A hereto with respect
to the assets managed by the Subadviser for each Portfolio listed thereon. Such
fee shall be accrued daily and paid monthly as soon as practicable after the end
of each month (i.e., the applicable annual fee rate divided by 365 applied to
each prior days' net assets in order to calculate the daily accrual). If the
Subadviser shall provide its services under this Agreement for less than the
whole of any month, the foregoing compensation shall be prorated.
4. OTHER SERVICES. At the request of the Corporation or the Adviser,
the Subadviser in its discretion may make available to the Corporation, office
facilities, equipment, personnel and other services. Such office facilities,
equipment, personnel and services shall be provided for or rendered by the
Subadviser and billed to the Corporation or the Adviser at the Subadviser's
cost.
5. REPORTS. The Corporation, the Adviser and the Subadviser agree to
furnish to each other, if applicable, current prospectuses, statements of
additional information, proxy statements, reports of shareholders, certified
copies of their financial statement, and such other information with regard to
their affairs and that of the Corporation as each may reasonably request.
6. STATUS OF THE SUBADVISER. The services of the Subadviser to the
Adviser and the corporation are not to be deemed exclusive, and the Subadviser
shall be free to render similar services to others. The Subadviser shall be
deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the
Corporation in any way or otherwise be deemed an agent of the Corporation.
7. CERTAIN RECORDS. The Subadviser hereby undertakes and agrees to
maintain, in the form and for the period required by Rule 31a-2 under the Act,
all records relating to the investments of the Portfolio that are required to be
maintained by the Corporation pursuant to the requirements of Rule 31a-1 of that
Act. Any records required to be maintained and preserved pursuant to the
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<PAGE>
provisions of Rule 31a-1 and Rule 31a-2 promulgated under the Act which are
prepared or maintained by the Subadviser on behalf of the Corporation are the
property of the Corporation and will be surrendered promptly to the Corporation
or the Adviser on request.
The Subadviser agrees that all accounts, books and other records
maintained and preserved by it as required hereby shall be subject at any time,
and from time to time, to such reasonable periodic, special and other
examinations by the Securities and Exchange Commission, the Corporation's
auditors, the Corporation or any representative of the Corporation, the Adviser,
or any governmental agency or other instrumentality having regulatory authority
over the Corporation.
8. REFERENCE TO THE SUBADVISER. Neither the Corporation nor the Adviser
or any affiliate or agent thereof shall make reference to or use the name of the
Subadviser or any of its affiliates in any advertising or promotional materials
without the prior approval of the Subadviser, which approval shall not be
unreasonably withheld.
9. LIABILITY OF THE SUBADVISER. (a) In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties ("disabling conduct") hereunder on the part of the Subadviser (and its
officers, directors, agents, employees, controlling persons, shareholders and
any other person or entity affiliated with the Subadviser) the Subadviser shall
not be subject to liability to the Corporation or to any shareholder of the
Corporation for any act or omission in the course of, or connected with,
rendering services hereunder, including without limitation, any error of
judgment or mistake of law or for any loss suffered by any of them in connection
with the matters to which this Agreement relates, except to the extent specified
in Section 36(b) of the Act concerning loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services. Except for such
disabling conduct, the Adviser shall indemnify the Subadviser (and its officers,
directors, partners, agents, employees, controlling persons, shareholders and
any other person or entity affiliated with the Subadviser) (collectively, the
"Indemnified Parties") from any liability arising from the Subadviser's conduct
under this Agreement.
(b) The Subadviser agrees to indemnify and hold harmless the Adviser
and its affiliates and each of its directors and officers and each person, if
any, who controls the Adviser within the meaning of Section 15 of the 1933 Act
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), to which the Adviser or its affiliates or
such directors, officers or controlling person may become subject under the 1933
Act, under other statutes, at common law or otherwise, which is caused by the
Subadviser's disabling conduct; provided, however, that in no case is the
Subadviser's indemnity in favor of any person deemed to protect such other
persons against any liability to which such person would otherwise be subject by
reasons of willful misfeasance, bad faith, or gross negligence in the
performance of his, her or its duties or by reason of his, her or its reckless
disregard of obligation and duties under this Agreement.
(c) Under no circumstances shall the Adviser or the Subadviser
be liable to any indemnitee for indirect, special or consequential damages,
even if the Adviser or the Subadviser is apprised of the likelihood of such
damages.
(d) The Subadviser shall not be liable to the Adviser for (i) any
acts of the Adviser and (ii) acts of the Subadviser which result from acts of
the Adviser, including, but not limited to, a failure of the Adviser to provide
accurate and current information with respect to any records maintained by
Adviser or any other subadviser to a Portfolio, which records are not also
maintained by or otherwise available to the Subadviser upon reasonable request.
The adviser agrees
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<PAGE>
that Subadviser shall manage the assets of the Portfolio(s) in compliance with
subsections (a) and (b) of Section 1 of this Subadvisory Agreement (including,
but not limited to, the investment objectives, policies and restrictions
applicable to a Portfolio and qualifications of a Portfolio as a regulated
investment company under the Code).
10. PERMISSIBLE INTERESTS. Directors and agents of the Corporation are
or may be interested in the Subadviser (or any successor thereof) as directors,
partners, officers, or shareholders, or otherwise; directors, partners,
officers, agents, and shareholders of the Subadviser are or may be interested in
the Corporation as Directors, or otherwise; and the Subadviser (or any
successor) is or may be interested in the Corporation in some manner.
11. TERM OF THE AGREEMENT. This Agreement shall continue in full force
and effect with respect to each Portfolio until two years from the date hereof,
and from year to year thereafter so long as such continuance is specifically
approved at least annually (i) by the vote of a majority of those Directors of
the Corporation who are not parties to this Agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting on
such approval, and (ii) by the Directors of the Corporation or by vote of a
majority of the outstanding voting securities of the Portfolio voting separately
from any other series of the Corporation.
With respect to each Portfolio, this Agreement may be terminated at
any time, without payment of a penalty by the Portfolio or the Corporation, by
vote of a majority of the Directors, or by vote of a majority of the outstanding
voting securities (as defined in the Act) of the Portfolio, voting separately
from any other series of the Corporation, or by the Adviser, on not less than 30
nor more than 60 days' written notice to the Subadviser. With respect to each
Portfolio, this Agreement may be terminated by the Subadviser at any time,
without the payment of any penalty, on 90 days' written notice to the Adviser
and the corporation; provided, however, that this Agreement may not be
terminated by the Subadviser unless another subadvisory agreement has been
approved by the Corporation in accordance with the Act, or after six months'
written notice, whichever is earlier. The termination of this Agreement with
respect to any Portfolio or the addition of any Portfolio to Schedule A hereto
(in the manner required by the Act) shall not affect the continued effectiveness
of this Agreement with respect to each other Portfolio subject hereto. This
Agreement shall automatically terminate in the event of its assignment (as
defined by the Act).
This Agreement will also terminate in the event that the Advisory
Agreement by and between the Corporation and the Adviser is terminated.
12. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
13. AMENDMENTS. This Agreement may be amended by mutual consent in
writing, but the consent of the Corporation must be obtained in conformity with
the requirements of the Act.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of New York and the applicable provisions of the Act. To
the extent the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Act, the
latter shall control.
15. SEPARATE SERIES. Pursuant to the provisions of the Articles of
Incorporation and the General Laws of the State of Maryland, each Portfolio is a
separate series of the Corporation, and
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Fee
(as percentage of average
daily net assets the Subadviser
Portfolio manages for the Portfolio)
- --------- --------------------------------
<S> <C>
Tax Managed Equity Fund 0.45% on the first $200 million*
0.40% on the next $200 million
0.35% thereafter
</TABLE>
* 0.45% fee will be waived to 0.40% through December 31, 1999
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<PAGE>
all debts, liabilities, obligations and expenses of a particular Portfolio shall
be enforceable only against the assets of that Portfolio and not against the
assets of any other Portfolio or of the Corporation as a whole.
16. NOTICES. All notices shall be in writing and deemed properly given
when delivered or mailed by United States certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
Subadviser: J.P. Morgan Investment Management, Inc.
522 Fifth Avenue
New York, NY 10036
Attention: Diane Minardi
Adviser: SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue, Third Floor
New York, NY 10017-3204
Attention: Robert M. Zakem
Senior Vice President and General Counsel
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement as of the date first above
written.
SUNAMERICA ASSET MANAGEMENT CORP.
By: /s/ Peter A. Harbeck
---------------------------
Name: Peter A. Harbeck
Title: President
J.P. MORGAN INVESTMENT MANAGEMENT INC.
By:
---------------------------
Name:
Title:
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Fee
(as percentage of average
daily net assets the Subadviser
Portfolio manages for the Portfolio)
- --------- -------------------------------
<S> <C>
Tax Managed Equity 0.45% on the first $200 million*
0.40% on the next $200 million
0.35% thereafter
</TABLE>
* 0.45% fee will be waived to 0.40% through December 31, 1999
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT is dated as of February 18, 1999 by and
between SUNAMERICA STRATEGIC INVESTMENT SERIES, INC., a Maryland corporation
(the "Corporation") and SUNAMERICA CAPITAL SERVICES, INC., a Delaware
corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, the Corporation is engaged in business as an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Corporation is authorized to issue shares of common
stock, par value $.0001 per share (the "Shares"), in separately designated
series representing separate funds with their own investment objectives,
policies and restrictions (the "Portfolios") and has registered the Shares of
the Portfolios under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a registration statement on Form N-1A (the "Registration
Statement"), including a prospectus (the "Prospectus") and a statement of
additional information (the "Statement of Additional Information"); and
WHEREAS, the Corporation has adopted a Plan of Distribution pursuant
to Rule 12b-1 under the Investment Company Act on behalf of each Fund (the
"Distribution Plans") and may enter into related agreements providing for the
distribution of the Shares of the Portfolios; and
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
WHEREAS, the Corporation wishes to engage the services of the
Distributor as distributor of the Shares of the Portfolios and the Distributor
is willing to serve in that capacity;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. EXCLUSIVE DISTRIBUTOR. The Portfolios hereby agree that the
Distributor shall and for the period of this Agreement be exclusive agent for
distribution within the United States and its territories, and the
Distributor agrees to use its best efforts during such period to effect such
distribution of the Shares; PROVIDED, HOWEVER, that nothing herein shall
prevent a Fund, if it so elects, from selling or otherwise distributing its
Shares directly to any persons other than dealers. In connection therewith,
it is contemplated that the Distributor will enter into agreements with
selected securities dealers. The Portfolios understand that the Distributor
also acts as agent for distribution of shares of capital stock or beneficial
interest, as the case may be, of other open-end investment companies which
have entered into management and advisory agreements with the Portfolios'
current investment adviser.
<PAGE>
2. SALE OF THE SHARES. The Distributor is authorized as agent for
the Portfolios and not as principal, to sell the Shares to other purchasers on
such terms as may be provided in the then current Prospectus of the Portfolios;
PROVIDED, HOWEVER, that no sales shall be confirmed by the Distributor at any
time when, according to advice received by the Distributor from a Fund, the
officers of the Corporation have for any reason sufficient to them temporarily
or permanently suspended or discontinued the sale and issuance of such Fund's
Shares. Each sale shall be effected by the Distributor only at the applicable
price, plus the applicable sales charge, if any, determined by a Fund in the
manner prescribed in its then current Prospectus. The Distributor shall,
insofar as they concern it, comply with all applicable laws, rules and
regulations including, without limiting the generality of the foregoing, all
rules or regulations made or adopted pursuant to Section 22 of the Act by the
Securities and Exchange Commission or any securities association registered
under the Exchange Act .
The Portfolios agree, as long as the Shares may legally be
issued, to fill all orders confirmed by the Distributor in accordance with the
provisions of this Agreement.
3. EXPENSES; COMPENSATION. The Distributor agrees promptly to
pay or reimburse the Portfolios for all expenses (except expenses incurred by
the Portfolios in connection with the preparation, printing and distribution
of any prospectus or report or other communication to shareholders, to the
extent that such expenses are incurred to effect compliance with the Federal
or state laws or to enable such distribution to shareholders) (a) of printing
and distributing copies of any prospectus and of preparing, printing and
distributing any other material used by the Distributor in connection with
offering the Shares for sale, and (b) of advertising in connection with such
offering. The Portfolios agree to pay all expenses in connection with the
registration of the Shares under the Securities Act, all fees and related
expenses which may be incurred in connection with the qualification of the
Shares for sale in such states (as well as the District of Columbia, Puerto
Rico and other territories) as the Distributor may designate, and all
expenses in connection with maintaining facilities for the issue and transfer
of the Shares, of supplying information, prices and other data to be
furnished by it hereunder and through its agents of all data processing and
related services related to the share distribution activity contemplated
hereby.
As compensation for its services hereunder, the Portfolios agree
to pay to the Distributor all amounts received as sales charges as described in
the Portfolios' most current Prospectus. Out of such sales charges, the
Distributor may allow such concessions or reallowances to dealers as it may from
time to time determine.
The Corporation agrees to execute such documents and to
furnish such information as may be reasonably necessary, in the discretion of
the Board of Directors ("Directors") of the Corporation, in connection with
the qualification of the Shares for sale in such states (as well as the
District of Columbia, Puerto Rico and other territories) as the Distributor
may designate. The Distributor also agrees to pay all fees and related
expenses connected with its own qualification as a broker or dealer under
Federal or state laws and, except as otherwise specifically provided in this
Agreement or agreed to by the Corporation, all other expenses incurred by the
Distributor in connection with the sale of the Shares as contemplated in this
Agreement (including the expenses of qualifying the Corporation as a dealer
or broker under the laws of such states as may be designated by the
Distributor, if deemed necessary or advisable by the Corporation).
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<PAGE>
4. PROSPECTUS AND OTHER INFORMATION. The Corporation represents and
warrants to and agrees with the Distributor that:
(a) The Registration Statement, including the Prospectus and
Statement of Additional Information, relating to the Shares has been filed under
both the Act and the Securities Act and has become effective.
(b) At all times during the term of this Agreement, except when
the officers of the Corporation have suspended or discontinued the sale and
issuance of the Shares of a Fund as contemplated by Section 2 hereof, the
Registration Statement, Prospectus and Statement of Additional Information will
conform in all material respects to the requirements of the Act and the rules
and regulations of the Securities and Exchange Commission, and none of such
documents will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, except that the foregoing does not apply to
any statements or omissions in any of such documents based upon written
information furnished to the Corporation by the Distributor specifically for use
therein.
(c) The Corporation agrees to prepare and furnish to the
Distributor from time to time, a copy of the Prospectus, and authorizes the
Distributor to use such Prospectus, in the form furnished to the Distributor
from time to time, in connection with the sale of the Shares. The Corporation
also agrees to furnish the Distributor from time to time, for use in connection
with the sale of such Shares, such information (including the Statement of
Additional Information) with respect to the Portfolios and the Shares as the
Distributor may reasonably request.
5. INDEMNIFICATION.
(a) The Corporation will indemnify and hold harmless the
Distributor and each person, if any, who controls the Distributor within the
meaning of the Act against any losses, claims, damages or liabilities to which
the Distributor or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
Prospectus or Statement of Additional Information or any other written sales
material prepared by the Corporation or the Portfolios which is utilized by the
Distributor in connection with the sale of Shares of the Fund or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or (in the case of the Registration Statement,
Prospectus and Statement of Additional Information) necessary to make the
statement therein not misleading or (in the case of such other sales material)
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse the Distributor and
each such controlling person for any legal or other expenses reasonably incurred
by the Distributor or such controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Corporation or the Portfolios will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, Prospectus or Statement of
Additional Information in conformity with written information furnished to the
Corporation by the Distributor specifically for use therein; and PROVIDED,
FURTHER, that nothing herein shall be so construed as to protect the Distributor
against any liability to
-3-
<PAGE>
the Corporation or the Portfolios, or the security holders of the Portfolios to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence, in the performance of its duties, or
by reason of the reckless disregard by the Distributor of its obligations and
duties under this Agreement. This indemnity provision will be in addition to
any liability which the Corporation may otherwise have.
(b) The Distributor will indemnify and hold harmless the
Corporation, each of its Directors and officers and each person, if any, who
controls the Corporation within the meaning of the Act, against any losses,
claims, damages or liabilities to which the Corporation or any such Director,
officer or controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, Prospectus
or Statement of Additional Information or any sales material not prepared by the
Corporation or the Portfolios which is utilized in connection with the sale of
the Shares or arise out of or are based upon the omissions or the alleged
omission to state therein a material fact required to be stated therein or (in
the case of the Registration Statement, Prospectus and Statement) necessary to
make the statements therein not misleading or (in the case of such other sales
material) necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, in the case of the Registration
Statement, Prospectus and Statement of Additional Information to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in conformity with written information
furnished to the Corporation by the Distributor specifically for use therein;
and the Distributor will reimburse any legal or other expenses reasonably
incurred by the Corporation or any such Director, officer or controlling person
in connection with investigating or defending any such loss, claim, damage,
liability or action. This indemnity provision will be in addition to any
liability which the Distributor may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
6. TERM OF AGREEMENT. This Agreement shall continue in full force
and effect for two years from the date hereof, and shall continue in full force
and effect from year to year thereafter if such continuance is approved in the
manner required by the Act, and the Distributor has not have notified the
Corporation in writing at least 60 days prior to the anniversary date of the
previous continuance that it does not desire such continuance. This Agreement
may be terminated at any time, without payment of penalty by the Corporation on
60 days' written notice to the Distributor by vote of the Directors of the
Corporation or by vote of a majority of the outstanding
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<PAGE>
voting securities of the Corporation (as defined by the Act). This Agreement
shall automatically terminate in the event of its assignment (as defined by the
Act).
7. MISCELLANEOUS. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York. Anything herein to the
contrary notwithstanding, this Agreement shall not be construed to require or to
impose any duty upon either of the parties to do anything in violation of any
applicable laws or regulations.
IN WITNESS WHEREOF, the Corporation and the Distributor have caused
this Agreement to be executed by their duly authorized officers as of the date
above written.
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
By: /s/ Peter A. Harbeck
---------------------------
Peter A. Harbeck
President
SUNAMERICA CAPITAL SERVICES, INC.
By: /s/ Robert M. Zakem
-------------------------
Robert M. Zakem
Executive Vice President
-5-
<PAGE>
Name of Firm
City State Zip Code
RE: SELLING AGREEMENT
Gentlemen:
We are the national distributor and principal underwriter of the
shares of mutual funds sponsored, managed and/or advised by SunAmerica Asset
Management Corp. (hereinafter referred to individually as a "Fund", or
collectively as the "Funds"). The Funds and each individual investment series
thereof are set forth on Schedule A, which may be amended from time to time. We
invite you to participate in making available to your customers shares of the
Funds on the following terms:
1a. NON-BANK PARTICIPANTS ONLY. You represent and warrant that you
are a member of the National Association of Securities Dealers, Inc. (the
"NASD"). You agree to abide by the Rules of Fair Practice, the Constitution and
By-Laws of the NASD and to all other rules and regulations that are now or may
become applicable to transactions thereunder.
b. BANK PARTICIPANTS ONLY. You represent and warrant to us that
(i)(a) you are a "Bank" as such term is defined in Section 3(a)(6) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or (b) you are
a "bank holding company" as such term is defined in the Bank Holding Act of
1956, as amended (the "Act"); (ii) you are duly organized and an existing "bank"
or "bank holding company" in good standing under the laws of jurisdiction in
which you were organized; (iii) all authorization (if any) required for your
lawful execution of this Agreement and your performance hereunder have been
obtained; and (iv) upon execution and delivery by you, and assuming due and
valid execution and delivery by us, this Agreement will constitute a valid and
binding agreement, enforceable against you in accordance with its terms. In the
event you are a "bank holding company" as such term is defined in the Act, you
shall attach as an exhibit, and which will be made a part of this Agreement,
which sets forth the names and addresses of the "banks" on whose behalf you are
authorized to execute this Agreement. You agree to give written notice to us
promptly in the event you shall cease to be a "bank" as such term is defined in
Section 3(a)(6) of the Exchange Act or a "bank holding company" as such term is
defined in the Act. In such event, this Agreement shall be automatically
terminated upon such written notice. You also agree to abide by all of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
applicable to the sale of investment company shares to your customers.
We recognize that you may be subject to the provisions of the
Glass-Steagall Act and other laws governing, among other things, the conduct of
activities by federally chartered and supervised banks and affiliated
organizations. Because you will be the only one having a direct relationship
with the customer, you will comply and are complying with all laws and
regulations, including those of the applicable regulatory authorities and any
federal or state regulatory body having jurisdiction over you or your customers,
to the extent applicable to securities purchases hereunder for the account of
your customer.
2.a Orders for shares received from you and accepted by a Fund will
be priced at its next-determined net asset value, plus the applicable sales
charge, if any, at the time of such acceptance as established pursuant to the
then-current prospectus of the Fund. You hereby agree that, in the event you
receive customer purchase or redemption orders for a fund after the time of day
that such fund prices its shares, you will have adequate internal controls
designed to prevent such orders from being aggregated with orders received
before such time. If you designate another entity to receive customer purchase
and redemption orders, you hereby agree to ensure that such designee has adopted
and implemented its own adequate internal controls. Procedures relating to the
handling of orders, including the Policies and Procedures With Respect to Sales
of SunAmerica Mutual Funds Under the Multiple Pricing Structure, as may be
amended from time to time, set forth in Schedule B hereto, shall be subject to
instructions which we shall forward from time to time to all firms (the
"Participants") through which we make available shares of the Funds. All orders
are subject to acceptance by the applicable Fund, which reserves the right in
its sole discretion to reject any order in whole or in part.
<PAGE>
b. We will confirm transactions for each of your customers, it
being understood in all cases that (a) you are acting as the agent for the
customer; (b) the transactions are without recourse against you by the customer
except to the extent that (i) your failure to transmit orders in a timely
fashion results in a loss to your customer, or (ii) in the event you do not
receive a confirmation of the transaction within ten (10) business days
following the order date, your failure to inquire as to the status of the
transaction during such time period results in a loss to your customer; (c) as
between you and the customer, the customer shall have beneficial ownership of
the Fund shares; (d) each transaction is initiated solely upon the order of the
customer; and (e) each transaction is for the account of the customer and not
for your account.
3. As a Participant, you agree to purchase shares of the Funds
only through us or from your customers. Purchases through us shall be made only
for the purpose of covering purchase orders already received from your customers
or for your own bona fide investment.
4. You agree to sell shares of the Funds only (a) to your
customers at the net asset value plus applicable sales charge, if any, then in
effect as established by the then-current prospectus of the applicable Fund or
(b) to us as agent for the Fund or the Fund itself at the redemption price as
described in the prospectus.
5. We reserve the right in our discretion, and without notice to
you, to suspend sales or withdraw the offering of shares entirely, or to modify
or cancel this Agreement. All sales shall be subject to the terms and
provisions set forth in the Funds= then-current prospectuses.
6. No person is authorized to make any representations concerning
a Fund or its shares except those contained in its prospectus and any other
information (including any applicable "Statement of Additional Information") as
may be approved by a Fund as information supplemental to its prospectus. In
purchasing shares through us, you shall rely solely on the representations
contained in the then-effective Prospectus and supplemental information
above-mentioned. You agree to hold us harmless and indemnify the Funds and us
in the event that you, or any of your sales representatives, should violate any
law, rule or regulation, or any provisions of this Agreement, which may result
in liability to the Funds or us. Additional copies of any prospectus and/or
supplemental information (including any applicable "Statement of Additional
Information") will be supplied by us to you in reasonable quantities upon
request.
7. You shall have no authority whatever to act as agent of the
Funds or us, or any other Participant, and nothing in this Agreement shall
constitute you or the Funds as the agent of the other. In all transactions in
these shares between you and us, we are acting as agent for the Funds and not as
principal.
8. All communications to us shall be sent to SunAmerica Capital
Services, Inc., The SunAmerica Center, 733 Third Avenue, New York, NY
10017-3204. Any notice to you shall be duly given if mailed or telegraphed to
you at your address set forth below, unless you give us written instructions
otherwise. It is your responsibility to provide us with updated information
concerning where written communications should be sent.
9. This Agreement may be terminated without penalty upon written
notice by either party at any time, and shall automatically terminate upon its
assignment, or upon any event that terminates a Fund's Distribution Agreement
with us. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York. The indemnification provision in Section 6
hereof shall survive any termination of this Agreement hereunder.
10. NON-BANK PARTICIPANTS ONLY. By accepting this Agreement, you
represent that you are (i) registered as a broker-dealer under the Securities
Exchange Act of 1934; (ii) are qualified to act as a dealer in the states or
other jurisdictions where you transact business; and (iii) are a member in good
standing of the NASD. You agree that you will maintain such registration,
qualifications, and membership in full force and effect throughout the terms of
this Agreement. You further agree to comply with all applicable federal laws,
the laws of the states or other jurisdictions concerned, and the rules and
regulations promulgated thereunder, and with the Constitution, By-Laws and Rules
of Fair Practice, of the NASD and that you will not offer or sell the shares of
the Funds in any state or jurisdiction where they may not lawfully be offered or
sold, or where you are not registered as a broker-dealer.
11.a SERVICE FEES. We expect you to provide administration and
marketing services in the promotion of the Funds' shares, including services and
assistance to your customers who own Fund shares. For such services, you will
be entitled to compensation as set forth on Schedule A, as may be amended from
time to time, and in the Funds' current prospectuses. You hereby agree to waive
payment of such compensation until such time that we are in receipt of the
commissions or concessions
<PAGE>
due for such Fund shares. Our liability for payment of such compensation is
limited solely to the proceeds of such concessions receivable. No commission or
concession shall be payable with respect to shares purchased through
reinvestment of dividends or distributions, or that had been acquired through
one or more exchange transactions which had been the subject of payments under
this paragraph. In addition, no commission or concession shall be payable with
respect to Shares that had been subject to a waiver of the sales charge except
as set forth in the Funds= current prospectuses.
b. CONTINGENT DEFERRED SALES CHARGE ("CDSC"). For purchases of
Class B and Class II shares (or for certain purchases of Class A shares), we
advance commissions with the presumption that assets will remain in the Fund(s)
long enough for expenses to be recouped. In the event of a redemption of shares
purchased before the holding period expires, a CDSC is deducted from the
redemption proceeds as described in the Funds= prospectuses.
c. CDSC WAIVERS. An exemptive order issued by the Securities and
Exchange Commission provides for a waiver of the CDSC on the following
redemptions: (a) CDSC Shares (Class B, Class II shares and certain Class A
shares) requested to be redeemed within one year of the death or initial
determination of disability, as defined in Section 72(m)(7) of the Internal
Revenue Code of 1986 (the "Code"), of a shareholder; (b) Class B shares
representing taxable distributions made by qualified retirement plans or
retirement accounts (not including rollovers) for which SunAmerica Asset
Management Corp. serves as fiduciary; provided that, the plan participant or
account holder has attained the age of 59 1/2 at the time the redemption is
made; (c) Class B and Class II shares being redeemed up to the limit
specified in the Funds= prospectuses made pursuant to any systematic
withdrawal plan established by the Funds. The CDSC waiver, with respect to
(a) above (i.e.; death or disability), is only applicable in cases where the
shareholder account is registered (i) in the name of an individual person,
(ii) as a joint tenancy with rights of survivorship, (iii) as community
property, or (iv) in the name of a minor under the Uniform Gift or Uniform
Transfer to Minors Acts. Notwithstanding the foregoing, we reserve the right
to terminate any or all of these waiver provisions in the future.
d. COMMISSION RECLAIMS. With respect to shares redeemed on which
the CDSC is waived pursuant to (b) above (i.e.; taxable distributions from the
qualified retirement plans as described therein), 100% of the commission
advanced to the selling Broker/Dealer in respect of such shares is subject to
reclaim in the event the redemption occurs within the first year from the date
of purchase, and 50% of the commission advanced if the redemption occurs in the
second year from the date of purchase. With respect to Class A shares purchased
at net asset value (which were part of a purchase of $1 million or more, and
which were subject to a CDSC if redeemed within one year of purchase), 50% of
the commission advanced is subject to reclaim if the redemption occurs during
the second year from the date of purchase. For all other purchases of Class A
shares at net asset value, the entire commission advanced is subject to reclaim
for any redemption occurring within the first two years from the date of
purchase. The foregoing reclamations will be subtracted from dealer concession
payments payable according to Schedule A and, if sufficient dealer concession
payments are not available to offset these reclamations, you will reimburse us
for these amounts.
12. This Agreement shall become effective upon receipt by us of a
signed copy hereof, and shall continue in effect until and unless terminated (i)
pursuant to Section 9, above, or (ii) on account of your violation of any
representation contained herein. This Agreement shall supersede all prior
Selling Agreements with you relating to the shares of the Funds. This Agreement
may be amended in writing signed by each of the parties hereto, except that we
may amend Schedule A in our sole discretion
<PAGE>
upon notice to you. Any such amendment shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors.
SUNAMERICA CAPITAL SERVICES, INC.
By:
---------------------------
Name:
---------------------------
Date: Title:
--------------- ---------------------------
The undersigned accepts your invitation to make available to its
customers the shares of the Funds and agrees to abide by the foregoing terms and
conditions. The undersigned acknowledges receipt of prospectuses of the Funds
in connection with this offering.
- ---------------------------------------- ----------------------------------
Firm Name Authorized Signatory
- ---------------------------------------- ----------------------------------
Address Print Name
- ---------------------------------------- ----------------------------------
Title of Signatory
- ---------------------------------------- ----------------------------------
Telephone Number Date
- ----------------------------------------
Fax Number
<PAGE>
SUNAMERICA DISINTERESTED TRUSTEES' AND DIRECTORS'
RETIREMENT PLAN
Section 1. ADOPTION AND PURPOSE. The SunAmerica Fund or the Anchor
Series Trust designated on Schedule A, as the case may be (the "Adopting
Fund"), has adopted the SunAmerica Disinterested Trustees' and Directors'
Retirement Plan (the "Plan"). The purpose of this Plan is to provide, in
accordance with the following terms, deferred compensation in the nature of
pension benefits for (i) Trustees of the Adopting Fund, if it is organized as
a Massachusetts business trust, and (ii) Directors of the Adopting Fund, if
it is organized as a corporation, who in either such case are not "interested
persons" (as that term is defined in the Investment Company Act of 1940, as
amended). Such disinterested Trustees or disinterested Directors are referred
to herein collectively as "Trustees."
Section 2. EFFECTIVE DATE. This Plan shall be effective as of January 1,
1993.
Section 3. PARTICIPATION. Each Trustee shall become a participant in
this Plan ("Participant") upon the earlier of (a) attainment of age 55 and
completion of ten consecutive years of service as a Trustee of any of the
SunAmerica Funds or the Anchor Series Trust or (b) attainment of age 60 and
completion of five consecutive years of service as a Trustee of any of the
SunAmerica Funds or the Anchor Series Trust. Notwithstanding the foregoing, a
Trustee who was a Trustee on January 1, 1993, and
<PAGE>
who at that time, was under age 55, shall become a Participant in this Plan
upon completion of ten consecutive years of service, without regard to his
age at the time of completion of such service. Years of service shall
include service prior to the adoption of this Plan, and service as a Trustee
of any predecessor fund of an Adopting Fund.
Section 4. ELIGIBILITY FOR BENEFITS. Any Participant shall be
eligible for the benefits described in Section 5 of the Plan upon (i) his
death or disability (within the meaning of Subsection 5(c) of the Plan) while
a Trustee or (ii) the termination of his tenure as a Trustee, other than by
removal for cause, after becoming a Participant, as provided in Section 3 of
the Plan, and on or before his 70th birthday. No benefits shall be payable
to any Trustee whose service as a Trustee terminates otherwise than as
provided in this Section 4. Failure to satisfy the requirements of this
Section 4 shall result in forfeiture of any benefits to which a Trustee might
otherwise have been entitled under this Plan.
Section 5. BENEFITS.
(a) AMOUNT. As of each of the first ten birthdays, prior to
his 70th birthday, on which he is both a Trustee and a Participant,
each Participant shall be credited with an amount equal to 50% of his
-2-
<PAGE>
regular fees, excluding separate committee meeting fees, for his services
as a Trustee of the Adopting Fund for the calendar year in which such
birthday occurs (but in no event shall such amount be less than 50% of the
regular fees, excluding separate committee meeting fees, in effect for
1993). As of each birthday, prior to his 70th birthday, on which he is both
a Trustee and a Participant, each Participant shall also be credited with
an amount equal to 8.5% of any amount credited under this Section 5(a) as
of any previous birthday. Following a Participant's satisfaction of the
requirements of Section 4 for eligibility for benefits under the Plan,
any amounts previously credited under this Section 5 that have not been
distributed as of any subsequent birthday of the Participant (or any
subsequent corresponding date on which the Participant's birthday would
have occurred if he were alive) shall be credited as of such subsequent
birthday or corresponding date with 8.5% of such undistributed amounts.
(b) RETIREMENT BENEFITS. On or before the earlier of (i) the last
day of the calendar year immediately preceding the calendar year in which
payment of benefits commences under this Subsection 5(b) or (ii) the date
six months preceding the date on
-3-
<PAGE>
which payment of benefits commences under this Subsection 5(b), each
Participant may elect in writing, in a form and manner acceptable to the
Committee, as defined herein in Section 7, the form for payment of
benefits under the Plan. Any such election may be revoked and a new
election made prior to the earlier of (i) the last day of the calendar
year immediately preceding the calendar year in which payment of
benefits commences under this Subsection 5(b) or (ii) the date six
months preceding the date on which payment of benefits commences under
this Subsection 5(b), but any election in effect as of the earlier of
such dates shall be irrevocable. No Participant may make more than one
election in any calendar year, and all elections shall be subject to
approval by the Committee. A Participant may elect to receive such
benefits in the form of either (i) a lump sum or (ii) quarterly,
semi-annual or annual installments for a period of 5, 10 or 15 years,
as the Participant may elect, with payment of each installment on the
quarterly, semi-annual or annual anniversary of the initial payment
hereunder. The amount of each installment shall be a quotient, the
numerator of which is the aggregate amount credited to the Participant
under Subsection 5(a) as of the date for payment under this Subsection
5(b), reduced by the amount of all previous
-4-
<PAGE>
payments under the Plan, and the denominator of which is the number of
installments remaining. Payment of benefits shall commence as soon as
practicable following the Participant's satisfaction of the requirements
of Section 4 by reason of the termination of his tenure as a Trustee. If
no election is in effect at such time, benefits shall be paid in a lump sum.
(c) DISABILITY BENEFITS. If a Participant satisfies the
requirements of Section 4 by becoming disabled while a Trustee, all
amounts credited to him under Subsection 5(a) shall be paid to him as soon
as practicable in accordance with his election for the form for payment of
retirement benefits. If no election is in effect at such time, benefits
shall be paid in a lump sum. A Participant shall be disabled if the
Committee determines, in its sole discretion, that he is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
to be of long-continued and indefinite duration.
(d) DEATH BENEFITS. If a Participant dies after satisfying the
requirements of Section 4 (or satisfies such requirements by reason of his
death) but before receiving all amounts credited to him under
-5-
<PAGE>
Subsection 5(a), any such remaining amounts shall be paid to the
beneficiary designated in writing by the Participant, which designation
shall be in a form and manner acceptable to the Committee, with payment
commencing as soon as practicable after the Participant's death.
Payment to the Participant's designated beneficiary shall be in a lump
sum or installments for a period of years, in accordance with the
Participant's election for the form for payment of retirement benefits.
If no election is in effect at such time, benefits shall be paid in a
lump sum. If the Participant fails to execute a valid beneficiary
designation, any amounts otherwise payable to a designated beneficiary
under this Subsection 5(d) shall be paid in a lump sum to the
Participant's estate as soon as practicable after the Participant's
death. If the Committee is unable to locate the Participant's
beneficiary within two years following the Participant's death, any
amounts otherwise payable to the beneficiary under this Subsection 5(d)
shall be paid in a lump sum to the Participant's estate. Notwithstanding
any provision of this Subsection 5(d) or any beneficiary designation by
the Participant to the contrary, any Participant's surviving spouse whose
interests in marital property are determined under the community property
laws of any state shall receive 50%
-6-
<PAGE>
of amounts otherwise payable under this Subsection 5(d), and the
remainder of such amounts shall be paid in accordance with this Subsection
5(d).
Section 6. PARTICIPANTS' RIGHTS UNFUNDED AND UNSECURED. This Plan shall
not be deemed to create any trust, escrow or other funding arrangement. The
right of any Participant to benefits under this Plan shall be an unsecured
claim against the general assets of the Adopting Fund. If the Adopting Fund is
merged with any other SunAmerica Fund(s), the obligations of the Adopting
Fund under this Plan shall become obligations of the merged fund and shall be
aggregated with any similar pre-merger obligations of the other SunAmerica
Fund(s) involved in the merger under any similar retirement plan. If the
Adopting Fund is liquidated, all amounts credited to a Participant under
Section 5(a) as of the liquidation date shall be paid to him in a lump sum as
soon as practicable, provided that if the Participant has not yet reached
age 60, such amounts shall be discounted to reflect payment prior to age 60,
using the interest rates used by the Pension Benefit Guaranty Corporation as
of the date of distribution to determine the present value of a lump sum
distribution on termination of a tax-qualified pension plan.
Section 7. ADMINISTRATION. This Plan shall be administered by a
committee (the "Committee"), the members of
-7-
<PAGE>
which shall be appointed by the Board of Trustees or Board of Directors of
the Adopting Fund. The Committee shall be responsible for the interpretation
of the Plan and establishment of the rules and regulations governing Plan
administration. Any decision or action made or taken by the Committee,
arising out of or in connection with the construction, administration or
interpretation of the Plan or of its rules and regulations, shall be
conclusive and binding upon all Participants. In making any such decision or
taking any such action, the Committee shall have full and complete discretion
and authority to make eligibility determinations, construe provisions of the
Plan and resolve factual issues. All expenses of administering the Plan shall
be paid by the Adopting Fund and shall not affect the Participants' right to
or amount of benefit.
Section 8. TERMINATION OF PLAN. The Board of Trustees of the Adopting
Fund may terminate the Plan at any time. Upon termination of the Plan,
benefits shall continue to be credited and paid in accordance with Section 5
hereof to, or in respect of, any deceased Participant or any Trustee or former
Trustee who is a Participant as of the date of termination of the Plan.
No other payments shall be made to any person under the Plan after the date
of termination of the Plan.
Section 9. AMENDMENT OF PLAN. The Board of Trustees or Board of
Directors of the Adopting Fund may, without the
-8-
<PAGE>
consent of any Participant, amend the Plan at any time and from time to time,
provided, however, that no amendment shall divest any Participant of rights
to which he would have been entitled under Section 8 if the Plan had been
terminated on the effective date of such amendment.
Section 10. RIGHTS NON-ASSIGNABLE. The rights of a Participant to
receive payments under Section 5 shall not be assignable, nor shall they be
subject to garnishment, attachment, or any other legal process of creditors
of a Participant. Nothing in the Plan shall create any benefit, right, cause
of action, assignment, transfer or encumbrance in favor of any spouse, heirs
or the estate of any Participant. Notwithstanding the provisions of this
Section 10, each Participant agrees, as a condition of participation, to hold
the Adopting Fund, its officers, Board of Trustees or Board of Directors,
employees and agents harmless from any claim that may arise out of the
Adopting Fund's compliance with an order of any state or Federal court,
whether such order effects a judgment of such court or is issued to enforce a
judgment or order of another court.
Section 11. WITHHOLDING OF TAXES. The Adopting Fund shall have
the right to retain from distributions payable to a Participant amounts
required by any government to be withheld and paid to such government with
respect to such payments.
-9-
<PAGE>
Section 12. NO AGREEMENT TO RETAIN TRUSTEES. Nothing in this Plan
shall be construed to provide any Trustee with an agreement or understanding,
express or implied, that the Trustee shall be retained as a Trustee for any
specified period of time or that the Board of Trustees or Board of Directors
of the Adopting Fund shall nominate the Trustee for reelection.
Section 13. ACCEPTANCE. The acceptance of payments under this
Plan by any Participant constitutes his acceptance of the terms of this Plan
and his agreement to be bound thereby.
-10-
<PAGE>
<TABLE>
<S><C>
CUSTODIAN CONTRACT
between
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property to be Held By
It. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Duties of the Custodian with Respect to Property
of the Corporation Held by the Custodian in the United States . . . . . . . . .2
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.3 Registration of Securities . . . . . . . . . . . . . . . . . . . . . . . .4
2.4 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.5 Availability of Federal Funds. . . . . . . . . . . . . . . . . . . . . . .5
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.7 Payment of Fund Monies . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased. . . . . . . . . . . . . . . . . . . . . .7
2.9 Appointment of Agents. . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.10 Deposit of Fund Assets in U.S. Securities System . . . . . . . . . . . . .7
2.11 Fund Assets Held in the Custodian's Direct
Paper System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.12 Segregated Account . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.13 Ownership Certificates for Tax Purposes. . . . . . . . . . . . . . . . . 10
2.14 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.15 Communications Relating to Fund Securities . . . . . . . . . . . . . . . 10
3. Duties of the Custodian with Respect to Property of
the Corporation Held Outside of the United States . . . . . . . . . . . . . . 11
3.1 Appointment of Foreign Sub-Custodians. . . . . . . . . . . . . . . . . . 11
3.2 Assets to be Held. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Foreign Securities Systems . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Holding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Agreements with Foreign Banking Institutions . . . . . . . . . . . . . . 12
3.6 Access of Independent Accountants of the Corporation . . . . . . . . . . 12
3.7 Reports by Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.8 Transactions in Foreign Custody Account. . . . . . . . . . . . . . . . . 12
3.9 Liability of Foreign Sub-Custodians. . . . . . . . . . . . . . . . . . . 13
3.10 Liability of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.11 Reimbursement for Advances . . . . . . . . . . . . . . . . . . . . . . . 13
3.12 Monitoring Responsibilities. . . . . . . . . . . . . . . . . . . . . . . 14
3.13 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
3.14 Tax Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Corporation. . . . . . . . . . . . . . . . . . . . . . .14
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . .15
6. Actions Permitted Without Express Authority . . . . . . . . . . . . . . .15
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . . . .16
8. Duties of Custodian With Respect to the Books of Account and Calculation
of Net Asset Value and Net Income . . . . . . . . . . . . . . . . . . . .16
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
10. Opinion of Fund's Independent Accountants . . . . . . . . . . . . . . . .17
11. Reports to Fund by Independent Public Accountants . . . . . . . . . . . .17
12. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . . . .17
13. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . . . .17
14. Effective Period, Termination and Amendment . . . . . . . . . . . . . . .19
15. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . .19
16. Interpretive and Additional Provisions. . . . . . . . . . . . . . . . . .20
17. Additional Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
18. Massachusetts Law to Apply. . . . . . . . . . . . . . . . . . . . . . . .21
19. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
20. Shareholder Communications. . . . . . . . . . . . . . . . . . . . . . . .21
<PAGE>
CUSTODIAN CONTRACT
This Contract between SunAmerica Strategic Investment Series, Inc., a
corporation organized and existing under the laws of the State of Maryland,
having its principal place of business at The SunAmerica Center, 733 Third
Avenue, New York, New York 10017-3204 hereinafter called the "Corporation", and
State Street Bank and Trust Company, a Massachusetts trust company, having its
principal place of business at 225 Franklin Street, Boston, Massachusetts,
02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Corporation is authorized to issue shares in separate series,
with each such series representing interests in a separate fund of securities
and other assets; and
WHEREAS, the Corporation intends to initially offer shares in one series,
the Tax Managed Equity Fund (this series together with all other series
subsequently established by the Corporation and made subject to this Contract in
accordance with paragraph 17, being herein referred to as a "Fund", and
collectively as the "Funds");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Corporation hereby employs the Custodian as the custodian of the assets
of the Fund of the Corporation, including securities which the Corporation, on
behalf of the applicable Fund desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside the
United States ("foreign securities") pursuant to the provisions of the Articles
of Incorporation. The Corporation on behalf of the Fund(s) agrees to deliver to
the Custodian all securities and cash of the Fund(s), and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Fund(s) from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock of
the Corporation representing interests in the Fund(s), ("Shares") as may be
issued or sold from time to time. The Custodian shall not be responsible for
any property of a Fund held or received by the Fund and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Fund(s) from time to time employ
one or more sub-custodians, located in the United States but only in accordance
with an applicable vote by the Board of Directors of the Corporation on behalf
of the applicable Fund(s), and provided that the Custodian shall have no more or
less responsibility or liability to the Corporation on account of any actions or
omissions of any sub-custodian so employed than any such sub-custodian has to
the Custodian. The Custodian may employ as sub-custodian for the Corporation's
foreign securities on behalf of the applicable Fund(s) the foreign banking
institutions and foreign securities depositories designated in Schedule A hereto
but only in accordance with the provisions of Article 3.
<PAGE>
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE CORPORATION HELD BY
THE CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for
the account of each Fund all non-cash property, to be held by it in the
United States including all domestic securities owned by such Fund, other
than (a) securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a book-entry
system authorized by the U.S. Department of the Treasury and certain
federal agencies (each, a "U.S. Securities System") and (b) commercial
paper of an issuer for which State Street Bank and Trust Company acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian (the "Direct Paper
System") pursuant to Section 2.11.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
domestic securities owned by a Fund held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only
upon receipt of Proper Instructions from the Corporation on behalf of
the applicable Fund, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a U.S. Securities System,
in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange for
a
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different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
PROVIDED that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the Custodian's own negligence or willful
misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Fund, BUT ONLY against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Corporation
on behalf of the Fund, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in
the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible for
the delivery of securities owned by the Fund prior to the receipt
of such collateral;
11) For delivery as security in connection with any borrowings by the
Corporation on behalf of the Fund requiring a pledge of assets by
the Corporation on behalf of the Fund, BUT ONLY against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Corporation on behalf of the Fund, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national
3
<PAGE>
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Fund of the Corporation;
13) For delivery in accordance with the provisions of any agreement
among the Corporation on behalf of the Fund, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Fund of the
Corporation;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Corporation, for delivery to such Transfer Agent
or to the holders of shares in connection with distributions in
kind, as may be described from time to time in the currently
effective prospectus and statement of additional information of
the Corporation, related to the Fund ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
15) For any other proper corporate purpose, BUT ONLY upon receipt of,
in addition to Proper Instructions from the Corporation on behalf
of the applicable Fund, a certified copy of a resolution of the
Board of Directors or of the Executive Committee signed by an
officer of the Corporation and certified by the Secretary or an
Assistant Secretary, specifying the securities of the Fund to be
delivered, setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom delivery of such
securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Corporation on behalf of the
Fund or of any nominee of the Custodian which nominee shall be assigned
exclusively to the Fund, UNLESS the Corporation has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Fund, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Fund under the terms of this Contract
shall be in "street name" or other good delivery form. If, however,
the Corporation directs the Custodian to maintain securities in "street
name", the Custodian shall utilize its best efforts only to timely
collect income due the Corporation on such securities and to notify the
Corporation on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
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<PAGE>
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Fund of
the Corporation, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Fund, other than cash maintained by the
Fund in a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Fund may be deposited by it to its credit as Custodian
in the Banking Department of the Custodian or in such other banks or
trust companies as it may in its discretion deem necessary or
desirable; PROVIDED, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
be deposited with each such bank or trust company shall on behalf of
each applicable Fund be approved by vote of a majority of the Board of
Directors of the Corporation. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the
Corporation on behalf of each applicable Fund and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the
Corporation on behalf of a Fund, make federal funds available to such
Fund as of specified times agreed upon from time to time by the
Corporation and the Custodian in the amount of checks received in
payment for Shares of such Fund which are deposited into the Fund's
account.
2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Fund shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer domestic securities if, on the
date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Fund on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Corporation. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the
Corporation with such information or data as may be necessary to assist
the Corporation in arranging for the timely delivery to the Custodian
of the income to which the Fund is properly entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the
Corporation on behalf of the applicable Fund, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Fund in the following cases only:
5
<PAGE>
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Fund but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options on
futures contracts to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which
is qualified under the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by the Custodian as
its agent for this purpose) registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in Section
2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a U.S. Securities System, in accordance
with the conditions set forth in Section 2.10 hereof; (c) in the
case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.11; (d) in
the case of repurchase agreements entered into between the
Corporation on behalf of the Fund and the Custodian, or another
bank, or a broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form or through
an entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the receipt
evidencing purchase by the Fund of securities owned by the
Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Fund or (e) for
transfer to a time deposit account of the Corporation in any bank,
whether domestic or foreign; such transfer may be effected prior
to receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Corporation as
defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as
set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the
account of the Fund: interest, taxes, management, accounting,
transfer agent and legal fees, and operating expenses of the
Corporation whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Fund declared
pursuant to the governing documents of the Corporation;
6) For payment of the amount of dividends received in respect of
securities sold short;
6
<PAGE>
7) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from the Corporation on behalf of
the Fund, a certified copy of a resolution of the Board of
Directors or of the Executive Committee of the Corporation signed
by an officer of the Corporation and certified by its Secretary or
an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Fund is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions
from the Corporation on behalf of such Fund to so pay in advance, the
Custodian shall be absolutely liable to the Corporation for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; PROVIDED, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may
deposit and/or maintain securities owned by a Fund in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Fund in a U.S. Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the U.S. Securities System which
shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Fund which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Fund;
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<PAGE>
3) The Custodian shall pay for securities purchased for the account
of the Fund upon (i) receipt of advice from the U.S. Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund.
The Custodian shall transfer securities sold for the account of
the Fund upon (i) receipt of advice from the U.S. Securities
System that payment for such securities has been transferred to
the Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the U.S. Securities System
of transfers of securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by the Custodian and
be provided to the Corporation at its request. Upon request, the
Custodian shall furnish the Corporation on behalf of the Fund
confirmation of each transfer to or from the account of the Fund
in the form of a written advice or notice and shall furnish to the
Corporation on behalf of the Fund copies of daily transaction
sheets reflecting each day's transactions in the U.S. Securities
System for the account of the Fund.
4) The Custodian shall provide the Corporation for the Fund with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Corporation on behalf
of the Fund the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Corporation for the benefit of
the Fund for any loss or damage to the Fund resulting from use of
the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents or
of any of its or their employees or from failure of the Custodian
or any such agent to enforce effectively such rights as it may
have against the U.S. Securities System; at the election of the
Corporation, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claim against the U.S.
Securities System or any other person which the Custodian may have
as a consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any such loss or damage.
2.11 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The Custodian
may deposit and/or maintain securities owned by a Fund in the Direct
Paper System of the Custodian subject to the following provisions:
8
<PAGE>
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Corporation on behalf of the Fund;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which
shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account
of the Fund upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to
the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt
of payment for the account of the Fund;
5) The Custodian shall furnish the Corporation on behalf of the Fund
confirmation of each transfer to or from the account of the Fund,
in the form of a written advice or notice, of Direct Paper on the
next business day following such transfer and shall furnish to the
Corporation on behalf of the Fund copies of daily transaction
sheets reflecting each day's transaction in the U.S. Securities
System for the account of the Fund;
6) The Custodian shall provide the Corporation on behalf of the Fund
with any report on its system of internal accounting control as
the Corporation may reasonably request from time to time.
2.12 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Corporation on behalf of each applicable Fund
establish and maintain a segregated account or accounts for and on
behalf of each such Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Corporation
on behalf of the Fund, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the
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Fund or commodity futures contracts or options thereon purchased or
sold by the Fund, (iii) for the purposes of compliance by the Fund with
the procedures required by Investment Company Act Release No. 10666, or
any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, BUT ONLY, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Corporation on behalf of the
applicable Fund, a certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an officer of the
Corporation and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Fund held by it
and in connection with transfers of securities.
2.14 PROXIES. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 COMMUNICATIONS RELATING TO FUND SECURITIES. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the
Corporation for each Fund all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Corporation on behalf of the
Fund and the maturity of futures contracts purchased or sold by the
Fund) received by the Custodian from issuers of the securities being
held for the Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Fund all written information
received by the Custodian from issuers of the securities whose tender
or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Fund desires to take action with
respect to any tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
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3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE CORPORATION HELD
OUTSIDE OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Corporation hereby
authorizes and instructs the Custodian to employ sub-custodians for
the Fund's securities and other assets maintained outside the United
States.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Corporation may
determine to be reasonably necessary to effect the Fund's foreign
securities transactions. The Custodian shall identify on its books as
belonging to the Corporation, the foreign securities of the Corporation
held by each foreign sub-custodian.
3.3 FOREIGN SECURITIES SYSTEMS. Except as may otherwise be agreed upon in
writing by the Custodian and the Corporation, assets of the Funds shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside of the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems").
Where possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 HOLDING SECURITIES. The Custodian may hold securities and other
non-cash property for all of its customers, including the Corporation,
with a foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Corporation which are
maintained in such account shall identify by book-entry those
securities and other non-cash property belonging to the Corporation and
(ii) the Custodian shall require that securities and other non-cash
property so held by the foreign sub-custodian be held separately from
any assets of the foreign sub-custodian or of others.
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3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Fund will not be subject to any right, charge, security interest, lien
or claim of any kind in favor of the foreign banking institution or its
creditors or agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership for the assets of each Fund
will be freely transferable without the payment of money or value other
than for custody or administration; (c) adequate records will be
maintained identifying the assets as belonging to each applicable Fund;
(d) officers of or auditors employed by, or other representatives of
the Custodian, including to the extent permitted under applicable law
the independent public accountants for the Corporation, will be given
access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian; and (e)
assets of the Fund(s) held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE CORPORATION. Upon request of
the Corporation, the Custodian will use its best efforts to arrange for
the independent accountants of the Corporation to be afforded access to
the books and records of any foreign banking institution employed as a
foreign sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Corporation
from time to time, as mutually agreed upon, statements in respect of
the securities and other assets of the Fund(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Fund(s) securities and other assets
and advices or notifications of any transfers of securities to or from
each custodial account maintained by a foreign banking institution for
the Custodian on behalf of each applicable Fund indicating, as to
securities acquired for a Fund, the identity of the entity having
physical possession of such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, MUTATIS MUTANDIS to
the foreign securities of the Corporation held outside the United
States by foreign sub-custodians. (b) Notwithstanding any provision of
this Contract to the contrary, settlement and payment for securities
received for the account of each applicable Fund and delivery of
securities maintained for the account of each applicable Fund may be
effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer) against
a receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer. (c) Securities maintained in
the custody of a foreign sub-custodian may be maintained in the
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<PAGE>
name of such entity's nominee to the same extent as set forth in
Section 2.3 of this Contract, and the Corporation agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and each Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Corporation, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Corporation has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Corporation for any loss due to such delegation,
except such loss as may result from (a) political risk (including, but
not limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed
hostilities) or (b) other losses (excluding a bankruptcy or insolvency
of State Street London Ltd. not caused by political risk) due to Acts
of God, nuclear incident or other losses under circumstances where the
Custodian and State Street London Ltd. have exercised reasonable care.
3.11 REIMBURSEMENT FOR ADVANCES. If the Corporation requires the Custodian
to advance cash or securities for any purpose for the benefit of a Fund
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the applicable Fund shall
be security therefor and should the Corporation fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Funds assets to the extent
necessary to obtain reimbursement.
13
<PAGE>
3.12 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to
the Corporation, during the month of June, information concerning the
foreign sub-custodians employed by the Custodian. Such information
shall be similar in kind and scope to that furnished to the Corporation
in connection with the initial approval of this Contract. In addition,
the Custodian will promptly inform the Corporation in the event that
the Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the assets
of the Corporation or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there appears
to be a substantial likelihood that its shareholders' equity will
decline below $200 million (U.S. dollars or the equivalent thereof) or
that its shareholders' equity has declined below $200 million (in each
case computed in accordance with generally accepted U.S. accounting
principles).
3.13 BRANCHES OF U.S. BANKS. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Funds assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract. (b)
Cash held for each Fund of the Corporation in the United Kingdom shall
be maintained in an interest bearing account established for the
Corporation with the Custodian's London branch, which account shall be
subject to the direction of the Custodian, State Street London Ltd. or
both.
3.14 TAX LAW. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Corporation or the
Custodian as custodian of the Corporation by the tax law of the United
States of America or any state or political subdivision thereof. It
shall be the responsibility of the Corporation to notify the Custodian
of the obligations imposed on the Corporation or the Custodian as
custodian of the Corporation by the tax law of jurisdictions other than
those mentioned in the above sentence, including responsibility for
withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole responsibility of
the Custodian with regard to such tax law shall be to use reasonable
efforts to assist the Corporation with respect to any claim for
exemption or refund under the tax law of jurisdictions for which the
Corporation has provided such information.
4. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES OF THE
CORPORATION
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Corporation and deposit into the account of the
appropriate Fund such payments as are received for Shares of that Fund issued or
sold from time to time by the Corporation. The Custodian will provide timely
notification to the Corporation on behalf of each such Fund and the Transfer
Agent of any receipt by it of payments for Shares of such Fund.
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<PAGE>
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Corporation pursuant thereto, the Custodian shall,
upon receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of a Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the
redemption or repurchase of Shares of the Corporation, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Corporation to the holder of Shares, when presented to the
Custodian in accordance with such procedures and controls as are mutually agreed
upon from time to time between the Corporation and the Custodian.
5. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Contract means a writing signed
or initialled by one or more person or persons as the Board of Directors shall
have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Corporation shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the Secretary or
an Assistant Secretary as to the authorization by the Board of Directors of the
Corporation accompanied by a detailed description of procedures approved by the
Board of Directors, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Board of Directors and the Custodian are satisfied that such procedures afford
adequate safeguards for the Funds' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Corporation on behalf of each applicable Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, PROVIDED that all such payments shall be accounted
for to the Corporation on behalf of the Fund;
2) surrender securities in temporary form for securities in
definitive form;
15
<PAGE>
3) endorse for collection, in the name of the Fund, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of the Fund except
as otherwise directed by the Board of Directors of the
Corporation.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Corporation.
The Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Corporation as conclusive evidence (a) of the authority of any
person to act in accordance with such vote or (b) of any determination or of any
action by the Board of Directors pursuant to the Articles of Incorporation as
described in such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Corporation to
keep the books of account of each Fund and/or compute the net asset value per
share of the outstanding shares of each Fund or, if directed in writing to do so
by the Corporation on behalf of the Fund, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Fund as described in
the Corporation's currently effective prospectus related to such Fund and shall
advise the Corporation and the Transfer Agent daily of the total amounts of such
net income and, if instructed in writing by an officer of the Corporation to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value
per share and the daily income of each Fund shall be made at the time or times
described from time to time in the Corporation's currently effective prospectus
related to such Fund.
9. RECORDS
The Custodian shall with respect to each Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Corporation under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the
Corporation and shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers, employees or
agents of the Corporation and employees and
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<PAGE>
agents of the Securities and Exchange Commission. The Custodian shall, at the
Corporation's request, supply the Corporation with a tabulation of securities
owned by each Fund and held by the Custodian and shall, when requested to do so
by the Corporation and for such compensation as shall be agreed upon between the
Corporation and the Custodian, include certificate numbers in such tabulations.
10. OPINION OF CORPORATION'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Corporation on behalf
of each applicable Fund may from time to time request, to obtain from year to
year favorable opinions from the Corporation's independent accountants with
respect to its activities hereunder in connection with the preparation of the
Corporation's Form N-1A, and Form N-SAR or other annual reports to the
Securities and Exchange Commission and with respect to any other requirements of
such Commission.
11. REPORTS TO CORPORATION BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Corporation, on behalf of each of the Funds
at such times as the Corporation may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Corporation to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the
Corporation on behalf of each applicable Fund and the Custodian.
13. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Corporation for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel
17
<PAGE>
(who may be counsel for the Corporation) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Corporation for any loss,
liability, claim or expense resulting from or caused by; (i) events or
circumstances beyond the reasonable control of the Custodian or any
sub-custodian or Securities System or any agent or nominee of any of the
foregoing, including, without limitation, nationalization or expropriation,
imposition of currency controls or restrictions, the interruption, suspension or
restriction of trading on or the closure of any securities market, power or
other mechanical or technological failures or interruptions, computer viruses or
communications disruptions, acts of war or terrorism, riots, revolutions, work
stoppages, natural disasters or other similar events or acts; (ii) errors by the
Corporation or the Investment Advisor in their instructions to the Custodian
provided such instructions have been in accordance with this Contract; (iii) the
insolvency of or acts or omissions by a Securities System; (iv) any delay or
failure of any broker, agent or intermediary, central bank or other commercially
prevalent payment or clearing system to deliver to the Custodian's sub-custodian
or agent securities purchased or in the remittance or payment made in connection
with securities sold; (v) any delay or failure of any company, corporation, or
other body in charge of registering or transferring securities in the name of
the Custodian, the Corporation, the Custodian's sub-custodians, nominees or
agents or any consequential losses arising out of such delay or failure to
transfer such securities including non-receipt of bonus, dividends and rights
and other accretions or benefits; (vi) delays or inability to perform its duties
due to any disorder in market infrastructure with respect to any particular
security or Securities System; and (vii) any provision of any present or future
law or regulation or order of the United States of America, or any state
thereof, or any other country, or political subdivision thereof or of any court
of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign banking
institution to the same extent as set forth with respect to sub-custodians
generally in this Contract.
If the Corporation on behalf of a Fund requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Corporation or the Fund being liable for the payment
of money or incurring liability of some other form, the Corporation on behalf of
the Fund, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Corporation requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own
18
<PAGE>
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the applicable Fund shall be
security therefor and should the Corporation fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of such Fund's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; PROVIDED, however that the
Custodian shall not with respect to a Fund act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors of the Corporation has approved the
initial use of a particular Securities System by such Fund, as required by Rule
17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Fund act under Section 2.11 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors has approved the initial use of the Direct
Paper System by such Fund; PROVIDED FURTHER, however, that the Corporation shall
not amend or terminate this Contract in contravention of any applicable federal
or state regulations, or any provision of the Articles of Incorporation, and
further provided, that the Corporation on behalf of one or more of the Funds may
at any time by action of its Board of Directors (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Corporation on behalf of each
applicable Fund shall pay to the Custodian such compensation as may be due as of
the date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. SUCCESSOR CUSTODIAN
If a successor custodian for the Corporation, of one or more of the Funds
shall be appointed by the Board of Directors of the Corporation, the Custodian
shall, upon termination, deliver to such successor custodian at the office of
the Custodian, duly endorsed and in the form for transfer, all securities of
each applicable Fund then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Fund held in a
Securities System.
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<PAGE>
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Corporation, deliver at the office of the Custodian and
transfer such securities, Corporations and other properties in accordance with
such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Fund and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Fund and to transfer to
an account of such successor custodian all of the securities of each such Fund
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Corporation to procure the certified copy of the vote referred to
or of the Board of Directors to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.
16. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and the
Corporation on behalf of each of the Funds, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, PROVIDED that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Articles of Incorporation of the
Corporation. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
17. ADDITIONAL FUNDS
In the event that the Corporation establishes one or more series of Shares
in addition to the Tax Managed Equity Fund with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it shall
so notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Fund hereunder.
18. MASSACHUSETTS LAW TO APPLY
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<PAGE>
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Corporation on behalf of each of the Funds and the
Custodian relating to the custody of the Corporation's assets.
20. SHAREHOLDER COMMUNICATIONS
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Corporation to indicate whether the
Corporation authorizes the Custodian to provide the Corporation's name, address,
and share position to requesting companies whose stock the Corporation owns. If
the Corporation tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Corporation tells the Custodian
"yes" or do not check either "yes" or "no" below, the Custodian is required by
the rule to treat the Corporation as consenting to disclosure of this
information for all securities owned by the Corporation or any funds or accounts
established by the Corporation. For the Corporation's protection, the Rule
prohibits the requesting company from using the Corporation's name and address
for any purpose other than corporate communications. Please indicate below
whether the Corporation consent or object by checking one of the alternatives
below.
YES [ ] The Custodian is authorized to release the Corporation's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Corporation's name,
address, and share positions.
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IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 18th day of February, 1999.
ATTEST SUNAMERICA STRATEGIC INVESTMENT
SERIES, INC.
- -------------------- By
----------------------------
Name:
Title:
ATTEST STATE STREET BANK AND TRUST COMPANY
- -------------------- By
------------------------------
Name:
Title:
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Terms of Appointment; Duties of the Bank. . . . . . . . . . . . . . .1
2. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .3
3. Representations and Warranties of the Bank. . . . . . . . . . . . . .4
4. Representations and Warranties of the Corporation . . . . . . . . . .4
5. Data Access and Proprietary Information . . . . . . . . . . . . . . .5
6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . .6
7. Standard of Care. . . . . . . . . . . . . . . . . . . . . . . . . . .7
8. Covenants of the Corporation and the Bank . . . . . . . . . . . . . .7
9. Termination of Agreement. . . . . . . . . . . . . . . . . . . . . . .8
10. Additional Funds. . . . . . . . . . . . . . . . . . . . . . . . . .9
11. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
12. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
13. Massachusetts Law to Apply. . . . . . . . . . . . . . . . . . . . .9
14. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . .9
15. Consequential Damages . . . . . . . . . . . . . . . . . . . . . . 10
16. Merger of Agreement . . . . . . . . . . . . . . . . . . . . . . . 10
17. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 18th day of February, 1999, by and between
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC., a Maryland corporation, having
its principal office and place of business at The SunAmerica Center, 733
Third Avenue, New York, New York 10017-3204 (the "Corporation"), and STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its
principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank").
WHEREAS, the Corporation is authorized to issue shares in separate series, with
each such series representing interests in a separate fund of securities and
other assets; and
WHEREAS, the Corporation intends to initially offer shares in one series, the
Tax Managed Equity Fund (this series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 10, being herein referred to as a "Fund", and
collectively as the "Funds");
WHEREAS, the Corporation on behalf of the Fund(s) desires to appoint the Bank as
its transfer agent, dividend disbursing agent, custodian of certain retirement
plans and agent in connection with certain other activities, and the Bank
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. TERMS OF APPOINTMENT; DUTIES OF THE BANK
1.1 Subject to the terms and conditions set forth in this Agreement, the
Corporation, on behalf of the Fund(s), hereby employs and appoints the Bank
to act as, and the Bank agrees to act as its transfer agent for the
Corporation's authorized and issued shares of its common stock, $0.0001 par
value, ("Shares"), dividend disbursing agent, custodian of certain
retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of the
respective Fund(s) of the Corporation ("Shareholders") and set out in the
currently effective prospectus and statement of additional information
("prospectus") of the Corporation on behalf of the applicable Fund,
including without limitation any periodic investment plan or periodic
withdrawal program.
<PAGE>
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Corporation on behalf of each of the Fund(s), as
applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof
to the Custodian of the Corporation authorized pursuant to the
Articles of Incorporation of the Corporation (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to
the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Corporation who shall thereby
be deemed to be acting on behalf of the Corporation;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Corporation on behalf of the applicable Fund;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the Bank
of indemnification satisfactory to the Bank and protecting the
Bank and the Fund, and the Bank at its option, may issue
replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
<PAGE>
(ix) Maintain records of account for and advise the Corporation and
its Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Corporation and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number of
shares of the Corporation which are authorized, based upon data
provided to it by the Corporation, and issued and outstanding.
The Bank shall also provide the Corporation on a regular basis
with the total number of shares which are authorized and issued
and outstanding and shall have no obligation, when recording
the issuance of shares, to monitor the issuance of such shares
or to take cognizance of any laws relating to the issue or sale
of such shares, which functions shall be the sole
responsibility of the Corporation.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i)
perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and, as
relevant, agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic investment
plan or periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, mailing Shareholder reports and prospectuses
to current Shareholders, withholding taxes on U.S. resident and
non-resident alien accounts, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms required with
respect to dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and statements
of account to Shareholders for all purchases and redemptions of Shares
and other confirmable transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders, and providing
Shareholder account information and (ii) provide a system which will
enable the Corporation to monitor the total number of Shares sold in
each State.
(c) In addition, the Corporation shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt from
blue sky reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Corporation's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Corporation and the
reporting of such transactions to the Corporation as provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between
the Corporation on behalf of each Fund and the Bank per the attached
service responsibility schedule. The Bank may at times perform only a
portion of these services and the Corporation or its agent may perform
these services on the Corporation's behalf.
<PAGE>
(e) The Bank shall provide additional services on behalf of the
Corporation (i.e., escheatment services) which may be agreed upon in
writing between the Corporation and the Bank.
2. FEES AND EXPENSES
2.1 For the performance by the Bank pursuant to this Agreement, the Corporation
agrees on behalf of each of the Fund(s) to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket expenses and
advances identified under Section 2.2 below may be changed from time to
time subject to mutual written agreement between the Corporation and the
Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Fund(s) to reimburse the Bank for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, tabulating proxies, records
storage, or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the
Bank at the request or with the consent of the Corporation, will be
reimbursed by the Corporation on behalf of the applicable Fund.
2.3 The Corporation agrees on behalf of each of the Fund(s) to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies,
Corporation reports and other mailings to all shareholder accounts shall be
advanced to the Bank by the Corporation at least seven (7) days prior to
the mailing date of such materials.
3. REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Corporation that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
<PAGE>
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation represents and warrants to the Bank that:
4.1 It is a corporation duly organized and existing and in good standing under
the laws of the State of Maryland.
4.2 It is empowered under applicable laws and by its Articles of Incorporation
and By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Articles of Incorporation and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.4 It is an open-end and diversified management investment company registered
under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Fund(s) is currently effective and will remain
effective, and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of the Corporation
being offered for sale.
5. DATA ACCESS AND PROPRIETARY INFORMATION
5.1 The Corporation acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Corporation by the Bank as part of the
Corporation's ability to access certain Fund-related data ("Customer Data")
maintained by the Bank on data bases under the control and ownership of the
Bank ("Data Access Services") constitute copyrighted, trade secret, or
other proprietary information (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Corporation agrees
to treat all Proprietary Information as proprietary to the Bank and further
agrees that it shall not divulge any Proprietary Information to any person
or organization except as may be provided hereunder. Without limiting the
foregoing, the Corporation agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with the
Bank's applicable user documentation;
<PAGE>
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion of
the Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose of
such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder
from being retransmitted to any other computer facility or other
location, except with the prior written consent of the Bank;
(e) that the Corporation shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under other
federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Corporation notifies the Bank that any of the Data Access Services
do not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible
for the contents of such data and the Corporation agrees to make no claim
against the Bank arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof. DATA ACCESS SERVICES
AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION
THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY
DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING,
BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE.
5.3 If the transactions available to the Corporation include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information, then in such event the Bank shall be
entitled to rely on the validity and authenticity of such instruction
without
<PAGE>
undertaking any further inquiry as long as such instruction is undertaken
in conformity with security procedures established by the Bank from time to
time.
6. INDEMNIFICATION
6.1 The Bank shall not be responsible for, and the Corporation shall on behalf
of the applicable Fund indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or willful
misconduct.
(b) The Corporation's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or
warranty of the Corporation hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which
(i) are received by the Bank or its agents or subcontractors, and (ii)
have been prepared, maintained or performed by the Fund or any other
person or firm on behalf of the Corporation including but not limited
to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of any instructions or requests of the Corporation
on behalf of the applicable Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered in
such state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the offer or
sale of such Shares in such state.
(f) The negotiation and processing by the Bank of checks not made
payable to the order of the Bank, the Corporation, the Corporation=s
management company, transfer agent or distributor or the retirement
account custodian or trustee for a plan account investing in Shares,
which checks are tendered to the Bank for the purchase of Shares
(i.e., checks made payable to prospective or existing Shareholders,
such checks are commonly known as Athird party checks@).
6.2 At any time the Bank may apply to any officer of the Corporation for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services
<PAGE>
to be performed by the Bank under this Agreement, and the Bank and its
agents or subcontractors shall not be liable and shall be indemnified by
the Corporation on behalf of the applicable Fund for any action taken or
omitted by it in reliance upon such instructions or upon the opinion of
such counsel. The Bank, its agents and subcontractors shall be protected
and indemnified in acting upon any paper or document furnished by or on
behalf of the Corporation, reasonably believed to be genuine and to have
been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Corporation, and shall not be held to have
notice of any change of authority of any person, until receipt of written
notice thereof from the Corporation. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Corporation, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.3 In order that the indemnification provisions contained in this Section 6
shall apply, upon the assertion of a claim for which the Corporation may be
required to indemnify the Bank, the Bank shall promptly notify the
Corporation of such assertion, and shall keep the Corporation advised with
respect to all developments concerning such claim. The Corporation shall
have the option to participate with the Bank in the defense of such claim
or to defend against said claim in its own name or in the name of the Bank.
The Bank shall in no case confess any claim or make any compromise in any
case in which the Corporation may be required to indemnify the Bank except
with the Corporation's prior written consent.
7. STANDARD OF CARE
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not
be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith, or willful misconduct or that of its employees.
8. COVENANTS OF THE CORPORATION AND THE BANK
8.1 The Corporation shall on behalf of each of the Fund(s) promptly furnish to
the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of
the Corporation authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
<PAGE>
(b) A copy of the Articles of Incorporation and By-Laws of the
Corporation and all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Corporation for safekeeping of
stock certificates, check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for keeping account
of, such certificates, forms and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the Rules thereunder, the Bank agrees that all such records
prepared or maintained by the Bank relating to the services to be
performed by the Bank hereunder are the property of the Corporation and
will be preserved, maintained and made available in accordance with such
Section and Rules, and will be surrendered promptly to the Corporation on
and in accordance with its request.
8.4 The Bank and the Corporation agree that all books, records, information
and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of
this Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
8.5 In case of any requests or demands for the inspection of the Shareholder
records of the Corporation, the Bank will endeavor to notify the
Corporation and to secure instructions from an authorized officer of the
Corporation as to such inspection. The Bank reserves the right, however,
to exhibit the Shareholder records to any person whenever it is advised
by its counsel that it may be held liable for the failure to exhibit the
Shareholder records to such person.
9. TERMINATION OF AGREEMENT
9.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
9.2 Should the Corporation exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Corporation on behalf of the applicable Fund(s).
Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge
equivalent to the average of three (3) months' fees.
10. ADDITIONAL FUNDS
In the event that the Corporation establishes one or more series of
Shares in addition to the Tax Managed Equity Fund with respect to which
it desires to have the Bank render services
<PAGE>
as transfer agent under the terms hereof, it shall so notify the Bank in
writing, and if the Bank agrees in writing to provide such services, such
series of Shares shall become a Fund hereunder.
11. ASSIGNMENT
11.1 Except as provided in Section 11.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Corporation,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"), (ii)
a BFDS subsidiary duly registered as a transfer agent pursuant to Section
17A(c)(2) or (iii) a BFDS affiliate; provided, however, that the Bank
shall be as fully responsible to the Corporation for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
12. AMENDMENT
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board
of Directors of the Corporation.
13. MASSACHUSETTS LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of
Massachusetts.
14. FORCE MAJEURE
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
<PAGE>
15. CONSEQUENTIAL DAMAGES
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
16. MERGER OF AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
17. COUNTERPARTS
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
SUNAMERICA STRATEGIC INVESTMENT
SERIES, INC.
BY:
-----------------------------
Name:
Title:
ATTEST:
- ---------------------------
STATE STREET BANK AND TRUST
COMPANY
BY:
-----------------------------
Name:
Title:
ATTEST:
- ---------------------------
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
SERVICE AGREEMENT
This AGREEMENT made as of this 18th day of February, 1999 by and between
SunAmerica Strategic Investment Series, Inc., a Maryland corporation having its
principal place of business at The SunAmerica Center, 733 Third Avenue, New
York, New York 10017-3204 (hereinafter called the "Corporation") and SunAmerica
Fund Services, Inc., a Delaware corporation, having its principal place of
business at The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204 (hereinafter called "Fund Services").
W I T N E S S E T H:
WHEREAS, the Corporation desires to appoint Fund Services as its agent in
connection with certain shareholder servicing activities, and Fund Services
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. TERMS OF APPOINTMENT; DUTIES OF FUND SERVICES
A. Subject to the terms and conditions set forth in this Agreement, the
Corporation hereby employs and appoints Fund Services to act, and Fund Services
agrees to act, as servicing agent to assist State Street Bank and Trust Company
and its affiliates, the Corporation's transfer agent (the "Transfer Agent") for
the authorized and issued shares of common stock, $.0001 par value of the
Corporation (the "Shares"), in connection with certain services offered to the
shareholders of the Corporation (the "Shareholders") as set out in the current
prospectus of the Corporation, as may be amended from time to time, as on file
with the Securities and Exchange Commission.
B. Fund Services agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
between the Corporation, the Transfer Agent and Fund Services, Fund Services
shall:
(i) receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
therefor to the custodian of the Corporation authorized
pursuant to the Articles of Incorporation of the
Corporation (the "Custodian"):
(ii) pursuant to purchase orders, assist the Transfer Agent to
issue the appropriate number of Shares and hold such Shares
in the appropriate Shareholder account;
(iii) receive for acceptance, redemption requests and redemption
directions and deliver the appropriate documentation
therefor to the Custodian;
(iv) at the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid
<PAGE>
over in the appropriate manner such monies as instructed by
the redeeming Shareholders;
(v) assist the Transfer Agent to effect transfers of Shares by
the registered owners thereof upon receipt of appropriate
documentation;
(vi) assist the Transfer Agent to prepare and transmit payments
for dividends and distributions declared by the
Corporation; and
(vii) assist the Transfer Agent to maintain records of account for
the Corporation and its Shareholders as to the foregoing.
2. SERVICES WITH RESPECT TO THE REGISTRATION OF SHARES.
On each day on which an issuance or redemption of Shares occurs, Fund
Services shall assist the Transfer Agent to prepare for the Corporation account
records opening, crediting, debiting and closing affected Shareholders' accounts
as necessary to reflect the issuances or redemptions occurring on that day. All
credits to Shareholders' accounts shall be for the price of the Shares at the
time of purchase, determined in accordance with the Corporation's current
prospectus.
3. SHARE PRICE FOR PURCHASE AND REDEMPTION
A. Fund Services shall assist the Transfer Agent to identify all share
transactions which involve purchase and redemption orders that are processed at
a time other than the time of the computation of net asset value per share next
computed after receipt of such orders, and shall compute the net effect upon the
Corporation of such transactions so identified on a daily and cumulative basis.
B. Fund Services shall supply to the Corporation monthly reports
summarizing the transactions identified pursuant to paragraph A. above, and the
daily and cumulative net effects of such transactions, and shall advise the
Corporation at the end of each month of the net cumulative effect at such time.
4. BOOKS AND RECORDS
Fund Services shall prepare for the Corporation and assist the Transfer
Agent in maintaining records showing for each Shareholder's account the
following:
A. The name, address and tax identification number of such Shareholder;
B. The number of Shares held by such Shareholder;
C. Historical information including dividends paid and date and price for
all transactions;
D. Any stop or restraining order placed against such account;
E. Information with respect to the withholding of any portion of income
dividends or capital gains distributions;
-2-
<PAGE>
F. Any dividend or distribution reinvestment election, withdrawal plan
application, and correspondence relating to the current maintenance of
the account;
G. The certificate numbers and denominations of any share certificates
issued to such Shareholder; and
H. Any additional information required by Fund Services to perform the
services contemplated by this Agreement.
Any such records required to be maintained by the Corporation pursuant to
Rule 31a-1 under the Investment Company Act of 1940, as amended (the "Act") or
any successor rule shall be preserved by the Transfer Agent or Fund Services for
the periods prescribed by Rule 31a-2 under the Act or any successor rule. Such
record retention shall be at the expense of the Corporation. Fund Services
may, at its option at any time, turn over to the Corporation and cease to retain
records created and maintained by Fund Services pursuant to this Agreement which
are no longer required by Fund Services to perform the services contemplated by
this Agreement. If not turned over to the Corporation, such records shall be
preserved by Fund Services for six years from the year of creation, during the
first two of which years such records shall be in readily accessible form. At
the conclusion of such six-year period, such records shall either be turned over
to the Corporation or destroyed in accordance with the Corporation's
authorization.
5. INFORMATION TO BE FURNISHED TO THE CORPORATION
Fund Services shall assist the Transfer Agent to furnish to the Corporation
periodically as agreed upon between the Corporation, Fund Services and the
Transfer Agent the following information:
A. Copies of the daily transaction register for each business day of the
Corporation;
B. Copies of all dividend, distribution and reinvestment blotters;
C. Schedules of the quantities of Shares distributed in each state for
purposes of any state's laws or regulations as specified in
instructions given to Fund Services from time to time by the
Corporation or its agents;
D. Reports on transactions described in Paragraph 3 of this Agreement.
E. Such other information, including Shareholder lists, and statistical
information as may be requested by the Corporation from time to time.
6. CONFIRMATIONS AND STATEMENTS OF ACCOUNT
Fund Services shall assist the Transfer Agent to prepare and mail to each
Shareholder at his address as set forth on the transfer books of the Corporation
such confirmations of the Corporation for each purchase or sale of Shares by
each Shareholder and periodic statements of such Shareholder's account with the
Corporation as may be specified from time to time by the Corporation.
-3-
<PAGE>
7. CORRESPONDENCE
Fund Services shall respond to correspondence from Shareholders relating to
their accounts with the Corporation and such other correspondence as may from
time to time be mutually agreed upon by the Corporation, the Transfer Agent and
Fund Services.
8. PROXIES
Fund Services shall assist the Transfer Agent to mail to Shareholders
notices of meetings, proxy statements, forms of proxy and other material
supplied to it by the Corporation in connection with Shareholder meetings of the
Corporation and shall receive, examine and tabulate returned proxies and certify
such tabulations to the Corporation in such written form as the Corporation may
require.
9. FEES AND CHARGES
A. For the services rendered by Fund Services as described above, subject
to the conditions described below, the Corporation shall pay to Fund Services a
fee calculated and payable monthly based upon the annual rate of .22% of average
daily net assets. Fund Services shall also be reimbursed for the cost of forms
used by it in communicating with Shareholders of the Corporation or specially
prepared for use in connection with its services hereunder, as well as the cost
of postage, telephone and telegraph (or similar electronic media) used in
communicating with Shareholders of the Corporation. It is agreed in this regard
that Fund Services, prior to ordering any form shall obtain the written consent
of the Corporation. All forms for which Fund Services has received
reimbursement from the Corporation shall be the property of the Corporation.
Such fees and out-of-pocket expenses and advances described herein may be
changed from time to time subject to mutual written agreement between the
Corporation and Fund Services.
B. No fee shall be payable to Fund Services pursuant to this Agreement in
the event that the Board of Directors of the Corporation (the "Directors")
determines that Fund Services did not provide the services required by this
Agreement or provided services which were inadequate as determined by the
Directors, in its sole discretion.
10. COMPLIANCE WITH GOVERNMENT RULES AND REGULATIONS
The Corporation understands and agrees that it shall be solely responsible
for ensuring that each prospectus of the Corporation complies with all
applicable provisions of, or regulations adopted pursuant to, the Securities Act
of 1933, as amended (the "Securities Act"), the Act, and any other laws, rules
and regulations of Federal, state or foreign governmental authorities having
jurisdiction in connection with the offering or sale of Shares.
11. REPRESENTATIONS AND WARRANTIES OF FUND SERVICES
Fund Services represents and warrants to the Corporation that:
A. It is a corporation duly organized and existing and in good standing
under the laws of the State of Delaware.
-4-
<PAGE>
B. It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
C. All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
D. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
12. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation represents and warrants to Fund Services that:
A. It is a business trust duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
B. It is empowered under applicable laws and by its Declaration of
Corporation and By-Laws to enter into and perform this Agreement.
C. All proceedings required by said Declaration of Corporation and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
D. It is an investment company registered under the Act .
E. A registration statement under the Securities Act is currently
effective and will remain effective, and appropriate state securities law
filings have been made and will continue to be made, with respect to all Shares
of the Corporation being offered for sale; information to the contrary will
result in immediate notification to Fund Services.
13. INDEMNIFICATION
A. Fund Services shall not be responsible for, and the Corporation shall
indemnify and hold Fund Services harmless from and against, any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liability arising out of or attributable to:
(a) All actions of Fund Services or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Corporation's refusal or failure to comply with the terms of
this Agreement, or which arise out of the Corporation's lack of good faith,
negligence or willful misconduct which arise out of the breach of any
representation or warranty of the Corporation hereunder.
(c) The reliance on or use by Fund Services or its agents or
subcontractors of information, records and documents which (i) are received
by Fund Services or its agents or
-5-
<PAGE>
subcontractors and furnished to it by or on behalf of the Corporation, and
(ii) have been prepared or maintained by the Corporation.
(d) The reliance on, or the carrying out by Fund Services or its
agents or subcontractors of any instructions or requests of the Corporation
representative.
(e) The offer or sale of Shares in violation of any requirement under
the Federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any Federal agency or any state
with respect to the offer or sale of such Shares in such state.
B. Fund Services shall indemnify and hold the Corporation harmless from
Fund Services refusal or failure to comply with the terms of this Agreement, or
which arise out of Fund Services lack of good faith, negligence or willful
misconduct or which arise out of the breach of any representation or warranty of
Fund Services or its agents or subcontractors hereunder.
C. At any time Fund Services may apply to any officer of the Corporation
for instructions, and may consult with outside legal counsel with respect to any
matter arising in connection with the services to be performed by Fund Services
under this Agreement, and Fund Services and its agents or subcontractors shall
not be liable and shall be indemnified by the Corporation for any action taken
or omitted by it in reliance upon such instructions or upon the opinion of such
counsel. Fund Services, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Corporation, reasonably believed to be genuine and to have been signed by
the proper person or persons, or upon any instruction, information, data,
records or documents provided Fund Services or its agents or subcontractors by
telephone, in person, machine readable input, telex, CRT data entry or other
similar means authorized by the Corporation, and shall not be held to have
notice of any change of authority of any person, until receipt of written notice
thereof from the Corporation. Fund Services, its agents and subcontractors
shall also be protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile signatures of the
appropriate officer or officers of the Corporation, and the proper
countersignature of any former transfer agent or registrar, or of a co-transfer
agent or co-registrar.
D. In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
E. Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
F. In order that the indemnification provisions contained in this
Paragraph 13 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking
-6-
<PAGE>
indemnification in the defense of such claim. The party seeking indemnification
shall in no case confess any claim or make any compromise in any case in which
the other party may be required to indemnify it except with the other party's
prior written consent.
14. FURTHER ACTIONS
Each party agrees to perform such further acts and execute and deliver such
further documents as are necessary to effectuate the purposes hereof.
15. AMENDMENT, TERMINATION AND DELEGATION OF OBLIGATIONS
Upon its approval by the Directors and appropriate execution, this
Agreement shall remain in effect for two years and thereafter automatically for
successive one-year periods, provided that such continuance is specifically
approved at least annually by a vote of a majority of the Directors and by a
majority of the members who are not parties to this Agreement or interested
persons, as defined in the Act, of any such party. The Directors shall approve
and renew this Agreement upon determining that the fees provided by Paragraph 9
of this Agreement are fair and reasonable in light of the usual and customary
charges made by others for services of the same nature and quality. This
Agreement may be modified or amended from time to time by written
agreement between the parties hereto. This Agreement may be terminated at any
time by one hundred twenty (120) days' written notice given by one party to the
other. Upon termination hereof, the Corporation shall pay to Fund Services such
compensation as may be due as of the date of such termination, and shall
likewise reimburse Fund Services in accordance herewith for its costs, expenses
and disbursements.
16. ASSIGNMENT
A. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other party.
B. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
17. NEW YORK LAW TO APPLY
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
By: /s/ Peter A. Harbeck
-----------------------------------
Peter A. Harbeck, President
ATTEST:
- ----------------------------
SUNAMERICA FUND SERVICES, INC.
By: /s/ Robert M. Zakem
-----------------------------------
Robert M. Zakem, Vice President
ATTEST:
- ----------------------------
-8-
<PAGE>
Name of Firm
City State Zip Code
RE: SELLING AGREEMENT
Gentlemen:
We are the national distributor and principal underwriter of the
shares of mutual funds sponsored, managed and/or advised by SunAmerica Asset
Management Corp. (hereinafter referred to individually as a "Fund", or
collectively as the "Funds"). The Funds and each individual investment series
thereof are set forth on Schedule A, which may be amended from time to time. We
invite you to participate in making available to your customers shares of the
Funds on the following terms:
1a. NON-BANK PARTICIPANTS ONLY. You represent and warrant that you
are a member of the National Association of Securities Dealers, Inc. (the
"NASD"). You agree to abide by the Rules of Fair Practice, the Constitution and
By-Laws of the NASD and to all other rules and regulations that are now or may
become applicable to transactions thereunder.
b. BANK PARTICIPANTS ONLY. You represent and warrant to us that
(i)(a) you are a "Bank" as such term is defined in Section 3(a)(6) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or (b) you are
a "bank holding company" as such term is defined in the Bank Holding Act of
1956, as amended (the "Act"); (ii) you are duly organized and an existing "bank"
or "bank holding company" in good standing under the laws of jurisdiction in
which you were organized; (iii) all authorization (if any) required for your
lawful execution of this Agreement and your performance hereunder have been
obtained; and (iv) upon execution and delivery by you, and assuming due and
valid execution and delivery by us, this Agreement will constitute a valid and
binding agreement, enforceable against you in accordance with its terms. In the
event you are a "bank holding company" as such term is defined in the Act, you
shall attach as an exhibit, and which will be made a part of this Agreement,
which sets forth the names and addresses of the "banks" on whose behalf you are
authorized to execute this Agreement. You agree to give written notice to us
promptly in the event you shall cease to be a "bank" as such term is defined in
Section 3(a)(6) of the Exchange Act or a "bank holding company" as such term is
defined in the Act. In such event, this Agreement shall be automatically
terminated upon such written notice. You also agree to abide by all of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
applicable to the sale of investment company shares to your customers.
We recognize that you may be subject to the provisions of the
Glass-Steagall Act and other laws governing, among other things, the conduct of
activities by federally chartered and supervised banks and affiliated
organizations. Because you will be the only one having a direct relationship
with the customer, you will comply and are complying with all laws and
regulations, including those of the applicable regulatory authorities and any
federal or state regulatory body having jurisdiction over you or your customers,
to the extent applicable to securities purchases hereunder for the account of
your customer.
2.a Orders for shares received from you and accepted by a Fund will
be priced at its next-determined net asset value, plus the applicable sales
charge, if any, at the time of such acceptance as established pursuant to the
then-current prospectus of the Fund. You hereby agree that, in the event you
receive customer purchase or redemption orders for a fund after the time of day
that such fund prices its shares, you will have adequate internal controls
designed to prevent such orders from being aggregated with orders received
before such time. If you designate another entity to receive customer purchase
and redemption orders, you hereby agree to ensure that such designee has adopted
and implemented its own adequate internal controls. Procedures relating to the
handling of orders, including the Policies and Procedures With Respect to Sales
of SunAmerica Mutual Funds Under the Multiple Pricing Structure, as may be
amended from time to time, set forth in Schedule B hereto, shall be subject to
instructions which we shall forward from time to time to all firms (the
"Participants") through which we make available shares of the Funds. All orders
are subject to acceptance by the applicable Fund, which reserves the right in
its sole discretion to reject any order in whole or in part.
<PAGE>
b. We will confirm transactions for each of your customers, it
being understood in all cases that (a) you are acting as the agent for the
customer; (b) the transactions are without recourse against you by the customer
except to the extent that (i) your failure to transmit orders in a timely
fashion results in a loss to your customer, or (ii) in the event you do not
receive a confirmation of the transaction within ten (10) business days
following the order date, your failure to inquire as to the status of the
transaction during such time period results in a loss to your customer; (c) as
between you and the customer, the customer shall have beneficial ownership of
the Fund shares; (d) each transaction is initiated solely upon the order of the
customer; and (e) each transaction is for the account of the customer and not
for your account.
3. As a Participant, you agree to purchase shares of the Funds
only through us or from your customers. Purchases through us shall be made only
for the purpose of covering purchase orders already received from your customers
or for your own bona fide investment.
4. You agree to sell shares of the Funds only (a) to your
customers at the net asset value plus applicable sales charge, if any, then in
effect as established by the then-current prospectus of the applicable Fund or
(b) to us as agent for the Fund or the Fund itself at the redemption price as
described in the prospectus.
5. We reserve the right in our discretion, and without notice to
you, to suspend sales or withdraw the offering of shares entirely, or to modify
or cancel this Agreement. All sales shall be subject to the terms and
provisions set forth in the Funds= then-current prospectuses.
6. No person is authorized to make any representations concerning
a Fund or its shares except those contained in its prospectus and any other
information (including any applicable "Statement of Additional Information") as
may be approved by a Fund as information supplemental to its prospectus. In
purchasing shares through us, you shall rely solely on the representations
contained in the then-effective Prospectus and supplemental information
above-mentioned. You agree to hold us harmless and indemnify the Funds and us
in the event that you, or any of your sales representatives, should violate any
law, rule or regulation, or any provisions of this Agreement, which may result
in liability to the Funds or us. Additional copies of any prospectus and/or
supplemental information (including any applicable "Statement of Additional
Information") will be supplied by us to you in reasonable quantities upon
request.
7. You shall have no authority whatever to act as agent of the
Funds or us, or any other Participant, and nothing in this Agreement shall
constitute you or the Funds as the agent of the other. In all transactions in
these shares between you and us, we are acting as agent for the Funds and not as
principal.
8. All communications to us shall be sent to SunAmerica Capital
Services, Inc., The SunAmerica Center, 733 Third Avenue, New York, NY
10017-3204. Any notice to you shall be duly given if mailed or telegraphed to
you at your address set forth below, unless you give us written instructions
otherwise. It is your responsibility to provide us with updated information
concerning where written communications should be sent.
9. This Agreement may be terminated without penalty upon written
notice by either party at any time, and shall automatically terminate upon its
assignment, or upon any event that terminates a Fund's Distribution Agreement
with us. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York. The indemnification provision in Section 6
hereof shall survive any termination of this Agreement hereunder.
10. NON-BANK PARTICIPANTS ONLY. By accepting this Agreement, you
represent that you are (i) registered as a broker-dealer under the Securities
Exchange Act of 1934; (ii) are qualified to act as a dealer in the states or
other jurisdictions where you transact business; and (iii) are a member in good
standing of the NASD. You agree that you will maintain such registration,
qualifications, and membership in full force and effect throughout the terms of
this Agreement. You further agree to comply with all applicable federal laws,
the laws of the states or other jurisdictions concerned, and the rules and
regulations promulgated thereunder, and with the Constitution, By-Laws and Rules
of Fair Practice, of the NASD and that you will not offer or sell the shares of
the Funds in any state or jurisdiction where they may not lawfully be offered or
sold, or where you are not registered as a broker-dealer.
11.a SERVICE FEES. We expect you to provide administration and
marketing services in the promotion of the Funds' shares, including services and
assistance to your customers who own Fund shares. For such services, you will
be entitled to compensation as set forth on Schedule A, as may be amended from
time to time, and in the Funds' current prospectuses. You hereby agree to waive
payment of such compensation until such time that we are in receipt of the
commissions or concessions
<PAGE>
due for such Fund shares. Our liability for payment of such compensation is
limited solely to the proceeds of such concessions receivable. No commission or
concession shall be payable with respect to shares purchased through
reinvestment of dividends or distributions, or that had been acquired through
one or more exchange transactions which had been the subject of payments under
this paragraph. In addition, no commission or concession shall be payable with
respect to Shares that had been subject to a waiver of the sales charge except
as set forth in the Funds= current prospectuses.
b. CONTINGENT DEFERRED SALES CHARGE ("CDSC"). For purchases of
Class B and Class II shares (or for certain purchases of Class A shares), we
advance commissions with the presumption that assets will remain in the Fund(s)
long enough for expenses to be recouped. In the event of a redemption of shares
purchased before the holding period expires, a CDSC is deducted from the
redemption proceeds as described in the Funds= prospectuses.
c. CDSC WAIVERS. An exemptive order issued by the Securities and
Exchange Commission provides for a waiver of the CDSC on the following
redemptions: (a) CDSC Shares (Class B, Class II shares and certain Class A
shares) requested to be redeemed within one year of the death or initial
determination of disability, as defined in Section 72(m)(7) of the Internal
Revenue Code of 1986 (the "Code"), of a shareholder; (b) Class B shares
representing taxable distributions made by qualified retirement plans or
retirement accounts (not including rollovers) for which SunAmerica Asset
Management Corp. serves as fiduciary; provided that, the plan participant or
account holder has attained the age of 59 1/2 at the time the redemption is
made; (c) Class B and Class II shares being redeemed up to the limit
specified in the Funds= prospectuses made pursuant to any systematic
withdrawal plan established by the Funds. The CDSC waiver, with respect to
(a) above (i.e.; death or disability), is only applicable in cases where the
shareholder account is registered (i) in the name of an individual person,
(ii) as a joint tenancy with rights of survivorship, (iii) as community
property, or (iv) in the name of a minor under the Uniform Gift or Uniform
Transfer to Minors Acts. Notwithstanding the foregoing, we reserve the right
to terminate any or all of these waiver provisions in the future.
d. COMMISSION RECLAIMS. With respect to shares redeemed on which
the CDSC is waived pursuant to (b) above (i.e.; taxable distributions from the
qualified retirement plans as described therein), 100% of the commission
advanced to the selling Broker/Dealer in respect of such shares is subject to
reclaim in the event the redemption occurs within the first year from the date
of purchase, and 50% of the commission advanced if the redemption occurs in the
second year from the date of purchase. With respect to Class A shares purchased
at net asset value (which were part of a purchase of $1 million or more, and
which were subject to a CDSC if redeemed within one year of purchase), 50% of
the commission advanced is subject to reclaim if the redemption occurs during
the second year from the date of purchase. For all other purchases of Class A
shares at net asset value, the entire commission advanced is subject to reclaim
for any redemption occurring within the first two years from the date of
purchase. The foregoing reclamations will be subtracted from dealer concession
payments payable according to Schedule A and, if sufficient dealer concession
payments are not available to offset these reclamations, you will reimburse us
for these amounts.
12. This Agreement shall become effective upon receipt by us of a
signed copy hereof, and shall continue in effect until and unless terminated (i)
pursuant to Section 9, above, or (ii) on account of your violation of any
representation contained herein. This Agreement shall supersede all prior
Selling Agreements with you relating to the shares of the Funds. This Agreement
may be amended in writing signed by each of the parties hereto, except that we
may amend Schedule A in our sole discretion
<PAGE>
upon notice to you. Any such amendment shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors.
SUNAMERICA CAPITAL SERVICES, INC.
By:
---------------------------
Name:
---------------------------
Date: Title:
--------------- ---------------------------
The undersigned accepts your invitation to make available to its
customers the shares of the Funds and agrees to abide by the foregoing terms and
conditions. The undersigned acknowledges receipt of prospectuses of the Funds
in connection with this offering.
- ---------------------------------------- ----------------------------------
Firm Name Authorized Signatory
- ---------------------------------------- ----------------------------------
Address Print Name
- ---------------------------------------- ----------------------------------
Title of Signatory
- ---------------------------------------- ----------------------------------
Telephone Number Date
- ----------------------------------------
Fax Number
<PAGE>
[SAAMCO LETTERHEAD]
February 24, 1999
Gentlemen:
This opinion is being furnished in connection with the filing by
Seasons Series Trust, a Massachusetts business trust (the "Trust"), of
Post-Effective Amendment No. 5 (the "Amendment") to the Registration Statement
on Form N-1A (the "Registration Statement") which registers an indefinite number
of shares of beneficial interest of each series of the Trust, $.01 par value,
(the "Shares") under the Securities Act of 1933, as amended (the "1933 Act"),
pursuant to the Trust's Registration Statement.
As counsel for the Trust, I am familiar with the proceedings taken by
the Trust in connection with the authorization, issuance and sale of the Shares.
In addition, I have examined the Trust's Declaration of Trust, By-Laws and such
other documents that have been deemed relevant to the matters referred to
herein.
Based upon the foregoing, I am of the opinion that, upon issuance and
sale of the Shares in the manner referred to in the Amendment, the Shares will
be legally issued, fully paid and nonassessable shares of beneficial interest of
the Trust. However, I note that as set forth in the Registration Statement,
shareholders of Seasons Series Trust might, under certain circumstances, be
liable for transactions effected by the Trust.
<PAGE>
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Amendment, and to the filing of this
opinion under the securities laws of any state.
Very truly yours,
/s/ Robert M. Zakem
Robert M. Zakem
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 26, 1999, relating to the statements of assets and liabilities and
of operations of SunAmerica Strategic Investments Series, Inc. Tax
Managed Equity Fund, which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Additional Information --
Independent Accountants and Legal Counsel" in such Statement of Additional
Information.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 26, 1999
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS A SHARES)
PLAN OF DISTRIBUTION adopted as of the 18th day of February, 1999, by
SunAmerica Strategic Investment Series, Inc., a Maryland corporation (the
"Corporation"), on behalf of the Class A shares of its separately designated
series, Tax Managed Equity Fund (the "Fund").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company; and
WHEREAS, the Fund is a separately designated investment series of the
Corporation with its own investment objective, policies and purposes offering
four separate classes of shares of common stock, par value $.0001 per share, of
the Corporation (the "Shares"); and
WHEREAS, the Corporation has entered into a Distribution Agreement
with SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which
the Distributor acts as the exclusive distributor and representative of the
Corporation in the offer and sale of the Shares to the public; and
WHEREAS, the Corporation desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Portfolio will pay an account maintenance fee and a distribution fee
to the Distributor with respect to Class A shares of the Fund; and
WHEREAS, the Board of Directors of the Corporation (the "Directors")
as a whole, and the Directors who are not interested persons of the Corporation
and who have no direct or indirect financial interest in the operation of this
Plan or in any agreement relating hereto (the "12b-1 Directors"), having
determined, in the exercise of reasonable business judgment and in light of
their fiduciary duties under state law and under Sections 36(a) and (b) of the
Act, that there is a reasonable likelihood that this Plan will benefit the Fund
and its Class A shareholders, have approved this Plan by votes cast in person at
a meeting called for the purpose of voting hereon and on any agreements related
hereto;
NOW THEREFORE, the Corporation on behalf of the Fund hereby adopts
this Plan on the following terms:
1. DISTRIBUTION ACTIVITIES. The Fund shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.10% of average daily net assets attributable to Class A shares of the
Portfolio to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion and
marketing of the Class A shares. Such expenditures may consist of sales
commissions to financial consultants for selling Class A shares, compensation,
sales incentives and payments to sales and marketing personnel, and the payment
of expenses incurred in its sales and promotional activities, including
advertising expenditures related to the Class A shares of the Fund and the costs
of preparing and distributing promotional
<PAGE>
materials with respect to such Class A shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set forth in
applicable regulations of the National Association of Securities Dealers, Inc.
Nothing herein shall prohibit the Distributor from collecting distribution fees
in any given year, as provided hereunder, in excess of expenditures made in such
year for sales and promotional activities with respect to the Fund.
2. ACCOUNT MAINTENANCE ACTIVITIES. The Fund shall pay the
Distributor an account maintenance fee under the Plan at the end of each month
at the annual rate of up to 0.25% of average daily net assets attributable to
Class A shares of the Fund to compensate the Distributor and Securities Firms
for account maintenance activities.
3. PAYMENTS TO OTHER PARTIES. The Fund hereby authorizes the
Distributor to enter into agreements with Securities Firms to provide
compensation to such Securities Firms for activities and services of the type
referred to in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
agreements shall provide that the Securities Firms shall deliver to the
Distributor such information as is reasonably necessary to permit the
Distributor to comply with the reporting requirements set forth in Section 5
hereof.
4. RELATED AGREEMENTS. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide:
(a) that such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the 12b-1 Directors or, by vote
of a majority of the outstanding voting securities (as defined in the Act) of
Class A shares of the Fund, on not more than 60 days' written notice to any
other party to the agreement; and
(b) that such agreement shall terminate automatically in the
event of its assignment.
5. QUARTERLY REPORTS. The Treasurer of the Corporation shall
provide to the Directors and the Directors shall review, at least quarterly, a
written report of the amounts expended pursuant to this Plan with respect to
Class A shares of the Fund and any related agreement and the purposes for which
such expenditures were made.
6. TERM AND TERMINATION. (a) This Plan shall become effective as of
the date hereof, and, unless terminated as herein provided, shall continue from
year to year thereafter, so long as such continuance is specifically approved at
least annually by votes, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of both the (i) the Directors of the
Corporation, and (ii) the 12b-1 Directors.
(b) This Plan may be terminated at any time by vote of a majority
of the 12b-1 Directors or by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the Fund.
7. AMENDMENTS. This Plan may not be amended to increase materially
the maximum expenditures permitted by Sections 1 and 2 hereof unless such
amendment is approved
-2-
<PAGE>
by a vote of a majority of the outstanding voting securities (as defined in the
Act) of Class A shares of the Fund, and no material amendment to this Plan shall
be made unless approved in the manner provided for the annual renewal of this
Plan in Section 6(a) hereof.
8. SELECTION AND NOMINATION OF DIRECTORS. While this Plan is in
effect, the selection and nomination of those Directors of the Corporation who
are not interested persons of the Corporation shall be committed to the
discretion of such disinterested Directors.
9. RECORDKEEPING. The Corporation shall preserve copies of this
Plan and any related agreement and all reports made pursuant to Section 5 hereof
for a period of not less than six years from the date of this Plan, any such
related agreement or such reports, as the case may be, the first two years in an
easily accessible place.
10. DEFINITION OF CERTAIN TERMS. For purposes of this Plan, the
terms "assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the Act and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted to either the Corporation or the principal
underwriter of the Shares by the Securities and Exchange Commission, or its
staff under the Act.
11. SEPARATE SERIES. Pursuant to the provisions of the Articles of
Incorporation the Fund is a separate series of the Corporation, and all debts,
liabilities and expenses of Class A shares of the Fund shall be enforceable only
against the assets of Class A shares of the Fund and not against the assets of
any other series or class of shares or of the Corporation as a whole.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
By: /s/ Peter A. Harbeck
-----------------------
Peter A. Harbeck
President
-3-
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 18th day of February, 1999, by
SunAmerica Strategic Investment Series, Inc., a Maryland corporation (the
"Corporation"), on behalf of the Class B shares of its separately designated
series, Focus Fund (the "Fund").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company; and
WHEREAS, the Fund is a separately designated investment series of the
Corporation with its own investment objective, policies and purposes offering
four separate classes of shares of common stock, par value $.0001 per share, of
the Corporation (the "Shares"); and
WHEREAS, the Corporation has entered into a Distribution Agreement
with SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which
the Distributor acts as the exclusive distributor and representative of the
Corporation in the offer and sale of the Shares to the public; and
WHEREAS, the Corporation desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee and a distribution fee to the
Distributor with respect to Class B shares of the Fund; and
WHEREAS, the Board of Directors of the Corporation (the "Directors")
as a whole, and the Directors who are not interested persons of the Corporation
and who have no direct or indirect financial interest in the operation of this
Plan or in any agreement relating hereto (the "12b-1 Directors"), having
determined, in the exercise of reasonable business judgment and in light of
their fiduciary duties under state law and under Sections 36(a) and (b) of the
Act, that there is a reasonable likelihood that this Plan will benefit the Fund
and its Class B shareholders, have approved this Plan by votes cast in person at
a meeting called for the purpose of voting hereon and on any agreements related
hereto;
NOW THEREFORE, the Corporation on behalf of the Fund hereby adopts
this Plan on the following terms:
1. DISTRIBUTION ACTIVITIES. The Fund shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.75% of average daily net assets attributable to Class B shares of the Fund to
compensate the Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such activities and
services will relate to the sale, promotion and marketing of the Class B shares.
Such expenditures may consist of sales commissions to financial consultants for
selling Class B shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its sales and
promotional activities, including advertising expenditures related to the Class
B shares of the Fund and the costs of preparing and distributing promotional
materials with
<PAGE>
respect to such Class B shares. Payment of the distribution fee described in
this Section 1 shall be subject to any limitations set forth in applicable
regulations of the National Association of Securities Dealers, Inc. Nothing
herein shall prohibit the Distributior from collecting distribution fees in any
given year, as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. ACCOUNT MAINTENANCE ACTIVITIES. The Fund shall pay the
Distributor an account maintenance fee under the Plan at the end of each month
at the annual rate of up to 0.25% of average daily net assets attributable to
Class B shares of the Fund to compensate the Distributor and Securities Firms
for account maintenance activities.
3. PAYMENTS TO OTHER PARTIES. The Fund hereby authorizes the
Distributor to enter into agreements with Securities Firms to provide
compensation to such Securities Firms for activities and services of the type
referred to in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
agreements shall provide that the Securities Firms shall deliver to the
Distributor such information as is reasonably necessary to permit the
Distributor to comply with the reporting requirements set forth in Section 5
hereof.
4. RELATED AGREEMENTS. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide:
(a) that such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the 12b-1 Directors or, by vote
of a majority of the outstanding voting securities (as defined in the Act) of
Class B shares of the Fund, on not more than 60 days' written notice to any
other party to the agreement; and
(b) that such agreement shall terminate automatically in the
event of its assignment.
5. QUARTERLY REPORTS. The Treasurer of the Corporation shall
provide to the Directors and the Directors shall review, at least quarterly, a
written report of the amounts expended pursuant to this Plan with respect to
Class B shares of the Fund and any related agreement and the purposes for which
such expenditures were made.
6. TERM AND TERMINATION. (a) This Plan shall become effective as of
the date hereof, and, unless terminated as herein provided, shall continue from
year to year thereafter, so long as such continuance is specifically approved at
least annually by votes, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of both the (i) the Directors of the
Corporation, and (ii) the 12b-1 Directors.
(b) This Plan may be terminated at any time by vote of a majority
of the 12b-1 Directors or by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the Fund.
7. AMENDMENTS. This Plan may not be amended to increase materially
the maximum expenditures permitted by Sections 1 and 2 hereof unless such
amendment is approved
-2-
<PAGE>
by a vote of a majority of the outstanding voting securities (as defined in the
Act) of Class B shares of the Fund, and no material amendment to this Plan shall
be made unless approved in the manner provided for the annual renewal of this
Plan in Section 6(a) hereof.
8. SELECTION AND NOMINATION OF DIRECTORS. While this Plan is in
effect, the selection and nomination of those Directors of the Corporation who
are not interested persons of the Corporation shall be committed to the
discretion of such disinterested Directors.
9. RECORDKEEPING. The Corporation shall preserve copies of this
Plan and any related agreement and all reports made pursuant to Section 5 hereof
for a period of not less than six years from the date of this Plan, any such
related agreement or such reports, as the case may be, the first two years in an
easily accessible place.
10. DEFINITION OF CERTAIN TERMS. For purposes of this Plan, the
terms "assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the Act and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted to either the Corporation or the principal
underwriter of the Shares by the Securities and Exchange Commission, or its
staff under the Act.
11. SEPARATE SERIES. Pursuant to the provisions of the Articles of
Incorporation, the Fund is a separate series of the Corporation, and all debts,
liabilities and expenses of Class B shares of the Fund shall be enforceable only
against the assets of Class B shares of the Fund and not against the assets of
any other series or class of shares or of the Corporation as a whole.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
By: /s/ Peter A. Harbeck
-------------------------------
Peter A. Harbeck
President
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS II SHARES)
PLAN OF DISTRIBUTION adopted as of the 18th day of February, 1999, by
SunAmerica Strategic Investment Series, Inc., a Maryland corporation (the
"Corporation"), on behalf of the Class II shares of its separately designated
series, Focus Fund (the "Fund").
W I T N E S S E T H:
WHEREAS, the Corporation is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company; and
WHEREAS, the Fund is a separately designated investment series of the
Corporation with its own investment objective, policies and purposes offering
four separate classes of shares of common stock, par value $.0001 per share, of
the Corporation (the "Shares"); and
WHEREAS, the Corporation has entered into a Distribution Agreement
with SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which
the Distributor acts as the exclusive distributor and representative of the
Corporation in the offer and sale of the Shares to the public; and
WHEREAS, the Corporation desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee and a distribution fee to the
Distributor with respect to Class II shares of the Fund; and
WHEREAS, the Board of Directors of the Corporation (the "Directors")
as a whole, and the Directors who are not interested persons of the Corporation
and who have no direct or indirect financial interest in the operation of this
Plan or in any agreement relating hereto (the "12b-1 Directors"), having
determined, in the exercise of reasonable business judgment and in light of
their fiduciary duties under state law and under Sections 36(a) and (b) of the
Act, that there is a reasonable likelihood that this Plan will benefit the Fund
and its Class II shareholders, have approved this Plan by votes cast in person
at a meeting called for the purpose of voting hereon and on any agreements
related hereto;
NOW THEREFORE, the Corporation on behalf of the Fund hereby adopts
this Plan on the following terms:
1. DISTRIBUTION ACTIVITIES. The Fund shall pay the Distributor a
distribution fee under the Plan at the end of each month at the annual rate of
0.75% of average daily net assets attributable to Class II shares of the Fund to
compensate the Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such activities and
services will relate to the sale, promotion and marketing of the Class II
shares. Such expenditures may consist of sales commissions to financial
consultants for selling Class II shares, compensation, sales incentives and
payments to sales and marketing personnel, and the payment of expenses incurred
in its sales and promotional activities, including advertising expenditures
related to the Class II shares of the Fund and the costs of preparing and
distributing promotional materials with
<PAGE>
respect to such Class II shares. Payment of the distribution fee described in
this Section 1 shall be subject to any limitations set forth in applicable
regulations of the National Association of Securities Dealers, Inc. Nothing
herein shall prohibit the Distributor from collecting distribution fees in any
given year, as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. ACCOUNT MAINTENANCE ACTIVITIES. The Fund shall pay the
Distributor an account maintenance fee under the Plan at the end of each month
at the annual rate of up to 0.25% of average daily net assets attributable to
Class II shares of the Fund to compensate the Distributor and Securities Firms
for account maintenance activities.
3. PAYMENTS TO OTHER PARTIES. The Fund hereby authorizes the
Distributor to enter into agreements with Securities Firms to provide
compensation to such Securities Firms for activities and services of the type
referred to in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
agreements shall provide that the Securities Firms shall deliver to the
Distributor such information as is reasonably necessary to permit the
Distributor to comply with the reporting requirements set forth in Section 5
hereof.
4. RELATED AGREEMENTS. All agreements with any person relating to
implementation of this Plan shall be in writing, and any agreement related to
this Plan shall provide:
(a) that such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the 12b-1 Directors or, by vote
of a majority of the outstanding voting securities (as defined in the Act) of
Class II shares of the Fund, on not more than 60 days' written notice to any
other party to the agreement; and
(b) that such agreement shall terminate automatically in the
event of its assignment.
5. QUARTERLY REPORTS. The Treasurer of the Corporation shall
provide to the Directors and the Directors shall review, at least quarterly, a
written report of the amounts expended pursuant to this Plan with respect to
Class II shares of the Fund and any related agreement and the purposes for which
such expenditures were made.
6. TERM AND TERMINATION. (a) This Plan shall become effective as of
the date hereof, and, unless terminated as herein provided, shall continue from
year to year thereafter, so long as such continuance is specifically approved at
least annually by votes, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of both the (i) the Directors of the
Corporation, and (ii) the 12b-1 Directors.
(b) This Plan may be terminated at any time by vote of a majority
of the 12b-1 Directors or by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class II shares of the Fund.
7. AMENDMENTS. This Plan may not be amended to increase materially
the maximum expenditures permitted by Sections 1 and 2 hereof unless such
amendment is approved
-2-
<PAGE>
by a vote of a majority of the outstanding voting securities (as defined in the
Act) of Class II shares of the Fund, and no material amendment to this Plan
shall be made unless approved in the manner provided for the annual renewal of
this Plan in Section 6(a) hereof.
8. SELECTION AND NOMINATION OF DIRECTORS. While this Plan is in
effect, the selection and nomination of those Directors of the Corporation who
are not interested persons of the Corporation shall be committed to the
discretion of such disinterested Directors.
9. RECORDKEEPING. The Corporation shall preserve copies of this
Plan and any related agreement and all reports made pursuant to Section 5 hereof
for a period of not less than six years from the date of this Plan, any such
related agreement or such reports, as the case may be, the first two years in an
easily accessible place.
10. DEFINITION OF CERTAIN TERMS. For purposes of this Plan, the
terms "assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the Act and the rules and regulations thereunder, subject, however,
to such exemptions as may be granted to either the Corporation or the principal
underwriter of the Shares by the Securities and Exchange Commission, or its
staff under the Act.
11. SEPARATE SERIES. Pursuant to the provisions of the Articles of
Incorporation, the Fund is a separate series of the Corporation, and all debts,
liabilities and expenses of Class II shares of the Fund shall be enforceable
only against the assets of Class II shares of the Fund and not against the
assets of any other series or class of shares or of the Corporation as a whole.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
By: /s/ Peter A. Harbeck
---------------------------------
Peter A. Harbeck
President
-3-
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
PLAN PURSUANT TO RULE 18F-3
SunAmerica Strategic Investment Series, Inc. (the "Corporation") hereby
adopts this plan pursuant to Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act"), setting forth the separate arrangement and
expense allocation of each class of shares. Any material amendment to this plan
is subject to prior approval of the Board of Directors, including a majority of
the disinterested Directors.
CLASS CHARACTERISTICS
CLASS A SHARES: Class A shares are subject to an initial sales charge,
a distribution fee pursuant to Rule 12b-1 under the
1940 Act ("Rule 12b-1 fee") payable at the annual rate
of up to 0.10% of the average daily net assets of the
class, and an account maintenance fee under the Rule
12b-1 Plan payable at the annual rate of up to 0.25% of
the average daily net assets of the class. The initial
sales charge is waived or reduced for certain eligible
investors. In certain cases, as disclosed in the
Prospectus and the Statement of Additional Information
from time to time, Class A shares may be subject to a
contingent deferred sales charge ("CDSC") imposed at
the time of redemption if the initial sales charge with
respect to such shares was waived.
CLASS B SHARES: Class B shares are not subject to an initial sales
charge but are subject to a CDSC which will be imposed
on certain redemptions, a Rule 12b-1 fee payable at the
annual rate of up to 0.75% of the average daily net
assets of the class, and an account maintenance fee
under the Rule 12b-1 Plan payable at the annual rate of
up to 0.25% of the average daily net assets of the
class. The CDSC is waived for certain eligible
investors. Class B shares automatically convert to
Class A shares on the first business day of the month
following the seventh anniversary of the issuance of
such Class B shares.
CLASS II SHARES: Class II shares are subject to an initial sales charge
and a CDSC which will be imposed on certain
redemptions, a Rule 12b-1 fee payable at the annual
rate of up to 0.75% of the average annual net assets of
the class, and an account maintenance fee under the
Rule 12b-1 Plan payable at the annual rate of up to
0.25% of the average daily net assets of the class. The
CDSC is waived for certain eligible investors.
<PAGE>
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and expenses
not allocated to a particular class, will be allocated to each class on the
basis of the total value of each class of shares in relation to the total
value of each class of shares of each series of the Corporation (each a
"Portfolio" and collectively, the "Portfolios").
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by each Portfolio to each class of
shares, to the extent paid, will be paid on the same day and at the same
time, and will be determined in the same manner and will be in the same
amount, except that the amount of the dividends and other distributions
declared and paid by a particular class may be different from that paid by
another class because of Rule 12b-1 fees and other expenses borne
exclusively by that class.
EXCHANGE PRIVILEGE
Each class of shares is generally exchangeable for the same class of shares
of any other Portfolio or other SunAmerica Mutual Fund (subject to certain
minimum investment requirements) at the relative net asset value per share.
CONVERSION FEATURES
Class B shares will convert automatically to Class A shares on the first
business day of the month following the seventh anniversary of the issuance
of such Class B shares. Conversions will be effected at the relative net
asset values of Class B and Class A shares, without the imposition of any
sales load, fee or charge. Class II and Class Z shares will have no
conversion rights.
GENERAL
A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.
B. On an ongoing basis, the Directors, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the
Corporation for the existence of any material conflicts among the interests
of its several classes. The Directors, including a majority of the
disinterested Directors, shall take such action as is reasonably necessary
to eliminate any such conflicts that may develop. SunAmerica Asset
Management Corp., the Corporation's
2
<PAGE>
investment manager and adviser, will be responsible for reporting any
potential or existing conflicts to the Directors.
C. For purposes of expressing an opinion on the financial statements of the
Corporation, the methodology and procedures for calculating the net asset
value and dividends/distributions of the classes and the proper allocation
of income and expenses among such classes will be examined annually by the
Corporation's independent auditors who, in performing such examination,
shall consider the factors set forth in the relevant auditing standards
adopted, from time to time, by the American Institute of Certified Public
Accountants and Financial Accounting Standards Board.
Dated: February 18, 1999
3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Directors of
SunAmerica Strategic Investment Series, Inc. do hereby severally constitute
and appoint Peter A. Harbeck, Peter C. Sutton and Robert M. Zakem or any of
them, the true and lawful agents and attorneys-in-fact of the undersigned
with respect to all matters arising in connection with the Registration
Statement on Form N-1A and any and all amendments (including post-effective
amendments) thereto, with full power and authority to execute said
Registration Statement for and on behalf of the undersigned, in our names and
in the capacity indicated below, and to file the same, together with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned hereby gives to said
agents and attorneys-in-fact full power and authority to act in the premises,
including, but not limited to, the power to appoint a substitute or
substitutes to act hereunder with the same power and authority as said agents
and attorneys-in-fact would have if personally acting. The undersigned hereby
ratify and confirm all that said agents and attorneys-in-fact, or any
substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the capacity set
forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Peter A. Harbeck Director and President February 18, 1999
- -------------------- (Principal Executive Officer)
Peter A. Harbeck
/s/ Peter C. Sutton Treasurer (Principal February 18, 1999
- ------------------------ Financial and Accounting Officer)
Peter C. Sutton
/s/ S. James Coppersmith Director February 18, 1999
- ------------------------
S. James Coppersmith
/s/ Samuel M. Eisenstat Director February 18, 1999
- ------------------------
Samuel M. Eisenstat
/s/ Stephen J. Gutman Director February 18, 1999
- ------------------------
Stephen J. Gutman
/s/ Sebastiano Sterpa Director February 18, 1999
- ------------------------
Sebastiano Sterpa
</TABLE>
