As filed with the Securities and Exchange Commission on March 31, 2000
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. |_|
POST-EFFECTIVE AMENDMENT NO. 3 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 4
(Check appropriate box or boxes)
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
The SunAmerica Center
733 Third Avenue
New York, NY 10017
(Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (800) 858-8850
Robert M. Zakem, Esq.
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(Name and Address for Agent for Service)
Copy to:
Margery K. Neale, Esq.
Swidler Berlin Shereff Friedman, LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
It is proposed that this filing will become effective (check appropriate box)
| | immediately upon filing pursuant to paragraph(b)
|_| on (date) pursuant to paragraph(b)
|_| 60 days after filing pursuant to paragraph(a)(1)
|_| on (date) pursuant to paragraph(a)(1)
|X| 75 days after filing pursuant to paragraph(a)(2)
|_| on (date) pursuant to paragraph(a)(2) of Rule 485.
If appropriate, check the following box:
|_| This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
JUNE __, 2000 P R O S P E C T U S
S U N A M E R I C A S T R A T E G I C
I N V E S T M E N T, S E R I E S, I N C.
o SUNAMERICA BIOTECH / HEALTH 30 FUND
The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
[LOGO] SUNAMERICA
MUTUAL FUNDS
<PAGE>
TABLE OF CONTENTS
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FUND HIGHLIGHTS ........................................................... 2
SHAREHOLDER ACCOUNT INFORMATION ........................................... 5
MORE INFORMATION ABOUT THE PORTFOLIO ...................................... 12
INVESTMENT STRATEGIES ................................................ 12
GLOSSARY ............................................................. 13
INVESTMENT TERMINOLOGY ........................................... 13
RISK TERMINOLOGY ................................................. 14
FUND MANAGEMENT ...................................................... 15
INFORMATION ABOUT ADVISERS ................................................ --
[LOGO] SUNAMERICA
MUTUAL FUNDS
<PAGE>
FUND HIGHLIGHTS
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Q&A
When deemed appropriate by an Adviser, the Fund may engage in ACTIVE TRADING
when it frequently trades its portfolio securities to achieve its investment
goal.
The "GROWTH" ORIENTED philosophy to which the Fund subscribes--that of investing
in securities believed to offer the potential for long-term growth of
capital--focuses on securities considered to have a historical record of
above-average earnings growth; to have significant growth potential; to have
above-average earnings growth or the ability to sustain earnings growth; to
offer proven or unusual products or services; or to operate in industries
experiencing increasing demand.
MARKET CAPITALIZATION represents the total market value of the outstanding
securities of a corporation.
The following questions and answers are designed to give you an overview of
SunAmerica Strategic Investment Series, Inc. (the " "), and to provide you with
information about one of the Fund's separate Funds and its investment goal,
principal investment strategy, and principal investment technique. The
investment goal may be changed without shareholder approval, although you will
receive notice of any change. There can be no assurance that the Portfolio's
investment goal will be met or that the net return on an investment in the
Portfolio will exceed what could have been obtained through other investment or
savings vehicles. More complete investment information is provided in chart
form, under "More Information About the Portfolio," which is on page 12 and the
glossary that follows on page 13.
Q: WHAT IS THE PORTFOLIO'S INVESTMENT GOAL, STRATEGY AND TECHNIQUE?
A:
PRINCIPAL
INVESTMENT INVESTMENT PRINCIPAL INVESTMENT
GOAL STRATEGY TECHNIQUES
---- -------- ----------
long-term growth active trading of equity
growth of capital securitites of companies
principally engaged in
biotechnology or health
care, without regard to
market capitalization
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S TECHNIQUES
The Fund will primarily invest in biotechnology companies and/or health care
companies. Biotechnology companies are those principally engaged in the
research, development, manufacture, distribution or application of
biotechnological products, services or processes, as well as companies believed
to benefit significantly from scientific and technological advances in
biotechnology. This may include companies involved in such area as
pharmaceuticals, chemicals, medical/surgical, human health care, agricultural
and veterinary applications, and genetic engineering. Health care companies are
those principally engaged in research, development ownership and/or operation of
health care facilities, franchises or practices. or in the design, manufacture
or sale of health care-related products or services such as medical, dental and
optical products, hardware or services. The relative size of the Fund's
investments between biotechnology companies and health care companies will vary
from time to time. The Fund will invest in 30 to 50 securities, with the number
of holdings varying from time to time. The Fund may invest in additional
financial instruments for cash management or hedging purposes.
Q: WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO?
A: The following section describes the principal risks of the Portfolio, while
the chart on page 12 describes various additional risks.
RISKS OF INVESTING IN EQUITY SECURITIES
The Fund invests primarily in equity securities. As with any equity fund, the
value of your investment in the Fund may fluctuate in response to stock market
movements. You should be aware that the performance of different types of equity
stocks may decline under varying market conditions--for example, "value" stocks
may perform poorly under circumstances in which "growth" stocks in general have
continued to rise. In addition, individual stocks selected for the Portfolio may
underperform the market generally.
RISKS OF NON-DIVERSIFICATION
The Fund is non-diversified, which means that it can invest a larger portion of
its assets in the stock of a single company than can some other mutual funds. By
concentrating in a smaller number of stocks, the Fund's risk is increased
because the effect of each stock on the Fund's performance is greater.
RISKS OF INVESTING IN SMALL COMPANIES
Stocks of smaller companies may be more volatile than, and not as readily
marketable as, those of larger companies.
2
<PAGE>
RISKS OF INVESTING IN BIOLTECHNOLOGY COMPANIES AND HEALTH CARE COMPANIES
To the extent that the Fund's investments are concentrated in issuers conducting
business in the same economic sector, those issuers may react similarly to
different market pressures and events. Both biotechnology companies and health
care companies may be significantly affected by government regulations and
government approval of products and services, legislative or regulatory changes,
patent considerations, intense competition and rapid obsolescence due to
advancing technology. As a result, the Fund's returns may be considerably more
volatile than a fund that does not invest in biotechnology and health care
companies.
ADDITIONAL PRINCIPAL RISKS
Shares of the Fund are not bank deposits and are not guaranteed or insured by
any bank, SunAmerica or SunAmerica's affiliates, any government entity or the
Federal Deposit Insurance Corporation. As with any mutual fund, there is no
guarantee that the Fund will be able to achieve its investment goals. If the
value of the assets of the Portfolio goes down, you could lose money.
Q: HOW HAS THE FUND PERFORMED HISTORICALLY?
A: Performance information for the Fund is not shown because it has been in
existence for less than one year.
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).................................. None None None
Exchange Fee....................................... None None None
Maximum Account Fee................................ None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees.................................... 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees(4)........... 0.35% 1.00% 1.00%
Other Expenses(5)..................................
---- ---- ----
Total Annual Fund Operating Expenses(5)............
==== ==== ====
Expense Reimbursement(5)...........................
Net Expenses(6).................................... 1.55% 2.20% 2.20%
==== ==== ====
</TABLE>
(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1 million or more.
(2) Purchases of Class A shares over $1 million will be subject to a contingent
deferred sales charge (CDSC) on redemptions made within two years of
purchase. The CDSC on Class B shares applies only if shares are redeemed
within six years of their purchase. The CDSC on Class II shares applies
only if shares are redeemed within eighteen months of their purchase. See
page 5 for more information on the CDSCs.
(3) A $15.00 fee is imposed on wire and overnight mail redemptions.
(4) Because these fees are paid out of the Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost
you more than paying other types of sales charges.
(5) Estimated.
(6) The Board of Directors, including a majority of the Independent Directors,
approved the Investment Advisory and Management Agreement subject to the
net expense ratios set forth above. SunAmerica may not increase such
ratios, which are contractually required by agreement with the Board of
Directors, without the approval of the Directors, including a majority of
the Independent Directors. The expense waivers and fee reimbursements will
continue indefinitely, subject to termination by the Directors, including a
majority of the Independent Directors.
3
<PAGE>
FUND HIGHLIGHTS
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EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and that your investment has a 5% return each year and that the
Portfolio's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions and the net expenses shown in the
fee table your costs would be:
If you redeemed your investment at the end of the periods indicated:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------ ------- --------
<S> <C> <C> <C> <C>
BIOTECH/HEALTH 30 FUND
(Class A shares)................................ $ $
(Class B shares)................................
(Class II shares)...............................
<CAPTION>
If you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
----- ------ ------- --------
<C> <C> <C> <C>
BIOTECH/HEALTH 30 FUND
(Class A shares)................................
(Class B shares)................................
(Class II shares)...............................
</TABLE>
4
<PAGE>
SHAREHOLDER ACCOUNT INFORMATION
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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
o Front-end sales charges, as described below. There are several ways to
reduce these charges, also described below.
o Lower annual expenses than Class B or Class II shares.
CLASS B
o No front-end sales charge; all your money goes to work for you right away.
o Higher annual expenses than Class A shares.
o Deferred sales charge on shares you sell within six years of purchase, as
described below.
o Automatic conversion to Class A shares approximately one year after such
time that no CDSC would be payable upon redemption, as described below,
thus reducing future annual expenses.
CLASS II
o Front-end sales charge, as described below.
o Higher annual expenses than Class A shares.
o Deferred sales charge on shares you sell within eighteen months of
purchase, as described below.
o No conversion to Class A.
CALCULATION OF SALES CHARGES
CLASS A. Sales Charges are as follows:
<TABLE>
<CAPTION>
Sales Charge Concession to Dealers
--------------------------------------------------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
YOUR INVESTMENT PRICE INVESTED PRICE
--------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 ............................. 5.75% 6.10% 5.00%
$50,000 but less than $100,000 ................ 4.75% 4.99% 4.00%
$100,000 but less than $250,000 ............... 3.75% 3.90% 3.00%
$250,000 but less than $500,000 ............... 3.00% 3.09% 2.25%
$500,000 but less than $1,000,000 ............. 2.10% 2.15% 1.35%
$1,000,000 or more ............................ None None 1.00%
</TABLE>
INVESTMENTS OF $1 MILLION OR MORE. Class A shares are available with no
front-end sales charge. However, a 1% CDSC is imposed on any shares you sell
within one year of purchase and a 0.50% CDSC is charged on any shares you sell
after the first year and within the second year after purchase.
CLASS B. Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a CDSC on shares you sell within six
years of buying them. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
Class B deferred charges:
Years after purchase CDSC on shares being sold
1st or 2nd year............. 4.00%
3rd or 4th year............. 3.00%
5th year.................... 2.00%
6th year.................... 1.00%
7th year and thereafter..... None
CLASS II. Sales Charges are as follows:
Sales Charge Concession to Dealers
------------------------------------------------------
% of % of Net % of
Offering Amount Offering
Price Invested Price
------------------------------------------------------
1.00% 1.01% 1.00%
There is also a CDSC of 1% on shares you sell within 18 months after you buy
them.
DETERMINATION OF CDSC. Each CDSC is based on the original purchase cost or the
current market value of the shares being sold, whichever is less. There is no
CDSC on shares you purchase through reinvestment of dividends. To keep your CDSC
as low as possible, each time you place a request to sell shares we will first
sell any shares in your account that are not subject to a CDSC. If there are not
enough of these shares available, we will sell shares that have the lowest CDSC.
FOR PURPOSES OF THE CDSC, WE COUNT ALL PURCHASES YOU MAKE DURING A CALENDAR
MONTH AS HAVING BEEN MADE ON THE FIRST DAY OF THAT MONTH.
5
<PAGE>
SHAREHOLDER ACCOUNT INFORMATION
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SALES CHARGE REDUCTIONS AND WAIVERS
WAIVERS FOR CERTAIN INVESTORS. Various individuals and institutions may purchase
CLASS A shares without front-end sales charges, including:
o financial planners, institutions, broker-dealer representatives or
registered investment advisers utilizing Fund shares in fee-based
investment products under an agreement with the Distributor (this
waiver may also apply to front-end sales charges of Class II shares)
o participants in certain retirement plans that meet applicable
conditions, as described in the Statement of Additional Information
o Fund Directors and other individuals, and their families, who are
affiliated with the Fund or any fund distributed by SunAmerica Capital
Services, Inc.
o selling brokers and their employees and sales representatives and
their families
o participants in "Net Asset Value Transfer Program"
We will generally waive the CDSC for CLASS B or CLASS II shares in the following
cases:
o within one year of the shareholder's death or becoming disabled
o taxable distributions from or loans to participants made by qualified
retirement plans or retirement accounts (not including rollovers) for
which SunAmerica Fund Services, Inc. serves as a fiduciary
o Fund Directors and other individuals, and their families, who are
affiliated with any Fund or any fund distributed by Sunamerica Capital
Services, Inc.
o to make payments through the Systematic Withdrawal Plan (subject to
certain conditions)
o participants in "Net Asset Value Transfer Program"
REDUCING YOUR CLASS A SALES CHARGES. There are several special purchase plans
that allow you to combine multiple purchases of Class A shares of SunAmerica
Mutual Funds to take advantage of the breakpoints in the sales charge schedule.
For information about the "Rights of Accumulation," "Letter of Intent,"
"Combined Purchase Privilege," and "Reduced Sales Charges for Group Purchases,"
contact your broker or financial advisor, or consult the Statement of Additional
Information.
TO UTILIZE: IF YOU THINK YOU MAY BE ELIGIBLE FOR A SALES CHARGE REDUCTION OR
CDSC WAIVER, CONTACT YOUR BROKER OR FINANCIAL ADVISOR.
REINSTATEMENT PRIVILEGE. If you sell shares of the Fund, within one year after
the sale, you may invest some or all of the proceeds of the sale in the same
share class of the Portfolio without a sales charge. A shareholder may use the
reinstatement privilege only one time after selling such shares. If you paid a
CDSC when you sold your shares, we will credit your account with the dollar
amount of the CDSC at the time of sale. All accounts involved must be registered
in the same name(s).
DISTRIBUTION AND SERVICE (12B-1) FEES
Each class of shares of each Fund has its own 12b-1 plan that provides for
distribution and account maintenance and service fees (payable to the
Distributor) based on a percentage of average daily net assets, as follows:
ACCOUNT MAINTENANCE AND
CLASS DISTRIBUTION FEE SERVICE FEE
A 0.10% 0.25%
B 0.75% 0.25%
II 0.75% 0.25%
Because 12b-1 fees are paid out of the 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
each class of the Fund is as follows:
o non-retirement account: $500
o retirement account: $250
o dollar cost averaging: $500 to open; you must invest at least $25 a
month
The minimum subsequent investment for the Fund is as follows:
o non-retirement account: $100
o retirement account: $25
3. Complete the appropriate parts of the Account Application, carefully
following the instructions. If you have questions, please contact your
broker or financial advisor or call Shareholder/Dealer Services at
1-800-858-8850, extension 5125.
4. Complete the appropriate parts of the Supplemental Account Application. By
applying for additional investor services now, you can avoid the delay and
inconvenience of having to submit an additional application if you want to
add services later.
5. Make your initial investment using the chart on the next page. You can
initiate any purchase, exchange or sale of shares through your broker or
financial advisor.
6
<PAGE>
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BUYING SHARES
OPENING AN ACCOUNT
BY CHECK
- --------------------------------------------------------------------------------
o Make out a check for the investment amount, payable to the SunAmerica
Biotech/Health 30 Fund or SunAmerica Funds.
o Deliver the check and your completed Account Application (and
Supplemental Account Application, if applicable) to your broker or
financial advisor, or mail them to:
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204.
ADDING TO AN ACCOUNT
BY CHECK
- --------------------------------------------------------------------------------
o Make out a check for the investment amount payable to the SunAmerica
Biotech/Health 30 Fund or SunAmerica Funds.
o Include the stub from your Fund statement or a note specifying the
SunAmerica Biotech/Health 30 Fund, your share class, your account
number and the name(s) in which the account is registered.
o Indicate the SunAmerica Biotech/Health 30 Fund and account number in
the memo section of your check.
o Deliver the check and your stub to your broker or financial advisor,
or mail them to:
NON-RETIREMENT ACCOUNTS:
SunAmerica Fund Services, Inc.
c/o NFDS
P.O. Box 419373
Kansas City, Missouri 64141-6373
RETIREMENT ACCOUNTS:
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
OPENING AN ACCOUNT
BY WIRE
- --------------------------------------------------------------------------------
o Deliver your completed application to your broker or financial advisor
or fax it to SunAmerica Fund Services, Inc. at 212-551-5585.
o Obtain your account number by referring to your statement or by
calling your broker or financial advisor or Shareholder/Dealer
Services at 1-800-858-8850, ext. 5125.
o Instruct your bank to wire the amount of your investment to:
State Street Bank & Trust Company
Boston, MA
ABA #0110-00028
DDA # 99029712
Specify the SunAmerica Biotech/Health 30 Fund, your choice of share class, your
new Portfolio number and account number and the name(s) in which the account is
registered. Your bank may charge a fee to wire funds.
ADDING TO AN ACCOUNT
BY WIRE
- --------------------------------------------------------------------------------
o Instruct your bank to wire the amount of your investment to:
State Street Bank & Trust Company
Boston, MA
ABA #0110-00028
DDA # 99029712
Specify the SunAmerica Biotech/Health 30 Fund, your share class, your Portfolio
number, account number and the name(s) in which the account is registered. Your
bank may charge a fee to wire funds.
TO OPEN OR ADD TO AN ACCOUNT USING DOLLAR COST AVERAGING, SEE "ADDITIONAL
INVESTOR SERVICES."
7
<PAGE>
SHAREHOLDER ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
SELLING SHARES
HOW
THROUGH YOUR BROKER OR FINANCIAL ADVISOR
- --------------------------------------------------------------------------------
o Accounts of any type.
o Sales of any amount.
BY MAIL
- --------------------------------------------------------------------------------
o Accounts of any type.
o Include all signatures and any additional documents that may be
required (see next page).
o Mail the materials to:
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
BY PHONE
- --------------------------------------------------------------------------------
o Most accounts.
o Sales of less than $100,000.
BY WIRE
- --------------------------------------------------------------------------------
o Request by mail to sell any amount (accounts of any type).
o Request by phone to sell less than $100,000.
REQUIREMENTS
THROUGH YOUR BROKER OR FINANCIAL ADVISOR
- --------------------------------------------------------------------------------
o Call your broker or financial advisor to place your order to sell
shares.
BY MAIL
- --------------------------------------------------------------------------------
o Write a letter of instruction indicating the SunAmerica Biotech/Health
30 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.
o Sales of $100,000 or more require the letter of instruction to have a
signature guarantee.
o A check will normally be mailed on the next business day to the
name(s) and address in which the account is registered, or otherwise
according to your letter of instruction.
BY PHONE
- --------------------------------------------------------------------------------
o Call Shareholder/Dealer Services at 1-800-858-8850, extension 5125
between 8:30 a.m. and 7:00 p.m. (Eastern time) on most business days.
Indicate the SunAmerica Biotech/Health 30 Fund, the name of the person
requesting the redemption, your share class, your account number, the
name(s) in which the account is registered and the dollar value or
number of shares you wish to sell.
o A check will be mailed to the name(s) and address in which the account
is registered.
BY WIRE
- --------------------------------------------------------------------------------
o Proceeds will normally be wired on the next business day. A $15 fee
will be deducted from your account.
TO SELL SHARES THROUGH A SYSTEMATIC WITHDRAWAL PLAN, SEE "ADDITIONAL INVESTOR
SERVICES."
8
<PAGE>
SELLING SHARES IN WRITING. In certain circumstances, you will need to make your
request to sell shares in writing. Corporations, executors, administrators,
trustees or guardians may need to include additional items with a request to
sell shares. You may also need to include a signature guarantee, which protects
you against fraudulent orders. You will need a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling shares worth $100,000 or more
o you are requesting payment other than by a check mailed to the address
of record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
o a broker or securities dealer
o a federal savings, cooperative or other type of bank
o a savings and loan or other thrift institution
o a credit union a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
TRANSACTION POLICIES
VALUATION OF SHARES. The net asset value per share (NAV) for the Fund and each
class is determined each business day at the close of regular trading on the New
York Stock Exchange (generally 4:00 p.m., Eastern time) by dividing the net
assets of each class by the number of such class's outstanding shares.
Investments for which market quotations are readily available are valued at
market at their price as of the close of regular trading on the New York Stock
Exchange for the day. All other securities and assets are valued at fair value
following procedures approved by the Directors.
BUY AND SELL PRICES. When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable CDSCs.
EXECUTION OF REQUESTS. The Fund is open on those days when the New York Stock
Exchange is open for regular trading. We execute buy and sell requests at the
next NAV to be calculated after the Fund receives your request in good order. If
the Fund or the Distributor receives your order before the Fund's close of
business (generally 4:00 p.m., Eastern time), you will receive that day's
closing price. If the Fund or the Distributor receives your order after that
time, you will receive the next business day's closing price. If you place your
order through a broker or financial advisor, you should make sure the order is
transmitted to the Fund before the Fund's close of business. 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 interests 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.
At various times, the Fund may be requested to redeem shares for which it has
not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as good payment (e.g., cash or
certified check drawn on a United States bank) has been collected for the
purchase of such shares, which will not exceed 15 days.
TELEPHONE TRANSACTIONS. For your protection, telephone requests are recorded in
order to verify their accuracy. In addition, Shareholder/Dealer Services will
take measures to verify the identity of the caller, such as asking for name,
account number, social security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, the Fund is responsible for
any loss that may occur to any account due to an unauthorized telephone call.
Also for your protection, telephone transactions are not permitted on accounts
whose names or addresses have changed within the past 30 days. At times of peak
activity, it may be difficult to place requests by phone. During these times,
consider sending your request in writing.
EXCHANGES. You may exchange shares of the Fund for shares of the same class of
any other fund distributed by SunAmerica Capital Services, Inc. Before making an
exchange, you should review a copy of the prospectus of the fund into which you
would like to exchange. All exchanges are subject to applicable minimum
investment requirements. A Systematic Exchange Program is described under
"Additional Investor Services."
9
<PAGE>
SHAREHOLDER ACCOUNT INFORMATION
If you exchange shares that were purchased subject to a CDSC, the CDSC will
continue to apply following the exchange. In determining the CDSC applicable to
shares being sold after an exchange, we will take into account the length of
time you held those shares prior to the exchange.
To protect the interests of other shareholders, we may cancel the exchange
privileges of any investors that, in the opinion of the Fund, are using market
timing strategies or making excessive exchanges. The Fund may change or cancel
its exchange privilege at any time, upon 60 days' written notice to its
shareholders. The Fund may also refuse any exchange order.
CERTIFICATED SHARES. Most shares are electronically recorded. If you wish to
have certificates for your shares, please call Shareholder/Dealer Services at
1-800-858-8850 extension 5125, 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, extension 5125.
DOLLAR COST AVERAGING lets you make regular investments from your bank account
to the Fund or any other fund distributed by SunAmerica Capital Services of your
choice. You determine the frequency and amount of your investments, and you can
terminate your participation at any time.
SYSTEMATIC WITHDRAWAL PLAN may be used for routine bill payment or periodic
withdrawals from your account. To use:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account
(buying shares during a period when you are also selling shares of the
same fund is not advantageous to you, because of sales charges).
o Specify the payee(s) and amount(s). The payee may be yourself or any
other party (which may require a signature guarantee), and there is no
limit to the number of payees you may have, as long as they are all on
the same payment schedule. Each withdrawal must be at least $50.
o Determine the schedule: monthly, quarterly, semi-annually, annually or
in certain selected months.
o Make sure your dividends and capital gains are being reinvested.
You cannot elect the systematic withdrawal plan if you have requested
certificates for your shares.
SYSTEMATIC EXCHANGE PROGRAM may be used to exchange shares of the Fund
periodically for the same class of shares of one or more other fund distributed
by SunAmerica Capital Services, Inc. To use:
o Specify the SunAmerica Mutual Fund(s) from which you would like money
withdrawn and into which you would like money invested.
o Determine the schedule: monthly, quarterly, semi-annually, annually or
in certain selected months.
o Specify the amount(s). Each exchange must be worth at least $50.
o Accounts must be registered identically; otherwise a signature
guarantee will be required.
ASSET PROTECTION PLAN (optional) Anchor National Life Insurance Company offers
an Asset Protection Plan to certain investors in the 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.
10
<PAGE>
- --------------------------------------------------------------------------------
Anchor National is a SunAmerica company.
Please call 1-800-858-8850, extension 5660 for more information, including the
cost of the Asset Protection Plan option.
RETIREMENT PLANS. SunAmerica Mutual Funds offer a range of qualified retirement
plans, including IRAs, Simple IRAs, Roth IRAs, SEPs, SARSEPs, 401(k) plans,
403(b) plans and other pension, educational and profit-sharing plans. Using
these plans, you can invest in any fund distributed by SunAmerica Capital
Services, Inc. with a low minimum investment of $250 or, for some group plans,
no minimum investment at all. To find out more, call Retirement Plans at
1-800-858-8850, extension 5134.
DIVIDEND, DISTRIBUTION AND ACCOUNT POLICIES
ACCOUNT STATEMENTS. In general, you will receive account statements as follows:
o after every transaction that affects your account balance (except a
dividend reinvestment or automatic purchase from or automatic
redemption to your bank account)
o after any changes of name or address of the registered owner(s)
o in all other circumstances, annually
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS. The Fund generally distributes most or all of its net earnings in the
form of dividends. Income dividends, if any, are paid at least annually by the
Fund.
DIVIDEND REINVESTMENTS. Your dividends and distributions, if any, will be
automatically reinvested in additional shares of the same share class on which
they were paid. Alternatively, dividends and distributions may be reinvested in
any other fund distributed by SunAmerica Capital Services, Inc. or paid in cash
(if more than $10). You will need to complete the relevant part of the Account
Application to elect one of these other options. For existing accounts, contact
your broker or financial advisor or call Shareholder/Dealer Services at
1-800-858-8850, extension 5125 to change dividend and distribution payment
options.
TAXABILITY OF DIVIDENDS. As long as the Fund meets the requirements for being a
tax-qualified regulated investment company, which the Fund intends to do, it
pays no federal income tax on the earnings that it distributes to shareholders.
Consequently, 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 other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
"BUYING INTO A DIVIDEND." You should note that if you purchase shares just
before a distribution, you will be taxed for that distribution like other
shareholders, even though that distribution represents simply a return of part
of your investment. You may wish to defer your purchase until after the record
date for the distribution, so as to avoid this tax impact.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions. If you hold Class B shares, you will not have a taxable event when
they convert into Class A shares.
OTHER TAX CONSIDERATIONS. If you are neither a lawful permanent resident nor a
citizen of the U.S. or if you are a foreign entity, ordinary income dividends
paid to you (which include distributions of net short-term capital gains) will
generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate
applies.
By law, the 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 substitution 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.
11
<PAGE>
MORE INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
FUND INVESTMENT STRATEGIES
The Portfolio has an investment goal and a strategy for pursuing it. The chart
summarizes information about the Portfolio's investment approach. Following this
chart is a glossary that further describes the investment and risk terminology
that we use. Please review the glossary in conjunction with this chart.
FOCUSED TECHNET
What is the Portfolio's investment goal? Long-term growth of capital
- --------------------------------------------------------------------------------
What investment strategies Growth
does the Portfolio use to implement
its investment goal and principal
investment strategies?
- --------------------------------------------------------------------------------
What are the Portfolio's principal o Active trading of equity
investment techniques? securities of companies
principally engaged in
biotechnology or healthcare
without regard to market
capitalization
- --------------------------------------------------------------------------------
In what other types of securities o None
may the Portfolio significantly invest?
- --------------------------------------------------------------------------------
In what type of securities may o Short-term investments
the Portfolio normally invest as (up to 10%)
part of efficient portfolio o Defensive instruments
management or for return o Options and futures
enhancement purposes? o Special situations
- --------------------------------------------------------------------------------
What risks normally may o Stock market volatility
affect the Portfolio? o Securities selection
o Small market capitalization
o Biotechnology and healthcare
company
o Derivatives
o Hedging
o Non-diversification
- --------------------------------------------------------------------------------
12
<PAGE>
LARGE-CAP COMPANIES and MID-CAP COMPANIES generally have a substantial record of
operations (i.e., in business for at least five years) and are listed for
trading on the New York Stock Exchange or another national or international
stock exchange or, in some cases, are traded over the counter. SMALL-CAP
COMPANIES generally will be companies that have been in business for a shorter
period of time.
INVESTMENT TERMINOLOGY
CAPITAL APPRECIATION is growth of the value of an investment.
ACTIVE TRADING means that the Fund may engage, when the Adviser deems
appropriate, in frequent trading of portfolio securities to achieve its
investment goal. 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 may result in high portfolio
turnover and correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Fund. During periods of increased
market volatility, active trading may be more pronounced.
EQUITY SECURITIES include common and preferred stocks, convertible securities,
warrants and rights.
LARGE-CAP COMPANIES are those with market caps within the Morningstar, Inc.
Large-Cap category. Currently, this range is $9.5 billion or higher.
MID-CAP COMPANIES are those with market caps within the Morningstar, Inc.
Mid-Cap category. Currently, this range is between $1.5 billion and 9.5 billion.
SMALL-CAP COMPANIES are those with market caps within the Morningstar, Inc.
Small-Cap category. Currently, this range is $1.5 billion or less.
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.
OPTIONS AND FUTURES are derivative instruments involving the right to receive or
obligation to deliver assets or money depending on the performance of one or
more underlying assets or financial instruments.
A SPECIAL SITUATION arises when, in the opinion of the portfolio manager, the
securities of a particular issuer will be recognized and appreciated in value
due to a specific development with respect to that issuer. Developments creating
a special situation might include, among others, a new product or process, a
technological breakthrough, a management change or other extraordinary corporate
event, or differences in market supply of and demand for the security.
Investments in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention.
13
<PAGE>
MORE INFORMATION ABOUT THE FUND
RISK TERMINOLOGY
STOCK MARKET VOLATILITY: The stock market as a whole could go up or down
(sometimes dramatically). This could affect the value of the securities in the
Fund's portfolio.
SECURITIES SELECTION: A strategy used by the Fund, or securities selected by an
Adviser, may fail to produce the intended return.
SMALL MARKET CAPITALIZATION: Companies with smaller market capitalizations tend
to be at early stages of development with limited product lines, market access
for products, financial resources, access to new capital, or depth in
management. It may be difficult to obtain reliable information and financial
data about these companies. Consequently, the securities of smaller companies
may not be as readily marketable and may be subject to more abrupt or erratic
market movements.
BIOTECHNOLOGY AND HEALTH CARE COMPANY: Biotechnology companies and health care
companies may be significantly affected by government regulations and government
approval of products and services, legislative or regulatory changes, patent
considerations, intense competition and rapid obsolescence due to advancing
technology. As a result, the Fund's returns may be considerably more volatile
than a fund that does not invest in biotechnology and health care companies.
DERIVATIVES: Derivatives are subject to general risks relating to heightened
sensitivity to market volatility, interest rate fluctuations, illiquidity and
creditworthiness of the counterparty to the derivatives transactions.
HEDGING: Hedging is a strategy in which the porfolio manager uses a derivative
security to reduce certain risk characteristics of an underlying security or
portfolio of securities. While hedging strategies can be very useful and
inexpensive ways of reducing risk, they are sometimes ineffective due to
unexpected changes in the market. Moreover, while hedging can reduce or
eliminate losses, it can also reduce or eliminate gains.
NON-DIVERSIFICATION: The Fund will hold up to thirty securities. As a result,
its performance may be affected more by a decline in the market price of one
stock than would be the case if the Fund were more diversified.
14
<PAGE>
FUND MANAGEMENT
- --------------------------------------------------------------------------------
FUND MANAGEMENT
MANAGER: SunAmerica Asset Management Corp., located in The SunAmerica Center,
733 Third Avenue, New York, New York 10017, was organized in 1982 under the laws
of Delaware, and manages, advises and/or administers assets in excess of $26
billion as of December 31, 1999. In addition to managing the Portfolio,
SunAmerica serves as adviser, manager and/or administrator for Anchor Pathway
Fund, Anchor Series Trust, Brazos Mutual Funds, Seasons Series Trust, SunAmerica
Equity Funds, Inc., SunAmerica Income Funds, SunAmerica Money Market Funds,
Inc., SunAmerica Series Trust and SunAmerica Strategic Investment Series, Inc.
The annual rate of the investment advisory fee payable to SunAmerica is 0.75% of
average daily net assets.
The portfolio manager of the Fund is Brian Clifford. Mr. Clifford joined Sun
America in February 1998. He currently serves as portfolio manager of the
SunAmerica Growth Opportunities Fund and a portion of the Mid-Cap Growth
Portfolio of SunAmerica Style Select Series, Inc. and is a member of the
SunAmerica Large-Cap Equity Team. Prior to joining SunAmerica, Mr. Clifford was
a portfolio manager at Morgan Stanley Dean Witter from April 1995 to February
1998 and a junior equity analyst and investment management associate with Dean
Witter Intercapital from October 1994 to April 1995.
15
<PAGE>
FUND MANAGEMENT
- --------------------------------------------------------------------------------
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 Portfolio's 12b-1 plans.
The Distributor, at its expense, may from time to time provide additional
compensation to broker-dealers (including in some instances, affiliates of the
Distributor) in connection with sales of shares of the Fund. This compensation
may include (i) full re-allowance of the front-end sales charge on Class A
shares; (ii) additional compensation with respect to the sale of Class A, Class
B or Class II shares; or (iii) financial assistance to broker-dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding the Fund, and/or other
broker-dealer sponsored special events. In some instances, this compensation
will be made available only to certain broker-dealers whose representatives have
sold a significant number of shares of the Fund. Compensation may also include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives for meetings or seminars of a
business nature. In addition, the following types of non-cash compensation may
be offered through sales contests: (i) travel mileage on major air carriers;
(ii) tickets for entertainment events (such as concerts or sporting events); or
(iii) merchandise (such as clothing, trophies, clocks, pens or other electronic
equipment). Broker-dealers may not use sales of the Fund's shares to qualify for
this compensation to the extent receipt of such compensation may be prohibited
by applicable law or the rules of any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. Dealers who receive bonuses or
other incentives may be deemed to be underwriters under the Securities Act of
1933.
Certain laws and regulations limit the ability of banks and other depository
institutions to underwrite and distribute securities. However, in the opinion of
the Distributor based upon the advice of counsel, these laws and regulations do
not prohibit such depository institutions from providing other services to
investment companies of the type contemplated by the 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 Portfolio.
SunAmerica, the Distributor and Administrator are all located in The SunAmerica
Center, 733 Third Avenue, New York, New York 10017.
16
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
The following documents contain more information about the Fund and are
available free of charge upon request:
ANNUAL AND SEMI-ANNUAL REPORTS. Contain financial statements, performance
data and information on portfolio holdings. The annual reports also contain
a written analysis of market conditions and investment strategies that
significantly affected the Fund's performance during the last applicable
period.
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 these documents 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, extension 5125
or
by calling your broker or financial advisor.
Information about the Portfolio (including the SAI) can be reviewed and copied
at the Public Reference Room of the Securities and Exchange Commission,
Washington, D.C. Call 1-202-942-8090 for information on the operation of the
Public Reference Room. Information about the 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 electronic request at the
following E-mail address: [email protected], or by writing the Public Reference
Section of the Securities and Exchange Commission, Washington, D.C. 20549-0102.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with any different information.
DISTRIBUTOR: Sun America Capital Services
INVESTMENT COMPANY ACT
File No. 811-07797
[LOGO] SUNAMERICA
MUTUAL FUNDS
<PAGE>
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
SUNAMERICA BIOTECH/HEALTH 30 FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 2000
The SunAmerica Center General Marketing and
733 Third Avenue Shareholder Information
New York, NY 10017-3204 (800) 858-8850
SunAmerica Biotech/Health 30 Fund (the "Fund") is one of two separate
investment Funds of SunAmerica Strategic Investment Series, Inc. (the
"Corporation"). Each Fund has distinct investment objectives and strategies.
This Statement of Additional Information relates only to the SunAmerica
Biotech/Health 30 Fund.
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Fund's Prospectus dated June -, 2000. To
obtain a Prospectus free of charge, please call the Corporation at (800)
858-8850. The Prospectus is incorporated by reference into this Statement of
Additional Information and this Statement of Additional Information is
incorporated by reference into the Prospectus. The Corporation's audited
financial statements are incorporated into this Statement of Additional
Information by reference to its 1999 annual report to shareholders. You may
request a copy of the annual report at no charge by calling (800) 858-8850 or
writing the Corporation at SunAmerica Fund Services, Inc., Mutual Fund
Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204. Capitalized terms used herein but not defined have the meanings
assigned to them in the Prospectus.
TABLE OF CONTENTS
PAGE
THE CORPORATION......................................................... B-3
INVESTMENT OBJECTIVES AND POLICIES...................................... B-3
INVESTMENT RESTRICTIONS................................................. B-24
DIRECTORS AND OFFICERS.................................................. B-25
ADVISERS, DISTRIBUTOR AND ADMINISTRATOR................................. B-29
FUND TRANSACTIONS AND BROKERAGE......................................... B-32
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES..................... B-33
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES................... B-38
EXCHANGE PRIVILEGE...................................................... B-38
DETERMINATION OF NET ASSET VALUE........................................ B-39
PERFORMANCE DATA........................................................ B-40
DIVIDENDS, DISTRIBUTIONS AND TAXES...................................... B-44
RETIREMENT PLANS........................................................ B-47
DESCRIPTION OF SHARES................................................... B-48
FINANCIAL STATEMENTS.................................................... B-50
APPENDIX ............................................................ APPENDIX-1
No dealer, salesperson or other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized
<PAGE>
by the Corporation, SunAmerica, any Adviser or SunAmerica Capital Services (the
"Distributor"). This Statement of Additional Information and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction in which such an offer to sell or
solicitation of an offer to buy may not lawfully be made.
B-3
<PAGE>
THE CORPORATION
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 two series, the Tax Managed Equity Fund and the SunAmerica
Biotech/Health 30 Fund.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of the Fund are described in the
Fund's Prospectus. Certain types of securities in which the Fund may invest and
certain investment practices the Fund may employ, which are described under
"More Information about the Fund - Investment Strategies" in the Prospectus, are
discussed more fully below. Unless otherwise specified, the Fund may invest in
the following securities. The stated percentage limitations are applied to an
investment at the time of purchase unless indicated otherwise.
BIOTECHNOLOGY AND HEALTHCARE COMPANIES. The Fund will primarily invest
in biotechnology companies and/or healthcare companies. Many of the industries
in which these companies are found have exhibited and continue to exhibit rapid
growth, both through increasing demand for existing products and services and
the broadening of the technology market. In general, the stocks of large
capitalized companies that are well established in the technology market can be
expected to grow with the market. The expansion of technology and its related
industries, however, also provides a favorable environment for investment in
Small-Cap to Mid-Cap companies. The Fund's investment policy is not limited to
any minimum capitalization requirement and the Fund may hold securities without
regard to the capitalization of the issuer.
Companies in the rapidly changing fields of technology face special
risks. For example, their products or services may not prove commercially
successful or may become obsolete quickly. The value of the Fund's shares may be
susceptible to factors affecting technology companies and to greater risk and
market fluctuation than in investment in a Corporation that invests in a broader
range of Fund securities not focused on any particular market segment.
Biotechnology and healthcare companies may be subject to greater governmental
regulation than many other companies and changes in governmental policies and
the need for regulatory approvals may have a material adverse effect on these
companies. Additionally, these companies may be subject to risks of developing
technologies, competitive pressure and other factors and are dependent upon
consumer and business acceptance as new technologies evolve.
WARRANTS AND RIGHTS. The 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. 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
B-4
<PAGE>
new stock offering.
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.
INVESTMENT IN SMALL, UNSEASONED COMPANIES. As described in the
Prospectus, the Fund may invest in the securities of small companies. While such
companies may realize more substantial growth than larger, more established
companies, they may also be subject to some additional risks. It may be
difficult to obtain reliable information and financial data on such companies
and the securities of these small companies may not be readily marketable,
making it difficult to dispose of shares when desirable. A risk of investing in
smaller, emerging companies is that they often are at an earlier stage of
development and therefore have limited product lines, market access for such
products, financial resources and depth in management as compared to larger,
more established companies, and their securities may be subject to more abrupt
or erratic market movements than securities of larger, more established
companies or the market averages in general. In addition, certain smaller
issuers may face difficulties in obtaining the capital necessary to continue in
operation and may go into bankruptcy, which could result in a complete loss of
an investment. Smaller companies also may be less significant factors within
their industries and may have difficulty withstanding competition from larger
companies. If other investment companies and investors who invest in such
issuers trade the same securities when the Fund attempts to dispose of its
holdings, the Fund may receive lower prices than might otherwise be obtained.
Mid-Cap companies may also suffer more significant losses as well as
realize more substantial growth than larger, more established issuers. Thus,
investments in such companies tend to be more volatile and somewhat speculative.
FOREIGN SECURITIES. Investments in foreign securities offer potential
benefits not available from investments solely in securities of domestic issuers
by offering the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or business
cycles different from those of the U.S., or to reduce fluctuations in Fund 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). ADRs are securities, typically issued by a
U.S. financial institution, that evidence ownership interests in a security or a
pool of securities issued by a foreign issuer and deposited with the depository.
ADRs may be sponsored or unsponsored. A sponsored ADR is issued by a depository
that has an exclusive relationship with the issuer of the underlying security.
An unsponsored ADR may be issued by any number of U.S. depositories. Holders of
unsponsored ADRs generally bear all the costs associated with establishing the
unsponsored ADR. The depository of an unsponsored ADR is under no obligation to
distribute shareholder communications received from the underlying issuer or to
pass through to the holders of the unsponsored ADR voting rights with respect to
the deposited securities or pool of securities. The Fund may invest in either
type of ADR. Although the U.S.
B-5
<PAGE>
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
Corporation's custodian in three 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.
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 Fund
investments due to changes in currency rates and control regulations (e.g.,
currency blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers; less volume on foreign exchanges than on U.S. exchanges; greater
volatility and less liquidity on foreign markets than in the U.S.; less
regulation of foreign issuers, stock exchanges and brokers than the U.S.;
greater difficulties in commencing lawsuits; higher brokerage commission rates
and custodian fees than the U.S.; increased possibilities in some countries of
expropriation, confiscatory taxation, political, financial or social instability
or adverse diplomatic developments; the imposition of foreign taxes on
investment income derived from such countries; and differences (which may be
favorable or unfavorable) between the U.S. economy and foreign economies.
The performance of investments in securities denominated in a foreign
currency ("non-dollar securities") will depend on, among other things, the
strength of the foreign currency against the dollar and the interest rate
environment in the country issuing the foreign currency. Absent other events
that could otherwise affect the value of non-dollar securities (such as a change
in the political climate or an issuer's credit quality), appreciation in the
value of the foreign currency generally can be expected to increase the value of
the 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.
Because the Fund may invest in securities that are listed primarily on
foreign exchanges that trade on weekends or other days when the Corporation does
not price its shares, the value of the Fund's shares may change on days when a
shareholder will not be able to purchase or redeem shares.
FIXED INCOME SECURITIES. Fixed income securities are broadly
characterized as those that provide for periodic payments to the holder of the
security at a stated rate. Most fixed income securities, such as bonds,
represent indebtedness of the issuer and provide for repayment of principal at a
stated time in the future. Others do not provide for repayment of a principal
amount, although they may represent a priority over common stockholders in the
event of the issuer's liquidation. Many fixed income securities are subject to
scheduled retirement, or may be retired or "called" by the issuer prior to their
maturity dates. The interest rate on certain
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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 are also affected by the perceived ability
of the issuer to make timely payments of principal and interest.
CORPORATE DEBT INSTRUMENTS. These instruments, such as bonds, represent
the obligation of the issuer to repay a principal amount of indebtedness at a
stated time in the future and, in the usual case, to make periodic interim
payments of interest at a stated rate. The Fund may purchase corporate
obligations that mature or that may be redeemed in one year or less. These
obligations originally may have been issued with maturities in excess of one
year.
INVESTMENT GRADE. A designation applied to intermediate and long-term
corporate debt securities rated within the highest four rating categories
assigned by Standard & Poor's (AAA, AA, A or BBB) or by Moody's (Aaa, Aa, A or
Baa), or, if unrated, considered by the Adviser to be of comparable quality. The
ability of the issuer of an investment grade debt security to pay interest and
to repay principal is considered to vary from extremely strong (for the highest
ratings) through adequate (for the lowest ratings given above), although the
lower-rated investment grade securities may be viewed as having speculative
elements as well.
U.S. GOVERNMENT SECURITIES. The 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 Farmers 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
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of the issuing government agency or instrumentality. These agencies and
instrumentalities include, but are not limited to, the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal Land Banks, Central Bank for Cooperatives, Federal Intermediate Credit
Banks and Federal Home Loan 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.
The Fund may, in addition to the U.S. government securities noted
above, invest in mortgage-backed securities (including private mortgage-backed
securities), such as GNMA, FNMA or FHLMC certificates (as further discussed
below), which represent an undivided ownership interest in a pool of mortgages.
The mortgages backing these securities include conventional thirty-year
fixed-rate mortgages, fifteen-year fixed-rate mortgages, graduated payment
mortgages and adjustable rate mortgages. The U.S. government or the issuing
agency guarantees the payment of interest and principal of these securities.
However, the guarantees do not extend to the securities' yield or value, which
are likely to vary inversely with fluctuations in interest rates. These
certificates are in most cases pass-through instruments, through which the
holder receives a share of all interest and principal payments, including
prepayments, on the mortgages underlying the certificate, net of certain fees.
The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through certificates.
Mortgage-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying mortgage obligations. Thus, the
actual life of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally result from
the sale of the underlying property or the refinancing or foreclosure of
underlying mortgages. The occurrence of prepayments is affected by a wide range
of economic, demographic and social factors and, accordingly, it is not possible
to predict accurately the average life of a particular pool. Yield on such pools
is usually computed by using the historical record of prepayments for that pool,
or, in the case of newly-issued mortgages, the prepayment history of similar
pools. The actual prepayment experience of a pool of mortgage loans may cause
the yield realized by the Fund to differ from the yield calculated on the basis
of the expected average life of the pool.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as does the value of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The reinvestment of scheduled
principal payments and unscheduled prepayments that the Fund receives may occur
at higher or lower rates than the original investment, thus affecting the yield
of the Fund. Monthly interest payments received by the Fund have a compounding
effect, which may increase the yield to shareholders more than debt obligations
that pay interest semi-annually. Because of those factors, mortgage-backed
securities may be less effective than U.S. Treasury bonds of similar maturity at
maintaining yields during periods of declining interest rates. Accelerated
prepayments adversely affect yields for pass-through securities purchased at a
premium (i.e., at a price in excess of principal amount) and may involve
additional risk of loss of principal because the premium may not have been fully
amortized at the time the obligation is repaid. The opposite is true for
pass-through securities purchased at a discount. The Fund may purchase
mortgage-backed securities at a premium or at a discount.
The following is a description of GNMA, FNMA and FHLMC certificates,
the most widely available
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mortgage-backed securities: GNMA Certificates. GNMA Certificates are
mortgage-backed securities that evidence an undivided interest in a pool or
pools of mortgages. GNMA Certificates that the Fund may purchase are the
modified pass-through type, which entitle the holder to receive timely payment
of all interest and principal payments due on the mortgage pool, net of fees
paid to the issuer and GNMA, regardless of whether or not the mortgagor actually
makes the payment.
GNMA guarantees the timely payment of principal and interest on
securities backed by a pool of mortgages insured by the Federal Housing
Administration or the FMHA, or guaranteed by the Veterans Administration. The
GNMA guarantee is authorized by the National Housing Act and is backed by the
full faith and credit of the United States. The GNMA is also empowered to borrow
without limitation from the U.S. Treasury if necessary to make any payments
required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosure will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that the Fund has
purchased the certificates at a premium in the secondary market.
FHLMC CERTIFICATES. FHLMC issues two types of mortgage pass-through
securities: mortgage participation certificates ("PCs") and guaranteed mortgage
certificates ("GMCs") (collectively, "FHLMC Certificates"). PCs resemble GNMA
Certificates in that each PC represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. The FHLMC guarantees
timely monthly payment of interest (and, under certain circumstances, principal)
of PCs and the ultimate payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal once
a year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years. The FHLMC guarantee is not backed by the
full faith and credit of the U.S. government.
FNMA CERTIFICATES. FNMA issues guaranteed mortgage pass-through
certificates ("FNMA Certificates"). FNMA Certificates represent a pro rata share
of all interest and principal payments made and owed on the underlying pool.
FNMA guarantees timely payment of interest and principal on FNMA Certificates.
The FNMA guarantee is not backed by the full faith and credit of the U.S.
government.
Conventional mortgage pass-through securities ("Conventional Mortgage
Pass-Throughs") represent participation interests in pools of mortgage loans
that are issued by trusts formed by originators of the institutional investors
in mortgage loans (or represent custodial arrangements administered by such
institutions). These originators and institutions include commercial banks,
savings and loans associations, credit unions, savings banks, insurance
companies, investment banks or special purpose subsidiaries of the foregoing.
For federal income tax purposes, such trusts are generally treated as grantor
trusts or real estate mortgage investment conduits ("REMICs") and, in either
case, are generally not subject to any significant amount of federal income tax
at the entity level.
The mortgage pools underlying Conventional Mortgage Pass-Throughs
consist of conventional mortgage loans evidenced by promissory notes secured by
first mortgages or first deeds of trust or other similar security instruments
creating a first lien on residential or mixed residential and commercial
properties. Conventional Mortgage Pass-Throughs (whether fixed or adjustable
rate) provide for monthly payments that are a "pass-
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through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amount paid to any guarantor, administrator and/or servicer
of the underlying mortgage loans. A trust fund with respect to which a REMIC
election has been made may include regular interests in other REMICs, which in
turn will ultimately evidence interests in mortgage loans.
Conventional mortgage pools generally offer a higher rate of interest
than government and government-related pools because of the absence of any
direct or indirect government or agency payment guarantees. However, timely
payment of interest and principal of mortgage loans in these pools may be
supported by various forms of insurance or guarantees, including individual
loans, title, pool and hazard insurance and letters of credit. The insurance and
guarantees may be issued by private insurers and mortgage poolers. Although the
market for such securities is becoming increasingly liquid, mortgage-related
securities issued by private organizations may not be readily marketable.
Another type of mortgage-backed security in which the Fund may invest
is a collateralized mortgage obligation ("CMO"). CMOs are fully collateralized
bonds that are the general obligations of the issuer thereof (e.g., the U.S.
government, a U.S. government instrumentality, or a private issuer). Such bonds
generally are secured by an assignment to a trustee (under the indenture
pursuant to which the bonds are issued) of collateral consisting of a pool of
mortgages. Payments with respect to the underlying mortgages generally are made
to the trustee under the indenture. Payments of principal and interest on the
underlying mortgages are not passed through to the holders of the CMOs as such
(i.e., the character of payments of principal and interest is not passed
through, and therefore payments to holders of CMOs attributable to interest paid
and principal repaid on the underlying mortgages do not necessarily constitute
income and return of capital, respectively, to such holders), but such payments
are dedicated to payment of interest on and repayment of principal of the CMOs.
Principal and interest on the underlying mortgage assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the mortgage assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are structured to apply principal payments and
prepayments of the mortgage assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of CMOs may be issued in the parallel pay or sequential
pay structures. These securities include accrual certificates (also known as
"Z-Bonds"), which accrue interest at a specified rate only until all other
certificates having an earlier final distribution date have been retired and are
converted thereafter to an interest-paying security, and planned amortization
class ("PAC") certificates, which are parallel pay CMOs that generally require
that specified amounts of principal be applied on each payment date to one or
more classes of CMOs (the "PAC Certificates"), even though all other principal
payments and prepayments of the mortgage assets are then required to be applied
to one or more other classes of the certificates. The scheduled principal
payments for the PAC Certificates generally have the highest priority on each
payment date after interest due has been paid to all classes entitled to receive
interest currently. Shortfalls, if any, are added to the amount payable on the
next payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to create
PAC tranches, one or more tranches generally must be created to
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absorb most of the volatility in the underlying mortgage assets. These tranches
tend to have market prices and yields that are much more volatile than the PAC
classes.
The Fund may also invest in stripped mortgage-backed securities.
Stripped mortgage-backed securities are often structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. Stripped mortgage-backed securities have greater market
volatility than other types of U.S. government securities in which the Fund
invests. A common type of stripped mortgage-backed security has one class
receiving some or none of the interest and all or most of the inter of the
principal (the "principal only" class) from the mortgage pool, while the other
class will receive all or most of the interest (the "interest only" class). The
yield to maturity on an interest only class is extremely sensitive not only to
changes in prevailing interest rates, but also to the rate of principal
payments, including principal prepayments, on the underlying pool of mortgage
assets, and a rapid rate of principal payment may have a material adverse effect
on the Fund's yield. While interest-only and principal-only securities are
generally regarded as being illiquid, such securities may be deemed to be liquid
if they can be disposed of promptly in the ordinary course of business at a
value reasonably close to that used in the calculation of the Fund's net asset
value per share. Only government interest only and principal only securities
backed by fixed-rate mortgages and determined to be liquid under guidelines and
standards established by the Directors may be considered liquid securities not
subject to the Fund's limitation on investments in illiquid securities.
ASSET-BACKED SECURITIES. The Fund may invest in asset-backed
securities. These securities, issued by trusts and special purpose corporations,
are backed by a pool of assets, such as credit card and automobile loan
receivables, representing the obligations of a number of different parties.
Asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicer to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. Therefore, there is the possibility that the issuer of the
asset-backed security may be unable to meet its payments, in whole or in part,
to the holders of the asset-backed securities, including the Corporation. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support that fall into two categories:
(i) liquidity protection and (ii) protection against losses resulting from
ultimate default by an obligor on the underlying assets. Liquidity protection
refers to the provision of advances, generally by the entity administering the
pool of assets, to ensure that the receipt of payments on the underlying pool
occurs in a timely fashion. Protection against losses resulting from ultimate
default ensures payment through insurance policies or letters of credit obtained
by the issuer or sponsor from third parties. The Fund will not pay any
additional or separate fees for credit support. The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that anticipated or failure of the credit support could
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adversely affect the return on an investment in such a security.
ZERO COUPON BONDS, STEP-COUPON BONDS, DEFERRED INTEREST BONDS AND PIK
BONDS. Fixed income securities in which the Fund may invest also include zero
coupon bonds, step-coupon bonds, deferred interest bonds and bonds on which the
interest is payable in kind ("PIK bonds"). Zero coupon and deferred interest
bonds are debt obligations issued or purchased at a significant discount from
face value. A step-coupon bond is one in which a change in interest rate is
fixed contractually in advance. PIK bonds are debt obligations 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,
that is distributable to shareholders and which, because no cash is received at
the time of accrual, may require the liquidation of other Fund securities under
disadvantageous circumstances to satisfy the Fund's distribution obligations.
LOAN PARTICIPATIONS. The Fund may invest in loan participations. Loan
participations are loans sold by the lending bank to an investor. The loan
participant borrower may be a company with highly-rated commercial paper that
finds it can obtain cheaper funding through a loan participation than with
commercial paper and can also increase the company's name recognition in the
capital markets. Loan participations often generate greater yield than
commercial paper.
The borrower of the underlying loan will be deemed to be the issuer
except to the extent the Fund derives its rights from the intermediary bank that
sold the loan participations. Because loan participations are undivided
interests in a loan made by the issuing bank, the Fund may not have the right to
proceed against the loan participations borrower without the consent of other
holders of the loan participations. In addition, loan participations will be
treated as illiquid if, in the judgment of the Adviser, they can not be sold
within seven days.
SHORT-TERM DEBT SECURITIES. As described in the Prospectus, in addition
to its primary investments, the Fund may also invest up to 10% of its total
assets in U.S. dollar denominated money market instruments (a) for liquidity
purposes (to meet redemptions and expenses) or (b) to generate a return on idle
cash held in the Fund's Fund during periods when an Adviser is unable to locate
favorable 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
rated in one of the two highest categories by a nationally recognized
statistical rating organization (or determined by the Adviser to be of
equivalent quality). The types of short-term and temporary defensive investments
in which the Fund may invest are described below:
MONEY MARKET SECURITIES - Money market securities may
include securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, repurchase
agreements, commercial paper, bankers' acceptances, time
deposits and certificates of deposit.
COMMERCIAL BANK OBLIGATIONS - Certificates of deposit
(interest-bearing time deposits), including Eurodollar
certificates of deposit (certificates of deposit issued by
domestic or foreign banks located outside the U.S.) and
Yankee certificates of deposit (certificates of deposit
issued by branches of foreign banks located in the U.S.),
domestic and foreign bankers' acceptances (time drafts
drawn on a commercial bank where the bank accepts an
irrevocable obligation to pay at maturity) and documented
discount notes (corporate
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promissory discount notes accompanied by a commercial bank
guarantee to pay at maturity) representing direct or
contingent obligations of commercial banks with total
assets in excess of $1 billion, based on the latest
published reports. The Fund may also invest in obligations
issued by U.S. commercial banks with total assets of less
than $1 billion if the principal amount of these
obligations owned by the Fund is fully insured by the
Federal Deposit Insurance Corporation ("FDIC"). The Fund
may also invest in notes and obligations issued by foreign
branches of U.S. and foreign commercial banks.
SAVINGS ASSOCIATION OBLIGATIONS - Certificates of deposit
(interest-bearing time deposits) issued by mutual savings
banks or savings and loan associations with assets in
excess of $1 billion and whose deposits are insured by the
FDIC. The Fund may also invest in obligations issued by
mutual savings banks or savings and loan associations with
total assets of less than $1 billion if the principal
amount of these obligations owned by the Fund is fully
insured by the FDIC.
COMMERCIAL PAPER - Short-term notes (up to 12 months)
issued by domestic and foreign corporations or
governmental bodies. The Fund may purchase commercial
paper only if judged by the Adviser to be of suitable
investment quality. This includes commercial paper that is
(a) rated in the two highest categories by Standard &
Poor's and by Moody's, or (b) other commercial paper
deemed on the basis of the issuer's creditworthiness to be
of a quality appropriate for the Fund. See the Appendix
for a description of the ratings. The Fund will not
purchase commercial paper described in (b) above if such
paper would in the aggregate exceed 15% of its total
assets after such purchase. The commercial paper in which
the Fund may invest includes variable amount master demand
notes. Variable amount master demand notes permit the Fund
to invest varying amounts at fluctuating rates of interest
pursuant to the agreement in the master note. These are
direct lending obligations between the lender and
borrower, they are generally not traded, and there is no
secondary market. Such instruments are payable with
accrued interest in whole or in part on demand. The
amounts of the instruments are subject to daily
fluctuations as the participants increase or decrease the
extent of their participation. Investments in these
instruments are limited to those that have a demand
feature enabling the Fund unconditionally to receive the
amount invested from the issuer upon seven or fewer days'
notice. In connection with master demand note
arrangements, the Adviser, subject to the direction of the
Directors, monitors on an ongoing basis the earning power,
cash flow and other liquidity ratios of the borrower, and
its ability to pay principal and interest on demand. The
Adviser also considers the extent to which the variable
amount master demand notes are backed by bank letters of
credit. These notes generally are not rated by Moody's or
Standard & Poor's and the Fund may invest in them only if
it is determined that at the time of investment the notes
are of comparable quality to the other commercial paper in
which the Fund may invest. Master demand notes are
considered to have a maturity equal to the repayment
notice period unless the Adviser has reason to believe
that the borrower could not make timely repayment upon
demand.
CORPORATE BONDS AND NOTES - The Fund may purchase
corporate obligations that mature or that may be redeemed
in one year or less. These obligations originally may have
been issued with maturities in excess of one year. The
Fund may invest only in corporate bonds or notes of
issuers having outstanding short-term securities rated in
the top two rating categories by Standard & Poor's and
Moody's. See the Appendix for a description of
investment-grade
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ratings by Standard & Poor's and Moody's.
GOVERNMENT SECURITIES - Debt securities maturing within
one year of the date of purchase include adjustable-rate
mortgage securities backed by GNMA, FNMA, FHLMC and other
non-agency issuers. Although certain floating or variable
rate obligations (securities whose coupon rate changes at
least annually and generally more frequently) have
maturities in excess of one year, they are also considered
short-term debt securities. See "U.S. Government
Securities" above. The Fund may also purchase securities
issued or guaranteed by a foreign government, its agencies
or instrumentalities. See "Foreign Securities" above.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
involving only securities in which it could otherwise invest and with selected
banks, brokers and securities dealers whose financial condition is monitored by
the Adviser, subject to the guidance of the Board of Directors. In such
agreements, the seller agrees to repurchase the security at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
either overnight or a few days, although it may extend over a number of months.
The repurchase price is in excess of the purchase price by an amount that
reflects an agreed-upon rate of return effective for the period of time the
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 agreements
has declined and may incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the 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.
DIVERSIFICATION. The Fund is classified as "non-diversified" for
purposes of the 1940 Act, which means that it is not limited by the 1940 Act
with regard to the portion of assets that may be invested in the securities of a
single issuer. To the extent the Fund makes investments in excess of 5% of its
assets in the securities of a particular issuer, its exposure to the risks
associated with that issuer is increased.
Because the Fund invests in a limited number of issuers, the
performance of particular securities may adversely affect the Fund's performance
or subject the Fund to greater price volatility than that experienced by
diversified investment companies. The Fund intends to maintain the required
level of diversification and otherwise conduct its operations in order to
qualify as a "regulated investment company" for purposes of the Internal Revenue
Code of 1986, as amended (the "Code"). To qualify as a regulated investment
company under the Code, the Fund must, among other things, diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the Fund's assets is represented by cash, U.S.
government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. government securities or
the securities of other regulated investment companies).
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In the unlikely event application of the Fund's strategy would result
in a violation of these requirements of the Code, the Fund would be required to
deviate from its strategy to the extent necessary to avoid losing its status as
a regulated investment company.
DERIVATIVES STRATEGIES. The Fund may write (i.e., sell) call options
("calls") on securities that are traded on U.S. exchanges and over-the-counter
markets. After writing such a covered call, up to 25% of the Fund's total assets
may be subject to calls. All such calls written by the Fund must be "covered"
while the call is outstanding (i.e., the Fund must own the securities subject to
the call or other securities acceptable for applicable escrow requirements). If
a call written by the Fund is exercised, the 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.
In addition, the Fund could experience capital losses, which might
cause previously distributed short-term capital gains to be re-characterized as
a non-taxable return of capital to shareholders.
The Fund may also 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 writes only covered put options, which
means that so long as the Fund is obligated as the writer of the option it will,
through its custodian, have deposited and maintained cash or liquid securities
denominated in U.S. dollars or non-U.S. currencies with a securities depository
with a value equal to or greater than the exercise price of the underlying
securities.
For hedging purposes, the Fund may use interest rate futures contracts
and stock and bond index futures contracts, including futures on U.S. government
securities (together, "Futures"); and call and put options on equity and debt
securities, Futures, stock and bond indices. All puts and calls on securities,
interest rate Futures or stock and bond index Futures or options on such Futures
purchased or sold by the Fund will normally be listed on either (1) a national
securities or commodities exchange or (2) over-the-counter markets. Because the
markets for these instruments are relatively new and still developing, the
ability of the Fund to engage in such transactions may be limited. Derivatives
may be used to attempt to: (i) protect against possible declines in the market
value of the Fund's Fund resulting from downward trends in the equity and debt
securities markets (generally due to a rise in interest rates); (ii) protect the
Fund's unrealized gains in the value of its equity and debt securities that have
appreciated; (iii) facilitate selling securities for investment reasons; or (iv)
establish a position in the equity and debt securities markets as a temporary
substitute for purchasing particular equity and debt securities.
The Fund's use of Futures and options on Futures will be incidental to
its activities in the underlying cash market. When hedging to attempt to protect
against declines in the market value of the Fund, to permit the Fund to retain
unrealized gains in the value of Fund 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 Fund 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 derivatives the Fund may use is provided below.
OPTIONS
OPTIONS ON SECURITIES. As noted above, the Fund may write and purchase
call and put options on equity and debt securities.
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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. The Fund has retained
the risk of loss should the price of the underlying security increase during the
call period, which may be offset to some extent by the premium.
To terminate its obligation on a call it has written, the 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 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
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<PAGE>
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 that 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 Fund securities.
When writing put options on securities, to secure its obligation to pay
for the underlying security, the Fund will deposit in escrow liquid assets with
a value equal to or greater than the exercise price of the underlying
securities. 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.
The Fund may use spread transactions for any lawful purpose consistent
with the Fund's investment objective. The Fund may purchase covered spread
options from securities dealers. Such covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives the
Fund the right to put, or sell, a security that it owns at a fixed dollar spread
or fixed yield spread in relationship to another security that the Fund does not
own, but which is used as a benchmark. The risk to the Fund in purchasing
covered spread options is the cost of the premium paid for the spread option and
any transaction costs. In addition, there is no assurance that closing
transactions will be available. The purchase of spread options will be used to
protect the Fund against adverse changes in prevailing credit quality spreads,
i.e., the yield spread between high quality and lower quality securities. Such
protection is provided only during the life of the spread option.
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<PAGE>
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 or Futures.
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
Corporation's custodian in an account registered in the futures broker's name;
however the futures broker can gain access to that account only under specified
conditions. As the Future is marked-to-market to reflect changes in its market
value, subsequent margin payments, called variation margin, will be paid to or
by the futures broker on a daily basis. Prior to expiration of the Future, if
the 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.
Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on
the Fund's current or intended investments in fixed-income securities. For
example, if the Fund owned long-term bonds and interest rates were expected to
increase, the Fund might sell interest rate futures contracts. Such a sale would
have much the same effect as selling some of the long-term bonds in the Fund's
Fund. However, since the Futures market is more liquid than the cash market, the
use of interest rate futures contracts as a hedging technique allows the Fund to
hedge its interest rate risk without having to sell its Fund securities. If
interest rates did increase, the value of the debt securities in the Fund would
decline, but the value of the Fund's interest rate futures contracts would be
expected to increase at approximately the same rate, thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. On
the other hand, if interest rates were expected to decline, interest rate
futures contracts may be purchased to hedge in anticipation of subsequent
purchases of long-term bonds at higher prices. Since the fluctuations in the
value of the interest rate futures contracts should be similar to that of
long-term bonds, the Fund could protect itself against the effects of the
anticipated rise in the value of long-term bonds without actually buying them
until the necessary cash became available or the market had stabilized. At that
time, the interest rate futures contracts could be liquidated and the Fund's
cash reserves could then be used to buy long-term bonds on the cash market.
Purchases or sales of stock or bond index futures contracts are used
for hedging purposes to attempt to protect the Fund's current or intended
investments from broad fluctuations in stock or bond prices. For example, the
Fund may sell stock or bond index futures contracts in anticipation of or during
a market decline to attempt
B-18
<PAGE>
to offset the decrease in market value of the Fund's securities Fund that might
otherwise result. If such decline occurs, the loss in value of Fund 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 or bond index futures contracts in order
to gain rapid market exposure that may, in part or entirely, offset increases in
the cost of securities that the Fund intends to purchase. As such purchases are
made, the corresponding positions in stock or bond index futures contracts will
be closed out.
OPTIONS ON FUTURES. As noted above, the Fund may purchase and write
options on interest rate futures contracts, stock and bond index futures
contracts and forward contracts. (Unless otherwise specified, options on
interest rate futures contracts, options on stock and bond index futures
contracts are collectively referred to as "Options on Futures.")
The writing of a call option on a Futures contract constitutes a
partial hedge against declining prices of the securities in the Fund. 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 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 Fund 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 Fund 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 Fund 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 the Fund intends to purchase may be less expensive.
ADDITIONAL INFORMATION ABOUT DERIVATIVES AND THEIR USE
The Corporation's custodian, or a securities depository acting for the
custodian, will act as the Funds' escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the 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
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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 result in the sale of related investments, increasing Fund 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 strategies that are not presently
contemplated but which may be developed, to the extent such investment methods
are consistent with the Fund's investment objectives, legally permissible and
adequately disclosed.
REGULATORY ASPECTS OF DERIVATIVES
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 Fund, after taking into account unrealized
profits and unrealized losses on any such transactions. Margin deposits may
consist of cash or securities acceptable to the broker and the relevant contract
market.
Transactions in options by 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 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. There is also a risk in using short
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hedging by selling Futures to attempt to protect against decline in value of the
Fund 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 depends on participants entering into offsetting transactions rather
than making or taking delivery. To the extent participants decide to make or
take delivery, liquidity in the Futures markets could be reduced, thus producing
distortion. Third, from the point-of-view of speculators, the deposit
requirements in the Futures markets are less onerous than margin requirements in
the securities markets. Therefore, increased participation by speculators in the
Futures markets may cause temporary price distortions.
If the Fund establishes a position in the debt securities markets as a
temporary substitute for the purchase of individual debt securities (long
hedging) by buying Futures and/or calls on such Futures or on debt securities,
it is possible that the market may decline; if the Adviser then determines not
to invest in such securities at that time because of concerns as to possible
further market decline or for other reasons, the Fund will realize a loss on the
derivatives that is not offset by a reduction in the price of the debt
securities purchased.
ILLIQUID AND RESTRICTED SECURITIES. No more than 15% of the value of
the Fund's net assets determined as of the date of purchase may be invested in
illiquid securities, including repurchase agreements that have a maturity of
longer than seven days, interest-rate swaps, currency swaps, caps, floors and
collars, or in other securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities that are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities that
have not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of Fund 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 seek to obtain the right of registration at the expense of the issuer
(except in the case of Rule 144A securities, as described below).
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
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For example, restricted securities that the Board of Directors, or the
Adviser pursuant to guidelines established by the Board of Directors, has
determined to be marketable, such as securities eligible for sale under Rule
144A promulgated under the Securities Act, or certain private placements of
commercial paper issued in reliance on an exemption from such Act pursuant to
Section 4(2) thereof, may be deemed to be liquid for purposes of this
restriction. This investment practice could have the effect of increasing the
level of illiquidity in the 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 (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer). Subject to the applicable
limitation on illiquid securities investments, the 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 that is issued by a company that files reports
under the Securities Exchange Act of 1934 is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described above. The 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 Advisers the function of making day-to-day determinations of
liquidity with respect to Section 4(2) paper, pursuant to guidelines approved by
the Directors that require the Advisers to take into account the same factors
described above for other restricted securities and require the Advisers to
perform the same monitoring and reporting functions.
SHORT SALES. The Fund may sell a security it does not own in
anticipation of a decline in the market value of that security (short sales). To
complete such a transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund then is obligated to replace the security borrowed by
purchasing it at market price at the time of replacement. The price at such time
may be more or less than the price at which the security was sold by the Fund.
Until the security is replaced, the Fund is required to pay to the lender any
dividends or interest that accrue during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium, which would increase
the cost of the security sold. The proceeds of the short sale will be retained
by the broker, to the extent necessary to meet margin requirements, until the
short position is closed out. Until the Fund replaces a borrowed security, the
Fund will maintain daily a segregated account, containing cash or liquid
securities, at such a level that (i) the amount deposited in the account plus
the amount deposited with the broker as collateral will equal the current value
of the security sold short and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not be less
than the market value of the security at the time it was sold short. The Fund
will incur a loss as a result of the short sale if the price of the security
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. The Fund will
B-22
<PAGE>
realize a gain if the security declines in price between those dates. This
result is the opposite of what one would expect from a cash purchase of a long
position in a security. The amount of any gain will be decreased, and the amount
of any loss increased, by the amount of any premium, dividends or interest the
Fund may be required to pay in connection with a short sale.
The Fund may make "short sales against the box." 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 net assets would be subject to such short
sales.
BORROWING. As a matter of fundamental policy the Fund is authorized to
borrow up to 331/3% of its total assets for temporary or emergency purposes. In
seeking to enhance investment performance, the Fund may borrow money for
investment purposes and may pledge assets to secure such borrowings. This is the
speculative factor known as leverage. This practice may help increase the net
asset value of the assets of the Fund in an amount greater than would otherwise
be the case when the market values of the securities purchased through borrowing
increase. In the event the return on an investment of borrowed monies does not
fully recover the costs of such borrowing, the value of the Fund's assets would
be reduced by a greater amount than would otherwise be the case. The effect of
leverage will therefore tend to magnify the gains or losses to the Fund as a
result of investing the borrowed monies. During periods of substantial
borrowings, the value of the Fund's assets would be reduced due to the added
expense of interest on borrowed monies. The Fund is authorized to borrow, and to
pledge assets to secure such borrowings, up to the maximum extent permissible
under the 1940 Act (i.e., presently 50% of net assets). The time and extent to
which the Fund may employ leverage will be determined by the Adviser in light of
changing facts and circumstances, including general economic and market
conditions, and will be subject to applicable lending regulations of the Board
of Governors of the Federal Reserve Board.
In seeking to enhance investment performance, the 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
Corporation's assets less its liabilities, other than borrowings, is equal to at
least 300% of all borrowings including the proposed borrowing. If the value of
the 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.
LOANS OF FUND SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend Fund 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 Fund 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 high-quality
B-23
<PAGE>
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 Fund
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.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse
repurchase agreements with brokers, dealers, domestic and foreign banks or other
financial institutions that have been determined by the Adviser to be
creditworthy. In a reverse repurchase agreement, the 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. It may also be viewed as
the borrowing of money by the Fund. The Fund's investment of the proceeds of a
reverse repurchase agreement is the speculative factor known as leverage. The
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. The Fund will maintain with the Custodian a
separate account with a segregated Fund of cash or liquid securities in an
amount at least equal to its purchase obligations under these agreements
(including accrued interest). In the event that the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the 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."
DOLLAR ROLLS. The Fund may enter into "dollar rolls" in which the Fund
sells mortgage or other asset-backed securities ("Roll Securities") for delivery
in the current month and simultaneously contracts to repurchase substantially
similar (same type, coupon and maturity) securities on a specified future date.
During the roll period, the Fund foregoes principal and interest paid on the
Roll Securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. The Fund also could be compensated through the receipt of fee
income equivalent to a lower forward price. A "covered roll" is a specific type
of dollar roll for which there is an offsetting cash position or a cash
equivalent security position that matures on or before the forward settlement
date of the dollar roll transaction. The Fund will enter into only covered
rolls. Because "roll" transactions involve both the sale and purchase of a
security, they may cause the reported Fund turnover rate to be higher than that
reflecting typical Fund management activities.
Dollar rolls involve certain risks including the following: if the
broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's
right to purchase or repurchase the security subject to the dollar roll may be
restricted and the instrument the Fund is required to repurchase may be worth
less than an instrument the Fund
B-24
<PAGE>
originally held. Successful use of dollar rolls will depend upon the Adviser's
ability to predict correctly interest rates and in the case of mortgage dollar
rolls, mortgage prepayments. For these reasons, there is no assurance that
dollar rolls can be successfully employed.
STANDBY COMMITMENTS. Standby commitments are put options that entitle
holders to same day settlement at an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise. The Fund may acquire standby commitments to enhance the liquidity of
Fund securities, but only when the issuers of the commitments present minimal
risk of default. Ordinarily, the Fund may not transfer a standby commitment to a
third party, although it could sell the underlying municipal security to a third
party at any time. The Fund may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In the
latter case, the Fund would pay a higher price for the securities acquired, thus
reducing their yield to maturity. Standby commitments will not affect the
dollar-weighted average maturity of the Fund, or the valuation of the securities
underlying the commitments. Issuers or financial intermediaries may obtain
letters of credit or other guarantees to support their ability to buy securities
on demand. The Adviser may rely upon its evaluation of a bank's credit in
determining whether to support an instrument supported by a letter of credit.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the commitments
are exercised; the fact that standby commitments are not marketable by the Fund;
and the possibility that the maturities of the underlying securities may be
different from those of the commitments.
INTEREST-RATE SWAPS, MORTGAGE SWAPS, CAPS, COLLARS AND FLOORS. In order
to protect the value of Funds from interest rate fluctuations and to hedge
against fluctuations in the fixed income market in which certain of the Funds'
investments are traded, the Fund may enter into interest-rate swaps and mortgage
swaps or purchase or sell interest-rate caps, floors or collars. The Fund will
enter into these hedging transactions primarily to preserve a return or spread
on a particular investment or portion of the Fund and to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund may also enter into interest-rate swaps for non-hedging purposes.
Interest-rate swaps are individually negotiated, and the Fund expects to achieve
an acceptable degree of correlation between its Fund investments and
interest-rate positions. The Fund will enter into interest-rate swaps only on a
net basis, which means that the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Interest-rate swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest-rate swaps is limited to the net amount of interest payments that the
Fund is contractually obligated to make. If the other party to an interest-rate
swap defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. The use of
interest-rate swaps is a highly specialized activity, which involves investment
techniques and risks different from those associated with ordinary Fund
securities transactions. All of these investments may be deemed to be illiquid
for purposes of the Fund's limitation on investment in such securities. Inasmuch
as these investments are entered into for good faith hedging purposes, and
inasmuch as segregated accounts will be established with respect to such
transactions, SunAmerica believes such obligations do not constitute senior
securities and accordingly will not treat them as being subject to its borrowing
restrictions. The net amount of the excess, if any, of the Fund's obligations
over its entitlements with respect to each interest-rate swap will be accrued on
a daily basis and an amount of cash or liquid securities having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account by a custodian that satisfies the requirements of the 1940
Act. The Fund will also establish and maintain such segregated accounts with
respect to its total obligations under any interest-rate swaps that are not
entered into on a net basis and with respect to any interest-rate caps, collars
and floors that are written by the Fund.
B-25
<PAGE>
The Fund will enter into these transactions only with banks and
recognized securities dealers believed by the Adviser to present minimal credit
risk in accordance with guidelines established by the Board of Directors. If
there is a default by the other party to such a transaction, the Fund will have
to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps, collars and floors are
more recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.
Mortgage swaps are similar to interest-rate swaps in that they
represent commitments to pay and receive interest. The notional principal
amount, upon which the value of the interest payments is based, is tied to a
reference pool or pools of mortgages.
The purchase of an interest-rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest-rate cap. The purchase of an interest-rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest-rate floor.
FUTURE DEVELOPMENTS. The 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
objectives, policies and restrictions and is otherwise legally permissible under
federal and state laws. The Prospectus and Statement of Additional Information
will be amended or supplemented as appropriate to discuss any such new
investments.
INVESTMENT RESTRICTIONS
The Corporation has adopted for the Fund certain investment
restrictions that are fundamental policies and cannot be changed without the
approval of the holders of a majority of the Fund's outstanding shares. Such
majority is defined as the vote of the lesser of (i) 67% or more of the
outstanding shares present at a meeting, if the holders of more than 50% of the
outstanding shares are present in person or by proxy or (ii) more than 50% of
the outstanding shares. All percentage limitations expressed in the following
investment restrictions are measured immediately after the relevant transaction
is made. The Fund may not:
1. Invest more than 25% of the Fund's total assets in the
securities of issuers in the same industry. Obligations of the
U.S. Government, its agencies and instrumentalities are not
subject to this 25% limitation on industry concentration.
2. Invest in real estate (including limited partnership interests
but excluding securities of companies, such as real estate
investment trusts, that deal in real estate or interests
therein); provided that the Fund may hold or sell real estate
acquired as a result of the ownership of securities.
3. Purchase or sell commodities or commodity contracts, except to
the extent that the Fund may do so in accordance with
applicable law and the Prospectus and Statement of Additional
Information,
B-26
<PAGE>
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 and indices, spread transactions,
forward and futures contracts on securities and indices, put
and call options on such futures contracts, forward commitment
transactions, interest rate, mortgage and currency swaps and
interest rate floors and caps and may purchase hybrid
instruments.
4. Make loans to others except for (a) the purchase of debt
securities; (b) entering into repurchase agreements; (c) the
lending of its Fund securities; and (d) as otherwise permitted
by exemptive order of the SEC.
5. Borrow money, except that (i) the Fund may borrow in amounts
up to 331/3% 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 Fund securities. This policy shall
not prohibit the Fund's engaging in reverse repurchase
agreements, dollar rolls and similar investment strategies
described in the Prospectus and Statement of Additional
Information, as they may be amended from time to time.
6. Issue senior securities as defined in the 1940 Act, except
that the Fund may enter into repurchase agreements, reverse
repurchase agreements, dollar rolls, lend its Fund securities
and borrow money, as described above, and engage in similar
investment strategies described in the Prospectus and
Statement of Additional Information, as they may be amended
from time to time.
7. Engage in underwriting of securities issued by others, except
to the extent that the Fund may be deemed to be an underwriter
in connection with the disposition of Fund securities of the
Fund.
The Fund primarily invests in companies whose principal businesses are
believed to be in a position to significantly benefit from advances or
improvements in technology (previously defined as "technology companies").
Technology companies may be found in many different industries, and for purposes
of investment restriction no. 1, "industry" is determined by reference to the
DIRECTORY OF COMPANIES FILING ANNUAL REPORTS WITH THE SECURITIES AND EXCHANGE
COMMISSION, published by the Securities and Exchange Commission.
The following additional restrictions are not fundamental policies and
may be changed by the Directors without a vote of shareholders. The Fund may
not:
8. Purchase securities on margin, provided that margin deposits
in connection with futures contracts, options on futures
contracts and other derivative instruments shall not
constitute purchasing securities on margin.
9. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and, to the
extent related to the segregation of assets in connection with
the writing of covered put and call options and the purchase
of securities or currencies on a forward commitment or
delayed-delivery basis and collateral and initial or variation
margin arrangements with respect to forward contracts,
options, futures contracts and options on futures contracts.
In addition, the Fund may pledge assets in reverse repurchase
agreements, dollar rolls and similar investment strategies
described in the Prospectus and Statement of Additional
Information, as they may be amended from time to time.
B-27
<PAGE>
10. Invest in securities of other registered investment companies,
except by purchases in the open market, involving only
customary brokerage commissions and as a result of which not
more than 10% of its total assets (determined at the time of
investment) would be invested in such securities, or except as
part of a merger, consolidation or other acquisition.
11. Enter into any repurchase agreement maturing in more than
seven days or investing in any other illiquid security if, as
a result, more than 15% of the 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.
DIRECTORS AND OFFICERS
The following table lists the Directors and executive officers of the
Corporation, their ages, business addresses, and principal occupations during
the past five years. For the purposes of this Statement of Additional
Information, the SunAmerica Mutual Funds ("SAMF") consist of SunAmerica Equity
Funds, SunAmerica Income Funds, SunAmerica Money Market Funds, Inc., SunAmerica
Strategic Investment Series, Inc. and the Corporation. An asterisk indicates
those Directors who are interested persons of the Corporation within the meaning
of the 1940 Act.
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Corporation During Past 5 Years
- --------------------- -------------------- -------------------
<S> <C> <C>
S. James Coppersmith, 66 Director Retired; formerly, President and General
7 Elmwood Road Manager, WCVB-TV, a division of the
Marblehead, MA 01945 Hearst Corporation, (1982 to 1994);
Director/Trustee of
SAMF and Anchor Series
Trust ("AST").
Samuel M. Eisenstat, 59 Chairman of the Board Attorney, solo practitioner; Chairman of the Boards
430 East 86th Street of Directors/Trustees of SAMF and AST.
New York, NY
Stephen J. Gutman, 56 Director Partner and Managing Member of B.B.
Associates LLC 515 East 79th Street
(menswear specialty retailing and other
activities) New York, NY 10021 since June
1988; Director/Trustee of SAMF and AST.
Peter A. Harbeck, *45 Director and President Director and President, SunAmerica Asset Management
The SunAmerica Center Corp. ("SunAmerica"); Director, SunAmerica Capital
733 Third Avenue Service, Inc. ("SACS"), since August 1993; Director
New York, NY and President, SunAmerica Fund Services, Inc.
("SAFS"), since May 1988; President, SAMF
and AST; Executive Vice President
</TABLE>
B-28
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Corporation During Past 5 Years
- --------------------- -------------------- -------------------
<S> <C> <C>
and Chief Operating Officer, SunAmerica,
from May 1988 to August 1995; Executive
Vice President, SACS, from November 1991
to August 1995; Director, Resources Trust
Company.
Sebastiano Sterpa, 70 Director Founder and Chairman of the Board of the Sterpa Group
73473 Mariposa Drive (real estate) since 1962; Director, Real Estate
Palm Desert, CA 92260 Business Service and Countrywide Financial;
Director/ Trustee of SAMF.
J. Steven Neamtz, 39 Vice President Executive Vice President, SunAmerica, since April
The SunAmerica Center 1996; Director and President, SACS, since April 1996;
733 Third Avenue formerly, Executive Vice President, New England
New York, NY 10017-3204 Funds, L.P. from July 1990 to April 1996.
Peter C. Sutton, 35 Treasurer Senior Vice President, SunAmerica, since
April 1997; The SunAmerica Center
Treasurer, SAMF and AST, since February
1996; Vice 733 Third Avenue President and
New York, NY 10017-3204 Assistant
Treasurer of SAST and APF, since 1994;
Vice President, Seasons, since April 1997;
formerly, Vice President, SunAmerica, from
1994 to 1997; Controller, SAMF and AST,
from March 1993 to February 1996;
Assistant Controller, SAMF and AST, from
1990 to 1993.
Robert M. Zakem, 42 Secretary Senior Vice President and General
The SunAmerica Center Counsel, SunAmerica, since April 1993;
733 Third Avenue Executive Vice President, General
New York, NY 10017-3204 Counsel and Director, SACS, since
August 1993; Vice President, General
Counsel and Assistant Secretary, SAFS,
since January 1994; Vice President,
SunAmerica Series Trust, Anchor Pathway
and Seasons Series Trust; Assistant
Secretary, SunAmerica Series Trust and
Anchor Pathway Fund, since September 1993;
Assistant Secretary, Seasons Series Trust,
since April 1997; formerly, Vice President
and Associate General Counsel, SunAmerica,
from March 1992 to April 1993.
</TABLE>
B-29
<PAGE>
* A Director who may be deemed to be an interested person as that term is
defined in the 1940 Act.
The Directors of the Corporation are responsible for the overall
supervision of the operation of the Corporation and each 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 ("SACS" or the "Distributor") and
other affiliates.
The Corporation pays each Director who is not an interested person of
the Corporation, SunAmerica or any Adviser, nor a party to any Management
Agreement or Subadvisory Agreement (collectively, the "Disinterested Directors")
annual compensation in addition to reimbursement of out-of-pocket expenses in
connection with attendance at meetings of the Directors. Specifically, each
Disinterested Director receives an aggregate of up to $60,000 in annual
compensation for acting as director or trustee to SAMF and/or AST, a pro rata
portion of which, based on relative net assets, is borne by the Corporation.
In addition, each Disinterested Director also serves on the Audit
Committee of the Board of Directors. The Audit Committee is charged with
recommending to the full Board the engagement or discharge of the Corporation's
independent accountants; directing investigations into matters within the scope
of the independent accountants' duties; reviewing with the independent
accountants the audit plan and results of the audit; approving professional
services provided by the independent accountants and other accounting firms;
reviewing the independence of the independent accountants; considering the range
of audit and non-audit fees; and preparing and submitting Committee minutes to
the full Board. Each member of the Audit Committee receives an aggregate of up
to $5,000 in annual compensation for serving on the Audit Committees of SAMF
and/or AST, a pro rata portion of which, based on relative net assets, is borne
by the Corporation. The Corporation also has a Nominating Committee, comprised
solely of Disinterested Directors, which recommends to the Directors those
persons to be nominated for election as Directors by shareholders and selects
and proposes nominees for election by Directors between shareholders' meetings.
Members of the Nominating Committee serve without compensation.
The Directors (and Trustees) of SAMF and AST have adopted the
SunAmerica Disinterested Trustees' and Directors' Retirement Plan (the
"Retirement Plan") effective January 1, 1993 for the Disinterested Directors.
The Retirement Plan provides generally that if a Disinterested Director who has
at least 10 years of consecutive service as a Disinterested Director of any of
SAMF or AST (an "Eligible Director") retires after reaching age 60 but before
age 70 or dies while a Director, such person will be eligible to receive a
retirement or death benefit from each SunAmerica Mutual Fund with respect to
which he or she is an Eligible Director. With respect to Sebastiano Sterpa, the
Disinterested Directors have determined to make an exception to existing policy
and allow Mr. Sterpa to remain on the Board past age 70, until he has served for
ten years. Mr. Sterpa will cease accruing retirement benefits upon reaching age
70, although such benefits will continue to accrue interest as provided for in
the Retirement Plan. As of each birthday, prior to the 70th birthday, each
Eligible Director will be credited with an amount equal to (i) 50% of his or her
regular fees (excluding committee fees) for services as a Disinterested Director
of each SunAmerica mutual fund for the calendar year in which such birthday
occurs, plus (ii) 8.5% of any amounts credited under clause (i) during prior
years. An Eligible Director may receive any benefits payable under the
Retirement Plan, at his or her election, either in one lump sum or in up to
fifteen annual installments.
The following table sets forth information summarizing the compensation
that the Corporation paid each Disinterested Director for his services as
Director for the fiscal year ended October 31, 1999. The Directors who are
interested persons of the Corporation receive no compensation.
B-30
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual from Registrant
Complex Compensation Accrued as Part of Benefits Upon and Corporation
Director from Corporation Corporation Expenses* Retirement*+ Paid to Directors*
<S> <C> <C> <C> <C>
S. James Coppersmith $9,302 $41,035 $29,670 $65,000
Samuel M. Eisenstat** 9,740 36,130 46,083 69,000
Stephen J. Gutman 9,302 37,402 60,912 65,000
Sebastiano Sterpa*** 9,399 25,201 7,900 43,333
</TABLE>
* Information is for the six investment companies in the complex that pay
fees to these directors/trustees. The complex consists of SAMF and AST.
** Mr. Eisenstat receives additional compensation for serving as Chairman
of each of the boards in the complex, $300 of which is payable by the
Corporation.
*** Mr. Sterpa is not a trustee of AST.
+ Assuming participant elects to receive benefits in 15 yearly installments.
As of April 15, 2000, the Directors and officers of the Corporation
owned in the aggregate less than 1% of each class of each Fund's total
outstanding shares.
ADVISER, PERSONAL SECURITIES TRADING, DISTRIBUTOR AND ADMINISTRATOR
THE ADVISER SunAmerica Asset Management Corp., which was organized as a
Delaware corporation in 1982, is located at The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204, and acts as the investment manager to the Fund
pursuant to the Investment Advisory and Management Agreement (the "Management
Agreement") with the Corporation, on behalf of the Fund. SunAmerica is a
wholly-owned subsidiary of SunAmerica Inc., which in turn is a wholly-owned
subsidiary of American International Group, Inc. ("AIG"), the leading U.S.-based
international insurance organization. AIG, a Delaware corporation, is a holding
company that through its subsidiaries is primarily engaged in a broad range of
insurance and insurance related activities and financial services in the United
States and abroad. AIG, through its subsidiaries, is also engaged in a range of
financial services activities. As of March 31, 2000, SunAmerica managed, advised
and/or administered more than $26 billion of assets.
Under the Management Agreement, SunAmerica selects and manages the
investment of the Fund, provides various administrative services and supervises
the Corporation's daily business affairs, subject to general review by the
Directors.
Except to the extent otherwise specified in the Management Agreement,
the Fund pays, or causes to be paid, all other expenses of the Corporation and
the Fund, including, without limitation, charges and expenses of any registrar,
custodian, transfer and dividend disbursing agent; brokerage commissions; taxes;
engraving and printing of share certificates; registration costs of the Fund and
their shares under federal and state securities laws; the cost and expense of
printing, including typesetting, and distributing Prospectuses and Statements of
B-31
<PAGE>
Additional Information regarding the Fund, and supplements thereto, to the
shareholders of the Fund; all expenses of shareholders' and Directors' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; all expenses incident to any dividend, withdrawal or redemption
options; fees and expenses of legal counsel and independent accountants;
membership dues of industry associations; interest on borrowings of the Fund;
postage; insurance premiums on property or personnel (including Officers and
Directors) of the Corporation that inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Corporation's operation.
The annual rate of the investment advisory fee payable to SunAmerica is
0.75% of average daily net assets.
SunAmerica has agreed to waive fees or reimburse expenses, if
necessary, to keep operating expenses at or below an annual rate of 1.55% of the
assets of Class A shares and 2.20% of the assets of Class B, and Class II shares
for the Fund. 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 with respect to the Fund 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 Management Agreement continues in effect with respect to the Fund,
for a period of two years from the date of execution unless terminated sooner,
and thereafter from year to year, if approved at least annually by vote of a
majority of the Directors or by the holders of a majority of the Fund's
outstanding voting securities. Any such continuation also requires approval by a
majority of the Disinterested Directors by vote cast in person at a meeting
called for such purpose. The Management Agreement may be terminated with respect
to the Fund at any time, without penalty, on 60 days' written notice by the
Directors, by the holders of a majority of the Fund's outstanding voting
securities or by SunAmerica. The Management Agreement automatically terminates
with respect to the Fund in the event of its assignment (as defined in the 1940
Act and the rules thereunder).
Under the terms of the Management Agreement, SunAmerica is not liable
to the Fund, or its shareholders, for any act or omission by it or for any
losses sustained by the Fund or their shareholders, except in the case of
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
PERSONAL SECURITIES TRADING. The Corporation and SunAmerica have
adopted a written Code of Ethics (the "Code of Ethics"), which prescribes
general rules of conduct and sets forth guidelines with respect to personal
securities trading by "Access Persons" thereof. An Access Person is defined in
the SunAmerica Code as an individual who is a trustee, director, officer,
general partner or advisory person of the Corporation or SunAmerica. The topics
covered in the guidelines on personal securities trading include: (i) securities
being considered for purchase or sale, or purchased or sold, by any investment
company advised by SunAmerica, (ii) initial public offerings, (iii) private
placements, (iv) blackout periods, (v) short-term trading profits, (vi) gifts,
and (vii) services as a director. Access Persons may invest in securities,
including securities in which the Corporation may invest, subject to the
limitations set forth in the Code of Ethics. The guidelines and restrictions in
the Code of Ethics comply with Rule 17j-1 under the 1940 Act and are
substantially similar to those contained in the Report of the Advisory Group on
Personal Investing issued by the Investment Company Institute's
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<PAGE>
Advisory Panel. SunAmerica reports to the Board of Directors on a quarterly
basis, as to whether there were any violations of the SunAmerica Code by Access
Persons of the Corporation or SunAmerica during the quarter.
The Advisers have each adopted a written Code of Ethics, and have
represented that the provisions of such Code of Ethics are substantially similar
to those in the SunAmerica Code and comply with Rule 17j-1 under the 1940 Act.
Further, the Advisers report to SunAmerica on a quarterly basis, as to whether
there were any Code of Ethics violations by employees thereof who may be deemed
Access Persons of the Corporation insofar as such violations related to the
Corporation. In turn, SunAmerica reports to the Board of Directors as to whether
there were any violations of the SunAmerica Code by Access Persons of the
Corporation or SunAmerica.
THE DISTRIBUTOR. The Corporation, on behalf of each Fund, has entered
into a distribution agreement (the "Distribution Agreement") with the
Distributor, a registered broker-dealer and an indirect wholly owned subsidiary
of AIG, to act as the principal underwriter in connection with the continuous
offering of each class of shares of each 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 Funds through its registered representatives and
authorized broker-dealers. The Distribution Agreement also provides that the
Distributor will pay the promotional expenses, including the incremental cost of
printing prospectuses, annual reports and other periodic reports respecting each
Fund, for distribution to persons who are not shareholders of such 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).
The Distribution Agreement with respect to each Fund will remain in
effect for two years from the date of execution unless terminated sooner, and
thereafter from year to year if such continuance is approved at least annually
by the Directors, including a majority of the Disinterested Directors. The
Corporation and the Distributor each has the right to terminate the Distribution
Agreement with respect to the Fund on 60 days' written notice, without penalty.
The Distribution Agreement will terminate automatically in the event of its
assignment as defined in the 1940 Act and the rules thereunder.
The Distributor may, from time to time, pay additional commissions or
promotional incentives to brokers, dealers or other financial services firms
that sell shares of the Funds. In some instances, such additional commissions,
fees or other incentives may be offered only to certain firms, including Royal
Alliance Associates, SunAmerica Securities, Inc., Koegler Morgan & Company,
Financial Service Corporation and Advantage Capital Corporation, affiliates of
the Distributor, that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Funds, or of other funds underwritten
by the Distributor. In addition, the terms and conditions of any given
promotional incentive may differ from firm to firm. Such differences will,
nevertheless, be fair and equitable, and based on such factors as size,
geographic location, or other reasonable determinants, and will in no way affect
the amount paid to any investor.
DISTRIBUTION PLANS. As indicated in the Prospectus, the Directors of
the Corporation have adopted Distribution Plans (the "Class A Plan," the "Class
B Plan," and the "Class II Plan" and collectively, the "Distribution Plans")
pursuant to Rule 12b-1 under the 1940 Act. Reference is made to "Fund Management
- - Distributor" in the Prospectus for certain information with respect to the
Distribution Plans.
Under the Class A Plan, the Distributor may receive payments from the
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
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<PAGE>
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, and Class II shares to compensate the Distributor and certain securities
firms for providing sales and promotional activities for distributing each such
class of shares. The distribution costs for which the Distributor may be
reimbursed out of such distribution fees include fees paid to broker-dealers
that have sold Fund shares, commissions and other expenses such as sales
literature, prospectus printing and distribution and compensation to
wholesalers. It is possible that in any given year the amount paid to the
Distributor under the Class A Plan, the Class B Plan, or the Class II Plan will
exceed the Distributor's distribution costs as described above. The Distribution
Plans provide that each class of shares of the 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.
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 who have no direct or indirect financial interest in the
operation of the Plans or in any agreements related to the Plans (the
"Independent Directors"). A Distribution Plan may not be amended to increase
materially the amount authorized to be spent thereunder with respect to a class
of shares of the 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 with respect to the
Fund without payment of any penalty by vote of a majority of the Independent
Directors or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the affected class of shares of the 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 Independent Directors. In the Directors' quarterly review of the
Distribution Plans, they will consider the continued appropriateness of, and the
level of, compensation provided in the Distribution Plans. In their
consideration of the Distribution Plans with respect to the 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 ("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.
The Service Agreement will remain in effect for two years from the date
of approval with respect to the Fund and from year to year thereafter provided
its continuance is approved annually by vote of the Directors including a
majority of the Disinterested Directors.
Pursuant to the Service Agreement, as compensation for services
rendered, SAFS receives a fee from the Corporation, computed and payable monthly
based upon an annual rate of 0.22% of average daily net assets. This fee
represents the full cost of providing shareholder and transfer agency services
to the Corporation. From this fee, SAFS pays a fee to State Street, and its
affiliate, National Financial Data Services ("NFDS" and with State Street, the
"Transfer Agent") (other than out-of-pocket charges that would be paid by the
Corporation). For further information regarding the Transfer Agent see the
section entitled "Additional Information" below.
FUND TRANSACTIONS AND BROKERAGE
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As discussed in the Prospectus, the Advisers are responsible for
decisions to buy and sell securities for each respective 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 another Adviser.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission (although the price of the security usually includes a profit
to the dealer). In underwritten offerings, securities are purchased at a fixed
price, which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which case
no commissions or discounts are paid.
An Adviser's primary consideration in effecting a security transaction
is to obtain the best net price and the most favorable execution of the order.
However, the Adviser may select broker-dealers that provide it with research
services-analyses and reports concerning issuers, industries, securities,
economic factors and trends-and may cause the 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. The research
services consist of assessments and analysis of the business or prospects of a
company, industry or economic sector. Certain research services furnished by
brokers may be useful to the Adviser with respect to clients other than the
Corporation and not all of these services may be used by the Adviser in
connection with the Corporation. No specific value can be determined for
research services furnished without cost to the Adviser by a broker. The
Advisers are of the opinion that because the material must be analyzed and
reviewed by its staff, its receipt does not tend to reduce expenses, but may be
beneficial in supplementing the Adviser's research and analysis. Therefore, it
may tend to benefit the Fund by improving the quality of the Adviser's
investment advice. The investment advisory fees paid by the Fund are not reduced
because the Adviser receives such services. When making purchases of
underwritten issues with fixed underwriting fees, the Adviser may designate the
use of broker-dealers who have agreed to provide the Adviser with certain
statistical, research and other information.
Subject to applicable law and regulations, consideration may also be
given to the willingness of particular brokers to sell shares of 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.
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. However, simultaneous transactions could adversely affect the
ability of the Fund to obtain or dispose of the full amount of a security, which
it seeks to purchase or sell, or the price at which such security can be
purchased or sold. Because each of the Advisers to the Fund manages its portion
of the Fund's assets independently, it is possible that the same security may be
purchased and sold on the same day by two or more
B-35
<PAGE>
Advisers to the Fund, resulting in higher brokerage commissions for the Fund.
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, extension 5125.
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 (i) may be imposed at the time of purchase (Class A
shares), (ii) may be deferred (Class B shares and purchases of Class A shares in
excess of $1 million) or (iii) may contain elements of a sales charge that is
both imposed at the time of purchase and deferred (Class II shares). Reference
is made to "Shareholder Account Information" in the Prospectus for certain
information as to the purchase of Fund shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. As discussed under
"Shareholder Account Information" in the Prospectus, the CDSC may be waived on
redemptions of Class B and Class II shares under certain circumstances. The
conditions set forth below are applicable with respect to the following
situations with the proper documentation:
DEATH. CDSCs may be waived on redemptions within one year
following the death (i) of the sole shareholder on an individual account, (ii)
of a joint tenant where the surviving joint tenant is the deceased's spouse, or
(iii) of the beneficiary of a Uniform Gifts to Minors Act, Uniform Transfers to
Minors Act or other custodial account. The CDSC waiver is also applicable in the
case where the shareholder account is registered as community property. If, upon
the occurrence of one of the foregoing, the account is transferred to an account
registered in the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year of the death. If
Class B shares or Class II shares are not redeemed within one year of the death,
they will remain Class B shares or Class II shares, as applicable, and be
subject to the applicable CDSC, when redeemed.
DISABILITY. A CDSC may be waived on redemptions occurring
within one year after the sole shareholder on an individual account or a joint
tenant on a spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Code). To be eligible for such waiver, (i) the disability must
arise after the purchase of shares and (ii) the disabled shareholder must have
been under age 65 at the time of the initial determination of disability. If the
account is transferred to a new registration and then a redemption is requested,
the applicable CDSC will be charged.
PURCHASES THROUGH THE DISTRIBUTOR. An investor may purchase shares of the Fund
through dealers who have
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<PAGE>
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 close of business will be executed at the
offering price determined at the close of regular trading on the New York Stock
Exchange (the "NYSE") that day. Orders received by the Distributor after the
close of business will be executed at the offering price determined after the
close of regular trading of the NYSE on the next trading day. The Distributor
reserves the right to cancel any purchase order for which payment has not been
received by the fifth business day following the investment. The Fund will not
be responsible for delays caused by dealers.
PURCHASE BY CHECK. Checks should be made payable to the SunAmerica
Biotech/Health 30 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 Corporation will accept a
multi-party check (e.g., a check made payable to the shareholder by another
party and then endorsed by the shareholder to the Corporation in payment for the
purchase of shares); however, the processing of such a check may be subject to a
delay. The Corporation does not verify the authenticity of the endorsement of
such multi-party check, and acceptance of the check by the Corporation should
not be considered verification thereof. Neither the Corporation nor its
affiliates will be held liable for any losses incurred as a result of a
fraudulent endorsement. There are restrictions on the redemption of shares
purchased by check for which funds are being collected. (See "Shareholder
Account Information" in the Prospectus.)
PURCHASE THROUGH SAFS. SAFS will effect a purchase order on behalf of a customer
who has an investment account upon confirmation of a verified credit balance at
least equal to the amount of the purchase order (subject to the minimum $500
investment requirement for wire orders). If such order is received at or prior
to the Corporation's close of business, the purchase of shares of a Corporation
will be effected on that day. If the order is received after the Corporation's
close of business, the order will be effected on the next business day.
PURCHASE BY FEDERAL FUNDS WIRE. An investor may make purchases by having his or
her bank wire federal funds to the Corporation's Transfer Agent. Federal funds
purchase orders will be accepted only on a day on which the Corporation and the
Transfer Agent are open for business. In order to insure prompt receipt of a
federal funds wire, it is important that these steps be followed:
1. You must have an existing SunAmerica Fund Account before
wiring funds. To establish an account, complete the New
Account Application and send it via facsimile to SAFS at:
(212) 551- 5585.
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<PAGE>
2. Call SunAmerica Fund Services' Shareholder/Dealer Services,
toll free at (800) 858-8850, extension 5125 to obtain your new
account number.
3. Instruct the bank to wire the specified amount to the Transfer
Agent: State Street Bank and Trust Company, Boston, MA, ABA#
0110-00028; DDA# 99029712, SunAmerica SunAmerica
Biotech/Health 30 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),
sponsored or administered by SunAmerica or an affiliate thereof. Such plans may
include certain employee benefit plans qualified under Sections 401 or 457 of
the Code, or employee benefit plans created pursuant to Section 403(b) of the
Code and sponsored by nonprofit organizations defined under Section 501(c)(3) of
the Code (collectively, "Plans"). A Plan will qualify for purchases at net asset
value provided that (a) the initial amount invested in the Fund, one or more of
the other Funds (or in combination with the shares of other SAMF) is at least
$750,000, (b) the sponsor signs a $750,000 Letter of Intent, (c) such shares are
purchased by an employer-sponsored plan with at least 75 eligible employees, or
(d) the purchases are by trustees or other fiduciaries for certain
employer-sponsored plans, the trustee, fiduciary or administrator that has an
agreement with the Distributor with respect to such purchases and all such
transactions for the plan are executed through a single omnibus account.
Further, the sales charge is waived with respect to shares purchased by "wrap
accounts" for the benefit of clients of broker-dealers, financial institutions,
financial planners or registered investment advisers adhering to the following
standards established by the Distributor: (i) the broker-dealer, financial
institution or financial planner charges its client(s) an advisory fee based on
the assets under management on an annual basis, and (ii) such broker-dealer,
financial institution or financial planner does not advertise that shares of the
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.
REDUCED SALES CHARGES (CLASS A SHARES ONLY). As discussed under "Shareholder
Account Information" in the Prospectus, investors in Class A shares of the 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:
1. an individual, or a "company" as defined in Section 2(a)(8) of
the 1940 Act (which includes corporations that are corporate
affiliates of each other);
2. an individual, his or her spouse and their minor children,
purchasing for his, her or their own account;
3. a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account (including a pension,
profit-sharing, or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Code);
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<PAGE>
4. tax-exempt organizations qualifying under Section 501(c)(3) of
the Code (not including 403(b) plans);
5. employee benefit plans of a single employer or of affiliated
employers, other than 403(b) plans; and
6. group purchases as described below.
A combined purchase currently may also include shares of other funds in
SAMF (other than money market funds) purchased at the same time through a single
investment dealer, if the dealer places the order for such shares directly with
the Distributor.
RIGHTS OF ACCUMULATION. A purchaser of 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 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.
LETTER OF INTENT. A reduction of sales charges is also available to an
investor who, pursuant to a written "Letter of Intent" establishes a total
investment goal in Class A shares of one or more Funds to be achieved through
any number of investments over a thirteen-month period, of $50,000 or more. Each
investment in such Funds made during the period will be subject to a reduced
sales charge applicable to the goal amount. The initial purchase must be at
least 5% of the stated investment goal and shares totaling 5% of the dollar
amount of the Letter of Intent will be held in escrow by the Transfer Agent, in
the name of the investor. Shares of any class of shares of any 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,
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<PAGE>
will be subject to a further reduced sales charge in the same manner as set
forth above under "Rights of Accumulation," but there will be no retroactive
reduction of sales charges on previous purchases. At any time while a Letter of
Intent is in effect, a shareholder may, by written notice to the Distributor,
increase the amount of the stated goal. In that event, shares of the applicable
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 one or more of the Funds 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 of which at least
ten members participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some purpose in addition
to the purchase of investment company shares at a reduced sales charge; (iv) the
group's sole organizational nexus or connection is not that the members are
credit card customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to provide its
designated investment dealer at least annually access to the group's membership
by means of written communication or direct presentation to the membership at a
meeting; (vi) the group or its investment dealer will provide annual
certification, in form satisfactory to the Transfer Agent, that the group then
has at least 25 members and that at least ten members participated in group
purchases during the immediately preceding 12 calendar months; and (vii) the
group or its investment dealer will provide periodic certification, in form
satisfactory to the Transfer Agent, as to the eligibility of the purchasing
members of the group.
Members of a qualified group include: (i) any group that meets the
requirements stated above and is a constituent member of a qualified group; (ii)
any individual purchasing for his or her own account who is carried on the
records of the group or on the records of any constituent member of the group as
being a good standing employee, partner, member or person of like status of the
group or constituent member; or (iii) any fiduciary purchasing shares for the
account of a member of a qualified group or a member's beneficiary. For example,
a qualified group could consist of a trade association that would have as its
members individuals, sole proprietors, partnerships and corporations. The
members of the group would then consist of the individuals, the sole proprietors
and their employees, the members of the partnership and their employees, and the
corporations and their employees, as well as the trustees of employee benefit
trusts acquiring the 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.
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NET ASSET VALUE TRANSFER PROGRAM. Investors may purchase 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. Shareholders may purchase either Class A, Class B or
Class II shares through the program to the extent that they previously held
shares of a non-SunAmerica Mutual Fund with a similar load structure to the
respective SunAmerica Mutual Fund share class. With respect to sales of Class A
shares through the program, the Distributor will pay a 0.50% commission and
0.25% service fee to any dealer who initiates or is responsible for such an
investment. With respect to sales of Class B shares through the program, they
will receive 0.50% of the amount invested as commission and 0.25% as a service
fee, payable beginning the 13th month following the purchase of such shares.
(Class B shares will convert to Class A shares as provided in the prospectus.).
These payments are subject, however, to forfeiture in the event of a redemption
during the first year from the date of purchase. No commission shall be paid on
sales of Class II shares, but dealers will receive a 1% service fee, commencing
immediately and paid quarterly. In addition, it is essential that a Net Asset
Value Transfer Program Form accompany the New Account Application to indicate
that the investment is intended to participate in the Net Asset Value Transfer
Program. This program may be revised or terminated without notice by the
Distributor. For current information, contact Shareholder/Dealer Services at
(800) 858-8850, extension 5125.
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
Reference is made to "Shareholder Account Information" in the
Prospectus for certain information as to the redemption of 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. If
shares are redeemed in kind, the redeeming shareholder would incur brokerage
costs in converting the assets into cash. The method of valuing Fund 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 any other Fund or other SunAmerica Mutual Funds that offer such
class at the respective net asset value per share.
Before making an exchange, a shareholder should obtain and review the
prospectus of the fund whose shares are being acquired. All exchanges are
subject to applicable minimum initial or subsequent investment requirements.
Notwithstanding the foregoing, shareholders may elect to make periodic exchanges
on a monthly, quarterly, semi-annual and annual basis through the Systematic
Exchange Program. Through this program, the
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minimum exchange amount is $50 and there is no fee for exchanges made. All
exchanges can be effected only if the shares to be acquired are qualified for
sale in the state in which the shareholder resides. Exchanges of shares
generally will constitute a taxable transaction except for IRAs, Keogh Plans and
other qualified or tax-exempt accounts. The exchange privilege may be terminated
or modified upon 60 days' written notice. Further information about the exchange
privilege may be obtained by calling Shareholder/Dealer Services at (800)
858-8850, extension 5125.
If a shareholder acquires Class A shares through an exchange from
another SunAmerica Mutual Fund where the original purchase of such fund's Class
A shares was not subject to an initial sales charge because the purchase was in
excess of $1 million, such shareholder will remain subject to the CDSC, if any,
as described in the Prospectus applicable to such redemptions. In such event,
the period for which the original shares were held prior to the exchange will be
"tacked" with the holding period of the shares acquired in the exchange for
purposes of determining whether the CDSC is applicable upon a redemption of any
of such shares.
A shareholder who acquires Class B or Class II shares through an
exchange from another SunAmerica Mutual Fund will retain liability for any
deferred sales charge outstanding on the date of the exchange. In such event,
the period for which the original shares were held prior to the exchange will be
"tacked" with the holding period of the shares acquired in the exchange for
purposes of determining what, if any, CDSC is applicable upon a redemption of
any of such shares and the timing of conversion of Class B shares to Class A. A
shareholder's CDSC schedule will not change if such shareholder exchanges Class
C or Class II shares purchased prior to December 1, 1998 for Class II shares
(which currently have a longer CDSC schedule).
Because excessive trading (including short-term "market timing"
trading) can hurt the 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 the Adviser, 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 Corporation is open for business on any day the NYSE is open for
regular trading. Shares are valued each day as of the close of regular trading
on the NYSE (generally, 4:00 p.m., Eastern time). The 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 New York Stock Exchange for the day. All
other securities and assets are valued at fair value following procedures
approved by the Directors.
Stocks are valued based upon closing sales prices reported on
recognized securities exchanges or, for listed securities having no sales
reported and for unlisted securities, upon last reported bid prices.
Non-convertible
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<PAGE>
bonds, debentures, other long-term debt securities and short-term securities
with original or remaining maturities in excess of 60 days, are normally valued
at prices obtained for the day of valuation from a bond pricing service of a
major dealer in bonds, when such prices are available; however, in circumstances
in which the Adviser deems it appropriate to do so, an over-the-counter or
exchange quotation at the mean of representative bid or asked prices may be
used. Securities traded primarily on securities exchanges outside the United
States are valued at the last sale price on such exchanges on the day of
valuation, or if there is no sale on the day of valuation, at the last-reported
bid price. If a security's price is available from more than one foreign
exchange, the 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 Corporation if acquired within 60 days of
maturity or, if already held by the Corporation on the 60th day, are amortized
to maturity based on the value determined on the 61st day. Options traded on
national securities exchanges are valued as of the close of the exchange on
which they are traded. Futures and options traded on commodities exchanges are
valued at their last sale price as of the close of such exchange. Other
securities are valued on the basis of last sale or bid price (if a last sale
price is not available) in what is, in the opinion of the Adviser, the broadest
and most representative market, that may be either a securities exchange or the
over-the-counter market. Where quotations are not readily available, securities
are valued at fair value as determined in good faith in accordance with
procedures adopted by the Board of Directors. The fair value of all other assets
is added to the value of securities to arrive at the 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 and the Fund may advertise data that reflects yield. An
explanation of the data presented and the methods of computation that will be
used are as follows.
The 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:
P(1 + T)N = ERV
P = a hypothetical initial purchase payment of $1,000
T = average annual total return N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5-, or 10- year periods
at the end of the 1-, 5-, or 10-year periods (or
fractional portion thereof).
The above formula assumes that:
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<PAGE>
(1) The maximum sales load (i.e., either the front-end sales load
in the case of the Class A or Class II shares or the deferred
sales load that would be applicable to a complete redemption
of the investment at the end of the specified period in the
case of the Class B or Class II shares) is deducted from the
initial $1,000 purchase payment;
(2) All dividends and distributions are reinvested at net asset
value; and
(c) Complete redemption occurs at the end of the 1-, 5-, or 10-
year periods or fractional portion thereof with all
nonrecurring charges deducted accordingly.
The 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 or yield to similar measures as
calculated by various publications, services, indices, or averages. Such
comparisons are made to assist in evaluating an investment in the 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) Standard & Poor's 500 Composite Stock Price Index or
its component indices -- an unmanaged index composed
of 400 industrial stocks, 40 financial stocks, 40
utilities stocks, and 20 transportation stocks.
Comparisons of performance assume reinvestment of
dividends.
c) Standard & Poor's 100 Stock Index -- an unmanaged
index based on the prices of 100 blue chip stocks,
including 92 industrials, one utility, two
transportation companies, and five financial
institutions. The Standard & Poor's 100 Stock Index
is a smaller, more flexible index for options
trading.
d) The NYSE composite or component indices -- unmanaged
indices of all industrial, utilities, transportation,
and finance stocks listed on the NYSE.
e) Wilshire 5000 Equity Index or its component
indices--represents the return on the market value of
all common equity securities for which daily pricing
is available. Comparisons of performance assume
reinvestment of dividends.
f) Lipper: Mutual Fund Performance Analysis, Fixed
Income Analysis, and Mutual Fund Indices -- measures
total return and average current yield for the mutual
fund
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<PAGE>
industry. Ranks individual mutual fund performance
over specified time periods assuming reinvestment of
all distributions, exclusive of sales charges.
g) CDA Mutual Fund Report, published by CDA Investment
Technologies, analyzes price, current yield, risk,
total return, and average rate of return (average
annual compounded growth rate) over specified time
periods for the mutual fund industry.
h) Mutual Fund Source Book, Principia and other
publications and information services provided by
Morningstar, Inc. -- analyzes price, risk and total
return for the mutual fund industry.
i) Financial publications: Wall Street Journal,
BusinessWeek, Changing Times, Financial World,
Forbes, Fortune, Money, Pension and Investment Age,
United Mutual Fund Selector, and Wiesenberger
Investment Companies Service, and other publications
containing financial analyses that rate mutual fund
performance over specified time periods.
j) Consumer Price Index (or Cost of Living Index),
published by the U.S. Bureau of Labor Statistics -- a
statistical measure of periodic change in the price
of goods and services in major expenditure groups.
k) Stocks, Bonds, Bills, and Inflation, published by
Ibbotson Associates -- historical measure of yield,
price, and total return for common and small company
stock, long-term government bonds, treasury bills,
and inflation.
l) Savings and Loan Historical Interest Rates as
published in the U.S. Savings & Loan League Fact
Book.
m) Shearson-Lehman Municipal Bond Index and
Government/Corporate Bond Index -- unmanaged indices
that track a basket of intermediate and long-term
bonds. Reflect total return and yield and assume
dividend reinvestment.
n) Salomon GNMA Index published by Salomon Brothers Inc.
--Market value of all outstanding 30-year GNMA
Mortgage Pass-Through Securities that includes single
family and graduated payment mortgages.
o) Salomon Mortgage Pass-Through Index published by
Salomon Brothers Inc. --Market value of all
outstanding agency mortgage pass-through securities
that includes 15- and 30-year FNMA, FHLMC and GNMA
Securities.
p) Value Line Geometric Index -- broad based index made
up of approximately 1700 stocks each of which have an
equal weighting.
q) Morgan Stanley Capital International EAFE Index -- an
arithmetic, market value-weighted average of the
performance of over 900 securities on the stock
exchanges of countries in Europe, Australia and the
Far East.
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<PAGE>
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.
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
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<PAGE>
exchanges of countries in Europe, Australia, the Far
East, Canada and the United States.
bb) Russell 2000 and 3000 Indices -- represents the top
2,000 and the top 3,000 stocks, respectively, traded
on the NYSE, American Stock Exchange and National
Association of Securities Dealers Automated
Quotations, by market capitalizations.
cc) Russell Midcap Growth Index -- contains those Russell
Midcap securities with a greater-than-average growth
orientation. The stocks are also members of the
Russell 1000 Growth Index, the securities in which
tend to exhibit higher price-to-book and price
earnings ratios, lower dividend yields and higher
forecasted growth values than the Value universe.
In assessing such comparisons of performance, an investor should keep
in mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's Fund, 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. The Fund intends to distribute to the registered
holders of its shares substantially all of its net investment income, which
includes dividends, interest and net short-term capital gains, if any, in excess
of any net long-term capital losses. The Fund intends to distribute any net
capital gains from the sale of assets held for more than 12 months in excess of
any net short-term capital losses. The current policy of the Fund is to pay
investment income dividends, if any, at least annually. The Fund intends to pay
net capital gains, if any, annually. In determining amounts of capital gains to
be distributed, any capital loss carry-forwards from prior years will be offset
against capital gains.
Distributions will be paid in additional Fund shares based on the net
asset value at the close of business on the ex-dividend or reinvestment date,
unless the dividends total in excess of $10.00 per distribution period and the
shareholder notifies the Fund at least five business days prior to the payment
date to receive such distributions in cash.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, no interest will accrue
on amounts represented by uncashed dividend or distribution checks.
TAXES. The Fund intends to qualify and elect to be taxed as a regulated
investment company under Subchapter M of the Code for each taxable year. In
order to be qualified as a regulated investment company, the Fund generally
must, among other things, (a) derive at least 90% of its gross income from the
sales or other disposition of securities, dividends, interest, proceeds from
loans of stock or securities and certain other related income; and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) 50% of the market
value of the Fund's assets is represented by cash, government securities,
securities of other regulated investment companies and other securities limited,
in respect of any one issuer, to an amount no greater than 5% of the Fund's
assets and not greater than 10% of the
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<PAGE>
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
government securities or the securities of other regulated investment
companies).
As a regulated investment company, the Fund will not be subject to U.S.
Federal income tax on its income and capital gains which it distributes as
dividends or capital gains distributions to shareholders provided that it
distributes to shareholders at least 90% of its investment company taxable
income for the taxable year. The 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
during the calendar year if actually paid during such year. Additionally, a
distribution will be treated as paid on December 31 of a calender year if it is
declared by the 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.
Distributions of net investment income and short-term capital gains are
taxable to the shareholder as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares or in cash. The
portion of such dividends received from the 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 sales of
stock or securities, which is derived as dividends from domestic corporations,
other than certain tax-exempt corporations and certain real estate investment
trusts, and will be designated as such in a written notice to shareholders
mailed not later than 60 days after the end of each fiscal year. Distributions
of net capital gains (i.e., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses, and
including such gains from certain transactions in futures and options), if any,
are taxable as capital gains to the shareholders, whether or not reinvested and
regardless of the length of time a shareholder has owned his or her shares. The
maximum capital gains rate for individuals is 20% with respect to assets held
for more than 12 months. The maximum capital gains rate for corporate
shareholders currently is the same as the maximum tax rate for ordinary income.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. In the case of an individual, any such capital gain will be
treated as short-term capital gain, taxable at the same rates as ordinary income
if the shares were held for not more than 12 months and capital gain taxable at
the maximum rate of 20% if such shares were held for more than 12 months. In the
case of a corporation, any such capital gain will be treated as long-term
capital gain, taxable at the same rates as ordinary income, if such 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.
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<PAGE>
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 that Fund's
assets to be invested in various countries is not known. If more than 50% in
value of the Fund's total assets at the close of its taxable year consists of
securities of foreign corporations, the Fund will be eligible, and intends, to
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their proportionate share
of such foreign taxes in their U.S. income tax returns as gross income, treat
such proportionate share as taxes paid by them, and deduct such proportionate
share in computing their taxable incomes or, alternatively, subject to certain
limitations and the Fund and the shareholders satisfying certain holding period
requirements, use them as foreign tax credits against their U.S. income taxes.
No deductions for foreign taxes, however, may be claimed by non-corporate
shareholders who do not itemize deductions. Of course, certain retirement
accounts which are not subject to tax cannot claim foreign tax credits on
investments in foreign securities held in the Fund. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the 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, foreign currency gains or
losses from futures contracts that are not "regulated futures contracts" and
from unlisted non-equity options, gains or losses from sale of currencies or
dispositions of debt securities denominated in a foreign currency attributable
to fluctuations in the value of the foreign currency between the date of
acquisition of the security and the date of disposition generally also are
treated as ordinary gain or loss. These gains, referred to under the Code as
"Section 988" gains or losses, increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to its
shareholders as ordinary income. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary dividend distributions, and any distributions
made in the same taxable year may be recharacterized as a return of capital to
shareholders, thereby reducing the basis of each shareholder's Fund shares. In
certain cases, the Fund may be entitled to elect to treat foreign currency gains
on forward or futures contracts, or options thereon, as capital gains.
The Code includes special rules applicable to the listed non-equity
options, regulated futures contracts, and options on futures contracts which 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,
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<PAGE>
generally are required to be treated as sold at market value on the last day of
such fiscal year for Federal income tax purposes ("marked-to-market").
Over-the-counter options are not classified as Section 1256 contracts and are
not subject to the marked-to-market rule or to 60/40 gain or loss treatment. Any
gains or losses recognized by the 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
substantially identical property, or enters into certain other similar
transactions.
The Fund may purchase debt securities (such as zero-coupon or
pay-in-kind securities) that contain original issue discount. Original issue
discount that accrues in a taxable year is treated as earned by the Fund and
therefore is subject to the distribution requirements of the Code. Because the
original issue discount earned by the Fund in a taxable year may not be
represented by cash income, the Fund may have to dispose of other securities and
use the proceeds to make distributions to shareholders.
The Fund may be required to backup withhold U.S. Federal income tax at
the rate of 31% of all taxable distributions payable to shareholders who fail to
provide their correct taxpayer identification number or fail to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's U.S. Federal
income tax liability. Any distributions of net investment income or short-term
capital gains made to a foreign shareholder will be subject to U.S. withholding
tax of 30% (or a lower treaty rate if applicable to such shareholder).
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
B-50
<PAGE>
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. Section 408A
of the Code treats Roth IRAs as IRAs subject to certain special rules applicable
thereto. IRAs are subject to limitations with respect to the amount that may be
contributed, the eligibility of individuals to make contributions, the amount if
any, entitled to be contributed on a deductible basis, and the time in which
distributions would be allowed to commence. In addition, certain distributions
from some other types of retirement plans may be placed on a tax-deferred basis
in an IRA.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION (SARSEP). This plan was introduced
by a provision of the Tax Reform Act of 1986 as a unique way for small employers
to provide the benefit of retirement planning for their employees. Contributions
are deducted from the employee's paycheck before tax deductions and are
deposited into an IRA by the employer. These contributions are not included in
the employee's income and therefore are not reported or deducted on his or her
tax return.
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES ("SIMPLE IRA"). This plan was
introduced by a provision of the Small Business Job Protection Act of 1996 to
provide small employers with a simplified tax-favored retirement plan.
Contributions are deducted from the employee's paycheck before taxes and are
deposited into a SIMPLE IRA by the employer, who must make either matching
contributions or non-elective contributions. Contributions are tax-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
B-51
<PAGE>
(contributions and earnings) held in the account for at least five years may be
distributed tax-free under certain qualifying conditions.
EDUCATION IRA. Established by the Taxpayer Relief Act of 1997, under Section 530
of the Code, this plan permits individuals to contribute to an IRA on behalf of
any child under the age of 18. Contributions are not tax-deductible but
distributions are tax-free if used for qualified educational expenses.
DESCRIPTION OF SHARES
Ownership of the Corporation is represented by shares of common stock.
The total number of shares that the Corporation has authority to issue is one
billion (1,000,000,000) shares of common stock (par value $0.0001 per share),
amounting in aggregate par value to one hundred thousand dollars ($100,000.00).
Currently, shares of the two Funds of the Corporation have been
authorized pursuant to the Corporation's Articles of Incorporation ("Articles")
and are each divided into three classes of shares, designated as Class A, Class
B and Class II. The Directors may authorize the creation of additional Funds of
shares so as to be able to offer to investors additional investment Funds within
the Corporation that would operate independently from the Corporation's present
Funds, or to distinguish among shareholders, as may be necessary, to comply with
future regulations or other unforeseen circumstances. Each Fund of the
Corporation's shares represents the interests of the shareholders of that Fund
in a particular Fund of Corporation assets. In addition, the Directors may
authorize the creation of additional classes of shares in the future, which may
have fee structures different from those of existing classes and/or may be
offered only to certain qualified investors.
Shareholders are entitled to a full vote for each full share held. The
Directors have terms of unlimited duration (subject to certain removal
procedures) and have the power to alter the number of Directors, and appoint
their own successors, provided that at all times at least a majority of the
Directors have been elected by shareholders. The voting rights of shareholders
are not cumulative, so that holders of more than 50% of the shares voting can,
if they choose, elect all Directors being elected, while the holders of the
remaining shares would be unable to elect any Directors. Although the
Corporation need not hold annual meetings of shareholders, the Directors may
call special meetings of shareholders for action by shareholder vote as may be
required by the 1940 Act. Also, a shareholders meeting must be called, if so
requested in writing by the holders of record of 10% or more of the outstanding
shares of the Corporation. In addition, the Directors may be removed by the
action of the holders of record of two-thirds or more of the outstanding shares.
All Funds of shares will vote with respect to certain matters, such as election
of Directors. When all Funds are not affected by a matter to be voted upon, such
as approval of investment advisory agreements or changes in the Fund's policies,
only shareholders of the Funds affected by the matter may be entitled to vote.
The classes of shares of the Fund are identical in all respects, except
that (i) each class may bear differing amounts of certain class-specific
expenses, (ii) Class A shares are subject to an initial sales charge, a
distribution fee and an ongoing account maintenance and service fee, (iii) Class
B shares are subject to a CDSC, a distribution fee and an ongoing account
maintenance and service fee, (iv) Class B shares convert automatically to Class
A shares on the first business day of the month seven years after the purchase
of such Class B shares, (v) Class II shares are subject to an initial sales
charge, a distribution fee, an ongoing account maintenance and service fee and a
CDSC, (vi) each class has voting rights on matters that pertain to the Rule
12b-1 plan adopted with respect to such class, except that under certain
circumstances, the holders of Class B shares may be entitled to vote on material
changes to the Class A Rule 12b-1 plan, and (vii) each class of shares will be
exchangeable into the same class of shares of any other Fund or other SunAmerica
Funds that offer that class. All shares of the Corporation issued and
B-52
<PAGE>
outstanding and all shares offered by the Prospectus when issued, are fully paid
and non-assessable. Shares have no preemptive or other subscription rights and
are freely transferable on the books of the Corporation. In addition, shares
have no conversion rights, except as described above.
The Articles provide, to the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted (as limited by the 1940
Act) that no Director or officer of the Corporation shall be personally liable
to the Corporation or to stockholders for money damages. The Articles provide
that the Corporation shall indemnify (i) the Directors and officers, whether
serving the Corporation or its request any other entity, to the full extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force (as limited by the 1940 Act), including the advance of
expenses under the procedures and to the full extent permitted by law, and (ii)
other employees and agents to such extent as shall be authorized by the Board of
Directors or the Corporation's By-laws and be permitted by law. The duration of
the Corporation shall be perpetual.
ADDITIONAL INFORMATION
COMPUTATION OF OFFERING PRICE PER SHARE.
The following is the offering price calculation for each Class of
shares of the Fund. The Class A, Class B and Class II calculations are based on
the estimated value of the Fund's net assets and number of shares outstanding on
the date such shares are first offered for sale to public investors.
SUNAMERICA BIOTECH/HEALTH 30 FUND
CLASS A CLASS B CLASS II
------- ------- --------
Net Assets............................... $12,500 $12,500 $12,500
Number of Shares Outstanding............. 1,000 1,000 1,000
Net Asset Value Per Share (net assets
divided by number of shares)............. $12.50 $12.50 $12.50
Sales charge for Class A Shares:
5.75% of offering price (6.10% of net asset
value per share)*........................ $0.76 -- --
Sales charge for Class II Shares
1.00% of offering price (1.01% of net asset
value per shares)*....................... -- -- $0.13
Offering Price........................... $13.26 $12.50 $12.63
- ----------------
* Rounded to nearest one-hundredth percent; assumes maximum sales
charge is applicable.
B-53
<PAGE>
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 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, The Chrysler Building, 405 Lexington Avenue, New York, New York
10174, has been selected as legal counsel to the Corporation.
FINANCIAL STATEMENTS
The Corporation's audited financial statements are incorporated into this
Statement of Additional Information by reference to its 1999 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 858-8850 or writing the Corporation at SunAmerica Fund Services,
Inc., Mutual Fund Operations, The SunAmerica Center, 733 Third Avenue, New York,
New York 10017-3204.
B-54
<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.
C Bonds rated C are the lowest rated class of bonds, and
issues so rated can be regarded
<PAGE>
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. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
Appendix-2
<PAGE>
If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or entities, then the
name or names of such supporting entity or entities are listed within
parentheses beneath the name of the issuer, or there is a footnote referring the
reader to another page for the name or names of the supporting entity or
entities. In assigning ratings to such issuers, Moody's evaluates the financial
strength of the indicated affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment. Moody's makes no representation and gives no opinion on
the legal validity or enforceability of any support arrangement. You are
cautioned to review with your counsel any questions regarding particular support
arrangements.
Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks that may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships that exist with the issuer; and (8) recognition by management of
obligations that may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS
A Standard & Poor's corporate or municipal rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other reasons.
The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature of and provisions of the
obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the highest-rated
issues only in small degree.
A Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than debt in higher-rated
categories. Appendix-3
Appendix-3
<PAGE>
BBB Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than for debt in higher-rated categories.
Debt rated BB, B, CCC, CC and C are regarded as having
predominantly speculative characteristics with respect
to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the
highest degree of speculation. While such debt will
likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major
risk exposure to adverse conditions.
BB Debt rated BB has less near-term vulnerability to
default than other speculative grade debt. However, it
faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions that could
lead to inadequate capacity to meet timely interest and
principal payment. The BB rating category is also used
for debt subordinated to senior debt that is assigned an
actual or implied BBB- rating.
B Debt rated B has a greater vulnerability to default but
presently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or
economic conditions would likely impair capacity or
willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or
BB- rating.
CCC Debt rated CCC has a current identifiable vulnerability
to default, and is dependent upon favorable business,
financial and economic conditions to meet timely
payments of interest and repayments of principal. In the
event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC The rating CC is typically applied to debt subordinated
to senior debt that is assigned an actual or implied CCC
rating.
C The rating C is typically applied to debt subordinated
to senior debt that is assigned an actual or implied
CCC-debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI The rating CI is reserved for income bonds on which no
interest is being paid.
D Debt rated D is in default. The D rating is assigned on
the day an interest or principal payment is missed. The
D rating also will be used upon the filing of a
bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or minus (-): The ratings of AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing
within these ratings categories.
Appendix-4
<PAGE>
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.
NO Indicates that no rating has been requested, that there
is insufficient information on which to base a rating or
that Standard & Poor's does not rate a particular type
of obligation as a matter of policy.
Debt Obligations of Issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the credit-worthiness of the obligor but do not take
into account currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA," "AA," "A," "BBB," commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of not more
than 365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest.
A Issues assigned this highest rating are regarded as
having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2
and 3 to indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very
strong. Those issues designated "A-1" that are
determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this
designation is strong. However, the relative degree of
safety is not as high as for issues designated "A-1."
Appendix-5
<PAGE>
A-3 Issues carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat
more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having only adequate
capacity for timely payment. However, such capacity may
be damaged by changing conditions or short-term
adversities.
C This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
D This rating indicates that the issue is either in
default or is expected to be in default upon maturity.
The commercial paper rating is not a recommendation to purchase or sell
a security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
Appendix-6
<PAGE>
PART C
OTHER INFORMATION
Item 23: Exhibits.
(a) Articles of Incorporation of Registrant. Incorporated by
reference to Exhibit (a) to the Registrant's initial
Registration Statement on Form N-1A, filed on December 22,
1998.
(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.* To be filed
by amendment.
(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. Filed herewith
(j) Consent of PricewaterhouseCoopers LLP, independent auditors
for the Registrant. To be filed by amendment.
(k) Not Applicable
(l) Not Applicable
(m) (1) Distribution Plan pursuant to Rule 12b-1 (Class A
Shares).* To be filed by amendment.
(2) Distribution Plan pursuant to Rule 12b-1 (Class B
Shares).* To be filed by amendment.
(3) Distribution Plan pursuant to Rule 12b-1 (Class II
Shares).* To be filed by amendment.
(n) Not applicable.
(o) (1) Rule 18f-3 Plan.*
(2) Power of Attorney*
(p) Code of Ethics. Filed herewith.
- ----------------------
*Incorporated herein by reference to identically numbered Exhibit of the
Registrant's Registration Statement on Form N-1A (File No. 333-69517), filed on
February 26, 1999.
C-1
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
There are no persons controlled by or under common control with
Registrant.
Item 25. Indemnification
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
C-2
<PAGE>
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 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.
C-3
<PAGE>
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.
* * * * * * * * * * * * * *
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-4
<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 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:
Brazos Mutual Funds
SunAmerica Equity Funds
SunAmerica Income Funds
SunAmerica Money Market Funds, Inc.
SunAmerica 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
Business Address Position With Underwriter Position With the 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, General Director, Secretary and Chief
The SunAmerica Center Counsel and Director Compliance Officer
733 Third Avenue
New York, NY 10017-3204
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Name and Principal
Business Address Position With Underwriter Position With the Registrant
- ------------------ ------------------------- ----------------------------
<S> <C> <C>
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) 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-6
<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 31st day of March, 2000.
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:
<TABLE>
<S> <C>
* Treasurer
- --------------------------------- (Principal Financial and Accounting Officer)
Peter C. Sutton
* Director
- ----------------------------------
S. James Coppersmith
* Director
- ----------------------------------
Samuel M. Eisenstat
/s/ PETER A. HARBECK President and Director (Principal and March 31, 2000
- ---------------------------------- Executive Officer)
Peter A. Harbeck
* Director
- ----------------------------------
Stephen J. Gutman
* Director
- ----------------------------------
Sebastiano Sterpa
BY: /s/ ROBERT M. ZAKEM March 31, 2000
- -----------------------
Robert M. Zakem
Attorney-in-Fact
</TABLE>
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
(i) Opinion and Consent of Counsel
(p) Code of Ethics
March 31, 2000
SunAmerica Strategic Investment Series, Inc.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Ladies and Gentlemen:
This opinion is being furnished in connection with the filing by SunAmerica
Strategic Investment Series, Inc. (the "Corporation"), a Maryland corporation,
of Post-Effective Amendment No. 3 to the Registration Statement on Form N-1A
(the "Amendment") which definitely registers 100,000,000 shares of beneficial
interest, $.0001 par value (the "Shares").
I am familiar with the proceedings taken by the Corporation in connection
with the authorization, issuance and sale of the Shares. In addition, I have
examined the Corporation's Articles of Incorporation, its By-Laws and such other
documents that have been deemed relevant to the matters referred to in this
opinion.
Based upon the foregoing, I am of the opinion that the Shares registered by
the Amendment are legally issued, fully paid and non-assessable shares of
beneficial interest of the Corporation.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Amendment of the Corporation, and to
the filing of this opinion under the securities laws of any state
Very truly yours,
SUNAMERICA ASSET MANAGEMENT CORP.
By: /s/ Robert M. Zakem
-------------------
Robert M. Zakem
Senior Vice President and
General Counsel
CODE OF ETHICS
FOR
SUNAMERICA ASSET MANAGEMENT CORP.
SUNAMERICA CAPITAL SERVICES, INC.
AND
ANCHOR SERIES TRUST
STYLE SELECT SERIES, INC.
SUNAMERICA EQUITY FUNDS
SUNAMERICA INCOME FUNDS
SUNAMERICA MONEY MARKET FUNDS, INC.
SUNAMERICA SERIES TRUST
SUNAMERICA STRATEGIC INVESTMENT SERIES, INC.
SEASONS SERIES TRUST
<PAGE>
I. PURPOSE
SunAmerica Asset Management Corp. has a fiduciary duty to Investment
Company and investment advisory clients which requires each employee to
act solely for the benefit of clients. This Code of Ethics (the "Code")
has been adopted in accordance with Rule 17j-1(b) under the Investment
Company Act of 1940, as amended (the "Act"). Rule 17j-1 under the Act
generally proscribes fraudulent or manipulative practices with respect to
purchases or sales of securities held or to be acquired by investment
companies, if effected by associated persons of such companies. The
purpose of this Code is to provide regulations and procedures consistent
with the Act, and Rule 17j-1 thereunder, designed to give effect to the
general prohibitions set forth in Rule 17j-1(a) as follows:
A. It shall be unlawful for any affiliated person of or principal
underwriter for a registered investment company, or any affiliated
person of an investment adviser of or principal underwriter for a
registered investment company in connection with the purchase or
sale, directly or indirectly, by such person of a security held or
to be acquired, as defined in the Rule, by such registered
investment company --
1. To employ any device, scheme or artifice to defraud such
registered investment company;
2. To make to such registered investment company any untrue
statement of a material fact or omit to state to such registered
investment company a material fact necessary in order to make the
statements made, in light of the circumstances under which they
are made, not misleading;
3. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any such
registered investment company; or
4. To engage in any manipulative practice with respect to such
registered investment company.
Also, each employee has a duty to act in the best interest of the firm.
In addition to the various laws and regulations covering our activities,
it is clearly in our best interest as a professional investment advisory
organization to avoid potential conflicts of interest or even the
appearance of such conflict with respect to the conduct of our officers
and employees. While it is not possible to anticipate all instances of
potential conflict, the standard is clear.
<PAGE>
II. GENERAL PRINCIPLES
In light of our professional and legal responsibilities, we believe it is
appropriate to restate and periodically distribute the firm's Code to all
employees. Our aim is to be as flexible as possible in our organization
and our internal procedures, while simultaneously protecting our
organization and our clients from the damage that could arise from a
situation involving a real or apparent conflict of interest. While it is
not possible to specifically define and prescribe rules regarding all
possible cases in which conflicts might arise, this Code is designed to
set forth our policy regarding employee conduct in those situations in
which conflicts are most likely to develop. As a general principle, it is
imperative that those who work for or on behalf of an Investment Company,
avoid any such situation that might comprise, or call into question,
their exercise of fully independent judgement in the interests of
shareholders. If you have any doubt as to the propriety of any activity,
you should consult the General Counsel.
III. DEFINITIONS
A. "Adviser" means SunAmerica Asset Management Corp.
B. "Investment Company" means a company registered as such under the
Act, any series thereof or any component of such series for which
the Adviser is an investment adviser.
C. "Access person" means any trustee, director, officer, general
partner or advisory person of the Investment Company or Adviser.
(For purposes of this Code, the term "Access Person" shall mean only
those trustees/directors, officers, general partners or advisory
persons of the Investment Company or Adviser who, with respect to
any Investment Company or advisory client, make a recommendation,
participate in the determination of which recommendation shall be
made, or whose principal function or duties relate to the
determination of which recommendation shall be made to any
Investment Company or advisory client, or who, in connection with
their duties, obtain any information concerning such recommendations
which are being made to the Investment Company or advisory client.)
D. "Advisory person" means (i) any employee of the Investment Company
or Adviser or any company in a control relationship to such
Investment Company or the Adviser, who in connection with his or her
regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a security by an
Investment Company, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii)
any natural person in a control relationship, or deemed by the
Review Officer to be
-3-
<PAGE>
in a control relationship, to the Investment Company or Adviser who
obtains information concerning the recommendations made to an
Investment Company with regard to the purchase or sale of a
security.
E. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
F. "Beneficial ownership" shall be interpreted to include any person
who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares a direct or
indirect pecuniary interest in the security. As set forth in Rule
16a-1(a)(2) of the Securities Exchange Act of 1934, their term
"pecuniary interest" in securities shall mean the opportunity,
directly or indirectly, to profit or share in any profit derived
from a transaction in the subject securities.
G. "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act.
H. "Disinterested director or trustee" means a director or trustee of
an Investment Company who is not an "interested person" of an
Investment Company within the meaning of Section 2(a)(19) of the
Act.
I. "Purchase or sale of a security" includes, INTER ALIA, the writing
of an option to purchase or sell a security, the conversion of a
convertible security, and the exercise of a warrant for the purchase
of a security.
J. "Review Officer" means the officer of the Adviser designated from
time-to-time by the Adviser to receive and review reports of
purchases and sales by Access Persons.
K. "Security" shall have the meaning set forth in Section 2(a)(36) of
the Act, except that it shall not include shares of registered
open-end investment companies, securities issued by the United
States Government, short-term debt securities which are "government
securities" within the meaning of Section 2(a)(16) of the Act,
bankers' acceptances, bank certificates of deposit and commercial
paper.
L. "Security held or to be acquired" by a registered Investment Company
means any security as defined in Rule 17j-1(e) under the Act which,
within the most recent 15 days, (i) is or has been held by such
company, or (ii) is being or has
-4-
<PAGE>
been considered by such company or its Adviser for purchase by such
company.
M. "Personal securities transaction" means (i) transactions for your
own account, including IRA's, or (ii) transactions for an account in
which you have indirect beneficial ownership, unless you have no
direct or indirect influence or control over the account. Accounts
involving family (including husband, wife, minor children or other
dependent relatives), or accounts in which you have a beneficial
interest (such as a trust of which you are an income or principal
beneficiary) are included within the meaning of "indirect beneficial
interest."
IV. INCORPORATION OF INVESTMENT SUB-ADVISERS' CODES OF ETHICS
Those provisions of an Investment Sub-Adviser's Code of Ethics applicable
to persons who, in connection with their regular functions or duties,
make, participate in, or obtain information regarding the purchase or
sale of a security, or whose functions relate to the making of any
recommendation with respect to such purchase or sale by registered
investment companies managed by such Investment Sub-Adviser are hereby
incorporated herein by reference as additional provisions of this Code of
Ethics (to the extent such provisions are in addition to or more
restrictive than the provision set forth in this Code) applicable to
those officers, trustees, directors and advisory personnel of the Adviser
or Investment Company who have direct responsibility of investments of
the Investment Company, except that approval or disclosure required
thereunder shall be obtained from or made to the officer designated in
Section IX. A violation of an Investment Sub-Adviser's Code of Ethics
shall constitute a violation of this Code.
V. EXEMPTED TRANSACTIONS
A. Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
B. Purchases or sales of securities which are not eligible for purchase
or sale by the Investment Company (e.g., SunAmerica Inc.);
C. Purchases or sales which are non-volitional on the part of either the
Access Person or the Investment Company. Non-volitional transactions
include gifts to you over which you have no control of the timing or
transactions which result from corporate action applicable to all
similar security holders (such as splits, tender offers, mergers,
stock dividends, etc.);
D. Purchases which are part of an automatic dividend reinvestment plan;
-5-
<PAGE>
E. Purchases effected upon the exercise of rights issued by an issuer
PRO RATA to all holders of a class of its -------- securities, to the
extent such rights were acquired from such issuer, and sales of such
rights so acquired;
F. Purchases or sales approved by a majority vote of those trustees or
directors having no interest in the transaction upon a showing of
good cause. Good cause will be deemed to exist where unexpected
hardship occasions the need for additional funds. A change in
investment objectives will not be deemed "good cause;" and
G. Purchases or sales which receive the prior approval of the Review
Officer because they are only remotely potentially harmful to the
Investment Company because they would be very unlikely to affect a
highly institutional market, or because they clearly are not related
economically to the securities to be purchased, sold or held by the
Investment Company.
H. The Review Officer can grant exemptions from the personal trading
restrictions in this Code upon determining that the transaction for
which an exemption is requested would not violate any policy embodied
in this Code and that an exemption is appropriate to avoid an
injustice to the employee in the particular factual situation
presented. Factors to be considered may include: the size and holding
period of the employee's position in the security, the market
capitalization of the issuer, the liquidity of the security, the
reason for the employee's requested transaction, the amount and
timing of client trading in the same or a related security, and other
relevant factors.
Any employee wishing an exemption should submit a written request to
the Review Officer setting forth the pertinent facts and reasons why
the employee believes that the exemption should be granted. Employees
are cautioned that exemptions are intended to be exceptions, and
repetitive exemptive applications by an employee will not be well
received.
VI. RESTRICTIONS AND PROCEDURES ON PERSONAL SECURITIES
TRANSACTIONS
A. PROHIBITED PURCHASES AND SALES - Except as otherwise provided in
Section V hereof:
1. No Access Person shall purchase or sell, directly or indirectly,
any security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial
ownership and which to his or her actual knowledge at the time
of such purchase or sale:
-6-
<PAGE>
(a) is being considered for purchase or sale by an Investment
Company; or
(b) is being purchased or sold by an Investment Company.1
2. No Access Person shall reveal to any other person (except in the
normal course of his or her duties on behalf of an Investment
Company) any information regarding securities transactions by an
Investment Company or consideration by an Investment Company or
the Adviser of any such securities transaction.
3. No Access Person shall recommend any securities transaction by
an Investment Company without having disclosed his or her
interest, if any, in such securities or the issuer thereof,
including without limitation (i) his or her direct or indirect
beneficial ownership of any securities or such issuer, (ii) any
contemplated transaction by such person in such securities,
(iii) any position with such issuer or its affiliates and (iv)
any present or proposed business relationship between such
issuer or its affiliates, on the one hand, and such person or
any party in which such person has a significant interest, on
the other; provided, however, that in the event the interest of
such Access Person in such securities or issuer is not material
to his or her personal net worth and any contemplated
transaction by such person in such securities cannot reasonably
be expected to have a material adverse effect on any such
transaction by the company or on the market for the securities
generally, such Access Person shall not be required to disclose
his or her interest in the securities or issuer thereof in
connection with any such recommendation.
B. INITIAL PUBLIC OFFERINGS: No Access Person shall acquire any
securities in an initial public offering, in order to preclude any
possibility of their profiting improperly from their positions on
behalf of an Investment Company.
- ----------------
1 The Adviser, and any and all Access Persons or Advisory Persons
thereof, shall not be deemed to have actual knowledge, for purposes
hereof, of securities transactions effected for any company, series
thereof, or component of such series, for which the Adviser is the
investment adviser, but for which the portfolio management is
performed by an entity which is not an affiliate of SunAmerica Inc.
-7-
<PAGE>
C. PRIVATE PLACEMENTS: No Advisory Person shall acquire any securities
in a private placement without the prior approval of the Review
Person. This prior approval should take into account, among other
factors, whether the investment opportunity should be reserved for an
Investment Company and its shareholders, and whether the opportunity
is being offered to an individual by virtue of his or her position
with the Investment Company. Advisory Persons who have been
authorized to acquire securities in a private placement should
disclose such private placement investment if he or she plays a
material role in an Investment Company's subsequent investment
decision regarding the same issuer. In the foregoing circumstances,
the Investment Company's decision to purchase securities of the
issuer shall be subject to an independent review by Advisory Persons
with no personal interest in such issuer.
D. BLACKOUT PERIODS: No Access Person shall execute a securities
transaction, other than an exempted transaction, on a day during
which any Investment Company in the complex has a pending "buy" or
"sell" order in that same security and no Access Person shall execute
such securities transaction until one trading day after such
Investment Company order is executed or withdrawn. In addition, no
portfolio manager shall purchase or sell a security within at least
seven calendar days before and after an Investment Company that he or
she manages trades in that security.
E. SHORT-TERM TRADING PROFITS: Subject to the other provisions of this
Code, while there is no prohibition on short-term trading profits,
the Review Officer will monitor quarterly reports and address abuses
of short-term trading profits on a case-by-case basis.
F. GIFTS: No Access Person shall receive any gift or other thing of more
than de minimis value ($100) from any person or entity that does
business with or on behalf of the Investment Company.
G. SERVICE AS A DIRECTOR: No Access Person shall serve on the boards of
directors of publicly traded companies, absent prior authorization
based upon a determination that the board service would be consistent
with the interests of the Investment Company and its shareholders.
See "Other Conflicts of Interest - Outside Activities."
-8-
<PAGE>
H. OTHER CONFLICTS OF INTEREST: Employees should also be aware that
areas other than personal securities transactions or gifts and
sensitive payments may involve conflicts of interest. The following
should be regarded as examples of situations involving real or
potential conflicts rather than a complete list of situations to
avoid.
1. "INSIDE INFORMATION" - Specific reference is made to the firm's
policy of the use of "inside information" which applies to
personal securities transactions as well as to client
transactions.
2. "USE OF INFORMATION" - Information acquired in connection with
employment by the organization may not be used in any way which
might be contrary to or in competition with the interests of
clients. Employees are reminded that certain clients have
specifically required their relationship with us to be treated
confidentially.
3. "DISCLOSURE OF INFORMATION" - Information regarding actual or
contemplated investment decisions, research priorities or client
interests should not be disclosed to persons outside our
organization and in no way can be used for personal gain.
4. "OUTSIDE ACTIVITIES" - All outside relationships such as
directorships or trusteeships of any kind or membership in
investment organizations (e.g., an investment club) should be
discussed with the President and/or General Counsel prior to the
acceptance of such position.
As a general matter, directorships in unaffiliated public
companies or companies which may reasonably be expected to
become public companies will not be authorized because of the
potential for conflicts which may impede our freedom to act in
the best interests of clients. Service with charitable
organizations generally will be authorized, subject to
considerations related to time required during working hours and
use of proprietary information.
VII. DISINTERESTED DIRECTORS OR TRUSTEES
A director or trustee of an Investment Company who is not an officer of
such Investment Company or an officer, employee or director of the
Adviser need only report a transaction in a security if the director or
trustee, at the time of that transaction, knew or, in the ordinary course
of fulfilling his official duties as a director or trustee of the
Investment Company, should have known that, during the 15-day period
immediately
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preceding the date of the transaction by the director or trustee, the
security was under active consideration by the Investment Company.
VIII. COMPLIANCE PROCEDURES
A. PRECLEARANCE: All Advisory Persons are to "preclear" personal
securities investments prior to execution through the firm's Head
Trader, or such other person as is designated from time-to-time by
the Review Officer. This includes bonds, stocks (including closed-end
funds), convertibles, preferreds, options on securities, warrants,
rights, etc. for domestic and foreign securities whether publicly
traded or privately placed. In addition, any portfolio manager
wishing to effect a personal securities transaction which might be
viewed as contrary to a position held in any portfolio for which he
or she serves as portfolio manager must preclear such transaction
with the firm's Review Officer, in addition to the normal
preclearance procedure. The only exceptions to this requirement are
automatic dividend reinvestment plan acquisitions, financial futures
and options on futures, automatic employee stock purchase plan
acquisitions, transactions in open-end mutual funds, U.S. Government
securities, commercial paper, or exempted transactions. Please note,
however, that most of these transactions must be reported even though
they do not have to be precleared. The Review Officer may require
other persons to preclear personal securities transactions as he or
she may deem necessary and appropriate for compliance with this Code.
See the Section "IX" for reporting obligations.
B. RECORDS OF SECURITIES TRANSACTIONS: All Advisory Persons are to
direct their brokers to supply to a designated compliance official,
on a timely basis, duplicate copies of confirmations of all personal
securities transactions and copies of periodic statements for all
securities accounts.
C. POST-TRADE MONITORING: The Review Officer shall review all personal
securities transactions by Access Persons to ensure that no conflict
exists with Investment Company trades.
D. DISCLOSURE OF PERSONAL HOLDINGS: Access Persons are required to
disclose all personal securities holdings upon commencement of
employment and thereafter on an annual basis.
E. CERTIFICATION OF COMPLIANCE WITH CODE OF ETHICS: All Access Persons
are required to certify annually that they have read and understand
the Code and recognize that they are subject thereto. Further, Access
Persons are required to certify annually that they have complied with
the requirements of the Code
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and that they have disclosed or reported all personal securities
transactions required to be disclosed or reported pursuant to the
requirements of the Code.
F. REVIEW BY THE BOARD OF DIRECTORS OR TRUSTEES: Management will prepare
a report to the Board of Directors or Trustees (1) quarterly that
identifies any violations requiring significant remedial action
during the past quarter; and (2) annually that a) summarizes existing
procedures concerning personal investing and any changes in the
procedures made during the past year, and b) identifies any
recommended changes in existing restrictions or procedures based upon
the Investment Company's experience under the Code, evolving industry
practices, or developments in applicable laws or regulations.
The Board of Directors or Trustees will review the operations of this
policy and make recommendations if necessary, as stated in Section
"X" at least once a year.
IX. REPORTING
The Securities and Exchange Commission requires that a record of all
personal securities transactions be kept available for inspection, and
that these records be maintained on at least a quarterly basis. To comply
with these rules, it is necessary to have every Access Person file a
quarterly report (on the form attached hereto as Exhibit 1) within 10
calendar days after the end of each calendar quarter2. Quarterly Report
forms will be distributed to all employees on the last business day of
each quarter. Completed forms should be sent to the Review Officer. The
forms and transactions in all personal accounts will be reviewed each
quarter on a confidential basis.
The quarterly report must include the required information for all
personal securities transactions as defined above, except transactions in
open-end mutual funds, U.S. Government securities or commodities. Except
as noted above, exempted transactions must also be reported and the
nature of the transaction clearly specified in the report.
Quarterly reports must be filed by all Access Persons even if there were
no reportable transactions during the quarter. (Write "none" and return
with your signature.)
The report required by this section shall state: (i) the title and amount
of the security involved; (ii) the date and nature of the transaction
(i.e., purchase, sale or other
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2 Advisory Persons who are required to provide copies of confirmations
and periodic statements pursuant to Section VIII.B hereof are only
required to certify in such report that no other transactions were
executed during the quarter.
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acquisition or disposition); (iii) the price at which the transaction was
effected; and (iv) the name of the broker, dealer or bank with or through
whom the transaction was effected. A copy of the broker's confirmation
may be submitted in lieu of the required report.
The report may also contain a statement declaring that the reporting or
recording of any transaction shall not be construed as an admission that
the Access Person making the report has any direct or indirect Beneficial
Ownership in the Security to which the report relates.
X. AUDIT BY REVIEW OFFICER
Adherence to the Code is considered a basic condition of employment with
our organization. The Review Officer will monitor compliance with the
Code and review such violations of the Code as may occur and determine
what action or sanctions are appropriate in the event of a violation. The
Review Officer will report, periodically and upon request, to the Boards
of Directors or Trustees of the various Investment Companies for which
the Adviser serves as investment adviser.
Again, we emphasize the importance of Advisory Persons obtaining prior
clearance of all personal securities transactions, filing the quarterly
reports promptly and avoiding other situations which might involve even
the appearance of a conflict of interest. Questions regarding
interpretation of this policy or questions related to specific situations
should be directed to the Review Officer.
XI. SANCTIONS
Upon discovering a violation of this Code, the Adviser may impose such
sanctions as it deems appropriate, including, among other things, a
letter of censure or suspension or termination of the employment of the
violator. All material violations of this Code and any sanctions imposed
with respect thereto shall be reported periodically to the Board of
Directors or Trustees of the Investment Company with respect to whose
securities the violation occurred.
XII. ADDITIONAL DISCLOSURE
General disclosure concerning Access Persons engaging in personal
securities transactions, restrictions and procedures as well as a
statement from the Investment Company addressing any conflicts of
interest that might arise has been incorporated into Investment Company's
Statement of Additional Information ("SAI").
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XIII. EFFECTIVE DATE
This Code was adopted at a meeting of the Boards of Directors/Trustees of
the Investment Companies. This Code shall become effective on February
26, 1997 and remain in effect until amended or replaced by the Boards of
Directors/Trustees by subsequent action.
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