<PAGE>
April 30, 1999 PROSPECTUS
SUNAMERICA MONEY MARKET 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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FUND HIGHLIGHTS......................................... 2
FINANCIAL HIGHLIGHTS.................................... 6
SHAREHOLDER ACCOUNT INFORMATION......................... 7
FUND MANAGEMENT......................................... 14
</TABLE>
[LOGO] SUNAMERICA
MUTUAL FUNDS
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
Q&A
Money market in-
struments
are high-quality
short-term debt
obligations. The
money market in-
struments in
which the Fund
will invest in-
clude securities
issued or guaran-
teed as to prin-
cipal and inter-
est by the U.S.
government, its
agencies or in-
strumentalities;
certificates of
deposit, bankers'
acceptances and
time deposits;
commercial paper
and other short-
term obligations
of U.S. and for-
eign corpora-
tions; repurchase
agreements; re-
verse repurchase
agreements; and
asset-backed
securities.
"High-quality"
instruments
have a very
strong capacity
to pay interest
and repay
principal.
The following questions and answers are designed to give you an overview of,
and to provide you with information about, the Fund and its investment goal,
principal strategies, and principal investment techniques.
Q: What are the Fund's investment strategies, techniques and goal?
A: The Fund seeks as high a level of current income as is consistent with li-
quidity and stability of capital. The goal may be changed without share-
holder approval. However, you will be notified of any change. The Fund in-
vests primarily in high-quality money market instruments, selected primarily
on the basis of quality and yield. The Fund is a money market fund and seeks
to maintain a stable share price of $1.00. In order to do this, the Fund
must comply with a rule of the Securities and Exchange Commission that lim-
its the types of securities in which the Fund may invest.
Q: What are the principal risks of investing in the Fund?
A: While the Fund invests only in high-quality money market instruments, you
should be aware that an investment in the Fund is subject to the risk that
the value of its investments may be subject to changes in interest rates.
Furthermore, although the Fund seeks to maintain a stable share price of
$1.00, there can be no assurance that the Fund will be able to do so. As a
result, it is possible to lose money by investing in the Fund.
Shares of the Fund are not bank deposits and are not guaranteed or insured
by any bank, government entity or the Federal Deposit Insurance Corporation.
As with any mutual fund, there is no guarantee that the Fund will be able to
achieve its investment goal or that the net return on an investment in the
Fund will exceed what could have been obtained through other investment or
savings vehicles.
Q: How has the Fund performed historically?
A: The following Risk/Return Bar Chart and Table illustrate the risks of in-
vesting in the Fund by showing changes in the Fund's performance from calen-
dar year to calendar year.
Sales charges are not reflected in the bar chart. If these amounts were re-
flected, returns would be less than those shown. Of course, past performance
is not necessarily an indication of how the Fund will perform in the future.
2
<PAGE>
- --------------------------------------------------------------------------------
(Class A)
During the 10-year period shown in
the bar chart, the highest return
for a quarter was 2.26% (quarter
ended 06/30/89) and the lowest
return for a quarter was -.50%
(quarters ended 3/31/93 and
3/31/94)
[BAR GRAPH APPEARS HERE]
1989 8.52%
1990 7.44%
1991 5.32%
1992 2.74%
1993 2.32%
1994 3.47%
1995 5.18%
1996 4.61%
1997 4.81%
1998 4.80%
<TABLE>
<CAPTION>
Average Annual Total Returns Past One Past Five Past Ten Return
(as of the calendar year ended Year Years Years Since
December 31, 1998) Inception*
<S> <C> <C> <C> <C> <C>
SunAmerica Money Market Fund A 4.80% 4.57% 4.90% 5.48%
B (0.04)% 3.46% N/A 3.54%
II 1.09% N/A N/A 2.00%
</TABLE>
*Inception Date for Class A shares is October 2, 1984; inception date for Class
B shares is September 24, 1993; inception date for Class C, which were
redesignated Class II on December 1, 1998, is October 2, 1997.
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.
3
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A(/1/) Class B Class II
------------ ------- --------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your
investment)
Maximum Sales Charge (Load) Im-
posed on Purchases (as a per-
centage of offering price) None None 1.00%
Maximum Deferred Sales Charge
(Load) (as a per-centage 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 $5.00 $5.00 $5.00
Maximum Account Fee None None None
Annual Fund Operating Expenses
(expenses that are deducted
from Fund assets)
Management Fees 0.50% 0.50% 0.50%
Distribution (12b-1) Fees(/4/) 0.15% 0.90% 0.90%
Other Expenses(/5/) 0.30% 0.35% 2.90%
----- ----- -----
Total Annual Fund Operating
Expenses(/5/) 0.95% 1.75% 4.30%
Expense Reimbursement -- -- 2.55%
----- ----- -----
Net Expenses 0.95% 1.75% 1.75%(/6/)
</TABLE>
(1) Investors wishing to purchase shares of the Fund are generally required to
purchase Class A shares. Class B and Class II shares of the Fund will typi-
cally be issued in exchange for Class B shares or Class II shares, respec-
tively, of other SunAmerica Mutual Funds.
(2) You may pay a deferred sales charge on Class B shares only if you redeem
within six years from purchase date. The deferred sales charge on Class II
shares applies only to redemptions made within eighteen months of purchase.
(3) A $15.00 fee may be imposed for wire 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) For the fiscal year ended December 31, 1998, the Total Operating Expenses
for Class A and Class B shares reflect the effect of a gross up of custody
and transfer agent expense credits of .03% and .01%, respectively.
(6) The Board of Directors, including a majority of the Independent Directors,
approved the Investment Advisory and Management Agreement subject to the
net expense ratio set forth above. The Adviser may not increase such ratio,
which is contractually required by agreement with the Board of Directors,
without the approval of the Directors, including a majority of the Indepen-
dent Directors. The expense waivers and fee reimbursements will continue
indefinitely, subject to termination by the Directors, including a majority
of the Independent Directors.
4
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
(Class A shares)............................... $ 97 $303 $ 526 $1,166
(Class B shares)*.............................. $578 $851 $1,149 $1,752
(Class II shares).............................. $376 $646 $1,039 $2,142
You would pay the following expenses if you did not redeem your shares:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
(Class A shares)............................... $ 97 $303 $ 526 $1,166
(Class B shares)*.............................. $178 $551 $ 949 $1,752
(Class II shares).............................. $276 $646 $1,039 $2,142
</TABLE>
* Class B shares convert to Class A shares approximately seven years after
purchase. Therefore, expense information for years 8, 9 and 10 is the same
for both Class A and B shares.
5
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The Financial Highlights table for the Fund is intended to help you understand
the Fund's financial performance for the past 5 years. Certain information re-
flects financial results for a single Fund share. The total returns in each ta-
ble represent the rate that an investor would have earned (or lost) on an in-
vestment in the Fund (assuming reinvestment of all dividends and distribu-
tions). This information has been audited by PricewaterhouseCoopers LLP, whose
report, along with the Fund's financial statements, are included in the Fund's
annual report to shareholders, which is available upon request.
SUNAMERICA MONEY MARKET FUND
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Total Dividends Net Assets Ratio of
Value Net from from net Net Asset end of expenses
Period beginning investment investment investment Value end Total period to average
Ended of period income operations income of period Return(/1/) (000's) net assets
- ------ --------- ---------- ---------- ---------- --------- ----------- ---------- ----------
<CAPTION>
Class A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94..... $ 1.000 $ 0.034 $ 0.034 ($0.034) $ 1.000 3.47% $ 213,958 1.00%
12/31/95..... 1.000 0.051 0.051 (0.051) 1.000 5.18 316,308 1.01(/2/)
12/31/96..... 1.000 0.045 0.045 (0.045) 1.000 4.61 398,698 1.00(/3/)
12/31/97..... 1.000 0.047 0.047 (0.047) 1.000 4.82 511,908 0.98(/3/)
12/31/98..... 1.000 0.047 0.047 (0.047) 1.000 4.80 687,801 0.95(/3/)
<CAPTION>
Class B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94..... $ 1.000 $ 0.027 $ 0.027 ($0.027) $ 1.000 2.76% $ 98,398 1.69%
12/31/95..... 1.000 0.044 0.044 (0.044) 1.000 4.49 51,799 1.78(/2/)
12/31/96..... 1.000 0.038 0.038 (0.038) 1.000 3.83 29,114 1.77(/3/)
12/31/97..... 1.000 0.040 0.040 (0.040) 1.000 4.03 28,391 1.74(/3/)
12/31/98..... 1.000 0.039 0.039 (0.039) 1.000 3.96 34,828 1.75(/3/)
<CAPTION>
Class II
--------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10/2/97-
12/31/97.... $ 1.000 $ 0.010 $ 0.010 ($0.010) $ 1.000 1.00% $ 402 1.75%(/4/)(/5/)
12/31/98..... 1.000 0.039 0.039 (0.039) 1.000 3.94 1,433 1.75(/5/)
<S> <C>
Ratio of net
investment
income to
Period average net
Ended assets
- ------ -----------------------
<CAPTION>
<S> <C>
12/31/94..... 3.43%
12/31/95..... 5.04
12/31/96..... 4.52
12/31/97..... 4.73
12/31/98..... 4.70
<CAPTION>
<S> <C>
12/31/94..... 2.91%
12/31/95..... 4.37
12/31/96..... 3.76
12/31/97..... 3.95
12/31/98..... 3.88
<CAPTION>
<S> <C>
10/2/97-
12/31/97.... 4.01%(/4/)(/5/)
12/31/98..... 3.83(/5/)
</TABLE>
- ----
(1) Total return is not annualized and does not reflect sales load.
(2) The expense ratio reflects the effect of a gross up of custody and transfer
agent expense credits for the year ended December 31, 1995 of 0.05% and 0.13%
for Class A and Class B, respectively.
(3) The expense ratio reflects the effect of a gross up of custody and transfer
agent expense credits as follows:
<TABLE>
<CAPTION>
12/31/96 12/31/97 12/31/98
-------- -------- --------
<S> <C> <C> <C>
Class A.......................... 0.03% 0.02% 0.03%
Class B.......................... 0.04% 0.02% 0.01%
</TABLE>
(4) Annualized.
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
12/31/97 12/31/98
-------- --------
<S> <C> <C>
Class II................................... 4.74% 2.55%
</TABLE>
6
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
SELECTING A SHARE CLASS
The Fund offers three classes of shares: Class A, Class B and Class II shares.
Each class of shares has its own cost structure, as shown below. If you wish to
purchase shares of the Fund, you will generally be required to purchase Class A
shares, as Class B and Class II shares of the Fund are typically issued only in
exchange for Class B shares or Class II shares of other SunAmerica Mutual
Funds.
Class A Class B Class II
. No front-end . No front-end . Front-end sales
sales charges; sales charge; charge, as
all your money all your money described below.
goes to work for goes to work for
you right away. you right away. . Higher annual
expenses than
. Lower annual . Higher annual Class A shares.
expenses than expenses than
Class B or Class Class A shares. . Deferred sales
II shares. charge on shares
. Deferred sales you sell within
charge on shares eighteen months
you sell within of purchase, as
six years of described below.
purchase, as
described below. . No conversion to
Class A.
. Automatic
conversion to
Class A shares
after approximately
seven years,
thus reducing
future annual
expenses.
CALCULATION OF SALES CHARGES
Class A. Class A shares are available with no front-end sales charge.
Class B. Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a deferred sales charge 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 deferred sales charge.
Class B deferred charges:
<TABLE>
<CAPTION>
Deferred Sales Charge
Years after purchase on shares being sold
<S> <C>
1st or 2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
7th year and thereafter None
</TABLE>
For purposes of the deferred sales charge, we count all purchases you make dur-
ing a calendar month as having been made on the FIRST day of that month.
Class II. Sales Charges are as follows:
<TABLE>
<CAPTION>
Sales Charge Concession to Dealers
-----------------------------------------------------------------------------------
% of % of Net % of
Offering Amount Offering
Price Invested Price
-----------------------------------------------------------------------------------
<S> <C> <C>
1.00% 1.01% 1.00%
</TABLE>
There is also a deferred sales charge of 1% on shares you sell within eighteen
months after you buy them.
Determination of Deferred sales charge. Each deferred sales charge is based on
the original purchase cost or the current market value of the shares being
sold, whichever is less. There is no deferred sales charge on shares you pur-
chase through reinvestment of dividends. To keep your deferred sales charge 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 deferred sales
charge. If there are not enough of these shares available, we will sell shares
that have the lowest deferred sales charge.
7
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Waivers for Certain Investors. We will generally waive the deferred sales
charge for Class B or Class II shares in the following cases:
. within one year of the shareholder's death or becoming disabled
. taxable distributions or loans to participants made by qualified retire-
ment plans or retirement accounts (not including rollovers) for which the
Adviser serves as a fiduciary
. Directors and other individuals who are affiliated with the Fund or other
SunAmerica Mutual Funds and their families
. to make taxable distributions from certain retirement plans
. to make payments through the Systematic Withdrawal Plan (subject to cer-
tain conditions)
To utilize: if you think you may be eligible for a sales charge reduction or
deferred sales charge waiver, contact your broker or financial advisor.
Reinstatement privilege If you sell shares of the Fund, you may invest some or
all of the proceeds in the same share class of the Fund within one year without
a sales charge. If you paid a deferred sales charge when you sold your shares,
we will credit your account with the dollar amount of the deferred sales charge
at the time of sale. All accounts involved must be registered in the same
name(s).
12b-1 FEES
Each class of shares of the Fund has its own 12b-1 plan, which allows for dis-
tribution and account maintenance and service fees (payable to the Distributor)
based on a percentage of average daily net assets, as follows:
<TABLE>
<CAPTION>
Class Distribution Fee Service Fee
<S> <C> <C>
A None .15%
B .75% .15%
II .75% .15%
</TABLE>
Because 12b-1 fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much you want to invest. The minimum initial investments for
the Fund are as follows:
. non-retirement account: $1,000
. retirement account: $250
. dollar cost averaging: $500 to open; you must invest at least $25 a month
The minimum subsequent investments for the Fund are as follows:
. non-retirement account: $100
. retirement account: $25
3. Complete the appropriate parts of the Account Application, carefully follow-
ing the instructions. If you have questions, please contact your broker or
financial advisor or call Shareholder/Dealer Services at 1-800-858-8850.
4. Complete the appropriate parts of the Supplemental Account Application. By
applying for additional investor services now, you can avoid the delay and
inconvenience of having to submit an additional application if you want to
add services later.
5. Make your initial investment using the chart on the next page. You can ini-
tiate any purchase, exchange or sale of shares through your broker or finan-
cial advisor.
8
<PAGE>
- --------------------------------------------------------------------------------
BUYING SHARES
Opening an account Adding to an account
By check
................................................................................
. Make out a check for the . Make out a check for the
investment amount, investment amount payable
payable to the Fund or to the Fund or SunAmerica
SunAmerica Funds. Funds.
. Deliver the check and . Include the stub from
your completed Account your Fund statement or a
Application (and note specifying the Fund
Supplemental Account name, your share class,
Application, if your account number and
applicable) to your the name(s) in which the
broker or financial account is registered.
advisor, or mail them to: . Indicate the Fund and
account number in the
SunAmerica Fund Services, Inc. memo section of your
Mutual Fund Operations, 3rd Floor check.
The SunAmerica Center . Deliver the check and
733 Third Avenue your note to your broker
New York, New York 10017-3204. or financial advisor, or
mail them to
Non-Retirement Accounts:
SunAmerica Fund Services,
Inc.
c/o NFDS
P.O. Box 419373
Kansas City, Missouri
64141-6373
Retirement Accounts:
SunAmerica Fund Services,
Inc.
Mutual Fund Operations, 3rd
Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-
3204
By wire
................................................................................
. Deliver your completed . Instruct your bank to
application to your wire the amount of your
broker or financial investment to:
advisor or fax it to
SunAmerica Fund Services, State Street Bank & Trust
Inc. at 212-551-5585. Company
. Obtain your account Boston, MA
number by referring to ABA #0110-00028
your statement or by DDA # 99029712
calling your broker or
financial advisor or Specify the Fund name, your
Shareholder/Dealer choice of share class, your
Services at 1-800-858- Fund number and account num-
8850, ext. 5125. ber and the name(s) in which
. Instruct your bank to the account is registered.
wire the amount of your Your bank may charge a fee to
investment to: wire funds.
State Street Bank & Trust Company
Boston, MA
ABA #0110-00028
DDA # 99029712
Specify the Fund name, your
share class, your Fund num-
ber, 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 In-
vestor Services."
9
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
SELLING SHARES
How Requirements
Through Your Broker or Financial Advisor
................................................................................
. Accounts of any type. . Call your broker or
. Sales of any amount. financial advisor to
place your order to sell
shares.
By mail
................................................................................
. Accounts of any type. . Write a letter of
. Sales of any amount. instruction indicating
the Fund name, your share
class, your account
number, the name(s) in
which the account is
registered and the dollar
value or number of shares
you wish to sell.
. A check will 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.
. Include all signatures
and any additional
documents that may be
required (see next page).
. Mail the materials to:
SunAmerica Fund Services,
Inc.
Mutual Fund Operations, 3rd
Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-
3204
By phone
................................................................................
. Most accounts. . Call Shareholder/Dealer
. Sales of less than Services at 1-800-858-
$100,000. 8850 between 8:30 a.m.
and 7:00 p.m. (Eastern
time) on most business
days. State the Fund
name, the name of the
person requesting the
redemption, your share
class, your account
number, the name(s) in
which the account is
registered and the dollar
value or number of shares
you wish to sell.
. A check will be mailed to
the name(s) and address
in which the account is
registered, or to a
different address
indicated in a written
authorization previously
provided to the Fund by
the shareholder(s) on the
account.
By wire
................................................................................
. Request by mail to sell . Proceeds will normally be
any amount (accounts of wired on the next
any type). business day. A $15 fee
. Request by phone to sell will be deducted from
less than $100,000. your account.
To sell shares through a systematic withdrawal plan, see "Additional Investor
Services."
10
<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:
. your address of record has changed within the past 30 days
. you are selling more than $100,000 worth of shares
. you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
. a broker or securities dealer
. a federal savings, cooperative or other type of bank
. a savings and loan or other thrift institution
. a credit union
. a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for the Fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (generally 4:00 p.m., Eastern time) by dividing the net assets
of each class by the number of its shares outstanding. It is the intention of
the Fund to maintain a net asset value per share of $1.00, although there can
be no assurance that the Fund will be able to do so. In accordance with the
rules and regulations of the Securities and Exchange Commission, the Fund in-
tends to value its portfolio securities based upon their amortized cost. This
entails initially valuing a security at its cost and thereafter assuming a con-
stant amortization to maturity of any premium or discount regardless of the im-
pact of fluctuating interest rates on the market value of the instrument. While
this method provides certainty in valuation, it may result in periods during
which value, as determined by the amortized cost method, is higher or lower
than the price the Fund would receive if it sold the instrument.
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 deferred sales charges.
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 your request is received in proper form by the
Fund. 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 or-
der is transmitted to the Fund before its 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.
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 distribu-
tion in kind of securities from the Fund in lieu of cash. However, the Fund has
made an election that requires it to pay a certain portion of redemption pro-
ceeds in cash.
Telephone transactions For your protection, telephone requests are recorded in
order to verify their accuracy. In addition, Shareholder/Dealer Services will
take measures to verify the identity of the caller, such as asking for name,
account number, social security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, the Fund is responsible for
any losses that may occur to any account due to an unauthorized telephone call.
Also for your protection, telephone transactions are not permitted on accounts
whose names or addresses have changed within the past 30 days. At times of peak
activity, it may be difficult to place requests by phone. During these times,
consider sending your request in writing.
Exchanges You may exchange shares of the Fund for shares of the same class of
any other SunAmerica Mutual Fund; however, exchanges of Class A shares may be
subject to applicable sales charges imposed by the acquired fund. Before making
an exchange, you should review a copy of the prospectus of the fund into which
you would like to exchange. All exchanges are subject to applicable minimum in-
vestment requirements. A Systematic Exchange Program is described under "Addi-
tional Investor Services."
If you exchange shares that were purchased subject to a deferred sales charge,
the deferred sales charge will continue to apply following the exchange. In de-
termining the deferred sales charge 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. Your deferred sales charge schedule will not change if
you exchange Class C
11
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
or Class II shares that you purchased prior to December 1, 1998 for another
SunAmerica Mutual Fund's Class II shares (which currently have a longer de-
ferred sales charge schedule).
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 share-
holders. The Fund may also refuse any exchange order.
Certificated shares Most shares are electronically recorded. If you wish to
have certificates for your shares, please call Shareholder/Dealer Services at
1-800-858-8850 for further information. You may sell or exchange certificated
shares only by returning the certificates to the Fund, along with a letter of
instruction and a signature guarantee. The Fund does not issue certificates for
fractional shares.
Multi-party checks The Fund may agree to accept a "multi-party check" in pay-
ment 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 addi-
tion, the Fund is not responsible for verifying the authenticity of any en-
dorsement 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 exist-
ing account, contact your broker or financial advisor, or call
Shareholder/Dealer Services at 1-800-858-8850.
Dollar Cost Averaging lets you make regular investments from your bank account
to the SunAmerica Mutual Funds of your choice. You determine the frequency and
amount of your investments, and you can terminate your participation at any
time.
Systematic Withdrawal Plan may be used for routine bill payment or periodic
withdrawals from your account. To use:
. Make sure you have at least $5,000 worth of shares in your account.
. Make sure you are not planning to invest more money in this account (buy-
ing shares during a period when you are also selling shares of the same
fund is not advantageous to you, because of sales charges).
. Specify the payee(s) and amount(s). The payee may be yourself or any other
party, and there is no limit to the number of payees you may have, as long
as they are all on the same payment schedule. Each withdrawal must be at
least $50.
. Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
. Make sure your dividends and capital gains are being reinvested.
You cannot elect the systematic withdrawal plan if you have requested certifi-
cates for your shares.
Systematic Exchange Program may be used to exchange shares of the Fund periodi-
cally for the same class of shares of one or more other SunAmerica Mutual
Funds. To use:
. Specify the SunAmerica Mutual Fund(s) from which you would like money
withdrawn and into which you would like money invested.
. Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
. Specify the amount(s). Each exchange must be worth at least $25.
. Accounts must be registered identically; otherwise a signature guarantee
will be required.
Asset Protection Plan (optional) Anchor National Life Insurance Company ("An-
chor National") 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 pur-
chased 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 re-
demptions of Fund shares to pay the premiums for this coverage. These redemp-
tions will not be subject to deferred sales charges 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 any Fund are ini-
tially purchased or transferred. In addition, coverage cannot be made available
unless Anchor National knows for whose benefit shares are purchased. For in-
stance, coverage cannot be made available for shares registered in the name of
your broker unless the broker provides Anchor National with information regard-
ing 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
12
<PAGE>
- --------------------------------------------------------------------------------
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 addi-
tional restrictions or limitations. Purchasers of shares should also make them-
selves familiar with the impact on the Asset Protection Plan coverage of pur-
chasing additional shares, reinvestment of dividends and capital gains distri-
butions and redemptions.
Anchor National is a SunAmerica company.
Please call 1-800-858-8850 for more information, including the cost of the As-
set Protection Plan option.
Retirement plans SunAmerica Mutual Funds offer a range of qualified retirement
plans, including IRAs, Roth IRAs, Simple IRAs, SARSEPs, 401(k) plans, 403(b)
plans and other pension and profit-sharing plans. Using these plans, you can
invest in any SunAmerica Mutual Fund with a low minimum investment of $250 or,
for some group plans, no minimum investment at all. To find out more, call
Shareholder/Dealer Services at 1-800-858-8850.
TAX, DIVIDEND AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
. after every transaction that affects your account balance (except a divi-
dend reinvestment or automatic purchase from your bank account)
. after any changes of name or address of the registered owner(s)
. 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 declared daily and paid
monthly by the Fund. Capital gains distributions, if any, are paid annually by
the Fund.
Dividend Reinvestments Your dividends and distributions, if any, will be auto-
matically reinvested in additional shares of the Fund and share class on which
they were paid. Alternatively, dividends and distributions may be reinvested in
any other SunAmerica Mutual Fund or paid in cash (if more than $10). You will
need to complete the relevant part of the Account Application to elect one of
these other options. For existing accounts, contact your broker or financial
advisor or call Shareholder/Dealer Services at 1-800-858-8850 to change divi-
dend 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 has in the past and
intends to in the future, it pays no federal income tax on the earnings it dis-
tributes to shareholders.
However, dividends you receive from the Fund, whether reinvested or taken as
cash, are generally considered taxable to you. Distributions of the Fund's
long-term capital gains are taxable as capital gains; dividends from other
sources are generally taxable as ordinary income.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is consid-
ered 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 substitute for professional tax ad-
vice. Consult your tax advisor about the potential tax consequences of an in-
vestment 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.
13
<PAGE>
Fund Management
- --------------------------------------------------------------------------------
Adviser SunAmerica Asset Management Corp., which was organized in 1982 under
the laws of Delaware, selects and manages the investments, provides various ad-
ministrative services, and supervises the daily business affairs of the Fund.
In addition to managing the Fund, SunAmerica serves as adviser, manager and/or
administrator for SunAmerica Equity Funds, Anchor Pathway Fund, Anchor Series
Trust, Style Select Series, Inc., Seasons Series Trust, SunAmerica Income
Funds, SunAmerica Strategic Investment Series, Inc. and SunAmerica Series
Trust. SunAmerica managed, advised or administered assets in excess of $16 bil-
lion as of March 25, 1999.
For the fiscal year ended December 31, 1998, the Fund paid SunAmerica a fee
equal to .50% of average daily net assets.
SunAmerica's Fixed-Income Investment Team is responsible for the management of
the Fund.
Distributor SunAmerica Capital Services, Inc. distributes the Fund's shares.
The Distributor, a SunAmerica company, receives deferred sales charges, all or
a portion of which may be re-allowed to other broker-dealers. In addition, the
Distributor receives fees under the Fund's 12b-1 plans.
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 Funds' 12b-1 plans. Banks
and other financial services firms may be subject to various state laws regard-
ing these services, and may be required to register as dealers pursuant to
state law.
Administrator SunAmerica Fund Services, Inc. assists the Funds' transfer agent
in providing shareholder services. The Administrator, a SunAmerica company, is
paid a monthly fee by the Fund for its services at the annual rate of .22% of
average daily net assets. This fee represents the full cost of providing share-
holder and transfer agency services to the Fund.
SunAmerica, the Distributor and the Administrator are all located in The
SunAmerica Center, 733 Third Avenue, New York, New York 10017.
Year 2000 Many computer and computer-based systems cannot distinguish the year
2000 from the year 1900 because of the way they encode and calculate dates.
This is popularly known as the "Year 2000 Issue". The Year 2000 Issue could po-
tentially have an adverse impact on the handling of security trades, the pay-
ment of interest and dividends, pricing and account services. We recognize the
importance of the Year 2000 Issue and are taking appropriate steps necessary in
preparation for the year 2000. The Fund's management fully anticipates that
their systems will be adapted in time for the year 2000, and to further this
goal they have coordinated a plan to repair, adapt or replace their systems as
necessary. They have also obtained representations from their outside service
providers that they are doing the same. The Fund's management completed their
plan significantly by the end of the 1998 calendar year and expects to perform
appropriate systems testing during the 1999 calendar year. If the problem has
not been fully addressed, however, the Fund could be negatively impacted. The
Year 2000 Issue could also have a negative impact on the companies in which the
Fund invests, which could hurt the Fund's investment returns.
14
<PAGE>
For More Information
- --------------------------------------------------------------------------------
The following documents contain more information about the Fund and are avail-
able free of charge upon request:
Annual/Semiannual Reports. Contain financial statements, performance data
and information on portfolio holdings. The annual report also contains a
written analysis of market conditions and investment strategies that signif-
icantly affected the Fund's performance during the last fiscal year.
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 Funds by
contacting:
SunAmerica Fund Services, Inc.
Mutual Fund Operations
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
1-800-858-8850
or
by calling your broker or financial advisor.
Information about the Fund (including the SAI) can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission, Washing-
ton, D.C. Call (800) SEC-0330 for information on the operation of the Public
Reference Room. Information about the Fund is also available on the Securities
and Exchange Commission's web-site at http://www.sec.gov and copies may be ob-
tained upon payment of a duplicating fee by writing the Public Reference Sec-
tion of the Securities and Exchange Commission, Washington, D.C. 20549-6009.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with any different information.
[LOGO] SUNAMERICA
MUTUAL FUNDS
DISTRIBUTOR: SunAmerica Capital Services
The Fund is a series of SunAmerica Money Market Funds, Inc.
INVESTMENT COMPANY ACT
File No. 811-03807
<PAGE>
SUNAMERICA MONEY MARKET FUND
Statement of Additional Information
dated April 30, 1999
The SunAmerica Center General Marketing and
733 Third Avenue Shareholder Information
New York, NY 10017-3204 (800) 858-8850
SunAmerica Money Market Fund (the "Fund") seeks as high a level of current
income as is consistent with liquidity and stability of capital by investing in
a portfolio of high quality, short-term money market instruments. The Fund is
the only series of SunAmerica Money Market Funds, Inc., which is registered as
an open-end diversified management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act") and organized as a Maryland
corporation (the "Corporation").
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Fund's Prospectus dated April 30, 1999. To obtain a
Prospectus, free of charge, please call the Fund 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 Fund's audited financial statements are
incorporated in this Statement of Additional Information by reference to its
1998 annual report to shareholders. You may request a copy of the annual report
at no charge by calling (800) 858-8850 or writing the Fund 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
----
History of the Fund ........................................................B-2
Investment Objective and Policies...........................................B-2
Investment Restrictions.....................................................B-8
Directors and Officers.....................................................B-10
Adviser, Personal Trading, Distributor and Administrator...................B-14
Portfolio Transactions and Brokerage.......................................B-18
Additional Information Regarding Purchase of Shares........................B-19
Additional Information Regarding Redemption of Shares......................B-23
Determination of Net Asset Value...........................................B-24
Performance Data...........................................................B-25
Dividends, Distributions and Taxes.........................................B-26
Retirement Plans...........................................................B-29
Description of Shares......................................................B-30
Additional Information.....................................................B-31
Financial Statements.......................................................B-32
Appendix...........................................................Appendix - 1
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Fund, the Adviser or the Distributor. This Statement of
Additional Information and the Prospectus do not constitute an offer to sell or
a solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction in which such an offer to sell or solicitation of an offer to buy
may not lawfully be made.
HISTORY OF THE FUND
The Corporation is a diversified open-end management investment company
organized in Maryland in 1984. On September 23, 1993, the Articles of
Incorporation of the Corporation were amended to permit the creation of multiple
series and classes of shares, and on September 24, 1993, the Corporation
reorganized with the SunAmerica Cash Fund ("Cash Fund") and was renamed
SunAmerica Money Market Funds, Inc. (the "Reorganization"). All of the
outstanding shares of the Corporation were redesignated Class A shares of the
Fund in the Reorganization. In addition, in the Reorganization, the shareholders
of Cash Fund received Class B shares of the Fund. Class C shares commenced
offering on October 2, 1997. On December 1, 1998, Class C shares of the Fund
were redesignated as Class II shares.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective (or "goal") and policies of the Fund are described
in the Prospectus. Certain types of securities in which the Fund may invest and
certain investment practices the Fund may employ, which are described in the
Prospectus, are discussed more fully below. The stated percentage limitations
are applied to an investment at the time of purchase unless indicated otherwise.
U.S. Government Obligations. The Fund may invest in a variety of short-term debt
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. These securities include a variety of Treasury securities
that differ primarily in their interest rates, the length of their maturities
and dates of issuance. Treasury bills are obligations issued with maturities of
one year or less. Treasury notes are generally issued with maturities of from
one to ten years. Treasury bonds are generally issued with maturities of more
than ten years. Obligations issued by agencies and instrumentalities, which may
be purchased by the Fund, also vary in terms of their maturities at the time of
issuance. However, the Fund invests only in obligations that, at their time of
purchase by the Fund, have remaining maturities of 397 calendar days or less.
Bank Obligations. Certificates of deposit ("CD's") and bankers' acceptances may
be purchased by the Fund. CD's are securities that represent deposits in a
depository institution (e.g., a commercial bank or savings and loan association)
for a specified period at a specified rate of interest and normally are
negotiable. CD's issued by a foreign branch (usually London) of a U.S. domestic
bank,
B-2
<PAGE>
are known as Eurodollar CD's. Although certain risks may be associated with
Eurodollar CD's that are not associated with CD's issued in the U.S. by domestic
banks, the credit risks of these obligations are similar because U.S. banks
generally are liable for the obligations of their branches. CD's issued through
U.S. branches of foreign banks are known as Yankee CD's. These branches are
subject to federal or state banking regulations. The secondary markets for
Eurodollar and Yankee CD's may be less liquid than the market for CD's issued by
domestic branches of U.S. banks.
Bankers' acceptances are short-term credit instruments that represent the
promise of a bank to pay a draft drawn by one of its customers at its maturity.
These obligations are used to finance the import, export, transfer or storage of
goods and represent the obligation of both the accepting bank and its customer.
Commercial Paper. The commercial paper in which the Fund may invest may be
unsecured or may be backed by letters of credit. Commercial paper backed by a
letter of credit is, in effect, "two party" paper with the issuer of the paper
initially responsible for repayment and a bank guaranteeing the repayment if not
made by the issuer at maturity. The Fund may also invest in variable amount
master demand notes, which represent a direct lending arrangement between the
Fund and a corporate borrower. These notes permit daily changes in the amount
borrowed. The Fund has the right to increase the amount loaned under the note at
any time up to the full amount provided in the loan agreement or to decrease the
amount loaned. The borrower generally has the right to prepay up to the full
amount of the loan without penalty. These notes are generally not traded in a
secondary market; however, the Fund will enter into such arrangements only where
it has the right to redeem the note on not more than seven days notice.
Corporate Obligations. These obligations include bonds, debentures and notes
issued by corporations to finance long-term credit needs. Although issued with
maturities in excess of one year, the Fund's investments in corporate
obligations are limited to obligations having remaining maturities of 397
calendar days or less at the time of purchase by the Fund.
Illiquid Securities. The Fund may invest up to 10% of its net assets, determined
as of the date of purchase, in illiquid securities including repurchase
agreements that have a maturity of longer than seven days 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 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 not 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 portfolio securities,
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty
B-3
<PAGE>
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 generally will 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.
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.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act for which there is a readily available market will not be deemed
to be illiquid. The Fund's investment adviser, SunAmerica Asset Management Corp.
("SunAmerica," or the "Adviser"), will monitor the liquidity of such restricted
securities subject to the supervision of the Board of Directors of the
Corporation (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).
Commercial paper issues in which the Fund may invest 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 10% limitation on investments in
illiquid securities includes Section 4(2) paper other than Section 4(2) paper
that the Adviser has determined to be liquid pursuant to guidelines established
by the Directors. The Directors have delegated to the Adviser the function of
making day-to-day determinations of liquidity with respect to Section 4(2)
paper, pursuant to guidelines approved by the Directors that require the Adviser
to take into account the same factors described above for other restricted
securities and require the Adviser to perform the same monitoring and reporting
functions.
B-4
<PAGE>
Repurchase Agreements. The Fund may enter into repurchase agreements with banks,
brokers or securities dealers. In such agreements, the seller agrees to
repurchase a security from the Fund 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 at least equal to 102% (100% if such collateral is in
the form of cash) of the repurchase price. 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 defaults and the value of the
collateral securing the repurchase agreements declines, the Fund will incur a
loss. 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 10% of the value of its
net assets. However, there is no limit on the amount of the Fund's net assets
that may be subject to repurchase agreements having a maturity of seven days or
less for temporary defensive purposes.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements with brokers, dealers and other financial institutions determined by
the Adviser to be creditworthy. A reverse repurchase agreement involves the sale
of a security held by the Fund, subject to an agreement by the Fund to
repurchase that security at a mutually agreed upon price, date and interest
payment. The Fund uses the proceeds of the reverse repurchase agreement to make
additional investments that mature on or prior to the repurchase date and will
enter into a reverse repurchase agreement when it anticipates that the interest
income to be earned from investing the proceeds of the reverse repurchase
agreement will exceed the interest expense of the transaction. During the time a
reverse repurchase agreement is outstanding, the Fund will maintain with the
Custodian a segregated account containing cash or liquid securities having a
value at least equal to the repurchase price under the agreement. In the event
that the other party to the reverse repurchase agreement defaults on its
obligation to resell to the Fund the underlying securities because of insolvency
or otherwise, the Fund could experience delays and costs in gaining access to
the securities and could suffer a loss to the extent that the value of the
proceeds of the agreement fell below the value of the underlying securities.
Reverse repurchase agreements are considered to be borrowings and are subject to
the percentage limitations on borrowings. See "Investment Restrictions."
Asset-Backed Securities. The Fund may invest up to 15% of its net assets in
asset-backed securities rated in conformance with both the Fund's credit quality
restrictions and Rule 2a-7 under the 1940 Act. 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. The Fund may also invest in privately issued
asset-backed securities.
B-5
<PAGE>
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. 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, which 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 adversely affect the
return on an investment in such a security.
Loans of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend portfolio securities in amounts up to 20% of
total assets to brokers, dealers and other financial institutions, provided,
that such loans are callable at any time by the Fund and are at all times
secured by cash or equivalent collateral. In lending its portfolio securities, a
Fund receives income while retaining the securities' potential for capital
appreciation. The advantage of such loans is that a Fund continues to receive
the interest and dividends on the loaned securities while at the same time
earning interest on the collateral, which will be invested in short-term
obligations. Where securities instead of cash are delivered to the Fund as
collateral, the Fund earns its return in the form of a loan premium paid by the
borrower. 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 can use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
by the Adviser to be creditworthy. On termination of
B-6
<PAGE>
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.
Borrowings. The Fund may borrow for temporary or emergency purposes or to meet
redemption requests. The consequence of such borrowings might be to reduce the
Fund's yield below that which would have been realized in the absence of such
borrowings.
When-Issued and Delayed-Delivery Securities. From time to time, in the ordinary
course of business, the Fund may purchase securities on a when-issued or
delayed-delivery basis - i.e., delivery and payment can take place a month or
more after the date of the transactions. Such agreements might be entered into,
for example, when the Fund anticipates a decline in the yield of securities of a
given issuer and is able to obtain a more advantageous yield by committing
currently to purchase securities to be issued later. The securities so purchased
are subject to market fluctuation and no interest accrues to the purchaser
during this period. At the time of delivery of the securities, the value may be
more or less than the purchase price. The Fund will establish and maintain until
the date of delivery of such when-issued securities, a segregated account with
the Fund's custodian in which it will maintain cash or liquid securities at
least equal in value to commitments for such when-issued or delayed-delivery
securities. The Fund will make payment for such when-issued securities on the
delivery date utilizing then-available cash and, if cash is not available, or if
it is not disadvantageous to the Fund, utilizing the proceeds of the liquidation
of portfolio securities held in such segregated account.
Special Risk Factors. In the case of bank obligations not insured by the Federal
Deposit Insurance Corporation ("FDIC") or the Federal Savings and Loan Insurance
Corporation ("FSLIC"), the Fund will be dependent solely on the financial
resources of the issuing bank for payment of principal and interest. The Fund's
investments in commercial paper issued by foreign corporations and securities of
foreign branches of domestic banks and domestic branches of foreign banks
involve certain investment risks in addition to those affecting obligations of
U.S. domestic issuers. These risks include the possibility of adverse political
and economic developments, and the risk of: imposition of foreign withholding
taxes on the interest payable on such securities; seizure, expropriation or
nationalization of foreign deposits; and adoption of foreign governmental
restrictions, such as exchange controls, which might adversely affect the
payment of principal and interest on such securities. In addition, certain
reserve requirements and other regulations to which domestic banks are subject
may not apply to foreign branches or foreign banks, which also may use
accounting methods different from those used by U.S. domestic banks.
Non-negotiable time deposits, unlike
B-7
<PAGE>
negotiable certificates of deposit, cannot be sold in a secondary market and may
be subject to penalties for early withdrawal.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that are
fundamental policies and may not be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities. As defined in the
1940 Act, a "majority of the outstanding voting securities" of the Fund means
the lesser of (i) 67% of the shares of the Fund represented at a meeting at
which more than 50% of the outstanding shares are present in person or
represented by proxy or (ii) more than 50% of the outstanding shares. Unless
otherwise indicated, all percentage limitations apply only at the time the
investment is made; any subsequent change in any applicable percentage resulting
from fluctuations in value will not be deemed an investment contrary to these
restrictions. Under these restrictions, the Fund may not:
1. Purchase securities other than those described under "Investment
Objective and Policies."
2. Enter into reverse repurchase agreements exceeding in the aggregate
1/3 of the value of the Fund's total assets, less liabilities other
than obligations under such reverse repurchase agreements.
3. Purchase the securities of issuers conducting their principal business
activity in the same industry if immediately after such purchase the
value of its investments in such industry would exceed 25% of the
value of the Fund's total assets, provided that there is no limitation
with respect to investments in securities issued by domestic branches
of U.S. banks or the U.S. Government, its agencies or
instrumentalities.
4. Invest more than 5% of its assets in the securities of any one issuer
(exclusive of securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities) except that up to 25% of the value
of the Fund's total assets may be invested without regard to such 5%
limitation, subject to applicable limitations imposed by Rule 2a-7
under the 1940 Act.
5. Make loans, except through the purchase or holding of debt obligations
in accordance with the Fund's investment objective and policies (see
"Investment Objective and Policies"), or as otherwise permitted by
exemptive order of the Securities and Exchange Commission.
6. Lend its portfolio securities in excess of 20% of its total assets
provided that such loans are made according to the guidelines of the
Securities and Exchange Commission and the Fund's Board of Directors,
including maintaining collateral
B-8
<PAGE>
from the borrower equal at all times to the current market value of
the securities loaned.
7. Borrow money except for temporary or emergency purposes to meet
redemption requests which might otherwise require the untimely
disposition of securities (not for the purpose of increasing income),
provided that borrowings in the aggregate may not exceed 10% of the
value of the Fund's total assets, including the amount borrowed, at
the time of such borrowing.
8. Purchase or sell puts, calls, straddles, spreads or any combination
thereof, real estate, commodities, commodity contracts or interests in
oil, gas and/or mineral exploration or development programs, provided
that the Fund may purchase bonds or commercial paper issued by
companies, including real estate investment trusts, which invest in
real estate or interests therein.
9. 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 the Fund will not hold more than
3% of the outstanding voting securities of any one investment company,
will not have invested more than 5% of its total assets in any one
investment company and will not have invested more than 10% of its
total assets in such securities of one or more investment companies
(each of the above percentages to be determined at the time of
investment), or except as part of a merger, consolidation or other
acquisition.
10. Act as an underwriter of securities.
11. Make short sales of securities or maintain a short position, provided
that this restriction shall not be deemed to be applicable to the
purchase or sale of "when-issued" securities or of securities for
delivery at a future date.
12. Invest in or hold securities of any issuer if those officers and
Directors of the Fund or the Adviser owning individually more than 1/2
of 1% of the securities of such issuer together own more than 5% of
the securities of such issuer.
In addition to the foregoing, the Fund may not issue senior securities as
defined in the 1940 Act except as permitted by law and the Fund's prospectus and
Statement of Additional Information. The Fund has adopted a non-fundamental
policy (which may be changed by the Directors without shareholder approval) of
not investing more than 10% of its net assets in illiquid securities, including
repurchase agreements that have a maturity of longer than seven days, time
deposits with a maturity of longer than seven days, securities with legal or
contractual restrictions on resale and securities that are not readily
marketable in securities markets either within or without the United States.
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
the Securities Act that may be offered and sold to "qualified institutional
B-9
<PAGE>
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 10% limitation on illiquid securities.
Pursuant to Rule 2a-7 under the 1940 Act (the "Rule"), the Fund is required
to limit its portfolio investments to those U.S. dollar denominated instruments
determined in accordance with procedures established by the Directors to present
minimal credit risks and which are at the time of acquisition "eligible
securities" as defined in the Rule. Under the Rule an eligible security is
generally an instrument that is rated (or that has been issued by an issuer
rated with respect to other short-term debt of comparable priority and security)
by at least two nationally recognized statistical rating organizations (or if
only one such organization has issued a rating, by that organization) in one of
the two highest rating categories for short-term debt obligations, or an unrated
security determined to be of comparable quality under procedures established by
the Directors. The Rule prohibits the Fund from investing more than 5% of its
assets in the securities of any one issuer, except that the Fund may invest up
to 25% of its assets in the securities rated (or deemed comparable to securities
rated) in the highest rating category of a single issuer for a period of up to
three business days after purchase. In addition, the Fund may not invest more
than 5% of its assets in securities that have not been rated (or deemed
comparable to securities rated) in the highest rating category, with investment
in such second tier securities of any one issuer limited to the greater of 1% of
the Fund's assets or $1 million. These issuer diversification restrictions do
not apply to U.S. government securities. The Rule also prohibits the Fund from
purchasing any instrument with a remaining maturity of greater than 397 calendar
days and requires the Fund to maintain a dollar-weighted average portfolio
maturity of 90 days or less. For purposes of the Rule, certain variable or
floating rate instruments are deemed to have a maturity equal to the period
remaining until the next readjustment of their interest rate or, in the case of
an instrument that is subject to a demand feature, the period remaining until
the principal amount can be recovered through demand.
DIRECTORS AND OFFICERS
The following table lists the Directors and executive officers of the
Corporation, their ages, business addresses, and principal occupations during
the past five years. The SunAmerica Mutual Funds ("SAMF") consist of SunAmerica
Equity Funds, SunAmerica Income Funds, SunAmerica Money Market Funds, Inc. ,
Style Select Series, Inc. and SunAmerica Strategic Investment Series, Inc. An
asterisk indicates those Directors who are interested persons of the Fund within
the meaning of the 1940 Act.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Name, Age and Address Position with the Trust Principal Occupations During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
S. James Coppersmith, 65 Director Retired; formerly, President and General
7 Elmwood Road Manager, WCVB-TV, a division of the Hearst
Marblehead, MA 01945 Corp. (1982 to 1994); Director/Trustee of SAMF
and Anchor Series Trust ("AST").
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
B-10
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Name, Age and Address Position with the Trust Principal Occupations During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Samuel M. Eisenstat, 58 Director Attorney, solo practitioner, Of Counsel,
430 East 86th Street Kramer, Levin, Naftalis & Frankel; Chairman of
New York, NY 10028 the Boards of Directors/Trustees of SAMF and
AST.
- ------------------------------------------------------------------------------------------------------------------
Stephen J. Gutman, 55 Director Partner and Managing Member of B.B. Associates
515 East 79th Street LLC (menswear specialty retailing and other
New York, NY 10021 activities) since June 1988; Director/Trustee
of SAMF and AST.
- ------------------------------------------------------------------------------------------------------------------
Peter A. Harbeck*, 44 Director and President Director and President, the Adviser; Director,
The SunAmerica Center SunAmerica Capital Services, Inc. ("SACS"),
733 Third Avenue since August 1993; Director and President,
New York, NY 10017-3204 SunAmerica Fund Services, Inc.("SAFS"), since
May 1988; President, SAMF and AST; Executive
Vice President and Chief Operating Officer, the
Adviser, from May 1988 to August 1995;
Executive Vice President, SACS, from November
1991 to August 1995; Director, Resources Trust
Company.
- ------------------------------------------------------------------------------------------------------------------
Sebastiano Sterpa, 69 Director Founder and Chairman of the Board of the Sterpa
73473 Mariposa Drive Group (real estate), since 1962; Director, Real
Palm Desert, CA 92260 Estate Business Service and Countrywide
Financial; Director/Trustee of SAMF.
- ------------------------------------------------------------------------------------------------------------------
J. Steven Neamtz, 38 Vice President Executive Vice President of the Adviser, since
The SunAmerica Center April 1996; Director and President, SACS, since
733 Third Avenue April 1996; formerly, Executive Vice President,
New York, NY 10017-3204 New England Funds, L.P. from July 1990 to April
1996.
- ------------------------------------------------------------------------------------------------------------------
Peter C. Sutton, 34 Treasurer Senior Vice President, the Adviser, since April
The SunAmerica Center 1997; Treasurer, SAMF and AST, since February
733 Third Avenue 1996; Vice President and Assistant Treasurer of
New York, NY 10017-3204 SAST and APF since 1994; Vice President, Seasons
Series Trust, since April 1997; formerly, Vice
President, the Adviser, from 1994 to 1997;
Controller, SAMF and AST, from March 1993 to
February 1996; Assistant Controller, SAMF and
AST, from 1990 to 1993.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Name, Age and Address Position with the Trust Principal Occupations During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert M. Zakem, 41 Secretary and Chief Senior Vice President and General Counsel, the
The SunAmerica Center Compliance Officer Adviser, since April 1993; Executive Vice
733 Third Avenue President, General Counsel and Director, SACS,
New York, NY 10017-3204 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, the
Adviser, from March 1992 to April 1993.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Directors of the Corporation are responsible for the overall
supervision of the operation of the Fund and Corporation 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 or trustees and officers of some or all of the
other investment companies managed, administered or advised by the Adviser and
distributed by SunAmerica Capital Services, Inc. ("SACS" or the "Distributor")
and other affiliates of SunAmerica Inc.
The Corporation pays each Director who is not an interested person of the
Corporation or the Adviser (each a "disinterested" Director) annual compensation
in addition to reimbursement of out-of-pocket expenses in connection with
attendance at meetings of the Directors. Specifically, each disinterested
Director receives a pro rata portion (based upon the Corporation's net assets)
of the $40,000 in annual compensation for acting as a director or trustee to all
the retail funds in the SAMF. In addition, Mr. Eisenstat receives an aggregate
of $2,000 in annual compensation for serving as Chairman of the Boards of the
retail funds in the SAMF. Officers of the Corporation receive no direct
remuneration in such capacity from the Corporation or the Fund.
In addition, each disinterested Director also serves on the Audit Committee
of the Board of Directors. The Audit Committee is charged with recommending to
the full Board the engagement or discharge of the Fund's independent
accountants; directing investigations into matters within the scope of the
independent accountants' duties; reviewing with the independent accountants the
audit plan and results of the audit; approving professional services provided by
the independent accountants and other accounting firms prior to the performance
of such services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; and preparing and submitting
Committee minutes to the full Board. Each member of the Audit Committee receives
an aggregate of $5,000 in annual compensation for serving on the Audit
Committees of all of the SAMF as well as AST. With respect to the Corporation,
each member of the Audit Committee receives a pro rata portion of the $5,000
annual compensation, based on the relative net assets of the Corporation. The
Corporation also has a Nominating Committee, composed solely of disinterested
Directors, which recommends to the Directors those persons to be nominated
B-12
<PAGE>
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 the SAMF have adopted the SunAmerica
Disinterested Trustees' and Directors' Retirement Plan (the "Retirement Plan")
effective January 1, 1993 for the disinterested Directors of the SAMF. The
Retirement Plan provides generally that if a disinterested Director who has at
least 10 years of consecutive service as a disinterested Director of any of the
SAMF (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 of the SAMF 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
of the SAMF 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 of
each disinterested Director as defined herein of the Corporation for his
services as Director for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- -------------------------------------------------------------------------------
TOTAL
COMPENSATION
PENSION OR FROM
RETIREMENT REGISTRANT
AGGREGATE BENEFITS ESTIMATED AND FUND
COMPENSATION ACCRUED AS ANNUAL COMPLEX
FROM PART OF FUND BENEFITS UPON PAID TO
DIRECTOR REGISTRANT EXPENSES* RETIREMENT DIRECTORS*
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S. James Coppersmith $8,995 $41,577 $29,670 $65,000
- -------------------------------------------------------------------------------
Samuel M. Eisenstat $9,415 $36,610 $46,083 $69,000
- -------------------------------------------------------------------------------
Stephen J. Gutman $8,995 $37,909 $60,912 $65,000
- -------------------------------------------------------------------------------
Sebastiano Sterpa $9,097 $25,546 $7,900 **$43,333
- -------------------------------------------------------------------------------
</TABLE>
* Information is for the five investment companies in the complex that pay
fees to these directors/trustees. The complex consists of the SAMF and AST.
** Mr. Sterpa is not a trustee of AST.
As of April 15, 1999, the Directors and officers of the Fund owned in the
aggregate less than 1% of the Fund's total outstanding shares.
B-13
<PAGE>
The following shareholders owned of record or beneficially 5% or more of the
SunAmerica Money Market Fund's shares outstanding as of April 9, 1999: Money
Market - Class B - Chicago Board of Education, Chicago, IL 60609-owned of record
13%; Class II- SunAmerica Asset Management, New York, NY 10017 - owned of record
6%; Everen Securities, Inc. FBO Cedric Berggren, Milwaukee, WI 53202 -owned of
record 5%; Everen Securities, Inc. A/C Lawrence Construction, Milwaukee, WI
53202 owned of record 7%; Donaldson Lufkin Jenrette Securities Corporation,
Inc., Jersey City, NJ 07303 -owned of record 5%; A G Edwards & Sons, Inc.,
LaJolla, CA 92037 - owned of record 21%; A shareholder who owns beneficially,
directly or indirectly, 25% or more of a Portfolio's outstanding voting
securities may be deemed to "control" (as defined in the 1940 Act) that
Portfolio.
ADVISER, PERSONAL TRADING, DISTRIBUTOR AND ADMINISTRATOR
The Adviser. The Adviser, organized as a Delaware corporation in 1982, is
located at The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204, and
serves as adviser to the Fund pursuant to the Investment Advisory and Management
Agreement dated January 1, 1999 (the "Advisory Agreement") with the Corporation,
on behalf of the Fund. As of March 25, 1999, SunAmerica managed more than $16
billion in assets. SunAmerica is a wholly-owned subsidiary of SunAmerica, Inc.,
which 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.
Under the Advisory Agreement, the Adviser selects and manages the
investments of the Fund, provides various administrative services and supervises
the Fund's daily business affairs, subject to general review by the Directors.
Except to the extent otherwise specified in the Advisory 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
its shares under federal and state securities laws; the cost and expense of
printing, including typesetting and distributing Prospectuses and Statements of
Additional Information respecting the Fund, and supplements thereto, to the
shareholders of the Fund; all expenses of shareholders' and Directors' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; all expenses incident to any dividend, withdrawal or redemption
options; fees and expenses of legal counsel and independent accountants;
membership dues of industry associations; interest on borrowings of the Fund;
postage; insurance premiums on property or personnel (including Officers and
Directors) of the Corporation that inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Corporation's operation.
B-14
<PAGE>
As compensation for its services to the Fund, the Adviser receives a fee
from the Fund, payable monthly, computed daily at the annual rate of .50% on the
first $600 million of the Fund's average daily net assets, .45% on the next $900
million of net assets and .40% on net assets over $1.5 billion.
The following table sets forth the total advisory fees paid to the Adviser
by the Fund for the fiscal years ended December 31, 1998, 1997 and 1996,
pursuant to the Advisory Agreement.
<TABLE>
<CAPTION>
ADVISORY FEES
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
$3,124,567 $2,497,734 $1,923,536
- --------------------------------------------------------------------------------
</TABLE>
No advisory fees were waived for the fiscal years ended December 31, 1998,
1997, and 1996. For Class II shares (which were previously designated as Class C
shares), the Adviser waived fees and reimbursed expenses to the Fund in the
amount of $5,383 for the fiscal year ended December 31, 1997 and $24,706 for the
fiscal year ended December 31, 1998. There were no other fee waivers or
expense reimbursements.
The Advisory Agreement continues in effect with respect to the Fund for an
initial two-year term, 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 Directors who are not parties to the Advisory
Agreement or "interested persons" of any such party as defined in the 1940 Act
by vote cast in person at a meeting called for such purpose. The Advisory
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 the Adviser. The
Advisory 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 Advisory Agreement, the Adviser is not liable to the
Fund or its shareholders for any act or omission by it or for any losses
sustained by the Fund or its shareholders, except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
Personal Trading. The Fund and the Adviser have adopted a written 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 as
defined in the Code of Ethics is an individual who is a trustee, director,
officer, general partner or advisory person of the Fund or the Adviser. 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 the Adviser, (ii) Initial Public Offerings, (iii) private placements,
(iv) blackout periods, (v) short-term trading profits, (vi) gifts, and (vii)
services as a director. These guidelines are substantially similar to those
contained in the Report of the Advisory Group on Personal Investing issued by
the Investment Company Institute's Advisory Panel. The Adviser reports to the
Board of Directors on a quarterly basis, as to whether there were any violations
of the Code of Ethics by Access Persons of the Fund or the Adviser during the
quarter.
B-15
<PAGE>
The Distributor. The Corporation, on behalf of the Fund, has entered into a
distribution agreement (the "Distribution Agreement") with the Distributor, a
registered broker-dealer and an indirect wholly owned subsidiary of SunAmerica
Inc., to act as the principal underwriter in connection with the continuous
offering of each class of shares of the Fund. The address of the Distributor is
The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204. The
Distribution Agreement provides that the Distributor has the exclusive right to
distribute shares of the Fund through its registered representatives and
authorized broker-dealers. The Distribution Agreement also provides that the
Distributor will pay the promotional expenses, including the incremental cost of
printing prospectuses, annual reports and other periodic reports respecting the
Fund, for distribution to persons who are not shareholders of the Fund and the
costs of preparing and distributing any other supplemental sales literature.
However, certain promotional expenses may be borne by the Fund (see
"Distribution Plans" below).
The Distribution Agreement continues in effect for an initial two-year term
and thereafter from year to year with respect to the Fund if such continuance is
approved at least annually by the Directors, including a majority of the
Directors who are not "interested persons" of the Corporation. The Corporation
or 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).
Distribution Plans. As indicated in the Prospectus, the Directors of the
Corporation and the shareholders of each class of shares of the Fund have
adopted Distribution Plans (the "Class A Plan," the "Class B Plan," and the
"Class II Plan," and collectively, the "Distribution Plans"). Reference is made
to "Management of the Corporation - Distribution Plans" in the Prospectus for
certain information with respect to the Distribution Plans.
Under the Class B and Class II Plans, the Distributor may receive payments
from the Fund at the annual rate of up to 0.75% of the average daily net assets
of the Fund's Class B and Class II shares, to compensate the Distributor and
certain securities firms for 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 B and Class II Plans will exceed the Distributor's
distribution costs as described above. The Class A Plan does not provide for a
distribution fee. The Distribution Plans, however, provide that each class of
shares of the Fund may pay the Distributor an account maintenance and service
fee for payments to broker-dealers for providing continuing account maintenance.
This account maintenance and service fee is up to 0.15% of the aggregate average
daily net assets of Class A and Class B shares and up to 0.25% of the aggregate
average daily net assets of Class II shares. In this regard, some payments are
used to compensate broker-dealers with account maintenance and service fees in
an amount up to 0.15% per year of the net assets maintained
B-16
<PAGE>
in the Fund with respect to Class A and Class B shares and up to 0.25% per year
for Class II shares.
The following table sets forth the distribution fees received by the
Distributor from each class of the Fund's shares for the fiscal years ended
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
DISTRIBUTION FEES
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Class A Class B Class II Class A Class B Class II* Class A Class B
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$881,428 $362,053 $8,725 $700,579 $291,401 $1,023 $513,979 $378,491
- --------------------------------------------------------------------------------
</TABLE>
* The Fund commenced offering Class II shares (previously designated Class C
shares) on October 2, 1997.
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
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, Inc. ("SAFS"), an indirect
wholly-owned subsidiary of SunAmerica Inc. and 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 continues in effect from year to year provided that
such 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 subject to review and
approval by the Directors. This fee represents the full cost of providing
shareholder and transfer agency services to the Corporation. From this fee, SAFS
B-17
<PAGE>
pays a fee to State Street, and its affiliate, National Financial Data Services
("NFDS" and with State Street, the "Transfer Agent")(other than out-of-pocket
charges of the Transfer Agent which are paid by the Corporation). For further
information regarding the Transfer Agent see the section entitled "Additional
Information" below.
PORTFOLIO TRANSACTIONS AND BROKERAGE
As discussed in the Prospectus, the Adviser is responsible for decisions to
buy and sell securities for the Fund, selection of broker-dealers and
negotiation of commission rates. Purchases and sales of securities on a
securities exchange are effected through broker-dealers who charge a negotiated
commission for their services. Orders may be directed to any broker-dealer
including, to the extent and in the manner permitted by applicable law, an
affiliated brokerage subsidiary of SunAmerica Inc.
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.
The Adviser's primary consideration in effecting a security transaction is
to obtain the best net price and the most favorable execution of the order.
However, the Adviser may select broker-dealers that provide it with research
services and may cause the Fund to pay broker-dealers commissions that exceed
those other broker-dealers may have charged, if in its view the commissions are
reasonable in relation to the value of the brokerage and/or research services
provided by the broker-dealer. Certain research services furnished by brokers
may be useful to the Adviser with clients other than the Corporation, and 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 Adviser is of the opinion that
because the material must be analyzed and reviewed by its staff, its receipt
does not tend to reduce expenses, but may be beneficial in supplementing the
Adviser's research and analysis. Therefore, it may tend to benefit the Fund by
improving the quality of the Adviser's investment advice. The investment
advisory 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
B-18
<PAGE>
for purchase by the Fund and one or more other accounts or investment companies
that the Adviser manages. However, the position of each account or company in
the securities of the same issue may vary with the length of the time that each
account or company may choose to hold its investment in those securities. The
timing and amount of purchase by each account and company will also be
determined by its cash position. If the purchase or sale of a security is
consistent with the investment policies of the Fund and one or more of these
other accounts or companies is considered at or about the same time,
transactions in such securities will be allocated in a manner deemed equitable
by the Adviser. The Adviser may combine such transactions, in accordance with
applicable laws and regulations, where the size of the transaction would enable
it to negotiate a better price or reduced commission. However, simultaneous
transactions could adversely affect the ability of the Fund to obtain or dispose
of the full amount of a security, which it seeks to purchase or sell, or the
price at which such security can be purchased or sold.
For the fiscal years ended December 31, 1998, 1997 and 1996, no brokerage
commissions were paid by the Fund.
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES
Class A shares of the Fund are sold at net asset value next-determined
after receipt of a purchase order, without a sales charge. Class B and Class II
shares are sold at the respective net asset value next calculated after receipt
of a purchase order, plus a sales charge, which, at the election of the
investor, either may (i) be imposed on a deferred basis (Class B shares) or (ii)
contain certain elements of a sales charge imposed at the time of purchase and
deferred (Class II shares). Reference is made to "Purchase of Shares" in the
Prospectus for certain information as to the purchase of Fund shares.
The following table sets forth the front-end sales charges with respect to
Class II shares of the Fund, the amount of the front-end sales charges which was
reallowed to affiliated broker-dealers, and the contingent deferred sales
charges with respect to Class B and Class II shares of each Fund, received by
the Distributor for the fiscal years ended December 31, 1998, 1997 and 1996.
B-19
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Amount
Front-End Amount Reallowed to Contingent Contingent
Sales Reallowed to Non- Deferred Deferred
Fiscal Concessions* Affiliated Affiliated Percentage Sales Charge Sales Charge
Year Class II Broker- Broker- of Offering Class B Class II
Ended Shares** Dealers Dealers Price Shares Shares**
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/98 -- -- -- -- $156,328 --
- -------------------------------------------------------------------------------------------------
12/31/97 $0 -- -- -- $169,724 $0***
- -------------------------------------------------------------------------------------------------
12/31/96 -- -- -- -- $339,999 --
- -------------------------------------------------------------------------------------------------
</TABLE>
* No Class II front-end sales charges were in effect prior to December 1,
1998.
** Commenced offering (as Class C shares) on October 2, 1997.
*** For the period October 2, 1997 through December 31, 1997.
Contingent Deferred Sales Charges ("CDSCs") Applicable to Certain Class B
Shares. Class B shares of the Fund issued to shareholders in exchange for shares
of the Cash Fund in the Reorganization are subject to the CDSC schedule, if any,
that applied to such shares at the time of Reorganization. In the event that the
shares were originally acquired in an exchange from another SunAmerica Mutual
Fund that imposes a CDSC (a "CDSC Fund"), the CDSC schedule applicable to such
shares at the time of the exchange will continue to apply; provided, that in
determining the holding period for such shares, the holding period prior to such
exchange and the holding period following the date of the Reorganization will be
"tacked" or combined. No credit toward the holding period is given for the time
during which the Cash Fund shares were held. For example, if shares of a CDSC
Fund were held by a shareholder for two years prior to an exchange for shares of
Cash Fund, Cash Fund shares were held for one year prior to the Reorganization,
and the Class B shares of the Fund were held for one year prior to redemption,
when the Class B shares are redeemed by the shareholder, they will be subject to
a contingent deferred sales charge as though they were redeemed from the CDSC
Fund three years after the initial investment in the CDSC Fund without regard to
the length of time that the Cash Fund shares were actually held.
The following CDSC schedule applies to shares originally acquired (prior to
the date of the Reorganization) in an exchange from one of the four series of
shares of the SunAmerica Fund Group (i.e., SunAmerica U.S. Government Securities
Fund, SunAmerica High Income Fund, SunAmerica Emerging Growth Fund and
SunAmerica Balanced Assets Fund) or from the SunAmerica Federal Securities Fund:
B-20
<PAGE>
------------------------------------------------------------------
Contingent Deferred Sales Charges
Year Since Purchase as a Percentage of Dollars
Payment Was Made Invested or Redemption Proceeds
------------------------------------------------------------------
First 5%
------------------------------------------------------------------
Second 4%
------------------------------------------------------------------
Third 3%
------------------------------------------------------------------
Fourth 2%
------------------------------------------------------------------
Fifth 1%
------------------------------------------------------------------
Sixth and thereafter 0%
------------------------------------------------------------------
Shares originally acquired (prior to the date of the Reorganization) in an
exchange from the SunAmerica Diversified Income Fund series of SunAmerica
Multi-Asset Portfolios, Inc. are no longer subject to CDSC.
Any Class B shares purchased after the date of the Reorganization (other
than through the reinvestment of dividends and distributions, which are not
subject to the CDSC) will be subject to the CDSC schedule reflected in the
Prospectus. After the Reorganization, in calculating the contingent deferred
sales charge due upon redemption of Class B shares of the Fund acquired through
an exchange from a CDSC Fund or in the Reorganization, a shareholder will
receive credit toward the holding period for the period of time they held Class
B shares of the Fund.
Conversion Feature Applicable to Class B Shares. Class B shares (including a pro
rata portion of the Class B shares purchased through reinvestment of dividends
and distributions) will convert automatically to Class A shares on the first
business day of the month following the seventh anniversary of issuance of such
Class B shares or, in the case of Class B shares acquired pursuant to the
Reorganization, seven years after the issuance of a shareholder's original CDSC
Fund shares (which were subsequently exchanged for the Cash Fund shares which
were in turn exchanged for Class B shares of the Fund in the Reorganization),
provided, that in calculating such seven-year period, any time during which the
shareholder held the Cash Fund shares will be excluded. For example, if shares
of a CDSC Fund were held by a shareholder for four years and then exchanged for
shares of Cash Fund which were then held for two years as of the date of the
Reorganization, such shareholder's Class B shares of the Fund received in the
Reorganization will convert to Class A shares of the Fund at the end of the
third year following consummation of the Reorganization. The conversion to Class
A shares will be on the basis of the relative net asset values of Class B shares
and Class A shares, without the imposition of any sales load, fee or charge.
Waiver of Contingent Deferred Sales Charges. CDSCs may be waived on redemptions
of Class B and Class II shares under certain circumstances. The conditions set
forth below are applicable with respect to the following situations with the
proper documentation:
Death. CDSCs may be waived on redemptions within one year following the
-----
death (i) of the sole shareholder on an individual account, (ii) of a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii) of
the beneficiary of a Uniform Gifts to Minors Act, Uniform Transfers
B-21
<PAGE>
to Minors Act or other custodial account. The CDSC waiver is also applicable in
the case where the shareholder account is registered as community property. If,
upon the occurrence of one of the foregoing, the account is transferred to an
account registered in the name of the deceased's estate, the CDSC will be waived
on any redemption from the estate account occurring within one year of the
death. If the Class B or Class II shares are not redeemed within one year of the
death, they will remain subject to the applicable CDSC, when redeemed.
Disability. CDSCs may be waived on redemptions occurring within one year
----------
after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of
the Internal Revenue Code of 1986, as amended (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.
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
investment requirements set forth in the Prospectus). Orders for purchases of
shares received by the Distributor by wire transfer in the form of Federal Funds
will be effected at the next-determined net asset value if received at or prior
to the Fund's close of business. Orders for purchases accompanied by check or
other negotiable bank draft will be accepted and effected as of the Fund's close
of business on the next business day following receipt of such order. Shares
will be entitled to receive a dividend, if any, commencing on the next business
day after the day the purchase is effected.
Purchase by Check. Checks should be made payable to the Fund or to "SunAmerica
Funds." If the payment is for a retirement plan account for which the Adviser
serves as fiduciary, please indicate 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 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. Subsequent purchases of shares of the Fund may be purchased
directly through the Transfer Agent. Orders for purchases accompanied by check
or other negotiable bank draft will be accepted and effected as of the Fund's
close of business on the next business day following receipt of such order and
such shares will receive the dividend for the business day following the day the
purchase is effected. SAFS reserves
B-22
<PAGE>
the right to reject any check made payable other than in the manner indicated
above. Under certain circumstances, the Fund will accept a multi-party check
(e.g., a check made payable to the shareholder by another party and then
endorsed by the shareholder to the Fund in payment for the purchase of shares);
however, the processing of such a check may be subject to a delay. The Fund does
not verify the authenticity of the endorsement of such multi-party check, and
acceptance of the check by the Fund should not be considered verification
thereof. Neither the Fund nor its affiliates will be held liable for any losses
incurred as a result of a fraudulent endorsement. There are restrictions on the
redemption of shares purchased by check for which funds are being collected.
(See "Redemption of Shares.")
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. Orders for purchase of shares received by
wire transfer in the form of federal funds will be effected at the
next-determined net asset value if received at or prior to the Fund's close of
business. Such shares will receive the dividend for the next business day. In
order to insure prompt receipt of a Federal funds wire, it is important that
these steps be followed:
1. You must have an existing SunAmerica Fund Account before wiring funds.
To establish an account, complete the New Account Application and send
it via facsimile to SunAmerica Fund Services, Inc. at: (212) 551-5343.
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 [name of Fund, Class __] (include shareholder
name and account number).
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption of Fund shares.
If the Directors determine that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Corporation, having filed with the Securities and Exchange
Commission ("SEC") a notification of election pursuant to Rule 18f-1 on behalf
of the Fund, may pay the redemption price in whole, or in part, by a
distribution in kind of securities from the Fund in lieu of cash. In conformity
with applicable rules of the SEC, the Fund is committed to pay in cash all
requests for redemption of Fund shares, by any shareholder of record, limited in
amount with respect to each shareholder during any 90-day period to the lesser
of (i) $250,000, or (ii) 1% of the net asset value of the Fund at the beginning
of such period. If shares
B-23
<PAGE>
are redeemed in kind, the redeeming shareholder would incur brokerage costs in
converting the assets into cash. The method of valuing portfolio securities is
described below in the section entitled "Determination of Net Asset Value," and
such valuation will be made as of the same time the redemption price is
determined.
DETERMINATION OF NET ASSET VALUE
The Fund is open for business on any day the New York Stock Exchange
("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. The net asset value may not be computed on a day in which no orders
to purchase, sell or redeem Fund shares have been received.
Under applicable rules of the SEC, the valuation of the Fund's investments
is based upon their amortized cost. This entails valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any premium
or discount regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which the value of an instrument, as determined by
the amortized cost method, is higher or lower than the price the Fund would
receive if it sold the instrument. During periods of rising interest rates, the
daily yield on shares of the Fund computed on an amortized cost basis may tend
to be higher than the like computation made by a mutual fund with identical
investments utilizing a method of valuation based upon market prices. The
converse would apply in a period of declining rates. The purpose of this method
of valuation is to facilitate the maintenance of a constant net asset value per
share of $1.00. There can be no assurance, however, that the Fund will be able
to maintain a stable net asset value of $1.00 per share.
Certain conditions must be met in connection with the application of
valuation rules to the Fund. These conditions include maintaining a
dollar-weighted average portfolio maturity of 90 days or less, purchasing
instruments having remaining maturities of 397 calendar days or less, and
investing only in securities determined by the Adviser under procedures adopted
by the Directors to present minimal credit risks and which are of high quality
as determined by the requisite number of nationally recognized statistical
rating organizations or, in the case of any instrument that is not rated,
determined to be of comparable quality by the Adviser under procedures adopted
by the Directors. In accordance with the applicable regulations, the Directors
have established procedures designed to stabilize at $1.00 the Fund's net asset
value per share to the extent reasonably possible. Such procedures include
review of the Fund's portfolio holdings at such intervals as appropriate to
determine whether the Fund's net asset value, calculated by using available
market quotations, deviates from $1.00 per share based on amortized cost. If
such deviation exceeds .5% of the Fund's $1.00 per share net asset value, the
Directors will promptly consider what action, if any, will be initiated. In the
event that the Directors determine that a deviation exists that may result in
material dilution or other unfair results to investors or existing shareholders,
they will take such corrective action as they deem necessary and appropriate,
which may include selling portfolio instruments,
B-24
<PAGE>
withholding dividends or establishing a net asset value per share based upon
available market quotations.
PERFORMANCE DATA
The Fund may advertise performance data that reflects various measures of
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 deposit accounts, 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.
Yield is determined separately for Class A, Class B and Class II shares of
the Fund in accordance with a standardized formula prescribed by the SEC and is
not indicative of the amounts which were or will be paid to shareholders. The
yield quoted in the Fund's advertisements is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the 7-day
period. A hypothetical charge reflecting deductions for shareholder accounts is
subtracted from the above net change and the difference is divided by the value
of the account at the beginning of the 7-day period. The resulting figure is
multiplied by 365 divided by seven and carried to the nearest one hundredth of
one percent.
Effective yield quoted in the Fund's advertisements is computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the 7-day period. A hypothetical charge reflecting deductions from
shareholder accounts is subtracted from the above net change and the difference
is divided by the value of the account at the beginning of the 7-day period. The
resulting figure is then compounded by adding one, raising the sum to a power
equal to 365 divided by seven, and subtracting one. The following formula
illustrates the effective yield computation.
[(Base period return + 1) 365/7] - 1
The following table sets forth the Fund's yield and effective yield for
the Class A, Class B and Class II shares for the 7-day periods ended
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------------------------------------------
Class A Class B Class II Class A Class B Class II* Class A Class B
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Yield 4.40% 3.59% 3.57% 4.84% 4.08% 4.15% 4.55% 3.76%
- -----------------------------------------------------------------------------------------------
Effective Yield 4.50% 3.65% 3.64% 4.96% 4.16% 4.24% 4.65% 3.83%
- -----------------------------------------------------------------------------------------------
</TABLE>
* The Fund commenced offering Class II shares (previously designated Class C
shares) on October 2, 1997.
B-25
<PAGE>
Comparisons
- -----------
The Fund may compare its 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) Lipper: Mutual Fund Performance Analysis, Fixed Income Analysis, and
Mutual Fund Indices -- measures total return and average current yield for the
mutual fund industry. Ranks individual mutual fund performance over specified
time periods assuming reinvestment of all distributions, exclusive of sales
charges.
b) CDA Mutual Fund Report, published by CDA Investment Technologies,
Inc., analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods for
the mutual fund industry.
c) 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.
d) IBC/Donoghue's Inc. Money Fund Report -- comprehensive evaluation of
money market funds which monitors portfolio characteristics on a weekly basis.
The Report provides the information with respect to yield, average maturity,
security selection (asset allocation) and credit quality.
In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
figures. Specifically, the Fund may compare its performance to that of certain
indices that include securities with government guarantees. However, the Fund's
shares do not contain any such guarantees. In addition, there can be no
assurance that the Fund will continue its performance as compared to such other
standards.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. The Fund intends to distribute to the registered
holders of its shares all or 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
long-term capital gains in excess of any net short-term capital losses.
Dividends from net investment income are declared daily and paid monthly.
Dividends are paid on or about the fifteenth day of the month. Net capital
gains, if any, will be paid annually. In determining amounts of capital gains to
be distributed, any capital loss carry-forwards from prior years will be offset
against capital gains. At December 31, 1998, the Fund had a capital loss
carry-forward of $40,283, which is available to the extent not utilized to
offset future gains from 2002 through 2005. The
B-26
<PAGE>
utilization of such losses will be subject to annual limitations under the
Code and the regulations thereunder.
Dividends and distributions are paid in additional Fund shares based on the
net asset value at the close of business on the record date, unless the
dividends total in excess of $10 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 is qualified and intends to remain qualified and elects to be
treated as a regulated investment company under Subchapter M of the Code for
each taxable year. In order to remain qualified as a regulated investment
company, the Fund generally must, among other things, (a) derive at least 90% of
its gross income from dividends, interest, proceeds from loans of stock or
securities 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 not greater than 5% of the Fund's assets and not
greater than 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than government securities or the securities of other
regulated investment companies).
As a regulated investment company, the Fund will not be subject to U.S.
federal income tax on its income and 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 net capital
gains, i.e., 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 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.
Generally, a distribution will be subject to tax in the year it is received.
However, distribution will be treated as paid on December 31 of the calendar
year if declared by the Fund in October, November or December of such year,
payable to shareholders of record on a date in such month and paid by the Fund
during January of the following year. Any such distributions paid during January
of the following year will be taxable to shareholders as of December 31, rather
than the date on which the distributions are received.
B-27
<PAGE>
Distributions of net investment income and short-term capital gains
("ordinary income dividends") are taxable to a shareholder as ordinary dividend
income regardless of whether the shareholder receives such distributions in
additional shares or in cash. Distributions of net capital gains, if any, are
taxable as capital gains regardless of whether the shareholder receives such
distributions in additional shares or in cash or how long the investor has held
his or her shares. Dividends and distributions paid by the Fund will not be
eligible for the dividends received deduction for corporations.
Upon a sale or exchange of its shares, a shareholder may realize a taxable
gain or loss depending upon 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 if the shares were held for not more than 12
months, and long-term 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 capital loss will be long-term capital gain or loss if the shares have been
held for more than one year. The amount of any CDSC will reduce the amount
realized on the sale or exchange of shares for purposes of determining gain or
loss. Generally, any loss realized on a sale or exchange will be disallowed to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of.
Any loss realized by a shareholder on the sale of shares of the Fund held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
Under certain circumstances (such as the exercise of an exchange privilege
in certain cases), the tax effect of sales load charges imposed on the purchase
of shares in a regulated investment company is deferred if the shareholder does
not hold the shares for at least 90 days.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries is not known. It is not anticipated
that the Fund will qualify to pass through to shareholders the ability to claim
as a foreign tax credit their respective shares of foreign taxes paid by the
Fund.
The Fund may be required to backup withhold U.S. Federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide their correct taxpayer identification number or fail to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's U.S. Federal
income tax liability.
Foreign shareholders generally will be subject to a withholding tax at the
rate of 30% (or lower treaty rate) on any ordinary income dividends pay by the
Fund.
B-28
<PAGE>
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, state and local taxes. In addition, foreign investors
should consult with their own tax advisers regarding the particular tax
consequences, including foreign tax consequences, to them of an investment in
the Fund. Qualification as a regulated investment company under the Code for tax
purposes does not entail government supervision of management or 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 advisor 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.
B-29
<PAGE>
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 (contributions and earnings) held in the account for at
least five years may be distributed tax-free under certain qualifying
conditions.
Education IRA. Established by the Taxpayer Relief Act of 1997, under Section 530
of the Code, this plan permits individuals to contribute to an IRA on behalf of
any child under the age of 18. Contributions are not tax-deductible but
distributions are tax-free if used for qualified educational expenses.
DESCRIPTION OF SHARES
Ownership of the Corporation is represented by transferable shares of
common stock, having a par value of $.001 per share. The Articles of
Incorporation, as amended to date (the "Articles of Incorporation"), authorize
the Corporation to issue 10 billion shares of common stock and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate interests of shareholders of the Corporation.
Currently, one series of shares of the Corporation, the Fund, has been
authorized pursuant to the Articles of Incorporation. This series has been
divided into three classes of shares, designated as Class A, Class B and Class
II shares. The Directors may authorize the creation of additional series of
shares so as to be able to offer to investors additional investment portfolios
within the Corporation that would operate independently from the Corporation's
present portfolio, or to distinguish among shareholders, as may be necessary, to
comply with future regulations or other unforeseen circumstances. Each series of
the Corporation's shares, in the event that more than one series is authorized,
will represent the interests of the shareholders of that series in a particular
portfolio of the Corporation's assets. In addition, the Directors may authorize
the creation of additional classes of shares in the future.
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, Maryland law, the Articles of Incorporation or the
By-Laws of the Corporation (the "By-Laws").
B-30
<PAGE>
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 only for cause by the action of the
holders of record of at least a majority of all outstanding shares entitled to
vote for election of Directors. All series of shares will vote with respect to
certain matters, such as election of Directors. When all series of shares, to
the extent that more than one series is authorized, are not affected by a matter
to be voted upon, such as approval of investment advisory agreements or changes
in a series' policies, only shareholders of the series affected by the matter
may be entitled to vote.
All 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 ongoing account maintenance and
service fee, (iii) Class B shares are subject to a contingent deferred sales
charge, a distribution fee and an ongoing account maintenance and service fee,
(iv) Class II shares are subject to an initial sales charge, a CDSC, a
distribution fee and an ongoing account maintenance and service fee; (v) Class B
shares convert automatically to Class A shares on the first business day of the
month seven years after the purchase of such Class B shares, (vi) each class has
voting rights on matters that pertain to the Rule 12b-1 plan adopted with
respect to such class, except that under certain circumstances, the holders of
Class B shares may be entitled to vote on material changes to the Class A Rule
12b-1 plan, and (vii) each class of shares will be exchangeable only into the
same class of shares of any of the other SunAmerica Mutual Funds. All shares of
the Fund issued and outstanding and all shares offered by the Prospectus when
issued are fully paid and non-assessable. Shares have no preemptive or other
subscription rights and are freely transferable on the books of the Corporation.
In addition, shares have no conversion rights, except as described above.
The By-Laws provide that the Corporation shall indemnify any person who was
or is a Director, officer or employee of the Corporation to the maximum extent
permitted by Maryland law and the 1940 Act upon a determination, made in
accordance with the terms of the By-Laws, that indemnification is proper in the
circumstances. In addition, the By-Laws provide that the Corporation may
maintain insurance on behalf of any person who is or was a Director or officer,
employee or agent of the Corporation or who is or was serving at the request of
the Corporation as Director, officer, agent or employee of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted or incurred in connection with serving in such capacity. However, no
Director or officer of the Corporation will be protected by indemnification,
insurance or otherwise from any liability to the Corporation or its shareholders
to which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in his
or her office.
ADDITIONAL INFORMATION
Reports to Shareholders. The Fund 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 Fund to
confirm transactions in the account.
Custodian and Transfer Agent. 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
B-31
<PAGE>
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, serves as the Corporation's
independent accountants and in that capacity examines the annual financial
statements of the Fund. The firm of Swidler Berlin Shereff Friedman, LLP, 919
Third Avenue, New York, NY 10022, serves as legal counsel to the Corporation.
FINANCIAL STATEMENTS
The Fund's audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 858-8850 or writing the Fund at SunAmerica Fund Services, Inc.,
Mutual Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New
York 10017-3204.
B-32
<PAGE>
APPENDIX
BOND, NOTE AND COMMERCIAL PAPER RATINGS
Description of Applicable Moody's Investors Service, Inc.'s ("Moody's")
Corporate Bond 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 which make the long-term risks
appear somewhat larger than in Aaa securities.
Note: Moody's may apply numerical modifiers 1, 2 and 3 to issues rated Aa
to denote relative strength within such classification. The modifier 1 indicates
that the security ranks in the higher end of the Aa 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 Aa rating category.
Description of Applicable Moody's Note Ratings
MIG 1 Notes bearing the designation MIG 1 are judged to be of the
best quality, enjoying strong protection from established
cash flows of funds for their servicing or from established
and broad-based access to the market for refinancing, or
both.
MIG 2 Notes bearing the designation MIG 2 are judged to be of high
quality, with margins of protection ample although not so
large as in the preceding group.
Description of Applicable 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.
Appendix-1
<PAGE>
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.
Issuers rated P-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. P-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 P-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.
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.
Appendix-2
<PAGE>
Description of Applicable Standard & Poor's Ratings Services, a Division of The
McGraw-Hill Companies, Inc. ("S&P") Bond Ratings
An S&P corporate 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 S&P from other sources it considers reliable. S&P 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 S&P. 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.
Plus (+) or minus (-): The rating of "AA" may be modified by the addition
of a plus or minus sign to show relative standing within these ratings
categories.
Provisional ratings:
P 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
Appendix-3
<PAGE>
& Loan Insurance Corp. or the Federal Deposit Insurance Corp. and
interest is adequately collateralized.
* Continuance of the rating is contingent upon S&P receipt of an
executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that S&P 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 issues. The ratings measure
the credit worthiness of the obligor but do not take into account currency
exchange and related uncertainties.
Applicable Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated "AAA" or "AA"
(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 Applicable S&P Note Ratings
SP-1 The designation "SP-1" indicates a very strong capacity to pay
principal and interest. A "+" is added for those issues determined to
possess overwhelming safety characteristics.
SP-2 An "SP-2" designation indicates a satisfactory capacity to pay
principal and interest.
Description of Applicable S&P Commercial Paper Ratings.
A S&P 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.
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.
Appendix-4
<PAGE>
The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to S&P 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-5
