NU Online News Service, June 29, 2004, 6:33 p.m. EDT

Units of American International Group Inc., New York, and Prudential Financial Inc., Newark, N.J., are joining to sell mutual funds that could help investors lock in gains as well as guarantee return of principal.[@@]

The 3 new High Watermark funds are open-end mutual funds that will mature in 2010, 2015 and 2020.

AIG’s AIG SunAmerica Asset Management Corp. unit, the manager of the funds, is promising that investors can lock in the highest net asset value attained during the life of the funds if they hold the shares to maturity.

Prudential’s Prudential Global Funding Inc. unit is backing the guarantees with put agreements. The guarantees could fail in an extreme market upheaval, because the guarantees depend on the financial condition of Prudential and Prudential Global. AIG SunAmerica Asset Management says it is “not obligated to replace the put agreement provider” if Prudential and Prudential Global are unable to support the guarantees.

But executives at AIG SunAmerica Asset Management say the guarantees are more attractive than the guarantees sold with other principal-protected funds.

The High Watermark terms are better because they give investors some ability to guarantee payment of gains as well as return of principal, the executives say.

The fund managers will invest the fund assets by combining “non-callable U.S. government securities and high-grade money market instruments” with S&P 500 Index futures, AIG SunAmerica Asset Management says.

AIG SunAmerica Asset Management now manages or administers 38 retail funds with about $9 billion in mutual fund assets and $31 billion in variable annuity assets.