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New Institutional Funds Protect Gains

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AIG VALIC has started offering group retirement plans a family of 3 new mutual funds that come with rich performance guarantees.[@@]

AIG VALIC, Houston, has set up an insurance arrangement with a unit of Prudential Financial Inc., Newark, N.J., that can protect the fund shareholders’ investment gains as well as the shareholders’ principal, according to AIG VALIC.

The new funds, the High Watermark Funds, are set to mature in 5, 10 and 15 years.

AIG VALIC introduced retail versions of similar funds a year ago.

One of AIG VALIC’s sister companies, AIG SunAmerica Asset Management Corp., is the manager of the new funds, and Trajectory Asset Management L.L.C., is the advisor, according to AIG VALIC, which is a unit of American International Group Inc., New York.

Many lifecycle funds are “funds of funds,” meaning that the managers invest the funds’ assets in other funds. The managers of the High Watermark funds will invest those funds’ assets directly in stock index futures and other instruments, without relying on other mutual funds, according to AIG VALIC.

Moreover, the guarantee arrangement that AIG VALIC has set up with Prudential should allow retirement plan members who keep their money in the funds until the funds mature to receive the “highest net asset value attained during the life of the fund, adjusted for extraordinary expenses,” AIG VALIC says.

AIG VALIC notes that this guarantee does not apply to retirement plan members who cash in early.

The guarantee is backed by Prudential Global Funding Inc., an arm of Prudential, and not by AIG VALIC or other AIG units, AIG VALIC says.

In addition, “neither the funds nor AIG SunAmerica is obligated to replace [Prudential Global Funding] or Prudential Financial should they be unable to make repayments necessary to support the guaranteed payout,” AIG VALIC says.

AIG VALIC also notes that the Prudential Global Funding guarantee arrangement really is an agreement that protects the High Water funds, not the fund shareholders.

But, if the guarantee system works as planned, it should help fund investors achieve long-term savings goals while enjoying some protection from ups and downs in the stock market, AIG VALIC says.

The maximum sales charges are 5.75% for Class A shares and 1% for Class C shares.