SUNAMERICA EQUITY FUNDS, 497, 1996-10-03

SUNAMERICA EQUITY FUNDS
497, 1996-10-03

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<PAGE>

SUNAMERICA EQUITY FUNDS
(SunAmerica Balanced Assets Fund and SunAmerica Small Company Growth Fund)
(Class Z Shares)

SunAmerica Balanced Assets Fund and SunAmerica Small Company Growth Fund
(each, a "Fund" and collectively, the "Funds") are two of six separate series of
SunAmerica Equity Funds, which is an open-end management investment company
organized as a Massachusetts business trust (the "Trust"). Each Fund is advised
and/or managed by SunAmerica Asset Management Corp. More general information
about the Funds can be found in the attached Prospectus dated October 1, 1996,
as supplemented October 1, 1996 (the "Retail Class Prospectus"), which is
incorporated by reference into this Prospectus.

SunAmerica Balanced Assets Fund ("Balanced Assets Fund") seeks to conserve
principal by maintaining at all times a balanced portfolio of stocks and bonds.
The Balanced Assets Fund seeks to achieve its investment objective by selecting
among different types of investments for capital growth and income and may alter
the composition of the portfolio as economic and market trends change.

SunAmerica Small Company Growth Fund ("Small Company Growth Fund") seeks
capital appreciation by investing primarily in equity securities of small
capitalization growth companies. The Small Company Growth Fund pursues its
investment objective by investing, under normal circumstances, at least 65% of
its total assets in the equity securities of small, lesser known or new growth
companies or industries, such as telecommunications, media and biotechnology.
See "Investment Objectives and Policies" for more information about each Fund.
There can be no assurance that the Funds' objectives will be achieved.

Class Z shares are offered exclusively for sale to participants in the
SunAmerica Profit Sharing and Retirement Plan, an employee benefit plan
sponsored by Fidelity Investments (the "401(k) Plan" or the "Plan"). CLASS Z
SHARES ARE ONLY AVAILABLE IN THE FOLLOWING STATES: AL, AZ, CA, CO, CT, FL, GA,
IL, IN, KS, KY, MN, MO, NJ, NY, NC, OH, PA, SC, TX, VA AND WA. Only Class Z
shares are offered through this Prospectus. The Funds also offer Class A and
Class B shares through the Retail Class Prospectus.

Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank through which such shares may be sold, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency.

This Prospectus explains concisely what you should know before investing in
Class Z shares of either of the Funds. Please read it carefully before investing
and retain it for future reference. You can find more detailed information
about the Funds in the Statement of Additional Information dated October 1,
1996, which is incorporated by reference into this Prospectus, and further
information about the performance of the Funds in the Trust's Annual Report to
Shareholders, which may be obtained without charge by contacting the Trust at
The SunAmerica Center, 733 Third Avenue, New York, NY 10017 or by calling (800)
858-8850.

________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM-
MISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
________________________________________________________________________________

Prospectus dated October 1, 1996

<PAGE>

SUMMARY OF FUND EXPENSES

SMALL
BALANCED COMPANY
ASSETS FUND GROWTH FUND
CLASS Z CLASS Z
----------- -----------

Shareholder Transaction Expenses
Maximum Initial Sales Load......... None None
Maximum Sales Load on
Reinvested Dividends.............. None None
Maximum Deferred Sales Load........ None None
Redemption Fees.................... None None
Exchange Fees...................... None None

Annual Fund Operating Expenses (1)
Management Fees.................... 0.75% 0.75%
12b-1 Fees......................... None None
Other Expenses..................... 0.25% 0.32%

Total Operating Expenses............ 1.00% 1.07%

Actual expenses may be greater or less than those shown.

___________

(1) Estimated based on expenses expected to have been incurred if Class Z
shares had been in existence throughout the fiscal year ended September 30,
1995. The offering of Class Z shares commenced on October 1, 1996.

EXAMPLE:

You would pay the following expenses on a $1,000 investment over
various time periods assuming (1) a 5% annual rate of return and (2) redemption
at the end of each time period. The 5% return and the expenses used in this
example should not be considered indicative of actual or expected performance or
expenses both of which will vary:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------

Balanced Assets Fund
(Class Z shares).......... $10 $32 $55 $123

Small Company Growth Fund
(Class Z shares).......... $11 $34 $59 $131

The foregoing examples should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown.
<PAGE>

THE FOLLOWING INFORMATION SUPPLEMENTS "MANAGEMENT OF THE TRUST--THE DISTRIBUTOR"
IN THE RETAIL CLASS PROSPECTUS.

SunAmerica Capital Services, Inc. serves as the Distributor of Class Z
shares and incurs the expenses of distributing the Funds' Class Z shares under a
Distribution Agreement with respect to the Funds, none of which are reimbursed
by or paid for by the Funds. There is no distribution plan in effect for the
Class Z shares.

THE FOLLOWING INFORMATION SUPPLEMENTS "MANAGEMENT OF THE TRUST--THE
ADMINISTRATOR" IN THE RETAIL CLASS PROSPECTUS.

SunAmerica Fund Services, Inc. serves as the Administrator for Class Z
shares and may receive reimbursement from the Trust of its costs through a fee,
none of which is reimbursed by or paid for by the Class Z shares of the Funds.
The Class Z shares, however, pays all direct transfer agency fees and out-of-
pocket expenses.

THE FOLLOWING INFORMATION SUPPLEMENTS "DIVIDENDS, DISTRIBUTIONS AND TAXES--
TAXES" IN THE RETAIL CLASS PROSPECTUS.

As a qualified plan, the 401(k) Plan generally pays no federal income
tax. Individual participants in the 401(k) Plan should consult Plan documents
and their own tax advisers for information on the tax consequences associated
with participating in the 401(k) Plan.

The per share dividends on Class Z shares will generally be higher
than the per share dividends on Class A or Class B shares as a result of the
fact that Class Z shares are not subject to any distribution or service fee.

THE FOLLOWING INFORMATION SUPPLEMENTS THE INFORMATION UNDER "PURCHASE OF SHARES"
AND "REDEMPTION OF SHARES."

Class Z shares of the Funds are offered exclusively for sale to
participants in the 401(k) Plan. Such shares may be purchased or redeemed only
by the 401(k) Plan on behalf of individual Plan participants at net asset value
without any sales or redemption charge. Class Z shares are not subject to any
minimum investment requirements. The Plan purchases and redeems shares to
implement the investment choices of individual Plan participants with respect to
their contributions in the Plan. All purchases of Fund shares through the Plan
will be of Class Z shares.

The net asset value per share at which shares of the Funds are
purchased or redeemed by the Plan for the accounts of individual Plan
participants might be more or less than the net asset value per share prevailing
at the time that such participants made their investment choices or made their
contributions to the Plan.

THE FOLLOWING INFORMATION SUPPLEMENTS "EXCHANGE PRIVILEGE" IN THE RETAIL CLASS
PROSPECTUS.

Class Z shareholders of one Fund may exchange their shares for Class Z
shares of another Fund (Balanced Assets and Small Company Growth Funds only) on
the basis of relative net asset value per share. See "Purchase of Shares"
above.

THE FOLLOWING INFORMATION SUPPLEMENTS "DETERMINATION OF NET ASSET VALUE" IN THE
RETAIL CLASS PROSPECTUS.

Because Class Z shares are not subject to any distribution or service
fees, the net asset value per share of the Class Z shares will generally be
higher than the net asset value per share of each of Class A and Class B shares,
except following the payment of dividends and distributions.

THE FOLLOWING INFORMATION SUPPLEMENTS THE INFORMATION UNDER "GENERAL
INFORMATION--SHAREHOLDER INQUIRIES" IN THE RETAIL CLASS PROSPECTUS.

Inquiries regarding the purchase, redemption or exchange of Class Z
shares or the making or changing of investment choices in the 401(k) Plan should
be directed to the Fidelity Participant Center at (800) 835-5098.

<PAGE>

SUNAMERICA EQUITY FUNDS

Supplement to the Prospectus dated October 1, 1996

The date of the Prospectus is hereby changed to October 1, 1996.

The following financial information replaces the financial information
under the heading entitled "Financial Highlights" on pages 4, 5 and 6 of the
Prospectus.

October 1, 1996
<PAGE>

FINANCIAL HIGHLIGHTS

The following Financial Highlights for each of the two years ended September
30, 1995 and for the period July 1, 1993 through September 30, 1993 and for
each of the three years in the period ended June 30, 1993 for the Balanced
Assets Fund and each of the periods through September 30, 1995 for the Blue
Chip Growth Fund, has been audited by Price Waterhouse LLP, each Fund's
independent accountants, whose report on the financial statements containing
such information for the five years in the period ended September 30, 1995 is
included in the Annual Report to Shareholders. The financial information for
the six month period ended March 31, 1996 is unaudited. These Financial
Highlights should be read in conjunction with each Fund's financial statements
and notes thereto, which are included in the Statement of Additional
Information and are incorporated by reference herein.

<TABLE>
<CAPTION>
NET
GAIN (LOSS)
ON TOTAL
INVESTMENTS FROM DIVIDENDS DISTRI- NET NET
NET ASSET NET (BOTH INVEST- FROM NET BUTIONS ASSET ASSETS
VALUE INVEST- REALIZED MENT INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND OPERAT- MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) IONS INCOME GAINS BUTIONS PERIOD RETURN(/2/) (000'S)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCED ASSETS FUND

CLASS A
09/24/93-
09/30/93(/1//1/) $15.07 $ -- $ 0.06 $ 0.06 $ -- $ -- $ -- $15.13 0.40% $ 33,381
09/30/94 15.13 0.30(/1/) (0.23) 0.07 (0.28) (0.30) (0.58) 14.62 0.50 52,098
09/30/95 14.62 0.32(/1/) 2.51 2.83 (0.45) (0.58) (1.03) 16.42 20.68 119,916
03/31/96(/1//5/) 16.42 0.13(/1/) 1.04 1.17 (0.15) (0.99) (1.14) 16.45 7.43 142,045

CLASS B(8)

06/30/86 $10.63 $0.18(/1/) $ 3.48 $ 3.66 $(0.08) $(0.22) $(0.30) $13.99 34.64% $ 60,656
06/30/87 13.99 0.14(/1/) 1.32 1.46 (0.11) (0.62) (0.73) 14.72 9.87 141,055
06/30/88 14.72 0.23(/1/) (0.52) (0.29) (0.23) (0.72) (0.95) 13.48 (1.49) 151,924
06/30/89 13.48 0.37(/1/) 0.70 1.07 (0.38) -- (0.38) 14.17 8.22 131,317
06/30/90 14.17 0.53(/1/) 1.26 1.79 (0.53) -- (0.53) 15.43 12.89 123,611
06/30/91 15.43 0.39(/1/) 0.18 0.57 (0.25) -- (0.25) 15.75 4.41 90,239
06/30/92 15.75 0.33(/1/) 0.98 1.31 (0.42) (1.01) (1.43) 15.63 7.51 83,234
06/30/93 15.63 0.30(/1/) 2.63 2.93 (0.30) (2.40) (2.70) 15.86 20.29 113,871
07/01/93-
09/30/93 15.86 0.05(/1/) 0.49 0.54 (0.06) (1.21) (1.27) 15.13 3.44 137,456
09/30/94 15.13 0.20(/1/) (0.23) (0.03) (0.18) (0.30) (0.48) 14.62 (0.14) 180,655
09/30/95 14.62 0.23(/1/) 2.51 2.74 (0.36) (0.58) (0.94) 16.42 19.96 162,115
03/31/96(/1//5/) 16.42 0.08(/1/) 1.04 1.12 (0.10) (0.99) (1.09) 16.45 7.10 171.352

<CAPTION>
RATIO
OF NET
RATIO OF INVEST-
EXPENSES MENT
TO INCOME AVERAGE
AVERAGE TO COMMIS- SION
PERIOD NET AVERAGE PORTFOLIO PER
ENDED ASSETS NET ASSETS TURNOVER SHARE(/1//4/)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A

09/24/93-
09/30/93(/1//1/) 1.54%(3) 0.46%(3) 25% N/A
09/30/94 1.58 2.00 141 N/A
09/30/95 1.50 2.13 130 N/A
03/31/96(/1//5/) 1.46(/3/) 1.66(/3/) 79 .0600

CLASS B(8)

06/30/86 1.92% 1.32% 69% N/A
06/30/87 2.13 0.95 76 N/A
06/30/88 2.01 1.65 58 N/A
06/30/89 2.02 2.74 59 N/A
06/30/90 1.92 3.55 33 N/A
06/30/91 1.94(/4/) 2.65(/4/) 56 N/A
06/30/92 1.93(/5/) 2.04(/5/) 151 N/A
06/30/93 1.91(/6/) 1.94(/6/) 251 N/A
07/01/93-
09/30/93 2.10(3)(7) 1.36(3)(7) 25 N/A
09/30/94 2.21 1.36 141 N/A
09/30/95 2.12 1.59 130 N/A
03/31/96(/1//5/) 2.08(/3/) 1.04(/3/) 79 .0600

<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BLUE CHIP GROWTH FUND(9)

CLASS A
10/08/93-
09/30/94(/1//1/) $16.24 $0.09(/1/) $(0.26) $(0.17) $ -- $(0.65) $(0.65) $15.42 (1.05)% $ 3,207
09/30/95 15.42 0.02(/1/) 2.99 3.01 -- (1.09) (1.09) 17.34 21.29 42,407
03/31/96(/1//5/) 17.34 (0.01)(/1/) 1.59 1.58 (1.91) (1.91) 17.01 9.93 48,669

CLASS B

12/31/86 $11.81 $0.05 $ 1.92 $ 1.97 $(0.29) $(0.35) $(0.64) $13.14 16.75% $144,971
12/31/87 13.14 0.03 (1.05) (1.02) (0.03) (1.56) (1.59) 10.53 (7.48) 185,939
12/31/88 10.53 0.16 2.91 3.07 (0.17) (0.60) (0.77) 12.83 29.34 216,582
12/31/89 12.83 0.17 1.47 1.64 (0.17) (1.35) (1.52) 12.95 12.76 207,549
12/31/90 12.95 0.04 (3.29) (3.25) (0.05) -- (0.05) 9.65 (25.11) 123,379
12/31/91 9.65 (0.06) 2.94 2.88 -- -- -- 12.53 29.84 105,734
12/31/92 12.53 (0.13) 1.19 1.06 -- -- -- 13.59 8.46 83,237
01/01/93-
09/30/93 13.59 (0.02)(/1/) 2.71 2.69 -- -- -- 16.28 19.79 79,774
09/30/94 16.28 (0.01)(/1/) (0.28) (0.29) -- (0.65) (0.65) 15.34 (1.81) 71,749
09/30/95 15.34 (0.01)(/1/) 2.89 2.88 -- (1.09) (1.09) 17.13 20.51 39,533
03/31/96(/1//5/) 17.13 (0.06)(/1/) 1.56 1.50 (1.91) (1.91) 16.72 9.56 41,690

<CAPTION>
<S> <C> <C> <C> <C>
CLASS A

10/08/93-
09/30/94(/1//1/) 1.64%(/3/)(/1//2/) 0.65%(/3/)(/1//2/) 170% N/A
09/30/95 1.58(/1//3/) 0.11(13) 251 N/A
03/31/96(/1//5/) 1.53(/3/) (0.14)(/3/) 120 .0600

CLASS B

12/31/86 2.40% 0.80% 60% N/A
12/31/87 2.41(/1//0/) 3.32(/1//0/) 41 N/A
12/31/88 2.35 1.20 47 N/A
12/31/89 2.36 1.12 67 N/A
12/31/90 2.51 3.36 90 N/A
12/31/91 2.50 (0.42) 79 N/A
12/31/92 2.53 (0.75) 192 N/A
01/01/93-
09/30/93 2.46(/3/) (0.14)(/3/) 171 N/A
09/30/94 2.28 (0.05) 170 N/A
09/30/95 2.22 (0.09) 251 N/A
03/31/96(/1//5/) 2.19(/3/) (0.79)(/3/) 120 .0600
</TABLE>
- -------
(1) Calculated based upon average shares outstanding.
(2) Total return is not annualized and does not reflect sales load.
(3) Annualized.
(4) Net of expense reimbursement equivalent to .29% of average net assets in
fiscal 1991.
(5) Net of expense reimbursement equivalent to .12% of average net assets in
fiscal 1992.
(6) Net of expense reimbursement equivalent to .05% of average net assets in
fiscal 1993.
(7) Net of expense reimbursement equivalent to .04% of average net assets for
the period ended September 30, 1993.
(8) Shares of the SunAmerica Balanced Assets Fund series of SunAmerica Fund
Group were redesignated as Class B shares of SunAmerica Balanced Assets
Fund. In addition, the Fund changed its fiscal year end to September 30,
effective September 24, 1993.
(9) Blue Chip Growth Fund changed its fiscal year end to September 30,
effective September 24, 1993.
(10) Net of fee waiver equivalent to .05% of average net assets in fiscal 1987.
(11) Commencement of sale of respective class of shares.
(12) Net of expense reimbursement equivalent to 1.66% of average net assets for
the period ended September 30, 1994.
(13) Net of fee waiver/expense reimbursement equivalent to .11% of average net
assets for the fiscal year ended September 30, 1995.

(14) The average commission per share is derived by taking the agency
commissions paid on equity securities trades and dividing by the number of
shares purchased or sold for which commissions were charged.

(15) Unaudited.

S-2
<PAGE>

The following Financial Highlights for the periods through September 30,
1995, has been audited by Price Waterhouse LLP, each Fund's independent
accountants, whose report on the financial statements containing such
information for each of the five years in the period ended September 30, 1995
is included in the Annual Report to Shareholders. The financial information for
the six month period ended March 31, 1996 is unaudited. These Financial
Highlights should be read in conjunction with each Fund's financial statements
and notes thereto, which are included in the Statement of Additional
Information and are incorporated by reference herein.

CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/87(/2/) $11.91 $ .07 $(1.44) $(1.37) $(0.04) -- $(0.04) $10.50 (11.61)% $18,429
11/30/88 10.50 .47 2.36 2.83 (.08) -- (.08) 13.25 26.97 28,082
11/30/89 13.25 .17 4.42 4.59 (.29) $ (.54) (.83) 17.01 36.39 48,188
11/30/90 17.01 .30 (3.08) (2.78) (.24) (1.09) (1.33) 12.90 (17.62) 27,460
11/30/91 12.90 .16 3.09 3.25 (.25) (2.60) (2.85) 13.30 31.13 29,142
11/30/92 13.30 (.07) 2.87 2.80 (.02) (.44) (.46) 15.64 21.42 30,024
12/01/92-
09/30/93 15.64 (0.09)(/5/) 3.17 3.08 -- (0.69) (0.69) 18.03 20.42 34,918
09/30/94 18.03 (0.04)(/5/) (1.64) (1.60) -- (2.65) (2.65) 13.78 (9.60) 32,906
09/30/95 13.78 (0.08)(/5/) 4.14 4.06 (0.04) -- (0.04) 17.80 29.51 37,714
03/31/96(/1//2/) 17.80 (0.03)(/5/) 0.99 0.96 -- (2.11) (2.11) 16.65 5.75 39,160

CLASS B
10/04/93-
09/30/94(/8/) $18.12 $0.03(/5/) $(1.80) $(1.77) $ -- $(2.65) $(2.65) $13.70 (10.56)% $ 4,039
09/30/95 13.70 (0.18)(/5/) 4.08 3.90 (0.02) -- (0.02) 17.58 28.55 9,544
03/31/96(/1//2/) 17.58 (0.09)(/5/) 0.98 0.89 -- (2.11) (2.11) 16.36 5.40 11,472

RATIO
OF NET
RATIO OF INVEST-
EXPENSES MENT
TO INCOME AVERAGE
AVERAGE TO COMMIS-
PERIOD NET AVERAGE PORTFOLIO SION PER
ENDED ASSETS NET ASSETS TURNOVER SHARE(/1//1/)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A

11/30/87(/2/) 1.30%(/3/)(/4/) 1.10%(/3/)(/4/) 202% N/A
11/30/88 1.84 3.47 89 N/A
11/30/89 1.83 .85 54 N/A
11/30/90 1.84 1.72 65 N/A
11/30/91 1.76 1.20 225 N/A
11/30/92 1.76 (.46) 98 N/A
12/01/92-
09/30/93 1.81(3) 1.18(/3/) 231 N/A
09/30/94 1.76 0.28 555 N/A
09/30/95 1.66 (0.51) 392 N/A
03/31/96(/1//2/) 1.62(/3/) (0.36)(/3/) 155 .0600

CLASS B

10/04/93-
09/30/94(/8/) 2.43%(3)(9) (0.20)%(/3/)(/9/) 555% N/A
09/30/95 2.31(10) (0.17)(10) 392 N/A
03/31/96(/1//2/) 2.30(/3/) (1.07)(/3/) 155 .0600

<CAPTION>
SMALL COMPANY GROWTH FUND(6)

CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/87(2)(7) $12.10 $(0.12)(/5/) $(3.13) $(3.25) $ -- $ -- $ -- $ 8.85 26.87% $ 8,326
11/30/88(7) 8.85 (0.11)(/5/) 5.18 5.07 -- -- -- 13.92 57.29 22,180
11/30/89(7) 13.92 (0.01)(/5/) 4.03 4.02 -- (0.29) (0.29) 17.65 29.41 48,956
11/30/90(7) 17.65 (0.04)(/5/) (5.19) (5.23) -- (0.54) (0.54) 11.88 (30.58) 23,548
11/30/91(7) 11.88 (0.01)(/5/) 4.92 4.91 -- (2.91) (2.91) 13.88 52.05 27,832
11/30/92(7) 13.88 (0.12)(/5/) 3.39 3.27 -- (0.69) (0.69) 16.46 24.31 32,056
12/01/92-
09/30/93(/7/) 16.46 (0.02)(/5/) 4.07 4.05 -- (0.73) (0.73) 19.78 25.68 39,238
09/30/94 19.78 (0.10)(/5/) (1.40) (1.50) -- (1.46) (1.46) 16.82 (7.74) 38,570
09/30/95 16.82 (0.04)(/5/) 8.28 8.24 -- (0.41) (0.41) 24.65 50.00 89,510
03/31/96(/1//2/) 24.65 (0.02)(/5/) 2.20 2.18 -- (4.53) (4.53) 22.30 9.75 112,033

<CAPTION>
CLASS A

<S> <C> <C> <C> <C>
11/30/87(2)(7) 1.84%(/3/)(/4/) (1.06)%(/3/)(/4/) 98% N/A
11/30/88(7) 2.16 (0.80) 54 N/A
11/30/89(7) 1.82 (0.04) 32 N/A
11/30/90(7) 2.05 (0.26) 27 N/A
11/30/91(7) 1.86 (0.06) 110 N/A
11/30/92(7) 1.90 (0.88) 209 N/A
12/01/92-
09/30/93(/7/) 1.83(3) (0.15)(3) 216 N/A
09/30/94 1.67 (0.60) 411 N/A
09/30/95 1.57 (0.22) 351 N/A
03/31/96(/1//2/) 1.52(/3/) (0.22)(/3/) 137 .0595

CLASS B

09/24/93-
09/30/93(/8/) 2.34%(3) (1.70)%(3) 216% N/A
09/30/94 2.31 (1.23) 411 N/A
09/30/95 2.22 (0.84) 351 N/A
03/31/96(/1//2/) 2.16(/3/) (0.86)(/3/) 137 .0595
</TABLE>
- -------
(1) Does not reflect sales load.
(2) For the period January 28, 1987 (commencement of operations) to November
30, 1987.
(3) Annualized.
(4) Net of fee waiver equivalent to .82% and .51% of average net assets of the
Mid-Cap Growth Fund and Small Company Growth Fund, respectively, in fiscal
1987.
(5) Calculated based upon average shares outstanding.
(6) Mid-Cap Growth Fund and Small Company Growth Fund both changed their
fiscal year ends to September 30, effective September 24, 1993.
(7) Restated to reflect a 0.984460367 for 1.00 stock split effective September
24, 1993.
(8) Commencement of sale of respective class of shares.
(9) Net of expense reimbursement equivalent to .48% of average net assets for
the period ended September 30, 1994.

(10) Net of fee waiver/expense reimbursement equivalent to .17% of average net
assets for the year ended September 30, 1995.

(11) The average commission per share is derived by taking the agency
commissions paid on equity securities trades and dividing by the number of
shares purchased or sold.

(12) Unaudited.

S-3
<PAGE>

The following Financial Highlights for each of the periods ended September
30, 1995 for the Global Balanced Fund and the Growth and Income Fund, has been
audited by Price Waterhouse LLP, each Fund's independent accountants, whose
report on the financial statements containing such information is included in
the Annual Report to Shareholders. The financial information for the six month
period ended March 31, 1996 is unaudited. These Financial Highlights should be
read in conjunction with each Fund's financial statements and notes thereto,
which are included in the Statement of Additional Information and are
incorporated by reference herein.

CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/15/94-
9/30/94(/3/) $6.94 $0.02 $(0.05) $(0.03) $ -- $ -- $ -- $6.91 (0.43)% $13,100
9/30/95......... 6.91 0.10 0.36 0.46 (0.01) -- (0.01) 7.36 6.72 9,615
3/31/96(/7/) 7.36 0.02 0.45 0.47 (0.42) -- (0.42) 7.41 6.69 9,039

CLASS B
6/16/94-
9/30/94(/3/) $6.94 $0.01 $(0.05) $(0.04) $ -- $ -- $ -- $6.90 (0.58)% $13,532
9/30/95......... 6.90 0.05 0.36 0.41 (0.01) -- (0.01) 7.30 5.91 13,976
3/31/97(/7/) 7.30 -- 0.46 0.46 (0.38) -- (0.38) 7.38 6.46 15,407

<CAPTION>
RATIO
OF NET
RATIO OF INVEST-
EXPENSES MENT
TO INCOME AVERAGE
AVERAGE TO COMMIS-
PERIOD NET AVERAGE PORTFOLIO SION PER
ENDED ASSETS NET ASSETS TURNOVER SHARE(/6/)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
6/15/94-
9/30/94(/3/) 2.15%(/4/)(/5/) 0.93%(/4/)(/5/) 18% N/A
9/30/95......... 2.15(/5/) 1.36(/5/) 169 N/A
3/31/96(/7/) 2.15(/4/)(/5/) 0.66(/4/)(/5/) 70 .0056

CLASS B

6/16/94-
9/30/94(/3/) 2.80%(4)(5) 0.33%(/4/)(/5/) 18% N/A
9/30/95......... 2.80(/5/) 0.75(/5/) 169 N/A
3/31/97(/7/) 2.80(/4/)(/5/) 0.03(/4/)(/5/) 70 .0056

<CAPTION>
GROWTH AND INCOME FUND

CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7/01/94-
9/30/94(3) $7.33 $0.07 $ 0.10 $0.17 $(0.06) $ -- $(0.06) $7.44 2.34% $ 3,098
9/30/95......... 7.44 0.32 1.08 1.40 (0.30) (0.15) (0.45) 8.39 19.53 3,532
3/31/96(/7/) 8.39 0.09 1.65 1.74 (0.13) (0.39) (0.52) 9.61 21.20 5,332

CLASS B
7/06/94-
9/30/94(/3/) $7.33 $0.05 $0.11 $0.16 $(0.05) $ -- $(0.05) $7.44 2.19% $ 229
9/30/95......... 7.44 0.35 1.03 1.38 (0.28) (0.15) (0.43) 8.39 19.19 2,538
3/31/96(/7/) 8.39 0.07 1.65 1.72 (0.11) (0.39) (0.50) 9.61 20.91 4,098

<CAPTION>
<S> <C> <C> <C> <C>
7/01/94-
9/30/94(3) 1.50%(/4/)(/5/) 3.48%(/4/)(/5/) 8% N/A
9/30/95......... 0.46(/5/) 4.16(/5/) 230 N/A
3/31/96(/7/) 0.86(/4/)(/5/) 2.02(/4/)(/5/) 103 .0599

7/06/94-
9/30/94(/3/) 2.15%(4)(5) 2.86%(4)(5) 8% N/A
9/30/95......... 0.30(/5/) 4.48(/5/) 230 N/A
3/31/96(/7/) 1.42(/4/)(/5/) 1.45(/4/)(/5/) 103 .0599
</TABLE>
- -------
(1) Calculated based upon average shares outstanding.
(2) Total return is not annualized and does not reflect sales load.
(3) Commencement of sale of respective class of shares.
(4) Annualized.
(5) Net of the following fee waivers/expense reimbursements (based on average
net assets):
<TABLE>
<CAPTION>
9/30/94 9/30/95 3/31/96
------- ------- -------
<S> <C> <C> <C>
Global Balanced Class A............................... 1.14% .40% .45%
Global Balanced Class B............................... .93 .45 .40
Growth and Income Class A............................. 4.48 2.96 1.39
Growth and Income Class B............................. 20.35 5.07 1.56
</TABLE>

(6) The average commission per share is derived by taking the agency
commissions paid on equity securities trades and dividing by the number of
shares purchased or sold.

(7) Unaudited.

S-4
<PAGE>

SUNAMERICA EQUITY FUNDS
THE SUNAMERICA CENTER, 733 THIRD AVENUE, NEW YORK, NY 10017-3204

GENERAL MARKETING AND SHAREHOLDER INFORMATION

(800) 858-8850

SunAmerica Equity Funds is an open-end management investment company
organized as a Massachusetts business trust (the "Trust") with six different
investment funds (each, a "Fund" and collectively, the "Funds"). Each Fund is
a separate series of the Trust with distinct investment objectives and/or
strategies. Each Fund is advised and/or managed by SunAmerica Asset Management
Corp. (the "Adviser"). AIG Global Investment Corp. ("AIG Global") serves as
sub-adviser for the foreign equity component and Goldman Sachs Asset
Management International ("GSAM") serves as sub-adviser for the global bond
component of the SunAmerica Global Balanced Fund. (AIG Global and GSAM are
collectively referred to hereinafter as the "Sub-Advisers"). An investor may
invest in one or more of the following Funds:

SunAmerica Balanced Assets Fund ("Balanced Assets Fund")--seeks to conserve
principal by maintaining at all times a balanced portfolio of stocks and
bonds.

SunAmerica Global Balanced Fund ("Global Balanced Fund")--seeks capital
appreciation while conserving principal by maintaining at all times a balanced
portfolio of domestic and foreign stocks and bonds.

SunAmerica Blue Chip Growth Fund ("Blue Chip Growth Fund")--seeks capital
appreciation by investing primarily in equity securities of companies with
large market capitalizations.

SunAmerica Mid-Cap Growth Fund ("Mid-Cap Growth Fund")--seeks capital
appreciation by investing primarily in equity securities of medium-sized
companies.

SunAmerica Small Company Growth Fund ("Small Company Growth Fund")--seeks
capital appreciation by investing primarily in equity securities of small
capitalization growth companies.

SunAmerica Growth and Income Fund ("Growth and Income Fund")--seeks capital
appreciation and current income by investing primarily in common stocks.

Each Fund currently offers Class A shares and Class B shares. The offering
price is the next-determined net asset value per share, plus for each class a
sales charge which, at the investor's option, may be (i) imposed at the time
of purchase (Class A shares) or (ii) deferred (Class B shares and purchases of
Class A shares in excess of $1 million). Class B shares are offered without an
initial sales charge, although a declining contingent deferred sales charge
may be imposed on redemptions made within six years of purchase. Class B
shares of each Fund will convert automatically to Class A shares on the first
business day of the month following the seventh anniversary of the issuance of
such Class B shares and at such time will be subject to the lower distribution
fee applicable to Class A shares. Each class makes distribution and account
maintenance and service fee payments under a distribution plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"). See "Purchase of Shares."

This Prospectus explains concisely what you should know before investing in
any of the Funds. Please read it carefully before investing and retain it for
future reference. You can find more detailed information about the Funds in
the Statement of Additional Information dated January 12, 1996, which is
incorporated by reference into this Prospectus, and further information about
the performance of the Funds in the Trust's Annual Report to Shareholders. The
Statement of Additional Information and Annual Report to Shareholders may be
obtained without charge by contacting the Trust at the address or telephone
number listed above.

- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM- MISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------

PROSPECTUS DATED JANUARY 12, 1996
<PAGE>

SUMMARY OF FUND EXPENSES

A general comparison of the sales arrangements and other non-recurring
expenses applicable to Class A shares and Class B shares follows:

<TABLE>
<CAPTION>
SMALL
BALANCED GLOBAL BLUE CHIP MID-CAP COMPANY GROWTH AND
ASSETS FUND BALANCED FUND GROWTH FUND GROWTH FUND GROWTH FUND INCOME FUND
----------- ------------- ----------- ----------- ----------- -----------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B A B A B A B A B A B
----- ----- ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Initial Sales
Load(/1/)............. 5.75% None 5.75% None 5.75% None 5.75% None 5.75% None 5.75% None
Maximum Sales Load on
Reinvested Dividends.. None None None None None None None None None None None None
Maximum Deferred Sales
Load(/2/)............. None 4.00% None 4.00% None 4.00% None 4.00% None 4.00% None 4.00%
Redemption Fees(/3/)... None None None None None None None None None None None None
Exchange Fees.......... None None None None None None None None None None None None
Annual Fund Operating Expenses (net
of fee waivers/expense reimburse-
ments)(/4/)
(as a percentage of average net assets)
Management Fees........ 0.75% 0.75% 0.57% 0.57% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% None None
12b-1 Fees(/5/)........ 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
Other Expenses......... 0.40% 0.37% 1.23% 1.23% 0.48% 0.47% 0.57% 0.56% 0.47% 0.47% 0.65% 0.65%
----- ----- ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
Total Operating
Expenses(/6/).......... 1.50% 2.12% 2.15% 2.80% 1.58% 2.22% 1.66% 2.31% 1.57% 2.22% 1.00% 1.65%
===== ===== ====== ====== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

- -------
(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1,000,000 or more. See "Purchase of Shares."
(2) Purchases of Class A shares in excess of $1,000,000 will be subject to a
contingent deferred sales charge on redemptions made within one year of
purchase. The contingent deferred sales charge on Class B shares applies only
if a redemption occurs within six years from their purchase date.
(3) A $15.00 fee may be imposed for wire redemptions.
(4) The information provided is based on data for the fiscal year ended
September 30, 1995, with the exception of Growth and Income Fund Class A and
Class B, which represents estimated expenses for the current fiscal year. The
Growth and Income Fund's expenses for the year ended September 30, 1995 were
.46% for Class A and .30% for Class B, net of expenses waivers and
reimbursements.
(5) 0.25% of the 12b-1 fee comprises an Account Maintenance and Service Fee. A
portion of the Account Maintenance and Service Fee is allocated to member
firms of the National Association of Securities Dealers, Inc. for continuous
personal service by such members to investors in the Funds, such as
responding to shareholder inquiries, quoting net asset values, providing
current marketing material and attending to other shareholder matters. Class
B shareholders who own their shares for an extended period of time may pay
more in Rule 12b-1 distribution fees than the economic equivalent of the
maximum front-end sales charge permitted under the Rules of Fair Practice of
the National Association of Securities Dealers, Inc.
(6) For the fiscal year ended September 30, 1995, the total operating expenses
(on a gross basis) for Global Balanced Fund Class A and Class B, Blue Chip
Growth Fund Class A, Mid-Cap Growth Fund Class B, and Growth and Income Fund
Class A and Class B were: 2.55%, 3.25%, 1.69%, 2.48%, 3.42% and 5.37%,
respectively.

2
<PAGE>

EXAMPLE:

You would pay the following expenses on a $1,000 investment over various time
periods assuming (1) a 5% annual rate of return and (2) redemption at the end
of each time period. The 5% return and the expenses used in this example should
not be considered indicative of actual or expected performance or expenses both
of which will vary:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
BALANCED ASSETS FUND
(Class A shares).............................. $72 $102 $135 $226
(Class B shares)*............................. $62 $ 96 $134 $222
GLOBAL BALANCED FUND
(Class A shares).............................. $78 $121 $166 $291
(Class B shares)*............................. $68 $117 $168 $290
BLUE CHIP GROWTH FUND
(Class A shares).............................. $73 $105 $139 $235
(Class B shares)*............................. $63 $ 99 $139 $231
MID-CAP GROWTH FUND
(Class A shares).............................. $73 $107 $143 $243
(Class B shares)*............................. $63 $102 $144 $247
SMALL COMPANY GROWTH FUND
(Class A shares).............................. $73 $104 $138 $233
(Class B shares)*............................. $63 $ 99 $139 $231
GROWTH AND INCOME FUND
(Class A shares).............................. $67 $ 88 $110 $173
(Class B shares)*............................. $57 $ 82 $110 $170
</TABLE>

You would pay the following expenses on the same investment, assuming no
redemption:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
BALANCED ASSETS FUND
(Class A shares).............................. $72 $102 $135 $226
(Class B shares)*............................. $22 $ 66 $114 $222
GLOBAL BALANCED FUND
(Class A shares).............................. $78 $121 $166 $291
(Class B shares)*............................. $28 $ 87 $148 $290
BLUE CHIP GROWTH FUND
(Class A shares).............................. $73 $105 $139 $235
(Class B shares)*............................. $23 $ 69 $119 $231
MID-CAP GROWTH FUND
(Class A shares).............................. $73 $107 $143 $243
(Class B shares)*............................. $23 $ 72 $124 $241
SMALL COMPANY GROWTH FUND
(Class A shares).............................. $73 $104 $138 $233
(Class B shares)*............................. $23 $ 69 $119 $231
GROWTH AND INCOME FUND
(Class A shares).............................. $67 $ 88 $110 $173
(Class B shares)*............................. $17 $ 52 $ 90 $170
</TABLE>

The foregoing examples should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.

- -------
* Class B shares convert to Class A shares on the first business day of the
month following the seventh anniversary of the purchase of such Class B
shares. Therefore, with respect to the 10-year expense information, years 8,
9 and 10 reflect the expenses attributable to ownership of Class A shares.

3
<PAGE>

FINANCIAL HIGHLIGHTS
The following financial highlights for each of the two years ended September
30, 1995 and for the period July 1, 1993 through September 30, 1993 and for the
three years in the period ended June 30, 1993 for the Balanced Assets Fund and
the periods through September 30, 1995 for the Blue Chip Growth Fund, has been
audited by Price Waterhouse LLP, each Fund's independent accountants, whose
report on the financial statements containing such information for the five
years in the period ended September 30, 1995 is included in the Annual Report
to Shareholders. These Financial Highlights should be read in conjunction with
each Fund's financial statements and notes thereto, which are included in the
Statement of Additional Information and are incorporated by reference herein.

<TABLE>
<CAPTION>
NET
GAIN (LOSS)
ON
INVESTMENTS TOTAL DIVIDENDS DISTRI- NET NET
NET ASSET NET (BOTH FROM FROM NET BUTIONS ASSET ASSETS
VALUE INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(/2/) (000'S)
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO
OF NET
RATIO OF INVEST-
EXPENSES MENT
TO INCOME
AVERAGE TO
PERIOD NET AVERAGE PORTFOLIO
ENDED ASSETS NET ASSETS TURNOVER
- ----------------------------------------------------------------------------------------------------------------------------
BALANCED ASSETS FUND

CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
09/24/93-
09/30/93(/1//1/) $15.07 $ -- $ 0.06 $ 0.06 $ -- $ -- $ -- $15.13 0.40% $ 33,381
09/30/94 15.13 0.30(/1/) (0.23) 0.07 (0.28) (0.30) (0.58) 14.62 0.50 52,098
09/30/95 14.62 0.32(/1/) 2.51 2.83 (0.45) (0.58) (1.03) 16.42 20.68 119,916
<S> <C> <C> <C>
09/24/93-
09/30/93(/1//1/) 1.54%(3) 0.46%(3) 25%
09/30/94 1.58 2.00 141
09/30/95 1.50 2.13 130

CLASS B(8)
----
06/30/86 $10.63 $0.18(/1/) $ 3.48 $ 3.66 $(0.08) $(0.22) $(0.30) $13.99 34.64% $ 60,656
06/30/87 13.99 0.14(/1/) 1.32 1.46 (0.11) (0.62) (0.73) 14.72 9.87 141,055
06/30/88 14.72 0.23(/1/) (0.52) (0.29) (0.23) (0.72) (0.95) 13.48 (1.49) 151,924
06/30/89 13.48 0.37(/1/) 0.70 1.07 (0.38) -- (0.38) 14.17 8.22 131,317
06/30/90 14.17 0.53(/1/) 1.26 1.79 (0.53) -- (0.53) 15.43 12.89 123,611
06/30/91 15.43 0.39(/1/) 0.18 0.57 (0.25) -- (0.25) 15.75 4.41 90,239
06/30/92 15.75 0.33(/1/) 0.98 1.31 (0.42) (1.01) (1.43) 15.63 7.51 83,234
06/30/93 15.63 0.30(/1/) 2.63 2.93 (0.30) (2.40) (2.70) 15.86 20.29 113,871
07/01/93-
09/30/93 15.86 0.05(/1/) 0.49 0.54 (0.06) (1.21) (1.27) 15.13 3.44 137,456
09/30/94 15.13 0.20(/1/) (0.23) (0.03) (0.18) (0.30) (0.48) 14.62 (0.14) 180,655
09/30/95 14.62 0.23(/1/) 2.51 2.74 (0.36) (0.58) (0.94) 16.42 19.96 162,115
06/30/86 1.92% 1.32% 69%
06/30/87 2.13 0.95 76
06/30/88 2.01 1.65 58
06/30/89 2.02 2.74 59
06/30/90 1.92 3.55 33
06/30/91 1.94(/4/) 2.65(/4/) 56
06/30/92 1.93(/5/) 2.04(/5/) 151
06/30/93 1.91(/6/) 1.94(/6/) 251
07/01/93-
09/30/93 2.10(3)(7) 1.36(3)(7) 25
09/30/94 2.21 1.36 141
09/30/95 2.12 1.59 130

BLUE CHIP GROWTH FUND(9)

CLASS A
10/08/93-
09/30/94(/1//1/) $16.24 $0.09(/1/) $(0.26) $(0.17) $ -- $(0.65) $(0.65) $15.42 (1.05)% $ 3,207
09/30/95 15.42 0.02(/1/) 2.99 3.01 -- (1.09) (1.09) 17.34 21.29 42,407
10/08/93-
09/30/94(/1//1/) 1.64%(/3/)(/1//2/) 0.65%(/3/)(/1//2/) 170%
09/30/95 1.58(13) 0.11(13) 251

CLASS B
12/31/86 $11.81 $0.05 $ 1.92 $ 1.97 $(0.29) $(0.35) $(0.64) $13.14 16.75% $144,971
12/31/87 13.14 0.03 (1.05) (1.02) (0.03) (1.56) (1.59) 10.53 (7.48) 185,939
12/31/88 10.53 0.16 2.91 3.07 (0.17) (0.60) (0.77) 12.83 29.34 216,582
12/31/89 12.83 0.17 1.47 1.64 (0.17) (1.35) (1.52) 12.95 12.76 207,549
12/31/90 12.95 0.04 (3.29) (3.25) (0.05) -- (0.05) 9.65 (25.11) 123,379
12/31/91 9.65 (0.06) 2.94 2.88 -- -- -- 12.53 29.84 105,734
12/31/92 12.53 (0.13) 1.19 1.06 -- -- -- 13.59 8.46 83,237
01/01/93-
09/30/93 13.59 (0.02)(/1/) 2.71 2.69 -- -- -- 16.28 19.79 79,774
09/30/94 16.28 (0.01)(/1/) (0.28) (0.29) -- (0.65) (0.65) 15.34 (1.81) 71,749
09/30/95 15.34 (0.01)(/1/) 2.89 2.88 -- (1.09) (1.09) 17.13 20.51 39,533
12/31/86 2.40% 0.80% 60%
12/31/87 2.41(/1//0/) 3.32(/1//0/) 41
12/31/88 2.35 1.20 47
12/31/89 2.36 1.12 67
12/31/90 2.51 3.36 90
12/31/91 2.50 (0.42) 79
12/31/92 2.53 (0.75) 192
01/01/93-
09/30/93 2.46(/3/) (0.14)(/3/) 171
09/30/94 2.28 (0.05) 170
09/30/95 2.22 (0.09) 251
</TABLE>
- -------
(1) Calculated based upon average shares outstanding.
(2) Total return is not annualized and does not reflect sales load.
(3) Annualized.
(4) Net of expense reimbursement equivalent to .29% of average net assets in
fiscal 1991.
(5) Net of expense reimbursement equivalent to .12% of average net assets in
fiscal 1992.
(6) Net of expense reimbursement equivalent to .05% of average net assets in
fiscal 1993.
(7) Net of expense reimbursement equivalent to .04% of average net assets for
the period ended September 30, 1993.
(8) Shares of the SunAmerica Balanced Assets Fund series of SunAmerica Fund
Group were redesignated as Class B shares of SunAmerica Balanced Assets
Fund. In addition, the Fund changed its fiscal year end to September 30,
effective September 24, 1993.
(9) Blue Chip Growth Fund changed its fiscal year end to September 30,
effective September 24, 1993.
(10) Net of fee waiver equivalent to .05% of average net assets in fiscal 1987.
(11) Commencement of sale of respective class of shares.
(12) Net of expense reimbursement equivalent to 1.66% of average net assets for
the period ended September 30, 1994.
(13) Net of fee waiver/expense reimbursement equivalent to .11% of average net
assets for the fiscal year ended September 30, 1995.

4
<PAGE>

The following financial highlights for the periods through September 30,
1995, has been audited by Price Waterhouse LLP, each Fund's independent
accountants, whose report on the financial statements containing such
information for the five years in the period ended September 30, 1995 is
included in the Annual Report to Shareholders. These Financial Highlights
should be read in conjunction with each Fund's financial statements and notes
thereto, which are included in the Statement of Additional Information and are
incorporated by reference herein.

<TABLE>
<CAPTION>
NET
GAIN (LOSS)
ON
INVESTMENTS TOTAL DIVIDENDS DISTRI- NET NET
NET ASSET NET (BOTH FROM FROM NET BUTIONS ASSET ASSETS,
VALUE INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(/1/) (000'S)
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO
OF NET
RATIO OF INVEST-
EXPENSES MENT
TO INCOME
AVERAGE TO
PERIOD NET AVERAGE PORTFOLIO
ENDED ASSETS NET ASSETS TURNOVER
- ---------------------------------------------------------------------------------------------------------------------
MID-CAP GROWTH FUND(6)

CLASS A

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/87(/2/) $11.91 $ .07 $(1.44) $(1.37) $(0.04) -- $(0.04) $10.50 (11.61)% $18,429
11/30/88 10.50 .47 2.36 2.83 (.08) -- (.08) 13.25 26.97 28,082
11/30/89 13.25 .17 4.42 4.59 (.29) $ (.54) (.83) 17.01 36.39 48,188
11/30/90 17.01 .30 (3.08) (2.78) (.24) (1.09) (1.33) 12.90 (17.62) 27,460
11/30/91 12.90 .16 3.09 3.25 (.25) (2.60) (2.85) 13.30 31.13 29,142
11/30/92 13.30 (.07) 2.87 2.80 (.02) (.44) (.46) 15.64 21.42 30,024
12/01/92-
09/30/93 15.64 (0.09)(/5/) 3.17 3.08 -- (0.69) (0.69) 18.03 20.42 34,918
09/30/94 18.03 (0.04)(/5/) (1.64) (1.60) -- (2.65) (2.65) 13.78 (9.60) 32,906
09/30/95 13.78 (0.08)(/5/) 4.14 4.06 (0.04) -- (0.04) 17.80 29.51 37,714
<S> <C> <C> <C>
11/30/87(/2/) 1.30%(/3/)(/4/) 1.10%(/3/)(/4/) 202%
11/30/88 1.84 3.47 89
11/30/89 1.83 .85 54
11/30/90 1.84 1.72 65
11/30/91 1.76 1.20 225
11/30/92 1.76 (.46) 98
12/01/92-
09/30/93 1.81(3) 1.18(/3/) 231
09/30/94 1.76 0.28 555
09/30/95 1.66 (0.51) 392

CLASS B
10/04/93-
09/30/94(/8/) $18.12 $0.03(/5/) $(1.80) $(1.77) $ -- $(2.65) $(2.65) $13.70 (10.56)% $ 4,039
09/30/95 13.70 (0.18)(/5/) 4.08 3.90 (0.02) -- (0.02) 17.58 28.55 9,544
10/04/93-
09/30/94(/8/) 2.43%(3)(9) (0.20)%(/3/)(/9/) 555%
09/30/95 2.31(10) (0.17)(10) 392

SMALL COMPANY GROWTH FUND(6)

CLASS A

11/30/87(2)(7) $12.10 $(0.12)(/5/) $(3.13) $(3.25) $ -- $ -- $ -- $ 8.85 26.87% $ 8,326
11/30/88(7) 8.85 (0.11)(/5/) 5.18 5.07 -- -- -- 13.92 57.29 22,180
11/30/89(7) 13.92 (0.01)(/5/) 4.03 4.02 -- (0.29) (0.29) 17.65 29.41 48,956
11/30/90(7) 17.65 (0.04)(/5/) (5.19) (5.23) -- (0.54) (0.54) 11.88 (30.58) 23,548
11/30/91(7) 11.88 (0.01)(/5/) 4.92 4.91 -- (2.91) (2.91) 13.88 52.05 27,832
11/30/92(7) 13.88 (0.12)(/5/) 3.39 3.27 -- (0.69) (0.69) 16.46 24.31 32,056
12/01/92-
09/30/93(/7/) 16.46 (0.02)(/5/) 4.07 4.05 -- (0.73) (0.73) 19.78 25.68 39,238
09/30/94 19.78 (0.10)(/5/) (1.40) (1.50) -- (1.46) (1.46) 16.82 (7.74) 38,570
09/30/95 16.82 (0.04)(/5/) 8.28 8.24 -- (0.41) (0.41) 24.65 50.00 89,510
11/30/87(2)(7) 1.84%(/3/)(/4/) (1.06)%(/3/)(/4/) 98%
11/30/88(7) 2.16 (0.80) 54
11/30/89(7) 1.82 (0.04) 32
11/30/90(7) 2.05 (0.26) 27
11/30/91(7) 1.86 (0.06) 110
11/30/92(7) 1.90 (0.88) 209
12/01/92-
09/30/93(/7/) 1.83(3) (0.15)(3) 216
09/30/94 1.67 (0.60) 411
09/30/95 1.57 (0.22) 351

CLASS B
09/24/93-
09/30/93(/8/) $19.66 $ -- $0.12 $0.12 $ -- $ -- $ -- $19.78 0.61% $38,898
09/30/94 19.78 (0.20)(/5/) (1.42) (1.62) -- (1.46) (1.46) 16.70 (8.40) 52,208
09/30/95 16.70 (0.16)(/5/) 8.19 8.03 -- (0.41) (0.41) 24.32 49.08 68,313
09/24/93-
09/30/93(/8/) 2.34%(3) (1.70)%(3) 216%
09/30/94 2.31 (1.23) 411
09/30/95 2.22 (0.84) 351
</TABLE>
- -------
(1) Does not reflect sales load.
(2) For the period January 28, 1987 (commencement of operations) to November
30, 1987.
(3) Annualized.
(4) Net of fee waiver equivalent to .82% and .51% of average net assets of the
Mid-Cap Growth Fund and Small Company Growth Fund, respectively, in fiscal
1987.
(5) Calculated based upon average shares outstanding.
(6) Mid-Cap Growth Fund and Small Company Growth Fund both changed their
fiscal year ends to September 30, effective September 24, 1993.
(7) Restated to reflect a 0.984460367 for 1.00 stock split effective September
24, 1993.
(8) Commencement of sale of respective class of shares.
(9) Net of expense reimbursement equivalent to .48% of average net assets for
the period ended September 30, 1994.
(10) Net of fee waiver/expense reimbursement equivalent to .17% of average net
assets for the year ended September 30, 1995.

5
<PAGE>

The following financial highlights for each of the periods ended September
30, 1995 for the Global Balanced Fund and the Growth and Income Fund, has been
audited by Price Waterhouse LLP, each Fund's independent accountants, whose
report on the financial statements containing such information is included in
the Annual Report to Shareholders. These Financial Highlights should be read in
conjunction with each Fund's financial statements and notes thereto, which are
included in the Statement of Additional Information and are incorporated by
reference herein.

<TABLE>
<CAPTION>
NET
GAIN (LOSS)
ON
INVESTMENTS TOTAL DIVIDENDS DISTRI- NET NET
NET ASSET NET (BOTH FROM FROM NET BUTIONS ASSET ASSETS,
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(/1/) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(/2/) (000'S)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO
OF NET
RATIO OF INVEST-
EXPENSES MENT
TO INCOME
AVERAGE TO
PERIOD NET AVERAGE PORTFOLIO
ENDED ASSETS NET ASSETS TURNOVER
- -------------------------------------------------------------------------------------------------------------------
GLOBAL BALANCED FUND

CLASS A

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/15/94-
9/30/94(/3/) $6.94 $0.02 $(0.05) $(0.03) $ -- $ -- $ -- $6.91 (0.43)% $13,100
9/30/95......... 6.91 0.10 0.36 0.46 (0.01) -- (0.01) 7.36 6.72 9,615
<S> <C> <C> <C>
6/15/94-
9/30/94(/3/) 2.15%(/4/)(/5/) 0.93%(/4/)(/5/) 18%
9/30/95......... 2.15(/5/) 1.36(/5/) 169

CLASS B
6/16/94-
9/30/94(/3/) $6.94 $0.01 $(0.05) $(0.04) $ -- $ -- $ -- $6.90 (0.58)% $13,532
9/30/95......... 6.90 0.05 0.36 0.41 (0.01) -- (0.01) 7.30 5.91 13,976
6/16/94-
9/30/94(/3/) 2.80%(4)(5) 0.33%(/4/)(/5/) 18%
9/30/95......... 2.80(/5/) 0.75(/5/) 169

GROWTH AND INCOME FUND

CLASS A

7/01/94-
9/30/94(3) $7.33 $0.07 $ 0.10 $0.17 $(0.06) $ -- $(0.06) $7.44 2.34% $ 3,098
9/30/95......... 7.44 0.32 1.08 1.40 (0.30) (0.15) (0.45) 8.39 19.53 3,532
7/01/94-
9/30/94(3) 1.50%(/4/)(/5/) 3.48%(/4/)(/5/) 8%
9/30/95......... 0.46(/5/) 4.16(/5/) 230

CLASS B
7/06/94-
9/30/94(/3/) $7.33 $0.05 $0.11 $0.16 $(0.05) $ -- $(0.05) $7.44 2.19% $ 229
9/30/95......... 7.44 0.35 1.03 1.38 (0.28) (0.15) (0.43) 8.39 19.19 2,538
7/06/94-
9/30/94(/3/) 2.15%(4)(5) 2.86%(4)(5) 8%
9/30/95......... 0.30(/5/) 4.48(/5/) 230
</TABLE>
- --------
(1) Calculated based upon average shares outstanding.
(2)Total return is not annualized and does not reflect sales load.
(3)Commencement of sale of respective class of shares.
(4)Annualized.
(5)Net of the following fee waivers/expense reimbursements (based on average
net assets):
<TABLE>
<CAPTION>
9/30/94 9/30/95
------- -------
<S> <C> <C>
Global Balanced Class A....................................... 1.14% .40%
Global Balanced Class B....................................... .93 .45
Growth and Income Class A..................................... 4.48 2.96
Growth and Income Class B..................................... 20.35 5.07
</TABLE>

6
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The investment objective of the Balanced Assets Fund is to conserve princi-
pal by maintaining at all times a balanced portfolio of stocks and bonds. The
investment objective of the Global Balanced Fund is to seek capital apprecia-
tion while conserving principal by investing in a balanced portfolio of domes-
tic and foreign stocks and bonds. The investment objective of the Blue Chip
Growth Fund, the Mid-Cap Growth Fund and the Small Company Growth Fund is cap-
ital appreciation. Each seeks to achieve this objective through investment
primarily in equity securities (common stock and securities convertible into
common stock), as described below. Under normal market conditions, at least
65% of the total assets of the Blue Chip Growth Fund, the Mid-Cap Growth Fund
and the Small Company Growth Fund will be invested in such securities. The in-
vestment objectives of the Growth and Income Fund are capital appreciation and
current income. There can be no assurance that the investment objective of a
Fund will be achieved. See "Investment Techniques and Risk Factors" for a full
discussion of the types of securities in which the Funds may invest and the
risks attendant thereto.

Except as specifically indicated, the investment policies and strategies de-
scribed herein are not fundamental policies of the Funds and may be changed by
the Board of Trustees (the "Trustees") without the approval of shareholders.
Each Fund's respective investment objective and fundamental investment re-
strictions, however, may not be changed without approval of shareholders of
the affected Fund. See "Investment Restrictions."

BALANCED ASSETS FUND

In seeking to achieve the investment objective of the Balanced Assets Fund,
the Adviser has the flexibility to select among different types of investments
for capital growth and income and may alter the composition of the portfolio
as economic and market trends change. This investment approach, designated by
the Adviser as a "fully managed" investment policy, distinguishes the Balanced
Assets Fund from many other investment companies, which often seek either cap-
ital appreciation or current income.

The Adviser considers both the opportunity for gain and the risk of loss in
making investments. While the Adviser anticipates that, over the long term,
the portfolio will consist primarily of equity investments, in the form of
common and preferred stocks, it may also invest in long-term bonds and other
debt securities such as convertible securities, short-term investments, U.S.
government securities and warrants and other rights. The Balanced Assets Fund
will normally invest at least 25% of its assets in fixed-income senior securi-
ties; however, the fixed income component will exceed 25% when the Adviser be-
lieves such an adjustment in portfolio mix to be necessary in order to con-
serve principal, such as in anticipation of a decline in the equities market.

Flexibility to choose among various kinds of investments is a principal fea-
ture of the Adviser's fully managed investment approach. The Adviser shifts
its emphasis among these different types of investments, as well as among var-
ious industry sectors, as financial trends and economic conditions change. For
example, one strategy is to increase the investments in equity securities when
the Adviser anticipates a generally rising stock market. A corresponding
strategy is to reduce investments in equity securities when the Adviser fore-
sees a declining stock market or when it believes that the total return from
debt or convertible securities and short-term investments can be expected to
exceed returns from equity investments.

In selecting equity investments, the Adviser typically seeks companies of
medium to large capitalizations (generally $800 million or more) that, based
on their future prospects or opportunities, it believes are undervalued in the
marketplace; however, the Fund intends to limit its investments in companies
with market capitalizations of less than $800 million to 20% of its total as-
sets. Consistent with the Adviser's approach to equity selection, the Adviser
will direct the sale of equity investments that it judges to be overpriced or
when it believes other investments offer better values. Investments in compa-
nies with market capitalizations of less than $800 million may be more vola-
tile than investments in companies with larger market capitalizations.

In selecting debt investments, the Adviser is primarily concerned with de-
termining the most appropriate time to buy and sell debt securities. The Ad-
viser seeks debt securities with longer maturities during periods of antici-
pated lower interest rates and shorter-term debt securities when interest
rates are expected to rise. The Adviser generally selects long-term debt secu-
rities from high-quality bonds (rated "AA" or higher by Standard & Poor's Rat-
ings Servic-

7
<PAGE>

es, a Division of The McGraw-Hill Companies Inc. ("S&P"), "Aa" or higher by
Moody's Investors Service, Inc. ("Moody's"), or determined by the Adviser to
be of equivalent quality if unrated) to achieve income and capital gains. The
Adviser may also invest the Fund's assets in high-quality, short-term debt se-
curities (such as commercial paper rated "A-1" by S&P or "P-1" by Moody's or
determined by the Adviser to be of equivalent quality if unrated). However,
the Adviser may invest up to 10% of the value of the Fund's total assets (mea-
sured at the time of investment) in securities rated as low as "BBB" by S&P or
"Baa" by Moody's (or determined by the Adviser to be of equivalent quality if
unrated). See "Fixed Income Securities" in "Investment Techniques and Risk
Factors" below for a discussion of the risks associated with investing in such
securities. See also the Appendix to the Statement of Additional Information
for a description of securities ratings.

GLOBAL BALANCED FUND

In seeking to achieve the investment objective of the Global Balanced Fund,
the Adviser and the Sub-Advisers have the flexibility to select among a combi-
nation of domestic and foreign equity and debt securities designed for capital
growth and/or income, which will be varied from time to time both with respect
to types of securities and markets in response to changing markets and eco-
nomic trends. This investment approach, designated by the Adviser as a "fully
managed" investment policy, distinguishes the Global Balanced Fund from many
other investment companies, which often seek either capital appreciation or
current income. In addition, the Fund may employ a variety of instruments and
techniques to enhance performance and to hedge against market and currency
risks as described further below. Investment in foreign securities involves
risks not generally associated with investment in domestic securities. See
"Investment Techniques and Risk Factors" below and the Statement of Additional
Information for a full discussion of the risks associated with investment in
foreign securities.

The Adviser and Sub-Advisers consider both the opportunity for gain and the
risk of loss in making investments. While it is anticipated that, over the
long term, the portfolio will consist primarily of foreign and domestic equity
securities, in the form of common and preferred stocks, the Fund may also in-
vest in global bonds and other global debt securities such as convertible se-
curities, short-term instruments, securities of U.S. and foreign governments
and warrants and other rights. Under normal circumstances, the Fund will in-
vest at least (i) 25% of its assets in global fixed-income senior securities;
(ii) 10% of its assets in domestic equity securities; and (iii) 45% of its as-
sets in foreign equity securities. Each component may exceed its designated
minimum when it is believed that such an adjustment in portfolio mix is neces-
sary in order to enhance performance or conserve principal. In addition, it is
anticipated that, under normal circumstances, the Fund will invest its assets
in at least 10 countries at any time, although it is only required, under such
circumstances, to maintain investments in at least three countries (one of
which may be the United States). Notwithstanding the foregoing, the number of
countries in which the Fund actually invests may vary from time to time when,
in the opinion of the Adviser and/or Sub-Advisers, economic or political con-
ditions warrant investment in a greater or lesser number of countries. Fur-
thermore, the Fund reserves the right to invest substantially all of its as-
sets in U.S. markets or U.S. dollar-denominated obligations when market condi-
tions warrant such an investment decision. The allocation among the components
will be reviewed by the Adviser and Sub-Advisers on at least a monthly basis.

In determining the allocation of assets among countries and/or capital mar-
kets, the Adviser and Sub-Advisers will consider, among other factors, the
relative valuation, condition and growth potential of the various economies,
including interest rates, monetary and fiscal policy, current and anticipated
changes in the rates of economic growth, rates of inflation, corporate prof-
its, capital reinvestment resources, self-sufficiency, balance of payments,
governmental deficits or surpluses and other pertinent financial, social and
political factors which may affect such markets. In allocating between equity
and debt securities within each market, consideration will also be given to
the relative opportunity for capital appreciation of equity and debt securi-
ties, dividend yields, and the level of interest rates paid on debt securities
of various maturities.

In selecting securities denominated in foreign currencies, each Sub-Adviser
will consider, among other factors, the effect of movement in currency ex-
change rates on the U.S. dollar value of such securities. An increase in the
value of a currency can be expected to increase the value of the Fund's secu-
rities denominated in such currency, while a decline in the

8
<PAGE>

value of the currency could produce the opposite effect. A Sub-Adviser may
seek to hedge all or a portion of the Fund's foreign securities through the
use of forward foreign currency contracts, currency options, futures contracts
and options thereon. The Fund will also engage in such transactions to enhance
returns. See "Investment Techniques and Risk Factors" below.

It is expected that the Fund will employ certain active currency and inter-
est-rate management techniques involving risks different from those associated
with investing solely in dollar-denominated securities of U.S. issuers. Such
active management techniques
include transactions in options (including yield curve options), futures, op-
tions on futures, forward foreign currency exchange contracts, currency op-
tions and futures, currency and interest rate swaps, mortgage swaps, caps,
collars and floors. The aggregate amount of the Fund's net currency exposure
will not exceed its total asset value. However, to the extent that the Fund is
fully invested in securities while also maintaining currency positions, it may
be exposed to greater combined risk. The Fund's net currency positions may ex-
pose it to risks independent of its securities positions. See "Risks and Con-
siderations Applicable to Investment in Securities of Foreign Issuers" and
"Foreign Currency Transactions" in "Investment Techniques and Risk Factors"
below.

While there are no prescribed limits on the geographical allocation of the
Fund's assets, the Adviser anticipates that investment of the Fund's assets
will be subject to the following guidelines, which may be revised from time to
time as market conditions warrant:

<TABLE>
<CAPTION>
MAXIMUM INVESTMENT
REGION (AS A % OF NET ASSETS)
- ------ ----------------------
<S> <C>
Europe................................................... 70%
Japan.................................................... 50%
Asia/Pacific (excluding Japan)........................... 60%
Latin America............................................ 20%
Canada................................................... 30%
United States............................................ 40%
Other.................................................... 10%
</TABLE>

In addition, no more than 20% of the Fund's total assets will be invested in
countries or regions with relatively low gross national product per capita
compared to the world's major economies, and in countries or regions with the
potential for rapid economic growth ("emerging markets"). Emerging markets
will include any country: (i) having an "emerging stock market" as defined by
the International Finance Corporation; (ii) with low-to middle-income econo-
mies according to the International Bank for Reconstruction and Development
(the "World Bank"); (iii) listed in World Bank publications as developing; or
(iv) determined by the Adviser or a Sub-Advisers to be an emerging market as
defined above. The Fund may invest in securities of: (i) companies the princi-
pal securities trading market for which is located in an emerging market coun-
try; (ii) companies organized under the laws of, and with a principal office
in, an emerging market country; (iii) companies whose principal activities are
located in emerging market countries; or (iv) companies traded in any market
that derive 50% or more of their total revenue from either goods or services
produced in an emerging market or sold in an emerging market. None of the
Fund's fixed income investments will be in emerging markets or countries. See
"Investment Techniques and Risk Factors" below for a discussion of the risks
associated with investments in emerging markets.

Within the portion of the Fund's portfolio allocated to equity securities,
the Adviser, with respect to the domestic equity component of the Fund, and
AIG Global, with respect to the foreign equity component of the Fund, will
each seek to identify the securities of companies and industry sectors which
are expected to provide high total return relative to alternative equity in-
vestments. The Fund generally will seek to invest in securities which are be-
lieved to be undervalued. Undervalued issues include securities selling at a
discount from the price-to-book value ratios and price/earnings ratios com-
puted with respect to the relevant stock market averages. The Fund may also
consider as undervalued, securities selling at a discount from their historic
price-to-book value or price/earnings ratios, even though these ratios may be
above the ratios for the stock market averages. Securities offering dividend
yields higher than the yields for the relevant stock market averages or higher
than such securities' historic yield may also be considered to be undervalued.
The Fund may also invest in the securities of small and emerging growth compa-
nies when such companies are expected to provide a higher total return than
other equity investments. Such companies are characterized by rapid historical
growth rates, above-average returns on equity or special investment value in
terms of their products or services, research capabilities or other unique at-
tributes. The Adviser and AIG Global will seek to identify small and emerging
growth companies that pos-

9
<PAGE>

sess superior management, marketing ability, research and product development
skills and sound balance sheets. See "Investment Techniques and Risk Factors"
below for a discussion of the risks associated with investments in small com-
panies.

The debt securities in which the Fund may invest include securities issued
or guaranteed by the U.S. government and its agencies or instrumentalities, by
foreign governments (including foreign states, provinces and municipalities)
and agencies or instrumentalities thereof and debt obligations issued by U.S.
and foreign corporations. Such securities may include mortgage-backed securi-
ties issued or guaranteed by governmental entities or by private issuers. In
addition, the Fund may invest in debt securities issued or guaranteed by in-
ternational organizations designed or supported by multiple governmental enti-
ties (which are not obligations of the U.S. government or foreign governments)
to promote economic reconstruction or development ("supranational entities")
such as the World Bank. The Fund may also invest in certificates of deposit,
bankers' acceptances, time deposits of certain size banks, commercial paper
and asset-backed securities, and enter into dollar rolls. Under normal circum-
stances, GSAM expects that at least 30% of the fixed income component, ad-
justed to reflect such component's net exposure after giving effect to cur-
rency transactions and positions, will be denominated in U.S. dollars. Fur-
ther, because the securities markets in each of Canada, Germany, Japan and the
United Kingdom are highly developed, liquid and subject to extensive regula-
tions, GSAM may invest more than 25% of the fixed income component in the se-
curities of corporate and government issuers located in any of one of such
countries. Allocation of investments in such issuers could subject the Fund to
the risks of adverse social, political or economic events which may occur in
those countries.

The obligations of foreign governmental entities have various kinds of gov-
ernment support and include obligations issued or guaranteed by foreign gov-
ernmental entities with taxing power. These obligations may or may not be sup-
ported by the full faith and credit of a foreign government. The Fund will in-
vest in foreign government securities of issuers considered stable by GSAM.
GSAM does not believe that the credit risk inherent in the obligations of sta-
ble foreign governments is significantly greater than that of U.S. government
securities.

The Fund may invest the portion of its assets allocated to debt obligations
in the securities of governmental issuers and in corporate debt securities,
including convertible debt securities, rated "BBB" or better by S&P or "Baa"
or better by Moody's or which, in GSAM's judgement, possess similar credit
characteristics ("investment grade bonds"). Notwithstanding the foregoing, it
is expected that the Fund will generally invest a significant portion of such
component in securities having the highest applicable credit quality rating
or, if unrated, determined by GSAM at the time of investment to be of compara-
ble quality, with the remainder of such component invested in securities rated
of high quality by S&P or Moody's (i.e., "AA" or "Aa") or of comparable quali-
ty. However, with respect to obligations of a government issuer, the Fund may
invest in such obligations if rated "A" or better by S&P or Moody's, or if
unrated, determined by GSAM to be of comparable credit quality; provided that
the obligations are denominated in the issuer's own currency. See "Fixed In-
come Securities" in "Investment Techniques and Risk Factors" below for a dis-
cussion of the risks associated with investing in debt securities rated in the
fourth highest rating category. See also the Statement of Additional Informa-
tion for more information regarding ratings of debt securities. The ratings
assigned by S&P and Moody's are considered as one of several factors in GSAM's
independent credit analysis of issuers.

The average maturity of the Fund's portfolio of debt securities will vary
based on GSAM's assessment of pertinent economic market conditions. As with
all debt securities, changes in market yields will affect the value of such
securities. Prices generally increase when interest rates decline and decrease
when interest rates rise. Prices of longer term securities generally fluctuate
more in response to interest rate changes than do the prices of shorter-term
securities. The Fund may use various techniques to shorten or lengthen the
dollar-weighted average duration of its fixed income portfolio, including the
acquisition of debt obligations at a premium or discount, transactions in op-
tions, futures contracts and options on futures and interest rate swaps, mort-
gage swaps, caps and floors. Under normal circumstances, the Fund will main-
tain a dollar-weighted average duration of not more than 7.5 years. However,
the Fund is not subject to any limitation with respect to the average maturity
of its portfolio or the individual securities in which the Fund may invest.
See "Hedging and Income Enhancement Strategies" and "Special Risks of Hedging
and Income Enhancement Strategies" in

10
<PAGE>

"Investment Techniques and Risk Factors" below for more information concerning
the use of these investment techniques.

BLUE CHIP GROWTH FUND

The Blue Chip Growth Fund will invest, under normal circumstances, at least
65% of its total assets in equity securities of companies with large market
capitalizations, and which have conducted operations for at least five years.
A "blue chip" or "large-cap" stock is one which the Adviser considers compara-
ble to the stocks included in the Standard & Poor's 500 Index ("S&P 500") at
the time of purchase, and which has a minimum market capitalization of $5 bil-
lion, and that is traded on the New York Stock Exchange ("NYSE"), American
Stock Exchange ("AMEX") or on other national exchanges or on foreign ex-
changes. The Fund may also invest in equity securities that are (i) issued by
small companies which are believed by the Adviser to have significant growth
potential; (ii) issued by companies considered by the Adviser to be underval-
ued or overlooked and that have above-average earnings growth or value; or
(iii) unlisted, but these will generally be securities that have an estab-
lished over-the-counter market, although the depth and liquidity of that mar-
ket may vary from time to time and from security to security. In pursuing its
investment objective, the Fund may, under normal circumstances, invest up to
35% of its total assets in debt securities that have the potential for capital
appreciation due to anticipated market conditions. The Fund may invest in se-
curities rated as low as "BBB" or "Baa." See "Fixed Income Securities" in "In-
vestment Techniques and Risk Factors" below for a discussion of the risks as-
sociated with investing in such securities.

MID-CAP GROWTH FUND

The Mid-Cap Growth Fund will invest, under normal circumstances, at least
65% of its total assets in the equity securities of medium-sized companies
("Mid-Cap Companies") with market capitalizations of $1 billion to $5 billion,
which have conducted operations for at least five years. The Fund may also in-
vest in equity securities that are issued by (i) small companies which are be-
lieved by the Adviser to have significant growth potential, or (ii) companies
considered by the Adviser to have above-average earnings growth or value. A
significant portion of the Fund's equity investments are in securities listed
on the NYSE or other national securities exchanges or on foreign exchanges.
The Fund will also invest in unlisted securities, but these will generally be
securities that have an established over-the-counter market, although the
depth and liquidity of that market may vary from time to time and from secu-
rity to security. In pursuing its investment objective, the Fund may, under
normal circumstances, invest up to 35% of its total assets in debt securities
that have the potential for capital appreciation due to anticipated market
conditions. The Fund may invest in securities rated as low as "BBB" or "Baa."
See "Fixed Income Securities" in "Investment Techniques and Risk Factors" be-
low for a discussion of the risks associated with investing in such securi-
ties.

SMALL COMPANY GROWTH FUND

The Small Company Growth Fund pursues its investment objective by investing,
under normal circumstances, at least 65% of its total assets in the equity se-
curities of small, lesser known or new growth companies or industries, such as
telecommunications, media and biotechnology. Such "Small Cap" companies will
typically have market capitalizations of under $1 billion and have achieved,
or are expected to achieve, growth or earnings over various major business cy-
cles. The Fund may invest in securities issued by well known and established
domestic or foreign companies, as well as in newer and less-seasoned compa-
nies. Such securities may be listed on an exchange or traded over-the-counter.
See "Investment in Small Companies" in "Investment Techniques and Risk Fac-
tors" below for a discussion of the risks associated with investing in small
companies. In pursuing its investment objectives, the Fund may, under normal
circumstances, invest up to 35% of its total assets in debt securities that
have the potential for capital appreciation due to anticipated market condi-
tions. The Fund may invest in securities rated as low as "BBB" or "Baa." See
"Fixed Income Securities" in "Investment Techniques and Risk Factors" below
for a discussion of the risks associated with investing in such securities.

GROWTH AND INCOME FUND

The Growth and Income Fund will invest primarily in common stocks that offer
potential for cap-

11
<PAGE>

ital appreciation, current income, or both. The Fund may also purchase corpo-
rate bonds, notes, debentures, preferred stocks, convertible securities (both
debt securities and preferred stocks) or U.S. government securities, if the
Adviser determines that their purchase would help further the achievement of
the Fund's investment objectives. In addition, the Fund may invest in equity
securities that are (i) issued by small companies which are believed by the
Adviser to have significant growth potential; (ii) issued by companies consid-
ered by the Adviser to be undervalued or overlooked and that have above-aver-
age earnings growth or value; or (iii) unlisted, but these will generally be
securities that have an established over-the-counter market, although the
depth and liquidity of that market may vary from time to time and from secu-
rity to security. The types of securities held by the Fund may vary from time
to time in light of the Fund's investment objectives, changes in interest
rates, and economic and other factors. The Fund may also hold a portion of its
assets in cash or money market instruments. At times, when market conditions
warrant, the Fund may, as a temporary defensive measure, invest without limi-
tation in debt securities or preferred stocks, or invest in any other securi-
ties which the Adviser considers consistent with a defensive posture. See "In-
vestment in Small Companies" in "Investment Techniques and Risk Factors" below
for a discussion of the risks associated with investment in small companies.

The Fund is authorized to invest a portion of its debt portfolio in fixed
income securities rated below investment grade by a nationally recognized
statistical rating organization or in unrated securities which, in the
Adviser's judgment, possess similar credit characteristics ("high yield
bonds"). The Adviser has adopted a policy that the Fund will not invest more
than 15% of the Fund's total assets in obligations rated below "BBB" or "Baa."
Investment in high yield bonds (which are commonly referred to as "junk"
bonds) involves substantial risk. Investments in high yield bonds will be made
only when, in the judgment of the Adviser, such securities provide attractive
total return potential, relative to the risk of such securities, as compared
to higher quality debt securities. Securities rated "BB" or lower by S&P or
"Ba" or lower by Moody's are considered by those rating agencies to have
varying degrees of speculative characteristics. Consequently, although high
yield bonds can be expected to provide higher yields, such securities may be
subject to greater market price fluctuations and risk of loss of principal
than lower yielding, higher rated fixed income securities. The Fund generally
will not invest in debt securities in the lowest rating categories ("CC" or
lower for S&P or "Ca" or lower for Moody's) unless the Adviser believes that
the financial condition of the issuer or the protection afforded the
particular securities is stronger than would otherwise be indicated by such
low ratings. In the event the rating of a debt security is down-graded below
the lowest rating category deemed by the Adviser to be acceptable for the
Fund's investments, the Adviser will determine on a case-by-case basis the
appropriate action to best serve the interest of shareholders, including
disposition of the security. See the Statement of Additional Information for
additional information regarding high yield bonds.

High yield bonds may be issued by less creditworthy companies or by larger,
highly leveraged companies and are frequently issued in corporate
restructurings such as mergers and leveraged buyouts. Such securities are par-
ticularly vulnerable to adverse changes in the issuer's industry and in gen-
eral economic conditions. High yield bonds frequently are junior obligations
of their issuers, so that in the event of the issuer's bankruptcy, claims of
the holders of high yield bonds will be satisfied only after satisfaction of
the claims of senior security-holders. While the high yield bonds in which the
Fund may invest normally do not include securities which, at the time of in-
vestment, are in default or the issuers of which are in bankruptcy, there can
be no assurance that such events will not occur after the Fund purchases a
particular security, in which case the Fund may experience losses and incur
costs.

High yield bonds tend to be more volatile than higher rated fixed income se-
curities so that adverse economic events may have a greater impact on the
prices of high yield bonds than on higher rated fixed income securities. Like
higher rated fixed income securities, high yield bonds are generally purchased
and sold through dealers who make a market in such securities for their own
accounts. However, there are fewer dealers in the high yield bond market which
may be less liquid than the market for higher rated fixed income securities
even under normal economic conditions. Also, there may be significant dispari-
ties in the prices quoted for high yield bonds by various dealers. Adverse
economic conditions or investor perceptions (whether or not based on economic
fun-

12
<PAGE>

damentals) may impair the liquidity of this market and may cause the prices
the Fund receives for its high yield bonds to be reduced, or the Fund may ex-
perience difficulty in liquidating a portion of its portfolio. Under such con-
ditions, judgment may play a greater role in valuing certain of the Fund's
portfolio securities than in the case of securities trading in a more liquid
market.

INVESTMENT TECHNIQUES AND RISK FACTORS

ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets,
determined as of the date of purchase, in illiquid securities including
repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities), 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 of 1933, as
amended, or certain private placements of commercial paper issued in reliance
on an exemption from such Act pursuant to Section 4(2) thereof, that have a
readily available market are not considered illiquid for purposes of a Fund's
10% limitation on purchases of illiquid securities. Because it is not possible
to predict with assurance how the market for restricted securities will
develop, the Adviser (or Sub-Advisers) will monitor the liquidity of such
restricted securities under the supervision of the Trustees. To the extent
that, for a period of time, qualified institutional buyers cease purchasing
such restricted securities pursuant to Rule 144A, the Fund's investing in such
securities may have the effect of increasing the level of illiquidity in the
Fund's portfolio during such period. See "Illiquid Securities" in the
Statement of Additional Information for a discussion of the risks associated
with investments in such securities.

REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements in
order to generate income while providing liquidity. When a Fund acquires a
security from a bank or securities dealer, it may simultaneously enter into a
repurchase agreement, wherein the seller agrees to repurchase the security at
a mutually agreed-upon time (generally within seven days) and price. The
repurchase price is in excess of the purchase price by an amount which
reflects an agreed-upon market rate of return, which is not tied to the coupon
rate or maturity of the underlying security. Repurchase agreements will be
fully collateralized. If, however, the seller defaults on its obligation to
repurchase the underlying security, the Fund may experience delay or
difficulty in exercising its rights to realize upon the security and might
incur a loss if the value of the security has declined. The Fund might also
incur disposition costs in liquidating the security. There is no limit on the
amount of a Fund's net assets that may be subject to repurchase agreements
having a maturity of seven days or less for temporary defensive purposes.

SHORT-TERM AND TEMPORARY DEFENSIVE INVESTMENTS. In addition to their primary
investments, each Fund may also invest up to 10% of its total assets in money
market instruments for liquidity purposes (to meet redemptions and expenses).
For temporary defensive purposes, each Fund may invest up to 100% of its total
assets in fixed-income securities, including corporate debt obligations and
money market instruments rated in one of the two highest categories by a
nationally recognized statistical rating organization (or determined by the
Adviser or Sub-Advisers to be of equivalent quality). Money market instruments
include securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, repurchase agreements, commercial paper, bankers'
acceptances and certificates of deposit. See the Appendix to the Statement of
Additional Information for a description of securities ratings.

U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Treasury
securities, including bills, notes, bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
government and, as such, are backed by the "full faith and credit" of the
United States. They differ primarily in their interest rates, the lengths of
their maturities and the dates of their issuances. Each Fund may also invest
in securities issued by agencies of the U.S. government or instrumentalities
of the U.S. government. These obligations, including those which are
guaranteed by Federal agencies or instrumentalities, may or may not be backed
by the full faith and credit of the United States. Obligations of the
Government National Mortgage Association ("GNMA"), the Farmers Home
Administration and the Export-Import Bank are backed by the full faith and
credit of the United States. In the case of securities not backed by the full

13
<PAGE>

faith and credit of the United States, a Fund must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment and may
not be able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments.

Mortgage-backed Government Securities. The Balanced Assets Fund and the
Global Balanced Fund may, in addition to the securities noted above, invest in
mortgage-backed securities, including those representing an undivided
ownership interest in a pool of mortgages, e.g., GNMA, Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation Certificates.
The U.S. government or the issuing agency guarantees the payment of interest
and principal of these securities. However, the guarantees do not extend to
the securities' yield or value, which are likely to vary inversely with
fluctuations in interest rates. These certificates are in most cases "pass-
through" instruments, through which the holder receives a share of interest
and principal payments from the mortgages underlying the certificate, net of
certain fees. Because the prepayment characteristics of the underlying
mortgages vary, it is not possible to predict accurately the average life of a
particular issue of pass-through certificates. Mortgage-backed securities are
often subject to more rapid repayment than their stated maturity date would
indicate as a result of the pass-through of prepayments of principal on the
underlying mortgage obligations. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected
to accelerate. In addition, the Fund may invest in collaterized mortgage
obligations and stripped mortgage-backed securities, including interest-only
and principal-only securities. While interest-only and principal-only
securities are generally regarded as being illiquid, such securities may be
deemed to be liquid if they can be disposed of promptly in the ordinary course
of business at a value reasonably close to that used in the calculation of the
Fund's net asset value per share. Only government interest-only and principal-
only securities backed by fixed-rate mortgages and determined to be liquid
under guidelines and standards established by the Trustees may be considered
liquid not subject to a Fund's limitation on investment in illiquid
securities. See "U.S. Government Securities" in the Statement of Additional
Information for a further discussion of those types of securities.

FIXED INCOME SECURITIES. In addition to U.S. government securities, each
Fund may invest, subject to the percentage and credit quality limitations
stated in the prospectus, in debt securities, including corporate obligations
issued by domestic and foreign corporations and money market instruments,
without regard to the maturities of such securities. Those debt securities
which are rated "BBB" or "Baa", while considered to be "investment grade", may
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. As a conse-
quence of the foregoing, the opportunities for income and gain may be limited.
While the Funds have no stated policy with respect to the disposition of secu-
rities whose ratings fall below investment grade, each occurrence is examined
by the Adviser or Sub-Advisers to determine the appropriate course of action.

ASSET-BACKED SECURITIES. The Global Balanced Fund may invest in asset-backed
securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card or
automobile loan receivables, representing the obligations of a number of
different parties. Corporate 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. See the
Statement of Additional Information for further information on these
securities.

ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS. Fixed income
securities in which the Global Balanced Fund and Growth and Income Fund may
invest also include zero coupon bonds, deferred interest bonds and bonds on
which the interest is payable in kind ("PIK bonds"). Zero coupon and deferred
interest bonds are debt obligations which are issued or purchased at a
significant discount from face value. The discount approximates the total
amount of interest the bonds will accrue and compound over the period until
maturity or the first interest payment date at a rate of interest reflecting
the market rate of the security at the time of issuance. While zero coupon
bonds do not require the periodic payment of interest, deferred interest bonds
provide for a period of delay before the regular payment of interest begins.
PIK bonds are debt obligations which provide that the issuer thereof

14
<PAGE>

may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments benefit the issuer by mitigating
its need for cash to meet debt service, but also require a higher rate of
return to attract investors who are willing to defer receipt of such cash.
Such investments may experience greater volatility in market value due to
changes in interest rates and other factors than debt obligations which make
regular payments of interest. A Fund will accrue income on such investments
for tax and accounting purposes, as required, which is distributable to
shareholders and which, because no cash is received at the time of accrual,
may require the liquidation of other portfolio securities under
disadvantageous circumstances to satisfy the Fund's distribution obligations.

WARRANTS. Each Fund may invest in warrants which give the holder of the
warrant a right to purchase a given number of shares of a particular issue at
a specified price until expiration. A Fund may not invest more than 5% of its
total assets in such warrants, and, of such amount, no more than 2% of total
assets in warrants not listed on the NYSE or AMEX.

INVESTMENT IN SMALL COMPANIES. The Small Company Growth Fund will invest,
and the other Funds may each invest, in small companies having market
capitalizations of under $1 billion. It may be difficult to obtain reliable
information and financial data on such companies and the securities of these
small companies may not be readily marketable, making it difficult to dispose
of shares when desirable. Securities of small or emerging growth companies may
be subject to more abrupt or erratic market movements than larger, more
established companies or the market average in general. A risk of investing in
smaller, emerging companies is that they often have limited product lines,
markets or financial resources, and their securities may be subject to more
abrupt or erratic market movements than securities of larger, more established
companies or the market averages in general. In addition, certain issuers in
which these Funds may invest may face difficulties in obtaining the capital
necessary to continue in operation and may go into bankruptcy, which could
result in a complete loss of the Fund's investment.

WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. Each Fund may purchase or
sell securities on a when-issued or delayed-delivery basis. When-issued or
delayed-delivery transactions arise when securities are purchased or sold by a
Fund with payment and delivery taking place a month or more in the future in
order to secure what is considered to be an advantageous price and yield to
the Fund at the time of entering into the transaction. While the Fund will
only purchase securities on a when-issued or delayed-delivery basis with the
intention of acquiring the securities, the Fund may sell the securities before
the settlement date, if it is deemed advisable. At the time the Fund makes the
commitment to purchase securities on a when-issued or delayed-delivery basis,
the Fund will record the transaction and thereafter reflect the value, each
day, of such security in determining the net asset value of the Fund. At the
time of delivery of the securities, the value may be more or less than the
purchase price. The Fund will maintain in a segregated account of the Fund
liquid assets having a value equal to or greater than the Fund's purchase
commitments. The Fund will likewise segregate liquid assets in respect of
securities sold on a delayed-delivery basis. Subject to this requirement, each
Fund may purchase securities on such basis without limitation.

FOREIGN SECURITIES. Although foreign securities are generally not expected
to constitute a significant portion of any Fund's investment portfolio (other
than the Global Balanced Fund), each Fund is authorized to invest, without
limitation, in foreign securities. A Fund may purchase securities issued by
issuers in any country; provided, that a Fund (other than the Global Balanced
Fund) may not invest more than 25% of its total assets in the securities is-
sued by entities domiciled in any one foreign country. Foreign investments may
be affected favorably or unfavorably by changes in currency rates and ex-
change-control regulations and costs will be incurred in connection with con-
versions between various currencies. The value of a security may fluctuate as
a result of currency exchange rates in a manner unrelated to the underlying
value of the security. There may be less publicly available information about
a foreign company than about a U.S. company, and foreign companies may not be
subject to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies. Securities of
some foreign companies may be less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees are gen-
erally higher than in the

15
<PAGE>

U.S. In addition, there is generally less governmental regulation of stock ex-
changes, brokers and listed companies abroad than in the U.S. Investments in
foreign securities may also be subject to other risks, different from those
affecting U.S. investments, including local political or economic develop-
ments, expropriation or nationalization of assets and imposition of withhold-
ing taxes on dividend or interest payments.

Each Fund may also invest in securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
Global Depositary Receipts (GDRs) or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are certificates issued by a U.S. depository (usually a bank)
and represent a specified quantity of shares of an underlying non-U.S. stock
on deposit with a custodian bank as collateral. EDRs, GDRs and other types of
depositary receipts are typically issued by foreign depositaries, although
they may also be issued by U.S. depositaries, and evidence ownership interests
in a security or pool of securities issued by either a foreign or a U.S.
corporation. Each Fund also may invest in securities denominated in European
Currency Units (ECUs). An ECU is a "basket" consisting of specified amounts of
currencies of certain of the twelve member states of the European Community.
The specific amount of currencies comprising the ECU may be adjusted by the
Council of Ministers of the European Community from time to time to reflect
changes in relative values of the underlying currencies. In addition, the
Funds may invest in securities denominated in other currency "baskets." See
"Foreign Securities" in the Statement of Additional Information for a further
discussion of these types of securities.

Emerging Markets. Investment may be made from time to time in issuers domi-
ciled in, or governments of, developing countries or emerging markets as well
as developed countries. Although there is no universally accepted definition,
a developing country is generally considered to be a country which is in the
initial stages of its industrialization cycle with a low per capita gross na-
tional product. Historical experience indicates that the markets of developing
countries or emerging markets have been more volatile than the markets of de-
veloped countries; however, such markets can provide higher rates of return to
investors. Investment in an emerging market country may involve certain risks,
including a less diverse and mature economic structure, a less stable politi-
cal system, an economy based on only a few industries or dependent on interna-
tional aid or development assistance, the vulnerability to local or global
trade conditions, extreme debt burdens, or volatile inflation rates.

Risks and Considerations Applicable to Investment in Securities of Foreign
Issuers. Elements of risk and opportunity when investments in foreign issuers
are made include trade imbalances and related economic policies; currency
fluctuations; foreign exchange control policies; expropriation or confiscatory
taxation; limitation on the removal of funds or other assets; political or so-
cial instability; the diverse structure and liquidity of securities markets in
various countries and regions; policies of governments with respect to possi-
ble nationalization of their industries; and other specific local political
and economic considerations. Foreign companies and foreign investment prac-
tices are generally not subject to uniform accounting, auditing and financial
reporting standards and practices or regulatory requirements comparable to
those of U.S. companies. There may by less information publicly available
about foreign companies. Investment decisions made in the context of the
Funds' objectives and policies involve the evaluation of opportunities and
risks presented by probable future currency relationships, especially during
periods of broad adjustments in such relationships.

The performance of investments in securities denominated in a foreign cur-
rency ("non-dollar securities") will depend on, among other things, the
strength of the foreign currency against the dollar and the interest rate en-
vironment in the country issuing the foreign currency. Absent other events
which could otherwise affect the value of non-dollar securities (such as a
change in the political climate or an issuer's credit quality), appreciation
in the value of the foreign currency generally can be expected to increase the
value of a Fund's non-dollar securities in terms of U.S. dollars. A rise in
foreign interest rates or decline in the value of foreign currencies relative
to the U.S. dollar generally can be expected to depress the value of the
Fund's non-dollar securities. Currencies are evaluated on the basis of funda-
mental economic criteria (e.g., relative inflation levels and trends, growth
rate forecasts, balance of payments status and economic policies) as well as
technical and political data.

16
<PAGE>

Foreign Currency Transactions. Currency exchange rate fluctuations are a ma-
jor area of risk and opportunity for the Global Balanced Fund. The Fund has
the ability to hold a portion of its assets in foreign currencies and to enter
into forward foreign currency exchange contracts. It may also purchase and
sell exchange-traded futures contracts relating to foreign currency and pur-
chase and sell put and call options on currencies and futures contracts. A
significant portion of the Fund's currency transactions will be over-the-
counter transactions.

The Global Balanced Fund may enter into forward foreign currency exchange
contracts to reduce the risks of fluctuations in exchange rates; however,
these contracts cannot eliminate all such risks and do not eliminate fluctua-
tions in the prices of the Fund's portfolio securities. For example, purchas-
ing (selling) a currency forward limits the Fund's exposure to risk of loss
from a rise (decline) in the U.S. dollar value of the currency, but also lim-
its its potential for gain from a decline (rise) in the currency's U.S. dollar
value.

The Global Balanced Fund may purchase and write put and call options on cur-
rencies for the purpose of protecting against declines in the U.S. dollar
value of foreign portfolio securities and against increases in the U.S. dollar
cost of foreign securities to be acquired. As with other kinds of option
transactions, however, the writing of an option on currency will constitute
only a partial hedge, up to an amount of the premium received. The Fund could
be required to purchase or sell currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event
of exchange rate movements adverse to the Fund's position, the Fund may for-
feit the entire amount of the premium plus related transaction costs.

The Global Balanced Fund may enter into forward foreign currency exchange
contracts, currency options and currency swaps for non-hedging purposes when a
Sub-Adviser anticipates that a foreign currency will appreciate or depreciate
in value, but securities denominated in that currency do not present attrac-
tive investment opportunities or are not included in the Fund. The Fund may
use currency contracts and options to cross-hedge, which involves selling or
purchasing instruments in one currency to hedge against changes in exchange
rates for a different currency with a pattern of correlation. To limit any
leverage in connection with currency contract transactions for non-hedging
purposes, the Fund will segregate liquid assets such as cash, U.S. government
securities or other appropriate high-grade obligations in an amount sufficient
to meet its payment obligations in these transactions. Initial margin deposits
made in connection with currency futures transactions or premiums paid for
currency options traded over-the-counter or on a commodities exchange may each
not exceed 5% of the Fund's total assets in the case of non-bona fide hedging
transactions.

The Global Balanced Fund may enter into currency swaps. Currency swaps in-
volve the exchange by the Fund with another party of their respective rights
to make or receive payments in specified currencies. Since currency swaps are
individually negotiated, the Fund expects to achieve an acceptable degree of
correlation between its portfolio investments and its currency swap positions.
Currency swaps usually involve the delivery of the entire principal value of
one designated currency in exchange for the other designated currency. There-
fore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery ob-
ligations. The Fund will maintain in a segregated account with the Fund's cus-
todian cash and liquid high grade debt securities equal to the net amount, if
any, of the excess of the Fund's obligations over its entitlements with re-
spect to swap transactions. To the extent that the net amount of a swap is
held in a segregated account consisting of cash and liquid, high grade debt
securities, the Fund, the Adviser and Sub-Advisers believe that swaps do not
constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to the Fund's borrowing restriction. The use of
currency swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If a Sub-Adviser is incorrect in its forecasts of
market values and currency exchange rates, the investment performance of the
Fund would be less favorable that it would have been if this investment tech-
nique were not used.

LOANS OF PORTFOLIO SECURITIES. Each Fund may lend portfolio securities in
amounts up to 33% of its respective total assets to brokers, dealers and other
financial institutions, provided such loans are callable

17
<PAGE>

at any time by the Fund and are at all times secured by cash or equivalent
collateral. By lending its portfolio securities, a Fund will receive income
while retaining the securities' potential for capital appreciation. 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 secu-
rities fail financially. However, these loans of portfolio securities will
only be made to firms deemed by the Adviser (or Sub-Advisers) to be credit-
worthy. The proceeds of such loans will be invested in high-quality short-term
debt securities, including repurchase agreements.

LEVERAGE. In seeking to enhance investment performance, the Global Balanced
Fund, Small Company Growth Fund and Growth and Income Fund may borrow money
for investment purposes and may each pledge assets to secure such borrowings.
This is the speculative factor known as leverage. This practice may help a
Fund increase the net asset value of its shares in an amount greater than
would otherwise be the case when the market values of the securities purchased
through borrowing increase. In the event the return on an investment of bor-
rowed monies does not fully recover the costs of such borrowing, the net asset
value of the Fund's shares would be reduced by a greater amount than would
otherwise be the case. The effect of leverage will therefore tend to magnify
the gains or losses to a Fund as a result of investing the borrowed monies.
During periods of substantial borrowings, the net asset value of a Fund's
shares would be reduced due to the added expense of interest on borrowed mon-
ies. Each Fund is authorized to borrow, and to pledge assets to secure such
borrowings, up to the maximum extent permissible under the 1940 Act (i.e.,
presently 50% of net assets). The time and extent to which a Fund may employ
leverage will be determined by the Adviser (or Sub-Advisers) in light of
changing facts and circumstances, including general economic and market condi-
tions, and will be subject to applicable lending regulations of the Board of
Governors of the Federal Reserve Board. The Funds' policies regarding the use
of leverage are fundamental policies which may not be changed without the ap-
proval of shareholders of the respective Fund.

Under the 1940 Act, the value of a Fund's assets less liabilities, other
than borrowings, must be at least three times all of the Fund's borrowings,
including the proposed borrowing. If for any reason the value of a Fund's as-
sets falls below the 1940 Act requirement, the Fund must within three business
days reduce its borrowings to satisfy such requirement. To do this, a Fund may
have to sell a portion of its investments at a time when it may be disadvanta-
geous to do so.

HEDGING AND INCOME ENHANCEMENT STRATEGIES. Each Fund may write covered calls
to enhance income. For hedging purposes as a temporary defensive maneuver,
each Fund may use interest rate futures and stock and bond index futures (to-
gether, "Futures"); forward contracts on foreign currencies; and call and put
options on equity and debt securities, Futures, stock and bond indices and
foreign currencies (all of the foregoing are referred to as "Hedging Instru-
ments"). A call or put may be purchased only if, after such purchase, the
value of all call and put options held by the Fund would not exceed 5% of the
Fund's total assets. A Fund will not use Futures and options on Futures for
speculation. All puts and calls on securities, interest rate futures or stock
and bond index futures or options on such Futures purchased or sold by the
Fund will be listed on a national securities or commodities exchange or on
U.S. over-the-counter markets. The Global Balanced Fund may invest up to 5% of
its total assets in yield curve options. See "Foreign Securities--Foreign Cur-
rency Transactions."

Special Risks of Hedging and Income Enhancement Strategies. Participation in
the options or Futures markets and in currency exchange transactions involves
investment risks and transaction costs to which a Fund would not be subject
absent the use of these strategies. If the Adviser's (or Sub-Adviser's) pre-
dictions of movements in the direction of the securities, foreign currency and
interest rate markets are inaccurate, the adverse consequences to the Fund may
leave the Fund in a worse position than if such strategies were not used.
Risks inherent in the use of options, foreign currency and Futures contracts
and options on Futures contracts include (1) dependence on the Adviser's (or
Sub-Adviser's) ability to predict correctly movements in the direction of in-
terest rates, securities prices and currency markets; (2) imperfect correla-
tion between the price of options and Futures contracts and options thereon
and movements in the prices of the securities or currencies being hedged; (3)
the fact that skills needed to use these strategies are different from those
needed to select portfolio securities; (4) the possible absence of a liquid
second-

18
<PAGE>

ary market for any particular instrument at any time; (5) the possible need to
defer closing out certain hedged positions to avoid adverse tax consequences;
and (6) the possible inability of the Fund to purchase or sell a portfolio se-
curity at a time that otherwise would be favorable for it to do so, or the
possible need for the Fund to sell a portfolio security at a disadvantageous
time, due to the need for the Fund to maintain "cover" or to segregate securi-
ties in connection with hedging transactions. A transaction is "covered" when
the Fund owns the security subject to the option on such security, or some
other security acceptable for applicable escrow requirements. See the State-
ment of Additional Information for further information concerning income en-
hancement and hedging strategies and the regulation requirements relating
thereto.

SHORT SALES. Each Fund may make "short sales against the box." A short sale
is effected by selling a security which the Fund does not own. A short sale is
against the box to the extent that the Fund contemporaneously owns, or has the
right to obtain without payment, securities identical to those sold short. A
Fund may not enter into a short sale against the box, if, as a result, more
than 25% of its total assets would be subject to such short sales.

OTHER INVESTMENTS. Each Fund may enter into reverse repurchase agreements.
In addition, the Global Balanced Fund may enter into dollar rolls, interest-
rate swaps and mortgage swaps or purchase or sell interest-rate caps, floors
or collars. The Global Balanced Fund may also invest in leveraged inverse
floating rate debt instruments. See the Statement of Additional Information
for further information concerning these investment techniques.

SPECIAL SITUATIONS. Each Fund may invest, subject to its particular invest-
ment limitations described above, up to 25% of its assets in "special situa-
tions" that the Adviser (or Sub-Advisers) believes present opportunities for
capital growth, or in the case of the Balanced Assets Fund, Global Balanced
Fund, and Growth and Income Fund, for total return. A "special situation" may
involve a merger, reorganization, or other unusual development that is ex-
pected to occur which, in the opinion of the Adviser (or Sub-Advisers), may
prompt an increase in the value of an issuer's securities regardless of gen-
eral business conditions or the movement of the market as a whole. A risk is
present that the price of the security may decline if the anticipated develop-
ment fails to occur.

FUTURE DEVELOPMENTS. Each Fund may invest in securities and other instru-
ments which do not presently exist but may be developed in the future, pro-
vided that each such investment is consistent with the Fund's investment ob-
jectives, policies and restrictions and is otherwise legally permissible under
federal and state laws. The Prospectus will be amended or supplemented as ap-
propriate to discuss any such new investments.

INVESTMENT RESTRICTIONS

Each Fund (other than the Global Balanced Fund) has adopted certain funda-
mental policies designed to maintain the diversity of its portfolio and reduce
investment risk. With respect to 75% of each such a Fund's total assets, the
Fund may not invest more than 5% of its assets in the securities of any one
issuer (other than obligations of the U.S. government, its agencies and in-
strumentalities) or purchase more than 10% of an issuer's voting securities or
more than 10% of any class of an issuer's outstanding securities. In addition,
none of the Funds may purchase securities (other than obligations issued or
guaranteed by the U.S. government, its agencies and instrumentalities) if as a
result of such purchase more than 25% of a Fund's total assets would be in-
vested in any one industry. See the Statement of Additional Information for
information concerning other fundamental policies.

The Global Balanced Fund is classified as non- diversified within the mean-
ing of the 1940 Act, which means that the Fund is not limited by such Act in
the proportion of its assets which may be invested in the securities of any
one issuer. However, the Fund's investments will be limited so as to qualify
as a "regulated investment company" for purposes of the Internal Revenue Code
of 1986, as amended (the "Code"). To qualify, among other requirements, the
Fund will limit its investments so that, at the close of each quarter of the
taxable year, (i) not more than 25% of the market value of the Fund's total
assets will be invested in the securities of a single issuer, and (ii) with
respect to 50% of the market value of its total assets, not more than 5% of
the market value of its total assets will be invested in the securities of a
single issuer (other than obligations of the U.S. government,

19
<PAGE>

its agencies and instrumentalities), and the Fund will not own more than 10%
of the outstanding voting securities of a single issuer. To the extent that
the Fund assumes large positions in the securities of a small number of is-
suers, the Fund may be more susceptible to any single economic, political or
regulatory occurrence and to the financial conditions of the issuer in which
it invests.

MANAGEMENT OF THE TRUST

TRUSTEES. The Trustees of the Trust are responsible for the overall supervi-
sion of the operation of the Trust and each Fund and perform various duties
imposed on trustees of investment companies by the 1940 Act and by the Common-
wealth of Massachusetts.

THE ADVISER. The Adviser selects and/or manages the investments of each
Fund, provides various administrative services and supervises the Funds' daily
business affairs, subject to general review by the Trustees. The Adviser is an
indirect wholly owned subsidiary of SunAmerica Inc. ("SunAmerica"), an invest-
ment-grade financial services company which has total capital of approximately
$1.8 billion. SunAmerica's principal executive offices are located at 1
SunAmerica Center, Century City, Los Angeles, CA 90067-6022. In addition to
serving as adviser to the Funds, the Adviser and its affiliates serve as ad-
viser, manager and/or administrator for Anchor Pathway Fund, SunAmerica Income
Funds, SunAmerica Money Market Funds, Inc., Anchor Series Trust and SunAmerica
Series Trust. The Adviser and its affiliates managed, advised and/or adminis-
tered assets of approximately 7.6 billion as of December 31, 1996 for invest-
ment companies, individuals, pension accounts, and corporate and trust ac-
counts.

Pursuant to the Investment Advisory and Management Agreement entered into
between the Adviser and the Trust, on behalf of each Fund, each Fund (other
than the Global Balanced Fund) pays the Adviser a fee, payable monthly, com-
puted daily at the annual rate of .75% on the first $350 million of the Fund's
average daily net assets, .70% on the next $350 million of net assets and .65%
on net assets over $700 million for the services performed, on behalf of the
Fund and the facilities furnished by the Adviser. The Global Balanced Fund
pays the Adviser a fee, payable monthly, computed daily at the annual rate of
1.00% on the first $350 million of the Fund's average daily net assets, .90%
on the next $350 million of net assets and .85% on net assets over $700 mil-
lion. These advisory fee rates are higher than those paid by most other in-
vestment companies. For the fiscal year ended September 30, 1995, each Fund
paid the Adviser a fee equal to the following percentage of average daily net
assets: Balanced Assets Fund -- .75%; Blue Chip Growth Fund -- .75%; Global
Balanced Fund -- 1.00%; Growth and Income Fund -- .75%; Mid-Cap Growth
Fund -- .75% and Small Company Growth Fund -- .75%. For the fiscal year ended
September 30, 1995, the Adviser waived its fees with respect to the Global
Balanced Fund and Growth and Income Fund amounting to $115,214 and $32,455,
respectively.

THE SUB-ADVISERS. The Adviser has entered into sub-advisory agreements with
AIG Global and GSAM pursuant to which the Sub-Advisers provide the Global Bal-
anced Fund with investment advisory services, including the continuous review
and administration of the Fund's foreign equity (AIG Global) and global bond
(GSAM) investment programs. The Sub-Advisers discharge their responsibilities
subject to the direction and control of the Trustees and the oversight and re-
view of the Adviser.

AIG Global serves as sub-adviser for the foreign equity component of the
Global Balanced Fund. AIG Global's principal offices are located at 70 Pine
Street, New York, NY 10270. In providing sub-advisory services to the foreign
equity component of the Fund with respect to European, Japanese and Southeast
Asian securities and markets, AIG Global will utilize the services of certain
of its affiliates. Each of AIG Global and its affiliated companies providing
services on behalf of the foreign equity component of the Fund is an indirect
wholly owned subsidiary of American International Group, Inc. ("AIG"). AIG is
an international insurance organization whose member companies write insurance
in approximately 130 countries and jurisdictions and are engaged in a range of
financial services businesses. As of December 31, 1995, AIG Global Investment
Corp., and its foreign affiliates advised on approximately $60 billion of as-
sets, of which more than $10 billion represented assets of non-affiliated cli-
ents. The Adviser pays AIG Global a monthly fee with respect to those net as-
sets of the Global Balanced Fund actually managed by AIG Global and its affil-
iates (as described above), computed on average daily net assets at the fol-
lowing

20
<PAGE>

annual rates: .50% on the first $50 million of such assets, .40% of the next
$100 million of such assets, .30% on the next $150 million of such assets, and
.25% of such assets in excess of $300 million. For the fiscal year ended Sep-
tember 30, 1995, the Adviser paid to AIG Global a fee equal to .50% of the
Global Balanced Fund's average daily net assets. The foregoing fees are paid
from the management fee paid to the Adviser and do not increase Fund expenses.

GSAM serves as sub-adviser for the global bond component of the Global
Balanced Fund. GSAM, an affiliate of Goldman, Sachs & Co., a Delaware limited
partnership, is located at 140 Sleet Street, London EC 4A-B, England. GSAM
serves a wide range of clients including private and public pension funds,
endowments, foundations, banks, thrifts, insurance companies, corporations,
and private investors and family groups. GSAM was organized in 1990. As a
company with limited liability under the laws of England, it is authorized to
conduct investment advisory business in the United Kingdom as a member of
IMRO. The asset management services are divided into the following areas:
institutional fixed income investment management; global currency management;
institutional equity investment management; fund management; money market
mutual fund management and administration; and private asset management. In
performing its investment advisory services, GSAM, while remaining ultimately
responsible for management of the global bond component of the Global Balanced
Fund, is able to draw on the research and market expertise of its affiliate
offices, including Goldman Sachs (Asia) L.L.C., its Hong Kong affiliate, for
portfolio decisions and management. As of December 31, 1995, GSAM, together
with its affiliates, acted as investment adviser, administrator or distributor
for approximately $55.3 billion in assets. The Adviser pays GSAM a monthly fee
with respect to those net assets of the Global Balanced Fund actually managed
by GSAM, computed on average daily net assets, at the following annual rates:
.40% on the first $50 million of such assets, .30% on the next $100 million of
such assets, .25% on the next $100 million of such assets, and .20% of such
assets in excess of $250 million. For the fiscal year ended September 30,
1995, the Adviser paid to GSAM a fee equal to .40% of the Global Balanced
Fund's average daily net assets. The foregoing fees are paid from the
management fee paid to the Adviser and do not increase Fund expenses.

PORTFOLIO MANAGERS. There are eight portfolio managers of the Funds. The
following individuals are primarily responsible for the day-to-day management
of the particular Funds indicated:

Stanton J. Feeley has served as 1) portfolio manager of the Balanced Assets
Fund and Blue Chip Growth Fund since February 1992, 2) portfolio manager of
the domestic equity component of the Global Balanced Fund since the inception
date of June 15, 1994 and 3) portfolio manager of the Growth and Income Fund
since the inception date of July 1, 1994. Mr. Feeley is an Executive Vice
President of the Adviser and serves as the firm's Chief Investment Officer.
Mr. Feeley has 31 years experience in the investment industry, including expe-
rience in institutional sales management.

P. Christopher Leary has served as assistant portfolio manager of the
Balanced Assets Fund since June 1991. Mr. Leary is a Senior Vice President of
the Adviser and has been a portfolio manager with the firm since 1990.
Previously, Mr. Leary was an investment manager with Equitable Capital
Management.

Francis D. Gannon has served as assistant portfolio manager of the Balanced
Assets Fund since December 1995. Mr. Gannon is an Assistant Vice President of
the Adviser and has been an equity analyst with the firm since 1993.

Audrey L. Snell has served as portfolio manager of the Small Company Growth
Fund since November 1991 and portfolio manager of the Mid-Cap Growth Fund
since February 1993. Ms. Snell is a Vice President of the Adviser and has been
a portfolio manager with the firm since 1991.

Gerald P. Sullivan has served as assistant portfolio manager of the Growth
and Income Fund since December 1995. Mr. Sullivan has been an equity analyst
for the Adviser since February 1995. Prior to joining the Adviser, Mr.
Sullivan spent two years as a portfolio manager for Texas Commerce Investment
Management. Prior to his time at Texas Commerce, he spent four years as a
director for the Southmore Foundation, Inc. and as an adjunct professor at
Rice University in Houston, Texas.

Stephen Fitzgerald has served as the portfolio manager for the global bond
component of the Global Balanced Fund since the inception date of

21
<PAGE>

June 15, 1994. Mr. Fitzgerald is Vice President in GSAM's London office, and
joined GSAM in 1992. Prior to 1992, he spent two years managing multi-currency
fixed income and balanced portfolios at Invesco MIM Limited, where he was a
senior member of the derivative products group.

Andrew F. Wilson has served as co-portfolio manager for the global bond com-
ponent of the Global Balanced Fund since joining GSAM in December 1995. Mr.
Wilson is a Senior International Fixed Income Portfolio Manager in GSAM's Lon-
don office. Prior to joining GSAM, Mr. Wilson spent two years as an Assistant
Director of Rothschild Asset Management, where he was responsible for economic
and bond market forecasts for the U.S. and Canadian economies. Prior to his
time at Rothschild, he spent a year as a Trading Manager at the Reserve Bank
of New Zealand, where he oversaw the bank's four portfolio managers. Prior to
that, he spent two years as an Investment Manager in the Foreign Exchange Di-
vision at the Bank of England, on secondment from the Reserve Bank of New Zea-
land.

Peter G. Wignall has served as co-portfolio manager for the foreign equity
component of the Global Balanced Fund since the inception date of June 15,
1994. Mr. Wignall, Managing Director and Chief Executive of AIG Global Invest-
ment Corp. (Europe) Ltd., is responsible for asset allocation, strategy and
currency management. Previously, Mr. Wignall was a senior portfolio manager at
Citibank Investment Management in Australia and London.

THE DISTRIBUTOR. SunAmerica Capital Services, Inc. (the "Distributor"), an
indirect wholly owned subsidiary of SunAmerica, acts as distributor of the
shares of each Fund pursuant to the Distribution Agreement between the
Distributor and the Trust on behalf of each Fund. The Distributor receives all
initial and deferred sales charges in connection with the sale of Fund shares,
all or a portion of which it may reallow to other broker-dealers. The
Distributor and other broker-dealers pay commissions to salespersons, as well
as the cost of printing and mailing prospectuses to potential investors and of
any advertising expenses incurred by them in connection with their
distribution of Fund shares.

The Distributor, at its expense, may from time-to-time, provide additional
compensation to broker-dealers (including in some instances, exclusively to
Royal Alliance Associates, Inc., SunAmerica Securities, Inc. and/or Advantage
Capital Management Corporation, affiliates of the Distributor) in connection
with sales of shares of the Fund. Such compensation may include (i) full re-
allowance of the front-end sales charge on Class A shares; (ii) additional
compensation with respect to the sale of Class A or Class B shares; or (iii)
financial assistance to broker-dealers in connection with conferences, sales
or training programs for their employees, seminars for the public, advertising
campaigns regarding one or more of the Funds, and/or other broker-dealer spon-
sored special events. In some instances, this compensation will be made avail-
able only to certain broker-dealers whose representatives have sold a signifi-
cant amount of shares of the Fund. Compensation may also include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. In addition, the following types of non-cash compensation may be of-
fered through sales contests: (i) travel mileage on major air carriers; (ii)
tickets for entertainment events (such as concerts or sporting events); or
(iii) merchandise (such as clothing, trophies, clocks, pens or other elec-
tronic equipment). Broker-dealers may not use sales of the Funds' shares to
qualify for this compensation to the extent receipt of such compensation may
be prohibited by the laws of any state or any self-regulatory agency, such as,
for example, the National Association of Securities Dealers, Inc. Dealers who
receive bonuses or other incentives may be deemed to be underwriters under the
Securities Act of 1933.

Certain laws and regulations limit the ability of banks and other depository
institutions to underwrite and distribute securities. However, in the opinion
of the Adviser based upon the advice of counsel, these laws and regulations do
not prohibit such depository institutions from providing other services to in-
vestment companies of the type contemplated by the Distribution Plans (as de-
scribed below). The Trustees will consider appropriate modifications to the
operations of the Funds, including discontinuance of payments under the Dis-
tribution Plans to banks and other depository institutions, in the event such
institutions can no longer provide the services called for under their agree-
ments. Banks and other financial services firms may be subject to various
state laws regarding services described, and may be required to register as
dealers pursuant to state law.

22
<PAGE>

DISTRIBUTION PLANS. Rule 12b-1 under the 1940 Act permits an investment
company directly or indirectly to pay expenses associated with the
distribution of its shares ("distribution expenses") in accordance with a plan
adopted by the investment company's board of directors and approved by its
shareholders. Pursuant to such rule, the Trustees and the shareholders of each
class of shares of each Fund have adopted Distribution Plans hereinafter
referred to as the "Class A Plan" and the "Class B Plan." In adopting the
Class A Plan and the Class B Plan, the Trustees determined that there was a
reasonable likelihood that each such Plan would benefit the Trust and the
shareholders of the respective class. The sales charge and distribution fees
of a particular class will not be used to subsidize the sale of shares of any
other class.

Under the Class A Plan, the Distributor may receive payments from a Fund at
an annual rate of up to 0.10% of average daily net assets of such Fund's Class
A shares to compensate the Distributor and certain securities firms for pro-
viding sales and promotional activities for distributing that class of shares.
Under the Class B Plan, the Distributor may receive payments from a Fund at
the annual rate of up to 0.75% of the average daily net assets of such Fund's
Class B shares, to compensate the Distributor and certain securities firms for
providing sales and promotional activities for distributing that class of
shares. The distribution costs for which the Distributor may be reimbursed out
of such distribution fees include fees paid to broker-dealers that have sold
Fund shares, commissions, and other expenses such as those incurred for sales
literature, prospectus printing and distribution and compensation to wholesal-
ers. It is possible that in any given year the amount paid to the Distributor
under the Class A Plan or Class B Plan may exceed the Distributor's distribu-
tion costs as described above. The Distribution Plans provide that each class
of shares of each Fund may also pay the Distributor an account maintenance and
service fee of up to 0.25% of the aggregate average daily net assets of such
class of shares for payments to broker-dealers for providing continuing ac-
count maintenance. In this regard, some payments are used to compensate bro-
ker-dealers with account maintenance and service fees in an amount up to 0.25%
per year of the assets maintained in a Fund by their customers.

For the fiscal year ended September 30, 1995, under the Class A Plan, each
Fund paid the Distributor a fee equal to the following percentages of average
daily net assets: Balanced Assets Fund -- .35%; Blue Chip Growth Fund -- .35%;
Global Balanced Fund -- .35%; Mid-Cap Growth Fund -- .35% and Small Company
Growth Fund -- .35%. For the same period, under the Class B Plan, each Fund
paid the Distributor a fee equal to the following percentages of average daily
net assets: Balanced Assets Fund --1.00%; Blue Chip Growth Fund -- 1.00%;
Global Balanced Fund -- 1.00%; Mid-Cap Growth Fund --1.00% and Small Company
Growth Fund -- 1.00%. For the fiscal year ended September 30, 1995, the Growth
and Income Fund (Class A and Class B shares) paid the Distributor a fee equal
to .12% and .16%, respectively, of the Fund's average daily net assets, pursu-
ant to a voluntary fee waiver by the Distributor.

ADMINISTRATOR. The Trust has entered into a Service Agreement under the
terms of which SunAmerica Fund Services, Inc. ("SAFS"), an indirect wholly
owned subsidiary of SunAmerica, assists the Transfer Agent in providing
shareholder service and may receive reimbursement from the Trust of its costs
in providing such services through a fee approved annually by the Trustees.

PURCHASE OF SHARES

GENERAL. Shares of each of the Funds 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, may be imposed either (i) at the time
of purchase (Class A shares), or (ii) on a deferred basis (Class B shares and
certain Class A shares).

The minimum initial investment in each Fund is $500 and the minimum subse-
quent investment is $100. However, for Individual Retirement Accounts
("IRAs"), Keogh Plan accounts and accounts for other qualified plans, the min-
imum initial investment is $250 and the minimum subsequent investment is $25.

The decision as to which class is most beneficial to an investor depends on
the amount and intended length of the investment. Investors making large in-
vestments, qualifying for a reduced initial sales charge, might consider Class
A shares because there is a lower distribution fee than Class B shares (prior

23
<PAGE>

to conversion). Investors making small investments might consider Class B
shares because 100% of the purchase price is invested immediately. Sharehold-
ers who purchase $1,000,000 or more of shares of the Funds should only pur-
chase Class A shares. Dealers may receive different levels of compensation de-
pending on which class of shares they sell.

Upon making an investment in shares of a Fund, an open account will be
established under which shares of the applicable Fund and additional shares
acquired through reinvestment of dividends and distributions will be held for
each shareholder's account by State Street Bank and Trust Company ("State
Street") and its affiliate, National Financial Data Services ("NFDS")
(collectively, the "Transfer Agent"). Shareholders will not be issued
certificates for their shares unless they specifically so request in writing.
Shareholders receive regular statements from the Transfer Agent that report
each transaction affecting their accounts. Further information may be obtained
by calling Shareholder/Dealer Services at (800) 858-8850.

CLASS A SHARES. Class A shares are offered at net asset value plus an
initial sales charge, which varies with the size of the purchase as follows:

<TABLE>
<CAPTION>
CONCESSION
SALES CHARGE TO DEALERS
----------------- ----------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
SIZE OF PURCHASE PRICE INVESTED PRICE
---------------- -------- -------- ----------
<S> <C> <C> <C>
Less than $50,000.................................. 5.75% 6.10% 5.00%
$50,000 but less than $100,000..................... 4.75% 4.99% 4.00%
$100,000 but less than $250,000.................... 3.75% 3.90% 3.00%
$250,000 but less than $500,000.................... 3.00% 3.09% 2.25%
$500,000 but less than $1,000,000.................. 2.10% 2.15% 1.35%
$1,000,000 or more................................. None None see below
</TABLE>

No sales charge is payable at the time of purchase on investments of $1 mil-
lion or more. Nevertheless, the Distributor will pay a commission to any
dealer who initiates or is responsible for such an investment, in the amount
of 1.00% of the amount invested. Redemptions of such shares within the twelve
months following their purchase will be subject to a contingent deferred sales
charge at the rate of 1.00% of the lesser of the net asset value of the shares
being redeemed (exclusive of reinvested dividends and distributions) or the
total cost of such shares. This contingent deferred sales charge is paid to
the Distributor. Redemptions of such shares held longer than twelve months
would not be subject to a contingent deferred sales charge. However, one-half
of the commission paid with respect to such a purchase is subject to forfei-
ture by the dealer in the event the redemption occurs during the second year
from the date of purchase. In determining whether a deferred sales charge is
payable, it is assumed that shares purchased with reinvested dividends and
distributions and then other shares held the longest are redeemed first.

To the extent that sales are made for personal investment purposes, the
sales charge is waived as to Class A shares purchased by current or retired
officers, directors, and other full-time employees of SunAmerica and its
affiliates, as well as members of the selling group and family members of the
foregoing. In addition, the sales charge is waived with respect to shares
purchased by "wrap accounts" for the benefit of clients of broker-dealers,
financial institutions or financial planners adhering to certain standards
established by the Distributor. Shares purchased under this waiver are subject
to certain limitations described in the Statement of Additional Information.
Complete details concerning how an investor may purchase shares at reduced
sales charges may be obtained by contacting Shareholder/Dealer Services at
(800) 858-8850.

There are certain special purchase plans for Class A shares which can reduce
the amount of the initial sales charge to investors in the Funds. For more in-
formation about "Rights of Accumulation," the "Letter of Intent," "Combined
Purchase Privilege," "Reduced Sales Charges for Group Purchases" and the "Net
Asset Value Transfer Program," see the Statement of Additional Information.

CLASS B SHARES. Class B shares are offered at net asset value. Certain
redemptions of Class B shares within the first six years of the date of
purchase are subject to a CDSC. The charge is assessed on an amount equal to
the lesser of the then-current market value or the purchase price of the
shares being redeemed. No charge is assessed on shares derived from
reinvestment of dividends or capital gains distributions. In determining
whether the CDSC is applicable to a redemption, the calculation is determined
in the manner that results in the lowest possible rate being charged.
Therefore, it is assumed that the redemption is first of any Class A shares,
second of any shares in the shareholder's Fund

24
<PAGE>

account that are not subject to a CDSC (i.e., shares representing reinvested
dividends and distributions), third of shares held for more than six years and
fourth of shares held the longest during the six-year period. The CDSC will
not be applied to dollar amounts representing an increase in the net asset
value of the shares being redeemed since the time of purchase of such redeemed
shares. The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of Fund shares until the time
of redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month are aggregated and deemed to have been made on the first day of
the month. The following table sets forth the rates of the CDSC.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLARS INVESTED OR
PAYMENT WAS MADE REDEMPTION PROCEEDS
- ------------------- -------------------------
<S> <C>
First................................................. 4%
Second................................................ 4%
Third................................................. 3%
Fourth................................................ 3%
Fifth................................................. 2%
Sixth................................................. 1%
Seventh and thereafter................................ 0%
</TABLE>

The CDSC will be waived in connection with redemptions which are (a) re-
quested within one year of the death or the initial determination of disabil-
ity of a shareholder; (b) taxable distributions or loans to participants made
by qualified retirement plans or retirement accounts (not including rollovers)
for which the Adviser serves as fiduciary (e.g., prepares all necessary tax
reporting documents); provided that, in the case of a taxable distribution,
the plan participant or accountholder has attained the age of 59 1/2 at the
time the redemption is made; (c) made pursuant to a Systematic Withdrawal
Plan, up to a maximum amount of 12% per year from a shareholder account based
on the value of the account at the time the Plan is established, provided,
however, that all dividends and capital gains distributions are reinvested in
Fund shares; and (d) made of shares in accounts consisting of assets which
were originally individually managed by the Adviser and had paid an investment
advisory fee to the Adviser. See the Statement of Additional Information for
further information concerning conditions with respect to (a) above. For Fed-
eral income tax purposes, the amount of the CDSC will reduce the amount real-
ized on the redemption of shares, concomitantly reducing gain or increasing
loss. For information on the imposition and waiver of the CDSC contact
Shareholder/Dealer Services at (800) 858-8850.

Shareholders of a Fund that acquired their Class B shares pursuant to a
reorganization effected with another SunAmerica mutual fund will remain
subject to the terms of the CDSC in effect for the previous fund at the time
of such reorganization. For additional information, see "Additional
Information Regarding Purchase of Shares" in the Statement of Additional
Information.

Conversion Feature. Class B shares (including a pro-rata portion of the
Class B shares purchased through the reinvestment of dividends and distribu-
tions) will convert automatically to Class A shares on the first business day
of the month following the seventh anniversary of the issuance of such Class B
shares. Subsequent to the conversion of a Class B share to a Class A share,
such share will no longer be subject to the higher distribution fee of Class B
shares. Such conversion 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.

ADDITIONAL PURCHASE INFORMATION. All purchases are confirmed to each share-
holder. The Trust reserves the right to reject any purchase order and may at
any time discontinue the sale of any class of shares of any Fund. Share cer-
tificates are issued upon written request, but no certificate is issued for
fractional shares.

Shares of the Funds may be purchased through the Distributor or SAFS, by
check or federal funds wire and through a dollar cost averaging program.
Shares will be priced at the net asset value next determined after the order
is placed with the Distributor or SAFS. See "Additional Information Regarding
Purchase of Shares" in the Statement of Additional Information for more
information regarding these services and the procedures involved and when
orders are deemed to be placed.

Investors may purchase Class A shares of a Fund at net asset value to the
extent that the investment represents the proceeds from a redemption of shares
of a non-SunAmerica mutual fund in which the investor either (a) paid a front-
end sales load or (b)

25
<PAGE>

was subject to or paid a CDSC on the redemption proceeds. See " Net Asset
Value Transfer Program" in the Statement of Additional Information for more
details regarding this privilege.

REDEMPTION OF SHARES

Shares of any Fund may be redeemed at any time at their net asset value next
determined, less any applicable contingent deferred sales charge, after
receipt by the Fund of a redemption request in proper form. Any capital gain
or loss realized by a shareholder upon any redemption of shares must be
recognized for federal income tax purposes. See "Dividends, Distributions and
Taxes."

REGULAR REDEMPTION. Shareholders may redeem their shares by sending a writ-
ten request to SAFS, Mutual Fund Operations, The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204. All written requests for redemption must be
endorsed by the shareholder(s) with signature(s) guaranteed by an "eligible
guarantor institution" which includes: banks, brokers, dealers, credit unions,
securities and exchange associations, clearing agencies and savings associa-
tions. Guarantees must be signed by an authorized signatory of the eligible
guarantor and the words "Signature Guaranteed" must appear with the signature.
Signature guarantees by notaries will not be accepted. SAFS may request fur-
ther documentation from corporations, executors, administrators, trustees or
guardians.

REPURCHASE THROUGH DISTRIBUTOR. The Distributor is authorized, as agent for
the Funds, to offer to repurchase shares which are presented by telephone to
the Distributor by investment dealers. Orders received by dealers must be at
least $500. The repurchase price is the net asset value per share of the ap-
plicable class of shares of a Fund next determined after the repurchase order
is received, less any applicable contingent deferred sales charge. Repurchase
orders received by the Distributor after 4:00 P.M., Eastern time, will be
priced based on the next business day's close. Dealers may charge for their
services in connection with the repurchase, but neither the Funds nor the Dis-
tributor imposes any charge. The offer to repurchase may be suspended at any
time, as described below.

TELEPHONE REDEMPTION. The Trust accepts telephone requests for redemption of
shares with a value of less than $100,000. The proceeds of a telephone
redemption may be sent by wire to the shareholder's bank account as set forth
in the New Account Application Form or in a subsequent written authorization.
Shareholders utilizing the redemption through the electronic funds transfer
method will incur a $15.00 transaction fee. The Trust will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Failure to do so may result in liability to the Trust for losses incurred due
to unauthorized or fraudulent telephone instructions. Such procedures include,
but are not limited to, requiring some form of personal identification prior
to acting upon instructions received by telephone and/or tape recording of
telephone instructions.

A shareholder making a telephone redemption should call Shareholder/Dealer
Services at (800) 858-8850, and state (i) the name of the shareholder(s)
appearing on the Fund's records, (ii) his or her account number with the Fund,
(iii) the amount to be redeemed and (iv) the name of the person(s) requesting
the redemption. The Trust reserves the right to terminate or modify the
telephone redemption service at any time.

SYSTEMATIC WITHDRAWAL PLAN. Shareholders who have invested at least $5,000
in any of the Funds may provide for the periodic payment from the account pur-
suant to the Systematic Withdrawal Plan. At the shareholder's election, such
payment may be made directly to the shareholder or to a third party on a
monthly, quarterly, semi-annual or annual basis. The minimum periodic payment
is $50. Maintenance of a withdrawal plan concurrently with purchases of addi-
tional shares may be disadvantageous to a shareholder because of the sales
charge applicable to such purchases. Shareholders who have been issued share
certificates will not be eligible to participate in the Systematic Withdrawal
Plan and will have to comply with certain additional procedures in order to
redeem shares. Further information may be obtained by calling
Shareholder/Dealer Services at (800) 858-8850.

GENERAL. Normally payment is made on the next business day for shares
redeemed, but in any event, payment is made by check within seven days after
receipt by the Transfer Agent of share certificates or of a redemption
request, or both, in proper form. Under unusual circumstances, the Funds may
suspend repurchases or postpone

26
<PAGE>

payment for up to seven days or longer, as permitted by the federal securities
laws.

At various times, a Fund may be requested to redeem shares for which it has
not yet received good payment. A Fund may delay or cause to be delayed the
mailing of a redemption check until such time as good payment (e.g., cash or
certified check drawn on a United States bank) has been collected for the pur-
chase of such shares, which will not exceed 15 days.

Because of the high cost of maintaining smaller shareholder accounts, the
Funds may redeem, on at least 60 days' written notice and without shareholder
consent, any account that, due to a shareholder redemption and not to market
fluctuation of the account's value, has a net asset value of less than $500
($250 for retirement plan accounts), as of the close of business on the day
preceding such notice, unless such shareholder increases the account balance
to at least $500 during such 60-day period. In the alternative, the applicable
Fund may impose a $2.00 monthly charge on accounts below the minimum account
size.

If a shareholder redeems shares of any class of a Fund and then within one
year from the date of redemption decides the shares should not have been re-
deemed, the shareholder may use all or any part of the redemption proceeds to
reinstate, free of sales charges (Class A shares) and with the crediting of
any CDSC paid with respect to such reinstated shares at the time of redemption
(Class B shares), all or any part of the redemption proceeds in shares of the
Fund at the then-current net asset value. Reinstatement may affect the tax
status of the prior redemption.

EXCHANGE PRIVILEGE

GENERAL. Shareholders in any of the Funds may exchange their shares for the
same class of shares of any other Fund or other funds in the SunAmerica Family
of Mutual Funds that offer such class at the respective net asset value per
share. Before making an exchange, a shareholder should obtain and review the
prospectus of the fund whose shares are being acquired. All exchanges are sub-
ject to applicable minimum initial investment requirements and can only be ef-
fected if the shares to be acquired are qualified for sale in the state in
which the shareholder resides. Exchanges of shares generally will constitute a
taxable transaction except for IRAs, Keogh Plans and other qualified or tax-
exempt accounts. The exchange privilege may be terminated or modified upon 60
days' written notice. Further information about the exchange privilege may be
obtained by calling Shareholder/Dealer Services at (800) 858-8850.

If a shareholder acquires Class A shares through an exchange from another
fund in the SunAmerica Family of Mutual Funds where the original purchase of
such fund's Class A shares was not subject to an initial sales charge because
the purchase was in excess of $1 million, such shareholder will remain subject
to the 1% CDSC, if any, applicable to such redemptions. In such event, the pe-
riod for which the original shares were held prior to the exchange will be
"tacked" with the holding period of the shares acquired in the exchange for
purposes of determining whether the 1% CDSC is applicable upon a redemption of
any of such shares.

A shareholder who acquires Class B shares through an exchange from another
fund in the SunAmerica Family of Mutual Funds will retain liability for any
deferred sales charge which is outstanding on the date of the exchange. In
such event, the period for which the original shares were held prior to the
exchange will be "tacked" with the holding period of the shares acquired in
the exchange for purposes of determining what, if any, CDSC is applicable upon
a redemption of any of such shares.

RESTRICTIONS ON EXCHANGES. Because excessive trading (including short-term
"market timing" trading) can hurt a Fund's performance, each Fund may refuse
any exchange sell order (1) if it appears to be a market timing transaction
involving a significant portion of a Fund's assets or (2) from any shareholder
account if previous use of the exchange privilege is considered excessive. Ac-
counts under common ownership or control, including, but not limited to, those
with the same taxpayer identification number and those administered so as to
redeem or purchase shares based upon certain predetermined market indications,
will be considered one account for this purpose.

In addition, a Fund reserves the right to refuse any exchange purchase order
if, in the judgment of the Adviser, the Fund would be unable to invest effec-
tively in accordance with its investment objective and policies, or would oth-
erwise potentially be adversely affected. A shareholder's purchase exchange

27
<PAGE>

may be restricted or refused if the Fund receives or anticipates simultaneous
orders affecting significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincide with a "market timing" strategy may be dis-
ruptive to the Fund and may therefore be refused.

Finally, as indicated under "Purchase of Shares", the Fund and Distributor
reserve the right to refuse any order for the purchase of shares.

PORTFOLIO TRANSACTIONS, BROKERAGE AND TURNOVER

The Adviser is responsible for decisions to buy and sell securities for the
Funds, selection of broker-dealers and negotiations of commission rates. With
respect to the Global Balanced Fund, AIG Global and GSAM are responsible for
decisions to buy and sell foreign equity and global fixed income securities,
respectively, selection of broker-dealers and negotiation of commission rates
for their respective component of the portfolio. In the over-the-counter mar-
ket, 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 underwrit-
ten offerings, securities are purchased at a fixed price which includes an un-
derwriter's concession or discount. On occasion, certain money market securi-
ties may be purchased directly from an issuer, in which case no commissions or
discounts are paid.

As a general matter, the Adviser (or Sub-Advisers) selects broker-dealers
which, in its best judgment, provide prompt and reliable execution at favora-
ble security prices and reasonable commission rates. The Adviser (or Sub-Ad-
viser) may select broker-dealers which provide it with research services and
may cause a Fund to pay such broker-dealers commissions which exceed those
which other broker-dealers may have charged, if in the Adviser's (or Sub-Ad-
viser's) view the commissions are reasonable in relation to the value of the
brokerage and/or research services provided by the broker-dealer. Brokerage
arrangements may take into account the distribution of Fund shares by broker-
dealers, subject to best price and execution. The Adviser, AIG Global and GSAM
may effect portfolio transactions through an affiliated broker-dealer, acting
as agent and not as principal, in accordance with Rule 17e-1 under the 1940
Act and other applicable securities laws.

Each Fund has no limitation regarding its policy with respect to portfolio
turnover. The portfolio turnover rate is calculated by dividing the lesser of
sales or purchases of portfolio securities, excluding short-term securities,
by the average monthly value of the Fund's long-term portfolio securities.
High portfolio turnover involves correspondingly greater brokerage commissions
and other transaction costs which will be borne directly by the Fund. In addi-
tion, high portfolio turnover may result in increased short-term capital
gains, which, when distributed to shareholders, are treated as ordinary in-
come.

DETERMINATION OF NET ASSET VALUE

Each 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 of each class outstanding. Shares are valued each day as of the close
of regular trading on the NYSE (currently, 4:00 P.M., Eastern time).
Investments for which market quotations are readily available are valued at
market. All other securities and assets are valued at fair value following
procedures approved by the Trustees.

PERFORMANCE DATA

Each Fund may advertise performance data that reflect its total investment
return. A brief summary of the computations is provided below and a detailed
discussion is in the Statement of Additional Information. Both total return
and yield figures are based on historical earnings and are not intended to in-
dicate future performance.

Total return performance data may be advertised by each Fund. The average
annual total return may be calculated for one-, five- and ten-year periods or
for the lesser period since inception. These performance data represent the
average annual percentage changes of a hypothetical $1,000 investment and as-
sumes the reinvestment of all dividends and distributions and includes sales
charges and recurring fees that are charged to shareholder accounts. A Fund's
advertisements may also reflect total return performance data calculated by
means of cumulative, aggregate, aver-

28
<PAGE>

age, year-to-date, or other total return figures. Further, the Fund may adver-
tise total return performance for periods of time in addition to those noted
above.

Yield will be calculated based on a 30-day (or one-month) period ended on
the date of the applicable Fund's most recent balance sheet and for other such
periods, as deemed appropriate. The net investment income per share earned
during the period will be divided by the maximum offering price per share on
the last day of the period and annualized to obtain the yield. For purposes of
calculating yields, net income is determined by a standard formula prescribed
by the Securities and Exchange Commission to facilitate comparison with yields
quoted by other mutual funds.

Although expenses for Class B shares may be higher than those for Class A
shares, the performance of Class B shares may be higher than the performance
of Class A shares after giving effect to the impact of the sales charges and
12b-1 fees applicable to each class of shares.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS. Dividends from net investment income are paid
annually for the Global Balanced Fund; semi-annually for the Blue Chip Growth
Fund, Mid-Cap Growth Fund and Small Company Growth Fund; and quarterly for the
Balanced Assets Fund and Growth and Income Fund. Dividends and distributions
generally are taxable in the year in which they are paid, except any dividends
paid in January which were declared in the previous calendar quarter will be
treated as paid in December of the previous year. Dividends and distributions
are paid in additional shares based on the next determined net asset value,
unless the shareholder elects in writing, not less than five business days
prior to the payment date, to receive such amounts in cash.

In addition to having the dividends and distributions of a Fund reinvested
in shares of such Fund, a shareholder may, if he or she so elects on the New
Account Application Form, have dividends and distributions invested in the
same class of shares of any other SunAmerica Mutual Fund at the then-current
net asset value of such Fund(s).

The excess of net realized long-term capital gains over net capital losses
("capital gain distributions"), if any, will be distributed to the
shareholders annually. Each Fund's policy is to offset any prior year capital
loss carry forward against any realized capital gains, and accordingly, no
distribution of capital gains will be made until gains have been realized in
excess of any such loss carry forward.

TAXES. Each Fund is qualified and intends to continue to qualify and elect
to be taxed as a regulated investment company under the Code. While so
qualified, the Trust and each of the Funds will not be subject to U.S. Federal
income tax on the portion of its investment company taxable income and net
capital gains distributed to its shareholders.

For Federal income tax purposes, dividends of net investment income and
distributions of any net realized short-term capital gain, whether paid in
cash or reinvested in shares of the Fund, are taxable to shareholders as
ordinary income. To the extent a Fund's income is derived from certain
dividends received from domestic corporations, a portion of the dividends paid
to corporate shareholders of such Fund will be eligible for the 70% dividends
received deduction.

Income and capital gains received by the Global Balanced Fund may give rise
to withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
Shareholders may be able to claim U.S. foreign tax credits with respect to
such taxes, subject to certain provisions and limitations contained in the
Code. If more than 50% in value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible, and intends, to file an election with the Internal Revenue Service
when beneficial to shareholder pursuant to which shareholders of the Fund will
be required to include their proportionate share of such withholding taxes in
their U.S. income tax returns as gross income, treat such proportionate share
as taxes paid by them, and deduct such proportionate share in computing their
taxable incomes or, alternatively, use them as foreign tax credits against
their U.S. income taxes. No deductions for foreign taxes, however, may be
claimed by non-corporate shareholders who do not itemize deductions. Of
course, certain retirement accounts which are not subject to tax cannot claim
foreign tax credits on in-

29
<PAGE>

vestments in foreign securities held in the Fund. A shareholder that is a non-
resident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such sharehold-
er. The Fund will report annually to its shareholders the amount per share of
such withholding taxes.

Under Code Section 988, foreign currency gains or losses from certain for-
ward contracts, from futures contracts that are not "regulated futures con-
tracts" and from unlisted non-equity options will generally be treated as or-
dinary income or loss. Such Code Section 988 gains or losses will generally
increase or decrease the amount of a fund's investment company taxable income
available to be distributed to shareholders as ordinary income, rather than
increasing or decreasing the amount of the Fund's net capital gain. Addition-
ally, if Code Section 988 losses exceed other investment company taxable in-
come during a taxable year, a Fund would not be able to make any ordinary div-
idend distributions, and any distributions made in the same taxable year may
be recharacterized as a return of capital to shareholders, thereby reducing
the basis of each shareholder's fund shares. In certain cases, a Fund may be
entitled to elect to treat foreign currency gains on forward or futures con-
tracts, or options thereon, as capital gains.

The Global Balanced Fund and Growth and Income Fund may purchase debt
securities (such as zero-coupon or pay-in-kind securities) that contain
original issue discount. Original issue discount that accrues in a taxable
year is treated as earned by a Fund and therefore is subject to the
distribution requirements of the Code. Because the original issue discount
earned by the Fund in a taxable year may not be represented by cash income,
the Fund may have to dispose of other securities and use the proceeds to make
distributions to shareholders.

Statements as to the tax status of distributions to shareholders of the
Funds will be mailed annually. Shareholders are urged to consult their own tax
advisors regarding specific questions as to federal, state or local taxes.
Foreign shareholders are also urged to consult their own tax advisors
regarding the foreign tax consequences of ownership of interests in a Fund.
See "Dividends, Distributions and Taxes" in the Statement of Additional
Information.

GENERAL INFORMATION

REPORTS TO SHAREHOLDERS. The Trust sends to its shareholders audited annual
and unaudited semi-annual reports for the Fund. The financial statements ap-
pearing in annual reports are audited by independent accountants. In addition,
the Transfer Agent sends to each shareholder having an account directly with
the Trust a statement confirming transactions in the account.

ORGANIZATION. The Trust, a business trust organized under the laws of the
Commonwealth of Massachusetts on June 18, 1986, is an open-end diversified
management investment company, commonly referred to as a mutual fund. The
Trust consists of six investment series or funds: the Balanced Assets Fund,
the Global Balanced Fund, the Blue Chip Growth Fund, the Mid-Cap Growth Fund,
the Small Company Growth Fund, and the Growth and Income Fund. The Trustees
have the authority to issue an unlimited number of shares of beneficial inter-
est of separate series, par value $.01 per share, of the Trust, and to divide
each such series into one or more classes of shares.

The Trust does not hold annual shareholder meetings. The Trustees are re-
quired to call a meeting of shareholders for the purpose of voting upon the
question of removal of any Trustee when so requested in writing by the share-
holders of record holding at least 10% of the Trust's outstanding shares. Each
share of each Fund has equal voting rights on each matter pertaining to that
Fund or matters to be voted upon by the Trust, except as noted above. Each
share of each Fund is entitled to participate equally with the other shares of
that Fund in dividends and other distributions and the proceeds of any liqui-
dation, except that, due to the differing expenses borne by the two classes,
such dividends and proceeds are likely to be lower for Class B shares than for
Class A shares. See the Statement of Additional Information for more informa-
tion with respect to the distinctions among classes.

Under Massachusetts law, shareholders of a trust, such as the Trust, in cer-
tain circumstances may be held personally liable as partners for the obliga-
tions of the trust. However the Declaration of Trust,

30
<PAGE>

pursuant to which the Trust was organized, contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust also provides for indemnification out of the Trust's property for any
shareholder held personally liable for any Trust obligation. Thus the risk of
a shareholder being personally liable, as a partner for obliga-
tions of the Trust, is limited to the unlikely circumstance in which the Trust
itself would be unable to meet its obligations.

INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL. Price Waterhouse LLP has been
selected as independent accountants for the Funds. The firm of Shereff,
Friedman, Hoffman & Goodman, LLP has been selected as legal counsel for the
Funds.

SHAREHOLDER INQUIRIES. All inquiries regarding the Trust should be directed
to the Trust at the telephone number or address on the cover page of this Pro-
spectus. For questions concerning share ownership, dividends, transfer of own-
ership or share redemption, contact SAFS, Mutual Fund Operations, The
SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204, or call
Shareholder/Dealer Services at (800) 858-8850.

31
<PAGE>

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTA-
TIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF ADDI-
TIONAL INFORMATION AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESEN-
TATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE AD-
VISER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES 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 OFFER TO SELL OR SOLICITATION OF AN OFFER TO
BUY MAY NOT LAWFULLY BE MADE.

----------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus................................................................ Cover
Summary of Fund Expenses.................................................. 2
Financial Highlights...................................................... 4
Investment Objectives and Policies........................................ 7
Balanced Assets Fund...................................................... 7
Global Balanced Fund...................................................... 8
Blue Chip Growth Fund..................................................... 11
Mid-Cap Growth Fund....................................................... 11
Small Company Growth Fund................................................. 11
Growth and Income Fund.................................................... 11
Investment Techniques..................................................... 13
Risk Factors.............................................................. 13
Investment Restrictions................................................... 19
Management of the Trust................................................... 20
Purchase of Shares........................................................ 23
Redemption of Shares...................................................... 26
Exchange Privilege........................................................ 27
Portfolio Transactions, Brokerage and Turnover............................ 28
Determination of Net Asset Value.......................................... 28
Performance Data.......................................................... 28
Dividends, Distributions and Taxes........................................ 29
General Information....................................................... 30
</TABLE>

Investment Adviser:
SUNAMERICA ASSET MANAGEMENT CORP.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204

Sub-Advisers:
(Global Balanced Fund)
AIG GLOBAL INVESTMENT CORP.
70 Pine Street
New York, NY 10270

GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
140 Sleet Street
London EC4A-B, England

Distributor:
SUNAMERICA CAPITAL SERVICES, INC.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204

Custodian and Transfer Agent:
STATE STREET BANK AND TRUST COMPANY
1776 Heritage Drive
North Quincy, MA 02171

Servicing Agent:
SUNAMERICA FUND SERVICES, INC.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204

EFPRO

SUNAMERICA EQUITY FUNDS

SUNAMERICA BALANCED ASSETS FUND
SUNAMERICA GLOBAL BALANCED FUND
SUNAMERICA BLUE CHIP GROWTH FUND
SUNAMERICA MID-CAP GROWTH FUND
SUNAMERICA SMALL COMPANY GROWTH FUND
SUNAMERICA GROWTH AND INCOME FUND

PROSPECTUS

JANUARY 12, 1996

LOGO
<PAGE>

SUNAMERICA EQUITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 1, 1996

The SunAmerica Center General Marketing and
733 Third Avenue Shareholder Information
New York, NY 10017-3204 (800) 858-8850

SunAmerica Equity Funds is a mutual fund consisting of six different
investment funds: SunAmerica Balanced Assets Fund, SunAmerica Global Balanced
Fund, SunAmerica Blue Chip Growth Fund, SunAmerica Mid-Cap Growth Fund,
SunAmerica Small Company Growth Fund and SunAmerica Growth and Income Fund. Each
Fund has distinct investment objectives and strategies.

This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Funds' Prospectus dated January 12, 1996, as
supplemented October 1, 1996( the "Retail Class Prospectus") or dated October 1,
1996 (the "Class Z Prospectus"). To obtain a Prospectus, please call the Fund at
(800) 858-8850. Capitalized terms used herein but not defined have the meanings
assigned to them in the Prospectus.

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>

HISTORY OF THE FUNDS B-2
INVESTMENT OBJECTIVES AND POLICIES B-3
PORTFOLIO TURNOVER B-33
INVESTMENT RESTRICTIONS B-34
TRUSTEES AND OFFICERS B-37
ADVISER, SUB-ADVISERS, PERSONAL TRADING, DISTRIBUTOR AND
ADMINISTRATOR B-41
PORTFOLIO TRANSACTIONS AND BROKERAGE B-50
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES B-53
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES B-62
DETERMINATION OF NET ASSET VALUE B-62
PERFORMANCE DATA B-64
DIVIDENDS, DISTRIBUTIONS AND TAXES B-69
RETIREMENT PLANS B-73
DESCRIPTION OF SHARES B-74
ADDITIONAL INFORMATION B-77
FINANCIAL STATEMENTS B-78
APPENDIX B-79

</TABLE>

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, Sub-Advisers or the Distributor. This
Statement of Additional Information and the Prospectus do not constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction in which such an offer to sell or solicitation of an
offer to buy may not lawfully be made.
<PAGE>

This Statement of Additional Information relates to the six different
investment funds (each, a "Fund," and collectively, the "Funds") of SunAmerica
Equity Funds, a Massachusetts business trust (the "Trust"), which is registered
as an open-end investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). The six Funds are: SunAmerica Balanced Assets Fund
("Balanced Assets Fund"), SunAmerica Global Balanced Fund ("Global Balanced
Fund"), SunAmerica Blue Chip Growth Fund ("Blue Chip Growth Fund"), SunAmerica
Mid-Cap Growth Fund ("Mid-Cap Growth Fund"), SunAmerica Small Company Growth
Fund ("Small Company Growth Fund") and SunAmerica Growth and Income Fund
("Growth and Income Fund").

HISTORY OF THE FUNDS

The Trust was organized under the name "Integrated Equity Portfolios"
in 1986 and subsequently renamed "SunAmerica Equity Portfolios" in 1990. On
September 24, 1993, the Trust reorganized with certain funds in the SunAmerica
Family of Mutual Funds (the "Reorganization") and was renamed "SunAmerica Equity
Funds". In the Reorganization, all outstanding shares of the two then-existing
series of the Trust, the Growth Portfolio ("Growth Portfolio") and the
Aggressive Growth Portfolio ("Aggressive Growth Portfolio"), were redesignated
Class A shares and renamed the SunAmerica Growth Fund ("Growth Fund") and the
SunAmerica Emerging Growth Fund ("Emerging Growth Fund"), respectively. In
addition, the SunAmerica Emerging Growth Fund series of SunAmerica Fund Group
("Old Emerging Growth") reorganized with, and its shareholders received Class B
shares of, the Emerging Growth Fund. With regard to the Balanced Assets Fund
series of the Trust, the Total Return Fund series of SunAmerica Multi-Asset
Portfolios, Inc. ("Total Return") and the SunAmerica Balanced Assets Fund series
of SunAmerica Fund Group ("Old Balanced Assets") reorganized with, and their
shareholders received Class A and Class B shares of the Balanced Assets Fund,
respectively. The SunAmerica Capital Appreciation Fund, Inc. ("Capital
Appreciation") was reorganized with, and its shareholders received Class B
shares of, the SunAmerica Value Fund ("Value Fund"). The Reorganization was
approved by the shareholders of the Funds or their predecessors who were
entitled to vote with respect thereto on September 23, 1993. On March 16, 1994,
the Board of Trustees of the Trust (the "Trustees") approved changing the names
of the Value Fund, Growth Fund and Emerging Growth Fund to the Blue Chip Growth
Fund, Mid-Cap Growth Fund and Small Company Growth Fund, respectively, and such
name changes became effective on June 7, 1994.

On December 21, 1993, the Trustees approved the creation of the Global
Balanced Fund and on March 16, 1994, the Trustees approved the creation of the
Growth and Income Fund.

On June 18, 1996, the Trustees authorized the designation of Class Z
shares of the Balanced Assets Fund and the Small Company

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Growth Fund. The offering of such Class Z shares commenced on October 1, 1996.

INVESTMENT OBJECTIVES AND POLICIES

The investment objectives and policies of each of the Funds are described
in the Funds' Prospectus. Certain types of securities in which the Funds may
invest and certain investment practices which the Funds may employ, which are
described under "Other Investment Practices and Restrictions" in the Prospectus
and in the Appendix to the Prospectus, are discussed more fully below.

ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets,
determined as of the date of purchase, in illiquid securities including
repurchase agreements and time deposits which 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 which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them,
resulting in additional expense and delay. There will generally be a lapse of
time between a mutual fund's decision to sell an unregistered security and the
registration of such security promoting sale. Adverse market conditions could
impede a public offering of such securities. When purchasing unregistered
securities, each of the Funds 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

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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 Adviser (or Sub-Adviser) will monitor the liquidity of such
restricted securities subject to the supervision of the Trustees. In reaching
liquidity decisions the Adviser (or Sub-Adviser) will consider, inter alia,
pursuant to guidelines and procedures established by the Trustees, 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 Funds 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 which is 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. A Fund's 10% limitation on investments in
illiquid securities includes Section 4(2) paper other than Section 4(2) paper
that the Adviser (or Sub-Adviser) has determined to be liquid pursuant to
guidelines established by the Trustees. The Trustees delegated to the Adviser
(or Sub-Adviser) the function of making day-to-day determinations of liquidity
with respect to Section 4(2) paper, pursuant to guidelines approved by the
Trustees that require the Adviser (or Sub-Adviser) to take into account the same
factors described above for other restricted securities and require the Adviser
(or Sub-Adviser) to perform the same monitoring and reporting functions.

The staff of the Securities and Exchange Commission (the "SEC") has taken
the position that purchased over-the-counter ("OTC") options and the assets used
as "cover" for written OTC options are illiquid. The assets used as cover for
OTC options written by a Fund will be considered illiquid unless the OTC

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<PAGE>

options are sold to qualified dealers who agree that the Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure will be considered illiquid only to the extent that the maximum
repurchase price under the option formula exceeds the intrinsic value of the
option.

REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
banks, brokers or securities dealers. In such agreements, the seller agrees to
repurchase a security from a 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 resale price is in excess of
the purchase price, reflecting an agreed-upon rate of return effective for the
period of time a Fund's money is invested in the security. Whenever a Fund
enters into a repurchase agreement, it obtains collateral having a value at
least equal to the amount of the purchase price. The instruments held as
collateral are valued daily and if the value of the instruments declines, a Fund
will require additional collateral. If the seller defaults and the value of the
collateral securing the repurchase agreements declines, a Fund may 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 Trustees have established guidelines to be used by the Adviser (or
Sub-Adviser) in connection with transactions in repurchase agreements and will
regularly monitor each Fund's use of repurchase agreements. A 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 a
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. Each Fund may enter into reverse repurchase
agreements. In a reverse repurchase agreement, the Fund sells a security subject
to the rights and obligations to repurchase such security. The Fund then invests
the proceeds from the transaction in another obligation in which the Fund is
authorized to invest. In order to minimize any risk involved, the Fund
maintains, in a segregated account with the custodian, cash, cash equivalents or
liquid high grade debt securities equal in value to the repurchase price.
Reverse repurchase agreements are considered to be borrowings and are subject to
the percentage limitations on borrowings. See "Investment Restrictions."

RISKS OF INVESTING IN LOWER RATED BONDS. Debt securities in which the Growth and
Income Fund may invest may be in the lower rating categories of recognized
rating agencies (that is, ratings of Ba or

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<PAGE>

lower by Moody's Investors Service, Inc. ("Moody's") or BB or lower by Standard
& Poor's Ratings Services, a Division of the McGraw-Hill Companies, Inc. ("S&P")
(and comparable unrated securities) (commonly known as "junk bonds"). For a
description of these and other rating categories, see Appendix A. No minimum
rating standard is required for a purchase by the Fund.

It should be noted that lower-rated securities are subject to risk factors
such as (a) vulnerability to economic downturns and changes in interest rates;
(b) sensitivity to adverse economic changes and corporate developments; (c)
redemption or call provisions which may be exercised at inopportune times; (d)
difficulty in accurately valuing or disposing of such securities; (e) federal
legislation which could affect the market for such securities; and (f) special
adverse tax consequences associated with investments in certain high-yield,
high-risk bonds.

High yield bonds, like other bonds, may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund would have to replace the security with a lower yielding
security, resulting in lower return for investors. Conversely, a high yield
bond's value will decrease in a rising interest rate market.

There is a thinly traded market for high yield bonds, and recent market
quotations may not be available for some of these bonds. Market quotations are
generally available only from a limited number of dealers and may not represent
firm bids from such dealers or prices for actual sales. As a result, a Fund may
have difficulty valuing the high yield bonds in their portfolios accurately and
disposing of these bonds at the time or price desired.

Ratings assigned by Moody's and S&P to high yield bonds, like other bonds,
attempt to evaluate the safety of principal and interest payments on those
bonds. However, such ratings do not assess the risk of a decline in the market
value of those bonds. In addition, ratings may fail to reflect recent events in
a timely manner and are subject to change. If a rating with respect to a
portfolio security is changed, the Adviser will determine whether the security
will be retained based upon the factors the Adviser considers in acquiring or
holding other securities in the portfolio. Investment in high yield bonds may
make achievement of the Fund's objective more dependent on the Adviser's own
credit analysis than is the case for higher-rated bonds.

Market prices for high yield bonds tend to be more sensitive than those for
higher-rated securities due to many of the factors described above, including
the credit-worthiness of the issuer, redemption or call provisions, the
liquidity of the secondary trading market and changes in credit ratings, as well
as interest rate movements and general economic conditions. In addition,

B-6
<PAGE>

yields on such bonds will fluctuate over time. An economic downturn could
severely disrupt the market for high yield bonds. In addition, legislation
impacting high yield bonds may have a materially adverse effect on the market
for such bonds. For example, federally insured savings and loan associations
have been required to divest their investments in high yield bonds.

The risk of default in payment of principal and interest on high yield
bonds is significantly greater than with higher-rated debt securities because
high yield bonds are generally unsecured and are often subordinated to other
obligations of the issuer, and because the issuers of high yield bonds usually
have high levels of indebtedness and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates. Upon a default,
bondholders may incur additional expenses in seeking recovery.

As a result of all these factors, the net asset value of a Fund to the
extent it invests in high yield bonds, is expected to be more volatile than the
net asset value of funds which invest solely in higher-rated debt securities.
This volatility may result in an increased number of redemptions from time to
time. High levels of redemptions in turn may cause a fund to sell its portfolio
securities at inopportune times and decrease the asset base upon which expenses
can be spread.

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 services 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.

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<PAGE>

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
a 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.

DOLLAR ROLLS. The Global Balanced Fund may enter into "dollar rolls" in which
the Fund sells mortgage or other asset-backed securities ("Roll Securities") for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Fund foregoes principal and interest
paid on the Roll Securities. The Fund is compensated by the difference between
the current sales price and the lower forward price for the future purchase
(often referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. The Fund also could be compensated through the
receipt of fee income equivalent to a lower forward price. A "covered roll" is
a specific type of dollar roll for which there is an offsetting cash position or
a cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. The Fund will only enter into
covered rolls.

Dollar rolls involve certain risks including the following: if the broker-
dealer to whom the Fund sells the security becomes insolvent, the Fund's right
to purchase or repurchase the security subject to the dollar roll may be
restricted and the instrument which the Fund is required to repurchase may be
worth less than an instrument which the Fund originally held. Successful use of
dollar rolls will depend upon the Adviser's or Sub-Adviser's ability to predict
correctly interest rates and in the case of mortgage dollar rolls, mortgage
prepayments. For these reasons, there is no assurance that dollar rolls can be
successfully employed.

INTEREST-RATE SWAPS, MORTGAGE SWAPS, CAPS, COLLARS AND FLOORS. In order to
protect the value of the Global Balanced Fund from

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<PAGE>

interest rate fluctuations and to hedge against fluctuations in the fixed income
market in which certain of the Fund's investments are traded, the Fund may enter
into interest-rate swaps and mortgage swaps or purchase or sell interest-rate
caps, floors or collars. The Fund will enter into these hedging transactions
primarily to preserve a return or spread on a particular investment or portion
of the portfolio and to protect against any increase in the price of securities
the Fund anticipates purchasing at a later date. The Fund may also enter into
interest-rate swaps for non-hedging purposes. Interest-rate swaps are
individually negotiated, the Fund expects to achieve an acceptable degree of
correlation between its portfolio investments and interest-rate positions. The
Fund will only enter into interest-rate swaps on a net basis, which means that
the two payment streams are netted out, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Interest-rate swaps do
not involve the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to interest-rate swaps is limited to
the net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest-rate swap defaults, the Fund's risk of
loss consists of the net amount of interest payments that the Fund is
contractually entitled to receive. The use of interest-rate swaps is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. All of
these investments may be deemed to be illiquid for purposes of the Fund's 10%
limitation on investment in such securities. Inasmuch as these investments are
entered into for good faith hedging purposes, and inasmuch as segregated
accounts will be established with respect to such transactions, the Adviser,
Sub-Advisers and the Fund believe such obligations do not constitute senior
securities and accordingly, will not treat them as being subject to its
borrowing restrictions. The net amount of the excess if any, of the Fund's
obligations over its entitlements with respect to each interest-rate swap will
be accrued on a daily basis and an amount of cash, U.S. government securities or
other liquid high grade debt obligations having an aggregate net asset value at
least equal to the accrued excess will be maintained in a segregated account by
a custodian that satisfies the requirements of the 1940 Act. The Fund will also
establish and maintain such segregated accounts with respect to its total
obligations under any interest-rate swaps that are not entered into on a net
basis and with respect to any interest-rate caps, collars and floors that are
written by the Fund.

The Fund will enter into these transactions only with banks and recognized
securities dealers believed by the Adviser and Sub-Advisers to present minimal
credit risk in accordance with guidelines established by the Fund's Board of
Trustees. If there is a default by the other party to such a transaction, the
Fund will have to rely on its contractual remedies (which may be limited

B-9
<PAGE>

by bankruptcy, insolvency or similar laws) pursuant to the agreements related to
the transaction.

The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps, collars and floors are
more recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.

Mortgage swaps are similar to interest-rate swaps in that they represent
commitments to pay and receive interest. The notional principal amount, upon
which the value of the interest payments is based, is tied to reference pool or
pools of mortgages.

The purchase of an interest-rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest-rate cap. The purchase of an interest-rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest-rate floor. The Global Balanced Fund will
not enter into any mortgage swap, interest-rate swap, cap or floor transaction
unless the unsecured commercial paper, senior debt, or the claims paying ability
of the other party thereto is rated either AA or A-1 or better by S&P or Aa or
P-1 or better by Moody's, or is determined to be of equivalent quality by the
applicable Sub-Adviser.

INVERSE FLOATERS. The Global Balanced Fund may invest in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's 10% limitation on investments in such securities.

SHORT-TERM AND TEMPORARY DEFENSIVE INSTRUMENTS. In addition to their primary
investments, each Fund may also invest up to 10% of its total assets in money
market instruments for liquidity purposes (to meet redemptions and expenses).
For temporary defensive purposes, each Fund may invest up to 100% of its total
assets in fixed-income securities, including corporate debt obligations and
money market instruments rated in one of the two highest categories

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<PAGE>

by a nationally recognized statistical rating organization (or determined by the
Adviser or Sub-Adviser to be of equivalent quality). A description of
securities ratings is contained in the Appendix to this Statement of Additional
Information.

Subject to the limitations described above, the following is a
description of the types of money market and fixed-income securities in which
the Funds may invest:

U.S. Government Securities: See section entitled "U.S. Government
Securities" below.

Commercial Paper: Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by entities in order to finance
their current operations. Each Fund's commercial paper investments may include
variable amount master demand notes and floating rate or variable rate notes.
Variable amount master demand notes and variable amount floating rate notes are
obligations that permit the investment of fluctuating amounts by a Fund at
varying rates of interest pursuant to direct arrangements between a Fund, as
lender, and the borrower. Master demand notes permit daily fluctuations in the
interest rates while the interest rate under variable amount floating rate notes
fluctuates on a weekly basis. These notes permit daily changes in the amounts
borrowed. A Fund has the right to increase the amount under these notes at any
time up to the full amount provided by the note agreement, or to decrease the
amount, and the borrower may repay up to the full amount of the note without
penalty. Because these types of notes are direct lending arrangements between
the lender and the borrower, it is not generally contemplated that such
instruments will be traded and there is no secondary market for these notes.
Master demand notes are redeemable (and, thus, immediately repayable by the
borrower) at face value, plus accrued interest, at any time. Variable amount
floating rate notes are subject to next-day redemption 14 days after the initial
investment therein. With both types of notes, therefore, a Fund's right to
redeem depends on the ability of the borrower to pay principal and interest on
demand. In connection with both types of note arrangements, a Fund considers
earning power, cash flow and other liquidity ratios of the issuer. These notes,
as such, are not typically rated by credit rating agencies. Unless they are so
rated, a Fund may invest in them only if at the time of an investment the issuer
has an outstanding issue of unsecured debt rated in one of the two highest
categories by a nationally recognized statistical rating organization.

The Funds will generally purchase commercial paper only of companies of
medium to large capitalizations (i.e., $1 billion or more). In addition, the
Global Balanced Fund may purchase commercial paper rated in the two highest
rating categories, or deemed by the Adviser (or Sub-Adviser) to be of comparable
quality, without regard to the size of the issuer.

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Certificates of Deposit and Bankers' Acceptances: Certificates of deposit
are receipts issued by a bank in exchange for the deposit of funds. The issuer
agrees to pay the amount deposited plus interest to the bearer of the receipt on
the date specified on the certificate. The certificate usually can be traded in
the secondary market prior to maturity.

Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by another bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most maturities are six months or less.

The Funds will generally open interest-bearing accounts only with, or
purchase certificates of deposit, time deposits or bankers' acceptances only
from, banks or savings and loan associations whose deposits are federally-
insured and whose capital is at least $50 million.

Corporate Obligations: Corporate debt obligations (including master
demand notes). For a further description of variable amount master demand
notes, see the section entitled "Commercial Paper" above.

Repurchase Agreements: See the section entitled "Repurchase Agreements"
above.

U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Treasury securities,
including bills, notes, bonds and other debt securities issued by the U.S.
Treasury. These instruments are direct obligations of the U.S. government and,
as such, are backed by the "full faith and credit" of the United States. They
differ primarily in their interest rates, the lengths of their maturities and
the dates of their issuances. Each Fund may also invest in securities issued by
agencies of the U.S. government or instrumentalities of the U.S. government.
These obligations, including those which are guaranteed by federal agencies or
instrumentalities, may or may not be backed by the "full faith and credit" of
the United States. Obligations of the Government National Mortgage Association
("GNMA"), the Farmers Home Administration and the Export-Import Bank are backed
by the full faith and credit of the United States. In the case of securities not
backed by the full faith and credit of the United States, a Fund must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert

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a claim against the United States if the agency or instrumentality does not meet
its commitments.

The Balanced Assets Fund and the Global Balanced Fund may, in addition
to the U.S. government securities noted above, invest in mortgage-backed
securities (including private mortgage-backed securities), such as GNMA, FNMA or
FHLMC certificates (as defined below), which represent an undivided ownership
interest in a pool of mortgages. The mortgages backing these securities include
conventional thirty-year fixed-rate mortgages, fifteen-year fixed-rate
mortgages, graduated payment mortgages and adjustable rate mortgages. These
certificates are in most cases pass-through instruments, through which the
holder receives a share of all interest and principal payments, including
prepayments, on the mortgages underlying the certificate, net of certain fees.

The yield on mortgage-backed securities is based on the average expected
life of the underlying pool of mortgage loans. The actual life of any particular
pool will be shortened by any unscheduled or early payments of principal and
interest. Principal prepayments generally result from the sale of the underlying
property or the refinancing or foreclosure of underlying mortgages. The
occurrence of prepayments is affected by a wide range of economic, demographic
and social factors and, accordingly, it is not possible to predict accurately
the average life of a particular pool. Yield on such pools is usually computed
by using the historical record of prepayments for that pool, or, in the case of
newly-issued mortgages, the prepayment history of similar pools. The actual
prepayment experience of a pool of mortgage loans may cause the yield realized
by the Balanced Assets Fund or Global Balanced Fund to differ from the yield
calculated on the basis of the expected average life of the pool.

Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as do the value of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The reinvestment of scheduled
principal payments and unscheduled prepayments that the Balanced Assets Fund or
Global Balanced Fund receives may occur at higher or lower rates than the
original investment, thus affecting the yield of the Fund. Monthly interest
payments received by the Balanced Assets Fund or Global Balanced Fund have a
compounding effect which may increase the yield to shareholders more than debt
obligations that pay interest semi-annually. Because of those factors, mortgage-
backed securities may be less effective than U.S. Treasury bonds of similar
maturity at maintaining yields during periods of declining interest rates.
Accelerated prepayments adversely affect yields for pass-through

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securities purchased at a premium (i.e., at a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-through securities purchased at a discount. The
Balanced Assets Fund or Global Balanced Fund may purchase mortgage-backed
securities at a premium or at a discount.

The following is a description of GNMA, FNMA and FHLMC certificates,
the most widely available mortgage-backed securities:

GNMA Certificates. GNMA certificates ("GNMA Certificates") are mortgage-
backed securities which evidence an undivided interest in a pool or pools of
mortgages. GNMA Certificates that the Balanced Assets Fund or Global Balanced
Fund may purchase are the modified pass-through type, which entitle the holder
to receive timely payment of all interest and principal payments due on the
mortgage pool, net of fees paid to the issuer and GNMA, regardless of whether or
not the mortgagor actually makes the payment.

GNMA guarantees the timely payment of principal and interest on securities
backed by a pool of mortgages insured by the Federal Housing Administration
("FHA") or the Farmers' Home Administration ("FMHA"), or guaranteed by the
Veterans Administration ("VA"). The GNMA guarantee is authorized by the National
Housing Act and is backed by the full faith and credit of the United States. The
GNMA is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.

The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosure will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that a Fund has
purchased the certificates at a premium in the secondary market.

FHLMC Certificates. The Federal Home Loan Mortgage Corporation ("FHLMC")
issues two types of mortgage pass-through securities: mortgage participation
certificates ("Pcs") and guaranteed mortgage certificates ("GMCs")
(collectively, "FHLMC Certificates"). Pcs resemble GNMA Certificates in that
each PC represents a pro rata share of all interest and principal payments made
and owed on the underlying pool. The FHLMC guarantees timely monthly payment of
interest (and, under certain circumstances, principal) of Pcs and the ultimate
payment of principal.

GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually

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and return principal once a year in guaranteed minimum payments. The expected
average life of these securities is approximately ten years. The FHLMC
guarantee is not backed by the full faith and credit of the U.S. Government.

FNMA Certificates. The Federal National Mortgage Association ("FNMA")
issues guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates represent a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
and principal on FNMA Certificates. The FNMA guarantee is not backed by the full
faith and credit of the U.S. Government.

Another type of mortgage-backed security in which the Balanced Assets Fund
or Global Balanced Fund may invest is a collateralized mortgage obligation
("CMO"). CMOs are fully collateralized bonds which are the general obligations
of the issuer thereof (e.g., the U.S. government, a U.S. government
instrumentality, or a private issuer). Such bonds generally are secured by an
assignment to a trustee (under the indenture pursuant to which the bonds are
issued) of collateral consisting of a pool of mortgages. Payments with respect
to the underlying mortgages generally are made to the trustee under the
indenture. Payments of principal and interest on the underlying mortgages are
not passed through to the holders of the CMOs as such (i.e., the character of
payments of principal and interest is not passed through, and therefore payments
to holders of CMOs attributable to interest paid and principal repaid on the
underlying mortgages do not necessarily constitute income and return of capital,
respectively, to such holders), but such payments are dedicated to payment of
interest on and repayment of principal of the CMOs. CMOs often are issued in two
or more classes with varying maturities and stated rates of interest. Because
interest and principal payments on the underlying mortgages are not passed
through to holders of CMOs, CMOs of varying maturities may be secured by the
same pool of mortgages, the payments on which are used to pay interest on each
class and to retire successive maturities in sequence. Unlike other mortgage-
backed securities, CMOs are designed to be retired as the underlying mortgages
are repaid. In the event of prepayment on such mortgages, the class of CMO first
to mature generally will be paid down. Therefore, although in most cases the
issuer of CMOs will not supply additional collateral in the event of such
prepayment, there will be sufficient collateral to secure CMOs that remain
outstanding.

Certain CMOs may be deemed to be investment companies under the 1940
Act. The Balanced Assets Fund or Global Balanced Fund intends to conduct
operations in a manner consistent with this view, and therefore generally may
not invest more than 10% of its total assets in such issuers without obtaining
appropriate regulatory relief. In reliance on recent SEC staff interpretations,
a Fund may invest in those CMOs and other

B-15
<PAGE>

mortgage-backed securities that are not by definition excluded from the
provisions of the 1940 Act, but have obtained exemptive orders from the SEC from
such provisions.

The Balanced Assets Fund or Global Balanced Fund may also invest in
stripped mortgage-backed securities. Stripped mortgage-backed securities are
often structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. Stripped
mortgage-backed securities have greater market volatility than other types of
U.S. Government securities in which a Fund invests. A common type of stripped
mortgage-backed security has one class receiving some of the interest and all or
most of the principal (the "principal only" class) from the mortgage pool, while
the other class will receive all or most of the interest (the "interest only"
class). The yield to maturity on an interest only class is extremely sensitive
not only to changes in prevailing interest rates, but also to the rate of
principal payments, including principal prepayments, on the underlying pool of
mortgage assets, and a rapid rate of principal payment may have a material
adverse effect on the Fund's yield. While interest-only and principal-only
securities are generally regarded as being illiquid, such securities may be
deemed to be liquid if they can be disposed of promptly in the ordinary course
of business at a value reasonably close to that used in the calculation of the
Fund's net asset value per share. Only government interest only and principal
only securities backed by fixed-rate mortgages and determined to be liquid under
guidelines and standards established by the Trustees may be considered liquid
securities not subject to a Fund's limitation on investments in illiquid
securities.

INVESTMENT IN SMALL, UNSEASONED COMPANIES. As described in the Prospectus, the
Small Company Growth Fund will invest, and the other Funds Growth Fund may each
invest, in the securities of small companies having market capitalizations under
$1 billion. These securities may have a limited trading market, which may
adversely affect their disposition and can result in their being priced lower
than might otherwise be the case. If other investment companies and investors
who invest in such issuers trade the same securities when a Fund attempts to
dispose of its holdings, the Fund may receive lower prices than might otherwise
be obtained.

WARRANTS. Each Fund may invest in warrants which give the holder of the warrant
a right to purchase a given number of shares of a particular issue at a
specified price until expiration. Such investments generally can provide a
greater potential for profit or loss than investments of equivalent amounts in
the underlying common stock. The prices of warrants do not necessarily move with
the prices of the underlying securities. If the holder does not sell the
warrant, he risks the loss of his entire investment if the market price of the
underlying stock does not, before the expiration date, exceed the exercise price
of the warrant plus the

B-16
<PAGE>

cost thereof. Investment in warrants is a speculative activity. Warrants pay no
dividends and confer no rights (other than the right to purchase the underlying
stock) with respect to the assets of the issuer.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase or sell
such securities on a "when-issued" or "delayed delivery" basis. Although a Fund
will enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement. "When-issued" or
"delayed delivery" refers to securities whose terms and indenture are available
and for which a market exists, but which are not available for immediate
delivery. When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made, but
delivery and payment for the securities take place at a later date. During the
period between commitment by a Fund and settlement (generally within two months
but not to exceed 120 days), no payment is made for the securities purchased by
the purchaser, and no interest accrues to the purchaser from the transaction.
Such securities are subject to market fluctuation, and the value at delivery may
be less than the purchase price. A Fund will maintain a segregated account with
its custodian, consisting of cash, U.S. government securities or other high
grade debt obligations at least equal to the value of purchase commitments until
payment is made. A Fund will likewise segregate liquid assets in respect of
securities sold on a delayed delivery basis.

A Fund will engage in when-issued transactions in order to secure what is
considered to be an advantageous price and yield at the time of entering into
the obligation. When a Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure to do so may result in a Fund losing the
opportunity to obtain a price and yield considered to be advantageous. If a Fund
chooses to (i) dispose of the right to acquire a when-issued security prior to
its acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss. (At the time a Fund makes a
commitment to purchase or sell a security on a when-issued or forward commitment
basis, it records the transaction and reflects the value of the security
purchased, or if a sale, the proceeds to be received in determining its net
asset value.)

To the extent a Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling securities
consistent with its investment objectives and policies and not for the purposes
of investment leverage. A Fund enters into such transactions only with the
intention of actually receiving or delivering the securities, although (as noted
above) when-issued securities and forward commitments may be sold prior to

B-17
<PAGE>

the settlement date. In addition, changes in interest rates in a direction other
than that expected by the Adviser (or Sub-Adviser) before settlement will affect
the value of such securities and may cause a loss to a Fund.

When-issued transactions and forward commitments may be used to offset
anticipated changes in interest rates and prices. For instance, in periods of
rising interest rates and falling prices, a Fund might sell securities in its
portfolio on a forward commitment basis to attempt to limit its exposure to
anticipated falling prices. In periods of falling interest rates and rising
prices, a Fund might sell portfolio securities and purchase the same or similar
securities on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields.

FOREIGN SECURITIES. Investments in foreign securities offer potential benefits
not available from investments solely in securities of domestic issuers by
offering the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or business
cycles different from those of the U.S., or to reduce fluctuations in portfolio
value by taking advantage of foreign stock markets that do not move in a manner
parallel to U.S. markets.

Each Fund may invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs), European Depository Receipts (EDRs), Global
Depository Receipts (GDRs) or other similar securities convertible into
securities of foreign issuers. ADRs are securities, typically issued by a U.S.
financial institution, that evidence ownership interests in a security or a pool
of securities issued by a foreign issuer and deposited with the depository. ADRs
may be sponsored or unsponsored. A sponsored ADR is issued by a depository which
has an exclusive relationship with the issuer of the underlying security. An
unsponsored ADR may be issued by any number of U.S. depositories. Holders of
unsponsored ADRs generally bear all the costs associated with establishing the
unsponsored ADR. The depository of an unsponsored ADR is under no obligation to
distribute shareholder communications received from the underlying issuer or to
pass through to the holders of the unsponsored ADR voting rights with respect to
the deposited securities or pool of securities. A Fund may invest in either type
of ADR. Although the U.S. investor holds a substitute receipt of ownership
rather than direct stock certificates, the use of the depository receipts in the
United States can reduce costs and delays as well as potential currency exchange
and other difficulties. The Fund may purchase securities in local markets and
direct delivery of these ordinary shares to the local depository of an ADR agent
bank in the foreign country. Simultaneously, the ADR agents create a certificate
which settles at the Fund's custodian in five days. The Fund may also execute
trades on the U.S. markets using existing ADRs. A foreign issuer

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<PAGE>

of the security underlying an ADR is generally not subject to the same reporting
requirements in the United States as a domestic issuer. Accordingly the
information available to a U.S. investor will be limited to the information the
foreign issuer is required to disclose in its own country and the market value
of an ADR may not reflect undisclosed material information concerning the issuer
of the underlying security. For purposes of a Fund's investment policies, the
Fund's investments in these types of securities will be deemed to be investments
in the underlying securities. Generally ADRs, in registered form, are dollar
denominated securities designed for use in the U.S. securities markets, which
represent and may be converted into the underlying foreign security. EDRs, in
bearer form, are designed for use in the European securities markets.

Investments in foreign securities, including securities of developing
countries, present special additional investment risks and considerations not
typically associated with investments in domestic securities, including
reduction of income by foreign taxes; fluctuation in value of foreign portfolio
investments due to changes in currency rates and control regulations (e.g.,
currency blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers; less volume on foreign exchanges than on U.S. exchanges; greater
volatility and less liquidity on foreign markets than in the U.S.; less
regulation of foreign issuers, stock exchanges and brokers than the U.S.;
greater difficulties in commencing lawsuits; higher brokerage commission rates
than the U.S.; increased possibilities in some countries of expropriation,
confiscatory taxation, political, financial or social instability or adverse
diplomatic developments; and differences (which may be favorable or unfavorable)
between the U.S. economy and foreign economies.

LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, each Fund may lend portfolio securities in amounts up to 33% 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 that is equal to at least the market
value, determined daily, of the loaned securities. 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. A loan may be terminated by the borrower on one business day's
notice or by a Fund at any time. If the borrower fails to maintain the requisite
amount of collateral, the loan automatically terminates, and the Fund could use
the collateral to replace the securities while holding the borrower liable for
any

B-19
<PAGE>

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 (or Sub-Adviser) to be creditworthy. On termination of the loan, the
borrower is required to return the securities to a Fund; and any gain or loss in
the market price of the loaned security during the loan would inure to the Fund.
Each 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. Loans of portfolio securities will only be made to
firms deemed by the Adviser (or Sub-Adviser) to be creditworthy.

Since voting or consent rights which accompany loaned securities pass
to the borrower, each 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 which are the subject of the loan.

INCOME ENHANCEMENT STRATEGIES. Each Fund may write (i.e., sell) call options
("calls") on securities that are traded on U.S. and foreign securities exchanges
and over-the-counter markets to enhance income through the receipt of premiums
from expired calls and any net profits from closing purchase transactions. After
any such sale up to 100% of a Fund's total assets may be subject to calls. All
such calls written by a Fund must be "covered" while the call is outstanding
(i.e., the Fund must own the securities subject to the call or other securities
acceptable for applicable escrow requirements). Calls on Futures (defined below)
used to enhance income must be covered by deliverable securities or by liquid
assets segregated to satisfy the Futures contract. If a call written by the Fund
is exercised, the Fund forgoes any profit from any increase in the market price
above the call price of the underlying investment on which the call was written.
In addition, the Fund could experience capital losses which might cause
previously distributed short-term capital gains to be re-characterized as a non-
taxable return of capital to shareholders.

The Balanced Assets Fund and Global Balanced Fund also may write put
options ("puts") which give the holder of the option the right to sell the
underlying security to the Fund at the stated exercise price. A Fund will
receive a premium for writing a put option which increases the Fund's return. A
Fund writes only covered put options which means that so long as the Fund is
obligated as the writer of the option it will, through it custodian, have
deposited and maintained cash, cash equivalents, U.S. government securities or
other high grade liquid debt or equity securities denominated in U.S. dollars or
non-U.S. currencies with a securities depository with a value equal to or

B-20
<PAGE>

greater than the exercise price of the underlying securities. Puts on Futures
(defined below) will be considered "covered" if the a Fund owns an option to
sell that Futures contract having a strike price equal to or greater than the
strike price of the "covered" option, or if the Fund segregates and maintains
with its custodian for the term of the option cash, U.S. government securities
or liquid high-grade debt obligations at all times equal in value to the
exercise price of the put (less any initial margin deposited by the Fund with
its custodian with respect to such option).

HEDGING STRATEGIES. For hedging purposes as a temporary defensive maneuver, each
Fund may use interest rate futures contracts, foreign currency futures
contracts, and stock and bond index futures contracts (together, "Futures");
forward contracts on foreign currencies ("Forward Contracts"); and call and put
options on equity and debt securities, Futures, stock and bond indices and
foreign currencies (all the foregoing referred to as "Hedging Instruments").
Hedging Instruments may be used to attempt to: (i) protect against possible
declines in the market value of a Fund's portfolio resulting from downward
trends in the equity and debt securities markets (generally due to a rise in
interest rates); (ii) protect a Fund's unrealized gains in the value of its
equity and debt securities which have appreciated; (iii) facilitate selling
securities for investment reasons; (iv) establish a position in the equity and
debt securities markets as a temporary substitute for purchasing particular
equity and debt securities; or (v) reduce the risk of adverse currency
fluctuations .

A Fund's strategy of hedging with Futures and options on Futures will be
incidental to its activities in the underlying cash market. When hedging to
attempt to protect against declines in the market value of a Fund's portfolio,
to permit a Fund to retain unrealized gains in the value of portfolio securities
which have appreciated, or to facilitate selling securities for investment
reasons, a Fund could: (i) sell Futures; (ii) purchase puts on such Futures or
securities; or (iii) write calls on securities held by it or on Futures. When
hedging to attempt to protect against the possibility that portfolio securities
are not fully included in a rise in value of the debt securities market, a Fund
could: (i) purchase Futures, or (ii) purchase calls on such Futures or on
securities. When hedging to protect against declines in the dollar value of a
foreign currency-denominated security, a Fund could: (i) purchase puts on that
foreign currency and on foreign currency Futures; (ii) write calls on that
currency or on such Futures; or (iii) enter into Forward Contracts at a lower
rate than the spot ("cash") rate. Additional information about the Hedging
Instruments the Funds may use is provided below.

The Global Balanced Fund may engage in the foregoing for non-hedging
purposes as well.

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<PAGE>

OPTIONS
- -------

Options on Securities. As noted above, each Fund may write and purchase
call and put options (including yield curve options) on equity and debt
securities.

When a Fund writes a call on a security it receives a premium and agrees to
sell the underlying security to a purchaser of a corresponding call on the same
security during the call period (usually not more than 9 months) at a fixed
price (which may differ from the market price of the underlying security),
regardless of market price changes during the call period. A Fund has retained
the risk of loss should the price of the underlying security decline during the
call period, which may be offset to some extent by the premium.

To terminate its obligation on a call it has written, a Fund may purchase a
corresponding call in a "closing purchase transaction." A profit or loss will be
realized, depending upon whether the net of the amount of the option transaction
costs and the premium received on the call written was more or less than the
price of the call subsequently purchased. A profit may also be realized if the
call expires unexercised, because a Fund retains the underlying security and the
premium received. Any such profits are considered short-term capital gains for
Federal income tax purposes, and when distributed by the Fund are taxable as
ordinary income. If a Fund could not effect a closing purchase transaction due
to lack of a market, it would hold the callable securities until the call
expired or was exercised.

When a Fund purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period at a fixed exercise price. A Fund benefits only if the call is
sold at a profit or if, during the call period, the market price of the
underlying investment is above the sum of the call price plus the transaction
costs and the premium paid and the call is exercised. If the call is not
exercised or sold (whether or not at a profit), it will become worthless at its
expiration date and a Fund will lose its premium payment and the right to
purchase the underlying investment.

A put option on securities gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying investment at the exercise price
during the option period. Writing a put covered by segregated liquid assets
equal to the exercise price of the put has the same economic effect to a Fund as
writing a covered call. The premium a Fund receives from writing a put option
represents a profit as long as the price of the underlying investment remains
above the exercise price. However, a Fund has also assumed the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise

B-22
<PAGE>

price, even though the value of the investment may fall below the exercise
price. If the put expires unexercised, a Fund (as the writer of the put)
realizes a gain in the amount of the premium. If the put is exercised, a Fund
must fulfill its obligation to purchase the underlying investment at the
exercise price, which will usually exceed the market value of the investment at
that time. In that case, a Fund may incur a loss, equal to the sum of the sale
price of the underlying investment and the premium received minus the sum of the
exercise price and any transaction costs incurred.

A Fund may effect a closing purchase transaction to realize a profit on an
outstanding put option it has written or to prevent an underlying security from
being put. Furthermore, effecting such a closing purchase transaction will
permit a Fund to write another put option to the extent that the exercise price
thereof is secured by the deposited assets, or to utilize the proceeds from the
sale of such assets for other investments by the Fund. A Fund will realize a
profit or loss from a closing purchase transaction if the cost of the
transaction is less or more than the premium received from writing the option.
As described above for writing covered calls, any and all such profits described
herein from writing puts are considered short-term gains for Federal tax
purposes, and when distributed by a Fund, are taxable as ordinary income.

When a Fund purchases a put, it pays a premium and has the right to sell
the underlying investment to a seller of a corresponding put on the same
investment during the put period at a fixed exercise price. Buying a put on an
investment a Fund owns enables the Fund to protect itself during the put period
against a decline in the value of the underlying investment below the exercise
price by selling such underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is equal
to or above the exercise price and as a result the put is not exercised or
resold, the put will become worthless at its expiration date, and the Fund will
lose its premium payment and the right to sell the underlying investment
pursuant to the put. The put may, however, be sold prior to expiration (whether
or not at a profit.)

Buying a put on an investment a Fund does not own permits the Fund either
to resell the put or buy the underlying investment and sell it at the exercise
price. The resale price of the put will vary inversely with the price of the
underlying investment. If the market price of the underlying investment is above
the exercise price and as a result the put is not exercised, the put will become
worthless on its expiration date. In the event of a decline in the stock market,
a Fund could exercise or sell the put at a profit to attempt to offset some or
all of its loss on its portfolio securities.

B-23
<PAGE>

When writing put options on securities, to secure its obligation to pay for
the underlying security, a Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
A Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets. As long as the obligation of a Fund as the
put writer continues, it may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring a Fund to take delivery of the
underlying security against payment of the exercise price. A Fund has no control
over when it may be required to purchase the underlying security, since it may
be assigned an exercise notice at any time prior to the termination of its
obligation as the writer of the put. This obligation terminates upon expiration
of the put, or such earlier time at which a Fund effects a closing purchase
transaction by purchasing a put of the same series as that previously sold. Once
a Fund has been assigned an exercise notice, it is thereafter not allowed to
effect a closing purchase transaction.

Options on Foreign Currencies. Each Fund may write and purchase puts and
calls on foreign currencies. A call written on a foreign currency by a Fund is
"covered" if the Fund owns the underlying foreign currency covered by the call
or has an absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A put option is "covered" if the Fund
deposits with its custodian cash, U.S. government securities or other high-grade
liquid debt securities with a value at least equal to the exercise price of the
put option. A call written by a Fund on a foreign currency is for cross-hedging
purposes if it is not covered, but is designed to provide a hedge against a
decline in the U.S. dollar value of a security which the Fund owns or has the
right to acquire and which is denominated in the currency underlying the option
due to an adverse change in the exchange rate. In such circumstances, a Fund
collateralizes the option by maintaining in a segregated account with the Fund's
custodian, cash or U.S. government securities in an amount not less than the
value of the underlying foreign currency in U.S. dollars marked-to-market daily.

Options on Securities Indices. As noted above, each Fund may write and
purchase call and put options on securities indices. Puts and calls on broadly-
based securities indices are similar to puts and calls on securities except that
all settlements are in cash and gain or loss depends on changes in the index in
question (and thus on price movements in the securities market generally) rather
than on price movements in individual securities or Futures. When a Fund buys a
call on a securities index, it pays a premium. During the call period, upon
exercise of a call by a Fund, a seller of a corresponding call on the same
investment will pay the Fund an amount of cash to settle the call if the closing
level of the

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<PAGE>

securities index upon which the call is based is greater than the exercise price
of the call. That cash payment is equal to the difference between the closing
price of the index and the exercise price of the call times a specified multiple
(the "multiplier") which determines the total dollar value for each point of
difference. When a Fund buys a put on a securities index, it pays a premium and
has the right during the put period to require a seller of a corresponding put,
upon the Fund's exercise of its put, to deliver to the Fund an amount of cash to
settle the put if the closing level of the securities index upon which the put
is based is less than the exercise price of the put. That cash payment is
determined by the multiplier, in the same manner as described above as to calls.

FUTURES AND OPTIONS ON FUTURES
- ------------------------------

Futures. Upon entering into a Futures transaction, a Fund will be required
to deposit an initial margin payment with the futures commission merchant (the
"futures broker"). The initial margin will be deposited with the Fund's
custodian in an account registered in the futures broker's name; however the
futures broker can gain access to that account only under specified conditions.
As the Future is marked to market to reflect changes in its market value,
subsequent margin payments, called variation margin, will be paid to or by the
futures broker on a daily basis. Prior to expiration of the Future, if a Fund
elects to close out its position by taking an opposite position, a final
determination of variation margin is made, additional cash is required to be
paid by or released to the Fund, and any loss or gain is realized for tax
purposes. All Futures transactions are effected through a clearinghouse
associated with the exchange on which the Futures are traded.

Interest rate futures contracts are purchased or sold for hedging purposes
to attempt to protect against the effects of interest rate changes on a Fund's
current or intended investments in fixed-income securities. For example, if a
Fund owned long-term bonds and interest rates were expected to increase, that
Fund might sell interest rate futures contracts. Such a sale would have much the
same effect as selling some of the long-term bonds in that Fund's portfolio.
However, since the Futures market is more liquid than the cash market, the use
of interest rate futures contracts as a hedging technique allows a Fund to hedge
its interest rate risk without having to sell its portfolio securities. If
interest rates did increase, the value of the debt securities in the portfolio
would decline, but the value of that Fund's interest rate futures contracts
would be expected to increase at approximately the same rate, thereby keeping
the net asset value of that Fund from declining as much as it otherwise would
have. On the other hand, if interest rates were expected to decline, interest
rate futures contracts may be purchased to hedge in anticipation of subsequent
purchases of long-term bonds at higher prices. Since the

B-25
<PAGE>

fluctuations in the value of the interest rate futures contracts should be
similar to that of long-term bonds, a Fund could protect itself against the
effects of the anticipated rise in the value of long-term bonds without actually
buying them until the necessary cash became available or the market had
stabilized. At that time, the interest rate futures contracts could be
liquidated and that Fund's cash reserves could then be used to buy long-term
bonds on the cash market.

Purchases or sales of stock or bond index futures contracts are used for
hedging purposes to attempt to protect a Fund's current or intended investments
from broad fluctuations in stock or bond prices. For example, a Fund may sell
stock or bond index futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. If such decline occurs, the
loss in value of portfolio securities may be offset, in whole or part, by gains
on the Futures position. When a Fund is not fully invested in the securities
market and anticipates a significant market advance, it may purchase stock or
bond index futures contracts in order to gain rapid market exposure that may, in
part or entirely, offset increases in the cost of securities that the Fund
intends to purchase. As such purchases are made, the corresponding positions in
stock or bond index futures contracts will be closed out.

As noted above, each Fund may purchase and sell foreign currency futures
contracts for hedging or income enhancement purposes to attempt to protect its
current or intended investments from fluctuations in currency exchange rates.
Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. Each Fund may sell
futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the Futures contracts. However, if the value of
the foreign currency increases relative to the dollar, the Fund's loss on the
foreign currency futures contract may or may not be offset by an increase in the
value of the securities since a decline in the price of the security stated in
terms of the foreign currency may be greater than the increase in value as a
result of the change in exchange rates.

Conversely, each Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing Futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying

B-26
<PAGE>

currencies. When a Fund purchases futures contracts under such circumstances,
however, and the price of securities to be acquired instead declines as a result
of appreciation of the dollar, the Fund will sustain losses on its futures
position which could reduce or eliminate the benefits of the reduced cost of
portfolio securities to be acquired.

Options on Futures. As noted above, the Funds may purchase and write
options on interest rate futures contracts, stock and bond index futures
contracts and foreign currency futures contracts. (Unless otherwise specified,
options on interest rate futures contracts, options on stock and bond index
futures contracts and options on foreign currency futures contracts are
collectively referred to as "Options on Futures.")

The writing of a call option on a Futures contract constitutes a partial
hedge against declining prices of the securities in a Fund's portfolio. If the
Futures price at expiration of the option is below the exercise price, the Fund
will retain the full amount of the option premium, which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a Futures contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures contract. If the Futures
price at expiration of the put option is higher than the exercise price, a Fund
will retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Fund intends to
purchase. If a put or call option a Fund has written is exercised, the Fund will
incur a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its Options on Futures
positions, a Fund's losses from exercised Options on Futures may to some extent
be reduced or increased by changes in the value of portfolio securities.

The Fund may purchase Options on Futures for hedging purposes, instead of
purchasing or selling the underlying Futures contract. For example, where a
decrease in the value of portfolio securities is anticipated as a result of a
projected market-wide decline or changes in interest or exchange rates, a Fund
could, in lieu of selling a Futures contract, purchase put options thereon. In
the event that such decrease occurs, it may be offset, in whole or part, by a
profit on the option. If the market decline does not occur, the Fund will suffer
a loss equal to the price of the put. Where it is projected that the value of
securities to be acquired by a Fund will increase prior to acquisition, due to a
market advance or changes in interest or exchange rates, a Fund could purchase
call Options on Futures, rather than purchasing the underlying Futures contract.
If the market advances, the increased cost of securities to be purchased may be
offset by a profit on the

B-27
<PAGE>

call. However, if the market declines, the Fund will suffer a loss equal to the
price of the call but the securities which the Fund intends to purchase may be
less expensive.

FORWARD CONTRACTS
- -----------------

A Forward Contract involves bilateral obligations of one party to purchase,
and another party to sell, a specific currency at a future date (which may be
any fixed number of days from the date of the contract agreed upon by the
parties), at a price set at the time the contract is entered into. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. No price is paid
or received upon the purchase or sale of a Forward Contract .

A Fund may use Forward Contracts to protect against uncertainty in the
level of future exchange rates. The use of Forward Contracts does not eliminate
fluctuations in the prices of the underlying securities a Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. In addition, although
Forward Contracts limit the risk of loss due to a decline in the value of the
hedged currencies, at the same time they limit any potential gain that might
result should the value of the currencies increase. A Fund (other than the
Global Balanced Fund) will not speculate with Forward Contracts or foreign
currency exchange rates.

A Fund may enter into Forward Contracts with respect to specific
transactions. For example, when a Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when a Fund
anticipates receipt of dividend payments in a foreign currency, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment by entering into a Forward Contract, for a fixed
amount of U.S. dollars per unit of foreign currency, for the purchase or sale of
the amount of foreign currency involved in the underlying transaction. A Fund
will thereby be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the currency exchange rates during
the period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are made or
received.

A Fund may also use Forward Contracts to lock in the U.S. dollar value of
portfolio positions ("position hedge"). In a position hedge, for example, when a
Fund believes that foreign currency may suffer a substantial decline against the
U.S. dollar, it may enter into a Forward Contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when a Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into

B-28
<PAGE>

a Forward Contract to buy that foreign currency for a fixed dollar amount. In
this situation a Fund may, in the alternative, enter into a Forward Contract to
sell a different foreign currency for a fixed U.S. dollar amount where the Fund
believes that the U.S. dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which portfolio securities of the Fund are denominated
("cross-hedged").

The Fund's custodian will place cash not available for investment or
U.S. government securities or other liquid high-quality debt securities in a
separate account of the Fund having a value equal to the aggregate amount of the
Fund's commitments under Forward Contracts entered into with respect to position
hedges and cross-hedges. If the value of the securities placed in a separate
account declines, additional cash or securities will be placed in the account on
a daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts. As an alternative to
maintaining all or part of the separate account, a Fund may purchase a call
option permitting the Fund to purchase the amount of foreign currency being
hedged by a forward sale contract at a price no higher than the Forward Contract
price or the Fund may purchase a put option permitting the Fund to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the Forward Contract price. Unanticipated changes in
currency prices may result in poorer overall performance for a Fund than if it
had not entered into such contracts.

The precise matching of the Forward Contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the Forward Contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency a Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency a Fund is obligated to deliver. The
projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Forward Contracts involve the risk that anticipated currency movements will not
be accurately predicted, causing a Fund to sustain losses on these contracts and
transactions costs.

At or before the maturity of a Forward Contract requiring a Fund to
sell a currency, the Fund may either sell a portfolio

B-29
<PAGE>

security and use the sale proceeds to make delivery of the currency or retain
the security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency that it is obligated to deliver.
Similarly, a Fund may close out a Forward Contract requiring it to purchase a
specified currency by entering into a second contract entitling it to sell the
same amount of the same currency on the maturity date of the first contract. A
Fund would realize a gain or loss as a result of entering into such an
offsetting Forward Contract under either circumstance to the extent the exchange
rate or rates between the currencies involved moved between the execution dates
of the first contract and offsetting contract.

The cost to a Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because Forward Contracts are usually
entered into on a principal basis, no fees or commissions are involved. Because
such contracts are not traded on an exchange, a Fund must evaluate the credit
and performance risk of each particular counterparty under a Forward Contract.

Although a Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. A Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Foreign exchange
dealers do not charge a fee for conversion, but they do seek to realize a profit
based on the difference between the prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.

ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE
- --------------------------------------------------------------

The Fund's custodian, or a securities depository acting for the
custodian, will act as the Fund's escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the securities on which the Fund has
written options or as to other acceptable escrow securities, so that no margin
will be required for such transaction. OCC will release the securities on the
expiration of the option or upon a Fund's entering into a closing transaction.

An option position may be closed out only on a market which provides
secondary trading for options of the same series and there is no assurance that
a liquid secondary market will exist for any particular option. A Fund's option
activities may affect its turnover rate and brokerage commissions. The exercise
by a Fund of puts on securities will cause the sale of related investments,

B-30
<PAGE>

increasing portfolio turnover. Although such exercise is within a Fund's
control, holding a put might cause the Fund to sell the related investments for
reasons which would not exist in the absence of the put. A Fund will pay a
brokerage commission each time it buys a put or call, sells a call, or buys or
sells an underlying investment in connection with the exercise of a put or call.
Such commissions may be higher than those which would apply to direct purchases
or sales of such underlying investments. Premiums paid for options are small in
relation to the market value of the related investments, and consequently, put
and call options offer large amounts of leverage. The leverage offered by
trading in options could result in a Fund's net asset value being more sensitive
to changes in the value of the underlying investments.

In the future, each Fund may employ Hedging Instruments and strategies
that are not presently contemplated but which may be developed, to the extent
such investment methods are consistent with a Fund's investment objectives,
legally permissible and adequately disclosed.

REGULATORY ASPECTS OF HEDGING INSTRUMENTS
- -----------------------------------------

Each Fund must operate within certain restrictions as to its long and
short positions in Futures and options thereon under a rule (the "CFTC Rule")
adopted by the Commodity Futures Trading Commission (the "CFTC") under the
Commodity Exchange Act (the "CEA"), which excludes the Fund from registration
with the CFTC as a "commodity pool operator" (as defined in the CEA) if it
complies with the CFTC Rule. In particular, the Fund may (i) purchase and sell
Futures and options thereon for bona fide hedging purposes, as defined under
CFTC regulations, without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) enter into non-hedging
transactions, provided that the Fund may not enter into such non-hedging
transactions if, immediately thereafter, the sum of the amount of initial margin
deposits on the Fund's existing Futures positions and option premiums would
exceed 5% of the fair value of its portfolio, after taking into account
unrealized profits and unrealized losses on any such transactions. Each Fund
intends to engage in Futures transactions and options thereon only for hedging
purposes, but the Global Balanced Fund may also engage in such transactions for
non-hedging purposes. Margin deposits may consist of cash or securities
acceptable to the broker and the relevant contract market.

Transactions in options by a Fund are subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options were written or purchased on the
same or different exchanges or are held in one or more accounts or through one
or more exchanges or brokers. Thus, the number of options which a Fund may
write or hold may be affected by options written or held

B-31
<PAGE>

by other entities, including other investment companies having the same or an
affiliated investment adviser. Position limits also apply to Futures. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions. Due to requirements under
the 1940 Act, when a Fund purchases a Future, the Fund will maintain, in a
segregated account or accounts with its custodian bank, cash or readily
marketable, short-term (maturing in one year or less) debt instruments in an
amount equal to the market value of the securities underlying such Future, less
the margin deposit applicable to it.

TAX ASPECTS OF HEDGING INSTRUMENTS
- ----------------------------------

Each Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). One of the tests
for such qualification is that less than 30% of its gross income must be derived
from gains realized on the sale of stock or securities held for less than three
months. This limitation may limit the ability of a Fund to engage in options
transactions and, in general, to hedge investment risk.

POSSIBLE RISK FACTORS IN HEDGING
- --------------------------------

In addition to the risks discussed in the Prospectus and above, there
is a risk in using short hedging by selling Futures to attempt to protect
against decline in value of a Fund's portfolio securities (due to an increase in
interest rates) that the prices of such Futures will correlate imperfectly with
the behavior of the cash (i.e., market value) prices of the Fund's securities.
The ordinary spreads between prices in the cash and Futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the Futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close Futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
Futures markets. Second, the liquidity of the Futures markets depend on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the Futures markets could be reduced, thus producing distortion. Third, from
the point-of-view of speculators, the deposit requirements in the Futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the Futures markets may
cause temporary price distortions.

If a Fund uses Hedging Instruments to establish a position in the debt
securities markets as a temporary substitute for the purchase of individual debt
securities (long hedging) by buying Futures and/or calls on such Futures or on
debt securities, it is possible that the market may decline; if the Adviser then

B-32
<PAGE>

determines not to invest in such securities at that time because of concerns as
to possible further market decline or for other reasons, the Fund will realize a
loss on the Hedging Instruments that is not offset by a reduction in the price
of the debt securities purchased.

LEVERAGE. In seeking to enhance investment performance, the Global Balanced
Fund, Small Company Growth Fund, and Growth and Income Fund may increase their
ownership of securities by borrowing from banks at fixed rates of interest and
investing the borrowed funds, subject to the restrictions stated in the
Prospectus. Any such borrowing will be made only from banks and pursuant to the
requirements of the 1940 Act and will be made only to the extent that the value
of each Fund's assets less its liabilities, other than borrowings, is equal to
at least 300% of all borrowings including the proposed borrowing. If the value
of a Fund's assets, so computed, should fail to meet the 300% asset coverage
requirement, the Fund is required, within three business days, to reduce its
bank debt to the extent necessary to meet such requirement and may have to sell
a portion of its investments at a time when independent investment judgment
would not dictate such sale. Interest on money borrowed is an expense the Fund
would not otherwise incur, so that it may have little or no net investment
income during periods of substantial borrowings. Since substantially all of a
Fund's assets fluctuate in value, but borrowing obligations are fixed when the
Fund has outstanding borrowings, the net asset value per share of a Fund
correspondingly will tend to increase and decrease more when the Fund's assets
increase or decrease in value than would otherwise be the case. A Fund's policy
regarding use of leverage is a fundamental policy which may not be changed
without approval of the shareholders of the Fund.

PORTFOLIO TURNOVER

The portfolio turnover rate is calculated for each Fund by dividing
(a) the lesser of purchases or sales of portfolio securities for the fiscal year
by (b) the monthly average of the value of portfolio securities owned during the
fiscal year. For purposes of this calculation, securities which at the time of
purchase had a remaining maturity of one year or less are excluded from the
numerator and the denominator. Transactions in Futures or the exercise of calls
written by a Fund may cause the Fund to sell portfolio securities, thus
increasing its turnover rate. The exercise of puts also may cause a sale of
securities and increase turnover; although such exercise is within a Fund's
control, holding a protective put might cause the Fund to sell the underlying
securities for reasons which would not exist in the absence of the put. A Fund
will pay a brokerage commission each time it buys or sells a security in
connection with the exercise of a put or call. Some commissions may be higher
than those which would apply to direct purchases or sales of portfolio
securities.

B-33
<PAGE>

The following table sets forth the portfolio turnover rates for the
fiscal years ended September 30, 1995 and 1994.

PORTFOLIO TURNOVER
<TABLE>
<CAPTION>

FUND 1995 1994
- ----------------------------------------
<S> <C> <C>
Balanced Assets Fund 130% 141%
- ----------------------------------------
Blue Chip Growth Fund 251% 170%
- ----------------------------------------
Global Balanced Fund 169% 18%*
- ----------------------------------------
Growth and Income Fund 230% 8%**
- ----------------------------------------
Mid-Cap Growth Fund 392% 555%
- ----------------------------------------
Small Company Growth Fund 351% 411%
- ----------------------------------------
</TABLE>
* For the period 6/15/94 (commencement of operations) through 9/30/94
** For the period 7/1/94 (commencement of operations) through 9/30/94

High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs which will be borne directly by a Fund.
High portfolio turnover may also involve a possible increase in short-term
capital gains or losses.

INVESTMENT RESTRICTIONS

Each 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 that Fund's outstanding voting securities. A "majority of the
outstanding voting securities" of a Fund for this purpose means the lesser of
(i) 67% of the shares of the Fund represented at a meeting at which more than
50% of the outstanding shares are present in person or represented by proxy or
(ii) more than 50% of the outstanding shares. Unless otherwise indicated, all
percentage limitations apply to each Fund on an individual basis, and 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, no Fund may:

(1) With respect to 75% of its total assets, invest more than 5% of its total
assets (taken at market value at the time of each investment) in the
securities of any one issuer or purchase more than 10% of the outstanding
voting securities of any one company or more than 10% of any class of a
company's outstanding securities, except that these restrictions shall not
apply to securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities ("U.S.

B-34
<PAGE>

government securities"). The foregoing restriction shall not apply to the
Global Balanced Fund.

(2) Invest more than 5% of its total assets (taken at market value at the time
of each investment) in securities of companies having a record, together
with predecessors, of less than three years of continuous operations,
except that this restriction shall not apply to U.S. government securities.

(3) Purchase securities on margin, borrow money or pledge their assets, except
that the Global Balanced Fund, Small Company Growth Fund and Growth and
Income Fund may borrow money to purchase securities as set forth in the
Prospectus and Statement of Additional Information and each Fund may borrow
from a bank for temporary or emergency purposes in amounts not exceeding 5%
(taken at the lower of cost or current value) of its total assets (not
including the amount borrowed) and pledge its assets to secure such
borrowings. Further, to the extent that an investment technique engaged in
by the Global Balanced Fund or Growth and Income Fund required pledging of
assets, the Funds may pledge assets in connection with such transactions.
For purposes of this restriction and restriction (5) below, collateral
arrangements with respect to the options, financial futures and options
thereon described in the Prospectus and Statement of Additional Information
are not deemed to constitute a pledge or loan of assets.

(4) Invest more than 25% of each Fund's assets in the securities of issuers
engaged in the same industry.

(5) Engage in arbitrage transactions, buy or sell commodities or commodity
contracts or real estate or interests in real estate, except that each Fund
may (a) purchase or sell financial futures and options thereon for hedging
purposes, as described in the Prospectus and Statement of Additional
Information, under policies developed by the Trustees and (b) purchase and
sell marketable securities which are secured by real estate and marketable
securities of companies which invest or deal in real estate.

(6) Act as underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Funds may be deemed to be
underwriters under certain Federal securities laws.

(7) Make loans, except through (i) repurchase agreements, (ii) loans of
portfolio securities, or (iii) the purchase of portfolio securities
consistent with a Fund's investment objectives and policies, as described
in the Prospectus.

(8) Make short sales of securities or maintain a short position, except that
each Fund may effect short sales against the box.

B-35
<PAGE>

(9) Issue senior securities as defined in the 1940 Act, except that each Fund
may enter into repurchase agreements, lend its portfolio securities and
borrow money from banks, as described in restriction (3), and the Global
Balanced Fund may enter into dollar rolls.

The following additional restrictions are not fundamental policies and may be
changed by the Trustees without a vote of shareholders. Each Fund may not:

(10) Invest in securities of any issuer if, to the knowledge of the Trust, any
officer, trustee or director of the Trust or the Adviser (or Sub-Adviser),
owns more than 1/2% of the outstanding securities of such issuer and such
officers, trustees and directors who own more than 1/2%, own in the
aggregate, more than 5% of the outstanding securities of such issuer.

(11) Make investments for the purpose of exercising control or management.

(12) Invest more than 10% of its net assets in illiquid securities, including
repurchase agreements which have 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 that Act that may be offered and
sold to "qualified institutional buyers" as defined in Rule 144A, which the
Adviser (or Sub-Adviser) has determined to be liquid pursuant to guidelines
established by the Trustees, will not be considered illiquid for purposes
of this 10% limitation on illiquid securities.

(13) 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.

(14) Invest in interests in oil, gas or other mineral exploration or development
programs, or mineral leases, although it may

B-36
<PAGE>

invest in the common stocks of companies which invest in or sponsor such
programs.

The Trust, on behalf of each of the Funds, has undertaken with certain
securities commissions not to invest (i) more than 5% of the total assets of
each Fund in puts, calls, straddles, spreads or any combination thereof, (ii) in
real estate limited partnerships, or (iii) more than 10% of total assets in real
estate investment trusts.

TRUSTEES AND OFFICERS

The following table lists the Trustees and executive officers of the
Trust, their ages, business addresses, and principal occupations during the past
five years. The SunAmerica Mutual Funds consist of SunAmerica Equity Funds,
SunAmerica Income Funds and SunAmerica Money Market Funds, Inc. An asterisk
indicates those Trustees who are interested persons of the Trust within the
meaning of the 1940 Act.
<TABLE>
<CAPTION>

Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------------------- ------------------------------ ------------------------------
<S> <C> <C>

S. James Coppersmith, 63 Trustee Director/Trustee of the Boston
Emerson College Stock Exchange, Uno Restaurant
100 Beacon Street Corp., Waban Corp., Kushner-
Boston, MA 02116 Locke Co., Chyron Inc.;
Chairman of the Board of
Emerson College; formerly,
President and General Manager,
WCVB-TV, a division of the
Hearst Corporation from 1982
to 1994 (retired); Director/
Trustee of the SunAmerica
Mutual Funds and Anchor Series
Trust.

Samuel M. Eisenstat, 56 Chairman of Attorney in private practice;
430 East 86 Street the Board President and Chief Executive
New York, NY 10028 Officer, Abjac Energy
Corporation; Director/Trustee
of Atlantic Realty Trust, UMB
Bank and Trust (a subsidiary
of United Mizrachi Bank),
North European Royalty Trust,
Volt Information Sciences
Funding, Inc. (a subsidiary
of Volt Information Sciences,
Inc.) and Venture Partners
International (an Israeli
venture capital fund);
Chairman of the Board of the
SunAmerica Mutual Funds and
Anchor Series Trust.
</TABLE>

B-37
<PAGE>

<TABLE>

<S> <C> <C>
Stephen J. Gutman, 53 Trustee Partner and Chief Operating
515 East 79th Street Officer of B.B. Associates LLC
New York, NY 10021 (menswear specialty retailing
and other activities) since
May 1989; Director/Trustee of
the SunAmerica Mutual Funds
and Anchor Series Trust.

Peter A. Harbeck*, 42 Trustee and Director and President,
The SunAmerica Center President SunAmerica Asset Management
733 Third Avenue Corp. ("SAAMCo"); Director,
New York, NY 10017-3204 SunAmerica Capital Services,
Inc. ("SACS"), since February
1993; Director and President,
SunAmerica Fund Services,
Inc.("SAFS"), since May 1988;
President of the SunAmerica
Mutual Funds and Anchor Series
Trust; Executive Vice
President and Chief Operating
Officer, SAAMCo, from May 1988
to August 1995; Executive Vice
President, SACS, from November
1991 to August 1995; Director,
Resources Trust Company.

Peter McMillan III*, 38 Trustee Executive Vice President and
1 SunAmerica Center Chief Investment Officer,
Century City SunAmerica Investments, Inc.
Los Angeles, CA 90067 since August 1989; Director/
Trustee of the SunAmerica
Mutual Funds; Director,
Resources Trust Company.

Sebastiano Sterpa, 67 Trustee Founder of Sterpa Realty
Suite 200 Inc., a full service real
200 West Glenoaks Blvd estate firm, since 1962;
Glendale, CA 91202 Chairman of the Sterpa
Group, real estate
investments and management
company; Trustee/Director of
the SunAmerica Mutual Funds.

Stanton J. Feeley, 59 Executive Vice Executive Vice President and
The SunAmerica Center President Chief Investment Officer, Sun-
733 Third Avenue America Asset Management
New York, NY 10017-3204 Corp., since February 1992;
Formerly, Senior Portfolio
Manager, Delaware Management
Company, Inc. from December
1987 to February 1992.
</TABLE>

B-38
<PAGE>

<TABLE>

<S> <C> <C>
Nancy Kelly, 45 Vice Vice President and Head
The SunAmerica Center President Trader, SAAMCo, since April
733 Third Avenue 1994; Formerly, Vice
New York, NY 10017-3204 President, Whitehorne & Co.
Ltd. (1991-1994); Sales
Trader, Lynch Jones & Ryan
(1992-1994).

Audrey L. Snell, 43 Vice Vice President and Equity
The SunAmerica Center President Portfolio Manager, SAAMCo,
733 Third Avenue since March 1991; Formerly,
New York, NY 10017-3204 held investment management
position with Campbell
Associates, Inc. from 1986 to
1991.

Peter C. Sutton, 31 Treasurer Vice President, SAAMCo, since
The SunAmerica Center September 1994; Treasurer,
733 Third Avenue SunAmerica Mutual Funds, since
New York, NY 10017-3204 February 1996; Vice President,
SunAmerica Series Trust and
Anchor Pathway Fund, since
October 1994; Controller,
SunAmerica Mutual Funds (March
1993 to February 1996);
Assistant Controller,
SunAmerica Mutual Funds (1990-
1993).

Robert M. Zakem, 38 Secretary and Senior Vice President and
The SunAmerica Center Chief Compli- General Counsel of SAAMCo,
733 Third Avenue ance Officer since April 1993; Executive
New York, NY 10017-3204 Vice President and Director,
SACS, since February 1993; and
Vice President of SAFS, since
January 1994; Formerly, Vice
President and Associate
General Counsel, SAAMCo, from
March 1992 to April 1993;
Associate, Piper & Marbury
from 1989 to 1992.

</TABLE>

Trustees and officers of the Trust are also 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 Trust pays each Trustee who is not an interested person of the
Trust or the Adviser (each a "disinterested" Trustee) annual compensation in
addition to reimbursement of out-of-pocket expenses in connection with
attendance at meetings of the Trustees. Specifically, each disinterested Trustee
receives a pro rata portion (based upon the Trust's net Assets) aggregate of
$40,000 in annual

B-39
<PAGE>

compensation for acting as director or trustee to all the retail funds in the
SunAmerica Mutual Funds. 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 SunAmerica Mutual Funds. Officers of the Trust receive no
direct remuneration in such capacity from the Trust or any of the Funds.

In addition, each disinterested Trustee also serves on the Audit
Committee of the Board of Trustees. 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 SunAmerica Family of Mutual Funds. With respect to the
Trust, each member of the committee receives a pro rata portion of the $5,000
annual compensation, based on the relative net assets of the Trust. The Trust
also has a Nominating Committee, comprised solely of disinterested Trustees,
which recommends to the Trustees those persons to be nominated for election as
Trustees by shareholders and selects and proposes nominees for election by
Trustees between shareholders' meetings. Members of the Nominating Committee
serve without compensation.

The Trustees (and Directors) of the SunAmerica Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement Plan
(the "Retirement Plan") effective January 1, 1993 for the unaffiliated Trustees.
The Retirement Plan provides generally that if a disinterested Trustee who has
at least 10 years of consecutive service as a disinterested Trustee of any of
the SunAmerica Mutual Funds (an "Eligible Trustee") retires after reaching age
60 but before age 70 or dies while a Trustee, such person will be eligible to
receive a retirement or death benefit from each SunAmerica mutual fund with
respect to which he or she is an Eligible Trustee. As of each birthday, prior to
the 70th birthday, each Eligible Trustee will be credited with an amount equal
to (i) 50% of his or her regular fees (excluding committee fees) for services as
a disinterested Trustee of each SunAmerica mutual fund for the calendar year in
which such birthday occurs, plus (ii) 8.5% of any amounts credited under clause
(i) during prior years. An Eligible Trustee may receive any benefits payable
under the Retirement Plan, at his or her election, either in one lump sum or in
up to fifteen annual installments.

As of September 30, 1996, the Trustees and officers of the Trust owned
in the aggregate, less than 1% of the Trust's total outstanding shares.

The following table sets forth information summarizing the
compensation of each disinterested Trustee for his services as Trustee for the
fiscal year ended September 30, 1995. Neither the Trustees who are interested
persons of the Trust receive any compensation.

B-40
<PAGE>

COMPENSATION TABLE

PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS FROM REGISTRANT
COMPENSATION ACCRUED AS AND FUND
FROM PART OF FUND COMPLEX PAID TO
TRUSTEE REGISTRANT EXPENSES* TRUSTEES*
- ----------------------------------------------------------------------

S. James Coppersmith $10,109 $39,472 $ 65,000
- ----------------------------------------------------------------------
Samuel M. Eisenstat $10,590 $ 9,678 $ 69,000
- ----------------------------------------------------------------------
Stephen J. Gutman $10,109 $16,460 $ 65,000
- ----------------------------------------------------------------------
Sebastiano Sterpa $10,256 $14,960 $43,333**
- ----------------------------------------------------------------------
* Information is as of September 30, 1995 for the four investment companies in
the complex which pay fees to these directors/trustees. The complex consists
of the SunAmerica Mutual Funds and Anchor Series Trust.

** Mr. Sterpa is not a trustee of Anchor Series Trust.

ADVISER, SUB-ADVISERS, 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
acts as adviser to each of the Funds pursuant to the Investment Advisory and
Management Agreement dated September 23, 1993 as amended May 20, 1994 (the
"Advisory Agreement") with the Trust, on behalf of each Fund. The Adviser is an
indirect wholly owned subsidiary of SunAmerica Inc. (formerly, Broad Inc.).
SunAmerica Inc., is incorporated in the State of Maryland and maintains its
principal executive offices at 1 SunAmerica Center, Century City, Los Angeles,
CA 90067-6022, telephone (310) 772-6000.

Under the Advisory Agreement, the Adviser manages the investment of
the assets of each Fund and obtains and evaluates economic, statistical and
financial information to formulate and implement investment policies for each
Fund. Any investment program undertaken by the Adviser will at all times be
subject to the policies and control of the Trustees. The Adviser also provides
certain administrative services to each Fund.

Except to the extent otherwise specified in the Advisory Agreement,
each Fund pays, or causes to be paid, all other expenses of the Trust and each
of the Funds, 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 Funds and their 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 Funds, and
supplements thereto, to the shareholders of the Funds; all

B-41
<PAGE>

expenses of shareholders' and Trustees' 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 Funds; postage; insurance premiums on property or
personnel (including Officers and Trustees) of the Trust which 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 Trust's operation.

As compensation for its services to the Funds, the Adviser receives a
fee from each Fund (other than the Global Balanced Fund), payable monthly,
computed daily at the annual rate of.75% on the first $350 million of such
Fund's average daily assets, .70% on the next $350 million of net assets and
.65% on net assets over $700 million. With respect to the Global Balanced Fund,
the Adviser receives a fee, payable monthly, computed daily at the annual rate
of 1.00% on the first $250 million of the Fund's average daily net assets, .90%
on the next $350 million of net assets and .85% on net assets over $700 million.

The Advisory Agreement with respect to each Fund, other than the
Global Balanced Fund and Growth and Income Fund, was approved by the Trustees,
including a majority of the Trustees who are not parties to the Advisory
Agreement or "interested persons" of any such party, on March 31, 1993 and, with
respect to the Class A shares of Mid-Cap Growth Fund and Small Company Growth
Fund, by the shareholders of each Fund on September 23, 1993 and with respect to
the Class A shares and Class B shares of Blue Chip Growth Fund, Class B shares
of Mid-Cap Growth Fund, Class B shares of Small Company Growth Fund, and Class A
and Class B shares of Balanced Assets Fund, by the Adviser, the sole initial
shareholder, on September 23, 1993. The Advisory Agreement with respect to
each Fund, other than the Global Balanced Fund and Growth and Income Fund,
became effective on September 24, 1993. The Advisory Agreement in respect of
the Global Balanced Fund and Growth and Income Fund, which became effective on
June 15, 1994, was approved by the Trustees, including a majority of the
disinterested Trustees, on May 20, 1994 and, with respect to the Global Balanced
Fund, by its sole initial shareholder on June 14, 1994 and, with respect to the
Growth and Income Fund, by its sole initial shareholder on June 30, 1994.

The following table sets forth the total advisory fees received by the
Adviser from each Fund pursuant to the Advisory Agreement for the fiscal years
ended September 30, 1995, 1994, and 1993.

B-42
<PAGE>

ADVISORY FEES
<TABLE>
<CAPTION>

FUND 1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Balanced Assets Fund $1,821,586 $1,642,572 $229,811
- --------------------------------------------------------------
Amount Waived -- -- $ 11,979
- --------------------------------------------------------------
Blue Chip Growth Fund $ 565,835 $ 615,020 $463,678
- --------------------------------------------------------------
Global Balanced Fund $ 269,441 $ 54,220* n/a
- --------------------------------------------------------------
Amount Waived $ 115,214 $ 48,797 --
- --------------------------------------------------------------
Growth and Income Fund $ 32,455 $ 6,177** n/a
- --------------------------------------------------------------
Amount Waived $ 32,455 $ 6,177 --
- --------------------------------------------------------------
Mid-Cap Growth Fund $ 294,505 $ 284,308 $189,944
- --------------------------------------------------------------
Small Company Growth Fund $ 819,449 $ 607,020 $214,110
- --------------------------------------------------------------
</TABLE>
* For the period 6/15/94 (commencement of operations) through 9/30/94
** For the period 7/1/94 (commencement of operations) through 9/30/94

Certain states in which the shares of the Funds are qualified for sale
impose limitations on the expenses of the Funds. The current annual expense
limitations require that the Adviser reimburse each Fund in any amount necessary
to prevent such Fund's aggregate ordinary operating expenses (excluding
interest, taxes, distribution and brokerage fees and commissions, and
extraordinary charges such as litigation costs) from exceeding, in any fiscal
year, 2 1/2% of the first $30 million of the average daily net assets of each
Fund, 2% of the next $70 million of such assets, plus 1 1/2% of such assets in
excess of $100 million. In accordance with the terms of the Advisory
Agreement, if the expenses of a Fund exceed the amount of the fees paid by the
Fund to the Adviser, then the Adviser will reimburse the Fund the amount of such
excess. For the fiscal year ended September 30, 1995, pursuant to the foregoing
limitation, the Adviser waived its management fee in the amount of $32,455 for
the Growth and Income Fund.

The following table sets forth the fee waivers and expense
reimbursements made to the Funds by the Adviser for the fiscal years ended
September 30, 1995, 1994, and 1993.

B-43
<PAGE>

FEE WAIVERS AND EXPENSE REIMBURSEMENTS

FUND 1995 1994 1993
- ------------------------------------------------------------------
Class A Class B Class A Class B
- ------------------------------------------------------------------

Balanced
Assets Fund -- -- -- -- $11,979

- ------------------------------------------------------------------
Blue Chip
Growth Fund $13,179 -- $ 25,518 -- --

- ------------------------------------------------------------------
Global
Balanced Fund -- -- $ 35,826 * $21,221 * n/a

- ------------------------------------------------------------------
Growth and
Income Fund $64,080 $37,971 $ 34,720 ** $ 9,874 ** n/a

- ------------------------------------------------------------------
Mid-Cap
Growth Fund $10,554 -- $ 17,806 -- --

- ------------------------------------------------------------------
Small Company
Growth Fund -- -- -- -- --

- ------------------------------------------------------------------
* For the period 6/15/94 (commencement of operations) through 9/30/94
** For the period 7/1/94 (commencement of operations) through 9/30/94

Continuance of the Advisory Agreement with respect to each Fund, other
than the Global Balanced Fund and Growth and Income Fund, is subject to annual
approval by vote of a majority of the Trustees or by the holders of a majority
of the respective Fund's outstanding voting securities. The Advisory Agreement
will continue in effect with respect to the Global Balanced Fund and the Growth
and Income Fund, until June 15, 1996, and thereafter from year-to-year, if
approved at least annually by vote of a majority of the Trustees or by the
holders of a majority of the respective Fund's outstanding voting securities.
Any such continuation also requires approval by a majority of the Trustees 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 a Fund at
any time, without penalty, on 60 days' written notice by the Trustees, by the
holders of a majority of the respective Fund's outstanding voting securities or
by the Adviser. The Advisory Agreement automatically terminates with respect to
each 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 Funds, or their shareholders, for any act or omission by it or for any
losses sustained by the Funds or their shareholders, except in the case of
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.

B-44
<PAGE>

THE SUB-ADVISERS. The Adviser has entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with each of AIG Global and GSAM pursuant to which the
Sub-Advisers provide the Global Balanced Fund with investment advisory services,
including the continuous review and administration of such Fund's investment
program. Each Sub-Adviser discharges its responsibilities subject to the
direction and control of the Trustees and the oversight and review of the
Adviser. AIG Global serves as sub-adviser for the foreign equity component of
the Fund, and GSAM serves as sub-adviser for its global bond component. In
providing sub-advisory services to the foreign equity component of the Fund with
respect to European, Japanese, and Southeast Asian securities and markets, AIG
Global will utilize the services of certain of its affiliates.

Each Sub-Adviser is a professional investment counseling firm which
provides investment services to investment companies, employee benefit plans,
endowments, foundations and/or other institutions and individuals. AIG Global
is located at 70 Pine Street, New York, NY 10270. GSAM is located at 85 Broad
Street, New York, NY 10004.

The Adviser pays each Sub-Adviser a monthly fee with respect to the
actual component of the Fund for which the Sub-Adviser performs services,
computed on average daily net assets, at the following annual rates:

Sub-Adviser Fee
----------- ---

AIG Global .50% on the first $50 million
.40% on the next $100 million
.30% on the next $150 million
.25% thereafter

GSAM .40% on the first $50 million
.30% on the next $100 million
.25% on the next $100 million
.20% thereafter

The following table sets forth the fees paid to AIG Global and GSAM
for the fiscal years ended September 30, 1995 and 1994.

SUB-ADVISORY FEES
<TABLE>
<CAPTION>

SUB-ADVISER 1995 1994
- -------------------------------
<S> <C> <C>
AIG Global $75,883 $14,947*
- -------------------------------
GSAM $29,912 $ 5,328*
- -------------------------------
</TABLE>
* For the period 6/15/94 (commencement of operations) through 9/30/94

The Sub-Advisory Agreements were approved by the Trustees, including a
majority of the Trustees who are not parties to the Sub-Advisory Agreement or
"interested persons" of any such party, on May

B-45
<PAGE>

20, 1994, and by the sole initial shareholder on June 14, 1994. The Sub-
Advisory Agreements became effective on June 15, 1994.

The Sub-Advisory Agreements will expire on April 22, 1996. They may
be renewed from year-to-year thereafter, so long as continuance is specifically
approved at least annually in accordance with the requirements of the 1940 Act.
The Sub-Advisory Agreements provide that they will terminate in the event of an
assignment (as defined in the 1940 Act) or upon termination of the Advisory
Agreement. The Sub-Advisory Agreements may be terminated by the Fund, the
Adviser or the respective Sub-Adviser upon 60 days' prior written notice.

PERSONAL TRADING. The Trust and the Adviser have adopted a written Code of
Ethics (the "Code") which prescribes general rules of conduct and sets forth
guidelines with respect to personal securities trading by "Access Persons"
thereof. An Access Person as defined in the Code is an individual who is a
trustee, director, officer, general partner or advisory person of the Trust or
the Adviser. Among 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 Trustees on a quarterly basis, as to whether
there were any violations of the Code by Access Persons of the Trust or the
Adviser during the quarter.

The Sub-Advisers have adopted a written Code of Ethics, the provisions
of which are materially similar to those in the Code, and have undertaken to
comply with the provisions of the Code to the extent such provisions are more
restrictive. Further, the Sub-Advisers report to the Adviser on a quarterly
basis, as to whether there were any Code of Ethics violations by employees
thereof who may be deemed Access Persons of the Trust. In turn, the Adviser
reports to the Board of Trustees as to whether there were any violations of the
Code by Access Persons of the Trust or the Adviser.

THE DISTRIBUTOR. The Trust, on behalf of each Fund, has entered into a
distribution agreement (the "Distribution Agreement") with the Distributor, a
registered broker-dealer and an indirect wholly owned subsidiary of SunAmerica
Inc., to act as the principal underwriter of the shares of each Fund. The
address of the Distributor is The SunAmerica Center, 733 Third Avenue, New York,
NY 10017-3204. The Distribution Agreement provides that the Distributor has the
exclusive right to distribute shares of the Funds through its registered
representatives and authorized broker-dealers. The Distribution Agreement also
provides that the Distributor will pay the promotional expenses, including the
incremental cost of printing prospectuses, annual reports and other periodic
reports respecting each Fund, for distribution to persons who are not
shareholders of such Fund and the costs of preparing and distributing any other
supplemental sales literature. However,

B-46
<PAGE>

certain promotional expenses may be borne by Class A and Class B shares of the
Funds (see "Distribution Plans" below).

SACS serves as Distributor of Class Z shares, with respect to the
Small Company Growth and Balanced Assets Funds, and incurs the expenses of
distributing the Funds' Class Z shares under the Distribution Agreement, none of
which expenses are reimbursed or paid by the Trust.

The Distribution Agreement with respect to each Fund, other than the
Global Balanced Fund and the Growth and Income Fund, was approved by the
Trustees, including a majority of those Trustees who are not "interested
persons" of the Trust, on March 31, 1993, and with respect to the Global
Balanced Fund and the Growth and Income Fund on May 20, 1994. The Distribution
Agreement became effective with respect to each Fund, other than the Global
Balanced Fund and Growth and Income Fund, on September 24, 1993, and with
respect to the Global Balanced Fund and the Growth and Income Fund on June 15,
1994. Continuance of the Distribution Agreement with respect to each Fund,
other than the Global Balanced Fund and the Growth and Income Fund, is subject
to annual approval by vote of the Trustees, including a majority of the Trustees
who are not "interested persons" of the Trust. The Distribution Agreement will
remain in effect until June 15, 1996 and thereafter from year-to-year with
respect to the Global Balanced Fund and the Growth and Income Fund, if such
continuance is approved at least annually by the Trustees, including a majority
of the Trustees who are not "interested persons" of the Trust. The Trust and
the Distributor each has the right to terminate the Distribution Agreement with
respect to a Fund on 60 days' written notice, without penalty. The Distribution
Agreement will terminate automatically in the event of its assignment as defined
in the 1940 Act and the rules thereunder.

The Distributor may, from time to time, pay additional commissions or
promotional incentives to brokers, dealers or other financial services firms
that sell shares of the Funds. In some instances, such additional commissions,
fees or other incentives may be offered only to certain firms, including Royal
Alliance Associates, Inc. and SunAmerica Securities, Inc. affiliates of the
Distributor, that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Funds, or of other funds underwritten
by the Distributor. In addition, the terms and conditions of any given
promotional incentive may differ from firm to firm. Such differences will,
nevertheless, be fair and equitable, and based on such factors as size,
geographic location, or other reasonable determinants, and will in no way affect
the amount paid to any investor.

DISTRIBUTION PLANS. As indicated in the Prospectus, the Trustees of the Trust
and the shareholders of Class A and Class B shares of each Fund have adopted
Distribution Plans (the "Class A Plan" and the "Class B Plan," and collectively,
the "Distribution Plans")pursuant to Rule 12b-1 under the 1940 Act. There is no
Distribution Plan in effect for Class Z shares. Reference is made

B-47
<PAGE>

to "Management of the Trust - Distribution Plans" in the Prospectus for certain
information with respect to the Distribution Plans.

Under the Class A Plan, the Distributor may receive payments from a
Fund at an annual rate of up to 0.10% of average daily net assets of such Fund's
Class A shares to compensate the Distributor and certain securities firms for
providing sales and promotional activities for distributing that class of
shares. Under the Class B Plan, the Distributor may receive payments from a
Fund at the annual rate of up to 0.75% of the average daily net assets of such
Fund's Class B shares to compensate the Distributor and certain securities firms
for providing sales and promotional activities for distributing that class of
shares. The distribution costs for which the Distributor may be reimbursed out
of such distribution fees include fees paid to broker-dealers that have sold
Fund shares, commissions and other expenses such as sales literature, prospectus
printing and distribution and compensation to wholesalers. It is possible that
in any given year the amount paid to the Distributor under the Class A Plan or
Class B Plan will exceed the Distributor's distribution costs as described
above. The Distribution Plans provide that each class of shares of each Fund may
also pay the Distributor an account maintenance and service fee of up to 0.25%
of the aggregate average daily net assets of such class of shares for payments
to broker-dealers for providing continuing account maintenance. In this regard,
some payments are used to compensate broker-dealers with trail commissions or
account maintenance and service fees in an amount up to 0.25% per year of the
assets maintained in a Fund by their customers.

The Distribution Plans with respect to each Fund, other than the
Global Balanced Fund and the Growth and Income Fund, were approved on March 31,
1993 by the Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust and who have no direct or indirect financial
interest in the operation of the Distribution Plans (the "Independent
Trustees"), and with respect to the Class A shares of Mid-Cap Growth Fund and
Small Company Growth Fund, by the shareholders of each Fund on September 23,
1993, and with respect to the Class A shares and Class B shares of Blue Chip
Growth Fund, Class B shares of Mid-Cap Growth Fund, Class B shares of Small
Company Growth Fund, and Class A and Class B shares of Balanced Assets Fund, by
the Adviser, the sole initial shareholder, on September 23, 1993. These
Distribution Plans became effective on September 24, 1993. The Distribution
Plans in respect of the Global Balanced Fund and Growth and Income Fund were
approved by the Trustees, including a majority of the Independent Trustees, on
May 20, 1994 and with respect to the Global Balanced Fund by its sole initial
shareholder on June 14, 1994 and with respect to the Growth and Income Fund, by
its sole initial shareholder on June 30, 1994.

B-48
<PAGE>

The following table sets forth the distribution and service
maintenance fees the Distributor received from the Funds for the fiscal years
ended September 30, 1995, 1994, and 1993.

DISTRIBUTION AND SERVICE MAINTENANCE FEES
<TABLE>
<CAPTION>

FUND 1995 1994 1993
- --------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balanced
Assets Fund $ 237,888 $1,749,100 $158,785 $1,736,424 $ 1,268 $243,481
- --------------------------------------------------------------------------------------
Blue Chip
Growth Fund $ 42,755 $ 632,288 $ 5,390 $ 804,627 $ 0 $706,958
- --------------------------------------------------------------------------------------
Global
Balanced Fund $ 44,919 $ 141,100 $ 11,026* $ 22,717* n/a n/a
- --------------------------------------------------------------------------------------
Growth and
Income Fund $11,338*** $10,876*** $2,714** $ 480** n/a n/a
- --------------------------------------------------------------------------------------
Mid-Cap
Growth Fund $ 115,641 $ 62,270 $119,773 $ 36,868 $88,640 $ 0
- --------------------------------------------------------------------------------------
Small Company
Growth Fund $ 187,524 $ 556,816 $132,081 $ 431,989 $98,420 $ 4,133
- --------------------------------------------------------------------------------------
</TABLE>
* For the period 6/15/94 (commencement of operations) through 9/30/94
** For the period 7/1/94 (commencement of operations) through 9/30/94
*** For the fiscal year ended 9/30/95 the Distributor waived fees in the
amount of $16,747 for Growth and Income Fund.

Continuance of the Distribution Plans with respect to each Fund is
subject to annual approval by vote of the Trustees, including a majority of the
Independent Trustees. 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 a 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 Trustees in the manner described above. A
Distribution Plan may be terminated at any time with respect to a Fund without
payment of any penalty by vote of a majority of the Independent Trustees 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 Trustees of
the Trust shall be committed to the discretion of the Independent Trustees. In
the Trustees' 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 a Fund, the Trustees must consider all factors they deem relevant,
including information as to the

B-49
<PAGE>

benefits of the Fund and the shareholders of the relevant class of the Fund.

THE ADMINISTRATOR. The Trust has entered into a Service Agreement, under the
terms of which SunAmerica Fund Services, Inc. ("SAFS"), an indirect wholly owned
subsidiary of SunAmerica Inc., acts as a servicing agent assisting State Street
Bank and Trust Company ("State Street") in connection with certain services
offered to the shareholders of each of the Funds. 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 Trustees, including a majority of the Trustees who are not parties
to the Service Agreement or "interested persons", as that term is defined in the
1940 Act, approved the Service Agreement with respect to each Fund, other than
the Global Balanced Fund and Growth and Income Fund, on March 31, 1993, and with
respect to the Global Balanced Fund and Growth and Income Fund on May 20, 1994.
The Service Agreement will remain in effect until June 15, 1996 and from year-
to-year thereafter provided its continuance is approved annually by vote of the
Trustees including a majority of the disinterested Trustees.

Pursuant to the Service Agreement, as compensation for services
rendered, SAFS receives a fee from each Fund, computed and payable monthly based
upon an annual rate of 0.22% of average daily net assets. This fee represents
the full cost of providing shareholder and transfer agency services to the
Trust. From this fee, SAFS pays a fee to State Street, and its affiliate,
National Financial Data Services ("NFDS" and with State Street, the "Transfer
Agent") (other than out-of-pocket charges of the Transfer Agent which are paid
by the Trust). No portion of such fee is paid or reimbursed by Class Z shares.
Class Z shares however, will pay all direct transfer agency fees and out-of
pocket expenses. 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 each Fund, selection of broker-dealers
and negotiation of commission rates. With respect to the Global Balanced Fund,
AIG Global and GSAM are responsible for decisions to buy and sell foreign equity
and global fixed income securities, respectively, selection of broker-dealers
and negotiation of commission rates for their respective component of the
portfolio. Purchases and sales of securities on a securities exchange are
effected through brokers-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

B-50
<PAGE>

permitted by applicable law, an affiliated brokerage subsidiary of the Adviser,
AIG Global or GSAM.

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 (or Sub-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 (or Sub-Adviser) may select
broker-dealers which provide it with research services and may cause a Fund to
pay such broker-dealers commissions which exceed those that other broker-dealers
may have charged, if in its view the commissions are reasonable in relation to
the value of the brokerage and/or research services provided by the broker-
dealer. Certain research services furnished by brokers may be useful to the
Adviser (or Sub-Adviser) with clients other than the Trust. No specific value
can be determined for research services furnished without cost to the Adviser
(or Sub-Adviser) by a broker. The Adviser (and each Sub-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 (or Sub-Adviser's) research and analysis.
Therefore, it may tend to benefit the Funds by improving the quality of the
Adviser's (or Sub-Adviser's) investment advice. The investment advisory fees
paid by the Funds are not reduced because the Adviser (or Sub-Adviser) receives
such services. When making purchases of underwritten issues with fixed
underwriting fees, the Adviser (or Sub-Adviser) may designate the use of broker-
dealers who have agreed to provide the Adviser (or Sub-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 a Fund as a
factor in the selection of brokers for transactions effected on behalf of a
Fund, subject to the requirement of best price and execution.

Although the objectives of other accounts or investment companies
which the Adviser (or Sub-Adviser) manages may differ from those of the Funds,
it is possible that, at times, identical securities will be acceptable for
purchase by one or more of the Funds and one or more other accounts or
investment companies which the Adviser manages. However, the position of each
account or company in the securities of the same issue may vary with the

B-51
<PAGE>

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 one
or more of the Funds 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 (or Sub-Adviser). The
Adviser (or Sub-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 a 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.

The following tables set forth the brokerage commissions paid by the
Funds and the amounts of the brokerage commissions which were paid to affiliated
broker-dealers by the Funds for the fiscal years ended September 30, 1995, 1994,
and 1993.

1995 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>

AGGREGATE AMOUNT PAID PERCENTAGE PAID
BROKERAGE TO TO AFFILIATED
FUND COMMISSIONS AFFILIATED BROKER-DEALERS
BROKER-
DEALERS

- ---------------------------------------------------------------
<S> <C> <C> <C>
Balanced
Assets Fund $758,880 $13,735 1.8%

- ---------------------------------------------------------------
Blue Chip
Growth Fund $479,902 $ 7,125 1.5%

- ---------------------------------------------------------------
Global
Balanced Fund $136,225 $ 1,500 1.1%

- ---------------------------------------------------------------
Growth and
Income Fund $ 19,916 $ 0 0.0%

- ---------------------------------------------------------------
Mid-Cap Growth
Fund $255,418 $ 250 0.1%

- ---------------------------------------------------------------
Small Company
Growth Fund $338,503 $ 0 0.0

- ---------------------------------------------------------------

</TABLE>

B-52
<PAGE>

<TABLE>

1994 BROKERAGE COMMISSIONS
<S> <C> <C> <C>

AGGREGATE AMOUNT PAID TO PERCENTAGE PAID
BROKERAGE AFFILIATED TO AFFILIATED
FUND COMMISSIONS BROKER-DEALERS BROKER-DEALERS
- -------------------------------------------------------------------------------
Balanced
Assets Fund $715,367 $16,950 2.4%
- -------------------------------------------------------------------------------
Blue Chip
Growth Fund $302,994 $ 6,054 2.0%
- -------------------------------------------------------------------------------
Global
Balanced Fund $ 58,702* $ 0* 0.0%*
- -------------------------------------------------------------------------------
Growth and
Income Fund $ 3,930** $ 0** %0.0**
- -------------------------------------------------------------------------------
Mid-Cap Growth
Fund $443,261 $16,518 3.7%
- -------------------------------------------------------------------------------
Small Company
Growth Fund $534,360 $20,400 3.8%
- -------------------------------------------------------------------------------
</TABLE>
* For the period 6/15/94 (commencement of operations) through 9/30/94
** For the period 7/1/94 (commencement of operations) through 9/30/94

1993 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>

- ----------------------------------------------------------------
Blue Chip
Growth Fund $264,610 $9,744 3.7%
- ----------------------------------------------------------------
Mid-Cap Growth
Fund $171,251 $ 360 0.2%
- ----------------------------------------------------------------
Small Company
Growth Fund $177,179 $ 450 0.25%
- ----------------------------------------------------------------
</TABLE>

ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES

Shares of each of the Funds are sold at the respective net asset value
next determined after receipt of a purchase order, plus a sales charge, which,
at the election of the investor, may be imposed either (i) at the time of
purchase (Class A shares), or (ii) on a deferred basis (Class B shares and
certain Class A

B-53
<PAGE>

shares). Class Z shares, with respect to the Small Company Growth and Balanced
Assets Funds, are not subject to any sales or redemption charge and are offered
exclusively for sale to participants in the SunAmerica Profit Sharing and
Retirement Plan, an employee benefit plan. Reference is made to "Purchase of
Shares" in the Prospectus for certain information as to the purchase of Fund
shares.

The following tables set forth the front-end sales concessions with
respect to Class A shares of each Fund, the amount of the front-end sales
concessions which was reallowed to affiliated broker-dealers, and the contingent
deferred sales charges with respect to Class B shares of each Fund, received by
the Distributor for the fiscal years ended September 30, 1995, 1994, and 1993.

1995
<TABLE>
<CAPTION>
FRONT-END AMOUNT CONTINGENT
FUND SALES REALLOWED DEFERRED
CONCESSIONS- TO AFFILIATED SALES CHARGE-
CLASS A SHARES BROKER-DEALERS CLASS B SHARES

- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Assets Fund $565,677 $411,596 $367,583
- -----------------------------------------------------------------------------------
Blue Chip Growth Fund $ 33,816 $ 27,360 $ 88,628
- -----------------------------------------------------------------------------------
Global Balanced Fund $139,083 $100,770 $ 47,198
- -----------------------------------------------------------------------------------
Growth and Income Fund $ 22,142 $ 14,608 $ 1,965
- -----------------------------------------------------------------------------------
Mid-Cap Growth Fund $104,245 $ 69,230 $ 40,076
- -----------------------------------------------------------------------------------
Small Company Growth Fund $602,843 $317,796 $105,710
- -----------------------------------------------------------------------------------
</TABLE>

1994
<TABLE>
<CAPTION>
FRONT-END SALES AMOUNT REALLOWED CONTINGENT DEFERRED
FUND CONCESSIONS- TO AFFILIATED SALES CHARGE-
CLASS A SHARES BROKER-DEALERS CLASS B SHARES

- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Assets Fund $637,524 $447,006 $268,455
- -------------------------------------------------------------------------------------------
Blue Chip Growth Fund $ 70,030 $ 55,499 $ 80,423
- -------------------------------------------------------------------------------------------
Global Balanced Fund $187,819* $138,775* $ 4,745*
- -------------------------------------------------------------------------------------------
Growth and Income Fund $ 715** $ 620** --
- -------------------------------------------------------------------------------------------
Mid-Cap Growth Fund $186,243 $118,270 $ 6,456
- -------------------------------------------------------------------------------------------
Small Company Growth Fund $295,035 $187,986 $ 54,793
- -------------------------------------------------------------------------------------------
</TABLE>
* For the period 6/15/94 (commencement of operations) through 9/30/94
** For the period 7/1/94 (commencement of operations) through 9/30/94

B-54
<PAGE>

1993

FRONT-END AMOUNT CONTINGENT
FUND SALES REALLOWED DEFERRED
CONCESSIONS- TO AFFILIATED SALES CHARGE-
CLASS A SHARES BROKER-DEALERS CLASS B SHARES
- --------------------------------------------------------------------------------
Balanced Assets Fund $ 13,473 $ 7,493 $ 31,326
- --------------------------------------------------------------------------------
Blue Chip Growth Fund $ 0 $ 0 $ 71,659
- --------------------------------------------------------------------------------
Mid-Cap Growth Fund $382,025 $214,533 $ 0
- --------------------------------------------------------------------------------
Small Company Growth Fund $266,721 $152,859 $ 4
- --------------------------------------------------------------------------------

CONTINGENT DEFERRED SALES CHARGES ("CDSCS") APPLICABLE TO CERTAIN CLASS B
SHARES. Class B shares of the Small Company Growth Fund and the Balanced Assets
Fund issued to shareholders in exchange for shares of Old Emerging Growth and
Old Balanced Assets, respectively, in the Reorganization, are subject to the
CDSC schedule that applied to redemptions of shares of these funds at the time
of reorganization. Upon a redemption of these shares, the shareholder will
receive credit for the periods both prior to and after the Reorganization during
which the shares were held. The following table sets forth the rates of the
CDSC applicable to these shares:
<TABLE>
<CAPTION>

CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS
YEAR SINCE PURCHASE PAYMENT WAS MADE INVESTED OR REDEMPTION PROCEEDS
- -------------------------------------- ---------------------------------
- ------------------------------------------------------------------------
<S> <C>
First 5%
- ------------------------------------------------------------------------
Second 4%
- ------------------------------------------------------------------------
Third 3%
- ------------------------------------------------------------------------
Fourth 2%
- ------------------------------------------------------------------------
Fifth 1%
- ------------------------------------------------------------------------
Sixth and thereafter 0%
- ------------------------------------------------------------------------
</TABLE>

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.

CONVERSION FEATURE APPLICABLE TO CERTAIN CLASS B SHARES. Shareholders of Class B
shares of the Small Company Growth Fund and the Balanced Assets Fund issued in
exchange for shares of Old Emerging Growth and Old Balanced Assets,
respectively, in the Reorganization, will receive credit for the periods both
prior to and after the Reorganization during which the shares were held, for
purposes of computing the seven year holding period applicable to the conversion
feature.

B-55
<PAGE>

WAIVER OF CONTINGENT DEFERRED SALES CHARGES. As discussed under "Purchase of
Shares" in the Prospectus, CDSCs may be waived on redemptions of Class B shares
under certain circumstances. The conditions set forth below are applicable with
respect to the following situations with the proper documentation:

DEATH. CDSCs may be waived on redemptions within one year following
------
the death (i) of the sole shareholder on an individual account, (ii) of a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii) of
the beneficiary of a Uniform Gifts to Minors Act, Uniform Transfers to Minors
Act or other custodial account. The CDSC waiver is also applicable in the case
where the shareholder account is registered as community property. If, upon the
occurrence of one of the foregoing, the account is transferred to an account
registered in the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year of the death. If
the Class B shares are not redeemed within one year of the death, they will
remain Class B shares and be subject to the applicable CDSC, when redeemed.

DISABILITY. CDSCs may be waived on redemptions occurring within one
-----------
year after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of
the Internal Revenue Code of 1986, as amended). To be eligible for such
waiver, (i) the disability must arise after the purchase of shares and (ii) the
disabled shareholder must have been under age 65 at the time of the initial
determination of disability. If the account is transferred to a new
registration and then a redemption is requested, the applicable CDSC will be
charged.

PURCHASES THROUGH THE DISTRIBUTOR. An investor may purchase shares of a Fund
through dealers which have entered into selected dealer agreements with the
Distributor. An investor's dealer who has entered into a distribution
arrangement with the Distributor is expected to forward purchase orders and
payment promptly to the Fund. Orders received by the Distributor before the
close of business will be executed at the offering price determined at the close
of regular trading on the NYSE that day. Orders received by the Distributor
after the close of business will be executed at the offering price determined
after the close of the NYSE on the next trading day. The Distributor reserves
the right to cancel any purchase order for which payment has not been received
by the fifth business day following the investment. A Fund will not be
responsible for delays caused by dealers.

PURCHASE BY CHECK. With respect to the purchase of Class A and Class B shares,
checks should be made payable to the specific Fund or to "SunAmerica Funds" or,
for retirement plan accounts for which the Adviser serves as fiduciary, to
"Resources Trust Company." In the case of a new account, purchase orders by
check must be submitted directly by mail to SunAmerica Fund Services, Inc.,

B-56
<PAGE>

Mutual Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New
York 10017-3204, together with payment for the purchase price of such shares and
a completed New Account Application. Payment for subsequent purchases should be
mailed to SunAmerica Fund Services, Inc., c/o NFDS, P.O. Box 419373, Kansas
City, Missouri 64141-6373 and the shareholder's Fund account number should
appear on the check. For fiduciary retirement plan accounts, both initial and
subsequent purchases should be mailed to SunAmerica Fund Services, Inc., Mutual
Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204. Certified checks are not necessary but checks are accepted subject
to collection at full face value in United States funds and must be drawn on a
bank located in the United States. Upon receipt of the completed New Account
Application and payment check, the Transfer Agent will purchase full and
fractional shares of the applicable Fund at the net asset value next computed
after the check is received, plus the applicable sales charge. Subsequent
purchases of shares of each Fund may be purchased directly through the Transfer
Agent. SAFS reserves the right to reject any check made payable other than in
the manner indicated above. Under certain circumstances, a 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 Funds do not verify the authenticity of the endorsement of such
multi-party check, and acceptance of the check by a Fund should not be
considered verification thereof. Neither the Funds nor their 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 THROUGH SAFS. SAFS will effect a purchase order on behalf of a
customer who has an investment account upon confirmation of a verified credit
balance at least equal to the amount of the purchase order (subject to the
minimum $500 investment requirement for wire orders). If such order is received
at or prior to 4:00 P.M., Eastern time, on a day the NYSE is open for business,
the purchase of shares of a Fund will be effected on that day. If the order is
received after 4:00 P.M., Eastern time, the order will be effected on the next
business day.

PURCHASE BY FEDERAL FUNDS WIRE. An investor may make purchases by having his or
her bank wire Federal funds to the Trust's Transfer Agent. Federal funds
purchase orders will be accepted only on a day on which the Trust and the
Transfer Agent are open for business. In order to insure prompt receipt of a
Federal funds wire, it is important that these steps be followed:

1. You must have an existing SunAmerica Fund Account before wiring funds.
To establish an account, complete the New Account Application and send it via
facsimile to SunAmerica Fund Services, Inc. at: (212) 551-5343.

B-57
<PAGE>

2. Call SunAmerica Fund Services' Shareholder/Dealer Services, toll free
at (800) 858-8850, extension 5125 to obtain your new account number.

3. Instruct the bank to wire the specified amount to the Transfer Agent:
State Street Bank and Trust Company, Boston, MA, ABA# 0110-00028; DDA# 99029712,
SunAmerica [name of Fund, Class __] (include shareholder name and account
number).

WAIVER OF SALES CHARGES WITH RESPECT TO CERTAIN PURCHASES OF CLASS A SHARES. To
the extent that sales are made for personal investment purposes, the sales
charge is waived as to Class A shares purchased by current or retired officers,
directors, and other full-time employees of SunAmerica and its affiliates, as
well as members of the selling group and family members of the foregoing. In
addition, the sales charge is waived with respect to shares purchased by certain
qualified retirement plans or employee benefit plans (other than IRAs), which
are sponsored or administered by SunAmerica or an affiliate thereof. Further,
the sales charge is waived with respect to shares purchased by "wrap accounts"
for the benefit of clients of broker-dealers, financial institutions or
financial planners adhering to the following standards established by the
Distributor: (i) the broker-dealer, financial institution or financial planner
charges its client(s) an advisory fee based on the assets under management on an
annual basis, and (ii) such broker-dealer, financial institution or financial
planner does not advertise that shares of the Funds may be purchased by clients
at net asset value. Shares purchased under this waiver may not be resold except
to the Fund. Shares are offered at net asset value to the foregoing persons
because of anticipated economies in sales effort and sales related expenses.
Reductions in sales charges apply to purchases or shares by a "single person"
including an individual; members of a family unit comprising husband, wife and
minor children; or a trustee or other fiduciary purchasing for a single
fiduciary account. Complete details concerning how an investor may purchase
shares at reduced sales charges may be obtained by contacting the Distributor.

REDUCED SALES CHARGES (CLASS A SHARES ONLY). As discussed under "Purchase of
Shares" in the Prospectus, investors in Class A shares of a Fund may be entitled
to reduced sales charges pursuant to the following special purchase plans made
available by the Trust.

COMBINED PURCHASE PRIVILEGE. The following persons may qualify for the
---------------------------
sales charge reductions or eliminations by combining purchases of Fund shares
into a single transaction:

(i) an individual, or a "company" as defined in Section 2(a)(8) of the 1940
Act (which includes corporations which are corporate affiliates of each other);

B-58
<PAGE>

(ii) an individual, his or her spouse and their minor children, purchasing for
his, her or their own account;

(iii) a trustee or other fiduciary purchasing for a single trust estate or
single fiduciary account (including a pension, profit-sharing, or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Internal Revenue Code);

(iv) tax-exempt organizations qualifying under Section 501(c)(3) of the
Internal Revenue Code (not including 403(b) plans);

(v) employee benefit plans of a single employer or of affiliated employers,
other than 403(b) plans; and

(vi) group purchases as described below.

A combined purchase currently may also include shares of other funds in the
SunAmerica Mutual Funds (other than money market funds) purchased at the same
time through a single investment dealer, if the dealer places the order for such
shares directly with the Distributor.

RIGHTS OF ACCUMULATION. A purchaser of Fund shares may qualify for a reduced
-----------------------
sales charge by combining a current purchase (or combined purchases as described
above) with shares previously purchased and still owned; provided the cumulative
value of such shares (valued at cost or current net asset value, whichever is
higher), amounts to $50,000 or more. In determining the shares previously
purchased, the calculation will include, in addition to other Class A shares of
the particular Fund that were previously purchased, shares of the other classes
of the same Fund, as well as shares of any class of any other Fund or of any of
the other Funds advised by the Adviser, as long as such shares were sold with a
sales charge or acquired in exchange for shares purchased with such a sales
charge.

The shareholder's dealer, if any, or the shareholder, must notify the
Distributor at the time an order is placed of the applicability of the reduced
charge under the Right of Accumulation. Such notification must be in writing by
the dealer or shareholder when such an order is placed by mail. The reduced
sales charge will not be granted if: (a) such information is not furnished at
the time of the order; or (b) a review of the Distributor's or the Transfer
Agent's records fails to confirm the investor's represented holdings.

LETTER OF INTENT. A reduction of sales charges is also available to an
-----------------
investor who, pursuant to a written Letter of Intent which is set forth in the
New Account Application in the Prospectus, establishes a total investment goal
in Class A shares of one or more Funds to be achieved through any number of
investments over a thirteen-month period, of $50,000 or more. Each investment
in such Funds made during the period will be subject to a reduced sales charge
applicable to the goal amount. The initial

B-59
<PAGE>

purchase must be at least 5% of the stated investment goal and shares totaling
5% of the dollar amount of the Letter of Intent will be held in escrow by the
Transfer Agent, in the name of the investor. Shares of any class of shares of
any Fund, or of other funds advised by the Adviser which impose a sales charge
at the time of purchase, which the investor intends to purchase or has
previously purchased during a 30-day period prior to the date of execution of
the Letter of Intent and still owns, may also be included in determining the
applicable reduction; provided, the dealer or shareholder notifies the
Distributor of such prior purchase(s).

The Letter of Intent does not obligate the investor to purchase, nor the Trust
to sell, the indicated amounts of the investment goal. In the event the
investment goal is not achieved within the thirteen-month period, the investor
is required to pay the difference between the sales charge otherwise applicable
to the purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
is authorized by the Letter of Intent to liquidate a sufficient number of
escrowed shares to obtain such difference. If the goal is exceeded and
purchases pass the next sales charge break-point, the sales charge on the entire
amount of the purchase that results in passing that break-point, and on
subsequent purchases, will be subject to a further reduced sales charge in the
same manner as set forth above under "Rights of Accumulation," but there will be
no retroactive reduction of sales charges on previous purchases. At any time
while a Letter of Intent is in effect, a shareholder may, by written notice to
the Distributor, increase the amount of the stated goal. In that event, shares
of the applicable Funds purchased during the previous 90-day period and still
owned by the shareholder will be included in determining the applicable sales
charge. The 5% escrow and the minimum purchase requirement will be applicable
to the new stated goal. Investors electing to purchase shares of one or more of
the Funds pursuant to this purchase plan should carefully read such Letter of
Intent.

REDUCED SALES CHARGE FOR GROUP PURCHASES. Members of qualified groups may
----------------------------------------
purchase Class A shares of the Funds under the combined purchase privilege as
described above.

To receive a rate based on combined purchases, group members must purchase
Class A shares of a Fund through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial purchase to
the Distributor, together with payment and completed New Account Application.
After the initial purchase, a member may send funds for the purchase of Class A
shares directly to the Transfer Agent. Purchases of a Fund's shares are made at
the public offering price based on the net asset value next determined after the
Distributor or the Transfer Agent receives payment for the Class A shares. The
minimum investment requirements described above apply to purchases by any group
member.

B-60
<PAGE>

Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association, or other
organized groups of persons (the members of which may include other qualified
groups) provided that: (i) the group has at least 25 members of which at least
ten members participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some purpose in addition
to the purchase of investment company shares at a reduced sales charge; (iv) the
group's sole organizational nexus or connection is not that the members are
credit card customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to provide its
designated investment dealer access to the group's membership by means of
written communication or direct presentation to the membership at a meeting on
not less frequently than an annual basis; (vi) the group or its investment
dealer will provide annual certification, in form satisfactory to the Transfer
Agent, that the group then has at least 25 members and that at least ten members
participated in group purchases during the immediately preceding 12 calendar
months; and (vii) the group or its investment dealer will provide periodic
certification, in form satisfactory to the Transfer Agent, as to the eligibility
of the purchasing members of the group.

Members of a qualified group include: (i) any group which meets the
requirements stated above and which is a constituent member of a qualified
group; (ii) any individual purchasing for his or her own account who is carried
on the records of the group or on the records of any constituent member of the
group as being a good standing employee, partner, member or person of like
status of the group or constituent member; or (iii) any fiduciary purchasing
shares for the account of a member of a qualified group or a member's
beneficiary. For example, a qualified group could consist of a trade
association which would have as its members individuals, sole proprietors,
partnerships and corporations. The members of the group would then consist of
the individuals, the sole proprietors and their employees, the members of the
partnership and their employees, and the corporations and their employees, as
well as the trustees of employee benefit trusts acquiring a Fund's shares for
the benefit of any of the foregoing.

Interested groups should contact their investment dealer or the Distributor.
The Trust reserves the right to revise the terms of or to suspend or discontinue
group sales with respect to shares of the Funds at any time.

NET ASSET VALUE TRANSFER PROGRAM. Investors may purchase Class A shares of a
--------------------------------
Fund at net asset value to the extent that the investment represents the
proceeds from a redemption of a non-SunAmerica mutual fund in which the
investor either (a) paid a front-end sales load or (b) was subject to, or paid a
CDSC on the redemption proceeds. Nevertheless, the Distributor will pay a
commission to any dealer who initiates or is responsible for such an investment,
in the amount of .50% of the amount invested, subject, however, to forfeiture in
the event of a redemption during

B-61
<PAGE>

the fiscal year from the date of purchase. In addition, it is essential that a
NAV Transfer Program Form accompany the New Account Application to indicate that
the investment is intended to participate in the Net Asset Value Transfer
Program (formerly, Exchange Program for Investment Company Shares). This
program may be revised or terminated without notice by the Distributor. For
current information, contact Shareholder/Dealer Services at (800) 858-8850.

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 Trustees determine that it would be detrimental to the best interests
of the remaining shareholders of a Fund to make payment wholly or partly in
cash, the Trust, having filed with the SEC a notification of election pursuant
to Rule 18f-1 on behalf of each of the Funds, may pay the redemption price in
whole, or in part, by a distribution in kind of securities from a Fund in lieu
of cash. In conformity with applicable rules of the SEC, the Funds are
committed to pay in cash all requests for redemption, by any shareholder of
record, limited in amount with respect to each shareholder during any 90-day
period to the lesser of (i) $250,000, or (ii) 1% of the net asset value of the
applicable Fund at the beginning of such period. If shares are redeemed in
kind, the redeeming shareholder would incur brokerage costs in converting the
assets into cash. The method of valuing portfolio securities is described below
in the section entitled "Determination of Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined.

DETERMINATION OF NET ASSET VALUE

Each Fund calculates the net asset value of its shares separately by dividing
the total value of each class's net assets by the shares of such class
outstanding. Shares are valued each day the New York Stock Exchange ("NYSE") is
open as of approximately 4:00 P.M., Eastern time. The net asset value of a
Fund's shares will also be computed on each other day in which there is a
sufficient degree of trading in such Fund's securities that the net asset value
of its shares might be materially affected by changes in the values of the
portfolio securities; provided, however, that on such day the Trust receives a
request to purchase or redeem such Fund's shares. The days and times of such
computation may, in the future, be changed by the Trustees in the event that the
portfolio securities are traded in significant amounts in markets other than the
NYSE, or on days or at times other than those during which the NYSE is open for
trading.

Securities that are actively traded over-the-counter, including listed
securities for which the primary market is believed by the Adviser (or Sub-
Adviser) to be over-the-counter, are valued on the basis of the bid prices
provided by principal market makers. Securities listed on the NYSE or other
national

B-62
<PAGE>

securities exchanges, other than those principally traded over-the-counter, are
valued on the basis of the last sale price on the exchange on which they are
primarily traded. However, if the last sale price on the NYSE is different than
the last sale price on any other exchange, the NYSE price will be used. If
there are no sales on that day, then the securities are valued at the bid price
on the NYSE or other primary exchange for that day. Options traded on national
securities exchanges are valued at the last sale price on such exchanges
preceding the valuation, and Futures and options thereon, which are traded on
commodities exchanges, are valued at their last sale price as of the close of
such commodities exchanges.

Securities that are traded on foreign exchanges are ordinarily valued at the
last quoted sales price available before the time when the assets are valued.
If a securities price is available from more than one foreign exchange, a Fund
uses the exchange that is the primary market for the security. Values of
portfolio securities primarily traded on foreign exchanges are already
translated into U.S. dollars when received from a quotation service.

The above procedures need not be used to determine the value of debt
securities owned by a Fund if, in the opinion of the Trustees, some other method
would more accurately reflect the fair market value of such debt securities in
the quantities owned by such Fund. Securities for which quotations are not
readily available and other assets are appraised at fair value, as determined
pursuant to procedures adopted in good faith by the Trustees. Short-term debt
securities are valued at their current market value or fair value, which for
securities with remaining maturities of 60 days or less has been determined in
good faith by the Trustees to be represented by amortized cost value, absent
unusual circumstances. A pricing service may be utilized to value the Funds'
assets under the procedures set forth above. Any use of a pricing service will
be approved and monitored by the Trustees. The value of all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the mean between the bid and offered prices of such currencies
against U.S. dollars last quoted by any large New York bank which is a dealer in
foreign currency.

The values of securities held by the Funds, and other assets used in computing
net asset value, are determined as of the time trading in such securities is
completed each day, which in the case of foreign securities may be at a time
prior to 4:00 P.M., Eastern time. On occasion, the values of foreign securities
and exchange rates may be affected by events occurring between the time as of
which determinations of such values or exchange rates are made and 4:00 P.M.,
Eastern time. When such events materially affect the values of securities held
by the Funds or their liabilities, such securities and liabilities will be
valued at fair value as determined in good faith by the Trustees.

B-63
<PAGE>

PERFORMANCE DATA

Each Fund may advertise performance data that reflects various measures of
total return and the Balanced Assets Fund may advertise data that reflects
yield. An explanation of the data presented and the methods of computation that
will be used are as follows.

A Fund's performance may be compared to the historical returns of various
investments, performance indices of those investments or economic indicators,
including, but not limited to, stocks, bonds, certificates of deposit, money
market funds and U.S. Treasury Bills. Certain of these alternative investments
may offer fixed rates of return and guaranteed principal and may be insured.

Average annual total return is determined separately for Class A, Class B and
Class Z shares in accordance with a formula specified by the SEC. Average
annual total return is computed by finding the average annual compounded rates
of return for the 1-, 5-, and 10-year periods or for the lesser included periods
of effectiveness. The formula used is as follows:

P(1 + T)/n/ = ERV

P = a hypothetical initial purchase payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1-, 5-, or 10- year periods at the end of the 1-, 5-, or
10-year periods (or fractional portion thereof).

The above formula assumes that:

1. The maximum sales load (i.e., either the front-end sales load in the case
of the Class A shares or the deferred sales load that would be applicable
to a complete redemption of the investment at the end of the specified
period in the case of the Class B shares) is deducted from the initial
$1,000 purchase payment;

2. All dividends and distributions are reinvested at net asset value; and

3. Complete redemption occurs at the end of the 1-, 5-, or 10-year periods or
fractional portion thereof with all nonrecurring charges deducted
accordingly.

The Funds' average annual total return for the 1-, 5- and 10-year periods (or
from date of inception, if sooner) ended September 30, 1995, are as follows:

B-64
<PAGE>

CLASS A SINCE ONE FIVE TEN
SHARES INCEPTION YEAR YEARS YEARS
- ------- --------- ---- ----- -----
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced 7.07%/1/ 13.75% N/A N/A
Assets Fund
- -----------------------------------------------------------------------------------
Blue Chip 6.43%/1/ 14.32% N/A N/A
Growth Fund
- -----------------------------------------------------------------------------------
Mid-Cap 11,99%/2/ 22.06% 16.87% N/A
Growth Fund
- -----------------------------------------------------------------------------------
Small Company 14.36%/2/ 41.37% 25.87% N/A
Growth
- -----------------------------------------------------------------------------------
Global 0.12%/3/ 0.59% N/A N/A
Balanced Fund
- -----------------------------------------------------------------------------------
Growth and 12.06%/4/ 12.66% N/A N/A
Income Fund
- -----------------------------------------------------------------------------------

- ----------------
(1) From date of September 24, 1993.
(2) From date of inception of January 27, 1987.
(3) From date of inception of June 15, 1994.
(4) From date of inception of July 1, 1994.

CLASS B SINCE ONE FIVE TEN
SHARES INCEPTION YEAR YEARS YEARS
- ------ --------- ---- ----- -----
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced 11.78%/1/ 15.16% 13.67% 11.63%
Assets Fund
- -----------------------------------------------------------------------------------
Blue Chip 10.33%/1/ 15.69% 14.56% 10.44%
Growth Fund
- -----------------------------------------------------------------------------------
Mid-Cap 5.06%/2/ 23.41% N/A N/A
Growth Fund
- -----------------------------------------------------------------------------------
Small Company 15.31%/2/ 43.12% N/A N/A
Growth
- -----------------------------------------------------------------------------------
Global 0.87%/3/ 1.68% N/A N/A
Balanced Fund
- -----------------------------------------------------------------------------------
Growth and 13.32%/4/ 14.42% N/A N/A
Income Fund
- -----------------------------------------------------------------------------------
</TABLE>
- --------------
(1) From dates of inception of April 15, 1985 and March 13, 1985, respectively.
(2) From date of September 24, 1993.
(3) From date of inception of June 15, 1994.
(4) From date of inception of July 1, 1994.

Each Fund may advertise cumulative, rather than average return, for
each class of its shares for periods of time other than the 1-, 5-, and 10-year
periods or fractions thereof, as discussed

B-65
<PAGE>

above. Such return data will be computed in the same manner as that of average
annual total return, except that the actual cumulative return will be computed.
Class Z shares were not available on September 30, 1995.

COMPARISONS
- -----------

Each Fund may compare its total return or yield to similar measures as
calculated by various publications, services, indices, or averages. Such
comparisons are made to assist in evaluating an investment in a Fund. The
following references may be used:

a) Dow Jones Composite Average or its component averages --an
unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks (Dow Jones Utilities
Average), and 20 transportation company stocks (Dow Jones Transportation
Average). Comparisons of performance assume reinvestment of dividends.

b) Standard & Poor's 500 Stock Index or its component indices -- an
unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40
utilities stocks, and 20 transportation stocks. Comparisons of performance
assume reinvestment of dividends.

Standard & Poor's 100 Stock Index -- an unmanaged index based on the
prices of 100 blue chip stocks, including 92 industrials, one utility, two
transportation companies, and five financial institutions. The Standard &
Poor's 100 Stock Index is a smaller, more flexible index for options trading.

c) The New York Stock Exchange composite or component indices --
unmanaged indices of all industrial, utilities, transportation, and finance
stocks listed on the New York Stock Exchange.

d) Wilshire 5000 Equity Index or its component indices --represents
the return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.

e) 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.

f) 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.

g) Mutual Fund Source Book, published by Morningstar, Inc.--analyzes
price, risk and total return for the mutual fund industry.

B-66
<PAGE>

h) Financial publications: Wall Street Journal, Business Week,
Changing Times, Financial World, Forbes, Fortune, Money, Pension and Investment
Age, United Mutual Fund Selector, and Wiesenberger Investment Companies Service,
and other publications containing financial analyses which rate mutual fund
performance over specified time periods.

i) Consumer Price Index (or Cost of Living Index), published by the
U.S. Bureau of Labor Statistics -- a statistical measure of periodic change in
the price of goods and services in major expenditure groups.

j) 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.

k) Savings and Loan Historical Interest Rates as published in the U.S.
Savings & Loan League Fact Book.

l) Shearson-Lehman Municipal Bond Index and Government/Corporate Bond
Index -- unmanaged indices that track a basket of intermediate and long-term
bonds. Reflect total return and yield and assume dividend reinvestment.

m) Salomon GNMA Index published by Salomon Brothers Inc. --Market
value of all outstanding 30-year GNMA Mortgage Pass-Through Securities that
includes single family and graduated payment mortgages.

Salomon Mortgage Pass-Through Index published by Salomon Brothers
Inc.--Market value of all outstanding agency mortgage pass-through securities
that includes 15- and 30-year FNMA, FHLMC and GNMA Securities.

n) Value Line Geometric Index -- broad based index made up of
approximately 1700 stocks each of which have an equal weighting.

o) Morgan Stanley Capital International EAFE Index -- an arithmetic,
market value-weighted average of the performance of over 900 securities on the
stock exchanges of countries in Europe, Australia and the Far East .

p) Goldman Sachs 100 Convertible Bond Index -- currently includes 67
bonds and 33 preferred stocks. The original list of names was generated by
screening for convertible issues of $100 million or more in market
capitalization. The index is priced monthly.

q) Salomon Brothers High Grade Corporate Bond Index --consists of
publicly issued, non-convertible corporate bonds rated "AA" or "AAA". It is a
value-weighted, total return index, including approximately 800 issues.

B-67
<PAGE>

r) Salomon Brothers Broad Investment Grade Bond Index --is a market-
weighted index that contains approximately 4700 individually priced investment
grade corporate bonds rated "BBB" or better, U.S. Treasury/agency issues and
mortgage pass-through securities.

s) Salomon Brother World Bond Index -- measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:

Australian Dollars Netherlands Guilders
Canadian Dollars Swiss Francs
European Currency Units UK Pound Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks

t) J.P. Morgan Global Government Bond Index -- a total return, market
capitalization-weighted index, rebalanced monthly, consisting of the following
countries: Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan,
The Netherlands, Spain, Sweden, the United Kingdom, and the United States.

u) Shearson Lehman LONG-TERM Treasury Bond Index -- is comprised of
all bonds covered by the Shearson Lehman Hutton Treasury Bond Index with
maturities of 10 years or greater.

v) NASDAQ Industrial Index -- is comprised of more than 3,000
industrial issues. It is a value-weighted index calculated on pure change only
and does not include income.

w) The MSCI Combined Far East Free ex Japan Index -- a market
capitalization weighted index comprised of stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Singapore and Thailand. Korea is included in this
index at 20% of its market capitalization.

x) First Boston High Yield Index -- generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.

y) Morgan Stanley Capital International World Index -- An arithmetic,
market value-weighted average of the performance of over 1,470 securities list
on the stock exchanges of countries in Europe, Australia, the Far East, Canada
and the United States.

z) Russell 3000 and 2000 Index -- represents the top 3,000 and the
next 2,000 stocks traded on the New York Stock Exchange, American Stock Exchange
and National Association of Securities Dealers Automated Quotations, by market
capitalizations.

In assessing such comparisons of performance, an investor should keep
in mind that the composition of the investments in the

B-68
<PAGE>

reported indices and averages is not identical to a 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 a Fund to calculate
its figures. Specifically, a Fund may compare its performance to that of certain
indices which include securities with government guarantees. However, a Fund's
shares do not contain any such guarantees. In addition, there can be no
assurance that a Fund will continue its performance as compared to such other
standards.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS. Each Fund intends to distribute to the registered
holders of its shares substantially all of its net investment income, which
includes dividends, interest and net short-term capital gains, if any, in excess
of any net long-term capital losses. Each Fund intends to distribute any net
long-term capital gains in excess of any net short-term capital losses. The
current policy of the Balanced Assets Fund and Growth and Income Fund is to pay
investment income dividends quarterly. The current policy of each of the Blue
Chip Growth Fund, the Mid-Cap Growth Fund and the Small Company Growth Fund is
to pay investment income dividends semi-annually. The current policy of the
Global Balanced Fund is to pay investment income dividends, if any, annually.
Each Fund intends to pay net capital gains, if any, annually. In determining
amounts of capital gains to be distributed, any capital loss carry-forwards from
prior years will be offset against capital gains.

Distributions will be paid in additional Fund shares based on the net
asset value at the close of business on the Ex or reinvestment date, unless the
shareholder notifies the Fund at least five business days prior to the payment
date to receive such distributions in cash.

TAXES. Each 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 be qualified as a regulated investment company,
each 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; (b) derive less than 30% of its
gross income from the sale or other disposition of stock or securities held less
than 3 months; and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) 50% of the market value of each Fund's assets is represented by
cash, government securities, securities of other regulated investment companies
and other securities limited, in respect of any one issuer, to an amount no
greater than 5% of each 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).

B-69
<PAGE>

As a regulated investment company, each Fund will not be subject to
U.S. Federal income tax on its income and capital gains which it distributes as
dividends or capital gains distributions to shareholders provided that it
distributes to shareholders at least 90% of its investment company taxable
income for the taxable year. Each 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, each Fund must distribute during
each calendar year (1) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (2) at least 98% of
its capital gains in excess of its capital losses for the 12-month period ending
on October 31 of the calendar year, and (3) all ordinary income and net capital
gains for the previous years that were not distributed during such years. To
avoid application of the excise tax, each Fund intends to make distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the calendar year if declared by each Fund
in October, November or December of such year, payable to shareholders of record
on a date in such month and paid by each Fund during January of the following
year. Any such distributions paid during January of the following year will be
taxable to shareholders as of such December 31, rather than the date on which
the distributions are received.

Distributions of net investment income and short-term capital gains
are taxable to the shareholder as ordinary dividend income regardless of whether
the shareholder receives such distributions in additional shares or in cash.
The portion of such dividends received from each Fund that will be eligible for
the dividends received deduction for corporations will be determined on the
basis of the amount of each Fund's gross income, exclusive of capital gains from
sales of stock or securities, which is derived as dividends from domestic
corporations, other than certain tax-exempt corporations and certain real estate
investment trusts, and will be designated as such in a written notice to
shareholders mailed not later than 60 days after the end of each fiscal year.
Distributions of net long-term capital gains, if any, are taxable as long-term
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, and are not eligible for the dividends received deduction for
corporations.

Upon a sale or exchange of its shares, a shareholder will 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 and will be long-term capital gain or loss if the shares
have been held for more than one year. 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

B-70
<PAGE>

realized by a shareholder on the sale of shares of a 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), 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 a 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 a Fund will be subject, since the amount of that Fund's
assets to be invested in various countries is not known. It is not anticipated
that any Fund (other than the Global Balanced Fund) will qualify to pass through
to its shareholders the ability to claim as a foreign tax credit their
respective shares of foreign taxes paid by such Fund. If more than 50% in value
of Global Balanced Fund's total assets at the close of its taxable year consists
of securities of foreign corporations, the Fund will be eligible, and intends,
to file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their proportionate share
of such withholding taxes in their U.S. income tax returns as gross income,
treat such proportionate share as taxes paid by them, and deduct such
proportionate share in computing their taxable incomes or, alternatively, use
them as foreign tax credits against their U.S. income taxes. No deductions for
foreign taxes, however, may be claimed by non-corporate shareholders who do not
itemize deductions. Of course, certain retirement accounts which are not
subject to tax cannot claim foreign tax credits on investments in foreign
securities held in the Fund. A shareholder that is a nonresident alien
individual or a foreign corporation may be subject to U.S. withholding tax on
the income resulting from the Fund's election described in this paragraph but
may not be able to claim a credit or deduction against such U.S. tax for the
foreign taxes treated as having been paid by such shareholder.

Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time such Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, gains
or losses on forward foreign currency exchange contracts, sale of currencies or
dispositions of debt securities denominated in a foreign currency attributable
to fluctuations in the value of the foreign currency between the date of
acquisition of the security and the date of disposition generally also are
treated as ordinary gain or loss. These gains, referred to under the Code as
"Section

B-71
<PAGE>

988" gains or losses, increase or decrease the amount of each Fund's investment
company taxable income available to be distributed to its shareholders as
ordinary income.

The Code includes special rules applicable to the listed non-equity
options, regulated futures contracts, and options on futures contracts which a
Fund may write, purchase or sell. Such options and contracts are classified as
Section 1256 contracts under the Code. The character of gain or loss resulting
from the sale, disposition, closing out, expiration or other termination of
Section 1256 contracts, except forward foreign currency exchange contracts, is
generally treated as long-term capital gain or loss to the extent of 60% thereof
and short-term capital gain or loss to the extent of 40% thereof ("60/40 gain or
loss"). Such contracts, when held by a Fund at the end of a fiscal year,
generally are required to be treated as sold at market value on the last day of
such fiscal year for Federal income tax purposes ("marked-to-market"). Over-
the-counter options are not classified as Section 1256 contracts and are not
subject to the marked-to-market rule or to 60/40 gain or loss treatment. Any
gains or losses recognized by a Fund from transactions in over-the-counter
options generally constitute short-term capital gains or losses. When call
options written, or put options purchased, by a Fund are exercised, the gain or
loss realized on the sale of the underlying securities may be either short-term
or long-term, depending on the holding period of the securities. In determining
the amount of gain or loss, the sales proceeds are reduced by the premium paid
for the puts or increased by the premium received for calls.

A substantial portion of each Fund's transactions in options, futures
contracts and options on futures contracts, particularly its hedging
transactions, may constitute "straddles" which are defined in the Code as
offsetting positions with respect to personal property. A straddle consisting
of a listed option, futures contract, or option on a futures contract and of
U.S. Government securities would constitute a "mixed straddle" under the Code.
The Code generally provides with respect to straddles (i) "loss deferral" rules
which may postpone recognition for tax purposes of losses from certain closing
purchase transactions or other dispositions of a position in the straddle to the
extent of unrealized gains in the offsetting position, (ii) "wash sale" rules
which may postpone recognition for tax purposes of losses where a position is
sold and a new offsetting position is acquired within a prescribed period, (iii)
"short sale" rules which may terminate the holding period of securities owned by
a Fund when offsetting positions are established and which may convert certain
losses from short-term to long-term, and (iv) "conversion transaction" rules
which recharacterize capital gains as ordinary income. The Code provides that
certain elections may be made for mixed straddles that can alter the character
of the capital gain or loss recognized upon disposition of positions which form
part of a straddle. Certain other elections also are provided in the Code; no
determination has been reached to make any of these elections.

B-72
<PAGE>

The Global Balanced Fund and Growth and Income Fund may purchase debt
securities (such as zero-coupon or pay-in-kind securities) that contain original
issue discount. Original issue discount that accrues in a taxable year is
treated as earned by a Fund and therefore is subject to the distribution
requirements of the Code. Because the original issue discount earned by the
Fund in a taxable year may not be represented by cash income, the Fund may have
to dispose of other securities and use the proceeds to make distributions to
shareholders.

A 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.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect.
Shareholders are urged to consult their tax advisors regarding specific
questions as to Federal, state and local taxes. In addition, foreign investors
should consult with their own tax advisors regarding the particular tax
consequences to them of an investment in each Fund. Qualification as a
regulated investment company under the Code for tax purposes does not entail
government supervision of management and investment policies.

RETIREMENT PLANS

Shares of each 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 a
Fund by establishing any of the retirement plans described below may be obtained
by calling Retirement Plans at (800) 858-8850. However, it is recommended that
a shareholder considering any retirement plan consult a tax adviser before
participating.

PENSION AND PROFIT-SHARING PLANS. Sections 401(a) and 401(k) of the Code permit
business employers and certain associations to establish pension and profit
sharing plans for employees. Shares of a 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

B-73
<PAGE>

Sections 501(c)(3) of the Code, to purchase shares of a Fund and, subject to
certain limitations, exclude the amount of purchase payments from gross income
for tax purposes.

INDIVIDUAL RETIREMENT ACCOUNTS (IRA). Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program, including
Simplified Employee Pension Plans, commonly referred to as SEP-IRA. These IRA's
are subject to limitations with respect to the amount that may be contributed,
the eligibility of individuals, and the time in which distributions would be
allowed to commence. In addition, certain distributions from some other types
of retirement plans may be placed on a tax-deferred basis in an IRA.

SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION. This plan was introduced by a
provision of the Tax Reform Act of 1986 as a unique way for small employers to
provide the benefit of retirement planning for their employees. Contributions
are deducted from the employee's paycheck before tax deductions and are
deposited into an IRA by the employer. These contributions and are not included
in the employee's income and therefore are not reported or deducted on his or
her tax return.

DESCRIPTION OF SHARES

Ownership of the Trust is represented by transferable shares of
beneficial interest. The Declaration of Trust of the Trust (the "Declaration of
Trust") permits the Trustees to issue an unlimited number of full and fractional
shares, $.01 par value, and to divide or combine the shares into a greater or
lesser number of shares without thereby changing the proportionate beneficial
interests of the Trust.

Currently, six series of shares of the Trust have been authorized
pursuant to the Declaration of Trust: the Balanced Assets Fund, the Global
Balanced Fund, the Blue Chip Growth Fund, the Mid-Cap Growth Fund, the Small
Company Growth Fund and the Growth and Income Fund. The Global Balanced Fund,
the Blue Chip Growth Fund, the Mid-Cap Growth Fund and the Growth and Income
Fund have each been divided into two classes of shares, designated as Class A
and Class B shares. The Balanced Assets Fund and Small Company Growth Fund have
each been divided into three classes of shares, designated as Class A, Class B
and Class Z shares. The Trustees may authorize the creation of additional
series of shares so as to be able to offer to investors additional investment
portfolios within the Trust that would operate independently from the Trust's
present portfolios, or to distinguish among shareholders, as may be necessary,
to comply with future regulations or other unforeseen circumstances. Each
series of the Trust's shares represents the interests of the shareholders of
that series in a particular portfolio of Trust assets. In addition, the
Trustees may authorize the creation of additional classes of shares in the
future, which may have fee structures different from those

B-74
<PAGE>

of existing classes and/or may be offered only to certain qualified investors.

Shareholders are entitled to a full vote for each full share held.
The Trustees have terms of unlimited duration (subject to certain removal
procedures) and have the power to alter the number of Trustees, and appoint
their own successors, provided that at all times at least a majority of the
Trustees 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 Trustees being elected, while the holders of the
remaining shares would be unable to elect any Trustees. Although the Trust need
not hold annual meetings of shareholders, the Trustees may call special meetings
of shareholders for action by shareholder vote as may be required by the 1940
Act or the Declaration of Trust. 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 Trust. In addition, the Trustees may be removed by the
action of the holders of record of two-thirds or more of the outstanding shares.
All series of shares will vote with respect to certain matters, such as election
of Trustees. When all series of shares are not affected by a matter to be voted
upon, such as approval of investment advisory agreements or changes in a Fund's
policies, only shareholders of the series affected by the matter may be entitled
to vote.

All classes of shares of a given series are identical in all respects,
except that (i) each class may bear differing amounts of certain class-specific
expenses, (ii) Class A shares are subject to an initial sales charge, a
distribution fee and an ongoing account maintenance and service fee, (iii) Class
B shares are subject to a contingent deferred sales charge, a distribution fee
and an ongoing account maintenance and service fee, (iv) Class B shares convert
automatically to Class A shares on the first business day of the month seven
years after the purchase of such Class B Shares, (v) 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, (vi) Class Z shares are not subject to any sales charge or any
distribution, account maintenance or service fee, and (vii) each class of shares
will be exchangeable only into the same class of shares of any other Fund or
other funds in the SunAmerica Family of Mutual Funds that offers that class.
All shares of the Trust 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 Trust. In addition, shares have no conversion rights, except as
described above.

The Declaration of Trust provides that no Trustee, officer, employee
or agent of the Trust is liable to the Trust or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Trust,

B-75
<PAGE>

except as such liability may arise from his or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties. It also
provides that all third persons shall look solely to the Trust's property for
satisfaction of claims arising in connection with the affairs of the Trust.
With the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Trust. The Trust shall continue, without
limitation of time, subject to the provisions in the Declaration of Trust
concerning termination by action of the shareholders.

B-76
<PAGE>

ADDITIONAL INFORMATION

COMPUTATION OF OFFERING PRICE PER SHARE
- ---------------------------------------

The following is the offering price calculation for Class A and Class
B shares of the Funds, based on the value of each Fund's net assets as of
September 30, 1995.

Balanced Assets Fund + Global Balanced Fund Blue Chip Growth Fund
---------------------------- ----------------------------- ----------------------------
Class A Class B Class A Class B Class A Class B
------------ -------------- ------------ --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>

Net Assets............. $119,916,366 $162,114,799 $ 9,614,966 $13,976,035 $42,407,289 $39,532,507

Number of Shares
Outstanding........... 7,302,494 9,872,779 1,307,104 1,915,347 2,445,272 2,307,431

Net Asset Value Per
Shares (net assets
divided by number
of shares)............ $ 16.42 $ 16.42 $ 7.36 $ 7.30 $ 17.34 $ 17.13

Sales Charge) for
Class A Shares:
5.75% of offering
price (6.10% of net
asset value per
share))*.............. $ 1.00 $ ** $ .45 $ ** $ 1.06 $ **

Offering Price......... $ 17.42 $ 16.42 $ 7.81 $ 7.30 $ 18.40 $ 17.13

Mid-Cap Growth Fund Small Company Growth Fund + Growth and Income Fund
---------------------------- ----------------------------- --------------------------
Class A Class B Class A Class B Class A Class B
------------- ------------ ----------- ----------- ------------- ------------

<S> <C> <C> <C> <C> <C> <C>
Net Assets............. $ 37,714,102 $ 9,543,535 $89,510,083 $68,313,021 $ 3,532,261 $ 2,538,050

Number of Shares
Outstanding.......... 2,118,190 542,752 3,630,872 2,809,180 $ 421,137 $ 302,621

Net Asset Value Per
Share (net assets
divided by number
of shares)........... $ 17.80 $ 17.58 $ 24.65 $ 24.32 $ 8.39 $ 8.39

Sales Charge (for
Class A Shares:
5.75% of offering
price (6.10% of net
asset value per
share))*............. $ 1.09 $ ** $ 1.50 $ ** $ .51 $ **

Offering Price......... $ 18.89 $ 17.58 $ 26.15 $ 24.32 $ 8.90 $ 8.39
</TABLE>
_______________

* Rounded to nearest one-hundredth percent; assumes maximum sales charge is
applicable
** Class B shares are not subject to an initial sales charge but may be subject
to a contingent deferred sales charge on redemption of shares within six
years of purchase
+ The offering of Class Z shares commenced on October 1, 1996.

B-77
<PAGE>

REPORTS TO SHAREHOLDERS. The Trust sends audited annual and unaudited semi-
annual reports to shareholders of each of the Funds. In addition, the Transfer
Agent sends a statement to each shareholder having an account directly with the
Trust to confirm transactions in the account.

CUSTODIAN AND TRANSFER AGENCY. State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, MA 02171, serves as Custodian and Transfer Agent
for the Funds and in those capacities maintains certain financial and accounting
books and records pursuant to agreements with the Trust. 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. Price Waterhouse LLP, 1177 Avenue of
the Americas, New York, NY 10036, has been selected to serve as the Trust's
independent accountants and in that capacity examines the annual financial
statements of the Trust. The firm of Shereff, Friedman, Hoffman & Goodman, LLP,
919 Third Avenue, New York, NY 10022, has been selected as legal counsel to the
Trust.

FINANCIAL STATEMENTS

Set forth following this Statement of Additional Information are the
financial statements of SunAmerica Equity Funds with respect to Registrant's
fiscal year ended September 30, 1995 and six month period ended March 31, 1996.

B-78

<PAGE>

SUNAMERICA EQUITY FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- September 30, 1995

<TABLE>
<CAPTION>
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment securities,
at value (identified
cost $236,158,791;
$63,392,694;
$28,510,444;
$94,238,597;
$20,578,840 and
$3,921,404,
respectively).......... $261,665,945 $71,589,575 $34,430,713 $118,221,556 $22,127,483 $4,274,381
Short-term securities
(identified cost of
$569,000 on the Global
Balanced Fund)......... -- -- -- -- 569,000 --
Joint repurchase
agreements............. 15,638,000 4,715,000 3,059,000 19,896,000 121,000 1,881,000
Cash.................... 342,333 -- 548 719 93,816 732
Foreign cash............ -- -- -- -- 128,425 --
Receivable for
investments sold....... 15,015,794 6,705,700 11,356,656 23,577,696 1,271,173 52,865
Receivable for shares of
beneficial interest
sold................... 3,138,698 25,207 73,705 638,514 67,214 11,957
Interest and dividends
receivable............. 1,344,687 87,275 23,633 26,798 218,994 18,901
Prepaid expenses........ 11,209 32,317 6,124 7,429 840 111
Receivable from
investment adviser..... -- -- -- -- 11,623 13,253
Unrealized appreciation
of foreign currency
contracts.............. -- -- -- -- 283,650 --
Receivable for foreign
currency contracts
sold................... -- -- -- -- 521,653 --
Deferred organizational
expenses............... -- -- -- -- 3,212 1,036
------------ ----------- ----------- ------------ ----------- ----------
Total assets........... 297,156,666 83,155,074 48,950,379 162,368,712 25,418,083 6,254,236
------------ ----------- ----------- ------------ ----------- ----------
LIABILITIES:
Payable for investments
purchased.............. 8,815,756 348,800 1,535,577 1,536,032 942,954 140,000
Payable for securities
loaned................. 5,443,750 -- -- -- -- --
Payable for shares of
beneficial interest
redeemed............... 289,601 113,557 50,734 2,719,806 12,710 --
Accrued expenses........ 182,908 91,909 55,683 112,302 75,756 36,041
Investment advisory and
management fees
payable................ 168,922 48,920 30,451 96,799 20,067 3,441
Distribution and service
maintenance fees
payable................ 162,858 42,830 20,297 80,669 14,445 2,760
Dividends payable....... 61,706 -- -- -- -- 1,683
Due to custodian........ -- 569,262 -- -- -- --
Unrealized depreciation
of foreign currency
contracts.............. -- -- -- -- 239,008 --
Payable for foreign
currency contracts
purchased.............. -- -- -- -- 522,142 --
------------ ----------- ----------- ------------ ----------- ----------
Total liabilities...... 15,125,501 1,215,278 1,692,742 4,545,608 1,827,082 183,925
------------ ----------- ----------- ------------ ----------- ----------
Net assets.......... $282,031,165 $81,939,796 $47,257,637 $157,823,104 $23,591,001 $6,070,311
============ =========== =========== ============ =========== ==========
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial
interest, $.01 par
value.................. $ 171,753 $ 47,527 $ 26,609 $ 64,401 $ 32,225 $ 7,238
Paid-in capital......... 244,330,954 66,179,940 36,123,768 105,152,255 22,568,503 5,445,561
------------ ----------- ----------- ------------ ----------- ----------
244,502,707 66,227,467 36,150,377 105,216,656 22,600,728 5,452,799
Accumulated
undistributed net
investment income...... 243,698 -- -- -- 871,462 2,915
Accumulated
undistributed net
realized gain (loss) on
investments............ 11,777,606 7,526,115 5,186,991 28,612,538 (3,146,792) 261,620
Accumulated net realized
gain (loss) on foreign
currency and other
assets and liabilities. -- (10,667) -- 10,951 1,671,033 --
Net unrealized
appreciation of
investments............ 25,507,154 8,196,881 5,920,269 23,982,959 1,548,643 352,977
Net unrealized
appreciation of foreign
currency, other assets
and liabilities........ -- -- -- -- 45,927 --
------------ ----------- ----------- ------------ ----------- ----------
Net assets.......... $282,031,165 $81,939,796 $47,257,637 $157,823,104 $23,591,001 $6,070,311
============ =========== =========== ============ =========== ==========
CLASS A (UNLIMITED
SHARES AUTHORIZED):
Net asset value and
redemption price per
share
($119,916,366/7,302,494;
$42,407,289/2,445,272;
$37,714,102/2,118,190;
$89,510,083/3,630,872;
$9,614,966/1,307,104
and $3,532,261/421,137
net assets and shares
of beneficial interest
issued and outstanding,
respectively........... $ 16.42 $ 17.34 $ 17.80 $ 24.65 $ 7.36 $ 8.39
Maximum sales charge
(5.75% of offering
price)................. 1.00 1.06 1.09 1.50 0.45 0.51
------------ ----------- ----------- ------------ ----------- ----------
Maximum offering price
to public.............. $ 17.42 $ 18.40 $ 18.89 $ 26.15 $ 7.81 $ 8.90
============ =========== =========== ============ =========== ==========
CLASS B (UNLIMITED
SHARES AUTHORIZED):
Net asset value,
offering and redemption
price per share
($162,114,799/9,872,779;
$39,532,507/2,307,431;
$9,543,535/542,752;
$68,313,021/2,809,180;
$13,976,035/1,915,347
and $2,538,050/302,621
net assets and shares
of beneficial interest
issued and outstanding,
respectively).......... $ 16.42 $ 17.13 $ 17.58 $ 24.32 $ 7.30 $ 8.39
============ =========== =========== ============ =========== ==========
</TABLE>
See Notes to Financial Statements

4
<PAGE>

SUNAMERICA EQUITY FUNDS
STATEMENT OF OPERATIONS -- For the year ended September 30, 1995

<TABLE>
<CAPTION>
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest (net of
withholding taxes of
$956 on Global Balanced
Fund)................... $ 4,942,478 $ 253,003 $ 231,890 $ 1,097,775 $ 609,969 $ 96,252
Dividends (net of
withholding taxes of
$27,389, $5,333, $2,899,
$1,707, $40,293, and
$889, respectively) .... 4,015,774 1,302,059 223,932 391,999 366,522 105,515
----------- ----------- ----------- ----------- ---------- --------
Total investment income.. 8,958,252 1,555,062 455,822 1,489,774 976,491 201,767
----------- ----------- ----------- ----------- ---------- --------
Expenses:
Investment advisory and
management fees......... 1,821,586 565,835 294,505 819,449 269,441 32,455
Distribution and service
maintenance fees-Class
A....................... 237,888 42,755 115,641 187,524 44,919 11,338
Distribution and service
maintenance fees-Class
B....................... 1,749,100 632,288 62,270 556,816 141,100 10,876
Transfer agent fees and
expenses-Class A........ 193,217 47,893 93,922 155,365 31,674 8,357
Transfer agent fees and
expenses-Class B........ 484,587 174,235 23,037 160,957 39,736 8,412
Custodian fees and
expenses................ 117,005 67,220 61,920 91,545 196,515 48,290
Registration fees-Class
A....................... 12,313 8,186 12,884 19,527 9,712 10,219
Registration fees-Class
B....................... -- 16,918 7,908 19,315 12,594 7,609
Audit and tax consulting
fees.................... 46,222 16,040 16,170 33,470 14,445 10,360
Trustees' fees and
expenses................ 26,521 8,116 3,999 11,191 3,043 400
Printing expense......... 10,665 8,560 5,345 12,530 2,281 1,340
Insurance expense........ 6,098 2,196 1,004 2,316 163 83
Legal fees and expenses.. 5,330 3,685 1,388 3,915 2,285 1,735
Interest expense......... -- 14,080 1,645 -- -- --
Amortization of
organizational expenses. -- -- -- -- 876 16,343
Miscellaneous expenses... 12,876 3,158 2,425 3,258 17,443 1,530
----------- ----------- ----------- ----------- ---------- --------
Total expenses........... 4,723,408 1,611,165 704,063 2,077,178 786,227 169,347
Less: expenses
waived/reimbursed by
investment
adviser/distributor..... -- (13,179) (10,554) -- (115,214) (151,253)
----------- ----------- ----------- ----------- ---------- --------
Net expenses............. 4,723,408 1,597,986 693,509 2,077,178 671,013 18,094
----------- ----------- ----------- ----------- ---------- --------
Net investment income
(loss)................... 4,234,844 (42,924) (237,687) (587,404) 305,478 183,673
----------- ----------- ----------- ----------- ---------- --------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss)
on investments........... 13,383,399 7,615,892 7,432,643 31,433,571 (2,564,836) 346,652
Net realized gain (loss)
on foreign currency and
other assets and
liabilities.............. -- (10,667) -- 10,951 1,756,424 --
Net change in unrealized
appreciation/depreciation
of investments........... 28,115,267 6,757,773 3,253,371 15,112,125 1,847,343 297,243
Net change in unrealized
appreciation/depreciation
of foreign currency and
other assets and
liabilities.............. -- -- -- -- 42,526 --
----------- ----------- ----------- ----------- ---------- --------
Net realized and
unrealized gain (loss) on
investments, foreign
currency and other assets
and liabilities.......... 41,498,666 14,362,998 10,686,014 46,556,647 1,081,457 643,895
----------- ----------- ----------- ----------- ---------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS: ............. $45,733,510 $14,320,074 $10,448,327 $45,969,243 $1,386,935 $827,568
=========== =========== =========== =========== ========== ========
</TABLE>

See Notes to Financial Statements

5
<PAGE>

SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
BALANCED ASSETS FUND BLUE CHIP GROWTH FUND MID-CAP GROWTH FUND
---------------------------- --------------------------- ---------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994 1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income
(loss)................ $ 4,234,844 $ 3,273,547 $ (42,924) $ (29,169) $ (237,687) $ 103,839
Net realized gain
(loss) on investments. 13,383,399 10,239,438 7,615,892 8,104,529 7,432,643 (562,925)
Net realized loss on
foreign currency and
other assets and
liabilities........... -- -- (10,667) -- -- --
Net change in
unrealized
appreciation/
depreciation of
investments........... 28,115,267 (14,392,701) 6,757,773 (9,743,916) 3,253,371 (3,332,519)
------------ ------------ ----------- ----------- ----------- -----------
Increase (decrease) in
net assets resulting
from operations........ 45,733,510 (879,716) 14,320,074 (1,668,556) 10,448,327 (3,791,605)
------------ ------------ ----------- ----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)...... (1,892,197) (888,983) -- -- (81,917) --
From net investment
income (Class B)...... (4,315,134) (2,111,163) -- -- (10,723) --
From net realized gains
on investments (Class
A).................... (2,033,487) (701,263) (221,327) (15,869) -- (5,265,913)
From net realized gains
on investments (Class
B).................... (7,043,145) (3,102,237) (5,263,567) (3,262,131) -- (617,587)
------------ ------------ ----------- ----------- ----------- -----------
Total dividends and
distributions to
shareholders........... (15,283,963) (6,803,646) (5,484,894) (3,278,000) (92,640) (5,883,500)
------------ ------------ ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 8).. 18,827,961 69,599,491 (1,851,797) 128,688 (43,053) 11,701,924
------------ ------------ ----------- ----------- ----------- -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................. 49,277,508 61,916,129 6,983,383 (4,817,868) 10,312,634 2,026,819
NET ASSETS:
Beginning of period..... 232,753,657 170,837,528 74,956,413 79,774,281 36,945,003 34,918,184
------------ ------------ ----------- ----------- ----------- -----------
End of period [including
undistributed net
investment income
(loss) for September
30, 1995 and September
30, 1994 of $243,698,
$2,216,185; $0, $0; $0
and $92,829,
respectively].......... $282,031,165 $232,753,657 $81,939,796 $74,956,413 $47,257,637 $36,945,003
============ ============ =========== =========== =========== ===========
</TABLE>

See Notes to Financial Statements

6
<PAGE>

SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND GLOBAL BALANCED FUND GROWTH AND INCOME FUND
---------------------------- ---------------------------- ---------------------------
FOR THE
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE PERIOD FOR THE YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994 (a) 1995 1994 (a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss).................. $ (587,404) $ (758,937) $ 305,478 $ 36,678 $ 183,673 $ 28,400
Net realized gain (loss)
on investments.......... 31,433,571 2,130,417 (2,564,836) (8,690) 346,652 (8,242)
Net realized gain (loss)
on foreign currency and
other assets and
liabilities............. 10,951 -- 1,756,424 (85,391) -- --
Net change in unrealized
appreciation/depreciation
of investments.......... 15,112,125 (7,542,139) 1,847,343 (298,700) 297,243 55,734
Net change in unrealized
appreciation/depreciation
of foreign currency and
other assets and
liabilities............. -- -- 42,526 3,401 -- --
------------ ----------- ----------- ----------- ---------- ----------
Increase (decrease) in net
assets resulting from
operations............... 45,969,243 (6,170,659) 1,386,935 (352,702) 827,568 75,892
------------ ----------- ----------- ----------- ---------- ----------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)........ -- -- (24,601) -- (127,668) (25,414)
From net investment
income (Class B)........ -- -- (12,084) -- (54,591) (1,485)
From net realized gains
on investments (Class
A)...................... (985,792) (3,220,794) (3,604) -- (63,470) --
From net realized gains
on investments (Class
B)...................... (1,122,738) (3,913,206) (3,671) -- (13,320) --
------------ ----------- ----------- ----------- ---------- ----------
Total dividends and
distributions to
shareholders............. (2,108,530) (7,134,000) (43,960) -- (259,049) (26,899)
------------ ----------- ----------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
CAPITAL SHARE
TRANSACTIONS (NOTE 8).... 23,184,310 25,945,929 (4,383,749) 26,984,477 2,174,079 3,278,720
------------ ----------- ----------- ----------- ---------- ----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............ 67,045,023 12,641,270 (3,040,774) 26,631,775 2,742,598 3,327,713
NET ASSETS:
Beginning of period....... 90,778,081 78,136,811 26,631,775 -- 3,327,713 --
------------ ----------- ----------- ----------- ---------- ----------
End of period [including
undistributed net
investment income for
September 30, 1995 and
September 30, 1994 $0,
$0; $871,462, $36,678;
$2,915 and $1,501,
respectively]............ $157,823,104 $90,778,081 $23,591,001 $26,631,775 $6,070,311 $3,327,713
============ =========== =========== =========== ========== ==========
</TABLE>
- ------------
(a) For the periods beginning June 15, 1994 and July 1, 1994 for the Global
Balanced Fund and Growth and Income Fund, respectively.

See Notes to Financial Statements

7
<PAGE>

SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS

BALANCED ASSETS FUND

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
09/24/93-
09/30/93(3).... $15.07 $ -- $ 0.06 $ 0.06 $ -- $ -- $ -- $15.13 0.40% $ 33,381
09/30/94........ 15.13 0.30 (0.23) 0.07 (0.28) (0.30) (0.58) 14.62 0.50 52,098
09/30/95........ 14.62 0.32 2.51 2.83 (0.45) (0.58) (1.03) 16.42 20.68 119,916

NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B

06/30/92(5)..... $15.75 $0.33 $ 0.98 $ 1.31 $(0.42) $(1.01) $(1.43) $15.63 7.51% $ 83,234
06/30/93(5)..... 15.63 0.30 2.63 2.93 (0.30) (2.40) (2.70) 15.86 20.29 113,871
07/01/93-
09/30/93(5).... 15.86 0.05 0.49 0.54 (0.06) (1.21) (1.27) 15.13 3.44 137,456
09/30/94........ 15.13 0.20 (0.23) (0.03) (0.18) (0.30) (0.48) 14.62 (0.14) 180,655
09/30/95........ 14.62 0.23 2.51 2.74 (0.36) (0.58) (0.94) 16.42 19.96 162,115

RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- ------------- -------------- ---------
<S> <C> <C> <C>
06/30/92(5)..... 1.93%(6) 2.04%(6) 151%
06/30/93(5)..... 1.91(6) 1.94(6) 251
07/01/93-
09/30/93(5).... 2.10(4)(6) 1.36(4)(6) 25
09/30/94........ 2.21 1.36 141
09/30/95........ 2.12 1.59 130
</TABLE>

- --------------------------------------------------------------------------------

BLUE CHIP GROWTH FUND

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/08/93-
9/30/94(3)..... $16.24 $ 0.09(1) $(0.26) $(0.17) $ -- $(0.65) $(0.65) $15.42 (1.05)% $ 3,207
09/30/95........ 15.42 0.02(1) 2.99 3.01 -- (1.09) (1.09) 17.34 21.29 42,407

NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- ------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B

12/31/91(5)..... $ 9.65 $(0.06) $ 2.94 $ 2.88 $ -- $ -- $ -- $12.53 29.84% $105,734
12/31/92(5)..... 12.53 (0.13) 1.19 1.06 -- -- -- 13.59 8.46 83,237
1/01/93-
9/30/93(5)..... 13.59 (0.02)(1) 2.71 2.69 -- -- -- 16.28 19.79 79,774
9/30/94......... 16.28 (0.01)(1) (0.28) (0.29) -- (0.65) (0.65) 15.34 (1.81) 71,749
9/30/95......... 15.34 (0.01)(1) 2.89 2.88 -- (1.09) (1.09) 17.13 20.51 39,533

RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- -------------- -------------- ---------
12/31/91(5)..... 2.50% (0.42) % 79%
12/31/92(5)..... 2.53 (0.75) 192
1/01/93-
9/30/93(5)..... 2.46(4) (0.14) (4) 171
9/30/94......... 2.28 (0.05) 170
9/30/95......... 2.22 (0.09) 251
</TABLE>
- ------------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Equity
Funds fiscal year ends were changed to September 30
(6) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
6/30/92 6/30/93 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balanced Assets Class B.............. .12% .05% .04% -- --
Blue Chip Growth Class A............. -- -- -- 1.66% .11%
</TABLE>

See Notes to Financial Statements

8
<PAGE>

SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS

MID-CAP GROWTH FUND

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/91(4)..... $12.90 $ 0.16 $ 3.09 $ 3.25 $(0.25) $(2.60) $(2.85) $13.30 31.13% $29,142
11/30/92(4)..... 13.30 (0.07) 2.87 2.80 (0.02) (0.44) (0.46) 15.64 21.42 30,024
12/01/92-
9/30/93(4)..... 15.64 (0.09)(2) 3.17 3.08 -- (0.69) (0.69) 18.03 20.42 34,918
9/30/94......... 18.03 0.04 (2) (1.64) (1.60) -- (2.65) (2.65) 13.78 (9.60) 32,906
9/30/95......... 13.78 (0.08)(2) 4.14 4.06 (0.04) -- (0.04) 17.80 29.51 37,714

NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
- ---------------- --------- ------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B
10/04/93-
9/30/94(5)..... $18.12 $ 0.03 (2) $(1.80) $(1.77) $ -- $(2.65) $(2.65) $13.70 (10.56)% $ 4,039
9/30/95......... 13.70 (0.18) (2) 4.08 3.90 (0.02) -- (0.02) 17.58 28.55 9,544

- -------------------------------------------------------------------------------

SMALL COMPANY GROWTH FUND

<TABLE>
<CAPTION>
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS RATIO OF
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF EXPENSES
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD TO AVERAGE
ENDED OF PERIOD INCOME(2) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S) NET ASSETS
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ---------- ----------
<CAPTION>
CLASS A

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/91(4)(8).. $11.88 $(0.01) $ 4.92 $ 4.91 $ -- $(2.91) $(2.91) $13.88 52.05% $27,832 1.86%
11/30/92(4)(8).. 13.88 (0.12) 3.39 3.27 -- (0.69) (0.69) 16.46 24.31 32,056 1.90
12/01/92-
9/30/93(4)(8).. 16.46 (0.02) 4.07 4.05 -- (0.73) (0.73) 19.78 25.68 39,238 1.83(3)
9/30/94......... 19.78 (0.10) (1.40) (1.50) -- (1.46) (1.46) 16.82 (7.74) 38,570 1.67
9/30/95......... 16.82 (0.04) 8.28 8.24 -- (0.41) (0.41) 24.65 50.00 89,510 1.57

RATIO OF NET
INVESTMENT
INCOME
PERIOD TO AVERAGE PORTFOLIO
ENDED NET ASSETS TURNOVER
- ---------------- ------------- ---------
<S> <C> <C>
11/30/91(4)(8).. (0.06)% 110%
11/30/92(4)(8).. (0.88) 209
12/01/92-
9/30/93(4)(8).. (0.15)(3) 216
9/30/94......... (0.60) 411
9/30/95......... (0.22) 351

NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS RATIO OF
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF EXPENSES
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD TO AVERAGE
ENDED OF PERIOD INCOME(2) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S) NET ASSETS
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ---------- ----------
CLASS B

9/24/93-
9/30/93(5)..... $19.66 $ -- $ 0.12 $ 0.12 $ -- $ -- $ -- $19.78 0.61% $38,898 2.34%(3)
9/30/94......... 19.78 (0.20) (1.42) (1.62) -- (1.46) (1.46) 16.70 (8.40) 52,208 2.31
9/30/95......... 16.70 (0.16) 8.19 8.03 -- (0.41) (0.41) 24.32 49.08 68,313 2.22

RATIO OF NET
INVESTMENT
INCOME
PERIOD TO AVERAGE PORTFOLIO
ENDED NET ASSETS TURNOVER
- ---------------- ------------- ---------
<S> <C> <C>
9/24/93-
9/30/93(5)..... (1.70)%(3) 216%
9/30/94......... (1.23) 411
9/30/95......... (0.84) 351
</TABLE>
- -----------
(1) Total return is not annualized and does not reflect sales load
(2) Calculated based upon average shares outstanding
(3) Annualized
(4) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Equity
Funds fiscal year ends were changed to September 30
(5) Commencement of sale of respective class of shares
(6) Net of expense reimbursement equivalent to .48% of average net assets for
the period ended 9/30/94
(7) Net of expense reimbursement equivalent to .17% of average net assets for
the year ended 9/30/95
(8) Restated to reflect a 0.984460367 for 1.00 stock split effective September
24, 1993

See Notes to Financial Statements

9
<PAGE>

SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS

GLOBAL BALANCED FUND

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/15/94-
9/30/94(3)..... $6.94 $0.02 $(0.05) $(0.03) $ -- $ -- $ -- $6.91 (0.43)% $13,100
9/30/95......... 6.91 0.10 0.36 0.46 (0.01) -- (0.01) 7.36 6.72 9,615

- --------------------------------------------------------------------------------

GROWTH AND INCOME FUND

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7/01/94-
9/30/94(3)..... $7.33 $0.07 $0.10 $0.17 $(0.06) $ -- $(0.06) $7.44 2.34% $3,098
9/30/95......... 7.44 0.32 1.08 1.40 (0.30) (0.15) (0.45) 8.39 19.53 3,532

RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- ------------- -------------- ---------
<S> <C> <C> <C>
7/06/94-
9/30/94(3)..... 2.15%(4)(5) 2.86%(4)(5) 8%
9/30/95......... 0.30(5) 4.48(5) 230
</TABLE>
- ------------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
9/30/94 9/30/95
------- -------
<S> <C> <C>
Global Balanced Class A...................................... 1.14% .40%
Global Balanced Class B...................................... .93 .45
Growth and Income Class A.................................... 4.48 2.96
Growth and Income Class B.................................... 20.35 5.07
</TABLE>

See Notes to Financial Statements

10
<PAGE>

SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--65.8%
AEROSPACE & MILITARY TECHNOLOGY--0.6%
Boeing Co. .............................................. 25,000 $ 1,706,250
-----------
APPAREL & TEXTILES--1.8%
NIKE, Inc. .............................................. 20,000 2,222,500
Reebok International Ltd. ............................... 30,000 1,031,250
Warnaco Group, Inc....................................... 75,000 1,800,000
-----------
5,053,750
-----------
AUTOMOTIVE--2.8%
Chrysler Corp. .......................................... 70,000 3,710,000
Ford Motor Co. .......................................... 30,000 933,750
General Motors Corp. .................................... 30,000 1,406,250
Goodyear Tire & Rubber Co. .............................. 50,000 1,968,750
-----------
8,018,750
-----------
BANKS--5.3%
Bank Of Boston Corp. .................................... 40,000 1,905,000
Citicorp................................................. 50,000 3,537,500
First Bank Systems, Inc. ................................ 25,000 1,203,125
First Interstate Bancorp................................. 15,000 1,511,250
Mellon Bank Corp. ....................................... 25,000 1,115,625
Shawmut National Corp. .................................. 50,000 1,681,250
Summit Bancorp........................................... 100,000 2,787,500
UJB Financial Corp. ..................................... 40,000 1,280,000
-----------
15,021,250
-----------
BROADCASTING & MEDIA--1.8%
Disney (Walt) Co. ....................................... 25,000 1,434,375
Scripps (E.W.) Co., Class A.............................. 25,000 865,625
Time Warner, Inc. ....................................... 30,000 1,192,500
Viacom, Inc.+............................................ 30,000 1,492,500
-----------
4,985,000
-----------
BUSINESS SERVICES--0.4%
ITT Corp. ............................................... 10,000 1,240,000
-----------
CHEMICALS--1.2%
Cabot Corp. ............................................. 33,700 1,790,313
du Pont (E.I.) de Nemours & Co. ......................... 20,000 1,375,000
-----------
3,165,313
-----------
COMMUNICATION EQUIPMENT--2.6%
Ericsson (L.M.) Telephone Co. Class B ADR(1)............. 30,000 735,000
Motorola, Inc. .......................................... 40,000 3,055,000
Nokia Corp. ADR(1)....................................... 20,000 1,395,000
United Technologies Corp. ............................... 25,000 2,209,375
-----------
7,394,375
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
COMPUTERS & BUSINESS EQUIPMENT--0.2%
International Business Machines Corp. .................... 5,000 $ 471,875
-----------
CONGLOMERATE--1.7%
AlliedSignal, Inc. ....................................... 50,000 2,206,250
General Electric Co....................................... 40,000 2,550,000
-----------
4,756,250
-----------
DEPARTMENT STORES--3.9%
Dayton Hudson Corp. ...................................... 25,000 1,896,875
Dillard Department Stores, Inc. .......................... 50,000 1,593,750
Penney (J.C.), Inc. ...................................... 40,000 1,985,000
Woolworth Corp. .......................................... 350,000 5,512,500
-----------
10,988,125
-----------
ELECTRONICS--1.3%
Micron Technology, Inc. .................................. 10,000 795,000
Texas Instruments, Inc. .................................. 20,000 1,597,500
Xerox Corp. .............................................. 10,000 1,343,750
-----------
3,736,250
-----------
ENERGY SERVICES--3.6%
Baker Hughes, Inc. ....................................... 70,000 1,426,250
BJ Services Co.+.......................................... 50,000 1,262,500
Halliburton Co. .......................................... 50,000 2,087,500
Rowan Cos., Inc.+......................................... 90,000 675,000
Schlumberger Ltd. ADR(1).................................. 30,000 1,957,500
Sonat Offshore Drilling, Inc. ............................ 28,000 913,500
Tenneco, Inc. ............................................ 40,557 1,875,761
-----------
10,198,011
-----------
ENERGY SOURCES--3.4%
Amerada Hess Corp. ....................................... 15,000 729,375
Amoco Corp. .............................................. 15,000 961,875
Anadarko Petroleum Corp. ................................. 20,000 947,500
Burlington Resources, Inc. ............................... 50,000 1,937,500
Chevron Corp. ............................................ 10,000 486,250
Exxon Corp. .............................................. 20,000 1,445,000
Kerr-McGee Corp. ......................................... 25,000 1,387,500
Pacific Enterprises....................................... 50,000 1,256,250
Reading & Bates Corp. .................................... 45,000 540,000
-----------
9,691,250
-----------
FINANCIAL SERVICES--2.4%
Capital One Financial Corp. .............................. 25,000 734,375
Dean Witter, Discover & Co. .............................. 25,000 1,406,250
First USA, Inc. .......................................... 40,000 2,170,000
</TABLE>

11
<PAGE>

SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995 -- (continued)

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
Golden West Financial Corp. ............................... 25,000 $ 1,262,501
MBNA Corp. ................................................ 30,000 1,248,750
------------
6,821,876
------------
FOOD, BEVERAGE & TOBACCO--2.3%
Coca-Cola Co. ............................................. 20,000 1,380,000
Heinz (H.J.) Co. .......................................... 85,000 3,888,750
Quaker Oats Co. ........................................... 10,000 331,250
RJR Nabisco Holdings Corp. ................................ 30,000 971,250
------------
6,571,250
------------
FOREST PRODUCTS--0.4%
Stone Container Corp.+..................................... 60,000 1,140,000
------------
HEALTH SERVICES--7.3%
Amerisource Health Corp. .................................. 30,000 810,000
Caremark International, Inc. .............................. 75,000 1,612,500
Foundation Health Corp.+................................... 50,000 1,906,250
Health Systems International, Inc. ........................ 35,300 1,063,412
HEALTHSOUTH Rehabilitation+................................ 60,000 1,530,000
Humana, Inc.+.............................................. 40,000 805,000
McKesson Corp. ............................................ 25,000 1,125,000
OrNda Healthcorp+.......................................... 40,000 850,000
Pacificare Health Systems, Inc.+........................... 55,000 3,740,000
U.S. HealthCare, Inc. ..................................... 60,000 2,122,500
United Healthcare Corp. ................................... 45,000 2,199,375
Vencor, Inc.+.............................................. 88,825 2,842,400
------------
20,606,437
------------
HOTELS & CASINOS--0.5%
Hilton Hotels Corp. ....................................... 20,000 1,277,500
------------
HOUSEHOLD PRODUCTS--0.6%
Avon Products.............................................. 20,000 1,435,000
------------
INSURANCE--3.4%
Aetna Life & Casualty Co. ................................. 75,000 5,503,125
Equitable Cos., Inc. ...................................... 60,000 1,470,000
St. Paul Cos., Inc. ....................................... 25,000 1,459,375
Travelers Group, Inc. ..................................... 22,000 1,168,750
------------
9,601,250
------------
MACHINERY--0.5%
Millipore Corp. ........................................... 40,000 1,500,000
------------
MEDICAL PRODUCTS--4.5%
Abbott Laboratories........................................ 25,000 1,065,625
Amgen, Inc.+............................................... 40,000 1,995,000
Becton Dickinson & Co. .................................... 30,000 1,886,250
Chiron Corp.+.............................................. 15,000 1,357,500
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
MEDICAL PRODUCTS (CONTINUED)
Medtronic, Inc. ........................................... 80,000 $ 4,300,000
Perkin Elmer Corp. ........................................ 30,000 1,068,750
Scherer (R.P.) Corp. ADR(1)+............................... 25,000 1,084,375
------------
12,757,500
------------
METALS & MINING--0.4%
Aluminum Co. of America.................................... 20,000 1,057,500
Carbide/Graphite Group, Inc.+.............................. 2,000 28,250
------------
1,085,750
------------
PHARMACEUTICALS--7.0%
American Home Products Corp. .............................. 20,000 1,697,500
Biogen, Inc.+.............................................. 10,000 600,000
Depotech Corp.+............................................ 20,000 280,000
Glaxo Holdings PLC ADR(1).................................. 50,000 1,206,250
IVAX Corp. ................................................ 40,000 1,205,000
Lilly (Eli) & Co. ......................................... 15,000 1,348,125
Merck & Co., Inc. ......................................... 44,000 2,464,000
Pfizer, Inc. .............................................. 30,000 1,601,250
Schering-Plough Corp. ..................................... 40,000 2,060,000
Smithkline Beecham PLC ADR(1).............................. 35,000 1,771,875
Teva Pharmaceutical Industries Ltd. ADR(1)................. 30,000 1,083,750
Warner-Lambert Co. ........................................ 45,000 4,286,250
------------
19,604,000
------------
POLLUTION CONTROL--0.4%
Browning-Ferris Industries, Inc. .......................... 40,000 1,215,000
------------
REAL ESTATE COMPANIES--0.4%
Healthcare Realty Trust.................................... 55,000 1,141,250
------------
SPECIALTY RETAIL--1.4%
Barnes & Noble, Inc.+...................................... 20,000 765,000
Home Depot, Inc.+.......................................... 50,000 1,993,750
Lowe's Cos., Inc. ......................................... 40,000 1,200,000
------------
3,958,750
------------
TELECOMMUNICATIONS--3.0%
AT&T Corp. ................................................ 60,000 3,945,000
Frontier Corp. ............................................ 50,000 1,331,250
PanAmSat Corp. ............................................ 75,000 1,143,750
Tele Danmark A/S ADR(1).................................... 40,000 1,035,000
Worldcom, Inc.+............................................ 28,000 899,500
------------
8,354,500
------------
TRANSPORTATION--0.7%
Union Pacific Corp. ....................................... 30,000 1,987,500
------------
TOTAL COMMON STOCK
(cost $160,846,297)........................................ 185,484,012
------------
</TABLE>

12
<PAGE>

SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995 -- (continued)

<TABLE>
<CAPTION>
SHARES/RIGHTS
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK--1.3%
ENERGY SERVICES--1.3%
Occidental Petroleum Corp. (cost $3,000,000)..... 60,000 $ 3,532,500
------------
RIGHTS--0.0%
Ericsson (L.M.) Telephone Co. ADR(1)
(cost $0)....................................... 60,000 0
------------
BONDS & NOTES--4.4%
APPAREL & TEXTILES--1.1%
Bass America, Inc.
8.13% due 3/31/02............................... $ 3,000 3,222,510
------------
BANKS--0.7%
Chase Manhattan Corp.
7.88% due 8/01/04............................... 2,000 2,046,120
------------
COMPUTERS & BUSINESS EQUIPMENT--0.9%
Apple Computer, Inc.
6.50% due 2/15/04............................... 2,500 2,411,925
------------
FINANCIAL SERVICES--1.7%
Bear Stearns Cos, Inc.
6.63% due 1/15/04............................... 5,000 4,875,850
------------
TOTAL BONDS & NOTES
(cost $12,007,995)............................... 12,556,405
------------
U.S. TREASURY NOTES--18.9%
4.38% due 8/15/96................................ 5,000 4,942,950
5.13% due 2/28/98................................ 5,000 4,915,600
5.50% due 9/30/97-4/15/00........................ 7,750 7,649,042
5.75% due 8/15/03................................ 7,000 6,810,790
6.50% due 8/15/05................................ 2,500 2,561,325
6.75% due 5/31/99................................ 5,000 5,123,450
6.88% due 7/31/99................................ 8,000 8,237,520
7.25% due 2/15/98................................ 3,300 3,396,921
7.50% due 2/15/05(2)............................. 5,000 5,446,100
9.25% due 8/15/98................................ 4,000 4,346,240
------------
53,429,938
------------
TOTAL U.S. TREASURY NOTES
(cost $53,437,780)............................... 53,429,938
------------
</TABLE>
<TABLE>
<CAPTION>

PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
U.S. TREASURY BONDS--2.4%
6.25% due 8/15/23
(cost $6,866,719)............................... $ 7,000 $ 6,663,090
------------
TOTAL INVESTMENT SECURITIES--92.8%
(cost $236,158,791)............................. 261,665,945
------------
REPURCHASE AGREEMENT--5.5%
Joint Repurchase Agreement Account (Note 3)
(cost $15,638,000).............................. 15,638 15,638,000
------------
TOTAL INVESTMENTS--
(cost $251,796,791)............................. 98.3% 277,303,945
Other assets less liabilities.................... 1.7 4,727,220
-----
------------
NET ASSETS-- 100.0% $282,031,165
===== ============
</TABLE>
- --------
+Non-income producing securities
(1)ADR ("American Depositary Receipts")
(2)Security on Loan, see Note 2

See Notes to Financial Statements

13
<PAGE>

SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--87.4%
AEROSPACE & MILITARY TECHNOLOGY--1.2%
Boeing Co. ................................................. 15,000 $ 1,023,750
-----------
APPAREL & TEXTILES--2.2%
NIKE, Inc. ................................................. 10,000 1,111,250
Reebok International Ltd. .................................. 20,000 687,500
-----------
1,798,750
-----------
AUTOMOTIVE--2.8%
Chrysler Corp. ............................................. 25,000 1,325,000
General Motors Corp. ....................................... 20,000 937,500
-----------
2,262,500
-----------
BANKS--5.1%
BankAmerica Corp. .......................................... 15,000 898,125
Citicorp.................................................... 10,000 707,500
Signet Banking Corp. ....................................... 25,000 656,250
Standard Federal Bancorporation............................. 30,000 1,170,000
Summit Bancorp.............................................. 27,500 766,562
-----------
4,198,437
-----------
BROADCASTING & MEDIA--3.5%
Scholastic Corp.+........................................... 20,000 1,255,000
Time Warner, Inc. .......................................... 15,000 596,250
Viacom, Inc. Class B+....................................... 20,000 995,000
-----------
2,846,250
-----------
BUSINESS SERVICES--0.7%
Transaction Network Services, Inc.+......................... 20,000 537,500
-----------
CHEMICALS--2.5%
Cabot Corp.................................................. 26,100 1,386,563
du Pont (E.I.) de Nemours & Co. ............................ 10,000 687,500
-----------
2,074,063
-----------
COMMUNICATION EQUIPMENT--4.4%
Adtran, Inc.+............................................... 20,000 695,000
Ericsson (L.M.) Telephone Co. Class B ADR(1)................ 30,000 735,000
Motorola, Inc. ............................................. 10,000 763,750
Nokia Corp. ADR(1).......................................... 20,000 1,395,000
-----------
3,588,750
-----------
COMPUTERS & BUSINESS EQUIPMENT--3.2%
BT Office Products International, Inc.+..................... 72,000 945,000
Madge NV+................................................... 25,000 800,000
StorMedia, Inc.+............................................ 20,000 905,000
-----------
2,650,000
-----------
CONGLOMERATE--2.6%
AlliedSignal, Inc........................................... 20,000 882,500
General Electric Co......................................... 20,000 1,275,000
-----------
2,157,500
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
CONSUMER SERVICES--1.2%
Service Corp. International................................. 25,000 $ 978,125
-----------
DEPARTMENT STORES--1.0%
Woolworth Corp. ............................................ 50,000 787,500
-----------
ELECTRICAL EQUIPMENT--0.6%
AVX Corp. .................................................. 15,000 502,500
-----------
ELECTRONICS--2.2%
Philips Electronics NV...................................... 20,000 975,000
Texas Instruments, Inc...................................... 10,000 798,750
-----------
1,773,750
-----------
ENERGY SERVICES--4.0%
Baker Hughes, Inc. ......................................... 20,000 407,500
BJ Services Co.+............................................ 30,000 757,500
Halliburton Co. ............................................ 20,000 835,000
Schlumberger Ltd. ADR(1).................................... 10,000 652,500
Sonat Offshore Drilling, Inc. .............................. 20,000 652,500
-----------
3,305,000
-----------
ENERGY SOURCES--3.7%
Anadarko Petroleum Corp. ................................... 20,000 947,500
Burlington Resources, Inc. ................................. 25,000 968,750
Kerr-McGee Corp. ........................................... 20,000 1,110,000
-----------
3,026,250
-----------
FINANCIAL SERVICES--1.0%
Dean Witter, Discover & Co. ................................ 15,000 843,750
-----------
FOOD, BEVERAGE & TOBACCO--3.0%
Heinz (H.J.) Co. ........................................... 40,000 1,830,000
Mondavi Robert Corp. ....................................... 25,000 637,500
-----------
2,467,500
-----------
FOREST PRODUCTS--1.2%
Crown Cork & Seal, Inc...................................... 25,000 968,750
-----------
HEALTH SERVICES--11.1%
Caremark International, Inc. ............................... 25,000 537,500
Columbia/HCA Healthcare Corp. .............................. 20,000 972,500
Health Management Associates+............................... 30,000 963,750
Healthsource, Inc.+......................................... 18,200 875,875
Humana, Inc.+............................................... 45,000 905,625
McKesson Corp............................................... 15,000 675,000
Pacificare Health Systems, Inc.+............................ 15,000 1,020,000
U.S. HealthCare, Inc. ...................................... 20,000 707,500
United Healthcare Corp. .................................... 35,000 1,710,625
Vencor, Inc+................................................ 23,375 748,000
-----------
9,116,375
-----------
</TABLE>

14
<PAGE>

SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995 -- (continued)

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
INSURANCE--3.8%
Aetna Life & Casualty Co. .................................. 35,000 $ 2,568,125
Travelers Group, Inc. ...................................... 10,000 531,250
-----------
3,099,375
-----------
MACHINERY--0.9%
Millipore Corp. ............................................ 20,000 750,000
-----------
MEDICAL PRODUCTS--7.9%
Becton Dickinson & Co. ..................................... 10,000 628,750
Boston Scientific Corp.+.................................... 25,000 1,065,625
Medtronic, Inc.............................................. 60,000 3,225,000
Scherer (R.P.) Corp. ADR(1)+................................ 20,000 867,500
Sola International, Inc.+................................... 30,000 663,750
-----------
6,450,625
-----------
PHARMACEUTICALS--11.1%
Abbott Laboratories......................................... 15,000 639,375
Agouron Pharmaceuticals, Inc. .............................. 13,000 373,750
ALZA Corp.+................................................. 20,000 460,000
Amgen, Inc.+................................................ 20,000 997,500
Biogen, Inc.+............................................... 5,000 300,000
Chiron Corp.+............................................... 10,000 905,000
Gilead Sciences, Inc.+...................................... 25,000 550,000
IVAX Corp. ................................................. 20,000 602,500
Merck & Co., Inc. .......................................... 20,000 1,120,000
Schering-Plough Corp. ...................................... 20,000 1,030,000
Teva Pharmaceutical Industries Ltd. ADR(1).................. 20,000 722,500
Warner-Lambert Co. ......................................... 15,000 1,428,750
-----------
9,129,375
-----------
POLLUTION CONTROL--0.4%
Browning-Ferris Industries, Inc. ........................... 10,000 303,750
-----------
SPECIALTY RETAIL--0.7%
Barnes & Noble, Inc.+....................................... 14,600 558,450
-----------
TELECOMMUNICATIONS--4.6%
AT&T Corp. ................................................. 30,000 1,972,500
MobileMedia Corp.+.......................................... 13,000 351,000
PanAmSat Corp............................................... 50,000 762,500
Worldcom, Inc.+............................................. 20,000 642,500
-----------
3,728,500
-----------
TRANSPORTATION--0.8%
Union Pacific Corp.......................................... 10,000 662,500
-----------
TOTAL COMMON STOCK
(cost $63,392,694).......................................... 71,589,575
-----------
</TABLE>
<TABLE>
<CAPTION>
RIGHTS
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
RIGHTS--0.0%+
COMMUNICATION EQUIPMENT--0.0%
Ericsson (L.M.) Telephone Co. ADR(1)
(cost $0) ....................................... 60,000 $ 0
-----------
TOTAL INVESTMENT SECURITIES--87.4%
(cost $63,392,694)............................... 71,589,575
-----------
REPURCHASE AGREEMENT--5.7%
Joint Repurchase Agreement
Account (Note 3)
(cost $4,715,000)................................ $4,715 4,715,000
-----------
TOTAL INVESTMENTS--
(cost $68,107,694)............................... 93.1% 76,304,575
Other assets less liabilities..................... 6.9 5,635,221
-----
-----------
NET ASSETS-- 100.0% $81,939,796
===== ===========
</TABLE>
- --------
+ Non-income producing securities
(1) ADR ("American Depositary Receipts")

See Notes to Financial Statements

15
<PAGE>

SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--72.3%
APPAREL & TEXTILES--8.5%
Authentic Fitness Corp. .................................. 10,000 $ 225,000
Jones Apparel Group, Inc.+................................ 15,000 534,375
Kenneth Cole Productions, Inc. ........................... 5,500 193,188
Liz Claiborne, Inc. ...................................... 25,000 631,250
Nautica Enterprises, Inc.+................................ 15,000 513,750
Oakley, Inc.+............................................. 5,000 148,125
Quiksilver, Inc.+......................................... 12,500 339,062
Tommy Hilfiger Corp.+..................................... 22,000 715,000
Warnaco Group, Inc. ...................................... 30,000 720,000
-----------
4,019,750
-----------
BANKS--5.7%
First Tennessee National Corp. ........................... 10,000 555,000
Long Island Bancorp, Inc. ................................ 30,000 735,000
Mercantile Bancorp, Inc. ................................. 10,000 447,500
Midlantic Corp. .......................................... 6,000 325,500
RCSB Financial, Inc. ..................................... 10,000 241,250
Signet Banking Corp. ..................................... 15,000 393,750
-----------
2,698,000
-----------
BROADCASTING & MEDIA--2.0%
Scholastic Corp.+......................................... 15,000 941,250
-----------
CHEMICALS--2.5%
Arcadian Corp. ........................................... 20,000 407,500
Bush Boake Allen, Inc.+................................... 10,200 288,150
Cabot Corp. .............................................. 9,000 478,125
-----------
1,173,775
-----------
COMMUNICATION EQUIPMENT--3.4%
Adtran, Inc.+............................................. 10,000 347,500
Ericsson (L.M.) Telephone Co. Class B ADR(1).............. 15,000 367,500
QUALCOMM, Inc.+........................................... 15,000 688,125
Tellabs, Inc.+............................................ 5,000 210,625
-----------
1,613,750
-----------
COMPUTERS & BUSINESS EQUIPMENT--6.5%
3Com Corp.+............................................... 15,000 682,500
Bay Networks, Inc.+....................................... 5,000 266,875
BT Office Products International, Inc.+................... 55,000 721,875
Cisco Systems, Inc.+...................................... 5,000 345,000
Shiva Corp.+.............................................. 10,000 612,500
United States Robotics Corp. ............................. 5,000 426,250
-----------
3,055,000
-----------
DEPARTMENT STORES--1.3%
Woolworth Corp. .......................................... 40,000 630,000
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
ELECTRICAL EQUIPMENT--3.9%
Alpha Industries, Inc. ..................................... 55,000 $ 983,125
AVX Corp. .................................................. 5,000 167,500
LSI Logic Corp.+............................................ 12,000 693,000
-----------
1,843,625
-----------
ELECTRONICS--3.1%
Cirrus Logic, Inc.+......................................... 5,000 286,250
Micron Technology, Inc. .................................... 5,000 397,500
TriQuint Semiconductor, Inc.+............................... 11,000 251,625
Ultratech Stepper, Inc.+.................................... 12,500 528,125
-----------
1,463,500
-----------
ENERGY SERVICES--2.6%
Global Marine, Inc.+........................................ 80,000 570,000
Sonat Offshore Drilling, Inc. .............................. 20,000 652,500
-----------
1,222,500
-----------
ENTERTAINMENT PRODUCTS--0.8%
Acclaim Entertainment, Inc.+................................ 15,000 386,250
-----------
FINANCIAL SERVICES--4.6%
Capital One Financial Corp. ................................ 25,000 734,375
Green Tree Financial Corp. ................................. 7,000 427,000
Lehman Brothers Holdings, Inc. ............................. 15,000 346,875
United Companies Financial Corp. ........................... 10,000 682,500
-----------
2,190,750
-----------
HEALTH SERVICES--1.4%
Health Management Associates+............................... 10,000 321,250
Pacificare Health Systems, Inc.+............................ 5,000 340,000
-----------
661,250
-----------
LEISURE & TOURISM--0.9%
Showboat, Inc. ............................................. 20,000 432,500
-----------
MACHINERY--2.0%
Millipore Corp. ............................................ 20,000 750,000
Parker Hannifin Corp. ...................................... 5,500 209,000
-----------
959,000
-----------
MEDICAL PRODUCTS--4.8%
ADAC Laboratories........................................... 40,000 480,000
Guidant Corp. .............................................. 23,000 672,750
</TABLE>

16
<PAGE>

SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995 -- (continued)

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
MEDICAL PRODUCTS (CONTINUED)
Perkin Elmer Corp. ......................................... 17,000 $ 605,625
St. Jude Medical, Inc. ..................................... 8,000 506,000
-----------
2,264,375
-----------
PHARMACEUTICALS--5.0%
IVAX Corp. ................................................. 10,000 301,250
Sepracor, Inc.+............................................. 10,000 216,250
Teva Pharmaceutical Industries Ltd. ADR(1).................. 20,000 722,500
Upjohn Co. ................................................. 10,000 446,250
Watson Pharmaceuticals, Inc.+............................... 16,000 656,000
-----------
2,342,250
-----------
POLLUTION CONTROL--1.3%
United Waste Systems, Inc.+................................. 15,000 626,250
-----------
RESTAURANTS--0.5%
Apple South, Inc. .......................................... 10,000 227,500
-----------
SOFTWARE--3.9%
BMC Software, Inc.+......................................... 10,000 460,000
Electronic Arts+............................................ 10,000 367,500
Innovus Corp.+.............................................. 14,000 120,750
Netscape Communications Corp.+.............................. 5,000 312,500
Pc Docs Group International, Inc.+.......................... 40,000 597,500
-----------
1,858,250
-----------
SPECIALTY RETAIL--1.1%
Sunglass Hut International, Inc.+........................... 10,000 500,000
-----------
TELECOMMUNICATIONS--6.5%
ADC Telecommunications, Inc.+............................... 10,000 455,000
Allen Group, Inc. .......................................... 15,000 543,750
Andrew Corp.+............................................... 7,000 427,875
Glenayre Technologies, Inc.+................................ 7,000 504,000
MobileMedia Corp.+.......................................... 20,000 540,000
Octel Communications Corp.+................................. 10,500 366,188
PictureTel Corp.+........................................... 5,000 226,250
-----------
3,063,063
-----------
TOTAL COMMON STOCK
(cost $27,903,815).......................................... 34,172,588
-----------
</TABLE>

<TABLE>
<CAPTION>
SHARES/RIGHTS
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
OPTIONS--0.5%+
STOCK INDEX PUT OPTIONS--0.5%
Nasdaq 100 Index, Dec./530(2)
(cost $606,629).................................. 35,000 $ 258,125
-----------
RIGHTS--0.0%+
COMMUNICATION EQUIPMENT--0.0%
Ericsson (L.M.) Telephone Co. ADR(1)
(cost $0)....................................... 40,000 0
-----------
TOTAL INVESTMENT SECURITIES--72.8%
(cost $28,510,444)............................... 34,430,713
-----------
REPURCHASE AGREEMENT--6.5%
Joint Repurchase Agreement
Account (Note 3)
(cost $3,059,000)................................ $ 3,059 3,059,000
-----------
TOTAL INVESTMENTS--
(cost $31,569,444)............................... 79.3% 37,489,713
Other assets less liabilities..................... 20.7 9,767,924
-------
-----------
NET ASSETS-- 100.0% $47,257,637
===== ===========
</TABLE>
- --------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
(2) Fair valued security, see Note 2

See Notes to Financial Statements

17
<PAGE>

SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--74.2%
APPAREL & TEXTILES--4.8%
Authentic Fitness Corp. .................................. 60,000 $ 1,350,000
Donnkenny, Inc.+.......................................... 17,000 478,125
Jones Apparel Group, Inc.+................................ 20,000 712,500
Kenneth Cole Productions, Inc. ........................... 10,000 351,250
Nautica Enterprises, Inc.+................................ 37,500 1,284,375
Oakley, Inc.+............................................. 30,000 888,750
Quiksilver, Inc.+......................................... 57,500 1,559,688
Warnaco Group, Inc. ...................................... 40,000 960,000
------------
7,584,688
------------
BANKS--3.7%
Bay View Capital Corp. ................................... 25,000 675,000
First American Corp. (Tennessee).......................... 15,000 646,875
Long Island Bancorp, Inc. ................................ 30,000 735,000
Peoples Bank (Bridgeport, Connecticut).................... 50,000 1,075,000
Provident Bankshares Corp. ............................... 20,000 600,000
RCSB Financial, Inc. ..................................... 50,000 1,206,250
Summit Bancorp............................................ 35,000 975,626
------------
5,913,751
------------
BROADCASTING & MEDIA--5.6%
American Radio Systems Corp.+............................. 30,000 742,500
Edmark Corp.+............................................. 25,000 1,203,125
Emmis Broadcasting Corp.+................................. 20,000 627,500
Evergreen Media Corp.+.................................... 25,000 712,500
National Media Corp.+..................................... 100,700 1,372,037
Regal Cinemas, Inc.+...................................... 55,000 2,261,875
Scholastic Corp.+......................................... 15,000 941,250
Sinclair Broadcast Group, Inc.+........................... 32,500 934,375
------------
8,795,162
------------
BUSINESS SERVICES--0.4%
RTW, Inc.+................................................ 22,000 610,500
------------
CHEMICALS--0.4%
Bush Boake Allen, Inc.+................................... 20,200 570,650
------------
COMMUNICATION EQUIPMENT--2.9%
Adtran, Inc.+............................................. 10,000 347,500
DSC Communications Corp.+................................. 10,000 592,500
DSP Communications, Inc.+................................. 20,000 660,000
NETCOM On-Line Communications Services+................... 22,000 968,000
QUALCOMM, Inc.+........................................... 32,500 1,490,938
Tellabs, Inc.+............................................ 10,000 421,250
------------
4,480,188
------------
COMPUTERS & BUSINESS EQUIPMENT--5.0%
Bay Networks, Inc.+....................................... 15,000 800,625
Cisco Systems, Inc.+...................................... 12,000 828,000
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
COMPUTERS & BUSINESS EQUIPMENT (CONTINUED)
Comverse Technology, Inc.+................................ 33,000 $ 717,750
Daisytek International Corp.+............................. 21,000 690,375
Integrated Measurement Systems, Inc.+..................... 25,000 331,250
Madge NV+................................................. 40,000 1,280,000
Shiva Corp.+.............................................. 25,000 1,531,250
StorMedia, Inc.+.......................................... 19,000 859,750
Structural Dynamics Research Corp.+....................... 50,000 928,125
------------
7,967,125
------------
ELECTRICAL EQUIPMENT--3.4%
Alpha Industries, Inc. ................................... 125,000 2,234,375
ANADIGICS, Inc.+.......................................... 66,000 1,831,500
C-Cube Microsystems, Inc.+................................ 20,000 915,000
California Amplifier, Inc.+............................... 2,500 52,188
ITI Technologies, Inc.+................................... 15,000 406,875
------------
5,439,938
------------
ELECTRONICS--7.0%
Cirrus Logic, Inc.+....................................... 15,000 858,750
Eltron International, Inc.+............................... 25,000 706,250
Kulicke & Soffa Industries, Inc. ......................... 15,000 547,500
OnTrak Systems, Inc.+..................................... 16,500 455,812
Paradigm Technology, Inc.+................................ 21,000 645,750
Sierra Semi-Conductor Corp.+.............................. 30,000 1,473,750
TelCom Semiconductor, Inc.+............................... 65,000 747,500
Tencor Instruments+....................................... 20,000 885,000
TriQuint Semiconductor, Inc.+............................. 44,000 1,006,500
Ultratech Stepper, Inc.+.................................. 15,000 633,750
Uniphase Corp.+........................................... 25,000 881,250
Veeco Instruments, Inc.+.................................. 55,000 1,443,750
Xilinx, Inc.+............................................. 15,000 721,875
------------
11,007,437
------------
ENERGY SERVICES--2.6%
Arethusa (Offshore) Ltd. ................................. 50,000 1,031,250
Reading & Bates Corp. .................................... 100,000 1,200,000
Sonat Offshore Drilling, Inc. ............................ 35,000 1,141,873
Varco International, Inc.+................................ 70,000 708,750
------------
4,081,873
------------
ENERGY SOURCES--0.4%
Pride Petroleum Services, Inc.+........................... 60,000 600,000
------------
ENTERTAINMENT PRODUCTS--0.4%
Challenger International Ltd.+............................ 100,000 637,500
------------
FINANCIAL SERVICES--0.8%
Security Capital Corp.+................................... 10,000 532,500
WFS Financial, Inc.+...................................... 30,000 682,500
------------
1,215,000
------------
</TABLE>

18
<PAGE>

SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995 -- (continued)

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
HEALTH SERVICES--1.6%
Occusystems, Inc.+........................................ 37,500 $ 778,125
Veterinary Centers of America, Inc.+...................... 100,000 1,700,000
------------
2,478,125
------------
LEISURE & TOURISM--1.8%
Showboat, Inc. ........................................... 60,000 1,297,500
Studio Plus America, Inc.+................................ 70,000 1,610,000
------------
2,907,500
------------
MACHINERY--0.4%
AG Associates, Inc.+...................................... 27,000 688,500
------------
MEDICAL PRODUCTS--2.6%
ADAC Laboratories......................................... 90,000 1,080,000
American Oncology Resources, Inc.+........................ 14,000 602,000
Metra Biosystems, Inc.+................................... 31,000 604,500
Perkin Elmer Corp. ....................................... 20,000 712,500
VISX, Inc.+............................................... 50,000 1,135,157
------------
4,134,157
------------
PHARMACEUTICALS--5.8%
Agouron Pharmaceuticals, Inc. ............................ 22,000 632,500
Depotech Corp.+........................................... 40,900 572,600
Gilead Sciences, Inc.+.................................... 25,000 550,000
Guilford Pharmaceuticals, Inc.+........................... 100,000 1,200,000
Immulogic Pharmaceutical Corp.+........................... 75,000 918,750
Ligand Pharmaceuticals, Inc.+............................. 100,000 987,500
ResMed, Inc.+............................................. 50,000 887,500
Sepracor, Inc.+........................................... 40,000 865,000
Teva Pharmaceutical Industries Ltd. ADR(1)................ 30,000 1,083,750
Watson Pharmaceuticals, Inc.+............................. 34,000 1,394,000
------------
9,091,600
------------
POLLUTION CONTROL--0.7%
United Waste Systems, Inc.+............................... 27,500 1,148,125
------------
RESTAURANTS--0.7%
Apple South, Inc. ........................................ 25,000 568,750
Cheesecake Factory, Inc.+................................. 20,000 535,000
------------
1,103,750
------------
SOFTWARE--12.8%
Activision, Inc.+......................................... 75,000 1,190,625
Discreet Logic, Inc.+..................................... 11,500 632,500
Epic Design Technology, Inc.+............................. 20,000 970,000
Harbinger Corp.+.......................................... 52,000 715,000
HNC Software, Inc.+....................................... 40,000 1,050,000
HPR, Inc.+................................................ 20,500 476,625
IMNET Systems, Inc.+...................................... 35,000 901,250
Innovus Corp.+............................................ 92,700 799,537
</TABLE>
<TABLE>
<CAPTION>
SHARES/ VALUE
SECURITY DESCRIPTION OPTIONS (NOTE 2)
<S> <C> <C>
SOFTWARE (CONTINUED)
Innovus Corp.+(2)(3)...................................... 54,000 $ 189,000
Integrated Silicon Systems, Inc.+......................... 30,000 900,000
Legato Systems, Inc.+..................................... 15,000 397,500
Maxis, Inc.+.............................................. 32,500 1,430,000
Minnesota Educational Computing Corp.+.................... 30,000 810,000
Netscape Communications Corp.+............................ 10,000 625,000
On Technology Corp.+...................................... 25,000 431,250
Pc Docs Group International, Inc.+........................ 190,000 2,838,125
Premenos Technology Corp.+................................ 15,000 487,500
Project Software & Development, Inc.+..................... 25,000 650,000
Pure Software, Inc.+...................................... 45,000 1,608,750
Sanctuary Woods Multimedia+............................... 100,000 700,000
Simware, Inc.+............................................ 27,500 275,000
Spyglass, Inc.+........................................... 13,100 599,325
UUNET Technologies, Inc.+................................. 15,000 693,750
Videoserver, Inc.+........................................ 23,500 828,375
-----------
20,199,112
-----------
SPECIALTY RETAIL--2.7%
Garden Ridge Corp.+....................................... 25,000 731,250
Just For Feet, Inc.+...................................... 38,750 1,191,563
Moovies, Inc.+............................................ 40,000 785,000
Neostar Retail Group, Inc.+............................... 21,000 359,625
Sunglass Hut International, Inc.+......................... 25,000 1,250,000
-----------
4,317,438
-----------
TELECOMMUNICATIONS--7.7%
Aspect Telecommunications Corp.+.......................... 30,000 810,000
Inter-Tel, Inc.+.......................................... 45,000 793,125
Octel Communications Corp.+............................... 24,500 854,437
P-COM, Inc.+.............................................. 22,500 1,006,875
PictureTel Corp.+......................................... 5,000 226,250
Premisys Communications, Inc.+............................ 12,500 1,009,375
TCSI Corp.+............................................... 59,500 892,500
Teltrend, Inc.+........................................... 45,000 1,485,000
Transaction Network Services, Inc.+....................... 52,000 1,397,500
United States Order, Inc.+................................ 60,000 1,110,000
Vtel Corp.+............................................... 40,000 995,000
Winstar Communications, Inc.+............................. 80,000 1,600,000
-----------
12,180,062
-----------
TOTAL COMMON STOCK
(cost $91,731,329)........................................ 117,152,181
-----------
OPTIONS--0.7%+
STOCK INDEX PUT OPTIONS--0.7%
Nasdaq 100 Index Dec./530(3)
(cost $2,507,268)......................................... 145,000 1,069,375
-----------
TOTAL INVESTMENT SECURITIES--74.9%
(cost $94,238,597)........................................ 118,221,556
-----------
</TABLE>

19
<PAGE>

SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995 -- (continued)

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT--12.6%
Joint Repurchase Agreement Account (Note 3)
(cost $19,896,000).............................. $19,896 $ 19,896,000
------------
TOTAL INVESTMENTS--
(cost $114,134,597)............................. 87.5% 138,117,556
Other assets less liabilities.................... 12.5 19,705,548
-----
------------
NET ASSETS-- 100.0% $157,823,104
===== ============
</TABLE>
- --------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
(2) At September 30, 1995 the Fund held a restricted security amounting to 0.1%
of net assets. The Fund will not bear any costs, including those involved
in registration under the Securities Act of 1933, in connection with the
disposition of the security.

<TABLE>
<CAPTION>
DATE OF UNIT VALUATION AS OF
DESCRIPTION ACQUISITION COST SEPTEMBER 30, 1995
----------- ----------- ----- ------------------
<S> <C> <C> <C>
Innovus Corp. 3/21/95 $3.50 $3.50
</TABLE>

(3) Fair valued security, see Note 2.

See Notes to Financial Statements

20
<PAGE>

SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--69.1%
DOMESTIC EQUITY--15.9%
AEROSPACE & MILITARY TECHNOLOGY--0.6%
Boeing Co................................................... 2,000 $ 136,500
-----------
APPAREL & TEXTILES--0.7%
NIKE, Inc................................................... 1,000 111,125
Oakley, Inc.+............................................... 400 11,850
Warnaco Group, Inc. ........................................ 2,000 48,000
-----------
170,975
-----------
AUTOMOTIVE--0.2%
General Motors Corp......................................... 1,000 46,875
-----------
BANKS--1.0%
BankAmerica Corp............................................ 2,000 119,750
Citicorp.................................................... 1,750 123,812
-----------
243,562
-----------
BROADCASTING & MEDIA--0.3%
Young Broadcasting, Inc.+................................... 2,000 62,500
-----------
CHEMICALS--0.5%
Union Carbide Corp.......................................... 3,000 119,250
-----------
COMMUNICATION EQUIPMENT--0.3%
Motorola, Inc............................................... 850 64,919
-----------
COMPUTERS & BUSINESS EQUIPMENT--0.9%
IMNET Systems, Inc.+........................................ 2,200 56,650
International Business Machines Corp........................ 1,600 151,000
-----------
207,650
-----------
CONGLOMERATE--0.6%
AlliedSignal, Inc........................................... 2,000 88,250
General Electric Co......................................... 800 51,000
-----------
139,250
-----------
ELECTRONICS--0.1%
Integrated Measurement Systems, Inc.+....................... 2,000 26,500
-----------
ENERGY SOURCES--0.9%
Amoco Corp.................................................. 700 44,888
Baker Hughes, Inc........................................... 2,000 40,750
Halliburton Co.............................................. 1,200 50,100
Texaco, Inc................................................. 1,000 64,625
-----------
200,363
-----------
FINANCIAL SERVICES--0.5%
Dean Witter, Discover & Co.................................. 2,000 112,500
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO--0.5%
Heinz (H.J.) Co............................................. 2,500 $ 114,375
-----------
HEALTH SERVICES--1.0%
Becton Dickinson & Co....................................... 1,000 62,875
Humana, Inc.+............................................... 1,000 20,125
St. Jude Medical, Inc....................................... 1,000 63,250
United Healthcare Corp...................................... 1,800 87,975
-----------
234,225
-----------
HOUSEHOLD PRODUCTS--1.3%
Eastman Kodak Co............................................ 2,850 168,862
Johnson & Johnson Co........................................ 2,000 148,250
-----------
317,112
-----------
INSURANCE--0.3%
Travelers Group, Inc........................................ 1,200 63,750
-----------
MEDICAL PRODUCTS--1.0%
Chiron Corp.+............................................... 1,000 90,500
Medtronic, Inc.............................................. 2,000 107,500
Sola International, Inc.+................................... 2,000 44,250
-----------
242,250
-----------
METALS & MINING--0.4%
Carbide/Graphite Group, Inc.+............................... 500 7,063
Phelps Dodge Corp........................................... 650 40,706
Reynolds Metals Co.......................................... 1,000 57,750
-----------
105,519
-----------
PHARMACEUTICALS--2.9%
Abbott Laboratories......................................... 2,000 85,250
Lilly (Eli) & Co............................................ 1,400 125,825
Merck & Co., Inc............................................ 1,000 56,000
Pfizer, Inc................................................. 1,200 64,050
Schering-Plough Corp........................................ 3,200 164,800
Warner-Lambert Co........................................... 2,000 190,500
-----------
686,425
-----------
POLLUTION CONTROL--0.3%
Browning-Ferris Industries, Inc............................. 2,000 60,750
-----------
SOFTWARE--0.3%
ArcSys, Inc.+............................................... 1,000 41,250
Netscape Communications Corp.+.............................. 500 31,250
-----------
72,500
-----------
</TABLE>

21
<PAGE>

SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995 -- (continued)

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
DOMESTIC EQUITY (CONTINUED)
SPECIALTY RETAIL--0.5%
Barnes & Noble, Inc.+....................................... 2,000 $ 76,500
Toys R Us, Inc.+............................................ 1,500 40,500
-----------
117,000
-----------
TELECOMMUNICATIONS--0.8%
AT&T Corp................................................... 1,500 98,625
PamAmSat Corp. ............................................. 2,000 30,500
Worldcom, Inc............................................... 2,000 64,250
-----------
193,375
-----------
TOTAL DOMESTIC EQUITY
(COST $2,945,325)........................................... 3,738,125
-----------
FOREIGN EQUITY--53.2%
APPAREL & TEXTILES--0.1%
Marzotto & Figli (Italy).................................... 5,000 33,023
-----------
AUTOMOTIVE--2.9%
Autoliv AB (Sweden)......................................... 2,200 134,193
Bridgestone Corp. (Japan)................................... 10,000 148,402
Honda Motor Co., Ltd. (Japan)............................... 20,000 359,396
SA D'Ieteren NV (Belgium)................................... 515 42,742
-----------
684,733
-----------
BANKS--7.5%
Banco Intercontinental Espanol (Spain)...................... 350 30,493
Banco Osorno Y La Union ADR(1) (Chile)...................... 800 12,400
Bangkok Bank Public Co. Ltd. (Thailand)..................... 1,900 21,351
Bank of Montreal (Canada)................................... 1,250 27,435
Bank of Tokyo Ltd. (Japan).................................. 20,000 300,843
Bank Of Tokyo Mitsubishi (Japan)............................ 15,000 299,833
Canadian Imperial Bank Toronto (Canada)..................... 2,655 69,136
Commonwealth Bank Of Australia (Australia).................. 13,000 100,605
Credito Italiano SpA (Italy)................................ 40,000 47,454
Development Bank of Singapore (Singapore)................... 3,000 34,148
Generale de Banque Belge Pour l'Etranger SA (Belgium)....... 185 57,891
Kampa Haus AG (Denmark)..................................... 1,485 61,832
Mitsubishi Trust & Banking Corp (Japan)..................... 20,000 312,957
National Australia Bank Ltd. (Australia).................... 10,000 88,422
National Westminster Bank PLC (United Kingdom).............. 9,000 90,156
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
BANKS (CONTINUED)
Overseas Chinese Banking Corp. Ltd. (Singapore)............. 4,000 $ 45,250
Siam Commercial Bank PLC (Thailand)......................... 3,700 41,578
Societe Generale (France)................................... 450 46,055
Stadshyotek AB (Sweden)..................................... 4,500 79,260
-----------
1,767,099
-----------
CHEMICALS--1.3%
Laporte PLC (United Kingdom)................................ 5,000 64,070
P.T. Tri Polyta Indonesia ADR(1) (Indonesia)................ 2,500 53,750
Sekisui Chemical Co., Ltd. (Japan).......................... 10,000 127,202
Tessenderlo Chemie NV (Belgium)............................. 145 53,019
-----------
298,041
-----------
COMMUNICATION EQUIPMENT--1.1%
Ericsson (L.M.) Telephone Co. Class B ADR(1) (Brazil)....... 4,000 98,000
Nokia Corp. (Finland)....................................... 2,200 154,328
-----------
252,328
-----------
COMPUTERS & BUSINESS EQUIPMENT--0.6%
Getronics NV (Netherlands).................................. 2,400 118,207
Videologic Group PLC (United Kingdom)....................... 43,283 23,936
-----------
142,143
-----------
CONGLOMERATE--1.6%
BTR PLC (United Kingdom).................................... 20,000 102,702
Hanson PLC (United Kingdom)................................. 25,000 79,791
Sonae Investimento (Portugal)............................... 1,750 40,955
Strafor-Facom SA (France)................................... 600 71,886
Williams Holdings PLC (United Kingdom)...................... 15,000 77,856
-----------
373,190
-----------
CONSTRUCTION & HOUSING--3.9%
BWT AG (Austria)............................................ 200 24,782
Glynwed International (United Kingdom)...................... 15,000 84,951
Hopewell Holdings Ltd. (Hong Kong).......................... 42,000 28,519
Italian Thai Development Public Co. Ltd. (Thailand)......... 1,500 16,737
Kajima Corp. (Japan)........................................ 20,000 197,062
Keppel Corp. Ltd. (Singapore)............................... 2,000 16,020
Koninklijke Volker Stevin (Netherlands)..................... 500 33,377
Nishimatsu Construction (Japan)............................. 30,000 366,463
Pioneer International Ltd. (Australia)...................... 30,000 79,353
Siebe PLC (United Kingdom).................................. 7,000 80,076
-----------
927,340
-----------
</TABLE>

22
<PAGE>

SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995 -- (continued)

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
FOREIGN EQUITY (CONTINUED)
CONSTRUCTION MATERIALS--3.1%
Cement Industries (Malaysia)............................. 2,000 $ 6,409
Grafton Group PLC (Ireland).............................. 10,000 72,663
Lion Land Bhd (Malaysia)................................. 122,000 146,672
Marley PLC (United Kingdom).............................. 60,000 103,334
Plettac AG (Germany)..................................... 300 79,566
Schneider SA (France).................................... 4,000 155,711
Semen Gresik (Indonesia)................................. 9,000 25,425
Siam City Cement (Thailand).............................. 1,800 30,699
Southeast Asia Cement (Philippines)...................... 400,000 50,662
Walker Greenbank PLC (United Kingdom).................... 48,000 61,432
-----------
732,573
-----------
ELECTRONICS--3.6%
Electric & Eltek International Co. Ltd. (Singapore)...... 40,000 87,600
Hoganas AG (Sweden)...................................... 6,000 178,442
LG Electronics, Inc. (India)............................. 116 1,421
NEC Corp. (Japan)........................................ 20,000 278,633
Pressac Holdings PLC (United Kingdom).................... 45,000 100,964
Samsung Electronics Co. GDS(2) (Korea)................... 1,210 78,650
Samsung Electronics GDR(3) (Korea)....................... 89 12,504
Samsung Electronics GDR(3) (Korea)....................... 6 422
Siemens AG (Germany)..................................... 160 80,761
Telebras (Brazil)........................................ 1,000,000 40,185
-----------
859,582
-----------
ENERGY SERVICES--0.2%
Lyonnaise des Eaux-Dumez (France)........................ 500 45,792
-----------
ENERGY SOURCES--0.5%
Petro Canada (Canada).................................... 12,270 60,478
Petron Corp. (Philippines)............................... 45,000 21,157
Schlumberger Ltd. ADR(1) (France)........................ 700 45,675
-----------
127,310
-----------
ENVIRONMENTAL--0.2%
Eaux (cie Generale) (France)............................. 500 48,025
-----------
FINANCIAL SERVICES--0.5%
Credit Foncier de France (France)........................ 1,500 31,617
First Philipine Holdings Corp. (Philippines)............. 1,599 3,866
Hutchison Whampoa (Hong Kong)............................ 10,000 54,193
National Finance & Securities Co., Ltd. (Thailand)....... 3,000 14,465
Philippine Savings (Philippines)......................... 8,393 19,811
-----------
123,952
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO--1.9%
Bolswessanen (Koninklijke) (Netherlands).................... 7,250 $ 140,930
Nestle SA (Switzerland)..................................... 190 194,438
Whitbread PLC (United Kingdom).............................. 12,000 116,227
-----------
451,595
-----------
FOREST PRODUCTS--1.2%
Jefferson Smurfit Group (Ireland)........................... 50,000 149,313
Maderas Y Sinteticos SA ADR(1) (Chile)...................... 1,900 36,575
Waddington (John) PLC (United Kingdom)...................... 30,000 106,178
-----------
292,066
-----------
HEALTH SERVICES--0.1%
Guidant Corp. (India)....................................... 1,000 29,250
-----------
HOTELS & CASINOS--1.4%
Manchester United PLC (United Kingdom)...................... 25,000 82,162
Stanley Leisure PLC (United Kingdom)........................ 20,000 118,818
Thorn EMI PLC (United Kingdom).............................. 5,000 116,211
-----------
317,191
-----------
HOUSEHOLD PRODUCTS--5.3%
Advantest Corp. (Japan)..................................... 5,000 295,795
Bluebird Toys PLC (United Kingdom).......................... 30,000 113,762
Hunter Douglas NV (Netherlands)............................. 1,442 71,203
Kyocera Corp. (Japan)....................................... 3,000 246,530
Philips Electronics NV (Netherlands)........................ 2,600 126,758
Rohm Co. (Japan)............................................ 4,000 252,789
Salomon SA (France)......................................... 100 52,777
Sunbeam Victa Holdings Ltd. (Australia)..................... 50,000 37,787
Zodiac (France)............................................. 400 53,772
-----------
1,251,173
-----------
INSURANCE--1.5%
Irish Life (Ireland)........................................ 25,000 89,214
Legal & General Group PLC (United Kingdom).................. 10,000 93,222
RAS SpA (Italy)............................................. 8,000 85,829
Zurich Versicherun (Switzerland)............................ 275 77,076
-----------
345,341
-----------
LEISURE & TOURISM--0.4%
Airtours PLC (United Kingdom)............................... 17,000 102,338
-----------
</TABLE>

23
<PAGE>

SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995 -- (continued)

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
FOREIGN EQUITY (CONTINUED)
MACHINERY--3.3%
Canon, Inc. ADR(1) (Japan)................................. 20,000 $ 357,377
Mitsubishi Heavy Industrial Ltd. (Japan)................... 20,000 153,450
Ricoh Co. (Japan).......................................... 27,000 270,396
-----------
781,223
-----------
MANUFACTURING--0.6%
Graystone (United Kingdom)................................. 500,000 102,702
Hanjaya Mandala Sampoerna (Indonesia)...................... 3,750 34,926
-----------
137,628
-----------
MEDICAL PRODUCTS--0.2%
Spectral Diagnostics, Inc. (Canada)........................ 2,930 56,678
-----------
METALS & MINING--1.8%
Clutha Ltd. (Australia)(5)................................. 120,000 907
Comalco Ltd. (Australia)................................... 15,000 74,252
CRA Ltd. (Australia)....................................... 5,000 78,219
Inco Ltd. (Canada)......................................... 1,000 34,317
M.I.M. Holdings Ltd. (Australia)........................... 50,000 71,796
Noranda, Inc. (Canada)..................................... 2,000 40,919
Western Mining Corp. Holdings Ltd. ADS(4) (Australia)...... 20,000 130,895
-----------
431,305
-----------
PHARMACEUTICALS--1.2%
Glaxo Holdings PLC (United Kingdom)........................ 10,000 121,346
Glaxo Holdings PLC ADR(1) (United Kingdom)................. 2,000 48,250
Smithkline Beecham PLC (United Kingdom).................... 10,000 100,964
-----------
270,560
-----------
POLLUTION CONTROL--0.2%
Laidlaw, Inc. (Canada)..................................... 6,500 57,427
-----------
REAL ESTATE COMPANIES--0.3%
Cheung Kong Holdings Ltd. (Hong Kong)...................... 8,000 43,561
Land & Houses Public Co. Ltd. (Thailand)................... 1,500 23,550
-----------
67,111
-----------
SOFTWARE--0.1%
Simware, Inc.+ (Canada).................................... 2,000 20,000
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
SPECIALTY RETAIL--1.9%
Interform Ceramics Technologies Ltd. (Hong Kong)........ 208,000 $ 23,674
Next PLC (United Kingdom)............................... 17,000 109,003
Tokyo Electron Ltd. (Japan)............................. 7,000 304,578
-----------
437,255
-----------
TELECOMMUNICATIONS--3.1%
Advanced Information Service PLC Ltd. (Thailand)........ 1,000 16,099
Cable & Wireless PLC (United Kingdom)................... 15,000 98,357
DDI Corp. (Japan)....................................... 25 206,451
Hong Kong Telecommunications Ltd. (Hong Kong)........... 25,000 45,430
Nippon Telegraph & Telecommunications Corp. (Japan)..... 25 215,284
P.T. Indonesian Satellite Corp. ADR(1) (Indonesia)...... 1,000 35,125
Philippine Long Distance Telephone Co. (Philippines).... 170 11,353
Vodafone Group PLC ADR(1) (United Kingdom).............. 2,500 102,500
-----------
730,599
-----------
TRANSPORTATION--0.6%
Nedlloyd Groep NV (Netherlands)......................... 1,300 46,153
TNT Ltd. (Australia).................................... 60,000 92,050
-----------
138,203
-----------
UTILITIES--1.0%
Electrabel NPV (Belgium)................................ 350 76,548
Electric Reunidas de Zaragoza (Spain)................... 1,000 21,679
Hong Kong Electric Holdings Ltd. (Hong Kong)............ 12,000 40,121
Veba AG (Germany)....................................... 2,200 87,307
-----------
225,655
-----------
TOTAL FOREIGN EQUITY
(cost $11,849,166)...................................... 12,557,729
-----------
TOTAL COMMON STOCK
(cost $14,794,491)...................................... 16,295,854
-----------
PREFERRED STOCK--0.6%
AUTOMOTIVE--0.1%
Fiat SpA(Italy)......................................... 15,000 34,884
-----------
ENERGY SOURCES--0.2%
Cemig Cia Energ Mg(Brazil).............................. 1,650,000 36,874
-----------
</TABLE>

24
<PAGE>

SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995 -- (continued)

<TABLE>
<CAPTION>
SHARES/RIGHTS
PRINCIPAL AMOUNT
(DENOMINATED IN
LOCAL CURRENCY) VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (CONTINUED)
HOUSEHOLD PRODUCTS--0.3%
Friedrich Grohe AG(Germany)...................... 300 $ 78,936
-----------
TOTAL PREFERRED STOCK
(cost $157,778).................................. 150,694
-----------
RIGHTS--0.0%+
COMMUNICATION EQUIPMENT--0.0%
Ericsson (L.M.) Telephone Co. ADR(1) (Brazil)
(cost $0)........................................ 4,000 0
-----------
WARRANTS--0.0%+
CONSTRUCTION & HOUSING--0.0%
Chevalier International Holdings
(cost $0)........................................ 111,200 5,250
-----------
FOREIGN BOND--17.6%
Federal Republic of Germany
8.38% due 5/21/01 ............................... 300 232,085
Government of Canada
7.50% due 9/01/00 ............................... 800 598,764
Government of France
8.25% due 2/27/04 ............................... 600 128,297
8.50% due 3/28/00 ............................... 1,000 216,469
8.50% due 3/15/02 ............................... 250 339,507
Government of New Zealand
10.00% due 3/15/02 .............................. 500 363,580
Government of Spain
10.00% due 2/28/05 .............................. 50,000 383,599
Government of Japan
4.10% due 12/22/03 .............................. 25,000 277,094
6.60% due 6/20/01 ............................... 40,000 499,076
Kingdom of Belgium
6.50% due 3/31/05 ............................... 7,000 226,881
Treuhandanstalt (Germany)
6.13% due 6/25/98 ............................... 100 72,120
United Kingdom Treasury
8.50% due 12/07/05 .............................. 400 648,009
9.00% due 3/03/00 ............................... 100 166,298
-----------
TOTAL FOREIGN BOND
(cost $4,212,571)................................ 4,151,779
-----------
U.S. TREASURY NOTES--6.5%
United States Treasury
Notes 6.88% due 7/31/99......................... $ 400 411,876
United States Treasury
Notes 7.88% due 11/15/04........................ 1,000 1,112,030
-----------
TOTAL U.S. TREASURY NOTES
(cost $1,414,000)................................ 1,523,906
-----------
TOTAL INVESTMENT SECURITIES--93.8%
(cost $20,578,840)............................... 22,127,483
-----------
</TABLE>

<TABLE>
<CAPTION>
SHARES/
PRINCIPAL AMOUNT
(DENOMINATED IN
LOCAL CURRENCY) VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
SHORT-TERM SECURITIES--2.4%
Cayman Island Time Deposit 3.25% due 10/02/95.... $ 434 $ 434,000
State Street Bank Time Deposit 5.50% due
10/02/95........................................ 135 135,000
-----------
TOTAL SHORT-TERM SECURITIES
(cost $569,000).................................. 569,000
-----------
REPURCHASE AGREEMENT--0.5%
Joint Repurchase Agreement Account 6.25% due
10/02/95 (Note 3) (cost $121,000)............... 121 121,000
-----------
TOTAL INVESTMENTS--
(cost $21,268,840)............................... 96.7% 22,817,483
Other assets less liabilities..................... 3.3 773,518
----- -----------
NET ASSETS-- 100.0% $23,591,001
===== ===========
</TABLE>
- -------
+Non-income producing securities
(1)ADR ("American Depositary Receipt")
(2)GDS ("Global Depositary Shares")
(3)GDR ("Global Depositary Receipt")
(4)ADS ("American Depositary Shares")
(5)Fair valued security, see Note 2.
Allocation of net assets by
currency as of September 30,
1995:
Japanese Yen 23.2%
U.S. Dollar 22.3
British
Pound 13.7
French Franc 5.2
Canadian
Dollar 4.1
Australian
Dollar 3.2
German Mark 2.6
Dutch Guilder 2.3
Belgium Franc 2.0
Spanish
Peseta 1.8
Swedish Krona 1.7
New Zealand
Dollar 1.5
Irish Punt 1.3
Swiss Franc 1.1
Hong-Kong
Dollar 1.0
Brazilian
Real 0.8
Italian Lira 0.8
Singapore
Dollar 0.8
Finnish
Markka 0.7
Thailand Baht 0.7
Indonesian
Rupiah 0.6
Malaysian
Ringgit 0.6
Philippines
Peso 0.5
Korean Won 0.4
Danish Kroner 0.3
Chilean Peso 0.2
Portuguese
Escudo 0.2
Austrian
Schilling 0.1
Indian Rupee 0.1
See Note to Financial Statements

25
<PAGE>

SUNAMERICA GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--66.5%
AUTOMOTIVE--1.0%
Ford Motor Co............................................... 2,000 $ 62,250
-----------
BANKS--1.3%
First Union Corp. .......................................... 1,500 76,500
-----------
BROADCASTING & MEDIA--2.4%
NYNEX Cablecomms Group PLC ADR(1)+.......................... 3,000 69,000
Viacom, Inc. Class B+....................................... 1,500 74,625
-----------
143,625
-----------
CHEMICALS--1.1%
du Pont (E.I.) de Nemours & Co.............................. 1,000 68,750
-----------
COMMUNICATION EQUIPMENT--2.5%
Motorola, Inc............................................... 2,000 152,750
-----------
CONGLOMERATE--4.3%
AlliedSignal, Inc........................................... 3,000 132,375
General Electric Co......................................... 2,000 127,500
-----------
259,875
-----------
DEPARTMENT STORES--2.6%
Woolworth Corp. ............................................ 10,000 157,500
-----------
ENERGY SERVICES--2.1%
Reading & Bates Corp........................................ 5,000 60,000
Sonat Offshore Drilling, Inc................................ 2,000 65,250
-----------
125,250
-----------
ENERGY SOURCES--3.3%
Amoco Corp.................................................. 1,000 64,125
Royal Dutch Petroleum Co. ADR(1)............................ 500 61,375
Tatham Offshore, Inc.+...................................... 5,000 10,625
Texaco, Inc................................................. 1,000 64,625
-----------
200,750
-----------
FINANCIAL SERVICES--2.0%
Dean Witter, Discover & Co.................................. 1,500 84,375
Quorum Growth, Inc.+........................................ 7,000 39,068
-----------
123,443
-----------
FOOD, BEVERAGE & TOBACCO--5.9%
Heinz (H.J.) Co............................................. 4,500 205,875
Philip Morris Cos., Inc..................................... 1,000 83,500
Quaker Oats Co.............................................. 2,000 66,250
-----------
355,625
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
FOREST PRODUCTS--0.5%
Gaylord Container Corp.+..................................... 3,000 $ 28,313
----------
HEALTH SERVICES--2.2%
OrNda Healthcorp+............................................ 3,000 63,750
U.S. HealthCare, Inc......................................... 2,000 70,750
----------
134,500
----------
HOUSEHOLD PRODUCTS--2.3%
Duracell International, Inc.................................. 1,500 67,313
USA Detergents, Inc.+........................................ 3,500 72,625
----------
139,938
----------
INSURANCE--2.4%
Aetna Life & Casualty Co..................................... 2,000 146,750
----------
LEISURE & TOURISM--2.6%
Harrah's Entertainment, Inc.................................. 3,000 87,750
Promus Hotel Corp.+.......................................... 3,000 68,250
----------
156,000
----------
METALS & MINING--0.1%
Carbide/Graphite Group, Inc.+................................ 500 7,063
----------
PHARMACEUTICALS--10.3%
Abbott Laboratories.......................................... 2,000 85,250
Amgen, Inc.+................................................. 2,000 99,750
Bristol-Myers Squibb Co...................................... 1,000 72,875
Glaxo Holdings PLC ADR(1).................................... 4,000 96,500
Merck & Co., Inc. ........................................... 1,500 84,000
Warner-Lambert Co. .......................................... 2,000 190,500
----------
628,875
----------
REAL ESTATE INVESTMENT TRUSTS--2.1%
Patriot American Hospitality, Inc.+.......................... 5,000 128,125
----------
SOFTWARE--2.1%
Computron Software, Inc.+.................................... 2,500 43,125
Netscape Communications Corp.+............................... 1,000 62,500
Simware, Inc.+............................................... 2,000 20,000
----------
125,625
----------
TELECOMMUNICATIONS--4.7%
AT&T Corp.................................................... 2,000 131,500
Frontier Corp................................................ 3,000 79,875
PanAmSat Corp................................................ 3,000 45,750
Tel-Save Holdings, Inc.+..................................... 2,000 30,750
----------
287,875
----------
</TABLE>

26
<PAGE>

SUNAMERICA GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1995 -- (continued)

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
BONDS & NOTES--0.9%
FOREST PRODUCTS--0.9%
Stone Container Corp.
11.88% due 12/01/98
(cost $51,625).................................. $ 50 $ 53,750
----------
TOTAL INVESTMENT SECURITIES--70.4%
(cost $3,921,404)................................ 4,274,381
----------
REPURCHASE AGREEMENT--31.0%
Joint Repurchase Agreement Account with Yamaichi
International, Inc. (Note 3).................... 940 940,000
Joint Repurchase Agreement Account with Chemical
Securities, Inc. (Note 3)....................... 941 941,000
----------
TOTAL REPURCHASE AGREEMENTS
(cost $1,881,000)................................ 1,881,000
----------
TOTAL INVESTMENTS--
(cost $5,802,404)................................ 101.4% 6,155,381
Liabilities in excess of other assets............. (1.4) (85,070)
----- ----------
NET ASSETS-- 100.0% $6,070,311
===== ==========
</TABLE>
- --------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")

See Notes to Financial Statements

27
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1995
Note 1. Organization

Each Fund currently offers two classes of shares. Class A shares are
offered at net asset value per share plus an initial sales charge. Class B
shares are offered without an initial sales charge, although a declining
contingent sales charge may be imposed on redemptions made within six years
of purchase. Additionally, any purchases of Class A shares in excess of
$1,000,000 will be subject to a contingent deferred sales charge on
redemptions made within one year of purchase. Class B shares of each Fund
will convert automatically to Class A shares on the first business day of
the month after seven years from the issuance of such Class B shares and at
such time will be subject to the lower distribution fee applicable to Class
A shares. Each class of shares bears the same voting, dividend, liquidation
and other rights and conditions and each makes distribution and account
maintenance and service fee payments under the distribution plans pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"),
except that Class B shares are subject to higher distribution fee rates.

Note 2. Significant Accounting Policies

The following is a summary of the significant accounting policies followed
by the Funds in the preparation of their financial statements:

SECURITY VALUATIONS: Securities that are actively traded in the over-the-
counter market, including listed securities for which the primary market is
believed by the Adviser to be over-the-counter, are valued at the quoted
bid price provided by principal market makers. Securities listed on the New
York Stock Exchange ("NYSE") or other national securities exchanges, are
valued on the basis of the last sale price on the exchange on which they
are primarily traded or, if there is no sale on such day, the last bid
price quoted on such day. If there is no sale on that day, then securities
are valued at the bid price on the NYSE or other primary exchange for that
day. However, if the last sale price on the NYSE is different than the last
sale price on any other exchange, the NYSE price is used. Options traded on
national securities exchanges are valued as of the close of the exchange on
which they are traded. Futures and options traded on commodities exchanges
are valued at their last sale price as of the close of such exchange. The
Funds may make use of a pricing service in the determination of

28
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1995 -- (continued)
their net asset values. Securities for which market quotations are not
readily available and other assets are valued at fair value as determined
pursuant to procedures adopted in good faith by the Trustees. Short-term
investments which mature in less than 60 days are valued at amortized cost,
if their original maturity was 60 days or less, or by amortizing their
value on the 61st day prior to maturity, if their original term to maturity
exceeded 60 days.

REPURCHASE AGREEMENTS. The Funds, along with other affiliated registered
investment companies, transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral
is valued daily on a mark to market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In
the event of default of the obligation to repurchase, a Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. If the seller defaults and the value of the collateral declines
or 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.

OPTIONS: The premium paid by a Fund for the purchase of a call or a put
option is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current market
value of the option. When a Fund writes a call or a put option, an amount
equal to the premium received by the Fund is included in the Fund's
Statement of Assets and Liabilities as a liability and is subsequently
marked to market to reflect the current market value of the option written.
If an option which the Fund has written either expires on its stipulated
expiration date, or if the Fund enters into a closing purchase transaction,
the Fund realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security,
and the liability related to such options is extinguished. If a call option
which the Fund has written is exercised, the Fund realizes a capital gain
or loss from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. If a put option
which the Fund has written is exercised, the amount of the premium
originally received reduces the cost basis of the security which the Fund
purchased upon exercise of the option.

SECURITIES TRANSACTIONS, INVESTMENT INCOME, DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS: Securities transactions are recorded on the trade date.
Realized gains and losses on sales of investments are calculated on the
identified cost basis. Interest income is recorded on the accrual basis;
dividend income is recorded on the ex-dividend date. The Equity Funds,
except for the Global Balanced Fund and the Growth and Income Fund, do not
amortize premiums or accrue discounts except original issue discounts and
on interest only securities for which amortization is required for federal
income tax purposes.

Net investment income, other than class specific expenses and realized and
unrealized gains and losses, is allocated daily to each class of shares
based upon the relative net asset value of outstanding shares (of the value
of the dividend-eligible shares, as appropriate) of each class of shares at
the beginning of the day (after adjusting for the current capital shares
activity of the respective class).

29
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1995 -- (continued)

Dividends from net investment income are paid semiannually, except for
Balanced Assets Fund and Growth and Income Fund which pay quarterly.
Capital gain distributions, if any, are paid annually.

INVESTMENT SECURITIES LOANED: During the year ended September 30, 1995,
Balanced Assets Fund participated in securities lending with qualified
brokers. In lending portfolio securities to brokers the Funds receive cash
as collateral against the loaned securities, which must be maintained at
not less than 100% of the market value of the loaned securities during the
period of the loan. To the extent income is earned on the cash collateral
invested, it is recorded as interest income. As with other extensions of
credit, should the borrower of the securities fail financially, the Funds
may bear the risk of delay in recovery or may be subject to replacing the
loaned securities by purchasing them with the cash collateral held, which
may be less than 100% of the market value of such securities at the time of
replacement.

At September 30, 1995, Balanced Assets Fund had loaned a security having a
value of $5,446,100 and held cash collateral of $5,443,750 for this loan.
The value of the collateral was sufficient at the time the loan agreement
was entered into. As a result of an increase in the market value of the
loaned security, the Fund was furnished with additional collateral on the
following business day.

FOREIGN CURRENCY TRANSACTION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at published rates on the following basis:

(i) market value of investment securities, other assets and
liabilities--at the closing rate of exchange.

(ii) purchases and sales of investment securities, income and expenses--
at the rate of exchange prevailing on the respective dates of such
transactions.

Assets and liabilities denominated in foreign currencies and commitments
under forward foreign currency contracts are translated into U.S. dollars
at the mean of the quoted bid and asked prices of such currencies against
the U.S. dollar. Purchases and sales of portfolio securities are translated
at the rate of exchange prevailing when such securities were acquired or
sold. Income and expenses are translated at rates of exchange prevailing
when earned or incurred.

The Fund does not isolate that portion of the results of operations arising
as a result of changes in the foreign exchange rates from the changes in
the market prices of securities held at fiscal year-end. Similarly, the
Fund does not isolate the effect of changes in foreign exchange rates from
the changes in the market prices of portfolio securities sold during the
year.

Realized foreign exchange gains and losses on other assets and liabilities
and change in unrealized foreign exchange gains and losses on other assets
and liabilities include foreign exchange gains and losses from currency
gains or losses between the trade and settlement dates of securities
transactions, the difference between the amounts of interest, dividends and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid and changes in the unrealized
foreign exchange gains and losses relating to other assets and liabilities
arising as a result of changes in the exchange rate.

30
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1995 -- (continued)

FEDERAL INCOME TAXES: It is the Funds' policy to meet the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute all of their taxable net income to
their shareholders. Therefore, no federal income tax or excise tax
provisions are required.

Global Balanced Fund may be subject to taxes imposed by countries in which
it invests. Such taxes are generally based on either income or gains earned
or repatriated. The Fund accrues such taxes when the related income is
earned.

ORGANIZATIONAL EXPENSES: Costs incurred by SAAMCo in connection with the
organization of Global Balanced Fund and Growth and Income Fund amounted to
$4,347 and $1,383, respectively. These costs are being amortized on a
straight line basis by the Funds over a period not to exceed 60 months from
the date the Funds commenced operations. Costs incurred by SAAMCo in
connection with the registration of Global Balanced (Class A, Class B) and
Growth and Income Fund (Class A, Class B) amounted to $10,808 for each
class of each Fund. These costs are being amortized on a straight line
basis by the classes over a period not to exceed 12 months from the date
each class commenced operations.

EXPENSES: Expenses common to all Funds, not directly related to individual
Funds, are allocated among the Equity Funds based upon their relative net
asset values.

STATEMENT OF POSITION 93-2: As required by Statement of Position 93-2,
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies,
permanent book-tax differences relating to shareholder distributions have
been reclassified. Net investment income/loss, net realized gain/loss, and
net assets are not affected. The following table discloses the current year
reclassifications between accumulated undistributed net investment
income/loss and accumulated undistributed net realized gain/loss on
investments.

<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED PAID
NET REALIZED NET INVESTMENT IN
GAIN/LOSS INCOME/LOSS CAPITAL
------------- -------------- -------
<S> <C> <C> <C>
Balanced Assets Fund.................... $ 0 $ 0 $ 0
Blue Chip Growth Fund................... (42,924) 42,924 0
Mid-Cap Growth Fund..................... (237,498) 237,498 0
Small Company Growth Fund............... (587,404) 587,404 0
Global Balanced Fund.................... (565,991) 565,991 0
Growth and Income Fund.................. 0 0 0
</TABLE>

Note 3. Joint Repurchase Agreement Account

As of September 30, 1995, Balanced Assets Fund, Blue Chip Growth Fund, Mid-
Cap Growth Fund, Small Company Growth Fund, Global Balanced Fund and Growth
and Income Fund had a 15.2%, 4.6%, 3.0%, 19.3%, 0.1% and 0.9% undivided
interest, respectively, which represented $15,638,000, $4,715,000,
$3,059,000, $19,896,000, $121,000 and $941,000, respectively, in principal
amount in a joint repurchase agreement with Chemical Securities, Inc. In
addition, the Growth and Income Fund

31
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS --September 30, 1995 -- (continued)
had a 0.8% undivided interest which represented $940,000 in principal
amount in a joint repurchase agreement with Yamaichi International, Inc. As
of such date, the cash repurchase agreement in the joint account and the
collateral therefore was as follows:

Chemical Securities, Inc. Repurchase Agreement, 6.25% dated 9/29/95, in the
principal amount of $102,947,000 repurchase price $103,000,618 due 10/02/95
collateralized by $50,000,000 U.S. Treasury Notes 6.875% due 10/31/96,
$50,000,000 U.S. Treasury Notes 6.125% due 5/31/97 and $1,850,000 U.S.
Treasury Notes 6.125% due 5/31/97, approximate aggregate value
$105,092,351.

Yamaichi International, Inc. Repurchase Agreement, 6.45% dated 9/29/95, in
the principal amount of $120,864,000 repurchase price $120,928,964 due
10/02/95 collateralized by $49,250,000 U.S. Treasury Notes 8.75% due
11/15/08, $22,375,000 U.S. Treasury Bills 5.365% due 8/22/96, $19,375,000
U.S. Treasury Notes 6.25% due 8/15/23, $13,090,000 U.S. Treasury Notes
8.75% due 8/15/00 and $8,500,000 U.S. Treasury Notes 9.25% due 2/15/16,
approximate aggregate value $128,362,436.

Note 4. Investment Advisory and Management Agreement, Distribution Agreement
and Service Agreement

The Trust, on behalf of each Fund, has an Investment Advisory and
Management Agreement (the "Agreement") with SAAMCo (the "Adviser"), an
indirect wholly-owned subsidiary of SunAmerica Inc. Under the Agreement,
SAAMCo provides continuous supervision of a Fund's portfolio and
administers its corporate affairs, subject to general review by the
Trustees. In connection therewith, SAAMCo furnishes the Funds with office
facilities, maintains certain of the Fund's books and records, and pays the
salaries and expenses of all personnel, including officers of the Funds who
are employees of SAAMCo and its affiliates. The investment advisory and
management fee to SAAMCo with respect to each Fund (other than the Global
Balanced Fund) is computed daily and payable monthly, at an annual rate of
.75% of a Fund's average daily net assets up to $350 million, .70% of the
next $350 million, and .65% thereafter. The Global Balanced Fund pays the
Adviser a fee, payable monthly, computed daily at the annual rate of 1.00%
on the first $350 million of the Fund's average daily net assets, .90% on
the next $350 million of net assets and .85% on net assets over $700
million. For the year ended September 30, 1995, SAAMCo earned fees of
$1,821,586, $565,835, $294,505, $819,449, $269,441 and $32,455 for Balanced
Assets Fund, Blue Chip Growth Fund, Mid-Cap Growth Fund, Small Company
Growth Fund, Global Balanced Fund and Growth and Income Fund, respectively
(of which SAAMCo agreed to waive $115,214 and $32,455 for Global Balanced
and Growth and Income Fund, respectively.) In addition to the
aforementioned, SAAMCo, on behalf of SunAmerica Global Balanced Fund, has
entered into Sub-Advisory Agreements with AIG Asset Management, Inc.
("AIGAM") and Goldman Sachs Asset Management International ("GSAM") under
which AIGAM and GSAM act as sub-advisers for the Fund.

32
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1995 -- (continued)
the Global Balanced Fund actually managed by GSAM computed based on average
daily net assets, at the following annual rates: .40% on the first $50
million of such assets, .30% on the next $100 million of such assets, .25%
on the next $100 million of such assets, and .20% of such assets in excess
of $250 million. For the year ended September 30, 1995, SAAMCo paid AIGAM
and GSAM fees of $75,883 and $29,912, respectively.

SAAMCo has agreed that, in any fiscal year, it will refund or rebate its
management fees to each of the Funds to the extent that the Fund's expenses
(including the fees of SAAMCo and amortization of organizational expenses,
but excluding interest, taxes, brokerage commissions, distribution fees and
other extraordinary expenses) exceed the most restrictive expense
limitation imposed by states where the Fund's shares are sold. The most
restrictive expense limitation is presently believed to be 2 1/2% of the
first $30 million of the Fund's average daily net assets, 2% of the next
$70 million of average net assets and 1 1/2% of such net assets in excess
of $100 million. For the year ended September 30, 1995, SAAMCo refunded its
management fee in the amount of $32,455 for Growth and Income Fund.

For the year ended September 30, 1995, SAAMCo has agreed to voluntarily
waive fees and reimburse expenses of $13,179 and $10,554, for Blue Chip
Growth Fund (Class A) and Mid-Cap Growth Fund (Class B), respectively,
related to registration and transfer agent fees.

For the year ended September 30, 1995, SAAMCo has agreed to voluntarily
reimburse expenses of $64,080 and $37,971 for Growth and Income Fund (Class
A, Class B), respectively, related to both class specific and fund level
expenses.

The Trust, on behalf of each Fund, has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS"). Each Fund has adopted a
Distribution Plan (the "Plan") in accordance with the provisions of Rule
12b-1 under the 1940 Act. Rule 12b-1 under the Act permits an investment
company directly or indirectly to pay expenses associated with the
distribution of its shares ("distribution expenses") in accordance with a
plan adopted by the investment company's board of directors and approved by
its shareholders. Pursuant to such rule, the Trustees and the shareholders
of each class of shares of each Fund have adopted Distribution Plans
hereinafter referred to as the "Class A Plan" and the "Class B Plan." In
adopting the Class A Plan and the Class B Plan, the Trustees determined
that there was a reasonable likelihood that each such Plan would benefit
the Trust and the shareholders of the respective class. The sales charge
and distribution fees of a particular class will not be used to subsidize
the sale of shares of any other class.

Under the Class A Plan, the Distributor receives payments from a Fund at an
annual rate of up to 0.10% of average daily net assets of such Fund's Class
A shares to compensate the Distributor and certain securities firms for
providing sales and promotional activities for distributing that class of
shares. Under the Class B Plan, the Distributor receives payments from a
Fund at the annual rate of up to 0.75% of the average daily net assets of
such Fund's Class B shares to compensate the Distributor and certain
securities firms for providing sales and promotional activities for
distributing that class of shares. The distribution costs for which the
Distributor may be reimbursed out of such distribution fees include fees
paid to broker-dealers that have sold Fund shares, commissions, and other
expenses such as those incurred for sales literature, prospectus printing
and distribution and

33
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS --September 30, 1995 -- (continued)
compensation to wholesalers. It is possible that in any given year the
amount paid to the Distributor under the Class A Plan or Class B Plan may
exceed the Distributor's distribution costs as described above. The
Distribution Plans provide that each class of shares of each Fund may also
pay the Distributor an account maintenance and service fee up to an annual
rate of 0.25% of the aggregate average daily net assets of such class of
shares for payments to broker-dealers for providing continuing account
maintenance. In this regard, some payments are used to compensate broker-
dealers with account maintenance and service fees in an amount up to 0.25%
per year of the assets maintained in a Fund by their customers. For the
year ended September 30, 1995, SACS earned fees of $1,986,988, $675,044,
$177,911, $744,340, $186,019 and $22,214 for Balanced Assets Fund, Blue
Chip Growth Fund, Mid-Cap Growth Fund, Small Company Growth Fund, Global
Balanced Fund and Growth and Income Fund, respectively (of which $16,747
was waived on Growth and Income Fund.)

For the year ended September 30, 1995, SACS has advised the Funds that it
has received sales concessions on each Fund's Class A shares, portions of
which are reallowed to affiliated broker-dealers and non-affiliated broker-
dealers as follows:

<TABLE>
<CAPTION>
SALES AFFILIATED NON-AFFILIATED
CONCESSIONS BROKER-DEALERS BROKER-DEALERS
----------- -------------- --------------
<S> <C> <C> <C>
Balanced Assets Fund............... $565,677 $411,596 $ 75,078
Blue Chip Growth Fund.............. 33,816 27,360 1,368
Mid-Cap Growth Fund................ 104,245 69,230 18,014
Small Company Growth Fund.......... 602,843 317,796 201,595
Global Balanced Fund............... 139,083 100,770 21,897
Growth and Income Fund............. 22,142 14,608 4,434
</TABLE>

SACS also receives the proceeds of contingent deferred sales charges paid
by investors in connection with certain redemptions of each Fund's Class B
shares. For the year ended September 30, 1995, SACS informed the Balanced
Assets Fund, Blue Chip Growth Fund, Mid-Cap Growth Fund, Small Company
Growth Fund, Global Balanced Fund and Growth and Income Fund that it
received approximately $367,583, $88,628, $40,076, $105,710, $47,198, and
$1,965, respectively, in contingent deferred sales charges.

The Trust has entered into a Service Agreement with SunAmerica Fund
Services, Inc. ("SAFS"), an indirect wholly-owned subsidiary of SunAmerica
Inc. Under the Service Agreement, SAFS performs certain shareholder account
functions by assisting the Funds' transfer agent in connection with the
services that it offers to the shareholders of the Funds. The Service
Agreement permits the Funds to reimburse SAFS for costs incurred in
providing such services which is approved annually by the Trustees. For the
year ended September 30, 1995, Balanced Assets Fund (Class A, Class B),
Blue Chip Growth Fund (Class A, Class B), Mid-Cap Growth Fund (Class A,
Class B), and Small Company Growth Fund (Class A, Class B), Global Balanced
Fund (Class A, Class B) and Growth and Income Fund (Class A, Class B)
incurred expenses of $137,209, $352,821, $25,108, $116,049, $61,957,
$10,794, $105,105, $107,097, $23,995, $25,833, $5,388 and $2,143,
respectively, to reimburse SAFS pursuant to the terms of the Service
Agreement. Of these amounts, $21,110, $28,440, $7,580, $6,769, $6,872,
$2,060, $16,380, $12,014, $1,903, $2,512, $619 and $391, respectively, were
payable to SAFS at September 30, 1995.

34
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1995 -- (continued)
Note 5. Purchases and Sales of Investment Securities

The aggregate cost of purchases and proceeds form sales and maturities of
investments (excluding U.S. Government securities and short-term
investments) during the year ended September 30, 1995 were as follows:

Note 6. Portfolio Securities (Tax Basis)

The cost of securities and the aggregate gross unrealized appreciation and
depreciation of securities at September 30, 1995 were as follows:

<TABLE>
<CAPTION>
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
------------ ----------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cost (tax basis)........ $252,420,918 $68,330,019 $31,572,324 $114,199,842 $21,283,331 $5,802,404
============ =========== =========== ============ =========== ==========
Appreciation............ $ 27,334,681 $ 8,673,797 $ 6,469,040 $26,162,037 $ 2,161,547 $ 416,349
Depreciation............ (2,451,654) (699,241) (551,651) (2,244,323) (627,395) (63,372)
------------ ----------- ----------- ------------ ----------- ----------
Unrealized appreciation/
depreciation--net...... $ 24,883,027 $ 7,974,556 $ 5,917,389 $23,917,714 $ 1,534,152 $ 352,977
============ =========== =========== ============ =========== ==========
</TABLE>

Capital losses incurred after October 31 within the taxable year are deemed
to arise on the first business day of the Funds' next taxable year.
Accordingly, the Global Balanced Fund incurred and will defer net capital
losses of $1,443,904 to the taxable year ended September 30, 1996. To the
extent these losses are used to offset future gains, it is probable that
the gains so offset will not be distributed.

At September 30, 1995, Global Balanced Fund had net capital loss
carryforwards of $17,364 which are available to the extent provided in
regulations to offset future capital gains and which will expire in 2003.
To the extent that these carryforwards are used to offset future capital
gains, it is probable that the gains so offset will not be distributed.

35
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1995 -- (continued)

Note 7. Open Forward Currency Contracts

At September 30, 1995, the Global Balanced Fund engaged in the trading of
forward foreign currency exchange contracts ("forward contracts") in order
to hedge against changes in future foreign exchange rates and enhance
return. Forward contracts involve elements of market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The Fund bears
the risk of an unfavorable change in the foreign exchange rate underlying
the forward contract. Global Balanced Fund held the following forward
currency contracts at September 30, 1995:

<TABLE>
<CAPTION>
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
---------------- ------------- -------- ------------
<S> <C> <C> <C>
BEL 6,665,750 USD 234,927 10/31/95 $ 7,227
BEL 9,584,224 DEM 464,622 9/09/96 409
JPY 30,219,570 DEM 467,000 10/13/95 21,232
JPY 49,071,257 USD 564,362 10/17/95 67,440
JPY 48,360,804 USD 552,253 10/17/95 62,526
XEU 268,005 USD 356,326 10/20/95 9,047
*USD 149,488 CAD 203,608 11/14/95 1,903
*DEM 341,037 USD 247,074 10/24/95 8,108
*USD 235,523 DEM 341,037 10/24/95 3,444
*DEM 331,553 USD 240,204 10/24/95 7,882
*JPY 29,325,945 USD 330,000 10/27/95 32,520
*JPY 30,200,840 USD 340,000 10/27/95 33,645
*JPY 30,905,600 USD 320,000 10/27/95 6,496
*JPY 26,957,385 USD 278,981 10/27/95 5,528
*JPY 2,997,295 USD 31,019 10/27/95 615
*ITL 506,947,500 DEM 458,838 11/16/95 9,390
*NZD 210,401 USD 139,286 10/13/95 965
*NZD 292,409 USD 195,329 10/13/95 3,096
*NZD 474,431 USD 314,073 10/13/95 2,177
--------
283,650
--------
</TABLE>

36
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1995 -- (continued)
<TABLE>
<CAPTION>
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE DEPRECIATION
---------------- ----------------- -------- ------------
<S> <C> <C> <C>
CAD 800,853 USD 585,783 11/14/95 $ (9,686)
DEM 594,535 USD 399,733 10/13/95 (16,622)
DEM 324,653 USD 220,403 10/24/95 (7,084)
DEM 2,000,000 USD 1,344,538 12/12/95 (60,203)
ESP 51,087,641 USD 408,570 11/27/95 (2,227)
FRF 642,305 USD 126,513 11/30/95 (3,818)
FRF 1,114,500 USD 224,970 11/30/95 (1,175)
GBP 424,431 USD 656,383 12/11/95 (13,183)
GBP 103,663 USD 163,477 12/11/95 (58)
JPY 2,295,584 USD 22,888 10/27/95 (398)
JPY 330,000,000 USD 3,356,899 12/12/95 (13,119)
JPY 34,349,179 USD 339,813 12/18/95 (11,314)
NZD 551,972 USD 356,353 12/12/95 (4,715)
*USD 513,821 NZD 766,840 10/13/95 (9,692)
*USD 140,758 NZD 210,401 10/13/95 (2,438)
*DEM 450,000 ITL 506,947,500 11/16/95 (3,205)
*DEM 36,322 USD 24,658 10/24/95 (793)
*USD 25,579 DEM 36,322 10/24/95 (127)
*USD 233,488 DEM 331,553 10/24/95 (1,166)
*USD 339,944 JPY 29,325,945 10/27/95 (42,464)
*USD 315,677 JPY 30,200,840 10/27/95 (9,322)
*USD 323,044 JPY 30,905,600 10/27/95 (9,540)
*USD 40,992 JPY 4,026,616 10/27/95 (146)
*JPY 4,026,616 USD 40,147 10/27/95 (699)
*USD 274,431 JPY 26,957,385 10/27/95 (978)
*USD 31,279 JPY 2,992,460 10/27/95 (924)
*USD 56 JPY 4,835 10/27/95 (7)
*USD 353,637 AUD 466,047 10/30/95 (1,912)
*AUD 466,047 USD 342,195 10/30/95 (9,530)
*CAD 203,608 USD 148,928 11/14/95 (2,463)
---------
(239,008)
---------
Net Appreciation..................................... $ 44,642
=========
</TABLE>

*Represents open forward currency contracts and offsetting open forward foreign
currency contracts that do not have additional market risk but have continued
counterparty settlement risk.

AUD--Australian DEM--Deutsche Mark GBP--Great Britain NZD--New Zealand
Dollar Pound Dollar
BEF--Belgium ESP--Spanish Peseta ITL--Italian Lira USD--United States
Franc Dollar
CAD--Canadian FRF--French Franc JPY--Japanese Yen XEU--European
Dollar Currency

37
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1995 -- (continued)

Note 8. Capital Share Transactions

Transactions in capital shares of each class of each series were as
follows:

<TABLE>
<CAPTION>
BALANCED ASSETS FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------ ------------------------ -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 4,667,503 $ 71,426,588 2,698,104 $ 40,272,932 3,071,975 $ 45,998,809 7,440,392 $110,364,992
Reinvested
dividends...... 265,763 3,756,343 102,965 1,508,917 769,696 10,686,782 332,957 4,879,992
Shares redeemed. (1,193,984) (17,782,121) (1,444,087) (21,386,612) (6,322,402) (95,258,440) (4,503,874) (66,040,730)
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
Net increase
(decrease)..... 3,739,282 $ 57,400,810 1,356,982 $ 20,395,237 (2,480,731) $(38,572,849) 3,269,475 $ 49,204,254
========== ============ ========== ============ =========== ============= =========== =============
<CAPTION>
BLUE CHIP GROWTH FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ------------------------------------------------------
INCEPTION
FOR THE (OCTOBER 8, 1993)(a) FOR THE FOR THE
YEAR ENDED TO YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------ ------------------------ -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 2,404,163 $37,806,801 303,594 $ 4,654,762 8,964,323 $ 134,971,138 10,324,732 $ 160,567,760
Reinvested
dividends...... 14,956 207,075 943 14,611 372,862 5,128,338 204,303 3,166,759
Shares redeemed. (181,804) (2,884,125) (96,580) (1,455,849) (11,706,255) (177,081,024) (10,751,734) (166,819,355)
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
Net increase
(decrease)..... 2,237,315 $35,129,751 207,957 $ 3,213,524 (2,369,070) $ (36,981,548) (222,699) $ (3,084,836)
========== ============ ========== ============ =========== ============= =========== =============
<CAPTION>
MID-CAP GROWTH FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ------------------------------------------------------
INCEPTION
FOR THE FOR THE FOR THE (OCTOBER 4, 1993)(a)
YEAR ENDED YEAR ENDED YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------ ------------------------ -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 247,141 $ 3,926,322 2,337,824 $ 35,777,463 4,235,563 $ 62,818,790 4,151,875 $ 60,390,157
Reinvested
dividends...... 5,781 79,602 352,721 5,115,552 1,748 24,200 41,302 598,471
Shares redeemed. (521,946) (7,755,976) (2,239,597) (33,937,663) (3,989,374) (59,135,991) (3,898,362) (56,242,056)
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
Net increase
(decrease)..... (269,024) $ (3,750,052) 450,948 $ 6,955,352 247,937 $ 3,706,999 294,815 $ 4,746,572
========== ============ ========== ============ =========== ============= =========== =============
</TABLE>

(a) Commencement of sale of respective class of shares

38
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1995 -- (continued)

<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
---------------------------------------------------------------------------------------------------------
CLASS A CLASS B
--------------------------------------------------- ----------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------- ------------------------ -------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 6,544,632 $ 130,462,164 9,770,630 $171,305,427 9,886,153 $ 196,092,402 9,949,146 $170,413,433
Reinvested
dividends...... 54,753 964,756 177,646 3,055,538 62,016 1,085,149 222,219 3,817,482
Shares redeemed. (5,262,148) (102,586,803) (9,637,891) (168,923,280) (10,265,178) (202,833,358) (9,011,396) (153,722,671)
---------- ------------- ---------- ------------ ----------- ------------- ---------- ------------
Net increase
(decrease)..... 1,337,237 $ 28,840,117 310,385 $ 5,437,685 (317,009) $ (5,655,807) 1,159,969 $ 20,508,244
========== ============= ========== ============ =========== ============= ========== ============
<CAPTION>
GLOBAL BALANCED FUND
---------------------------------------------------------------------------------------------------------
CLASS A CLASS B
--------------------------------------------------- ----------------------------------------------------
INCEPTION INCEPTION
FOR THE (JUNE 15, 1994)(a) FOR THE (JUNE 16, 1994)(a)
YEAR ENDED TO YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------- ------------------------ -------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 750,764 $ 5,173,301 1,933,627 $ 13,483,754 1,150,637 $ 7,847,490 2,132,333 $ 14,947,304
Reinvested
dividends...... 4,067 27,252 -- -- 2,161 14,461 -- --
Shares redeemed. (1,342,777) (9,319,908) (38,577) (268,643) (1,199,716) (8,126,345) (170,068) (1,177,938)
---------- ------------- ---------- ------------ ----------- ------------- ---------- ------------
Net increase.... (587,946) $ (4,119,355) 1,895,050 $ 13,215,111 (46,918) $ (264,394) 1,962,265 $ 13,769,366
========== ============= ========== ============ =========== ============= ========== ============
<CAPTION>
GROWTH AND INCOME FUND
---------------------------------------------------------------------------------------------------------
CLASS A CLASS B
--------------------------------------------------- ----------------------------------------------------
INCEPTION INCEPTION
FOR THE (JULY 1, 1994)(a) FOR THE (JULY 6, 1994)(a)
YEAR ENDED TO YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------------- ------------------------ -------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 542,589 $ 4,112,191 414,349 $ 3,037,584 301,384 $ 2,380,132 68,811 $ 510,253
Reinvested
dividends...... 25,040 190,918 3,411 25,414 7,758 61,110 154 1,146
Shares redeemed. (562,875) (4,274,466) (1,377) (10,263) (37,348) (295,806) (38,138) (285,414)
---------- ------------- ---------- ------------ ----------- ------------- ---------- ------------
Net increase.... 4,754 $ 28,643 416,383 $ 3,052,735 271,794 $ 2,145,436 30,827 $ 225,985
========== ============= ========== ============ =========== ============= ========== ============
</TABLE>

(a) Commencement of sale of respective class of shares

39
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1995 -- (continued)

Note 9. Commitments and Contingencies

The SunAmerica family of mutual funds may borrow up to $75,000,000 under an
uncommitted line of credit with State Street Bank and Trust Company with
interest payable at the Federal Funds rate plus 100 basis points.
Borrowings under the line of credit will commence when the respective
Fund's cash shortfall exceeds $100,000.

Note 10. Trustees Retirement Plan

The Trustees (and Directors) of the SunAmerica Family of Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement
Plan (the "Retirement Plan") effective January 1, 1993 for the unaffiliated
Trustees. The Retirement Plan provides generally that if an unaffiliated
Trustee who has at least 10 years of consecutive service as a Disinterested
Trustee of any of the SunAmerica mutual funds (an "Eligible Trustee")
retires after reaching age 60 but before age 70 or dies while a Trustee,
such person will be eligible to receive a retirement or death benefit from
each SunAmerica mutual fund with respect to which he or she is an Eligible
Trustee. As of each birthday, prior to the 70th birthday, each Eligible
Trustee will be credited with an amount equal to (i) 50% of his or her
regular fees (excluding committee fees) for services as a Disinterested
Trustee of each SunAmerica mutual fund for the calendar year in which such
birthday occurs, plus (ii) 8.5% of any amounts credited under clause (i)
during prior years. An Eligible Trustee may receive any benefits payable
under the Retirement Plan, at his or her election, either in one lump sum
or in up to fifteen annual installments. As of September 30, 1995, the
Funds had accrued $5,120, $1,867, $886, $2,243, $436 and $58 which is
included in accrued expenses on the Statement of Assets and Liabilities,
and for the year ended September 30, 1995 expensed $3,883, $1,381, $670,
$1,716, $436 and $56 for the Balanced Assets Fund, Blue Chip Growth Fund,
Mid-Cap Growth Fund, Small Company Growth Fund, Global Balanced Fund and
Growth and Income Fund, respectively, for the Retirement Plan which is
included in Trustees' fees and expenses on the Statement of Operations.

40
<PAGE>

SUNAMERICA EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of SunAmerica Equity Funds

In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of SunAmerica Balanced
Assets Fund, SunAmerica Blue Chip Growth Fund, SunAmerica Mid-Cap Growth Fund,
SunAmerica Small Company Growth Fund, SunAmerica Global Balanced Fund and
SunAmerica Growth and Income Fund (constituting SunAmerica Equity Funds,
hereafter referred to as the "Fund") at September 30, 1995, and the results of
each of their operations, the changes in each of their net assets and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 1995 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas New York, New York November 10, 1995

41
<PAGE>

SUNAMERICA EQUITY FUNDS
SHAREHOLDER TAX INFORMATION--(UNAUDITED)

Certain tax information regarding the SunAmerica Equity Funds is required to
be provided to shareholders based upon each Fund's income and distributions
for the taxable year ended September 30, 1995. The information and
distributions reported herein may differ from the information and
distributions taxable to the shareholders for the calendar year ending
December 31, 1995. The information necessary to complete your income tax
returns will be included with your Form 1099-DIV which will be sent to you
under separate cover in January 1996.

During the year ended September 30, 1995 the Funds paid the following
dividends per share:

<TABLE>
<CAPTION>
TOTAL ORDINARY NET SHORT-TERM NET LONG-TERM
DIVIDENDS INCOME CAPITAL GAINS CAPITAL GAINS
--------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Balanced Assets Class A..... $1.03 $.45 $.26 $.32
Balanced Assets Class B..... .94 .36 .26 .32
Blue Chip Growth Class A.... 1.09 -- .27 .82
Blue Chip Growth Class B.... 1.09 -- .27 .82
Mid-Cap Growth Class A...... .04 .04 -- --
Mid-Cap Growth Class B...... .02 .02 -- --
Small Company Growth Class
A.......................... .41 -- .22 .19
Small Company Growth Class
B.......................... .41 -- .20 .21
Global Balanced Class A..... .01 .01 -- --
Global Balanced Class B..... .01 .01 -- --
Growth and Income Class A... .45 .30 .15 --
Growth and Income Class B... .43 .28 .15 --
</TABLE>

For the year ended September 30, 1995, 24.5%, 19.5%, 4.1%, 34.9% and 17.2%
of the dividends paid from ordinary income by Balanced Assets Fund, Blue Chip
Growth Fund, Mid-Cap Growth Fund, Global Balanced Fund and Growth and Income
Fund, respectively, qualified for the 70% dividends received deductions for
corporations.

<PAGE>

SUNAMERICA EQUITY FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- March 31, 1996 (unaudited)

<TABLE>
<CAPTION>
Balanced Blue Chip Mid-Cap Small Company Global Growth and
Assets Growth Growth Growth Balanced Income
Fund Fund Fund Fund Fund Fund
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INVESTMENT SECURITIES, AT
VALUE (IDENTIFIED COST
$285,937,411;
$81,776,931;
$41,186,826;
$132,673,317;
$20,661,425 AND
$7,876,075,
RESPECTIVELY)........... $306,616,158 $88,463,000 $48,516,413 $165,611,218 $22,477,460 $8,599,375
SHORT-TERM SECURITIES
(COST EQUALS MARKET).... -- -- -- -- 2,825,000 --
REPURCHASE AGREEMENTS
(COST EQUALS MARKET).... 8,278,000 4,095,000 2,106,000 22,066,000 243,000 747,000
CASH..................... 554 611 964 465,323 8,112 880
FOREIGN CASH............. -- -- -- -- 35,837 --
RECEIVABLE FOR
INVESTMENTS SOLD........ 44,583 -- -- 7,270,143 316,806 239,077
RECEIVABLE FOR SHARES OF
BENEFICIAL INTEREST
SOLD.................... 1,007,749 32,171 113,343 2,425,288 184,382 21,662
INTEREST AND DIVIDENDS
RECEIVABLE.............. 1,667,752 71,826 17,059 27,613 225,763 20,084
PREPAID EXPENSES......... 6,875 31,033 5,367 5,224 493 50
RECEIVABLE FROM
INVESTMENT ADVISER...... -- -- -- -- 5,611 9,376
UNREALIZED APPRECIATION
OF FOREIGN CURRENCY
CONTRACTS............... -- -- -- -- 80,096 --
RECEIVABLE FOR FOREIGN
CURRENCY CONTRACTS SOLD. -- -- -- -- 1,448,521 --
DEFERRED ORGANIZATIONAL
EXPENSES................ -- -- -- -- 2,773 897
------------ ----------- ----------- ------------ ----------- ----------
TOTAL ASSETS............ 317,621,671 92,693,641 50,759,146 197,870,809 27,853,854 9,638,401
------------ ----------- ----------- ------------ ----------- ----------
LIABILITIES:
PAYABLE FOR INVESTMENTS
PURCHASED............... 3,443,876 2,126,038 -- 5,692,666 1,717,263 156,272
PAYABLE FOR SHARES OF
BENEFICIAL INTEREST
REDEEMED................ 229,286 29,363 17,265 106,747 52,337 --
ACCRUED EXPENSES......... 114,437 72,121 57,661 93,892 85,081 40,445
INVESTMENT ADVISORY AND
MANAGEMENT FEES PAYABLE. 197,323 57,271 31,521 116,471 20,184 5,812
DISTRIBUTION AND SERVICE
MAINTENANCE FEES
PAYABLE................. 185,649 49,716 20,821 96,294 15,310 4,888
DIVIDENDS PAYABLE........ 53,852 -- -- -- -- 518
UNREALIZED DEPRECIATION
OF FOREIGN CURRENCY
CONTRACTS............... -- -- -- -- 59,369 --
PAYABLE FOR FOREIGN
CURRENCY CONTRACTS
PURCHASED............... -- -- -- -- 1,457,837 --
------------ ----------- ----------- ------------ ----------- ----------
TOTAL LIABILITIES....... 4,224,423 2,334,509 127,268 6,106,070 3,407,381 207,935
------------ ----------- ----------- ------------ ----------- ----------
NET ASSETS........... $313,397,248 $90,359,132 $50,631,878 $191,764,739 $24,446,473 $9,430,466
============ =========== =========== ============ =========== ==========
NET ASSETS WERE COMPOSED
OF:
SHARES OF BENEFICIAL
INTEREST, $.01 PAR
VALUE................... $ 190,499 $ 53,542 $ 30,531 $ 86,706 $ 33,080 $ 9,813
PAID-IN CAPITAL.......... 274,178,392 75,853,800 42,246,554 153,541,932 23,160,086 7,747,926
------------ ----------- ----------- ------------ ----------- ----------
274,368,891 75,907,342 42,277,085 153,628,638 23,193,166 7,757,739
ACCUMULATED UNDISTRIBUTED
NET INVESTMENT LOSS..... (27,814) (188,971) (118,469) (396,339) (269,064) (28,280)
ACCUMULATED UNDISTRIBUTED
NET REALIZED GAIN (LOSS)
ON INVESTMENTS.......... 18,377,424 7,965,359 1,143,675 5,583,551 (2,547,988) 977,703
ACCUMULATED NET REALIZED
GAIN (LOSS) ON FOREIGN
CURRENCY AND OTHER
ASSETS AND LIABILITIES.. -- (10,667) -- 10,988 2,242,766 --
NET UNREALIZED
APPRECIATION OF
INVESTMENTS............. 20,678,747 6,686,069 7,329,587 32,937,901 1,816,035 723,300
NET UNREALIZED
APPRECIATION OF FOREIGN
CURRENCY, OTHER ASSETS
AND LIABILITIES......... -- -- -- -- 11,558 4
------------ ----------- ----------- ------------ ----------- ----------
NET ASSETS........... $313,397,248 $90,359,132 $50,631,878 $191,764,739 $24,446,473 $9,430,466
============ =========== =========== ============ =========== ==========
Class A (unlimited shares
authorized):
NET ASSET VALUE AND
REDEMPTION PRICE PER
SHARE
($142,045,343/8,633,410;
$48,668,849/2,861,064;
$39,159,482/2,351,870;
$112,033,258/5,023,335;
$9,039,466/1,219,166 AND
$5,332,383/554,743 NET
ASSETS AND SHARES OF
BENEFICIAL INTEREST
ISSUED AND OUTSTANDING,
RESPECTIVELY)........... $ 16.45 $ 17.01 $ 16.65 $ 22.30 $ 7.41 $ 9.61
MAXIMUM SALES CHARGE
(5.75% OF OFFERING
PRICE).................. 1.00 1.04 1.02 1.36 0.45 0.59
------------ ----------- ----------- ------------ ----------- ----------
MAXIMUM OFFERING PRICE TO
PUBLIC.................. $ 17.45 $ 18.05 $ 17.67 $ 23.66 $ 7.86 $ 10.20
============ =========== =========== ============ =========== ==========
Class B (unlimited shares
authorized):
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PRICE (LESS ANY
APPLICABLE CONTINGENT
DEFERRED SALES CHARGE)
PER SHARE
($171,351,905/10,416,502;
$41,690,283/2,493,112;
$11,472,396/701,261;
$79,731,481/3,647,300;
$15,407,007/2,088,821
AND $4,098,083/426,539
NET ASSETS AND SHARES OF
BENEFICIAL INTEREST
ISSUED AND OUTSTANDING,
RESPECTIVELY)........... $ 16.45 $ 16.72 $ 16.36 $ 21.86 $ 7.38 $ 9.61
============ =========== =========== ============ =========== ==========
</TABLE>
See Notes to Financial Statements

1
<PAGE>

SUNAMERICA EQUITY FUNDS
STATEMENT OF OPERATIONS -- For the six months ended March 31, 1996 (unaudited)

<TABLE>
<CAPTION>
Balanced Blue Chip Mid-Cap Small Company Global Growth and
Assets Growth Growth Growth Balanced Income
Fund Fund Fund Fund Fund Fund
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest (net of with-
holding taxes of $206
on Global Balanced
Fund)................. $ 3,124,361 $ 160,095 $ 204,710 $ 877,628 $ 209,579 $ 30,035
Dividends (net of with-
holding taxes of
$5,304, $599, $599,
$1,774, $14,089 and
$508, respectively) .. 1,468,003 427,607 90,811 179,216 113,660 78,713
----------- ---------- ---------- ----------- ---------- ----------
Total investment in-
come.................. 4,592,364 587,702 295,521 1,056,844 323,239 108,748
----------- ---------- ---------- ----------- ---------- ----------
Expenses:
Investment advisory and
management fees....... 1,103,927 316,551 176,676 610,724 114,479 28,374
Distribution and serv-
ice maintenance fees-
Class A............... 225,390 77,797 65,568 165,820 15,408 7,615
Distribution and serv-
ice maintenance fees-
Class B............... 827,931 199,791 48,231 340,528 70,456 16,071
Transfer agent fees and
expenses-Class A...... 168,232 60,177 52,030 134,737 12,905 5,112
Transfer agent fees and
expenses-Class B...... 204,304 56,035 13,707 93,159 19,420 4,761
Custodian fees and ex-
penses................ 64,150 34,410 32,750 52,350 89,235 23,525
Registration fees-Class
A..................... 6,702 4,856 5,417 9,867 3,603 4,362
Registration fees-Class
B..................... 2,194 4,089 2,885 7,034 4,210 3,589
Audit and tax consult-
ing fees.............. 26,375 10,475 8,295 16,370 6,265 2,250
Trustees' fees and ex-
penses................ 15,533 4,826 2,672 8,859 1,289 436
Printing expense....... 9,035 4,530 2,735 7,575 1,595 --
Insurance expense...... 3,241 920 586 1,863 295 60
Legal fees and ex-
penses................ 2,185 490 -- 1,800 -- --
Interest expense....... -- 146 1,107 -- -- --
Amortization of organi-
zational expenses..... -- -- -- -- 440 139
Miscellaneous expenses. 3,648 1,580 1,331 2,497 516 595
----------- ---------- ---------- ----------- ---------- ----------
Total expenses......... 2,662,847 776,673 413,990 1,453,183 340,116 96,889
Less: expenses
waived/reimbursed by
investment adviser.... -- -- -- -- (48,186) (55,272)
----------- ---------- ---------- ----------- ---------- ----------
Net expenses........... 2,662,847 776,673 413,990 1,453,183 291,930 41,617
----------- ---------- ---------- ----------- ---------- ----------
Net investment income
(loss)................. 1,929,517 (188,971) (118,469) (396,339) 31,309 67,131
----------- ---------- ---------- ----------- ---------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on in-
vestments.............. 23,612,521 9,578,483 1,377,332 6,314,880 598,804 1,019,306
Net realized gain on
foreign currency and
other assets and lia-
bilities............... -- -- -- 37 571,733 --
Net change in unrealized
appreciation (deprecia-
tion) of investments... (4,828,407) (1,510,812) 1,409,318 8,954,942 267,392 370,323
Net change in unrealized
appreciation (deprecia-
tion) of foreign cur-
rency and other assets
and liabilities........ -- -- -- -- (34,369) 4
----------- ---------- ---------- ----------- ---------- ----------
Net realized and
unrealized gain on in-
vestments, foreign cur-
rency and other assets
and liabilities........ 18,784,114 8,067,671 2,786,650 15,269,859 1,403,560 1,389,633
----------- ---------- ---------- ----------- ---------- ----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS: ........... $20,713,631 $7,878,700 $2,668,181 $14,873,520 $1,434,869 $1,456,764
=========== ========== ========== =========== ========== ==========
</TABLE>

See Notes to Financial Statements

2
<PAGE>

SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
BALANCED ASSETS FUND BLUE CHIP GROWTH FUND MID-CAP GROWTH FUND
-------------------------------- -------------------------------- --------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, 1996 SEPTEMBER 30, MARCH 31, 1996 SEPTEMBER 30, MARCH 31, 1996 SEPTEMBER 30,
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income
(loss)............... $ 1,929,517 $ 4,234,844 $ (188,971) $ (42,924) $ (118,469) $ (237,687)
Net realized gain on
investments.......... 23,612,521 13,383,399 9,578,483 7,615,892 1,377,332 7,432,643
Net realized loss on
foreign currency and
other assets and
liabilities.......... -- -- -- (10,667) -- --
Net change in
unrealized
appreciation/
depreciation of
investments.......... (4,828,407) 28,115,267 (1,510,812) 6,757,773 1,409,318 3,253,371
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net
assets resulting from
operations............ 20,713,631 45,733,510 7,878,700 14,320,074 2,668,181 10,448,327
------------ ------------ ----------- ----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)..... (1,190,514) (1,892,197) -- -- -- (81,917)
From net investment
income (Class B)..... (1,010,515) (4,315,134) -- -- -- (10,723)
From net realized
gains on investments
(Class A)............ (7,282,221) (2,033,487) (4,646,751) (221,327) (4,337,142) --
From net realized
gains on investments
(Class B)............ (9,730,482) (7,043,145) (4,492,488) (5,263,567) (1,083,506) --
------------ ------------ ----------- ----------- ----------- -----------
Total dividends and
distributions to
shareholders.......... (19,213,732) (15,283,963) (9,139,239) (5,484,894) (5,420,648) (92,640)
------------ ------------ ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM CAPITAL
SHARE TRANSACTIONS
(NOTE 8).............. 29,866,184 18,827,961 9,679,875 (1,851,797) 6,126,708 (43,053)
------------ ------------ ----------- ----------- ----------- -----------
TOTAL INCREASE IN NET
ASSETS................ 31,366,083 49,277,508 8,419,336 6,983,383 3,374,241 10,312,634
NET ASSETS:
Beginning of period.... 282,031,165 232,753,657 81,939,796 74,956,413 47,257,637 36,945,003
------------ ------------ ----------- ----------- ----------- -----------
End of period
[including
undistributed net
investment income
(loss) for March 31,
1996 and September 30,
1995 of $(27,814),
$243,698; $(188,971),
$0; $(118,469), and
$0, respectively]..... $313,397,248 $282,031,165 $90,359,132 $81,939,796 $50,631,878 $47,257,637
============ ============ =========== =========== =========== ===========
</TABLE>

See Notes to Financial Statements

3
<PAGE>

SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND GLOBAL BALANCED FUND GROWTH AND INCOME FUND
-------------------------------- -------------------------------- --------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, 1996 SEPTEMBER 30, MARCH 31, 1996 SEPTEMBER 30, MARCH 31, 1996 SEPTEMBER 30,
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED) 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income
(loss)............... $ (396,339) $ (587,404) $ 31,309 $ 305,478 $ 67,131 $ 183,673
Net realized gain
(loss) on
investments.......... 6,314,880 31,433,571 598,804 (2,564,836) 1,019,306 346,652
Net realized gain on
foreign currency,
other assets and
liabilities.......... 37 10,951 571,733 1,756,424 -- --
Net change in
unrealized
appreciation/
depreciation of
investments.......... 8,954,942 15,112,125 267,392 1,847,343 370,323 297,243
Net change in
unrealized
appreciation/depreciation
of foreign currency,
other assets and
liabilities.......... -- -- (34,369) 42,526 4 --
------------ ------------ ----------- ----------- ---------- ----------
Net increase in net
assets resulting from
operations............ 14,873,520 45,969,243 1,434,869 1,386,935 1,456,764 827,568
------------ ------------ ----------- ----------- ---------- ----------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)..... -- -- (478,740) (24,601) (61,435) (127,668)
From net investment
income (Class B)..... -- -- (693,095) (12,084) (36,891) (54,591)
From net realized
gains on investments
(Class A)............ (16,561,192) (985,792) -- (3,604) (175,889) (63,470)
From net realized
gains on investments
(Class B)............ (12,782,675) (1,122,738) -- (3,671) (127,334) (13,320)
------------ ------------ ----------- ----------- ---------- ----------
Total dividends and
distributions to
shareholders.......... (29,343,867) (2,108,530) (1,171,835) (43,960) (401,549) (259,049)
------------ ------------ ----------- ----------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM CAPITAL
SHARE TRANSACTIONS
(NOTE 8).............. 48,411,982 23,184,310 592,438 (4,383,749) 2,304,940 2,174,079
------------ ------------ ----------- ----------- ---------- ----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................ 33,941,635 67,045,023 855,472 (3,040,774) 3,360,155 2,742,598
NET ASSETS:
Beginning of period.... 157,823,104 90,778,081 23,591,001 26,631,775 6,070,311 3,327,713
------------ ------------ ----------- ----------- ---------- ----------
End of period
[including
undistributed net
investment income
(loss) for March 31,
1996 and September 30,
1995 of $(396,339),
$0; $(269,064),
$871,462; $(28,280),
and $2,915,
respectively]......... $191,764,739 $157,823,104 $24,446,473 $23,591,001 $9,430,466 $6,070,311
============ ============ =========== =========== ========== ==========
</TABLE>

See Notes to Financial Statements

4
<PAGE>

SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS

BALANCED ASSETS FUND
<TABLE>
<CAPTION>
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
9/24/93-
9/30/93(3)..... $15.07 $ -- $ 0.06 $ 0.06 $ -- $ -- $ -- $15.13 0.40% $ 33,381
9/30/94......... 15.13 0.30 (0.23) 0.07 (0.28) (0.30) (0.58) 14.62 0.50 52,098
9/30/95......... 14.62 0.32 2.51 2.83 (0.45) (0.58) (1.03) 16.42 20.68 119,916
3/31/96(7)...... 16.42 0.13 1.04 1.17 (0.15) (0.99) (1.14) 16.45 7.43 142,045

<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- ------------- -------------- ---------
<S> <C> <C> <C>
9/24/93-
9/30/93(3)..... 1.54%(4) 0.46%(4) 25%
9/30/94......... 1.58 2.00 141
9/30/95......... 1.50 2.13 130
3/31/96(7)...... 1.46(4) 1.66(4) 79

<CAPTION>
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B
6/30/92(5)...... $15.75 $0.33 $ 0.98 $ 1.31 $(0.42) $(1.01) $(1.43) $15.63 7.51% $ 83,234
6/30/93(5)...... 15.63 0.30 2.63 2.93 (0.30) (2.40) (2.70) 15.86 20.29 113,871
7/01/93-
9/30/93(5)..... 15.86 0.05 0.49 0.54 (0.06) (1.21) (1.27) 15.13 3.44 137,456
9/30/94......... 15.13 0.20 (0.23) (0.03) (0.18) (0.30) (0.48) 14.62 (0.14) 180,655
9/30/95......... 14.62 0.23 2.51 2.74 (0.36) (0.58) (0.94) 16.42 19.96 162,115
3/31/96(7)...... 16.42 0.08 1.04 1.12 (0.10) (0.99) (1.09) 16.45 7.10 171,352

- --------------------------------------------------------------------------------

BLUE CHIP GROWTH FUND
<TABLE>
<CAPTION>
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- ------- ----------- ---------- --------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
10/08/93-
9/30/94(3)..... $16.24 $ 0.09 (1) $(0.26) $(0.17) $ -- $(0.65) $(0.65) $15.42 (1.05)% $ 3,207
9/30/95......... 15.42 0.02 (1) 2.99 3.01 -- (1.09) (1.09) 17.34 21.29 42,407
3/31/96(7)...... 17.34 (0.01)(1) 1.59 1.58 -- (1.91) (1.91) 17.01 9.93 48,669

RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- -------------- --------------- ---------
<S> <C> <C> <C>
10/08/93-
9/30/94(3)..... 1.64%(4)(6) 0.65%(4)(6) 170%
9/30/95......... 1.58(6) 0.11(6) 251
3/31/96(7)...... 1.53(4) (0.14)(4) 120

<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- -------------- --------------- ---------
<S> <C> <C> <C>
12/31/91(5)..... 2.50% (0.42)% 79%
12/31/92(5)..... 2.53 (0.75) 192
1/01/93-
9/30/93(5)..... 2.46(4) (0.14)(4) 171
9/30/94......... 2.28 (0.05) 170
9/30/95......... 2.22 (0.09) 251
3/31/96(7)...... 2.19(4) (0.79)(4) 120
</TABLE>
- ------------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Equity
Funds fiscal year ends were changed to September 30
(6) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
6/30/92 6/30/93 9/30/93 9/30/94 9/30/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balanced Assets Class B.............. .12% .05% .04% -- --
Blue Chip Growth Class A............. -- -- -- 1.66% .11%
</TABLE>

(7) Unaudited

See Notes to Financial Statements

5
<PAGE>

SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS

MID-CAP GROWTH FUND

11/30/91(4)..... $12.90 $0.16 $ 3.09 $ 3.25 $(0.25) $(2.60) $(2.85) $13.30 31.13% $29,142
11/30/92(4)..... 13.30 (0.07) 2.87 2.80 (0.02) (0.44) (0.46) 15.64 21.42 30,024
12/01/92-
9/30/93(4)..... 15.64 (0.09)(2) 3.17 3.08 -- (0.69) (0.69) 18.03 20.42 34,918
9/30/94......... 18.03 0.04 (2) (1.64) (1.60) -- (2.65) (2.65) 13.78 (9.60) 32,906
9/30/95......... 13.78 (0.08)(2) 4.14 4.06 (0.04) -- (0.04) 17.80 29.51 37,714
3/31/96(9)...... 17.80 (0.03)(2) 0.99 0.96 -- (2.11) (2.11) 16.65 5.75 39,160

<CAPTION>
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
- ---------------- --------- ------- ----------- ---------- --------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B
10/04/93-
9/30/94(5)..... $18.12 $0.03 (2) $(1.80) $(1.77) $ -- $(2.65) $(2.65) $13.70 (10.56)% $ 4,039
9/30/95......... 13.70 (0.18)(2) 4.08 3.90 (0.02) -- (0.02) 17.58 28.55 9,544
3/31/96(9)...... 17.58 (0.09)(2) 0.98 0.89 -- (2.11) (2.11) 16.36 5.40 11,472

<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- -------------- --------------- ---------
<S> <C> <C> <C>
10/04/93-
9/30/94(5)..... 2.43%(3)(6) 0.20%(3)(6) 555%
9/30/95......... 2.31(7) (0.17)(7) 392
3/31/96(9)...... 2.30(3) (1.07)(3) 155
</TABLE>

- --------------------------------------------------------------------------------

SMALL COMPANY GROWTH FUND

11/30/91(4)(8).. $11.88 $(0.01) $ 4.92 $ 4.91 $ -- $(2.91) $(2.91) $13.88 52.05% $27,832 1.86%
11/30/92(4)(8).. 13.88 (0.12) 3.39 3.27 -- (0.69) (0.69) 16.46 24.31 32,056 1.90
12/01/92-
9/30/93(4)(8).. 16.46 (0.02) 4.07 4.05 -- (0.73) (0.73) 19.78 25.68 39,238 1.83(3)
9/30/94......... 19.78 (0.10) (1.40) (1.50) -- (1.46) (1.46) 16.82 (7.74) 38,570 1.67
9/30/95......... 16.82 (0.04) 8.28 8.24 -- (0.41) (0.41) 24.65 50.00 89,510 1.57
3/31/96(9)...... 24.65 (0.02) 2.20 2.18 -- (4.53) (4.53) 22.30 9.75 112,033 1.52(3)

<CAPTION>
RATIO OF NET
INVESTMENT
INCOME
PERIOD TO AVERAGE PORTFOLIO
ENDED NET ASSETS TURNOVER
- ---------------- ------------ ---------
<S> <C> <C>
11/30/91(4)(8).. (0.06)% 110%
11/30/92(4)(8).. (0.88) 209
12/01/92-
9/30/93(4)(8).. (0.15)(3) 216
9/30/94......... (0.60) 411
9/30/95......... (0.22) 351
3/31/96(9)...... (0.22)(3) 137

<CAPTION>
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS RATIO OF
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF EXPENSES
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD TO AVERAGE
ENDED OF PERIOD INCOME(2) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S) NET ASSETS
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B
9/24/93-
9/30/93(5)..... $19.66 $ -- $ 0.12 $ 0.12 $ -- $ -- $ -- $19.78 0.61% $38,898 2.34%(3)
9/30/94......... 19.78 (0.20) (1.42) (1.62) -- (1.46) (1.46) 16.70 (8.40) 52,208 2.31
9/30/95......... 16.70 (0.16) 8.19 8.03 -- (0.41) (0.41) 24.32 49.08 68,313 2.22
3/31/96(9) 24.32 (0.09) 2.16 2.07 -- (4.53) (4.53) 21.86 9.39 79,732 2.16 (3)

<CAPTION>
RATIO OF NET
INVESTMENT
INCOME
PERIOD TO AVERAGE PORTFOLIO
ENDED NET ASSETS TURNOVER
- ---------------- ------------ ---------
<S> <C> <C>
9/24/93-
9/30/93(5)..... (1.70)%(3) 216%
9/30/94......... (1.23) 411
9/30/95......... (0.84) 351
3/31/96(9) (0.86) (3) 137
</TABLE>
- ------------
(1) Total return is not annualized and does not reflect sales load
(2) Calculated based upon average shares outstanding
(3) Annualized
(4) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Equity
Funds fiscal year ends were changed to September 30
(5) Commencement of sale of respective class of shares
(6) Net of expense reimbursement equivalent to .48% of average net assets for
the period ended 9/30/94
(7) Net of expense reimbursement equivalent to .17% of average net assets for
the year ended 9/30/95
(8) Restated to reflect a 0.984460367 for 1.00 stock split effective September
24, 1993
(9) Unaudited

See Notes to Financial Statements

6
<PAGE>

SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS

GLOBAL BALANCED FUND

6/15/94-
9/30/94(3)..... $6.94 $0.02 $(0.05) $(0.03) $ -- $ -- $ -- $6.91 (0.43)% $13,100
9/30/95......... 6.91 0.10 0.36 0.46 (0.01) -- (0.01) 7.36 6.72 9,615
3/31/96(6)...... 7.36 0.02 0.45 0.47 (0.42) -- (0.42) 7.41 6.69 9,039

<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- -------------- --------------- ---------
<S> <C> <C> <C>
6/15/94-
9/30/94(3)..... 2.15%(4)(5) 0.93%(4)(5) 18%
9/30/95......... 2.15(5) 1.36(5) 169
3/31/96(6)...... 2.15(4)(5) 0.66(4)(5) 70

<CAPTION>
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B
6/16/94-
9/30/94(3)..... $6.94 $0.01 $(0.05) $(0.04) $ -- $ -- $ -- $6.90 (0.58)% $13,532
9/30/95......... 6.90 0.05 0.36 0.41 (0.01) -- (0.01) 7.30 5.91 13,976
3/31/96(6)...... 7.30 -- 0.46 0.46 (0.38) -- (0.38) 7.38 6.46 15,407

<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- -------------- --------------- ---------
<S> <C> <C> <C>
6/16/94-
9/30/94(3)..... 2.80%(4)(5) 0.33%(4)(5) 18%
9/30/95......... 2.80(5) 0.75(5) 169
3/31/96(6)...... 2.80(4)(5) 0.03(4)(5) 70
</TABLE>

- --------------------------------------------------------------------------------

GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
7/01/94-
9/30/94(3)..... $7.33 $0.07 $0.10 $0.17 $(0.06) $ -- $(0.06) $7.44 2.34% $3,098
9/30/95......... 7.44 0.32 1.08 1.40 (0.30) (0.15) (0.45) 8.39 19.53 3,532
3/31/96(6)...... 8.39 0.09 1.65 1.74 (0.13) (0.39) (0.52) 9.61 21.20 5,332

<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- ------------- -------------- ---------
<S> <C> <C> <C>
7/01/94-
9/30/94(3)..... 1.50%(4)(5) 3.48%(4)(5) 8%
9/30/95......... 0.46(5) 4.16(5) 230
3/31/96(6)...... 0.86(4)(5) 2.02(4)(5) 103

<CAPTION>
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B
7/06/94-
9/30/94(3)..... $7.33 $0.05 $0.11 $0.16 $(0.05) $ -- $(0.05) $7.44 2.19% $ 229
9/30/95......... 7.44 0.35 1.03 1.38 (0.28) (0.15) (0.43) 8.39 19.19 2,538
3/31/96(6)...... 8.39 0.07 1.65 1.72 (0.11) (0.39) (0.50) 9.61 20.91 4,098

<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- ------------- -------------- ---------
<S> <C> <C> <C>
7/06/94-
9/30/94(3)..... 2.15%(4)(5) 2.86%(4)(5) 8%
9/30/95......... 0.30(5) 4.48(5) 230
3/31/96(6)...... 1.42(4)(5) 1.45(4)(5) 103
</TABLE>
- ------------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
9/30/94 9/30/95 3/31/96
------- ------- -------
<S> <C> <C> <C>
Global Balanced Class A.............................. 1.14% .40% .45%
Global Balanced Class B.............................. .93 .45 .40
Growth and Income Class A............................ 4.48 2.96 1.39
Growth and Income Class B............................ 20.35 5.07 1.56
</TABLE>
(6) Unaudited

See Notes to Financial Statements

7
<PAGE>

SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited)

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--68.0%
Aerospace & Military Technology--1.1%
Boeing Co. .............................................. 40,000 $ 3,465,000
-----------
Apparel & Textiles--1.7%
NIKE, Inc. .............................................. 35,000 2,843,750
Tommy Hilfiger Corp.+ ................................... 30,000 1,376,250
Warnaco Group, Inc....................................... 50,000 1,206,250
-----------
5,426,250
-----------
Automotive--2.8%
Chrysler Corp. .......................................... 50,000 3,112,500
Dana Corp. .............................................. 40,000 1,335,000
Ford Motor Co. .......................................... 60,000 2,062,500
General Motors Corp. .................................... 40,000 2,130,000
-----------
8,640,000
-----------
Banks--6.5%
Bank Of Boston Corp. .................................... 40,000 1,985,000
BankAmerica Corp. ....................................... 20,000 1,550,000
Chemical Banking Corp. .................................. 50,000 3,525,000
Citicorp................................................. 30,000 2,400,000
First Bank System, Inc. ................................. 25,000 1,490,625
First Interstate Bancorp ................................ 15,000 2,602,500
First Security Corp. .................................... 45,000 1,248,750
Signet Banking Corp. .................................... 30,000 746,250
Summit Bancorp .......................................... 130,000 4,810,000
-----------
20,358,125
-----------
Broadcasting & Media--1.2%
Cellularvision USA, Inc.+ ............................... 15,000 165,000
Scholastic Corp.+ ....................................... 15,000 1,031,250
Time Warner, Inc. ....................................... 30,000 1,226,250
Viacom, Inc. Class B+.................................... 30,000 1,263,750
-----------
3,686,250
-----------
Chemicals--3.2%
Cabot Corp. ............................................. 67,400 2,055,700
du Pont (E.I.) de Nemours & Co. ......................... 35,000 2,905,000
Rohm & Haas Co. ......................................... 25,000 1,662,500
Union Carbide Corp. ..................................... 50,000 2,481,250
Witco Corp. ............................................. 25,000 881,250
-----------
9,985,700
-----------
Communication Equipment--3.4%
Ericsson (L.M.) Telephone Co. ADR(1)..................... 100,000 2,137,500
General Instrument Corp.+ ............................... 35,000 958,125
Motorola, Inc. .......................................... 25,000 1,325,000
Nokia Corp. ADR(1) ...................................... 20,000 685,000
Octel Communications Corp.+ ............................. 35,000 1,688,750
</TABLE>
<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
<S> <C> <C>
Communication Equipment (continued)
Tellabs, Inc.+ ........................................... 60,000 $ 2,902,500
U.S. Robotics Corp. ...................................... 7,500 969,375
-----------
10,666,250
-----------
Computers & Business Equipment--2.5%
3Com Corp.+ .............................................. 25,000 996,875
Hewlett-Packard Co. ...................................... 10,000 940,000
International Business Machines Corp. .................... 10,000 1,111,250
Newbridge Networks Corp. ADR+(1) ......................... 30,000 1,687,500
Seagate Technology ....................................... 35,000 1,916,250
Sun Microsystems, Inc.+ .................................. 25,000 1,093,750
-----------
7,745,625
-----------
Conglomerate--2.7%
AlliedSignal, Inc. ....................................... 20,000 1,182,500
Crane Co. ................................................ 20,000 807,500
General Electric Co....................................... 20,000 1,557,500
United Technologies Corp. ................................ 45,000 5,051,250
-----------
8,598,750
-----------
Department Stores--2.2%
May Department Stores Co. ................................ 30,000 1,447,500
Woolworth Corp. .......................................... 350,000 5,468,750
-----------
6,916,250
-----------
Electronics--0.9%
Applied Materials, Inc.+ ................................. 40,000 1,395,000
LSI Logic Corp.+ ......................................... 35,000 936,250
Texas Instruments, Inc. .................................. 10,000 508,750
-----------
2,840,000
-----------
Energy Services--2.4%
Baker Hughes, Inc. ....................................... 35,000 1,023,750
BJ Services Co.+.......................................... 25,000 837,500
Schlumberger Ltd. ADR(1).................................. 15,000 1,186,875
Sonat Offshore Drilling, Inc. ............................ 25,000 1,275,000
Tenneco, Inc. ............................................ 40,557 2,266,122
Tidewater, Inc. .......................................... 25,000 950,000
-----------
7,539,247
-----------
Energy Sources--1.7%
Anadarko Petroleum Corp. ................................. 20,000 1,110,000
Burlington Resources, Inc. ............................... 30,000 1,113,750
Kerr-McGee Corp. ......................................... 30,000 1,905,000
Pacific Enterprises....................................... 50,000 1,293,750
-----------
5,422,500
-----------
Financial Services--3.8%
Alex Brown, Inc. ......................................... 30,000 1,556,250
Capital One Financial Corp. .............................. 50,000 1,375,000
</TABLE>

8
<PAGE>

SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited)--(continued)

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
<S> <C> <C>
Leisure & Tourism--1.6%
Disney (Walt) Co. ......................................... 20,000 $ 1,277,500
HFS, Inc.+ ................................................ 20,000 972,500
MGM Grand, Inc.+ .......................................... 30,000 1,151,250
Mirage Resorts, Inc.+ ..................................... 30,000 1,316,250
Red Roof Inn's, Inc.+ ..................................... 25,000 371,875
-----------
5,089,375
-----------
Machinery--1.1%
Briggs & Stratton Corp. ................................... 25,000 1,078,125
Case Corp. ................................................ 35,000 1,780,625
Caterpillar, Inc. ......................................... 10,000 680,000
-----------
3,538,750
-----------
Manufacturing--0.3%
Trinity Industries, Inc. .................................. 25,000 871,875
-----------
Medical Products--1.5%
Becton Dickinson & Co. .................................... 15,000 1,228,125
Guidant Corp. ............................................. 20,000 1,082,500
Medtronic, Inc. ........................................... 40,000 2,385,000
-----------
4,695,625
-----------
Metals & Mining--0.8%
Aluminum Co. of America.................................... 15,000 939,375
Phelps Dodge Corp. ........................................ 25,000 1,715,625
-----------
2,655,000
-----------
Pharmaceuticals--7.8%
Abbott Laboratories ....................................... 30,000 1,222,500
American Home Products Corp. .............................. 10,000 1,083,750
Amgen, Inc.+............................................... 30,000 1,743,750
Bristol-Myers Squibb Co. .................................. 25,000 2,140,625
Cephalon, Inc.+ ........................................... 60,000 1,552,500
Glaxo Holdings PLC ADR(1).................................. 50,000 1,256,250
IVAX Corp. ................................................ 40,000 1,035,000
Lilly (Eli) & Co. ......................................... 40,000 2,600,000
Merck & Co., Inc. ......................................... 54,000 3,361,500
Pfizer, Inc. .............................................. 20,000 1,340,000
Schering-Plough Corp. ..................................... 32,500 1,889,063
Smithkline Beecham PLC ADR(1).............................. 40,000 2,060,000
Synaptic Pharmaceutical Corp.+ ............................ 3,000 60,000
Teva Pharmaceutical Industries Ltd. ADR(1)................. 30,000 1,155,000
Warner-Lambert Co. ........................................ 20,000 2,065,000
-----------
24,564,938
-----------
Pollution Control--1.1%
Browning-Ferris Industries, Inc. .......................... 35,000 1,102,500
Millipore Corp. ........................................... 30,000 1,147,500
WMX Technologies, Inc. .................................... 35,000 1,111,250
-----------
3,361,250
-----------
</TABLE>

9
<PAGE>

SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited) -- (continued)

<TABLE>
<CAPTION>
Shares/
Principal Amount Value
Security Description (in thousands) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (continued)
Software--1.9%
Informix Corp.+ ................................ 50,000 $ 1,318,750
Microsoft Corp.+ ............................... 20,000 2,062,500
Oracle Systems Corp.+ .......................... 25,000 1,178,125
PeopleSoft, Inc.+ .............................. 25,000 1,437,500
------------
5,996,875
------------
Specialty Retail--0.6%
Home Depot, Inc.+............................... 40,000 1,915,000
------------
Telecommunications--0.6%
AT&T Corp. ..................................... 30,000 1,837,500
------------
Transportation--0.7%
Union Pacific Corp. ............................ 30,000 2,058,750
------------
Total Common Stock
(cost $191,875,316)............................. 212,937,885
------------
OPTIONS--0.8%+
Stock Index Put Options--0.8%
S&P 500 Index, June/645(2)......................
(COST $2,235,750)............................... 150,000 2,475,000
------------
BONDS & NOTES--3.8%
Apparel & Textiles--1.0%
Bass America, Inc.
8.13% due 3/31/02.............................. $ 3,000 3,206,850
------------
Banks--0.6%
Chase Manhattan Corp.
7.88% due 8/01/04.............................. 2,000 2,024,620
------------
Financial Services--2.2%
Bear Stearns Cos., Inc.
6.63% due 1/15/04.............................. 5,000 4,864,250
Donaldson Lufkin & Jenrette, Inc.
6.88% due 11/01/05............................. 2,000 1,953,480
------------
6,817,730
------------
Total Bonds & Notes
(cost $11,496,890).............................. 12,049,200
------------
</TABLE>

<TABLE>
<CAPTION>
Shares/
Principal Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
U.S. TREASURY NOTES--23.2%
4.38% due 8/15/96.............................. $5,000 $ 4,982,050
5.13% due 2/28/98.............................. 5,000 4,942,200
5.25% due 1/31/01.............................. 5,000 4,828,100
5.75% due 10/31/97-8/15/03..................... 12,000 11,762,810
5.88% due 11/15/05............................. 10,000 9,637,500
6.25% due 5/31/00.............................. 5,000 5,031,250
6.75% due 5/31/99.............................. 5,000 5,107,800
6.88% due 7/31/99-3/31/00...................... 13,000 13,347,770
7.25% due 2/15/98.............................. 3,300 3,383,523
7.50% due 2/15/05.............................. 5,000 5,365,600
9.25% due 8/15/98.............................. 4,000 4,293,760
------------
Total U.S. Treasury Notes
(cost $73,462,736)............................. 72,682,363
------------
U.S. TREASURY BONDS--2.1%
6.25% due 8/15/23
(COST $6,866,719).............................. 7,000 6,471,710
------------
Total Investment Securities--97.9%
(cost $285,937,411)............................ 306,616,158
------------
REPURCHASE AGREEMENT--2.6%
Joint Repurchase Agreement Account (Note 3)
(cost $8,278,000).............................. 8,278 8,278,000
------------
TOTAL INVESTMENTS--
(cost $294,215,411)............................ 100.5% 314,894,158
Liabilities in excess of other assets........... (0.5) (1,496,910)
---- ------------
NET ASSETS-- 100.0% $313,397,248
===== ============
</TABLE>
- --------
+Non-income producing security
(1)ADR ("American Depositary Receipt")
(2)Fair valued security, see Note 2

See Notes to Financial Statements

10
<PAGE>

SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited)

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--97.9%
Aerospace & Military Technology--1.8%
BOEING CO. ................................................ 15,000 $ 1,299,375
REMEC, INC.+............................................... 25,000 312,500
-----------
1,611,875
-----------
Apparel & Textiles--3.1%
NIKE, INC. ................................................ 15,000 1,218,750
TOMMY HILFIGER CORP.+...................................... 19,000 871,625
WARNACO GROUP, INC. ....................................... 30,000 723,750
-----------
2,814,125
-----------
Automotive--3.9%
CHRYSLER CORP. ............................................ 15,000 933,750
DANA CORP. ................................................ 20,000 667,500
FORD MOTOR CO. ............................................ 25,000 859,375
GENERAL MOTORS CORP. ...................................... 20,000 1,065,000
-----------
3,525,625
-----------
Banks--6.8%
BANKAMERICA CORP. ......................................... 10,000 775,000
CHEMICAL BANKING CORP. .................................... 10,000 705,000
CITICORP................................................... 10,000 800,000
FIRST SECURITY CORP. ...................................... 25,000 693,750
SIGNET BANKING CORP. ...................................... 30,000 746,250
STANDARD FEDERAL BANCORP. ................................. 25,000 1,062,500
SUMMIT BANCORP............................................. 36,000 1,332,000
-----------
6,114,500
-----------
Broadcasting & Media--3.1%
Big Flower Press Holdings, Inc.+........................... 70,000 892,500
Scholastic Corp.+.......................................... 15,000 1,031,250
Viacom, Inc. Class B+...................................... 20,000 842,500
-----------
2,766,250
-----------
Chemicals--2.9%
Cabot Corp................................................. 20,000 610,000
du Pont (E.I.) de Nemours & Co. ........................... 15,000 1,245,000
Union Carbide Corp. ....................................... 15,000 744,375
-----------
2,599,375
-----------
Communication Equipment--5.0%
Ericsson (L.M.) Telephone Co. ADR(1)....................... 30,000 641,250
Motorola, Inc. ............................................ 10,000 530,000
Nokia Corp. ADR(1)......................................... 20,000 685,000
Octel Communications Corp.+................................ 15,000 723,750
QUALCOMM, Inc.+............................................ 10,000 415,000
Tellabs, Inc.+............................................. 25,000 1,209,375
U.S. Robotics Corp. ....................................... 2,500 323,125
-----------
4,527,500
-----------
Computers & Business Equipment--5.1%
3Com Corp.+................................................ 10,000 598,125
Hewlett-Packard Co. ....................................... 5,000 470,000
International Business Machines Corp. ..................... 5,000 555,625
Newbridge Networks Corp. ADR+(1)........................... 18,000 1,012,500
Seagate Technology+........................................ 15,000 821,250
</TABLE>
<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
<S> <C> <C>
Computers & Business Equipment (continued)
StorMedia, Inc.+............................................ 20,000 $ 465,000
Sun Microsystems, Inc.+..................................... 15,000 656,250
----------
4,578,750
----------
Conglomerate--5.5%
Allied Signal, Inc.......................................... 15,000 886,875
Crane Co. .................................................. 10,000 403,750
General Electric Co......................................... 10,000 778,750
ITT Industries, Inc. ....................................... 25,000 637,500
United Technologies Corp. .................................. 20,000 2,245,000
----------
4,951,875
----------
Consumer Goods--1.1%
Galoob (Lewis) Toys, Inc.+.................................. 50,000 1,012,500
----------
Department Stores--2.4%
May Department Stores Co. .................................. 20,000 965,000
Woolworth Corp. ............................................ 75,000 1,171,875
----------
2,136,875
----------
Electrical Equipment--0.4%
General Instrument Corp. ................................... 15,000 410,625
----------
Electronics--1.4%
Aavid Thermal Technologies, Inc.+........................... 30,000 255,000
Applied Materials, Inc.+.................................... 10,000 348,750
LSI Logic Corp.+............................................ 15,000 401,250
Texas Instruments, Inc. .................................... 5,000 254,375
----------
1,259,375
----------
Energy Services--2.7%
Baker Hughes, Inc. ......................................... 20,000 585,000
BJ Services Co.+............................................ 10,000 335,000
Schlumberger Ltd. ADR(1).................................... 5,000 395,625
Sonat Offshore Drilling, Inc. .............................. 15,000 765,000
Tidewater, Inc. ............................................ 10,000 380,000
----------
2,460,625
----------
Financial Services--6.2%
Alex Brown, Inc. ........................................... 10,000 518,750
Capital One Financial Corp. ................................ 15,000 412,500
First USA, Inc. ............................................ 20,000 1,132,500
MBNA Corp. ................................................. 25,000 740,625
Morgan Stanley Group, Inc. ................................. 15,000 776,250
Reliastar Financial Corp. .................................. 20,000 905,000
Student Loan Marketing Association.......................... 15,000 1,147,500
----------
5,633,125
----------
Food, Beverage & Tobacco--2.0%
IBP, Inc. .................................................. 20,000 512,500
Pioneer Hi-Bred International, Inc. ........................ 15,000 789,375
Robert Mondavi Corp.+....................................... 20,000 515,000
----------
1,816,875
----------
</TABLE>

11
<PAGE>

SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited) -- (continued)

Value
Security Description Shares (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (continued)
Forest Products--1.9%
CONSOLIDATED PAPERS, INC. ................................. 10,000 $ 562,500
Kimberly-Clark Corp. ...................................... 15,000 1,117,500
-----------
1,680,000
-----------
Health Services--10.8%
APRIA HEALTHCARE GROUP, INC.+ ............................. 20,000 635,000
BEVERLY ENTERPRISES, INC.+................................. 25,000 275,000
CAREMARK INTERNATIONAL, INC. .............................. 20,000 502,500
COLUMBIA/HCA HEALTHCARE CORP. ............................. 20,000 1,155,000
COVENTRY CORP.+............................................ 15,000 256,875
HEALTH MANAGEMENT ASSOCIATES, INC.+........................ 25,000 875,000
HEALTHSOURCE, INC.+........................................ 20,000 775,000
HUMANA, INC.+.............................................. 35,000 879,375
LINCARE HOLDINGS, INC.+.................................... 30,000 975,000
ORNDA HEALTHCORP+.......................................... 20,000 575,000
PACIFICARE HEALTH SYSTEMS, INC.+........................... 5,000 426,250
U.S. HEALTHCARE, INC. ..................................... 20,000 917,500
UNITED HEALTHCARE CORP. ................................... 25,000 1,537,500
-----------
9,785,000
-----------
Household Products--0.9%
PROCTER & GAMBLE CO. ...................................... 10,000 847,500
-----------
Insurance--2.1%
AETNA LIFE & CASUALTY CO. ................................. 15,000 1,132,500
LINCOLN NATIONAL CORP. .................................... 15,000 761,250
-----------
1,893,750
-----------
Leisure & Tourism--3.6%
DISNEY (WALT) CO. ......................................... 15,000 958,125
HFS, INC.+................................................. 10,000 486,250
MGM GRAND, INC.+........................................... 20,000 767,500
MIRAGE RESORTS, INC.+...................................... 20,000 877,500
RED ROOF INN'S, INC.+...................................... 10,000 148,750
-----------
3,238,125
-----------
Machinery--0.5%
BRIGGS & STRATTON CORP. ................................... 10,000 431,250
-----------
Medical Products--3.7%
BECTON DICKINSON & CO. .................................... 10,000 818,750
BOSTON SCIENTIFIC CORP.+................................... 10,000 460,000
GUIDANT CORP. ............................................. 10,000 541,250
JOHNSON & JOHNSON CO. ..................................... 10,000 922,500
MEDTRONIC, INC............................................. 10,000 596,250
-----------
3,338,750
-----------
Metals & Mining--0.3%
ALUMINUM CO. OF AMERICA.................................... 5,000 313,125
-----------
Pharmaceuticals--10.3%
ABBOTT LABORATORIES........................................ 15,000 611,250
AMGEN, INC.+............................................... 15,000 871,875
BRISTOL-MYERS SQUIBB CO. .................................. 10,000 856,250
CEPHALON, INC.+............................................ 20,000 517,500
</TABLE>
<TABLE>
<CAPTION>
Shares/
Principal Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
PHARMACEUTICALS (CONTINUED)
IVAX Corp. ...................................... 20,000 $ 517,500
Lilly (Eli) & Co. ............................... 20,000 1,300,000
Merck & Co., Inc. ............................... 20,000 1,245,000
Pfizer, Inc. .................................... 10,000 670,000
Schering-Plough Corp. ........................... 20,000 1,162,500
Smithkline Beecham PLC ADR(1).................... 15,000 772,500
Teva Pharmaceutical Industries Ltd. ADR(1)....... 20,000 770,000
-----------
9,294,375
-----------
Pollution Control--2.2%
Browning-Ferris Industries, Inc. ................ 15,000 472,500
Culligan Water Technologies, Inc.+............... 15,000 487,500
Millipore Corp. ................................. 15,000 573,750
WMX Technologies, Inc. .......................... 15,000 476,250
-----------
2,010,000
-----------
Software--6.4%
Business Objects SA ADR+(1)...................... 10,000 850,000
Fiserv, Inc.+.................................... 30,000 840,000
Informix, Corp.+................................. 25,000 659,375
Microsoft Corp.+................................. 10,000 1,031,250
Oracle Systems Corp.+............................ 15,000 706,875
PeopleSoft, Inc.+................................ 15,000 862,500
SunGuard Data Systems, Inc.+..................... 25,000 856,250
-----------
5,806,250
-----------
Telecommunications--1.0%
AT&T Corp. ...................................... 15,000 918,750
-----------
Transportation--0.8%
Union Pacific Corp............................... 10,000 686,250
-----------
Total Common Stock
(cost $81,776,931)............................... 88,463,000
-----------
Total Investment Securities--97.9%
(cost $81,776,931)............................... 88,463,000
-----------
REPURCHASE AGREEMENT--4.5%
Joint Repurchase Agreement
ACCOUNT (NOTE 3)
(COST $4,095,000)................................ $ 4,095 4,095,000
-----------
TOTAL INVESTMENTS--
(cost $85,871,931)............................... 102.4% 92,558,000
Liabilities in excess of other assets............. (2.4) (2,198,868)
------- -----------
NET ASSETS-- 100.0% $90,359,132
======= ===========
</TABLE>
- --------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")

See Notes to Financial Statements

12
<PAGE>

SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited)

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
- -----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--95.8%
Aerospace & Military Technology--0.9%
Remec, Inc.+.............................................. 37,000 $ 462,500
----------
Apparel & Textiles--9.2%
Gap, Inc. ................................................ 10,000 553,750
Gucci Group NV ADR+(1).................................... 20,000 960,000
Jones Apparel Group, Inc.+................................ 15,000 727,500
Mossimo, Inc.+............................................ 5,000 161,875
Nautica Enterprises, Inc.+................................ 10,000 477,500
NIKE, Inc. ............................................... 5,000 406,250
Nine West Group, Inc.+.................................... 10,000 432,500
Quiksilver, Inc.+......................................... 7,500 238,125
Tommy Hilfiger Corp.+..................................... 10,000 458,750
Warnaco Group, Inc. ...................................... 10,000 241,250
----------
4,657,500
----------
Banks--3.6%
First Tennessee National Corp. ........................... 20,000 660,000
Long Island Bancorp, Inc. ................................ 20,000 562,500
PNC Bank Corp. ........................................... 12,300 378,225
Signet Banking Corp. ..................................... 10,000 248,750
----------
1,849,475
----------
Broadcasting & Media--2.1%
Infinity Broadcasting Corp.+.............................. 15,000 650,625
United Video Satellite Group+............................. 20,000 420,000
----------
1,070,625
----------
Business Services--0.8%
Data Processing Resources Corp.+.......................... 15,200 418,000
----------
Chemicals--3.6%
Cabot Corp. .............................................. 27,000 823,500
Praxair, Inc. ............................................ 10,000 398,750
Sigma-Aldrich Corp. ...................................... 7,000 400,750
Witco Corp. .............................................. 5,000 176,250
----------
1,799,250
----------
COMMUNICATION EQUIPMENT--3.4%
Octel Communications Corp.+............................... 10,000 482,500
Tellabs, Inc.+............................................ 12,000 580,500
U.S. Robotics Corp. ...................................... 5,000 646,250
----------
1,709,250
----------
Computers & Business Equipment--6.5%
3Com Corp.+............................................... 5,000 199,375
Cisco Systems, Inc.+...................................... 5,000 231,875
Global DirectMail Corp.+.................................. 20,000 697,500
HBO & Co. ................................................ 3,000 282,750
Newbridge Networks Corp. ADR+(1).......................... 13,500 759,375
Seagate Technology........................................ 7,000 383,250
Shiva Corp.+.............................................. 7,000 635,250
Sun Microsystems, Inc.+................................... 2,000 87,500
----------
3,276,875
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
<S> <C> <C>
Conglomerate--0.8%
Crane Co. .................................................. 10,000 $ 403,750
----------
Consumer Goods--0.5%
Whitman Corp. .............................................. 10,000 242,500
----------
Department Stores--0.6%
Federated Department Stores, Inc.+.......................... 10,000 322,500
----------
Electronics--0.3%
Analog Devices, Inc.+....................................... 5,000 140,000
----------
Energy Services--4.2%
BJ Services Co., Inc.+...................................... 10,000 335,000
Global Marine, Inc.+........................................ 25,000 250,000
Noble Drilling Corp.+....................................... 22,500 278,438
Rowan Cos., Inc.+........................................... 30,000 382,500
Sonat Offshore Drilling, Inc. .............................. 10,000 510,000
Tidewater, Inc. ............................................ 10,000 380,000
----------
2,135,938
----------
Energy Sources--1.8%
Flores & Rucks, Inc.+ 50,000 925,000
----------
Entertainment Products--0.4%
Coastcast Corp.+............................................ 10,000 186,250
----------
Food, Beverage & Tobacco--0.8%
Dole Food, Inc. ............................................ 10,000 385,000
----------
Forest Products--0.6%
Consolidated Papers, Inc. .................................. 5,000 281,250
----------
Health Services--6.3%
Enterprise Systems, Inc.+................................... 12,800 353,600
Health Management Associates, Inc.+......................... 15,000 525,000
Healthcare Compare Corp.+................................... 10,000 503,750
OrNda Healthcorp+........................................... 20,000 575,000
Pacificare Health Systems, Inc.+............................ 8,000 682,000
PhyCor, Inc.+............................................... 12,500 550,000
----------
3,189,350
----------
Insurance--2.9%
Amerin Corp.+............................................... 20,000 545,000
PennCorp Financial Group, Inc.+............................. 15,000 472,500
Prudential Reinsurance Holdings, Inc. ...................... 20,000 472,500
----------
1,490,000
----------
Leisure & Tourism--3.6%
HFS, Inc.+.................................................. 15,000 729,375
Mirage Resorts, Inc.+....................................... 10,000 438,750
Showboat, Inc............................................... 10,000 245,000
Sun International Hotels Ltd.+.............................. 11,000 396,000
----------
1,809,125
----------
Machinery--2.4%
Deere & Co. ................................................ 20,000 835,000
Precision Castparts Corp. .................................. 10,000 400,000
----------
1,235,000
----------
</TABLE>

13
<PAGE>

SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited) -- (continued)

Value
Security Description Shares (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (continued)
Manufacturing--2.2%
Crown Cork & Seal, Inc. .................................... 12,000 $ 585,000
Trinity Industries, Inc. ................................... 15,000 523,125
----------
1,108,125
----------
Medical Products--6.4%
ADAC Laboratories........................................... 30,000 528,750
Guidant Corp. .............................................. 12,000 649,500
Heartstream, Inc.+.......................................... 10,000 155,000
Hologic, Inc.+.............................................. 14,000 318,500
Lunar Corp.+................................................ 20,000 855,000
Perkin-Elmer Corp. ......................................... 7,000 378,875
VISX, Inc.+................................................. 10,000 365,000
----------
3,250,625
----------
Metals & Mining--0.4%
NN Ball & Roller, Inc. ..................................... 10,000 221,250
----------
PHARMACEUTICALS--8.9%
ABR Information Services, Inc.+............................. 15,000 697,500
Agouron Pharmaceuticals, Inc.+.............................. 5,000 193,750
Amgen, Inc.+................................................ 5,000 290,625
Ergo Science Corp.+......................................... 18,800 380,700
Genzyme Corp.+.............................................. 8,000 440,000
Lilly (Eli) & Co. .......................................... 7,000 455,000
Neurex Corp.+............................................... 30,000 622,500
Noven Pharmaceuticals, Inc.+................................ 29,000 416,875
Physio Control International Corp.+......................... 22,500 450,000
Teva Pharmaceutical Industries Ltd. ADR(1).................. 15,000 577,500
----------
4,524,450
----------
Pollution Control--4.7%
Culligan Water Technologies, Inc.+.......................... 20,000 650,000
Millipore Corp. ............................................ 15,000 573,750
Sanifill, Inc.+............................................. 10,000 383,750
United Waste Systems, Inc.+................................. 15,000 750,000
----------
2,357,500
----------
Software--11.3%
Applix, Inc.+............................................... 5,000 175,000
Baan Co. NV+................................................ 5,000 288,125
BMC Software, Inc.+......................................... 5,000 273,750
Business Objects SA ADR+(1)................................. 6,000 510,000
Cognos, Inc.+............................................... 3,400 192,950
Computer Associates International, Inc. ADR(1).............. 5,000 358,125
Individual, Inc.+........................................... 11,000 167,750
Informix Corp.+............................................. 10,000 263,750
Innovus Corp.+.............................................. 14,000 140,000
National Data Corp. ........................................ 10,000 341,250
</TABLE>

<TABLE>
<CAPTION>
Shares/
Principal Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Software (continued)
Oracle Systems Corp.+............................. 10,000 $ 471,250
Pc Docs Group International, Inc. ADR+(1)......... 30,000 532,500
PeopleSoft, Inc.+................................. 5,000 287,500
Rational Software Corp.+.......................... 5,000 197,500
Shared Medical Systems, Inc....................... 5,000 301,250
Sterling Software Inc.+........................... 13,000 916,500
Viasoft, Inc.+.................................... 10,000 281,250
-----------
5,698,450
-----------
Specialty Retail--2.8%
AnnTaylor Stores Corp.+........................... 25,000 450,000
Just For Feet, Inc.+.............................. 10,000 416,250
Revco D.S.+....................................... 20,000 550,000
-----------
1,416,250
-----------
Telecommunications--2.0%
Frontier Corp. ................................... 10,000 315,000
MFS Communications, Inc.+......................... 10,000 622,500
P-COM, Inc.+...................................... 5,000 100,625
-----------
1,038,125
-----------
Transportation--1.8%
USAir Group, Inc.+................................ 50,000 912,500
-----------
Total Common Stock
(cost $41,186,826) 48,516,413
-----------
Total Investment Securities--95.8%
(cost $41,186,826) 48,516,413
-----------
REPURCHASE AGREEMENT--4.2%
Joint Repurchase Agreement Account (Note 3)
(cost $2,106,000)................................ $ 2,106 2,106,000
-----------
TOTAL INVESTMENTS--
(cost $43,292,826)................................ 100.0% 50,622,413
OTHER ASSETS LESS LIABILITIES...................... 0.0 9,465
------- -----------
NET ASSETS-- 100.0% $50,631,878
======= ===========
</TABLE>
- --------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")

See Notes to Financial Statements

14
<PAGE>

SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited)

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--86.2%
Aerospace & Military Technology--1.3%
B.V.R. Technologies Ltd.+.................................. 54,000 $ 459,000
Remec, Inc.+............................................... 100,500 1,256,250
Rohr, Inc.+................................................ 40,000 720,000
----------
2,435,250
----------
Apparel & Textiles--3.1%
Donnkenny, Inc.+........................................... 30,000 483,750
Gucci Group NV ADR+(1)..................................... 20,000 960,000
Jones Apparel Group, Inc.+................................. 20,000 970,000
Mossimo, Inc.+............................................. 29,000 938,875
Nautica Enterprises, Inc.+................................. 27,500 1,313,125
Quiksilver, Inc.+.......................................... 42,500 1,349,375
----------
6,015,125
----------
Banks--1.2%
Long Island Bancorp, Inc. ................................. 20,000 562,500
Peoples Bank (Bridgeport, Connecticut)..................... 30,000 645,000
Summit Bancorp............................................. 31,500 1,165,500
----------
2,373,000
----------
Broadcasting & Media--3.0%
IVI Publishing, Inc.+...................................... 75,000 1,031,250
National Media Corp.+...................................... 70,700 1,166,550
Regal Cinemas, Inc.+....................................... 50,000 1,850,000
United Video Satellite Group+.............................. 80,000 1,680,000
----------
5,727,800
----------
Business Services--3.7%
American List Corp. ....................................... 29,200 919,800
Apollo Group, Inc.+........................................ 35,000 1,365,000
F.Y.I., Inc.+.............................................. 49,500 829,125
IntelliQuest Information Group, Inc.+...................... 17,100 470,250
Mecon, Inc.+............................................... 35,100 693,225
META Group, Inc.+.......................................... 32,000 904,000
RTW, Inc.+ ................................................ 28,800 1,065,600
SOS Staffing Services, Inc.+............................... 80,000 890,000
----------
7,137,000
----------
Chemicals--1.3%
CFC International, Inc.+................................... 7,500 88,125
Hanna (M.A.) Co. .......................................... 18,100 628,975
Mycogen Corp.+............................................. 100,000 1,725,000
----------
2,442,100
----------
Communication Equipment--2.2%
Cascade Communications Corp.+.............................. 15,000 1,346,250
Octel Communications Corp.+................................ 40,000 1,930,000
Tellabs, Inc.+............................................. 20,000 967,500
----------
4,243,750
----------
</TABLE>

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
<S> <C> <C>
Computers & Business Equipment--5.2%
Cisco Systems, Inc.+....................................... 40,000 $ 1,855,000
Daisytek International Corp.+.............................. 21,000 693,000
EMJ Data Systems Ltd. ADR(1)............................... 91,500 721,609
Iomega Corp.+.............................................. 40,000 1,025,000
Lumisys, Inc.+............................................. 35,000 652,422
Newbridge Networks Corp. ADR+(1)........................... 32,500 1,828,125
Shiva Corp.+............................................... 10,000 907,500
Structural Dynamics Research Corp.+........................ 65,000 2,193,750
-----------
9,876,406
-----------
Consumer Goods--0.3%
Whitman Corp. ............................................. 20,000 485,000
-----------
Electrical Equipment--1.2%
Cidco, Inc.+............................................... 15,000 483,750
FORE Systems, Inc.+........................................ 10,000 715,000
UCAR International, Inc.+.................................. 30,000 1,166,250
-----------
2,365,000
-----------
Electronics--0.7%
Gemstar Group Ltd.+........................................ 14,000 350,000
Supertex, Inc.+............................................ 80,000 1,030,000
-----------
1,380,000
-----------
Energy Services--6.5%
Arethusa (Offshore) Ltd. ADR(1)............................ 30,000 1,128,750
Benton Oil & Gas Co.+...................................... 40,000 630,000
Dual Drilling Co.+......................................... 60,000 1,027,500
ENSCO International, Inc.+................................. 30,000 836,250
Falcon Drilling, Inc.+..................................... 60,000 1,335,000
Marine Drilling Cos., Inc.+................................ 75,000 590,625
Noble Drilling Corp.+...................................... 132,500 1,639,687
Reading & Bates Corp.+..................................... 85,000 1,678,750
Sonat Offshore Drilling, Inc. ............................. 30,000 1,530,000
Tidewater, Inc. ........................................... 25,000 950,000
Weatherford Enterra, Inc.+................................. 30,000 1,046,250
-----------
12,392,812
-----------
Energy Sources--0.9%
Belco Oil & Gas Corp.+..................................... 13,000 295,750
Pogo Producing Co. ........................................ 25,000 781,250
Pride Petroleum Services, Inc.+............................ 50,000 706,250
-----------
1,783,250
-----------
Entertainment Products--1.0%
Cannondale Corp.+.......................................... 40,000 735,000
Coastcast Corp.+........................................... 60,000 1,117,500
-----------
1,852,500
-----------
Forest Products--0.4%
Caraustar Industries, Inc. ................................ 30,000 750,000
-----------
</TABLE>

15
<PAGE>

SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited) -- (continued)

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (continued)
Health Services--3.3%
Enterprise Systems, Inc.+................................... 23,200 $ 640,900
Healthcare Compare Corp.+................................... 20,000 1,007,500
Occusystems, Inc.+.......................................... 37,500 853,125
OrNda Healthcorp+........................................... 35,000 1,006,250
Pacificare Health Systems, Inc.+............................ 10,000 852,500
Veterinary Centers of America, Inc.+........................ 75,000 2,025,000
----------
6,385,275
----------
Housing--0.6%
Lennar Corp. ............................................... 25,000 621,875
Skyline Corp................................................ 25,000 615,625
----------
1,237,500
----------
Insurance--0.5%
Amerin Corp.+............................................... 35,000 953,750
----------
Leisure & Tourism--2.1%
Bally Entertainment Group................................... 60,000 1,035,000
HFS, Inc.+.................................................. 15,000 729,375
Penske Motorsports, Inc.+................................... 1,500 55,875
Showboat, Inc. ............................................. 25,000 612,500
Studio Plus America, Inc.+.................................. 55,000 1,526,250
----------
3,959,000
----------
Machinery--0.9%
AGCO Corp. ................................................. 20,000 482,500
Case Corp. ................................................. 10,000 508,750
Precision Castparts Corp. .................................. 20,000 800,000
----------
1,791,250
----------
Medical Products--3.7%
ADAC Laboratories........................................... 80,000 1,410,000
Cohr, Inc.+................................................. 50,000 812,500
Gulf South Medical Supply, Inc.+............................ 40,000 1,510,000
Heartstream, Inc.+.......................................... 20,000 310,000
Hologic, Inc.+.............................................. 71,000 1,615,250
Pharmacopeia, Inc.+......................................... 35,000 875,000
VISX, Inc.+................................................. 14,000 511,000
----------
7,043,750
----------
Metals & MIning--1.4%
Huntco, Inc. ............................................... 35,000 678,125
Mueller Industries, Inc.+................................... 25,000 884,375
NN Ball & Roller, Inc. ..................................... 50,000 1,106,250
----------
2,668,750
----------
Pharmaceuticals--13.9%
ABR Information Services, Inc.+............................. 60,000 2,790,000
Agouron Pharmaceuticals, Inc.+ ............................. 17,000 658,750
Anesta Corp.+............................................... 50,000 712,500
</TABLE>
<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
<S> <C> <C>
Pharmaceuticals (continued)
ArthroCare Corp.+.......................................... 31,500 $ 693,000
Cambridge NeuroScience, Inc.+.............................. 75,000 900,000
Centocor, Inc.+............................................ 55,000 1,986,875
Depotech Corp.+............................................ 50,900 1,247,050
Ergo Science Corp.+........................................ 56,200 1,138,050
Genzyme Corp.+............................................. 50,000 818,750
Guilford Pharmaceuticals, Inc.+............................ 100,000 2,237,500
IDEC Pharmaceuticals Corp.+................................ 25,000 556,250
Immulogic Pharmaceutical Corp.+............................ 50,000 662,500
Interneuron Pharmaceuticals, Inc.+......................... 30,000 1,113,750
Ligand Pharmaceuticals, Inc.+.............................. 60,000 697,500
Myriad Genetics, Inc.+..................................... 11,000 294,250
Neurex Corp.+.............................................. 180,000 3,735,000
Noven Pharmaceuticals, Inc.+............................... 75,000 1,078,125
Parexel International Corp.+............................... 20,000 865,000
Pharmaceutical Product Development, Inc.+.................. 36,500 1,286,625
Physio Control International Corp.+........................ 38,500 770,000
Royce Laboratories, Inc.+.................................. 30,000 266,250
Synaptic Pharmaceutical Corp.+............................. 30,000 600,000
Teva Pharmaceutical Industries Ltd. ADR(1)................. 40,000 1,540,000
-----------
26,647,725
-----------
Pollution Control--0.9%
Sanifill, Inc.+............................................ 20,000 767,500
United Waste Systems, Inc.+................................ 17,500 875,000
-----------
1,642,500
-----------
Software--16.9%
Applix, Inc.+.............................................. 30,000 1,050,000
Business Objects SA ADR+(1)................................ 19,000 1,615,000
Cimatron Ltd.+............................................. 110,000 797,500
Citrix Systems, Inc.+...................................... 27,000 1,194,750
Cognos, Inc. ADR+(1)....................................... 16,600 942,050
CSG Systems International, Inc.+........................... 50,900 1,170,700
Cybercash, Inc.+........................................... 10,500 357,000
Documentum, Inc.+.......................................... 53,000 1,868,250
DST Systems, Inc.+......................................... 30,000 918,750
Finish Line, Inc.+......................................... 60,000 1,020,000
Forte Software, Inc.+...................................... 23,500 951,750
Geoworks+.................................................. 30,000 900,000
HNC Software, Inc.+........................................ 12,000 816,000
Ikos Systems, Inc.+........................................ 50,000 837,500
IMNET Systems, Inc.+....................................... 50,000 1,512,500
Indus Group, Inc.+......................................... 10,000 195,000
Informix Corp.+............................................ 30,000 791,250
Innovus Corp.+............................................. 92,700 927,000
Innovus Corp.+(2)(3)....................................... 54,000 189,000
Inso Corp.+................................................ 20,000 922,500
Legato Systems, Inc.+...................................... 25,000 943,750
Objective Systems Integrators, Inc.+....................... 10,000 455,000
Oracle Systems Corp.+...................................... 15,000 706,875
</TABLE>

16
<PAGE>

SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited) -- (continued)

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (continued)
Software (continued)
Pc Docs Group International, Inc. ADR+(1)................. 85,000 $ 1,508,750
PeopleSoft, Inc.+......................................... 15,000 862,500
PowerCerv Corp.+.......................................... 20,000 297,813
Prism Solutions, Inc.+.................................... 11,100 294,150
Raptor Systems, Inc.+..................................... 31,500 941,062
Rational Software Corp.+.................................. 30,000 1,185,000
Red Brick Systems, Inc.+.................................. 18,000 774,000
Retix+.................................................... 100,000 512,500
Saville Systems PLC ADR+(1)............................... 50,000 943,750
Segue Software, Inc.+..................................... 24,000 504,000
Shared Medical Systems,Inc. .............................. 10,000 602,500
Spyglass, Inc.+........................................... 8,200 177,325
Viasoft, Inc.+............................................ 40,000 1,125,000
Xeikon NV ADR+(1)......................................... 25,000 484,375
Xylan Corp.+.............................................. 8,500 442,000
Zoran Corp+............................................... 29,000 645,250
------------
32,382,100
------------
Specialty Retail--2.9%
AnnTaylor Stores Corp.+................................... 50,000 900,000
Gadzooks, Inc.+........................................... 75,000 2,606,250
Garden Ridge Corp.+....................................... 25,000 1,143,750
Just For Feet, Inc.+...................................... 20,000 832,500
------------
5,482,500
------------
Telecommunications--6.7%
Ascend Communications, Inc.+.............................. 20,000 1,077,500
Aspect Telecommunications Corp.+.......................... 17,500 800,625
Davox Corp.+.............................................. 75,000 1,331,250
Gilat Satellite Networks Ltd. ADR+(1)..................... 20,000 485,000
Harmonic Lightwaves, Inc.+................................ 100,000 1,375,000
InterVoice, Inc.+......................................... 30,000 858,750
MFS Communications, Inc.+................................. 10,000 622,500
Nexus Telecommunication Systems Ltd. ..................... 100,000 550,000
NICE Systems Ltd. ADR+(1)................................. 37,500 487,500
Omnipoint Corp.+.......................................... 15,000 382,500
P-COM, Inc.+.............................................. 40,000 805,000
TCSI Corp.+............................................... 42,500 1,296,250
Teledata Communications, Inc. ADR+(1)..................... 80,000 850,000
Teltrend, Inc.+........................................... 30,000 1,365,000
Winstar Communications, Inc.+............................. 40,000 645,000
------------
12,931,875
------------
</TABLE>

<TABLE>
<CAPTION>
Shares/
Principal Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Transportation--0.4%
Eagle USA Airfreight,Inc.+...................... 30,000 $ 832,500
------------
Total Common Stock
(cost $132,378,067)............................. 165,217,468
------------
WARRANTS--0.0%+
Telecommunications--0.0%
Nexus Telecommunication Systems Ltd. ........... 100,000 100,000
------------
OPTIONS--0.2%+
TECHNOLOGY INDEX PUT OPTIONS--0.2%
CBOE Technology Index, May/145.................. 20,000 95,000
CBOE Technology Index, May/150.................. 30,000 198,750
------------
Total Options
(cost $295,250)................................. 293,750
------------
Total Investment Securities--86.4%
(cost $132,673,317)............................. 165,611,218
------------
REPURCHASE AGREEMENT--11.5%
Joint Repurchase Agreement
Account (Note 3)
(cost $22,066,000).............................. $ 22,066 22,066,000
------------
TOTAL INVESTMENTS--
(cost $154,739,317)............................. 97.9% 187,677,218
Other assets less liabilities.................... 2.1 4,087,521
----
------------
NET ASSETS-- 100.0% $191,764,739
===== ============
</TABLE>
- -------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
(2) At March 31, 1996 the fund held a restricted security amounting to 0.1% of
net assets. The fund will not bear any costs, including those involved in
registration under the Securities Act of 1933, in connection with the
disposition of the security.

<TABLE>
<CAPTION>
VALUATION
DATE OF UNIT AS OF
Description ACQUISITION COST MARCH 31, 1996
----------- ----------- ----- --------------
<S> <C> <C> <C>
Innovus Corp. 3/21/95 $3.50 $3.50
</TABLE>

(3) Fair valued security, see Note 2.

See Notes to Financial Statements

17
<PAGE>

SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited)

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--69.2%
DOMESTIC EQUITY--15.6%
Aerospace & Military Technology--0.4%
Boeing Co..................................................... 1,000 $ 86,625
--------
Apparel & Textiles--0.2%
Warnaco Group, Inc. .......................................... 2,000 48,250
--------
Automotive--0.3%
Ford Motors Co. .............................................. 2,500 85,938
--------
Banks--0.6%
Chemical Banking Corp. ....................................... 1,000 70,500
Citicorp...................................................... 1,000 80,000
--------
150,500
--------
Broadcasting & Media--0.1%
Chancellor Broadcasting Corp.+................................ 1,000 22,000
--------
Chemicals--1.5%
du Pont (E.I.) de Nemours & Co. .............................. 2,000 166,000
Union Carbide Corp............................................ 4,000 198,500
--------
364,500
--------
Communication Equipment--0.6%
Motorola, Inc................................................. 850 45,050
Tellabs, Inc.+................................................ 2,000 96,750
--------
141,800
--------
Conglomerate--1.2%
AlliedSignal, Inc............................................. 2,000 118,250
General Electric Co........................................... 800 62,300
United Technologies Corp. .................................... 1,000 112,250
--------
292,800
--------
Department Stores--0.3%
Woolworth Corp. .............................................. 5,000 78,125
--------
Electronics--0.1%
Integrated Measurement Systems, Inc.+......................... 2,000 31,250
--------
Energy Services--0.3%
Baker Hughes, Inc. ........................................... 2,000 58,500
Belco Oil & Gas Corp.+........................................ 1,000 22,750
--------
81,250
--------
Energy Sources--0.3%
Burlington Resources, Inc. ................................... 2,000 74,250
Suncor, Inc. ................................................. 900 11,551
--------
85,801
--------
Food, Beverage & Tobacco--0.1%
Hart Brewing, Inc.+........................................... 1,500 21,750
--------
</TABLE>

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
<S> <C> <C>
Health Services--0.8%
Humana, Inc.+................................................. 1,000 $ 25,125
St. Jude Medical, Inc......................................... 1,500 55,969
United Healthcare Corp........................................ 1,800 110,700
--------
191,794
--------
Household Products--0.3%
Eastman Kodak Co.............................................. 1,050 74,550
--------
Insurance--0.4%
Guarantee Life Cos., Inc.+.................................... 2,500 38,437
Highlands Insurance Group, Inc.+.............................. 120 2,370
Lincoln National Corp. ....................................... 1,000 50,750
--------
91,557
--------
Leisure & Tourism--0.4%
Penske Motorsports, Inc.+..................................... 500 18,625
Red Roof Inn's Inc.+.......................................... 1,000 14,875
Sun International Hotels Ltd.+................................ 2,000 72,000
--------
105,500
--------
Machinery--0.6%
Caterpillar, Inc. ............................................ 2,000 136,000
--------
Medical Products--1.5%
Guidant Corp.................................................. 1,000 54,125
Johnson & Johnson Co. ........................................ 2,000 184,500
Medtronic, Inc................................................ 2,000 119,250
Vocaltec Ltd.+................................................ 1,000 12,000
--------
369,875
--------
Pharmaceuticals--3.9%
Abbott Laboratories........................................... 2,000 81,500
Lilly (Eli) & Co.............................................. 2,800 182,000
Merck & Co., Inc.............................................. 2,000 124,500
Pfizer, Inc................................................... 1,200 80,400
Pharmaceutical Product Development, Inc.+..................... 2,500 88,125
Schering-Plough Corp.......................................... 3,200 186,000
Warner-Lambert Co............................................. 2,000 206,500
--------
949,025
--------
Pollution Control--0.2%
Allied Waste Industries, Inc.+................................ 5,000 45,625
--------
Software--1.1%
Documentum, Inc.+............................................. 2,000 70,500
Engineering Animation, Inc.+.................................. 1,000 20,875
Forte Software, Inc.+......................................... 500 20,250
Individual, Inc.+............................................. 1,000 15,250
Indus Group, Inc.+............................................ 1,000 19,500
Informix Corp.+............................................... 2,000 52,750
Raptor Systems, Inc.+......................................... 1,000 29,875
Sterling Commerce, Inc.+...................................... 1,000 30,750
--------
259,750
--------
</TABLE>

18
<PAGE>

SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited) -- (continued)

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (continued)
DOMESTIC EQUITY (continued)
Telecommunications--0.4%
AT&T Corp.................................................... 1,500 $ 91,875
Wireless One, Inc. .......................................... 1,000 16,125
----------
108,000
----------
Total Domestic Equity
(COST $2,882,500)............................................ 3,822,265
----------
FOREIGN EQUITY--53.6%
Aerospace & Military Technology--0.7%
Mitsubishi Heavy Industrial Ltd. (Japan)..................... 20,000 172,751
----------
Apparel & Textiles--0.7%
Adidas AG (Germany).......................................... 1,700 124,365
Marzotto & Figli SpA (Italy)................................. 5,000 36,523
----------
160,888
----------
Automotive--3.5%
Autoliv AB (Sweden).......................................... 2,200 112,359
Bridgestone Corp. (Japan).................................... 10,000 167,329
Honda Motor Co., Ltd. (Japan)................................ 12,000 261,370
Nokian Tyres (Finland)....................................... 10,000 118,698
SA D'Ieteren NV (Belgium).................................... 515 54,492
Toyota Motor Corp. (Japan)................................... 6,000 132,367
----------
846,615
----------
Banks--5.8%
Banco de Credito (Peru)...................................... 18,000 29,847
Banco Intercontinental Espanol (Spain)....................... 350 35,249
Banco Osorno Y La Union ADR(1) (Chile)....................... 800 12,400
Banco Totta & Acores (Portugal).............................. 2,500 48,682
Bangkok Bank PCL (Thailand).................................. 1,900 25,737
Development Bank of Singapore (Singapore).................... 3,000 36,869
Generale de Banque Belge Pour l'Etranger SA (Belgium)........ 185 65,859
HSBC Holdings PLC (Hong Kong)................................ 6,000 90,380
Industrial Bank of Japan Ltd. (Japan)........................ 8,000 220,612
Mitsubishi Bank Ltd. (Japan)................................. 12,600 266,193
Mitsubishi Trust & Banking Corp. (Japan)..................... 15,000 238,373
National Westminster Bank PLC (United Kingdom)............... 15,000 145,490
Overseas Chinese Banking Corp., Ltd. (Singapore)............. 4,000 53,705
Siam Commercial Bank Co., Ltd. (Thailand).................... 3,700 55,394
Societe Generale (France).................................... 450 50,036
Toronto-Dominion Bank (Canada)............................... 2,500 43,317
----------
1,418,143
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
<S> <C> <C>
Broadcasting & Media--0.1%
Singapore Press Holdings Ltd. (Singapore).................... 1,000 $ 19,962
--------
Chemicals--2.5%
Degussa AG (Germany)......................................... 340 124,365
Laporte PLC (United Kingdom)................................. 5,000 53,686
Metacorp Bhd (Malaysia)...................................... 31,000 94,960
Mitsubishi Chemical Corp. (Japan)............................ 28,000 147,885
Sekisui Chemical Co., Ltd. (Japan)........................... 15,000 196,308
--------
617,204
--------
Communication Equipment--0.4%
Ericsson (L.M.) Telephone Co. Class B ADR(1) (Brazil)........ 4,000 85,500
--------
Computers & Business Equipment--3.6%
Canon, Inc. (Japan).......................................... 10,000 190,699
Getronics NV (Netherlands)................................... 2,400 174,033
Newbridge Networks Corp. ADR+(1) (Canada).................... 1,000 56,250
Ricoh Co. (Japan)............................................ 15,000 161,253
Strafor Facom SA (France).................................... 1,200 86,681
Tokyo Electron Ltd. (Japan).................................. 5,000 170,600
Videologic Group PLC (United Kingdom)........................ 43,283 42,939
--------
882,455
--------
Conglomerate--1.7%
BTR PLC (United Kingdom)..................................... 30,000 144,689
Granite Industries Bhd (Malaysia)............................ 17,000 29,431
Hanson PLC (United Kingdom).................................. 25,000 73,069
Nissho Iwai Corp. (Japan).................................... 30,000 153,120
Renong Bhd (Malaysia)........................................ 14,000 22,798
--------
423,107
--------
Construction & Housing--3.2%
Glywed International PLC (United Kingdom).................... 25,000 136,600
Henry Walker Group Ltd. (Australia).......................... 46,492 69,754
Kajima Corp. (Japan)......................................... 20,000 215,003
Keppel Corp. Ltd. (Singapore)................................ 2,000 18,186
Koninklijke Volker Stevin (Netherlands)...................... 500 33,836
Nishimatsu Construction (Japan).............................. 20,000 228,091
Pioneer International Ltd. (Australia)....................... 30,000 89,552
--------
791,022
--------
Construction Materials--2.6%
Grafton Group PLC (Ireland).................................. 10,000 83,465
Hunter Douglas NV (Netherlands).............................. 1,442 97,757
Lion Land Bhd (Malaysia)..................................... 57,000 56,324
Marley PLC (United Kingdom).................................. 60,000 112,637
Plettac AG (Germany)......................................... 300 65,840
Schneider SA (France)........................................ 4,000 177,111
Southeast Asia Cement (Philippines).......................... 400,000 51,184
--------
644,318
--------
</TABLE>

19
<PAGE>

SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited) -- (continued)

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (continued)
FOREIGN EQUITY (continued)
Electrical Equipment--0.4%
Internatio-Muller NV (Netherlands)......................... 1,300 $ 105,756
---------
Electronics--5.5%
Advantest Corp. (Japan).................................... 4,400 198,252
Electric & Eltek International Co., Ltd. (Singapore)....... 40,000 113,600
Hoganas AG (Sweden)........................................ 6,000 182,872
NEC Corp. (Japan).......................................... 15,000 173,872
Pressac Holdings PLC (United Kingdom)...................... 45,000 114,698
Rohm Co. (Japan)........................................... 15,000 171,068
Samsung Electronics Co., Ltd. GDR*(2) (Korea).............. 44 2,530
Samsung Electronics Co., Ltd. GDS*(3) (Korea).............. 1,690 59,167
Siemens AG (Germany)....................................... 220 121,080
Telecomunic Brasileiras SA (Brazil)........................ 1,000,000 39,579
Ushio, Inc. (Japan)........................................ 15,000 164,057
---------
1,340,775
---------
Energy Services--0.4%
Lyonnaise des Eaux-Dumez (France).......................... 500 46,760
Schlumberger Ltd. ADR(1) (France).......................... 700 55,387
---------
102,147
---------
Energy Sources--0.1%
Crestar Energy, Inc. (Canada).............................. 600 10,616
Renaissance Energy Ltd. (Canada)........................... 600 15,732
---------
26,348
---------
Entertainment Products--1.0%
Bluebird Toys PLC (United Kingdom)......................... 30,000 128,205
RBI Holdings Ltd. (Bermuda)................................ 800,000 106,543
---------
234,748
---------
Financial Services--1.4%
Hutchison Whampoa (Hong Kong).............................. 10,000 62,839
National Finance & Securities Co., Ltd. (Thailand)......... 10,000 62,579
Nomura Securities International, Inc. (Japan).............. 10,000 219,678
Philippine Savings Bank (Philippines)...................... 1,733 3,409
---------
348,505
---------
Food, Beverage & Tobacco--2.2%
Allied Domecq PLC (United Kindgom)......................... 20,000 149,878
Kirin Brewery Co., Ltd. (Japan)............................ 14,000 168,825
Koninklijke Bols Wessanen NV (Netherlands)................. 7,250 140,866
Nestle SA (Switzerland).................................... 50 56,415
Seagram Ltd. (Canada)...................................... 800 25,889
---------
541,873
---------
</TABLE>
<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
<S> <C> <C>
Forest Products--1.7%
Fletcher Challenge Ltd. (Canada)............................. 1,000 $ 13,660
Jefferson Smurfit Group (Ireland)............................ 50,000 122,482
Maderas Y Sinteticos SA ADR(1) (Chile)....................... 1,900 33,725
New Oji Paper Co., Ltd. (Japan).............................. 15,000 136,714
Waddington (John) PLC (United Kingdom)....................... 30,000 101,190
West Fraser Timber Co., Ltd. (Canada)........................ 400 8,984
--------
416,755
--------
Insurance--1.9%
Legal & General Group PLC (United Kindgom)................... 10,000 104,014
RAS SpA (Italy).............................................. 8,800 85,744
Tokio Marine & Fire Insurance Co., Ltd. (Japan).............. 15,000 194,905
Zurich Versicherun (Switzerland)............................. 275 79,074
--------
463,737
--------
Leisure & Tourism--1.8%
Airtours PLC (United Kingdom)................................ 17,000 119,353
Manchester United PLC
(United Kingdom)............................................ 25,000 110,653
Salomon SA (France).......................................... 100 64,332
Stanley Leisure PLC
(United Kingdom)............................................ 20,000 138,889
--------
433,227
--------
Machinery--0.6%
Komatsu Ltd. (Japan)......................................... 15,000 133,629
--------
Manufacturing--0.6%
Bombardier, Inc. (Canada).................................... 1,100 16,236
Graystone (United Kingdom)................................... 500,000 116,377
Hanjaya Mandala Sampoerna (Indonesia)........................ 1,750 18,282
--------
150,895
--------
Metals & Mining--3.1%
Barrick Gold Corp. (Canada).................................. 690 21,001
Cameco Corp. (Canada)........................................ 300 15,842
Clutha Ltd.(5) (Australia)................................... 120,000 938
Cominco Ltd. (China)......................................... 240 5,632
CRA Ltd. (Australia)......................................... 5,375 80,434
Diamond Fields Resources, Inc.
(Canada).................................................... 400 11,844
Inco Ltd. (Canada)........................................... 100 3,154
IPSCO, Inc. (China).......................................... 700 16,813
M.I.M. Holdings Ltd. (Australia)............................. 50,000 72,283
Nippon Steel Corp. (Japan)................................... 40,000 137,602
Sumitomo Metal Mining Co., Ltd.
(Japan)..................................................... 20,000 192,568
Western Mining Corp. Holdings Ltd. ADS(4) (Australia)........ 30,000 198,328
--------
756,439
--------
</TABLE>

20
<PAGE>

SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited) -- (continued)

<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
FOREIGN EQUITY (CONTINUED)
PHARMACEUTICALS--2.9%
Glaxo Holdings PLC (United Kingdom)........................ 10,000 $ 125,458
Glaxo Holdings PLC ADR(1) (United Kingdom)................. 1,000 25,125
Kissei Pharmaceutical Co. (Japan).......................... 4,400 131,619
Merck KGAA (Germany)....................................... 2,800 121,289
Sanyo Co., Ltd. (Japan).................................... 5,000 114,513
Smithkline Beecham PLC (United Kingdom).................... 10,000 100,275
Smithkline Beecham PLC ADR(1) (United Kingdom)............. 1,500 77,250
-----------
695,529
-----------
POLLUTION CONTROL--0.2%
Eaux (cie Generale) (France)............................... 500 51,128
-----------
REAL ESTATE COMPANIES--1.5%
Cheung Kong Holdings Ltd. (Hong Kong)...................... 8,000 56,892
Mitsubishi Estate Co., Ltd. (Japan)........................ 15,000 206,123
Sun Hung Kai Properties Ltd. (Hong Kong)................... 11,000 100,271
-----------
363,286
-----------
TELECOMMUNICATIONS--2.1%
BCE, Inc. (Canada)......................................... 800 28,310
Cable & Wireless PLC (United Kingdom)...................... 20,000 162,698
DDI Corp. (Japan).......................................... 12 91,423
Nippon Telegraph & Telecommunications Corp. (Japan)........ 12 87,721
Northern Telecom Ltd. (China).............................. 300 14,274
P.T. Indonesian Satellite Corp. ADR(1) (Indonesia)......... 1,000 34,125
Vodafone Group PLC ADR(1) (United Kingdom)................. 2,500 93,750
-----------
512,301
-----------
TRANSPORTATION--0.1%
Nedlloyd Groep NV (Netherlands)............................ 1,300 27,147
-----------
UTILITIES--1.3%
Cogeneration PCL (Thailand)................................ 15,000 53,470
CPT Telefonica de Peru (Peru).............................. 13,500 27,838
Electricity Generating PLC (Thailand)...................... 10,000 30,497
Transcanada Pipelines Ltd. (China)......................... 1,400 19,509
Veba AG (Germany).......................................... 4,000 194,405
-----------
325,719
-----------
TOTAL FOREIGN EQUITY
(cost $12,241,565)......................................... 13,091,909
-----------
TOTAL COMMON STOCK
(cost $15,124,065)......................................... 16,914,174
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL AMOUNT
(DENOMINATED IN
LOCAL CURRENCY) VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
PREFERRED STOCK--0.3%
ENERGY SOURCES--0.2%
Cemig Cia Energy MG (Brazil)....................... 1,650,000 $ 46,265
---------
HOUSEHOLD PRODUCTS--0.1%
Friedrich Grohe AG (Germany)....................... 90 22,160
---------
TOTAL PREFERRED STOCK
(cost $64,605)..................................... 68,425
---------
WARRANTS--0.7%+
BANKS--0.2%
Credit Lyonnais.................................... 1,000,000 56,245
---------
FINANCIAL SERVICES--0.5%
Affin Holdings Bhd................................. 137,000 128,878
---------
TOTAL WARRANTS
(cost $168,072).................................... 185,123
---------
OPTIONS--0.0%+
FOREIGN CURRENCY CALL OPTIONS--0.0%
French Francs, Apr/5.05 ...........................
(cost $4,636)...................................... 6 2,537
---------
FOREIGN BONDS--15.5%
Commonwealth of Australia
7.50% due 7/15/05 ................................. 100 71,606
Federal Republic of Germany
5.88% due 5/15/00 ................................. 300 208,799
6.75% due 7/15/04.................................. 300 208,738
7.13% due 12/20/02................................. 400 287,557
7.38% due 1/03/05.................................. 400 288,099
Government of Canada
7.50% due 9/01/00 ................................. 200 149,380
Government of France
7.00% due 11/12/99 ................................ 700 146,382
Government of Spain
10.00% due 2/28/05 ................................ 10,000 81,860
10.15% due 1/13/06................................. 50,000 412,605
Japan Development Bank
6.50% due 9/20/01 ................................. 20,000 224,800
Kingdom of Belgium
6.50% due 3/31/05 ................................. 4,000 129,978
Kingdom of Denmark
9.00% due 11/15/00 ................................ 1,000 194,404
Kingdom of Sweden
10.25% due 5/05/03 ................................ 1,500 247,998
13.00% due 6/15/01................................. 1,000 180,807
Republic of Italy
10.50% due 11/01/00 ............................... 400,000 258,226
Treuhandanstalt (Germany)
6.13% due 6/25/98 ................................. 100 70,541
United Kingdom Treasury
8.50% due 12/07/05 ................................ 300 468,607
9.00% due 3/03/00 ................................. 100 160,352
---------
TOTAL FOREIGN BONDS
(cost $3,834,777).................................. 3,790,739
---------
</TABLE>

21
<PAGE>

SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited) -- (continued)

<TABLE>
<CAPTION>
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- ---------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY NOTES--6.2%
5.25% due 1/31/01......................................... $ 100 $ 96,562
6.13% due 9/30/00......................................... 150 150,024
6.50% due 8/15/05......................................... 500 501,955
7.88% due 11/15/04........................................ 700 767,921
-----------
TOTAL U.S. TREASURY NOTES
(cost $1,465,270)......................................... 1,516,462
-----------
TOTAL INVESTMENT SECURITIES--91.9%
(cost $20,661,425)........................................ 22,477,460
-----------
SHORT-TERM SECURITIES--11.6%
Cayman Island Time Deposit 4.50% due 4/01/96.............. 1,975 1,975,000
State Street Bank Time Deposit 5.56% due 4/01/96.......... 850 850,000
-----------
TOTAL SHORT-TERM SECURITIES
(cost $2,825,000)......................................... 2,825,000
-----------
REPURCHASE AGREEMENT--1.0%
Joint Repurchase Agreement Account (Note 3)
(cost $243,000)........................................... 243 243,000
-----------
TOTAL INVESTMENTS--
(cost $23,729,425)........................................ 104.5% 25,545,460
Liabilities in excess of other assets...................... (4.5) (1,098,987)
----- -----------
NET ASSETS-- 100.0% $24,446,473
===== ===========
</TABLE>

+Non-income producing security
*Resale restricted to qualified institutional buyers
(1)ADR ("American Depositary Receipt")
(2)GDR ("Global Depositary Receipt")
(3)GDS ("Global Depositary Shares")
(4)ADS ("American Depositary Shares")
(5)Fair valued security, see Note 2.
Allocation of net assets by
currency as of March 31, 1996:
U.S. Dollar 24.5%
Japanese Yen 23.2
British
Pound 12.1
Deutsche Mark 7.5
Swedish Krona 3.0
French Franc 2.6
Australian
Dollar 2.4
Spanish
Peseta 2.2
Hong-Kong
Dollar 2.0
Canadian
Dollar 1.8
Netherland
Guilder 1.7
Italian Lira 1.6
Malaysian
Ringgit 1.4
Belgian Franc 1.0
Thailand Baht 0.9
Danish Kroner 0.8
Swiss Franc 0.6
Singapore
Dollar 0.5
Finnish
Markka 0.5
Brazilian
Real 0.4
Irish Pound 0.4
Peruvian New
Sol 0.3
Philippines
Peso 0.2
Portuguese
Escudo 0.2
Indonesian
Rupiah 0.1

See Notes to Financial Statements

22
<PAGE>

SUNAMERICA GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited)

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--90.6%
Aerospace & Military Technology--0.9%
Boeing Co. ................................................. 1,000 $ 86,625
-----------
Apparel & Textiles--2.2%
Mossimo, Inc.+.............................................. 5,000 161,875
Tommy Hilfiger Corp.+....................................... 1,000 45,875
-----------
207,750
-----------
Automotive--1.9%
Chrysler Corp. ............................................. 1,500 93,375
Ford Motor Co. ............................................. 2,500 85,938
-----------
179,313
-----------
Banks--4.6%
Chemcial Bank Corp. ........................................ 2,000 141,000
First Union Corp. .......................................... 3,000 181,500
Mellon Bank Corp. .......................................... 2,000 110,250
-----------
432,750
-----------
Broadcasting & Media--1.8%
Readers Digest Association, Inc. ........................... 1,500 70,875
United States Satellite Broadcasing Co. .................... 1,000 32,750
Viacom, Inc. Class B+....................................... 1,500 63,188
-----------
166,813
-----------
Business Services--1.0%
Service Corp. International................................. 2,000 97,500
-----------
Chemicals--8.6%
Cabot Corp. ................................................ 4,000 122,000
Dow Chemical Co. ........................................... 2,000 173,750
du Pont (E.I.) de Nemours & Co. ............................ 1,500 124,500
Hanna (M.A). Co. ........................................... 3,000 104,250
Hercules, Inc. ............................................. 3,000 186,000
Intertape Polymer Group, Inc. ADR(1)........................ 2,500 96,562
-----------
807,062
-----------
Communication Equipment--2.7%
Motorola, Inc............................................... 2,000 106,000
Tellabs, Inc.+.............................................. 3,000 145,125
-----------
251,125
-----------
Computers & Business Equipment--1.4%
3Com Corp.+................................................. 2,000 79,750
Newbridge Networks Corp. ADR(1)............................. 1,000 56,250
-----------
136,000
-----------
Conglomerate--5.8%
AlliedSignal, Inc........................................... 2,500 147,812
General Electric Co. ....................................... 2,000 155,750
ITT Industries, Inc. ....................................... 5,000 127,500
United Technologies Corp. .................................. 1,000 112,250
-----------
543,312
-----------
</TABLE>

<TABLE>
<CAPTION>
Value
Security Description Shares (Note 2)
<S> <C> <C>
Construction & Housing--1.0%
Potash Corp. of Saskatchewan, Inc. ADR(1)................... 1,500 $ 93,750
-----------
Department Stores--2.9%
Federated Department Stores, Inc.+.......................... 3,000 96,750
May Department Stores Co. .................................. 2,000 96,500
Woolworth Corp. ............................................ 5,000 78,125
-----------
271,375
-----------
Electronics--0.8%
Texas Instruments, Inc. .................................... 1,500 76,313
-----------
Energy Services--0.5%
Sonat Offshore Drilling, Inc. .............................. 1,000 51,000
-----------
Energy Sources--7.2%
Amoco Corp.................................................. 2,000 144,500
Belco Oil & Gas Corp.+...................................... 1,000 22,750
Burlington Resources, Inc. ................................. 2,000 74,250
Mobil Corp. ................................................ 1,500 173,812
Panhandle Eastern Corp. .................................... 6,000 186,750
Vintage Petroleum, Inc. .................................... 4,000 81,500
-----------
683,562
-----------
Entertainment Products--1.1%
Mattel, Inc. ............................................... 4,000 108,500
-----------
Food, Beverage & Tobacco--4.5%
Coca-Cola Co. .............................................. 500 41,313
Dole Food, Inc. ............................................ 6,500 250,250
Philip Morris Cos., Inc. ................................... 1,500 131,625
-----------
423,188
-----------
Forest Products--5.1%
Boise Cascade Corp. ........................................ 3,500 147,000
Consolidated Papers, Inc. .................................. 2,000 112,500
Kimberly-Clark Corp. ....................................... 3,000 223,500
-----------
483,000
-----------
Health Services--5.6%
Apria Healthcare Group, Inc.+............................... 3,000 95,250
Columbia/HCA Healthcare Corp. .............................. 3,000 173,250
Humana, Inc.+............................................... 5,000 125,625
OrNda Healthcorp+........................................... 1,500 43,125
U.S. HealthCare, Inc. ...................................... 2,000 91,750
-----------
529,000
-----------
Household Products--2.1%
Eastman Kodak Co. .......................................... 1,500 106,500
Gillette Co. ............................................... 1,000 51,750
Procter & Gamble Co. ....................................... 500 42,375
-----------
200,625
-----------
</TABLE>

23
<PAGE>

SUNAMERICA GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 (unaudited) -- (continued)

Value
Security Description Shares (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (continued)
Insurance--1.9%
Aetna Life & Casualty Co...................................... 1,000 $ 75,500
Lincoln National Corp. ....................................... 2,000 101,500
--------
177,000
--------
Leisure & Tourism--1.9%
Penske Motorsports, Inc.+..................................... 500 18,625
Red Roof Inn's Inc.+.......................................... 6,000 89,250
Sun International Hotels Ltd.+................................ 2,000 72,000
--------
179,875
--------
Medical Products--3.0%
Baxter International, Inc..................................... 3,500 158,375
Sola International, Inc.+..................................... 4,000 124,500
--------
282,875
--------
Metals & Mining--0.7%
Aluminum Co. of America....................................... 1,000 62,625
--------
Pharmaceuticals--7.8%
Amgen, Inc.+.................................................. 1,500 87,187
Bristol-Myers Squibb Co....................................... 2,000 171,250
Glaxo Holdings PLC ADR(1)..................................... 4,000 100,500
Lilly (Eli) & Co. ............................................ 1,500 97,500
Merck & Co., Inc. ............................................ 2,000 124,500
Warner-Lambert Co. ........................................... 1,500 154,875
--------
735,812
--------
Pollution Control--0.4%
Millipore Corp. .............................................. 1,000 38,250
--------
Real Estate Investment Trusts--1.4%
Patriot American Hospitality, Inc.+........................... 5,000 131,875
--------
Software--3.8%
Cisco Systems, Inc.+.......................................... 2,000 92,750
Fiserv, Inc.+................................................. 4,000 112,000
Forte Software, Inc.+......................................... 500 20,250
Informix Corp.+............................................... 3,000 79,125
Xylan Corp.+.................................................. 1,000 52,000
--------
356,125
--------
Telecommunications--2.9%
AT&T Corp..................................................... 3,000 183,750
Frontier Corp. ............................................... 3,000 94,500
--------
278,250
--------
</TABLE>

<TABLE>
<CAPTION>
Shares/
Principal Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Telephone--2.4%
Bell Atlantic Corp. .............................. 1,500 $ 92,625
GTE Corp.......................................... 3,000 131,625
----------
224,250
----------
Transportation--0.9%
Canadian National Railway Co. ADR(1).............. 5,000 86,250
----------
Utilities--1.8%
Baltimore Gas & Electric Co. ..................... 3,000 82,875
General Public Utilities Corp..................... 2,500 82,500
----------
165,375
----------
Total Common Stock
(cost $7,824,990)................................. 8,547,125
----------
BONDS & NOTES--0.6%
Forest Products--0.6%
Stone Container Corp.
11.88% due 12/01/98
(cost $51,085)................................... $ 50 52,250
----------
Total Investment Securities--91.2%
(cost $7,876,075)................................. 8,599,375
----------
REPURCHASE AGREEMENT--7.9%
Joint Repurchase Agreement
Account (Note 3) (cost $747,000)................. 747 747,000
----------
TOTAL INVESTMENTS--
(cost $8,623,075)................................. 99.1% 9,346,375
Other assets less liabilities...................... 0.9 84,091
------ ----------
NET ASSETS-- 100.0% $9,430,466
====== ==========
</TABLE>
- --------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")

See Notes to Financial Statements

24
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 (unaudited)

Note 1. Organization

SunAmerica Equity Funds is an open-end diversified management investment
company organized as a Massachusetts business trust (the "Trust" or "Equity
Funds") on June 16, 1986. It currently consists of six different investment
funds (each, a "Fund" and collectively, the "Funds"). Each Fund is a
separate series of the Trust with a distinct investment objective and/or
strategy. Each Fund is advised and/or managed by SunAmerica Asset
Management Corp. (the "Adviser" or "SAAMCo"). An investor may invest in one
or more of the following Funds: SunAmerica Balanced Assets Fund ("Balanced
Assets Fund"), SunAmerica Blue Chip Growth Fund ("Blue Chip Growth Fund"),
SunAmerica Mid-Cap Growth Fund ("Mid-Cap Growth Fund"), SunAmerica Small
Company Growth Fund ("Small Company Growth Fund"), SunAmerica Global
Balanced Fund ("Global Balanced Fund") and SunAmerica Growth and Income
Fund ("Growth and Income Fund"). The Funds are considered to be separate
entities for financial and tax reporting purposes. The investment
objectives for each of the Funds are as follows:
Balanced Assets seeks to conserve principal by maintaining at all times a
balanced portfolio of stocks and bonds.
Blue Chip Growth seeks capital appreciation by investing primarily in
equity securities of companies with large market capitalizations.
Mid-Cap Growth seeks capital appreciation by investing primarily in equity
securities of medium-sized companies.
Small Company Growth seeks capital appreciation by investing primarily in
equity securities of small capitalization growth companies.
Global Balanced seeks capital appreciation while conserving principal by
maintaining at all times a balanced portfolio of domestic and foreign
stocks and bonds.
Growth and Income seeks capital appreciation and current income by
investing primarily in common stocks.

Note 2. Significant Accounting Policies

The following is a summary of the significant accounting policies followed
by the Funds in the preparation of their financial statements:

25
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 (unaudited) -- (continued)

valued at the quoted bid price provided by principal market makers.
Securities listed on the New York Stock Exchange ("NYSE") or other national
securities exchanges, are valued on the basis of the last sale price on the
exchange on which they are primarily traded. If there is no sale on that
day, then securities are valued at the closing bid price on the NYSE or
other primary exchange for that day. However, if the last sale price on the
NYSE is different than the last sale price on any other exchange, the NYSE
price is used. Options traded on national securities exchanges are valued
as of the close of the exchange on which they are traded. Futures and
options traded on commodities exchanges are valued at their last sale price
as of the close of such exchange. The Funds may make use of a pricing
service in the determination of their net asset values. Securities for
which market quotations are not readily available and other assets are
valued at fair value as determined pursuant to procedures adopted in good
faith by the Trustees. Short-term investments which mature in less than 60
days are valued at amortized cost, if their original maturity was 60 days
or less, or by amortizing their value on the 61st day prior to maturity, if
their original term to maturity exceeded 60 days.

REPURCHASE AGREEMENTS: The Funds, along with other affiliated registered
investment companies, transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral
is valued daily on a mark to market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In
the event of default of the obligation to repurchase, a Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. If the seller defaults and the value of the collateral declines
or 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.

SECURITIES TRANSACTIONS, INVESTMENT INCOME, DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS: Securities transactions are recorded on the first business
day following the trade date. Realized gains and losses on sales of
investments are calculated on the identified cost basis. Interest income is
recorded on the accrual basis; dividend income is recorded on the ex-
dividend date. The Equity Funds, except for the Global Balanced Fund and
the Growth and Income Fund, do not amortize premiums or accrue discounts
except original issue discounts and on interest only securities for which
amortization is required for federal income tax purposes.

26
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 (unaudited) -- (continued)

Dividends from net investment income are paid semiannually, except for
Balanced Assets Fund and Growth and Income Fund which pay quarterly and
Global Balanced Fund which pays annually. Capital gain distributions, if
any, are paid annually.

INVESTMENT SECURITIES LOANED: During the six months ended March 31, 1996,
Balanced Assets Fund, Mid-Cap Growth Fund and Small Company Growth Fund
participated in securities lending with qualified brokers. In lending
portfolio securities to brokers the Funds receive cash as collateral
against the loaned securities, which must be maintained at not less than
102% of the market value of the loaned securities during the period of the
loan. To the extent income is earned on the cash collateral invested, it is
recorded as interest income. As with other extensions of credit, should the
borrower of the securities fail financially, the Funds may bear the risk of
delay in recovery or may be subject to replacing the loaned securities by
purchasing them with the cash collateral held, which may be less than 100%
of the market value of such securities at the time of replacement.

FOREIGN CURRENCY TRANSACTION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at published rates on the following basis:

(i) market value of investment securities, other assets and
liabilities--at the closing rate of exchange.

(ii) purchases and sales of investment securities, income and expenses--
at the rate of exchange prevailing on the respective dates of such
transactions.

27
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 (unaudited) -- (continued)

EXPENSES: Expenses common to all Funds, not directly related to individual
Funds, are allocated among the Equity Funds based upon their relative net
asset values.

USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION: The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from these estimates.

STATEMENT OF POSITION 93-2: As required by Statement of Position 93-2,
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies,
permanent book-tax differences relating to shareholder distributions have
been reclassified. Net investment income/loss, net realized gain/loss, and
net assets are not affected. The following table discloses the year ending
September 30, 1995 reclassifications between accumulated undistributed net
investment income/loss and accumulated undistributed net realized gain/loss
on investments.

Note 3. Joint Repurchase Agreement Account

As of March 31, 1996, Balanced Assets Fund, Mid-Cap Growth Fund, Small
Company Growth Fund, and Growth and Income Fund had a 7.7%, 2.0%, 20.5% and
0.7% undivided interest, respectively, which represented $8,278,000,
$2,106,000, $22,066,000 and $747,000, respectively, in principal amount in
a joint repurchase agreement with Chemical Securities, Inc. In addition,
the Blue Chip Growth Fund and the Global Balanced Fund had a 3.5% and 0.2%
undivided interest which represented $4,095,000 and $243,000, respectively,
in principal amount in a joint repurchase agreement with Yamaichi
International, Inc. As of such date, the cash repurchase agreement in the
joint account and the collateral therefore were as follows:

28
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS --March 31, 1996 (unaudited) -- (continued)

Chemical Securities, Inc. Repurchase Agreement, 5.35% dated 3/29/96, in the
principal amount of $107,576,000 repurchase price $107,623,961 due 4/01/96
collateralized by $50,000,000 U.S. Treasury Bill 5.07% due 10/17/96,
$5,000,000 U.S. Treasury Bill 5.07% due 10/17/96 and $12,815,000 U.S.
Treasury Bill 5.00% due 6/27/96, approximately aggregate value
$109,773,405.

Yamaichi International, Inc. Repurchase Agreement, 5.45% dated 3/29/96, in
the principal amount of $116,221,000 repurchase price $116,273,784 due
4/01/96 collateralized by $12,385,000 U.S. Treasury Bond 8.50% due 2/15/20,
$20,850,000 U.S. Treasury Bond 9.875% due 11/15/15, $12,500,000 U.S.
Treasury Bond 12.00% due 8/15/13, $20,000,000 U.S. Treasury Note 7.625% due
2/15/07, $19,430,000 U.S. Treasury Bill 5.33% due 4/18/96 and $15,865,000
U.S. Treasury Note 6.625% due 3/31/97, approximate aggregate value
$118,551,493.

Note 4. Investment Advisory and Management Agreement, Distribution Agreement
and Service Agreement

The Trust, on behalf of each Fund, has an Investment Advisory and
Management Agreement (the "Agreement") with SAAMCo (the "Adviser"), an
indirect wholly-owned subsidiary of SunAmerica Inc. Under the Agreement,
SAAMCo provides continuous supervision of a Fund's portfolio and
administers its corporate affairs, subject to general review by the
Trustees. In connection therewith, SAAMCo furnishes the Funds with office
facilities, maintains certain of the Fund's books and records, and pays the
salaries and expenses of all personnel, including officers of the Funds who
are employees of SAAMCo and its affiliates. The investment advisory and
management fee to SAAMCo with respect to each Fund (other than the Global
Balanced Fund) is computed daily and payable monthly, at an annual rate of
.75% of a Fund's average daily net assets up to $350 million, .70% of the
next $350 million, and .65% thereafter. The Global Balanced Fund pays the
Adviser a fee, payable monthly, computed daily at the annual rate of 1.00%
on the first $350 million of the Fund's average daily net assets, .90% on
the next $350 million of net assets and .85% on net assets over $700
million. For the six months ended March 31, 1996, SAAMCo earned fees in the
amounts stated on the Statement of Operations, of which SAAMCo agreed to
waive $46,274 and $28,374 on the Global Balanced Fund and Growth and Income
Fund, respectively. In addition to the aforementioned, SAAMCo, on behalf of
SunAmerica Global Balanced Fund, has entered into Sub-Advisory Agreements
with AIG Asset Management, Inc. ("AIGAM") and Goldman Sachs Asset
Management International ("GSAM") under which AIGAM and GSAM act as sub-
advisers for the Fund.

SAAMCo pays to AIGAM a monthly fee with respect to those net assets of the
Global Balanced Fund actually managed by AIGAM computed based on average
daily net assets at the following annual rates: .50% on the first $50
million of such assets, .40% of the next $100 million of such assets, .30%
on the next $150 million of such assets, and .25% of such assets in excess
of $300 million. Also, from the investment advisory fee the Adviser pays
GSAM a monthly fee with respect to those net assets of the Global Balanced
Fund actually managed by GSAM computed based on average daily net assets,
at the following annual rates: .40% on the first $50 million of such
assets, .30% on the next $100 million of such assets, .25% on the next $100
million of such assets, and .20% of such assets in excess of $250 million.
For the six months ended March 31, 1996, SAAMCo paid AIGAM and GSAM fees of
$31,905 and $12,379, respectively.

29
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 (unaudited) -- (continued)

For the six months ended March 31, 1996, SAAMCo has agreed to voluntarily
reimburse expenses of $1,912 on Global Balanced Fund Class A and, $12,252
and $11,776 on Growth and Income Fund (Class A, Class B), respectively,
related to both class specific and fund level expenses excluding management
fees and distribution and service maintenance fees which are stated
separately in the Notes.

The Trust, on behalf of each Fund, has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS"), an indirect wholly owned
subsidiary of SunAmerica Inc. Each Fund has adopted a Distribution Plan
(the "Plan") in accordance with the provisions of Rule 12b-1 under the 1940
Act. Rule 12b-1 under the Act permits an investment company directly or
indirectly to pay expenses associated with the distribution of its shares
("distribution expenses") in accordance with a plan adopted by the
investment company's board of trustees and approved by its shareholders.
Pursuant to such rule, the Trustees and the shareholders of each class of
shares of each Fund have adopted Distribution Plans hereinafter referred to
as the "Class A Plan" and the "Class B Plan." In adopting the Class A Plan
and the Class B Plan, the Trustees determined that there was a reasonable
likelihood that each such Plan would benefit the Trust and the shareholders
of the respective class. The sales charge and distribution fees of a
particular class will not be used to subsidize the sale of shares of any
other class.

Under the Class A Plan and Class B Plan, the Distributor receives payments
from a Fund at an annual rate of up to 0.10% and 0.75%, respectively, of
average daily net assets of such Fund's Class A shares to compensate the
Distributor and certain securities firms for providing sales and
promotional activities for distributing that class of shares. 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 those incurred for sales
literature, prospectus printing and distribution and compensation to
wholesalers. It is possible that in any given year the amount paid to the
Distributor under the Class A Plan or Class B Plan may exceed the
Distributor's distribution costs as described above. The Distribution Plans
provide that each class of shares of each Fund may also pay the Distributor
an account maintenance and service fee up to an annual rate of 0.25% of the
aggregate average daily net assets of such class of shares for payments to
broker-dealers for providing continuing account maintenance. Accordingly,
for the six months ended March 31, 1996, SACS received fees (see Statement
of Operations) based upon the aforementioned rates, (of which $2,870 was
waived on Growth and Income Fund).

30
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS --March 31, 1996 (unaudited) -- (continued)

SACS receives sales charges on each Fund's Class A shares, portions of
which are reallowed to affiliated broker-dealers and non-affiliated broker-
dealers. SACS also receives the proceeds of contingent deferred sales
charges paid by investors in connection with certain redemptions of each
Fund's Class B shares. SACS has advised the Funds that for the six months
ended March 31, 1996 the proceeds received from Class A sales (and paid out
to affiliated and non-affiliated broker-dealers) and Class B redemptions
are as follows:

<TABLE>
<CAPTION>
Class A Class B
-------------------------------------- -------------------
Sales Affiliated Non-affiliated Contingent Deferred
Charges Broker-dealers Broker-dealers Sales Charges
-------- -------------- -------------- -------------------
<S> <C> <C> <C> <C>
Balanced Assets Fund.... $710,479 $527,144 $ 83,193 $141,175
Blue Chip Growth Fund... 45,434 25,153 13,983 21,430
Mid-Cap Growth Fund..... 95,359 68,421 12,750 6,986
Small Company Growth
Fund................... 717,151 434,219 183,730 44,800
Global Balanced Fund.... 44,296 24,378 14,142 17,979
Growth and Income Fund.. 27,978 21,317 2,708 928
</TABLE>

<TABLE>
<CAPTION>
Payable at
Expense March 31, 1996
----------------- ---------------
Class A Class B Class A Class B
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Balanced Assets Fund...................... $141,674 $182,145 $26,213 $31,668
Blue Chip Growth Fund..................... 48,901 43,954 9,018 7,781
Mid-Cap Growth Fund....................... 41,214 10,611 7,178 2,068
Small Company Growth Fund................. 104,229 74,916 19,970 14,195
Global Balanced Fund...................... 9,685 15,500 1,650 2,791
Growth and Income Fund.................... 4,787 3,536 968 737
</TABLE>

31
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 (unaudited) -- (continued)

Note 5. Purchases and Sales of Investment Securities

The aggregate cost of purchases and proceeds from sales and maturities of
investments (excluding U.S. Government securities and short-term
investments) during the six months ended March 31, 1996 were as follows:

<TABLE>
<CAPTION>
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
------------ ------------ ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Aggregate purchases..... $222,590,252 $106,386,126 $70,910,739 $203,281,293 $12,895,923 $9,857,383
------------ ------------ ----------- ------------ ----------- ----------
Aggregate sales......... $208,407,843 $97,580,362 $59,548,281 $170,971,381 $13,419,762 $6,921,478
============ ============ =========== ============ =========== ==========
</TABLE>

Note 6. Portfolio Securities

The cost of securities and the aggregate gross unrealized appreciation and
depreciation of securities at March 31, 1996 were as follows:

<TABLE>
<CAPTION>
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
------------ ----------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cost.................... $294,215,411 $85,871,931 $43,292,826 $154,739,317 $23,729,425 $8,623,075
============ =========== =========== ============ =========== ==========
Appreciation............ $ 26,835,613 $ 9,779,645 $ 7,869,888 $34,993,691 $ 2,375,424 $ 836,950
Depreciation............ (6,156,866) (3,093,576) (540,301) (2,055,790) (559,389) (113,650)
------------ ----------- ----------- ------------ ----------- ----------
Unrealized appreciation/
depreciation--net...... $ 20,678,747 $ 6,686,069 $ 7,329,587 $32,937,901 $ 1,816,035 $ 723,300
============ =========== =========== ============ =========== ==========
</TABLE>

At March 31, 1996, Global Balanced Fund had net capital loss carryforwards
of $17,364 which are available to the extent provided in regulations to
offset future capital gains and which will expire in 2003. To the extent
that these carryforwards are used to offset future capital gains, it is
probable that the gains so offset will not be distributed.

32
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 (unaudited) -- (continued)

Note 7. Open Forward Currency Contracts

At March 31, 1996, the Global Balanced Fund engaged in the trading of
forward foreign currency exchange contracts ("forward contracts") in order
to hedge against changes in future foreign exchange rates and enhance
return. Forward contracts involve elements of market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The Fund bears
the risk of an unfavorable change in the foreign exchange rate underlying
the forward contract. Global Balanced Fund held the following forward
currency contracts at March 31, 1996:

<TABLE>
<CAPTION>
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
--------------------- ----------------------- -------- ------------
<S> <C> <C> <C> <C> <C>
BEF 3,467,742 USD 116,551 6/05/96 $ 1,796
USD 1,414,095 DEM 2,087,205 4/04/96 149
DEM 116,197 USD 80,000 4/04/96 1,268
DEM 1,756,728 USD 1,195,866 4/04/96 5,546
DEM 321,558 USD 218,598 4/04/96 718
DEM 13,128 BEF 270,000 9/09/96 7
USD 39,980 ESP 5,000,000 4/23/96 221
ESP 15,798,487 USD 128,151 4/23/96 1,126
USD 234,979 FRF 1,192,050 4/23/96 1,926
FRF 1,564,105 ESP 39,016,599 4/23/96 2,860
FRF 1,550,248 USD 310,000 4/23/96 1,908
FRF 1,900,000 USD 381,373 4/23/96 3,772
GBP 380,835 USD 584,582 4/04/96 3,383
GBP 211,942 USD 324,361 4/04/96 912
GBP 432,778 USD 662,583 8/14/96 3,410
JPY 28,337,040 USD 270,000 4/17/96 4,444
JPY 29,590,000 USD 284,882 4/17/96 7,584
JPY 400,000,000 USD 3,795,066 6/12/96 17,753
*DEM 222,572 GBP 100,000 4/04/96 1,862
*JPY 26,800,000 USD 258,021 4/17/96 7,495
*USD 409,903 DKK 2,340,052 4/23/96 596
*ESP 40,890,794 USD 331,690 4/23/96 2,231
*USD 328,618 ESP 40,890,794 4/23/96 841
*CAD 430,880 USD 320,000 6/18/96 3,990
*USD 311,712 CAD 430,880 6/18/96 4,298
-------
80,096
-------
</TABLE>

33
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 (unaudited) -- (continued)
<TABLE>
<CAPTION>
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE DEPRECIATION
--------------------- ----------------------- -------- ------------
<S> <C> <C> <C> <C> <C>
AUD 374,008 USD 280,517 4/30/96 $(11,231)
BEF 9,584,224 DEM 464,622 9/09/96 (1,188)
CAD 216,167 USD 157,275 5/10/96 (1,341)
GBP 50,000 DEM 109,950 4/04/96 (1,806)
ESP 33,420,000 DEM 394,150 4/23/96 (1,379)
DEM 2,087,205 USD 1,418,873 6/04/96 (507)
DEM 2,000,000 USD 1,351,351 6/12/96 (9,305)
DKK 1,211,537 USD 211,150 4/22/96 (1,548)
ESP 51,752,637 USD 415,604 4/23/96 (504)
USD 320,620 GBP 210,000 4/04/96 (135)
USD 664,000 GBP 432,778 4/04/96 (3,531)
ITL 421,970,840 USD 264,749 4/22/96 (3,193)
SEK 1,780,000 USD 254,039 5/14/96 (12,040)
SEK 1,294,686 USD 189,392 5/14/96 (4,140)
*GBP 100,000 DEM 219,900 4/04/96 (3,672)
*USD 251,553 JPY 26,800,000 4/17/96 (1,028)
*DKK 120,000 USD 20,914 4/22/96 (137)
*USD 21,067 DKK 120,000 4/22/96 (16)
*DKK 2,340,052 USD 407,831 4/23/96 (2,668)
--------
(59,369)
--------
Net Appreciation.................................... $ 20,727
========
</TABLE>

*Represents open forward foreign currency contracts and offsetting open
forward foreign currency contracts that do not have additional market risk
but have continued counterparty settlement risk.

AUD--Austrailian Dollar DKK--Danish Kroner ITL--Italian Lira
BEF--Belgian Franc ESP--Spanish Peseta JPY--Japanese Yen
CAD--Canadian Dollar FRF--French Franc SEK--Swedish Krona
DEM--Deutsche Mark GBP--Great Britian Pound USD--United States
Dollar

34
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 (unaudited) -- (continued)

Note 8. Capital Share Transactions

Transactions in capital shares of each class of each series were as
follows:

<TABLE>
<CAPTION>
BALANCED ASSETS FUND
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ----------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
MARCH 31, 1996 YEAR ENDED MARCH 31, 1996 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1995 (UNAUDITED) SEPTEMBER 30, 1995
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 1,971,604 $ 32,005,963 4,667,503 $ 71,426,588 1,747,642 $ 28,438,252 3,071,975 $ 45,998,809
Reinvested
dividends...... 517,446 8,190,047 265,763 3,756,343 641,584 10,144,349 769,696 10,686,782
Shares redeemed. (1,158,134) (18,967,970) (1,193,984) (17,782,121) (1,845,503) (29,944,457) (6,322,402) (95,258,440)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... 1,330,916 $ 21,228,040 3,739,282 $ 57,400,810 543,723 $ 8,638,144 (2,480,731) $(38,572,849)
========== ============ ========== ============ ========== ============ =========== =============
<CAPTION>
BLUE CHIP GROWTH FUND
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ----------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
MARCH 31, 1996 YEAR ENDED MARCH 31, 1996 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1995 (UNAUDITED) SEPTEMBER 30, 1995
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 367,742 $ 6,143,923 2,404,163 $ 37,806,801 2,685,616 $ 44,903,316 8,964,323 $ 134,971,138
Reinvested
dividends...... 285,307 4,510,703 14,956 207,075 276,920 4,310,566 372,862 5,128,338
Shares redeemed. (237,257) (4,001,105) (181,804) (2,884,125) (2,776,855) (46,187,528) (11,706,255) (177,081,024)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... 415,792 $ 6,653,521 2,237,315 $ 35,129,751 185,681 $ 3,026,354 (2,369,070) $ (36,981,548)
========== ============ ========== ============ ========== ============ =========== =============
<CAPTION>
MID-CAP GROWTH FUND
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ----------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
MARCH 31, 1996 YEAR ENDED MARCH 31, 1996 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1995 (UNAUDITED) SEPTEMBER 30, 1995
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 307,650 $ 5,173,644 247,141 $ 3,926,322 1,308,395 $ 22,174,754 4,235,563 $ 62,818,790
Reinvested
dividends...... 262,430 4,235,729 5,781 79,602 66,071 1,049,943 1,748 24,200
Shares redeemed. (336,400) (5,769,647) (521,946) (7,755,976) (1,215,957) (20,737,715) (3,989,374) (59,135,991)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... 233,680 $ 3,639,726 (269,024) $ (3,750,052) 158,509 $ 2,486,982 247,937 $ 3,706,999
========== ============ ========== ============ ========== ============ =========== =============
</TABLE>

35
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 (unaudited) -- (continued)

<TABLE>
<CAPTION>
Small Company Growth Fund
---------------------------------------------------------------------------------------------------------
Class A Class B
--------------------------------------------------- ----------------------------------------------------
For the For the
six months ended For the six months ended For the
March 31, 1996 year ended March 31, 1996 year ended
(unaudited) September 30, 1995 (unaudited) September 30, 1995
------------------------ ------------------------- ------------------------ --------------------------
SHARES Amount SHARES Amount SHARES Amount SHARES Amount
---------- ------------ ---------- ------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 3,902,277 $ 89,095,266 6,544,632 $ 130,462,164 3,954,139 $ 90,168,893 9,886,153 $ 196,092,402
Reinvested
dividends...... 725,607 15,399,834 54,753 964,756 543,024 11,321,166 62,016 1,085,149
Shares redeemed. (3,235,422) (74,318,184) (5,262,148) (102,586,803) (3,659,044) (83,254,993) (10,265,178) (202,833,358)
---------- ------------ ---------- ------------- ---------- ------------ ----------- -------------
Net increase
(decrease)..... 1,392,462 $ 30,176,916 1,337,237 $ 28,840,117 838,119 $ 18,235,066 (317,009) $ (5,655,807)
========== ============ ========== ============= ========== ============ =========== =============
<CAPTION>
Global Balanced Fund
---------------------------------------------------------------------------------------------------------
Class A Class B
--------------------------------------------------- ----------------------------------------------------
For the For the
six months ended For the six months ended For the
March 31, 1996 year ended March 31, 1996 year ended
(unaudited) September 30, 1995 (unaudited) September 30, 1995
------------------------ ------------------------- ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 156,379 $ 1,143,225 750,764 $ 5,173,301 373,042 $ 2,703,795 1,150,637 $ 7,847,490
Reinvested
dividends...... 63,318 449,557 4,067 27,252 93,392 661,224 2,161 14,461
Shares redeemed. (307,635) (2,242,249) (1,342,777) (9,319,908) (292,960) (2,123,114) (1,199,716) (8,126,345)
---------- ------------ ---------- ------------- ---------- ------------ ----------- -------------
Net increase
(decrease)..... (87,938) $ (649,467) (587,946) $ (4,119,355) 173,474 $ 1,241,905 (46,918) $ (264,394)
========== ============ ========== ============= ========== ============ =========== =============
<CAPTION>
Growth and Income Fund
---------------------------------------------------------------------------------------------------------
Class A Class B
--------------------------------------------------- ----------------------------------------------------
For the For the
six months ended For the six months ended For the
March 31, 1996 year ended March 31, 1996 year ended
(unaudited) September 30, 1995 (unaudited) September 30, 1995
------------------------ ------------------------- ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 130,466 $ 1,166,381 542,589 $ 4,112,191 128,713 $ 1,163,530 301,384 $ 2,380,132
Reinvested
dividends...... 26,805 237,282 25,040 190,918 17,667 156,185 7,758 61,110
Shares redeemed. (23,665) (215,509) (562,875) (4,274,466) (22,462) (202,929) (37,348) (295,806)
---------- ------------ ---------- ------------- ---------- ------------ ----------- -------------
Net increase.... 133,606 $ 1,188,154 4,754 $ 28,643 123,918 $ 1,116,786 271,794 $ 2,145,436
========== ============ ========== ============= ========== ============ =========== =============
</TABLE>

36
<PAGE>

SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 (unaudited)

Note 9. Commitments and Contingencies

Note 10. Trustees Retirement Plan

The Trustees (and Directors) of the SunAmerica Family of Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement
Plan (the "Retirement Plan") effective January 1, 1993 for the unaffiliated
Trustees. The Retirement Plan provides generally that if an unaffiliated
Trustee who has at least 10 years of consecutive service as a Disinterested
Trustee of any of the SunAmerica mutual funds (an "Eligible Trustee")
retires after reaching age 60 but before age 70 or dies while a Trustee,
such person will be eligible to receive a retirement or death benefit from
each SunAmerica mutual fund with respect to which he or she is an Eligible
Trustee. As of each birthday, prior to the 70th birthday, but in no event
for a period greater than 10 years, each Eligible Trustee will be credited
with an amount equal to 50% of his or her regular fees (excluding committee
fees) for services as a Disinterested Trustee of each SunAmerica mutual
fund for the calendar year in which such birthday occurs. In addition, an
amount equal to 8.5% of any amounts credited under the preceding clause
during prior years, is added to each Eligible Trustee's account until such
Eligible Trustee reaches his or her 70th birthday. An Eligible Trustee may
receive any benefits payable under the Retirement Plan, at his or her
election, either in one lump sum or in up to fifteen annual installments.
As of March 31, 1996, Balanced Assets Fund, Blue Chip Growth Fund, Mid-Cap
Growth Fund, Small Company Growth Fund, Global Balanced Fund and Growth and
Income Fund had accrued $9,221, $3,148, $1,574, $4,502, $810 and $150,
respectively, for the Retirement Plan, which is included in accrued
expenses on the Statement of Assets and Liabilities, and for the six months
ended March 31, 1996 expensed $4,102, $1,281, $688, $2,259, $374 and $94,
respectively, for the Retirement Plan, which is included in Trustees' fees
and expenses on the Statement of Operations.

37
<PAGE>

APPENDIX

CORPORATE BOND AND COMMERCIAL PAPER RATINGS

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") CORPORATE RATINGS

AAA Bonds which are 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 which are 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.

A Bonds which are rated A possess many favorable investment attributes and
are to considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.

BAA Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.

BA Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B-79
<PAGE>

B Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.

CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.

CA Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of the generic rating
category.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the Securities Act.

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations
are exempt from registration under the Securities Act, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:

Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:

-- Leading market positions in well established industries
-- High rates of return on funds employed

B-80
<PAGE>

-- Conservative capitalization structures with moderate reliance on debt and
ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated PRIME-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in level of debt
protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.

Issuers rated NOT PRIME do not fall within any of the Prime rating categories.

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 which 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 which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a

B-81
<PAGE>

result of public interest questions and preparations to meet such obligations.

DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS

A Standards & Poor's corporate or municipal rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligers such as guarantors, insurers, or
lessees.

The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.

The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.

The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation: (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.

AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.

A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.

BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher-rated categories.

B-82
<PAGE>

Debt rated BB, B, CCC, CC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.

BB Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payment.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB - rating.

B Debt rated B has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB-rating .

CCC Debt rated CCC has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayments of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied B or B- rating.

CC The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.

C The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used
to cover a situation where a bankruptcy petition has been filed but debt
service payments are continued.

CI The rating CI is reserved for income bonds on which no interest is being
paid.

D Debt rated D is in default. The D rating is assigned on the day an interest
or principal payment is missed. The

B-83
<PAGE>

D rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.

Plus (+) or minus (-): The ratings of AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within these
ratings categories.

Provisional ratings: The letter "p" indicates that the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.

L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is insured by the Federal Savings & Loan Insurance Corp.
or the Federal Deposit Insurance Corp. and interest is adequately
collateralized.

* Continuance of the rating is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.

NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard
& Poor's does not rate a particular type of obligation as a matter
of policy.

Debt Obligations of Issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the credit worthiness of the obligor but do not take into account
currency exchange and related uncertainties.

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

B-84
<PAGE>

DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS.

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of not more
than 365 days. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest.

A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.

A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.

A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1".

A-3 Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effect of changes in circumstances than obligations carrying the higher
designations.

B Issues rated "B" are regarded as having only adequate capacity for timely
payment. However, such capacity may be damaged by changing conditions or
short-term adversities.

C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D This rating indicates that the issue is either in default or is expected
to be in default upon maturity.

The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.

B-85