<PAGE>
As filed with the Securities and Exchange Commission on Marcg 18, 1998
File Nos. 33-8021; 811-4801
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 -
PRE-EFFECTIVE AMENDMENT NO. -
POST-EFFECTIVE AMENDMENT NO. 23 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 -
AMENDMENT NO. 22 X
(Check appropriate box or boxes)
SUNAMERICA EQUITY FUNDS
(Exact Name of Registrant as Specified in Charter)
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (800) 858-8850
Robert M. Zakem
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
Margery K. Neale, Esq.
Shereff, Friedman, Hoffman, & Goodman, LLP
919 Third Avenue
New York, NY 10022
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant on (date) pursuant to paragraph
--- to paragraph (b) of Rule 485 -- (b) of Rule 485
60 days after filing pursuant to X on June 1, 1998 pursuant
--- paragraph (a) of Rule 485 -- to paragraph (a)(2) of Rule 485
Title of Securities Being Registered...... Shares of beneficial interest, par
value $.01 per share
________________________________________________________________________________
<PAGE>
SUNAMERICA EQUITY FUNDS
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Under the Securities Act of 1933
<TABLE>
<CAPTION>
PART A
Item No. Registration Statement Caption Caption in Prospectus
- -------- ------------------------------ ---------------------
<C> <S> <S>
1 Cover Page Cover Page
2 Synopsis Summary of Fund Expenses
3 Condensed Financial Information Performance Data
4 General Description of Registrant Investment Objective, Policies and
Restrictions; Other Investment Techniques
and Risk Factors; General Information
5 Management of the Fund Management of the Trust; Portfolio
Transactions, Brokerage and Turnover
5A Management's Discussion of Fund Performance *
6 Capital Stock and Other Dividends, Distributions and Taxes;
Securities General Information
7 Purchase of Securities Being Purchase of Shares; Determination
Offered of Net Asset Value
8 Redemption or Repurchase Redemption of Shares; Exchange Privilege
9 Pending Legal Proceedings Inapplicable
<CAPTION>
PART B Caption in Statement
Item No. Registration Statement Caption of Additional Information
- -------- ------------------------------- --------------------------
10 Cover Page Cover Page
11 Table of Contents Cover Page
12 General Information and History History of the Trust
13 Investment Objectives and Investment Objective and Policies;
Policies Investment Restrictions; Appendix
14 Management of the Fund Trustees and Officers
15 Control Persons and Principal Holders Inapplicable
of Securities
16 Investment Advisory and Other Adviser, Personal Trading, Distributor and
Services Administrator; Additional Information
17 Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
18 Capital Stock and Other Securities Dividends, Distributions and Taxes;
Description of Shares; Additional
Information
19 Purchase, Redemption and Pricing Additional Information Regarding Purchase
of Securities Being Offered of Shares; Additional Information Regarding
Redemption of Shares; Determination of Net
Asset Value; Retirement Plans
20 Tax Status Dividends, Distributions and Taxes
21 Underwriters Adviser, Personal Trading, Distributor and
Administrator
22 Calculation of Performance Data Performance Data
23 Financial Statements Financial Statements
</TABLE>
PART C
The information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
<PAGE>
This Registration Statement incorporates by reference the Prospectus and
Statement of Additional Information as contained in Post-Effective Amendment No.
22 to Registrant's Registration Statement under the Securities Act of 1933 on
Form N-1A filed on January 30, 1998.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- --------------------------------------------------------------------------------
SUNAMERICA EQUITY FUNDS
"DOGS" OF WALL STREET FUND
The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204
General Marketing and Shareholder Information
- --------------------------------------------------------------------------------
(800) 858-8850
"Dogs" of Wall Street Fund (the "Fund") is a separate investment
portfolio of SunAmerica Equity Funds, an open-end management investment company
(the "Trust"). The Fund is advised and managed by SunAmerica Asset Management
Corp. (the "Adviser").
The investment objective of the "Dogs" of Wall Street Fund is to seek
total return (including capital appreciation and current income) through a
passively managed strategy involving the annual selection of thirty high
dividend yielding common stocks from the Dow Jones Industrial Average and the
broader market.
The Fund currently offers Class A, Class B and Class II 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), (ii) deferred (Class B shares and purchases
of Class A shares in excess of $1 million) or (iii) with elements of a sales
charge that is both imposed at the time of purchase and deferred (Class II
shares). Class B shares may be subject to a declining contingent deferred sales
charge ("CDSC") that may be imposed on redemptions made within six years of
purchase. Class B shares of the 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. Class II shares may be subject to a CDSC
imposed on redemptions made within one year of purchase. 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."
Shares of the Fund 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 the Fund. Please read it carefully before investing and retain it
for future reference. You can find more detailed information about the Fund in
the Statement of Additional Information dated June 1, 1998, which is
incorporated by reference into this Prospectus. The Statement of Additional
<PAGE>
Information 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 NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------------------------------------------------------
PROSPECTUS DATED JUNE 1, 1998
2
<PAGE>
[TO APPEAR ON INSIDE COVER PAGE]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus....................................................................................................Cover
SUMMARY OF FUND EXPENSES..........................................................................................4
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...................................................................6
OTHER INVESTMENT TECHNIQUES AND RISK FACTORS......................................................................9
MANAGEMENT OF THE TRUST..........................................................................................12
PURCHASE OF SHARES...............................................................................................14
REDEMPTION OF SHARES.............................................................................................19
EXCHANGE PRIVILEGE...............................................................................................21
PORTFOLIO TRANSACTIONS, BROKERAGE AND TURNOVER...................................................................23
DETERMINATION OF NET ASSET VALUE.................................................................................23
PERFORMANCE DATA.................................................................................................24
DIVIDENDS, DISTRIBUTIONS AND TAXES...............................................................................24
GENERAL INFORMATION..............................................................................................26
</TABLE>
3
<PAGE>
SUMMARY OF FUND EXPENSES
A general comparison of the sales arrangements and other expenses applicable to
Class A, Class B and Class II shares follows:
<TABLE>
<CAPTION>
"DOGS" OF WALL STREET FUND
------------------------------------------
Class Class Class
A B II
------------- -------------- -------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Load(1) 5.75% None 1.00%
Maximum Sales Load on Reinvested Dividends None None None
Maximum Deferred Sales Load(2) None 5.00% 1.00%
Redemption Fees(3) 1.50% 1.50% 1.50%
Exchange Fees None None None
- ---------------------------------------------------------- ------------- -------------- -------------
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees 0.35% 0.35% 0.35%
12b-1 Fees (4) 0.25% 1.00% 1.00%
Other Expenses(5) (net of fee waivers/expense
reimbursements) 0.35% 0.35% 0.35%
----- ----- -----
TOTAL OPERATING EXPENSES (net of fee waivers/expense
reimbursements)(5) 0.95% 1.70% 1.70%
===== ===== =====
- ---------------------------------------------------------- ------------- -------------- -------------
- ---------------------------------------------------------- ------------- -------------- -------------
</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
CDSC on redemptions made within one year of purchase. The CDSC on Class B shares
applies only if a redemption occurs within six years from their purchase date.
The CDSC on Class II shares applies only on redemptions made within one year of
purchase.
(3) If shares are redeemed within 90 days of purchase, a 1.50% redemption fee
will be assessed on redemption proceeds, which will be paid to the Fund. In
addition, a $15.00 fee may be imposed for wire redemptions.
(4) 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 Fund, such as responding to
shareholder inquiries, quoting net asset values, providing current marketing
material and attending to other shareholder matters. Class B or Class II
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 Conduct Rules of the National
Association of Securities Dealers, Inc.
(5) SunAmerica has voluntarily agreed to waive fees or reimburse expenses, if
necessary, to keep operating expenses at or below an annual rate set forth above
under Total Operating Expenses. The information provided in the table represents
estimated amounts for the current fiscal year net of current fee waivers/expense
reimbursements. In the absence of such waivers and reimbursements, other
expenses are estimated to be .90%, .90%, and .90%, respectively, and total
operating expenses are estimated to be 1.50%, 2.25%, and 2.25%, respectively,
for Class A, B and II, respectively.
4
<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 Years 3 Years
---------- ----------
<S> <C> <C>
"DOGS" OF WALL STREET FUND
(Class A Shares)................................................................ $67 $86
(Class B Shares)*............................................................... $67 $94
(Class II Shares)............................................................... $37 $63
</TABLE>
You would pay the following expenses on the same investment, assuming
no redemption:
<TABLE>
<CAPTION>
1 Years 3 Years
---------- ----------
<S> <C> <C>
"DOGS" OF WALL STREET FUND
(Class A Shares)................................................................ $67 $86
(Class B Shares)*............................................................... $17 $54
(Class II Shares)............................................................... $27 $63
</TABLE>
The foregoing examples should not be considered a representation of
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.
5
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective of the Fund is to seek total return (including
capital appreciation and current income) through a passively managed strategy
involving the annual selection of thirty high dividend yielding common stocks
from the Dow Jones Industrial Average ("DJIA")/1/ and the broader market. The
thirty stocks will consist of (1) the ten highest yielding stocks in the DJIA
and (2) the twenty other highest yielding stocks of the largest industrial
companies in the market (with market capitalizations of at least $1 billion)
that have been assessed as being of high quality from the perspective of
historical earnings and dividend performance. The Adviser will rely on
independently published reports for purposes of selecting these twenty stocks.
The Adviser will employ the same methodology, using the same analytical
parameters and benchmarks, in selecting the thirty stocks each year. There can
be no assurance that the investment objective of the Fund will be achieved.
The Fund's stock selection criteria is designed to implement a "value"
oriented philosophy of investing principally in securities believed to be
undervalued in the market. This philosophy reflects a contrarian approach, in
that the potential for superior relative performance is believed to be highest
when stocks of fundamentally solid companies are out of favor. The selection
criteria is calculated to identify stocks of large, well-known companies with
solid financial strength and generous dividend yields that have low
price-earnings ratios ("P/E ratios") and have been generally overlooked by the
market.
Upon commencement of its operations, the Fund will invest in the thirty
common stocks selected according to the methodology described above. The initial
thirty stocks will be identified based on information as of December 31, 1997;
they will be purchased by the Fund in proportion to their relative market prices
as of commencement of Fund operations. Thereafter, the Adviser will annually
rebalance the Fund's holdings within the first several weeks of each succeeding
calendar year according to the same selection criteria, based on information as
of the preceding December 31. The Adviser will rebalance the Fund's holdings to
create equal weightings among the thirty stocks selected by purchasing new
stocks that meet the selection criteria, selling stocks that no longer meet the
selection criteria, and adjusting its ownership of stocks that continue to meet
the criteria in order to achieve the proper weightings of each of the thirty
stocks.
The Fund will employ a buy and hold strategy over the course of each
year, which ignores market timing and rejects active management. The Adviser
anticipates that the thirty
- --------
/1/ "Dow Jones Industrial Average" is a trademark of Dow Jones & Company,
Inc. ("Dow Jones"). None of the Trust, the Fund or the Adviser is affiliated
with, nor is the Trust or the Fund sponsored by, Dow Jones. Dow Jones has not
participated in any way in the creation of the Trust or the Fund or in the
selection of the stocks included in the Fund, nor has Dow Jones reviewed or
approved any information included in this Prospectus.
6
<PAGE>
stocks held by the Fund will remain the same throughout the course of a year,
despite any adverse developments concerning a particular stock, an industry, the
economy or the stock market generally. However, due to purchases and redemptions
of Fund shares during the year and changes in the market value of the stock
positions held by the Fund, it is likely that the weightings of the stock
positions in the Fund will fluctuate throughout the course of the year.
As the Fund's shares are sold during the year, new cash received by the
Fund will first be used to the extent necessary to meet redemption requests. The
balance of any such cash will be invested weekly (or more frequently as the
Adviser deems necessary) in the thirty stocks selected for the Fund as of its
most recent rebalancing in proportion to the current weightings of such stocks
in the Fund's portfolio and without any intention to rebalance the Fund's
holdings on an interim basis. To the extent redemptions exceed available cash,
the Fund will generally meet redemption requests by selling stocks on a pro rata
basis (subject to rounding and avoidance of odd lots), based on the current
weightings of such stocks in the Fund's portfolio and without any intention to
rebalance the Fund's holdings on an interim basis.
The Adviser intends that the Fund will be at all times fully invested
in the stocks that are selected using the criteria described above; but reserves
the right to deviate from the investment strategy in the event of unforeseen
market conditions, or to the extent necessary to comply with federal tax laws
applicable to the Fund. In order to enhance its income, the Fund may lend its
securities and enter into repurchase agreements. It may also seek to equitize
uninvested cash through the use of options and futures strategies. See "Other
Investment Techniques and Risk Factors."
The Fund has certain fundamental investment restrictions which are
described in the Statement of Additional Information. Except as specifically
indicated, the Fund's investment policies and strategies described herein are
not fundamental and may be changed by the Board of Trustees (the "Trustees")
without the approval of shareholders. The Fund is classified as non-diversified
within the meaning of the 1940 Act.
HISTORICAL PERFORMANCE INFORMATION
The following tables compare the actual performance of the Standard &
Poor's Composite Stock Price Index 500 (the "S&P 500") and the hypothetical
performance of a model fund employing the same stock selection criteria as the
"Dogs" of Wall Street Fund, rebalanced annually, for the historical periods
indicated. The S&P 500 is used as the performance comparison because (1) it is
the performance benchmark against which the Fund will be measured; and (2) it is
the index most widely recognized as representative of the performance of the
U.S. stock market.
The Fund's actual performance may differ from that of the hypothetical
model for the following reasons: the Fund may not be fully invested at all
times; appreciation or depreciation in an individual stock's value may cause
stocks held by the Fund to be weighted unequally at any particular time; cash
surpluses and deficits from purchases and redemptions of Fund shares may
7
<PAGE>
cause the Adviser to buy and sell stocks for the Fund between annual
rebalancings; the Adviser may modify slightly the Fund's investment strategy as
federal tax laws require; and the returns indicated in the hypothetical model
exclude commission costs, advisory fees, expenses and taxes that would be borne
by the Fund.
Because the returns for the model fund are hypothetical, they do not
represent actual trading or the impact that material economic and market factors
might have had on the Adviser's decision-making under actual circumstances.
However, except as described above, the Adviser can presently foresee no
circumstances that would cause deviation from the stock selection criteria used
in managing the Fund. All returns contained in the tables below reflect
reinvestment of dividends and other earnings. The hypothetical results of the
strategy are based on statistical data gathered by the Adviser.
PERFORMANCE COMPARISON OF S&P 500 AND HYPOTHETICAL RESULTS OF THE
STRATEGY FOR "DOGS" OF WALL STREET FUND
DECEMBER 31, 1988 - DECEMBER 31, 1997
The following tables represent the hypothetical performance obtained by
applying the Fund's stock selection criteria retroactively to December 31, 1987.
The performance of the stock selection criteria does not represent the
performance of the Fund, nor does it reflect the advisory fees, commissions,
expenses or taxes which would be borne by the Fund. The Fund's performance, as
well as that of the S&P 500, would be lower if such fees and expenses were
deducted. Past performance of the stock selection criteria is not predictive of
future performance of such criteria or of the Fund.
ANNUAL RESULTS
- --------------------------------------------------------------------------------
"Dogs" of Wall Street
Year ended: S&P 500 Strategy
- --------------------------------------------------------------------------------
12/31/88 16.56% 34.4%
12/31/89 31.62% 32.3%
12/31/90 -3.10% -1.1%
12/31/91 30.40% 39.3%
12/31/92 7.61% 11.9%
12/31/93 10.06% 12.7%
12/31/94 1.32% 10.2%
12/31/95 37.55% 36.8%
12/31/96 22.95% 20.8%
8
<PAGE>
12/31/97 33.35% 31.2%
- --------------------------------------------------------------------------------
SUMMARY RESULTS
- --------------------------------------------------------------------------------
S&P 500 "Dogs" of Wall Street
Strategy
- --------------------------------------------------------------------------------
Arithmetic average 18.83% 22.85%
Standard deviation of return 14.42% 13.82%
1-yr 33.35% 31.20%
3-yr compounded* 31.14% 29.43%
5-yr compounded* 20.25% 21.91%
7-yr compounded* 19.74% 22.74%
10-yr compounded* 18.03% 22.13%
*Quoted return is for the most recent period ended December 31, 1997
- --------------------------------------------------------------------------------
OTHER INVESTMENT TECHNIQUES AND RISK FACTORS
As described above, it is the Adviser's intention that the Fund be at
all times fully invested in stocks. However, the Fund may at times invest in the
following securities. The stated percentage limitations are applied to an
investment at the time of purchase unless otherwise indicated.
SHORT-TERM AND TEMPORARY DEFENSIVE INVESTMENTS. The Fund may invest
up to 10% of its total assets in money market instruments for liquidity purposes
(to meet redemptions and expenses). In addition, the Fund may invest in money
market instruments pending investment in the stocks selected through its
investment strategy. 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.
For temporary defensive purposes, the 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 to be of equivalent quality). See the Appendix to the Statement of
Additional Information for a description of securities ratings.
9
<PAGE>
REPURCHASE AGREEMENTS. Under these types of agreements, the Fund buys a
security and obtains a simultaneous commitment from the seller to repurchase the
security at a specified time (generally within seven days) and price. The seller
must maintain appropriate collateral with the Fund's custodian (or at an
appropriate sub-custodian in the case of tri- or quad-party repurchase
agreements). The Fund will only enter into repurchase agreements involving
securities in which it could otherwise invest and with selected banks and
securities dealers whose financial condition is monitored by the Adviser,
subject to the guidance of the Trustees. If the seller under the repurchase
agreement defaults, the Fund may incur a loss if the value of the collateral
securing the repurchase agreement has declined, and may incur disposition costs
in connection with liquidating the collateral. If bankruptcy proceedings are
commenced with respect to the seller, realization of the collateral by the Fund
may be delayed or limited. There is no limit on the amount of the Fund's net
assets that may be subject to repurchase agreements having a maturity of seven
days or less for temporary defensive purposes.
WARRANTS. The Fund may invest in warrants which are options to buy a
stated number of shares of common stock at a specified price any time during the
life of the warrants (generally two or more years).
LOANS OF PORTFOLIO SECURITIES. The Fund may lend portfolio securities
in amounts up to 331/3% of its respective total assets to brokers, dealers and
other financial institutions, provided such loans are callable at any time by
the Fund and are at all times secured by cash or equivalent collateral. By
lending its portfolio securities, the 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 securities fail financially.
However, these loans of portfolio securities will be made only to firms deemed
by the Adviser to be creditworthy. 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 Fund may
borrow money for investment purposes and may pledge assets to secure such
borrowings. This is the speculative factor known as leverage. This practice may
help the 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 borrowed 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 the Fund as a result of investing the borrowed monies. During
periods of substantial borrowings, the net asset value of the Fund's shares
would be reduced due to the added expense of interest on borrowed monies. The
Fund is authorized to borrow, and to pledge assets to secure such borrowings, up
to the maximum extent permissible under the 1940 Act (i.e., presently 50% of net
assets). The time and extent to which the Fund may employ leverage will be
determined by the Adviser in light of changing facts and circumstances,
including general economic and market conditions, and will be subject to
applicable lending regulations of the Board of Governors of the Federal Reserve
Board. The
10
<PAGE>
Fund's policies regarding the use of leverage is a fundamental policy which may
not be changed without the approval of shareholders of the Fund.
Under the 1940 Act, the value of the 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 the
Fund's assets falls below the 1940 Act requirement, the Fund must within three
business days reduce its borrowings to satisfy such requirement. To do this, the
Fund may have to sell a portion of its investments at a time when it may be
disadvantageous to do so.
OPTIONS AND FUTURES STRATEGIES. The Fund may seek to gain exposure to
equity securities through the use of options and futures strategies, including
interest rate futures and stock and bond index futures (together, "Futures");
and call and put options on equity and debt securities, Futures, and stock and
bond indices. The 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.
SPECIAL RISKS OF OPTIONS AND FUTURES STRATEGIES. Participation in the
options or Futures markets involves investment risks and transaction costs to
which the Fund would not be subject absent the use of these strategies. If the
Adviser's predictions of movements in the direction of the securities and
interest rate markets are inaccurate, the adverse consequences to the Fund may
leave the Fund in a worse position than if such strategies were not used. Risks
inherent in the use of options, Futures contracts and options on Futures
contracts include (1) dependence on the Adviser's ability to predict correctly
movements in the direction of interest rates and securities prices; (2)
imperfect correlation between the price of options and Futures contracts and
options thereon and movements in the prices of the securities 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
secondary 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 security 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 securities 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 segregation
requirements. See the Statement of Additional Information for further
information concerning the use of Options and Futures and the regulatory
requirements relating thereto.
11
<PAGE>
MANAGEMENT OF THE TRUST
TRUSTEES. The Trustees of the Trust are responsible for the overall
supervision of the operation of the Trust and the Fund and perform various
duties imposed on trustees of investment companies by the 1940 Act and by the
Commonwealth of Massachusetts.
THE ADVISER. The Adviser selects and manages the investments of the
Fund, provides various administrative services and supervises the Fund's daily
business affairs, subject to general review by the Trustees. The Adviser is an
indirect wholly owned subsidiary of SunAmerica Inc., an investment-grade
financial services company which, as of February 28, 1998, held more than $54
billion in assets. SunAmerica Inc.'s principal executive offices are located at
1 SunAmerica Center, Los Angeles, CA 90067-6022. In addition to managing the
Trust and serving as adviser and manager to the other investment series of the
Trust, the Adviser serves as adviser, manager and/or administrator for Anchor
Pathway Fund, Anchor Series Trust, Seasons Series Trust, Style Select Series,
Inc., SunAmerica Income Funds, SunAmerica Money Market Funds, Inc., and
SunAmerica Series Trust. The Adviser managed, advised and/or administered assets
of approximately $14 billion as of February 28, 1998 for investment companies,
individuals, pension accounts, and corporate and trust accounts.
Pursuant to the Investment Advisory and Management Agreement entered
into between the Adviser and the Trust, on behalf of the Fund, the Fund pays the
Adviser a fee, payable monthly, computed daily at the annual rate of .35% of the
Fund's average daily net assets, for the services performed, on behalf of the
Fund and the facilities furnished by the Adviser.
The Adviser's Domestic Equity Team is responsible for managing the Fund.
The Team is composed of eight investment professionals and traders. Francis D.
Gannon has supervisory responsibility for the Fund. He joined the Adviser as an
equity analyst in 1993 and holds a B.A. in English and Economics and a M.A. in
English from Boston College.
THE DISTRIBUTOR. SunAmerica Capital Services, Inc. (the "Distributor"),
an indirect wholly owned subsidiary of SunAmerica, acts as distributor of the
shares of the Fund pursuant to the Distribution Agreement between the
Distributor and the Trust on behalf of the 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,
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 and Class II shares; (ii) additional compensation with respect
to the sale of Class A, Class B or Class II shares; or (iii) financial
assistance to broker-dealers in connection
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with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns regarding the Fund (and/or other series of the
Trust), and/or other broker-dealer sponsored special events. In some instances,
this compensation will be made available only to certain broker-dealers whose
representatives have sold a significant 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
for meetings or seminars of a business nature. In addition, the following types
of non-cash compensation may be offered through sales contests: (i) travel
mileage on major air carriers; (ii) tickets for entertainment events (such as
concerts or sporting events); or (iii) merchandise (such as clothing, trophies,
clocks, pens or other electronic equipment). Broker-dealers may not use sales of
the Fund's shares to qualify for this compensation to the extent receipt of such
compensation may be prohibited by 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 investment companies of the type contemplated by the Distribution
Plans (as described below). The Trustees will consider appropriate modifications
to the operations of the Fund, including discontinuance of payments under the
Distribution Plans to banks and other depository institutions, in the event such
institutions can no longer provide the services called for under their
agreements. 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.
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 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 have adopted Distribution Plans hereinafter referred to as the "Class A
Plan," the "Class B Plan," and the "Class II Plan," and collectively as the
"Distribution Plans." In adopting each Distribution Plan, the Trustees
determined that there was a reasonable likelihood that each such Plan would
benefit the Fund and the shareholders of each 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.
The Distribution Plans provide that each class of shares of the Fund
may 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 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 the Fund by their customers.
Under the Class B and Class II Plans, the Distributor also may receive payments
from the Fund at the annual rate of up to 0.75% of the average daily net assets
of the Fund's Class B and Class
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II shares, respectively, to compensate the Distributor and certain securities
firms for providing sales and promotional activities for distributing each such
class of shares. The distribution costs for which the Distributor may be
reimbursed out of such distribution fees include fees paid to broker-dealers
that have sold Fund shares, commissions, and other expenses such as 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 one or more of the Distribution Plans may exceed
the Distributor's distribution costs as described above.
THE ADMINISTRATOR. The Trust has entered into a Service Agreement under
the terms of which SunAmerica Fund Services, Inc. ("SAFS" or the
"Administrator"), an indirect wholly owned subsidiary of SunAmerica, assists the
Transfer Agent in providing shareholder services. Pursuant to the Service
Agreement, as compensation for services rendered, SAFS receives a fee from the
Fund, accrued daily and payable monthly, at an annual rate of 0.22% of average
daily net assets. See the Statement of Additional Information for more
information.
PURCHASE OF SHARES
GENERAL. Shares of the Fund are sold at the net asset value next
calculated after receipt of a purchase order, plus a sales charge, which, at the
election of the investor, either (i) may be imposed at the time of purchase
(Class A shares), (ii) may be imposed on a deferred basis (Class B shares and
certain Class A shares) or (iii) may contain certain elements of a sales charge
that is imposed at the time of purchase and that is deferred (Class II shares).
The minimum initial investment in the Fund is $500 and the minimum
subsequent investment is $100. However, for (i) wrap or certain other advisory
accounts for the benefit of clients of broker-dealers, financial institutions,
registered investment advisers or financial planners adhering to certain
standards established by the Distributor, and (ii) Individual Retirement
Accounts ("IRAs"), Keogh Plan accounts and accounts for other qualified plans,
the minimum 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 should consult their
financial adviser for help in determining which class of shares is most
appropriate for them.
Generally, investors making large investments, qualifying for a reduced
initial sales charge, might consider Class A shares because there is a lower
distribution fee than Class B and Class II shares. Investors who purchase
$1,000,000 or more of shares of the Fund should only purchase Class A shares.
Investors making small investments might consider Class B because 100% of the
purchase price is invested immediately. Similarly, such an investor with a
shorter investment horizon may wish to consider Class II. Dealers may receive
different levels of compensation depending on which class of shares they sell.
Investors should consider the CDSC period and any conversion rights in the
context of their investment time frame. For example, while Class II shares have
a shorter CDSC period than Class B shares, Class II shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
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<PAGE>
fee.
Upon making an investment in shares of the 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 but
no certificate is issued for fractional shares. Shareholders receive regular
statements from the Transfer Agent that report each transaction affecting their
accounts. Further information may be obtained by calling Shareholder/Dealer
Services at (800) 858-8850.
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>
Sales Charge Concession of Dealers
------------------------------------------------------ ---------------------
% of Net Amount
Size of Purchase % of Offering Price Invested % of Offering 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
million or more. In addition, subject to the conditions listed below, shares may
be purchased at net asset value, without payment of a sales charge, by employee
benefit plans qualified under Sections 401 or 457 of the Internal Revenue Code
of 1986, as amended (the "Code"), or employee benefit plans created pursuant to
Section 403(b) of the Code and sponsored by nonprofit organizations defined
under Section 501(c)(3) of the Code (collectively, "Plans"). A Plan will qualify
for purchases at net asset value provided that (a) the initial amount invested
in one or more of the investment portfolios of the Trust (or in combination with
the shares of other funds in the SunAmerica
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<PAGE>
Mutual Funds, which consist of the SunAmerica Equity Funds, SunAmerica Income
Funds, Style Select Series and SunAmerica Money Market Funds) is at least
$1,000,000, (b) the sponsor signs a $1,000,000 Letter of Intent, (c) such shares
are purchased by an employer-sponsored plan with at least 100 eligible
employees, or (d) the purchases are by trustees or other fiduciaries for certain
employer-sponsored plans, the trustee, fiduciary or administrator for which has
an agreement with the Distributor with respect to such purchases and all such
transactions for the plan are executed through a single omnibus account.
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 CDSC 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 CDSC is paid to the
Distributor. Redemptions of such shares held longer than twelve months would not
be subject to a CDSC. However, one-half of the commission paid with respect to
such a purchase is subject to forfeiture 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 or certain other advisory accounts for the benefit of clients
of broker-dealers, financial institutions, registered investment advisers 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 Fund. For more
information about "Combined Purchase Privilege," "Rights of Accumulation," the
"Letter of Intent," "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 a 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 shares of a class other than Class B that are not themselves
subject to a CDSC, second of any shares in the shareholder's Fund account that
are not
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<PAGE>
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
Year Since Purchase Percentage of Dollars Invested or
Payment Was Made Redemption Proceeds
---------------- -------------------------------------
<S> <C>
First.................................................................... 5%
Second................................................................ 5%
Third................................................................... 4%
Fourth................................................................. 3%
Fifth.................................................................... 2%
Sixth................................................................... 1%
Seventh and thereafter........................................ 0%
</TABLE>
CONVERSION FEATURE-CLASS B SHARES. Class B shares (including a pro-rata
portion of the Class B shares purchased through the reinvestment of dividends
and distributions) will convert automatically to Class A shares on the first
business day of the month following the seventh anniversary of 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.
CLASS II SHARES. Class II shares are offered at net asset value plus an
initial sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge Concession of Dealers
---------------------------------------------------- ---------------------
% of Net
% of Offering Price Amount Invested % of Offering Price
------------------- --------------- -------------------
<S> <C> <C>
1.00% 1.01% % 1.00%
</TABLE>
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<PAGE>
Certain redemptions of Class II shares within the first year of the date of
purchase are subject to a CDSC of 1%. The method for calculating any such CDSC
will be the same method used for calculating the CDSC for Class B shares. See
"Class B Shares" above.
WAIVER OF CDSC. The CDSC applicable to Class B and Class II shares will
be waived, subject to certain conditions, in connection with redemptions which
are (a) requested within one year of the death of the shareholder of an
individual account or a joint tenant where the surviving joint tenant is the
deceased's spouse; (b) requested within one year after the shareholder of an
individual account or of a joint tenant on a spousal joint tenant account
becomes disabled; or the initial determination of disability of a shareholder,
(c) 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;
(d) 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 (e) 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) and (b) above. For information on the waiver of
the CDSC contact Shareholder/Dealer services at (800)858-8850.
OTHER CDSC INFORMATION. For Federal income tax purposes, the amount of
the CDSC will reduce the amount realized 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.
ADDITIONAL PURCHASE INFORMATION. All purchases are confirmed to each
shareholder. The Trust and the Distributor reserve the right to reject any
purchase order and may at any time discontinue the sale of any class of shares
of any Fund.
Shares of the Fund may be purchased through the Distributor or SAFS, by
check or federal funds wire.
Shareholders who have met the minimum initial investment of the Fund
may elect to have periodic purchases made through a dollar cost averaging
program. At the shareholder's election, such purchases may be made from their
bank checking or savings account on a monthly, quarterly, semi-annual or annual
basis. Purchases can be made via electronic funds transfer through the Automated
Clearing House or by physical draft check. Purchases made via physical draft
check require an authorization card to be filed with the shareholder's bank.
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<PAGE>
Checks should be made payable to the "'Dogs' of Wall Street Fund" or to
"SunAmerica Funds." If the payment is for a retirement plan account for which
the Adviser serves as fiduciary, please indicate on the check that payment is
for such an account. Payments to open new accounts should be mailed to
SunAmerica Fund Services, Inc., Mutual Fund Operations, The SunAmerica Center,
733 Third Avenue, New York, New York 10017-3204, together with 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. SAFS
reserves the right to reject any check made payable other than in the manner
indicated above. Under certain circumstances, the Fund will accept a multi-party
check (e.g., a check made payable to the shareholder by another party and then
endorsed by the shareholder to the Fund in payment for the purchase of shares);
however, the processing of such a check may be subject to a delay. The Fund does
not verify the authenticity of the endorsement of such multi-party check, and
acceptance of the check by the Fund should not be considered verification
thereof. Neither the Fund nor its affiliates will be held liable for any losses
incurred as a result of a fraudulent endorsement.
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 the 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) 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 the Fund may be redeemed at any time at their net asset value
next determined, less any applicable CDSC, 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."
GENERAL. Normally payment is made by check mailed on the next business
day for shares redeemed, but in any event, payment is made by check mailed
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 Fund may suspend repurchases or postpone payment for up to seven days or
longer, as permitted by the federal securities laws. In order to discourage
market timers and other short-term investors whose redemption activity could
disrupt the orderly
19
<PAGE>
management of the Fund and adversely affect other shareholders, the Fund will
impose a redemption fee equal to 1.5% of redemption proceeds on all redemptions
of shares within 90 days of purchase. The fee is payable to the Fund and not the
Distributor.
REGULAR REDEMPTION. Shareholders may redeem their shares by sending a
written request to SAFS, Mutual Fund Operations, The SunAmerica Center, 733
Third Avenue, New York, NY 10017-3204. Requests for redemption of shares with a
value of less than $100,000 will be made by check made payable to the
shareholder(s) and mailed to the address of record. All written requests for
redemption of shares with a value of $100,000 or more, or those mailed to an
address other than the address of record, 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 associations. 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 further documentation from
corporations, executors, administrators, trustees or guardians.
REPURCHASE THROUGH THE DISTRIBUTOR. The Distributor is authorized, as
agent for the Fund, 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 applicable class of shares of the Fund next-determined after the repurchase
order is received, less any applicable CDSC. Repurchase orders received by the
Distributor after the Fund's close of business will be priced based on the next
business day's close. Dealers may charge for their services in connection with
the repurchase, but neither the Fund nor the Distributor imposes any such
charge. The offer to repurchase may be suspended at any time, 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 check payable to the shareholder(s) and
mailed to the address of record, or 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 Trust's records, (ii) his or her account number
with the Trust, (iii) the name of the Fund, (iv) the amount to be
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<PAGE>
redeemed, and (v) 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 the Fund may provide for the periodic payment from the account
pursuant to the Systematic Withdrawal Plan. Payment may be made by check or by
electronic funds transfer through the Automated Clearing House. 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 additional 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.
OTHER REDEMPTION INFORMATION. At various times, the Fund may be
requested to redeem shares for which it has not yet received good payment. The
Fund may delay or cause to be delayed the mailing of a redemption check until
such time as good payment (e.g., cash or certified check drawn on a United
States bank) has been collected for the purchase of such shares, which will not
exceed 15 days.
Because of the high cost of maintaining smaller shareholder accounts,
the Fund may redeem, on at least 60 days' written notice and without shareholder
consent, any account that 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 Fund may impose a $2.00
monthly charge on accounts below the minimum account size.
If a shareholder redeems shares of any class of the Fund and then
within one year from the date of redemption decides the shares should not have
been redeemed, the shareholder may use all or any part of the redemption
proceeds to reinstate, free of sales charges (Class A and Class II shares) and
with the crediting of any CDSC paid with respect to such reinstated shares at
the time of redemption (Class B and Class II 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 of the Fund may exchange their shares for the
same class of shares of any other investment portfolio of the Trust or other
funds in the SunAmerica Family of Mutual Funds that offer such class at the
respective net asset value per share. In addition, Class II shares of the Fund
can be exchanged for Class C shares of any other investment portfolio of the
Trust or other funds in the SunAmerica Family of Mutual Funds. Before making an
exchange, a
21
<PAGE>
shareholder should obtain and review the prospectus of the fund whose shares are
being acquired. All exchanges are subject to applicable minimum initial or
subsequent investment requirements. Notwithstanding the foregoing, shareholders
may elect to make periodic exchanges on a monthly, quarterly, semi-annual and
annual basis through the Systematic Exchange Program. Through this program, the
minimum exchange amount is $25 and there is no fee for exchanges made. All
exchanges can only be effected 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 SunAmerica fund where the original purchase of such fund's Class A
shares was not subject to an initial sales charge because the purchase was in
excess of $1 million, such shareholder will remain subject to the 1% CDSC, if
any, applicable to such redemptions. In such event, the period for which the
original shares were held prior to the exchange will be "tacked" with the
holding period of the shares acquired in the exchange for purposes of
determining whether the 1% CDSC is applicable upon a redemption of any of such
shares.
A shareholder who acquires Class B or Class II shares through an
exchange from another SunAmerica fund 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 and the timing of conversion of Class B to Class A shares. In
the event that any Class B shares exchanged for Class B shares of the Fund have
a lower CDSC schedule, the lower schedule will apply upon redemption of such
shares from the Fund.
RESTRICTIONS ON EXCHANGES. Because excessive trading (including
short-term "market timing" trading) can hurt the Fund's performance, the Fund
may refuse any exchange sell order (1) if it appears to be a market timing
transaction involving a significant portion of the Fund's assets or (2) from any
shareholder account if previous use of the exchange privilege is considered
excessive. Accounts under common ownership or control, including, but not
limited to, those with the same taxpayer identification number and those
administered so as to redeem or purchase shares based upon certain predetermined
market indications, will be considered one account for this purpose.
In addition, the Fund reserves the right to refuse any exchange
purchase order if, in the judgment of the Adviser, the Fund would be unable to
invest effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected. A shareholder's purchase
exchange may be restricted or refused if the Fund receives or anticipates
simultaneous orders affecting significant portions of the Fund's assets. In
particular, a pattern of
22
<PAGE>
exchanges that coincide with a "market timing" strategy may be disruptive 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 Fund, selection of broker-dealers and negotiation of commission rates. 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 underwriter's concession or discount. On occasion, certain
money market securities may be purchased directly from an issuer, in which case
no commissions or discounts are paid.
As a general matter, the Adviser selects broker-dealers which, in its
best judgment, provide prompt and reliable execution at favorable security
prices and reasonable commission rates. The Adviser may select broker-dealers
which provide it with research services and may cause the Fund to pay such
broker-dealers commissions which exceed those which other broker-dealers may
have charged, if in the Adviser'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
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.
The 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 addition, high portfolio turnover may result in increased short-term
capital gains, which, when distributed to shareholders, are treated as ordinary
income. The Fund anticipates that its portfolio turnover rate will be less than
100%.
DETERMINATION OF NET ASSET VALUE
The Fund is open for business on any day the NYSE is open for regular
trading. Shares are valued each day as of the close of regular trading on the
NYSE (generally, 4:00 P.M., Eastern time). The Fund calculates the net asset
value of each class of its shares separately by dividing the total value of each
class's net assets by the shares outstanding of each class. Investments for
23
<PAGE>
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
The 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 indicate future performance.
Total return performance data may be advertised by the 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 assumes the reinvestment of all dividends and distributions and
includes sales charges and recurring fees that are charged to shareholder
accounts. The Fund's advertisements may also reflect total return performance
data calculated by means of cumulative, aggregate, average, year-to-date, or
other total return figures. Further, the Fund may advertise total return
performance for periods of time in addition to those noted above.
Although expenses for Class B and Class II shares may be higher than
those for Class A shares, the performance of Class B and Class II 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, if
any, and the excess of net realized long-term capital gains over net capital
losses ("capital gain distributions"), if any, will be distributed to the
shareholders at least annually. 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. With respect to capital gain distributions, the
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.
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 amounts in excess
of $10 in cash.
In addition to having the dividends and distributions of the 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 the Adviser Mutual Fund at the
then-current net asset value of such Fund(s).
24
<PAGE>
TAXES. The Fund intends to qualify and elect to be taxed as a regulated
investment company under the Code. While so qualified, the Trust and the Fund
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. Distributions made from the Fund's net capital gains (including gains
from certain transactions in futures and options) are taxable to shareholders as
capital gains, regardless of the length of time the shareholder has owned Fund
shares. Recent legislation created several categories of capital gains. To the
extent the 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.
Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens or foreign entities generally will be subject to a 30%
United States withholding tax under existing provisions of the Code applicable
to foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Nonresident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class A shares. A shareholder's basis in
the Class A shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class A shares
will include the holding period for the converted Class B shares.
A shareholder who holds shares as a capital asset (i.e., generally, for
investment) generally will recognize a capital gain or loss upon the sale or
exchange of such shares. In the case of an individual, any such capital gain
will be treated as short-term capital gain if the shares were held for not more
than 12 months, capital gain taxable at the maximum rate of 28% if such shares
were held for more than 12, but not more than 18 months, and capital gain
taxable at the maximum rate of 20%, if such shares were held for more than 18
months. In the case of a corporation, any such capital gain will be treated as
long-term capital gain, taxable at the same rates as ordinary income, if such
shares were held for more than 12 months. Any such capital loss will be a
long-term capital loss if such shares were held for more than one year. However,
any loss realized by a shareholder who held shares for six months or less will
be treated 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.
If a shareholder exercises the exchange privilege within 90 days of
acquiring such shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent the sales charge
paid to the fund reduces any charges the shareholder
25
<PAGE>
would have owed upon the purchase of the new shares in the absence of the
exchange privilege. Instead, such sales charge will be treated as an amount paid
for the new shares. See "Exchange Privilege."
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Under certain provisions of the Code, some shareholders may be subject
to a 31% withholding tax on ordinary income dividends, capital gains,
distributions and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that the investor is not otherwise subject to backup withholding.
Statements as to the tax status of distributions to shareholders of the
Fund 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 the 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
appearing 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 company, commonly referred to as a mutual fund. The Trust consists of
six investment series, including the Fund. The other five series, which are not
being offered pursuant to this Prospectus, are: the SunAmerica Balanced Assets
Fund, the SunAmerica Blue Chip Growth Fund, the SunAmerica Growth and Income
Fund, the SunAmerica Mid-Cap Growth Fund and the SunAmerica Small Company Growth
Fund. Information relating to these five series is set forth in a prospectus
dated January 28, 1998, as amended June 1, 1998, and is available without charge
by calling the Trust at (800) 858-8850. The Trustees have the authority to issue
an unlimited number of shares of beneficial interest of separate series, par
value $.01 per share, of the Trust, and to divide each such series into one or
more classes of shares.
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<PAGE>
The Trust does not hold annual shareholder meetings. The Trustees are
required 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
shareholders of record holding at least 10% of the Trust's outstanding shares.
Each share of the 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 the Fund is entitled to participate equally with the other shares of that
Fund in dividends and other distributions and the proceeds of any liquidation,
except that, due to the differing expenses borne by the classes, such dividends
and proceeds are likely to be lower for Class B and Class II shares than for
Class A shares. See the Statement of Additional Information for more information
with respect to the distinctions among classes.
Under Massachusetts law, shareholders of a trust, such as the Trust, in
certain circumstances may be held personally liable as partners for the
obligations of the trust. However the Declaration of Trust, 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 obligations 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 Fund. The firm of Shereff, Friedman,
Hoffman & Goodman, LLP has been selected as legal counsel for the Fund.
YEAR 2000 COMPLIANCE. Many services provided to the Fund and its
shareholders by the Adviser, Distributor and Administrator rely on the smooth
functioning of their computer and computer-based systems as well as those of
their outside service providers. Many computer and computer-based systems cannot
distinguish the year 2000 from the year 1900 because of the way systems encode
and calculate dates. This Year 2000 Issue could potentially have an adverse
impact on the handling of security trades, the payment of interest and
dividends, pricing and account services. The Adviser, Distributor and
Administrator recognize the importance of the Year 2000 Issue and are taking
appropriate steps necessary in preparation of year 2000. The Adviser,
Distributor and Administrator fully anticipate that their systems and those of
their outside service providers will be adapted in time for the year 2000, and
to further this goal they have coordinated a plan to repair, adapt or replace
systems that are not Year 2000 compliant, and have obtained similar
representations from their outside service providers. The Adviser, Distributor
and Administrator expect to significantly complete their plan by the end of the
1998 calendar year, and perform appropriate systems testing during the 1999
calendar year.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund or Trust should
be directed to the Trust at the telephone number or address on the cover page of
this Prospectus. For questions concerning share ownership, dividends, transfer
of ownership 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.
No person is authorized to give any information or to make any
representations, other than those contained in this Prospectus or the Statement
of Additional Information and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Fund,
the Adviser or the Distributor. This 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.
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<PAGE>
SUNAMERICA EQUITY FUNDS
"DOGS" OF WALL STREET FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 1, 1998
The SunAmerica Center General Marketing and
733 Third Avenue Shareholder Information
New York, NY 10017-3204 (800) 858-8850
"Dogs" of Wall Street Fund (the "Fund") is a separate investment portfolio
of SunAmerica Equity Funds (the "Trust"), a Massachusetts business trust, which
is registered as an open-end investment company under the Investment Company Act
of 1940, as amended (the "1940 Act"). The Fund is advised and managed by
SunAmerica Asset Management Corp. (the "Adviser").
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Trust's Prospectus dated June 1, 1998. To obtain a
Prospectus, please call the Trust at (800) 858-8850. Capitalized terms used
herein but not defined have the meanings assigned to them in the Prospectus.
TABLE OF CONTENTS
PAGE
----
HISTORY OF THE TRUST............................................B-2
INVESTMENT OBJECTIVE AND POLICIES...............................B-2
INVESTMENT RESTRICTIONS........................................B-16
TRUSTEES AND OFFICERS..........................................B-17
ADVISER, PERSONAL TRADING, DISTRIBUTOR AND
ADMINISTRATOR..................................................B-22
PORTFOLIO TRANSACTIONS AND BROKERAGE...........................B-26
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES............B-27
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES..........B-33
DETERMINATION OF NET ASSET VALUE...............................B-33
PERFORMANCE DATA...............................................B-34
DIVIDENDS, DISTRIBUTIONS AND TAXES.............................B-38
RETIREMENT PLANS...............................................B-41
DESCRIPTION OF SHARES..........................................B-42
ADDITIONAL INFORMATION.........................................B-44
APPENDIX.................................................APPENDIX-1
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 Trust, the Adviser or the Distributor. This Statement of
Additional Information and the Prospectus do not constitute an offer to sell or
a solicitation of an offer to buy
<PAGE>
any of the securities offered hereby in any jurisdiction in which such an offer
to sell or solicitation of an offer to buy may not lawfully be made.
HISTORY OF THE TRUST
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." On March __, 1998, the Trustees approved the
creation of the "Dogs" of Wall Street Fund, one of the six separate investment
portfolios of the Trust (collectively the "Funds").
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund, certain types of securities in which
the Fund may invest and certain investment practices which the Fund may employ,
are described in the Prospectus and are discussed more fully below.
CORPORATE TRANSACTIONS INVOLVING PORTFOLIO COMPANIES. The Fund will employ
a buy and hold strategy over the course of each year, which ignores market
timing and rejects active management. The Adviser anticipates that the thirty
stocks held by the Fund will remain the same throughout the course of a year,
despite any adverse developments concerning a particular stock, an industry, the
economy or the stock market generally. In the event a corporate transaction
such as a reorganization, merger, acquisition or bankruptcy affects the issuer
of securities in the Fund's portfolio, the Fund generally will not alter its
portfolio holdings in an active manner. For example, if as a result of a
merger, a stock held in the Fund's portfolio is automatically exchanged for a
stock of another company, the Fund will hold the newly acquired stock until such
time as the Fund's entire portfolio is rebalanced; however, the Fund would not
add to this position when it invests new cash flow. In the event that the Fund
were to receive cash in exchange for its entire position in an issuer upon a
corporate event, the Fund would not replace the issuer in its portfolio, but
would hold only 29 stocks for the balance of the calendar year.
DIVERSIFICATION. The Fund is classified as "non-diversified" for purposes
of the 1940 Act, which means that the Fund is not limited by the 1940 Act with
regard to the portion of its assets that may be invested in the securities of a
single issuer. To the extent the Fund makes investments in excess of 5% of its
assets in the securities of a particular issuer, its exposure to the risks
associated with that issuer is increased. Because the Fund invests in a limited
number of issuers, the performance of particular securities may adversely affect
the performance of the Fund or subject the Fund to greater price volatility than
that experienced by diversified investment companies.
The Fund intends to maintain the required level of diversification and
otherwise conduct its operations in order to qualify as a "regulated investment
company" for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify as a regulated investment company, the Fund must, among
other things, diversify its holdings so that, at the end of each quarter of the
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taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. government securities, the securities of other
regulated investment companies and other securities, with such other securities
of any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. government securities or the securities of other regulated investment
companies). In the unlikely event application of the Fund's strategy would
result in a violation of these requirements of the Code, the Fund would be
required to deviate from its strategy to the extent necessary to avoid losing
its status as a regulated investment company.
ILLIQUID SECURITIES. No more than 15% of the value of the Fund's net
assets, determined as of the date of purchase, may be invested in illiquid
securities including repurchase agreements which have a maturity of longer than
seven days, [INTEREST-RATE SWAPS, CURRENCY SWAPS, CAPS, FLOORS AND COLLARS,] or
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, the Fund
will seek to obtain the right of registration at the expense of the issuer
(except in the case of Rule 144A securities).
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act for which there is a readily available market may be deemed to be
liquid. The Adviser will monitor the
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liquidity of such restricted securities subject to the supervision of the
Trustees. In reaching liquidity decisions, the 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 (i.e., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Commercial paper issues in which the Fund's net assets may be invested
include securities issued by major corporations without registration under the
Securities Act in reliance on the exemption from such registration afforded by
Section 3(a)(3) thereof, and commercial paper issued in reliance on the so-
called private placement exemption from registration 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. The Fund's 15%
limitation on investments in illiquid securities includes Section 4(2) paper
other than Section 4(2) paper that the Adviser has determined to be liquid
pursuant to guidelines established by the Trustees. The Trustees have delegated
to the Adviser the function of making day-to-day determinations of liquidity
with respect to Section 4(2) paper, pursuant to guidelines approved by the
Trustees that require the Adviser to take into account the same factors
described above for other restricted securities and require the Adviser to
perform the same monitoring and reporting functions.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
banks, brokers or securities dealers. In such agreements, the seller agrees to
repurchase the security at a mutually agreed-upon time and price. The period of
maturity is usually quite short, either overnight or a few days, although it may
extend over a number of months. The repurchase price is in excess of the
purchase price by an amount which reflects an agreed-upon rate of return
effective for the period of time the Fund's money is invested in the security.
Whenever the Fund enters into a repurchase agreement, it obtains collateral
having a value equal to at least 102% (100% if such collateral is in the form of
cash) of the repurchase price, including accrued interest. The instruments held
as collateral are valued daily and if the value of the instruments declines, the
Fund will require additional collateral. If the seller defaults and the value
of the collateral securing the repurchase agreements declines, the 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 in connection with transactions in repurchase agreements and will
regularly monitor the Fund's use of repurchase agreements. The Fund will not
invest in repurchase agreements maturing in more than seven days if the
aggregate of such investments along with other illiquid securities exceeds 15%
of the value of its net assets. However, there is no limit on the amount of the
Fund's net assets that may
B-4
<PAGE>
be subject to repurchase agreements having a maturity of seven days or less for
temporary defensive purposes.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements. In a reverse repurchase agreement, the Fund sells a security and
agrees to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. The Fund then invests
the proceeds from the transaction in another obligation in which the Fund is
authorized to invest. The Fund's investment of the proceeds of a reverse
repurchase agreement is the speculative factor known as leverage. The Fund will
enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. In order to minimize any risk involved, the Fund will
maintain a segregated account of cash or liquid securities in an amount at least
equal in value to its purchase obligations under these agreements (including
accrued interest). In the event that the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the buyer or its
trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's repurchase obligation, and the Fund's use of proceeds of the
agreement may effectively be restricted pending such decision. Reverse
repurchase agreements are considered to be borrowings and are subject to the
percentage limitations on borrowings. See "Investment Restrictions."
SHORT-TERM AND TEMPORARY DEFENSIVE INSTRUMENTS. In addition to its
primary investments, the Fund may also invest up to 10% of its total assets in
money market instruments for liquidity purposes (to meet redemptions and
expenses). In addition, the Fund may invest in money market instruments pending
investment in the stocks selected through its investment strategy. For
temporary defensive purposes, the 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 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 Fund may
invest:
U.S. Government Securities: The Fund may invest in securities issued or
guaranteed by the U.S. government, which include the following: (1) direct
obligations of the U.S. Treasury (such as Treasury bills, notes and bonds) and
(2) federal agency obligations guaranteed as to principal and interest by the
U.S. Treasury (such as Government National Mortgage Association ("GNMA")
certificates and Federal Housing Administration debentures). For those
securities, the payment of principal and interest is unconditionally guaranteed
by the U.S. government. They are of the highest possible credit quality. These
securities are subject to variations in market value due to fluctuations in
interest rates, but if held to maturity, are guaranteed by the U.S. government
to be paid in full.
B-5
<PAGE>
The Fund may also invest in securities issued by U.S. government
instrumentalities and certain federal agencies that are neither direct
obligations of, nor are they guaranteed by, the U.S. Treasury. However, they
involve federal sponsorship in one way or another. For example, some are backed
by specific types of collateral; some are supported by the issuer's right to
borrow from the Treasury; some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer; and others are
supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, the Federal National Mortgage Association ("FNMA"), the Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Land Banks, Farmers Home
Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks
and Federal Home Loan Banks.
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. The 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 the Fund at
varying rates of interest pursuant to direct arrangements between the 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. The 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, the 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, the 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, the 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 Fund will generally purchase commercial paper only of companies of medium to
large capitalizations (i.e., $1 billion or more).
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
B-6
<PAGE>
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 Fund 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.
Repurchase Agreements: See the section entitled "Repurchase Agreements"
above.
WARRANTS. The Fund may invest in warrants which give the holder of the
warrant a right to purchase a given number of shares of a particular issue at a
specified price until expiration. Such investments generally can provide a
greater potential for profit or loss than investments of equivalent amounts in
the underlying common stock. The prices of warrants do not necessarily move
with the prices of the underlying securities. If the holder does not sell the
warrant, he risks the loss of his entire investment if the market price of the
underlying stock does not, before the expiration date, exceed the exercise price
of the warrant plus the cost thereof. Investment in warrants is a speculative
activity. Warrants pay no dividends and confer no rights (other than the right
to purchase the underlying stock) with respect to the assets of the issuer.
WHEN ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase or sell
such securities on a "when-issued" or "delayed delivery" basis. Although the
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 the Fund and settlement (generally with 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. The Fund will maintain a
segregated account, consisting of cash, or liquid securities at least equal to
the value of purchase commitments until payment is made. With respect to
securities sold on a delayed-delivery basis, the Fund will either segregate the
securities sold or liquid assets of a comparable value.
The 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 obligations. When the 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 the Fund losing the
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opportunity to obtain a price and yield considered to be advantageous. If the
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 the 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 the 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. The 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 the
settlement date. In addition, changes in interest rates in a direction other
than that expected by the Adviser before settlement will affect the value of
such securities and may cause a loss to the 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, the 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, the 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.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend portfolio securities in amounts up to 33 1/3% of
total assets to brokers, dealers and other financial institutions, provided,
that such loans are callable at any time by the Fund and are at all times
secured by cash or equivalent collateral. In lending its portfolio securities,
the Fund receives income while retaining the securities' potential for capital
appreciation. The advantage of such loans is that the Fund continues to receive
the interest and dividends on the loaned securities while at the same time
earning interest on the collateral, which will be invested in short-term
obligations. A loan may be terminated by the borrower on one business day's
notice or by the Fund at any time. If the borrower fails to maintain the
requisite amount of collateral, the loan automatically terminates, and the Fund
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Adviser to be creditworthy. On termination of the loan, the
borrower is required to return the securities to the Fund; and any gain or loss
in the market price of the loaned security during the loan would inure to the
Fund. The Fund will pay reasonable finders', administrative and custodial fees
in connection with a loan of its securities or may share the interest earned on
collateral with the borrower.
Since voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loan, in whole or
in part as may be appropriate, to permit
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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.
OPTIONS AND FUTURES STRATEGIES. The Fund may seek to gain exposure to
equity securities [and enhance income] through the use of the following options
and futures strategies. [The Fund may write (i.e., sell) call options ("calls")
on securities that are traded on U.S. 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 the
Fund's total assets may be subject to calls. All such calls written by the Fund
must be "covered" while the call is outstanding (i.e., the Fund must own the
securities subject to the call or other securities acceptable for applicable
escrow requirements). 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 Fund may also use interest rate futures contracts, and stock and bond
index futures contracts (together, "Futures"); and call and put options on
equity and debt securities, Futures and stock and bond indices (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
the Fund's portfolio resulting from downward trends in the equity and debt
securities markets (generally due to a rise in interest rates); (ii) protect the
Fund's unrealized gains in the value of its equity and debt securities which
have appreciated; (iii) facilitate selling securities for investment reasons; or
(iv) establish a position in the equity and debt securities markets as a
temporary substitute for purchasing particular equity and debt securities.
The Fund's 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 the Fund's portfolio,
to permit the Fund to retain unrealized gains in the value of portfolio
securities which have appreciated, or to facilitate selling securities for
investment reasons, the Fund could: (i) sell Futures; (ii) purchase puts on
such Futures or securities; or (iii) write calls on securities held by it or on
Futures. When hedging to attempt to protect against the possibility that
portfolio securities are not fully included in a rise in value of the debt
securities market, the Fund could: (i) purchase Futures, or (ii) purchase calls
on such Futures or on securities. Additional information about the Hedging
Instruments the Fund may use is provided below.
OPTIONS
OPTIONS ON SECURITIES. As noted above, the Fund may write and purchase call
and put options on equity [and debt] securities.
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When the Fund writes a call on a security it receives a premium and agrees
to sell the underlying security to a purchaser of a corresponding call on the
same security during the call period (usually not more than 9 months) at a fixed
price (which may differ from the market price of the underlying security),
regardless of market price changes during the call period. The Fund has
retained the risk of loss should the price of the underlying security 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, the Fund may purchase
a corresponding call in a "closing purchase transaction." A profit or loss will
be realized, depending upon whether the net of the amount of the option
transaction costs and the premium received on the call written was more or less
than the price of the call subsequently purchased. A profit may also be
realized if the call expires unexercised, because the Fund retains the
underlying security and the premium received. If the Fund could not effect a
closing purchase transaction due to lack of a market, it would hold the callable
securities until the call expired or was exercised.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period at a fixed exercise price. The Fund benefits only if the call
is sold at a profit or if, during the call period, the market price of the
underlying investment is above the sum of the call price plus the transaction
costs and the premium paid and the call is exercised. If the call is not
exercised or sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose its premium payment and the right to
purchase the underlying investment.
A put option on securities gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying investment at the exercise price
during the option period. Writing a put covered by segregated liquid assets
equal to the exercise price of the put has the same economic effect to the Fund
as writing a covered call. The premium the Fund receives from writing a put
option represents a profit as long as the price of the underlying investment
remains above the exercise price. However, the Fund has also assumed the
obligation during the option period to buy the underlying investment from the
buyer of the put at the exercise price, even though the value of the investment
may fall below the exercise price. If the put expires unexercised, the Fund (as
the writer of the put) realizes a gain in the amount of the premium. If the put
is exercised, the Fund must fulfill its obligation to purchase the underlying
investment at the exercise price, which will usually exceed the market value of
the investment at that time. In that case, the Fund may incur a loss, equal to
the sum of the sale price of the underlying investment and the premium received
minus the sum of the exercise price and any transaction costs incurred.
The Fund may effect a closing purchase transaction to realize a profit on
an outstanding put option it has written or to prevent an underlying security
from being put. Furthermore, effecting such a closing purchase transaction will
permit the Fund to write another put option to the extent that the exercise
price thereof is secured by the deposited assets, or to utilize the proceeds
from the sale of such assets for other investments by the Fund. The Fund will
realize a profit or loss from a
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closing purchase transaction if the cost of the transaction is less or more than
the premium received from writing the option.
When the Fund purchases a put, it pays a premium and has the right to sell
the underlying investment to a seller of a corresponding put on the same
investment during the put period at a fixed exercise price. Buying a put on an
investment the Fund owns enables the Fund to protect itself during the put
period against a decline in the value of the underlying investment below the
exercise price by selling such underlying investment at the 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 the Fund does not own permits the Fund either
to resell the put or buy the underlying investment and sell it at the exercise
price. The resale price of the put will vary inversely with the price of the
underlying investment. If the market price of the underlying investment is
above the exercise price and as a result the put is not exercised, the put will
become worthless on its expiration date. In the event of a decline in the stock
market, the Fund could exercise or sell the put at a profit to attempt to offset
some or all of its loss on its portfolio securities.
When writing put options on securities, to secure its obligation to pay for
the underlying security, the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets. As long as the obligation of the Fund as
the put writer continues, it may be assigned an exercise notice by the broker-
dealer through whom such option was sold, requiring the Fund to take delivery of
the underlying security against payment of the exercise price. The Fund has no
control over when it may be required to purchase the underlying security, since
it may be assigned an exercise notice at any time prior to the termination of
its obligation as the writer of the put. This obligation terminates upon
expiration of the put, or such earlier time at which the Fund effects a closing
purchase transaction by purchasing a put of the same series as that previously
sold. The Fund has been assigned an exercise notice, it is thereafter not
allowed to effect a closing purchase transaction.
OPTIONS ON SECURITIES INDICES. As noted above, the Fund may write and
purchase call and put options on securities indices. Puts and calls on broadly-
based securities indices are similar to puts and calls on securities except that
all settlements are in cash and gain or loss depends on changes in the index in
question (and thus on price movements in the securities market generally) rather
than on price movements in individual securities or Futures. When the Fund buys
a call on a securities index, it pays a premium. During the call period, upon
exercise of a call by the Fund, a seller of a corresponding call on the same
investment will pay the Fund an amount of cash to settle the call if the closing
level of the securities index upon which the call is based is greater than the
exercise price of the call. That cash payment is equal to the difference
between the closing price of the index and the exercise price of the call times
a specified multiple (the "multiplier") which
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determines the total dollar value for each point of difference. When the Fund
buys a put on a securities index, it pays a premium and has the right during the
put period to require a seller of a corresponding put, upon the Fund's exercise
of its put, to deliver to the Fund an amount of cash to settle the put if the
closing level of the securities index upon which the put is based is less than
the exercise price of the put. That cash payment is determined by the
multiplier, in the same manner as described above as to calls.
FUTURES AND OPTIONS ON FUTURES
FUTURES. Upon entering into a Futures transaction, the Fund will be
required to deposit an initial margin payment with the futures commission
merchant (the "futures broker"). The initial margin will be deposited with the
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
the Fund elects to close out its position by taking an opposite position, a
final determination of variation margin is made, additional cash is required to
be paid by or released to the Fund, and any loss or gain is realized for tax
purposes. All Futures transactions are effected through a clearinghouse
associated with the exchange on which the Futures are traded.
[Interest rate futures contracts are purchased or sold for hedging purposes
to attempt to protect against the effects of interest rate changes on the Fund's
current or intended investments in fixed-income securities. For example, if the
Fund owned long-term bonds and interest rates were expected to increase, the
Fund might sell interest rate futures contracts. Such a sale would have much
the same effect as selling some of the long-term bonds in the Fund's 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 the 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 the Fund's interest rate futures
contracts would be expected to increase at approximately the same rate, thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have. On the other hand, if interest rates were expected to decline,
interest rate futures contracts may be purchased to hedge in anticipation of
subsequent purchases of long-term bonds at higher prices. Since the
fluctuations in the value of the interest rate futures contracts should be
similar to that of long-term bonds, the Fund could protect itself against the
effects of the anticipated rise in the value of long-term bonds without actually
buying them until the necessary cash became available or the market had
stabilized. At that time, the interest rate futures contracts could be
liquidated and the Fund's cash reserves could then be used to buy long-term
bonds on the cash market.]
Purchases or sales of stock or bond index futures contracts are used for
hedging purposes to attempt to protect the Fund's current or intended
investments from broad fluctuations in stock or bond prices. For example, the
Fund may sell stock or bond index futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of the Fund's
securities
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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 the Fund is not fully invested in the securities market
and anticipates a significant market advance, it may purchase stock or bond
index futures contracts in order to gain rapid market exposure that may, in part
or entirely, offset increases in the cost of securities that the Fund intends to
purchase. As such purchases are made, the corresponding positions in stock or
bond index futures contracts will be closed out.
OPTIONS ON FUTURES. As noted above, the Fund may purchase and write
options on [interest rate futures contracts and] stock and bond index futures
contracts. (Unless otherwise specified, options on [interest rate futures
contracts and options on] stock and bond index futures contracts are
collectively referred to as "Options on Futures.")
The writing of the call option on a Futures contract constitutes a partial
hedge against declining prices of the securities in the 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, the
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 the 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, the 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, the Fund
could, in lieu of selling a Futures contract, purchase put options thereon. In
the event that such decrease occurs, it may be offset, in whole or part, by a
profit on the option. If the market decline does not occur, the Fund will suffer
a loss equal to the price of the put. Where it is projected that the value of
securities to be acquired by the Fund will increase prior to acquisition, due to
a market advance or changes in interest or exchange rates, the Fund could
purchase call Options on Futures, rather than purchasing the underlying Futures
contract. If the market advances, the increased cost of securities to be
purchased may be offset by a profit on the call. However, if the market
declines, the Fund will suffer a loss equal to the price of the call but the
securities which the Fund intends to purchase may be less expensive.
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ADDITIONAL INFORMATION ABOUT OPTIONS AND FUTURES 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 the 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. The Fund's
option activities may affect its turnover rate and brokerage commissions. The
exercise by the Fund of puts on securities will cause the sale of related
investments, increasing portfolio turnover. Although such exercise is within
the 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. The
Fund will pay a brokerage commission each time it buys a put or call, sells a
call, or buys or sells an underlying investment in connection with the exercise
of a put or call. Such commissions may be higher than those 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 the Fund's net asset
value being more sensitive to changes in the value of the underlying
investments.
In the future, the Fund may employ Hedging Instruments and strategies that
are not presently contemplated but which may be developed, to the extent such
investment methods are consistent with the Fund's investment objectives, legally
permissible and adequately disclosed.
REGULATORY ASPECTS OF OPTIONS AND FUTURES
The Fund must operate within certain restrictions as to its long and short
positions in Futures and options thereon under a rule (the "CFTC Rule") adopted
by the Commodity Futures Trading Commission (the "CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Fund from registration with the
CFTC as a "commodity pool operator" (as defined in the CEA) if it complies with
the CFTC Rule. In particular, the Fund may (i) purchase and sell Futures and
options thereon for bona fide hedging purposes, as defined under CFTC
regulations, without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) enter into non-hedging transactions,
provided that the Fund may not enter into such non-hedging transactions if,
immediately thereafter, the sum of the amount of initial margin deposits on the
Fund's existing Futures positions and option premiums would exceed 5% of the
fair value of its portfolio, after taking into account unrealized profits and
unrealized losses on any such transactions. The Fund intends to engage in
Futures transactions and options thereon only for hedging purposes, margin
deposits may consist of cash or securities acceptable to the broker and the
relevant contract market.
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Transactions in options by the 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 the Fund may write or
hold may be affected by options written or held by other entities, including
other investment companies having the same or an affiliated investment adviser.
Position limits also apply to Futures. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain other
sanctions. Due to requirements under the 1940 Act, when the Fund purchases a
Future, the Fund will segregate cash or liquid securities in an amount equal to
the market value of the securities underlying such Future, less the margin
deposit applicable to it.
POSSIBLE RISK FACTORS IN OPTIONS AND FUTURE STRATEGIES
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 the 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 the 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
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 Fund may
increase its 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 the 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 the Fund's assets, so computed,
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should fail to meet the 300% asset coverage requirement, the Fund is required,
within three business days, to reduce its bank debt to the extent necessary to
meet such requirement and may have to sell a portion of its investments at a
time when independent investment judgment would not dictate such sale. Interest
on money borrowed is an expense the Fund would not otherwise incur, so that it
may have little or no net investment income during periods of substantial
borrowings. Since substantially all of the Fund's assets fluctuate in value,
but borrowing obligations are fixed when the Fund has outstanding borrowings,
the net asset value per share of the Fund correspondingly will tend to increase
and decrease more when the Fund's assets increase or decrease in value than
would otherwise be the case. The Fund's policy regarding use of leverage is a
fundamental policy which may not be changed without approval of the shareholders
of the Fund.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that are
fundamental policies and may not be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities. A "majority of the
outstanding voting securities" of the 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 the 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, the Fund may not:
(1) Purchase securities on margin, borrow money or pledge their assets, except
that the Fund may borrow money to purchase securities as set forth in the
Prospectus and Statement of Additional Information and the 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 Fund required pledging of assets, the Fund may pledge assets in
connection with such transactions. For purposes of this restriction and
restriction (7) 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.
(2) Invest more than 25% of the Fund's assets in the securities of issuers
engaged in the same industry except that the Fund may invest more than 25%
of its assets in the securities of issuers in the same industry to the
extent such investment would be selected according to its stock selection
criteria.
(3) Engage in arbitrage transactions, buy or sell commodities or commodity
contracts or real estate or interests in real estate, except that the Fund
may (a) purchase or sell financial
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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.
(4) Act as underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter under certain Federal securities laws.
(5) Make loans, except through (i) repurchase agreements, (ii) loans of
portfolio securities, or (iii) the purchase of portfolio securities
consistent with the Fund's investment objective and policies, as described
in the Prospectus.
(6) Make short sales of securities or maintain a short position, except that
the Fund may effect short sales against the box.
(7) Issue senior securities as defined in the 1940 Act, except that the Fund
may enter into repurchase agreements, lend its portfolio securities and
borrow money from banks, as described in restriction (1).
The following additional restrictions are not fundamental policies and may
be changed by the Trustees without a vote of shareholders. The Fund may not:
(1) Enter into any repurchase agreement maturing in more than seven days or
invest in any other illiquid security if, as a result, more than 15% of the
Fund's net assets would be so invested. Restricted securities eligible for
resale pursuant to Rule 144A under the Securities Act that have a readily
available market, and commercial paper exempted from registration under the
Securities Act pursuant to Section 4(2) of that Act that may be offered and
sold to "qualified institutional buyers" as defined in Rule 144A, which the
Adviser has determined to be liquid pursuant to guidelines established by
the Trustees, will not be considered illiquid for purposes of this 15%
limitation on illiquid securities.
(2) Invest in securities of other registered investment companies, except by
purchases in the open market, involving only customary brokerage
commissions and as a result of which not more than 10% of its total assets
(determined at the time of investment) would be invested in such
securities, or except as part of a merger, consolidation or other
acquisition.
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 ("SAMF") consist of SunAmerica Equity Funds,
SunAmerica Income Funds, SunAmerica Money
B-17
<PAGE>
Market Funds, Inc. and Style Select Series, Inc. An asterisk indicates those
Trustees who are interested persons of the Trust within the meaning of the 1940
Act.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position with the Fund During Past 5 Years
- --------------------- ---------------------- -------------------
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
S. James Coppersmith, 64 Trustee Director/Trustee of the Boston Stock
Emerson College Exchange, Uno Restaurant Corp.,
100 Beacon Street Waban Corp., Kushner-Locke Co.,
Boston, MA 02116 Chyron Inc.; Chairman of the Board of
Emerson College; formerly, President
and General Manager, WCVB-TV, a
division of the Hearst Corp. from 1982
to 1994 (retired); Director/Trustee of
SAMF and Anchor Series Trust
("AST").
- ----------------------------------------------------------------------------------------------
Samuel M. Eisenstat, 57 Chairman of the Attorney in private practice; President
430 East 86/th/ Street Board and Chief Executive Officer, Abjac
New York, NY 10028 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 Boards of Directors/ Trustees of
SAMF and AST.
- ----------------------------------------------------------------------------------------------
Stephen J. Gutman, 54 Trustee Partner and Chief Operating Officer of
515 East 79/th/ Street B.B. Associates LLC (menswear
New York, NY 10021 specialty retailing and other activities)
since May 1989; Director/Trustee of
SAMF and AST.
- ----------------------------------------------------------------------------------------------
</TABLE>
B-18
<PAGE>
<TABLE>
<S> <C> <C>
Peter Harbeck*, 44 Trustee and President Director and President, SunAmerica
The SunAmerica Center Asset Management Corp.
733 Third Avenue ("SAAMCo"); Director, SunAmerica
New York, NY 10017-3204 Capital Services, Inc. ("SACS"), since
February 1993; Director and President,
SunAmerica Fund Services,
Inc.("SAFS"), since May 1988;
President, SAMF and AST; 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*, 39 Trustee Executive Vice President and Chief
1 SunAmerica Center Investment Officer, SunAmerica
Los Angeles, CA 90067 Investments, Inc., since August 1989;
Director/Trustee of SAMF; Director,
Resources Trust Company.
- ----------------------------------------------------------------------------------------------
Sebastiano Sterpa, 68 Trustee Founder of Sterpa Realty Inc., a full
Suite 200 service real estate firm, since 1962;
200 West Glenoaks Blvd. Chairman of the Sterpa Group, real
Glendale, CA 91202 estate investments and management
company, since 1962; Director/ Trustee
of SAMF.
- ----------------------------------------------------------------------------------------------
Francis D. Gannon, 30 Vice President Vice President and Portfolio Manager,
The SunAmerica Center SAAMCo, since May 1997; Co-
733 Third Avenue Portfolio Manager, from November
New York, NY 10017-3204 1996 to May 1997; previously,
Assistant Vice President and Equity
Analyst, from 1993 to 1997.
- ----------------------------------------------------------------------------------------------
Nancy Kelly, 46 Vice President Vice President and Head Trader,
The SunAmerica Center SAAMCo, since 1994; formerly, Vice
733 Third Avenue President, Whitehorne & Co. Ltd.,
New York, NY 10017-3204 from 1991 to 1994; Sales Trader,
Lynch Jones & Ryan, from 1992 to
1994.
- ----------------------------------------------------------------------------------------------
</TABLE>
B-19
<PAGE>
<TABLE>
<S> <C> <C>
Peter C. Sutton, 33 Treasurer Senior Vice President, SAAMCo, since
The SunAmerica Center April 1997; Treasurer, SAMF and
733 Third Avenue AST, since February 1996; Vice
New York, NY 10017-3204 President, SunAmerica Series Trust
and Anchor Pathway Fund, since
October 1994; Vice President, Seasons
Series Trust, since April 1997;
formerly, Vice President, SAAMCo,
from 1994 to 1997; Controller, SAMF
and AST, from March 1993 to
February 1996; Assistant Controller,
SAMF, from 1990 to 1993.
- ----------------------------------------------------------------------------------------------
Robert M. Zakem, 40 Secretary and Chief Senior Vice President and General
The SunAmerica Center Compliance Officer Counsel, SAAMCo, since April 1993;
733 Third Avenue Executive Vice President, General
New York, NY 10017-3204 Counsel and Director, SACS, since
February 1993; Vice President,
General Counsel and Assistant
Secretary, SAFS, since January 1994;
Vice President, SunAmerica Series
Trust, Anchor Pathway and Seasons
Series Trust; Assistant Secretary,
SunAmerica Series Trust and Anchor
Pathway Fund, since September 1993;
Assistant Secretary, Seasons Series
Trust, since April 1997; formerly, Vice
President and Associate General
Counsel, SAAMCo, from March 1992
to April 1993.
- ----------------------------------------------------------------------------------------------
</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) of an aggregate of $40,000
in annual compensation for acting as director or trustee to the SunAmerica
Mutual Funds and AST. In addition, Mr. Eisenstat receives an aggregate of $2,000
in annual compensation for serving as
B-20
<PAGE>
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 the Fund.
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 the
SunAmerica Mutual Funds and AST. 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 disinterested 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 February 28, 1998, 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, 1997. Neither the Trustees who are interested persons of the Trust
nor any officers of the Trust receive any compensation.
B-21
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
TRUSTEE FROM AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
REGISTRANT EXPENSES* RETIREMENT TRUSTEES*
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S. James Coppersmith $15,420 $37,556 $29,670 $ 65,000
- ------------------------------------------------------------------------------------------
Samuel M. Eisenstat $16,139 $33,061 $46,089 $ 69,000
- ------------------------------------------------------------------------------------------
Stephen J. Gutman $15,420 $34,187 $60,912 $ 65,000
- ------------------------------------------------------------------------------------------
Sebastiano Sterpa $15,577 $23,021 $ 7,900 $43,333**
- ------------------------------------------------------------------------------------------
</TABLE>
* Information is as of September 30, 1997 for the five 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.
As of February __, 1998, no person owned of record or beneficially 5% or more
of any class of the Fund's shares.
ADVISER, PERSONAL TRADING,
DISTRIBUTOR AND ADMINISTRATOR
THE ADVISER. The Adviser, organized as a Delaware corporation in 1982, is
located at The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204, and
acts as adviser to the Fund pursuant to the Investment Advisory and Management
Agreement dated September 23, 1993 as amended [INSERT DATE, 1998] (the "Advisory
Agreement") with the Trust, on behalf of the Fund. The Adviser is an indirect
wholly owned subsidiary of SunAmerica Inc. SunAmerica Inc., is incorporated in
the State of Maryland and maintains its principal executive offices at 1
SunAmerica Center, Los Angeles, CA 90067-6022, telephone (310) 772-6000.
Under the Advisory Agreement, the Adviser manages the investment of the assets
of the Fund and obtains and evaluates economic, statistical and financial
information to formulate and implement investment policies for the 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 the Fund.
Except to the extent otherwise specified in the Advisory Agreement, the Fund
pays, or causes to be paid, all other expenses of the Trust and the Fund,
including, without limitation, charges and expenses of any registrar, custodian,
transfer and dividend disbursing agent; brokerage commissions;
B-22
<PAGE>
taxes; engraving and printing of share certificates; registration and
qualification costs of the Fund and their shares under Federal and state
securities laws; the cost and expense of printing, including typesetting, and
distributing Prospectuses and Statements of Additional Information respecting
the Fund, and supplements thereto, to the shareholders of the Fund; all 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 Fund; 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 Fund, the Adviser receives a fee from
the Fund, payable monthly, computed daily at the annual rate of .35% of the
Fund's average daily net assets.
The Advisory Agreement continues in effect with respect to the Fund after an
initial two-year term from year to year provided that such continuance is
approved annually by vote of a majority of the Trustees including a majority of
the disinterested Trustees. The Advisory Agreement may be terminated with
respect to the Fund at any time, without penalty, on 60 days' written notice by
the Trustees, by the holders of a majority of the Fund's outstanding voting
securities or by the Adviser. The Advisory Agreement automatically terminates
with respect to Fund in the event of its assignment (as defined in the 1940 Act
and the rules thereunder).
Under the terms of the Advisory Agreement, the Adviser is not liable to the
Fund, or its shareholders, for any act or omission by it or for any losses
sustained by the Fund or its shareholders, except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
PERSONAL TRADING. The Trust and the Adviser have adopted a written Code of
Ethics which prescribes general rules of conduct and sets forth guidelines with
respect to personal securities trading by "Access Persons" thereof. An Access
Person as defined in the Code of Ethics is an individual who is a trustee,
director, officer, general partner or advisory person of the Trust or the
Adviser. The guidelines on personal securities trading include: (i) securities
being considered for purchase or sale, or purchased or sold, by any Investment
Company advised by the Adviser, (ii) Initial Public Offerings, (iii) private
placements, (iv) blackout periods, (v) short-term trading profits, (vi) gifts,
and (vii) services as a director. These guidelines are substantially similar to
those contained in the Report of the Advisory Group on Personal Investing issued
by the Investment Company Institute's Advisory Panel. The Adviser reports to
the Board of Trustees on a quarterly basis, as to whether there were any
violations of the Code of Ethics by Access Persons of the Trust or the Adviser
during the quarter.
B-23
<PAGE>
THE DISTRIBUTOR. The Trust, on behalf of the Fund, has entered into a
distribution agreement (the "Distribution Agreement") with the Distributor, a
registered broker-dealer and an indirect wholly owned subsidiary of SunAmerica
Inc., to act as the principal underwriter of the shares of the Fund. The
address of the Distributor is The SunAmerica Center, 733 Third Avenue, New York,
NY 10017-3204. The Distribution Agreement provides that the Distributor has the
exclusive right to distribute shares of the Fund through its registered
representatives and authorized broker-dealers. The Distribution Agreement also
provides that the Distributor will pay the promotional expenses, including the
incremental cost of printing prospectuses, annual reports and other periodic
reports respecting the Fund, for distribution to persons who are not
shareholders of the Fund and the costs of preparing and distributing any other
supplemental sales literature. However, certain promotional expenses may be
borne by the Fund (see "Distribution Plans" below).
Continuance of the Distribution Agreement with respect to the 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 Trust and the Distributor
each has the right to terminate the Distribution Agreement with respect to the
Fund on 60 days' written notice, without penalty. The Distribution Agreement
will terminate automatically in the event of its assignment as defined in the
1940 Act and the rules thereunder.
The Distributor may, from time to time, pay additional commissions or
promotional incentives to brokers, dealers or other financial services firms
that sell shares of the Fund. In some instances, such additional commissions,
fees or other incentives may be offered only to certain firms, including Royal
Alliance Associates, Inc., SunAmerica Securities, Inc., Keogler Morgan &
Company, Financial Service Corporation and Advantage Capital Corporation,
affiliates of the Distributor, that sell or are expected to sell during
specified time periods certain minimum amounts of shares of the Fund, 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, Class B, and Class II shares of the Fund have
adopted Distribution Plans (the "Class A Plan," the "Class B Plan" and the
"Class II Plan" and collectively, the "Distribution Plans") pursuant to Rule
12b-1 under the 1940 Act. Reference is made to "Management of the Trust -
Distribution Plans" in the Prospectus for certain information with respect to
the Distribution Plans.
The Distribution Plans provide that each class of shares of the Fund may 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 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 the
Fund by their customers. Under the Class B and Class II Plans, the Distributor
also may receive payments from the Fund at the annual rate of up to 0.75% of the
average daily net assets of such Fund's Class B and Class II
B-24
<PAGE>
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 any of the
Distribution Plans will exceed the Distributor's distribution costs as described
above.
Continuance of the Distribution Plans with respect to the 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
the Fund, without approval of the shareholders of the affected class of shares
of the Fund. In addition, all material amendments to the Distribution Plans
must be approved by the Trustees in the manner described above. A Distribution
Plan may be terminated at any time with respect to the Fund without payment of
any penalty by vote of a majority of the Independent 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 the Fund, the Trustees must consider all factors they deem relevant,
including information as to the benefits of the Fund and the shareholders of the
relevant class of the Fund.
THE ADMINISTRATOR. The 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 the Fund. Under the terms of the Service
Agreement, SAFS may receive reimbursement of its costs in providing such
shareholder services. SAFS is located at The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204.
Pursuant to the Service Agreement, as compensation for services rendered, SAFS
receives a fee from the 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). For
further information regarding the Transfer Agent, see the section entitled
"Additional Information" below.
The Service Agreement dated September 23, 1993, as amended August 21, 1996 and
May 19, 1998, continues in effect from year to year provided that such
continuance is approved annually by vote of a majority of the Trustees including
a majority of the disinterested Trustees.
B-25
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund, selection of broker-dealers and negotiation of commission rates. Purchases
and sales of securities on a securities exchange are effected through 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
permitted by applicable law, an affiliated brokerage subsidiary of the Adviser.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission (although the price of the security usually includes a profit to the
dealer). In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
The Adviser's primary consideration in effecting a security transaction is to
obtain the best net price and the most favorable execution of the order.
However, the Adviser may select broker-dealers which provide it with research
services and may cause the 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 with clients other than the
Trust. No specific value can be determined for research services furnished
without cost to the Adviser by a broker. The Adviser is of the opinion that
because the material must be analyzed and reviewed by its staff, its receipt
does not tend to reduce expenses, but may be beneficial in supplementing the
Adviser's research and analysis. Therefore, it may tend to benefit the Fund by
improving the quality of the Adviser's investment advice. The investment
advisory fees paid by the Fund are not reduced because the Adviser receives such
services. When making purchases of underwritten issues with fixed underwriting
fees, the Adviser may designate the use of broker-dealers who have agreed to
provide the Adviser with certain statistical, research and other information.
Subject to applicable law and regulations, consideration may also be given to
the willingness of particular brokers to sell shares of the Fund as a factor in
the selection of brokers for transactions effected on behalf of the Fund,
subject to the requirement of best price and execution.
Although the objectives of other accounts or investment companies which the
Adviser manages may differ from those of the Fund, it is possible that, at
times, identical securities will be acceptable for purchase by the Fund and one
or more other accounts or investment companies which the Adviser manages.
However, the position of each account or company in the securities of the same
issue may vary with the length of the time that each account or company may
choose to hold its investment in those securities. The timing and amount of
purchase by each account and company will also be determined by its cash
position. If the purchase or sale of a security is consistent with the
investment policies of the Fund and one or more of these other accounts or
companies is
B-26
<PAGE>
considered at or about the same time, transactions in such securities will be
allocated in a manner deemed equitable by the Adviser. The Adviser may combine
such transactions, in accordance with applicable laws and regulations, where the
size of the transaction would enable it to negotiate a better price or reduced
commission. However, simultaneous transactions could adversely affect the
ability of the Fund to obtain or dispose of the full amount of a security, which
it seeks to purchase or sell, or the price at which such security can be
purchased or sold.
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES
Shares of the Fund are sold at the respective net asset value next determined
after receipt of a purchase order, plus a sales charge, which, at the election
of the investor, either (i) may be imposed at the time of purchase (Class A
shares), (ii) may be imposed on a deferred basis (Class B shares and certain
Class A shares) or (iii) may contain certain elements of a sales charge that is
imposed at the time of purchase and that is deferred (Class II shares).
WAIVER OF CDSC. As discussed under "Purchase of Shares" in the Prospectus,
CDSCs may be waived on redemptions of Class B and Class II shares under certain
circumstances. The conditions set forth below are applicable with respect to
the following situations with the proper documentation:
DEATH. CDSCs may be waived on redemptions within one year following the
death (i) of the sole shareholder on an individual account, (ii) of a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii) of
the beneficiary of a Uniform Gifts to Minors Act, Uniform Transfers 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 Code). To be eligible for such waiver, (i) the disability must arise after
the purchase of shares and (ii) the disabled shareholder must have been under
age 65 at the time of the initial determination of disability. If the account
is transferred to a new registration and then a redemption is requested, the
applicable CDSC will be charged.
PURCHASES THROUGH THE DISTRIBUTOR. An investor may purchase shares of the
Fund through dealers 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
B-27
<PAGE>
Distributor before the Fund's close of business will be executed at the offering
price determined at the close of regular trading on the New York Stock Exchange
("NYSE") that day. Orders received by the Distributor after the Fund's close of
business will be executed at the offering price determined after the close of
regular trading of the NYSE on the next trading day. The Distributor reserves
the right to cancel any purchase order for which payment has not been received
by the fifth business day following the investment. The Fund will not be
responsible for delays caused by dealers.
PURCHASE BY CHECK. Checks should be made payable to the "'Dogs' of Wall Street
Fund" or to "SunAmerica Funds." If the payment is for a retirement plan account
for which SunAmerica serves as fiduciary, please note on the check that payment
is for such an account. In the case of a new account, purchase orders by check
must be submitted directly by mail to SunAmerica Fund Services, Inc., Mutual
Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204, together with payment for the purchase price of such shares and a
completed New Account Application. Payment for subsequent purchases should be
mailed to SunAmerica Fund Services, Inc., c/o NFDS, P.O. Box 419373, Kansas
City, Missouri 64141-6373 and the shareholder's Fund account number should
appear on the check. For fiduciary retirement plan accounts, both initial and
subsequent purchases should be mailed to SunAmerica Fund Services, Inc., Mutual
Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204. Certified checks are not necessary but checks are accepted subject
to collection at full face value in United States funds and must be drawn on a
bank located in the United States. Upon receipt of the completed New Account
Application and payment check, the Transfer Agent will purchase full and
fractional shares of the Fund at the net asset value next computed after the
check is received, plus the applicable sales charge. Subsequent purchases of
shares of the Fund may be purchased directly through the Transfer Agent. SAFS
reserves the right to reject any check made payable other than in the manner
indicated above. Under certain circumstances, the Fund will accept a multi-
party check (e.g., a check made payable to the shareholder by another party and
then endorsed by the shareholder to the Fund in payment for the purchase of
shares); however, the processing of such a check may be subject to a delay. The
Fund does not verify the authenticity of the endorsement of such multi-party
check, and acceptance of the check by the Fund should not be considered
verification thereof. Neither the Fund nor its affiliates will be held liable
for any losses incurred as a result of a fraudulent endorsement. There are
restrictions on the redemption of shares purchased by check for which funds are
being collected. (See "Redemption of Shares" in the Prospectus.)
PURCHASE THROUGH SAFS. SAFS will effect a purchase order on behalf of a
customer who has an investment account upon confirmation of a verified credit
balance at least equal to the amount of the purchase order (subject to the
minimum $500 investment requirement for wire orders). If such order is received
at or prior to the Fund's close of business, the purchase of shares of the Fund
will be effected on that day. If the order is received after the Fund's close
of business, the order will be effected on the next business day.
PURCHASE BY FEDERAL FUNDS WIRE. An investor may make purchases by having his
or her bank wire Federal funds to the 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:
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1. You must have an existing SunAmerica Fund Account before wiring funds.
To establish an account, complete the New Account Application and send
it via facsimile to SunAmerica Fund Services, Inc. at: (212) 551-5343.
2. Call SunAmerica Fund Services' Shareholder/Dealer Services, toll free at
(800) 858-8850, extension 5125 to obtain your new account number.
3. Instruct the bank to wire the specified amount to the Transfer Agent:
State Street Bank and Trust Company, Boston, MA, ABA# 0110-00028; DDA#
99029712, SunAmerica ["Dogs" of Wall Street 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. Such plans may include certain employee benefit plans qualified under
Sections 401 or 457 of the Code, or employee benefit plans created pursuant to
Section 403(b) of the Code and Sponsored by nonprofit organizations defined
under Section 501(c)(3) of the Code (collectively, the "Plans"). A Plan will
qualify for purchases at net asset value provided that (a) the initial amount
invested in one or more of the Portfolios (or in combination with the shares of
other SunAmerica Mutual Funds) is at least $1,000,000, (b) the sponsor signs a
$1,000,000 Letter of Intent, (c) such shares are purchased by an employer-
sponsored plan with at least 100 eligible employees, or (d) the purchases are by
trustees or other fiduciaries for certain employer-sponsored plans, the trustee,
fiduciary or administrator which has an agreement with the Distributor with
respect to such purchases and all such transactions for the plan are executed
through a single omnibus account. Further, the sales charge is waived with
respect to shares purchased by "wrap accounts" for the benefit of clients of
broker-dealers, financial institutions 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 Fund may be purchased by clients at net asset value. Shares
purchased under this waiver may not be resold except to the Fund. Shares are
offered at net asset value to the foregoing persons because of anticipated
economies in sales effort and sales related expenses. Reductions in sales
charges apply to purchases or shares by a "single person" including an
individual; members of a family unit comprising husband, wife and minor
children; or a trustee or other fiduciary purchasing for a single fiduciary
account. Complete details concerning how an investor may purchase shares at
reduced sales charges may be obtained by contacting the Distributor.
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REDUCED SALES CHARGES (CLASS A SHARES ONLY). As discussed under "Purchase
of Shares" in the Prospectus, investors in Class A shares of the Fund may be
entitled to reduced sales charges pursuant to the following special purchase
plans made available by the 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);
(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
Code);
(iv) tax-exempt organizations qualifying under Section 501(c)(3) of the 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 Fund that were previously purchased, shares of the other classes of the
Fund, as well as shares of any other Funds of the Trust or of 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
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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, establishes a total investment goal in Class A shares
of one or more series of the Trust to be achieved through any number of
investments over a thirteen-month period, of $50,000 or more. Each investment
in such portfolio made during the period will be subject to a reduced sales
charge applicable to the goal amount. The initial purchase must be at least 5%
of the stated investment goal and shares totaling 5% of the dollar amount of the
Letter of Intent will be held in escrow by the Transfer Agent, in the name of
the investor. Shares of any class of shares of any other Funds of the Trust, 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 Fund purchased during the previous 90-day period and still owned by the
shareholder will be included in determining the applicable sales charge. The 5%
escrow and the minimum purchase requirement will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to this
purchase plan should carefully read such Letter of Intent.
REDUCED SALES CHARGE FOR GROUP PURCHASES. Members of qualified groups may
purchase Class A shares of the Fund under the combined purchase privilege as
described above.
To receive a rate based on combined purchases, group members must purchase
Class A shares of the Fund through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial purchase to
the Distributor, together with payment and completed New Account Application.
After the initial purchase, a member may send funds for the purchase of Class A
shares directly to the Transfer Agent. Purchases of the Fund's shares are made
at the public offering price based on the net asset value next determined after
the Distributor or the
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Transfer Agent receives payment for the Class A shares. The minimum investment
requirements described above apply to purchases by any group member.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association, or other
organized groups of persons (the members of which may include other qualified
groups) provided that: (i) the group has at least 25 members of which at least
ten members participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some purpose in addition
to the purchase of investment company shares at a reduced sales charge; (iv) the
group's sole organizational nexus or connection is not that the members are
credit card customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to provide its
designated investment dealer 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 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 Fund at any time.
NET ASSET VALUE TRANSFER PROGRAM. Investors may purchase Class A shares of
the Fund at net asset value to the extent that the investment represents the
proceeds from a redemption of a non-SunAmerica mutual fund in which the investor
either (a) paid a front-end sales load or (b) was subject to, or paid a CDSC on
the redemption proceeds. 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 the first 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
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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 the 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 the Fund, may pay the redemption price in whole, or
in part, by a distribution in kind of securities from the Fund in lieu of cash.
In conformity with applicable rules of the SEC, the Fund is committed to pay in
cash all requests for redemption, by any shareholder of record, limited in
amount with respect to each shareholder during any 90-day period to the lesser
of (i) $250,000, or (ii) 1% of the net asset value of the Fund at the beginning
of such period. If shares are redeemed in kind, the redeeming shareholder would
incur brokerage costs in converting the assets into cash. The method of valuing
portfolio securities is described below in the section entitled "Determination
of Net Asset Value," and such valuation will be made as of the same time the
redemption price is determined.
DETERMINATION OF NET ASSET VALUE
The Fund is open for business on any day the NYSE is open for regular trading.
Shares are valued each day as of the close of regular trading on the NYSE
(generally, 4:00 p.m., Eastern time). The Fund calculates the net asset value of
each class of its shares separately by dividing the total value of each class's
net assets by the shares outstanding of such class.
Stocks are stated at value based upon closing sales prices reported on
recognized securities exchanges or, for listed securities having no sales
reported and for unlisted securities, upon last reported bid prices. Non-
convertible bonds, debentures, other long-term debt securities and short-term
securities with original or remaining maturities in excess of 60 days, are
normally valued at prices obtained for the day of valuation from a bond pricing
service of a major dealer in bonds, when such prices are available; however, in
circumstances in which the Adviser deems it appropriate to do so, an over-the-
counter or exchange quotation at the mean of representative bid or asked prices
may be used. Securities traded primarily on securities exchanges outside the
United States are valued at the last sale price on such exchanges on the day of
valuation, or if there is no sale on the day of valuation, at the last-reported
bid price. If a security's price is available from more than one foreign
exchange, the Fund uses the exchange that is the primary market for the
security. Short-term securities with 60 days or less to maturity are amortized
to maturity based on their cost to the Trust if acquired within 60 days of
maturity or, if already held by the Trust on the 60/th/ day, are amortized to
maturity based on the value determined on the 61/st/ day. Options traded on
national securities exchanges are valued as of the close of the exchange on
which they are traded. Futures and options
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<PAGE>
traded on commodities exchanges are valued at their last sale price as of the
close of such exchange. Other securities are valued on the basis of last sale or
bid price (if a last sale price is not available) in what is, in the opinion of
the Advisor, the broadest and most representative market, that may be either a
securities exchange or the over-the-counter market. Where quotations are not
readily available, securities are valued at fair value as determined in good
faith in accordance with procedures adopted by the Board of Trustees. The fair
value of all other assets is added to the value of securities to arrive at the
respective Fund's total assets.
The Fund's liabilities, including proper accruals of expense items, are
deducted from total assets.
PERFORMANCE DATA
The Fund may advertise performance data that reflects various measures of
total return. An explanation of the data presented and the methods of
computation that will be used are as follows.
The Fund's performance may be compared to the historical returns of various
investments, performance indices of those investments or economic indicators,
including, but not limited to, stocks, bonds, certificates of deposit, money
market funds and U.S. Treasury Bills. Certain of these alternative investments
may offer fixed rates of return and guaranteed principal and may be insured.
Average annual total return is determined separately for Class A, Class B
and Class II shares in accordance with a formula specified by the SEC. Average
annual total return is computed by finding the average annual compounded rates
of return for the 1-, 5-, and 10-year periods or for the lesser included periods
of effectiveness. The formula used is as follows:
P(1 + T) to the nth power = 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., the front-end sales load in the case of the
Class A or Class II shares or the deferred sales load that would be
applicable to a complete redemption of the investment at the end of the
specified period in the case of the Class B or Class II shares) is deducted
from the initial $1,000 purchase payment;
2. All dividends and distributions are reinvested at net asset value; and
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<PAGE>
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 Fund may advertise cumulative, rather than average return, for each class
of its shares for periods of time other than the 1-, 5-, and 10-year periods or
fractions thereof, as discussed above. Such return data will be computed in the
same manner as that of average annual total return, except that the actual
cumulative return will be computed.
COMPARISONS
The Fund may compare its total return or yield to similar measures as
calculated by various publications, services, indices, or averages. Such
comparisons are made to assist in evaluating an investment in the Fund. The
following references may be used:
(a) Dow Jones Composite Average or its component averages -- an
unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks (Dow Jones Utilities
Average), and 20 transportation company stocks (Dow Jones Transportation
Average). Comparisons of performance assume reinvestment of dividends.
(b) Standard & Poor's 500 Composite Stock Price Index or its component
indices -- an unmanaged index composed of 400 industrial stocks, 40 financial
stocks, 40 utilities stocks, and 20 transportation stocks. Comparisons of
performance assume reinvestment of dividends.
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.
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(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, Principia, and other publications and
information services provided by Morningstar, Inc. -- analyzes price, risk and
total return for the mutual fund industry.
(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.
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(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.
(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.
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(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 reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
figures. Specifically, the Fund may compare its performance to that of certain
indices which include securities with government guarantees. However, the
Fund's shares do not contain any such guarantees. In addition, there can be no
assurance that the Fund will continue its performance as compared to such other
standards.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Dividends from net investment income, if
any, and the excess of net realized long-term capital gains over net capital
losses ("capital gain distributions"), if any, will be distributed to the
registered holders at least annually. With respect to capital gain
distributions, the 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.
Dividends and distributions will be paid in additional Fund shares
based on the net asset value at the Fund's close of business on the Ex date,
unless the shareholder notifies the Fund at least five business days prior to
the payment date to receive such distributions in excess of $10 in cash.
TAXES. The Fund intends to qualify and elect 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, the Fund
generally must, among other things, (a) derive at least 90% of its gross income
from dividends, interest, proceeds from loans of stock or securities and certain
other related income; and (b) diversify its holdings so that, at the end of each
fiscal quarter, (i) 50% of the market value of the Fund's assets is represented
by cash, government securities, securities of other regulated investment
companies and other securities limited, in respect of any one issuer, to an
amount no greater than 5% of the Fund's assets and not greater than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
government securities or the securities of other regulated investment
companies).
As a regulated investment company, the Fund will not be subject to
U.S. Federal income tax on its income and capital gains which it distributes as
dividends or capital gains distributions to
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shareholders provided that it distributes to shareholders at least 90% of its
investment company taxable income for the taxable year. The Fund intends to
distribute sufficient income to meet this qualification requirement.
Under the Code, amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To avoid the tax, the Fund must distribute during
each calendar year (1) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (2) at least 98% of
its capital gains in excess of its capital losses for the 12-month period ending
on October 31 of the calendar year, and (3) all ordinary income and net capital
gains for the previous years that were not distributed during such years. To
avoid application of the excise tax, the Fund intends to make distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the calendar year if declared by the Fund
in October, November or December of such year, payable to shareholders of record
on a date in such month and paid by the Fund during January of the following
year. Any such distributions paid during January of the following year will be
taxable to shareholders as of such December 31, rather than the date on which
the distributions are received.
Generally, a loss realized by the Fund upon the sale or disposition of
stock or securities will be disallowed if the Fund acquires substantially
identical stock or securities within a 61-day period beginning 30 days before
and ending 30 days after the date that the stock or securities are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Distributions of net investment income and short-term capital gains
are taxable to the shareholder as ordinary dividend income regardless of whether
the shareholder receives such distributions in additional shares or in cash.
The portion of such dividends received from the Fund that will be eligible for
the dividends received deduction for corporations generally will be determined
on the basis of the amount of the Fund's gross income, exclusive of capital
gains from sales of stock or securities, which is derived as dividends from
domestic corporations and will be designated as such in a written notice to
shareholders mailed not later than 60 days after the end of each fiscal year.
Distributions of net capital gains, if any, are taxable as capital gains
regardless of whether the shareholder receives such distributions in additional
shares or in cash or how long the investor has held his or her shares, 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. In the case of an individual, any such capital gain will
be treated as short-term capital gain, taxable at the same rates as ordinary
income if the shares were held for not more than 12 months, capital gain taxable
at the maximum rate of 28% if such shares were held for more than 12 but not
more than 18 months, and capital gain taxable at the maximum rate of 20% if such
shares were held for more than 18 months. In the case of a corporation, any such
capital gain will be treated as long-term capital gain, taxable at the same
rates as ordinary income, if such shares were held for more than 12 months. Any
such loss will be long-term capital 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 (whether through
dividend reinvestment or otherwise) within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of. Any loss realized by
a shareholder on the sale of shares of the Fund held by the shareholder for six
months or less will be treated for tax purposes as a long-term capital loss to
the extent of any distributions of net capital gains received by the shareholder
with respect to such shares.
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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.
The Code includes special rules applicable to the listed non-equity
options, regulated futures contracts, and options on futures contracts which the
Fund may write, purchase or sell. Such options and contracts are classified as
Section 1256 contracts under the Code. The character of gain or loss resulting
from the sale, disposition, closing out, expiration or other termination of
Section 1256 contracts, except forward foreign currency exchange contracts, is
generally treated as long-term capital gain or loss to the extent of 60% thereof
and short-term capital gain or loss to the extent of 40% thereof ("60/40 gain or
loss"). Such contracts, when held by the Fund at the end of a fiscal year,
generally are required to be treated as sold at market value on the last day of
such fiscal year for Federal income tax purposes ("marked-to-market"). Over-
the-counter options are not classified as Section 1256 contracts and are not
subject to the marked-to-market rule or to 60/40 gain or loss treatment. Any
gains or losses recognized by the Fund from transactions in over-the-counter
options generally constitute short-term capital gains or losses. When call
options written, or put options purchased, by the Fund are exercised, the gain
or loss realized on the sale of the underlying securities may be either short-
term or long-term, depending on the holding period of the securities. In
determining the amount of gain or loss, the sales proceeds are reduced by the
premium paid for the puts or increased by the premium received for calls.
A substantial portion of the Fund's transactions in options, futures
contracts and options on futures contracts, particularly its hedging
transactions, may constitute "straddles" which are defined in the Code as
offsetting positions with respect to personal property. A straddle consisting
of a listed option, futures contract, or option on a futures contract and of
U.S. Government securities would constitute a "mixed straddle" under the Code.
The Code generally provides with respect to straddles (i) "loss deferral" rules
which may postpone recognition for tax purposes of losses from certain closing
purchase transactions or other dispositions of a position in the straddle to the
extent of unrealized gains in the offsetting position, (ii) "wash sale" rules
which may postpone recognition for tax purposes of losses where a position is
sold and a new offsetting position is acquired within a prescribed period, (iii)
"short sale" rules which may terminate the holding period of securities owned by
the Fund when offsetting positions are established and which may convert certain
losses from short-term to long-term, and (iv) "conversion transaction" rules
which recharacterize capital gains as ordinary income. The Code provides that
certain elections may be made for mixed straddles that can alter the character
of the capital gain or loss recognized upon disposition of positions which form
part of a straddle. Certain other elections also are provided in the Code; no
determination has been reached to make any of these elections. Newly-enacted
Code Section 1259 will require the recognition of gain (but not loss) if the
Fund makes a "constructive sale" of an appreciated financial position (e.g.,
stock). The Fund generally will be considered to make a constructive sale of an
appreciated financial position if it sells the same or substantially identical
property short, enters into a futures or forward contract to deliver the same or
identical property short, or enters into other similar transactions.
The Fund may be required to backup withhold U.S. Federal income tax at
the rate of 31% of all taxable distributions payable to shareholders who fail to
provide their correct taxpayer identification
B-40
<PAGE>
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.
Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens or foreign entities generally will be subject to a 30%
United States withholding tax under existing provisions of the Code applicable
to foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Nonresident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect.
Shareholders are urged to consult their tax advisors regarding specific
questions as to Federal, state and local taxes. In addition, foreign investors
should consult with their own tax advisors regarding the particular tax
consequences to them of an investment in the Fund. Qualification as a regulated
investment company under the Code for tax purposes does not entail government
supervision of management and investment policies.
RETIREMENT PLANS
Shares of the Fund are eligible to be purchased in conjunction with
various types of qualified retirement plans. The summary below is only a brief
description of the Federal income tax laws for each plan and does not purport to
be complete. Further information or an application to invest in shares of the
Fund by establishing any of the retirement plans described below may be obtained
by calling Retirement Plans at (800) 858-8850. However, it is recommended that
a shareholder considering any retirement plan consult a tax adviser before
participating.
PENSION AND PROFIT-SHARING PLANS. Sections 401(a) and 401(k) of the
Code permit business employers and certain associations to establish pension and
profit sharing plans for employees. Shares of the Fund may be purchased by
those who would have been covered under the rules governing old H.R. 10 (Keogh)
Plans, as well as by corporate plans. Each business retirement plan provides
tax advantages for owners and participants. Contributions made by the employer
are tax-deductible, and participants do not pay taxes on contributions or
earnings until withdrawn.
TAX-SHELTERED CUSTODIAL ACCOUNTS. Section 403(b)(7) of the Code
permits public school employees and employees of certain types of charitable,
educational and scientific organizations specified in Section 501(c)(3) of the
Code, to purchase shares of the Fund and, subject to certain limitations,
exclude the amount of purchase payments from gross income for tax purposes.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA). Section 408 of the Code permits
eligible individuals to contribute to an individual retirement program,
including Simplified Employee Pension Plans, commonly referred to as SEP-IRA.
These IRA's are subject to limitations with respect to the amount
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<PAGE>
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
are not included in the employee's income and therefore are not reported or
deducted on his or her tax return.
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES ("SIMPLE IRA"). This plan
was introduced by a provision of the Small Business Job Protection Act of 1996
to provide small employers with a simplified tax-favored retirement plan.
Contributions are deducted from the employee's paycheck before taxes and are
deposited into a SIMPLE IRA by the employer, who must make either matching
contributions or non-elective contributions. Contributions are tax-deductible
for the employer and participants do not pay taxes on contributions on earnings
until they are withdrawn.
ROTH IRA. This plan, introduced by Section 302 of the Taxpayer Relief
Act of 1997, generally permits individuals with adjusted gross income of up to
$95,000, and married couples with joint adjusted gross income of up to $150,000,
to contribute to a "Roth IRA." Contributions are not tax-deductible, but
distribution of assets (contributions and earnings) held in the account for at
least five years may be distributed tax-free under certain qualifying
conditions.
EDUCATION IRA. Established by the Taxpayer Relief Act of 1997, under
Section 530 of the Code, this plan permits certain qualifying individuals to
contribute to an IRA on behalf of any child under the age of 18. Contributions
are not tax-deductible but distributions are tax-free if used for qualified
educational expenses.
DESCRIPTION OF SHARES
Ownership of the 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 or Funds of the Trust have been authorized
pursuant to the Declaration of Trust: the "Dogs" of Wall Street Fund, the
SunAmerica Balanced Assets Fund, the SunAmerica Blue Chip Growth Fund, the
SunAmerica Mid-Cap Growth Fund, the SunAmerica Small Company Growth Fund and the
SunAmerica Growth and Income Fund. This Statement of Additional Information
relates only to the "Dogs" of Wall Street Fund. The "Dogs" of Wall Street Fund
has been divided into three classes of shares, designated as Class A, Class B
and Class II 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
B-42
<PAGE>
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 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
one of the Fund's policies, only shareholders of the series affected by the
matter may be entitled to vote.
All classes of shares of the Fund are identical in all respects,
except that (i) each class may bear differing amounts of certain class-specific
expenses, (ii) Class A shares are subject to an initial sales charge and an
ongoing account maintenance and service fee, (iii) Class B shares are subject to
a CDSC, a distribution fee and an ongoing account maintenance and service fee,
(iv) Class II shares are subject to an initial sales charge, a CDSC, a
distribution fee and an ongoing account maintenance and service fee, (v) Class B
shares convert automatically to Class A shares on the first business day of the
month seven years after the purchase of such Class B shares, (vi) each class has
voting rights on matters that pertain to the Rule 12b-1 plan adopted with
respect to such class, except that under certain circumstances, the holders of
Class B shares may be entitled to vote on material changes to the Class A Rule
12b-1 plan, and (vii) each class of shares will be exchangeable only into the
same class of any of the other Funds or other funds in the SunAmerica Family of
Mutual Funds that offers that class except that Class II shares of the Fund will
be exchangeable into the same class or Class C shares of the other Funds or the
other funds in the SunAmerica Family of Mutual Funds that offers these classes.
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, 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
B-43
<PAGE>
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.
ADDITIONAL INFORMATION
REPORTS TO SHAREHOLDERS. The Trust sends audited annual and unaudited
semi-annual reports to shareholders of the Fund. In addition, the Transfer
Agent sends a statement to each shareholder having an account directly with the
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 Fund 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.
B-44
<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 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.
Appendix-1
<PAGE>
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
-- 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
Appendix-2
<PAGE>
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 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.
Appendix-3
<PAGE>
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.
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
Appendix-4
<PAGE>
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 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
Appendix-5
<PAGE>
basis as domestic corporate and municipal issues. The ratings measure the
credit worthiness of the obligor but do not take into account currency exchange
and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS.
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of not more
than 365 days. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest.
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues 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
Appendix-6
<PAGE>
sources it considers reliable. The ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information.
Appendix-7
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
Set forth in Part B of Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A (File No. 33-8021) filed on
January 30, 1998, in Registrant's Statement of Additional Information
are the audited financial statements of the SunAmerica Balanced Assets
Fund, the SunAmerica Blue Chip Growth Fund, the SunAmerica Growth and
Income Fund, the SunAmerica Mid-Cap Growth Fund and the SunAmerica
Small Company Growth Fund (the "Funds") with respect to the Funds'
fiscal year ended September 30, 1997. Selected per share data and
ratios for the Funds are set forth in Part A of Post-Effective
Amendment No. 22 to Registrant's Registration Statement on Form N-1A
(File No. 33-8021) filed on January 30, 1998, in Registrant's
Prospectus under the caption "Financial Highlights." No financial
statements are included in Part C. All financial statements, schedules
and historical financial information for SunAmerica "Dogs" of Wall
Street Fund are omitted because the conditions requiring their filing
do not exist.
(b) Exhibits:
(1) Declaration of Trust, as amended. Incorporated herein by
reference to Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A (File No. 33-8021) filed on
January 12, 1996.
(2) By-Laws, as amended. Incorporated herein by reference to Post-
Effective Amendment No. 17 to Registrant's Registration
Statement on Form N-1A (File No. 33-8021) filed on January 12,
1996.
(3) Inapplicable.
(4) Inapplicable.
(5) Investment Advisory and Management Agreement, as amended.*
<PAGE>
(6)(a) Distribution Agreement. Incorporated herein by reference to
Post-Effective Amendment No. 19 to the Registrant's
Registration Statement on Form N-1A (File No. 33-8021) filed
on January 27, 1997.
(6)(b) Form of Dealer Agreement, as amended.*
(7) Directors'/Trustees' Retirement Plan. Incorporated herein by
reference to Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on Form N-1A (File No.
33-8021) filed on January 27, 1997.
(8) Custodian Contract, as amended. Incorporated herein by
reference to Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on Form N-1A (File No.
33-8021) filed on January 27, 1997.
(9)(a) Transfer Agency and Service Agreement. Incorporated herein by
reference to Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on Form N-1A (File No.
33-8021) filed on January 27, 1997.
(9)(b) Service Agreement, as amended.*
(10) Inapplicable.
(11) Consent of Independent Accountants. Incorporated herein by
reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A (File No.
33-8021) filed on January 28, 1998.
(12) Inapplicable.
(13) Inapplicable.
(14) Model Retirement Plans. Incorporated herein by reference to
Post-Effective Amendment No. 17 to Registrant's Registration
Statement on Form N-1A (File No. 33-8021) filed on January 12,
1996.
(15)(a) Distribution Plans pursuant to Rule 12b-1 (Class A Shares and
Class B Shares). Incorporated herein by reference to Post-
Effective Amendment No. 19 to the Registrant's Registration
Statement on Form N-1A (File No. 33-8021) filed on January 27,
1997.
C-2
<PAGE>
(b) Distribution Plans pursuant to Rule 12b-1 (Class C Shares).
Incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A
(File No. 33-8021) filed on January 30, 1998.
(c) Distribution Plans pursuant to Rule 12b-1 (Class II Shares).*
(16)(a) Schedule of Computation of Performance Quotations for the
Funds. Incorporated herein by reference to Post-Effective
Amendment No. 17 to the Registrant's Registration Statement on
Form N-1A (File No. 33-8021) filed on January 12, 1996.
(16)(b) Schedule of Computation of Hypotetical Performance Quotations
for the "Dogs" of Wall Street Strategy.
(17) Powers of Attorney. Incorporated herein by reference to Post-
Effective Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A (File No. 33-8021) filed on January 12,
1996
(18) Plan Pursuant to Rule 18f-3 as amended.*
(27) Financial Data Schedules. Incorporated herein by reference to
Post-Effective Amendment No. 22 to Registrant's Registration
Statement on Form N-1A (File No. 33-8021) filed on January 30,
1998.
__________________
*To be Filed by amendment.
Item 25. Persons Controlled By or Under Common Control With Registrant.
There are no persons controlled by or under common control with
Registrant.
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class Z Shares
Number of Record Number of Record Number of Record
Holders as of Holders as of Holders as of
Title of Class December 31, 1997 December 31, 1997 December 31, 1997
- -------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Balanced Assets Fund 17,278 8,706 2
Shares of Beneficial Interest
($.01 par value)
Blue Chip Growth Fund 6,975 3,326
Shares of Beneficial Interest
($.01 par value)
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
Mid-Cap Growth Fund 3,331 1,245
Shares of Beneficial Interest
($.01 par value)
Small Company Growth Fund 16,810 8,694 3
Shares of Beneficial Interest
($.01 par value)
Growth and Income Fund 3,537 3,481
Shares of Beneficial Interest
</TABLE>
($.01 par value)
There were no record holders of any class of the SunAmerica Dogs of Wall Street
Fund within 90 days prior to the date of the filing.
Item 27. Indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such
trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by the controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of the Investment Adviser.
Information concerning the business and other connections of
SunAmerica Asset Management Corp. is incorporated herein by reference
to SunAmerica Asset Management Corp.'s Form ADV (File No. 801-19813),
which is currently on file with the Securities and Exchange
Commission.
Reference is also made to the caption "Management of the Trust" in the
Prospectus constituting Part A of the Registration Statement and
"Adviser, Distributor and Administrator" and "Trustees and Officers"
constituting Part B of the Registration Statement.
Item 29. Principal Underwriters.
C-4
<PAGE>
(a) The principal underwriter of the Registrant also acts as principal
underwriter for:
SunAmerica Income Funds
SunAmerica Money Market Funds, Inc.
Style Select Series, Inc.
(b) The following persons are the officers and directors of SunAmerica
Capital Services, Inc., the principal underwriter of Registrant's
Shares:
<TABLE>
<CAPTION>
Name and Principal Position Position with the
Business Address With Underwriter Registrant
---------------- ---------------- -----------------
<S> <C> <C>
J. Steven Neamtz President None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Robert M. Zakem Executive Vice Secretary and
The SunAmerica Center President and Chief Compliance
733 Third Avenue Director Officer
New York, NY 10017-3204
Susan L. Harris Secretary None
SunAmerica Inc.
1 SunAmerica Center
Los Angeles, CA 90067-6022
Steven E. Rothstein Treasurer None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
</TABLE>
(c) Inapplicable.
Item 30. Location of Accounts and Records.
1. SunAmerica Asset Management Corp., The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204, or an affiliate thereof, maintains
physical possession of each such accounts, books or other documents
of Registrant, except for those maintained by Registrant's
custodian, State Street Bank and Trust Company, 1776 Heritage
Drive, North Quincy, MA 02171, and its affiliate, National
Financial Data Services, P.O. Box 419572, Kansas City, MO 64141-
6572.
Item 31. Management Services.
C-5
<PAGE>
Inapplicable.
Item 32. Undertakings.
Registrant hereby undertakes:
(b) To file a post effective amendment, using financial statements with
respect to the SunAmerica "Dogs" of Wall Street Fund, which need not
be certified, within four to six months from the effective date of
Registrant's 1933 Act Registration Statement.
(c) To furnish, upon request and without charge, to each person to whom a
Prospectus is delivered a copy of the Registrant's latest annual
report to shareholders.
C-6
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, as amended,
(the "1933 Act") and the Investment Company Act of 1940, as amended, Registrant
has duly caused the Post-Effective Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 18th of March, 1998.
SUNAMERICA EQUITY FUNDS
By: /s/ Peter A. Harbeck
Peter A. Harbeck,
President and Trustee
Pursuant to the requirements of the 1933 Act, the Post-Effective Amendment
No. 23 to Registrant's Registration Statement on Form N-1A has been signed below
by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Peter A. Harbeck President and Trustee March 18, 1998
Peter A. Harbeck (Principal Executive Officer)
________*_________ Treasurer March 18, 1998
Peter C. Sutton (Principal Accounting
and Financial Officer)
________*_________ Trustee March 18, 1998
Peter McMillan III
________*_________ Trustee March 18, 1998
S. James Coppersmith
________*_________ Trustee March 18, 1998
Samuel M. Eisenstat
________*_________ Trustee March 18, 1998
Stephen J. Gutman
________*_________ Trustee March 18, 1998
Sebastiano Sterpa
</TABLE>
*By:/s/ Robert M. Zakem
Robert M. Zakem, Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- ------
16(b) Schedule of Computation of Hypothetical Performance Quotations
for the "Dogs" of Wall Street Strategy.
<PAGE>
Exhibit 16(b)
The information contained in the Annual Results for the Hypothetical Performance
of the Strategy for "Dogs" of Wall Street Fund was calculated by linking, on a
market-weighted basis, the annual total returns, including dividend
reinvestment, for each of the 30 securities that would have been selected in the
year listed using the Fund's selection criteria as set forth in the Prospectus.
A security's individual annual total return was calculated by subtracting the
security's market price on January 1 of that year from the security's market
price on December 31 of that year, and then dividing that figure by the
security's market price on January 1 of that year.
