<PAGE>
As filed with the Securities and Exchange Commission on January 29, 1999
Securities Act File No. 33-8021
Investment Company Act File No. 811-4801
=====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x[
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 25 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 24
(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 for Agent for Service)
Copy to:
Margery K. Neale, Esq
Swidler Berlin Shereff & Friedman, 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)
[x] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
January 29, 1999 PROSPECTUS
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SUNAMERICA EQUITY FUNDS
[SUNAMERICA LOGO APPEARS HERE]
Blue Chip Growth Fund
[SUNAMERICA LOGO APPEARS HERE]
Mid-Cap Growth Fund
[SUNAMERICA LOGO APPEARS HERE]
Small Company Growth Fund
[SUNAMERICA LOGO APPEARS HERE]
Growth and Income Fund
[SUNAMERICA LOGO APPEARS HERE]
Balanced Assets Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
[SUNAMERICA MUTUAL FUNDS LOGO APPEARS HERE]
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FUND HIGHLIGHTS........................................ 2
FINANCIAL HIGHLIGHTS................................... 11
SHAREHOLDER ACCOUNT INFORMATION........................ 14
MORE INFORMATION ABOUT THE FUNDS....................... 22
Fund Investment Strategies........................... 22
Glossary............................................. 24
Investment Terminology.............................. 24
Risk Terminology.................................... 25
FUND MANAGEMENT........................................ 26
</TABLE>
[SUNAMERICA MUTUAL FUNDS LOGO APPEARS HERE]
<PAGE>
Fund Highlights
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Q&A
Market
capitalization
represents the
total market
value of the
outstanding
securities of a
corporation.
A fund engages in
active trading
when it
frequently trades
its portfolio
securities to
achieve its
investment goal.
The "growth" ori-
ented philosophy
to which the Blue
Chip Growth, Mid-
Cap Growth and
Small Company
Growth Funds sub-
scribe--that of
investing in se-
curities believed
to offer the po-
tential for capi-
tal apprecia-
tion--focuses on
securities
which--are con-
sidered: to have
a historical rec-
ord of above-av-
erage growth
rate; to have
significant
growth potential;
above-average
earnings growth
or value or the
ability to sus-
tain earnings
growth; to offer
proven or unusual
products or serv-
ices; or to oper-
ate in industries
experiencing in-
creasing demand.
The "value"
oriented
philosophy to
which the Growth
and Income Fund
partly sub-
scribes--that of
investing in se-
curities believed
to be undervalued
in the market--
reflects a
contrarian ap-
proach, in that
the potential for
superior relative
performance is
believed to be
highest when
stocks of funda-
mentally solid
companies are out
of favor. The se-
lection criteria
is usually calcu-
lated to identify
stocks of large,
well known compa-
nies with solid
financial
strength and gen-
erous dividend
yields that have
low price-earn-
ings ratios and
have been gener-
ally overlooked
by the market.
Conservation of
principal
is a goal which
aims to invest in
a manner that
tries to protect
the value of your
investment
against market
movements and
other economic
events.
"High-quality"
instruments
have a very
strong capacity
to pay interest
and repay
principal.
The following questions and answers are designed to give you an overview of the
Trust, and to provide you information about five of the Trust's investment
portfolios, or "Funds," and their investment goals and principal strategies.
There can be no assurance that any Fund's investment goal will be met or that
the net return on an investment in a Fund will exceed what could have been ob-
tained through other investment or savings vehicles. More complete investment
information is provided in the chart, under "More Information About the Funds,"
which is on page 22, and the glossary that follows on page 24.
Q:What are the Funds' investment goals, strategies and techniques?
A:
<TABLE>
<CAPTION>
Principal
Investment Investment Principal Investment
Fund Goal Strategy Techniques
<C> <C> <C> <S>
Blue Chip Growth Fund capital growth invests primarily by active
appreciation trading in common stocks
that demonstrate the
potential for capital
appreciation, issued by
companies with market
capitalizations of over $5
billion
Mid-Cap Growth Fund capital growth invests primarily by active
appreciation trading in common stocks
that demonstrate the
potential for capital
appreciation, issued by
companies with market
capitalizations between $1
billion and $5 billion that
have coducted operations for
at least five years
Small Company Growth Fund capital growth invests primarily by active
appreciation trading in common stocks
that demonstrate the
potential for capital
appreciation, issued by
companies with market
capitalizations of $1
billion or less
Growth and Income Fund capital growth and invests primarily by active
appreciation value trading in common stocks,
and issued by companies of any
current size, that pay dividends,
income demonstrate the potential
for capital appreciation
and/or are believed to be
undervalued in the market
Balanced Assets Fund conservation asset invests by active trading
of allocation partly in common stocks that
principal and growth demonstrate the potential
and for capital appreciation
capital issued by companies with
appreciation market capitalizations of
over $1 billion, and partly
in high-quality bonds
</TABLE>
2
<PAGE>
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Q.What are the principal risks of investing in the Funds?
A: The following section describes the principal risks of each Fund, while the
chart on page 22 describes various additional risks.
Risks of Investing in Equity Securities
The Blue Chip Growth, Mid-Cap Growth, Small Company Growth and Growth and
Income Funds invest primarily in equity securities. In addition, the Bal-
anced Assets Fund invests significantly in equity securities. As with any
equity fund, the value of your investment in any of these Funds may fluctu-
ate in response to stock market movements. You should be aware that the
performance of different types of equity stocks may rise or decline under
varying market conditions--for example, "value" stocks may perform well un-
der circumstances in which "growth" stocks in general have fallen. In addi-
tion, individual stocks selected for any of these Funds may underperform
the market generally.
Additional Principal Risks
Shares of the Funds are not bank deposits and are not guaranteed or insured
by any bank, government entity or the Federal Deposit Insurance Corpora-
tion. As with any mutual fund, there is no guarantee that a Fund will be
able to achieve its investment goals. If the value of the assets of a Fund
goes down, you could lose money.
Additional Risks Specific to the Mid-Cap Growth Fund:
Stocks of smaller companies may be more volatile than, and not as readily
marketable as, those of larger companies. The Mid-Cap Growth Fund may be
riskier than the Blue Chip Growth Fund.
Additional Risks Specific to the Small Company Growth Fund:
Stocks of smaller companies may be more volatile than, and not as liquid
as, those of larger companies. The Small Company Growth Fund may be riskier
than the Blue Chip Growth and the Mid-Cap Growth Funds.
Additional Risks Specific to the Balanced Assets Fund:
As with any bond fund, the value of your investment in the Balanced Assets
Fund may go up or down in response to changes in interest rates or defaults
(or even the potential for future default) by bond issuers. As interest
rates rise, bond prices typically fall; and as interest rates fall, bond
prices typically rise. Movements in the bond market generally may affect
the Balanced Assets Fund's performance.
An issuer of securities held in the Balanced Assets Fund's portfolio may
not be able to honor its financial obligations, including its obligations
to the Balanced Assets Fund.
Q:How have the Funds performed historically?
A: The following Risk/Return Bar Charts and Tables illustrate the risks of in-
vesting in the Funds by showing changes in the Funds' performance from cal-
endar year to calendar year, and compare the Funds' average annual returns
to those of an appropriate market index. Sales charges are not reflected in
the bar charts. If these amounts were reflected, returns would be less than
those shown. Of course, past performance is not necessarily an indication of
how a Fund will perform in the future.
3
<PAGE>
Fund Highlights
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BLUE CHIP GROWTH FUND (Class B)
During the 10-year period shown in
the bar chart, the highest return
for a quarter was 22.65% (quarter
ended 12/31/98) and the lowest
return for a quarter was -25.00%
(quarter ended 09/30/90).
[BLUE
CHIP
GROWTH
FUND
(CLASS B)
BAR GRAPH
APPEARS
HERE]
<TABLE>
<CAPTION>
Average Annual Total Returns
(as of Return Since Inception*
the calendar year ended Past One Past Five Past Ten S&P 500(R)
December 31, 1998) Year Years Years Fund Index ***
<S> <C> <C> <C> <C> <C> <C>
Blue Chip Growth Fund** Class A 20.85% 17.20% N/A 16.38% 21.81%
Class B 23.36% 17.61% 12.42% 12.95% 15.02%
S&P 500(R) Index*** 28.57% 24.00% 18.95% See Above
</TABLE>
*Inception Date - Class A: 10/08/93; Class B: 3/13/85
**Includes sales charges.
***The S&P 500(R) is the Standard & Poor's 500 Composite Stock Price Index, a
widely recognized, unmanaged index of common stock prices.
MID-CAP GROWTH FUND (Class A)
'89 12.76% During the 10-year period shown in
'90 -25.11% the bar chart, the highest return
'91 29.84% for a quarter was 25.13% (quarter
'92 8.46% ended 12/31/98) and the lowest
'93 19.39% return for a quarter was -23.52%
'94 -4.76% (quarter ended 09/30/90).
'95 31.04%
'96 9.67%
'97 30.25%
'98 27.36%
[MID-CAP GROWTH FUND (CLASS A) BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Returns Return Since Inception*
(as of the calendar year ended Past One Past Five Past Ten S&P 500(R) S&P 400(R)
December 31, 1998) Year Years Years Fund Index*** Mid-Cap Index ****
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-Cap Growth
Fund** Class A 16.07% 13.80% 14.02% 13.21% 13.37% Not Available Past 1991
Class B 18.16% 14.08% N/A 12.16% 21.67% 18.68%
S&P 500(R) Index*** 28.57% 24.00% 18.95% See Above
S&P 400(R) Mid-Cap
Index**** 19.09% 18.80% Not Available Past 1991 See Above
</TABLE>
*Inception Date - Class A: 01/28/87; Class B: 10/04/93
**Includes sales charges.
***The S&P 500(R) is the Standard & Poor's 500 Composite Stock Price Index, a
widely recognized, unmanaged index of common stock prices.
****The S&P 400(R) Mid-Cap Index is a market value-weighted and unmanaged index
showing the changes in the aggregate market value of 200 stocks of companies
whose capitalization range from $100 million to over $5 billion and which
represent a wide range of industries.
4
<PAGE>
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[BAR CHART]
SMALL COMPANY GROWTH FUND (Class A)
'89 23.05% During the 10-year period shown in
'90 -26.99% the bar chart, the highest return
'91 54.85% for a quarter was 32.76% (quarter
'92 20.12% ended 12/31/98) and the lowest
'93 13.89% return for a quarter was -30.80%
'94 4.73% (quarter ended 09/30/90).
'95 50.16%
'96 14.92%
'97 3.34%
'98 12.71%
<TABLE>
<CAPTION>
Return Since Inception*
Average Annual Total Returns Past One Past Five Past Ten Fund Russell 2000 Nasdaq
(as of the calendar year ended Year Years Years Index *** Industrial
December 31, 1998) Index****
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Small Company Growth
Fund** Class A 6.23% 14.68% 14.21% 13.65% 9.03% 10.33%
Class B 7.96% 15.08% N/A 13.22% 11.11% 11.12%
Russell 2000 Index*** (2.24)% 10.28% 11.08% See Above
Nasdaq Industrial
Index**** 7.22% 10.10% 13.14% See Above
</TABLE>
*Inception Date: Class A: 1/28/87; Class B: 9/24/93
**Includes sales charges.
***The Russell 2000 Index is an unmanaged broad-based index of 2,000 smaller
capitalization companies.
****The Nasdaq Industrial Index is a value-weighted index calculated on price
change only and does not include income and is composed of more than 3,000
industrial issues.
[BAR CHART]
GROWTH AND INCOME FUND (Class B)
During the 4-year period shown in
'95 33.94% the bar chart, the highest return
'96 26.33% for a quarter was 21.46% (quarter
'97 29.3 % ended 12/31/98 and the lowest
'98 22.63% return for a quarter was -11.06%
(quarter ended 09/30/98).
<TABLE>
<CAPTION>
Return Since
Inception*
Average Annual Total Returns Past One Past Five Past Ten Fund S&P500(R)
(as of the calendar year ended Year Years Years Index***
December 31, 1998)
<S> <C> <C> <C> <C> <C> <C> <C>
Growth and Income Fund** Class A 16.27% N/A N/A 23.99% 26.93%
Class B 18.63% N/A N/A 24.83% 25.34%
S&P 500(R) Index*** 28.57% 24.00% 18.95% See Above
</TABLE>
*Inception Date: Class A: 7/01/94; Class B: 7/06/94
**Includes sales charges.
***The S&P 500(R) is the Standard & Poor's 500 Composite Stock Price Index, a
widely recognized, unmanaged index of common stock prices.
5
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
BALANCED ASSETS FUND (Class B)
During the 10-year period shown in
the bar chart, the highest return
for a quarter was 15.40% (quarter
ended 12/31/98) and the lowest
return for a quarter was -13.61%
(quarter ended 09/30/90).
[BALANCED
ASSETS
FUND
(CLASS B)
BAR CHART
APPEARS
HERE]
<TABLE>
<CAPTION>
Return Since Inception*
Average Annual Total Returns Lehman Brothers
(as of the calendar year ended Past One Past Five Past Ten Fund S&P 500(R) Government/Corporate
December 31, 1998) Year Years Years Index*** Index****
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced Assets Fund** Class A 16.26% 14.53% N/A 14.09% 21.77% 6.30%
Class B 18.59% 14.94% 13.66% 13.19% 14.88% 6.20%
S&P 500(R) Index*** 28.57% 24.00% 18.95% See Above
Lehman Brothers
Intermediate
Government/Corporate
Index**** 8.42% 6.59% 8.51% See Above
</TABLE>
*Inception Date: Class A: 9/24/93; Class B: 1/29/85
**Includes sales charges.
***The S&P 500(R) is the Standard & Poor's 500 Composite Stock Price Index, a
widely recognized, unmanaged index of common stock prices.
****The Lehman Brothers Intermediate Government/Corporate Index is an unmanaged
index comprised of all publicly issued, non-convertible domestic debt of the
United States Government. Only notes and bonds with minimum outstanding
principal of $1 million and minimum maturity of one year and maximum maturity
of 10 years are included.
6
<PAGE>
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(THIS PAGE INTENTIONALLY LEFT BLANK)
7
<PAGE>
Fund Highlights
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Q:What are the Funds' expenses?
A:The following table describes the fees and expenses that you may pay if you
buy and hold shares of the Funds.
<TABLE>
<CAPTION>
Blue Chip Mid-Cap
Growth Fund Growth Fund
----------- -----------
Class A Class B Class II Class A Class B Class II
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Fees
(fees paid
directly from
your
investment)
Maximum Sales
Charge (Load)
Imposed on
Purchases (as
a percentage
of offering
price)(/1/) 5.75% None 1.00% 5.75% None 1.00%
Maximum
Deferred Sales
Charge (Load)
(as a
percentage of
amount
redeemed)(/2/) None 4.00% 1.00% None 4.00% 1.00%
Maximum Sales
Charge (Load)
Imposed on
Reinvested
Dividends None None None None None None
Redemption
Fee(/3/) None None None None None None
Exchange Fee None None None None None None
Maximum Account
Fee None None None None None None
Annual Fund
Operating
Expenses
(expenses that
are deducted
from Fund
assets)
Management Fees 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
Distribution
(12b-1)
Fees(/4/) 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
Other Expenses 0.42% 0.42% 2.75% 0.52% 0.58% 2.75%
Total Annual
Fund
Operating
Expenses
Expense
Reimbursement 1.52% 2.17% 4.50%(/5/) 1.62% 2.33% 4.50%(/5/)
Expense
Reimbursement(/6/) -- -- 2.33% -- -- 2.17%
Net Expenses 1.52% 2.17% 2.17% 1.62% 2.33% 2.33%
</TABLE>
(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1 million or more.
(2) Purchases of Class A shares over $1 million will be subject to a contingent
deferred sales charge (CDSC) on redemptions made within one year of pur-
chase. The CDSC on Class B shares applies only if shares are redeemed
within six years of their purchase. The CDSC on Class II shares applies
only if shares are redeemed within eighteen months of their purchase.
(3) A $15.00 fee may be imposed on wire redemptions.
(4) Because these fees are paid out of a Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost
you more than paying other types of sales charges.
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Company Growth and Balanced
Growth Fund Income Fund Assets Fund
------------- ----------- -----------
Class A Class B Class II Class A Class B Class II Class A Class B Class II
- ------- ------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5.75% None 1.00% 5.75% None 1.00% 5.75% None 1.00%
None 4.00% 1.00% None 4.00% 1.00% None 4.00% 1.00%
None None None None None None None None None
None None None None None None None None None
None None None None None None None None None
None None None None None None None None None
0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
0.35% 1.00% 1.00% 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
0.40% 0.39% 13.98% 0.40% 0.38% 7.39% 0.36% 0.33% 2.75%
1.50% 2.14% 15.73% 1.50% 2.13% 9.14% 1.46% 2.08% 4.50%(/5/)
-- -- 13.58% -- -- 6.99% -- -- 2.42%
1.50% 2.14% 2.15% 1.50% 2.13% 2.15% 1.46% 2.08% 2.08%
</TABLE>
(5) The offering of Class II shares commenced for these Funds on December 1,
1998. The amounts shown are estimated based on expenses expected to have
been incurred if Class II shares had been in existence for these Funds
throughout the fiscal year ended September 30, 1998.
(6) The Trustees, including a majority of the Independent Trustees, approved
the Investment Advisory and Management Agreement subject to the net expense
ratios set forth above. The Adviser may not increase such ratios without
the approval of the Trustees, including a majority of the Independent
Trustees. The Trustees, including a majority of the Independent Trustees,
may terminate the expense waivers and fee reimbursements at any time.
9
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Blue Chip Growth Fund
(Class A shares).............................. $ 721 $1,028 $1,356 $ 2,283
(Class B shares)*............................. 620 979 1,364 2,262
(Class II shares)............................. 647 1,447 2,356 4,668
Mid-Cap Growth Fund
(Class A shares).............................. 730 1,057 1,406 2,386
(Class B shares)*............................. 636 1,027 1,445 2,406
(Class II shares)............................. 647 1,447 2,356 4,668
Small Company Growth Fund
(Class A shares).............................. 719 1,022 1,346 2,263
(Class B shares)*............................. 617 970 1,349 2,234
(Class II shares)............................. 1,662 4,064 6,048 9,420
Growth and Income Fund
(Class A shares).............................. 719 1,022 1,346 2,263
(Class B shares)*............................. 616 967 1,344 2,227
(Class II shares)............................. 1,081 2,650 4,179 7,480
Balanced Assets Fund
(Class A shares).............................. 715 1,010 1,327 2,221
(Class B shares)*............................. 611 952 1,319 2,178
(Class II shares)............................. 647 1,447 2,356 4,668
You would pay the following expenses if you did not redeem your shares:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Blue Chip Growth Fund
(Class A shares).............................. $ 721 $ 1,028 $1,356 $2,283
(Class B shares)*............................. 220 679 1,164 2,262
(Class II shares)............................. 547 1,447 2,356 4,668
Mid-Cap Growth Fund
(Class A shares).............................. 730 1,057 1,706 2,386
(Class B shares)*............................. 236 727 1,245 2,406
(Class II shares)............................. 547 1,447 2,356 4,668
Small Company Growth Fund
(Class A shares).............................. 719 1,022 1,346 2,263
(Class B shares)*............................. 217 670 1,149 2,234
(Class II shares)............................. 1,573 4,064 6,048 9,420
Growth and Income Fund
(Class A shares).............................. 719 1,022 1,346 2,263
(Class B shares)*............................. 216 667 1,144 2,227
(Class II shares)............................. 986 2,650 4,179 7,480
Balanced Assets Fund
(Class A shares).............................. 715 1,010 1,327 2,221
(Class B shares)*............................. 211 652 1,119 2,178
(Class II shares)............................. 547 1,447 2,356 4,668
</TABLE>
* Class B shares convert to Class A shares approximately seven years after
purchase. Therefore, expense information for years 8, 9 and 10 is the same
for both Class A and B shares.
10
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The Financial Highlights table for each Fund is intended to
help you understand the Fund's financial performance for the
past 5 years. Certain information reflects financial results
for a single Fund share. The total returns in each table repre-
sent the rate that an investor would have earned (or lost) on
an investment in a Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with each
Fund's financial statements, are included in the Statement of
Additional Information (SAI), which is available upon request.
BLUE CHIP GROWTH FUND
<TABLE>
<CAPTION>
Net
gain (loss)
Net on invest- Total Dividends Distri-
Net Asset invest- ments (both from from net butions Net Asset Net Assets
Value, ment realized invest- invest- from Total Value, end of
Period beginning income and ment ment capital distri- end of Total period
Ended of period (loss)(/1/) unrealized) operations income gains butions period Return(/2/) (000's)
- ------ --------- ----------- ----------- ---------- --------- ------- ------- --------- ------ ----------
Class A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/08/93-
9/30/94(/3/)... $16.24 $ __0.09$ _(0.26)$ _(0.17)$ $ -- _(0.65)$ _(0.65)$ _15.42$ (1.05)% __3,207$
9/30/95......... 15.42 0.02 2.99 3.01 -- (1.09) (1.09) 17.34 21.29 42,407
9/30/96......... 17.34 (0.03) 2.22 2.19 -- (1.91) (1.91) 17.62 13.88 51,993
9/30/97......... 17.62 (0.02) 5.05 5.03 -- (2.43) (2.43) 20.22 32.96 67,812
9/30/98......... 20.22 (0.04) 0.91 0.87 -- (2.48) (2.48) 18.61 5.09 72,536
<CAPTION>
Class B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/94......... _16.28$ _(0.01)$ _(0.28)$ _(0.29)$ __--$ _(0.65)$ _(0.65)$ _15.34$ (1.81)% _71,749$
9/30/95......... 15.34 (0.01) 2.89 2.88 -- (1.09) (1.09) 17.13 20.51 39,533
9/30/96......... 17.13 (0.14) 2.19 2.05 -- (1.91) (1.91) 17.27 13.17 36,199
9/30/97......... 17.27 (0.13) 4.90 4.77 -- (2.43) (2.43) 19.61 32.02 37,633
9/30/98......... 19.61 (0.16) 0.87 0.71 -- 2.48) (2.48) 17.84 4.36 36,106
<CAPTION>
Ratio of net
investment
Ratio of income
expenses (loss)
Period to average to average Portfolio
Ended net assets net assets turnover
- ------ ------------------ -------------------- ---------
<S> <C> <C> <C>
10/08/93-
9/30/94(/3/)... ___1.64%(/4/)(/5/)_____0.65%(/4/)(/5/)__ 170%
9/30/95......... 1.58(/5/) 0.11(/5/) 251
9/30/96......... 1.57 (0.18) 269
9/30/97......... 1.54 (0.11) 211
9/30/98......... 1.52 (0.20) 90
<CAPTION>
<S> <C> <C> <C>
9/30/94......... ___2.28%_______ (0.05)% 170%
9/30/95......... 2.22 (0.09) 251
9/30/96......... 2.23 (0.83) 269
9/30/97......... 2.22 (0.77) 211
9/30/98......... 2.17 (0.86) 90
</TABLE>
- ----
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
9/30/94 9/30/95
------- -------
<S> <C> <C>
Blue Chip Growth Class A..................... 1.66% .11%
</TABLE>
- --------------------------------------------------------------------------------
MID-CAP GROWTH FUND
<TABLE>
<CAPTION>
Net
gain (loss)
Net on invest- Total Dividends Distri-
Net Asset invest- ments (both from from net butions Net Asset Net Assets
Value, ment realized invest- invest- from Total Value, end of
Period beginning income and ment ment capital distri- end of Total period
Ended of period (loss)(/2/) unrealized) operations income gains butions period Return(/1/) (000's)
- ------ --------- ----------- ----------- ---------- --------- ------- ------- --------- ----------- ----------
Class A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/94......... $18.03 $0.04 $(1.64) $(1.60) $ -- $(2.65) $(2.65) $13.78 $(9.60)% $32,906
9/30/95......... 13.78 (0.08) 4.14 4.06 (0.04) -- (0.04) 17.80 29.51 37,714
9/30/96......... 17.80 (0.12) 2.21 2.09 -- (2.11) (2.11) 17.78 12.92 41,904
9/30/97......... 17.78 (0.15) 3.83 3.68 -- (0.80) (0.80) 20.66 21.54 46,051
9/30/98......... 20.66 (0.13) (0.78) (0.91) -- (3.53) (3.53) 16.22 (4.20) 38,437
<CAPTION>
Class B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/04/93-
9/30/94(/4/)... $18.12 $0.03 $(1.80) $(1.77) $ -- $(2.65) $(2.65) $13.70 $(10.56)% $4,039
9/30/95......... 13.70 (0.18) 4.08 3.90 (0.02) -- (0.02) 17.58 28.55 9.544
9/30/96......... 17.58 (0.24) 2.18 1.94 -- (2.11) (2.11) 17.41 12.16 13,784
9/30/97......... 17.41 (0.28) 3.73 3.45 -- (0.80) (0.80) 20.06 20.65 13,779
9/30/98......... 20.06 (0.25) (0.76) (1.01) -- (3.53) (3.53) 15.52 (4.93) 10,027
<CAPTION>
Ratio of net
investment
Ratio of income
expenses (loss)
Period to average to average Portfolio
Ended net assets net assets turnover
- ------ ------------------ -------------------- ---------
<S> <C> <C> <C>
9/30/94......... 1.76% 0.28% 555%
9/30/95......... 1.66 (0.51) 392
9/30/96......... 1.62 (0.69) 307
9/30/97......... 1.64 (0.84) 332
9/30/98......... 1.62 (0.75) 377
<CAPTION>
<S> <C> <C> <C>
10/04/93-
9/30/94(/4/)... ___2.43%(/3/)(/5/)_____0.20%(/3/)(/5/)____ 555%
9/30/95......... 2.31(/5/) (0.17)(/5/) 392
9/30/96......... 2.32 (1.43) 307
9/30/97......... 2.35 (1.56) 332
9/30/98......... 2.33 (1.45) 377
</TABLE>
- ----
(1) Total return is not annualized and does not reflect sales load
(2) Calculated based upon average shares outstanding
(3) Annualized
(4) Commencement of sale of respective class of shares
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
9/30/94 9/30/95
------- -------
<S> <C> <C>
Mid-Cap Growth Class B....................... .48% .17%
</TABLE>
11
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
Net
gain (loss)
Net on invest- Total Dividends Distri-
Net Asset invest- ments (both from from net butions Net Asset Net Assets
Value, ment realized invest- invest- from Total Value, end of
Period beginning income and ment ment capital distri- end of Total period
Ended of period (loss)(/1/) unrealized) operations income gains butions period Return(/2/) (000's)
- ------ --------- ----------- ----------- ---------- --------- ------- ------- --------- ----------- ----------
Class A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/94......... $19.78 $(0.10) $(1.40) $(1.50) $ -- $(1.46) $(1.46) $16.82 (7.74)% $38,570
9/30/95......... 16.82 (0.04) 8.28 8.24 -- (0.41) (0.41) 24.65 50.00 89,510
9/30/96......... 24.65 (0.16) 4.29 4.13 -- (4.53) (4.53) 24.25 19.35 158,567
9/30/97......... 24.25 (0.30) 5.18 4.88 -- (0.86) (0.86) 28.27 20.84 185,241
9/30/98......... 28.27 (0.18) (6.59) (6.77) -- (2.40) (2.40) 19.10 (25.00) 105,243
<CAPTION>
Class B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/94......... $19.78 $(0.20) $(1.42) $(1.62) $ -- $(1.46) $(1.46) $16.70 (8.40)% $52,208
9/30/95......... 16.70 (0.16) 8.19 8.03 -- (0.41) (0.41) 24.32 49.08 68,313
9/30/96......... 24.32 (0.29) 4.20 3.91 -- (4.53) (4.53) 23.70 18.60 107,839
9/30/97......... 23.70 (0.44) 5.03 4.59 -- (0.86) (0.86) 27.43 20.08 124,450
9/30/98......... 27.43 (0.33) (6.36) (6.69) -- (2.40) (2.40) 18.34 (25.52) 61,398
<CAPTION>
Class II*
----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/2/98-
9/30/98(/4/)... $21.11 $(0.19) $(2.58) $(2.77) $ -- $ -- $ -- $18.34 (13.12)% $168
<CAPTION>
Ratio of net
investment
Ratio of income
expenses (loss)
Period to average to average Portfolio
Ended net assets net assets turnover
- ------ ------------------ -------------------- ---------
<S> <C> <C> <C>
9/30/94......... 1.67% (0.60)% 411%
9/30/95......... 1.57 (0.22) 351
9/30/96......... 1.53 (0.68) 240
9/30/97......... 1.72 (1.27) 343
9/30/98......... 1.50 (0.79) 292
<CAPTION>
<S> <C> <C> <C>
9/30/94......... 2.31% (1.23)% 411%
9/30/95......... 2.22 (0.84) 351
9/30/96......... 2.16 (1.30) 240
9/30/97......... 2.34 (1.89) 343
9/30/98......... 2.14 (1.44) 292
<CAPTION>
<S> <C> <C> <C>
2/2/98-
9/30/98(/4/)... 2.15%(/3/)(/5/) (1.35)%(/3/)(/5/) 292%
</TABLE>
- ----
(1) Total return is not annualized and does not reflect sales load
(2) Calculated based upon average shares outstanding
(3) Annualized
(4) Commencement of sales of respective class of shares
(5) Net of the following expense reimbursements (based on average net as-
sets):
<TABLE>
<CAPTION>
9/30/98
-------
<S> <C>
Small Company Growth Class II............................ 13.58%
</TABLE>
*Formerly Class C. Class C shares were redesignated Class II shares on De-
cember 1, 1998.
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Net
gain (loss)
Net on invest- Total Dividends Distri-
Net Asset invest- ments (both from from net butions Net Asset Net Assets
Value, ment realized invest- invest- from Total Value, end of
Period beginning income and ment ment capital distri- end of Total period
Ended of period (loss)(/1/) unrealized) operations income gains butions period Return(/2/) (000's)
- ------ --------- ----------- ----------- ---------- --------- ------- ------- --------- ----------- ----------
Class A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7/01/94-
9/30/94(/3/)... $ 7.33 $ 0.07 $ 0.10 $ 0.17 $(0.06) $ -- $(0.06) $ 7.44 2.34% $ 3,098
9/30/95......... 7.44 0.32 1.08 1.40 (0.30) (0.15) (0.45) 8.39 19.53 3,532
9/30/96......... 8.39 0.14 2.50 2.64 (0.17) (0.39) (0.56) 10.47 32.59 21,099
9/30/97......... 10.47 0.05 3.40 3.45 (0.03) (0.44) (0.47) 13.45 34.18 47,219
9/30/98......... 13.45 0.02 0.68 0.70 -- (1.35) (1.35) 12.80 5.53 57,129
<CAPTION>
Class B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7/06/94-
9/30/94(/3/)... $ 7.33 $ 0.05 $ 0.11 $ 0.16 $(0.05) $ -- $(0.05) $ 7.44 2.19% $ 229
9/30/95......... 7.44 0.35 1.03 1.38 (0.28) (0.15) (0.43) 8.39 19.19 2,538
9/30/96......... 8.39 0.08 2.50 2.58 (0.13) (0.39) (0.52) 10.45 31.75 13,903
9/30/97......... 10.45 (0.03) 3.39 3.36 (0.01) (0.44) (0.45) 13.36 33.30 55,530
9/30/98......... 13.36 (0.07) 0.68 0.61 -- (1.35) (1.35) 12.62 4.84 79,004
<CAPTION>
Class II*
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/2/98-
9/30/98(/3/)... $12.78 $(0.04) $(0.13) $(0.17) $ -- $ -- $ -- $12.61 (1.33)% $ 963
<CAPTION>
Ratio of net
investment
Ratio of income
expenses (loss)
Period to average to average Portfolio
Ended net assets net assets turnover
- ------ ------------------ -------------------- ---------
<S> <C> <C> <C>
7/01/94-
9/30/94(/3/)... 1.50%(/4/)(/5/) 3.48%(/4/)(/5/) 8%
9/30/95......... 0.46(/5/) 4.16(/5/) 230
9/30/96......... 0.96(/5/) 1.52(/5/) 161
9/30/97......... 1.38(/5/) 0.45(/5/) 200
9/30/98......... 1.50 0.12 150
<CAPTION>
<S> <C> <C> <C>
7/06/94-
9/30/94(/3/)... 2.15%(/4/)(/5/) 2.86%(/4/)(/5/) 8%
9/30/95......... 0.30(/5/) 4.48(/5/) 230
9/30/96......... 1.58(/5/) 0.73(/5/) 161
9/30/97......... 2.05(/5/) (0.27)(/5/) 200
9/30/98......... 2.13 (0.52) 150
<CAPTION>
<S> <C> <C> <C>
2/2/98-
9/30/98(/3/)... 2.15%(/4/)(/5/) (0.57)%(/4/)(/5/) 150%
</TABLE>
- ----
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net as-
sets):
<TABLE>
<CAPTION>
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Growth and Income Class A......... 4.48% 2.96% 1.01% 0.22% --
Growth and Income Class B......... 20.35% 5.07% 1.14% 0.21% --
Growth and Income Class II........ -- -- -- -- 6.99%
</TABLE>
*Formerly Class C. Class C shares were redesignated Class II shares on De-
cember 1, 1998.
12
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
BALANCED ASSETS FUND
<TABLE>
<CAPTION>
Net
gain (loss)
on invest- Total Dividends Distri-
Net Asset Net ments (both from from net butions Net Asset Net Assets
Value, invest- realized invest- invest- from Total Value, end of
Period beginning ment and ment ment capital distri- end of Total period
Ended of period income(/1/) unrealized) operations income gains butions period Return(/2/) (000's)
- ------ --------- ----------- ----------- ---------- --------- ------- ------- --------- ----------- ----------
Class A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/94......... $15.13 $0.30 $(0.23) $ 0.07 $(0.28) $(0.30) $(0.58) $14.62 0.50% $ 52,098
9/30/95......... 14.62 0.32 2.51 2.83 (0.45) (0.58) (1.03) 16.42 20.68 119,916
9/30/96......... 16.42 0.27 1.39 1.66 (0.28) (0.99) (1.27) 16.81 10.65 147,035
9/30/97......... 16.81 0.31 3.43 3.74 (0.31) (1.75) (2.06) 18.49 24.81 169,201
9/30/98......... 18.49 0.29 1.29 1.58 (0.30) (1.74) (2.04) 18.03 9.32 189,668
<CAPTION>
Class B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/94......... $15.13 $0.20 $(0.23) $(0.03) $(0.18) $(0.30) $(0.48) $14.62 (0.14)% $180,655
9/30/95......... 14.62 0.23 2.51 2.74 (0.36) (0.58) (0.94) 16.42 19.96 162,115
9/30/96......... 16.42 0.17 1.38 1.55 (0.18) (0.99) (1.17) 16.80 9.93 171,197
9/30/97......... 16.80 0.21 3.43 3.64 (0.21) (1.75) (1.96) 18.48 24.09 173,435
9/30/98......... 18.48 0.18 1.28 1.46 (0.19) (1.74) (1.93) 18.01 8.62 165,926
<CAPTION>
Ratio of net
investment
Ratio of income
expenses (loss)
Period to average to average Portfolio
Ended net assets net assets turnover
- ------ ---------- ------------ ---------
<S> <C> <C> <C>
9/30/94......... 1.58% 2.00% 141%
9/30/95......... 1.50 2.13 130
9/30/96......... 1.52 1.63 187
9/30/97......... 1.50 1.86 149
9/30/98......... 1.46 1.59 80
<CAPTION>
<S> <C> <C> <C>
9/30/94......... 2.21% 1.36% 141%
9/30/95......... 2.12 1.59 130
9/30/96......... 2.12 1.03 187
9/30/97......... 2.11 1.26 149
9/30/98......... 2.08 0.97 80
</TABLE>
- ----
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
13
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
SELECTING A SHARE CLASS
Each Fund offers three Classes of shares through this prospectus: Class A,
Class B and Class II shares.
Each class of shares has its own cost structure, so you can choose the one best
suited to your investment needs. Your broker or financial advisor can help you
determine which class is right for you.
Class A Class B Class II
. Front-end sales . No front-end . Front-end sales
charges, as sales charge; charge, as
described below. all your money described below.
There are goes to work for
several ways to you right away. . Higher annual
reduce these expenses than
charges, also . Higher annual Class A shares.
described below. expenses than
Class A shares. . Deferred sales
. Lower annual charge on shares
expenses than . Deferred sales you sell within
Class B or Class charge on shares eighteen months
II shares. you sell within of purchase, as
six years of described below.
purchase, as . No conversion to
described below. Class A.
. Automatic
conversion to
Class A shares
after
approximately
seven years,
thus reducing
future annual
expenses.
CALCULATION OF SALES CHARGES
Class A. Sales Charges are as follows:
<TABLE>
<CAPTION>
Concession to
Sales Charge Dealers
-------------------------------
% of % of Net % of
Offering Amount Offering
Your Investment Price Invested Price
-------------------------------
<S> <C> <C> <C>
Less than $50,000............................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000................. 3.75% 3.90% 3.00%
$250,000 but less than $500,000................. 3.00% 3.09% 2.25%
$500,000 but less than $1,000,000............... 2.10% 2.15% 1.35%
$1,000,000 or more.............................. None None 1.00%
</TABLE>
Investments of $1 million or more: Class A shares are available with no front-
end sales charge. However, there is a 1% CDSC on any shares you sell within one
year of purchase.
Class B. Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a CDSC on shares you sell within six
years of buying them. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
Class B deferred charges:
<TABLE>
<CAPTION>
CDSC on shares being
Years after purchase sold
<S> <C>
1st or 2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
7th year and thereafter None
</TABLE>
For purposes of the CDSC, we count all purchases you make during a calendar
month as having been made on the FIRST day of that month.
Class II. Sales Charges are as follows:
<TABLE>
<CAPTION>
Concession to
Sales Charge Dealers
---------------------------------------------------------------------------------------
% of % of Net % of
Offering Amount Offering
Price Invested Price
---------------------------------------------------------------------------------------
<S> <C> <C>
1.00% 1.01% 1.00%
</TABLE>
There is also a CDSC of 1% on shares you sell within eighteen months after you
buy them.
Determination of CDSC: Each CDSC is based on the original purchase cost or the
current market value of the shares being sold, whichever is less. There is no
CDSC on shares you purchase through reinvestment of dividends. To keep your
CDSC as low as possible, each time you place a request to sell shares we will
first sell any shares in your account that are not subject to a CDSC. If there
are not enough of these shares available, we will sell shares that have the
lowest CDSC.
14
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Waivers for Certain Investors. Various individuals and institutions may pur-
chase Class A shares without front-end sales charges, including:
. financial planners, institutions, broker-dealer representatives or regis-
tered investment advisers utilizing Fund shares in fee-based investment
products under an agreement with the Distributor
. participants in certain retirement plans that meet applicable conditions
. Fund Trustees and other individuals who are affiliated with the Funds or
other SunAmerica Mutual Funds and their families
. selling brokers and their employees and sales representatives and their
families
. participants in "Net Asset Value Transfer Program"
We will generally waive the CDSC for Class B or Class II shares in the follow-
ing cases:
. within one year of the shareholder's death or becoming disabled
. taxable distributions or loans to participants made by qualified retire-
ment plans or retirement accounts (not including rollovers) for which the
Adviser serves as a fiduciary
. Trustees and other individuals who are affiliated with any Fund or other
SunAmerica Mutual Funds and their families
. to make taxable distributions from certain retirement plans
. to make payments through the Systematic Withdrawal Plan (subject to cer-
tain conditions)
Reducing your Class A sales charges. There are several special purchase plans
that allow you to combine multiple purchases of Class A shares of SunAmerica
Mutual Funds to take advantage of the breakpoints in the sales charge schedule.
For information about the "Rights of Accumulation," "Letter of Intent," "Com-
bined Purchase Privilege," and "Reduced Sales Charges for Group Purchases,"
contact your broker or financial advisor, or consult the SAI.
To utilize: if you think you may be eligible for a sales charge reduction or
CDSC waiver, contact your broker or financial advisor.
Reinstatement privilege If you sell shares of a Fund, you may invest some or
all of the proceeds in the same share class of the same Fund within one year
without a sales charge. If you paid a CDSC when you sold your shares, we will
credit your account with the dollar amount of the CDSC at the time of sale. All
accounts involved must be registered in the same name(s).
12b-1 FEES
Each class of shares of each Fund has its own 12b-1 plan that provides for dis-
tribution and service fees (payable to the Distributor) based on a percentage
of average daily net assets, as follows:
<TABLE>
<CAPTION>
Class Distribution Fee Service Fee
<S> <C> <C>
A 0.10% 0.25%
B 0.75% 0.25%
II 0.75% 0.25%
</TABLE>
Because 12b-1 fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much you want to invest. The minimum initial investments for
the Funds are as follows:
.non-retirement account: $500
.retirement account: $250
.dollar cost averaging: $500 to open; you must invest at least $25 a month
The minimum subsequent investments for the Funds are as follows:
.non-retirement account: $100
.retirement account: $25
3. Complete the appropriate parts of the Account Application, carefully follow-
ing the instructions. If you have questions, please contact your broker or
financial advisor or call Shareholder/Dealer Services at 1-800-858-8850.
4. Complete the appropriate parts of the Supplemental Account Application. By
applying for additional investor services now, you can avoid the delay and
inconvenience of having to submit an additional application if you want to
add services later.
5. Make your initial investment using the chart on the next page. You can ini-
tiate any purchase, exchange or sale of shares through your broker or finan-
cial advisor.
15
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
BUYING SHARES
Opening an account Adding to an account
By check
................................................................................
. Make out a check for the . Make out a check for the
investment amount, investment amount payable
payable to the specific to the specific Fund or
Fund or SunAmerica Funds. SunAmerica Funds.
. Deliver the check and . Include the stub from
your completed Account your Fund statement or a
Application (and note specifying the Fund
Supplemental Account name, your share class,
Application, if your account number and
applicable) to your the name(s) in which the
broker or financial account is registered.
advisor, or mail them to:
. Indicate the Fund and
SunAmerica Fund Services, Inc. account number in the
Mutual Fund Operations, memo section of your
3rd Floor check.
The SunAmerica Center
733 Third Avenue . Deliver the check and
New York, New York 10017-3204. your note to your broker
or financial advisor, or
mail them to
Non-Retirement Accounts:
SunAmerica Fund Services, Inc.
c/o NFDS
P.O. Box 419373
Kansas City, Missouri 64141-6373
Retirement Accounts:
SunAmerica Fund Services, Inc.
Mutual Fund Operations,
3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
By wire
................................................................................
. Deliver your completed . Instruct your bank to
application to your wire the amount of your
broker or financial investment to:
advisor or fax it to
SunAmerica Fund Services, State Street Bank & Trust Company
Inc. at 212-551-5585. Boston, MA
ABA #0110-00028
. Obtain your account num- DDA # 99029712
ber by referring to your
statement or by calling
your broker or financial Specify the Fund name, your
advisor or share class, your Fund num-
Shareholder/Dealer Serv- ber, account number and the
ices at 1-800-858-8850, name(s) in which the account
ext. 5125. is registered. Your bank may
charge a fee to wire funds.
. Instruct your bank to
wire the amount of your
investment to:
State Street Bank & Trust Company
Boston, MA
ABA #0110-00028
DDA # 99029712
Specify the Fund name, your
choice of share class, your
new Fund number and account
number and the name(s) in
which the account is regis-
tered. Your bank may charge a
fee to wire funds.
To open or add to an account using dollar cost averaging, see "Additional In-
vestor Services."
16
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES
How Requirements
Through Your Broker or Financial Advisor
................................................................................
. Accounts of any type. . Call your broker or
financial advisor to
. Sales of any amount. place your order to sell
shares.
By mail
................................................................................
. Accounts of any type. . Write a letter of
instruction indicating
. Sales of any amount. the Fund name, your share
class, your account
number, the name(s) in
which the account is
registered and the dollar
value or number of shares
you wish to sell.
. Include all signatures
and any additional
documents that may be
required (see next page).
. A check will normally be
mailed on the next
business day to the
name(s) and address in
which the account is
registered, or otherwise
according to your letter
of instruction.
. Mail the materials to:
SunAmerica Fund Services, Inc.
Mutual Fund Operations,
3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
By phone
................................................................................
. Most accounts. . Call Shareholder/Dealer
Services at 1-800-858-
. Sales of less than 8850 between 8:30 a.m.
$100,000. and 7:00 p.m. (Eastern
time) on most business
days. State the Fund
name, the name of the
person requesting the
redemption, your share
class, your account
number, the name(s) in
which the account is
registered and the dollar
value or number of shares
you wish to sell.
. A check will be mailed to
the name(s) and address
in which the account is
registered, or to a dif-
ferent address indicated
in a written authoriza-
tion previously provided
to the Fund by the share-
holder(s) on the account.
By wire
................................................................................
. Request by mail to sell . Proceeds will normally be
any amount (accounts of wired on the next
any type). business day. A $15 fee
will be deducted from
. Request by phone to sell your account.
less than $100,000.
To sell shares through a systematic withdrawal plan, see "Additional Investor
Services."
17
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
Selling shares in writing. In certain circumstances, you will need to make your
request to sell shares in writing. Corporations, executors, administrators,
trustees or guardians may need to include additional items with a request to
sell shares. You may also need to include a signature guarantee, which protects
you against fraudulent orders. You will need a signature guarantee if:
. your address of record has changed within the past 30 days
. you are selling more than $100,000 worth of shares
. you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
. a broker or securities dealer
. a federal savings, cooperative or other type of bank
. a savings and loan or other thrift institution
. a credit union
. a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
TRANSACTION POLICIES
Valuation of shares. The net asset value per share (NAV) for each Fund and
class is determined each business day at the close of regular trading on the
New York Stock Exchange (generally 4:00 p.m., Eastern time) by dividing the net
assets of each class by the number of its shares outstanding. Investments for
which market quotations are readily available are valued at their price as of
the close of regular trading on the New York Stock Exchange for the day. All
other securities and assets are valued at fair value following procedures ap-
proved by the Trustees.
Buy and sell prices. When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable CDSCs.
Execution of requests. Each Fund is open on those days when the New York Stock
Exchange is open for regular trading. Buy and sell requests are executed at the
next NAV to be calculated after your request is received in proper form by the
Trust. If your order is received by the Trust or the Distributor before a
Fund's close of business (generally 4:00 p.m., Eastern time), you will receive
that day's closing price. If your order is received after that time, you will
receive the next business day's closing price. If you place your order through
a broker or financial advisor, you should make sure the order is transmitted to
the Trust before its close of business. The Trust and the Distributor reserve
the right to reject any order to buy shares.
During periods of extreme volatility or market crisis, a Fund may temporarily
suspend the processing of sell requests, or may postpone payment of proceeds
for up to three business days or longer, as allowed by federal securities laws.
Each Fund may invest to a large extent in securities that are primarily listed
on foreign exchanges that trade on weekends or other days when the Fund does
not price its shares. As a result, the value of a Fund's shares may change on
days when you will not be able to purchase or redeem your shares.
If the Trust determines that it would be detrimental to the best interests of
the remaining shareholders of the Trust to make payment of redemption proceeds
wholly or partly in cash, the Trust may pay the redemption price by a distribu-
tion in kind of securities from the Trust in lieu of cash. However, the Trust
has made an election that requires it to pay a certain portion of redemption
proceeds in cash.
Telephone transactions. For your protection, telephone requests are recorded in
order to verify their accuracy. In addition, Shareholder/Dealer Services will
take measures to verify the identity of the caller, such as asking for name,
account number, social security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, the Trust is responsible
for any losses that may occur to any account due to an unauthorized telephone
call. Also for your protection, telephone transactions are not permitted on ac-
counts whose names or addresses have changed within the past 30 days. At times
of peak activity, it may be difficult to place requests by phone. During these
times, consider sending your request in writing.
Exchanges. You may exchange shares of a Fund for shares of the same class of
any other SunAmerica Mutual Fund. Before making an exchange, you should review
a copy of the prospectus of the fund into which you would like to exchange. All
exchanges are subject to applicable minimum investment requirements. A System-
atic Exchange Program is described under "Additional Investor Services."
If you exchange shares that were purchased subject to a CDSC, the CDSC will
continue to apply following the exchange. In determining the CDSC applicable to
shares being sold after an exchange, we will take into account the length of
time you held those shares prior to the exchange. Your CDSC schedule will not
change if you exchange Class C or Class II shares that you purchased prior to
December 1, 1998 for another Fund's Class II shares (which currently have a
longer CDSC schedule).
To protect the interests of other shareholders, we may cancel the exchange
privileges of any investors that, in the opinion of the Fund, are using market
timing strategies or making excessive exchanges. A Fund may change or cancel
its exchange privilege at any time, upon 60 days' written notice to its share-
holders. A Fund may also refuse any exchange order.
18
<PAGE>
- --------------------------------------------------------------------------------
Certificated shares. Most shares are electronically recorded. If you wish to
have certificates for your shares, please call Shareholder/Dealer Services at
1-800-858-8850 for further information. You may sell or exchange certificated
shares only by returning the certificates to the Funds, along with a letter of
instruction and a signature guarantee. The Funds do not issue certificates for
fractional shares.
Multi-party checks. The Trust may agree to accept a "multi-party check" in pay-
ment for Fund shares. This is a check made payable to the investor by another
party and then endorsed over to the Trust by the investor. If you use a multi-
party check to purchase shares, you may experience processing delays. In addi-
tion, the Trust is not responsible for verifying the authenticity of any en-
dorsement and assumes no liability for any losses resulting from a fraudulent
endorsement.
ADDITIONAL INVESTOR SERVICES
To select one or more of these additional services, complete the relevant
part(s) of the Supplemental Account Application. To add a service to an exist-
ing account, contact your broker or financial advisor, or call
Shareholder/Dealer Services at 1-800-858-8850.
Dollar Cost Averaging lets you make regular investments from your bank account
to the SunAmerica Mutual Funds of your choice. You determine the frequency and
amount of your investments, and you can terminate your participation at any
time.
Systematic Withdrawal Plan may be used for routine bill payment or periodic
withdrawals from your account. To use:
. Make sure you have at least $5,000 worth of shares in your account.
. Make sure you are not planning to invest more money in this account (buy-
ing shares during a period when you are also selling shares of the same
Fund is not advantageous to you, because of sales charges).
. Specify the payee(s) and amount(s). The payee may be yourself or any other
party, and there is no limit to the number of payees you may have, as long
as they are all on the same payment schedule. Each withdrawal must be at
least $50.
. Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
. Make sure your dividends and capital gains are being reinvested.
You cannot elect the systematic withdrawal plan if you have requested certifi-
cates for your shares.
Systematic Exchange Program may be used to exchange shares of a Fund periodi-
cally for the same class of shares of one or more other SunAmerica Mutual
Funds. To use:
. Specify the SunAmerica Mutual Fund(s) from which you would like money
withdrawn and into which you would like money invested.
. Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
. Specify the amount(s). Each exchange must be worth at least $25.
. Accounts must be registered identically; otherwise a signature guarantee
will be required.
Asset Protection Plan (optional) Anchor National Life Insurance Company offers
an Asset Protection Plan to certain investors in the Funds. The benefits of
this optional coverage payable at death will be related to the amounts paid to
purchase Fund shares and to the value of the Fund shares held for the benefit
of the insured persons. However, to the extent the purchased shares are re-
deemed prior to death, coverage with respect to these shares will terminate.
Purchasers of the Asset Protection Plan are required to authorize periodic re-
demptions of Fund shares to pay the premiums for this coverage. These redemp-
tions will not be subject to CDSCs but will have the same tax consequences as
any other Fund redemptions.
The Asset Protection Plan will be available to eligible persons who enroll for
the coverage within a limited time period after shares in any Fund are
initially purchased or transferred. In addition, coverage cannot be made
available unless Anchor National knows for whose benefit shares are purchased.
For instance, coverage cannot be made available for shares registered in the
name of your broker unless the broker provides Anchor National with information
regarding the beneficial owners of the shares. In addition, coverage is
available only to shares purchased on behalf of natural persons between 21 and
75 years of age; coverage is not available with respect to shares purchased for
a retirement account. Other restrictions on the coverage apply. This coverage
may not be available in all states and may be subject to additional
restrictions or limitations. Purchasers of shares should also make themselves
familiar with the impact on the Asset Protection Plan coverage of purchasing
additional shares, reinvestment of dividends and capital gains distributions
and redemptions.
Anchor National is a SunAmerica company.
Please call 1-800-858-8850 for more information, including the cost of the As-
set Protection Plan option.
19
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
Retirement plans. SunAmerica Mutual Funds offer a range of qualified retirement
plans, including IRAs, Roth IRAs, Simple IRAs, SARSEPs, 401(k) plans, 403(b)
plans and other pension and profit-sharing plans. Using these plans, you can
invest in any SunAmerica Mutual Fund with a low minimum investment of $250 or,
for some group plans, no minimum investment at all. To find out more, call
Shareholder/Dealer Services at 1-800-858-8850.
TAX, DIVIDEND AND ACCOUNT POLICIES
Account statements. In general, you will receive account statements as follows:
. after every transaction that affects your account balance (except a divi-
dend reinvestment or automatic purchase from your bank account)
. after any changes of name or address of the registered owner(s)
. in all other circumstances, quarterly or annually, depending upon the Fund
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends. The Funds generally distribute most or all of their net earnings in
the form of dividends. Income dividends, if any, are paid quarterly by the
Growth and Income Fund and Balanced Assets Fund, and annually by the other
Funds. Capital gains distributions, if any, are paid annually by the Funds.
Dividend Reinvestments. Your dividends and distributions, if any, will be auto-
matically reinvested in additional shares of the same Fund and share class on
which they were paid. Alternatively, dividends and distributions may be rein-
vested in any other SunAmerica Mutual Fund or paid in cash (if more than $10).
You will need to complete the relevant part of the Account Application to elect
one of these other options. For existing accounts, contact your broker or fi-
nancial advisor or call Shareholder/Dealer Services at 1-800-858-8850 to change
dividend and distribution payment options.
Taxability of dividends. Each Fund intends to continue to qualify for the spe-
cial tax treatment afforded regulated investment companies. As long as each
Fund so qualifies, the Funds will not be subject to federal income tax on the
earnings that it distributes to shareholders.
However, dividends you receive from a Fund, whether reinvested or taken as
cash, are generally considered taxable to you. Distributions of a Fund's long-
term capital gains are taxable as capital gains; dividends from other sources
are generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the pre-
vious December. Corporations may be entitled to take a dividends-received de-
duction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions. Any time you sell or exchange shares, it is consid-
ered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions. If you hold Class B shares, you will not have a taxable event
when they convert into Class A shares.
Other Tax Considerations. If you are neither a lawful permanent resident nor a
citizen of the U.S. or if you are a foreign entity, ordinary income dividends
paid to you (which include distributions of net short-term capital gains) will
generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate
applies.
By law, each Fund must withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or social security number.
This section summarizes some of the consequences under current federal tax law
of an investment in a Fund. It is not a substitute for professional tax advice.
Consult your tax advisor about the potential tax consequences of an investment
in a Fund under all applicable laws.
Small accounts. If you draw down an account so that its total value is less
than $500 ($250 for retirement plan accounts), you may be asked to purchase
more shares within 60 days. If you do not take action, the Trust may close out
your account and mail you the proceeds. Alternatively, you may be charged a
$2.00 monthly charge to maintain your account. Your account will not be closed
if its drop in value is due to Fund performance or the effects of sales
charges.
20
<PAGE>
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(THIS PAGE INTENTIONALLY LEFT BLANK)
21
<PAGE>
More Information About the Funds
- --------------------------------------------------------------------------------
FUND INVESTMENT STRATEGIES
Each Fund has its own investment goal and a strategy for pursuing it. The
chart summarizes information about each Fund's investment approach. We have
included a glossary to define the investment and risk terminology used in
the chart.
<TABLE>
<CAPTION>
Blue Chip Mid-cap
Growth Growth
<S> <C> <C>
What is the Fund's Capital appreciation Capital appreciation
investment goal?
- -----------------------------------------------------------------------------
What are the Fund's growth growth
principal investment
strategies?
- -----------------------------------------------------------------------------
What are the Fund's . active trading of . active trading of
principal investment stocks of large stocks of medium
techniques? companies that offer sized companies
the potential for that offer the
capital appreciation potential for
capital
appreciation
- -----------------------------------------------------------------------------
What are the Fund's . stocks of large . stocks of medium-
principal investments (under companies (at least sized companies
normal market conditions)? 65% of total assets) (at least 65% of
total assets)
- -----------------------------------------------------------------------------
What are the Fund's . stock market . stock market
principal risks? volatility volatility
. securities selection . securities
selection
. small market
capitalization
- -----------------------------------------------------------------------------
What other investment
strategies can the Fund use?
.Fixed income securities
Investment grade Yes Yes
Junk bonds No No
. Small company stocks Yes Yes
. Short-term investments Yes (up to 10%) Yes (up to 10%)
. Defensive investments Yes Yes
. Foreign securities Yes Yes
. Illiquid securities Yes (up to 15%) Yes (up to 15%)
. Securities lending Yes (up to 33 1/3%) Yes (up to 33 1/3%)
. Borrowing for temporary or Yes (up to 5%) Yes (up to 5%)
emergency purposes
. Options and futures Yes Yes
. Special situations Yes Yes
- -----------------------------------------------------------------------------
What other potential risks .foreign exposure .foreign exposure
can affect a Fund? .interest rate .interest rate
fluctuations fluctuations
.credit quality .credit quality
.small market .illiquidity
capitalization .derivatives
.illiquidity .hedging
.derivatives .emerging markets
.hedging .euro conversion
.emerging markets
.euro conversion
</TABLE>
22
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Company Growth and Balanced
Growth Income Assets
<S> <C> <C>
Capital Capital appreciation and Conservation of principal
appreciation current income and capital appreciation
- -------------------------------------------------------------------------------
growth growth and value asset allocation and
growth
- -------------------------------------------------------------------------------
. active trading . active trading of stocks . active trading of stocks
of stocks of that pay dividends that offer the potential
small . active trading of for capital appreciation
companies that stocks that offer . purchase high-quality
offer the the potential for bonds
potential for capital appreciation
capital . active trading of stocks
appreciation that are believed to be
undervalued
- -------------------------------------------------------------------------------
. stocks of . stocks . stocks and bonds (at
small least 25% of total
companies (at assets will be
least 65% of invested in
total assets) senior fixed-income
securities)
- -------------------------------------------------------------------------------
. stock market . stock market volatility . stock and bond market
volatility . securities selection volatility
. securities . securities selection
selection . interest rate
. small market fluctuations
capitalization . credit quality
- -------------------------------------------------------------------------------
Yes Yes see principal investments
above
No Yes (up to 15%) No
see principal Yes Yes (up to 20%)
investments
above
Yes (up to 10%) Yes (up to 10%) Yes (up to 10%)
Yes Yes Yes
Yes Yes Yes
Yes (up to 15%) Yes (up to 15%) Yes (up to 15%)
Yes (up to 33 Yes (up to 33 1/3%) Yes (up to 33 1/3%)
1/3%)
Yes (up to 5%) Yes (up to 5%) Yes (up to 5%)
Yes Yes Yes
Yes Yes Yes
- -------------------------------------------------------------------------------
. foreign . foreign exposure . foreign exposure
exposure . interest rate . small market
. interest rate fluctuations capitalizations
fluctuations . credit quality . illiquidity
. credit quality . small market . derivatives
. illiquidity capitalizations . hedging
. derivatives . junk bonds . emerging markets
. hedging . illiquidity . euro conversion
. emerging . derivatives
markets . hedging
. euro conversion . emerging markets
. euro conversion
</TABLE>
23
<PAGE>
More Information About the Funds
- --------------------------------------------------------------------------------
GLOSSARY
Large companies and medium-sized companies generally have a substantial
record of operations (i.e., in business for at least five years) and are
listed for trading on the New York Stock Exchange or another national or
international stock exchange or, in some cases, are traded over the
counter. Small companies generally will be companies that have been in
business for a shorter period of time.
The two best-known debt rating agencies are Standard & Poor's Rating
Services, a Division of The McGraw-Hill Companies, Inc. and Moody's
Investors Service, Inc. "Investment grade" refers to any security rated
"BBB" or above by Standard & Poor's or "Baa" or above by Moody's.
INVESTMENT TERMINOLOGY
Capital appreciation is growth of the value of an investment.
Conservation of principal means investing in a manner that tries to protect the
value of an investment against market movements and other economic events.
Active trading means that a Fund may engage in frequent trading of portfolio
securities to achieve its investment goal. In addition, because a Fund may sell
a security without regard to how long it has held the security, active trading
may have tax consequences for certain shareholders, involving a possible in-
crease in short-term capital gains or losses. Active trading may result in high
portfolio turnover and correspondingly greater brokerage commissions and other
transaction costs, which will be borne directly by a Fund. During periods of
increased market volatility, active trading may be more pronounced.
Asset allocation means investing in a manner that divides investments among
different classes of assets, such as stocks and bonds.
Large companies have market capitalizations of over $5 billion. A "blue chip"
stock is one issued by a large company that the Adviser considers comparable to
the stocks included in the Standard & Poor's 500 Composite Stock Price Index at
the time of purchase and is traded on the New York Stock Exchange, American
Stock Exchange or on other national exchanges or on foreign exchanges.
Medium-sized companies have market capitalizations ranging from $1 billion to
$5 billion.
Small companies have market capitalizations of $1 billion or less.
Fixed income securities provide consistent interest or dividend payments. They
include corporate bonds, notes, debentures, preferred stocks, convertible secu-
rities, U.S. government securities and mortgage-backed and asset-backed securi-
ties. The issuer of a senior fixed income security is obligated to make pay-
ments on this security ahead of other payments to security holders. An invest-
ment grade fixed income security is rated in one of the top four ratings cate-
gories by a debt rating agency (or is considered of comparable quality by the
Adviser).
A "junk bond" is a high yield, high risk bond that does not meet the credit
quality standards of investment grade securities.
Short-term investments include money market securities such as short-term U.S.
government obligations, repurchase agreements, commercial paper, bankers' ac-
ceptances and certificates of deposit. These securities provide a Fund with
sufficient liquidity to meet redemptions and cover expenses.
Defensive investments include high quality fixed income securities and money
market instruments. A Fund will make temporary defensive investments in re-
sponse to adverse market, economic, political or other conditions. When a Fund
takes a defensive position, it may miss out on investment opportunities that
could have resulted from investing in accordance with its principal investment
strategy. As a result, a Fund may not achieve its investment goal.
Foreign securities are issued by companies located outside of the United States
including emerging markets. Foreign securities may include American Depositary
Receipts (ADRs) or other similar securities that convert into foreign securi-
ties, such as European Depository Receipts (EDRs) and Global Depository Re-
ceipts (GDRs).
Illiquid securities are subject to legal or contractual restrictions that may
make them difficult to sell. A security that cannot easily be sold within seven
days will generally be considered illiquid. Certain restricted securities (such
as Rule 144A securities) are not generally considered illiquid because of their
established trading market.
Securities lending involves a loan of securities by a Fund in exchange for cash
or collateral. The Fund earns interest on the loan while retaining ownership of
the security.
A Fund may borrow for temporary or emergency purposes including to meet redemp-
tions. Borrowing may exaggerate changes in the net asset value of Fund shares
and in the yield on a Fund's portfolio. Borrowing will cost a Fund interest ex-
pense and other fees. The cost of borrowing may reduce a Fund's return.
A derivative instrument is a contract whose value is based on the performance
of an underlying asset, such as an option or a future.
Options and futures are contracts involving the right to receive or obligation
to deliver assets or money depending on the performance of one or more under-
lying assets or a market or economic index.
A special situation arises when, in the opinion of the Adviser, the securities
of a particular issuer will be recognized and appreciated in value due to a
specific development with respect to that issuer. Developments creating a spe-
cial situation might include, among others, a new product or process, a techno-
logical breakthrough, a management change or other extraordinary corporate
event, or differences in market supply of and demand for the security. Invest-
ments in special situations may carry an additional risk of loss in the event
that the anticipated development does not occur or does not attract the ex-
pected attention.
24
<PAGE>
- --------------------------------------------------------------------------------
RISK TERMINOLOGY
Market volatility: The stock and/or bond markets as a whole could go up or down
(sometimes dramatically). This could affect the value of the securities in a
Fund's portfolio.
Securities selection: A strategy used by a Fund, or securities selected by its
portfolio manager, may fail to produce the intended return.
Small market capitalization: Companies with smaller market capitalizations
(particularly under $1 billion) tend to be at early stages of development with
limited product lines, market access for products, financial resources, access
to new capital, or depth in management. It may be difficult to obtain reliable
information and financial data about these companies. Consequently, the securi-
ties of smaller companies may not be as readily marketable and may be subject
to more abrupt or erratic market movements.
Foreign exposure: Investors in foreign countries are subject to a number of
risks. A principal risk is that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. In ad-
dition, there may be less publicly available information about a foreign com-
pany and it may not be subject to the same uniform accounting, auditing and fi-
nancial reporting standards as U.S. companies. Foreign governments may not reg-
ulate securities markets and companies to the same degree as in the U.S. For-
eign investments will also be affected by local political or economic develop-
ments and governmental actions. Consequently, foreign securities may be less
liquid, more volatile and more difficult to price than U.S. securities. These
risks are heightened when the issuer is in an emerging market.
Interest rate fluctuations: Volatility of the bond market is due principally to
changes in interest rates. As interest rates rise, bond prices typically fall;
and as interest rates fall, bond prices typically rise. Longer-term and lower
coupon bonds tend to be more sensitive to changes in interest rates.
Credit quality: The creditworthiness of the issuer is always a factor in ana-
lyzing fixed income securities. An issuer with a lower credit rating will be
more likely than a higher rated issuer to default or otherwise become unable to
honor its financial obligations. This type of issuer will typically issue junk
bonds. In addition to the risk of default, junk bonds may be more volatile,
less liquid, more difficult to value and more susceptible to adverse economic
conditions or investor perceptions than other bonds.
Illiquidity: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.
Derivatives: Derivatives are subject to general risks relating to heightened
sensitivity to market volatility, interest rate fluctuations, illiquidity and
creditworthiness of the counterparty to the derivatives transactions,
Hedging: Hedging is a strategy in which the Adviser uses a derivative security
to reduce certain risk characteristics of an underlying security or portfolio
of securities. While hedging strategies can be very useful and inexpensive ways
of reducing risk, they are sometimes ineffective due to unexpected changes in
the market. Moreover, while hedging can reduce or eliminate losses, it can also
reduce or eliminate gains.
Emerging market: An emerging market country is one that the World Bank, the In-
ternational Finance Corporation or the United Nations or its authorities has
determined to have a low or middle income economy. Historical experience indi-
cates that the markets of emerging market countries have been more volatile
than more developed markets; however, such markets can provide higher rates of
return to investors.
Euro conversion: Effective January 1, 1999, several European countries irrevo-
cably fixed their existing national currencies to a new single European cur-
rency unit, the "euro." Certain European investments may be subject to addi-
tional risks as a result of this conversion. These risks include adverse tax
and accounting consequences, as well as difficulty in processing transactions.
SunAmerica is aware of such potential problems and is coordinating efforts to
prevent or alleviate their adverse impact on the Funds. There can be no assur-
ance that a Fund will not suffer any adverse consequences as a result of the
euro conversion.
25
<PAGE>
Fund Management
- --------------------------------------------------------------------------------
Adviser. SunAmerica Asset Management Corp., which was organized in 1982 under
the laws of Delaware, selects and manages the investments, provides various ad-
ministrative services, and supervises the daily business affairs of each Fund.
In addition to managing the Funds, the Adviser serves as adviser, manager
and/or administrator for Anchor Pathway Fund, Anchor Series Trust, Style Select
Series, Seasons Series Trust, SunAmerica Income Funds, SunAmerica Money Market
Funds, Inc., and SunAmerica Series Trust. The Adviser managed, advised or ad-
ministered assets in excess of $15 billion as of October 31, 1998.
For the fiscal year ended September 30, 1998, each Fund paid the Adviser a fee
equal to the following percentage of average daily net assets:
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
Blue Chip Growth 0.75%
Mid-Cap Growth 0.75%
Small Company Growth 0.75%
Growth and Income 0.75%
Balanced Assets 0.75%
</TABLE>
The Domestic Equity Investment Team is responsible for the portfolio management
of each of the Funds. Also, the Fixed Income Investment Team is responsible for
the portfolio management of a portion of the Balanced Assets Fund and assists
the portfolio management of each Fund. Together, the Teams consist of sixteen
portfolio managers, research analysts and traders.
Distributor. SunAmerica Capital Services, Inc. distributes each Fund's shares.
The Distributor, a SunAmerica company, receives the initial and deferred sales
charges, all or a portion of which may be re-allowed to other broker-dealers.
In addition, the Distributor receives fees under each Fund's 12b-1 plans.
The Distributor, at its expense, may from time to time provide additional com-
pensation to broker-dealers (including in some instances, affiliates of the
Distributor) in connection with sales of shares of a Fund. This compensation
may include (i) full re-allowance of the front-end sales charge on Class A
shares; (ii) additional compensation with respect to the sale of Class A, Class
B or Class II shares; or (iii) financial assistance to broker-dealers in con-
nection with conferences, sales or training programs for their employees, semi-
nars for the public, advertising campaigns regarding one or more of the Funds,
and/or other broker-dealer sponsored special events. In some instances, this
compensation will be made available only to certain broker-dealers whose repre-
sentatives have sold a significant number 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 sport-
ing 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 compensa-
tion may be prohibited by applicable law or the rules of any self-regulatory
agency, such as the National Association of Securities Dealers. Dealers who re-
ceive 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 Distributor based upon the advice of counsel, these laws and regulations
do not prohibit such depository institutions from providing other services to
investment companies of the type contemplated by the Funds' 12b-1 plans. Banks
and other financial services firms may be subject to various state laws regard-
ing these services, and may be required to register as dealers pursuant to
state law.
Administrator. SunAmerica Fund Services, Inc. assists the Funds' transfer agent
in providing shareholder services. The Administrator, a SunAmerica company, is
paid a monthly fee by each Fund for its services at the annual rate of .22% of
average daily net assets. This fee represents the full cost of providing share-
holder and transfer agency services to the Trust.
The Adviser, Distributor and Administrator are all located in The SunAmerica
Center, 733 Third Avenue, New York, New York 10017.
Year 2000. Many computer and computer-based systems cannot distinguish the year
2000 from the year 1900 because of the way they encode and calculate dates
(commonly known as the "Year 2000 Issue"). The Year 2000 Issue could poten-
tially have an adverse impact on the handling of security trades, the payment
of interest and dividends, pricing and account services. We recognize the im-
portance of the Year 2000 Issue and are taking appropriate steps necessary in
preparation for the year 2000. The Trust's management fully anticipates that
their systems will be adapted in time for the year 2000, and to further this
goal they have coordinated a plan to repair, adapt or replace their systems as
necessary. They have also obtained representations from their outside service
providers that they are doing the same. The Trust's management completed their
plan significantly by the end of the 1998 calendar year and expects to perform
appropriate systems testing during the 1999 calendar year. If the problem has
not been fully addressed, however, the Trust could be negatively impacted. The
Year 2000 Issue could also have a negative impact on the companies in which the
Trust invests, which could hurt the Trust's investment returns.
26
<PAGE>
For More Information
- --------------------------------------------------------------------------------
The following documents contain more information about the Funds and are avail-
able free of charge upon request:
Annual and Semiannual Reports. Contain financial statements, performance
data and information on portfolio holdings. The reports also contain a writ-
ten analysis of market conditions and investment strategies that signifi-
cantly affected a Fund's performance during the applicable period.
Statement of Additional Information (SAI). Contains additional information
about the Funds' policies, investment restrictions and business structure.
This prospectus incorporates the SAI by reference.
You may obtain copies of these documents or ask questions about the Funds by
contacting:
SunAmerica Fund Services, Inc.
Mutual Fund Operations
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
1-800-858-8850
or
by calling your broker or financial advisor.
Information about the Funds (including the SAI) can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission, Washing-
ton, D.C. Call (800) SEC-0330 for information on the operation of the Public
Reference Room. Information about the Funds is also available on the Securities
and Exchange Commission's web-site at http://www.sec.gov and copies may be ob-
tained upon payment of a duplicating fee by writing the Public Reference Sec-
tion of the Securities and Exchange Commission, Washington, D.C. 20549-6009.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with any different information.
[LOGO APPEARS HERE] SUN AMERICA
MUTUAL FUNDS
DISTRIBUTOR: SunAmerica Capital Services
INVESTMENT COMPANY ACT
File No. 811-4801
<PAGE>
January 29, 1999 PROSPECTUS
- --------------------------------------------------------------------------------
"DOGS" OF WALL STREET FUND
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
[SUNAMERICA MUTUAL FUNDS LOGO APPEARS HERE]
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FUND HIGHLIGHTS........................................ 2
FINANCIAL HIGHLIGHTS................................... 5
PERFORMANCE OF "DOGS" OF WALL STREET MODEL STRATEGY ... 6
SHAREHOLDER ACCOUNT INFORMATION........................ 8
MORE INFORMATION ABOUT THE FUND........................ 17
Fund Investment Strategies........................... 17
FUND MANAGEMENT........................................ 20
[LOGO OF SUNAMERICA MUTUAL FUNDS APPEARS HERE]
</TABLE>
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
Q&A
The Fund's stock
selection
criteria is
designed to
implement a
"value" oriented
philosophy of
investing
principally that
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 and have
been generally
overlooked by
the market.
Market capitalization
represents the
total market
value of the
outstanding
securities of a
corporation.
The following questions and answers are designed to give you an overview of the
Fund and to provide you information about its investment goal and principal
strategies. The Fund operates as a separate mutual fund and has its own invest-
ment goal and a strategy for pursuing it. There can be no assurance that the
Fund's investment goal will be met or that the net return on an investment in
the Fund will exceed what could have been obtained through other investment or
savings vehicles. More complete investment information is provided in the
chart, under "More Information About the Fund," which is on page 17, and the
glossary that follows on page 18.
B:What are the Fund's investment goals, strategies and techniques?
A:
<TABLE>
<CAPTION>
Principal
Investment Investment Principal Investment
Goal Strategy Techniques
<C> <C> <S>
total return (including capital appreciation growth and employ a "buy and hold"
and current income) value strategy with thirty
high dividend yielding
common stocks selected
annually from the Dow
Jones Industrial Average
and the broader market
</TABLE>
The Fund annually selects thirty high dividend yielding common stocks, con-
sisting of (1) the ten highest yielding stocks in the Dow Jones Industrial
Average and (2) the twenty other highest yielding stocks of the 400 largest
industrial companies in the U.S. markets that have market capitalizations of
at least $1 billion and have received one of the two highest rankings from
an independently published common stock ranking service on the basis of
growth and stability of earnings and dividends. The annual selection of the
thirty stocks that meet these criteria will take place no later than January
15, on the basis of information as of the preceding December 31st. Immedi-
ately after the Fund buys and sells stocks, it will hold an equal value of
each of the thirty stocks. In other words, the Fund will invest 1/30 of its
assets in each of the stocks that make up its portfolio. Thereafter, when an
investor purchases shares of the Fund, the Adviser will invest the addi-
tional funds in the pre-selected stocks based on each stock's respective
percentage of the Fund's assets.
The Fund employs a "buy and hold strategy." This means that the stocks in
the Fund's portfolio over the course of the year will not change, even if
there are adverse developments concerning a particular stock, an industry,
the economy or the stock market generally. However, due to purchases and re-
demptions of Fund shares during the year and changes in the market value of
the stocks held by the Fund, it is likely that the weightings of the stocks
in the Fund's portfolio will fluctuate throughout the course of the year.
Q:What are the principal risks of investing in the Fund?
A: The following section describes the principal risks of the Fund, while the
chart on page 17 describes various additional risks.
Risks of Investing in Equity Securities
The Fund invests primarily in equity securities. As with any equity fund,
the value of your investment in the Fund may fluctuate in response to stock
market movements. You should be aware that the performance of different
types of equity stocks may rise or decline under varying market condi-
tions--for example, "value" stocks may perform well under circumstances in
which "growth" stocks in general have fallen. In addition, individual
stocks selected for the Fund may underperform the market generally.
Risks of a "Disciplined Strategy"
The Fund will not deviate from its strategy (except to the extent necessary
to comply with federal tax laws). If the Fund is committed to a strategy
that is unsuccessful, the Fund will not meet its investment goal. Because
the Fund will not use certain techniques
2
<PAGE>
- --------------------------------------------------------------------------------
available to other mutual funds to reduce stock market exposure, the Fund
may be more susceptible to general market declines than other mutual funds.
Risks of Investing in a "Non-Diversified" Fund
The Fund is organized as a "non-diversified" fund. As a non-diversified
fund, the Fund can invest a larger portion of assets in the stock of a sin-
gle company than can some other mutual funds; by concentrating in a smaller
number of stocks, the Fund's risk is increased because the effect of each
stock on the Fund's performance is greater.
Additional Principal Risks
Shares of the Fund are not bank deposits and are not guaranteed or insured
by any bank, government entity or the Federal Deposit Insurance Corpora-
tion. As with any mutual fund, there is no guarantee that the Fund will be
able to achieve its investment goals. If the value of the assets of the
Fund goes down, you could lose money.
Q:What are the Fund's expenses?
A: The following table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
<TABLE>
<CAPTION>
"Dogs" of Wall
Street Fund
--------------
Class A Class B Class II
------- ------- --------
<S> <C> <C> <C>
Shareholder Fees (fees paid
directly
from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)(/1/) 5.75% None 1.00%
Maximum Deferred Sales Charge
(Load)
(as a percentage of amount
redeemed)(/2/) None 4.00% 1.00%
Maximum Sales Charge (Load)
Imposed on
Reinvested Dividends None None None
Redemption Fee(/3/)(/4/) 1.50% 1.50% 1.50%
Exchange Fee(/3/) 1.50% 1.50% 1.50%
Maximum Account Fee None None None
Annual Fund Operating Expenses
(expenses that are deducted from
Fund assets)
Management Fees 0.35% 0.35% 0.35%
Distribution (12b-1) Fees(/5/) 0.35% 1.00% 1.00%
Other Expenses 0.68% 0.83% 0.75%
Total Annual Fund Operating
Expenses 1.38% 2.18% 2.10%
Expense Reimbursement(/6/) 1.285% 0.58% 0.58%
Net Expenses 0.095% 1.60% 1.60%
</TABLE>
(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1 million or more.
(2) Purchases of Class A shares over $1 million will be subject to a contingent
deferred sales charge (CDSC) on redemptions made within one year of pur-
chase. The CDSC on Class B shares applies only if shares are redeemed
within six years of their purchase. The CDSC on Class II shares applies
only if shares are redeemed within eighteen months of their purchase.
(3) If shares are redeemed or exchanged within 90 days of purchase, a 1.50% fee
will be assessed on the proceeds of the transaction. This fee will be paid
to the Fund.
(4) A $15.00 fee may be imposed on wire redemptions.
3
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
(5) Because these fees are paid out of the Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost
you more than paying other types of sales charges.
(6) The Trustees, including a majority of the Independent Trustees, approved
the Investment Advisory and Management Agreement subject to the net expense
ratios set forth above. The Adviser may not increase such ratios without
the approval of the Trustees, including a majority of the Independent
Trustees. The Trustees, including a majority of the Independent Trustees,
may terminate the expense waivers and fee reimbursements at any time.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
"Dogs" of Wall Street Fund
(Class A shares)............................... $707 $987 $1,287 $2,137
(Class B shares)*.............................. 621 982 1,369 2,216
(Class II shares).............................. 411 751 1,218 2,507
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
"Dogs" of Wall Street Fund
(Class A shares)............................... $707 $987 $1,287 $2,137
(Class B shares)*.............................. 221 682 1,169 2,216
(Class II shares).............................. 311 751 1,218 2,507
</TABLE>
- ------
* Class B shares convert to Class A shares approximately seven years after pur-
chase. Therefore, expense information for years 8, 9 and 10 is the same for
both Class A and B shares.
4
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The Financial Highlights table for the Fund is intended to help you understand
the Fund's financial performance since inception. Certain information reflects
financial results for a single Fund share. The total returns in each table rep-
resent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, are included in the Statement of Addi-
tional Information (SAI), which is available upon request.
<TABLE>
<CAPTION>
Net
gain (loss)
Net on invest- Total Dividends Distri-
Net Asset invest- ments (both from from net butions Net Asset Net Assets
Value, ment realized invest- invest- from Total Value, end of
Period beginning income and ment ment capital distri- end of Total period
Ended of period (/1/) unrealized) operations income gains butions period Return(/2/) (000's)
- ------ --------- ------- ----------- ---------- --------- ------- ------- --------- ----------- ----------
Class A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/08/98-
9/30/98(/3/).... $12.50 $0.07 $(1.51) $(1.44) $ -- $ -- $ -- $11.06 (11.52)% $16,672
<CAPTION>
Class B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/08/98-
9/30/98(/3/).... $12.50 $0.04 $(1.51) $(1.47) $ -- $ -- $ -- $11.03 (11.76)% $19,734
<CAPTION>
Class II
--------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/08/98-
9/30/98(/3/).... $12.50 $0.04 $(1.51) $(1.47) $ -- $ -- $ -- $11.03 (11.76)% $20,108
<CAPTION>
Ratio of net
investment
Ratio of income
expenses (loss)
Period to average to average Portfolio
Ended net assets net assets turnover
- ------ ------------------ ------------------- ---------
<S> <C> <C> <C>
6/08/98-
9/30/98(/3/).... 0.95%(/4/)(/5/) 1.78%(/4/)(/5/) 0%
<CAPTION>
<S> <C> <C> <C>
6/08/98-
9/30/98(/3/).... 1.60%(/4/)(/5/) 1.39%(/4/)(/5/) 0%
<CAPTION>
<S> <C> <C> <C>
6/08/98-
9/30/98(/3/).... 1.60%(/4/)(/5/) 1.45%(/4/)(/5/) 0%
</TABLE>
- ------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net as-
sets):
<TABLE>
<CAPTION>
9/30/98
-------
<S> <C>
Class A............................................... 0.43%
Class B............................................... 0.58
Class II.............................................. 0.50
</TABLE>
5
<PAGE>
Performance of "Dogs" of Wall Street Model Strategy
- --------------------------------------------------------------------------------
The following tables give some illustration of the risks of investing in the
Fund by comparing the actual performance of the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500"), the hypothetical results of a model strategy
employing the same stock selection criteria as the Fund, rebalanced annually,
for the historical periods indicated, and the actual performance of the Fund.
The S&P 500 is used as the performance comparison because (1) it is the perfor-
mance benchmark against which the Fund will be measured; and (2) it is the in-
dex 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 model strategy for
the following reasons: the Fund may not be fully invested at all times; appre-
ciation 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 cause the Adviser to
buy and sell stocks for the Fund between annual rebalancings; and the Adviser
may modify slightly the Fund's investment strategy as federal tax laws require.
However, except as described above, the Adviser can presently foresee no cir-
cumstances that would cause deviation from the stock selection criteria used in
managing the Fund. All returns contained in the tables below reflect reinvest-
ment of dividends and other earnings. The hypothetical results of the model
strategy are based on statistical data gathered by the Adviser.
Performance Comparison of S&P 500 and
Hypothetical and Actual Results of the Strategy for "Dogs" of Wall Street Fund
December 31, 1988 - December 31, 1998
The following tables represent the hypothetical performance obtained by apply-
ing the Fund's stock selection criteria retroactively to June 7, 1998, and the
Fund's actual performance from June 8, 1998 to December 31, 1998. The perfor-
mance of the stock selection criteria does not represent the performance of the
Fund. The performance of the stock selection criteria reflects the advisory
fees, commissions, expenses or taxes that would be borne by the Fund. Past per-
formance of this stock selection criteria is not predictive of future perfor-
mance of such criteria or of the Fund.
6
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL RESULTS
<TABLE>
<CAPTION>
"Dogs" of Wall Street
Year Ended S&P 500 Strategy--Class B*
<S> <C> <C>
12/31/88 16.56% 32.6%
12/31/89 31.62% 30.6%
12/31/90 -3.10% -2.9%
12/31/91 30.40% 37.6%
12/31/92 7.61% 10.2%
12/31/93 10.06% 10.9%
12/31/94 1.32% 8.5%
12/31/95 37.55% 35.0%
12/31/96 22.95% 19.0%
12/31/97 33.35% 29.5%
12/31/98** 28.57% -0.90%
</TABLE>
SUMMARY RESULTS
<TABLE>
<CAPTION>
"Dogs" of Wall Street
S&P 500 Strategy--Class B*
<S> <C> <C>
Arithmetic average 19.70% 19.10%
1-yr 28.58% -0.90%
3-yr compounded*** 28.22% 15.16%
5-yr compounded*** 24.05% 17.47%
7-yr compounded*** 19.50% 15.45%
10-yr compounded*** 19.20% 16.91%
</TABLE>
* Class B is used because it has the highest fees and expenses
** Includes actual Fund performance from June 8, 1998 to December 31, 1998
*** Quoted return is the average annual compounded return for the most recent
period ended December 31, 1998
7
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
SELECTING A SHARE CLASS
The Fund offers more than one class of shares: Class A, Class B and Class II
shares.
Each class of shares has its own cost structure, so you can choose the one best
suited to your investment needs. Your broker or financial advisor can help you
determine which class is right for you.
<TABLE>
<CAPTION>
Class A Class B Class II
<S> <C> <C>
. Front-end sales . No front-end sales . Front-end sales
charges, as charge; all your charge, as
described below. money goes to work described below.
There are several for you right
ways to reduce away. . Higher annual
these charges, expenses than
also described . Higher annual Class A shares.
below. expenses than
Class A shares. . Deferred sales
. Lower annual charge on shares
expenses than . Deferred sales you sell within
Class B or Class charge on shares eighteen months of
II shares. you sell within purchase, as
six years of described below.
purchase, as
described below. . No conversion to
Class A.
. Automatic
conversion to
Class A shares
after
approximately
seven years, thus
reducing future
annual expenses.
</TABLE>
CALCULATION OF SALES CHARGES
Class A Sales Charges are as follows:
<TABLE>
<CAPTION>
Concession to
Sales Charge Dealers
-------------------------------
% of % of Net % of
Offering Amount Offering
Your Investment Price Invested Price
-------------------------------
<S> <C> <C> <C>
Less than $50,000............................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000................. 3.75% 3.90% 3.00%
$250,000 but less than $500,000................. 3.00% 3.09% 2.25%
$500,000 but less than $1,000,000............... 2.10% 2.15% 1.35%
$1,000,000 or more.............................. None None 1.00%
</TABLE>
Investments of $1 million or more Class A shares are available with no front-
end sales charge. However, there is a 1% CDSC on any shares you sell within one
year of purchase.
Class B Shares are offered at their net asset value per share, without any ini-
tial sales charge. However, there is a CDSC on shares you sell within six years
of buying them. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
<TABLE>
<CAPTION>
Class B
deferred
charges: Years after purchase CDSC on shares being sold
<S> <C> <C>
1st or 2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
7th year and thereafter None
</TABLE>
For purposes of the CDSC, we count all purchases you make during a calendar
month as having been made on the FIRST day of that month.
8
<PAGE>
- --------------------------------------------------------------------------------
Class II Sales Charges are as follows:
<TABLE>
<CAPTION>
Concession to
Sales Charge Dealers
----------------------------------------------
% of % of Net % of
Offering Amount Offering
Price Invested Price
----------------------------------------------
<S> <C> <C>
1.00% 1.01% 1.00%
</TABLE>
There is also a CDSC of 1% on shares you sell within eighteen months after you
buy them.
Determination of CDSC Each CDSC is based on the original purchase cost or the
current market value of the shares being sold, whichever is less. There is no
CDSC on shares you purchase through reinvestment of dividends. To keep your
CDSC as low as possible, each time you place a request to sell shares we will
first sell any shares in your account that are not subject to a CDSC. If there
are not enough of these shares available, we will sell shares that have the
lowest CDSC.
SALES CHARGE REDUCTIONS AND WAIVERS
Waivers for Certain Investors Various individuals and institutions may purchase
Class A shares without front-end sales charges, including:
. financial planners, institutions, broker-dealer representatives or regis-
tered investment advisers utilizing Fund shares in fee-based investment
products under an agreement with the Distributor
. participants in certain retirement plans that meet applicable conditions
. Fund Trustees and other individuals who are affiliated with the Fund or
other SunAmerica Mutual Funds and their families
. selling brokers and their employees and sales representatives and their
families
. participants in "Net Asset Value Transfer Program"
We will generally waive the CDSC for Class B or Class II shares in the follow-
ing cases:
. within one year of the shareholder's death or becoming disabled
. taxable distributions or loans to participants made by qualified retirement
plans or retirement accounts (not including rollovers) for which the Ad-
viser serves as a fiduciary
. Fund Trustees and other individuals who are affiliated with the Fund or
other SunAmerica Mutual Funds and their families
. to make taxable distributions from certain retirement plans
. to make payments through the Systematic Withdrawal Plan (subject to certain
conditions)
Reducing your Class A sales charges There are several special purchase plans
that allow you to combine multiple purchases of Class A shares of SunAmerica
Mutual Funds to take advantage of the breakpoints in the sales charge schedule.
For information about the "Rights of Accumulation," "Letter of Intent," "Com-
bined Purchase Privilege," and "Reduced Sales Charges for Group Purchases,"
contact your broker or financial advisor, or consult the SAI.
To utilize: if you think you may be eligible for a sales charge reduction or
CDSC waiver, contact your broker or financial advisor.
Reinstatement privilege If you sell shares of the Fund, you may invest some or
all of the proceeds in the same share class of the Fund within one year without
a sales charge. If you paid a CDSC when you sold your shares, we will credit
your account with the dollar amount of the CDSC at the time of sale. All ac-
counts involved must be registered in the same name(s).
9
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
12b-1 FEES
Each class of shares of the Fund has its own 12b-1 plan that provides for dis-
tribution and service fees (payable to the Distributor) based on a percentage
of average daily net assets, as follows:
<TABLE>
<CAPTION>
Class Distribution Fee Service Fee
<S> <C> <C>
A 0.10% 0.25%
B 0.75% 0.25%
II 0.75% 0.25%
</TABLE>
Because 12b-1 fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
OPENING AN ACCOUNT
1. Read this prospectus carefully.
2. Determine how much you want to invest. The minimum initial investments for
the Fund are as follows:
. non-retirement account: $500
. retirement account: $250
. dollar cost averaging: $500 to open; you must invest at least $25 a month
The minimum subsequent investments for the Fund are as follows:
. non-retirement account: $100
. retirement account: $25
3. Complete the appropriate parts of the Account Application, carefully follow-
ing the instructions. If you have questions, please contact your broker or fi-
nancial advisor or call Shareholder/Dealer Services at 1-800-858-8850.
4. Complete the appropriate parts of the Supplemental Account Application. By
applying for additional investor services now, you can avoid the delay and in-
convenience of having to submit an additional application if you want to add
services later.
5. Make your initial investment using the chart on the next page. You can ini-
tiate any purchase, exchange or sale of shares through your broker or financial
advisor.
10
<PAGE>
- --------------------------------------------------------------------------------
BUYING SHARES
Opening an account Adding to an account
By check
. Make out a check for the . Make out a check for the investment
investment amount, payable amount payable to the Fund or SunAmerica
to the Fund or SunAmerica Funds.
Funds.
. Include the stub from your Fund statement
. Deliver the check and your or a note specifying the Fund name, your
completed Account Applica- share class, your account number and the
tion (and Supplemental Ac- name(s) in which the account is regis-
count Application, if ap- tered.
plicable) to your broker
or financial advisor, or . Indicate the Fund and account number in
mail them to: the memo section of your check.
SunAmerica Fund Services, Inc. . Deliver the check and your note to your
Mutual Fund Operations, broker or financial advisor, or mail them
3rd Floor to
The SunAmerica Center
733 Third Avenue Non-Retirement Accounts:
New York, New York 10017-3204. SunAmerica Fund Services, Inc.
c/o NFDS
P.O. Box 419373
Kansas City, Missouri 64141-6373
Retirement Accounts:
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
By wire
. Deliver your completed ap- . Instruct your bank to wire the amount of
plication to your broker your investment to:
or financial advisor or
fax it to SunAmerica Fund State Street Bank & Trust Company
Services, Inc. at 212-551- Boston, MA
5585. ABA #0110-00028
DDA # 99029712
. Obtain your account number
by referring to your Specify the Fund name, your share class,
statement or by calling your Fund number, account number and the
your broker or financial name(s) in which the account is registered.
advisor or Your bank may charge a fee to wire funds.
Shareholder/Dealer Serv-
ices at 1-800-858-8850,
ext. 5125.
. Instruct your bank to wire
the amount of your invest-
ment to:
State Street Bank & Trust Company
Boston, MA
ABA #0110-00028
DDA # 99029712
Specify the Fund name, your
choice of share class, your
new Fund number and account
number and the name(s) in
which the account is regis-
tered. Your bank may charge a
fee to wire funds.
To open or add to an account using dollar cost averaging, see "Additional In-
vestor Services."
11
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
SELLING SHARES
How Requirements
Through Your Broker or Financial Advisor
. Accounts of any type. . Call your broker or financial advisor to
place your order to sell shares.
. Sales of any amount.
By mail
. Accounts of any type. . Write a letter of instruction indicating
the Fund name, your share class, your ac-
. Sales of any amount. count number, the name(s) in which the
account is registered and the dollar
. Include all signatures and value or number of shares you wish to
any additional documents sell.
that may be required (see
next page). . A check will normally be mailed on the
next business day to the name(s) and ad-
. Mail the materials to: dress in which the account is registered,
or otherwise according to your letter of
SunAmerica Fund Services, Inc. instruction.
Mutual Fund Operations,
3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
By phone
. Most accounts.
. Sales of less than $100,000.
. Call Shareholder/Dealer
Services at 1-800-858-8850
between 8:30 a.m. and 7:00
p.m. (Eastern time) on
most business days. State
the Fund name, the name of
the person requesting the
redemption, your share
class, your account num-
ber, the name(s) in which
the account is registered
and the dollar value or
number of shares you wish
to sell.
. A check will be mailed to
the name(s) and address in
which the account is reg-
istered, or to a different
address indicated in a
written authorization pre-
viously provided to the
Fund by the shareholder(s)
on the account.
By wire
. Request by mail to sell . Proceeds will normally be wired on the
any amount (accounts of next business day. A $15 fee will be de-
any type). ducted from your account.
. Request by phone to sell
less than $100,000.
To sell shares through a systematic withdrawal plan, see "Additional Investor
Services."
12
<PAGE>
- --------------------------------------------------------------------------------
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. Corporations, executors, administrators,
trustees or guardians may need to include additional items with a request to
sell shares. You may also need to include a signature guarantee, which protects
you against fraudulent orders. You will need a signature guarantee if:
. your address of record has changed within the past 30 days
. you are selling more than $100,000 worth of shares
. you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
. a broker or securities dealer
. a federal savings, cooperative or other type of bank
. a savings and loan or other thrift institution
. a credit union
. a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
13
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for the Fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (generally 4:00 p.m., Eastern time) by dividing the net assets
of each class by the number of its shares outstanding. Investments for which
market quotations are readily available are valued at their price as of the
close of regular trading on the New York Stock Exchange for the day. All other
securities and assets are valued at fair value following procedures approved by
the Trustees.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable CDSCs.
Execution of requests The Fund is open on those days when the New York Stock
Exchange is open for regular trading. Buy and sell requests are executed at the
next NAV to be calculated after your request is received in proper form by the
Fund. If your order is received by the Fund or the Distributor before the
Fund's close of business (generally 4:00 p.m., Eastern time), you will receive
that day's closing price. If your order is received after that time, you will
receive the next business day's closing price. If you place your order through
a broker or financial advisor, you should make sure the order is transmitted to
the Fund before its close of business. The Fund and the Distributor reserve the
right to reject any order to buy shares.
During periods of extreme volatility or market crisis, the Fund may temporarily
suspend the processing of sell requests, or may postpone payment of proceeds
for up to three business days or longer, as allowed by federal securities laws.
The Fund may invest to a large extent in securities that are primarily listed
on foreign exchanges that trade on weekends or other days when the Fund does
not price its shares. As a result, the value of the Fund's shares may change on
days when you will not be able to purchase or redeem your shares.
If the Fund determines that it would be detrimental to the best interests of
the remaining shareholders of the Fund to make payment of redemption proceeds
wholly or partly in cash, the Fund may pay the redemption price by a distribu-
tion in kind of securities from the Fund in lieu of cash. However, the Fund has
made an election that requires it to pay a certain portion of redemption pro-
ceeds in cash.
Telephone transactions For your protection, telephone requests are recorded in
order to verify their accuracy. In addition, Shareholder/Dealer Services will
take measures to verify the identity of the caller, such as asking for name,
account number, social security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, the Fund is responsible for
any losses that may occur to any account due to an unauthorized telephone call.
Also for your protection, telephone transactions are not permitted on accounts
whose names or addresses have changed within the past 30 days. At times of peak
activity, it may be difficult to place requests by phone. During these times,
consider sending your request in writing.
Exchanges You may exchange shares of the Fund for shares of the same class of
any other SunAmerica Mutual Fund. Before making an exchange, you should review
a copy of the prospectus of the fund into which you would like to exchange. All
exchanges are subject to applicable minimum investment requirements. A System-
atic Exchange Program is described under "Additional Investor Services."
If you exchange shares that were purchased subject to a CDSC, the CDSC will
continue to apply following the exchange. In determining the CDSC applicable to
shares being sold after an exchange, we will take into account the length of
time you held those shares prior to the exchange. Your CDSC schedule will not
change if you exchange Class C or Class II shares that you purchased prior to
December 1, 1998 for another portfolio or fund's Class II shares (which cur-
rently have a longer CDSC schedule).
To protect the interests of other shareholders, we may cancel the exchange
privileges of any investors that, in the opinion of the Fund, are using market
timing strategies or making excessive exchanges. The Fund may change or cancel
its exchange privilege at any time, upon 60 days' written notice to its share-
holders. The Fund may also refuse any exchange order.
Certificated shares Most shares are electronically recorded. If you wish to
have certificates for your shares, please call Shareholder/Dealer Services at
1-800-858-8850 for further information. You may sell or exchange certificated
shares only by returning the certificates to the Fund, along with a letter of
instruction and a signature guarantee. The Fund does not issue certificates for
fractional shares.
Multi-party checks The Fund may agree to accept a "multi-party check" in pay-
ment for Fund shares. This is a check made payable to the investor by another
party and then endorsed over to the Fund by the investor. If you use a multi-
party check to purchase shares, you may experience processing delays. In addi-
tion, the Fund is not responsible for verifying the authenticity of any en-
dorsement and assumes no liability for any losses resulting from a fraudulent
endorsement.
14
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
To select one or more of these additional services, complete the relevant
part(s) of the Supplemental Account Application. To add a service to an exist-
ing account, contact your broker or financial advisor, or call
Shareholder/Dealer Services at 1-800-858-8850.
Dollar Cost Averaging lets you make regular investments from your bank account
to the SunAmerica Mutual Funds of your choice. You determine the frequency and
amount of your investments, and you can terminate your participation at any
time.
Systematic Withdrawal Plan may be used for routine bill payment or periodic
withdrawals from your account. To use:
. Make sure you have at least $5,000 worth of shares in your account.
. Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same Fund is
not advantageous to you, because of sales charges).
. Specify the payee(s) and amount(s). The payee may be yourself or any other
party, and there is no limit to the number of payees you may have, as long
as they are all on the same payment schedule. Each withdrawal must be at
least $50.
. Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
. Make sure your dividends and capital gains are being reinvested.
You cannot elect the systematic withdrawal plan if you have requested certifi-
cates for your shares.
Systematic Exchange Program may be used to exchange shares of the Fund periodi-
cally for the same class of shares of one or more other SunAmerica Mutual
Funds. To use:
. Specify the SunAmerica Mutual Fund(s) from which you would like money with-
drawn and into which you would like money invested.
. Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
. Specify the amount(s). Each exchange must be worth at least $25.
. Accounts must be registered identically; otherwise a signature guarantee
will be required.
Asset Protection Plan (optional) Anchor National Life Insurance Company offers
an Asset Protection Plan to certain investors in the Fund. The benefits of this
optional coverage payable at death will be related to the amounts paid to pur-
chase Fund shares and to the value of the Fund shares held for the benefit of
the insured persons. However, to the extent the purchased shares are redeemed
prior to death, coverage with respect to these shares will terminate.
Purchasers of the Asset Protection Plan are required to authorize periodic re-
demptions of Fund shares to pay the premiums for this coverage. These redemp-
tions will not be subject to CDSCs, but will have the same tax consequences as
any other Fund redemptions.
The Asset Protection Plan will be available to eligible persons who enroll for
the coverage within a limited time period after shares in the Fund are ini-
tially purchased or transferred. In addition, coverage cannot be made available
unless Anchor National knows for whose benefit shares are purchased. For in-
stance, coverage cannot be made available for shares registered in the name of
your broker unless the broker provides Anchor National with information regard-
ing the beneficial owners of the shares. In addition, coverage is available
only to shares purchased on behalf of natural persons between 21 and 75 years
of age; coverage is not available with respect to shares purchased for a re-
tirement account. Other restrictions on the coverage apply. This coverage may
not be available in all states and may be subject to additional restrictions or
limitations. Purchasers of shares should also make themselves familiar with the
impact on the Asset Protection Plan coverage of purchasing additional shares,
reinvestment of dividends and capital gains distributions and redemptions.
Anchor National is a SunAmerica company.
Please call 1-800-858-8850 for more information, including the cost of the As-
set Protection Plan option.
Retirement plans SunAmerica Mutual Funds offer a range of qualified retirement
plans, including IRAs, Roth IRAs, Simple IRAs, SARSEPs, 401(k) plans, 403(b)
plans and other pension and profit-sharing plans. Using these plans, you can
invest in any SunAmerica Mutual Fund with a low minimum investment of $250 or,
for some group plans, no minimum investment at all. To find out more, call
Shareholder/Dealer Services at 1-800-858-8850.
15
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
TAX, DIVIDEND AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
. after every transaction that affects your account balance (except a divi-
dend reinvestment or automatic purchase from your bank account)
. after any changes of name or address of the registered owner(s)
. in all other circumstances, quarterly or annually, depending upon the Fund
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The Fund generally distributes most or all of its net earnings in the
form of dividends. Income dividends and capital gains distributions, if any,
are paid annually.
Dividend Reinvestments Your dividends and distributions, if any, will be auto-
matically reinvested in additional shares of the Fund and share class on which
they were paid. Alternatively, dividends and distributions may be reinvested in
any other SunAmerica Mutual Fund or paid in cash (if more than $10). You will
need to complete the relevant part of the Account Application to elect one of
these other options. For existing accounts, contact your broker or financial
advisor or call Shareholder/Dealer Services at 1-800-858-8850 to change divi-
dend and distribution payment options.
Taxability of dividends The Fund intends to continue to qualify for the special
tax treatment afforded regulated investment companies. As long as the Fund so
qualifies, the Fund will not be subject to Federal income tax on the earnings
that it distributes to shareholders.
However, dividends you receive from the Fund, whether reinvested or taken as
cash, are generally considered taxable to you. Distributions of the Fund's
long-term capital gains are taxable as capital gains; dividends from other
sources are generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the pre-
vious December. Corporations may be entitled to take a dividends-received de-
duction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is consid-
ered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions. If you hold Class B shares, you will not have a taxable event
when they convert into Class A shares.
Other Tax Considerations If you are neither a lawful permanent resident nor a
citizen of the U.S., or if you are a foreign entity, ordinary income dividends
paid to you (which include distributions of net short-term capital gains) will
generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate
applies.
By law, the Fund must withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or social security number.
This section summarizes some of the consequences under current federal tax law
of an investment in the Fund. It is not a substitute for professional tax ad-
vice. Consult your tax advisor about the potential tax consequences of an in-
vestment in the Fund under all applicable laws.
Small accounts If you draw down an account so that its total value is less than
$500 ($250 for retirement plan accounts), you may be asked to purchase more
shares within 60 days. If you do not take action, the Fund may close out your
account and mail you the proceeds. Alternatively, you may be charged a $2.00
monthly charge to maintain your account. Your account will not be closed if its
drop in value is due to Fund performance or the effects of sales charges.
16
<PAGE>
More Information About the Fund
- --------------------------------------------------------------------------------
FUND INVESTMENT STRATEGIES
The chart summarizes information about the Fund's investment approach. We have
included a glossary to define the investment and risk terminology used in the
chart.
"Dogs" of Wall Street Fund
<TABLE>
<C> <S>
What is the Fund's Total return (including capital appreciation and
investment goal? current income)
What are the Fund's growth and value
principal investment
strategies?
What are the Fund's employ a "buy and hold" strategy with thirty
principal investment high dividend yielding common stocks selected
techniques? annually from the DJIA and the broader market
What are the Fund's The Fund annually selects the following 30
principal investments (under stocks through a passively managed strategy: (1)
normal market conditions)? the 10 highest yielding common stocks in the
DJIA and (2) the 20 other highest yielding
stocks of the 400 largest industrial companies
in the U.S. markets that have capitalizations of
at least $1 billion and have received one of the
two highest rankings from an independently
published common stock ranking service on the
basis of growth and stability of earnings and
dividends.
What are the Fund's .stock market volatility
principal risks? .disciplined strategy
.non-diversification
What other investment
strategies can the Fund use?
. Annual rebalancing Yes
. Cash flow management Yes
. Short-term investments Yes
. Foreign securities/ADRs Yes
. Securities lending Yes (up to 33 1/3%)
. Borrowing for temporary or Yes (up to 50%)
emergency purposes
. Options and futures Yes
What other potential risks .foreign exposure
can affect the Fund? .illiquidity
.derivatives
.hedging
.emerging markets
.euro conversion
</TABLE>
17
<PAGE>
More Information About the Fund
- --------------------------------------------------------------------------------
GLOSSARY
INVESTMENT TERMINOLOGY
Capital appreciation is growth of the value of an investment.
Annual rebalancing No later than January 15 of each year, the Adviser will
rebalance the Fund's holdings to create equal weightings among the thirty
stocks selected on the basis of the criteria applied as of the preceding Decem-
ber 31st. The Adviser will implement the rebalancing by purchasing new stocks
that meet the selection criteria, selling stocks that no longer meet the selec-
tion 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.
Cash flow management Because the Fund will be at all times fully invested in
the stocks selected using the criteria described above, the Fund will use the
following policies to manage cash that it receives from the sale of its shares.
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 Ad-
viser deems necessary) in the thirty stocks selected for the Fund. The Fund
will purchase the stocks as of its most recent rebalancing in proportion to the
current weightings of such stocks in the Fund's portfolio and without any in-
tention to rebalance the Fund's holdings on an interim basis. To the extent re-
demptions exceed available cash, the Fund will generally meet redemption re-
quests by selling stocks on a pro rata basis (subject to rounding and the
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.
Short-term investments include money market securities such as short-term U.S.
government obligations, repurchase agreements, commercial paper, bankers' ac-
ceptances and certificates of deposit. These securities provide the Fund with
sufficient liquidity to meet redemptions and cover expenses.
Foreign securities are issued by companies located outside of the United
States, including emerging markets. Foreign securities may include American De-
positary Receipts (ADRs) or other similar securities that convert into foreign
securities, such as European Depository Receipts (EDRs) and Global Depository
Receipts (GDRs).
Securities lending involves a loan of securities by the Fund in exchange for
cash or collateral. The Fund earns interest on the loan while retaining owner-
ship of the security.
The Fund may borrow for temporary or emergency purposes including to meet re-
demptions. Borrowing may exaggerate changes in the net asset value of Fund
shares and in the yield on the Fund's portfolio. Borrowing will cost the Fund
interest expense and other fees. The cost of borrowing may reduce the Fund's
return.
A derivative instrument is a contract whose value is based on the performance
of an underlying asset, such as an option or a future.
Options and futures are contracts involving the right to receive or obligation
to deliver assets or money depending on the performance of one or more under-
lying assets or a market or economic index.
18
<PAGE>
- --------------------------------------------------------------------------------
RISK TERMINOLOGY
Market volatility: The stock and/or bond markets as a whole could go up or down
(sometimes dramatically). This could affect the value of the securities in the
Fund's portfolio.
Disciplined strategy: The Fund will not deviate from its passively managed
strategy, which entails buying and holding thirty stocks selected through ob-
jective selection criteria (except to the extent necessary to comply with fed-
eral tax laws applicable to the Fund). The Fund will not sell stocks in its
portfolio and buy different stocks over the course of a year, even if there are
adverse developments concerning a particular stock, company or industry. There
can be no assurance that the strategy will be successful.
Non-diversification: The Fund will hold only thirty stocks in its portfolio.
This means that its performance can be affected more by a decline in the market
price of one stock than would be the case if the Fund had a more diversified
portfolio.
Foreign exposure: Investors in foreign countries are subject to a number of
risks. A principal risk is that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. In ad-
dition, there may be less publicly available information about a foreign com-
pany and it may not be subject to the same uniform accounting, auditing and fi-
nancial reporting standards as U.S. companies. Foreign governments may not reg-
ulate securities markets and companies to the same degree as in the U.S. For-
eign investments will also be affected by local political or economic develop-
ments and governmental actions. Consequently, foreign securities may be less
liquid, more volatile and more difficult to price than U.S. securities. These
risks are heightened when the issuer is in an emerging market.
Illiquidity: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.
Derivatives: Derivatives are subject to general risks relating to heightened
sensitivity to market volatility, interest rate fluctuations, illiquidity, and
creditworthiness of the counterparty to the derivatives transactions.
Hedging: Hedging is a strategy in which the Adviser uses a derivative security
to reduce certain risk characteristics of an underlying security or portfolio
of securities. While hedging strategies can be very useful and inexpensive ways
of reducing risk, they are sometimes ineffective due to unexpected changes in
the market. Moreover, while hedging can reduce or eliminate losses, it can also
reduce or eliminate gains.
Emerging market: An emerging market country is one that the World Bank, the In-
ternational Finance Corporation or the United Nations or its authorities has
determined to have a low or middle income economy. Historical experience indi-
cates that the markets of emerging market countries have been more volatile
than more developed markets; however, such markets can provide higher rates of
return to investors.
Euro conversion: Effective January 1, 1999, several European countries irrevo-
cably fixed their existing national currencies to a new single European cur-
rency unit, the "euro." Certain European investments may be subject to addi-
tional risks as a result of this conversion. These risks include adverse tax
and accounting consequences, as well as difficulty in processing transactions.
SunAmerica is aware of such potential problems and is coordinating efforts to
prevent or alleviate their adverse impact on the Fund. There can be no assur-
ance that the Fund will not suffer any adverse consequences as a result of the
euro conversion.
19
<PAGE>
Fund Management
- --------------------------------------------------------------------------------
Adviser SunAmerica Asset Management Corp., which was organized in 1982 under
the laws of Delaware, selects and manages the investments, provides various ad-
ministrative services, and supervises the daily business affairs of the Fund.
For the fiscal year ended September 30, 1998, the Fund paid the Adviser a fee
equal to 0% of average daily net assets (net of fee waivers). In addition to
managing the Fund and each of the other Equity Funds, the Adviser serves as ad-
viser, manager and/or administrator for Anchor Pathway Fund, Anchor Series
Trust, Style Select Series, Seasons Series Trust, SunAmerica Income Funds,
SunAmerica Money Market Funds, Inc., and SunAmerica Series Trust.
The Adviser managed, advised or administered assets in excess of $15 billion as
of October 31, 1998.
The Domestic Equity Investment Team is responsible for the portfolio management
of the Fund. Also, the Fixed Income Investment Team assists the portfolio man-
agement of the Fund. Together, the Teams consist of sixteen portfolio managers,
research analysts and traders. Francis D. Gannon has supervisory responsibility
over the Fund. Mr. Gannon, a Vice President, has been with the Adviser since
1993.
Distributor SunAmerica Capital Services, Inc. distributes the Fund's shares.
The Distributor, a SunAmerica company, receives the initial and deferred sales
charges, all or a portion of which may be re-allowed to other broker-dealers.
In addition, the Distributor receives fees under the Fund's 12b-1 plans.
The Distributor, at its expense, may from time to time provide additional com-
pensation to broker-dealers (including in some instances, affiliates of the
Distributor) in connection with sales of shares of the Fund. This compensation
may include (i) full re-allowance of the front-end sales charge on Class A
shares; (ii) additional compensation with respect to the sale of Class A, Class
B or Class II shares; or (iii) financial assistance to broker-dealers in con-
nection with conferences, sales or training programs for their employees, semi-
nars for the public, advertising campaigns regarding one or more of the
SunAmerica Mutual Funds, 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 number of shares
of the Fund. Compensation may also include payment for travel expenses, includ-
ing lodging, incurred in connection with trips taken by invited registered rep-
resentatives 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 applicable law or the rules
of any self-regulatory agency, such as the National Association of Securities
Dealers. 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 Distributor based upon the advice of counsel, these laws and regulations
do not prohibit such depository institutions from providing other services to
investment companies of the type contemplated by the Fund's 12b-1 plans. Banks
and other financial services firms may be subject to various state laws regard-
ing these services, and may be required to register as dealers pursuant to
state law.
Administrator SunAmerica Fund Services, Inc. assists the Fund's transfer agent
in providing shareholder services. The Administrator, a SunAmerica company, is
paid a monthly fee by the Fund for its services at the annual rate of .22% of
average daily net assets. This fee represents the full cost of providing share-
holder and transfer agency services to the Fund.
The Adviser, Distributor and Administrator are all located in The SunAmerica
Center, 733 Third Avenue, New York, New York 10017.
20
<PAGE>
Fund Management
- --------------------------------------------------------------------------------
Year 2000 Many computer and computer-based systems cannot distinguish the year
2000 from the year 1900 because of the way they encode and calculate dates
(commonly known as the "Year 2000 Issue"). The Year 2000 Issue could poten-
tially have an adverse impact on the handling of security trades, the payment
of interest and dividends, pricing and account services. We recognize the im-
portance of the Year 2000 Issue and are taking appropriate steps necessary in
preparation for the year 2000. The Fund's management fully anticipates that
their systems will be adapted in time for the year 2000, and to further this
goal they have coordinated a plan to repair, adapt or replace their systems as
necessary. They have also obtained representations from their outside service
providers that they are doing the same. The Fund's management completed their
plan significantly by the end of the 1998 calendar year and expects to perform
appropriate systems testing during the 1999 calendar year. If the problem has
not been fully addressed, however, the Fund could be negatively impacted. The
Year 2000 Issue could also have a negative impact on the companies in which the
Fund invests, which could hurt the Fund's investment returns.
21
<PAGE>
For More Information
- --------------------------------------------------------------------------------
The Fund is a series of SunAmerica Equity Funds.
The following documents contain more information about the Fund and are avail-
able free of charge upon request:
Annual and Semiannual Reports. Contain financial statements, performance
data and information on portfolio holdings. The reports also contain a writ-
ten analysis of market conditions and investment strategies that signifi-
cantly affected the Fund's performance during the applicable period.
Statement of Additional Information (SAI). Contains additional information
about the Fund's policies, investment restrictions and business structure.
This prospectus incorporates the SAI by reference.
You may obtain copies of these documents or ask questions about the Fund by
contacting:
SunAmerica Fund Services, Inc.
Mutual Fund Operations
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
1-800-858-8850
or
by calling your broker or financial advisor.
Information about the Fund (including the SAI) can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission, Washing-
ton, D.C. Call (800) SEC-0330 for information on the operation of the Public
Reference Room. Information about the Fund is also available on the Securities
and Exchange Commission's web-site at http://www.sec.gov and copies may be ob-
tained upon payment of a duplicating fee by writing the Public Reference Sec-
tion of the Securities and Exchange Commission, Washington, D.C. 20549-6009.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with any different information.
[SUN AMERICA MUTUAL
FUNDS LOGO APPEARS HERE]
DISTRIBUTOR: SunAmerica Capital Services
INVESTMENT COMPANY ACT
File No. 811-4801
<PAGE>
January 29, 1999 PROSPECTUS
- --------------------------------------------------------------------------------
SUNAMERICA EQUITY FUNDS
[SUNAMERICA LOGO APPEARS HERE]
Small Company Growth Fund
[SUNAMERICA LOGO APPEARS HERE]
Growth and Income Fund
(Class Z Shares)
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
[SUNAMERICA MUTUAL FUNDS LOGO APPEARS HERE]
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FUND HIGHLIGHTS......................................... 2
FINANCIAL HIGHLIGHTS.................................... 8
SHAREHOLDER ACCOUNT INFORMATION......................... 9
MORE INFORMATION ABOUT THE FUNDS........................ 11
</TABLE>
<TABLE>
<S> <C>
Fund Investment Strategies............................ 11
Glossary.............................................. 12
Investment Terminology................................ 12
Risk Terminology...................................... 13
FUND MANAGEMENT......................................... 14
</TABLE>
[SUNAMERICA MUTUAL FUNDS LOGO APPEARS HERE]
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
Market capitalization represents the total market value of the outstanding
securities of a corporation.
A fund engages in active trading when it frequently trades its portfolio
securities to achieve its investment goal.
The "growth" oriented Philosophy to which the Small Company Growth Fund
subscribes, and to which the Growth and Income Fund partly subscribes--that of
investing in securities believed to offer the potential for capital
appreciation--focuses on securities which are considered to have a historical
record of above-average growth rate; to have significant growth potential;
above-average earnings growth or value or the ability to sustain earnings
growth; to offer proven or unusual products or services; or to operate in
industries experiencing increasing demand.
The "value" oriented Philosophy to which the Growth and Income Fund partly
subscribes--that of investing in securities believed to be undervalued in the
market--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 usually calculated
to identify stocks of large, well known companies with solid financial strength
and generous dividend yields that have low price-earnings ratios and have been
generally overlooked by the market.
"High-quality" instruments have a very strong capacity to pay interest and repay
principal.
Q&A
The following questions and answers are designed to give you an overview of the
Trust, and to provide you information about two of the Trust's investment port-
folios, or "Funds," and their investment goals and principal strategies. There
can be no assurance that any Fund's investment goal will be met or that the net
return on an investment in a Fund will exceed what could have been obtained
through other investment or savings vehicles. More complete investment informa-
tion is provided in the chart, under "More Information About the Funds," which
is on page 11, and the glossary that follows on page 12.
Q: What are the Funds' investment goals, strategies and techniques?
A:
<TABLE>
<CAPTION>
Principal
Investment Investment Principal Investment
Fund Goal Strategy Techniques
<C> <C> <C> <S>
Small Company Growth Fund capital growth invests primarily by active
appreciation trading in common stocks
that demonstrate the
potential for capital
appreciation, issued by
companies with market
capitalizations of $1
billion or less
Growth and Income Fund capital growth and invests primarily by active
appreciation value trading in common stocks,
and issued by companies of any
current size, that pay dividends,
income demonstrate the potential
for capital appreciation
and/or are believed to be
undervalued in the market
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
Q:What are the principal risks of investing in the Funds?
A: The following section describes the principal risks of each Fund, while the
chart on page 11 describes various additional risks.
Risks of Investing in Equity Securities
Both the Small Company Growth Fund and the Growth and Income Fund invest
primarily in equity securities. As with any equity fund, the value of your
investment in either of these Funds may fluctuate in response to stock mar-
ket movements. You should be aware that the performance of different types
of equity stocks may rise or decline under varying market conditions--for
example, "value" stocks may perform well under circumstances in which
"growth" stocks in general have fallen. In addition, individual stocks se-
lected for either of these Funds may underperform the market generally.
Additional Principal Risks
Shares of the Funds are not bank deposits and are not guaranteed or insured
by any bank, government entity or the Federal Deposit Insurance Corpora-
tion. As with any mutual fund, there is no guarantee that a Fund will be
able to achieve its investment goals. If the value of the assets of a Fund
goes down, you could lose money.
Additional Risks Specific to the Small Company Growth Fund:
Stocks of smaller companies may be more volatile than, and not as liquid
as, those of larger companies. The Small Company Growth Fund may be riskier
than the Growth and Income Fund.
Q:How have the Funds performed historically?
A: The following Risk/Return Bar Charts and Tables illustrate the risks of in-
vesting in the Funds by showing changes in the Funds' performance from cal-
endar year to calendar year, and compare the Funds' average annual returns
to those of an appropriate market index. Of course, past performance is not
necessarily an indication of how a Fund will perform in the future.
3
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND (CLASS Z)
During the 2-year period shown in
the bar chart, the highest return
for a quarter was 32.76% (quarter
ended 12/31/98) and the lowest
return for a quarter was -30.80%
(quarter ended 09/30/90).
[BAR GRAPH APPEARS HERE]
Figure 1
<TABLE>
<CAPTION>
Average Annual Total Returns
(as of the calendar year ended Past One Past Five Past Ten Return Since
December 31, 1998) Year Years Years Inception*
<S> <C> <C> <C> <C> <C>
Small
Company
Growth Fund Class Z 13.31 % N/A N/A 8.57%
Russell 2000
Index** (2.24)% 10.28% 11.08% 10.08%
Nasdaq
Industrial
Index*** 7.22 % 10.10% 13.14% 8.34%
</TABLE>
*Inception Date: 10/07/96
**The Russell 2000 Index is an unmanaged broad-based index of 2,000 smaller
capitalization companies.
*** The Nasdaq Industrial Index is a value-weighted index calculated on price
change only and does not include income and is composed of more than 3,000
industrial issues.
4
<PAGE>
- --------------------------------------------------------------------------------
[BAR CHART]
GROWTH AND INCOME FUND (CLASS B)*
During the 4-year period shown in
'95 33.94% the bar chart, the highest return
'96 26.33% for a quarter was 21.46% (quarter
'97 29.3 % ended 12/31/98 and the lowest
'98 22.63% return for a quarter was -11.06%
(quarter ended 09/30/98).
Figure 2
<TABLE>
<CAPTION>
Average Annual Total Returns
(as of the calendar year ended Past One Past Five Past Ten Return Since
December 31, 1998) Year Years Years Inception**
<S> <C> <C> <C> <C> <C>
Growth and Income Fund Class B* 18.63% N/A N/A 24.83%
S&P 500(R) Index*** 28.57% 24.00% 18.95% 25.34%
</TABLE>
* The returns shown in the bar chart and the table are for Class B shares,
which are not offered in this prospectus. Class B shares were used in
preparing the bar chart and the table because Class B has the longest
performance record. Class Z shares would have had substantially similar
annual returns as those shown for Class B shares because the shares are
invested in the same portfolio of securities as the Class Z shares. The Class
B sales charges are not reflected in the bar chart and, if these amounts were
reflected, returns would be less than those shown. The annual returns of the
Class Z shares would differ from those of the Class B shares only to the
extent that the classes do not have the same fees and expenses.
** Inception Date: 7/06/94
*** The S&P 500(R) is the Standard & Poor's 500 Composite Stock Price Index, a
widely recognized, unmanaged index of common stock prices.
5
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
Q:What are the Funds' expenses?
A:The following table describes the fees and expenses that you may pay if you
buy and hold Class Z shares of the Funds.
<TABLE>
<CAPTION>
Small Company Growth and
Growth Fund Income Fund
------------- -----------
<S> <C> <C>
Shareholder Fees (fees paid directly
from your investment)
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price) None None
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None
Redemption Fee None None
Exchange Fee None None
Maximum Account Fee None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets)
Management Fees 0.75% 0.75%
Distribution (12b-1) Fees None None
Other Expenses 2.11% 28.35%
Total Annual Fund Operating Expenses 2.86% 29.10%
Expense Reimbursement(/1/) 1.93% 28.17%
Net Expenses 0.93% 0.93%
</TABLE>
(1) The Trustees, including a majority of the Independent Trustees, approved
the Investment Advisory and Management Agreement subject to the net expense
ratios set forth above. The Adviser may not increase such ratios without
the approval of the Trustees, including a majority of the Independent
Trustees. The Trustees, including a majority of the Independent Trustees,
may terminate the expense waivers and fee reimbursements at any time.
6
<PAGE>
- --------------------------------------------------------------------------------
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Small Company Growth Fund
(Class Z shares).............................. $ 289 $ 886 $1,509 $3,185
Growth and Income Fund
(Class Z shares).............................. 2,559 5,976 7,945 9,946
You would pay the following expenses if you
did not redeem your shares:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Small Company Growth Fund
(Class Z shares).............................. $ 289 $ 886 $1,509 $3,185
Growth and Income Fund
(Class Z shares).............................. 2,559 5,976 7,945 9,946
</TABLE>
7
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The Financial Highlights table for each Fund is intended to
help you understand the Fund's financial performance since in-
ception. Certain information reflects financial results for a
single Fund share. The total returns in each table represent
the rate that an investor would have earned (or lost) on an in-
vestment in a Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with each
Fund's financial statements, are included in the Statement of
Additional Information (SAI), which is available upon request.
SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
Net
gain (loss)
Net on invest- Total Dividends Distri- Net
Net Asset invest- ments (both from from net butions Asset Net Assets
Value, ment realized invest- invest- from Total Value, end of
Period beginning income and ment ment capital distri- end of Total period
Ended of period (loss)(/2/) unrealized) operations income gains butions period Return(/1/) (000's)
- ------ --------- ----------- ----------- ---------- --------- ------- ------- ------ ----------- ----------
Class Z
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/07/96-
9/30/97(/4/).... $24.61 $(0.15) $4.85 $4.70 $-- $(0.86) $(0.86) $28.45 19.78 % $948
9/30/98......... 28.65 (0.07) (6.65) (6.72) -- (2.40) (2.40) 19.33 (24.64) 565
<CAPTION>
Ratio of net
investment
Ratio of income
expenses (loss)
Period to average to average Portfolio
Ended net assets net assets turnover
- ------ ------------------ --------------------- ---------
<S> <C> <C> <C>
10/07/96-
9/30/97(/4/).... 1.07%(/3/)(/5/) (0.67)%(/3/)(/5/) 343%
9/30/98......... 1.01(/5/) (0.30)(/5/) 292
</TABLE>
- ----
(1) Total return is not annualized and does not reflect sales load
(2) Calculated based upon average shares outstanding
(3) Annualized
(4) Commencement of sale of respective class of shares
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
9/30/97 9/30/98
------- -------
<S> <C> <C>
Small Company Growth Class Z................. 2.19% 1.85%
</TABLE>
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Net
gain (loss)
Net on invest- Total Dividends Distri- Net
Net Asset invest- ments (both from from net butions Asset Net Assets
Value, ment realized invest- invest- from Total Value, end of
Period beginning income and ment ment capital distri- end of Total period
Ended of period (loss)(/1/) unrealized) operations income gains butions period Return(/2/) (000's)
- ------ --------- ----------- ----------- ---------- --------- ------- ------- ------ ----------- ----------
Class Z
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4/15/98-
9/30/98(/3/).... $14.35 $0.04 $(1.55) $(1.51) $-- $-- $-- $12.84 (10.52)% $93
<CAPTION>
Ratio of net
investment
Ratio of income
expenses (loss)
Period to average to average Portfolio
Ended net assets net assets turnover
- ------ ------------------ ------------------- ---------
<S> <C> <C> <C>
4/15/98-
9/30/98(/3/).... 0.93%(/4/)(/5/) 0.57%(/4/)(/5/) 150%
</TABLE>
- ----
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
9/30/98
-------
<S> <C>
Growth and Income Class Z............................. 28.17%
</TABLE>
8
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
SELECTING A SHARE CLASS
Each Fund offers Class Z shares through this prospectus. Class Z shares are of-
fered exclusively for sale to participants in the SunAmerica Profit Sharing and
Retirement Plan, an employee benefit plan sponsored by Fidelity Investments
(the "401(k) Plan" or the "Plan").
OPENING AN ACCOUNT
Class Z shares of the Funds are offered exclusively for sale to participants in
the 401(k) Plan. Such shares may be purchased or redeemed only by the 401(k)
Plan on behalf of individual Plan participants at net asset value without any
sales or redemption charge. Class Z shares are not subject to any minimum in-
vestment requirements. The Plan purchases and redeems shares to implement the
investment choices of individual Plan participants with respect to their con-
tributions in the Plan. All purchases of Fund shares through the Plan will be
of Class Z shares.
Inquiries regarding the purchase, redemption or exchange of Class Z shares or
the making or changing of investment choices in the 401(k) Plan should be di-
rected to the Fidelity Participant Center at (800) 835-5098.
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for each Fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (generally 4:00 p.m., Eastern time) by dividing the net assets
of each class by the number of its shares outstanding. Investments for which
market quotations are readily available are valued at their price as of the
close of regular trading on the New York Stock Exchange for the day. All other
securities and assets are valued at fair value following procedures approved by
the Trustees.
Because Class Z shares are not subject to any distribution or service fees, the
net asset value per share of the Class Z shares will generally be higher than
the net asset value per share of each of Class A, Class B and Class II shares
of each Fund, except following the payment of dividends and distributions.
Buy and sell prices When you buy Class Z shares, you pay the NAV. When you sell
Class Z shares, you receive the NAV.
Execution of requests Each Fund is open on those days when the New York Stock
Exchange is open for regular trading. Buy and sell requests are executed at the
next NAV to be calculated after your request is received in proper form by the
Trust. If your order is received by the Trust or the Distributor before a
Fund's close of business (generally 4:00 p.m., Eastern time), you will receive
that day's closing price. If your order is received after that time, you will
receive the next business day's closing price. The Trust and the Distributor
reserve the right to reject any order to buy shares.
The net asset value per share at which shares of the Funds are purchased or re-
deemed by the Plan for the accounts of individual Plan participants might be
more or less than the net asset value per share prevailing at the time that
such participants made their investment choices or made their contributions to
the Plan.
During periods of extreme volatility or market crisis, a Fund may temporarily
suspend the processing of sell requests, or may postpone payment of proceeds
for up to three business days or longer, as allowed by federal securities laws.
Each Fund may invest to a large extent in securities that are primarily listed
on foreign exchanges that trade on weekends or other days when the Fund does
not price its shares. As a result, the value of a Fund's shares may change on
days when you will not be able to purchase or redeem your shares.
If a Fund determines that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of redemption proceeds
wholly or partly in cash, the Fund may pay the redemption price by a distribu-
tion in kind of securities from the Fund in lieu of cash. However, each Fund
has made an election that requires it to pay a certain portion of redemption
proceeds in cash.
Exchanges Class Z shareholders of one Fund may exchange their shares for Class
Z shares of another SunAmerica Mutual Fund on the basis of relative net asset
value per share.
9
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
TAX, DIVIDEND AND ACCOUNT POLICIES
Account statements In general, a shareholder will receive account statements
quarterly or annually, depending upon the Fund.
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The Funds generally distribute most or all of their net earnings in
the form of dividends. Income dividends, if any, are paid quarterly by the
Growth and Income Fund, and annually by the other Fund. Capital gains distribu-
tions, if any, are paid annually by the Funds.
Dividend Reinvestments Your dividends and distributions, if any, will be auto-
matically reinvested in additional shares of the same Fund and share class on
which they were paid. Alternatively, dividends and distributions may be rein-
vested in any other SunAmerica Mutual Fund that offers Class Z shares. You will
need to complete the relevant part of the Account Application to elect one of
these other options. For existing accounts, contact your broker or financial
advisor or call Shareholder/Dealer Services at 1-800-858-8850 to change divi-
dend and distribution payment options.
The per share dividends on Class Z shares will generally be higher than the per
share dividends on Class A, Class B and Class II of the same Fund shares as a
result of the fact that Class Z shares are not subject to any distribution or
service fee.
Taxes As a qualified plan, the 401(k) Plan generally pays no federal income
tax. Individual participants in the 401(k) Plan should consult Plan documents
and their own tax advisers for information on the tax consequences associated
with participating in the 401(k) Plan.
10
<PAGE>
More Information About the Funds
- --------------------------------------------------------------------------------
Fund Investment Strategies
Each Fund has its own investment goal and a strategy for pursuing it. The chart
summarizes information about each Fund's investment approach. We have included
a glossary to define the investment and risk terminology used in the chart.
<TABLE>
<CAPTION>
Growth and
Small Company Growth Income
<S> <C> <C>
What is the Fund's Capital appreciation Capital appreciation and current
investment goal? income
- ----------------------------------------------------------------------------------------
What are the Fund's growth growth and value
principal investment
strategies?
- ----------------------------------------------------------------------------------------
What are the Fund's . active trading of . active trading of stocks that
principal stocks of pay dividends
investment techniques? small companies that . active trading of stocks that
offer the potential offer the potential for capital
for capital appreciation
appreciation . active trading of stocks that
are believed to be undervalued
- ----------------------------------------------------------------------------------------
What are the Fund's . stocks of small . stocks
principal investments (under companies (at least
normal market conditions)? 65% of total assets)
- ----------------------------------------------------------------------------------------
What are the Fund's . stock market . stock market volatility
principal risks? volatility
. securities selection . securities selection
. small market
capitalization
- ----------------------------------------------------------------------------------------
What other investment
strategies can the Fund use?
. Fixed income securities
Investment grade Yes Yes
Junk bonds No Yes (up to 15%)
. Small company stocks see principal Yes
investments above
. Short-term investments Yes (up to 10%) Yes (up to 10%)
. Defensive investments Yes Yes
. Foreign securities Yes Yes
. Illiquid securities Yes (up to 15%) Yes (up to 15%)
. Securities lending Yes (up to 33 1/3%) Yes (up to 33 1/3%)
. Borrowing for temporary or Yes (up to 5%) Yes (up to 5%)
emergency purposes
. Options and futures Yes Yes
. Special situations Yes Yes
- ----------------------------------------------------------------------------------------
What other potential risks . foreign exposure . foreign exposure
can affect
a Fund? . interest rate . interest rate fluctuations
fluctuations
. credit quality . credit quality
. illiquidity . small market capitalizations
. derivatives . junk bonds
. hedging . illiquidity
. emerging markets . derivatives
. euro conversion . hedging
. emerging markets
. euro conversion
</TABLE>
11
<PAGE>
More Information About the Funds
- --------------------------------------------------------------------------------
GLOSSARY
The two best-known debt rating agencies are Standard & Poor's Rating
Services, a Division of The McGraw-Hill Companies, Inc. and Moody's
Investors Service, Inc. "Investment grade" refers to any security rated
"BBB" or above by Standard & Poor's or "Baa" or above by Moody's.
INVESTMENT TERMINOLOGY
Capital appreciation is growth of the value of an investment.
Small companies have market capitalizations of $1 billion or less.
Active trading means that a Fund may engage in frequent trading of portfolio
securities to achieve its investment goal. In addition, because a Fund may sell
a security without regard to how long it has held the security, active trading
may have tax consequences for certain shareholders, involving a possible in-
crease in short-term capital gains or losses. Active trading may result in high
portfolio turnover and correspondingly greater brokerage commissions and other
transaction costs, which will be borne directly by a Fund. During periods of
increased market volatility, active trading may be more pronounced.
Fixed income securities provide consistent interest or dividend payments. They
include corporate bonds, notes, debentures, preferred stocks, convertible secu-
rities, U.S. government securities and mortgage-backed and asset-backed securi-
ties. The issuer of a senior fixed income security is obligated to make pay-
ments on this security ahead of other payments to security holders. An invest-
ment grade fixed income security is rated in one of the top four ratings cate-
gories by a debt rating agency (or is considered of comparable quality by the
Adviser).
A "junk bond" is a high yield, high risk bond that does not meet the credit
quality standards of investment grade securities.
Short-term investments include money market securities such as short-term U.S.
government obligations, repurchase agreements, commercial paper, bankers' ac-
ceptances and certificates of deposit. These securities provide a Fund with
sufficient liquidity to meet redemptions and cover expenses.
Defensive investments include high quality fixed income securities and money
market instruments. A Fund will make temporary defensive investments in re-
sponse to adverse market, economic, political or other conditions. When a Fund
takes a defensive position, it may miss out on investment opportunities that
could have resulted from investing in accordance with its principal investment
strategy. As a result, a Fund may not achieve its investment goal.
Foreign securities are issued by companies located outside of the United
States, including emerging markets. Foreign securities may include American De-
positary Receipts (ADRs) or other similar securities that convert into foreign
securities, such as European Depository Receipts (EDRs) and Global Depository
Receipts (GDRs).
Illiquid securities are subject to legal or contractual restrictions that may
make them difficult to sell. A security that cannot easily be sold within seven
days will generally be considered illiquid. Certain restricted securities (such
as Rule 144A securities) are not generally considered illiquid because of their
established trading market.
Securities lending involves a loan of securities by a Fund in exchange for cash
or collateral. The Fund earns interest on the loan while retaining ownership of
the security.
A Fund may borrow for temporary or emergency purposes including to meet redemp-
tions. Borrowing may exaggerate changes in the net asset value of Fund shares
and in the yield on a Fund's portfolio. Borrowing will cost a Fund interest ex-
pense and other fees. The cost of borrowing may reduce a Fund's return.
A derivative instrument is a contract whose value is based on the performance
of an underlying asset, such as an option or a future.
Options and futures are contracts involving the right to receive or obligation
to deliver assets or money depending on the performance of one or more under-
lying assets or a market or economic index.
A special situation arises when, in the opinion of the Adviser, the securities
of a particular issuer will be recognized and appreciated in value due to a
specific development with respect to that issuer. Developments creating a spe-
cial situation might include, among others, a new product or process, a techno-
logical breakthrough, a management change or other extraordinary corporate
event, or differences in market supply of and demand for the security. Invest-
ments in special situations may carry an additional risk of loss in the event
that the anticipated development does not occur or does not attract the ex-
pected attention.
12
<PAGE>
- --------------------------------------------------------------------------------
RISK TERMINOLOGY
Market volatility: The stock and/or bond markets as a whole could go up or down
(sometimes dramatically). This could affect the value of the securities in a
Fund's portfolio.
Securities selection: A strategy used by a Fund, or securities selected by its
portfolio manager, may fail to produce the intended return.
Small market capitalization: Companies with smaller market capitalizations
(particularly under $1 billion) tend to be at early stages of development with
limited product lines, market access for products, financial resources, access
to new capital, or depth in management. Consequently, the securities of smaller
companies may not be as readily marketable and may be subject to more abrupt or
erratic market movements. It may be difficult to obtain reliable information
and financial data about these companies.
Foreign exposure: Investors in foreign countries are subject to a number of
risks. A principal risk is that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. In ad-
dition, there may be less publicly available information about a foreign com-
pany and it may not be subject to the same uniform accounting, auditing and fi-
nancial reporting standards as U.S. companies. Foreign governments may not reg-
ulate securities markets and companies to the same degree as in the U.S. For-
eign investments will also be affected by local political or economic develop-
ments and governmental actions. Consequently, foreign securities may be less
liquid, more volatile and more difficult to price than U.S. securities.
Interest rate fluctuations: Volatility of the bond market is due principally to
changes in interest rates. As interest rates rise, bond prices typically fall;
and as interest rates fall, bond prices typically rise. Longer-term and lower
coupon bonds tend to be more sensitive to changes in interest rates.
Credit quality: The creditworthiness of the issuer is always a factor in ana-
lyzing fixed income securities. An issuer with a lower credit rating will be
more likely than a higher rated issuer to default or otherwise become unable to
honor its financial obligations. This type of issuer will typically issue junk
bonds. In addition to the risk of default, junk bonds may be more volatile,
less liquid, more difficult to value and more susceptible to adverse economic
conditions or investor perceptions than other bonds.
Illiquidity: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.
Derivatives: Derivatives are subject to general risks relating to heightened
sensitivity to market volatility, interest rate fluctuations, illiquidity and
creditworthiness of the counterparty to the derivatives transactions.
Hedging: Hedging is a strategy in which the Adviser uses a derivative security
to reduce certain risk characteristics of an underlying security or portfolio
of securities. While hedging strategies can be very useful and inexpensive ways
of reducing risk, they are sometimes ineffective due to unexpected changes in
the market. Moreover, while hedging can reduce or eliminate losses, it can also
reduce or eliminate gains.
Emerging market: An emerging market country is one that the World Bank, the In-
ternational Finance Corporation or the United Nations or its authorities has
determined to have a low or middle income economy. Historical experience indi-
cates that the markets of emerging market countries have been more volatile
than more developed markets; however, such markets can provide higher rates of
return to investors.
Euro conversion: Effective January 1, 1999, several European countries irrevo-
cably fixed their existing national currencies to a new single European cur-
rency unit, the "euro." Certain European investments may be subject to addi-
tional risks as a result of this conversion. These risks include adverse tax
and accounting consequences, as well as difficulty in processing transactions.
SunAmerica is aware of such potential problems and is coordinating efforts to
prevent or alleviate their adverse impact on the Funds. There can be no assur-
ance that a Fund will not suffer any adverse consequences as a result of the
euro conversion.
13
<PAGE>
Fund Management
- --------------------------------------------------------------------------------
Adviser. SunAmerica Asset Management Corp., which was organized in 1982 under
the laws of Delaware, selects and manages the investments, provides various ad-
ministrative services, and supervises the daily business affairs of each Fund.
In addition to managing the Funds, the Adviser serves as adviser, manager
and/or administrator for Anchor Pathway Fund, Anchor Series Trust, Style Select
Series, Seasons Series Trust, SunAmerica Income Funds, SunAmerica Money Market
Funds, Inc., and SunAmerica Series Trust. The Adviser managed, advised or ad-
ministered assets in excess of $15 billion as of October 31, 1998.
For the fiscal year ended September 30, 1998, each Fund paid the Adviser a fee
equal to the following percentage of average daily net assets:
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
Small Company Growth 0.75%
Growth and Income 0.75%
</TABLE>
The Domestic Equity Investment Team is responsible for the portfolio management
of each of the Funds. Also, the Fixed Income Investment Team assists the port-
folio management of each Fund. The Teams consist of sixteen portfolio managers,
research analysts and traders.
Distributor. SunAmerica Capital Services, Inc. serves as the Distributor of
Class Z shares and incurs the expenses of distributing the Funds' Class Z
shares under a Distribution Agreement with respect to the Funds, none of which
are reimbursed by or paid for by the Funds. There is no distribution plan in
effect for the Class Z shares.
Administrator. SunAmerica Fund Services, Inc., serves as the Administrator for
Class Z shares and receives reimbursement from the Fund of its costs, which in-
clude all direct transfer agency fees and out-of-pocket expenses allocated to
providing services to Class Z shares.
The Adviser, Distributor and Administrator are all located in The SunAmerica
Center, 733 Third Avenue, New York, New York 10017.
Year 2000. Many computer and computer-based systems cannot distinguish the year
2000 from the year 1900 because of the way they encode and calculate dates
(commonly known as the "Year 2000 Issue"). The Year 2000 Issue could poten-
tially have an adverse impact on the handling of security trades, the payment
of interest and dividends, pricing and account services. We recognize the im-
portance of the Year 2000 Issue and are taking appropriate steps necessary in
preparation for the year 2000. The Trust's management fully anticipates that
their systems will be adapted in time for the year 2000, and to further this
goal they have coordinated a plan to repair, adapt or replace their systems as
necessary. They have also obtained representations from their outside service
providers that they are doing the same. The Trust's management completed their
plan significantly by the end of the 1998 calendar year and expects to perform
appropriate systems testing during the 1999 calendar year. If the problem has
not been fully addressed, however, the Trust could be negatively impacted. The
Year 2000 Issue could also have a negative impact on the companies in which the
Trust invests, which could hurt the Trust's investment returns.
14
<PAGE>
For More Information
- --------------------------------------------------------------------------------
The following documents contain more information about the Funds and are avail-
able free of charge upon request:
Annual and Semiannual Reports. Contain financial statements, performance
data and information on portfolio holdings. The reports also contain a writ-
ten analysis of market conditions and investment strategies that signifi-
cantly affected a Fund's performance during the applicable period.
Statement of Additional Information (SAI). Contains additional information
about the Funds' policies, investment restrictions and business structure.
This prospectus incorporates the SAI by reference.
You may obtain copies of these documents or ask questions about the Funds by
contacting:
SunAmerica Fund Services, Inc.
Mutual Fund Operations
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
1-800-858-8850
or
by calling your broker or financial advisor.
Information about the Funds (including the SAI) can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission, Washing-
ton, D.C. Call (800) SEC-0330 for information on the operation of the Public
Reference Room. Information about the Funds is also available on the Securities
and Exchange Commission's web-site at http://www.sec.gov and copies may be ob-
tained upon payment of a duplicating fee by writing the Public Reference Sec-
tion of the Securities and Exchange Commission, Washington, D.C. 20549-6009.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with any different information.
[SUN AMERICA MUTUAL
FUNDS LOGO APPEARS HERE]
DISTRIBUTOR: SunAmerica Capital Services
INVESTMENT COMPANY ACT
File No. 811-4801
<PAGE>
SUNAMERICA EQUITY FUNDS
Statement of Additional Information
dated January 29, 1999
The SunAmerica Center General Marketing and
733 Third Avenue Shareholder Information
New York, NY 10017-3204 (800) 858-8850
SunAmerica Equity Funds (the "Trust") is a mutual fund consisting of six
different investment funds: SunAmerica Blue Chip Growth Fund, SunAmerica Mid-Cap
Growth Fund, SunAmerica Small Company Growth Fund, SunAmerica Growth and Income
Fund, SunAmerica Balanced Assets Fund and "Dogs" of Wall Street Fund. Each Fund
has distinct investment objectives and strategies.
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Trust's Prospectus dated January 29, 1999. To
obtain a Prospectus free of charge, please call the Trust at (800) 858-8850.
Each Prospectus is incorporated by reference into this Statement of Additional
Information. Capitalized terms used herein but not defined have the meanings
assigned to them in the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
History of the Funds........................................... B-2
Investment Objectives and Policies............................. B-3
Investment Restrictions........................................B-31
Trustees and Officers..........................................B-33
Adviser, Personal Trading, Distributor and
Administrator..................................................B-37
Portfolio Transactions and Brokerage...........................B-43
Additional Information Regarding Purchase of Shares............B-46
Additional Information Regarding Redemption of Shares..........B-54
Exchange Privilege.............................................B-54
Determination of Net Asset Value...............................B-55
Performance Data...............................................B-56
Dividends, Distributions and Taxes.............................B-62
Retirement Plans...............................................B-67
Description of Shares..........................................B-68
Additional Information.........................................B-70
Financial Statements...........................................B-74
Appendix.................................................Appendix-1
</TABLE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the 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 any of the securities offered hereby in any
jurisdiction in which such an offer to sell or solicitation of an offer to buy
any of the securities offered hereby in any jurisdiction in which such an offer
to sell or solicition of an offer to buy may not lawfully be made.
<PAGE>
This Statement of Additional Information relates to the six different
investment funds (each, a "Fund," and collectively, the "Funds") of SunAmerica
Equity Funds, a Massachusetts business trust, which is registered as an open-end
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"). The six Funds are: SunAmerica Blue Chip Growth Fund ("Blue Chip
Growth Fund"), SunAmerica Mid-Cap Growth Fund ("Mid-Cap Growth Fund"),
SunAmerica Small Company Growth Fund ("Small Company Growth Fund"), SunAmerica
Growth and Income Fund ("Growth and Income Fund"), SunAmerica Balanced Assets
Fund ("Balanced Assets Fund") and "Dogs" of Wall Street Fund.
HISTORY OF THE FUNDS
The Trust, an open-end management investment company, was organized as a
Massachusetts business trust on June 18, 1986. On September 24, 1993, the Trust
reorganized with certain SunAmerica Mutual Funds (the "Reorganization") and was
renamed "SunAmerica Equity Funds." In the Reorganization, all outstanding shares
of the two then-existing series of the Trust, the Growth Portfolio and the
Aggressive Growth Portfolio, were redesignated Class A shares and renamed the
SunAmerica Growth Fund ("Growth Fund") and the SunAmerica Emerging Growth Fund
("Emerging Growth Fund"), respectively. In addition, the SunAmerica Emerging
Growth Fund series of SunAmerica Fund Group ("Old Emerging Growth") reorganized
with, and its shareholders received Class B shares of, the Emerging Growth Fund.
With regard to the Balanced Assets Fund series of the Trust, the Total Return
Fund series of SunAmerica Multi-Asset Portfolios, Inc. ("Total Return") and the
SunAmerica Balanced Assets Fund series of SunAmerica Fund Group ("Old Balanced
Assets") reorganized with, and their shareholders received Class A and Class B
shares of the Balanced Assets Fund, respectively. The SunAmerica Capital
Appreciation Fund, Inc. ("Capital Appreciation") was reorganized with, and its
shareholders received Class B shares of, the SunAmerica Value Fund ("Value
Fund"). The Reorganization was approved by the shareholders of the Funds or
their predecessors who were entitled to vote with respect thereto on September
23, 1993.
On March 16, 1994, the Board of Trustees of the Trust (the "Trustees")
approved changing the names of the Value Fund, Growth Fund and Emerging Growth
Fund to the Blue Chip Growth Fund, Mid-Cap Growth Fund and Small Company Growth
Fund, respectively, and such name changes became effective on June 7, 1994. On
March 16, 1994, the Trustees approved the creation of the Growth and Income
Fund.
On June 18, 1996, the Trustees authorized the designation of Class Z shares
of the Balanced Assets Fund and the Small Company Growth Fund. The offering of
such Class Z shares commenced on October 1, 1996.
On November 20, 1997, the Trustees approved the designation of Class C
shares of each of the Funds. The offering of such Class C shares of the Small
Company Growth Fund and Growth and Income Fund commenced on February 2,
1998.
B-2
<PAGE>
Class Z shares of the Balanced Assets Fund ceased to be offered on April 1,
1998.
The offering of the Class Z shares of the Growth and Income Fund commenced
on April 15, 1998.
On March 17, 1998, the Trustees approved the creation of "Dogs" of Wall
Street Fund. The offering of such Fund's Class A, B and II shares commenced on
June 1, 1998. All of the Funds except "Dogs" of Wall Street Fund are
diversified.
On November 19, 1998, the Trustees redesignated Class C shares as Class II
shares for each of the Funds, except with respect to "Dogs" of Wall Street Fund
which had no Class C shares. Such offering commenced on December 1, 1998.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each of the Funds are described
in the respective Prospectus. Certain types of securities in which the Funds
may invest and certain investment practices that the Funds may employ, are
described under "More Information About the Funds --Fund Investment Strategies"
in the Prospectus and are discussed more fully below. Unless otherwise
specified, each Fund may invest in the following securities. The stated
percentage limitations are applied to an investment at the time of purchase
unless indicated otherwise.
Illiquid and Restricted Securities. No more than 15% of the value of a Fund's
net assets, determined as of the date of purchase, may be invested in illiquid
securities including repurchase agreements that 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 that 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 that 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
B-3
<PAGE>
conditions could impede a public offering of such securities. When purchasing
unregistered securities, each of the Funds will generally seek to obtain the
right of registration at the expense of the issuer (except in the case of Rule
144A securities, discussed below).
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.
For example, restricted securities that the Board of Trustees, or the
Adviser pursuant to guidelines established by the Board of Trustees, has
determined to be marketable, such as securities eligible for resale under Rule
144A promulgated under the Securities Act, or certain private placements of
commercial paper issued in reliance on an exemption from such Act pursuant to
Section 4(2) thereof, may be deemed to be liquid for purposes of this
restriction. This investment practice could have the effect of increasing the
level of illiquidity in a Fund to the extent that qualified institutional buyers
(as defined in Rule 144A) become for a time uninterested in purchasing these
restricted securities. In addition, a repurchase agreement that by its terms
can be liquidated before its nominal fixed-term on seven days or less notice is
regarded as a liquid instrument. The Adviser will monitor the 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). Subject to the applicable limitation
on illiquid securities investments, a fund may acquire securities issued by the
U.S. government, its agencies or instrumentalities in a private placement.
Commercial paper issues in which a 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 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 issued by a company that files reports under the
Securities Exchange Act of 1934, as amended, is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described above. A 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-
B-4
<PAGE>
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. Each Fund may enter into repurchase agreements only
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. 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 that reflects an agreed-upon rate of return
effective for the period of time a Fund's money is invested in the security.
Whenever a Fund enters into a repurchase agreement, it obtains collateral having
a value 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 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. 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 each
Fund's use of repurchase agreements. A Fund will not invest in repurchase
agreements maturing in more than seven days if the aggregate of such investments
along with other illiquid securities exceeds 15% of the value of its net assets.
However, there is no limit on the amount of a Fund's net assets that may be
subject to repurchase agreements having a maturity of seven days or less for
temporary defensive purposes.
Reverse Repurchase Agreements. Each Fund may enter into reverse repurchase
agreements. In a reverse repurchase agreement, the Fund sells a security 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. A 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
segregate 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."
B-5
<PAGE>
Fixed Income Securities. Each Fund except "Dogs" of Wall Street Fund may
invest, subject to the percentage and credit quality limitations stated herein
and in the Prospectus, in debt securities, including corporate obligations
issued by domestic and foreign corporations and governments and money market
instruments, without regard to the maturities of such securities.
Fixed income securities are broadly characterized as those that provide for
periodic payments to the holder of the security at a stated rate. Most fixed
income securities, such as bonds, represent indebtedness of the issuer and
provide for repayment of principal at a stated time in the future. Others do not
provide for repayment of a principal amount, although they may represent a
priority over common stockholders in the event of the issuer's liquidation. Many
fixed income securities are subject to scheduled retirement, or may be retired
or "called" by the issuer prior to their maturity dates. The interest rate on
certain fixed income securities, known as "variable rate obligations," is
determined by reference to or is a percentage of an objective standard, such as
a bank's prime rate, the 90-day Treasury bill rate, or the rate of return on
commercial paper or bank certificates of deposit, and is periodically adjusted.
Certain variable rate obligations may have a demand feature entitling the holder
to resell the securities at a predetermined amount. The interest rate on certain
fixed income securities, called "floating rate instruments," changes whenever
there is a change in a designated base rate.
The market values of fixed income securities tend to vary inversely with
the level of interest rates -- when interest rates rise, their values will tend
to decline; when interest rates decline, their values generally will tend to
rise. The potential for capital appreciation with respect to variable rate
obligations or floating rate instruments will be less than with respect to
fixed-rate obligations. Long-term instruments are generally more sensitive to
these changes than short-term instruments. The market value of fixed income
securities and therefore their yield are also affected by the perceived ability
of the issuer to make timely payments of principal and interest.
The Blue Chip Growth, Mid-Cap Growth and Small Company Growth Funds may,
under normal circumstances, invest up to 35% of total assets in debt securities
that have the potential for capital appreciation. The Blue Chip Growth, Mid-Cap
Growth and Small Company Growth Funds may invest in securities rated as low as
"BBB" by Standard & Poor's Ratings Services, a Division of the McGraw-Hill
Companies, Inc. ("Standard & Poor's") or "Baa" by Moody's Investors Service,
Inc. ("Moody's"), or unrated securities of equivalent quality.
The Growth and Income Fund generally will not invest in debt securities in
the lowest rating categories ("CC" or lower for Standard & Poor's or "Ca" or
lower for Moody's) unless the Adviser believes that the financial condition of
the issuer or the protection afforded the particular securities is stronger than
would otherwise be indicated by such low ratings. In the event the rating of a
debt security is down-graded below the lowest rating category deemed by the
Adviser to be acceptable for the Growth and Income Fund's investments, the
Adviser will determine on a case by case basis the appropriate action to serve
the interest of shareholders, including disposition of the security.
The Balanced Assets Fund will, under normal circumstances, invest at least
25% of its assets in fixed-income senior securities; however, the fixed income
component will exceed 25% when the
B-6
<PAGE>
Adviser believes such an adjustment in portfolio mix to be necessary in order to
conserve principal, such as in anticipation of a decline in the equities market.
The Balanced Assets Fund may invest up to 10% of total assets (measured at the
time of investment) in securities rated as low as "BBB" by Standard & Poor's or
"Baa" by Moody's (or determined by the Adviser to be of equivalent quality if
unrated).
"Investment grade" is a designation applied to intermediate and long-term
corporate debt securities rated within the highest four rating categories
assigned by Standard & Poor's (AAA, AA, A or BBB) or by Moody's (Aaa, Aa, A or
Baa), or, if unrated, considered by the Adviser to be of comparable quality. The
ability of the issuer of an investment grade debt security to pay interest and
to repay principal is considered to vary from extremely strong (for the highest
ratings) through adequate (for the lowest ratings given above), although the
lower-rated investment grade securities may be viewed as having speculative
elements as well.
Those debt securities rated "BBB" or "Baa," while considered to be
"investment grade," may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. As a consequence of the foregoing, the opportunities for income and gain
may be limited. While the Funds have no stated policy with respect to the
disposition of securities whose ratings fall below investment grade, each
occurrence is examined by the Adviser to determine the appropriate course of
action.
Risks of Investing in Lower Rated Bonds. As described above, debt
securities in which the Growth and Income Fund may invest may be in the lower
rating categories of recognized rating agencies (that is, ratings of Ba or lower
by Moody's or BB or lower by Standard & Poor's (and comparable unrated
securities) (commonly known as "junk bonds"). For a description of these and
other rating categories, see Appendix. No minimum rating standard is required
for a purchase by the Fund.
Such high yield bonds can be expected to provide higher yields, but may be
subject to greater market price fluctuations and risk of loss of principal than
lower yielding, higher rated fixed income securities. High yield bonds may be
issued by less creditworthy companies or by larger, highly leveraged companies.
It should be noted that lower-rated securities are subject to risk factors such
as (a) vulnerability to economic downturns and changes in interest rates; (b)
sensitivity to adverse economic changes and corporate developments; (c)
redemption or call provisions that may be exercised at inopportune times; (d)
difficulty in accurately valuing or disposing of such securities; (e) federal
legislation that could affect the market for such securities; and (f) special
adverse tax consequences associated with investments in certain high-yield,
high-risk bonds.
High yield bonds, like other bonds, may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest
rate market, the Fund would have to replace the security with a lower yielding
security, resulting in lower return for investors. Conversely, a high yield
bond's value will decrease in a rising interest rate market.
B-7
<PAGE>
There is a thinly traded market for high yield bonds, and recent market
quotations may not be available for some of these bonds. Market quotations are
generally available only from a limited number of dealers and may not represent
firm bids from such dealers or prices for actual sales. As a result, a Fund may
have difficulty valuing the high yield bonds in their portfolios accurately and
disposing of these bonds at the time or price desired. Under such conditions,
judgment may play a greater role in valuing certain of the Fund's portfolio
securities than in the case of securities trading in a more liquid market.
Ratings assigned by Moody's and Standard & Poor's to high yield bonds, like
other bonds, attempt to evaluate the safety of principal and interest payments
on those bonds. However, such ratings do not assess the risk of a decline in
the market value of those bonds. In addition, ratings may fail to reflect
recent events in a timely manner and are subject to change. If a rating with
respect to a portfolio security is changed, the Adviser will determine whether
the security will be retained based upon the factors the Adviser considers in
acquiring or holding other securities in the portfolio. Investment in high yield
bonds may make achievement of the Fund's objective more dependent on the
Adviser's own credit analysis than is the case for higher-rated bonds.
Market prices for high yield bonds tend to be more sensitive than those for
higher-rated securities due to many of the factors described above, including
the credit-worthiness of the issuer, redemption or call provisions, the
liquidity of the secondary trading market and changes in credit ratings, as well
as interest rate movements and general economic conditions. In addition, yields
on such bonds will fluctuate over time. An economic downturn could severely
disrupt the market for high yield bonds. In addition, legislation impacting
high yield bonds may have a materially adverse effect on the market for such
bonds. For example, federally insured savings and loan associations have been
required to divest their investments in high yield bonds.
The risk of default in payment of principal and interest on high yield
bonds is significantly greater than with higher-rated debt securities because
high yield bonds are generally unsecured and are often subordinated to other
obligations of the issuer, and because the issuers of high yield bonds usually
have high levels of indebtedness and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates. Upon a default,
bondholders may incur additional expenses in seeking recovery.
As a result of all these factors, the net asset value of the Fund, to the
extent it invests in high yield bonds, is expected to be more volatile than the
net asset value of funds that invest solely in higher-rated debt securities.
This volatility may result in an increased number of redemptions from time to
time. High levels of redemptions in turn may cause the Fund to sell its
portfolio securities at inopportune times and decrease the asset base upon which
expenses can be spread.
Zero Coupon Bonds, Deferred Interest Bonds and PIK Bonds. Fixed income
securities in which the Growth and Income Fund may invest also include zero
coupon bonds, deferred interest bonds and bonds on which the interest is payable
in kind ("PIK bonds"). Zero coupon and deferred interest bonds are debt
obligations issued or purchased at a significant discount from face value. PIK
bonds are debt obligations that provide that the issuer thereof may, at its
option, pay interest on such
B-8
<PAGE>
bonds in cash or in the form of additional debt obligations. Such investments
may experience greater volatility in market value due to changes in interest
rates and other factors than debt obligations that make regular payments of
interest. The Fund will accrue income on such investments for tax and accounting
purposes, as required, which is distributable to shareholders and which, because
no cash is received at the time of accrual, may require the liquidation of other
portfolio securities under disadvantageous circumstances to satisfy the Fund's
distribution obligations.
Short-Term and Temporary Defensive Instruments. In addition to their primary
investments, each Fund, except as described below, may also invest up to 10% of
its total assets in money market instruments for liquidity purposes (to meet
redemptions and expenses). For temporary defensive purposes, each Fund, except
as described below, 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). "Dogs" of Wall Street Fund may invest in money market
instruments pending investment in the stocks selected through its investment
strategy and does not intend to invest any of its assets in fixed income
securities. A description of securities ratings is contained in the Appendix to
this Statement of Additional Information.
Subject to the limitations described above and below, the following is a
description of the types of money market and fixed income securities in which
the Funds may invest:
U.S. Government Securities: See the section entitled "U.S. Government
Securities" below.
Commercial Paper: Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by entities in order to finance
their current operations. A Fund's commercial paper investments may include
variable amount master demand notes and floating rate or variable rate notes.
Variable amount master demand notes and variable amount floating rate notes are
obligations that permit the investment of fluctuating amounts by a Fund at
varying rates of interest pursuant to direct arrangements between a Fund, as
lender, and the borrower. Master demand notes permit daily fluctuations in the
interest rates while the interest rate under variable amount floating rate notes
fluctuates on a weekly basis. These notes permit daily changes in the amounts
borrowed. A Fund has the right to increase the amount under these notes at any
time up to the full amount provided by the note agreement, or to decrease the
amount, and the borrower may repay up to the full amount of the note without
penalty. Because these types of notes are direct lending arrangements between
the lender and the borrower, it is not generally contemplated that such
instruments will be traded, and there is no secondary market for these notes.
Master demand notes are redeemable (and, thus, immediately repayable by the
borrower) at face value, plus accrued interest, at any time. Variable amount
floating rate notes are subject to next-day redemption 14 days after the initial
investment therein. With both types of notes, therefore, a Fund's right to
redeem depends on the ability of the borrower to pay principal and interest on
demand. In connection with both types of note arrangements, a Fund considers
earning power, cash flow and other liquidity ratios of the issuer. These notes,
as such, are not typically rated by credit rating agencies. Unless they are so
rated, a Fund may invest in them only if at the time of an investment the issuer
has an outstanding
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issue of unsecured debt rated in one of the two highest categories by a
nationally recognized statistical rating organization. The Funds will generally
purchase commercial paper only of companies of medium to large capitalizations
(i.e., $1 billion or more).
Certificates of Deposit and Bankers' Acceptances: Certificates of deposit
are receipts issued by a bank in exchange for the deposit of funds. The issuer
agrees to pay the amount deposited plus interest to the bearer of the receipt on
the date specified on the certificate. The certificate usually can be traded in
the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by another bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most maturities are six months or less.
The Funds will generally open interest-bearing accounts only with, or
purchase certificates of deposit, time deposits or bankers' acceptances only
from, banks or savings and loan associations whose deposits are federally-
insured and whose capital is at least $50 million.
Corporate Obligations: Corporate debt obligations (including master demand
notes). For a further description of variable amount master demand notes, see
the section entitled "Commercial Paper" above.
Repurchase Agreements: See the section entitled "Repurchase Agreements"
above.
U.S. Government Securities. Each Fund except "Dogs" of Wall Street Fund may
invest in U.S. Treasury securities, including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These instruments are direct
obligations of the U.S. government and, as such, are backed by the "full faith
and credit" of the United States. They differ primarily in their interest rates,
the lengths of their maturities and the dates of their issuances. For these
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.
Such a Fund may also invest in securities issued by agencies of the U.S.
government or instrumentalities of the U.S. government. These obligations,
including those guaranteed by federal agencies or instrumentalities, may or may
not be backed by the "full faith and credit" of the United States. Obligations
of the Government National Mortgage Association ("GNMA"), the Farmer's Home
Administration ("FMHA") and the Export-Import Bank are backed by the full faith
and credit of the United States.
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Such a 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, Central Bank for
Cooperatives, Federal Intermediate Credit Banks and Federal Home Loan Banks. In
the case of securities not backed by the full faith and credit of the United
States, a Fund must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States if the agency or instrumentality does not meet its
commitments.
The Balanced Assets Fund may, in addition to the U.S. government securities
noted above, invest in mortgage-backed securities (including private mortgage-
backed securities), such as GNMA, FNMA or FHLMC certificates (as defined below),
which represent an undivided ownership interest in a pool of mortgages. The
mortgages backing these securities include conventional thirty-year fixed-rate
mortgages, fifteen-year fixed-rate mortgages, graduated payment mortgages and
adjustable rate mortgages. The U.S. government or the issuing agency guarantees
the payment of interest and principal of these securities. However, the
guarantees do not extend to the securities' yield or value, which are likely to
vary inversely with fluctuations in interest rates. These certificates are in
most cases pass-through instruments, through which the holder receives a share
of all interest and principal payments, including prepayments, on the mortgages
underlying the certificate, net of certain fees.
The yield on mortgage-backed securities is based on the average expected
life of the underlying pool of mortgage loans. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through certificates.
Mortgage-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying mortgage obligations. Thus, the
actual life of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally result from
the sale of the underlying property or the refinancing or foreclosure of
underlying mortgages. The occurrence of prepayments is affected by a wide range
of economic, demographic and social factors. Yield on such pools is usually
computed by using the historical record of prepayments for that pool, or, in the
case of newly-issued mortgages, the prepayment history of similar pools. The
actual prepayment experience of a pool of mortgage loans may cause the yield
realized by the Balanced Assets Fund to differ from the yield calculated on the
basis of the expected average life of the pool.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as does the value of other debt securities, but, when
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prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The reinvestment of scheduled
principal payments and unscheduled prepayments that the Balanced Assets Fund
receives may occur at higher or lower rates than the original investment, thus
affecting the yield of the Fund. Monthly interest payments received by the
Balanced Assets Fund have a compounding effect, which may increase the yield to
shareholders more than debt obligations that pay interest semi-annually.
Because of those factors, mortgage-backed securities may be less effective than
U.S. Treasury bonds of similar maturity at maintaining yields during periods of
declining interest rates. Accelerated prepayments adversely affect yields for
pass-through securities purchased at a premium (i.e., at a price in excess of
principal amount) and may involve additional risk of loss of principal because
the premium may not have been fully amortized at the time the obligation is
repaid. The opposite is true for pass-through securities purchased at a
discount. The Balanced Assets Fund may purchase mortgage-backed securities at a
premium or at a discount.
The following is a description of GNMA, FNMA and FHLMC certificates, the
most widely available mortgage-backed securities:
GNMA Certificates. GNMA Certificates are mortgage-backed securities that
evidence an undivided interest in a pool or pools of mortgages. GNMA
Certificates that the Balanced Assets Fund may purchase are the modified pass-
through type, which entitle the holder to receive timely payment of all interest
and principal payments due on the mortgage pool, net of fees paid to the issuer
and GNMA, regardless of whether or not the mortgagor actually makes the payment.
GNMA guarantees the timely payment of principal and interest on securities
backed by a pool of mortgages insured by the Federal Housing Administration
("FHA") or the FMHA, or guaranteed by the Veterans Administration ("VA"). The
GNMA guarantee is authorized by the National Housing Act and is backed by the
full faith and credit of the United States. The GNMA is also empowered to
borrow without limitation from the U.S. Treasury if necessary to make any
payments required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosure will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that a Fund has
purchased the certificates at a premium in the secondary market.
FHLMC Certificates. The FHLMC issues two types of mortgage pass-through
securities: mortgage participation certificates ("PCs") and guaranteed mortgage
certificates ("GMCs") (collectively, "FHLMC Certificates"). PCs resemble GNMA
Certificates in that each PC represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. The FHLMC guarantees
timely monthly payment of interest (and, under certain circumstances, principal)
of PCs and the ultimate payment of principal.
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GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years. The FHLMC guarantee is not backed by the full faith
and credit of the U.S. Government.
FNMA Certificates. The FNMA issues guaranteed mortgage pass-through
certificates ("FNMA Certificates"). FNMA Certificates represent a pro rata
share of all interest and principal payments made and owed on the underlying
pool. FNMA guarantees timely payment of interest and principal on FNMA
Certificates. The FNMA guarantee is not backed by the full faith and credit of
the U.S. Government.
Another type of mortgage-backed security in which the Balanced Assets Fund
may invest is a collateralized mortgage obligation ("CMO"). CMOs are fully
collateralized bonds that are the general obligations of the issuer thereof
(i.e., the U.S. government, a U.S. government instrumentality, or a private
issuer). Such bonds generally are secured by an assignment to a trustee (under
the indenture pursuant to which the bonds are issued) of collateral consisting
of a pool of mortgages. Payments with respect to the underlying mortgages
generally are made to the trustee under the indenture. Payments of principal and
interest on the underlying mortgages are not passed through to the holders of
the CMOs as such (i.e., the character of payments of principal and interest is
not passed through, and therefore payments to holders of CMOs attributable to
interest paid and principal repaid on the underlying mortgages do not
necessarily constitute income and return of capital, respectively, to such
holders), but such payments are dedicated to payment of interest on and
repayment of principal of the CMOs. CMOs often are issued in two or more classes
with varying maturities and stated rates of interest. Because interest and
principal payments on the underlying mortgages are not passed through to holders
of CMOs, CMOs of varying maturities may be secured by the same pool of
mortgages, the payments on which are used to pay interest on each class and to
retire successive maturities in sequence. Unlike other mortgage-backed
securities, CMOs are designed to be retired as the underlying mortgages are
repaid. In the event of prepayment on such mortgages, the class of CMO first to
mature generally will be paid down. Therefore, although in most cases the issuer
of CMOs will not supply additional collateral in the event of such prepayment,
there will be sufficient collateral to secure CMOs that remain outstanding.
Certain CMOs may be deemed to be investment companies under the 1940 Act.
The Balanced Assets Fund intends to conduct operations in a manner consistent
with this view, and therefore generally may not invest more than 10% of its
total assets in such issuers without obtaining appropriate regulatory relief.
In reliance on Securities and Exchange Commission ("SEC") staff interpretations,
the Fund may invest in those CMOs and other mortgage-backed securities that are
not by definition excluded from the provisions of the 1940 Act but have obtained
exemptive orders from the SEC from such provisions.
The Balanced Assets Fund may also invest in stripped mortgage-backed
securities. Stripped mortgage-backed securities are often structured with two
classes that receive different proportions of the interest and principal
distributions on a pool of mortgage assets. Stripped mortgage-backed securities
have greater market volatility than other types of U.S. government securities in
which a
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Fund invests. A common type of stripped mortgage-backed security has one class
receiving some of the interest and all or most of the principal (the "principal
only" class) from the mortgage pool, while the other class will receive all or
most of the interest (the "interest only" class). The yield to maturity on an
interest only class is extremely sensitive not only to changes in prevailing
interest rates, but also to the rate of principal payments, including principal
prepayments, on the underlying pool of mortgage assets, and a rapid rate of
principal payment may have a material adverse effect on the Fund's yield. While
interest only and principal only securities are generally regarded as being
illiquid, such securities may be deemed to be liquid if they can be disposed of
promptly in the ordinary course of business at a value reasonably close to that
used in the calculation of the Fund's net asset value per share. Only government
interest only and principal only securities backed by fixed-rate mortgages and
determined to be liquid under guidelines and standards established by the
Trustees may be considered liquid securities not subject to a Fund's limitation
on investments in illiquid securities.
Investment in Small, Unseasoned Companies. As described in the Prospectus, the
Small Company Growth Fund will invest, and each other Fund except for "Dogs" of
Wall Street Fund may invest, in the securities of small companies having market
capitalizations under $1 billion. These securities may have a limited trading
market, which may adversely affect their disposition and can result in their
being priced lower than might otherwise be the case. It may be difficult to
obtain reliable information and financial data on such companies and the
securities of these small companies may not be readily marketable, making it
difficult to dispose of shares when desirable. A risk of investing in smaller,
emerging companies is that they often are at an earlier stage of development and
therefore have limited product lines, market access for such products, financial
resources and depth in management as compared to larger, more established
companies, and their securities may be subject to more abrupt or erratic market
movements than securities of larger, more established companies or the market
averages in general. In addition, certain smaller issuers may face difficulties
in obtaining the capital necessary to continue in operation and may go into
bankruptcy, which could result in a complete loss of an investment. Smaller
companies also may be less significant factors within their industries and may
have difficulty withstanding competition from larger companies. If other
investment companies and investors who invest in such issuers trade the same
securities when a Fund attempts to dispose of its holdings, the Fund may receive
lower prices than might otherwise be obtained. While smaller companies may be
subject to these additional risks, they may also realize more substantial growth
than larger, more established companies.
Companies with market capitalization of $1 billion to $5 billion ("Mid-Cap
Companies") may also suffer more significant losses as well as realize more
substantial growth than larger, more established issuers. Thus, investments in
such companies tend to be more volatile and somewhat speculative. Each Fund may
invest in the securities of Mid-Cap Companies.
Warrants and Rights. Each Fund may invest in warrants, which give the holder of
the warrant a right to purchase a given number of shares of a particular issue
at a specified price until expiration (generally two or more years). 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
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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. Rights represent a preemptive right of stockholders to purchase
additional shares of a stock at the time of a new issuance before the stock is
offered to the general public, allowing the stockholder to retain the same
ownership percentage after the new stock offering.
When-Issued and Delayed Delivery Securities. Each Fund may purchase or sell
such securities on a "when-issued" or "delayed delivery" basis. Although a Fund
will enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement. "When-issued" or
"delayed delivery" refers to securities whose terms and indenture are available
and for which a market exists, but which are not available for immediate
delivery. When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made, but
delivery and payment for the securities take place at a later date. During the
period between commitment by a Fund and settlement (generally within two months
but not to exceed 120 days), no payment is made for the securities purchased by
the purchaser, and no interest accrues to the purchaser from the transaction.
Such securities are subject to market fluctuation, and the value at delivery may
be less than the purchase price. A Fund will maintain a segregated account with
its custodian, consisting of cash, 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, a Fund will either segregate the securities
sold or liquid assets of a comparable value.
A Fund will engage in when-issued transactions in order to secure what is
considered to be an advantageous price and yield at the time of entering into
the obligation. When a Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure to do so may result in a Fund losing the
opportunity to obtain a price and yield considered to be advantageous. If a
Fund chooses to (i) dispose of the right to acquire a when-issued security prior
to its acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss. (At the time a Fund makes a
commitment to purchase or sell a security on a when-issued or forward commitment
basis, it records the transaction and reflects the value of the security
purchased, or if a sale, the proceeds to be received in determining its net
asset value.)
To the extent a Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling securities
consistent with its investment objectives and policies and not for the purposes
of investment leverage. A Fund enters into such transactions only with the
intention of actually receiving or delivering the securities, although (as noted
above) when-issued securities and forward commitments may be sold prior to 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 a Fund.
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When-issued transactions and forward commitments may be used to offset
anticipated changes in interest rates and prices. For instance, in periods of
rising interest rates and falling prices, a Fund might sell securities in its
portfolio on a forward commitment basis to attempt to limit its exposure to
anticipated falling prices. In periods of falling interest rates and rising
prices, a Fund might sell portfolio securities and purchase the same or similar
securities on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields.
Foreign Securities. Investments in foreign securities offer potential benefits
not available from investments solely in securities of domestic issuers by
offering the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or business
cycles different from those of the U.S., or to reduce fluctuations in portfolio
value by taking advantage of foreign stock markets that do not move in a manner
parallel to U.S. markets. Although foreign securities are generally not
expected to constitute a significant portion of any Fund's investment portfolio,
each Fund except "Dogs" of Wall Street Fund is authorized to invest, without
limitation, in foreign securities. A Fund may purchase securities issued by
issuers in any country; provided that a Fund may not invest more than 25% of its
total assets in the securities issued by entities domiciled in any one foreign
country.
Each Fund may invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs), European Depository Receipts (EDRs), Global
Depository Receipts (GDRs) or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are securities, typically issued by a U.S. financial
institution, that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depository. ADRs
may be sponsored or unsponsored. A sponsored ADR is issued by a depository that
has an exclusive relationship with the issuer of the underlying security. An
unsponsored ADR may be issued by any number of U.S. depositories. Holders of
unsponsored ADRs generally bear all the costs associated with establishing the
unsponsored ADR. The depository of an unsponsored ADR is under no obligation to
distribute shareholder communications received from the underlying issuer or to
pass through to the holders of the unsponsored ADR voting rights with respect to
the deposited securities or pool of securities. A Fund may invest in either
type of ADR. Although the U.S. investor holds a substitute receipt of ownership
rather than direct stock certificates, the use of the depository receipts in the
United States can reduce costs and delays as well as potential currency exchange
and other difficulties. The Fund may purchase securities in local markets and
direct delivery of these ordinary shares to the local depository of an ADR agent
bank in the foreign country. Simultaneously, the ADR agents create a
certificate that settles at the Fund's custodian in five days. The Fund may
also execute trades on the U.S. markets using existing ADRs. A foreign issuer
of the security underlying an ADR is generally not subject to the same reporting
requirements in the United States as a domestic issuer. Accordingly the
information available to a U.S. investor will be limited to the information the
foreign issuer is required to disclose in its own country and the market value
of an ADR may not reflect undisclosed material information concerning the issuer
of the underlying security. For purposes of a Fund's investment policies, the
Fund's investments in these types of securities will be deemed to be investments
in the underlying securities. Generally
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ADRs, in registered form, are dollar denominated securities designed for use in
the U.S. securities markets, which represent and may be converted into the
underlying foreign security. EDRs, in bearer form, are designed for use in the
European securities markets.
Each Fund except "Dogs" of Wall Street Fund also may invest in securities
denominated in European Currency Units (ECUs). An ECU is a "basket" consisting
of specified amounts of currencies of certain of the twelve member states of the
European Community. In addition, the Funds may invest in securities denominated
in other currency "baskets."
Investments in foreign securities, including securities of emerging market
countries, present special additional investment risks and considerations not
typically associated with investments in domestic securities, including
reduction of income by foreign taxes; fluctuation in value of foreign portfolio
investments due to changes in currency rates and control regulations (i.e.,
currency blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers; less volume on foreign exchanges than on U.S. exchanges; greater
volatility and less liquidity on foreign markets than in the U.S.; less
regulation of foreign issuers, stock exchanges and brokers than the U.S.;
greater difficulties in commencing lawsuits; higher brokerage commission rates
and custodian fees than the U.S.; increased possibilities in some countries of
expropriation, confiscatory taxation, political, financial or social instability
or adverse diplomatic developments; the imposition of foreign taxes on
investment income derived from such countries and differences (which may be
favorable or unfavorable) between the U.S. economy and foreign economies. An
emerging market country is one that the World Bank, the International Finance
Corporation or the United Nations or its authorities has determined to have a
low or middle income economy. Historical experience indicates that the markets
of emerging market countries have been more volatile than more developed
markets; however, such markets can provide higher rates of return to investors.
The performance of investments in securities denominated in a foreign currency
("non-dollar securities") will depend on, among other things, the strength of
the foreign currency against the dollar and the interest rate environment in the
country issuing the foreign currency. Absent other events that could otherwise
affect the value of non-dollar securities (such as a change in the political
climate or an issuer's credit quality), appreciation in the value of the foreign
currency generally can be expected to increase the value of a Fund's non-dollar
securities in terms of U.S. dollars. A rise in foreign interest rates or decline
in the value of foreign currencies relative to the U.S. dollar generally can be
expected to depress the value of the Fund's non-dollar securities. Currencies
are evaluated on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments status
and economic policies) as well as technical and political data. Effective
January 1, 1999, several European countries irrevocably fixed their existing
national currencies to a new single European currency unit, the "euro." Certain
European investments may be subject to additional risks as a result of this
conversion. These risks include adverse tax and accounting consequences, as well
as difficulty in processing transactions. The Adviser is aware of such potential
problems and is coordinating efforts to prevent or alleviate their adverse
impact on the Funds. There can be no assurance that a Fund will not suffer any
adverse consequences as a result of the euro conversion.
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Because the Funds may invest in securities that are primarily listed on
foreign exchanges that trade on weekends or other days when the Trust does not
price its shares, the value of these Fund's shares may change on days when a
shareholder will not be able to purchase or redeem shares.
Loans of Portfolio Securities. Consistent with applicable regulatory
requirements, each 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, a
Fund receives income while retaining the securities' potential for capital
appreciation. The advantage of such loans is that a Fund continues to receive
the interest and dividends on the loaned securities while at the same time
earning interest on the collateral, which will be invested in short-term debt
securities, including repurchase agreements. A loan may be terminated by the
borrower on one business day's notice or by a Fund at any time. If the borrower
fails to maintain the requisite amount of collateral, the loan automatically
terminates, and the Fund could use the collateral to replace the securities
while holding the borrower liable for any 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 be made only to firms deemed by the Adviser to be creditworthy.
On termination of the loan, the borrower is required to return the securities to
a Fund; and any gain or loss in the market price of the loaned security during
the loan would inure to the Fund. Each Fund will pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.
Since voting or consent rights that accompany loaned securities pass to the
borrower, each Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
that are the subject of the loan.
Corporate Transactions Involving Portfolio Companies. "Dogs" of Wall Street
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 "Dogs" of Wall Street 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 "Dogs" of Wall Street 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 "Dogs" of Wall
Street Fund's portfolio is automatically exchanged for a stock of another
company, "Dogs" of Wall Street Fund will hold the newly acquired stock until
such time as "Dogs" of Wall Street Fund's entire portfolio is rebalanced;
however, "Dogs" of Wall Street Fund would not add to this position when it
invests new cash flow. In the event that "Dogs" of Wall Street Fund were to
receive cash in exchange for its entire position in an issuer upon a corporate
event, "Dogs" of Wall Street Fund would not replace the issuer in its portfolio,
but would hold only 29 stocks for the balance of the calendar year.
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Diversification. All of the Funds except "Dogs" of Wall Street Fund are
classified as "diversified" for purposes of the 1940 Act. As a "non-
diversified" fund, "Dogs" of Wall Street 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 "Dogs" of Wall Street 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 "Dogs"
of Wall Street Fund invests in a limited number of issuers, the performance of
particular securities may adversely affect the performance of "Dogs" of Wall
Street Fund or subject "Dogs" of Wall Street Fund to greater price volatility
than that experienced by diversified investment companies.
"Dogs" of Wall Street 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
under the Code, a Fund must, among other things, diversify its holdings so that,
at the end of each quarter of the taxable year, (i) at least 50% of the market
value of its 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 its 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 "Dogs" of
Wall Street Fund's strategy would result in a violation of these requirements of
the Code, it would be required to deviate from its strategy to the extent
necessary to avoid losing its status as a regulated investment company.
Derivatives Strategies. Each Fund may write (i.e., sell) call options ("calls")
on securities traded on U.S. and foreign securities exchanges and over-the-
counter markets to enhance income through the receipt of premiums from expired
calls and any net profits from closing purchase transactions except that "Dogs"
of Wall Street Fund does not intend to write call options on securities traded
on foreign securities exchanges. After any such sale up to 100% of a Fund's
total assets may be subject to calls. All such calls written by a Fund must be
"covered" while the call is outstanding (i.e., the Fund must own the securities
subject to the call or other securities acceptable for applicable escrow
requirements). 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.
The Balanced Assets Fund also may write put options ("puts"), which give
the holder of the option the right to sell the underlying security to the Fund
at the stated exercise price. The Fund will receive a premium for writing a put
option that increases the Fund's return. The Fund writes only covered put
options, which means that so long as the Fund is obligated as the writer of the
option it will, through its custodian, have deposited and maintained cash or
liquid securities denominated in U.S. dollars or non-U.S. currencies with a
securities depository with a value equal to or greater than the exercise price
of the underlying securities.
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Hedging Strategies. For hedging purposes as a temporary defensive maneuver,
each Fund, except as described below, may also use interest rate futures
contracts, foreign currency futures contracts, and stock and bond index futures
contracts (together, "Futures"); forward contracts on foreign currencies
("Forward Contracts"); and call and put options on equity and debt securities,
Futures, stock and bond indices and foreign currencies (all the foregoing
referred to as "Hedging Instruments"). 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. Hedging Instruments
may be used to attempt to: (i) protect against possible declines in the market
value of a Fund's portfolio resulting from downward trends in the equity and
debt securities markets (generally due to a rise in interest rates); (ii)
protect a Fund's unrealized gains in the value of its equity and debt securities
that have appreciated; (iii) facilitate selling securities for investment
reasons; (iv) establish a position in the equity and debt securities markets as
a temporary substitute for purchasing particular equity and debt securities; or,
except with respect to "Dogs" of Wall Street Fund, (v) reduce the risk of
adverse currency fluctuations. "Dogs" of Wall Street Fund does not intend to
use Forward Contracts on foreign currencies, call and put options on foreign
currencies or foreign currency Futures contracts.
Each Fund except "Dogs" of Wall Street Fund may use spread transactions for
any lawful purpose consistent with the Fund's investment objective. A Fund may
purchase covered spread options from securities dealers. Such covered spread
options are not presently exchange-listed or exchange-traded. The purchase of a
spread option gives a Fund the right to put, or sell, a security that it owns at
a fixed dollar spread or fixed yield spread in relationship to another security
that the Fund does not own, but which is used as a benchmark. The risk to a Fund
in purchasing covered spread options is the cost of the premium paid for the
spread option and any transaction costs. In addition, there is no assurance that
closing transactions will be available. The purchase of spread options will be
used to protect a Fund against adverse changes in prevailing credit quality
spreads, i.e., the yield spread between high quality and lower quality
securities. Such protection is provided only during the life of the spread
option.
A Fund's strategy of hedging with Futures and options on Futures will be
incidental to its activities in the underlying cash market. When hedging to
attempt to protect against declines in the market value of a Fund's portfolio,
to permit a Fund to retain unrealized gains in the value of portfolio securities
that have appreciated, or to facilitate selling securities for investment
reasons, a Fund could: (i) sell Futures; (ii) purchase puts on such Futures or
securities; or (iii) write calls on securities held by it or on Futures. When
hedging to attempt to protect against the possibility that portfolio securities
are not fully included in a rise in value of the debt securities market, a Fund
could: (i) purchase Futures, or (ii) purchase calls on such Futures or on
securities. When hedging to protect against declines in the dollar value of a
foreign currency-denominated security, a Fund could: (i) purchase puts on that
foreign currency and on foreign currency Futures; (ii) write calls on that
currency or on such Futures; or (iii) enter into Forward Contracts at a lower
rate than the spot ("cash") rate. "Dogs" of Wall Street Fund does not intend to
use this strategy. Additional information about the Hedging Instruments the
Funds may use is provided below.
B-20
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Options
Options on Securities. As noted above, each Fund may write and purchase
call and put options (including yield curve options) on equity and debt
securities except that "Dogs" of Wall Street Fund does not intend to engage in
yield curve options or options on debt securities.
When a Fund writes a call on a security it receives a premium and agrees to
sell the underlying security to a purchaser of a corresponding call on the same
security during the call period (usually not more than 9 months) at a fixed
price (which may differ from the market price of the underlying security),
regardless of market price changes during the call period. In such instance, the
Fund retains the risk of loss should the price of the underlying security
increase during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, a Fund may purchase a
corresponding call in a "closing purchase transaction." A profit or loss will
be realized, depending upon whether the net of the amount of the option
transaction costs and the premium received on the call written was more or less
than the price of the call subsequently purchased. A profit may also be
realized if the call expires unexercised, because a Fund retains the underlying
security and the premium received.
If a Fund could not effect a closing purchase transaction due to lack of a
market, it would hold the callable securities until the call expired or was
exercised.
When a Fund purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period at a fixed exercise price. A Fund benefits only if the call is
sold at a profit or if, during the call period, the market price of the
underlying investment is above the sum of the call price plus the transaction
costs and the premium paid and the call is exercised. If the call is not
exercised or sold (whether or not at a profit), it will become worthless at its
expiration date and a Fund will lose its premium payment and the right to
purchase the underlying investment.
A put option on securities gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying investment at the exercise price
during the option period. Writing a put covered by segregated liquid assets
equal to the exercise price of the put has the same economic effect to a Fund as
writing a covered call. The premium a Fund receives from writing a put option
represents a profit as long as the price of the underlying investment remains
above the exercise price. However, a Fund has also assumed the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise price, even though the value of the investment may fall below the
exercise price. If the put expires unexercised, a Fund (as the writer of the
put) realizes a gain in the amount of the premium. If the put is exercised, a
Fund must fulfill its obligation to purchase the underlying investment at the
exercise price, which will usually exceed the market value of the investment at
that time. In that case, a Fund may incur a loss, equal to the sum of the sale
price of the underlying investment and the premium received minus the sum of the
exercise price and any transaction costs incurred.
B-21
<PAGE>
A Fund may effect a closing purchase transaction to realize a profit on an
outstanding put option it has written or to prevent an underlying security from
being put. Furthermore, effecting such a closing purchase transaction will
permit a Fund to write another put option to the extent that the exercise price
thereof is secured by the deposited assets, or to utilize the proceeds from the
sale of such assets for other investments by the Fund. A Fund will realize a
profit or loss from a closing purchase transaction if the cost of the
transaction is less or more than the premium received from writing the option.
When a Fund purchases a put, it pays a premium and has the right to sell
the underlying investment to a seller of a corresponding put on the same
investment during the put period at a fixed exercise price. Buying a put on an
investment a Fund owns enables the Fund to protect itself during the put period
against a decline in the value of the underlying investment below the exercise
price by selling such underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is
equal to or above the exercise price and as a result the put is not exercised or
resold, the put will become worthless at its expiration date, and the Fund will
lose its premium payment and the right to sell the underlying investment
pursuant to the put. The put may, however, be sold prior to expiration (whether
or not at a profit).
Buying a put on an investment a Fund does not own permits the Fund either
to resell the put or buy the underlying investment and sell it at the exercise
price. The resale price of the put will vary inversely with the price of the
underlying investment. If the market price of the underlying investment is
above the exercise price and as a result the put is not exercised, the put will
become worthless on its expiration date. In the event of a decline in the stock
market, a Fund could exercise or sell the put at a profit to attempt to offset
some or all of its loss on its portfolio securities.
When writing put options on securities, to secure its obligation to pay for
the underlying security, a Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
A Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets. As long as the obligation of a Fund as the
put writer continues, it may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring a Fund to take delivery of the
underlying security against payment of the exercise price. A Fund has no
control over when it may be required to purchase the underlying security, since
it may be assigned an exercise notice at any time prior to the termination of
its obligation as the writer of the put. This obligation terminates upon
expiration of the put, or such earlier time at which a Fund effects a closing
purchase transaction by purchasing a put of the same series as that previously
sold. Once a Fund has been assigned an exercise notice, it is thereafter not
allowed to effect a closing purchase transaction.
Options on Foreign Currencies. Each Fund except "Dogs" of Wall Street Fund
may write and purchase puts and calls on foreign currencies. A call written on a
foreign currency by a Fund is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate right to acquire
that foreign currency without additional cash consideration (or for additional
cash consideration held in a segregated account by the Fund) upon conversion or
exchange of other foreign currency held in its portfolio. A put option is
"covered" if the Fund
B-22
<PAGE>
segregates cash or liquid securities with a value at least equal to the exercise
price of the put option. A call written by a Fund on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security that the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option due to an adverse change in the exchange rate. In such circumstances, a
Fund collateralizes the option by segregating cash or liquid securities in an
amount not less than the value of the underlying foreign currency in U.S.
dollars marked-to-market daily. As with other kinds of option transactions, the
writing of an option on currency will constitute only a partial hedge, up to the
amount of the premium received. A Fund could be required to purchase or
sell currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on currency may constitute an effective hedge against
exchange rate fluctuations; however, in the event of exchange rate movements
adverse to a Fund's position, the Fund may forfeit the entire amount of the
premium plus related transaction costs.
Options on Securities Indices. As noted above, each Fund may write and
purchase call and put options on securities indices. Puts and calls on broadly-
based securities indices are similar to puts and calls on securities except that
all settlements are in cash and gain or loss depends on changes in the index in
question (and thus on price movements in the securities market generally) rather
than on price movements in individual securities or Futures. When a Fund buys a
call on a securities index, it pays a premium. During the call period, upon
exercise of a call by a Fund, a seller of a corresponding call on the same
investment will pay the Fund an amount of cash to settle the call if the closing
level of the securities index upon which the call is based is greater than the
exercise price of the call. That cash payment is equal to the difference
between the closing price of the index and the exercise price of the call times
a specified multiple (the "multiplier") which determines the total dollar value
for each point of difference. When a Fund buys a put on a securities index, it
pays a premium and has the right during the put period to require a seller of a
corresponding put, upon the Fund's exercise of its put, to deliver to the Fund
an amount of cash to settle the put if the closing level of the securities index
upon which the put is based is less than the exercise price of the put. That
cash payment is determined by the multiplier, in the same manner as described
above as to calls.
Futures and Options on Futures
Futures. Upon entering into a Futures transaction, a Fund will be required
to deposit an initial margin payment with the futures commission merchant (the
"futures broker"). The initial margin will be deposited with the Fund's
custodian in an account registered in the futures broker's name; however, the
futures broker can gain access to that account only under specified conditions.
As the Future is marked-to-market to reflect changes in its market value,
subsequent margin payments, called variation margin, will be paid to or by the
futures broker on a daily basis. Prior to expiration of the Future, if a Fund
elects to close out its position by taking an opposite position, a final
determination of variation margin is made, additional cash is required to be
paid by or released to the Fund, and any loss or gain is realized for tax
purposes. All Futures transactions are effected through a clearinghouse
associated with the exchange on which the Futures are traded.
B-23
<PAGE>
Interest rate futures contracts are purchased or sold for hedging purposes
to attempt to protect against the effects of interest rate changes on a Fund's
current or intended investments in fixed income securities. For example, if a
Fund owned long-term bonds and interest rates were expected to increase, that
Fund might sell interest rate futures contracts. Such a sale would have much the
same effect as selling some of the long-term bonds in that Fund's portfolio.
However, since the Futures market is more liquid than the cash market, the use
of interest rate futures contracts as a hedging technique allows a Fund to hedge
its interest rate risk without having to sell its portfolio securities. If
interest rates did increase, the value of the debt securities in the portfolio
would decline, but the value of that Fund's interest rate futures contracts
would be expected to increase at approximately the same rate, thereby keeping
the net asset value of that Fund from declining as much as it otherwise would
have. On the other hand, if interest rates were expected to decline, interest
rate futures contracts may be purchased to hedge in anticipation of subsequent
purchases of long-term bonds at higher prices. Since the fluctuations in the
value of the interest rate futures contracts should be similar to that of long-
term bonds, a Fund could protect itself against the effects of the anticipated
rise in the value of long-term bonds without actually buying them until the
necessary cash became available or the market had stabilized. At that time, the
interest rate futures contracts could be liquidated and that Fund's cash
reserves could then be used to buy long-term bonds on the cash market.
Purchases or sales of stock or bond index futures contracts are used for
hedging purposes to attempt to protect a Fund's current or intended investments
from broad fluctuations in stock or bond prices. For example, a Fund may sell
stock or bond index futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. If such decline occurs, the
loss in value of portfolio securities may be offset, in whole or part, by gains
on the Futures position. When a Fund is not fully invested in the securities
market and anticipates a significant market advance, it may purchase stock or
bond index futures contracts in order to gain rapid market exposure that may, in
part or entirely, offset increases in the cost of securities that the Fund
intends to purchase. As such purchases are made, the corresponding positions in
stock or bond index futures contracts will be closed out.
As noted above, each Fund except "Dogs" of Wall Street Fund may purchase
and sell foreign currency futures contracts for hedging to attempt to protect
its current or intended investments from fluctuations in currency exchange
rates. Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. A Fund may sell
futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the
resulting adverse effect on the value of foreign-denominated securities may be
offset, in whole or in part, by gains on the Futures contracts. However, if the
value of the foreign currency increases relative to the dollar, the Fund's
B-24
<PAGE>
loss on the foreign currency futures contract may or may not be offset by an
increase in the value of the securities since a decline in the price of the
security stated in terms of the foreign currency may be greater than the
increase in value as a result of the change in exchange rates.
Conversely, a Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing Futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When a Fund purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Fund will sustain losses
on its futures position, which could reduce or eliminate the benefits of the
reduced cost of portfolio securities to be acquired.
Options on Futures. As noted above, certain Funds may purchase and write
options on interest rate futures contracts, stock and bond index futures
contracts and foreign currency futures contracts. (Unless otherwise specified,
options on interest rate futures contracts, options on stock and bond index
futures contracts and options on foreign currency futures contracts are
collectively referred to as "Options on Futures.")
The writing of a call option on a Futures contract constitutes a partial
hedge against declining prices of the securities in a Fund's portfolio. If the
Futures price at expiration of the option is below the exercise price, the Fund
will retain the full amount of the option premium, which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a Futures contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures contract. If the Futures
price at expiration of the put option is higher than the exercise price, a Fund
will retain the full amount of the option premium, which provides a partial
hedge against any increase in the price of securities the Fund intends to
purchase. If a put or call option a Fund has written is exercised, the Fund
will incur a loss that will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its Options on Futures
positions, a Fund's losses from exercised Options on Futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
The Fund may purchase Options on Futures for hedging purposes, instead of
purchasing or selling the underlying Futures contract. For example, where a
decrease in the value of portfolio securities is anticipated as a result of a
projected market-wide decline or changes in interest or exchange rates, a Fund
could, in lieu of selling a Futures contract, purchase put options thereon. In
the event that such decrease occurs, it may be offset, in whole or part, by a
profit on the option. If the market decline does not occur, the Fund will
suffer a loss equal to the price of the put. Where it is projected that the
value of securities to be acquired by a Fund will increase prior to acquisition,
due to a market advance or changes in interest or exchange rates, a Fund could
purchase call Options on Futures, rather than purchasing the underlying Futures
contract. If the market advances, the increased cost of securities to be
purchased may be offset by a profit on the call. However, if the market
declines, the Fund will suffer a loss equal to the price of the call, but the
securities that the Fund intends to purchase may be less expensive.
B-25
<PAGE>
Forward Contracts
Each Fund except "Dogs" of Wall Street Fund may engage in Forward
Contracts. A Forward Contract involves bilateral obligations of one party to
purchase, and another party to sell, a specific currency at a future date (which
may be any fixed number of days from the date of the contract agreed upon by the
parties), at a price set at the time the contract is entered into. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. No price is paid
or received upon the purchase or sale of a Forward Contract.
A Fund may use Forward Contracts to protect against uncertainty in the
level of future exchange rates. The use of Forward Contracts does not eliminate
fluctuations in the prices of the underlying securities a Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. In addition, although
Forward Contracts limit the risk of loss due to a decline in the value of the
hedged currencies, at the same time they limit any potential gain that might
result should the value of the currencies increase. A Fund will not speculate
with Forward Contracts or foreign currency exchange rates.
A Fund may enter into Forward Contracts with respect to specific
transactions. For example, when a Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when a Fund
anticipates receipt of dividend payments in a foreign currency, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment by entering into a Forward Contract, for a fixed
amount of U.S. dollars per unit of foreign currency, for the purchase or sale of
the amount of foreign currency involved in the underlying transaction. A Fund
will thereby be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the currency exchange rates during
the period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are made or
received.
A Fund may also use Forward Contracts to lock in the U.S. dollar value of
portfolio positions ("position hedge"). In a position hedge, for example, when
a Fund believes that foreign currency may suffer a substantial decline against
the U.S. dollar, it may enter into a Forward Contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in (or affected by fluctuations in, in the case of ADRs)
such foreign currency, or when a Fund believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may enter into a Forward
Contract to buy that foreign currency for a fixed dollar amount. In this
situation a Fund may, in the alternative, enter into a Forward Contract to sell
a different foreign currency for a fixed U.S. dollar amount where the Fund
believes that the U.S. dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which portfolio securities of the Fund are denominated
("cross-hedged"). The Funds, except "Dogs" of Wall Street Fund, may also hedge
investments denominated in a foreign currency by entering into forward currency
contracts with respect to a foreign currency that is expected to correlate to
the currency in which the investments are denominated ("proxy hedging").
B-26
<PAGE>
A Fund will cover outstanding forward currency contracts by maintaining
liquid portfolio securities denominated in the currency underlying the forward
contract or the currency being hedged. To the extent that a Fund is not able to
cover its forward currency positions with underlying portfolio securities, the
Fund will segregate cash or liquid securities having a value equal to the
aggregate amount of the Fund's commitments under Forward Contracts entered into
with respect to position hedges and cross-hedges. If the value of the
segregated securities declines, additional cash or securities will be segregated
on a daily basis so that the value of the segregated assets will equal the
amount of the Fund's commitments with respect to such contracts. As an
alternative to segregating assets, a Fund may purchase a call option permitting
the Fund to purchase the amount of foreign currency being hedged by a forward
sale contract at a price no higher than the Forward Contract price or the Fund
may purchase a put option permitting the Fund to sell the amount of foreign
currency subject to a forward purchase contract at a price as high or higher
than the Forward Contract price. Unanticipated changes in currency prices may
result in poorer overall performance for a Fund than if it had not entered into
such contracts.
The precise matching of the Forward Contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the Forward Contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency a Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency a Fund is obligated to deliver. The
projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Forward Contracts involve the risk that anticipated currency movements will not
be accurately predicted, causing a Fund to sustain losses on these contracts and
transactions costs.
At or before the maturity of a Forward Contract requiring a Fund to sell a
currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, a Fund may
close out a Forward Contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. A Fund would realize a
gain or loss as a result of entering into such an offsetting Forward Contract
under either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
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The cost to a Fund of engaging in Forward Contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because Forward Contracts are usually entered
into on a principal basis, no fees or commissions are involved. Because such
contracts are not traded on an exchange, a Fund must evaluate the credit and
performance risk of each particular counterparty under a Forward Contract.
Although a Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. A Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Foreign exchange
dealers do not charge a fee for conversion, but they do seek to realize a profit
based on the difference between the prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
Additional Information About Hedging Instruments and Their Use
The Fund's custodian, or a securities depository acting for the custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the securities on which the Fund has written
options or as to other acceptable escrow securities, so that no margin will be
required for such transaction. OCC will release the securities on the expiration
of the option or upon a Fund's entering into a closing transaction.
An option position may be closed out only on a market that provides
secondary trading for options of the same series and there is no assurance that
a liquid secondary market will exist for any particular option. A Fund's option
activities may affect its turnover rate and brokerage commissions.
The exercise by a Fund of puts on securities will cause the sale of related
investments, increasing portfolio turnover. Although such exercise is within a
Fund's control, holding a put might cause the Fund to sell the related
investments for reasons that would not exist in the absence of the put. A Fund
will pay a brokerage commission each time it buys a put or call, sells a call,
or buys or sells an underlying investment in connection with the exercise of a
put or call. Such commissions may be higher than those that would apply to
direct purchases or sales of such underlying investments. Premiums paid for
options are small in relation to the market value of the related investments,
and consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options could result in a Fund's net asset value
being more sensitive to changes in the value of the underlying investments.
In the future, each Fund may employ Hedging Instruments and strategies that
are not presently contemplated but which may be developed, to the extent such
investment methods are consistent with a Fund's investment objectives, legally
permissible and adequately disclosed.
B-28
<PAGE>
Regulatory Aspects of Hedging Instruments
Each Fund must operate within certain restrictions as to its long and short
positions in Futures and options thereon under a rule (the "CFTC Rule") adopted
by the Commodity Futures Trading Commission (the "CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Fund from registration with the
CFTC as a "commodity pool operator" (as defined in the CEA) if it complies with
the CFTC Rule. In particular, the Fund may (i) purchase and sell Futures and
options thereon for bona fide hedging purposes, as defined under CFTC
regulations, without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) enter into non-hedging transactions,
provided, that the Fund may not enter into such non-hedging transactions if,
immediately thereafter, the sum of the amount of initial margin deposits on the
Fund's existing Futures positions and option premiums would exceed 5% of the
fair value of its portfolio, after taking into account unrealized profits and
unrealized losses on any such transactions. Each Fund intends to engage in
Futures transactions and options thereon only for hedging purposes. Margin
deposits may consist of cash or securities acceptable to the broker and the
relevant contract market.
Transactions in options by a Fund are subject to limitations established by
each of the exchanges governing the maximum number of options that 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 a 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 a 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 Hedging
Participation in the options or Futures markets and in currency exchange
transactions involves investment risks and transaction costs to which a Fund
would not be subject absent the use of these strategies. If the Adviser's
predictions of movements in the direction of the securities, foreign currency
and interest rate markets are inaccurate, the adverse consequences to a Fund may
leave the Fund in a worse position than if such strategies were not used.
In addition to the risks discussed above, there is also a risk in using
short hedging by selling Futures to attempt to protect against decline in value
of a Fund's portfolio securities (due to an increase in interest rates) that the
prices of such Futures will correlate imperfectly with the behavior of the cash
(i.e., market value) prices of the Fund's securities. The ordinary spreads
between prices in the cash and Futures markets are subject to distortions due to
differences in the natures of those markets. First, all participants in the
Futures markets are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
B-29
<PAGE>
Futures contracts through offsetting transactions that could distort the normal
relationship between the cash and Futures markets. Second, the liquidity of the
Futures markets depend on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the Futures markets could be reduced, thus
producing distortion. Third, from the point-of-view of speculators, the deposit
requirements in the Futures markets are less onerous than margin requirements in
the securities markets. Therefore, increased participation by speculators in
the Futures markets may cause temporary price distortions.
If a Fund uses Hedging Instruments to establish a position in the debt
securities markets as a temporary substitute for the purchase of individual debt
securities (long hedging) by buying Futures and/or calls on such Futures or on
debt securities, it is possible that the market may decline; if the Adviser then
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.
Short Sales. Each Fund except "Dogs" of Wall Street Fund may make "short
sales against the box." A short sale is effected by selling a security that the
Fund does not own. A short sale is against the box to the extent that the Fund
contemporaneously owns, or has the right to obtain without payment, securities
identical to those sold short. A Fund may not enter into a short sale against
the box, if, as a result, more than 25% of its total assets would be subject to
such short sales. A Fund generally will recognize any gain (but not loss) for
federal income tax purposes at the time that it makes a short sale against the
box.
Leverage. In seeking to enhance investment performance, "Dogs" of Wall
Street Fund, the Small Company Growth Fund and the Growth and Income Fund may
increase their ownership of securities by borrowing at fixed rates of interest
up to the maximum extent permitted under the 1940 Act (presently 50% of net
assets) and investing the borrowed funds, subject to the restrictions stated in
the respective Prospectus. Any such borrowing will be made only pursuant to the
requirements of the 1940 Act and will be made only to the extent that the value
of each Fund's assets less its liabilities, other than borrowings, is equal to
at least 300% of all borrowings including the proposed borrowing. If the value
of a Fund's assets, so computed, should fail to meet the 300% asset coverage
requirement, the Fund is required, within three business days, to reduce its
bank debt to the extent necessary to meet such requirement and may have to sell
a portion of its investments at a time when independent investment judgment
would not dictate such sale. Interest on money borrowed is an expense the Fund
would not otherwise incur, so that it may have little or no net investment
income during periods of substantial borrowings. Since substantially all of a
Fund's assets fluctuate in value, but borrowing obligations are fixed when the
Fund has outstanding borrowings, the net asset value per share of a Fund
correspondingly will tend to increase and decrease more when the Fund's assets
increase or decrease in value than would otherwise be the case. A Fund's policy
regarding use of leverage is a fundamental policy, which may not be changed
without approval of the shareholders of the Fund.
B-30
<PAGE>
Special Situations. A "special situation" arises when, in the opinion of the
Adviser, the securities of a particular issuer will be recognized and appreciate
in value due to a specific development with respect to that issuer.
Developments creating a special situation might include, among others, a new
product or process, a technological breakthrough, a management change or other
extraordinary corporate event, or differences in market supply of and demand for
the security. Investment in special situations may carry an additional risk of
loss in the event that the anticipated development does not occur or does not
attract the expected attention.
Future Developments. Each Fund may invest in securities and other instruments
that do not presently exist but may be developed in the future, provided that
each such investment is consistent with the Fund's investment objectives,
policies and restrictions and is otherwise legally permissible under federal and
state laws. Each Fund's Prospectus and Statement of Additional Information will
be amended or supplemented as appropriate to discuss any such new investments.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that are
fundamental policies and may not be changed without the approval of the holders
of a majority of that Fund's outstanding voting securities. A "majority of the
outstanding voting securities" of a Fund for this purpose means the lesser of
(i) 67% of the shares of the Fund represented at a meeting at which more than
50% of the outstanding shares are present in person or represented by proxy or
(ii) more than 50% of the outstanding shares. Unless otherwise indicated, all
percentage limitations apply to each Fund on an individual basis, and apply only
at the time the investment is made; any subsequent change in any applicable
percentage resulting from fluctuations in value will not be deemed an investment
contrary to these restrictions.
Under the following fundamental restrictions, no Fund may:
(1) With respect to 75% of its total assets, invest more than 5% of its total
assets (taken at market value at the time of each investment) in the
securities of any one issuer or purchase more than 10% of the outstanding
voting securities of any one company or more than 10% of any class of a
company's outstanding securities, except that these restrictions shall not
apply to securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities ("U.S. government securities"); provided,
that this restriction does not apply to "Dogs" of Wall Street Fund.
(2) Invest more than 5% of its total assets (taken at market value at the time
of each investment) in securities of companies having a record, together
with predecessors, of less than three years of continuous operations,
except that this restriction shall not apply to U.S. government securities;
provided, that this restriction does not apply to "Dogs" of Wall Street
Fund.
(3) Purchase securities on margin, borrow money or pledge their assets, except
that "Dogs" of Wall Street Fund, the Small Company Growth Fund and the
Growth and Income Fund may borrow money to purchase securities as set forth
in the Prospectus and Statement of
B-31
<PAGE>
Additional Information and each Fund may borrow 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 "Dogs" of Wall Street Fund or Growth and
Income Fund required pledging of assets, the Fund may pledge assets in
connection with such transactions. For purposes of this restriction and
restriction (9) below, collateral arrangements with respect to the options,
financial futures and options thereon described in the Prospectus and
Statement of Additional Information are not deemed to constitute a pledge
or loan of assets.
(4) Invest more than 25% of each Fund's assets in the securities of issuers
engaged in the same industry, except that "Dogs" of Wall Street 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.
(5) Engage in arbitrage transactions, buy or sell commodities or commodity
contracts or real estate or interests in real estate, except that each Fund
may (a) purchase or sell financial futures and options thereon for hedging
purposes, as described in the Prospectus and Statement of Additional
Information, under policies developed by the Trustees and (b) purchase and
sell marketable securities secured by real estate and marketable securities
of companies that invest or deal in real estate, except that "Dogs" of Wall
Street may engage in such transactions for speculation.
(6) Act as underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Funds may be deemed to be
underwriters under certain Federal securities laws.
(7) Make loans, except through (i) repurchase agreements, (ii) loans of
portfolio securities, (iii) the purchase of portfolio securities consistent
with a Fund's investment objectives and policies, as described in the
Prospectus, and (iv) as otherwise permitted by exemptive order of the SEC.
(8) Issue senior securities as defined in the 1940 Act, except that each Fund
may enter into repurchase agreements, lend its portfolio securities and
borrow money, as described in restriction (3).
The following additional restrictions are not fundamental policies and may
be changed by the Trustees without a vote of shareholders. Each Fund may
not:
(9) Make short sales of securities or maintain a short position, except that
each Fund may effect short sales against the box.
(10) 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 a
Fund's net assets would be so invested. Restricted securities eligible for
resale pursuant to Rule 144A under the Securities Act that
B-32
<PAGE>
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.
(11) 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 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 Trust During Past 5 Years
- --------------------- ----------------------- -------------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
S. James Coppersmith, 65 Trustee Retired; formerly, President and
7 Elmwood Road General Manager, WCVB-TV, a
Marblehead, MA 01945 division of the Hearst Corp. (1982 to
1994); Director/Trustee of SAMF and
Anchor Series Trust ("AST").
- -------------------------------------------------------------------------------------------------
Samuel M. Eisenstat, 58 Chairman of the Board Attorney, solo practitioner, Of
430 East 86th Street Counsel, Kramer, Levin, Naftalis &
New York, NY 10028 Frankel; Chairman of the Boards of
Directors/Trustees of SAMF and AST.
- -------------------------------------------------------------------------------------------------
Stephen J. Gutman, 55 Trustee Partner and Managing Member of B.B.
515 East 79th Street Associates LLC (menswear specialty
New York, NY 10021 retailing and other activities) since
June 1988; Director/Trustee of SAMF
and AST.
- -------------------------------------------------------------------------------------------------
</TABLE>
B-33
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Principal Occupations
Name, Age and Address Position with the Trust During Past 5 Years
- --------------------- ----------------------- -------------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Peter A. Harbeck*, 44 Trustee and President Director and President, the Adviser;
The SunAmerica Center Director, SunAmerica Capital Services,
733 Third Avenue Inc. ("SACS"), since August 1993;
New York, NY 10017-3204 Director and President, SunAmerica
Fund Services, Inc.("SAFS"), since
May 1988; President, SAMF and AST;
Executive Vice President and Chief
Operating Officer, the Adviser, from
May 1988 to August 1995; Executive
Vice President, SACS, from November
1991 to August 1995; Director,
Resources Trust Company.
- -------------------------------------------------------------------------------------------------
Sebastiano Sterpa, 69 Trustee Founder and Chairman of the Board of
73473 Mariposa Drive the Sterpa Group (real estate), since
Palm Desert, CA 92260 1962; Director, Real Estate Business
Service and Countrywide Financial;
Director/Trustee of SAMF.
- -------------------------------------------------------------------------------------------------
J. Steven Neamtz*, 38 Vice President Executive Vice President of the
The SunAmerica Center Adviser, since April 1996; Director and
733 Third Avenue President, SACS, since April 1996;
New York, NY 10017-3204 formerly, Executive Vice President,
New England Funds, L.P. from July
1990 to April 1996.
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Principal Occupations
Name, Age and Address Position with the Trust During Past 5 Years
- --------------------- ----------------------- -------------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Peter C. Sutton*, 34 Treasurer Senior Vice President, the Adviser,
The SunAmerica Center since April 1997; Treasurer, SAMF
733 Third Avenue and AST, since February 1996; Vice
New York, NY 10017-3204 President and Assistant Treasurer of
SAST and APF since 1994; Vice
President, Seasons Series Trust, since
April 1997; formerly, Vice President,
the Adviser, from 1994 to 1997;
Controller, SAMF and AST, from
March 1993 to February 1996;
Assistant Controller, SAMF and AST,
from 1990 to 1993.
</TABLE>
B-34
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert M. Zakem, 41 Secretary and Chief Senior Vice President and General
The SunAmerica Center Compliance Officer Counsel, the Adviser, since April 1993;
733 Third Avenue Executive Vice President, General
New York, NY 10017-3204 Counsel and Director, SACS, since
August 1993; Vice President, General
Counsel and Assistant Secretary,
SAFS, since January 1994; Vice
President, SunAmerica Series Trust,
Anchor Pathway and Seasons Series
Trust; Assistant Secretary, SunAmerica
Series Trust and Anchor Pathway
Fund, since September 1993; Assistant
Secretary, Seasons Series Trust, since
April 1997; formerly, Vice President
and Associate General Counsel, the
Adviser, from March 1992 to April
1993.
- ---------------------------------------------------------------------------------------------
</TABLE>
The Trustees of the Trust are responsible for the overall supervision of
the operation of the Trust and each Fund and perform various duties imposed on
trustees of investment companies by the 1940 Act and under the Trust's
Declaration of Trust. 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.
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 SAMF and/or AST. In
addition, Mr. Eisenstat receives an aggregate of $2,000 in annual compensation
for serving as Chairman of the Boards of the retail funds in SAMF. Officers
of the Trust receive no direct remuneration in such capacity from the Trust or
any of the Funds.
In addition, each disinterested Trustee also serves on the Audit Committee
of the Board of Trustees. The Audit Committee is charged with recommending to
the full Board the engagement or discharge of the Trust's independent
accountants; directing investigations into matters within the scope of the
independent accountant's duties; reviewing with the independent accountants the
audit plan and results of the audit; approving professional services provided by
the independent accountants and other accounting firms prior to the performance
of such services; reviewing the independence
B-35
<PAGE>
of the independent accountants; considering the range of audit and non-audit
fees; and preparing and submitting Committee minutes to the full Board. Each
member of the Audit Committee receives an aggregate of $5,000 in annual
compensation for serving on the Audit Committees of SAMF 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 SAMF and AST 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 SAMF (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. With respect to Sebastiano Sterpa, the disinterested Trustees have
determined to make an exception to existing policy and allow Mr. Sterpa to
remain on the Board past age 70, until he has served for ten years. Mr. Sterpa
will cease accruing retirement benefits upon reaching age 70, although such
benefits will continue to accrue interest as provided for in the Retirement
Plan. As of each birthday, prior to the 70th birthday, each Eligible 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 December 31, 1998, the Trustees and officers of the Trust owned in
the aggregate, less than 1% of each Class of the Trust's total outstanding
shares.
The following shareholders owned of record or beneficially 5% or more of
the indicated fund class's outstanding shares as of January 22, 1999:
SunAmerica "Dogs" of Wall Street - Class A - Merrill Lynch, Jacksonville, FL
32246 - owned 8%; Class B - Merrill Lynch for the sole benefit of its customers,
Jacksonville, FL 32246 - owned 17%; SunAmerica Growth and Income - Class II -
SAAMCo, New York, NY 10017 -owned 5%; Painwebber for the benefit of Richard L.
Brundige Money Purchase Pension Plan, Lakewood, CO 80226 - owned 5%; Painewebber
for the benefit of Dibrell, Collbran, CO 81624 - owned 19%; Merrill Lynch for
the sole benefit of its customers, Jacksonville, FL 32246 - owned 11%; Class Z -
Fidelity Investments Institutional Operations Co. ("FIIOC") as agent for certain
employee benefit plans, Covington, KY 41015 - owned 38%; FIIOC as agent for
certain non-qualified employee benefit plans, Covington, KY 41015 - owned 61%;
SunAmerica Small Company Growth - Class II - SAAMCo, New York, NY 10017 - owned
46%; Lincoln Trust Company for the benefit of Douglas H. Hildreth, Denver, CO
80217 - owned 12%; Lincoln Trust Company for the benefit of Brian W. Gross,
Denver, CO - owned 24%; Donaldson Lufkin Jenrette, Jersey City, NJ 07303 - owned
6%; Class Z - FIIOC as agent for certain employee benefit plans, Covington, KY
41015 - owned 75%; FIIOC as agent for certain non-qualified employee benefit
plans, Covington, KY 41015 -owned 24%.
B-36
<PAGE>
A shareholder who owns beneficially, directly or indirectly, 25% or more of a
Fund's outstanding voting securities may be deemed to "control" (as defined in
the 1940 Act) that Fund.
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, 1998. Neither the Trustees who are interested persons of the Trust
nor any officers of the Trust receive any compensation.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Pension or Compensation
Aggregate Retirement Estimated from Registrant
Compensation Benefits Accrued Annual and Fund
Trustee from as Part of Trust Benefits Upon Complex Paid to
Registrant Expenses* Retirement Trustees*
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S. James Coppersmith $13,876 $40,959 $29,670 $ 65,000
- ------------------------------------------------------------------------------------------
Samuel M. Eisenstat $14,522 $35,886 $46,083 $ 69,000
- ------------------------------------------------------------------------------------------
Stephen J. Gutman $13,876 $37,147 $60,912 $ 65,000
- ------------------------------------------------------------------------------------------
Sebastiano Sterpa $14,054 $25,826 $ 7,900 $43,333**
- ------------------------------------------------------------------------------------------
</TABLE>
* Information is as of September 30, 1998 for the five investment companies
in the complex that pay fees to these directors/trustees. The complex
consists of SAMF and AST.
** Mr. Sterpa is not a trustee of AST.
ADVISER, PERSONAL TRADING,
DISTRIBUTOR AND ADMINISTRATOR
The Adviser. SunAmerica Asset Management Corp. (the "Adviser"), which was
organized as a Delaware corporation in 1982, is located at The SunAmerica
Center, 733 Third Avenue, New York, NY 10017-3204, and acts as adviser to each
of the Funds pursuant to the Investment Advisory and Management Agreement dated
September 23, 1993 as amended May 20, 1994 (the "Advisory Agreement") with the
Trust, on behalf of each Fund. Adviser became a wholly-owned subsidiary of AIG,
the leading U.S.-based international insurance organization. AIG, a Delaware
corporation, is a holding company that through its subsidiaries is primarily
engaged in a broad range of insurance and insurance related activities and
financial services in the United States and abroad. AIG, through its
subsidiaries, is also engaged in a range of financial services activities. AIG's
asset management operations are carried out primarily by AIG Global Investment
Group, Inc., a direct
B-37
<PAGE>
wholly owned subsidiary of AIG, and its affiliates (collectively, "AIG Global").
AIG Global manages the investment portfolios of various AIG subsidiaries, as
well as third party assets, and is responsible for product design and
origination, marketing and distribution of third party asset management
products, including offshore and private investment funds and direct investment.
As of June 30, 1998, AIG Global managed more than $86 billion of assets, of
which approximately $10.8 billion represented assets of unaffiliated third
parties. AIG Capital Management Corp., an indirect wholly-owned subsidiary of
AIG Global Investment Group, Inc., serves as investment adviser to The AIG Money
Market Fund, a separate series of The Advisors. Inner Circle Fund, a registered
investment company. In addition, AIG Global Investment Corp., an AIG Global
group company, serves as the sub-investment adviser to an unaffiliated
registered investment company. AIG companies do not otherwise provide investment
advice to any registered investment companies.
Under the Advisory Agreement, the Adviser manages the investment of the
assets of each Fund and obtains and evaluates economic, statistical and
financial information to formulate and implement investment policies for each
Fund. Any investment program undertaken by the Adviser will at all times be
subject to the policies and control of the Trustees. The Adviser also provides
certain administrative services to each Fund.
Except to the extent otherwise specified in the Advisory Agreement, each
Fund pays, or causes to be paid, all other expenses of the Trust and each of the
Funds, including, without limitation, charges and expenses of any registrar,
custodian, transfer and dividend disbursing agent; brokerage commissions; taxes;
engraving and printing of share certificates; registration costs of the Funds
and their shares under Federal and state securities laws; the cost and expense
of printing, including typesetting, and distributing Prospectuses and Statements
of Additional Information respecting the Funds, and supplements thereto, to the
shareholders of the Funds; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; all expenses incident to any dividend, withdrawal or redemption
options; fees and expenses of legal counsel and independent accountants;
membership dues of industry associations; interest on borrowings of the Funds;
postage; insurance premiums on property or personnel (including Officers and
Trustees) of the Trust that inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Trust's operation.
As compensation for its services to the Funds, the Adviser receives a fee
from each Fund, payable monthly, computed daily at the annual rate of .75% on
the first $350 million of such Fund's average daily assets, .70% on the next
$350 million of net assets and .65% on net assets over $700 million, except that
the Adviser receives a fee from "Dogs" of Wall Street Fund, payable monthly,
computed daily at the annual rate of .35% of average daily net assets.
The following table sets forth the total advisory fees incurred by each
Fund pursuant to the Advisory Agreement or waived by the Adviser for the fiscal
years ended September 30, 1998, 1997 and 1996.
B-38
<PAGE>
ADVISORY FEES
<TABLE>
<CAPTION>
ADVISORY FEES* ADVISORY FEES WAIVED
- --------------------------------------------------------------------------------------------------
FUND 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip
Growth Fund $ 844,891 $ 701,489 $ 644,774 -- -- --
- --------------------------------------------------------------------------------------------------
Mid-Cap
Growth Fund $ 412,690 $ 416,078 $ 375,398 -- -- --
- --------------------------------------------------------------------------------------------------
Small Company
Growth Fund $1,818,045 $1,955,511 $1,487,650 -- -- --
- --------------------------------------------------------------------------------------------------
Growth and
Income Fund $ 977,786 $ 531,071 $ 91,558 -- $147,159 $91,558
- --------------------------------------------------------------------------------------------------
Balanced Assets
Fund $2,704,740 $2,430,522 $2,282,018 -- -- --
- --------------------------------------------------------------------------------------------------
"Dogs" of Wall
Street Fund $ 39,290 -- -- $39,290 -- --
- --------------------------------------------------------------------------------------------------
</TABLE>
* Without giving effect to voluntary fee waivers.
The following table sets forth the fee waivers and expense reimbursements
made to the Funds by the Adviser for the fiscal years ended September 30, 1998,
1997 and 1996.
Fee Waivers and Expense Reimbursements
<TABLE>
<CAPTION>
- -------------------------------------------------------------- -------------------------------------------------------
Fund 1998 1997 1996
- --------------------- ---------- -------- ---------- --------- -------- -------- -------- -------- ----------------
Class A Class B Class II* Class Z Class A Class B Class Z Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blue Chip Growth -- -- -- -- -- -- -- -- --
Fund
Mid-Cap Growth Fund -- -- -- -- -- -- -- -- $ 66
Small Company -- -- $15,005 $17,656 -- -- $9,971 -- --
Growth Fund
Growth and Income -- -- $17,914 $ 7,891 $80,226 $71,140 -- $73,696 $56,264
Fund
Balanced Assets Fund -- -- -- $ 8,754 -- -- $9,394 -- --
"Dogs" of Wall Street $19,810 $20,253 $15,437 -- -- -- -- -- --
Fund
</TABLE>
* Class II shares were previously designated as Class C shares except for "Dogs"
of Wall Street Fund.
B-39
<PAGE>
The Advisory Agreement continues in effect with respect to each 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 or by the holders of a majority of the respective
Fund's outstanding voting securities. The Advisory Agreement may be terminated
with respect to a Fund at any time, without penalty, on 60 days' written notice
by the Trustees, by the holders of a majority of the respective Fund's
outstanding voting securities or by the Adviser. The Advisory Agreement
automatically terminates with respect to each Fund in the event of its
assignment (as defined in the 1940 Act and the rules thereunder).
Under the terms of the Advisory Agreement, the Adviser is not liable to
the Funds, or their shareholders, for any act or omission by it or for any
losses sustained by the Funds or their shareholders, except in the case of
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
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.
The Distributor. The Trust, on behalf of each class of each Fund, has entered
into a distribution agreement (the "Distribution Agreement") with SunAmerica
Capital Services, Inc. ("SACS" or the "Distributor"), a registered broker-dealer
and an indirect wholly owned subsidiary of AIG, to act as the principal
underwriter in connection with the continuous offering of each class of shares
of each Fund. The address of the Distributor is The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204. The Distribution Agreement provides that the
Distributor has the exclusive right to distribute shares of the Funds through
its registered representatives and authorized broker-dealers. The Distribution
Agreement also provides that the Distributor will pay the promotional expenses,
including the incremental cost of printing Prospectuses, annual reports and
other periodic reports respecting each Fund, for distribution to persons who are
not shareholders of such Fund and the costs of preparing and distributing any
other supplemental sales literature. However, certain promotional expenses may
be borne by the Funds (see "Distribution Plans" below).
SACS serves as Distributor of Class Z shares with respect to the Small
Company Growth and Growth and Income Funds and incurs the expenses of
distributing the Funds' Class Z shares under the Distribution Agreement, none of
which expenses are reimbursed or paid by the Trust.
B-40
<PAGE>
Continuance of the Distribution Agreement with respect to each 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 a Fund on 60 days' written notice, without penalty. The Distribution
Agreement will terminate automatically in the event of its assignment as defined
in the 1940 Act and the rules thereunder.
The Distributor may, from time to time, pay additional commissions or
promotional incentives to brokers, dealers or other financial services firms
that sell shares of the Funds. In some instances, such additional commissions,
fees or other incentives may be offered only to certain firms, including Royal
Alliance Associates, Inc., 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 Funds, or of
other funds underwritten by the Distributor. In addition, the terms and
conditions of any given promotional incentive may differ from firm to firm. Such
differences will, nevertheless, be fair and equitable, and based on such factors
as size, geographic location, or other reasonable determinants, and will in no
way affect the amount paid to any investor.
Distribution Plans. 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. Pursuant to such rule, the Funds have adopted Distribution Plans for
Class A, Class B and Class II shares (hereinafter referred to as the "Class A
Plan," the "Class B Plan" and the "Class II Plan" and collectively as the
"Distribution Plans"). There is no Distribution Plan in effect for Class Z
shares.
The sales charge and distribution fees of a particular class will not be
used to subsidize the sale of shares of any other class. Reference is made to
"Shareholder Account Information" in the Prospectus for certain information with
respect to the Distribution Plans.
Under the Class A Plan, the Distributor may receive payments from a Fund
at an annual rate of up to 0.10% of average daily net assets of a Fund's Class A
shares to compensate the Distributor and certain securities firms for providing
sales and promotional activities for distributing that class of shares. Under
the Class B and Class II Plans, the Distributor may receive payments from a Fund
at the annual rate of up to 0.75% of the average daily net assets of such Fund's
Class B or Class II 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.
The Distribution Plans provide that each class of shares of each Fund
may also pay the Distributor an account maintenance and service fee of up to
0.25% of the aggregate average daily net assets of such class of shares for
payments to broker-dealers for providing continuing account
B-41
<PAGE>
maintenance. In this regard, some payments are used to compensate broker-dealers
with trail commissions or account maintenance and service fees in an amount up
to 0.25% per year of the assets maintained in a Fund by their customers.
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.
The following table sets forth the distribution and account maintenance
and service fees the Distributor received from the Funds for the fiscal years
ended September 30, 1998, 1997 and 1996.
Distribution and Account Maintenance and Service Fees
<TABLE>
<CAPTION>
- ---------------- --------------------------------- ---------------------- ---------------------
Fund 1998 1997 1996
- ---------------- --------------------------------- ---------------------- ---------------------
Class A Class B Class Class A Class B Class A Class B
II*
- ---------------- --------------------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Blue Chip Growth
Fund $257,768 $ 390,042 - $202,327 $ 357,241 $164,198 $ 390,560
- ---------------- --------------------------------- ---------------------- ---------------------
Mid-Cap Growth
Fund $151,368 $ 117,776 - $148,384 $ 130,813 $136,912 $ 109,353
- ---------------- --------------------------------- ---------------------- ---------------------
Small Company
Growth Fund $515,835 $ 939,577 $ 1,105 $545,065 $1,045,469 $408,943 $ 815,125
- ---------------- --------------------------------- ---------------------- ---------------------
Growth and
Income Fund $200,444 $ 728,174 $ 2,563 $127,978 $ 342,443 $ 25,462 $ 49,329
- ---------------- --------------------------------- ---------------------- ---------------------
Balanced Assets
Fund $645,067 $1,770,905 - $545,512 $1,681,853 $478,455 $1,675,676
- ---------------- --------------------------------- ---------------------- ---------------------
"Dogs" of Wall
Street Fund** $ 16,281 $ 34,839 $30,904 - - - -
- ---------------- --------------------------------- ---------------------- ---------------------
</TABLE>
* For the period from 3/22/98 (for those Funds for which Class II shares
were previously designated as Class C shares).
** For the period from 6/8/98 (commencement of offering of shares of "Dogs"
of Wall Street Fund).
Continuance of the Distribution Plans with respect to each Fund is subject
to annual approval by vote of the Trustees, including a majority of the
disinterested Trustees. A Distribution Plan may not be amended to increase
materially the amount authorized to be spent thereunder with respect to a class
of shares of a Fund, without approval of the shareholders of the affected class
of shares of the Fund. In addition, all material amendments to the Distribution
Plans must be approved by the Trustees in the manner described above. A
Distribution Plan may be terminated at any time with respect to a Fund without
payment of any penalty by vote of a majority of the disinterested or
B-42
<PAGE>
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 disinterested
Trustees. In the Trustees' quarterly review of the Distribution Plans, they will
consider the continued appropriateness of, and the level of, compensation
provided in the Distribution Plans. In their consideration of the Distribution
Plans with respect to a Fund, the Trustees must consider all factors they deem
relevant, including information as to the 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 AIG, acts as a servicing agent assisting State Street Bank and
Trust Company ("State Street") in connection with certain services offered to
the shareholders of each of the Funds. Under the terms of the Service Agreement,
SAFS may receive reimbursement of its costs in providing such shareholder
services. SAFS is located at The SunAmerica Center, 733 Third Avenue, New York,
NY 10017-3204.
Pursuant to the Service Agreement, as compensation for services rendered,
SAFS receives a fee from each Fund, computed and payable monthly based upon an
annual rate of 0.22% of average daily net assets. This fee represents the full
cost of providing shareholder and transfer agency services to the Trust. From
this fee, SAFS pays a fee to State Street, and its affiliate, National Financial
Data Services ("NFDS" and with State Street, the "Transfer Agent") (other than
out-of-pocket charges of the Transfer Agent which are paid by the Trust). No
portion of such fee is paid or reimbursed by Class Z shares. Class Z shares,
however, will pay all direct transfer agency fees and out-of pocket expenses.
For further information regarding the Transfer Agent, see the section entitled
"Additional Information" below.
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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
As discussed in each Prospectus, the Adviser is responsible for decisions
to buy and sell securities for each Fund, selection of broker-dealers and
negotiation of commission rates. Purchases and sales of securities on a
securities exchange are effected through broker-dealers who charge a negotiated
commission for their services. Orders may be directed to any broker-dealer
including, to the extent and in the manner permitted by applicable law, an
affiliated brokerage subsidiary of 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
B-43
<PAGE>
at a fixed price that includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain money market instruments may be purchased directly from an issuer, in
which case no commissions or discounts are paid.
The Adviser's primary consideration in effecting a security transaction is
to obtain the best net price and the most favorable execution of the order.
However, the Adviser may select broker-dealers that provide it with research
services -- analyses and reports concerning issuers, industries, securities,
economic factors and trends -- and may cause a Fund to pay such broker-dealers
commissions that 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 and may not be used in connection with 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 Funds by improving the quality
of the Adviser's investment advice. The investment advisory fees paid by the
Funds 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 a Fund as a factor in
the selection of brokers for transactions effected on behalf of a Fund, subject
to the requirement of best price and execution.
The Adviser may effect portfolio transactions through an affiliated
broker-dealer, acting as an agent and not as principal, in accordance with Rule
17e-1 under the 1940 Act and other applicable securities laws.
Although the objectives of other accounts or investment companies that the
Adviser manages may differ from those of the Funds, it is possible that, at
times, identical securities will be acceptable for purchase by one or more of
the Funds and one or more other accounts or investment companies that the
Adviser manages. However, the position of each account or company in the
securities of the same issue may vary with the length of the time that each
account or company may choose to hold its investment in those securities. The
timing and amount of purchase by each account and company will also be
determined by its cash position. If the purchase or sale of a security is
consistent with the investment policies of one or more of the Funds and one or
more of these other accounts or companies is considered at or about the same
time, transactions in such securities will be allocated in a manner deemed
equitable by the Adviser. 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 a Fund
to obtain or dispose of the full amount of a security that it seeks to purchase
or sell, or the price at which such security can be purchased or sold.
B-44
<PAGE>
The following tables set forth the brokerage commissions paid by the Funds
and the amounts of the brokerage commissions paid to affiliated broker-dealers
by the Funds for the fiscal years ended September 30, 1998, 1997 and 1996.
1998 Brokerage Commissions
<TABLE>
<CAPTION>
Percentage of Amount
of Transactions
Percentage of Involving Payment of
Aggregate Amount paid to Commissions paid Commissions to
Brokerage Affiliated to Affiliated Affiliated
Commissions Broker-Dealers Broker-Dealers Brokers- Dealers
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Blue Chip Growth Fund 200,611 -- -- --
------------------------------------------------------------------------
Mid-Cap Growth Fund 311,563 -- -- --
------------------------------------------------------------------------
Small Company Growth -- -- --
Fund 907,232
------------------------------------------------------------------------
Growth and Income Fund 416,442 900 0.22% 0.08%
------------------------------------------------------------------------
Balanced Assets Fund 400,019 -- -- --
------------------------------------------------------------------------
"Dogs" of Wall Street Fund 80,551 -- -- --
- ----------------------------------------------------------------------------------------------------
</TABLE>
1997 Brokerage Commissions
<TABLE>
<CAPTION>
Aggregate Amount paid to Percentage of Commissions paid to
Brokerage Affiliated Affiliated Broker-Dealers
Commissions Broker-Dealers
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Growth Fund $398,417 -- --
----------------------------------------------------------------------------
Mid-Cap Growth Fund $310,572 -- --
----------------------------------------------------------------------------
Small Company Growth Fund $1,096,605 -- --
----------------------------------------------------------------------------
Growth and Income Fund $354,892 -- --
----------------------------------------------------------------------------
Balanced Assets Fund $777,773 -- --
- -------------------------------------------------------------------------------------------------------
</TABLE>
B-45
<PAGE>
1996 Brokerage Commissions
<TABLE>
<CAPTION>
Aggregate Amount paid to
Brokerage Affiliated Percentage paid to
Fund Commissions Broker-Dealers Affiliated Broker-Dealers
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Growth Fund $424,304 $0 0.0%
---------------------------------------------------------------------
Mid-Cap Growth Fund $238,176 $3,150 1.3%
---------------------------------------------------------------------
Small Company Growth Fund $408,277 $11,880 2.9%
---------------------------------------------------------------------
Growth and Income Fund $ 66,513 $2,130 3.2%
---------------------------------------------------------------------
Balanced Assets Fund $952,056 $21,450 2.3%
- ------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES
Upon making an investment in shares of a Fund, an open account will be
established under which shares of such Fund and additional shares acquired
through reinvestment of dividends and distributions will be held for each
shareholder's account by 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.
Shareholders who have met the Fund's minimum initial investment 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.
Shares of each of the Funds are sold at the respective net asset value
next determined after receipt of a purchase order, plus a sales charge, which,
at the election of the investor, may be imposed (i) at the time of purchase
(Class A shares), (ii) on a deferred basis (Class B 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). Class C shares,
now designated as Class II shares, had sales charges imposed on a deferred basis
with no front-end sales load prior to their redesignation.
B-46
<PAGE>
The following tables set forth the front-end sales concessions with
respect to Class A and Class II shares of each Fund, the amount of the front-end
sales concessions reallowed to affiliated broker-dealers, and the contingent
deferred sales charges with respect to Class B and Class II shares of each Fund,
received by the Distributor for the fiscal years ended September 30, 1998, 1997
and 1996.
1998
<TABLE>
<CAPTION>
Front-End Front-End Amount Contingent Contingent
Fund Sales Sales Reallowed to Deferred Deferred
Concessions- Concessions- Affiliated Sales Charge- Sales Charge-
Class A Class II Broker- Class B Class II
Shares Shares* Dealers Shares Shares**
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Blue Chip 147,076 - 69,677 43,371 -
Growth Fund
-----------------------------------------------------------------------------
Mid-Cap Growth -
Fund 52,243 31,728 28,118 -
-----------------------------------------------------------------------------
Small Company
Growth Fund 425,373 - 218,719 291,969 -
-----------------------------------------------------------------------------
Growth and 706,772 - 329,966 177,476 -
Income Fund
-----------------------------------------------------------------------------
Balanced Assets 953,420 - 709,993 218,815 -
Fund
-----------------------------------------------------------------------------
"Dogs" of Wall 935,429 329,611 74,104 5,159 970
Street Fund ***
- -----------------------------------------------------------------------------------------------
</TABLE>
* Prior to December 1, 1998, only "Dogs" of Wall Street Fund's Class II
shares carried a front-end sales charge, while Class II shares with respect
the other Funds (then designated as Class C shares) carried no such charge.
** For the period from 2/2/98 (for those Funds for which Class II shares were
previously designated as Class C shares)
*** For the period from 6/8/98 (commencement of offering of shares of "Dogs" of
Wall Street Fund)
1997
<TABLE>
<CAPTION>
Front-End Sales Amount Reallowed to Contingent Deferred
Fund Concessions- Affiliated Sales
Class A Shares Broker-Dealers Charge- Class B Shares
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Growth Fund $68,915 $42,671 $54,673
-----------------------------------------------------------------------------------------
Mid-Cap Growth Fund $81,231 $44,483 $44,557
-----------------------------------------------------------------------------------------
Small Company Growth Fund $1,315,944 $536,682 $262,423
-----------------------------------------------------------------------------------------
Growth and Income Fund $707,401 $367,498 $44,335
-----------------------------------------------------------------------------------------
Balanced Assets Fund $666,236 $501,649 $299,683
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
B-47
<PAGE>
1996
<TABLE>
<CAPTION>
Front-End Sales Amount Reallowed to Affiliated Contingent Deferred Sales
Fund Concessions-Class A Shares Broker-Dealers Charge- Class B Shares
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Growth Fund $84,051 $48,653 $37,223
-------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund $185,300 $125,403 $15,696
-------------------------------------------------------------------------------------------------------
Small Company Growth Fund $2,007,194 $1,156,919 $118,032
-------------------------------------------------------------------------------------------------------
Growth and Income Fund $384,542 $188,254 $1,820
-------------------------------------------------------------------------------------------------------
Balanced Assets Fund $1,139,306 $830,997 $303,405
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Waiver of CDSC. As discussed under "Shareholder Account Information" in the
respective 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 or Class II shares are not redeemed within one year of the death,
they will remain Class B or Class II shares, as applicable, 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 a Fund
through dealers that have entered into selected dealer agreements with the
Distributor. An investor's dealer who has entered into a distribution
arrangement with the Distributor is expected to forward purchase orders and
payment promptly to the Fund. Orders received by the Distributor before the
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
B-48
<PAGE>
NYSE on the next trading day. The Distributor reserves the right to cancel any
purchase order for which payment has not been received by the fifth business day
following the investment. A Fund will not be responsible for delays caused by
dealers.
Purchase by Check. Checks should be made payable to the specific Fund or to
"SunAmerica Funds." If the payment is for a retirement plan account for which
the Adviser 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 applicable Fund at the net asset value next computed
after the check is received, plus the applicable sales charge. Subsequent
purchases of shares of each Fund may be purchased directly through the Transfer
Agent. SAFS reserves the right to reject any check made payable other than in
the manner indicated above. Under certain circumstances, 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.
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 a 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 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:
B-49
<PAGE>
. 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) 551-5585.
. Call SunAmerica Fund Services' Shareholder/Dealer Services,
toll free at (800) 858-8850, extension 5125 to obtain your
new account number.
. Instruct the bank to wire the specified amount to the
Transfer Agent: State Street Bank and Trust Company, Boston,
MA, ABA# 0110-00028; DDA# 99029712, SunAmerica [name of
Fund, Class __] (include shareholder name and account
number).
Waiver of Sales Charges with Respect to Certain Purchases of Class A Shares. To
the extent that sales are made for personal investment purposes, the sales
charge is waived as to Class A shares purchased by current or retired officers,
directors, and other full-time employees of the Adviser 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 the Adviser 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 that 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 or registered
investment advisers adhering to the following standards established by the
Distributor: (i) the broker-dealer, financial institution or financial planner
charges its client(s) an advisory fee based on the assets under management on an
annual basis, and (ii) such broker-dealer, financial institution or financial
planner does not advertise that shares of the Funds may be purchased by clients
at net asset value. Shares purchased under this waiver may not be resold except
to the Fund. Shares are offered at net asset value to the foregoing persons
because of anticipated economies in sales effort and sales related expenses.
Reductions in sales charges apply to purchases or shares by a "single person"
including an individual; members of a family unit comprising husband, wife and
minor children; or a trustee or other fiduciary purchasing for a single
fiduciary account. Complete details concerning how an investor may purchase
shares at reduced sales charges may be obtained by contacting the Distributor.
B-50
<PAGE>
Reduced Sales Charges (Class A Shares only). As discussed under "Shareholder
Account Information" in the Prospectus, investors in Class A shares of a Fund
may be entitled to reduced sales charges pursuant to the following special
purchase plans made available by the Trust.
Combined Purchase Privilege. The following persons may qualify for the
sales charge reductions or eliminations by combining purchases of Fund shares
into a single transaction:
(i) an individual, or a "company" as defined in Section 2(a)(8) of
the 1940 Act (which includes corporations that 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
SAMF (other than money market funds) purchased at the same time through a single
investment dealer, if the dealer places the order for such shares directly with
the Distributor.
Rights of Accumulation. A purchaser of Fund shares may qualify for a
reduced sales charge by combining a current purchase (or combined purchases as
described above) with shares previously purchased and still owned; provided the
cumulative value of such shares (valued at cost or current net asset value,
whichever is higher), amounts to $50,000 or more. In determining the shares
previously purchased, the calculation will include, in addition to other Class A
shares of the particular Fund that were previously purchased, shares of the
other classes of the same Fund, as well as shares of any class of any other Fund
or of any of the other Funds advised by the Adviser, as long as such shares were
sold with a sales charge or acquired in exchange for shares purchased with such
a sales charge.
The shareholder's dealer, if any, or the shareholder, must notify the
Distributor at the time an order is placed of the applicability of the reduced
charge under the Right of Accumulation. Such notification must be in writing by
the dealer or shareholder when such an order is placed by mail. The reduced
sales charge will not be granted if: (a) such information is not furnished at
the time of the order; or (b) a review of the Distributor's or the Transfer
Agent's records fails to confirm the investor's represented holdings.
B-51
<PAGE>
Letter of Intent. A reduction of sales charges is also available to an
investor who, pursuant to a written Letter of Intent set forth in the New
Account Application in the Prospectus, establishes a total investment goal in
Class A shares of one or more Funds to be achieved through any number of
investments over a thirteen-month period, of $50,000 or more. Each investment
in such Funds made during the period will be subject to a reduced sales charge
applicable to the goal amount. The initial purchase must be at least 5% of the
stated investment goal and shares totaling 5% of the dollar amount of the Letter
of Intent will be held in escrow by the Transfer Agent, in the name of the
investor. Shares of any class of shares of any Fund, or of other funds advised
by the Adviser, that impose a sales charge at the time of purchase, which the
investor intends to purchase or has previously purchased during a 30-day period
prior to the date of execution of the Letter of Intent and still owns, may also
be included in determining the applicable reduction; provided, the dealer or
shareholder notifies the Distributor of such prior purchase(s).
The Letter of Intent does not obligate the investor to purchase, nor the
Trust to sell, the indicated amounts of the investment goal. In the event the
investment goal is not achieved within the thirteen-month period, the investor
is required to pay the difference between the sales charge otherwise applicable
to the purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
is authorized by the Letter of Intent to liquidate a sufficient number of
escrowed shares to obtain such difference. If the goal is exceeded and
purchases pass the next sales charge break-point, the sales charge on the entire
amount of the purchase that results in passing that break-point, and on
subsequent purchases, will be subject to a further reduced sales charge in the
same manner as set forth above under "Rights of Accumulation," but there will be
no retroactive reduction of sales charges on previous purchases. At any time
while a Letter of Intent is in effect, a shareholder may, by written notice to
the Distributor, increase the amount of the stated goal. In that event, shares
of the applicable Funds purchased during the previous 90-day period and still
owned by the shareholder will be included in determining the applicable sales
charge. The 5% escrow and the minimum purchase requirement will be applicable to
the new stated goal. Investors electing to purchase shares of one or more of the
Funds pursuant to this purchase plan should carefully read such Letter of
Intent.
Reduced Sales Charge for Group Purchases. Members of qualified groups may
purchase Class A shares of the Funds under the combined purchase privilege as
described above.
To receive a rate based on combined purchases, group members must purchase
Class A shares of a Fund through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial purchase to
the Distributor, together with payment and completed New Account Application.
After the initial purchase, a member may send funds for the purchase of Class A
shares directly to the Transfer Agent. Purchases of a Fund's shares are made at
the public offering price based on the net asset value next determined after the
Distributor or the Transfer Agent receives payment for the Class A shares. The
minimum investment requirements described above apply to purchases by any group
member.
B-52
<PAGE>
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association, or other
organized groups of persons (the members of which may include other qualified
groups) provided that: (i) the group has at least 25 members of which at least
ten members participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some purpose in addition
to the purchase of investment company shares at a reduced sales charge; (iv) the
group's sole organizational nexus or connection is not that the members are
credit card customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to provide to its
designated investment dealer at least annually access to the group's membership
by means of written communication or direct presentation to the membership at a
meeting; (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 that 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 or constituent member; or (iii) any fiduciary purchasing shares for the
account of a member of a qualified group or a member's beneficiary. For example,
a qualified group could consist of a trade association, which would have as its
members individuals, sole proprietors, partnerships and corporations. The
members of the group would then consist of the individuals, the sole proprietors
and their employees, the members of the partnership and their employees, and the
corporations and their employees, as well as the trustees of employee benefit
trusts acquiring a Fund's shares for the benefit of any of the foregoing.
Interested groups should contact their investment dealer or the
Distributor. The Trust reserves the right to revise the terms of or to suspend
or discontinue group sales with respect to shares of the Funds at any time.
Net Asset Value Transfer Program. Investors may purchase Class A shares of
a Fund at net asset value to the extent that the investment represents the
proceeds from a redemption of a non-SunAmerica mutual fund in which the investor
either (a) paid a front-end sales load or (b) was subject to, or paid a CDSC on
the redemption proceeds. Nevertheless, the Distributor will pay a commission to
any dealer who initiates or is responsible for such an investment, in the amount
of .50% of the amount invested, subject, however, to forfeiture in the event of
a redemption during 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 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.
B-53
<PAGE>
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
Reference is made to "Shareholder Account Information" in each Prospectus
for certain information as to the redemption of Fund shares.
If the Trustees determine that it would be detrimental to the best
interests of the remaining shareholders of a Fund to make payment wholly or
partly in cash, the Trust, having filed with the SEC a notification of election
pursuant to Rule 18f-1 on behalf of each of the Funds, may pay the redemption
price in whole, or in part, by a distribution in kind of securities from a Fund
in lieu of cash. In conformity with applicable rules of the SEC, the Funds are
committed to pay in cash all requests for redemption, by any shareholder of
record, limited in amount with respect to each shareholder during any 90-day
period to the lesser of (i) $250,000, or (ii) 1% of the net asset value of the
applicable Fund at the beginning of such period. If shares are redeemed in
kind, the redeeming shareholder would incur brokerage costs in converting the
assets into cash. The method of valuing portfolio securities is described below
in the section entitled "Determination of Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined.
The Distributor is authorized, as agent for the Funds, to offer to
repurchase shares that 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 a 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 Funds nor the Distributor imposes any such charge. The offer to
repurchase may be suspended at any time.
EXCHANGE PRIVILEGE
Shareholders in any of the Funds may exchange their shares for the same
class of shares of any other Fund or other SunAmerica Mutual Funds that offer
such class at the respective net asset value per share. Before making an
exchange, a shareholder should obtain and review the prospectus of the fund
whose shares are being acquired. All exchanges are 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 be effected only 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.
B-54
<PAGE>
If a shareholder acquires Class A shares through an exchange from another
SunAmerica Mutual 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 Mutual Fund will retain liability for any deferred sales
charge 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 shares to Class A.
Because excessive trading (including short-term "market timing" trading)
can hurt a Fund's performance, each Fund may refuse any exchange sell order (1)
if it appears to be a market timing transaction involving a significant portion
of a Fund's assets or (2) from any shareholder account if previous use of the
exchange privilege is considered excessive. 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, a Fund reserves the right to refuse any exchange purchase
order if, in the judgment of the Adviser, the Fund would be unable to invest
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 exchanges that coincide with a "market timing" strategy may be
disruptive to the Fund and may therefore be refused.
DETERMINATION OF NET ASSET VALUE
The Trust 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). Each Fund calculates the net asset
value of each class of its shares separately by dividing the total value of each
class's net assets by the shares outstanding of such class. Investments for
which market quotations are readily available are valued at their price as of
the close of regular trading on the New York Stock Exchange for the day. All
other securities and assets are valued at fair value following procedures
approved by the Trustees.
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-
B-55
<PAGE>
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, a 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 60th day, are amortized to maturity based on
the value determined on the 61st day. Options traded on national securities
exchanges are valued as of the close of the exchange on which they are traded.
Futures and options traded on commodities exchanges are valued at their last
sale price as of the close of such exchange. 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 Adviser, the broadest and most representative market,
which 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.
A Fund's liabilities, including proper accruals of expense items, are
deducted from total assets.
PERFORMANCE DATA
Each Fund may advertise performance data that reflects various measures of
total return and the Balanced Assets Fund may advertise data that reflects
yield. An explanation of the data presented and the methods of computation that
will be used are as follows.
A Fund's performance may be compared to the historical returns of various
investments, performance indices of those investments or economic indicators,
including, but not limited to, stocks, bonds, certificates of deposit, money
market funds and U.S. Treasury Bills. Certain of these alternative investments
may offer fixed rates of return and guaranteed principal and may be insured.
Average annual total return is determined separately for Class A, Class B,
Class Z 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)/n/ = ERV
P = a hypothetical initial purchase payment of $1,000
T = average annual total return
N = number of years
B-56
<PAGE>
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 ending redeemable value of a hypothetical $1,000
payment made at the portion thereof).
The above formula assumes that:
. The maximum sales load (i.e., either the front-end sales load in
the case of the Class A shares 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;
. All dividends and distributions are reinvested at net asset
value; and
. Complete redemption occurs at the end of the 1-, 5-, or 10- year
periods or fractional portion thereof with all nonrecurring
charges deducted accordingly.
The Funds' average annual total return for the 1-, 5- and 10-year periods
(or from date of inception, if sooner) ended September 30, 1998 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Since One Five Ten
Class A Shares Inception Year Years Years
- ---------------------------- --------- ------- ------ ------
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Blue Chip Growth Fund 12.53%/1/ -0.95% N/A N/A
- --------------------------------------------------------------------
Mid-Cap Growth Fund 11.35%/2/ -9.71% 7.73% 11.79%
- --------------------------------------------------------------------
Small Company Growth Fund 11.23%/3/ -29.32% 7.12% 10.73%
- --------------------------------------------------------------------
Growth and Income Fund 19.93%/4/ -0.54% N/A N/A
- --------------------------------------------------------------------
Balanced Assets Fund 11.58%/5/ 3.04% 11.53% N/A
- --------------------------------------------------------------------
"Dogs" of Wall Street Fund N/A N/A N/A N/A
- --------------------------------------------------------------------
</TABLE>
________________
(1) From date of inception October 8, 1993.
(2) From date of inception January 28, 1987.
(3) From date of inception of January 28, 1987.
(4) From date of inception of July 1, 1994.
(5) From date of inception of September 24, 1993.
B-57
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Since One Five Ten
Class B Shares Inception Year Years Years
- ---------------------------- --------- --------- ------ ------
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Blue Chip Growth Fund 11.51%/1/ 0.36% 12.79% 10.18%
- --------------------------------------------------------------------
Mid-Cap Growth Fund 7.85%/2/ - 8.73% N/A N/A
- --------------------------------------------------------------------
Small Company Growth Fund 7.65%/3/ - 28.50% 7.39% N/A
- --------------------------------------------------------------------
Growth and Income Fund 20.77%/4/ 0.84% N/A N/A
- --------------------------------------------------------------------
Balanced Assets Fund 12.27%/5/ 4.62% 11.91% 12.00%
- --------------------------------------------------------------------
"Dogs" of Wall Street Fund/6/ N/A N/A N/A N/A
- --------------------------------------------------------------------
</TABLE>
- --------------
(1) From date of inception of March 13, 1985.
(2) From date of inception October 4, 1993.
(3) From date of inception of September 24, 1993.
(4) From date of inception of July 6, 1994.
(5) From date of inception of January 29, 1985.
(6) From date of inception of June 8, 1998.
<TABLE>
<CAPTION>
- ---------------------------------------
Since
Class II Shares Inception
- ------------------------ ---------
- ---------------------------------------
<S> <C>
Blue Chip Growth Fund/1/ N/A
- ---------------------------------------
Mid-Cap Growth Fund/1/ N/A
- ---------------------------------------
Small Company Growth Fund/1/ N/A
- ---------------------------------------
Growth and Income Fund/1/ N/A
- ---------------------------------------
Balanced Assets Fund/1/ N/A
- ---------------------------------------
"Dogs" of Wall Street Fund/2/ N/A
- ---------------------------------------
</TABLE>
________________
(1) Date of inception: February 2, 1998.
(2) Date of inception: February 8, 1998.
B-58
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Since One Five Ten
Class Z Shares Inception Year Years Years
- --------------------------- ----------- --------- ----- -----
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Company Growth Fund -5.02%/1/ -24.64% N/A N/A
- ---------------------------------------------------------------------
Growth and Income Fund N/A N/A N/A N/A
- ---------------------------------------------------------------------
</TABLE>
________________
(1) From date of inception of October 7, 1996.
Each Fund may advertise cumulative, rather than average return, for each
class of its shares for periods of time other than the 1-, 5-, and 10-year
periods or fractions thereof, as discussed 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
Each Fund may compare its total return or yield to similar measures as
calculated by various publications, services, indices, or averages. Such
comparisons are made to assist in evaluating an investment in a Fund. The
following references may be used:
a) Dow Jones Composite Average or its component averages -- an
unmanaged index composed of 30 blue-chip industrial corporation
stocks (Dow Jones Industrial Average), 15 utilities company stocks
(Dow Jones Utilities Average), and 20 transportation company stocks
(Dow Jones Transportation Average). Comparisons of performance
assume reinvestment of dividends.
b) Standard & Poor's 500 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.
c) 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.
d) The NYSE composite or component indices -- unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on
the NYSE.
B-59
<PAGE>
e) 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.
f) 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.
g) 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.
h) 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.
i) 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 that rate mutual fund performance over specified
time periods.
j) 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.
k) 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.
l) Savings and Loan Historical Interest Rates as published in the U.S.
Savings & Loan League Fact Book.
m) 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.
n) 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.
B-60
<PAGE>
o) 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.
p) Value Line Geometric Index -- broad based index made up of
approximately 1700 stocks each of which have an equal weighting.
q) 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.
r) 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.
s) 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.
t) 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.
u) Salomon Brothers 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
v) 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.
w) 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.
B-61
<PAGE>
x) 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.
y) 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.
z) 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.
aa) 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.
bb) Russell 3000 and 2000 Index -- represents the top 3,000 and the
next 2,000 stocks, respectively, traded on the NYSE, American Stock
Exchange and National Association of Securities Dealers Automated
Quotations, by market capitalizations.
cc) Russell Midcap Growth Index -- contains those Russell Midcap
securities with a greater-than-average growth orientation. The
stocks are also members of the Russell 1000 Growth Index, the
securities in which tend to exhibit higher price-to-book and price
earnings ratios, lower dividend yields and higher forecasted growth
values than the Value universe.
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 a Fund's portfolio, that the averages are generally
unmanaged and that the items included in the calculations of such averages may
not be identical to the formula used by a Fund to calculate its figures.
Specifically, a Fund may compare its performance to that of certain indices that
include securities with government guarantees. However, a Fund's shares do not
contain any such guarantees. In addition, there can be no assurance that a Fund
will continue its performance as compared to such other standards.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. 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, each
Fund's policy is to offset any prior year capital loss carry forward against any
realized capital gains, and accordingly, no distribution of capital gains will
be made until gains have been realized in excess of any such loss carry forward.
B-62
<PAGE>
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 dividend
date or, 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. Each Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as
each Fund so qualifies, each Fund (but not its shareholders) will not be subject
to federal income tax on the part of its net ordinary income and net realized
capital gains that it distributes to shareholders. Each Fund intends to
distribute substantially all of such income.
In order to be qualified as a RIC, each Fund generally must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, proceeds from loans of stock or securities and certain other related
income; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) 50% of the market value of each Fund's assets is represented by
cash, government securities, securities of other RICs and other securities
limited, in respect of any one issuer, to an amount no greater than 5% of each
Fund's assets and not greater than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than government securities or the
securities of other regulated investment companies).
As a RIC, each Fund will not be subject to U.S. Federal income tax on
its income and capital gains that it distributes provided that it distributes to
shareholders at least 90% of its investment company taxable income for the
taxable year. Each Fund intends to distribute sufficient income to meet this
qualification requirement.
Under the Code, amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To avoid the tax, each Fund must distribute during each calendar
year (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses for the 12-month period ending on October
31 of the calendar year, and (3) all ordinary income and net capital gains for
the previous years that were not distributed during such years. To avoid
application of the excise tax, each Fund intends to make distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the calendar year if declared by each Fund
in October, November or December of such year, payable to shareholders of record
on a date in such month and paid by each Fund during January of the following
year. Any such distributions paid during January of the following year will be
taxable to shareholders as of such December 31, rather than the date on which
the distributions are received.
Dividends paid by each Fund from its ordinary income and distributions
of each Fund's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income, whether or not reinvested. The portion of such dividends
received from each Fund that will be eligible for the dividends received
deduction for corporations
B-63
<PAGE>
will be determined on the basis of the amount of each Fund's gross income,
exclusive of capital gains from the sales of stock or securities, which is
derived as dividends from domestic corporations, other than certain tax-exempt
corporations and certain real estate investment trusts, and will be designated
as such in a written notice to shareholders mailed not later than 60 days after
the end of each fiscal year.
Any net capital gains (i.e., the excess of net capital gains from the
sale of assets held for more than 12 months over net short-term capital losses,
and including such gains from certain transactions in futures and options)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals is 20% with respect to assets held for more than 12 months. The
maximum capital gains rate for corporate shareholders currently is the same as
the maximum tax rate for ordinary income.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on 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 and capital gain taxable at
the maximum rate of 20% if such shares were held for more than 12 months. In the
case of a corporation, any such capital gain will be treated as long-term
capital gain, taxable at the same rates as ordinary income, if such shares were
held for more than 12 months. Any such loss will be treated as long-term capital
loss if such shares were held for more than 12 months. A loss recognized on the
sale or exchange of shares held for six months or less, however, will be treated
as long-term capital loss to the extent of any long-term capital gains
distribution with respect to such shares.
Generally, any loss realized on a sale or exchange of shares of a Fund
will be disallowed if other shares of such Fund 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 circumstances (such as the exercise of an exchange
privilege), the tax effect of sales load charges imposed on the purchase of
shares in a regulated investment company is deferred if the shareholder does not
hold the shares for at least 90 days.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which a Fund will be subject, since the amount of that Fund's
assets to be invested in various countries is not known. It is not anticipated
that any Fund will qualify to pass through to its shareholders the ability to
claim as a foreign tax credit their respective shares of foreign taxes paid by
such Fund.
B-64
<PAGE>
Under the Code, gains or losses attributable to fluctuations in
exchange rates that occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time such Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, gains or
losses on forward foreign currency exchange contracts, sale of currencies or
dispositions of debt securities denominated in a foreign currency attributable
to fluctuations in the value of the foreign currency between the date of
acquisition of the security and the date of disposition generally also are
treated as ordinary gain or loss. These gains, referred to under the Code as
"Section 988" gains or losses, increase or decrease the amount of each Fund's
investment company taxable income available to be distributed to its
shareholders as ordinary income.
The Code includes special rules applicable to the listed non-equity
options, regulated futures contracts, and options on futures contracts that a
Fund may write, purchase or sell. Such options and contracts are classified as
Section 1256 contracts under the Code. The character of gain or loss resulting
from the sale, disposition, closing out, expiration or other termination of
Section 1256 contracts, except forward foreign currency exchange contracts, is
generally treated as long-term capital gain or loss to the extent of 60% thereof
and short-term capital gain or loss to the extent of 40% thereof ("60/40 gain or
loss"). Such contracts, when held by a Fund at the end of a fiscal year,
generally are required to be treated as sold at market value on the last day of
such fiscal year for Federal income tax purposes ("marked-to-market"). Over-the-
counter options are not classified as Section 1256 contracts and are not subject
to the marked-to-market rule or to 60/40 gain or loss treatment. Any gains or
losses recognized by a Fund from transactions in over-the-counter options
generally constitute short-term capital gains or losses. When call options
written, or put options purchased, by a Fund are exercised, the gain or loss
realized on the sale of the underlying securities may be either short-term or
long-term, depending on the holding period of the securities. In determining the
amount of gain or loss, the sales proceeds are reduced by the premium paid for
the puts or increased by the premium received for calls.
A substantial portion of each Fund's transactions in options, futures
contracts and options on futures contracts, particularly its hedging
transactions, may constitute "straddles" which are defined in the Code as
offsetting positions with respect to personal property. A straddle consisting of
a listed option, futures contract, or option on a futures contract and of U.S.
Government securities would constitute a "mixed straddle" under the Code. The
Code generally provides with respect to straddles (i) "loss deferral" rules
which may postpone recognition for tax purposes of losses from certain closing
purchase transactions or other dispositions of a position in the straddle to the
extent of unrealized gains in the offsetting position, (ii) "wash sale" rules
which may postpone recognition for tax purposes of losses where a position is
sold and a new offsetting position is acquired within a prescribed period, (iii)
"short sale" rules which may terminate the holding period of securities owned by
a Fund when offsetting positions are established and which may convert certain
losses from short-term to long-term, and (iv) "conversion transaction" rules
which recharacterize capital gains as ordinary income. The Code provides that
certain elections may be made for mixed straddles that can
B-65
<PAGE>
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.
Code Section 1259 requires the recognition of gain (but not loss) if a
Fund makes a "constructive sale" of an appreciated financial position (e.g.,
stock). A 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 Growth and Income Fund may purchase debt securities (such as zero-
coupon or pay-in-kind securities) that contain original issue discount.
Original issue discount that accrues in a taxable year is treated as earned by a
Fund and therefore is subject to the distribution requirements of the Code.
Because the original issue discount earned by the Fund in a taxable year may not
be represented by cash income, the Fund may have to dispose of other securities
and use the proceeds to make distributions to shareholders.
A Fund may be required to backup withhold U.S. Federal income tax at
the rate of 31% of all taxable distributions payable to shareholders who fail to
provide their correct taxpayer identification number or fail to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's U.S. Federal
income tax liability.
Ordinary income dividends paid by a 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 each Fund. Qualification as a
regulated investment company under the Code for tax purposes does not entail
government supervision of management and investment policies.
B-66
<PAGE>
RETIREMENT PLANS
Shares of each Fund are eligible to be purchased in conjunction with
various types of qualified retirement plans. The summary below is only a brief
description of the Federal income tax laws for each plan and does not purport to
be complete. Further information or an application to invest in shares of a
Fund by establishing any of the retirement plans described below may be obtained
by calling Retirement Plans at (800) 858-8850. However, it is recommended that
a shareholder considering any retirement plan consult a tax adviser before
participating.
Pension and Profit-Sharing Plans. Sections 401(a) and 401(k) of the Code permit
business employers and certain associations to establish pension and profit
sharing plans for employees. Shares of a Fund may be purchased by those who
would have been covered under the rules governing old H.R. 10 (Keogh) Plans, as
well as by corporate plans. Each business retirement plan provides tax
advantages for owners and participants. Contributions made by the employer are
tax-deductible, and participants do not pay taxes on contributions or earnings
until withdrawn.
Tax-Sheltered Custodial Accounts. Section 403(b)(7) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code, to purchase
shares of a Fund and, subject to certain limitations, exclude the amount of
purchase payments from gross income for tax purposes.
Individual Retirement Accounts (IRA). Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program, including
Simplified Employee Pension Plans, commonly referred to as SEP-IRA. These IRAs
are subject to limitations with respect to the amount that may be contributed,
the eligibility of individuals, and the time in which distributions would be
allowed to commence. In addition, certain distributions from some other types
of retirement plans may be placed on a tax-deferred basis in an IRA.
Salary Reduction Simplified Employee Pension. This plan was introduced by a
provision of the Tax Reform Act of 1986 as a unique way for small employers to
provide the benefit of retirement planning for their employees. Contributions
are deducted from the employee's paycheck before tax deductions and are
deposited into an IRA by the employer. These contributions 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.
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<PAGE>
Roth IRA. This plan, introduced by Section 302 of the Taxpayer Relief Act of
1997, generally permits individuals with adjusted gross income of up to $95,000,
and married couples with joint adjusted gross income of up to $150,000, to
contribute to a "Roth IRA." Contributions are not tax-deductible, but
distribution of assets (contributions and earnings) held in the account for at
least five years may be distributed tax-free under certain qualifying
conditions.
Education IRA. Established by the Taxpayer Relief Act of 1997, under Section
530 of the Code, this plan permits individuals to contribute to an IRA on behalf
of any child under the age of 18. Contributions are not tax-deductible but
distributions are tax-free if used for qualified educational expenses.
DESCRIPTION OF SHARES
Ownership of the Trust is represented by transferable shares of
beneficial interest. The Declaration of Trust of the Trust (the "Declaration of
Trust") permits the Trustees to issue an unlimited number of full and fractional
shares, $.01 par value, and to divide or combine the shares into a greater or
lesser number of shares without thereby changing the proportionate beneficial
interests of the Trust.
Currently, six series of shares of the Trust have been authorized
pursuant to the Declaration of Trust: the Blue Chip Growth Fund, the Mid-Cap
Growth Fund, the Small Company Growth Fund, the Growth and Income Fund, the
Balanced Assets Fund and "Dogs" of Wall Street Fund. The Blue Chip Growth Fund,
the Mid-Cap Growth Fund, the Balanced Assets Fund and "Dogs" of Wall Street Fund
each have been divided into three classes of shares, designated as Class A,
Class B and Class II shares. The Small Company Growth Fund and the Growth and
Income Fund has each been divided into four classes of shares, designated as
Class A, Class B, Class II and Class Z shares. The Trustees may authorize the
creation of additional series of shares so as to be able to offer to investors
additional investment portfolios within the Trust that would operate
independently from the Trust's present portfolios, or to distinguish among
shareholders, as may be necessary, to comply with future regulations or other
unforeseen circumstances. Each series of the Trust's shares represents the
interests of the shareholders of that series in a particular portfolio of Trust
assets. In addition, the Trustees may authorize the creation of additional
classes of shares in the future, which may have fee structures different from
those 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
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<PAGE>
Trustees have been elected by shareholders. The voting rights of shareholders
are not cumulative, so that holders of more than 50% of the shares voting can,
if they choose, elect all Trustees being elected, while the holders of the
remaining shares would be unable to elect any Trustees. Although the Trust need
not hold annual meetings of shareholders, the Trustees may call special meetings
of shareholders for action by shareholder vote as may be required by the 1940
Act or the Declaration of Trust. Also, a shareholders meeting must be called, if
so requested in writing by the holders of record of 10% or more of the
outstanding shares of the Trust. In addition, the Trustees may be removed by the
action of the holders of record of two-thirds or more of the outstanding shares.
All series of shares will vote with respect to certain matters, such as election
of Trustees. When all series of shares are not affected by a matter to be voted
upon, such as approval of investment advisory agreements or changes in a Fund's
policies, only shareholders of the series affected by the matter may be entitled
to vote.
All classes of shares of a given 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, a
distribution fee 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, (vii) Class Z shares are not subject to
any sales charge or any distribution, account maintenance or service fee, and
(viii) each class of shares will be exchangeable only into the same class of
shares of any of the other Funds or other SunAmerica Mutual Funds that offers
that class except that Class II shares will be exchangeable into Class C shares
of the other SunAmerica Mutual Funds that do not offer Class II. All shares of
the Trust issued and outstanding and all shares offered by each 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 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
B-69
<PAGE>
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.
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.
ADDITIONAL INFORMATION
Computation of Offering Price per Share
- ---------------------------------------
The following is the offering price calculation for each Class of
shares of the Funds, based on the value of each Fund's net assets as of
September 30, 1998.
<TABLE>
<CAPTION>
- -------------------------------------- ---------------------------------------------- ------------------------------------------
Blue Chip Growth Fund Mid-Cap Growth Fund
--------------------- -------------------
- -------------------------------------- ---------------- ------------- --------------- -------------- ------------- -------------
Class A Class B Class C + Class A Class B Class C +
------- ------- -------- ------- ------- --------
- -------------------------------------- ---------------- ------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Assets..... $72,535,570 $36,106,145 $-- $38,437,342 $10,026,585 $--
- -------------------------------------- ---------------- ------------- --------------- -------------- ------------- -------------
Number of Shares Outstanding..... 3,897,584 2,023,562 -- 2,369,890 646,152 --
- -------------------------------------- ---------------- ------------- --------------- -------------- ------------- -------------
Net Asset Value Per Share (net
assets divided by number of 18.61 17.84 -- 16.22 15.52 --
shares).......................... -- -- -- -- -- --
- -------------------------------------- ---------------- ------------- --------------- -------------- ------------- -------------
</TABLE>
B-70
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sales Charge
for Class A Shares: 5.75% of
offering price (6.10% of net asset
value per share)*............ 1.14 --** -- 0.99 --** --
for Class II Shares: 1.00% of
offering price (1.01% of net asset
value per share)*............ -- -- -- -- -- --
- -------------------------------------- ---------------- ------------- --------------- -------------- ------------- -------------
Offering Price.... 19.75 17.84 - 17.21 15.52 -
- -------------------------------------- ---------------- ------------- --------------- -------------- ------------- -------------
</TABLE>
* Rounded to nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B shares are not subject to an initial charge but may be subject
to a contingent deferred sales charge on redemption of shares within
six years of purchase.
+ Class C shares (which were redesignated as Class II shares) commenced
on February 2, 1998. Class II shares are subject to an initial sales
charge and may be subject to a contingent deferred sales charge on
redemption of shares.
<TABLE>
<CAPTION>
- -------------------------------------------- ------------------------------------------------------------------------------------
Small Company Growth Fund
- -------------------------------------------- ------------------ --------------------- --------------------- ---------------------
Class A Class B Class C + Class Z
------- ------- -------- -------
<S> <C> <C> <C> <C>
- -------------------------------------------- ------------------ --------------------- --------------------- ---------------------
Net Assets..... $105,243,111 $61,398,079 $168,485 $564,852
- -------------------------------------------- ------------------ --------------------- --------------------- ---------------------
Number of Shares Outstanding..... 5,510,694 3,347,400 9,188 29,216
- -------------------------------------------- ------------------ --------------------- --------------------- ---------------------
Net Asset Value Per Shares (net assets 19.10 18.34 18.34 19.33
divided by number of shares).....
- -------------------------------------------- ------------------ --------------------- --------------------- ---------------------
Sales Charge
for Class A Shares: 5.75% of offering
price (6.10% of net asset value per
share)*..... 1.16 ** - **
for Class II Shares: 1.00% of offering
price (1.01% of net asset value per share)* - - - -
- -------------------------------------------- ------------------ --------------------- --------------------- ---------------------
Offering Price.... 20.26 18.34 18.34 19.33
- -------------------------------------------- ------------------ --------------------- --------------------- ---------------------
</TABLE>
* Rounded to nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class Z shares are not subject to an initial charge. Class
B shares may be subject to a contingent deferred sales charge on
redemption of shares within six years of purchase.
+ Class C shares (which were redesignated as Class II shares) commenced
on February 2, 1998. Class II shares are subject to an initial sales
charge and may be subject to a contingent deferred sales charge on
redemption of shares.
B-71
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------- ----------------------------------------------- --------------
Growth and Income Fund
- --------------------------------------------- --------------- ---------------- -------------- --------------
Class A Class B Class C + Class Z
------- ------- --------
- --------------------------------------------- --------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Assets..... $57,128,985 $79,004,085 $963,496 $93,421
- --------------------------------------------- --------------- ---------------- -------------- --------------
Number of Shares Outstanding..... 4,463,782 6,259,325 76,408 7,276
- --------------------------------------------- --------------- ---------------- -------------- --------------
Net Asset Value Per Shares (net assets 12.80 12.62 12.61 12.84
divided by number of shares).....
- --------------------------------------------- --------------- ---------------- -------------- --------------
Sales Charge
for Class A Shares: 5.75% of offering price
(6.10% of net asset value per share)*..... 0.78 **
for Class II Shares: 1.00% of offering
price (1.01% of net asset value per share)* -- --
- --------------------------------------------- --------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Offering Price.... 13.58 12.62 12.61 12.84
- --------------------------------------------- --------------- ---------------- -------------- --------------
</TABLE>
* Rounded to nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class Z shares are not subject to an initial charge. Class
B shares may be subject to a contingent deferred sales charge on
redemption of shares within six years of purchase.
+ Class C shares (which were redesignated as Class II shares) commenced
on February 2, 1998. Class II shares are subject to an initial sales
charge and may be subject to a contingent deferred sales charge on
redemption of shares.
<TABLE>
<CAPTION>
- --------------------------------------- ------------------------------------------------ -------------------------------------------
Balanced Assets Fund "Dogs" of Wall Street Fund+
- --------------------------------------- ------------------------- --------- ----------- ----------- --------------- ----------------
Class A Class B Class C Class Z Class A Class B Class C ++
++
- --------------------------------------- ------------ ------------ ---------- ---------- ----------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Assets..... $189,667,959 $165,926,207 $-- $-- $16,671,775 $19,734,004 $20,108,282
- --------------------------------------- ------------ ------------ ---------- ---------- ----------- --------------- ----------------
Number of Shares Outstanding..... 10,519,109 9,211,366 -- -- 1,507,576 1,788,369 1,822,909
- --------------------------------------- ------------ ------------ ---------- ---------- ----------- --------------- ----------------
Net Asset Value Per Shares (net assets 18.03 18.01 -- -- 11.06 11.03 11.03
divided by number of shares).....
- --------------------------------------- ------------ ------------ ---------- ---------- ----------- --------------- ----------------
</TABLE>
B-72
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Charge 1.10 -- -- -- 0.67 --
for Class A Shares: 5.75% of offering ** **
price (6.10% of net asset value
per share)* **
for Class II Shares: 1.00% of offering -- -- -- -- -- -- 0.11
price (1.01% of net asset value
per share)*
- --------------------------------------- ------------ ------------ ---------- ---------- ----------- --------------- ----------------
Offering Price.... 19.13 18.01 -- -- 11.73 11.03 11.14
- ----------------------------------------------------------------- ---------- ---------- ----------- --------------- ----------------
</TABLE>
* Rounded to nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class Z shares are not subject to an initial charge. Class
B shares may be subject to a contingent deferred sales charge on
redemption of shares within six years of purchase.
+ The offering of shares of "Dogs" of Wall Street Fund commenced on June
1, 1998.
++ Class C shares (which were redesignated as Class II shares) commenced
on February 2, 1998. Class II shares are subject to an initial sales
charge and may be subject to a contingent deferred sales charge on
redemption of shares.
Reports to Shareholders. The Trust sends audited annual and unaudited
semi-annual reports to shareholders of each of the Funds. In addition, the
Transfer Agent sends a statement to each shareholder having an account directly
with the Trust to confirm transactions in the account.
Custodian and Transfer Agency. State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, MA 02171, serves as custodian and as Transfer
Agent for the Funds and in those capacities maintains certain financial and
accounting books and records pursuant to agreements with the Trust. Transfer
agent functions are performed for State Street, by National Financial Data
Services, P.O. Box 419572, Kansas City, MO 64141-6572, an affiliate of State
Street.
Independent Accountants and Legal Counsel. PricewaterhouseCoopers 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 Swidler Berlin Shereff Friedman,
LLP, 919 Third Avenue, New York, NY 10022, has been selected as legal counsel to
the Trust.
B-73
<PAGE>
FINANCIAL STATEMENTS
Set forth following this Statement of Additional Information are the
financial statements of SunAmerica Equity Funds with respect to Registrant's
fiscal year ended September 30, 1998.
B-74
<PAGE>
SUNAMERICA EQUITY FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GROWTH AND "DOGS" OF
ASSETS GROWTH GROWTH GROWTH INCOME WALL STREET
FUND FUND FUND FUND FUND FUND
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments securities,
at value*.............. $319,254,090 $ 97,620,414 $47,534,013 $127,372,539 $122,856,638 $55,018,295
Short-term securities*.. -- -- -- -- 49,750 --
Repurchase agreements
(cost equals market)... 34,469,000 10,865,000 1,938,000 38,447,000 13,902,000 257,000
Cash.................... 44,589 215 697 223 272 106,315
Interest and dividends
receivable............. 1,639,110 89,156 36,410 31,259 114,198 109,250
Receivable for
investments sold....... 841,789 -- 2,498,319 4,307,616 -- --
Receivable for shares of
beneficial interest
sold................... 510,696 347,549 274,035 52,751 580,297 2,257,982
Prepaid expenses........ 10,823 32,195 5,962 15,047 7,747 55,872
Deferred organizational
expenses............... -- -- -- -- 203 --
Receivable from
investment adviser..... -- -- -- 5,286 3,686 28,565
------------ ------------ ----------- ------------ ------------ -----------
Total assets.......... 356,770,097 108,954,529 52,287,436 170,231,721 137,514,791 57,833,279
------------ ------------ ----------- ------------ ------------ -----------
LIABILITIES:
Payable for shares of
beneficial interest
redeemed............... 435,878 71,009 38,332 359,534 42,700 8,994
Accrued expenses........ 271,854 126,239 87,682 202,682 119,816 51,908
Investment advisory and
management fees
payable................ 216,259 65,816 28,624 104,059 82,387 14,022
Distribution and service
maintenance fees
payable................ 189,109 49,750 18,522 81,762 79,901 31,991
Dividends payable....... 62,831 -- -- -- -- --
Payable for investments
purchased.............. -- -- 3,650,349 1,379,657 -- 1,212,303
Written options at value
(proceeds $649,698 on
Small Company Growth).. -- -- -- 729,500 -- --
------------ ------------ ----------- ------------ ------------ -----------
Total liabilities..... 1,175,931 312,814 3,823,509 2,857,194 324,804 1,319,218
------------ ------------ ----------- ------------ ------------ -----------
Net assets.......... $355,594,166 $108,641,715 $48,463,927 $167,374,527 $137,189,987 $56,514,061
============ ============ =========== ============ ============ ===========
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial
interest, $.01 par
value.................. $ 197,305 $ 59,211 $ 30,160 $ 88,965 $ 108,068 $ 51,189
Paid-in capital......... 282,347,132 85,172,302 40,298,327 158,441,241 121,988,753 60,750,415
------------ ------------ ----------- ------------ ------------ -----------
282,544,437 85,231,513 40,328,487 158,530,206 122,096,821 60,801,604
Accumulated
undistributed net
investment income
(loss)................. (85,057) (12,409) (6,950) (28,365) (5,954) 234,485
Accumulated
undistributed net
realized gain on
investments, foreign
currency and other
assets and liabilities. 23,387,622 6,773,487 3,419,179 10,474,869 4,562,107 --
Net unrealized
appreciation
(depreciation) of
investments............ 49,747,164 16,649,124 4,723,211 (1,522,381) 10,537,013 (4,522,028)
Net unrealized
depreciation on written
options contracts...... -- -- -- (79,802) -- --
------------ ------------ ----------- ------------ ------------ -----------
Net assets.......... $355,594,166 $108,641,715 $48,463,927 $167,374,527 $137,189,987 $56,514,061
============ ============ =========== ============ ============ ===========
*Identified cost
Investment securities... $269,506,926 $ 80,971,290 $42,810,802 $128,894,920 $112,319,299 $59,540,323
============ ============ =========== ============ ============ ===========
Short-term securities... -- -- -- -- $ 50,076 --
============ ============ =========== ============ ============ ===========
</TABLE>
See Notes to Financial Statements
14
<PAGE>
SUNAMERICA EQUITY FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- SEPTEMBER 30, 1998 -- (CONTINUED)
<TABLE>
<CAPTION>
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GROWTH AND "DOGS" OF
ASSETS GROWTH GROWTH GROWTH INCOME WALL STREET
FUND FUND FUND FUND FUND FUND
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (UNLIMITED
SHARES AUTHORIZED):
Net assets.............. $189,667,959 $72,535,570 $38,437,342 $105,243,111 $57,128,985 $16,671,775
Shares of beneficial
interest issued and
outstanding............ 10,519,109 3,897,584 2,369,890 5,510,694 4,463,782 1,507,576
Net asset value and
redemption price per
share.................. $ 18.03 $ 18.61 $ 16.22 $ 19.10 $ 12.80 $ 11.06
Maximum sales charge
(5.75% of offering
price)................. 1.10 1.14 0.99 1.16 0.78 0.67
------------ ----------- ----------- ------------ ----------- -----------
Maximum offering price
to public.............. $ 19.13 $ 19.75 $ 17.21 $ 20.26 $ 13.58 $ 11.73
============ =========== =========== ============ =========== ===========
CLASS B (UNLIMITED
SHARES AUTHORIZED):
Net assets.............. $165,926,207 $36,106,145 $10,026,585 $ 61,398,079 $79,004,085 $19,734,004
Shares of beneficial
interest issued and
outstanding............ 9,211,366 2,023,562 646,152 3,347,400 6,259,325 1,788,369
Net asset value,
offering and redemption
price per share
(excluding any
applicable contingent
deferred sales charge). $ 18.01 $ 17.84 $ 15.52 $ 18.34 $ 12.62 $ 11.03
============ =========== =========== ============ =========== ===========
CLASS C (UNLIMITED
SHARES AUTHORIZED):
Net assets.............. -- -- -- $ 168,485 $ 963,496 --
Shares of beneficial
interest issued and
outstanding............ -- -- -- 9,188 76,408 --
Net asset value,
offering and redemption
price per share
(excluding any
applicable contingent
deferred sales charge). -- -- -- $ 18.34 $ 12.61 --
============ =========== =========== ============ =========== ===========
CLASS II (UNLIMITED
SHARES AUTHORIZED):
Net assets.............. -- -- -- -- -- $20,108,282
Shares of beneficial
interest issued and
outstanding............ -- -- -- -- -- 1,822,909
Net asset value and
redemption price per
share (excluding any
applicable contigent
deferred sales charge). -- -- -- -- -- $ 11.03
Maximum sales charge
(1.00% of offering
price)................. -- -- -- -- -- 0.11
------------ ----------- ----------- ------------ ----------- -----------
Maximum offering price
to public.............. -- -- -- -- -- $ 11.14
============ =========== =========== ============ =========== ===========
CLASS Z (UNLIMITED
SHARES AUTHORIZED):
Net assets.............. -- -- -- $ 564,852 $ 93,421 --
Shares of beneficial
interest issued and
outstanding............ -- -- -- 29,216 7,276 --
Net asset value,
offering and redemption
price per share........ -- -- -- $ 19.33 $ 12.84 --
============ =========== =========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements
15
<PAGE>
SUNAMERICA EQUITY FUNDS
STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GROWTH AND "DOGS" OF
ASSETS GROWTH GROWTH GROWTH INCOME WALL STREET
FUND FUND FUND FUND FUND FUND
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest................. $ 8,050,065 $ 198,532 $ 145,326 $ 898,624 $ 267,943 $ 18,026
Dividends (net of
withholding taxes of
$19,920, $7,282, $0,
$1,760, $8,172 and
$3,242, respectively)... 2,977,204 1,281,746 336,760 805,043 1,836,811 307,479
----------- ---------- ----------- ------------ ---------- -----------
Total investment income.. 11,027,269 1,480,278 482,086 1,703,667 2,104,754 325,505
----------- ---------- ----------- ------------ ---------- -----------
Expenses:
Investment advisory and
management fees......... 2,704,740 844,891 412,690 1,818,045 977,786 39,290
Distribution and service
maintenance fees--Class
A....................... 645,087 257,768 151,368 515,835 200,444 16,281
Distribution and service
maintenance fees--Class
B....................... 1,770,905 390,042 117,776 939,577 728,174 34,839
Distribution and service
maintenance fees--Class
C....................... -- -- -- 1,105 2,563 --
Distribution and service
maintenance fees--Class
II...................... -- -- -- -- -- 30,904
Transfer agent fees and
expenses--Class A....... 523,992 200,307 113,919 408,271 151,273 13,489
Transfer agent fees and
expenses--Class B....... 452,068 108,473 34,251 243,036 178,476 10,301
Transfer agent fees and
expenses--Class C....... -- -- -- 1,570 3,022 --
Transfer agent fees and
expenses--Class II...... -- -- -- -- -- 9,146
Transfer agent fees and
expenses--Class Z....... 8,816 -- -- 17,640 6,020 --
Custodian fees and
expenses................ 126,300 73,135 69,000 125,460 87,535 9,994
Registration fees--Class
A....................... 21,385 12,850 12,618 19,170 9,910 6,248
Registration fees--Class
B....................... 20,100 6,661 6,814 16,296 15,833 9,363
Registration fees--Class
C....................... -- -- -- 13,772 15,583 --
Registration fees--Class
II...................... -- -- -- -- -- 5,704
Registration fees--Class
Z....................... 175 -- -- 1,421 1,884 --
Trustee's fees and
expenses................ 37,426 11,466 6,594 27,630 12,740 575
Printing expense......... 30,615 14,465 5,425 32,220 10,200 2,570
Audit and tax consulting
fees.................... 27,470 35,110 34,855 31,120 34,600 13,075
Legal fees and expenses.. 5,230 5,150 2,775 4,785 1,825 2,300
Insurance expense........ 4,869 1,368 816 3,941 760 4
Interest expense......... 2,899 -- 5,179 33,733 971 --
Amortization of
organizational expenses. -- -- -- -- 277 --
Miscellaneous expenses... 5,189 2,163 1,621 4,340 2,118 795
----------- ---------- ----------- ------------ ---------- -----------
Total expenses........... 6,387,266 1,963,849 975,701 4,258,967 2,441,994 204,878
Less: expenses
reimbursed by
investment adviser...... (8,754) -- -- (32,661) (25,805) (55,500)
----------- ---------- ----------- ------------ ---------- -----------
Net expenses............. 6,378,512 1,963,849 975,701 4,226,306 2,416,189 149,378
----------- ---------- ----------- ------------ ---------- -----------
Net investment income
(loss)................... 4,648,757 (483,571) (493,615) (2,522,639) (311,435) 176,127
----------- ---------- ----------- ------------ ---------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments.............. 24,425,420 7,610,662 5,342,697 20,153,760 5,999,035 --
Net realized gain (loss)
on option contracts...... -- -- 182,906 (141,399) -- --
Net realized gain on
foreign currency and
other assets
and liabilities.......... -- 6 42 -- -- --
Net change in unrealized
appreciation/depreciation
on investments........... 1,642,258 (1,920,853) (6,869,735) (82,111,504) (864,910) (4,522,028)
Net change in unrealized
appreciation/depreciation
on written options
contracts................ -- -- -- (79,802) -- --
----------- ---------- ----------- ------------ ---------- -----------
Net realized and
unrealized gain (loss) on
investments, foreign
currency and other assets
and liabilities.......... 26,067,678 5,689,815 (1,344,090) (62,178,945) 5,134,125 (4,522,028)
----------- ---------- ----------- ------------ ---------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS.......... $30,716,435 $5,206,244 $(1,837,705) $(64,701,584) $4,822,690 $(4,345,901)
=========== ========== =========== ============ ========== ===========
</TABLE>
See Notes to Financial Statements
16
<PAGE>
SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BALANCED ASSETS FUND BLUE CHIP GROWTH FUND MID-CAP GROWTH FUND
---------------------------- ---------------------------- ---------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997 1998 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income
(loss)................ $ 4,648,757 $ 5,015,077 $ (483,571) $ (335,991) $ (493,615) $ (562,601)
Net realized gain on
investments........... 24,425,420 34,784,767 7,610,662 13,956,312 5,342,697 10,239,030
Net realized gain on
option contracts...... -- -- -- -- 182,906 --
Net realized gain on
foreign currency,
other assets and
liabilities........... -- -- 6 -- 42 --
Net change in
unrealized
appreciation/
depreciation on
investments........... 1,642,258 31,289,347 (1,920,853) 12,669,963 (6,869,735) 984,447
------------ ------------ ------------ ------------ ----------- -----------
Net increase (decrease)
in net assets resulting
from operations........ 30,716,435 71,089,191 5,206,244 26,290,284 (1,837,705) 10,660,876
------------ ------------ ------------ ------------ ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)...... (3,066,976) (2,846,051) -- -- -- --
From net investment
income (Class B)...... (1,812,490) (2,063,991) -- -- -- --
From net investment
income (Class Z)...... (2,188) (641) -- -- -- --
From net realized gains
on investments
(Class A)............. (16,001,494) (14,835,171) (8,287,237) (7,108,685) (7,536,397) (1,856,886)
From net realized gains
on investments
(Class B)............. (16,263,710) (17,300,021) (4,747,751) (5,010,638) (2,258,592) (619,105)
From net realized gains
on investments
(Class Z)............. (35,253) (994) -- -- -- --
------------ ------------ ------------ ------------ ----------- -----------
Total dividends and
distributions to
shareholders........... (37,182,111) (37,046,869) (13,034,988) (12,119,323) (9,794,989) (2,475,991)
------------ ------------ ------------ ------------ ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 6).. 19,370,777 (9,585,219) 11,025,071 3,081,521 266,590 (4,043,040)
------------ ------------ ------------ ------------ ----------- -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................. 12,905,101 24,457,103 3,196,327 17,252,482 (11,366,104) 4,141,845
NET ASSETS:
Beginning of period..... 342,689,065 318,231,962 105,445,388 88,192,906 59,830,031 55,688,186
------------ ------------ ------------ ------------ ----------- -----------
End of period [including
undistributed net
investment income
(loss) for
September 30, 1998 and
September 30, 1997 of
($85,057), $91,715;
($12,409), ($8,538);
($6,950), and ($4,811),
respectively].......... $355,594,166 $342,689,065 $108,641,715 $105,445,388 $48,463,927 $59,830,031
============ ============ ============ ============ =========== ===========
</TABLE>
See Notes to Financial Statements
17
<PAGE>
SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND GROWTH AND INCOME FUND "DOGS" OF WALL STREET
---------------------------- ---------------------------- ---------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE PERIOD
ENDED ENDED ENDED ENDED JUNE 8, 1998*
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, THROUGH
1998 1997 1998 1997 SEPTEMBER 30, 1998
------------- ------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss).................. $ (2,522,639) $ (3,953,450) $ (311,435) $ 73,082 $ 176,127
Net realized gain on
investments............. 20,153,760 32,482,170 5,999,035 10,454,215 --
Net realized loss on
option contracts........ (141,399) (72,208) -- -- --
Net realized loss on
foreign currency, other
assets and liabilities.. -- -- -- (8) --
Net change in unrealized
appreciation/depreciation
on investments.......... (82,111,504) 23,022,865 (864,910) 9,603,085 (4,522,028)
Net change in unrealized
appreciation/depreciation
on written option
contracts............... (79,802) -- -- -- --
------------- ------------ ------------ ------------ -----------
Net increase (decrease) in
net assets resulting from
operations............... (64,701,584) 51,479,377 4,822,690 20,130,374 (4,345,901)
------------- ------------ ------------ ------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)........ -- -- -- (72,848) --
From net investment
income (Class B)........ -- -- -- (30,158) --
From net realized gains
on investments (Class
A)...................... (15,001,692) (5,628,252) (5,129,665) (1,193,264) --
From net realized gains
on investments (Class
B)...................... (10,065,127) (3,985,469) (6,103,333) (917,178) --
From net realized gains
on investments (Class
Z)...................... (106,214) (7,070) -- -- --
------------- ------------ ------------ ------------ -----------
Total dividends and
distributions to
shareholders............. (25,173,033) (9,620,791) (11,232,998) (2,213,448) --
------------- ------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
CAPITAL SHARE
TRANSACTIONS (NOTE 6).... (53,359,166) 2,343,256 40,851,375 49,829,973 60,859,962
------------- ------------ ------------ ------------ -----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............ (143,233,783) 44,201,842 34,441,067 67,746,899 56,514,061
NET ASSETS:
Beginning of period....... 310,608,310 266,406,468 102,748,920 35,002,021 --
------------- ------------ ------------ ------------ -----------
End of period [including
undistributed net
investment income (loss)
for September 30, 1998
and September 30, 1997 of
($28,365), ($18,299);
($5,954), ($2,144);
$234,485 and $0,
respectively]............ $ 167,374,527 $310,608,310 $137,189,987 $102,748,920 $56,514,061
============= ============ ============ ============ ===========
</TABLE>
*Commencement of Operations
See Notes to Financial Statements
18
<PAGE>
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
BALANCED ASSETS FUND
- --------------------
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
-------
9/30/94......... $15.13 $ 0.30 $ (0.23) $ 0.07 $(0.28) $(0.30) $(0.58) $14.62 0.50% $ 52,098
9/30/95......... 14.62 0.32 2.51 2.83 (0.45) (0.58) (1.03) 16.42 20.68 119,916
9/30/96......... 16.42 0.27 1.39 1.66 (0.28) (0.99) (1.27) 16.81 10.65 147,035
9/30/97......... 16.81 0.31 3.43 3.74 (0.31) (1.75) (2.06) 18.49 24.81 169,201
9/30/98......... 18.49 0.29 1.29 1.58 (0.30) (1.74) (2.04) 18.03 9.32 189,668
CLASS B
-------
9/30/94......... $15.13 $ 0.20 $ (0.23) $ (0.03) $(0.18) $(0.30) $(0.48) $14.62 (0.14)% $180,655
9/30/95......... 14.62 0.23 2.51 2.74 (0.36) (0.58) (0.94) 16.42 19.96 162,115
9/30/96......... 16.42 0.17 1.38 1.55 (0.18) (0.99) (1.17) 16.80 9.93 171,197
9/30/97......... 16.80 0.21 3.43 3.64 (0.21) (1.75) (1.96) 18.48 24.09 173,435
9/30/98......... 18.48 0.18 1.28 1.46 (0.19) (1.74) (1.93) 18.01 8.62 165,926
- -----------------------------------------------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND
- ---------------------
<CAPTION>
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
-------
10/08/93-
9/30/94(3)..... $16.24 $ 0.09 $ (0.26) $ (0.17) $ -- $(0.65) $(0.65) $15.42 (1.05)% $ 3,207
9/30/95......... 15.42 0.02 2.99 3.01 -- (1.09) (1.09) 17.34 21.29 42,407
9/30/96......... 17.34 (0.03) 2.22 2.19 -- (1.91) (1.91) 17.62 13.88 51,993
9/30/97......... 17.62 (0.02) 5.05 5.03 -- (2.43) (2.43) 20.22 32.96 67,812
9/30/98......... 20.22 (0.04) 0.91 0.87 -- (2.48) (2.48) 18.61 5.09 72,536
CLASS B
-------
9/30/94......... $16.28 $(0.01) $ (0.28) $ (0.29) $ -- $(0.65) $(0.65) $15.34 (1.81)% $ 71,749
9/30/95......... 15.34 (0.01) 2.89 2.88 -- (1.09) (1.09) 17.13 20.51 39,533
9/30/96......... 17.13 (0.14) 2.19 2.05 -- (1.91) (1.91) 17.27 13.17 36,199
9/30/97......... 17.27 (0.13) 4.90 4.77 -- (2.43) (2.43) 19.61 32.02 37,633
9/30/98......... 19.61 (0.16) 0.87 0.71 -- (2.48) (2.48) 17.84 4.36 36,106
<CAPTION>
BALANCED ASSETS FUND
- --------------------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- -------------- --------------- ---------
<S> <C> <C> <C>
9/30/94......... 1.58% 2.00% 141%
9/30/95......... 1.50 2.13 130
9/30/96......... 1.52 1.63 187
9/30/97......... 1.50 1.86 149
9/30/98......... 1.46 1.59 80
9/30/94......... 2.21% 1.36% 141%
9/30/95......... 2.12 1.59 130
9/30/96......... 2.12 1.03 187
9/30/97......... 2.11 1.26 149
9/30/98......... 2.08 0.97 80
- -----------------------------------------------------------------------------------------------------------------------
BLUE CHIP GROWTH FUND
- ---------------------
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- -------------- --------------- ---------
<S> <C> <C> <C>
10/08/93-
9/30/94(3)..... 1.64%(4)(5) 0.65%(4)(5) 170%
9/30/95......... 1.58(5) 0.11(5) 251
9/30/96......... 1.57 (0.18) 269
9/30/97......... 1.54 (0.11) 211
9/30/98......... 1.52 (0.20) 90
9/30/94......... 2.28% (0.05)% 170%
9/30/95......... 2.22 (0.09) 251
9/30/96......... 2.23 (0.83) 269
9/30/97......... 2.22 (0.77) 211
9/30/98......... 2.17 (0.86) 90
</TABLE>
- ------------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
9/30/94 9/30/95
------- -------
<S> <C> <C>
Blue Chip Growth Class A..................................... 1.66% .11%
</TABLE>
See Notes to Financial Statements
19
<PAGE>
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MID-CAP GROWTH FUND
- -------------------
NET
GAIN (LOSS)
NET ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET INVEST- MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, MENT REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING INCOME AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD (LOSS)(2) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/94......... $18.03 $ 0.04 $ (1.64) $ (1.60) $ -- $(2.65) $(2.65) $ 13.78 (9.60)% $ 32,906
9/30/95......... 13.78 (0.08) 4.14 4.06 (0.04) -- (0.04) 17.80 29.51 37,714
9/30/96......... 17.80 (0.12) 2.21 2.09 -- (2.11) (2.11) 17.78 12.92 41,904
9/30/97......... 17.78 (0.15) 3.83 3.68 -- (0.80) (0.80) 20.66 21.54 46,051
9/30/98......... 20.66 (0.13) (0.78) (0.91) -- (3.53) (3.53) 16.22 (4.20) 38,437
<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/04/93-
9/30/94(4)..... $18.12 $ 0.03 $ (1.80) $ (1.77) $ -- $(2.65) $(2.65) $ 13.70 (10.56)% $ 4,039
9/30/95......... 13.70 (0.18) 4.08 3.90 (0.02) -- (0.02) 17.58 28.55 9,544
9/30/96......... 17.58 (0.24) 2.18 1.94 -- (2.11) (2.11) 17.41 12.16 13,784
9/30/97......... 17.41 (0.28) 3.73 3.45 -- (0.80) (0.80) 20.06 20.65 13,779
9/30/98......... 20.06 (0.25) (0.76) (1.01) -- (3.53) (3.53) 15.52 (4.93) 10,027
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
SMALL COMPANY GROWTH FUND
- -------------------------
NET
GAIN (LOSS)
NET ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET INVEST- MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, MENT REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING INCOME AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD (LOSS)(2) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/94......... $19.78 $ (0.10) $ (1.40) $ (1.50) $ -- $(1.46) $(1.46) $ 16.82 (7.74)% $ 38,570
9/30/95......... 16.82 (0.04) 8.28 8.24 -- (0.41) (0.41) 24.65 50.00 89,510
9/30/96......... 24.65 (0.16) 4.29 4.13 -- (4.53) (4.53) 24.25 19.35 158,567
9/30/97......... 24.25 (0.30) 5.18 4.88 -- (0.86) (0.86) 28.27 20.84 185,241
9/30/98......... 28.27 (0.18) (6.59) (6.77) -- (2.40) (2.40) 19.10 (25.00) 105,243
<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/94......... $19.78 $ (0.20) $ (1.42) $ (1.62) $ -- $(1.46) $(1.46) $ 16.70 (8.40)% $ 52,208
9/30/95......... 16.70 (0.16) 8.19 8.03 -- (0.41) (0.41) 24.32 49.08 68,313
9/30/96......... 24.32 (0.29) 4.20 3.91 -- (4.53) (4.53) 23.70 18.60 107,839
9/30/97......... 23.70 (0.44) 5.03 4.59 -- (0.86) (0.86) 27.43 20.08 124,450
9/30/98......... 27.43 (0.33) (6.36) (6.69) -- (2.40) (2.40) 18.34 (25.52) 61,398
<CAPTION>
CLASS C
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/2/98-
9/30/98(4)..... $21.11 $ (0.19) $ (2.58) $ (2.77) $ -- $ -- $ -- $ 18.34 (13.12)% $ 168
<CAPTION>
CLASS Z
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/07/96-
9/30/97(4)..... $24.61 $ (0.15) $ 4.85 $ 4.70 $ -- $(0.86) $(0.86) $ 28.45 19.78 % $ 948
9/30/98......... 28.45 (0.07) (6.65) (6.72) -- (2.40) (2.40) 19.33 (24.64) 565
<CAPTION>
MID-CAP GROWTH FUND
- -------------------
RATIO OF NET
INVESTMENT
RATIO OF INCOME
EXPENSES (LOSS)
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- -------------- -------------- ---------
<S> <C> <C> <C>
9/30/94......... 1.76% 0.28% 555%
9/30/95......... 1.66 (0.51) 392
9/30/96......... 1.62 (0.69) 307
9/30/97......... 1.64 (0.84) 332
9/30/98......... 1.62 (0.75) 377
<CAPTION>
<S> <C> <C> <C>
10/04/93-
9/30/94(4)..... 2.43%(3)(5) 0.20 %(3)(5) 555%
9/30/95......... 2.31(5) (0.17)(5) 392
9/30/96......... 2.32 (1.43) 307
9/30/97......... 2.35 (1.56) 332
9/30/98......... 2.33 (1.45) 377
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
SMALL COMPANY GROWTH FUND
- -------------------------
RATIO OF NET
INVESTMENT
RATIO OF INCOME
EXPENSES (LOSS)
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- -------------- -------------- ---------
<S> <C> <C> <C>
9/30/94......... 1.67% (0.60)% 411%
9/30/95......... 1.57 (0.22) 351
9/30/96......... 1.53 (0.68) 240
9/30/97......... 1.72 (1.27) 343
9/30/98......... 1.50 (0.79) 292
<CAPTION>
<S> <C> <C> <C>
9/30/94......... 2.31% (1.23)% 411%
9/30/95......... 2.22 (0.84) 351
9/30/96......... 2.16 (1.30) 240
9/30/97......... 2.34 (1.89) 343
9/30/98......... 2.14 (1.44) 292
<CAPTION>
<S> <C> <C> <C>
2/2/98-
9/30/98(4)..... 2.15%(3)(5) (1.35)%(3)(5) 292%
<CAPTION>
<S> <C> <C> <C>
10/07/96-
9/30/97(4)..... 1.07%(3)(5) (0.67)%(3)(5) 343%
9/30/98......... 1.01 (5) (0.30) (5) 292
</TABLE>
- ------------
(1) Total return is not annualized and does not reflect sales load
(2) Calculated based upon average shares outstanding
(3) Annualized
(4) Commencement of sale of respective class of shares
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
9/30/94 9/30/95 9/30/97 9/30/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
Mid-Cap Growth Class B....................... .48% .17% -- --
Small Company Growth Class C................. -- -- -- 13.58%
Small Company Growth Class Z................. -- -- 2.19% 1.85
</TABLE>
See Notes to Financial Statements
20
<PAGE>
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
- ----------------------
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
-------
7/01/94-
9/30/94(3)..... $ 7.33 $0.07 $ 0.10 $ 0.17 $(0.06) $ -- $ (0.06) $ 7.44 2.34% $ 3,098
9/30/95......... 7.44 0.32 1.08 1.40 (0.30) (0.15) (0.45) 8.39 19.53 3,532
9/30/96......... 8.39 0.14 2.50 2.64 (0.17) (0.39) (0.56) 10.47 32.59 21,099
9/30/97......... 10.47 0.05 3.40 3.45 (0.03) (0.44) (0.47) 13.45 34.18 47,219
9/30/98......... 13.45 0.02 0.68 0.70 -- (1.35) (1.35) 12.80 5.53 57,129
CLASS B
-------
7/06/94-
9/30/94(3)..... $ 7.33 $0.05 $ 0.11 $ 0.16 $(0.05) $ -- $ (0.05) $ 7.44 2.19% $ 229
9/30/95......... 7.44 0.35 1.03 1.38 (0.28) (0.15) (0.43) 8.39 19.19 2,538
9/30/96......... 8.39 0.08 2.50 2.58 (0.13) (0.39) (0.52) 10.45 31.75 13,903
9/30/97......... 10.45 (0.03) 3.39 3.36 (0.01) (0.44) (0.45) 13.36 33.30 55,530
9/30/98......... 13.36 (0.07) 0.68 0.61 -- (1.35) (1.35) 12.62 4.84 79,004
CLASS C
-------
2/02/98-
9/30/98(3)..... $12.78 $(0.04) $(0.13) $(0.17) $ -- $ -- $ -- $12.61 (1.33)% $ 963
CLASS Z
-------
4/15/98-
9/30/98(3)..... $14.35 $ 0.04 $(1.55) $(1.51) $ -- $ -- $ -- $12.84 (10.52)% $ 93
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
"DOGS" OF WALL STREET FUND
- --------------------------
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- --------- ----------- ---------- --------- ------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
-------
6/08/98-
9/30/98(3)..... $12.50 $ 0.07 $(1.51) $(1.44) $ -- $ -- $ -- $11.06 (11.52)% $16,672
CLASS B
-------
6/08/98-
9/30/98(3)..... $12.50 $ 0.04 $(1.51) $(1.47) $ -- $ -- $ -- $11.03 (11.76)% $19,734
CLASS II
--------
6/08/98-
9/30/98(3)..... $12.50 $ 0.04 $(1.51) $(1.47) $ -- $ -- $ -- $11.03 (11.76)% $20,108
<CAPTION>
GROWTH AND INCOME FUND
- ----------------------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- ----------- ------------- ---------
<S> <C> <C> <C>
7/01/94-
9/30/94(3)..... 1.50%(4)(5) 3.48%(4)(5) 8%
9/30/95......... 0.46(5) 4.16(5) 230
9/30/96......... 0.96(5) 1.52(5) 161
9/30/97......... 1.38(5) 0.45(5) 200
9/30/98......... 1.50 0.12 150
7/06/94-
9/30/94(3)..... 2.15%(4)(5) 2.86% (4)(5) 8%
9/30/95......... 0.30(5) 4.48 (5) 230
9/30/96......... 1.58(5) 0.73 (5) 161
9/30/97......... 2.05(5) (0.27)(5) 200
9/30/98......... 2.13 (0.52) 150
2/02/98-
9/30/98(3)..... 2.15%(4)(5) (0.57)%(4)(5) 150%
4/15/98-
9/30/98(3)..... 0.93%(4)(5) 0.57%(4)(5) 150%
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
"DOGS" OF WALL STREET FUND
- --------------------------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO
ENDED NET ASSETS NET ASSETS TURNOVER
- ---------------- ----------- ------------- ---------
<S> <C> <C> <C>
6/08/98-
9/30/98(3)..... 0.95%(4)(5) 1.78%(4)(5) 0%
6/08/98-
9/30/98(3)..... 1.60%(4)(5) 1.39%(4)(5) 0%
6/08/98-
9/30/98(3)..... 1.60%(4)(5) 1.45%(4)(5) 0%
</TABLE>
- --------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Growth and Income Class A............ 4.48% 2.96% 1.01% 0.22% --
Growth and Income Class B............ 20.35 5.07 1.14 0.21 --
Growth and Income Class C............ -- -- -- -- 6.99%
Growth and Income Class Z............ -- -- -- -- 28.17
"Dogs" of Wall Street Class A........ -- -- -- -- 0.43
"Dogs" of Wall Street Class B........ -- -- -- -- 0.58
"Dogs" of Wall Street Class II....... -- -- -- -- 0.50
</TABLE>
See Notes to Financial Statements
21
<PAGE>
SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--57.9%
APPAREL & TEXTILES--1.2%
Gap, Inc. ................................................ 55,000 $ 2,901,250
Oakley, Inc.+............................................. 125,000 1,203,125
------------
4,104,375
------------
AUTOMOTIVE--1.2%
Ford Motor Co. ........................................... 40,000 1,877,500
General Motors Corp. ..................................... 45,000 2,460,938
------------
4,338,438
------------
BANKS--5.1%
BankAmerica Corp. ........................................ 50,000 2,675,000
Chase Manhattan Corp...................................... 50,000 2,162,500
Citicorp.................................................. 20,000 1,858,750
First Union Corp.......................................... 40,000 2,047,500
Mellon Bank Corp. ........................................ 50,000 2,753,125
Summit Bancorp............................................ 177,500 6,656,250
------------
18,153,125
------------
BUSINESS SERVICES--1.1%
American Express Co....................................... 50,000 3,881,250
------------
CHEMICALS--0.8%
du Pont (E.I.) de Nemours & Co............................ 50,000 2,806,250
------------
COMPUTERS & BUSINESS EQUIPMENT--6.7%
Cisco Systems, Inc.+...................................... 90,000 5,563,125
Dell Computer Corp.+...................................... 80,000 5,260,000
EMC Corp.+................................................ 70,000 4,003,125
Hewlett-Packard Co........................................ 25,000 1,323,438
International Business Machines Corp. .................... 40,000 5,120,000
Micron Technology, Inc.+.................................. 85,000 2,587,187
------------
23,856,875
------------
CONGLOMERATE--3.7%
General Electric Co....................................... 100,000 7,956,250
Schlumberger Ltd.......................................... 40,000 2,012,500
United Technologies Corp.................................. 40,000 3,057,500
------------
13,026,250
------------
DEPARTMENT STORES--1.2%
Wal-Mart Stores, Inc...................................... 80,000 4,370,000
------------
ELECTRONICS--2.5%
Intel Corp................................................ 50,000 4,287,500
Motorola, Inc............................................. 35,000 1,494,063
Texas Instruments, Inc.................................... 55,000 2,901,250
------------
8,682,813
------------
ENERGY SERVICES--3.3%
Chevron Corp. ............................................ 50,000 4,203,125
Mobil Corp. .............................................. 20,000 1,518,750
Royal Dutch Petroleum Co.................................. 82,500 3,929,062
Texaco, Inc............................................... 30,000 1,880,625
------------
11,531,562
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
FINANCIAL SERVICES--6.7%
American General Corp................................... 35,000 $ 2,235,625
Associates First Capital Corp., Class A................. 60,000 3,915,000
Capital One Financial Corp. ............................ 30,000 3,105,000
Equitable Cos., Inc. ................................... 30,000 1,241,250
Fleet Financial Group, Inc.............................. 45,000 3,304,687
Morgan Stanley, Dean Witter & Co. ...................... 35,000 1,507,188
PaineWebber Group, Inc.................................. 50,000 1,500,000
Providian Financial Corp................................ 40,000 3,392,500
ReliaStar Financial Corp................................ 50,300 1,961,700
Travelers Group, Inc.................................... 47,500 1,781,250
------------
23,944,200
------------
FOOD, BEVERAGE & TOBACCO--1.3%
Philip Morris Cos., Inc................................. 100,000 4,606,250
------------
HEALTH SERVICES--0.3%
Allegiance Corp......................................... 40,000 1,190,000
------------
HOUSEHOLD PRODUCTS--1.9%
Warner-Lambert Co....................................... 90,000 6,795,000
------------
INSURANCE--0.9%
Allstate Corp........................................... 80,000 3,335,000
------------
LEISURE & TOURISM--0.7%
Carnival Corp., Class A................................. 80,000 2,545,000
------------
MEDICAL PRODUCTS--2.0%
Amgen, Inc.+............................................ 35,000 2,644,687
Johnson & Johnson....................................... 55,000 4,303,750
------------
6,948,437
------------
PHARMACEUTICALS--5.8%
Biogen, Inc.+........................................... 60,000 3,948,750
Bristol-Myers Squibb Co. ............................... 25,000 2,596,875
Lilly (Eli) & Co. ...................................... 35,000 2,740,937
Merck & Co., Inc. ...................................... 30,000 3,886,875
Pfizer, Inc. ........................................... 30,000 3,178,125
Schering-Plough Corp. .................................. 40,000 4,142,500
------------
20,494,062
------------
SOFTWARE--2.9%
BMC Software, Inc.+..................................... 50,000 3,003,125
Microsoft Corp.+........................................ 45,000 4,952,813
Sun Microsystems, Inc.+................................. 50,000 2,490,625
------------
10,446,563
------------
SPECIALTY RETAIL--2.7%
CVS Corp. .............................................. 70,000 3,066,875
Dayton Hudson Corp. .................................... 70,000 2,502,500
Home Depot, Inc. ....................................... 100,000 3,950,000
------------
9,519,375
------------
</TABLE>
22
<PAGE>
SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS--4.5%
AT&T Corp. ...................................... 100,000 $ 5,843,750
Lucent Technologies, Inc. ....................... 70,000 4,834,375
MCI WorldCom, Inc.+.............................. 110,000 5,376,250
------------
16,054,375
------------
TRANSPORTATION--0.5%
Burlington Northern Santa Fe Corp. .............. 60,000 1,920,000
------------
UTILITIES--0.9%
Enron Corp. ..................................... 60,000 3,168,750
------------
TOTAL COMMON STOCK
(cost $162,813,590).............................. 205,717,950
------------
BONDS & NOTES--16.5%
AEROSPACE & MILITARY TECHNOLOGY--1.2%
Lockheed Martin Corp.
7.25% due 5/15/06............................... $ 4,000 4,400,040
------------
AUTOMOTIVE--1.6%
Chrysler Corp.
7.45% due 3/01/27............................... 5,000 5,668,050
------------
BANKS--0.6%
Chase Manhattan Corp.
7.88% due 8/01/04............................... 2,000 2,041,080
------------
ELECTRONICS--0.9%
Texas Instruments, Inc.
6.13% due 2/01/06............................... 3,000 3,090,390
------------
FINANCIAL SERVICES--10.6%
Bear Stearns Cos., Inc.
6.63% due 1/15/04............................... 5,000 5,152,700
CS First Boston Mortgage Securities Corp.
6.48% due 5/17/08............................... 5,000 5,183,594
Donaldson, Lufkin & Jenrette, Inc.
6.88% due 11/01/05.............................. 2,000 2,055,340
Ford Motor Credit Co.
8.00% due 6/15/02............................... 5,000 5,457,150
Goldman Sachs Group-L. P.* 6.60% due 7/15/02..... 5,000 5,235,000
Morgan Stanley, Dean Witter, Discover & Co.
6.88% due 3/01/07............................... 4,000 4,170,320
Private Export Funding Corp. 5.87% due 7/31/08... 10,000 10,620,300
------------
37,874,404
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO--1.6%
Hershey Foods Corp.
7.20% due 8/15/27................................ $ 5,000 $ 5,728,600
------------
TOTAL BONDS & NOTES
(cost $54,866,514)............................... 58,802,564
------------
U.S. GOVERNMENT AND AGENCIES--15.4%
FEDERAL NATIONAL MORTGAGE ASSOCIATION--3.5%
5.63% due 3/15/01................................ 5,000 5,120,300
5.75% due 4/15/03-2/15/08........................ 4,620 4,834,064
6.50% due 9/01/10................................ 2,612 2,668,649
------------
12,623,013
------------
SMALL BUSINESS ADMINISTRATION--1.5%
6.30% due 6/01/18................................ 5,000 5,175,000
------------
U.S. TREASURY BONDS--5.9%
6.13% due 11/15/27............................... 5,000 5,764,050
7.50% due 11/15/16............................... 570 725,593
8.75% due 8/15/20................................ 3,800 5,548,608
12.50% due 8/15/14............................... 5,400 8,887,212
------------
20,925,463
------------
U.S. TREASURY NOTES--4.5%
5.50% due 1/31/03................................ 7,500 7,836,300
5.88% due 11/15/05............................... 7,500 8,173,800
------------
16,010,100
------------
TOTAL U.S. GOVERNMENT AND AGENCIES
(COST $51,826,822)............................... 54,733,576
------------
TOTAL INVESTMENT SECURITIES--89.8%
(cost $269,506,926).............................. 319,254,090
------------
REPURCHASE AGREEMENTS--9.7%
Joint Repurchase Agreement with PaineWebber, Inc.
(Note 2)........................................ 14,469 14,469,000
Joint Repurchase Agreement with State Street Bank
& Trust Co. (Note 2)............................ 20,000 20,000,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $34,469,000)............................... 34,469,000
------------
TOTAL INVESTMENTS--(COST $303,975,926)............ 99.5% 353,723,090
Other assets less liabilities..................... 0.5 1,871,076
------- ------------
NET ASSETS-- 100.0% $355,594,166
======= ============
</TABLE>
- --------
+ Non-income producing security
* Resale restricted to qualified institutional buyers
See Notes to Financial Statements
23
<PAGE>
SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--89.9%
APPAREL & TEXTILES--2.4%
Gap, Inc. ................................................ 30,000 $ 1,582,500
Oakley, Inc.+............................................. 100,000 962,500
------------
2,545,000
------------
AUTOMOTIVE--2.4%
Ford Motor Co. ........................................... 30,000 1,408,125
General Motors Corp. ..................................... 22,000 1,203,125
------------
2,611,250
------------
BANKS--6.6%
BankAmerica Corp. ........................................ 15,000 802,500
Chase Manhattan Corp. .................................... 30,000 1,297,500
Citicorp. ................................................ 12,000 1,115,250
First Union Corp. ........................................ 20,000 1,023,750
Mellon Bank Corp. ........................................ 25,000 1,376,562
Summit Bancorp. .......................................... 40,000 1,500,000
------------
7,115,562
------------
BUSINESS SERVICES--1.4%
American Express Co. ..................................... 20,000 1,552,500
------------
CHEMICALS--0.8%
du Pont (E.I.) de Nemours & Co. .......................... 15,000 841,875
------------
COMPUTERS & BUSINESS EQUIPMENT--12.8%
Cisco Systems, Inc.+...................................... 52,500 3,245,156
Dell Computer Corp.+...................................... 54,000 3,550,500
EMC Corp.+................................................ 40,000 2,287,500
Hewlett-Packard Co. ...................................... 10,000 529,375
International Business Machines Corp. .................... 25,000 3,200,000
Micron Technology, Inc.+.................................. 37,000 1,126,188
------------
13,938,719
------------
CONGLOMERATE--4.9%
General Electric Co. ..................................... 40,000 3,182,500
Schlumberger Ltd. ........................................ 20,000 1,006,250
United Technologies Corp. ................................ 15,000 1,146,562
------------
5,335,312
------------
DEPARTMENT STORES--1.5%
Wal-Mart Stores, Inc. .................................... 30,000 1,638,750
------------
ELECTRONICS--4.2%
Intel Corp. .............................................. 25,000 2,143,750
Motorola, Inc. ........................................... 25,000 1,067,188
Texas Instruments, Inc. .................................. 25,000 1,318,750
------------
4,529,688
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
ENERGY SOURCES--4.4%
Chevron Corp. ............................................. 20,000 $ 1,681,250
Mobil Corp. ............................................... 10,000 759,375
Royal Dutch Petroleum Co. ................................. 30,000 1,428,750
Texaco, Inc. .............................................. 15,000 940,312
------------
4,809,687
------------
FINANCIAL SERVICES--8.4%
American General Corp. .................................... 15,000 958,125
Associates First Capital Corp., Class A.................... 25,000 1,631,250
Capital One Financial Corp. ............................... 15,000 1,552,500
Equitable Cos., Inc. ...................................... 10,000 413,750
Fleet Financial Group, Inc. ............................... 15,000 1,101,562
Morgan Stanley, Dean Witter & Co. ......................... 15,000 645,938
PaineWebber Group, Inc. ................................... 30,000 900,000
ReliaStar Financial Corp. ................................. 30,000 1,170,000
Travelers Group, Inc. ..................................... 20,000 750,000
------------
9,123,125
------------
FOOD, BEVERAGE & TOBACCO--1.5%
Philip Morris Cos., Inc. .................................. 35,000 1,612,188
------------
HOUSEHOLD PRODUCTS--3.1%
Warner-Lambert Co. ........................................ 45,000 3,397,500
------------
INSURANCE--1.5%
Allstate Corp. ............................................ 40,000 1,667,500
------------
LEISURE & TOURISM--1.2%
Carnival Corp., Class A.................................... 40,000 1,272,500
------------
MEDICAL PRODUCTS--3.2%
Amgen, Inc.+............................................... 20,000 1,511,250
Johnson & Johnson.......................................... 25,000 1,956,250
------------
3,467,500
------------
PHARMACEUTICALS--9.2%
Biogen, Inc.+.............................................. 25,000 1,645,312
Bristol-Myers Squibb Co. .................................. 15,000 1,558,125
Lilly (Eli) & Co. ......................................... 15,000 1,174,688
Merck & Co., Inc. ......................................... 15,000 1,943,437
Pfizer, Inc. .............................................. 20,000 2,118,750
Schering-Plough Corp. ..................................... 15,000 1,553,438
------------
9,993,750
------------
</TABLE>
24
<PAGE>
SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
POLLUTION CONTROL--0.8%
Waste Management, Inc.+......................... 18,125 $ 871,133
------------
SOFTWARE--5.6%
BMC Software, Inc.+............................. 20,000 1,201,250
HBO & Co. ...................................... 50,000 1,443,750
Microsoft Corp.+................................ 20,000 2,201,250
Sun Microsystems, Inc.+......................... 25,000 1,245,312
------------
6,091,562
------------
SPECIALTY RETAIL--4.2%
CVS Corp. ...................................... 40,000 1,752,500
Dayton Hudson Corp.............................. 35,000 1,251,250
Home Depot, Inc. ............................... 40,000 1,580,000
------------
4,583,750
------------
TELECOMMUNICATIONS--7.7%
AT&T Corp. ..................................... 45,000 2,629,687
Frontier Corp. ................................. 40,000 1,095,000
Lucent Technologies, Inc. ...................... 35,000 2,417,188
MCI WorldCom, Inc.+............................. 45,000 2,199,375
------------
8,341,250
------------
TRANSPORTATION--0.9%
Burlington Northern Santa Fe Corp. ............. 30,000 960,000
------------
UTILITIES--1.2%
Enron Corp. .................................... 25,000 1,320,313
------------
TOTAL INVESTMENT SECURITIES--89.9%
(cost $80,971,290)............................. 97,620,414
------------
REPURCHASE AGREEMENT--10.0%
Joint Repurchase Agreement with PaineWebber,
Inc. (Note 2)
(cost $10,865,000).............................. $10,865 10,865,000
------------
TOTAL INVESTMENTS--
(cost $91,836,290).............................. 99.9% 108,485,414
Other assets less liabilities.................... 0.1 156,301
------- ------------
NET ASSETS-- 100.0% $108,641,715
======= ============
</TABLE>
- --------
+Non-income producing security
See Notes to Financial Statements
25
<PAGE>
SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--98.1%
APPAREL & TEXTILES--0.8%
Oakley, Inc.+............................................. 40,000 $ 385,000
-----------
BANKS--4.3%
Compass Bancshares, Inc................................... 13,000 429,000
First American Corp....................................... 12,000 460,500
North Fork Bancorp., Inc.................................. 22,000 440,000
Union Planters Corp....................................... 15,000 753,750
-----------
2,083,250
-----------
BROADCASTING & MEDIA--2.5%
Cinar Films, Inc., Class B+............................... 27,200 487,900
Comcast Corp., Class A.................................... 15,000 704,063
-----------
1,191,963
-----------
BUSINESS SERVICES--7.2%
American Bank Note Holographics, Inc.+.................... 20,000 157,500
BISYS Group, Inc.+........................................ 12,000 529,500
CMG Information Services, Inc.+........................... 7,000 372,750
Equifax, Inc.............................................. 10,000 356,875
Liberty Media Group, Series A+............................ 20,000 733,750
Paychex, Inc.............................................. 15,000 773,437
Professional Detailing, Inc.+............................. 20,000 560,000
-----------
3,483,812
-----------
COMMUNICATION EQUIPMENT--0.9%
General Instrument Corp.+................................. 20,000 432,500
-----------
COMPUTERS & BUSINESS EQUIPMENT--8.5%
Apple Computer, Inc.+..................................... 36,000 1,372,500
Dell Computer Corp. +..................................... 15,000 986,250
EMC Corp. +............................................... 20,000 1,143,750
Rambus, Inc.+............................................. 10,000 640,000
-----------
4,142,500
-----------
ELECTRONICS--2.2%
Tandy Corp................................................ 10,000 535,000
Teradyne, Inc.+........................................... 30,000 547,500
-----------
1,082,500
-----------
ENERGY SERVICES--5.7%
Diamond Offshore Drilling, Inc............................ 10,000 260,000
Dominion Resources, Inc................................... 10,000 446,250
Global Industries Ltd.+................................... 10,000 115,625
Halliburton Co............................................ 10,000 285,625
Ipalco Enterprises, Inc. ................................. 23,000 1,082,438
Transocean Offshore, Inc.................................. 10,000 346,875
Weatherford International, Inc............................ 10,000 216,250
-----------
2,753,063
-----------
HEALTH SERVICES--3.5%
Allegiance Corp........................................... 20,000 595,000
HealthCare Financial Partners, Inc.+...................... 6,900 289,800
IDX Systems Corp.+........................................ 15,000 795,000
-----------
1,679,800
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
HOUSEHOLD PRODUCTS--3.5%
American Home Products Corp................................. 11,000 $ 576,125
Warner-Lambert Co........................................... 15,000 1,132,500
-----------
1,708,625
-----------
INSURANCE--0.9%
Reliance Group Holdings, Inc................................ 30,000 421,875
-----------
MEDICAL PRODUCTS--10.5%
Agouron Pharmaceuticals, Inc.+.............................. 20,000 688,750
Amgen, Inc.+................................................ 10,000 755,625
Bard (C.R.), Inc............................................ 10,000 368,750
Baxter International, Inc................................... 10,000 595,000
Becton Dickinson & Co....................................... 20,000 822,500
Incyte Pharmacuticals, Inc.+................................ 20,000 425,000
Millenium Pharmaceuticals, Inc.+............................ 30,000 521,250
Pharmacia & Upjohn, Inc..................................... 10,000 501,875
SmithKline Beecham PLC ADR.................................. 5,000 273,750
Zonagen, Inc.+.............................................. 10,000 155,000
-----------
5,107,500
-----------
PHARMACEUTICALS--9.6%
Biogen, Inc.+............................................... 20,000 1,316,250
Centocor, Inc.+............................................. 10,000 396,250
Medicis Pharmaceutical Corp., Class A+...................... 15,000 594,375
Merck & Co., Inc............................................ 10,000 1,295,625
Schering-Plough Corp........................................ 10,000 1,035,625
-----------
4,638,125
-----------
POLLUTION CONTROL--0.8%
American Disposal Services, Inc.+........................... 10,000 389,375
-----------
SOFTWARE--18.5%
America Online, Inc.+....................................... 10,000 1,112,500
At Home Corp., Series A+.................................... 12,000 574,500
Compuware Corp.+............................................ 15,000 883,125
DST Systems, Inc.+.......................................... 20,000 1,055,000
HBO & Co.................................................... 15,000 433,125
J.D. Edwards & Co.+......................................... 2,500 120,000
Microsoft Corp.+............................................ 5,000 550,312
MicroStrategy, Inc.+........................................ 15,000 562,500
Novell, Inc.+............................................... 20,000 245,000
Peregrine Systems, Inc.+.................................... 20,000 805,000
Segue Software, Inc.+....................................... 60,000 990,000
Siebel Systems, Inc.+....................................... 30,000 860,625
SOFTWORKS, Inc.+............................................ 15,000 75,000
Veritas Software Co.+....................................... 13,000 718,250
-----------
8,984,937
-----------
SPECIALTY RETAIL--1.9%
CVS Corp. .................................................. 15,000 657,188
Trans World Entertainment Corp.+............................ 15,000 273,750
-----------
930,938
-----------
</TABLE>
26
<PAGE>
SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS--5.4%
Coyote Network Systems, Inc. ................... 35,000 $ 297,500
Frontier Corp. ................................. 20,000 547,500
MCI WorldCom, Inc.+............................. 20,000 977,500
Tele-Communications, Inc.,
Series A+...................................... 20,000 782,500
-----------
2,605,000
-----------
UTILITIES--11.4%
DQE, Inc. ...................................... 28,000 1,081,500
DTE Energy Co. ................................. 10,000 451,875
Montana Power Co. .............................. 10,000 446,875
New Century Energies, Inc. ..................... 10,000 486,875
Niagara Mohawk Power Corp.+..................... 60,000 922,500
PP&L Resources, Inc.+........................... 42,000 1,086,750
TECO Energy, Inc. .............................. 20,000 571,250
Texas Utilities Co. ............................ 10,000 465,625
-----------
5,513,250
-----------
TOTAL INVESTMENT SECURITIES--98.1%
(cost $42,810,802).............................. 47,534,013
-----------
REPURCHASE AGREEMENT--4.0%
Joint Repurchase Agreement with PaineWebber,
Inc. (Note 2)
(cost $1,938,000)............................... $1,938 1,938,000
-----------
TOTAL INVESTMENTS--
(cost $44,748,802).............................. 102.1% 49,472,013
Liabilities in excess of other assets............ (2.1) (1,008,086)
------ -----------
NET ASSETS-- 100.0% $48,463,927
====== ===========
</TABLE>
- --------
+ Non-income producing security
ADR ("American Depository Receipt")
See Notes to Financial Statements
27
<PAGE>
SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--75.3%
APPAREL & TEXTILES--2.3%
Abercrombie & Fitch Co.+*................................. 58,100 $ 2,556,400
Gerber Childrenswear, Inc.+............................... 79,700 632,619
Oakley, Inc.+............................................. 74,200 714,175
------------
3,903,194
------------
BANKS--2.1%
Hamilton Bancorp, Inc.+................................... 50,000 1,303,125
Hibernia Corp., Class A................................... 44,000 635,250
U.S. Bancorp.............................................. 42,000 1,493,625
------------
3,432,000
------------
BROADCASTING & MEDIA--5.8%
Cablevision Systems Corp., Class A+....................... 46,600 2,012,537
Cinar Films, Inc., Class B+............................... 87,200 1,564,150
Comcast Corp., Class A.................................... 31,200 1,464,450
HA-LO Industries, Inc.+................................... 80,800 2,363,400
Jacor Communications, Inc.+............................... 31,700 1,604,813
Source Media, Inc.+....................................... 21,200 166,950
SportsLine USA, Inc.+..................................... 26,000 453,375
------------
9,629,675
------------
BUSINESS SERVICES--10.4%
AnswerThink Consulting Group+............................. 65,800 1,188,513
Caliber Learning Network, Inc.+........................... 23,600 143,075
CMG Information Services, Inc.+........................... 29,600 1,576,200
ITT Educational Services, Inc.+........................... 62,800 2,009,600
Mac-Gray Corp.+........................................... 116,400 1,047,600
Mohawk Industries, Inc.+.................................. 93,200 2,551,350
Paychex, Inc.............................................. 42,500 2,191,406
ProSoft Development, Inc.+(1)(2).......................... 94,200 312,626
RCM Technologies, Inc.+................................... 114,400 1,687,400
Snyder Communications, Inc.+.............................. 52,000 1,742,000
Sylvan Learning Systems, Inc.+............................ 49,000 1,145,375
The Kroll-O'Gara Co.+..................................... 78,900 1,844,287
------------
17,439,432
------------
COMMUNICATION EQUIPMENT--0.5%
AVT Corp.+................................................ 34,600 782,825
------------
COMPUTERS & BUSINESS EQUIPMENT--6.0%
Apple Computer, Inc.+..................................... 95,000 3,621,875
DoubleClick, Inc.+........................................ 43,900 1,048,113
Entrust Technologies, Inc.+............................... 63,500 940,594
FORE Systems, Inc.+....................................... 75,000 1,246,875
Office Depot, Inc.+....................................... 58,600 1,314,837
Rambus, Inc.+............................................. 29,400 1,881,600
------------
10,053,894
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
DEPARTMENT STORES--0.7%
Wal-Mart Stores, Inc...................................... 21,700 $ 1,185,363
------------
ELECTRONICS--0.9%
Lumen Technologies, Inc.+................................. 305,000 1,525,000
------------
ENERGY SERVICES--1.1%
Smith International, Inc.+................................ 68,600 1,882,212
------------
FINANCIAL SERVICES--1.6%
Crestar Financial Corp.................................... 18,300 1,038,525
Fleet Financial Group, Inc................................ 22,000 1,615,625
------------
2,654,150
------------
HEALTH SERVICES--1.6%
HealthCare Financial Partners, Inc.+...................... 47,200 1,982,400
Medaphis Corp.+........................................... 142,000 639,000
------------
2,621,400
------------
HOUSING--1.0%
D.R. Horton, Inc.......................................... 68,800 1,100,800
Restoration Hardware, Inc.+............................... 26,600 548,625
------------
1,649,425
------------
INSURANCE--1.0%
Reliance Group Holdings, Inc.............................. 115,000 1,617,188
------------
LEISURE & TOURISM--4.0%
Carnival Corp., Class A................................... 54,800 1,743,325
Family Golf Centers, Inc.+................................ 25,600 454,400
Preview Travel, Inc.+..................................... 41,500 757,375
Royal Caribbean Cruises Ltd............................... 61,000 1,620,312
Steiner Leisure Ltd.+..................................... 81,700 1,276,562
Travel Services International, Inc.+...................... 61,000 827,313
------------
6,679,287
------------
MEDICAL PRODUCTS--1.8%
ADAC Laboratories+........................................ 27,000 648,000
MedImmune, Inc.+*......................................... 37,700 2,441,075
Symphonix Devices, Inc.+.................................. 100 375
------------
3,089,450
------------
PHARMACEUTICALS--1.2%
Sepracor, Inc.+*.......................................... 31,000 2,038,250
------------
POLLUTION CONTROL--1.9%
American Disposal Services, Inc.+......................... 80,000 3,115,000
North American Scientific, Inc.+.......................... 25,000 118,750
------------
3,233,750
------------
</TABLE>
28
<PAGE>
SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
SOFTWARE--15.4%
America Online, Inc. +*.................................. 30,000 $ 3,337,500
At Home Corp., Series A+................................. 37,000 1,771,375
BroadVision, Inc.+....................................... 55,000 580,938
Compuware Corp. +........................................ 57,700 3,397,087
DSET Corp.+.............................................. 215,000 1,827,500
Excite, Inc.+............................................ 24,000 979,500
HBO & Co................................................. 76,000 2,194,500
J.D. Edwards & Co.+...................................... 49,300 2,366,400
Keane, Inc.+............................................. 40,000 1,440,000
Legato Systems, Inc.+.................................... 38,000 1,952,250
Lycos, Inc.+............................................. 43,000 1,453,937
Mobius Management Systems, Inc.+......................... 62,000 372,000
Network Appliance, Inc.+................................. 36,600 1,852,875
Yahoo!, Inc.+*........................................... 16,800 2,175,600
------------
25,701,462
------------
SPECIALTY RETAIL--3.4%
CDnow, Inc.+............................................. 71,000 639,000
Home Depot, Inc.......................................... 54,000 2,133,000
Krause's Furniture, Inc.+................................ 150,100 178,244
Movado Group, Inc........................................ 82,900 1,740,900
U.S. Vision, Inc.+....................................... 124,000 1,038,500
------------
5,729,644
------------
TELECOMMUNICATIONS--9.1%
Ascend Communications, Inc.+............................. 74,400 3,385,200
Frontier Corp............................................ 76,300 2,088,713
GST Telecommunications, Inc+............................. 232,300 1,451,875
ICG Communications, Inc.+................................ 80,600 1,360,125
Intermedia Communications, Inc.+......................... 33,600 825,300
Qwest Communications International, Inc.+................ 80,900 2,533,181
Saville Systems PLC ADR+................................. 26,300 381,350
Scientific-Atlanta, Inc.................................. 67,000 1,415,375
Tele-Communications, Inc., Series A+..................... 47,400 1,854,525
------------
15,295,644
------------
TELEPHONE--1.4%
Century Telephone Enterprises, Inc....................... 50,000 2,362,500
------------
UTILITIES--2.1%
Niagara Mohawk Power Corp.+.............................. 225,000 3,459,375
------------
TOTAL COMMON STOCK
(cost $127,497,578)...................................... 125,965,120
------------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
PUT OPTIONS--0.8%
America Online, Inc. exp. 11/98................ 260 $ 331,500
At Home Corp. exp. 11/98....................... 79 494
CMG Information Services, Inc. exp. 11/98...... 251 147,463
Excite, Inc. exp. 11/98........................ 195 117,000
Lycos, Inc. exp. 11/98......................... 417 244,987
MedImmune, Inc. exp. 11/98..................... 100 5,625
U.S. Bancorp Delaware exp. 11/98............... 350 284,375
Yahoo!, Inc. exp. 11/98........................ 166 275,975
------------
TOTAL PUT OPTIONS
(cost $1,397,342).............................. 1,407,419
------------
TOTAL INVESTMENT SECURITIES--76.1%
(cost $128,894,920)............................ 127,372,539
------------
REPURCHASE AGREEMENTS--23.0%
Joint Repurchase Agreement with PaineWebber,
Inc. (Note 2)................................. $20,447 20,447,000
Joint Repurchase Agreement with State Street
Bank & Trust Co. (Note 2)..................... 18,000 18,000,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $38,447,000)............................. 38,447,000
------------
TOTAL INVESTMENTS--
(cost $167,341,920)............................ 99.1% 165,819,539
Total written call options...................... (0.4) (729,500)
Other assets less liabilities................... 1.3 2,284,488
----- ------------
NET ASSETS-- 100.0% $167,374,527
===== ============
</TABLE>
- -------
+ Non-income producing security
* The security or a portion thereof has been segregated as collateral for the
written option contracts.
ADR ("American Depository Receipt")
(1) Fair valued security, see Note 2
(2) At September 30, 1998 the Fund held restricted securities amounting to
0.2% of net assets. The Fund will not bear any costs, including those
involved in registration under the Securities Act of 1933, in the
connection with the disposition of the securities.
<TABLE>
<CAPTION>
VALUATION AS OF
DATE OF UNIT SEPTEMBER 30,
DESCRIPTION ACQUISITION COST 1998
----------- ----------- ------ ---------------
<S> <C> <C> <C>
ProSoft Development, Inc. 3/12/97 $10.50 $3.31875
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
OPEN COVERED
WRITTEN CALL
OPTIONS
</TABLE>
<TABLE>
<CAPTION>
EXPIRATION STRIKE
CALL OPTIONS CONTRACTS DATE PRICE VALUE
------------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C>
Abercrombie & Fitch Co.................. 96 10/98 $ 50 $ (7,800)
America Online, Inc..................... 260 11/98 120 (204,750)
MedImmune, Inc.......................... 100 10/98 60 (66,250)
Sepracor, Inc........................... 280 10/98 60 (210,000)
Yahoo!, Inc............................. 166 11/98 135 (240,700)
---------
TOTAL OPEN COVERED WRITTEN CALL OPTIONS
(proceeds $649,698)................................................ $(729,500)
=========
</TABLE>
See Notes to Financial Statements
29
<PAGE>
SUNAMERICA GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--89.6%
APPAREL & TEXTILES--1.0%
Gap, Inc. ............................................... 25,000 $ 1,318,750
------------
AUTOMOTIVE--1.9%
Ford Motor Co. .......................................... 30,000 1,408,125
General Motors Corp. .................................... 22,000 1,203,125
------------
2,611,250
------------
BANKS--5.0%
BankAmerica Corp. ....................................... 15,000 802,500
Chase Manhattan Corp. ................................... 20,000 865,000
Citicorp................................................. 15,000 1,394,062
First Union Corp. ....................................... 20,000 1,023,750
Mellon Bank Corp. ....................................... 30,000 1,651,875
Summit Bancorp. ......................................... 30,000 1,125,000
------------
6,862,187
------------
BUSINESS SERVICES--1.1%
American Express Co. .................................... 20,000 1,552,500
------------
CHEMICALS--1.0%
du Pont (E.I.) de Nemours & Co. ......................... 25,000 1,403,125
------------
COMPUTERS & BUSINESS EQUIPMENT--11.8%
Cisco Systems, Inc.+..................................... 45,000 2,781,562
Compaq Computer, Corp.+.................................. 40,000 1,265,000
Dell Computer Corp.+..................................... 50,000 3,287,500
EMC Corp.+............................................... 50,000 2,859,375
Hewlett-Packard Co. ..................................... 13,500 714,656
Honeywell, Inc. ......................................... 15,000 960,938
International Business Machines Corp. ................... 25,000 3,200,000
Micron Technology, Inc.+................................. 36,700 1,117,056
------------
16,186,087
------------
CONGLOMERATE--5.3%
General Electric Co. .................................... 50,000 3,978,125
Schlumberger Ltd. ....................................... 20,000 1,006,250
Tyco International Ltd. ................................. 40,000 2,210,000
------------
7,194,375
------------
CONSUMER SERVICES--0.9%
Service Corp. International.............................. 40,000 1,275,000
------------
DEPARTMENT STORES--2.0%
Federated Department Stores, Inc.+....................... 23,000 836,625
Wal-Mart Stores, Inc. ................................... 34,000 1,857,250
------------
2,693,875
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
ELECTRONICS--3.6%
Intel Corp. .............................................. 25,000 $ 2,143,750
Motorola, Inc. ........................................... 35,000 1,494,063
Texas Instruments, Inc. .................................. 25,000 1,318,750
------------
4,956,563
------------
ENERGY SOURCES--5.7%
Chevron Corp. ............................................ 25,000 2,101,562
Exxon Corp. .............................................. 27,000 1,895,062
Mobil Corp. .............................................. 15,000 1,139,063
Royal Dutch Petroleum Co. ................................ 35,000 1,666,875
Texaco, Inc. ............................................. 15,000 940,313
------------
7,742,875
------------
FINANCIAL SERVICES--6.7%
Associates First Capital Corp., Class A................... 30,300 1,977,075
Capital One Financial Corp. .............................. 20,000 2,070,000
Equitable Cos., Inc. ..................................... 15,000 620,625
Federal National Mortgage Association..................... 25,000 1,606,250
Fleet Financial Group, Inc. .............................. 20,000 1,468,750
Morgan Stanley, Dean Witter & Co. ........................ 15,000 645,937
Travelers Group, Inc. .................................... 20,000 750,000
------------
9,138,637
------------
FOOD, BEVERAGE & TOBACCO--2.3%
Philip Morris Cos., Inc. ................................. 55,000 2,533,437
UST, Inc. ................................................ 22,200 656,288
------------
3,189,725
------------
HOUSEHOLD PRODUCTS--1.5%
Warner-Lambert Co. ....................................... 27,000 2,038,500
------------
INSURANCE--2.8%
Allstate Corp. ........................................... 40,000 1,667,500
Chubb Corp. .............................................. 20,000 1,260,000
The Hartford Financial Services Group, Inc. .............. 20,000 948,750
------------
3,876,250
------------
LEISURE & TOURISM--0.9%
Carnival Corp., Class A................................... 40,000 1,272,500
------------
MEDICAL PRODUCTS--4.9%
Amgen, Inc.+.............................................. 25,000 1,889,063
Bard (C.R.), Inc. ........................................ 30,000 1,106,250
Baxter International, Inc. ............................... 30,000 1,785,000
Johnson & Johnson......................................... 25,000 1,956,250
------------
6,736,563
------------
</TABLE>
30
<PAGE>
SUNAMERICA GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
METALS & MINING--0.8%
Martin Marietta Materials, Inc. .......................... 25,000 $ 1,079,688
------------
PHARMACEUTICALS--9.5%
Abbott Laboratories, Inc. ................................ 35,000 1,520,313
American Home Products Corp. ............................. 25,000 1,309,375
Biogen, Inc.+............................................. 20,000 1,316,250
Bristol-Myers Squibb Co. ................................. 15,000 1,558,125
Lilly (Eli) & Co. ........................................ 15,000 1,174,688
Merck & Co., Inc. ........................................ 15,000 1,943,437
Pfizer, Inc. ............................................. 25,000 2,648,437
Schering-Plough Corp. .................................... 15,000 1,553,437
------------
13,024,062
------------
POLLUTION CONTROL--1.2%
Waste Management, Inc..................................... 35,000 1,682,188
------------
RESTAURANTS--1.3%
McDonald's Corp. ......................................... 30,000 1,790,625
------------
SOFTWARE--3.9%
BMC Software, Inc.+....................................... 20,000 1,201,250
Microsoft Corp.+.......................................... 26,000 2,861,625
Sun Microsystems, Inc.+................................... 25,000 1,245,313
------------
5,308,188
------------
SPECIALTY RETAIL--3.2%
CVS Corp. ................................................ 40,000 1,752,500
Dayton Hudson Corp. ...................................... 30,000 1,072,500
Home Depot, Inc. ......................................... 40,000 1,580,000
------------
4,405,000
------------
TELECOMMUNICATIONS--6.4%
AT&T Corp. ............................................... 35,000 2,045,312
Frontier Corp. ........................................... 30,000 821,250
Lucent Technologies, Inc. ................................ 30,000 2,071,875
MCI WorldCom, Inc.+....................................... 50,000 2,443,750
SBC Communications, Inc. ................................. 30,000 1,333,125
------------
8,715,312
------------
TRANSPORTATION--1.4%
Burlington Northern, Inc. ................................ 39,000 1,248,000
Norfolk Southern Corp. ................................... 25,000 726,563
------------
1,974,563
------------
UTILITIES--3.5%
Consolidated Natural Gas Co. ............................. 16,000 872,000
Energy East Corp. ........................................ 25,000 1,275,000
Enron Corp. .............................................. 30,000 1,584,375
PECO Energy Co. .......................................... 30,000 1,096,875
------------
4,828,250
------------
TOTAL INVESTMENT SECURITIES--89.6%
(cost $112,319,299)....................................... 122,856,638
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
SHORT-TERM SECURITIES--0.0%
FOREST PRODUCTS--0.0%
Stone Container Corp.
11.88% due 12/01/98
(cost $50,076).................................. $ 50 $ 49,750
------------
REPURCHASE AGREEMENT--10.1%
Joint Repurchase Agreement with PaineWebber,
Inc. (Note 2)
(cost $13,902,000).............................. 13,902 13,902,000
------------
TOTAL INVESTMENTS--
(cost $126,271,375)............................. 99.7% 136,808,388
Other assets less liabilities.................... 0.3 381,599
------- ------------
NET ASSETS-- 100.0% $137,189,987
======= ============
</TABLE>
- --------
+ Non-income producing security
See Notes to Financial Statements
31
<PAGE>
SUNAMERICA "DOGS" OF WALL STREET FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--97.3%
AUTOMOTIVE--6.2%
General Motors Corp......................................... 32,145 $ 1,757,930
Genuine Parts Co............................................ 57,553 1,730,187
-----------
3,488,117
-----------
BUSINESS SERVICES--6.4%
Bemis Co., Inc.............................................. 44,327 1,554,215
Pall Corp................................................... 94,431 2,095,188
-----------
3,649,403
-----------
CHEMICALS--5.8%
du Pont (E.I.) de Nemours & Co.............................. 32,511 1,824,680
Nalco Chemical Co........................................... 49,368 1,456,356
-----------
3,281,036
-----------
CONGLOMERATE--2.2%
National Service Industries, Inc............................ 39,405 1,256,034
-----------
CONSTRUCTION & HOUSING--1.7%
Foster Wheeler Corp......................................... 72,179 992,461
-----------
DEPARTMENT STORES--3.4%
May Department Stores Co.................................... 37,062 1,908,693
-----------
ELECTRONICS--3.8%
Emerson Electric Co......................................... 34,595 2,153,539
-----------
ENERGY SOURCES--10.8%
Chevron Corp................................................ 25,354 2,131,321
Exxon Corp.................................................. 31,911 2,239,753
Royal Dutch Petroleum Co.................................... 36,037 1,716,262
-----------
6,087,336
-----------
ENTERTAINMENT PRODUCTS--4.4%
Eastman Kodak Co............................................ 32,235 2,492,168
-----------
FINANCIAL SERVICES--2.6%
J.P. Morgan & Co., Inc...................................... 17,289 1,463,082
-----------
FOOD, BEVERAGE & TOBACCO--15.8%
Anheuser-Busch Cos., Inc.................................... 44,392 2,397,168
Kellogg Co.................................................. 39,355 1,296,255
Philip Morris Cos., Inc..................................... 43,162 1,988,150
UST, Inc.................................................... 52,880 1,563,265
Winn Dixie Stores, Inc...................................... 44,704 1,662,430
-----------
8,907,268
-----------
FOREST PRODUCTS--3.7%
International Paper Co...................................... 45,284 2,111,367
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
HOUSEHOLD PRODUCTS--12.9%
American Home Products Corp...................... 51,068 $ 2,674,686
International Flavors & Fragrances, Inc.......... 35,183 1,161,039
Kimberly-Clark Corp.............................. 39,603 1,603,922
Rubbermaid, Inc.................................. 78,142 1,870,524
-----------
7,310,171
-----------
METALS & MINING--3.1%
Minnesota Mining & Manufacturing Co.............. 23,783 1,752,510
-----------
SPECIALTY RETAIL--3.0%
Limited, Inc..................................... 76,610 1,680,632
-----------
TELECOMMUNICATIONS--11.5%
Alltel Corp...................................... 47,565 2,253,392
AT&T Corp........................................ 31,850 1,861,234
SBC Communications, Inc.......................... 53,330 2,369,852
-----------
6,484,478
-----------
TOTAL INVESTMENT SECURITIES--97.3%
(cost $59,540,323)............................... 55,018,295
-----------
REPURCHASE AGREEMENT--0.5%
Joint Repurchase Agreement with PaineWebber, Inc.
(Note 2)
(cost $257,000).................................. $ 257 257,000
-----------
TOTAL INVESTMENTS--
(cost $59,797,323)............................... 97.8% 55,275,295
Other assets less liabilities..................... 2.2 1,238,766
------ -----------
NET ASSETS-- 100.0% $56,514,061
====== ===========
</TABLE>
See Notes to Financial Statements
32
<PAGE>
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 1998
Note 1. Organization
SunAmerica Equity Funds is an open-end diversified management investment
company organized as a Massachusetts business trust (the "Trust" or "Equity
Funds") on June 16, 1986. It currently consists of six different investment
funds (each, a "Fund" and collectively, the "Funds"). Each Fund is a
separate series of the Trust with a distinct investment objective and/or
strategy. Each Fund is advised and/or managed by SunAmerica Asset
Management Corp. (the "Adviser" or "SAAMCo"), an indirect wholly-owned
subsidiary of SunAmerica Inc. An investor may invest in one or more of the
following Funds: SunAmerica Balanced Assets Fund ("Balanced Assets Fund"),
SunAmerica Blue Chip Growth Fund ("Blue Chip Growth Fund"), SunAmerica Mid-
Cap Growth Fund ("Mid-Cap Growth Fund"), SunAmerica Small Company Growth
Fund ("Small Company Growth Fund"), SunAmerica Growth and Income Fund
("Growth and Income Fund") and SunAmerica "Dogs" of Wall Street Fund
(" "Dogs" of Wall Street Fund"). The Funds are considered to be separate
entities for financial and tax reporting purposes. The investment objective
for each of the Funds is as follows:
Balanced Assets seeks to conserve principal by maintaining at all times a
balanced portfolio of stocks and bonds.
Blue Chip Growth seeks capital appreciation by investing primarily in
equity securities of companies with large market capitalizations.
Mid-Cap Growth seeks capital appreciation by investing primarily in equity
securities of medium-sized companies.
Small Company Growth seeks capital appreciation by investing primarily in
equity securities of small capitalization growth companies.
Growth and Income seeks capital appreciation and current income by
investing primarily in common stocks.
"Dogs" of Wall Street seeks 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.
Each Fund offers multiple classes of shares. The classes within each Fund
are presented in the Statement of Assets and Liabilities. The cost
structure for each class is as follows:
Class A shares--Offered at net asset value per share plus an initial sales
charge. Any purchases of Class A shares in excess of
$1,000,000 will be subject to a contingent deferred sales
charge on redemptions made within one year of purchase.
Class B shares--Offered at net asset value per share without an initial
sales charge, although a declining contingent deferred
sales charge may be imposed on redemptions made within six
years of purchase. Class B shares will convert
automatically to Class A shares on the first business day
of the month after seven years from the issuance of such
shares and at such time will be subject to the lower
distribution fee applicable to Class A shares.
Class C shares--Offered at net asset value per share without an initial
sales charge. Certain redemptions made within the first
year of the date of purchase are subject to a contingent
deferred sales charge.
33
<PAGE>
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
Class II shares--Offered at net asset value per share plus an initial sales
charge. Certain redemptions made within the first year of
the date of purchase are subject to a contingent deferred
sales charge.
Class Z shares-- Offered at net asset value per share exclusively for sale
to employees participating in the SunAmerica profit
sharing and retirement plan.
Each class of shares bears the same voting, dividend, liquidation and other
rights and conditions. Class A, Class B, Class C, and Class II shares each
make distribution and account maintenance and service fee payments under
the distribution plans pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), except that Class B, Class C and Class II shares
are subject to higher distribution fee rates. There are no distribution or
service fee payments applicable to Class Z.
Note 2. Significant Accounting Policies
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from these estimates.
The following is a summary of the significant accounting policies followed
by the Funds in the preparation of their financial statements:
SECURITY VALUATIONS: Securities that are actively traded in the over-the-
counter market, including listed securities for which the primary market is
believed by the Adviser to be over-the-counter, are valued at the quoted
bid price provided by principal market makers. Securities listed on the New
York Stock Exchange ("NYSE") or other national securities exchanges, are
valued on the basis of the last sale price on the exchange on which they
are primarily traded. If there is no sale on that day, then securities are
valued at the closing bid price on the NYSE or other primary exchange for
that day. However, if the last sale price on the NYSE is different than the
last sale price on any other exchange, the NYSE price is used. Securities
that are traded on foreign exchanges are ordinarily valued at the last
quoted sales price available before the time when the assets are valued. If
a security's price is available from more than one foreign exchange, a Fund
uses the exchange that is the primary market for the security. Options
traded on national securities exchanges are valued as of the close of the
exchange on which they are traded. Futures and options traded on
commodities exchanges are valued at their last sale price as of the close
of such exchange. The Funds may make use of a pricing service in the
determination of their net asset values. Securities for which market
quotations are not readily available and other assets are valued at fair
value as determined pursuant to procedures adopted in good faith by the
Trustees. Short-term investments which mature in less than 60 days are
valued at amortized cost, if their original maturity was 60 days or less,
or by amortizing their value on the 61st day prior to maturity, if their
original term to maturity exceeded 60 days.
REPURCHASE AGREEMENTS: The Funds, along with other affiliated registered
investment companies, transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
34
<PAGE>
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
obligations. The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral
is valued daily on a mark to market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In
the event of default of the obligation to repurchase, a Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. If the seller defaults and the value of the collateral declines
or if bankruptcy proceedings are commenced with respect to the seller of
the security, realization of the collateral by the Fund may be delayed or
limited.
As of September 30, 1998, Balanced Assets Fund, Blue Chip Growth Fund, Mid-
Cap Growth Fund, Small Company Growth Fund, Growth and Income Fund and
"Dogs" of Wall Street Fund had a 11.0%, 8.3%, 1.5%, 15.6%, 10.6% and 0.2%
undivided interest, respectively, which represented $14,469,000,
$10,865,000, $1,938,000, $20,447,000, $13,902,000, and $257,000
respectively, in principal amount in a joint repurchase agreement with
PaineWebber, Inc. In addition, the Balanced Assets Fund and Small Company
Growth Fund had a 15.4% and 13.8% undivided interest, respectively, which
represented $20,000,000 and $18,000,000, respectively, in principal amount
in a joint repurchase agreement with State Street Bank & Trust Co. As of
such date, the repurchase agreement in the joint accounts and the
collateral therefor were as follows:
PaineWebber, Inc. Repurchase Agreement 5.20% dated 9/30/98, in the
principal amount of $131,433,000, repurchase price $131,451,985 due
10/01/98, collaterized by $50,000,000 U.S. Treasury Bonds 5.25% due
8/15/03, $40,000,000 U.S. Treasury Bonds 6.125% due 11/15/27, and
$32,400,000 U.S. Treasury Bonds 6.25% due 2/15/03, approximate aggregate
collateral value $134,487,192.
State Street Bank & Trust Co. Repurchase Agreement 5.33% dated 9/30/98, in
the principal amount of $130,000,000 repurchase price $130,019,247 due
10/01/98, collaterized by $40,000,000 U.S. Treasury Note 5.50% due
12/31/00, $20,000,000 U.S. Treasury Note 6.125% due 12/31/01, $20,000,000
U.S. Treasury Bonds 6.875% due 08/15/25, $10,000,000 U.S. Treasury Note
7.75% due 11/30/99, $20,000,000 U.S. Treasury Note 6.25% due 08/31/02,
$20,000,000 U.S. Treasury Bonds 12.75% due 11/15/10, approximate aggregate
collateral value $132,620,236.
SECURITIES TRANSACTIONS, INVESTMENT INCOME, EXPENSES, DIVIDENDS AND
DISTRIBUTIONS TO SHAREHOLDERS: As customary in the mutual fund industry,
securities transactions are recorded on a trade date basis. Realized gains
and losses on sales of investments are calculated on the identified cost
basis. Interest income is recorded on the accrual basis; dividend income is
recorded on the ex-dividend date. Funds investing in foreign securities may
be subject to taxes imposed by countries in which they invest. Such taxes
are generally based on either income or gains earned or repatriated. The
Equity Funds, except for the Growth and Income Fund, do not amortize
premiums or accrete discounts except for original issue discounts and on
interest only securities for which amortization is required for federal
income tax purposes.
Net investment income, other than class specific expenses, and realized and
unrealized gains and losses, is allocated daily to each class of shares
based upon the relative net asset value of outstanding shares (or the value
of the dividend-eligible shares, as appropriate) of each class of shares at
the beginning of the day (after adjusting for the current capital shares
activity of the respective class).
35
<PAGE>
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
Expenses common to all Funds, not directly related to individual Funds, are
allocated among the Equity Funds based upon their relative net asset value
or other appropriate methods.
The Funds issue and redeem their shares, invest in securities and
distribute dividends from net investment income and net realized gains
which are paid in cash or are reinvested at the discretion of shareholders.
These activities are reported in the Statement of Changes in Net Assets.
Dividends from net investment income, if any, are paid semiannually, except
for Balanced Assets Fund and Growth and Income Fund, which pay quarterly.
Capital gain distributions, if any, are paid at least annually.
The Funds record dividends and distributions to their shareholders on the
ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined and
presented in accordance with federal income tax regulations, which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Net
investment income/loss, net realized gain/loss, and net assets are not
affected.
For the fiscal year ended September 30, 1998, the following
reclassifications arising from book/tax differences were primarily the
result of reclassifications due to net operating losses.
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED PAID
NET REALIZED NET INVESTMENT IN
GAIN/LOSS INCOME/LOSS CAPITAL
------------- -------------- --------
<S> <C> <C> <C>
Balanced Assets Fund................. $ (56,125) $ 56,125 $ --
Blue Chip Growth Fund................ (479,700) 479,700 --
Mid-Cap Growth Fund.................. (489,325) 491,476 (2,151)
Small Company Growth Fund............ (2,505,817) 2,512,573 (6,756)
Growth and Income Fund............... (298,630) 307,625 (8,995)
"Dogs" of Wall Street Fund........... -- 58,358 (58,358)
</TABLE>
FOREIGN CURRENCY TRANSLATION: The books and records of the Funds are
maintained in U.S. dollars. Assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the mean of the quoted bid
and asked prices of such currencies against the U.S. dollar.
The Funds do not isolate that portion of the results of operations arising
as a result of changes in the foreign exchange rates from the changes in
the market prices of securities held at fiscal year-end. Similarly, the
Funds do not isolate the effect of changes in foreign exchange rates from
the changes in the market prices of portfolio securities sold during the
year.
Realized foreign exchange gains and losses on other assets and liabilities
and change in unrealized foreign exchange gains and losses on other assets
and liabilities include foreign exchange gains and
36
<PAGE>
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
losses from currency gains or losses between the trade and settlement dates
of securities transactions, the difference between the amounts of interest,
dividends and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent amounts actually received or paid and changes in
the unrealized foreign exchange gains and losses relating to other assets
and liabilities arising as a result of changes in the exchange rate.
OPTIONS: An option is a contract conveying a right to buy or sell a
financial instrument at a specified price during a stipulated period. The
premium paid by a Fund for the purchase of a call or a put option is
included in the Fund's Statement of Assets and Liabilities as an investment
and subsequently marked to market to reflect the current market value of
the option. When a Fund writes a call or a put option, an amount equal to
the premium received by the Fund is included in the Fund's Statement of
Assets and Liabilities as a liability and is subsequently marked to market
to reflect the current market value of the option written. If an option
which the Fund has written either expires on its stipulated expiration
date, or if the Fund enters into a closing purchase transaction, the Fund
realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was written) without regard to
any unrealized gain or loss on the underlying security, and the liability
related to such options is extinguished. If a call option which the Fund
has written is exercised, the Fund realizes a capital gain or loss from the
sale of the underlying security and the proceeds from such sale are
increased by the premium originally received. If a put option which the
Fund has written is exercised, the amount of the premium originally
received reduces the cost of the security which the Fund purchased upon
exercise of the option.
During the fiscal year ended September 30, 1998, transactions in written
option contracts were as follows:
<TABLE>
<CAPTION>
MID- SMALL COMPANY
CAP GROWTH FUND GROWTH FUND
------------------ --------------------
CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Written option contracts as of
9/30/97......................... -- $ -- -- $ --
Options written during the year. (370) (298,773) (2,488) (2,078,701)
Written options assigned during
the year........................ -- -- 90 48,103
Written options closed during
the year........................ 370 197,870 1,496 897,591
Net realized gain on written
options closed.................. -- 100,903 -- 483,309
---- -------- ------ ----------
Written option contracts as of
9/30/98......................... -- $ -- (902) ($ 649,698)
==== ======== ====== ==========
</TABLE>
ORGANIZATIONAL EXPENSES: Expenses incurred by SAAMCo in connection with the
organization of new Funds or new classes of shares are being amortized on a
straight line basis by the Fund over a period not to exceed 60 months from
the date the Fund commenced operations.
Note 3. Investment Advisory and Management Agreement, Distribution Agreement
and Service Agreement
The Trust, on behalf of each Fund, has an Investment Advisory and
Management Agreement (the "Agreement") with SAAMCo. Under the Agreement,
SAAMCo provides continuous supervision of a Fund's portfolio and
administers its corporate affairs, subject to general review by the
Trustees. In connection therewith, SAAMCo furnishes the Funds with office
facilities, maintains certain of the Funds' books and records, and pays the
salaries and expenses of all personnel, including officers of the Funds
37
<PAGE>
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
who are employees of SAAMCo and its affiliates. The investment advisory and
management fee paid to SAAMCo with respect to each Fund is computed daily
and payable monthly, at an annual rate of .75% of a Fund's average daily
net assets up to $350 million, .70% of the next $350 million, and .65%
thereafter, except for the "Dogs" of Wall Street Fund, which pays at an
annual rate of .35% of the Fund's average daily net assets. For the fiscal
year ended September 30, 1998, SAAMCo earned fees in the amounts stated on
the Statement of Operations.
For the fiscal year ended September 30, 1998, SAAMCo has agreed to
voluntarily reimburse class specific expenses as follows:
<TABLE>
<S> <C>
Balanced Assets Class Z........................................ $ 8,754
Small Company Growth Class C................................... 15,005
Small Company Growth Class Z................................... 17,656
Growth and Income Class C...................................... 17,914
Growth and Income Class Z...................................... 7,891
"Dogs" of Wall Street Class A.................................. 19,810
"Dogs" of Wall Street Class B.................................. 20,253
"Dogs" of Wall Street Class II................................. 15,437
</TABLE>
The Trust, on behalf of each Fund, has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS"), an indirect wholly-owned
subsidiary of SunAmerica Inc. Each Fund has adopted a Distribution Plan
(the "Plan") in accordance with the provisions of Rule 12b-1 under the 1940
Act. Rule 12b-1 permits an investment company directly or indirectly to pay
expenses associated with the distribution of its shares ("distribution
expenses") in accordance with a plan adopted by the investment company's
board of trustees and approved by its shareholders. Pursuant to such rule,
the Trustees and the shareholders of each class of shares of each Fund have
adopted Distribution Plans hereinafter referred to as the "Class A Plan",
"Class B Plan", "Class C Plan" and "Class II Plan". In adopting the
Distribution Plans, the Trustees determined that there was a reasonable
likelihood that each such Plan would benefit the Trust and the shareholders
of the respective class. The sales charge and distribution fees of a
particular class will not be used to subsidize the sale of shares of any
other class.
Under the Class A Plan, Class B Plan, Class C Plan and Class II Plan, the
Distributor receives payments from a Fund at an annual rate of up to 0.10%,
0.75%, 0.75% and 0.75%, respectively, of average daily net assets of such
Fund's Class to compensate the Distributor and certain securities firms for
providing sales and promotional activities for distributing that class of
shares. The distribution costs for which the Distributor may be reimbursed
out of such distribution fees include fees paid to broker-dealers that have
sold Fund shares, commissions and other expenses such as those incurred for
sales literature, prospectus printing and distribution and compensation to
wholesalers. It is possible that in any given year the amount paid to the
Distributor under each Class' Plan may exceed the Distributor's
distribution costs as described above. The Distribution Plans provide that
each class of shares of each Fund may also pay the Distributor an account
maintenance and service fee up to an annual rate of 0.25% of the aggregate
average daily net assets of such class of shares for payments to broker-
dealers for providing continuing account maintenance. Accordingly, for the
fiscal year ended September 30, 1998, SACS received fees (see Statement of
Operations) based upon the aforementioned rates.
38
<PAGE>
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
SACS receives sales charges on each Fund's Class A and Class II shares,
portions of which are reallowed to affiliated broker-dealers and non-
affiliated broker-dealers. SACS also receives the proceeds of contingent
deferred sales charges paid by investors in connection with certain
redemptions of each Fund's Class B, Class C and Class II shares. SACS has
advised the Funds that for the fiscal year ended September 30, 1998 the
proceeds received from sales (and paid out to affiliated and non-affiliated
broker-dealers) and redemptions are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------------------- ------------- -------------
CONTINGENT CONTINGENT
SALES AFFILIATED NON-AFFILIATED DEFERRED DEFERRED
CHARGES BROKER-DEALERS BROKER-DEALERS SALES CHARGES SALES CHARGES
-------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balanced Assets Fund.... $953,420 $709,993 $104,244 $218,815 $--
Blue Chip Growth Fund... 147,096 69,677 56,467 43,371 --
Mid-Cap Growth Fund..... 52,243 31,728 13,351 28,118 --
Small Company Growth
Fund................... 425,373 218,719 145,997 291,969 --
Growth and Income Fund.. 706,772 329,966 263,370 177,476 --
"Dogs" of Wall Street
Fund................... 935,429 53,735 762,364 5,159 --
<CAPTION>
CLASS II CLASS II
-------------------------------------- -------------
CONTINGENT
SALES AFFILIATED NON-AFFILIATED DEFERRED
CHARGES BROKER-DEALERS BROKER-DEALERS SALES CHARGES
-------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balanced Assets Fund.... $ -- $ -- $ -- $ --
Blue Chip Growth Fund... -- -- -- --
Mid-Cap Growth Fund..... -- -- -- --
Small Company Growth
Fund................... -- -- -- --
Growth and Income Fund.. -- -- -- --
"Dogs" of Wall Street
Fund................... 329,611 20,369 309,242 970
</TABLE>
The Trust has entered into a Service Agreement with SunAmerica Fund
Services, Inc. ("SAFS"), an indirect wholly-owned subsidiary of SunAmerica
Inc. Under the Service Agreement, SAFS performs certain shareholder account
functions by assisting the Funds' transfer agent in connection with the
services that it offers to the shareholders of the Funds. The Service
Agreement, which permits the Funds to compensate SAFS for services rendered
based upon an annual rate of 0.22% of average daily net assets, is approved
annually by the Trustees. For the fiscal year ended September 30, 1998, the
Funds incurred the following expenses which are included in transfer agent
fees in the Statement of Operations to compensate SAFS pursuant to the
terms of the Service Agreement.
<TABLE>
<CAPTION>
PAYABLE AT
EXPENSE SEPTEMBER 30, 1998
---------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS II CLASS A CLASS B CLASS C CLASS II
-------- -------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Assets Fund.... $405,484 $389,600 $ -- $ -- $33,670 $29,819 $ -- $ --
Blue Chip Growth Fund... 162,025 85,809 -- -- 12,863 6,443 -- --
Mid-Cap Growth Fund..... 95,146 25,911 -- -- 6,649 1,748 -- --
Small Company Growth
Fund................... 324,239 206,707 243 -- 19,117 11,267 30 --
Growth and Income Fund.. 125,994 160,198 564 -- 10,110 13,910 130 --
"Dogs" of Wall Street
Fund................... 10,233 7,665 -- 6,799 2,732 3,137 -- 2,944
</TABLE>
39
<PAGE>
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
Note 4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales and maturities of long-term
investments during the fiscal year ended September 30, 1998 were as
follows:
<TABLE>
<CAPTION>
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GROWTH AND "DOGS" OF
ASSETS GROWTH GROWTH GROWTH INCOME WALL STREET
FUND FUND FUND FUND FUND FUND
------------ ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Purchases (excluding
U.S. government
securities)............ $212,345,695 $ 96,794,744 $195,447,481 $643,952,410 $199,772,367 $59,540,323
Sales (excluding U.S.
government securities). 220,912,797 108,052,054 207,075,935 762,512,718 183,901,067 --
Purchases of U.S.
government securities.. 62,804,244 -- 1,925,656 8,297,187 -- --
Sales of U.S. government
securities............. 93,951,631 -- 1,919,332 8,378,258 -- --
</TABLE>
Note 5. Portfolio Securities (Tax Basis)
Each Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distribute all of its
taxable income, including any net realized gain on investments, to its
shareholders. Therefore, no federal tax provision is required.
The amounts of aggregate unrealized gain (loss) and the cost of investment
securities for tax purposes, including short-term securities, were as
follows:
<TABLE>
<CAPTION>
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GROWTH AND "DOGS" OF
ASSETS GROWTH GROWTH GROWTH INCOME WALL STREET
FUND FUND FUND FUND FUND FUND
------------ ----------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Cost.................... $304,730,087 $92,221,829 $44,828,441 $169,105,656 $126,843,529 $59,797,323
============ =========== =========== ============ ============ ===========
Appreciation............ $ 53,655,765 $19,459,889 $ 5,870,556 $ 19,072,944 $ 16,677,884 $ 1,216,386
Depreciation............ (4,662,762) (3,196,304) (1,226,984) (22,359,061) (6,713,025) (5,738,414)
------------ ----------- ----------- ------------ ------------ -----------
Net unrealized
appreciation
(depreciation)......... $ 48,993,003 $16,263,585 $ 4,643,572 $ (3,286,117) $ 9,964,859 $(4,522,028)
============ =========== =========== ============ ============ ===========
</TABLE>
Note 6. Capital Share Transactions
Transactions in capital shares of each class of each series were as
follows:
<TABLE>
<CAPTION>
BALANCED ASSETS FUND
------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- --------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------ ------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 2,254,719 $ 41,748,177 2,014,610 $ 33,670,422 1,661,113 $ 30,769,547 1,601,187 $ 26,977,385
Reinvested
dividends...... 1,076,384 18,447,868 1,098,904 17,076,435 1,020,631 17,400,232 1,191,203 18,422,134
Shares redeemed. (1,961,244) (36,288,098) (2,712,729) (45,625,149) (2,853,943) (52,660,559) (3,596,433) (60,154,848)
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
Net increase
(decrease)..... 1,369,859 $ 23,907,947 400,785 $ 5,121,708 (172,199) $ (4,490,780) (804,043) $(14,755,329)
========== ============ ========== ============ ========== ============ ========== ============
</TABLE>
40
<PAGE>
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
<TABLE>
<CAPTION>
BALANCED ASSETS FUND
-----------------------------------------------------
CLASS Z
-----------------------------------------------------
FOR THE FOR THE PERIOD
YEAR ENDED OCTOBER 7, 1996* THROUGH
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 20,923 $ 385,182 3,052 $ 51,485
Reinvested
dividends...... 2,209 37,435 102 1,635
Shares redeemed. (26,003) (469,007) (283) (4,718)
----------- ------------- ---------- -------------
Net increase (decrease). (2,871) $ (46,390) 2,871 $ 48,402
=========== ============= ========== =============
<CAPTION>
BLUE CHIP GROWTH FUND
---------------------------------------------------------------------------------------------------------
CLASS A CLASS B
----------------------------------------------------- --------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------- ------------------------- ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOU NT
----------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 735,069 $ 14,494,612 623,963 $ 10,925,394 845,608 $ 16,159,070 1,259,797 $ 21,456,617
Reinvested
dividends...... 464,861 8,130,414 455,714 6,972,433 270,094 4,553,792 319,329 4,764,382
Shares redeemed. (656,032) (13,020,484) (676,748) (11,828,552) (1,011,200) (19,292,333) (1,756,723) (29,208,753)
----------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
Net increase
(decrease)..... 543,898 $ 9,604,542 402,929 $ 6,069,275 104,502 $ 1,420,529 (177,597) $ (2,987,754)
=========== ============= ========== ============= ========== ============ ========== ============
<CAPTION>
MID-CAP GROWTH FUND
---------------------------------------------------------------------------------------------------------
CLASS A CLASS B
----------------------------------------------------- --------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------- ------------------------- ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 1,824,307 $ 32,027,068 1,195,858 $ 22,039,862 141,012 $ 2,392,690 361,032 $ 6,440,002
Reinvested
dividends...... 463,048 7,413,406 105,242 1,820,690 141,127 2,175,071 35,395 598,248
Shares redeemed. (2,146,098) (38,180,050) (1,428,977) (26,234,993) (322,783) (5,561,595) (501,401) (8,706,849)
----------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
Net increase
(decrease)..... 141,257 $ 1,260,424 (127,877) $ (2,374,441) (40,644) $ (993,834) (104,974) $ (1,668,599)
=========== ============= ========== ============= ========== ============ ========== ============
<CAPTION>
SMALL COMPANY GROWTH FUND
---------------------------------------------------------------------------------------------------------
CLASS A CLASS B
----------------------------------------------------- --------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------- ------------------------- ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 8,331,031 $ 192,281,985 4,356,568 $ 104,158,132 1,709,037 $ 38,946,749 2,294,947 $ 52,824,439
Reinvested
dividends...... 667,493 14,571,367 231,823 5,468,761 459,359 9,686,009 165,485 3,806,222
Shares redeemed. (10,040,494) (233,026,673) (4,573,784) (108,631,540) (3,358,273) (75,980,708) (2,474,107) (56,073,072)
----------- ------------- ---------- ------------- ---------- ------------ ---------- ------------
Net increase
(decrease)..... (1,041,970) $ (26,173,321) 14,607 $ 995,353 (1,189,877) $(27,347,950) (13,675) $ 557,589
=========== ============= ========== ============= ========== ============ ========== ============
</TABLE>
* Inception of the class
41
<PAGE>
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH FUND
---------------------------------------------------------------------------
CLASS C CLASS Z
------------------------ -------------------------------------------------
FOR THE PERIOD FOR THE PERIOD
FEBRUARY 2, 1998* FOR THE OCTOBER 7, 1996*
THROUGH YEAR ENDED THROUGH
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------ ----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold........... 9,190 $ 203,790 27,354 $ 655,620 36,250 $ 860,624
Reinvested dividends.. -- -- 4,828 106,220 300 7,070
Shares redeemed....... (2) (40) (36,314) (803,485) (3,202) (77,380)
---------- ------------ --------- ------------ ---------- ------------
Net increase (decrease). 9,188 $ 203,750 (4,132) $ (41,645) 33,348 $ 790,314
========== ============ ========= ============ ========== ============
<CAPTION>
GROWTH AND INCOME FUND
---------------------------------------------------------------------------------------------------
CLASS A CLASS B
------------------------------------------------- ------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------ ----------------------- ------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------ ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold........... 1,912,402 $ 25,967,840 2,346,608 $ 27,325,734 3,176,130 $ 42,351,160 3,556,104 $41,322,565
Reinvested dividends.. 403,557 5,004,107 118,133 1,248,669 459,379 5,645,769 86,070 908,039
Shares redeemed....... (1,363,478) (18,739,155) (969,421) (11,704,696) (1,533,431) (20,501,966) (815,041) (9,270,338)
---------- ------------ --------- ------------ ---------- ------------ --------- -----------
Net increase.......... 952,481 $ 12,232,792 1,495,320 $ 16,869,707 2,102,078 $ 27,494,963 2,827,133 $32,960,266
========== ============ ========= ============ ========== ============ ========= ===========
<CAPTION>
GROWTH AND INCOME FUND
-------------------------------------------------
CLASS C CLASS Z
------------------------ -----------------------
FOR THE PERIOD FOR THE PERIOD
FEBRUARY 2, 1998* APRIL 15, 1998*
THROUGH THROUGH
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold........... 95,450 $ 1,274,778 7,288 $101,080
Reinvested dividends.. -- -- -- --
Shares redeemed....... (19,042) (252,084) (12) (154)
---------- ------------ --------- ------------
Net increase.......... 76,408 $ 1,022,694 7,276 $100,926
========== ============ ========= ============
<CAPTION>
"DOGS" OF WALL STREET FUND
---------------------------------------------------------------------------
CLASS A CLASS B CLASS II
------------------------ ----------------------- ------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JUNE 8, 1998* THROUGH JUNE 8, 1998* THROUGH JUNE 8, 1998* THROUGH
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------------ ----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold........... 3,596,931 $ 43,876,855 1,811,906 $21,338,291 1,874,062 $21,947,206
Reinvested dividends.. -- -- -- -- -- --
Shares redeemed....... (2,089,355) (25,427,269) (23,537) (272,423) (51,153) (602,698)
---------- ------------ --------- ------------ ---------- ------------
Net increase.......... 1,507,576 $ 18,449,586 1,788,369 $21,065,868 1,822,909 $21,344,508
========== ============ ========= ============ ========== ============
</TABLE>
* Inception of the class
42
<PAGE>
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 1998 -- (CONTINUED)
Note 7. Commitments and Contingencies
The SunAmerica family of mutual funds may borrow up to $75,000,000 under an
uncommitted line of credit with State Street Bank and Trust Company, the
Funds' custodian, with interest payable at the Federal Funds rate plus 100
basis points. Borrowings under the line of credit will commence when the
respective Fund's cash shortfall exceeds $100,000.
Note 8. Trustees Retirement Plan
The Trustees (and Directors) of the SunAmerica Family of Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement
Plan (the "Retirement Plan") effective January 1, 1993 for the unaffiliated
Trustees. The Retirement Plan provides generally that if an unaffiliated
Trustee who has at least 10 years of consecutive service as a Disinterested
Trustee of any of the SunAmerica mutual funds (an "Eligible Trustee")
retires after reaching age 60 but before age 70 or dies while a Trustee,
such person will be eligible to receive a retirement or death benefit from
each SunAmerica mutual fund with respect to which he or she is an Eligible
Trustee. As of each birthday, prior to the 70th birthday, but in no event
for a period greater than 10 years, each Eligible Trustee will be credited
with an amount equal to 50% of his or her regular fees (excluding committee
fees) for services as a Disinterested Trustee of each SunAmerica mutual
fund for the calendar year in which such birthday occurs. In addition, an
amount equal to 8.5% of any amounts credited under the preceding clause
during prior years, is added to each Eligible Trustee's account until such
Eligible Trustee reaches his or her 70th birthday. An Eligible Trustee may
receive any benefits payable under the Retirement Plan, at his or her
election, either in one lump sum or in up to fifteen annual installments.
As of September 30, 1998, Balanced Assets Fund, Blue Chip Growth Fund, Mid-
Cap Growth Fund, Small Company Growth Fund and Growth and Income Fund had
accrued $41,084, $12,409, $6,950, $28,365 and $5,954, respectively, for the
Retirement Plan, which is included in accrued expenses on the Statement of
Assets and Liabilities, and for the fiscal year ended September 30, 1998
expensed $13,171, $3,871, $2,139, $10,066 and $3,810, respectively, for the
Retirement Plan, which is included in Trustees' fees and expenses on the
Statement of Operations.
Note 9. Subsequent Events
On August 19, 1998, SunAmerica Inc. entered into an agreement with American
International Group, Inc. ("AIG"). Under the terms of the agreement,
SunAmerica Inc. will merge with and into AIG, and consequently, SAAMCo,
which acts as investment adviser of the Trust, will become a subsidiary of
AIG. SAAMCo will not change its name and no organizational changes are
currently planned which would affect services provided to the Trust. As a
result of the merger, Trust shareholders of record as of October 30, 1998
are being asked to approve a new investment advisory and management
agreement with SAAMCo, to take effect upon consummation of the merger. The
new agreement will be identical to the current agreement in all respects
except for its effective date and termination date and will have no effect
on the fees or expenses payable by the Trust or its shareholders. The
merger transaction is expected to be consummated in late 1998 or early
1999.
Effective December 1, 1998, Small Company Growth Fund and Growth and Income
Fund will offer Class II shares in place of Class C shares. The cost
structure for Class II shares is presented in Note 1.
43
<PAGE>
SUNAMERICA EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of SunAmerica Equity Funds
In our opinion, the accompanying statement of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of SunAmerica
Balanced Assets Fund, SunAmerica Blue Chip Growth Fund, SunAmerica Mid-Cap
Growth Fund, SunAmerica Small Company Growth Fund, SunAmerica Growth and
Income Fund and "Dogs" of Wall Street Fund (constituting SunAmerica Equity
Funds, hereafter referred to as the "Fund") at September 30, 1998, the results
of each of their operations for the period then ended and the changes in each
of their net assets and the financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 10, 1998
44
<PAGE>
SUNAMERICA EQUITY FUNDS
SHAREHOLDER TAX INFORMATION--(UNAUDITED)
Certain tax information regarding the SunAmerica Equity Funds is required to
be provided to shareholders based upon each Fund's income and distributions
for the taxable year ended September 30, 1998. The information and
distributions reported herein may differ from the information and
distributions taxable to the shareholders for the calendar year ending
December 31, 1998. The information necessary to complete your income tax
returns will be included with your Form 1099-DIV which will be sent to you
under separate cover in January 1999.
During the year ended September 30, 1998 the Funds paid the following
dividends per share:
<TABLE>
<CAPTION>
NET NET
SHORT- LONG-
NET TERM TERM
TOTAL INVESTMENT CAPITAL CAPITAL
DIVIDENDS INCOME GAINS GAINS
--------- ---------- ------- -------
<S> <C> <C> <C> <C>
Balanced Assets Class A.................... $2.04 $.30 $ .96 $ .78
Balanced Assets Class B.................... 1.93 .19 .96 .78
Balanced Assets Class Z.................... 1.89 .15 .96 .78
Blue Chip Growth Class A................... 2.48 -- 1.52 .96
Blue Chip Growth Class B................... 2.48 -- 1.52 .96
Mid-Cap Growth Class A..................... 3.53 -- 1.88 1.65
Mid-Cap Growth Class B..................... 3.53 -- 1.88 1.65
Small Company Growth Class A............... 2.40 -- .99 1.41
Small Company Growth Class B............... 2.40 -- .99 1.41
Small Company Growth Class C............... -- -- -- --
Small Company Growth Class Z............... 2.40 -- .99 1.41
Growth and Income Class A.................. 1.35 -- 1.21 .14
Growth and Income Class B.................. 1.35 -- 1.21 .14
Growth and Income Class C.................. -- -- -- --
Growth and Income Class Z.................. -- -- -- --
"Dogs" of Wall Street Class A.............. -- -- -- --
"Dogs" of Wall Street Class B.............. -- -- -- --
"Dogs" of Wall Street Class II............. -- -- -- --
</TABLE>
For the year ended September 30, 1998, 13.36%, 12.57%, 6.97%, 12.20% and
12.72% of the dividends paid from ordinary income by Balanced Assets Fund,
Blue Chip Growth Fund, Mid-Cap Growth Fund, Small Company Growth Fund and
Growth and Income Fund respectively, qualified for the 70% dividends received
deductions for corporations.
45
<PAGE>
APPENDIX
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
Description of Moody's Corporate Ratings
Aaa Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or
there may be other elements present that make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds rated A possess many favorable investment attributes and are
considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment sometime in the
future.
Baa Bonds 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 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.
Appendix-1
<PAGE>
B Bonds 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 rated Caa are of poor standing. Such issues may be in default,
or there may be present elements of danger with respect to principal
or interest.
Ca Bonds rated Ca represent obligations that are speculative in a high
degree. Such issues are often in default or have other marked
shortcomings.
C Bonds 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
Appendix-2
<PAGE>
-- 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 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 that may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7)
Appendix-3
<PAGE>
financial strength of a parent company and the relationships that exist with
the issuer; and (8) recognition by management of obligations that may be present
or may arise as a result of public interest questions and preparations to meet
such obligations.
Description of Standard & Poor's Corporate Debt Ratings
A Standard & 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 obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation: (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-
rated categories.
Appendix-4
<PAGE>
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 that
could lead to inadequate capacity to meet timely interest and
principal payment. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB-
rating.
B Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC has a current identifiable vulnerability to default and
is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
CC The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt
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.
Appendix-5
<PAGE>
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 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
Appendix-6
<PAGE>
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 designated
"A-1" that are 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.
Appendix-7
<PAGE>
The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
Appendix-8
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits.
(a) 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.
(b) 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.
(c) Instruments Defining the Rights of Shareholders. Incorporated
herein by reference to Exhibits (a) and (b) above.
(d) Investment Advisory and Management Agreement.
(e) (i) Distribution Agreement.
(ii) Form of Dealer Agreement. Incorporated herein by reference
to Post-Effective Amendment No. 19 to Registrant's
Registration Statement on Form N-1A (File No. 33-8021) filed
on January 27, 1997.
(f) 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.
(g) 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.
(h) (i) 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.
(ii) Service Agreement, as amended. Incorporated herein by
reference to Post-Effective Amendment No. 19 to Registrant's
Registration Statement on Form N-1A (File No. 33-8021) filed
on January 27, 1997.
<PAGE>
(i) Opinion and Consent of Counsel.
(j) Consent of Independent Accountants.
(k) Inapplicable.
(l) Inapplicable.
(m) (i) Form of Distribution Plan pursuant to Rule 12b-1 (Class A
shares).
(ii) Form of Distribution Plan pursuant to Rule 12b-1 (Class B
shares).
(iii) Form of Distribution Plan pursuant to Rule 12b-1 (Class II
shares).
(n) Financial Data Schedules.
(o) (i) Plan Pursuant to Rule 18f-3. Incorporated herein by
reference to Post-Effective Amendment No. 19 to Registrant's
Registration Statement on Form N-1A (File No. 33-8021) filed
on January 27, 1997.
(ii) Powers of Attorney. 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.
Item 24. Persons Controlled By or Under Common Control with Registrant.
There are no persons controlled by or under common control with
Registrant.
Item 25. Indemnification.
5.1 Indemnification of Trustees, Officers, Employees and Agents.
-----------------------------------------------------------
(a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust or any
of its shareholders) by reason of the fact that he is or was a Trustee,
officer, employee or agent of the Trust. The indemnification shall be
against expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement, actually and reasonably incurred by him in connection
with the action, suit or proceeding, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to
<PAGE>
the best interests of the Trust, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgement, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
---------------
itself, create a presumption that, the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust or any of its shareholders to obtain a
judgment or decree in its favor by reason of the fact that he is or was a
Trustee, officer, employee or agent of the Trust. The indemnification shall be
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense or settlement of the action or suit, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust; except that such indemnification
shall preclude payment upon any liability, whether or not there is an
adjudication of liability, arising by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of duties as described in section 17(h)
and (i) of the Investment Company Act of 1940.
(c) To the extent that a Trustee, officer, employee or agent of the
Trust has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in subsections (a) or (b) or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) or
(b).
(2) The determination shall be made:
(i) by the Trustees, by a majority vote of a quorum which
consists of Trustees who were not parties to the action, suit or proceeding; or
(ii) if the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a written
opinion; or
(iii) by the Shareholders.
(3) Notwithstanding the provisions of this Section 5.1, no
person shall be entitled to indemnification for any liability, whether or not
there is an adjudication
<PAGE>
of liability, arising by reason of willful malfeasance, bad faith, gross
negligence or reckless disregard of duties as described in Section 17(h) and (i)
of the Investment Company Act of 1940 ("Disabling Conduct"). A person shall be
deemed not liable by reason of Disabling Conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("Indemnitee") was not liable by reason of Disabling Conduct; or
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the Indemnitee was not liable by reason
of Disabling Conduct, is made by either
(A) a majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in section 2(a)(19) of the
Investment Company Act of 1940, nor parties to the action, suit or proceeding;
or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition thereof
if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the
Trustee, officer, employee or agent of the Trust to repay the advance if it is
not ultimately determined that such person is entitled to be indemnified by the
Trust; and
(3) either,
(i) such person provides a security for his undertaking; or
(ii) the Trust is insured against losses by reason of any lawful
advances; or
(iii) a determination, based on a review or readily available facts,
that there is reason to believe that such person ultimately will be found
entitled to indemnification, is made by either
(A) A majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in section 2(a)(19) of the
Investment Company Act of 1940, nor parties to the action, suit or proceeding;
or
<PAGE>
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not
be deemed exclusive of any other rights to which a person may be
entitled under any by-law, agreement, vote of Shareholders or
disinterested Trustees or otherwise, both as to action in his official
capacity and as to action in another application while holding office,
and shall continue as to a person who has ceased to be a Trustee,
officer, employee or agent and inure to the benefit of the heirs,
executors and administrators of such person; provided that no person may
satisfy any right of indemnity or reimbursement granted herein or to
which he may be otherwise entitled except out of the property of the
Trust, and no Shareholder, as such, shall be personally liable with
respect to any claim for indemnity or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf
of any person who is or was a Trustee, officer, employee or agent of the
Trust, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such. However, in no
event will the Trust pay that portion of insurance premiums, if any,
attributable to coverage which would indemnify any officer of Trustee
against liability for Disabling Conduct.
(h) Nothing contained in this Section shall be construed to
protect any Trustee or officer of the Trust against any liability to the
Trust or to its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Item 26. 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 "Fund Management" in the
Prospectus constituting Part A of the Registration Statement and
"Adviser, Personal Trading, Distributor and Administrator" and
"Trustees and Officers" constituting Part B of the Registration
Statement.
Item 27. Principal Underwriters.
(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,
<PAGE>
Inc., the principal underwriter of Registrant's Shares:
<TABLE>
<CAPTION>
Name and Principal
Business Address Position With Underwriter Position with the Registrant
---------------- ------------------------- ----------------------------
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Peter A. Harbeck Director Trustee and President
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
- -----------------------------------------------------------------------------------------
J. Steven Neamtz President and Director Vice President
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
- -----------------------------------------------------------------------------------------
Robert M. Zakem Executive Vice President, Secretary and Chief
The SunAmerica Center General Counsel and Director Compliance Officer
733 Third Avenue
New York, NY 10017-3204
- -----------------------------------------------------------------------------------------
Susan L. Harris Secretary None
SunAmerica, Inc.
1 SunAmerica Center
Los Angeles, CA 90067-6022
- -----------------------------------------------------------------------------------------
Debbie Potash-Turner Controller None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
- -----------------------------------------------------------------------------------------
</TABLE>
(c) Inapplicable.
Item 28. Location and Accounts and Records.
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 29. Management Services.
Inapplicable.
<PAGE>
Item 30. Undertakings.
Inapplicable.
<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, the
Registrant certifies that it meets all of the requirements for effectiveness of
this Post-Effective Amendment No. 25 to the Registration Statement under Rule
485(b)under the 1933 Act and has duly caused this Post-Effective Amendment No.
25 to the Registration Statement 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 29/th/ day of January, 1999.
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. 25 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>
<S> <C> <C>
- ------------------------------ President and Trustee January 29, 1999
Peter A. Harbeck (Principal Executive Officer)
*
- ------------------------------ Treasurer January 29, 1999
Peter C. Sutton (Principal Accounting and
Financial Officer)
*
- ------------------------------ Trustee January 29, 1999
S. James Coppersmith
*
- ------------------------------ Trustee January 29, 1999
Samuel M. Eisenstat
*
- ------------------------------ Trustee January 29, 1999
Stephen J. Gutman
*
- ------------------------------ Trustee January 29, 1999
Sebastiano Sterpa
/s/ Robert M. Zakem
- ------------------------------ January 29, 1999
Robert M. Zakem, Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Description
Number
(d) Investment Advisory and Management Agreement
(e)(i) Distribution Agreement
(i) Opinion and Consent of Counsel
(j) Consent of Independent Accountants
(m)(i) Form of Distribution Plan pursuant to Rule 12b-1 (Class A shares)
(m)(ii) Form of Distribution Plan pursuant to Rule 12b-1 (Class B shares)
(m)(iii) Form of Distribution Plan pursuant to Rule 12b-1 (Class II shares)
(n) Financial Data Schedules
<PAGE>
EXHIBIT 99.(d)
SUNAMERICA EQUITY FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT is dated as of
January 1, 1999 by and between SunAmerica Equity Funds, a Massachusetts business
trust (the "Trust"), and SUNAMERICA ASSET MANAGEMENT CORP., a Delaware
corporation (the "Adviser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company and
may issue shares of beneficial interest, par value $.01 per share, in separately
designated series representing separate funds with their own investment
objectives, policies and purposes (each, a "Fund" and collectively, the
"Funds"); and
WHEREAS, the Adviser is engaged in the business of rendering
investment management, advisory and administrative services and is registered as
an investment adviser under the Investment Advisers Act of 1940; and
WHEREAS, the Trust desires to retain the Adviser to furnish investment
management, advisory and administrative services to the Trust and the Funds and
the Adviser is willing to furnish such services;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Duties of the Adviser. The Adviser shall manage the affairs of the
---------------------
Funds including, but not limited to, continuously providing the Funds with
investment management, including investment research, advice and supervision,
determining which securities shall be purchased or sold by the Funds, making
purchases and sales of securities on behalf of the Funds and determining how
voting and other rights with respect to securities owned by the Funds shall be
exercised, subject in each case to the control of the Board of Trustees of the
Trust (the "Trustees") and in accordance with the objectives, policies and
principles set forth in Trust's Registration Statement and the Funds' current
Prospectus and Statement of Additional Information, as amended from time to
time, the requirements of the Act and other applicable law. In performing
such duties, the Adviser (i) shall provide such office space, such bookkeeping,
accounting, clerical, secretarial and administrative services (exclusive of, and
in addition to, any such service provided by any others retained by the Funds or
Trust on behalf of the Funds) and such executive and other personnel as shall be
necessary for the operations of the Funds, (ii) shall be responsible for the
financial and accounting records required to be maintained by the Funds
(including those maintained by Trust's custodian) and (iii) shall oversee the
performance of services provided to the Funds by others, including the
custodian, transfer and shareholder servicing agent. The Trust understands
that the Adviser also acts as the manager of other investment companies.
<PAGE>
Subject to Section 36 of the Act, the Adviser shall not be liable to
the Funds or Trust for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the management of
the Funds and the performance of its duties under this Agreement except for
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties under
this Agreement.
2. Retention by Adviser of Sub-Advisers, etc. In carrying out its
-----------------------------------------
responsibilities hereunder, the Adviser may employ, retain or otherwise avail
itself of the services of other persons or entities including, without
limitation, affiliates of the Adviser, on such terms as the Adviser shall
determine to be necessary, desirable or appropriate. Without limiting the
generality of the foregoing, and subject to the requirements of Section 15 of
the Act, the Adviser may retain one or more sub-advisers to manage all or a
portion of the investment portfolio of a Fund, at the Adviser's own cost and
expense. Retention of one or more subadvisers, or the employment or retention
of other persons or entities to perform services, shall in no way reduce the
responsibilities or obligations of the Adviser under this Agreement and the
Adviser shall be responsible for all acts and omissions of such subadvisers, or
other persons or entities, in connection with the performance of the Adviser's
duties hereunder.
3. Expenses. The Adviser shall pay all of its expenses arising from the
--------
performance of its obligations under Section 1 and shall pay any salaries, fees
and expenses of the Trust's Trustees and Officers who are employees of the
Adviser. The Adviser shall not be required to pay any other expenses of the
Funds, including, but not limited to, direct charges relating to the purchase
and sale of portfolio securities, interest charges, fees and expenses of
independent attorneys and auditors, taxes and governmental fees, cost of share
certificates and any other expenses (including clerical expenses) of issue,
sale, repurchase or redemption of shares, expenses of registering and qualifying
shares for sale, expenses of printing and distributing reports, notices and
proxy materials to shareholders, expenses of data processing and related
services, shareholder recordkeeping and shareholder account service, expenses of
printing and filing reports and other documents filed with governmental
agencies, expenses of printing and distributing prospectuses, expenses of annual
and special shareholders meetings, fees and disbursements of transfer agents and
custodians, expenses of disbursing dividends and distributions, fees and
expenses of Trustees who are not employees of the Adviser or its affiliates,
membership dues in the Investment Company Institute, insurance premiums and
extraordinary expenses such as litigation expenses.
4. Compensation of the Adviser. (a) As full compensation for the
---------------------------
services rendered, facilities furnished and expenses paid by the Adviser under
this Agreement, the Trust agrees to pay to the Adviser a fee at the annual rates
set forth in Schedule A hereto with respect to each Fund indicated thereon.
Such fee shall be accrued daily and paid monthly as soon as practicable after
the end of each month (i.e., the applicable annual fee rate divided by 365 is
applied to each prior days' net assets in order to calculate the daily accrual).
For purposes of calculating the Adviser's fee with respect to any Fund, the
average daily net asset value of a Fund shall be determined by taking an average
of all determinations of such net asset value during the month. If the Adviser
shall serve for less than the whole of any month the foregoing compensation
shall be prorated.
(b) The Adviser agrees that if total expenses of a Fund for any
fiscal year of the
<PAGE>
Trust exceed the permissible limits applicable to that Fund in any state in
which shares of that Fund are then qualified for sale, the compensation due the
Adviser for such fiscal year shall be reduced by the amount of such excess by a
reduction or refund thereof at the time such compensation is payable after the
end of each calendar month, subject to readjustment during such fiscal year. In
no event shall the amount of such reduction or refund exceed the amount of the
fee payable to the Adviser with respect to such Fund.
5. Purchase and Sale of Securities; Broker-Dealer Selection. The Adviser
--------------------------------------------------------
is responsible for decisions to buy or sell securities and other investments for
each Fund, broker-dealer and futures commission merchants' selection, and
negotiation of brokerage commission and futures commission merchants' rates. As
a general matter, in executing portfolio transactions, the Adviser may employ or
deal with such broker-dealers or futures commission merchants as may, in the
Adviser's best judgment, provide prompt and reliable execution of the
transactions at favorable prices and reasonable commission rates. In selecting
such broker-dealers or futures commission merchants, the Adviser shall consider
all relevant factors, including price (including the applicable brokerage
commission, dealer spread or futures commission merchant rate), the size of the
order, the nature of the market for the security or other investment, the timing
of the transaction, the reputation, experience and financial stability of the
broker-dealer or futures commission merchant involved, the quality of the
service, the difficulty of execution, and the execution capabilities and
operational facilities of the firm involved, and, in the case of securities, the
firm's risk in positioning a block of securities. Subject to such policies as
the Trustees may determine and consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the Adviser shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of the Adviser's having caused a Fund to
pay a member of an exchange, broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission another
member of an exchange, broker or dealer would have charged for effecting that
transaction, if the Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such member of an exchange, broker or dealer viewed in
terms of either that particular transaction or the Adviser's overall
responsibilities with respect to such Fund and to the other clients as to which
the Adviser exercises investment discretion. In accordance with Section 11(a)
of the 1934 Act and Rule 11a2-2(T) thereunder, and subject to any other
applicable laws and regulations including Section 17(e) of the Act and Rule 17e-
1 thereunder, the Adviser may engage its affiliates, or any sub-adviser to the
Trust and its respective affiliates, as broker-dealers or futures commission
merchants to effect portfolio transactions in securities and other investments
for a Fund.
6. Term of Agreement. This agreement shall continue in full force and
-----------------
effect for two years from the date hereof, and shall continue in full force and
effect from year to year thereafter if such continuance is approved in the
manner required by the Act and the Adviser has not notified the Trust in writing
at least 60 days prior to the anniversary date of the previous continuance that
it does not desire such continuance. With respect to each Fund, this Agreement
may be terminated at any time, without payment of penalty by the Fund or the
Trust, on 60 days written notice to the Adviser, by vote of the Trustees, or by
vote of a majority of the outstanding voting securities (as defined by the Act)
of the Fund, voting separately from any other series of the Trust. The
termination of this Agreement with respect to any Fund or the addition of any
Fund to Schedule A hereto (in the manner required by the Act) shall not affect
the continued
<PAGE>
effectiveness of this Agreement with respect to each other Fund subject hereto.
This Agreement shall automatically terminate in the event of its assignment (as
defined by the Act).
The Trust hereby agrees that if (i) the Adviser ceases to act as
investment manager and adviser to the Trust and (ii) the continued use of the
Trust's present name would create confusion in the context of the Adviser's
business, then the Trust will use its best efforts to change its name in order
to delete the word "SunAmerica" from its name.
7. Liability of the Adviser. In the absence of willful misfeasance, bad
-------------------------
faith, gross negligence or reckless disregard of obligations or duties
("disabling conduct") hereunder on the part of the Adviser (and its officers,
directors, agents, employees, controlling persons, shareholders and any other
person or entity affiliated with the Adviser) the Adviser shall not be subject
to liability to the Trust or to any shareholder of the Trust for any act or
omission in the course of, or connected with, rendering services hereunder,
including without limitation, any error of judgment or mistake of law or for any
loss suffered by any of them in connection with the matters to which this
Agreement relates, except to the extent specified in Section 36(b) of the Act
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services. Except for such disabling conduct, the
Trust shall indemnify the Adviser (and its officers, directors, partners,
agents, employees, controlling persons, shareholders and any other person or
entity affiliated with the Adviser) (collectively, the "Indemnified Parties")
from any liability arising from the Adviser's conduct under this Agreement.
Indemnification to the Adviser or any of its personnel or affiliates
shall be made when (i) a final decision on the merits rendered, by a court or
other body before whom the proceeding was brought, that the person to be
indemnified was not liable by reason of disabling conduct or, (ii) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum of the Trustees who
are neither "interested persons" of the Trust as defined in section 2(a)(19) of
the Act nor parties to the proceeding ("disinterested, non-party Trustees") or
(b) an independent legal counsel in a written opinion. The Trust may, by vote of
a majority of the disinterested, non-party Trustees advance attorneys' fees or
other expenses incurred by an Indemnified Party in defending a proceeding upon
the undertaking by or on behalf of the Indemnified Party to repay the advance
unless it is ultimately determined that he is entitled to indemnification. Such
advance shall be subject to at least one of the following: (1) the person to be
indemnified shall provide a security for his undertaking, (2) the Trust shall be
insured against losses arising by reason of any lawful advances, or (3) a
majority of a quorum of the disinterested, non-party Trustees or an independent
legal counsel in a written opinion, shall determine, based on a review of
readily available facts, that there is reason to believe that the person to be
indemnified ultimately will be found entitled to indemnification.
8. Non-Exclusivity. Nothing in this Agreement shall limit or restrict
---------------
the right of any director, officer or employee of the Adviser who may also be a
Trustee, officer or employee of the Trust to engage in any other business or
devote his or her time and attention in part to the management or other aspects
of any business, whether of a similar or dissimilar nature, nor limit or
restrict the right of the Adviser to engage in any other business or to render
services of any kind to any other corporation, firm, individual or association.
<PAGE>
9. Amendments. This Agreement may be amended by mutual consent in
----------
writing, but the consent of the Trust must be obtained in conformity with the
requirements of the Act.
10. Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of New York and the applicable provisions of the Act. To
the extent the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Act, the
latter shall apply.
11. Personal Liability. The Declaration of Trust establishing the Trust,
------------------
dated June 18, 1986, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "SunAmerica Equity Funds" refers to the
Trustees under the Declaration collectively as trustees, but not as individuals
or personally, and no Trustee, shareholder, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property for satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Trust, but the "Trust Property" only shall be
liable.
12. Separate Series. Pursuant to the provisions of the Declaration, each
---------------
Fund is a separate series of the Trust, and all debts, liabilities, obligations
and expenses of a particular Fund shall be enforceable only against the assets
of that Fund and not against the assets of any other Fund or of the Trust as a
whole.
IN WITNESS WHEREOF, the Trust and the Adviser have caused this
Agreement to be executed by their duly authorized officers as of the date first
above written.
SUNAMERICA EQUITY FUNDS
By: /s/Peter A. Harbeck
--------------------------------------------
Name: Peter A. Harbeck
Title: Executive Vice President
SUNAMERICA ASSET MANAGEMENT CORP.
By: /s/Robert M. Zakem
--------------------------------------------
Name: Robert M. Zakem
Title: Senior Vice President and
General Counsel
<PAGE>
EXHIBIT 99.(e)(i)
SUNAMERICA EQUITY FUNDS
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT is dated as of January 1, 1999 by and
between SunAmerica Equity Funds, a Massachusetts business trust (the "Trust")
and SUNAMERICA CAPITAL SERVICES, INC., a Delaware corporation (the
"Distributor").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial
interest, par value $.01 per share (the "Shares"), in separately designated
series representing separate funds with their own investment objectives,
policies and restrictions (the "Funds") and has registered the Shares of the
Funds under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a registration statement on Form N-1A (the "Registration
Statement"), including a prospectus (the "Prospectus") and a statement of
additional information (the "Statement of Additional Information"); and
WHEREAS, the Trust has adopted a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act on behalf of each Fund (the "Distribution
Plans") and may enter into related agreements providing for the distribution of
the Shares of the Funds; and
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
WHEREAS, the Trust wishes to engage the services of the Distributor as
distributor of the Shares of the Funds and the Distributor is willing to serve
in that capacity;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. EXCLUSIVE DISTRIBUTOR. The Funds hereby agree that the
---------------------
Distributor shall and for the period of this Agreement be exclusive agent for
distribution within the United States and its territories, and the Distributor
agrees to use its best efforts during such period to effect such distribution of
the Shares ; provided, however, that nothing herein shall prevent a Fund, if it
-------- -------
so elects, from selling or otherwise distributing its Shares directly to any
persons other than dealers. In connection therewith, it is contemplated that
the Distributor will enter into agreements with selected securities dealers.
The Funds understand that the Distributor also acts as agent for distribution of
shares of capital stock or beneficial interest, as the case may be, of other
open-end investment companies which have entered into management and advisory
agreements with the Funds' current investment adviser.
2. SALE OF THE SHARES. The Distributor is authorized as agent for
------------------
the Funds and not as principal, to sell the Shares to other purchasers on such
terms as may be provided in the then
<PAGE>
current Prospectus of the Funds; provided, however, that no sales shall be
-------- -------
confirmed by the Distributor at any time when, according to advice received by
the Distributor from a Fund, the officers of the Trust have for any reason
sufficient to them temporarily or permanently suspended or discontinued the sale
and issuance of such Fund's Shares. Each sale shall be effected by the
Distributor only at the applicable price, plus the applicable sales charge, if
any, determined by a Fund in the manner prescribed in its then current
Prospectus. The Distributor shall, insofar as they concern it, comply with all
applicable laws, rules and regulations including, without limiting the
generality of the foregoing, all rules or regulations made or adopted pursuant
to Section 22 of the Act by the Securities and Exchange Commission or any
securities association registered under the Exchange Act .
The Funds agree, as long as the Shares may legally be issued, to fill
all orders confirmed by the Distributor in accordance with the provisions of
this Agreement.
3. EXPENSES; COMPENSATION. The Distributor agrees promptly to pay
----------------------
or reimburse the Funds for all expenses (except expenses incurred by the Funds
in connection with the preparation, printing and distribution of any prospectus
or report or other communication to shareholders, to the extent that such
expenses are incurred to effect compliance with the Federal or state laws or to
enable such distribution to shareholders) (a) of printing and distributing
copies of any prospectus and of preparing, printing and distributing any other
material used by the Distributor in connection with offering the Shares for
sale, and (b) of advertising in connection with such offering. The Funds agree
to pay all expenses in connection with the registration of the Shares under the
Securities Act , all fees and related expenses which may be incurred in
connection with the qualification of the Shares for sale in such states (as
well as the District of Columbia, Puerto Rico and other territories) as the
Distributor may designate, and all expenses in connection with maintaining
facilities for the issue and transfer of the Shares, of supplying information,
prices and other data to be furnished by it hereunder and through its agents of
all data processing and related services related to the share distribution
activity contemplated hereby.
As compensation for its services hereunder, the Funds agree to pay to
the Distributor all amounts received as sales charges as described in the
Funds' most current Prospectus. Out of such sales charges, the Distributor may
allow such concessions or reallowances to dealers as it may from time to time
determine.
The Trust agrees to execute such documents and to furnish such
information as may be reasonably necessary, in the discretion of the Board of
Trustees ("Trustees") of the Trust, in connection with the qualification of the
Shares for sale in such states (as well as the District of Columbia, Puerto Rico
and other territories) as the Distributor may designate. The Distributor also
agrees to pay all fees and related expenses connected with its own qualification
as a broker or dealer under Federal or state laws and, except as otherwise
specifically provided in this Agreement or agreed to by the Trust, all other
expenses incurred by the Distributor in connection with the sale of the Shares
as contemplated in this Agreement (including the expenses of qualifying the
Trust as a dealer or broker under the laws of such states as may be designated
by the Distributor, if deemed necessary or advisable by the Trust).
4. PROSPECTUS AND OTHER INFORMATION. The Trust represents and
--------------------------------
warrants to and agrees with the Distributor that:
-2-
<PAGE>
(a) The Registration Statement, including the Prospectus and Statement
of Additional Information, relating to the Shares has been filed under both the
Act and the Securities Act and has become effective.
(b) At all times during the term of this Agreement, except when the
officers of the Trust have suspended or discontinued the sale and issuance of
the Shares of a Fund as contemplated by Section 2 hereof, the Registration
Statement, Prospectus and Statement of Additional Information will conform in
all material respects to the requirements of the Act and the rules and
regulations of the Securities and Exchange Commission, and none of such
documents will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, except that the foregoing does not apply to
any statements or omissions in any of such documents based upon written
information furnished to the Trust by the Distributor specifically for use
therein.
(c) The Trust agrees to prepare and furnish to the Distributor from
time to time, a copy of the Prospectus, and authorizes the Distributor to use
such Prospectus, in the form furnished to the Distributor from time to time, in
connection with the sale of the Shares. The Trust also agrees to furnish the
Distributor from time to time, for use in connection with the sale of such
Shares, such information (including the Statement of Additional Information)
with respect to the Funds and the Shares as the Distributor may reasonably
request.
5. INDEMNIFICATION.
---------------
(a) The Trust will indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor within the meaning of the Act
against any losses, claims, damages or liabilities to which the Distributor or
such controlling person may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, Prospectus or
Statement of Additional Information or any other written sales material prepared
by the Trust or the Funds which is utilized by the Distributor in connection
with the sale of Shares of the Fund or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or (in the case of the Registration Statement, Prospectus and
Statement of Additional Information) necessary to make the statement therein not
misleading or (in the case of such other sales material) necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; and will reimburse the Distributor and each such controlling
person for any legal or other expenses reasonably incurred by the Distributor or
such controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Trust or
-------- -------
the Funds will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
Registration Statement, Prospectus or Statement of Additional Information in
conformity with written information furnished to the Trust by the Distributor
specifically for use therein; and provided, further, that nothing herein shall
-------- -------
be so construed as to protect the Distributor against any liability to the Trust
or the Funds, or the security holders of the Funds to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence, in the performance of its duties, or by reason of the reckless
disregard by the Distributor of its obligations and duties under this Agreement.
This indemnity provision will be in addition to any liability which the Trust
may otherwise have.
-3-
<PAGE>
(b) The Distributor will indemnify and hold harmless the Trust, each
of its Trustees and officers and each person, if any, who controls the Trust
within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Trust or any such Trustee, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, Prospectus or Statement of
Additional Information or any sales material not prepared by the Trust or the
Funds which is utilized in connection with the sale of the Shares or arise out
of or are based upon the omissions or the alleged omission to state therein a
material fact required to be stated therein or (in the case of the Registration
Statement, Prospectus and Statement) necessary to make the statements therein
not misleading or (in the case of such other sales material) necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made, in the case of the Registration Statement, Prospectus and
Statement of Additional Information to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in conformity with written information furnished to the Trust
by the Distributor specifically for use therein; and the Distributor will
reimburse any legal or other expenses reasonably incurred by the Trust or any
such Trustee, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. This indemnity
provision will be in addition to any liability which the Distributor may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from liability
which it may have to any indemnified party otherwise than under this Section.
In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
6. TERM OF AGREEMENT. This Agreement shall continue in full force
-----------------
and effect for two years from the date hereof, and shall continue in full force
and effect from year to year thereafter if such continuance is approved in the
manner required by the Act, and the Distributor has not have notified the Trust
in writing at least 60 days prior to the anniversary date of the previous
continuance that it does not desire such continuance. This Agreement may be
terminated at any time, without payment of penalty by the Trust on 60 days'
written notice to the Distributor by vote of the Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Trust (as
defined by the Act). This Agreement shall automatically terminate in the event
of its assignment (as defined by the Act).
-4-
<PAGE>
7. MISCELLANEOUS. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York. Anything herein to the
contrary notwithstanding, this Agreement shall not be construed to require or to
impose any duty upon either of the parties to do anything in violation of any
applicable laws or regulations.
IN WITNESS WHEREOF, the Trust and the Distributor have caused this
Agreement to be executed by their duly authorized officers as of the date above
written.
SUNAMERICA EQUITY FUNDS
By: /s/Peter A. Harbeck
-----------------------------------------------
Peter A. Harbeck
President
SUNAMERICA CAPITAL SERVICES, INC.
By: /s/J. Steven Neamtz
-----------------------------------------------
J. Steven Neamtz
Director and President
-5-
<PAGE>
EXHIBIT 99.(i)
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue
New York, NY 10017
212.551.5969
800.858.8850
[LOGO] SunAmerica Asset Management
January 27, 1999
SunAmerica Equity Funds
733 Third Avenue
New York, NY 10017-3204
Gentlemen:
This opinion is being furnished in connection with the filing by
SunAmerica Equity Funds, a Massachusetts business trust (the "Trust"), of Post-
Effective Amendment No. 25 (the "Amendment") to the Registration Statement on
Form N-1A (the "Registration Statement") which registers an indefinite number of
shares of beneficial interest of each series of the Trust, $.01 par value, (the
"Shares") under the Securities Act of 1933, as amended (the "1933 Act"), which
registration is to be effected in accordance with Rule 24f-2 under the
Investment Company Act of 1940, as amended, pursuant to the Fund's Registration
Statement.
As counsel for the Trust, I am familiar with the proceedings taken by
the Trust in connection with the authorization, issuance and sale of the Shares.
In addition, I have examined the Trust's Declaration of Trust, By-Laws and such
other documents that have been deemed relevant to the matters referred to
herein.
Based upon the foregoing, I am of the opinion that, upon issuance and
sale of the Shares in the manner referred to in the Amendment, the Shares will
be legally issued, fully paid and nonassessable shares of beneficial interest of
the Trust. However, I note that as set forth in the Registration Statement,
shareholders of SunAmerica Equity Funds might, under certain circumstances, be
liable for transactions effected by the Trust.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Amendment, and to the filing of this
opinion under the securities laws of any state.
Very truly yours,
By: /s/Robert M. Zakem
------------------------------------
Robert M. Zakem
<PAGE>
Exhibit 99 (j)
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 25 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
November 10, 1998, relating to the financial statements and financial highlights
of SunAmerica Equity Funds, which appears in such Statement of Additional
Information and to the incorporation by reference of our report into the
Prospectuses which constitute parts of this Registration Statement. We also
consent to the reference to us under the heading "Additional Information -
Independent Accountants and Legal Counsel" in such Statement of Additional
Information and to the reference to us under the heading "Financial Highlights"
in each Prospectus.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
January 26, 1999
<PAGE>
EXHIBIT 99.(m)(i)
FORM OF
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS A SHARES)
PLAN OF DISTRIBUTION adopted as of the 1/st/ day of January, 1999, by
SunAmerica Equity Funds, a Massachusetts business trust (the "Trust"), on behalf
of the Class A shares of its separately designated series,
________________________________________(the "Fund").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company; and
WHEREAS, the Fund is a separately designated investment series of the
Trust with its own investment objective, policies and purposes offering four
separate classes of shares of beneficial interest, par value $.01 per share, of
the Trust (the "Shares"); and
WHEREAS, the Trust has entered into a Distribution Agreement with
SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which the
Distributor acts as the exclusive distributor and representative of the Trust in
the offer and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act, pursuant to which the Fund will
pay an account maintenance fee and a distribution fee to the Distributor with
respect to Class A shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the "Trustees") as a
whole, and the Trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "12b-1 Trustees"), having determined, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law and under Sections 36(a) and (b) of the Act, that there is a
reasonable likelihood that this Plan will benefit the Fund and its Class A
shareholders, have approved this Plan by votes cast in person at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby adopts this Plan
on the following terms:
1. Distribution Activities. The Fund shall pay the Distributor a
-----------------------
distribution fee under the Plan at the end of each month at the annual rate
of 0.75% of average daily net assets attributable to Class A shares of the
Fund to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion
and marketing of the Class A shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class A shares,
compensation, sales incentives and payments to sales and marketing
personnel, and the payment of expenses incurred in its sales and
promotional activities, including advertising expenditures related to the
Class A shares of the Fund and the costs of preparing and distributing
promotional materials with respect to such Class A shares. Payment of the
distribution fee described in this Section 1 shall be subject to any
<PAGE>
limitations set forth in applicable regulations of the National Association
of Securities Dealers, Inc. Nothing herein shall prohibit the Distributor
from collecting distribution fees in any given year, as provided hereunder,
in excess of expenditures made in such year for sales and promotional
activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay the Distributor an
------------------------------
account maintenance fee under the Plan at the end of each month at the
annual rate of up to 0.25% of average daily net assets attributable to
Class A shares of the Fund to compensate the Distributor and Securities
Firms for account maintenance activities.
3. Payments to Other Parties. The Fund hereby authorizes the Distributor
-------------------------
to enter into agreements with Securities Firms to provide compensation to
such Securities Firms for activities and services of the type referred to
in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such
Securities Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms shall
deliver to the Distributor such information as is reasonably necessary to
permit the Distributor to comply with the reporting requirements set forth
in Section 5 hereof.
4. Related Agreements. All agreements with any person relating to
------------------
implementation of this Plan shall be in writing, and any agreement related
to this Plan shall provide:
(a) that such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the 12b-1
Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the
Fund, on not more than 60 days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically in the
event of its assignment.
5. Quarterly Reports. The Treasurer of the Trust shall provide to the
-----------------
Trustees and the Trustees shall review, at least quarterly, a written
report of the amounts expended pursuant to this Plan with respect to Class
A shares of the Fund and any related agreement and the purposes for which
such expenditures were made.
6. Term and Termination. (a) This Plan shall become effective as of the
--------------------
date hereof, and, unless terminated as herein provided, shall continue from
year to year thereafter, so long as such continuance is specifically
approved at least annually by votes, cast in person at a meeting called for
the purpose of voting on such approval, of a majority of both the (i) the
Trustees of the Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote of a majority
of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of
Class A shares of the Fund.
7. Amendments. This Plan may not be amended to increase materially the
----------
maximum expenditures permitted by Sections 1 and 2 hereof unless such
amendment is approved by a vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the Fund, and no
material amendment to this Plan
<PAGE>
shall be made unless approved in the manner provided for the annual renewal
of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this Plan is in effect, the
------------------------------------
selection and nomination of those Trustees of the Trust who are not
interested persons of the Trust shall be committed to the discretion of
such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of this Plan and any
-------------
related agreement and all reports made pursuant to Section 5 hereof for a
period of not less than six years from the date of this Plan, any such
related agreement or such reports, as the case may be, the first two years
in an easily accessible place.
10. Definition of Certain Terms. For purposes of this Plan, the terms
---------------------------
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective
meanings defined in the Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted to either the Trust
or the principal underwriter of the Shares by the Securities and Exchange
Commission, or its staff under the Act.
11. Separate Series. Pursuant to the provisions of the Declaration of
---------------
Trust, the Fund is a separate series of the Trust, and all debts,
liabilities and expenses of Class A shares of the Fund shall be enforceable
only against the assets of Class A shares of the Fund and not against the
assets of any other series or class of shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be executed as
of the day and year first written above.
SUNAMERICA EQUITY FUNDS
By: /s/ Peter A. Harbeck
-----------------------------------
Peter A. Harbeck
President
<PAGE>
EXHIBIT 99.(m)(ii)
FORM OF
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 1/st/ day of January, 1999, by
SunAmerica Equity Funds, a Massachusetts business trust (the "Trust"), on behalf
of the Class B shares of its separately designated series,
________________________________________(the "Fund").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company; and
WHEREAS, the Fund is a separately designated investment series of the
Trust with its own investment objective, policies and purposes offering four
separate classes of shares of beneficial interest, par value $.01 per share, of
the Trust (the "Shares"); and
WHEREAS, the Trust has entered into a Distribution Agreement with
SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which the
Distributor acts as the exclusive distributor and representative of the Trust in
the offer and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act, pursuant to which the Fund will
pay an account maintenance fee and a distribution fee to the Distributor with
respect to Class B shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the "Trustees") as a
whole, and the Trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "12b-1 Trustees"), having determined, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law and under Sections 36(a) and (b) of the Act, that there is a
reasonable likelihood that this Plan will benefit the Fund and its Class B
shareholders, have approved this Plan by votes cast in person at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby adopts this Plan
on the following terms:
1. Distribution Activities. The Fund shall pay the Distributor a
-----------------------
distribution fee under the Plan at the end of each month at the annual rate
of 0.75% of average daily net assets attributable to Class B shares of the
Fund to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion
and marketing of the Class B shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class B shares,
compensation, sales incentives and payments to sales and marketing
personnel, and the payment of expenses incurred in its sales and
promotional activities, including advertising expenditures related to the
Class B shares of the Fund and the costs of preparing and distributing
promotional materials with respect to such Class B shares. Payment of the
distribution fee described in this Section 1 shall be subject to any
<PAGE>
limitations set forth in applicable regulations of the National Association
of Securities Dealers, Inc. Nothing herein shall prohibit the Distributor
from collecting distribution fees in any given year, as provided hereunder,
in excess of expenditures made in such year for sales and promotional
activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay the Distributor an
------------------------------
account maintenance fee under the Plan at the end of each month at the
annual rate of up to 0.25% of average daily net assets attributable to
Class B shares of the Fund to compensate the Distributor and Securities
Firms for account maintenance activities.
3. Payments to Other Parties. The Fund hereby authorizes the Distributor
-------------------------
to enter into agreements with Securities Firms to provide compensation to
such Securities Firms for activities and services of the type referred to
in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such
Securities Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms shall
deliver to the Distributor such information as is reasonably necessary to
permit the Distributor to comply with the reporting requirements set forth
in Section 5 hereof.
4. Related Agreements. All agreements with any person relating to
------------------
implementation of this Plan shall be in writing, and any agreement related
to this Plan shall provide:
(a) that such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the 12b-1
Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the
Fund, on not more than 60 days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically in the
event of its assignment.
5. Quarterly Reports. The Treasurer of the Trust shall provide to the
-----------------
Trustees and the Trustees shall review, at least quarterly, a written
report of the amounts expended pursuant to this Plan with respect to Class
B shares of the Fund and any related agreement and the purposes for which
such expenditures were made.
6. Term and Termination. (a) This Plan shall become effective as of the
--------------------
date hereof, and, unless terminated as herein provided, shall continue from
year to year thereafter, so long as such continuance is specifically
approved at least annually by votes, cast in person at a meeting called for
the purpose of voting on such approval, of a majority of both the (i) the
Trustees of the Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote of a majority
of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of
Class B shares of the Fund.
7. Amendments. This Plan may not be amended to increase materially the
----------
maximum expenditures permitted by Sections 1 and 2 hereof unless such
amendment is approved by a vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the Fund, and no
material amendment to this Plan
<PAGE>
shall be made unless approved in the manner provided for the annual renewal
of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this Plan is in effect, the
------------------------------------
selection and nomination of those Trustees of the Trust who are not
interested persons of the Trust shall be committed to the discretion of
such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of this Plan and any
-------------
related agreement and all reports made pursuant to Section 5 hereof for a
period of not less than six years from the date of this Plan, any such
related agreement or such reports, as the case may be, the first two years
in an easily accessible place.
10. Definition of Certain Terms. For purposes of this Plan, the terms
---------------------------
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective
meanings defined in the Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted to either the Trust
or the principal underwriter of the Shares by the Securities and Exchange
Commission, or its staff under the Act.
11. Separate Series. Pursuant to the provisions of the Declaration of
---------------
Trust, the Fund is a separate series of the Trust, and all debts,
liabilities and expenses of Class B shares of the Fund shall be enforceable
only against the assets of Class B shares of the Fund and not against the
assets of any other series or class of shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be executed as
of the day and year first written above.
SUNAMERICA EQUITY FUNDS
By: /s/ Peter A. Harbeck
-----------------------------------
Peter A. Harbeck
President
<PAGE>
EXHIBIT 99.(m)(iii)
FORM OF
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS II SHARES)
PLAN OF DISTRIBUTION adopted as of the 1/st/ day of January, 1999, by
SunAmerica Equity Funds, a Massachusetts business trust (the "Trust"), on behalf
of the Class II shares of its separately designated series,
________________________________________(the "Fund").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company; and
WHEREAS, the Fund is a separately designated investment series of the
Trust with its own investment objective, policies and purposes offering four
separate classes of shares of beneficial interest, par value $.01 per share, of
the Trust (the "Shares"); and
WHEREAS, the Trust has entered into a Distribution Agreement with
SunAmerica Capital Services, Inc. (the "Distributor"), pursuant to which the
Distributor acts as the exclusive distributor and representative of the Trust in
the offer and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act, pursuant to which the Fund will
pay an account maintenance fee and a distribution fee to the Distributor with
respect to Class II shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the "Trustees") as a
whole, and the Trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "12b-1 Trustees"), having determined, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law and under Sections 36(a) and (b) of the Act, that there is a
reasonable likelihood that this Plan will benefit the Fund and its Class II
shareholders, have approved this Plan by votes cast in person at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby adopts this Plan
on the following terms:
1. Distribution Activities. The Fund shall pay the Distributor a
-----------------------
distribution fee under the Plan at the end of each month at the annual rate
of 0.75% of average daily net assets attributable to Class II shares of the
Fund to compensate the Distributor and certain securities firms
("Securities Firms") for providing sales and promotional activities and
services. Such activities and services will relate to the sale, promotion
and marketing of the Class II shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class II shares,
compensation, sales incentives and payments to sales and marketing
personnel, and the payment of expenses incurred in its sales and
promotional activities, including advertising expenditures related to the
Class II shares of the Fund and the costs of preparing and distributing
promotional materials with respect to such Class II shares. Payment of the
distribution fee described in this Section 1 shall be subject to any
<PAGE>
limitations set forth in applicable regulations of the National Association
of Securities Dealers, Inc. Nothing herein shall prohibit the Distributor
from collecting distribution fees in any given year, as provided hereunder,
in excess of expenditures made in such year for sales and promotional
activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay the Distributor an
------------------------------
account maintenance fee under the Plan at the end of each month at the
annual rate of up to 0.25% of average daily net assets attributable to
Class II shares of the Fund to compensate the Distributor and Securities
Firms for account maintenance activities.
3. Payments to Other Parties. The Fund hereby authorizes the Distributor
-------------------------
to enter into agreements with Securities Firms to provide compensation to
such Securities Firms for activities and services of the type referred to
in Sections 1 and 2 hereof. The Distributor may reallocate all or a
portion of its account maintenance fee or distribution fee to such
Securities Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms shall
deliver to the Distributor such information as is reasonably necessary to
permit the Distributor to comply with the reporting requirements set forth
in Section 5 hereof.
4. Related Agreements. All agreements with any person relating to
------------------
implementation of this Plan shall be in writing, and any agreement related
to this Plan shall provide:
(a) that such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the 12b-1
Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class II shares of the
Fund, on not more than 60 days' written notice to any other
party to the agreement; and
(b) that such agreement shall terminate automatically in the
event of its assignment.
5. Quarterly Reports. The Treasurer of the Trust shall provide to the
-----------------
Trustees and the Trustees shall review, at least quarterly, a written
report of the amounts expended pursuant to this Plan with respect to Class
II shares of the Fund and any related agreement and the purposes for which
such expenditures were made.
6. Term and Termination. (a) This Plan shall become effective as of the
--------------------
date hereof, and, unless terminated as herein provided, shall continue from
year to year thereafter, so long as such continuance is specifically
approved at least annually by votes, cast in person at a meeting called for
the purpose of voting on such approval, of a majority of both the (i) the
Trustees of the Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote of a majority
of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of
Class II shares of the Fund.
7. Amendments. This Plan may not be amended to increase materially the
----------
maximum expenditures permitted by Sections 1 and 2 hereof unless such
amendment is approved by a vote of a majority of the outstanding voting
securities (as defined in the Act) of Class II shares of the Fund, and no
material amendment to this Plan
<PAGE>
shall be made unless approved in the manner provided for the annual renewal
of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this Plan is in effect, the
------------------------------------
selection and nomination of those Trustees of the Trust who are not
interested persons of the Trust shall be committed to the discretion of
such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of this Plan and any
-------------
related agreement and all reports made pursuant to Section 5 hereof for a
period of not less than six years from the date of this Plan, any such
related agreement or such reports, as the case may be, the first two years
in an easily accessible place.
10. Definition of Certain Terms. For purposes of this Plan, the terms
---------------------------
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective
meanings defined in the Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted to either the Trust
or the principal underwriter of the Shares by the Securities and Exchange
Commission, or its staff under the Act.
11. Separate Series. Pursuant to the provisions of the Declaration of
---------------
Trust, the Fund is a separate series of the Trust, and all debts,
liabilities and expenses of Class II shares of the Fund shall be
enforceable only against the assets of Class II shares of the Fund and not
against the assets of any other series or class of shares or of the Trust
as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be executed as
of the day and year first written above.
SUNAMERICA EQUITY FUNDS
By: /s/ Peter A. Harbeck
-----------------------------------
Peter A. Harbeck
President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 011
<NAME> SUNAMERICA BALANCED ASSETS FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 303,975,926<F1>
<INVESTMENTS-AT-VALUE> 353,723,090<F1>
<RECEIVABLES> 2,991,595<F1>
<ASSETS-OTHER> 10,823<F1>
<OTHER-ITEMS-ASSETS> 44,589<F1>
<TOTAL-ASSETS> 356,770,097<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,175,931<F1>
<TOTAL-LIABILITIES> 1,175,931<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 282,544,437<F1>
<SHARES-COMMON-STOCK> 10,519,109<F1>
<SHARES-COMMON-PRIOR> 9,149,250<F2>
<ACCUMULATED-NII-CURRENT> (85,057)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 23,387,622<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 49,747,164<F1>
<NET-ASSETS> 355,594,166<F1>
<DIVIDEND-INCOME> 2,977,204<F1>
<INTEREST-INCOME> 8,050,065<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 6,378,512<F1>
<NET-INVESTMENT-INCOME> 4,648,757<F1>
<REALIZED-GAINS-CURRENT> 24,425,420<F1>
<APPREC-INCREASE-CURRENT> 1,642,258<F1>
<NET-CHANGE-FROM-OPS> 30,716,435<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 3,066,976<F2>
<DISTRIBUTIONS-OF-GAINS> 16,001,494<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 2,254,719<F2>
<NUMBER-OF-SHARES-REDEEMED> (1,961,244)<F2>
<SHARES-REINVESTED> 1,076,384<F2>
<NET-CHANGE-IN-ASSETS> 12,905,101<F1>
<ACCUMULATED-NII-PRIOR> 91,715<F1>
<ACCUMULATED-GAINS-PRIOR> 31,318,784<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,704,740<F1>
<INTEREST-EXPENSE> 2,899<F1>
<GROSS-EXPENSE> 6,387,266<F1>
<AVERAGE-NET-ASSETS> 184,310,776<F2>
<PER-SHARE-NAV-BEGIN> 18.49<F2>
<PER-SHARE-NII> 0.29<F2>
<PER-SHARE-GAIN-APPREC> 1.29<F2>
<PER-SHARE-DIVIDEND> (0.30)<F2>
<PER-SHARE-DISTRIBUTIONS> (1.74)<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 18.03<F2>
<EXPENSE-RATIO> 1.46<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>INFORMATION GIVEN PERTAINS TO SUNAMERICA BALANCED ASSETS FUND AS A WHOLE
<F2>INFORMATION GIVEN PERTAINS TO SUNAMERICA BALANCED ASSETS FUND CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 012
<NAME> SUNAMERICA BALANCED ASSETS FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 303,975,926<F1>
<INVESTMENTS-AT-VALUE> 353,723,090<F1>
<RECEIVABLES> 2,991,595<F1>
<ASSETS-OTHER> 10,823<F1>
<OTHER-ITEMS-ASSETS> 44,589<F1>
<TOTAL-ASSETS> 356,770,097<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,175,931<F1>
<TOTAL-LIABILITIES> 1,175,931<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 282,544,437<F1>
<SHARES-COMMON-STOCK> 9,211,366<F2>
<SHARES-COMMON-PRIOR> 9,383,565<F2>
<ACCUMULATED-NII-CURRENT> (85,057)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 23,387,622<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 49,747,164<F1>
<NET-ASSETS> 355,594,166<F1>
<DIVIDEND-INCOME> 2,977,204<F1>
<INTEREST-INCOME> 8,050,065<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 6,378,512<F1>
<NET-INVESTMENT-INCOME> 4,648,757<F1>
<REALIZED-GAINS-CURRENT> 24,425,420<F1>
<APPREC-INCREASE-CURRENT> 1,642,258<F1>
<NET-CHANGE-FROM-OPS> 30,716,435<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 1,812,490<F2>
<DISTRIBUTIONS-OF-GAINS> 16,263,710<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 1,661,113<F2>
<NUMBER-OF-SHARES-REDEEMED> (2,853,943)<F2>
<SHARES-REINVESTED> 1,020,631<F2>
<NET-CHANGE-IN-ASSETS> 12,905,101<F1>
<ACCUMULATED-NII-PRIOR> 91,715<F1>
<ACCUMULATED-GAINS-PRIOR> 31,318,784<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,704,740<F1>
<INTEREST-EXPENSE> 2,899<F1>
<GROSS-EXPENSE> 6,387,266<F1>
<AVERAGE-NET-ASSETS> 177,090,569<F2>
<PER-SHARE-NAV-BEGIN> 18.48<F2>
<PER-SHARE-NII> 0.18<F2>
<PER-SHARE-GAIN-APPREC> 1.28<F2>
<PER-SHARE-DIVIDEND> (0.19)<F2>
<PER-SHARE-DISTRIBUTIONS> (1.74)<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 18.01<F2>
<EXPENSE-RATIO> 2.08<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>INFORMATION GIVEN PERTAINS TO SUNAMERICA BALANCED ASSETS FUND AS A WHOLE
<F2>INFORMATION GIVEN PERTAINS TO SUNAMERICA BALANCED ASSETS FUND CLASS B
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 013
<NAME> SUNAMERICA BALANCED ASSETS FUND CLASS Z
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAY-05-1998
<INVESTMENTS-AT-COST> 303,975,926<F1>
<INVESTMENTS-AT-VALUE> 353,723,090<F1>
<RECEIVABLES> 2,991,595<F1>
<ASSETS-OTHER> 10,823<F1>
<OTHER-ITEMS-ASSETS> 44,589<F1>
<TOTAL-ASSETS> 356,770,097<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,175,931<F1>
<TOTAL-LIABILITIES> 1,175,931<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 282,544,437<F1>
<SHARES-COMMON-STOCK> 0<F2>
<SHARES-COMMON-PRIOR> 2,871<F2>
<ACCUMULATED-NII-CURRENT> (85,057)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 23,387,622<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 49,747,164<F1>
<NET-ASSETS> 355,594,166<F1>
<DIVIDEND-INCOME> 2,977,204<F1>
<INTEREST-INCOME> 8,050,065<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 6,378,512<F1>
<NET-INVESTMENT-INCOME> 4,648,757<F1>
<REALIZED-GAINS-CURRENT> 24,425,420<F1>
<APPREC-INCREASE-CURRENT> 1,642,258<F1>
<NET-CHANGE-FROM-OPS> 30,716,435<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 2,188<F2>
<DISTRIBUTIONS-OF-GAINS> 35,253<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 20,923<F2>
<NUMBER-OF-SHARES-REDEEMED> (26,003)<F2>
<SHARES-REINVESTED> 2,209<F2>
<NET-CHANGE-IN-ASSETS> 12,905,101<F1>
<ACCUMULATED-NII-PRIOR> 91,715<F1>
<ACCUMULATED-GAINS-PRIOR> 31,318,784<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,704,740<F1>
<INTEREST-EXPENSE> 2,899<F1>
<GROSS-EXPENSE> 6,387,266<F1>
<AVERAGE-NET-ASSETS> 0<F2>
<PER-SHARE-NAV-BEGIN> 0<F2>
<PER-SHARE-NII> 0<F2>
<PER-SHARE-GAIN-APPREC> 0<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 0<F2>
<EXPENSE-RATIO> 0<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>INFORMATION GIVEN PERTAINS TO SUNAMERICA BALANCED ASSETS FUND AS A WHOLE
<F2>INFORMATION GIVEN PERTAINS TO SUNAMERICA BALANCED ASSETS FUND CLASS Z
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 021
<NAME> SUNAMERICA BLUE CHIP GROWTH FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 91,836,290<F1>
<INVESTMENTS-AT-VALUE> 108,485,414<F1>
<RECEIVABLES> 436,705<F1>
<ASSETS-OTHER> 32,195<F1>
<OTHER-ITEMS-ASSETS> 215<F1>
<TOTAL-ASSETS> 108,954,529<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 312,814<F1>
<TOTAL-LIABILITIES> 312,814<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 85,231,513<F1>
<SHARES-COMMON-STOCK> 3,897,584<F2>
<SHARES-COMMON-PRIOR> 3,353,686<F2>
<ACCUMULATED-NII-CURRENT> (12,409)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 6,773,487<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 16,649,124<F1>
<NET-ASSETS> 108,641,715<F1>
<DIVIDEND-INCOME> 1,281,746<F1>
<INTEREST-INCOME> 198,532<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 1,963,849<F1>
<NET-INVESTMENT-INCOME> (483,571)<F1>
<REALIZED-GAINS-CURRENT> 7,610,668<F1>
<APPREC-INCREASE-CURRENT> (1,920,853)<F1>
<NET-CHANGE-FROM-OPS> 5,206,244<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> 8,287,237<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 735,069<F2>
<NUMBER-OF-SHARES-REDEEMED> (656,032)<F2>
<SHARES-REINVESTED> 464,861<F2>
<NET-CHANGE-IN-ASSETS> 3,196,327<F1>
<ACCUMULATED-NII-PRIOR> (8,538)<F1>
<ACCUMULATED-GAINS-PRIOR> 12,677,507<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 844,891<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,963,849<F1>
<AVERAGE-NET-ASSETS> 73,647,874<F2>
<PER-SHARE-NAV-BEGIN> 20.22<F2>
<PER-SHARE-NII> (0.04)<F2>
<PER-SHARE-GAIN-APPREC> 0.91<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> (2.48)<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 18.61<F2>
<EXPENSE-RATIO> 1.52<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>INFORMATION GIVEN PERTAINS TO SUNAMERICA BLUE CHIP GROWTH FUND AS A WHOLE
<F2>INFORMATION GIVEN PERTAINS TO SUNAMERICA BLUE CHIP GROWTH FUND CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 022
<NAME> SUNAMERICA BLUE CHIP GROWTH FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 91,836,290<F1>
<INVESTMENTS-AT-VALUE> 108,485,414<F1>
<RECEIVABLES> 436,705<F1>
<ASSETS-OTHER> 32,195<F1>
<OTHER-ITEMS-ASSETS> 215<F1>
<TOTAL-ASSETS> 108,954,529<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 312,814<F1>
<TOTAL-LIABILITIES> 312,814<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 85,231,513<F1>
<SHARES-COMMON-STOCK> 2,023,562<F2>
<SHARES-COMMON-PRIOR> 1,919,060<F2>
<ACCUMULATED-NII-CURRENT> (12,409)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 6,773,487<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 16,649,124<F1>
<NET-ASSETS> 108,641,715<F1>
<DIVIDEND-INCOME> 1,281,746<F1>
<INTEREST-INCOME> 198,532<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 1,963,849<F1>
<NET-INVESTMENT-INCOME> (483,571)<F1>
<REALIZED-GAINS-CURRENT> 7,610,668<F1>
<APPREC-INCREASE-CURRENT> (1,920,853)<F1>
<NET-CHANGE-FROM-OPS> 5,206,244<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> 4,747,751<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 845,608<F2>
<NUMBER-OF-SHARES-REDEEMED> (1,011,200)<F2>
<SHARES-REINVESTED> 270,094<F2>
<NET-CHANGE-IN-ASSETS> 3,196,327<F1>
<ACCUMULATED-NII-PRIOR> (8,538)<F1>
<ACCUMULATED-GAINS-PRIOR> 12,677,507<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 844,891<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,963,849<F1>
<AVERAGE-NET-ASSETS> 39,004,220<F2>
<PER-SHARE-NAV-BEGIN> 19.61<F2>
<PER-SHARE-NII> (0.16)<F2>
<PER-SHARE-GAIN-APPREC> 0.87<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> (2.48)<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 17.84<F2>
<EXPENSE-RATIO> 2.17<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>INFORMATION GIVEN PERTAINS TO SUNAMERICA BLUE CHIP GROWTH FUND AS A WHOLE
<F2>INFORMATION GIVEN PERTAINS TO SUNAMERICA BLUE CHIP GROWTH FUND CLASS B
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 031
<NAME> SUNAMERICA MID CAP GROWTH FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 44,748,802<F1>
<INVESTMENTS-AT-VALUE> 49,472,013<F1>
<RECEIVABLES> 2,808,764<F1>
<ASSETS-OTHER> 5,962<F1>
<OTHER-ITEMS-ASSETS> 697<F1>
<TOTAL-ASSETS> 52,287,436<F1>
<PAYABLE-FOR-SECURITIES> 3,650,349<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 173,160<F1>
<TOTAL-LIABILITIES> 3,823,509<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 40,328,487<F1>
<SHARES-COMMON-STOCK> 2,369,890<F2>
<SHARES-COMMON-PRIOR> 2,228,633<F2>
<ACCUMULATED-NII-CURRENT> (6,950)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 3,419,179<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 4,723,211<F1>
<NET-ASSETS> 48,463,927<F1>
<DIVIDEND-INCOME> 336,760<F1>
<INTEREST-INCOME> 145,326<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 975,701<F1>
<NET-INVESTMENT-INCOME> (493,615)<F1>
<REALIZED-GAINS-CURRENT> 5,525,645<F1>
<APPREC-INCREASE-CURRENT> (6,869,735)<F1>
<NET-CHANGE-FROM-OPS> (1,837,705)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> (7,536,397)<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 1,824,307<F2>
<NUMBER-OF-SHARES-REDEEMED> (2,146,098)<F2>
<SHARES-REINVESTED> 463,048<F2>
<NET-CHANGE-IN-ASSETS> (11,366,104)<F1>
<ACCUMULATED-NII-PRIOR> (4,811)<F1>
<ACCUMULATED-GAINS-PRIOR> 8,177,848<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 412,690<F1>
<INTEREST-EXPENSE> 5,179<F1>
<GROSS-EXPENSE> 975,701<F1>
<AVERAGE-NET-ASSETS> 43,247,833<F2>
<PER-SHARE-NAV-BEGIN> 20.66<F2>
<PER-SHARE-NII> (0.13)<F2>
<PER-SHARE-GAIN-APPREC> (0.78)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> (3.53)<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 16.22<F2>
<EXPENSE-RATIO> 1.62<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Mid Cap Growth Fund as a whole
<F2>Information given pertains to SunAmerica Mid Cap Growth Fund Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 032
<NAME> SUNAMERICA MID CAP GROWTH FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 44,748,802<F1>
<INVESTMENTS-AT-VALUE> 49,472,013<F1>
<RECEIVABLES> 2,808,764<F1>
<ASSETS-OTHER> 5,962<F1>
<OTHER-ITEMS-ASSETS> 697<F1>
<TOTAL-ASSETS> 52,287,436<F1>
<PAYABLE-FOR-SECURITIES> 3,650,349<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 173,160<F1>
<TOTAL-LIABILITIES> 3,823,509<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 40,328,487<F1>
<SHARES-COMMON-STOCK> 646,152<F2>
<SHARES-COMMON-PRIOR> 686,796<F2>
<ACCUMULATED-NII-CURRENT> (6,950)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 3,419,179<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 4,723,211<F1>
<NET-ASSETS> 48,463,927<F1>
<DIVIDEND-INCOME> 336,760<F1>
<INTEREST-INCOME> 145,326<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 975,701<F1>
<NET-INVESTMENT-INCOME> (493,615)<F1>
<REALIZED-GAINS-CURRENT> 5,525,645<F1>
<APPREC-INCREASE-CURRENT> (6,869,735)<F1>
<NET-CHANGE-FROM-OPS> (1,837,705)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> (2,258,592)<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 141,012<F2>
<NUMBER-OF-SHARES-REDEEMED> (322,783)<F2>
<SHARES-REINVESTED> 141,127<F2>
<NET-CHANGE-IN-ASSETS> (11,366,104)<F1>
<ACCUMULATED-NII-PRIOR> (4,811)<F1>
<ACCUMULATED-GAINS-PRIOR> 8,177,848<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 412,690<F1>
<INTEREST-EXPENSE> 5,179<F1>
<GROSS-EXPENSE> 975,701<F1>
<AVERAGE-NET-ASSETS> 11,777,558<F2>
<PER-SHARE-NAV-BEGIN> 20.06<F2>
<PER-SHARE-NII> (0.25)<F2>
<PER-SHARE-GAIN-APPREC> (0.76)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> (3.53)<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 15.52<F2>
<EXPENSE-RATIO> 2.33<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Mid Cap Growth Fund as a whole
<F2>Information given pertains to SunAmerica Mid Cap Growth Fund Class B
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 041
<NAME> SUNAMERICA SMALL CO GROWTH FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 167,341,920<F1>
<INVESTMENTS-AT-VALUE> 165,819,539<F1>
<RECEIVABLES> 4,396,912<F1>
<ASSETS-OTHER> 15,047<F1>
<OTHER-ITEMS-ASSETS> 223<F1>
<TOTAL-ASSETS> 170,231,721<F1>
<PAYABLE-FOR-SECURITIES> 1,379,657<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,477,537<F1>
<TOTAL-LIABILITIES> 2,857,194<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 158,530,206<F1>
<SHARES-COMMON-STOCK> 5,510,694<F2>
<SHARES-COMMON-PRIOR> 6,552,664<F2>
<ACCUMULATED-NII-CURRENT> (28,365)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 10,474,869<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,602,183)<F1>
<NET-ASSETS> 167,374,527<F1>
<DIVIDEND-INCOME> 805,043<F1>
<INTEREST-INCOME> 898,624<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 4,226,306<F1>
<NET-INVESTMENT-INCOME> (2,522,639)<F1>
<REALIZED-GAINS-CURRENT> 20,012,361<F1>
<APPREC-INCREASE-CURRENT> (82,191,306)<F1>
<NET-CHANGE-FROM-OPS> (64,701,584)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> (15,001,692)<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 8,331,031<F2>
<NUMBER-OF-SHARES-REDEEMED> (10,040,494)<F2>
<SHARES-REINVESTED> 667,493<F2>
<NET-CHANGE-IN-ASSETS> (143,233,783)<F1>
<ACCUMULATED-NII-PRIOR> (18,299)<F1>
<ACCUMULATED-GAINS-PRIOR> 18,141,358<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,818,045<F1>
<INTEREST-EXPENSE> 33,733<F1>
<GROSS-EXPENSE> 4,258,967<F1>
<AVERAGE-NET-ASSETS> 147,381,387<F2>
<PER-SHARE-NAV-BEGIN> 28.27<F2>
<PER-SHARE-NII> (0.18)<F2>
<PER-SHARE-GAIN-APPREC> (6.59)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> (2.40)<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 19.10<F2>
<EXPENSE-RATIO> 1.50<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Small Co. Growth Fund as a whole
<F2>Information given pertains to SunAmerica Small Co. Growth Fund Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 042
<NAME> SUNAMERICA SMALL CO GROWTH FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 167,341,920<F1>
<INVESTMENTS-AT-VALUE> 165,819,539<F1>
<RECEIVABLES> 4,396,912<F1>
<ASSETS-OTHER> 15,047<F1>
<OTHER-ITEMS-ASSETS> 223<F1>
<TOTAL-ASSETS> 170,231,721<F1>
<PAYABLE-FOR-SECURITIES> 1,379,657<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,477,537<F1>
<TOTAL-LIABILITIES> 2,857,194<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 158,530,206<F1>
<SHARES-COMMON-STOCK> 3,347,400<F2>
<SHARES-COMMON-PRIOR> 4,537,277<F2>
<ACCUMULATED-NII-CURRENT> (28,365)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 10,474,869<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,602,183)<F1>
<NET-ASSETS> 167,374,527<F1>
<DIVIDEND-INCOME> 805,043<F1>
<INTEREST-INCOME> 898,624<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 4,226,306<F1>
<NET-INVESTMENT-INCOME> (2,522,639)<F1>
<REALIZED-GAINS-CURRENT> 20,012,361<F1>
<APPREC-INCREASE-CURRENT> (82,191,306)<F1>
<NET-CHANGE-FROM-OPS> (64,701,584)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> (10,065,127)<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 1,709,037<F2>
<NUMBER-OF-SHARES-REDEEMED> (3,358,273)<F2>
<SHARES-REINVESTED> 459,359<F2>
<NET-CHANGE-IN-ASSETS> (143,233,783)<F1>
<ACCUMULATED-NII-PRIOR> (18,299)<F1>
<ACCUMULATED-GAINS-PRIOR> 18,141,358<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,818,045<F1>
<INTEREST-EXPENSE> 33,733<F1>
<GROSS-EXPENSE> 4,258,967<F1>
<AVERAGE-NET-ASSETS> 93,957,745<F2>
<PER-SHARE-NAV-BEGIN> 27.43<F2>
<PER-SHARE-NII> (0.33)<F2>
<PER-SHARE-GAIN-APPREC> (6.36)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> (2.40)<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 18.34<F2>
<EXPENSE-RATIO> 2.14<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Small Co. Growth Fund as a whole
<F2>Information given pertains to SunAmerica Small Co. Growth Fund Class B
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 043
<NAME> SUNAMERICA SMALL CO GROWTH FUND CLASS Z
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 167,341,920<F1>
<INVESTMENTS-AT-VALUE> 165,819,539<F1>
<RECEIVABLES> 4,396,912<F1>
<ASSETS-OTHER> 15,047<F1>
<OTHER-ITEMS-ASSETS> 223<F1>
<TOTAL-ASSETS> 170,231,721<F1>
<PAYABLE-FOR-SECURITIES> 1,379,657<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,477,537<F1>
<TOTAL-LIABILITIES> 2,857,194<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 158,530,206<F1>
<SHARES-COMMON-STOCK> 29,216<F2>
<SHARES-COMMON-PRIOR> 33,348<F2>
<ACCUMULATED-NII-CURRENT> (28,365)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 10,474,869<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,602,183)<F1>
<NET-ASSETS> 167,374,527<F1>
<DIVIDEND-INCOME> 805,043<F1>
<INTEREST-INCOME> 898,624<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 4,226,306<F1>
<NET-INVESTMENT-INCOME> (2,522,639)<F1>
<REALIZED-GAINS-CURRENT> 20,012,361<F1>
<APPREC-INCREASE-CURRENT> (82,191,306)<F1>
<NET-CHANGE-FROM-OPS> (64,701,584)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> (106,214)<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 27,354<F2>
<NUMBER-OF-SHARES-REDEEMED> (36,314)<F2>
<SHARES-REINVESTED> 4,828<F2>
<NET-CHANGE-IN-ASSETS> (143,233,783)<F1>
<ACCUMULATED-NII-PRIOR> (18,299)<F1>
<ACCUMULATED-GAINS-PRIOR> 18,141,358<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,818,045<F1>
<INTEREST-EXPENSE> 33,733<F1>
<GROSS-EXPENSE> 4,258,967<F1>
<AVERAGE-NET-ASSETS> 956,376<F2>
<PER-SHARE-NAV-BEGIN> 28.45<F2>
<PER-SHARE-NII> (0.07)<F2>
<PER-SHARE-GAIN-APPREC> (6.65)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> (2.40)<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 19.33<F2>
<EXPENSE-RATIO> 1.01<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Small Co. Growth Fund as a whole
<F2>Information given pertains to SunAmerica Small Co. Growth Fund Class Z
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 044
<NAME> SUNAMERICA SMALL CO GROWTH FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> FEB-02-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 167,341,920<F1>
<INVESTMENTS-AT-VALUE> 165,819,539<F1>
<RECEIVABLES> 4,396,912<F1>
<ASSETS-OTHER> 15,047<F1>
<OTHER-ITEMS-ASSETS> 223<F1>
<TOTAL-ASSETS> 170,231,721<F1>
<PAYABLE-FOR-SECURITIES> 1,379,657<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,477,537<F1>
<TOTAL-LIABILITIES> 2,857,194<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 158,530,206<F1>
<SHARES-COMMON-STOCK> 9,188<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> (28,365)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 10,474,869<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,602,183)<F1>
<NET-ASSETS> 167,374,527<F1>
<DIVIDEND-INCOME> 805,043<F1>
<INTEREST-INCOME> 898,624<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 4,226,306<F1>
<NET-INVESTMENT-INCOME> (2,522,639)<F1>
<REALIZED-GAINS-CURRENT> 20,012,361<F1>
<APPREC-INCREASE-CURRENT> (82,191,306)<F1>
<NET-CHANGE-FROM-OPS> (64,701,584)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 9,190<F2>
<NUMBER-OF-SHARES-REDEEMED> (2)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> (143,233,783)<F1>
<ACCUMULATED-NII-PRIOR> (18,299)<F1>
<ACCUMULATED-GAINS-PRIOR> 18,141,358<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,818,045<F1>
<INTEREST-EXPENSE> 33,733<F1>
<GROSS-EXPENSE> 4,258,967<F1>
<AVERAGE-NET-ASSETS> 168,019<F2>
<PER-SHARE-NAV-BEGIN> 21.11<F2>
<PER-SHARE-NII> (0.19)<F2>
<PER-SHARE-GAIN-APPREC> (2.58)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 18.34<F2>
<EXPENSE-RATIO> 2.15<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Small Co. Growth Fund as a whole
<F2>Information given pertains to SunAmerica Small Co. Growth Fund Class C
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 061
<NAME> SUNAMERICA GROWTH AND INCOME FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 126,271,375<F1>
<INVESTMENTS-AT-VALUE> 136,808,388<F1>
<RECEIVABLES> 698,181<F1>
<ASSETS-OTHER> 7,950<F1>
<OTHER-ITEMS-ASSETS> 272<F1>
<TOTAL-ASSETS> 137,514,791<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 324,804<F1>
<TOTAL-LIABILITIES> 324,804<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 122,096,821<F1>
<SHARES-COMMON-STOCK> 4,463,782<F2>
<SHARES-COMMON-PRIOR> 3,511,301<F2>
<ACCUMULATED-NII-CURRENT> (5,954)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 4,562,107<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 10,537,013<F1>
<NET-ASSETS> 137,189,987<F1>
<DIVIDEND-INCOME> 1,836,811<F1>
<INTEREST-INCOME> 267,943<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 2,416,189<F1>
<NET-INVESTMENT-INCOME> (311,435)<F1>
<REALIZED-GAINS-CURRENT> 5,999,035<F1>
<APPREC-INCREASE-CURRENT> (864,910)<F1>
<NET-CHANGE-FROM-OPS> 4,822,690<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> (5,129,665)<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 1,912,402<F2>
<NUMBER-OF-SHARES-REDEEMED> (1,363,478)<F2>
<SHARES-REINVESTED> 403,557<F2>
<NET-CHANGE-IN-ASSETS> 34,441,067<F1>
<ACCUMULATED-NII-PRIOR> (2,144)<F1>
<ACCUMULATED-GAINS-PRIOR> 10,094,700<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 977,786<F1>
<INTEREST-EXPENSE> 971<F1>
<GROSS-EXPENSE> 2,441,994<F1>
<AVERAGE-NET-ASSETS> 57,269,806<F2>
<PER-SHARE-NAV-BEGIN> 13.45<F2>
<PER-SHARE-NII> 0.02<F2>
<PER-SHARE-GAIN-APPREC> 0.68<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> (1.35)<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.80<F2>
<EXPENSE-RATIO> 1.50<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Growth and Income Fund as a whole
<F2>Information given pertains to SunAmerica Growth and Income Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 062
<NAME> SUNAMERICA GROWTH AND INCOME FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 126,271,375<F1>
<INVESTMENTS-AT-VALUE> 136,808,388<F1>
<RECEIVABLES> 698,181<F1>
<ASSETS-OTHER> 7,950<F1>
<OTHER-ITEMS-ASSETS> 272<F1>
<TOTAL-ASSETS> 137,514,791<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 324,804<F1>
<TOTAL-LIABILITIES> 324,804<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 122,096,821<F1>
<SHARES-COMMON-STOCK> 6,259,325<F2>
<SHARES-COMMON-PRIOR> 4,157,247<F2>
<ACCUMULATED-NII-CURRENT> (5,954)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 4,562,107<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 10,537,013<F1>
<NET-ASSETS> 137,189,987<F1>
<DIVIDEND-INCOME> 1,836,811<F1>
<INTEREST-INCOME> 267,943<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 2,416,189<F1>
<NET-INVESTMENT-INCOME> (311,435)<F1>
<REALIZED-GAINS-CURRENT> 5,999,035<F1>
<APPREC-INCREASE-CURRENT> (864,910)<F1>
<NET-CHANGE-FROM-OPS> 4,822,690<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> (6,103,333)<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 3,176,130<F2>
<NUMBER-OF-SHARES-REDEEMED> (1,533,431)<F2>
<SHARES-REINVESTED> 459,379<F2>
<NET-CHANGE-IN-ASSETS> 34,441,067<F1>
<ACCUMULATED-NII-PRIOR> (2,144)<F1>
<ACCUMULATED-GAINS-PRIOR> 10,094,700<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 977,786<F1>
<INTEREST-EXPENSE> 971<F1>
<GROSS-EXPENSE> 2,441,994<F1>
<AVERAGE-NET-ASSETS> 72,817,364<F2>
<PER-SHARE-NAV-BEGIN> 13.36<F2>
<PER-SHARE-NII> (0.07)<F2>
<PER-SHARE-GAIN-APPREC> 0.68<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> (1.35)<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.62<F2>
<EXPENSE-RATIO> 2.13<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Growth and Income Fund as a whole
<F2>Information given pertains to SunAmerica Growth and Income Class B
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 063
<NAME> SUNAMERICA GROWTH AND INCOME FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> FEB-02-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 126,271,375<F1>
<INVESTMENTS-AT-VALUE> 136,808,388<F1>
<RECEIVABLES> 698,181<F1>
<ASSETS-OTHER> 7,950<F1>
<OTHER-ITEMS-ASSETS> 272<F1>
<TOTAL-ASSETS> 137,514,791<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 324,804<F1>
<TOTAL-LIABILITIES> 324,804<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 122,096,821<F1>
<SHARES-COMMON-STOCK> 76,408<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> (5,954)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 4,562,107<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 10,537,013<F1>
<NET-ASSETS> 137,189,987<F1>
<DIVIDEND-INCOME> 1,836,811<F1>
<INTEREST-INCOME> 267,943<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 2,416,189<F1>
<NET-INVESTMENT-INCOME> (311,435)<F1>
<REALIZED-GAINS-CURRENT> 5,999,035<F1>
<APPREC-INCREASE-CURRENT> (864,910)<F1>
<NET-CHANGE-FROM-OPS> 4,822,690<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> 0<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 95,450<F2>
<NUMBER-OF-SHARES-REDEEMED> (19,042)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 34,441,067<F1>
<ACCUMULATED-NII-PRIOR> (2,144)<F1>
<ACCUMULATED-GAINS-PRIOR> 10,094,700<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 977,786<F1>
<INTEREST-EXPENSE> 971<F1>
<GROSS-EXPENSE> 2,441,994<F1>
<AVERAGE-NET-ASSETS> 389,711<F2>
<PER-SHARE-NAV-BEGIN> 12.78<F2>
<PER-SHARE-NII> (0.04)<F2>
<PER-SHARE-GAIN-APPREC> (0.13)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.61<F2>
<EXPENSE-RATIO> 2.15<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Growth and Income Fund as a whole
<F2>Information given pertains to SunAmerica Growth and Income Class C
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 064
<NAME> SUNAMERICA GROWTH AND INCOME FUND CLASS Z
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-15-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 126,271,375<F1>
<INVESTMENTS-AT-VALUE> 136,808,388<F1>
<RECEIVABLES> 698,181<F1>
<ASSETS-OTHER> 7,950<F1>
<OTHER-ITEMS-ASSETS> 272<F1>
<TOTAL-ASSETS> 137,514,791<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 324,804<F1>
<TOTAL-LIABILITIES> 324,804<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 122,096,821<F1>
<SHARES-COMMON-STOCK> 7,276<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> (5,954)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 4,562,107<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 10,537,013<F1>
<NET-ASSETS> 137,189,987<F1>
<DIVIDEND-INCOME> 1,836,811<F1>
<INTEREST-INCOME> 267,943<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 2,416,189<F1>
<NET-INVESTMENT-INCOME> (311,435)<F1>
<REALIZED-GAINS-CURRENT> 5,999,035<F1>
<APPREC-INCREASE-CURRENT> (864,910)<F1>
<NET-CHANGE-FROM-OPS> 4,822,690<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> 0<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 7,288<F2>
<NUMBER-OF-SHARES-REDEEMED> (12)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 34,441,067<F1>
<ACCUMULATED-NII-PRIOR> (2,144)<F1>
<ACCUMULATED-GAINS-PRIOR> 10,094,700<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 977,786<F1>
<INTEREST-EXPENSE> 971<F1>
<GROSS-EXPENSE> 2,441,994<F1>
<AVERAGE-NET-ASSETS> 60,861<F2>
<PER-SHARE-NAV-BEGIN> 14.35<F2>
<PER-SHARE-NII> 0.04<F2>
<PER-SHARE-GAIN-APPREC> (1.55)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.84<F2>
<EXPENSE-RATIO> 0.93<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Growth and Income Fund as a whole
<F2>Information given pertains to SunAmerica Growth and Income Class Z
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 071
<NAME> SUNAMERICA "DOGS" OF WALL STREET FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JUN-08-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 59,797,323<F1>
<INVESTMENTS-AT-VALUE> 55,275,295<F1>
<RECEIVABLES> 2,395,797<F1>
<ASSETS-OTHER> 55,872<F1>
<OTHER-ITEMS-ASSETS> 106,315<F1>
<TOTAL-ASSETS> 57,833,279<F1>
<PAYABLE-FOR-SECURITIES> 1,212,303<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 106,915<F1>
<TOTAL-LIABILITIES> 1,319,218<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 60,801,604<F1>
<SHARES-COMMON-STOCK> 1,507,576<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> 234,485<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 0<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (4,522,028)<F1>
<NET-ASSETS> 56,514,061<F1>
<DIVIDEND-INCOME> 307,479<F1>
<INTEREST-INCOME> 18,026<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 149,378<F1>
<NET-INVESTMENT-INCOME> 176,127<F1>
<REALIZED-GAINS-CURRENT> 0<F1>
<APPREC-INCREASE-CURRENT> (4,522,028)<F1>
<NET-CHANGE-FROM-OPS> (4,345,901)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> 0<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 3,596,931<F2>
<NUMBER-OF-SHARES-REDEEMED> (2,089,355)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 56,514,061<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 39,290<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 204,878<F1>
<AVERAGE-NET-ASSETS> 14,763,618<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> 0.07<F2>
<PER-SHARE-GAIN-APPREC> (1.51)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 11.06<F2>
<EXPENSE-RATIO> 0.95<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Dogs of Wall Street fund as a whole
<F2>Information given pertains to SunAmerica Dogs of Wall Street Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 072
<NAME> SUNAMERICA "DOGS" OF WALL STREET FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JUN-08-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 59,797,323<F1>
<INVESTMENTS-AT-VALUE> 55,275,295<F1>
<RECEIVABLES> 2,395,797<F1>
<ASSETS-OTHER> 55,872<F1>
<OTHER-ITEMS-ASSETS> 106,315<F1>
<TOTAL-ASSETS> 57,833,279<F1>
<PAYABLE-FOR-SECURITIES> 1,212,303<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 106,915<F1>
<TOTAL-LIABILITIES> 1,319,218<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 60,801,604<F1>
<SHARES-COMMON-STOCK> 1,788,369<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> 234,485<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 0<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (4,522,028)<F1>
<NET-ASSETS> 56,514,061<F1>
<DIVIDEND-INCOME> 307,479<F1>
<INTEREST-INCOME> 18,026<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 149,378<F1>
<NET-INVESTMENT-INCOME> 176,127<F1>
<REALIZED-GAINS-CURRENT> 0<F1>
<APPREC-INCREASE-CURRENT> (4,522,028)<F1>
<NET-CHANGE-FROM-OPS> (4,345,901)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> 0<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 1,811,906<F2>
<NUMBER-OF-SHARES-REDEEMED> (23,537)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 56,514,061<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 39,290<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 204,878<F1>
<AVERAGE-NET-ASSETS> 11,057,487<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> 0.04<F2>
<PER-SHARE-GAIN-APPREC> (1.51)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 11.03<F2>
<EXPENSE-RATIO> 1.60<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Dogs of Wall Street fund as a whole
<F2>Information given pertains to SunAmerica Dogs of Wall Street Class B
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000799084
<NAME> SUNAMERICA EQUITY FUNDS
<SERIES>
<NUMBER> 073
<NAME> SUNAMERICA "DOGS" OF WALL STREET FUND CLASS II
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JUN-08-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 59,797,323<F1>
<INVESTMENTS-AT-VALUE> 55,275,295<F1>
<RECEIVABLES> 2,395,797<F1>
<ASSETS-OTHER> 55,872<F1>
<OTHER-ITEMS-ASSETS> 106,315<F1>
<TOTAL-ASSETS> 57,833,279<F1>
<PAYABLE-FOR-SECURITIES> 1,212,303<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 106,915<F1>
<TOTAL-LIABILITIES> 1,319,218<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 60,801,604<F1>
<SHARES-COMMON-STOCK> 1,822,909<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> 234,485<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 0<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (4,522,028)<F1>
<NET-ASSETS> 56,514,061<F1>
<DIVIDEND-INCOME> 307,479<F1>
<INTEREST-INCOME> 18,026<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 149,378<F1>
<NET-INVESTMENT-INCOME> 176,127<F1>
<REALIZED-GAINS-CURRENT> 0<F1>
<APPREC-INCREASE-CURRENT> (4,522,028)<F1>
<NET-CHANGE-FROM-OPS> (4,345,901)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> 0<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 1,874,062<F2>
<NUMBER-OF-SHARES-REDEEMED> (51,153)<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 56,514,061<F1>
<ACCUMULATED-NII-PRIOR> 0<F1>
<ACCUMULATED-GAINS-PRIOR> 0<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 39,290<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 204,878<F1>
<AVERAGE-NET-ASSETS> 9,808,686<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> 0.04<F2>
<PER-SHARE-GAIN-APPREC> (1.51)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 11.03<F2>
<EXPENSE-RATIO> 1.60<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica Dogs of Wall Street fund as a whole
<F2>Information given pertains to SunAmerica Dogs of Wall Street Class II
</FN>
</TABLE>
