Registration Statement of an Open-End Investment Company (Business Combination) — Form N-14
Filing Table of Contents
Document/Exhibit Description Pages Size
1: N14AE24 Registration Statement of an Open-End Investment 340 1.93M
Company (Business Combination)
3: EX-99.11 Miscellaneous Exhibit 2 10K
4: EX-99.12 Miscellaneous Exhibit 7 23K
5: EX-99.17-1 Miscellaneous Exhibit 2 9K
6: EX-99.17-2 Miscellaneous Exhibit 2 9K
7: EX-99.17-3 Miscellaneous Exhibit 49± 223K
8: EX-99.17-4 Miscellaneous Exhibit 46 239K
2: EX-99.4 Miscellaneous Exhibit 12 46K
N14AE24 — Registration Statement of an Open-End Investment Company (Business Combination)
Document Table of Contents
Reg No.2-811-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-effective Amendment No. ___ / / Post-effective Amendment No. ___
(Check appropriate box or boxes)
STYLE SELECT SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
1-800-858-8850
(Area Code and Telephone Number)
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
(Address of Principal Executive Offices)
Robert M. Zakem
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
(Name and Address of Agent for Service)
Copies to:
Margery K. Neale
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022-9998
It is proposed that this filing will become effective on July 2, 1997, or as
soon thereafter as is practicable, pursuant to Rule 488. (Approximate Date of
Proposed Public Offering)
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940 that it elects
to register an indefinite amount of securities under the Securities Act of 1933.
Registrant has not yet completed its initial fiscal year and therefore has not
yet filed a Notice on Form 24F-2. Accordingly, no filing fee is submitted
herewith.
CROSS REFERENCE SHEET
Item of Part A of Form N-14 and Caption Caption or Location in Prospectus
--------------------------------------- ---------------------------------
1. Beginning of Registration Cross Reference Sheet; Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
3. Fee Table, Synopsis Summary of Expenses; Summary; Risk
Information and Risk Factors Factors and Special Considerations
4. Information about the The Reorganization
Transaction
5. Information about the Information about International
Registrant Equity Portfolio And Global
Balanced Fund
6. Information about the Company Information about International
Being Acquired Equity Portfolio And Global
Balanced Fund
7. Voting Information Information Concerning the
Meeting; Voting Information
8. Interest of Certain Persons Not Applicable
and Experts
9. Additional Information Not Applicable
Required for Reoffering by
Persons Deemed to be
Underwriters
Item of Part B of From N-14 and Caption or Location in Statement
Caption of Additional Information
-------------------------------- ----------------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information about Additional Information about Style
the Registrant Select Series and SunAmerica
Equity Funds
13. Additional Information about Additional Information about Style
the Company being Acquired Select Series and SunAmerica
Equity Funds
14. Financial Statements Financial Statements
Item of Part C of Form N-14 and Caption Caption or Location in Part C
--------------------------------------- -----------------------------
15. Indemnification Indemnification
16. Exhibits Exhibits
17. Undertakings Undertakings
SUNAMERICA EQUITY FUNDS
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
To Be Held On September 5, 1997
----------------
TO THE SHAREHOLDERS OF:
SUNAMERICA GLOBAL BALANCED FUND
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of SunAmerica Global Balanced Fund ("Global Balanced Fund"), a
separate series of SunAmerica Equity Funds, will be held at the offices of
SunAmerica Equity Funds, The SunAmerica Center, 733 Third Avenue, New York, New
York 10017-3204, on September 5, 1997 at 10:00 a.m., for the following purpose:
A. To approve an Agreement and Plan of Reorganization and the proposed
transaction with respect to Global Balanced Fund, whereby all of the assets and
liabilities of Global Balanced Fund will be transferred to International Equity
Portfolio, a series of Style Select Series, Inc., in exchange for shares of
International Equity Portfolio, which will be distributed pro rata by Global
Balanced Fund to the holders of its shares in complete liquidation of Global
Balanced Fund.
B. To transact such other business as may properly come before the
Meeting or any and all adjournments thereof.
The Board of Trustees has fixed the close of business on June 30, 1997, as
the record date for the determination of shareholders of Global Balanced Fund
entitled to notice of and to vote at the Meeting or any adjournment thereof.
A complete list of the shareholders of Global Balanced Fund entitled to
vote at the Meeting will be available and open to the examination of any
shareholder of Global Balanced Fund, for any purpose germane to the Meeting
during ordinary business hours at the offices of SunAmerica Equity Funds, The
SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204.
You are cordially invited to attend the Meeting. Shareholders who do not
expect to attend the Meeting in person are requested to complete, date and sign
the enclosed form of proxy and return
it promptly in the envelope provided for that purpose. The enclosed proxy is
being solicited on behalf of the Board of Trustees of SunAmerica Equity Funds.
By Order of the Board of Trustees,
Robert M. Zakem
Secretary
New York, New York
Dated: [July 7], 1997
PROXY STATEMENT AND PROSPECTUS
[JULY 7] , 1997
SUNAMERICA GLOBAL BALANCED FUND
A SERIES OF
SUNAMERICA EQUITY FUNDS
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
800-858-8850
--------------
PROXY STATEMENT
----------
INTERNATIONAL EQUITY PORTFOLIO
A SERIES OF
STYLE SELECT SERIES, INC.
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
800-858-8850
--------------
PROSPECTUS
-----------------
This Proxy Statement and Prospectus is being furnished to shareholders of
SunAmerica Global Balanced Fund ("Global Balanced Fund"), a series of SunAmerica
Equity Funds, a Massachusetts business trust. This Proxy Statement and
Prospectus is being furnished in connection with the Special Meeting of
Shareholders of Global Balanced Fund (the "Meeting") to be held on September 5,
1997, at which shareholders will be asked to vote on a proposed reorganization
(the "Reorganization") pursuant to which all of the assets and liabilities of
Global Balanced Fund will be transferred to International Equity Portfolio, a
series of Style Select Series, Inc. ("Style Select Series"), in exchange for
shares of International Equity Portfolio. (International Equity Portfolio and
Global Balanced Fund are collectively referred to as the "Funds.") Shares of
International Equity Portfolio received by Global Balanced Fund will be
distributed to the shareholders of Global Balanced Fund in liquidation of Global
Balanced Fund. Class A shareholders of Global Balanced Fund will receive Class
A shares of International Equity Portfolio, and Class B shareholders of Global
Balanced Fund will receive Class B shares of International Equity Portfolio.
Shareholders of International Equity Portfolio will not vote on the
Reorganization.
THE BOARD OF TRUSTEES OF SUNAMERICA EQUITY FUNDS UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS OF GLOBAL BALANCED FUND VOTE FOR THE REORGANIZATION.
International Equity Portfolio is a separate series of Style Select
Series-SM-, an open-end, management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). International Equity
Portfolio's investment objective is to seek long-term growth of capital by
investing in equity securities of issuers in countries other than the United
States. The investment objectives, policies and restrictions of International
Equity Portfolio, and consequently the risks of investing in International
Equity Portfolio, are similar in certain respects to those of Global Balanced
Fund, but differ in other respects. There can be no assurance that
International Equity Portfolio will achieve its objective. See "Summary
Comparison of the Funds" and "Risk Factors and Special Considerations."
SunAmerica Asset Management Corp. ("SAAMCo") is the investment manager to
International Equity Portfolio. The assets of International Equity Portfolio
are allocated by SAAMCo among three investment advisers, each of which is
independently responsible for advising its respective portion of International
Equity Portfolio's assets. The investment advisers for International Equity
Portfolio are Rowe Price-Fleming International, Inc., Strong Capital Management,
Inc. and Warburg, Pincus Counsellors, Inc. (each, an "Adviser," and
collectively, the "Advisers"). SunAmerica Capital Services, Inc. (the
"Distributor") acts as distributor of the shares of International Equity
Portfolio.
This Proxy Statement/Prospectus should be retained for future reference.
It sets forth concisely the information about International Equity Portfolio
that a prospective investor should know before investing. The Prospectus of
Style Select Series dated May __, 1997 is enclosed herewith and is incorporated
herein by reference. The following additional information concerning the
proposed Reorganization has been filed with the Securities and Exchange
Commission (the "SEC"): (i) Prospectus of SunAmerica Equity Funds dated January
30, 1997; (ii) Statement of Additional Information of SunAmerica Equity Funds
dated January 30, 1997; (iii) Annual Report of SunAmerica Equity Funds for the
fiscal year ended September 30, 1996; (iv) Semi-Annual Report of SunAmerica
Equity Funds for the period ended March 31, 1997; and (iv) Statement of
Additional Information of Style Select Series dated May __, 1997. In addition,
the Statement of Additional Information, filed as part of the Registration
Statement of which this Proxy Statement and Prospectus forms a part, is
incorporated herein by reference. Copies of any of the documents listed above
may be obtained by writing or calling Style Select Series or SunAmerica Equity
Funds at the address and telephone number shown above.
It is anticipated that this Proxy Statement and Prospectus will first be
mailed to shareholders on or about [July 7], 1997.
THE SHARES OFFERED BY THIS PROXY STATEMENT AND PROSPECTUS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY THE UNITED STATES
ii
GOVERNMENT, ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY,
ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
iii
TABLE OF CONTENTS
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS...............................................................1
Proxy Statement and Prospectus.................................................i
SUMMARY OF EXPENSES............................................................1
SUMMARY........................................................................4
The Reorganization.........................................................4
Summary Comparison of the Funds............................................4
Investment Objectives and Policies....................................4
Advisory Fees and Expense Ratios.....................................10
Distribution Arrangements............................................12
Purchase, Redemption and Exchange Privileges.........................13
Tax Considerations........................................................15
Risk Factors and Special Considerations...................................15
THE REORGANIZATION............................................................18
Background and Reasons for Proposed Reorganization........................19
Considerations of the Board of Directors of Style Select Series...........21
Description of Shares to be Issued........................................22
Certain Effects of the Reorganization On Shareholders of Global Balanced
Fund......................................................................23
Expenses of the Reorganization............................................23
Federal Income Tax Consequences...........................................23
Comparative Information on Shareholder Rights and Obligations.............24
FINANCIAL INFORMATION.........................................................27
Capitalization............................................................27
INFORMATION ABOUT INTERNATIONAL EQUITY PORTFOLIO AND GLOBAL BALANCED FUND.....27
INFORMATION CONCERNING THE MEETING............................................29
Voting Information........................................................29
SECURITY OWNERSHIP OF CERTAIN SHAREHOLDERS AND MANAGEMENT.....................30
FORM AGREEMENT AND PLAN OF REORGANIZATION..............................Exhibit A
iv
SECTIONS 86 THROUGH 98 OF THE MASSACHUSETTS
BUSINESS CORPORATION LAW...........................................Exhibit B
v
SUMMARY OF EXPENSES
[Enlarge/Download Table]
CLASS A CLASS B
------- -------
International Global International Pro
Global Balanced Equity Pro Forma Balanced Equity Forma
Fund Portfolio Combined Fund Portfolio Combined
--------------- ------------- --------- -------- ------------- --------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Initial Sales Load(A). . . . 5.75% 5.75% 5.75% None None None
Maximum Sales Load on Reinvested
Dividends . . . . . . . . . None None None None None None
Maximum Deferred Sales Load(B) None None None 4.00% 4.00% 4.00%
Redemption Fees(C). . . . . . None None None None None None
Exchange Fees . . . . . . . . None None None None None None
ANNUAL OPERATING EXPENSES
(Net of fee waivers/expense
reimbursements) (D)
Management Fees . . . . . . . 1.00% 1.10% 1.10% 1.00% 1.10% 1.10%
12b-1 Fees(E) . . . . . . . . .35% .35% .35% 1.00% 1.00% 1.00%
Other Expenses. . . . . . . . 1.13% 1.05% .95% 1.10% 1.28% .95%
Gross Operating Expenses. . 2.48% 2.50% 2.40% 3.10% 3.33% 3.05%
Expense Reimbursement (F) . . (.33)% (.35)% (.25)% (.30)% (.53)% (.25)%
Net Operating Expenses. . . . 2.15% 2.15% 2.15% 2.80% 2.80% 2.80%
----------------------
(A) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1,000,000 or more. See "Purchase,
Redemption and Exchange Privileges."
(B) Purchases of Class A shares in excess of $1,000,000 will be subject to a
contingent deferred sales charge ("CDSC") on redemptions made within one
year of purchase. The CDSC on Class B shares applies only if a Redemption
occurs within six years from their purchase date.
(C) A $15.00 fee may be imposed for wire redemptions.
(D) The information regarding Global Balanced Fund represents estimated amounts
for the fiscal year ending September 30, 1997. The information regarding
International Equity Portfolio represents estimated amounts for the fiscal
year ending October 31, 1997.
(E) 0.25% of the 12b-1 fee comprises an Account Maintenance and Service Fee. A
portion of the Account Maintenance and Service Fee is paid for continuous
personal service to investors in the Funds, such as responding to
shareholder inquiries, quoting net asset values, providing current
marketing material and attending to other shareholder matters. Class B
shareholders who own their shares for an extended period of time may pay
more in Rule 12b-1 distribution fees than the economic equivalent of the
maximum front-end sales charge permitted under the Conduct Rules of the
National Association of Securities Dealers, Inc.
(F) SAAMCo may terminate voluntary expense reimbursements at any time.
1
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that a shareholder of Class A
and Class B shares of Global Balanced Fund, International Equity Portfolio
and the Pro Forma Combined Fund will bear, either directly or indirectly.
For more complete descriptions of the various costs and expenses, see
"Summary - Advisory and Other Fees" and "Summary - Distribution Arrangements."
EXAMPLE
The Examples below are intended to assist an investor in understanding the
various costs that an investor will bear directly or indirectly. The Examples
assume payment of net operating expenses at the levels set forth in the table
above.
[Enlarge/Download Table]
An investor would pay the following expenses 1 year 3 years 5 years 10 years
on a $1,000 investment, assuming (1) 5% ------ ------- ------- --------
annual return and (2) redemption at the end of
each time period.
Class A
Global Balanced Fund . . . . . . $78 $121 $166 $291
International Equity Portfolio . $78 $121 $166 $291
Pro Forma Combined . . . . . . . $78 $121 $166 $291
Class B*
Global Balanced Fund. . . . . . . $68 $117 $168 $290
International Equity Portfolio . $68 $117 $168 $290
Pro Forma Combined . . . . . . . $68 $117 $168 $290
An investor would pay the following expenses 1 year 3 years 5 years 10 years
on the same investment, assuming no ------ ------- ------- --------
redemption:
Class A
Global Balanced Fund . . . . . . $78 $121 $166 $291
International Equity Portfolio . $78 $121 $166 $291
Pro Forma Combined. . . . . . . . $78 $121 $166 $291
Class B*
Global Balanced Fund . . . . . . $28 $87 $148 $290
International Equity Portfolio . $28 $87 $148 $290
2
Pro Forma Combined . . . . . . . $28 $87 $148 $290
* Class B shares convert to Class A shares on the first business day of the
month following the seventh anniversary of the purchase of such Class B
shares. Therefore, with respect to the 10-year expense information, years
8, 9 and 10 reflect the expenses attributable to ownership of Class A
shares.
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
3
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION RELATING TO THE PROPOSED
REORGANIZATION AND THE PARTIES THERETO CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT AND PROSPECTUS (INCLUDING THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE), AND THE AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SUNAMERICA
EQUITY FUNDS, ON BEHALF OF GLOBAL BALANCED FUND, AND STYLE SELECT SERIES, ON
BEHALF OF INTERNATIONAL EQUITY PORTFOLIO, A COPY OF WHICH IS ATTACHED TO THIS
PROXY STATEMENT AND PROSPECTUS AS EXHIBIT A.
THE REORGANIZATION
At a meeting held on May 22, 1997, the Trustees of SunAmerica Equity Funds
approved a proposal to transfer all of the assets and liabilities of Global
Balanced Fund to International Equity Portfolio in exchange for shares of
International Equity Portfolio.
Shares of International Equity Portfolio received by Global Balanced Fund
will be distributed to the shareholders of Global Balanced Fund in complete
liquidation of Global Balanced Fund. Class A and Class B shareholders of Global
Balanced Fund will receive Class A and Class B shares of International Equity
Portfolio, respectively. The acquisition of the assets and liabilities of
Global Balanced Fund by International Equity Portfolio, and the subsequent
distribution of shares of International Equity Portfolio to the shareholders of
Global Balanced Fund, respectively, is herein referred to as the
"Reorganization."
SUMMARY COMPARISON OF THE FUNDS
The following comparison is a summary of information contained elsewhere in
this Proxy Statement and Prospectus.
1. INVESTMENT OBJECTIVES AND POLICIES.
See "Summary -- Risk Factors and Special Considerations" for a discussion
of the comparative risks of the two Funds.
INTERNATIONAL EQUITY PORTFOLIO seeks long-term growth of capital by
investing in equity securities of issuers in countries other than the United
States. The Fund will invest, under normal circumstances, in securities of
non-U.S. issuers. Country selection is a significant part of the Fund's
investment process. The Fund is permitted to invest in any country where it is
legal for U.S. investors to invest. Investment in foreign securities in
general, and in emerging markets in particular, involves certain risks not
present when investing in United States securities. See "Summary -- Risk
Factors and Special Considerations."
The Fund will invest, under normal circumstances, at least 65% of its total
assets in equity securities (including common and preferred stocks and other
securities having equity features, such as convertible securities, warrants and
rights) of issuers in at least three countries other than the United States.
The Fund may purchase securities on foreign stock exchanges, on U.S. stock
exchanges, or in the over-the-counter market. Unlike Global Balanced Fund,
4
International Equity Portfolio does not as a matter of course invest in domestic
equity securities. International Equity Portfolio may also invest up to 35% of
its total assets in global debt securities that an Adviser expects have the
potential for capital appreciation. The types of debt securities in which
International Equity Portfolio may invest are described below under "Debt
Securities." (When used in this section with respect to both International
Equity Portfolio and Global Balanced Fund, the term "Adviser" refers both to
Advisers to International Equity Portfolio, as well as SAAMCo and AIG Global
Investment Corp. ("AIG Global") with respect to Global Balanced Fund.)
GLOBAL BALANCED FUND seeks capital appreciation while conserving principal
by maintaining at all times a balanced portfolio of domestic and foreign stocks
and bonds. In seeking to achieve the investment objective of the Global
Balanced Fund, SAAMCo and AIG Global , the Fund's subadviser, have the
flexibility to select among a combination of domestic and foreign equity and
debt securities designed for capital growth and/or income, which will be varied
from time to time both with respect to types of securities and markets in
response to changing markets and economic trends. Country selection is a
significant part of the investment process. Investment in foreign securities
involves risks not generally associated with investment in domestic securities.
See "Summary - Risk Factors and Special Considerations." It is anticipated
that, over the long term, Global Balanced Fund's portfolio will consist of
foreign and domestic equity securities, in the form of common and preferred
stocks, warrants and other rights, as well as global bonds and other global debt
securities such as convertible securities, short-term instruments and securities
of U.S. and foreign governments. Under normal circumstances, the Fund will
invest at least (i) 25% of its assets in global fixed-income senior securities;
(ii) 10% of its assets in domestic equity securities; and (iii) 45% of its
assets in foreign equity securities. In addition, it is anticipated that, under
normal circumstances, the Fund will invest its assets in at least 10 countries
at any time, although it is only required, under such circumstances, to maintain
investments in at least three countries (one of which may be the United States).
Under normal circumstances, Global Balanced Fund will maintain a dollar weighted
average duration of not more than 7.5 years. However, the Fund is not subject
to any limitation with respect to the average maturity of its portfolio or the
individual securities in which it may invest.
While there are no prescribed limits on the geographical allocation of
Global Balanced Fund's assets, SAAMCo anticipates that investment of the Fund's
assets will be subject to the following guidelines, which may be revised from
time to time as market conditions warrant:
5
Maximum Investment
Region (as a percentage of net assets)
------ -----------------------------
Europe 70%
Japan 50%
Asia/Pacific (excluding Japan) 60%
Latin America 20%
Canada 30%
United States 40%
Other 10%
The types of securities and transactions in which each Fund may invest are
described below.
SMALL COMPANIES. Each Fund may invest in small companies having market
capitalizations of under $1 billion. See "Summary -- Risk Factors and Special
Considerations -- Small Companies."
EMERGING MARKETS. Global Balanced Fund may invest up to 20% of its assets,
and International Equity Portfolio may invest without limitation, in issuers
domiciled in, or government securities of, developing countries or emerging
markets. See "Summary -- Risk Factors and Special Considerations -- Emerging
Markets."
DEPOSITARY RECEIPTS. Each Fund may invest in securities in the form of
sponsored or unsponsored American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or other
similar securities representing a right to obtain underlying securities of
foreign issuers. Each Fund also may invest in securities denominated in
European Currency Units ("ECUs"). An ECU is a "basket" consisting of specified
amounts of currencies of certain of the twelve member states of the European
Community.
DEBT SECURITIES. The debt securities in which each Fund may invest include
securities issued by the U.S. government and its agencies or instrumentalities,
securities issued by foreign governments and domestic or foreign corporations,
zero coupon bonds, deferred interest bonds and bonds on which the interest is
payable in kind. International Equity Portfolio may also invest in step-coupon
bonds. Under normal circumstances, SAAMCo expects that at least 30% of the fixed
income component of Global Balanced Fund, adjusted to reflect such component's
net exposure after giving effect to currency transactions and positions, will be
denominated in U.S. dollars. There is no similar expectation with respect to
International Equity Portfolio. Further, because the securities markets in each
of Canada, Germany, Japan and the United Kingdom are highly developed, liquid
and subject to extensive regulations, SAAMCo may invest more than 25% of the
fixed income component of Global Balanced Fund in the securities of corporate
and
6
government issuers located in any of one of such countries. Allocation of
investments in such issuers could subject Global Balanced Fund to the risks of
adverse social, political or economic events which may occur in those countries.
Both Funds may invest in the securities of governmental issuers and in
corporate debt securities, including convertible debt securities, rated "BBB" or
better by Standard & Poor's Ratings Services, a Division of The McGraw-Hill
Companies Inc. ("S&P") or "Baa" or better by Moody's Investors Service, Inc.
("Moody's") or which, in the judgement of the Adviser, possess similar credit
characteristics ("investment grade bonds"). Notwithstanding the foregoing, it
is expected that Global Balanced Fund will generally invest a significant
portion of such component in securities having the highest applicable credit
quality rating or, if unrated, determined by SAAMCo at the time of investment to
be of comparable quality, with the remainder of such component invested in
securities rated of high quality by S&P or Moody's (I.E., "AA" or "Aa") or of
comparable quality. However, with respect to obligations of a government
issuer, Global Balanced Fund may invest in such obligations if rated "A" or
better by S&P or Moody's, or if unrated, determined by SAAMCo to be of
comparable credit quality, provided that the obligations are denominated in the
issuer's own currency.
Each Fund may invest in debt securities rated below investment grade, that
is below "BBB" by S&P, or below "Baa" by Moody's, or if unrated, determined by
the Adviser to be of equivalent quality ("junk bonds"). See "Summary -- Risk
Factors and Special Considerations -- Debt Securities."
HEDGING AND INCOME ENHANCEMENT. Each Fund may write covered call options
to enhance income. After writing such a covered call up to 25% of the total
assets of International Equity Portfolio and 100% of the total assets of Global
Balanced Fund may be subject to calls. For hedging purposes, and with respect
to International Equity Portfolio, income enhancement, each Fund may use
interest rate futures, and stock and bond index futures, including futures on
U.S. government securities (together, "Futures"); forward contracts on foreign
currencies; and call and put options on equity and debt securities, Futures,
stock and bond indices and foreign currencies (all of the foregoing are referred
to as "Hedging 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 a Fund will be listed on a national securities or commodities exchange
or on U.S. over-the-counter markets. Each Fund may also use spread transactions
for any lawful purpose consistent with its investment objective such as hedging
or managing risk, but not for speculation. Global Balanced Fund may invest up
to 5% of its total assets in yield curve options. See "Summary -- Risk
Factors and Special Considerations -- Hedging Instruments."
FOREIGN CURRENCY TRANSACTIONS. Each Fund may enter into foreign currency
transactions. In connection therewith, each Fund has the ability to hold a
portion of its assets in foreign currencies and to enter into forward foreign
currency exchange contracts. Each may also purchase and sell exchange-traded
futures contracts relating to foreign currency, purchase and sell put and call
options on currencies and futures contracts and enter into currency swaps. Each
7
Fund may enter into forward foreign currency exchange contracts, currency
options and currency swaps for non-hedging purposes when an Adviser anticipates
that a foreign currency will appreciate or depreciate in value, but securities
denominated in that currency do not present attractive investment opportunities
or are not included in the Fund's portfolio. Each Fund may use currency
contracts and options to cross-hedge, which involves selling or purchasing
instruments in one currency to hedge against changes in exchange rates for a
different currency with a pattern of correlation. See "Summary -- Risk Factors
and Special Considerations -- Foreign Currency Transactions."
SHORT SALES. International Equity Portfolio may sell a security it does
not own in anticipation of a decline in the market value of that security (short
sales). To complete such a transaction, International Equity Portfolio must
borrow the security to make delivery to the buyer. The Fund then is obligated
to replace the security borrowed by purchasing it at market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by the Fund. Until the security is replaced, the Fund is
required to pay to the lender any dividends or interest which accrue during the
period of the loan. To borrow the security, the Fund also may be required to
pay a premium, which would increase the cost of the security sold. The proceeds
of the short sale will be retained by the broker, to the extent necessary to
meet margin requirements, until the short position is closed out. International
Equity Portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the Fund replaces the borrowed security. International Equity Portfolio will
realize a gain if the security declines in price between those dates. This
result is the opposite of what one would expect from a cash purchase of a long
position in a security. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of any premium, dividends or
interest the Fund may be required to pay in connection with a short sale.
Each Fund may make "short sales against the box." 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, including a short sale against the box, if, as a
result, more than 25% of its net assets would be subject to such short sales.
BORROWING. In seeking to enhance investment performance, each Fund may
borrow money for investment purposes and may pledge assets to secure such
borrowings. This is the speculative factor known as leverage. This practice
may help increase the net asset value of the assets of a Fund in an amount
greater than would otherwise be the case when the market values of the
securities purchased through borrowing increase. In the event the return on an
investment of borrowed monies does not fully recover the costs of such
borrowing, the value of the Fund's assets would be reduced by a greater amount
than would otherwise be the case. The effect of leverage will therefore tend to
magnify the gains or losses to the Fund as a result of investing the borrowed
monies. During periods of substantial borrowings, the value of the Fund's
assets would be reduced due to the added expense of interest on borrowed monies.
Each Fund is
8
authorized to borrow, and to pledge assets to secure such borrowings, to the
maximum extent permissible under the 1940 Act (I.E., presently 50% of net
assets).
SHORT-TERM AND TEMPORARY INVESTMENTS. In addition to its primary
investments, International Equity Portfolio may also invest up to 25% of its
total assets in both U.S. and non-U.S. dollar denominated money market
instruments (a) for liquidity purposes (to meet redemptions and expenses) or (b)
to generate a return on idle cash held in its portfolio during periods when an
Adviser is unable to locate favorable investment opportunities. In addition to
its primary investments, Global Balanced Fund may also invest up to 10% of its
total assets in money market instruments for liquidity purposes (to meet
redemptions and expenses). For temporary defensive purposes, each Fund may
invest up to 100% of its total assets in cash or 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 an Adviser to be of equivalent quality). Money
market instruments include securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, repurchase agreements, commercial
paper, bankers' acceptances and certificates of deposit.
HYBRID INSTRUMENTS. International Equity Portfolio may invest up to 10% of
its assets in Hybrid Instruments. These instruments, including indexed or
structured securities, can combine the characteristics of equity or debt
securities, futures, and options. For example, the principal amount,
redemption, or conversion terms of a security could be related to the market
price of some commodity, currency, or securities index. Such securities may
bear interest or pay dividends at below market (or even relatively nominal)
rates. Under certain conditions, the redemption value of such an investment
could be zero. Global Balanced Fund does not invest in Hybrid Instruments.
SPECIAL SITUATIONS. International Equity Portfolio may invest without
limitation, and Global Balanced Fund may invest up to 25% of its assets, in
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.
UNSEASONED ISSUERS. Global Balanced Fund may not 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. International Equity Portfolio is not
subject to this restriction.
9
DIVERSIFICATION. Each Fund is "non-diversified" under the 1940 Act,
subject, however, to certain tax diversification requirements. Accordingly,
each Fund may invest more than 5% of the value of its assets in the obligations
of a single issuer and may acquire more than 10% of the voting securities of a
single issuer. However, in order to meet certain tax diversification
requirements, each Fund must, among other things, limit its investments so that
at the close of each fiscal quarter (i) not more than 25% of the market value of
the Fund's total assets are invested in the securities of a single issuer, or
any two or more issuers which are controlled by the Fund and engaged in the
same, similar or related businesses, and (ii) with respect to 50% of the market
value of its total assets, not more than 5% of the market value of its total
assets are invested in the securities of a single issuer, and the Fund does not
own more than 10% of the outstanding voting securities of a single issuer.
Investment in the securities of the U.S. Government, its agencies and
instrumentalities are not included within the definition of "issuer" for these
purposes, while foreign government securities are included within such
definition.
The other investment policies of International Equity Portfolio are
substantially similar to those of Global Balanced Fund.
2. POTENTIAL PORTFOLIO REALIGNMENT
If the Reorganization is approved by shareholders of Global Balanced Fund,
it is anticipated that certain securities in the investment portfolio of Global
Balanced Fund will be liquidated preceding consummation of the Reorganization,
in order to accommodate certain differences in the investment policies and
restrictions of the two Funds. For example, International Equity Portfolio does
not as a matter of course hold U.S. equity securities. It is possible that up
to 30% of the portfolio of Global Balanced Fund may be liquidated in the
ordinary course of business prior to the Reorganization. Such sales of
securities will affect the aggregate amount of taxable gains and losses
recognized by Global Balanced Fund prior to the Reorganization. If the net
effect of such sales is a gain, such gain would have to be distributed to
shareholders of Global Balanced Fund and may be subject to taxation.
Shareholders should consult their personal tax advisers regarding the possible
tax consequences to them in light of their personal circumstances.
3. ADVISORY FEES AND EXPENSE RATIOS
INTERNATIONAL EQUITY PORTFOLIO. SAAMCo serves as the investment manager to
International Equity Portfolio. International Equity Portfolio pays a
management fee to SAAMCo at the annual rate of 1.10% of Assets. The term
"Assets" means the average daily net assets of the Fund.
SAAMCo has the authority to allocate the assets of International Equity
Portfolio among Advisers, each of which is independently responsible for
advising its respective portion of International Equity Portfolio's assets. The
Advisers for International Equity Portfolio are Rowe
10
Price-Fleming International, Inc., Strong Capital Management, Inc. and Warburg,
Pincus Counsellors, Inc.
Each of the Advisers is independent of SAAMCo and discharges its
responsibilities subject to the oversight and supervision of SAAMCo, which pays
the Advisers' fees. Each Adviser is paid monthly a fee equal to a percentage of
the Assets of International Equity Portfolio allocated to the Adviser. Based on
Assets of $38,213,000 for International Equity Portfolio as of
April 30, 1997, and assuming such a constant level of assets for the year ending
October 31, 1997, the aggregate annual rate of the fees payable by SAAMCo to the
Advisers for International Equity Portfolio for such fiscal year would be .63%
of Assets. There can be no assurance that International Equity Portfolio will
maintain a level of Assets in the amount estimated.
SAAMCo has voluntarily agreed to waive fees and/or reimburse expenses, if
necessary, to keep International Equity Portfolio's annual operating expenses at
or below 2.15% of Assets for Class A shares and 2.80% of Assets for Class B
shares. SAAMCo also may voluntarily waive or reimburse additional amounts to
increase the investment return to International Equity Portfolio's investors.
SAAMCo may terminate all such waivers and/or reimbursements at any time.
Further, any such waivers or reimbursements made by SAAMCo are subject to
recoupment from International Equity Portfolio within the following two years,
provided that International Equity Portfolio is able to effect such payment to
SAAMCo and remain in compliance with the foregoing expense limitations.
SAAMCo may terminate any agreement with an Adviser without shareholder
approval. Moreover, SAAMCo has obtained an exemptive order from the SEC which
permits SAAMCo, subject to certain conditions, to enter into subadvisory
agreements relating to International Equity Portfolio with Advisers approved by
the Board of Trustees without obtaining shareholder approval. The exemptive
order also permits SAAMCo, subject to the approval of the Board but without
shareholder approval, to employ new Advisers for the Fund, change the terms of
particular subadvisory agreements with Advisers or continue the employment of
existing Advisers after events that would otherwise cause an automatic
termination of a subadvisory agreement. Shareholders of International Equity
Portfolio have the right to terminate a subadvisory agreement for the Fund at
any time by a vote of the majority of the outstanding voting securities of the
Fund. Shareholders will be notified of any Adviser changes. The order also
permits the Fund to disclose to shareholders the Advisers' fees only in the
aggregate.
GLOBAL BALANCED FUND. SAAMCo also serves as the investment manager and
adviser to Global Balanced Fund. Global Balanced Fund pays SAAMCo a fee at the
annual rate of 1.00% on the first $350 million of Assets, .90% on the next $350
million and .85% on Assets over $700 million. For the fiscal year ended
September 30, 1996, SAAMCo was entitled to a fee from Global Balanced Fund equal
to 1.00% of Assets. For the same period, Global Balanced Fund paid SAAMCO a fee
equal to 1.00% of Assets, of which .59% was voluntarily reimbursed to the Fund
by SAAMCo. SAAMCo may discontinue such voluntary fee reimbursement at any time.
11
SAAMCo has entered into a subadvisory agreement with AIG Global pursuant to
which AIG Global serves as subadviser for the foreign equity component of Global
Balanced Fund. In providing such services, AIG Global utilizes the services of
certain of its affiliates. SAAMCo pays AIG Global a fee with respect to the
Assets of Global Balanced Fund actually managed by AIG Global and its affiliates
at the following rates: .50% on the first $50 million, .40% on the next $100
million, .30% on the next $150 million and .25% on Assets in excess of $300
million. For the fiscal year ended September 30, 1996, SAAMCo paid AIG Global a
fee equal to .50% of Assets. The foregoing fees are paid from the investment
advisory fee payable to SAAMCo and do not increase the expenses of Global
Balanced Fund. AIG Global discharges its responsibilities subject to the
direction and control of the Trustees and the oversight and review of SAAMCo.
A comparison of annual operating expense data for the Funds is set forth in
the "Summary of Expenses" at pages [1-2].
Although International Equity Portfolio pays advisory fees at a higher
annual rate than Global Balanced Fund, at the Funds' current expense cap levels
International Equity Portfolio is subject to a total net expense ratio no
higher than that of Global Balanced Fund. There is no assurance that SAAMCo
will continue any voluntary fee waivers/ reimbursements with respect to either
Fund. Nevertheless, given the economies of scale that should result from the
Reorganization and in view of all relevant factors, the Board of Trustees of
SunAmerica Equity Funds has determined that the Reorganization would be
beneficial to Global Balanced Fund and its shareholders. See "The
Reorganization--"Background and Reasons for Proposed Reorganization."
4. DISTRIBUTION ARRANGEMENTS
Global Balanced Fund currently offers Class A and Class B shares.
International Equity Portfolio currently offers Class A, Class B and Class C
shares. Pursuant to the Reorganization, shareholders of Global Balanced Fund
will receive shares of International Equity Portfolio of the same class as the
shares of Global Balanced Fund they hold at the time the Reorganization is
consummated. Class A and Class B shares of International Equity Portfolio are
subject to sales charges and distribution fees on identical terms as Class A and
Class B shares, respectively, of Global Balanced Fund. As described below under
"Purchase, Redemption and Exchange Privileges," Class A shares of each Fund are
sold at the respective net asset value plus a sales charge imposed at the time
of purchase, and Class B shares of each Fund are sold at the respective net
asset value subject to a CDSC if redeemed within six years of the date of
purchase. Class C shares of International Equity Portfolio are sold at net
asset value subject to a CDSC if redeemed within one year of the date of
purchase. Class C shares of International Equity Portfolio are not being
offered hereby and will not be issued in connection with the Reorganization.
12
Each Fund has adopted distribution plans (hereinafter referred to as the
"Class A Plans" and the "Class B Plans," and collectively as the "Distribution
Plans"). Under the Class A Plans, the Distributor may receive payments from a
Fund at an annual rate of up to 0.10% of average daily net assets of such Fund's
Class A shares to compensate the Distributor and certain securities firms for
providing sales and promotional activities for distributing that class of
shares. Under the Class B 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 shares, respectively, to compensate the Distributor and certain
securities firms for providing sales and promotional activities for distributing
that class of shares. The distribution costs for which the Distributor may be
reimbursed out of such distribution fees include fees paid to broker-dealers
that have sold Fund shares, commissions, and other expenses such as those
incurred for sales literature, prospectus printing and distribution and
compensation to wholesalers. It is possible that in any given year the amount
paid to the Distributor under the Class A Plans or Class B Plans 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 of up to 0.25% of the aggregate average
daily net assets of such class of shares for payments to broker-dealers for
providing continuing account maintenance. In this regard, some payments are
used to compensate broker-dealers with account maintenance and service fees in
an amount up to 0.25% per year of the assets maintained in a Fund by their
customers.
SunAmerica Capital Services, Inc. acts as distributor of each of the Funds
and bears all of each Fund's distribution expenses. The Distributor receives
all distribution and account maintenance fees and all initial and deferred sales
charges in connection with the sale of shares of each Fund, all or a portion of
which it may reallow to other broker-dealers.
5. PURCHASE, REDEMPTION AND EXCHANGE PRIVILEGES
Reference is made to the Style Select Series Prospectus dated May __, 1997,
and the Prospectus of SunAmerica Equity Funds dated January 30, 1997, for a
complete description of the purchase, exchange and redemption procedures
applicable to purchases, exchanges and redemptions of the Funds. Any questions
about such procedures may be directed to Shareholder/Dealer Services at (800)
858-8850.
13
PURCHASE. The sales charges and Rule 12b-1 fees applicable to Class A and
Class B shares of International Equity Portfolio are identical to those
applicable to Class A and B shares, respectively, of Global Balanced Fund.
Class A shares of each Fund are offered at net asset value plus an initial sales
charge, which varies with the size of the purchase. The sales charge may be
waived or reduced in certain circumstances. Class B shares of each Fund are
offered at net asset value. Certain redemptions of Class B shares within the
first six years of the date of purchase are subject to a CDSC. See the
prospectus of each Fund for more detailed information regarding the purchase of
shares, and the Statement of Additional Information of each Fund for information
concerning the conditions under which the CDSC will be waived in connection with
certain redemptions.
CONVERSION FEATURE. Class B shares of each Fund (including a pro-rata
portion of the Class B shares purchased through the reinvestment of dividends
and distributions) will convert automatically to Class A shares on the first
business day of the month following the seventh anniversary of the issuance of
such Class B shares. Subsequent to the conversion of a Class B share to a Class
A share, such shares will no longer be subject to the higher distribution fee of
Class B shares. Such conversion will be on the basis of the relative net asset
values of Class B shares and Class A shares, without the imposition of any sales
load, fee or charge. A shareholder's holding period for Class B shares of
International Equity Portfolio received in the Reorganization will include the
shareholder's holding period for the Class B shares of Global Balanced Fund
exchanged in the Reorganization, for purposes of determining the applicable
holding period for conversion.
REDEMPTION. Shares of each Fund may be redeemed at any time at their net
asset value next determined, less any applicable CDSC, after receipt by the Fund
of a redemption request in proper form. Any capital gain or loss realized by a
shareholder upon any redemption of shares will be recognized for federal income
tax purposes. A shareholder's holding period for Class B shares of
International Equity Portfolio received in the Reorganization will include the
shareholder's holding period for Class B shares of Global Balanced Fund
exchanged in the Reorganization for purposes of determining the applicability of
a CDSC upon redemption of such shares. The Funds have identical redemption
procedures, including redemption through SunAmerica Fund Services, Inc. or the
Distributor, telephone redemption and the Systematic Withdrawal Plan. See
"Redemption of Shares" in each Fund's Prospectus for more information.
The right of a shareholder to redeem shares of Global Balanced Fund at net
asset value at any time prior to the Closing Date will not be impaired by the
approval of the Reorganization. Therefore, a shareholder may redeem in
accordance with the redemption procedures set forth in SunAmerica Equity Fund's
current prospectus until the date on which the Reorganization is consummated.
Shareholders should consult with their personal tax advisors as to the different
tax consequences of redeeming their shares as opposed to exchanging their shares
for shares of International Equity Portfolio in the Reorganization. See "Tax
Considerations" below.
14
EXCHANGE PRIVILEGE. Shareholders in each Fund may exchange their shares
for the same class of shares of any other SunAmerica sponsored fund that offers
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. The exchange privilege is the same for both
Funds. See the prospectus of each Fund for more information regarding the
exchange privilege and restrictions thereon.
TAX CONSIDERATIONS
The Reorganization is being structured as a tax-free reorganization of the
Global Balanced Fund pursuant to which no gain or loss would be recognized by
Global Balanced Fund or shareholders of Global Balanced Fund for federal income
tax purposes as a result of the receipt of shares of International Equity
Portfolio in the Reorganization. The aggregate tax basis of shares of
International Equity Portfolio received by shareholders of Global Balanced Fund
in the Reorganization would be the same as the aggregate tax basis of the Global
Balanced Fund's shares held by a shareholder immediately prior to the
Reorganization. In addition, a shareholder's holding period in International
Equity Portfolio shares will include the shareholder's holding period in Global
Balanced Fund's shares surrendered in exchange therefor, provided that such
shares are held by the shareholder as a capital asset on the closing date. A
legal opinion will be provided which describes the tax consequences of the
Reorganization.
For further information about the tax consequences of the Reorganization,
see "The Reorganization-- Federal Income Tax Consequences."
RISK FACTORS AND SPECIAL CONSIDERATIONS
EQUITY SECURITIES. Under normal circumstances, International Equity
Portfolio invests at least 65% and Global Balanced Fund invests at least 55% of
their respective assets in equity securities and as such, are subject to market
risks. That is, the possibility exists that common stocks and other equity
securities will decline over short or even extended periods of time, and equity
markets tend to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease. Since both
Funds invest in equity securities, these risk factors are generally present in
investments in each Fund.
FOREIGN SECURITIES. Each Fund invests heavily in the securities of foreign
issuers, which may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. Since Global Balanced Fund may be expected to invest from 10% to
40% of its assets in domestic equity securities, International Equity Portfolio
may have greater exposure to the risks of foreign securities. Similarly, Global
Balanced Fund may have greater exposure to the risks of the domestic equity
market.
EMERGING MARKETS. International Equity Portfolio may make investments from
time to time in issuers domiciled in, or government securities of, developing
countries or emerging
15
markets. Although there is no universally accepted definition, a developing
country is generally considered to be a country in the initial stages of its
industrialization cycle with a low per capita gross national product.
Historical experience indicates that the markets of developing countries or
emerging markets have been more volatile than the markets of developed
countries; however, such markets can provide higher rates of return to
investors. Investment in an emerging market country may involve certain risks,
including a less diverse and mature economic structure, a less stable political
system, an economy based on only a few industries or dependent on international
aid or development assistance, the vulnerability to local or global trade
conditions, extreme debt burdens, or volatile inflation rates. Since Global
Balanced Fund may invest in these types of securities, these risk factors are
generally also present in an investment in Global Balanced Fund. International
Equity Portfolio may invest without limitation, and Global Balanced Fund may
invest up to 20% of its assets, in issuers domiciled in, or government
securities of, developing countries or emerging markets.
SMALL COMPANIES. Each Fund may invest in small companies having market
capitalizations of under $1 billion. It may be difficult to obtain reliable
information and financial data on such companies and the securities of these
small companies may not be readily marketable, making it difficult to dispose of
shares when desirable. Securities of small or emerging growth companies may be
subject to more abrupt or erratic market movements than larger, more established
companies or the market average in general. A risk of investing in smaller,
emerging companies is that they often are at an earlier stage of development and
therefore have limited product lines, market access for such products, financial
resources and depth in management than 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. While smaller
companies may be subject to these additional risks, they may also realize more
substantial growth than larger, more established companies.
DEBT SECURITIES. As with other mutual funds that invest in fixed income
securities, each Fund is subject to market risks. 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. Furthermore, there is no limit to portfolio maturity for either
Fund. The market value of fixed income securities and therefore their yield is
also affected by the perceived ability of the issuer to make timely payments of
principal and interest. These risk factors are generally present in an
investment in either Fund.
16
In addition to U.S. government securities, each Fund may invest in debt
securities, including corporate obligations issued by domestic and foreign
corporations and money market instruments, without regard to the maturities of
such securities. Those debt securities which are rated "BBB" or "Baa" by S&P or
Moody's, 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.
HIGH-YIELD, HIGH-RISK SECURITIES. Each Fund may also invest in debt
securities rated below investment grade (I.E., below "BBB" by S&P, or below
"Baa" by Moody's, or if unrated, determined by the Adviser to be of equivalent
quality). High-yield, high-risk bonds (otherwise known as "junk bonds") are
subject to greater fluctuations in value than are higher rated bonds because the
values of high-yield bonds tend to reflect short-term corporate, economic and
market developments and investor perceptions of the issuer's credit quality to a
greater extent. Although under normal market conditions longer-term securities
yield more than shorter-term securities, they are subject to greater price
fluctuations. Fluctuations in the value of a Fund's investments will be
reflected in its net asset value per share. The growth of the high-yield bond
market paralleled a long economic expansion, followed by an economic downturn
which severely disrupted the market for high-yield bonds and adversely affected
the value of outstanding bonds and the ability of the issuers to repay principal
and interest. The economy may affect the market for high-yield bonds in a
similar fashion in the future including an increased incidence of defaults on
such bonds. From time to time, legislation may be enacted which could have a
negative effect on the market for high-yield bonds.
HEDGING INSTRUMENTS. Each Fund may invest in Hedging Instruments (as
defined above under "Summary Comparison of the Funds -- Investment Objectives
and Policies"). 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 an 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. Risks
inherent in the use of options, foreign currency and Futures contracts and
options on Futures contracts include (1) dependence on the Adviser's ability to
predict correctly movements in the direction of interest rates, securities
prices and currency markets; (2) imperfect correlation between the price of
options and Futures contracts and options thereon and movements in the prices of
the securities or currencies being hedged; (3) the fact that skills needed to
use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the possible
inability of the Fund to purchase or sell a portfolio security at a time that
otherwise would be favorable for it to do so, or the possible need for the Fund
to sell a portfolio security at a disadvantageous time, due to the need for the
Fund to maintain "cover" or to segregate securities in connection with
17
hedging transactions. A transaction is "covered" when the Fund owns the security
subject to the option on such security, or some other security acceptable for
applicable escrow requirements. The Funds may invest in Hedging Instruments for
hedging purposes and for income enhancement.
FOREIGN CURRENCY TRANSACTIONS. Each Fund may enter into forward foreign
currency exchange contracts to reduce the risks of fluctuations in exchange
rates; however, these contracts cannot eliminate all such risks and do not
eliminate fluctuations in the prices of the Fund's portfolio securities.
Each Fund may purchase and write put and call options on currencies for the
purpose of protecting against declines in the U.S. dollar value of foreign
portfolio securities and against increases in the U.S. dollar cost of foreign
securities to be acquired. 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. As with other
kinds of option transactions, however, the writing of an option on currency will
constitute only a partial hedge, up to the amount of the premium received, and a
Fund could be required to purchase or sell currencies at disadvantageous
exchange rates, thereby incurring losses.
Each Fund may enter into currency swaps. Currency swaps involve the
exchange by a Fund with another party of their respective rights to make or
receive payments in specified currencies. Currency swaps usually involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. The use of currency swaps is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
If an Adviser is incorrect in its forecasts of market values and currency
exchange rates, the investment performance of a Fund would be less favorable
than it would have been if this investment technique were not used.
A full discussion of the risks inherent in investment in each of the Funds
is set forth in the Prospectus and Statement of Additional Information of each
Fund.
THE REORGANIZATION
The terms and conditions upon which the Reorganization may be consummated
are set forth in the Form of Agreement and Plan of Reorganization (the
"Agreement") between SunAmerica Equity Funds and Style Select Series, on behalf
of Global Balanced Fund and International Equity Portfolio, respectively (see
Exhibit A hereto). If certain conditions, including approval by the
shareholders of Global Balanced Fund, are satisfied, all of Global Balanced
Fund's assets will be sold to International Equity Portfolio and its liabilities
assumed
18
by International Equity Portfolio. This will occur on the "Closing Date" of the
Reorganization, which is September 12, 1997, or such other date as the parties
may agree.
On the Closing Date, after the transfer of Global Balanced Fund's assets to
International Equity Portfolio and assumption of Global Balanced Fund's
liabilities by International Equity Portfolio, Global Balanced Fund's
shareholders will receive the number of newly-issued Class A or Class B shares,
as appropriate, of International Equity Portfolio of equal aggregate value to
the aggregate value of the Class A and Class B shares of Global Balanced Fund
which were previously held. The newly-issued shares will be credited to each
shareholder's account as of the Closing Date.
BACKGROUND AND REASONS FOR PROPOSED REORGANIZATION
CONSIDERATIONS OF THE BOARD OF TRUSTEES OF SUNAMERICA EQUITY FUNDS
In deciding to approve the Agreement and recommend it to shareholders of
Global Balanced Fund, the Trustees, including the independent Trustees, acted
upon information provided to them indicating that the proposed Reorganization
would operate in the best interests of Global Balanced Fund and its shareholders
and that the interests of Global Balanced Fund shareholders would not be diluted
as a result of the Reorganization. In particular, the Trustees determined that
the proposed Reorganization offered the following benefits:
- PERFORMANCE OF FUNDS; FEES AND EXPENSES: The Trustees received information
relating to the performance of International Equity Portfolio, with which
Global Balanced Fund would be reorganized. International Equity Portfolio
was recently organized and has a performance record of less than a year.
For information purposes, in addition to the performance record for
International Equity Portfolio for the period November 12, 1996 to April
30, 1997, the Trustees were provided with historical performance
information for each Adviser thereof relating to comparable accounts. The
Trustees also received information about the fees and expenses charged (or
to be charged) to International Equity Portfolio, which information tended
to show that Global Balanced Fund shareholders who become Class A and Class
B shareholders of International Equity Portfolio as a result of the
proposed Reorganization will be subject to total expenses that are no
higher than expenses relating to Global Balanced Fund, even after taking
into account voluntary waivers and/or reimbursements that have been in
effect for Global Balanced Fund. Moreover, the Trustees were informed that
SAAMCo is under no obligation to continue any such waivers and/or
reimbursements.
- GROWTH RATE; ECONOMIES OF SCALE: Since commencing operations in June of
1994, Global Balanced Fund has, in the current market environment, been
unable to attract sufficient new assets to offset redemptions and has
incurred relatively high expense ratios. Global Balanced Fund has had
fluctuating aggregate net assets ranging from $26,632,000 at September 30,
1994, to $23,497,000 at May 30, 1997. As a result of this
19
stagnant growth in its aggregate net asset level, Global Balanced Fund has
incurred high expense ratios and does not enjoy economies of scale. As of
May 30, 1997, International Equity Portfolio had aggregate net assets of
$38,213,000. The ratio of total expenses to average net assets for the
fiscal year ended September 30, 1996, for Global Balanced Fund was 2.15%
and 2.80% for the Class A and Class B shares, respectively, including fee
waivers and expense reimbursements. If fee waivers and expense
reimbursements are excluded, the ratio of total expenses to average net
assets for the fiscal year ended September 30, 1996, for Global Balanced
Fund was 2.59% and 3.21% for Class A and Class B shares, respectively. The
estimated ratio of total expenses to average net assets for the fiscal year
ending October 31, 1997, for International Equity Portfolio is 2.15% and
2.80% (annualized) for the Class A and Class B shares, respectively, net of
fee waivers and expense reimbursements. The estimated ratios of total
expenses to average net assets on a gross basis for the fiscal year ending
October 31, 1997, for International Equity Portfolio are 2.50% and 3.33%
(annualized) for the Class A and Class B shares, respectively.
- SIMILARITIES OF THE FUNDS: In addition, International Equity Portfolio and
Global Balanced Fund have a number of similarities that led to
consideration of the Reorganization. Both Global Balanced Fund and
International Equity Portfolio invest a significant portion of their assets
in foreign equity securities, although Global Balanced Fund also invests in
domestic equity securities and places a greater emphasis on debt
securities. Global Balanced Fund and International Equity Portfolio both
pay dividends of any net investment income and make distributions of any
net capital gains at least annually. In addition, each Fund is managed by
SAAMCo, advised by unaffiliated investment advisers, and distributed by
SunAmerica Capital Services, Inc., and has similar purchase, redemption and
exchange privileges.
- TAX-FREE NATURE OF TRANSACTION; LACK OF DILUTION: The Trustees were
informed that the proposed Reorganization involving Global Balanced Fund
and International Equity Portfolio would be accomplished without the
imposition of federal income taxes on either Global Balanced Fund or its
shareholders. In addition, the Trustees were informed that the interests
of Global Balanced Fund shareholders would not be materially diluted as a
result of the proposed Reorganization and that the Global Balanced Fund
shareholders would receive shares of International Equity Portfolio equal
in value to the aggregate value of their Global Balanced Fund shares.
THE BOARD OF TRUSTEES OF SUNAMERICA EQUITY FUNDS, INCLUDING THE INDEPENDENT
TRUSTEES, UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF GLOBAL BALANCED FUND
VOTE FOR THE REORGANIZATION.
20
CONSIDERATIONS OF THE BOARD OF DIRECTORS OF STYLE SELECT SERIES
The Board of Directors of Style Select Series, including the independent
Directors, has unanimously concluded that consummation of the Reorganization is
in the best interests of International Equity Portfolio and its shareholders and
that the interests of International Equity Portfolio shareholders would not be
diluted as a result of the Reorganization, and has unanimously voted to approve
the Agreement.
TERMS OF THE AGREEMENT
On the Closing Date, all the assets and liabilities of Global Balanced Fund
will be transferred to International Equity Portfolio in exchange for Class A
and Class B shares of International Equity Portfolio on the basis of relative
net asset value. Global Balanced Fund will then distribute to its shareholders
the shares of International Equity Portfolio received by Global Balanced Fund
pursuant to the terms of the Agreement in complete liquidation of Global
Balanced Fund. Immediately upon distribution, the shares of International
Equity Portfolio received by Global Balanced Fund's shareholders will have an
aggregate net asset value equal to the aggregate net asset value of the shares
of the Acquired Fund held immediately prior to the Reorganization.
As of the Closing Date, International Equity Portfolio will, through its
transfer agent, credit on its books and confirm in writing an appropriate number
of its Class A and Class B shares to each shareholder of Global Balanced Fund,
regardless of whether such shareholder holds physically issued certificates.
International Equity Portfolio will not issue share certificates in connection
with the Reorganization. With respect to any Global Balanced Fund shareholder
holding Global Balanced Fund receipts for shares as of the Closing Date, until
International Equity Portfolio is notified by Equity Funds' transfer agent that
such shareholder has surrendered his or her outstanding Global Balanced Fund
receipts for shares or, in the event of lost, stolen or destroyed receipts for
shares, posted adequate bond or submitted a lost certificate form, as the case
may be, International Equity Portfolio will not permit such shareholder to (1)
receive dividends or other distributions on International Equity Portfolio
shares in cash (although such dividends and distributions shall be credited to
the account of such shareholder established on International Equity Portfolio's
books as described above, as provided in the next sentence), (2) exchange
International Equity Portfolio shares credited to such shareholder's account for
shares of other SunAmerica sponsored funds as provided in the prospectus of
International Equity Portfolio, or (3) pledge or redeem such shares. In the
event that a shareholder is not permitted to receive dividends or other
distributions on International Equity Portfolio shares in cash as provided in
the preceding sentence, International Equity Portfolio shall pay such dividends
or other distributions in additional International Equity Portfolio shares,
notwithstanding any election such shareholder shall have made previously with
respect to the payment of dividends or other distributions on shares of Global
Balanced Fund. Global Balanced Fund will, at its expense, request its
shareholders to surrender their outstanding
21
Global Balanced Fund receipts for shares, post adequate bond or submit a lost
certificate form, as the case may be.
The Agreement sets forth certain additional conditions to the obligations
of the parties to proceed with the Reorganization, including the approval of the
Reorganization by shareholders of Global Balanced Fund, an opinion of counsel as
to tax matters (depending on then-existing facts and circumstances) and the
accuracy of various representations and warranties of Global Balanced Fund and
International Equity Portfolio. Further, if the Reorganization is not approved
at the Meeting by shareholders of Global Balanced Fund, Global Balanced Fund
will continue to operate separately; however, the proposal may be resubmitted to
shareholders of Global Balanced Fund, or the Board of Trustees of SunAmerica
Equity Funds may consider what other action, if any, should be taken with
respect to Global Balanced Fund.
The foregoing description of the Agreement is qualified in its entirety by
the terms and provisions of the Agreement, a copy of which is attached hereto as
Exhibit A.
DESCRIPTION OF SHARES TO BE ISSUED
Full and fractional Class A and Class B shares of International Equity
Portfolio will be issued without the imposition of a sales charge or other fee
to the shareholders of Global Balanced Fund in accordance with the procedures
described above. Class A and Class B shares to be issued in the Reorganization
will be fully paid and nonassessable when issued and transferable without
restriction and will have no preemptive or conversion rights. Reference is
hereby made to the Prospectus of Style Select Series, enclosed herewith for
additional information about Class A and Class B shares of International Equity
Portfolio. A shareholder's holding period for Class B shares of International
Equity Portfolio received pursuant to the Reorganization will include the
shareholder's holding period for Global Balanced Fund shares surrendered in
exchange therefor for purposes of determining any applicable CDSC upon
redemption of such shares as well as the conversion schedule into Class A
shares.
CERTAIN EFFECTS OF THE REORGANIZATION ON SHAREHOLDERS OF GLOBAL BALANCED FUND
Upon consummation of the Reorganization, the prior election of Global
Balanced Fund's shareholders to reinvest dividends and distributions in
additional shares or to receive dividends or distributions in cash will continue
in effect until changed as set forth in the Prospectus of Style Select Series
(such options for reinvestment being identical to those of Global Balanced
Fund). Shareholders of Global Balanced Fund will receive shares of International
Equity Portfolio having, on the Closing Date, the equivalent value in the
aggregate of the shares of Global Balanced Fund previously held, in accordance
with the terms of the Agreement.
22
EXPENSES OF THE REORGANIZATION
SAAMCo will bear all of the expenses in connection with the Reorganization.
FEDERAL INCOME TAX CONSEQUENCES
Each Fund has elected to qualify as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code"), and International
Equity Portfolio intends to continue to so qualify.
As a condition to the Reorganization, the Funds will receive an opinion
from Shereff, Friedman, Hoffman & Goodman, LLP, counsel to the Funds, to the
effect that, on the basis of the existing provisions of the Code, current
administrative rules and court decisions, for federal income tax purposes: (1)
the Reorganization as set forth in the Agreement will constitute a tax-free
reorganization under Section 368(a)(1)(C) of the Code; (2) no gain or loss will
be recognized by International Equity Portfolio upon its receipt of Global
Balanced Fund's assets solely in exchange for Class A and Class B shares of
International Equity Portfolio; (3) no gain or loss will be recognized by Global
Balanced Fund upon the transfer of its assets to International Equity Portfolio
solely in exchange for Class A and Class B shares of International Equity
Portfolio and the assumption of Global Balanced Fund's liabilities, if any, or
upon the distribution (whether actual or constructive) of the Class A and Class
B shares of International Equity Portfolio to Global Balanced Fund shareholders
in exchange for their shares of the Class A and Class B shares of International
Equity Portfolio; (4) no gain or loss will be recognized by shareholders of
Global Balanced Fund upon the exchange of their Global Balanced Fund shares for
Class A and Class B shares of International Equity Portfolio; (5) the tax basis
of Global Balanced Fund's assets acquired by International Equity Portfolio will
be the same as the tax basis of such assets to Global Balanced Fund immediately
prior to the Reorganization; (6) the tax basis of Class A and Class B shares of
International Equity Portfolio received by each shareholder of Global Balanced
Fund pursuant to the Agreement will be the same as the tax basis of Global
Balanced Fund shares held by such shareholder immediately prior to the
Reorganization; (7) the holding period of the assets of Global Balanced Fund in
the hands of International Equity Portfolio will include the period during which
those assets were held by Global Balanced Fund; and (8) the holding period of
Class A and Class B shares of International Equity Portfolio received by each
shareholder of Global Balanced Fund will include the period during which Global
Balanced Fund shares exchanged therefor were held by such shareholder, provided
the Global Balanced Fund shares were held as capital assets on the date of the
Reorganization.
The opinion of counsel will be based upon certain representations made by
SunAmerica Equity Funds and Style Select Series. While an opinion of counsel
does not bind the Internal Revenue Service or the courts, it will reflect such
counsel's view, as of the closing of the Reorganization, as to the expected
federal income tax treatment of the Reorganization. If the Internal Revenue
Service were to take a position contrary to the views expressed by such
23
counsel, and succeed in asserting such position, Global Balanced Fund would
be treated as having sold its assets for their fair market value in a taxable
transaction, shareholders would be treated as having received shares of
International Equity Portfolio in a transaction in which gain or loss would be
recognized for federal income tax purposes and International Equity Portfolio
would be treated for such purposes as having purchased the assets of Global
Balanced Fund for their fair market value.
Shareholders should consult their tax advisers regarding the effect of the
proposed transaction in light of their individual circumstances. As the
foregoing discussion relates only to federal income tax consequences,
shareholders should also consult their tax advisers as to the state and local
tax consequences of such transactions.
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS
SunAmerica Equity Funds is an open-end management investment company that
currently offers six different investment portfolios. It is organized as a
business trust under the laws of the Commonwealth of Massachusetts and its
Declaration of Trust permits the Trustees to issue an unlimited number of full
and fractional shares of beneficial interest ($.01 par value per share) in
separate series and classes. Global Balanced Fund, a portfolio of SunAmerica
Equity Funds, consists of two classes of shares, designated Class A and Class B.
Each shareholder is entitled to a full vote for each full share of beneficial
interest held. Each class represents an interest in the same assets of the Fund
and is identical in all respects except that each class bears certain
distribution expenses and has voting rights with respect to certain distribution
and service plans. Except for the conversion feature applicable to the Class B
shares, there are no conversion, preemptive or other subscription rights. In
the event of liquidation, each share of Global Balanced Fund is entitled to its
portion of all of the Fund's assets after all debt and expenses of the Fund have
been paid. Since Class B shares generally bear higher distribution expenses
than Class A shares, the liquidation proceeds to shareholders of Class B shares
are likely to be lower than to Class A shareholders.
Under Massachusetts law, shareholders of a business trust, such as
SunAmerica Equity Funds, in certain circumstances may be held personally liable
as partners for the obligations of the trust. However, the Declaration of Trust
of SunAmerica Equity Funds contains an express disclaimer of shareholder
liability for acts or obligations of SunAmerica Equity Funds. The Declaration of
Trust also provides for indemnification out of SunAmerica Equity Funds' 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
Global Balanced Fund, is limited to the unlikely circumstance in which Global
Balanced Fund itself would be unable to meet its obligations. Under Maryland
law, shareholders of a corporation, such as Style Select Series, will not be
held personally liable for the obligations of the corporation.
Like SunAmerica Equity Funds, Style Select Series is an open-end management
investment company. Style Select Series currently offers four separate
investment portfolios. It is organized as a Maryland corporation and is
authorized to issue one billion (1,000,000,000)
24
shares of common stock (par value $0.0001 per share). International Equity
Portfolio, a series of Style Select Series, consists of four classes, designated
Class A, Class B, Class C and Class Z, each of which consists of twenty-five
million (25,000,000) shares. Only Class A, Class B and Class C shares are
currently being offered to the public. Each shareholder is entitled to a full
vote for each full share of common stock held. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of International Equity Portfolio is entitled to its portion of all of the
Fund's assets after all debt and expenses of the Fund have been paid. Since
Class B and Class C shares generally bear higher distribution expenses than
Class A shares, the liquidation proceeds to shareholders of Class B and Class C
shares are likely to be lower than to Class A shareholders. Class C shares of
International Equity Portfolio are not being offered hereby and will not be
issued in connection with the Reorganization.
Shares of both Global Balanced Fund and International Equity Portfolio are,
when issued as described in their respective Prospectus, fully paid,
nonassessable by the respective Fund, fully transferrable and redeemable at the
option of the holder. SunAmerica Equity Funds' Declaration of Trust and Style
Select Series' Articles of Incorporation permit the Board of Trustees or
Directors, respectively, to authorize the creation of additional series of
beneficial interest or common stock, respectively, and classes within such
series, with such preferences, privileges, limitations and voting and dividend
rights as each Board may determine.
Neither SunAmerica Equity Funds' Declaration of Trust nor Style Select
Series' Articles of Incorporation requires annual meetings of shareholders
except as required under the 1940 Act. Shareholder approval is necessary only
for certain changes in operations or the election of Trustees/Directors under
certain circumstances. No shares have cumulative voting rights for the
election of Trustees/Directors. In addition, each Fund's Declaration of Trust
or Articles of Incorporation permit a shareholder meeting to be called if
requested in writing by holders of record of more than 10% or more of the
outstanding shares of the Fund.
25
FINANCIAL INFORMATION
CAPITALIZATION
The capitalization of Class A and Class B shares of each Fund as of April
30, 1997, and the pro forma combined capitalization as of that date after giving
effect to the Reorganization are as follows:
[Download Table]
International Equity
Global Balanced International Portfolio
Fund Equity Portfolio Pro Forma Combined
(CLASS A) (CLASS A) (CLASS A)*
--------- -------- -------
Net Assets $7,944,521 $22,994,862 $30,939,383
Shares Outstanding 1,020,559 1,841,936 2,478,309
Net Asset Value per Share $7.78 $12.48 $12.48
Maximum Sales Charge $0.47 $0.76 $0.76
Maximum Offering Price $8.25 $13.24 $13.24
International Equity
Global Balanced International Portfolio
Fund Equity Portfolio Pro Forma Combined
(CLASS B) (CLASS B) (CLASS B)*
--------- -------- -------
Net Assets $15,552,748 $14,123,293 $29,676,041
Shares Outstanding 2,010,954 1,134,927 2,384,724
Net Asset Value per Share $7.73 $12.44 $12.44
* If the Reorganization is approved, it is anticipated that a reverse stock
split for Global Balanced Fund will occur as of the close of business on the
Closing Date, which will have the effect of equating the net asset value of
Global Balanced Fund to that of International Equity Portfolio. Such reverse
stock split will not affect the aggregate net asset value of the shares of
Global Balanced Fund. The Pro Forma combined information reflects a
hypothetical 1.6037118052 Class A and 1.6090250165 Class B reverse stock split
for Global Balanced Fund as of the close of business on April 30, 1997.
INFORMATION ABOUT INTERNATIONAL EQUITY PORTFOLIO
AND GLOBAL BALANCED FUND
INTERNATIONAL EQUITY PORTFOLIO
Information about International Equity Portfolio and Style Select Series is
contained in the Style Select Series prospectus dated May __, 1997, a copy of
which is enclosed herewith.
26
Additional information about International Equity Portfolio and Style Select
Series is included in the Statement of Additional Information of Style Select
Series dated May __, 1997 and the Statement of Additional Information (relating
to this Proxy Statement and Prospectus). Copies of such Statements of
Additional Information, which have been filed with the SEC, may be obtained upon
request and without charge by contacting Style Select Series at 1-800-858-8850,
or by writing Style Select Series at The SunAmerica Center, 733 Third Avenue,
New York, New York 10017-3204. Style Select Series is subject to the
informational requirements of the Securities Act of 1933, as amended (the "1933
Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
1940 Act and in accordance therewith files reports and other information with
the SEC. Reports, proxy and information statements, charter documents and other
information filed by Style Select Series can be obtained by calling or writing
Style Select Series and can also be inspected and copied by the public at the
public reference facilities maintained by the SEC in Washington, D.C. located at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its
regional offices located at [Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, IL 60661 and 13th Floor, Seven World Trade Center, New
York, NY 10048]. Copies of such material can be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services, SEC, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
This Proxy Statement and Prospectus, which constitutes part of a
Registration Statement filed by Statement of Additional Information with the SEC
under the 1933 Act, omits certain of the information contained in the
Registration Statement. Reference is hereby made to the Registration Statement
and to the exhibits thereto for further information with respect to
International Equity Portfolio and the shares offered hereby. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed with the SEC.
GLOBAL BALANCED FUND
Information about Global Balanced Fund and SunAmerica Equity Funds is
contained in the Prospectus of SunAmerica Equity Funds dated January 30, 1997,
the Annual Report to Shareholders dated September 30, 1996, the Semi-Annual
Report to Shareholders dated March 31, 1997, the Statement of Additional
Information of SunAmerica Equity Funds dated January 30, 1997, and the Statement
of Additional Information (relating to this Proxy Statement and Prospectus).
Copies of such prospectus, Annual Report, Semi-Annual Report and Statements of
Additional Information, which have been filed with the SEC, may be obtained upon
request and without charge from SunAmerica Equity Funds by calling
1-800-858-8850 or by writing to SunAmerica Equity Funds at SunAmerica Equity
Funds, The SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204.
SunAmerica Equity Funds is subject to the informational requirements of the 1933
Act, the 1934 Act and the 1940 Act and in accordance therewith files reports and
other information with the SEC. Reports, proxy and information statements,
charter documents and other information filed by SunAmerica Equity Funds can be
27
obtained by calling or writing SunAmerica Equity Funds and can also be inspected
at the public reference facilities maintained by the SEC or obtained at
prescribed rates at the addresses listed in the previous section.
INFORMATION CONCERNING THE MEETING
VOTING INFORMATION
Proxies in the form enclosed with this Proxy Statement/Prospectus are being
solicited by the Board of Trustees of SunAmerica Equity Funds for use at the
Meeting. If the proxy cards in the accompanying form are properly executed and
returned, the shares of Global Balanced Fund represented thereby will be voted
as instructed on the proxy. If no instructions are given, such shares will be
voted FOR the proposed Reorganization and in the discretion of the proxies named
in the proxy card, on any other proposals to properly come before the Meeting or
any adjournment thereof. Any proxy may be revoked by a shareholder prior to its
exercise upon written notice to the Secretary of SunAmerica Equity Funds, by the
shareholder signing and sending a later-dated proxy, or by the vote of a
shareholder cast in person at the Meeting.
The costs of printing and mailing the accompanying Notice of Special
Meeting and this Proxy Statement and Prospectus and the costs of the Meeting
will be borne by Global Balanced Fund. The legal and accounting costs of
preparing the accompanying Notice of Special Meeting and this Proxy Statement
and Prospectus will be borne pro rata by Global Balanced Fund and International
Equity Portfolio based on relative net assets. In addition to the use of the
mail, proxies may be solicited by telephone or telecopier by officers, employees
and agents of SunAmerica Equity Funds on behalf of the Board of Trustees,
expenses of which may be charged to Global Balanced Fund. If SunAmerica Equity
Funds determines that it is necessary to retain a proxy soliciting firm to
assist in the solicitation of proxies for the Meeting, the cost of such firm
will be borne by Global Balanced Fund. The mailing address of SunAmerica Equity
Funds is The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204.
Shareholders of record at the close of business on June 30, 1997 are
entitled to vote at the Meeting. Each share of Global Balanced Fund is entitled
to one vote with respect to the proposed Reorganization. On June 30, 1997 there
were issued and outstanding an aggregate of ______ shares of Global Balanced
Fund, including _____ Class A shares and _____ Class B shares. See "Security
Ownership of Certain Shareholders and Management."
As of the record date, there were issued and outstanding an aggregate of
___ shares, including ___ Class A shares, ___ Class B shares and ___ Class C
shares, of International Equity Portfolio. See "Security Ownership of Certain
Shareholders and Management."
If, by the time scheduled for the Meeting, a quorum of shareholders of
Global Balanced Fund is not present or if a quorum of Global Balanced Fund's
shareholders is present but sufficient
28
votes in favor of the Reorganization are not received, SunAmerica Equity Funds
may propose one or more adjournments of the Meeting to permit further
solicitation of proxies from shareholders of Global Balanced Fund. Any such
adjournment will require the vote of a majority of the shares of the Global
Balanced Fund present in person or by proxy at the session of the Meeting to be
adjourned. In the event of a proposal to adjourn the Meeting, the persons named
as proxies will vote the proxies in favor of such adjournment if they determine
that such adjournment and additional solicitation is reasonable and in the
interest of Global Balanced Fund's shareholders.
A quorum for the transaction of business at the Meeting is constituted by
the presence in person or by proxy of holders of a majority of the outstanding
shares of Global Balanced Fund entitled to vote at the Meeting. If a proxy is
properly executed and returned accompanied by instructions to withhold authority
("non-vote"), or is marked with an abstention, the shares represented thereby
will be considered to be present at the Meeting for determining the existence of
a quorum for the transaction of business. Approval of the Reorganization
requires the affirmative vote of a majority of Global Balanced Fund's shares
represented in person or by proxy and entitled to vote at the Meeting. The
shares represented by a proxy that constitutes a non-vote or an abstention will
be considered present at the Meeting for purposes of determining a quorum for
the transaction of business but, not being cast in favor, will have the effect
of a vote against approval of the Reorganization. Approval of the
Reorganization by the shareholders of International Equity Portfolio is not
necessary.
SECURITY OWNERSHIP OF
CERTAIN SHAREHOLDERS AND MANAGEMENT
On June 30, 1997, the record date for the Meeting, the Trustees and
officers of SunAmerica Equity Funds as a group owned less than 1% of the
outstanding shares of Global Balanced Fund. To the best knowledge of SunAmerica
Equity Funds, as of the record date, no person[, except as set forth in the
table below,] owned beneficially or of record 5% or more of Global Balanced
Fund's outstanding shares.
On the record date, the Directors and officers of Style Select Series as a
group owned less than 1% of the outstanding shares of International Equity
Portfolio. To the best knowledge of Style Select Series, as of the record date,
no person[, except as set forth in the table below,] owned beneficially or of
record 5% or more of the outstanding shares of International Equity Portfolio.
[Download Table]
Name and Number of
Address of Shares owned of Percent Owned Number of
Record or Record and of Record and Shares Owned of Percent Owned
Beneficial Owner Beneficially Beneficially Record Only Of Record Only
---------------- --------------- ------------- -------------- ---------------
29
OTHER MATTERS
The Board of Trustees of SunAmerica Equity Funds knows of no other matters
that may come before the Meeting. If any such matters should properly come
before the Meeting, it is the intention of the persons named in the enclosed
form of proxy to vote such proxy in accordance with their best judgment.
SHAREHOLDER PROPOSALS
It is the present intention of the Board of Directors/Trustees of each Fund
not to hold annual meetings of shareholders unless the election of
Directors/Trustees is required under the 1940 Act nor to hold special meetings
of shareholders unless required by the 1940 Act or state law.
A shareholder proposal intended to be presented at any subsequent meeting
of the shareholders of Global Balanced Fund must be received by SunAmerica
Equity Funds a reasonable time before the Trustees' solicitation relating to
such meeting is made in order to be included in Global Balanced Fund's proxy
statement and form of proxy relating to that meeting. The mere submission of a
proposal by a shareholder does not guarantee that such proposal will be included
in the proxy statement because certain rules under the federal securities laws
must be complied with before the inclusion of the proposal is required. In the
event that the Reorganization is approved at this Meeting, it is not expected
that there will be any future shareholder meetings of Global Balanced Fund.
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE
IS REQUIRED ON THE ENCLOSED ENVELOPE IF MAILED IN THE UNITED STATES.
By Order of the Board of Trustees
Robert M. Zakem
SECRETARY
New York, NY
, 1997
------------
30
STATEMENT OF ADDITIONAL INFORMATION
JULY 2, 1997
Acquisition of the Assets of
SUNAMERICA GLOBAL BALANCED FUND
A SERIES OF
SUNAMERICA EQUITY FUNDS
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
800-858-8850
By and in exchange for Class A and Class B Shares of
INTERNATIONAL EQUITY PORTFOLIO
A SERIES OF
STYLE SELECT SERIES-SM-
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
800-858-8850
This Statement of Additional Information dated July 2, 1997 is not a
prospectus. A Prospectus and Proxy Statement dated July 2, 1997 related to the
above-referenced matter may be obtained from Style Select Series-SM-, The
SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204. This
Statement of Additional Information should be read in conjunction with such
Prospectus/Proxy Statement.
TABLE OF CONTENTS
1. Statement of Additional Information of Style Select Series dated May 30,
1997.
2. Statement of Additional Information of SunAmerica Equity Funds dated
January 30, 1997.
3. Annual Report of SunAmerica Equity Funds for the year ended September 30,
1996.
4. Semi-Annual Report of SunAmerica Equity Funds for the period ended March
31, 1997.
5. Pro Forma Statement of Assets and Liabilities.
2
ADDITIONAL INFORMATION ABOUT STYLE SELECT SERIES, INC. AND SUNAMERICA EQUITY
FUNDS
The Statement of Additional Information of Style Select Series dated May
30, 1997 is attached hereto and incorporated herein by reference.
The Statement of Additional Information of SunAmerica Equity Funds dated
January 30, 1997 is attached hereto and incorporated herein by reference.
The Annual Report of SunAmerica Equity Funds dated September 30, 1996, is
attached hereto and incorporated herein by reference.
The Semi-Annual Report of SunAmerica Equity Funds dated March 31, 1997, is
attached hereto and incorporated herein by reference.
Pro forma financial statements of International Equity Portfolio and Global
Balanced Fund as of April 30, 1997 are attached hereto and incorporated herein
by reference.
STYLE SELECT SERIES
Statement of Additional Information
dated May 30, 1997
The SunAmerica Center General Marketing and
733 Third Avenue Shareholder Information
New York, NY 10017-3204 (800) 858-8850
Style Select Series, Inc. (the "Fund") is a mutual fund consisting of
four different investment portfolios: the Aggressive Growth Portfolio, the
Mid-Cap Growth Portfolio, the Value Portfolio and the International Equity
Portfolio (each, a "Portfolio"). Each Portfolio is managed by SunAmerica Asset
Management Corp. ("SunAmerica"). The assets of each Portfolio are normally
allocated among at least three investment advisers (each, an "Adviser"), each of
which will be independently responsible for advising its respective portion of
the Portfolio's assets. The Advisers may include SunAmerica, and otherwise will
consist of professional investment advisers selected by SunAmerica subject to
the review and approval of the Fund's Board of Directors. In choosing Advisers,
SunAmerica will seek to obtain, within each Portfolio's overall objective,
several separate and distinct investment styles.
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Fund's Prospectus dated May 30, 1997. To
obtain a Prospectus, please call the Fund at (800) 858-8850. Capitalized terms
used herein but not defined have the meanings assigned to them in the
Prospectus.
TABLE OF CONTENTS
Page
The Fund ................................................................B-2
Investment Objectives and Policies.......................................B-2
Portfolio Turnover......................................................B-29
Investment Restrictions................................................ B-30
Directors and Officers..................................................B-32
Advisers, Distributor and Administrator.................................B-36
Portfolio Transactions and Brokerage....................................B-41
Additional Information Regarding Purchase of Shares.....................B-42
Additional Information Regarding Redemption of Shares...................B-47
Determination of Net Asset Value........................................B-47
Performance Data........................................................B-49
Dividends, Distributions and Taxes......................................B-53
Retirement Plans........................................................B-57
Description of Shares...................................................B-58
Additional Information..................................................B-59
Financial Statements....................................................B-60
Appendix................................................................B-61
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Fund, SunAmerica, any 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 may not lawfully be made.
THE FUND
The Fund, organized as a Maryland corporation on July 3, 1996, is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Fund consists of four Portfolios,
each consisting of Class A, Class B, Class C and Class Z shares. Only Class A,
Class B and Class C Shares are currently being offered to the public.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each of the Portfolios are
described in the Fund's Prospectus. Certain types of securities in which the
Portfolios may invest and certain investment practices which the Portfolios may
employ, which are described under "Investment Techniques and Risk Factors" in
the Prospectus, are discussed more fully below.
Warrants. A Portfolio may invest in warrants which give the holder of
the warrant a right to purchase a given number of shares of a particular issue
at a specified price until expiration. Such investments generally can provide a
greater potential for profit or loss than investments of equivalent amounts in
the underlying common stock. The prices of warrants do not necessarily move with
the prices of the underlying securities. If the holder does not sell the
warrant, he risks the loss of his entire investment if the market price of the
underlying stock does not, before the expiration date, exceed the exercise price
of the warrant plus the cost thereof. Investment in warrants is a speculative
activity. Warrants pay no dividends and confer no rights (other than the right
to purchase the underlying stock) with respect to the assets of the issuer.
Investment in Small, Unseasoned Companies. As described in the
Prospectus, each Portfolio 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. If other
investment companies and investors who invest in such issuers trade the same
securities when a Portfolio attempts to dispose of its holdings, the Portfolio
may receive lower prices than might otherwise be obtained.
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.
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.
B-2
Each Portfolio may invest in securities of foreign issuers in the form
of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
Global Depositary Receipts (GDRs) or other similar securities convertible into
securities of foreign issuers. ADRs are securities, typically issued by a U.S.
financial institution, that evidence ownership interests in a security or a pool
of securities issued by a foreign issuer and deposited with the depository. ADRs
may be sponsored or unsponsored. A sponsored ADR is issued by a depository which
has an exclusive relationship with the issuer of the underlying security. An
unsponsored ADR may be issued by any number of U.S. depositories. Holders of
unsponsored ADRs generally bear all the costs associated with establishing the
unsponsored ADR. The depository of an unsponsored ADR is under no obligation to
distribute shareholder communications received from the underlying issuer or to
pass through to the holders of the unsponsored ADR voting rights with respect to
the deposited securities or pool of securities. A Portfolio 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 Portfolio may purchase securities in local markets
and direct delivery of these ordinary shares to the local depository of an ADR
agent bank in the foreign country. Simultaneously, the ADR agents create a
certificate which settles at the Fund's custodian in three days. The Portfolio
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 Portfolio's investment
policies, the Portfolio's investments in these types of securities will be
deemed to be investments in the underlying securities. Generally ADRs, in
registered form, are dollar denominated securities designed for use in the U.S.
securities markets, which represent and may be converted into the underlying
foreign security. EDRs, in bearer form, are designed for use in the European
securities markets.
Investments in foreign securities, including securities of developing
countries, present special additional investment risks and considerations not
typically associated with investments in domestic securities, including
reduction of income by foreign taxes; fluctuation in value of foreign portfolio
investments due to changes in currency rates and control regulations (e.g.,
currency blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers; less volume on foreign exchanges than on U.S. exchanges; greater
volatility and less liquidity on foreign markets than in the U.S.; less
regulation of foreign issuers, stock exchanges and brokers than the U.S.;
greater difficulties in commencing lawsuits; higher brokerage commission rates
than the U.S.; increased possibilities in some countries of expropriation,
confiscatory taxation, political, financial or social instability or adverse
diplomatic developments; and differences (which may be favorable or unfavorable)
between the U.S. economy and foreign economies.
Passive Foreign Investment Companies ("PFICs"). The Aggressive Growth
Portfolio and International Equity Portfolio may invest in PFICs, which
are any foreign corporations which
B-3
generate certain amounts of passive income or hold certain amounts of assets for
the production of passive income. Passive income includes dividends, interest,
royalties, rents and annuities. To the extent that a Portfolio invests in PFICs,
income tax regulations may require the Portfolio to recognize income associated
with the PFIC prior to the actual receipt of any such income.
U.S. Government Securities. A Portfolio 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. A Portfolio may also invest in
securities issued by agencies of the U.S. government or instrumentalities of the
U.S. government. These obligations, including those which are guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. Obligations of the Government National
Mortgage Association ("GNMA"), the Farmers Home Administration and the
Export-Import Bank are backed by the full faith and credit of the United States.
In the case of securities not backed by the full faith and credit of the United
States, a component 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.
A Portfolio may, in addition to the U.S. government securities noted
above, invest in mortgage-backed securities (including private mortgage-backed
securities), such as GNMA, FNMA or FHLMC certificates (as defined below), which
represent an undivided ownership interest in a pool of mortgages. The mortgages
backing these securities include conventional thirty-year fixed-rate mortgages,
fifteen-year fixed-rate mortgages, graduated payment mortgages and adjustable
rate mortgages. These certificates are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal
payments, including prepayments, on the mortgages underlying the certificate,
net of certain fees.
The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. The actual life of any
particular pool will be shortened by any unscheduled or early payments of
principal and interest. Principal prepayments generally result from the sale of
the underlying property or the refinancing or foreclosure of underlying
mortgages. The occurrence of prepayments is affected by a wide range of
economic, demographic and social factors and, accordingly, it is not possible to
predict accurately the average life of a particular pool. Yield on such pools is
usually computed by using the historical record of prepayments for that pool,
or, in the case of newly-issued mortgages, the prepayment history of similar
pools. The actual prepayment experience of a pool of mortgage loans may cause
the yield realized by the Portfolio 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
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a
B-4
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 Portfolio receives may occur at higher or lower
rates than the original investment, thus affecting the yield of the Portfolio.
Monthly interest payments received by the Portfolio 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. A Portfolio 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
which evidence an undivided interest in a pool or pools of mortgages. GNMA
Certificates that a Portfolio 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 or the Farmers' Home Administration, or guaranteed by the
Veterans Administration. 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 Portfolio
has purchased the certificates at a premium in the secondary market.
FHLMC Certificates. The Federal Home Loan Mortgage Corporation
("FHLMC") issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCS") and guaranteed mortgage certificates ("GMCs")
(collectively, "FHLMC Certificates"). PCS resemble GNMA Certificates in that
each PC represents a pro rata share of all interest and principal payments made
and owed on the underlying pool. The FHLMC guarantees timely monthly payment of
interest (and, under certain circumstances, principal) of PCS and the ultimate
payment of principal.
B-5
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 Federal National Mortgage Association ("FNMA")
issues guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates represent a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
and principal on FNMA Certificates. The FNMA guarantee is not backed by the full
faith and credit of the U.S. Government.
Conventional mortgage pass-through securities ("Conventional Mortgage
Pass-Throughs") represent participation interests in pools of mortgage loans
that are issued by trusts formed by originators of the institutional investors
in mortgage loans (or represent custodial arrangements administered by such
institutions). These originators and institutions include commercial banks,
savings and loans associations, credit unions, savings banks, insurance
companies, investment banks or special purpose subsidiaries of the foregoing.
For federal income tax purposes, such trusts are generally treated as grantor
trusts or REMICs and, in either case, are generally not subject to any
significant amount of federal income tax at the entity level.
The mortgage pools underlying Conventional Mortgage Pass-Throughs
consist of conventional mortgage loans evidenced by promissory notes secured by
first mortgages or first deeds of trust or other similar security instruments
creating a first lien on residential or mixed residential and commercial
properties. Conventional Mortgage Pass-Throughs (whether fixed or adjustable
rate) provide for monthly payments that are a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees or other
amount paid to any guarantor, administrator and/or servicer of the underlying
mortgage loans. A trust fund with respect to which a REMIC election has been
made may include regular interests in other REMICs which in turn will ultimately
evidence interests in mortgage loans.
Conventional mortgage pools generally offer a higher rate of interest
than government and government-related pools because of the absence of any
direct or indirect government or agency payment guarantees. However, timely
payment of interest and principal of mortgage loans in these pools may be
supported by various forms of insurance or guarantees, including individual
loans, title, pool and hazard insurance and letters of credit. The insurance and
guarantees may be issued by private insurers and mortgage poolers. Although the
market for such securities is becoming increasingly liquid, mortgage-related
securities issued by private organizations may not be readily marketable.
Another type of mortgage-backed security in which each Portfolio may
invest is a collateralized mortgage obligation ("CMO"). CMOs are fully
collateralized bonds which are the general obligations of the issuer thereof
(e.g., the U.S. government, a U.S. government
B-6
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.
Principal and interest on the underlying mortgage assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the mortgage assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the mortgage assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
A wide variety of CMOs may be issued in the parallel pay or sequential
pay structures. These securities include accrual certificates (also known as
"Z-Bonds"), which only accrue interest at a specified rate until all other
certificates having an earlier final distribution date have been retired and are
converted thereafter to an interest-paying security, and planned amortization
class ("PAC") certificates, which are parallel pay CMOs which generally require
that specified amounts of principal be applied on each payment date to one or
more classes of CMOs (the "PAC Certificates"), even though all other principal
payments and prepayments of the mortgage assets are then required to be applied
to one or more other classes of the certificates. The scheduled principal
payments for the PAC Certificates generally have the highest priority on each
payment date after interest due has been paid to all classes entitled to receive
interest currently. Shortfalls, if any, are added to the amount payable on the
next payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to create
PAC tranches, one or more tranches generally must be created to absorb most of
the volatility in the underlying mortgage assets. These tranches tend to have
market prices and yields which are much more volatile than the PAC classes.
Each Portfolio 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 component
invests. A common type of stripped mortgage-backed security has one class
receiving some of the
B-7
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 a Portfolio'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 a Portfolio'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 Directors may be
considered liquid securities not subject to a Portfolio's limitation on
investments in illiquid securities.
Certain Risk Factors Relating to High-Yield Bonds. These bonds
present certain risks which are discussed below:
Sensitivity to Interest Rate and Economic Changes - High-yield
bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience
financial stress that would adversely affect their ability to service
their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a
bond defaults on its obligations to pay interest or principal or enters
into bankruptcy proceedings, a Portfolio may incur losses or expenses
in seeking recovery of amounts owed to it. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high-yield bonds and the Portfolio's net
asset value.
Payment Expectations - High-yield bonds may contain redemption
or call provisions. If an issuer exercises these provisions in a
declining interest rate market, a Portfolio would have to replace the
security with a lower yielding security, resulting in a decreased
return for investors. Conversely, a high-yield bond's value will
decrease in a rising interest rate market, as will the value of the
Portfolio's assets. If the Portfolio experiences unexpected net
redemptions, this may force it to sell high-yield bonds without regard
to their investment merits, thereby decreasing the asset base upon
which expenses can be spread and possibly reducing the Portfolio's rate
of return.
Liquidity and Valuation - There may be little trading in the
secondary market for particular bonds, which may affect adversely a
Portfolio's ability to value accurately or dispose of such bonds.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of
high-yield bonds, especially in a thin market.
B-8
Asset-Backed Securities. Each Portfolio may invest in asset-backed
securities. These securities, issued by trusts and special purpose corporations,
are backed by a pool of assets, such as credit card and automobile loan
receivables, representing the obligations of a number of different parties.
Asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicer to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. A
Portfolio will not pay any additional or separate fees for credit support. The
degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated or failure
of the credit support could adversely affect the return on an investment in such
a security.
Short-Term Debt Securities. As described in the Prospectus, in addition
to its primary investments, a Portfolio may also invest in the following types
of money market and short-term fixed-income securities:
Money Market Securities - Money Market securities may include
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, repurchase agreements, commercial paper, bankers'
acceptances, time deposits and certificates of deposit.
Commercial Bank Obligations - Certificates of deposit
(interest-bearing time deposits), bankers' acceptances (time drafts
drawn on a commercial bank where the
B-9
bank accepts an irrevocable obligation to pay at maturity) and
documented discount notes (corporate promissory discount notes
accompanied by a commercial bank guarantee to pay at maturity)
representing direct or contingent obligations of commercial banks
with total assets in excess of $1 billion, based on the latest
published reports. A Portfolio may also invest in obligations issued
by commercial banks with total assets of less than $1 billion if the
principal amount of these obligations owned by the Portfolio is
fully insured by the Federal Deposit Insurance Corporation ("FDIC").
Savings Association Obligations - Certificates of deposit
(interest-bearing time deposits) issued by mutual savings banks or
savings and loan associations with assets in excess of $1 billion and
whose deposits are insured by the FDIC. A Portfolio may also invest in
obligations issued by mutual savings banks or savings and loan
associations with total assets of less than $1 billion if the principal
amount of these obligations owned by the Portfolio is fully insured by
the FDIC.
Commercial Paper - Short-term notes (up to 12 months) issued
by corporations or governmental bodies. A Portfolio may only purchase
commercial paper judged by the Adviser to be of suitable investment
quality. This includes commercial paper that is (a) rated in the two
highest categories by Standard & Poor's Corporation ("Standard &
Poor's") and by Moody's Investors Service ("Moody's"), or (b) other
commercial paper deemed on the basis of the issuer's creditworthiness
to be of a quality appropriate for the Portfolio. See "Description of
Commercial Paper and Bond Ratings" for a description of the ratings. A
Portfolio will not purchase commercial paper described in (b) above if
such paper would in the aggregate exceed 15% of its total assets after
such purchase. The commercial paper in which a component may invest
includes variable amount master demand notes. Variable amount master
demand notes permit a Portfolio to invest varying amounts at
fluctuating rates of interest pursuant to the agreement in the master
note. These are direct lending obligations between the lender and
borrower, they are generally not traded, and there is no secondary
market. Such instruments are payable with accrued interest in whole or
in part on demand. The amounts of the instruments are subject to daily
fluctuations as the participants increase or decrease the extent of
their participation. Investments in these instruments are limited to
those that have a demand feature enabling the Portfolio unconditionally
to receive the amount invested from the issuer upon seven or fewer
days' notice. In connection with master demand note arrangements, the
Adviser, subject to the direction of the Directors, monitors on an
ongoing basis, the earning power, cash flow and other liquidity ratios
of the borrower, and its ability to pay principal and interest on
demand. The Adviser also considers the extent to which the variable
amount master demand notes are backed by bank letters of credit. These
notes generally are not rated by Moody's or Standard & Poor's and a
Portfolio may invest in them only if it is determined that at the time
of investment the notes are of comparable quality to the other
commercial paper in
B-10
which the Portfolio may invest. Master demand notes are considered to
have a maturity equal to the repayment notice period unless the Adviser
has reason to believe that the borrower could not make timely
repayment upon demand.
Corporate Bonds and Notes - A Portfolio may purchase corporate
obligations that mature or that may be redeemed in one year or less.
These obligations originally may have been issued with maturities in
excess of one year. A Portfolio may invest only in corporate bonds or
notes of issuers having outstanding short-term securities rated in the
top two rating categories by Standard & Poor's and Moody's. See
"Description of Commercial Paper and Bond Ratings" for description of
investment-grade ratings by Standard & Poor's and Moody's.
Government Securities - Debt securities maturing within one
year of the date of purchase include adjustable-rate mortgage
securities backed by GNMA, FNMA, FHLMC and other non-agency issuers.
Although certain floating or variable rate obligations (securities
whose coupon rate changes at least annually and generally more
frequently) have maturities in excess of one year, they are also
considered short-term debt securities. See "U.S. Government
Securities".
Repurchase Agreements. A Portfolio may enter into repurchase agreements
with banks, brokers or securities dealers. In such agreements, the seller agrees
to repurchase the security at a mutually agreed-upon time and price. The period
of maturity is usually quite short, either overnight or a few days, although it
may extend over a number of months. The repurchase price is in excess of the
purchase price by an amount which reflects an agreed-upon rate of return
effective for the period of time a Portfolio's money is invested in the
security. Whenever a Portfolio enters into a repurchase agreement, it obtains
collateral having a value equal to at least 102% of the repurchase price,
including accrued interest. The instruments held as collateral are valued daily
and if the value of the instruments declines, the Portfolio will require
additional collateral. If the seller defaults and the value of the collateral
securing the repurchase agreements declines, the Portfolio may incur a loss. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, realization of the collateral by the Portfolio may be delayed or
limited. The Directors have established guidelines to be used by the Adviser in
connection with transactions in repurchase agreements and will regularly monitor
each Portfolio's use of repurchase agreements. A Portfolio 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 Portfolio's net assets
that may be subject to repurchase agreements having a maturity of seven days or
less for temporary defensive purposes.
Hedging and Income Enhancement Strategies. Each Portfolio may write
(i.e., sell) call options ("calls") on securities that are traded on U.S. and
foreign securities exchanges and over-the-counter markets to enhance income
through the receipt of premiums from expired calls and any net profits from
closing purchase transactions. After writing such a covered call, up to 25% of a
Portfolio's total assets may be subject to calls. All such calls written by a
Portfolio must be
B-11
"covered" while the call is outstanding (i.e., the Portfolio must own the
securities subject to the call or other securities acceptable for applicable
escrow requirements). Calls on Futures (defined below) used to enhance income
must be covered by deliverable securities or by liquid assets segregated to
satisfy the Futures contract. If a call written by the Portfolio is exercised,
the Portfolio forgoes any profit from any increase in the market price above the
call price of the underlying investment on which the call was written.
Primarily for hedging purposes, and from time to time for income
enhancement, each Portfolio may use interest rate futures contracts, foreign
currency futures contracts and stock and bond index futures contracts, including
futures on U.S. government securities (together, "Futures"); forward contracts
on foreign currencies ("Forward Contracts"); and call and put options on equity
and debt securities, Futures, stock and bond indices and foreign currencies (all
the foregoing referred to as "Hedging Instruments"). Hedging Instruments may be
used to attempt to: (i) protect against possible declines in the market value of
a Portfolio's portfolio resulting from downward trends in the equity and debt
securities markets (generally due to a rise in interest rates); (ii) protect a
Portfolio's unrealized gains in the value of its equity and debt securities
which have appreciated; (iii) facilitate selling securities for investment
reasons; (iv) establish a position in the equity and debt securities markets as
a temporary substitute for purchasing particular equity and debt securities; or
(v) reduce the risk of adverse currency fluctuations.
A Portfolio's strategy of hedging with Futures and options on Futures
will be incidental to its activities in the underlying cash market. When hedging
to attempt to protect against declines in the market value of the portfolio, to
permit a Portfolio to retain unrealized gains in the value of portfolio
securities which have appreciated, or to facilitate selling securities for
investment reasons, a Portfolio 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 Portfolio 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 Portfolio
could: (i) purchase puts on that foreign currency and on foreign currency
Futures; (ii) write calls on that currency or on such Futures; or (iii) enter
into Forward Contracts at a lower rate than the spot ("cash") rate. Additional
information about the Hedging Instruments the Portfolio may use is provided
below.
Options
Options on Securities. As noted above, each Portfolio may write
and purchase call and put options on equity and debt securities.
When a Portfolio writes a call on a security it receives a premium and
agrees to sell the underlying security to a purchaser of a corresponding call on
the same security during the call period (usually not more than 9 months) at a
fixed price (which may differ from the market price of the underlying security),
regardless of market price changes during the call period. A Portfolio has
B-12
retained the risk of loss should the price of the underlying security decline
during the call period, which may be offset to some extent by the premium.
To terminate its obligation on a call it has written, a Portfolio 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 Portfolio retains the
underlying security and the premium received. If a Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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
Portfolio as writing a covered call. The premium a Portfolio 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 Portfolio 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
Portfolio (as the writer of the put) realizes a gain in the amount of the
premium. If the put is exercised, a Portfolio 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
Portfolio may incur a loss, equal to the sum of the sale price of the underlying
investment and the premium received minus the sum of the exercise price and any
transaction costs incurred.
A Portfolio 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 Portfolio 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
Portfolio. A Portfolio 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.
B-13
When a Portfolio 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 Portfolio owns enables the Portfolio 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
Portfolio 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 Portfolio does not own permits the
Portfolio 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 Portfolio 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 Portfolio will deposit in escrow liquid assets
with a value equal to or greater than the exercise price of the underlying
securities. A Portfolio therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets. As long as the
obligation of a Portfolio as the put writer continues, it may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring a Portfolio to take delivery of the underlying security against
payment of the exercise price. A Portfolio 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 Portfolio effects a closing purchase transaction by
purchasing a put of the same series as that previously sold. Once a Portfolio
has been assigned an exercise notice, it is thereafter not allowed to effect a
closing purchase transaction.
Options on Foreign Currencies. Each Portfolio may write and purchase
puts and calls on foreign currencies. A call written on a foreign currency by a
Portfolio is "covered" if the Portfolio owns the underlying foreign currency
covered by the call or has an absolute and immediate right to acquire that
foreign currency without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other foreign currency held in its portfolio. A put option is
"covered" if the Portfolio deposits with its custodian cash or liquid securities
with a value at least equal to the exercise price of the put option. A call
written by a Portfolio on a foreign currency is for cross-hedging purposes if it
is not covered, but is designed to provide a hedge against a decline in the U.S.
dollar value of a security which the Portfolio 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 Portfolio collateralizes
the option by maintaining in a segregated account with the Fund's custodian cash
or
B-14
liquid securities in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.
Options on Securities Indices. As noted above, each Portfolio 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 Portfolio buys a call on a securities index, it pays a premium. During
the call period, upon exercise of a call by a Portfolio, a seller of a
corresponding call on the same investment will pay the Portfolio 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
Portfolio 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
Portfolio's exercise of its put, to deliver to the Portfolio 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 Portfolio 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
Portfolio 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 Portfolio, and any loss or gain is realized for
tax purposes. All Futures transactions are effected through a clearinghouse
associated with the exchange on which the Futures are traded.
Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on a
Portfolio's current or intended investments in fixed-income securities. For
example, if a Portfolio owned long-term bonds and interest rates were expected
to increase, that Portfolio 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 Portfolio'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 Portfolio 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
Portfolio's interest rate futures contracts would be expected to increase at
approximately the same rate, thereby keeping the net asset value of that
Portfolio from
B-15
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 Portfolio 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 Portfolio'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 Portfolio's current or intended
investments from broad fluctuations in stock or bond prices. For example, a
Portfolio 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
Portfolio'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 Portfolio 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 Portfolio 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 Portfolio may purchase and sell foreign currency
futures contracts for hedging or income enhancement purposes to attempt to
protect its current or intended investments from fluctuations in currency
exchange rates. Such fluctuations could reduce the dollar value of portfolio
securities denominated in foreign currencies, or increase the cost of
foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant.
Each Portfolio 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 Portfolio's loss on the foreign currency futures contract may or
may not be offset by an increase in the value of the securities since a decline
in the price of the security stated in terms of the foreign currency may be
greater than the increase in value as a result of the change in exchange rates.
Conversely, each Portfolio 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 Portfolio 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 Portfolio will sustain
losses on its futures position which could reduce or eliminate the benefits of
the reduced cost of portfolio securities to be acquired.
B-16
Options on Futures. As noted above, the Portfolio may purchase and
write options on interest rate futures contracts, stock and bond index futures
contracts, forward 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 the portfolio. If
the Futures price at expiration of the option is below the exercise price, the
Portfolio will retain the full amount of the option premium, which provides a
partial hedge against any decline that may have occurred in the 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
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the
Portfolio intends to purchase. If a put or call option a Portfolio has written
is exercised, the Portfolio will incur a loss which will be reduced by the
amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its Options on Futures positions, a Portfolio's losses from exercised
Options on Futures may to some extent be reduced or increased by changes in the
value of portfolio securities.
A Portfolio 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
Portfolio 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
Portfolio 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 Portfolio will
increase prior to acquisition, due to a market advance or changes in interest or
exchange rates, a Portfolio 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 Portfolio will suffer a loss equal to
the price of the call but the securities which the Portfolio intends to purchase
may be less expensive.
Forward Contracts
A Forward Contract involves bilateral obligations of one party to
purchase, and another party to sell, a specific currency at a future date (which
may be any fixed number of days from the date of the contract agreed upon by the
parties), at a price set at the time the contract is entered into. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. No price is paid
or received upon the purchase or sale of a Forward Contract.
B-17
A Portfolio 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 Portfolio
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 Portfolio may enter into Forward Contracts with respect to specific
transactions. For example, when a Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when a
Portfolio anticipates receipt of dividend payments in a foreign currency, the
Portfolio 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
Portfolio 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 Portfolio 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 Portfolio 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 portfolio securities denominated in such foreign currency, or
when a Portfolio 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 Portfolio may,
in the alternative, enter into a Forward Contract to sell a different foreign
currency for a fixed U.S. dollar amount where the Portfolio 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 Portfolio are denominated ("cross-hedged").
A Portfolio 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").
The Portfolio 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
Portfolio is not able to cover its forward currency positions with underlying
portfolio securities, the Fund's custodian will place cash or liquid securities
in a separate account of the Portfolio having a value equal to the aggregate
amount of the Portfolio's commitments under Forward Contracts entered into with
respect to position hedges and cross-hedges. If the value of the securities
placed in a separate account declines, additional cash or securities will be
placed in the account on a daily basis so that the value of the account will
equal the amount of the Portfolio's commitments with respect to such contracts.
As an alternative to maintaining all or part of the separate account, a
Portfolio may purchase a call option permitting the Portfolio to purchase the
B-18
amount of foreign currency being hedged by a forward sale contract at a price no
higher than the Forward Contract price or the Portfolio may purchase a put
option permitting the Portfolio 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 Portfolio 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
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio to sustain
losses on these contracts and transactions costs.
At or before the maturity of a Forward Contract requiring a Portfolio
to sell a currency, the Portfolio 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 Portfolio will obtain, on the same maturity date,
the same amount of the currency that it is obligated to deliver. Similarly, a
Portfolio 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 Portfolio
would realize a gain or loss as a result of entering into such an offsetting
Forward Contract under either circumstance to the extent the exchange rate or
rates between the currencies involved moved between the execution dates of the
first contract and offsetting contract.
The cost to a Portfolio 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 Portfolio must evaluate the
credit and performance risk of each particular counterparty under a Forward
Contract.
Although a Portfolio 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 Portfolio 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.
B-19
Thus, a dealer may offer to sell a foreign currency to a Portfolio at one rate,
while offering a lesser rate of exchange should the Portfolio 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 Portfolios' escrow agent, through the facilities of
the Options Clearing Corporation ("OCC"), as to the securities on which the
Portfolio 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 Portfolio's entering into a
closing transaction.
An option position may be closed out only on a market which provides
secondary trading for options of the same series and there is no assurance that
a liquid secondary market will exist for any particular option. A Portfolio's
option activities may affect its turnover rate and brokerage commissions. The
exercise by a Portfolio of puts on securities will cause the sale of related
investments, increasing portfolio turnover. Although such exercise is within a
Portfolio's control, holding a put might cause the Portfolio to sell the related
investments for reasons which would not exist in the absence of the put. A
Portfolio will pay a brokerage commission each time it buys a put or call, sells
a call, or buys or sells an underlying investment in connection with the
exercise of a put or call. Such commissions may be higher than those which would
apply to direct purchases or sales of such underlying investments. Premiums paid
for options are small in relation to the market value of the related
investments, and consequently, put and call options offer large amounts of
leverage. The leverage offered by trading in options could result in a
Portfolio's net asset value being more sensitive to changes in the value of the
underlying investments.
In the future, each Portfolio 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 Portfolio's investment
objectives, legally permissible and adequately disclosed.
Regulatory Aspects of Hedging Instruments
Each Portfolio 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 Portfolio 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 Portfolio 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
Portfolio's assets committed to margin and option premiums, and (ii) enter into
non-hedging transactions, provided that the Portfolio may not enter into such
non-hedging transactions if, immediately thereafter, the sum of the amount of
initial margin deposits on the Portfolio'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
B-20
transactions. Margin deposits may consist of cash or securities acceptable to
the broker and the relevant contract market.
Transactions in options by a Portfolio are subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options were written or purchased on the
same or different exchanges or are held in one or more accounts or through one
or more exchanges or brokers. Thus, the number of options which a Portfolio 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
Portfolio purchases a Future, the Portfolio will maintain, in a segregated
account or accounts with its custodian bank, 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.
Tax Aspects of Hedging Instruments
Each Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). One of the
tests for such qualification is that less than 30% of its gross income must be
derived from gains realized on the sale of stock, securities and certain
financial instruments held for less than three months. This limitation may limit
the ability of a Portfolio to engage in options transactions and, in general, to
hedge investment risk or close out a hedge position.
Possible Risk Factors in Hedging
In addition to the risks discussed in the Prospectus and above, there
is a risk in using short hedging by selling Futures to attempt to protect
against decline in value of the 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 Portfolio's
securities. The ordinary spreads between prices in the cash and Futures markets
are subject to distortions due to differences in the natures of those markets.
First, all participants in the Futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close Futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
Futures markets. Second, the liquidity of the Futures markets depends 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.
B-21
If a Portfolio 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
Portfolio will realize a loss on the Hedging Instruments that is not offset by a
reduction in the price of the debt securities purchased.
Illiquid and Restricted Securities. No more than 15% of the value of a
Portfolio's net assets, determined as of the date of purchase, may be invested
in illiquid securities including repurchase agreements which have a maturity of
longer than seven days, interest-rate swaps, currency swaps, caps, floors and
collars, or in other securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them,
resulting in additional expense and delay. There will generally be a lapse of
time between a mutual fund's decision to sell an unregistered security and the
registration of such security promoting sale. Adverse market conditions could
impede a public offering of such securities. When purchasing unregistered
securities, each of the Portfolios will seek to obtain the right of registration
at the expense of the issuer (except in the case of Rule 144A securities).
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act for which there is a readily available market may be deemed
to be liquid. The Adviser will monitor the liquidity of such restricted
securities subject to the supervision of the Directors. In reaching liquidity
decisions the Adviser will consider, inter alia, pursuant to guidelines and
procedures established by the Directors, the following factors: (1) the
frequency of trades and quotes for the security; (2) the
B-22
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Commercial paper issues in which a Portfolio's net assets may be
invested include securities issued by major corporations without registration
under the Securities Act in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called private placement exemption from registration which is afforded by
Section 4(2) of the Securities Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Section 4(2) paper that is issued by a company that files reports
under the Securities Exchange Act of 1934 is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described above. A Portfolio'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 Directors. The Directors have
delegated to the Advisers the function of making day-to-day determinations of
liquidity with respect to Section 4(2) paper, pursuant to guidelines approved by
the Directors that require the Advisers to take into account the same factors
described above for other restricted securities and require the Advisers to
perform the same monitoring and reporting functions.
Hybrid Instruments; Indexed/Structured Securities. Hybrid Instruments,
including indexed or structured securities, have been developed and combine the
elements of futures contracts or options with those of debt, preferred equity or
a depository instrument. Generally, a Hybrid Instrument will be a debt security,
preferred stock, depository share, trust certificate, certificate of deposit or
other evidence of indebtedness on which a portion of or all interest payments,
and/or the principal or stated amount payable at maturity, redemption or
retirement, is determined by reference to prices, changes in prices, or
differences between prices, of securities, currencies, intangibles, goods,
articles or commodities (collectively "Underlying Assets") or by another
objective index, economic factor or other measure, such as interest rates,
currency exchange rates, commodity indices, and securities indices (collectively
"Benchmarks"). Thus, Hybrid Instruments may take a variety of forms, including,
but not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, preferred stock with dividend
rates determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Portfolio may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transactions
costs associated with buying and currency-hedging the foreign bond positions.
One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument
whose redemption price is linked to the average three year interest rate in a
designated group of countries. The redemption
B-23
price formula would provide for payoffs of greater than par if the average
interest rate was lower than a specified level, and payoffs of less than par if
rates were above the specified level. Furthermore, the Portfolio could limit the
downside risk of the security by establishing a minimum redemption price so that
the principal paid at maturity could not be below a predetermined minimum level
if interest rates were to rise significantly. The purpose of this arrangement,
known as a structured security with an embedded put option, would be to give the
Portfolio the desired European bond exposure while avoiding currency risk,
limiting downside market risk, and lowering transactions costs. Of course, there
is no guarantee that the strategy will be successful and the Portfolio could
lose money if, for example, interest rates do not move as anticipated or credit
problems develop with the issuer of the Hybrid.
The risks of investing in Hybrid Instruments reflect a combination of
the risks of investing in securities, options, futures and currencies. Thus, an
investment in a Hybrid Instrument may entail significant risks that are not
associated with a similar investment in a traditional debt instrument that has a
fixed principal amount, is denominated in U.S. dollars or bears interest either
at a fixed rate or a floating rate determined by reference to a common,
nationally published Benchmark. The risks of a particular Hybrid Instrument
will, of course, depend upon the terms of the instrument, but may include,
without limitation, the possibility of significant changes in the Benchmarks or
the prices of Underlying Assets to which the instrument is linked. Such risks
generally depend upon factors which are unrelated to the operations or credit
quality of the issuer of the Hybrid Instrument and which may not be readily
foreseen by the purchaser, such as economic and political events, the supply and
demand for the Underlying Assets and interest rate movements. In recent years,
various Benchmarks and prices for Underlying Assets have been highly volatile,
and such volatility may be expected in the future. Reference is also made to the
discussion of futures, options, and forward contracts herein for a discussion of
the risks associated with such investments.
Hybrid Instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the structure of
the particular Hybrid Instrument, changes in a Benchmark may be magnified by the
terms of the Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid
Instrument and the Benchmark or Underlying Asset may not move in the same
direction or at the same time.
Hybrid Instruments may bear interest or pay preferred dividends at
below market (or even relatively nominal) rates. Alternatively, Hybrid
Instruments may bear interest at above market rates but bear an increased risk
of principal loss (or gain). The latter scenario may result if "leverage" is
used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid
Instrument is structured so that a given change in a Benchmark or Underlying
Asset is multiplied to produce a greater value change in the Hybrid Instrument,
thereby magnifying the risk of loss as well as the potential for gain.
Hybrid Instruments may also carry liquidity risk since the instruments
are often "customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are
B-24
willing and able to buy such instruments in the secondary market may be smaller
than that for more traditional debt securities. In addition, because the
purchase and sale of Hybrid Instruments could take place in an over-the-counter
market without the guarantee of a central clearing organization or in a
transaction between the Portfolio and the issuer of the Hybrid Instrument, the
creditworthiness of the counter party or issuer of the Hybrid Instrument would
be an additional risk factor which the Portfolio would have to consider and
monitor. Hybrid Instruments also may not be subject to regulation of the CFTC,
which generally regulates the trading of commodity futures by U.S. persons, the
Securities and Exchange Commission (the "SEC"), which regulates the offer and
sale of securities by and to U.S. persons, or any other governmental regulatory
authority.
The various risks discussed above, particularly the market risk of such
instruments, may in turn cause significant fluctuations in the net asset value
of the Portfolio. Accordingly, each Portfolio will limit its investments in
Hybrid Instruments to 10% of total assets at the time of purchase. However,
because of their volatility, it is possible that a Portfolio's investment in
Hybrid Instruments will account for more than 10% of the Portfolio's return
(positive or negative).
When-Issued Securities and Firm Commitment Agreement. A Portfolio may
purchase or sell securities on a "when-issued" or "delayed delivery" basis and
may purchase securities on a firm commitment basis. Although a Portfolio 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
Portfolio 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 Portfolio 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 Portfolio 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. A
Portfolio will likewise segregate liquid assets in respect of securities sold on
a delayed delivery basis.
A Portfolio 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 Portfolio 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 Portfolio losing
the opportunity to obtain a price and yield considered to be advantageous. If a
Portfolio 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 firm commitment, it may incur a gain or loss. (At the time a Portfolio
makes a commitment to purchase or sell a security on a when-issued or firm
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.)
B-25
To the extent a Portfolio 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 Portfolio enters into such transactions only with the
intention of actually receiving or delivering the securities, although (as noted
above) when-issued securities and firm 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 of a purchase will affect
the value of such securities and may cause a loss to a Portfolio.
When-issued transactions and firm 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 Portfolio 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 Portfolio might sell portfolio securities and purchase the same or
similar securities on a when-issued or forward commitment basis, thereby
obtaining the benefit of currently higher cash yields.
Loans of Portfolio Securities. Consistent with applicable regulatory
requirements, each Portfolio may lend portfolio securities in amounts up to 33a%
of total assets to brokers, dealers and other financial institutions, provided,
that such loans are callable at any time by the Portfolio and are at all times
secured by cash or equivalent collateral. In lending its portfolio securities, a
Portfolio receives income while retaining the securities' potential for capital
appreciation. The advantage of such loans is that a Portfolio continues to
receive the interest and dividends on the loaned securities while at the same
time earning interest on the collateral, which will be invested in short-term
obligations. A loan may be terminated by the borrower on one business day's
notice or by a Portfolio at any time. If the borrower fails to maintain the
requisite amount of collateral, the loan automatically terminates, and the
Portfolio could use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Adviser to be creditworthy. On termination of the loan, the
borrower is required to return the securities to a component; and any gain or
loss in the market price of the loaned security during the loan would inure to
the Portfolio. Each Portfolio will pay reasonable finders', administrative and
custodial fees in connection with a loan of its securities or may share the
interest earned on collateral with the borrower. Loans of portfolio securities
will only be made to firms deemed by the Adviser to be creditworthy.
Since voting or consent rights which accompany loaned securities pass
to the borrower, each Portfolio 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 Portfolio's investment
in the securities which are the subject of the loan.
Reverse Repurchase Agreements. A Portfolio may enter into reverse
repurchase agreements with brokers, dealers, domestic and foreign banks or other
financial institutions that have been determined by the Adviser to be
creditworthy. In a reverse repurchase agreement, the Portfolio
B-26
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. It
may also be viewed as the borrowing of money by the Portfolio. The Portfolio's
investment of the proceeds of a reverse repurchase agreement is the speculative
factor known as leverage. A Portfolio 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. The
Portfolio will maintain with the Custodian a separate account with a segregated
portfolio of cash or liquid securities in an amount at least equal 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 Portfolio's
repurchase obligation, and the Portfolio'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."
Dollar Rolls. Each Portfolio may enter into "dollar rolls" in which a
Portfolio sells mortgage or other asset-backed securities ("Roll Securities")
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Portfolio foregoes principal and
interest paid on the Roll Securities. The Portfolio is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. The Portfolio also could be
compensated through the receipt of fee income equivalent to a lower forward
price. A "covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction. A
Portfolio will only enter into covered rolls. Because "roll" transactions
involve both the sale and purchase of a security, they may cause the reported
portfolio turnover rate to be higher than that reflecting typical portfolio
management activities.
Dollar rolls involve certain risks including the following: if the
broker-dealer to whom the Portfolio sells the security becomes insolvent, the
Portfolio's right to purchase or repurchase the security subject to the dollar
roll may be restricted and the instrument which the Portfolio is required to
repurchase may be worth less than an instrument which the Portfolio originally
held. Successful use of dollar rolls will depend upon the Adviser's ability to
predict correctly interest rates and in the case of mortgage dollar rolls,
mortgage prepayments. For these reasons, there is no assurance that dollar rolls
can be successfully employed.
Standby Commitments. Standby commitments are put options that entitle
holders to same day settlement at an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise. A Portfolio may acquire standby commitments to enhance the liquidity
of portfolio securities, but only when the issuers of the commitments present
minimal risk of default. Ordinarily, the Portfolio may not transfer a standby
commitment to a third party, although it could sell the underlying municipal
security to a third party at any time. A Portfolio may purchase
B-27
standby commitments separate from or in conjunction with the purchase of
securities subject to such commitments. In the latter case, the Portfolio would
pay a higher price for the securities acquired, thus reducing their yield to
maturity. Standby commitments will not affect the dollar-weighted average
maturity of the Portfolio, or the valuation of the securities underlying the
commitments. Issuers or financial intermediaries may obtain letters of credit or
other guarantees to support their ability to buy securities on demand. The
Adviser may rely upon its evaluation of a bank's credit in determining whether
to support an instrument supported by a letter of credit. Standby commitments
are subject to certain risks, including the ability of issuers of standby
commitments to pay for securities at the time the commitments are exercised; the
fact that standby commitments are not marketable by the Portfolio; and the
possibility that the maturities of the underlying securities may be different
from those of the commitments.
Interest-Rate Swaps, Mortgage Swaps, Caps, Collars and Floors. In order
to protect the value of portfolios from interest rate fluctuations and to hedge
against fluctuations in the fixed income market in which certain of the
Portfolios' investments are traded, the Portfolio may enter into interest-rate
swaps and mortgage swaps or purchase or sell interest-rate caps, floors or
collars. The Portfolio will enter into these hedging transactions primarily to
preserve a return or spread on a particular investment or portion of the
portfolio and to protect against any increase in the price of securities the
Portfolio anticipates purchasing at a later date. The Portfolio may also enter
into interest-rate swaps for non-hedging purposes. Interest-rate swaps are
individually negotiated, and the Portfolio expects to achieve an acceptable
degree of correlation between its portfolio investments and interest-rate
positions. A Portfolio will only enter into interest-rate swaps on a net basis,
which means that the two payment streams are netted out, with the Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. Interest-rate swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest-rate swaps is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make. If the other party to an
interest-rate swap defaults, the Portfolio's risk of loss consists of the net
amount of interest payments that the Portfolio is contractually entitled to
receive. The use of interest-rate swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. All of these investments may be
deemed to be illiquid for purposes of the Portfolio's limitation on investment
in such securities. Inasmuch as these investments are entered into for good
faith hedging purposes, and inasmuch as segregated accounts will be established
with respect to such transactions, the Fund believes such obligations do not
constitute senior securities and accordingly, will not treat them as being
subject to its borrowing restrictions. The net amount of the excess, if any, of
the Portfolio's obligations over its entitlements with respect to each
interest-rate swap will be accrued on a daily basis and an amount of cash or
liquid securities having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by a custodian that
satisfies the requirements of the 1940 Act. The Portfolio will also establish
and maintain such segregated accounts with respect to its total obligations
under any interest-rate swaps that are not entered into on a net basis and with
respect to any interest-rate caps, collars and floors that are written by the
Portfolio.
B-28
A Portfolio will enter into these transactions only with banks and
recognized securities dealers believed by the Adviser to present minimal credit
risk in accordance with guidelines established by the Board of Directors. If
there is a default by the other party to such a transaction, the Portfolio will
have to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps, collars and floors are
more recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.
Mortgage swaps are similar to interest-rate swaps in that they
represent commitments to pay and receive interest. The notional principal
amount, upon which the value of the interest payments is based, is tied to
reference pool or pools of mortgages.
The purchase of an interest-rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest-rate cap. The purchase of an interest-rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest-rate floor.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated for each Portfolio by
dividing (a) the lesser of purchases or sales of portfolio securities for the
fiscal year by (b) the monthly average of the value of portfolio securities
owned during the fiscal year. For purposes of this calculation, securities which
at the time of purchase had a remaining maturity of one year or less are
excluded from the numerator and the denominator. Transactions in Futures or the
exercise of calls written by a Portfolio may cause the Portfolio to sell
portfolio securities, thus increasing its turnover rate. The exercise of puts
also may cause a sale of securities and increase turnover; although such
exercise is within a Portfolio's control, holding a protective put might cause
the Portfolio to sell the underlying securities for reasons which would not
exist in the absence of the put. A Portfolio will pay a brokerage commission
each time it buys or sells a security in connection with the exercise of a put
or call. Some commissions may be higher than those which would apply to direct
purchases or sales of portfolio securities. Because each of the Advisers to each
Portfolio manages its portion of the Portfolio's assets independently, it is
possible that the same security may be purchased and sold on the same day by two
or more Advisers to the same Portfolio, resulting in higher brokerage
commissions for the Portfolio. It is not anticipated that the annual rate of
portfolio turnover will exceed 200%.
High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs which will be borne directly by a
Portfolio. High portfolio turnover may also involve a possible increase in
short-term capital gains or losses.
B-29
INVESTMENT RESTRICTIONS
The Fund has adopted for each Portfolio certain investment restrictions
that are fundamental policies and cannot be changed without the approval of the
holders of a majority of that Portfolio's outstanding shares. Such majority is
defined as the vote of the lesser of (i) 67% or more of the outstanding shares
present at a meeting, if the holders of more than 50% of the outstanding shares
are present in person or by proxy or (ii) more than 50% of the outstanding
shares. All percentage limitations expressed in the following investment
restrictions are measured immediately after the relevant transaction is made.
Each Portfolio may not:
1. Invest more than 25% of the Portfolio's total assets in the
securities of issuers in the same industry. Obligations of the U.S.
Government, its agencies and instrumentalities are not subject to this 25%
limitation on industry concentration.
2. Invest in real estate (including limited partnership interests but
excluding securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein); provided that a Portfolio may hold or
sell real estate acquired as a result of the ownership of securities.
3. Purchase or sell commodities or commodity contracts, except to the
extent that the Portfolio may do so in accordance with applicable law and the
Prospectus and Statement of Additional Information, as they may be amended from
time to time, and without registering as a commodity pool operator under the
Commodity Exchange Act. Any Portfolio may engage in transactions in put and call
options on securities, indices and currencies, spread transactions, forward and
futures contracts on securities, indices and currencies, put and call options on
such futures contracts, forward commitment transactions, forward foreign
currency exchange contracts, interest rate, mortgage and currency swaps and
interest rate floors and caps and may purchase hybrid instruments.
4. Make loans to others except for (a) the purchase of debt
securities; (b) entering into repurchase agreements; and (c) the lending of
its portfolio securities.
5. Borrow money, except that (i) each Portfolio may borrow from banks
in amounts up to 33a% of its total assets for temporary or emergency purposes,
(ii) each Portfolio may borrow for investment purposes to the maximum extent
permissible under the 1940 Act (i.e., presently 50% of net assets), and (iii) a
Portfolio may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. This policy shall not
prohibit a Portfolio's engaging in reverse repurchase agreements, dollar rolls
and similar investment strategies described in the Prospectus and Statement of
Additional Information, as they may be amended from time to time.
6. Issue senior securities as defined in the 1940 Act, except that each
Portfolio may enter into repurchase agreements, reverse repurchase agreements,
dollar rolls, lend its portfolio securities
B-30
and borrow money from banks, as described above, and engage in similar
investment strategies described in the Prospectus and Statement of Additional
Information, as they may be amended from time to time.
7. Engage in underwriting of securities issued by others, except to the
extent that the Portfolio may be deemed to be an underwriter in connection with
the disposition of portfolio securities of the Portfolio.
The following additional restrictions are not fundamental policies and
may be changed by the Directors without a vote of shareholders. Each Portfolio
may not:
8. Purchase securities on margin, provided that margin deposits in
connection with futures contracts, options on futures contracts and other
derivative instruments shall not constitute purchasing securities on margin.
9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and, to the extent related to the
segregation of assets in connection with the writing of covered put and call
options and the purchase of securities or currencies on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to forward contracts, options, futures contracts and
options on futures contracts. In addition, a Portfolio may pledge assets in
reverse repurchase agreements, dollar rolls and similar investment strategies
described in the Prospectus and Statement of Additional Information, as they may
be amended from time to time.
10. 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.
11. Enter into any repurchase agreement maturing in more than seven
days or investing in any other illiquid security if, as a result, more than 15%
of a Portfolio's net assets would be so invested. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act that have a readily
available market, and commercial paper exempted from registration under the
Securities Act pursuant to Section 4(2) of that Act that may be offered and sold
to "qualified institutional buyers" as defined in Rule 144A, which the Adviser
has determined to be liquid pursuant to guidelines established by the Directors,
will not be considered illiquid for purposes of this 15% limitation on illiquid
securities.
B-31
DIRECTORS AND OFFICERS
The following table lists the Directors and executive officers of the
Fund, their ages, business addresses, and principal occupations during the past
five years. The SunAmerica Mutual Funds consist of SunAmerica Equity Funds,
SunAmerica Income Funds and SunAmerica Money Market Funds. An asterisk indicates
those Directors who are interested persons of the Fund within the meaning of the
1940 Act.
[Enlarge/Download Table]
Name, Age and Address Position Principal Occupations
--------------------- with the Fund During Past 5 Years
------------- -------------------
S. James Coppersmith, 64 Director Director/Trustee of the Boston Stock Exchange,
Emerson College Uno Restaurant Corp., Waban Corp., Kushner-Locke
100 Beacon Street Co., Chayron Inc.; Chairman of the Board of
Boston, MA 02116 Emerson College; formerly, President and General
Manager, WCVB-TV, a division of the Hearst Corporation,
(1982-1994) (retired); Director/Trustee of the SunAmerica
Mutual Funds and Anchor Series Trust ("AST").
Samuel M. Eisenstat, 57 Chairman of the Board Attorney in private practice; President and
430 East 86th Street Chief Executive Officer, Abjac Energy
New York, NY 10028 Corporation; Director/Trustee of Atlantic Realty
Trust, UMB Bank and Trust (a subsidiary of
United Mizrachi Bank), North European Royalty
Trust, Volt Information Sciences Funding, Inc.
(a subsidiary of Volt Information Sciences,
Inc.) and Venture Partners International (an
Israeli venture capital fund); Chairman of the
Boards of the Directors/Trustees of the
SunAmerica Mutual Funds and AST.
Stephen J. Gutman, 53 Director Partner and Chief Operating Officer of B.B.
515 East 79th Street Associates LLC (menswear specialty retailing and
New York, NY 10021 other activities) (1989); Director/Trustee of
the SunAmerica Mutual Funds and AST.
B-32
[Enlarge/Download Table]
Name, Age and Address Position Principal Occupations
--------------------- with the Fund During Past 5 Years
------------- -------------------
Peter A. Harbeck*, 43 Director and President Director and President, SunAmerica Asset
The SunAmerica Center Management Corp. ("SunAmerica"); Director,
733 Third Avenue SunAmerica Capital Services, Inc. ("SACS"),
New York, NY 10017-3204 (1993); Director and President, SunAmerica Fund
Services, Inc. ("SAFS"), (1988); President,
SunAmerica Mutual Funds and AST; Executive Vice
President and Chief Operating Officer,
SunAmerica, (1988-1995); Executive Vice
President, SACS, (1991-1995); Director,
Resources Trust Company.
Peter McMillan III*, 39 Director Executive Vice President and Chief Investment
1 SunAmerica Center Officer, SunAmerica Investments, Inc., (1989);
Los Angeles, CA 90067 Director/
Trustee of the SunAmerica Mutual Funds;
Director, Resources Trust Company.
Sebastiano Sterpa, 67 Director Founder of Sterpa Realty, Inc., a full service
Suite 200 real estate firm (1962); Chairman of the Sterpa
200 West Glenoaks Blvd. Group, real estate investments and management
Glendale, CA 91202 company; Director/Trustee of the SunAmerica
Mutual Funds.
Stanton J. Feeley, 59 Executive Vice President Executive Vice President and Chief Investment
The SunAmerica Center Officer, SunAmerica, (1992); formerly, Senior
733 Third Avenue Portfolio Manager, Delaware Management Company,
New York, NY 10017-3204 Inc., (1987-1992).
P. Christopher Leary, 37 Vice President Senior Vice President, SunAmerica, (1994); Vice
The SunAmerica Center President and Senior Portfolio Manager,
733 Third Avenue SunAmerica, (1991); Fixed Income Portfolio
New York, NY 10017-3204 Manager, SunAmerica, (1990).
B-33
[Enlarge/Download Table]
Name, Age and Address Position Principal Occupations
--------------------- with the Fund During Past 5 Years
------------- -------------------
Audrey L. Snell, 43 Vice President Vice President and Equity Portfolio Manager,
The SunAmerica Center SunAmerica, (1991).
733 Third Avenue
New York, NY 10017-3204
Nancy Kelly, 46 Vice President Vice President and Head Trader, SunAmerica,
The SunAmerica Center (1994); formerly, Vice President, Whitehorne &
733 Third Avenue Co. Ltd. (1991-1994); Sales Trader, Lynch, Jones
New York, NY 10017-3204 and Ryan (1992-1994).
Robert M. Zakem, 39 Secretary Senior Vice President and General Counsel,
The SunAmerica Center SunAmerica (1993); Executive Vice President,
733 Third Avenue General Counsel and Director, SACS, (1993); Vice
New York, NY 10017-3204 President, General Counsel and Assistant
Secretary, SAFS, (1994); Assistant Secretary,
SunAmerica Series Trust and Anchor Pathway Fund,
(1993); Assistant Secretary, Seasons Series Trust
(1997); Secretary, SunAmerica Mutual Funds and AST;
formerly, Vice President and Associate General
Counsel, SunAmerica, (1992-1993); Associate, Piper &
Marbury (1989-1992).
Peter C. Sutton, 32 Treasurer Senior Vice President, SunAmerica, (1997);
The SunAmerica Center Treasurer, SunAmerica Mutual Funds and AST
733 Third Avenue (1996); Vice President, SunAmerica Series Trust,
New York, NY 10017-3204 Anchor Pathway Fund (1994); Vice President
Seasons Series Trust (1997); formerly, Vice
President, SunAmerica (1994-1997); Controller,
SunAmerica Mutual Funds and AST (1993-1996);
Assistant Controller, SunAmerica Mutual Funds and
AST (1990-1993).
Directors and officers of the Fund are also Directors and officers of
some or all of the other investment companies managed, administered or advised
by SunAmerica, and distributed by SunAmerica Capital Services ("SACS" or the
"Distributor") and other affiliates of SunAmerica Inc.
B-34
The Fund pays each Director who is not an interested person of the Fund
or SunAmerica (each a "disinterested" Director) annual compensation in addition
to reimbursement of out-of-pocket expenses in connection with attendance at
meetings of the Directors. Specifically, each disinterested Director receives a
pro rata portion (based upon the Fund's net assets) of the aggregate of $40,000
in annual compensation for acting as director or trustee to all the retail funds
in the SunAmerica Mutual Funds.
In addition, each disinterested Director also serves on the Audit
Committee of the Board of Directors. Each member of the Audit Committee receives
an aggregate of $5,000 in annual compensation for serving on the Audit
Committees of all of the SunAmerica Funds, a pro rata portion of which, based on
relative net assets, is borne by the Fund. The Fund also has a Nominating
Committee, comprised solely of disinterested Directors, which recommends to the
Directors those persons to be nominated for election as Directors by
shareholders and selects and proposes nominees for election by Directors between
shareholders' meetings. Members of the Nominating Committee serve without
compensation.
The Directors (and Trustees) of the SunAmerica Mutual Funds and Anchor
Series Trust have adopted the SunAmerica Disinterested Trustees' and Directors'
Retirement Plan (the "Retirement Plan") effective January 1, 1993 for the
unaffiliated Directors. The Retirement Plan provides generally that if a
disinterested Director who has at least 10 years of consecutive service as a
disinterested Director of any of the SunAmerica Mutual Funds (an "Eligible
Director") retires after reaching age 60 but before age 70 or dies while a
Director, 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
Director. As of each birthday, prior to the 70th birthday, each Eligible
Director will be credited with an amount equal to (i) 50% of his or her regular
fees (excluding committee fees) for services as a disinterested Director 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 Director 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 April 30, 1997, the Directors and officers of the Fund owned
in the aggregate less than 1% of the Fund's total outstanding shares.
The following shareholders owned of record or beneficially 5% or more
of the indicated Funds' shares outstanding as of May 16, 1997: Aggressive Growth
Portfolio - Class A - SunAmerica Inc., Los Angeles, CA 90067 owned beneficially
46%; Class B - Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
32246 - owned of record 5%; Class C - Tim L. Harris, Gastonia, NC 28056 - owned
of record 6%; Dain Bosworth Inc., Wichita, KS 67214 owned beneficially 22%;
Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL 32246 - owned of
record 35%; Mid-Cap Growth Portfolio - Class A - SunAmerica, Inc., Los Angeles,
CA 90067 - owned beneficially 62%; Class B -J.B.C. Profit Sharing Plan & Trust,
St. Louis, MO 63131 - owned beneficially 5%; Class C - Dain Bosworth Inc.,
Wichita, KS 67214 - owned beneficially 30%; Donaldson Lufkin Jenrette Securities
Corporation, Inc., Jersey City, NJ 07303 - owned of record - 32%; International
Equity Portfolio - Class A - SunAmerica Inc., Los Angeles, CA 90067 owned
beneficially 64%; Class B - Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL 32246 - owned of record 8%; Class C - Merrill Lynch, Pierce,
Fenner & Smith, Inc., Jacksonville, FL 32246 - owned of record 46%; Value
Portfolio - Class A - SunAmerica, Inc., Los Angeles, CA 90067 - owned
beneficially 44%; Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
32246 - owned of record 5%; Class B - Merrill Lynch, Pierce, Fenner & Smith,
Inc., Jacksonville, FL 32246 - owned of record 5%; Class C - Dain Bosworth Inc.,
Wichita, KS 67214 - owned beneficially 14%; Merrill Lynch, Pierce, Fenner &
Smith, Inc., Jacksonville, FL 32246 - owned beneficially 28%; A
B-35
shareholder who owns, directly or indirectly, 25% or more of a Fund's
outstanding voting securities may be deemed a "control person" (as defined in
the 1940 Act) of that Fund.
The following table sets forth information summarizing the compensation
that the Fund estimates that it will pay each disinterested Director for his
services as Director for the fiscal year ending October 31, 1997. The Directors
who are interested persons of the Fund receive no compensation.
ESTIMATED COMPENSATION TABLE*
[Enlarge/Download Table]
Aggregate Pension or Retirement Total Compensation from
Compensation from Benefits Accrued as Registrant and Fund Complex
Director Registrant Part of Fund Expenses** Paid to Directors**
-------- ----------------- ----------------------- ---------------------------
S. James Coppersmith $7,200 N/A $65,000
Samuel M. Eisenstat $7,520 N/A $69,000
Stephen J. Gutman $7,200 N/A $65,000
Sebastiano Sterpa $7,200 N/A $43,333***
[Enlarge/Download Table]
* Assumes assets of $400 million at fiscal year end.
** Information is for the five investment companies in the complex which pay fees to these directors/trustees.
The complex consists of the SunAmerica Mutual Funds, Style Select Series and Anchor Series Trust.
*** Mr. Sterpa is not a trustee of Anchor Series Trust.
ADVISERS, DISTRIBUTOR AND ADMINISTRATOR
SunAmerica Asset Management Corp. SunAmerica, organized as a Delaware
corporation in 1982, is located at The SunAmerica Center, 733 Third Avenue, New
York, NY 10017-3204, and acts as the investment manager to each of the
Portfolios pursuant to the Investment Advisory and Management Agreement dated
September 17, 1996 (the "Management Agreement") with the Fund, on behalf of each
Portfolio. SunAmerica is an indirect wholly owned subsidiary of SunAmerica Inc.
SunAmerica Inc. is incorporated in the State of Maryland and maintains its
principal executive offices at 1 SunAmerica Center, Los Angeles, CA 90067-6022,
telephone (310) 772-6000.
Under the Management Agreement, and except as delegated to the Advisers
under the Subadvisory Agreements (as defined below), SunAmerica manages the
investment of the assets of each Portfolio and obtains and evaluates economic,
statistical and financial information to formulate and implement investment
policies for each Portfolio. Any investment program undertaken by SunAmerica
will at all times be subject to the policies and control of the Directors.
SunAmerica also provides certain administrative services to each Portfolio.
Except to the extent otherwise specified in the Management
Agreement, each Portfolio pays, or causes to be paid, all other expenses of
the Fund and each of the Portfolios, including, without limitation, charges
and expenses of any registrar, custodian, transfer and dividend disbursing
agent; brokerage
B-36
commissions; taxes; engraving and printing of share certificates;
registration costs of the Portfolios 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 Portfolios, and supplements thereto, to the
shareholders of the Portfolios; all expenses of shareholders' and
Directors' 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 Portfolios; postage; insurance premiums on
property or personnel (including Officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
relating thereto); and all other costs of the Fund's operation.
The annual rate of the investment advisory fees that apply to each
Portfolio are set forth in the Prospectus.
The Management Agreement with respect to each Portfolio was approved by
the Directors, including the Directors who are not parties to the Management
Agreement or "interested persons" of any such party, on September 17, 1996, and
by the sole initial shareholder of each Portfolio on November 15, 1996.
SunAmerica has voluntarily agreed to waive fees or reimburse expenses,
if necessary, to keep annual operating expenses at or below the following
percentages of each Portfolio's average net assets: Aggressive Growth Portfolio
1.90% for Class A shares and 2.55% for Class B and Class C shares, Mid-Cap
Growth Portfolio 1.90% for Class A shares and 2.55% for Class B and Class C
shares, Value Portfolio 1.90% for Class A shares and 2.55% for Class B and Class
C shares and International Equity Portfolio 2.15% for Class A shares and 2.80%
for Class B and Class C shares. SunAmerica also may voluntarily waive or
reimburse additional amounts to increase the investment return to a Portfolio's
investors. SunAmerica may terminate all such waivers and/or reimbursements at
any time. Further, any waivers or reimbursements made by SunAmerica with respect
to a Portfolio are subject to recoupment from that Portfolio within the
following two years, provided that the Portfolio is able to effect such payment
to SunAmerica and remain in compliance with the foregoing expense limitations.
The Management Agreement will continue in effect with respect to each
Portfolio until September 16, 1998 unless terminated, and thereafter from year
to year, if approved at least annually by vote of a majority of the Directors or
by the holders of a majority of the respective Portfolio's outstanding voting
securities. Any such continuation also requires approval by a majority of the
Directors who are not parties to the Management Agreement or "interested
persons" of any such party as defined in the 1940 Act by vote cast in person at
a meeting called for such purpose. The Management Agreement may be terminated
with respect to a Portfolio at any time, without penalty, on 60 days' written
notice by the Directors, by the holders of a majority of the respective
Portfolio's outstanding voting securities or by SunAmerica. The Management
Agreement automatically terminates with respect to each Portfolio in the event
of its assignment (as defined in the 1940 Act and the rules thereunder).
Under the terms of the Management Agreement, SunAmerica is not liable
to the Portfolios, or their shareholders, for any act or omission by it or for
any losses sustained by the Portfolios or their
B-37
shareholders, except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
The Advisers. The organizations identified in the Prospectus act as Advisers
to the Fund and its Portfolios pursuant to the Subadvisory Agreements with
SunAmerica.
As described in the Prospectus, SunAmerica will initially allocate the
assets of each Portfolio equally among the Advisers for that Portfolio, and
subsequently, allocations of new cash flow and of redemption requests will be
made equally among the Advisers of each Portfolio unless SunAmerica determines,
subject to the review of the Directors, that a different allocation of assets
would be in the best interests of a Portfolio and its shareholders. The Fund
expects that differences in investment returns among the portions of a Portfolio
managed by different Advisers will cause the actual percentage of a Portfolio's
assets managed by each Adviser to vary over time. In general, a Portfolio's
assets once allocated to one Adviser will not be reallocated (or "rebalanced")
to another Adviser for the Portfolio. However, SunAmerica reserves the right,
subject to the review of the Board, to reallocate assets from one Adviser to
another when deemed in the best interests of a Portfolio and its shareholders.
In some instances, where a reallocation results in any rebalancing of the
Portfolio from a previous allocation, the effect of the reallocation will be to
shift assets from a better performing Adviser to a portion of the Portfolio with
a relatively lower total return.
Each Adviser is paid monthly by SunAmerica a fee equal to a percentage
of the average daily net assets of the Portfolio allocated to the Adviser.
Assuming a level of average daily net assets of $100 million for each Portfolio,
it is estimated that the aggregate annual rates of the fees payable by
SunAmerica to the Advisers for each Portfolio the first year of operation will
be the following, expressed as a percentage of the average daily net assets of
each Portfolio: Aggressive Growth Portfolio, .37%; Mid-Cap Growth Portfolio,
.50%; Value Portfolio, .50%; and International Equity Portfolio, .63%. There can
be no assurance that the Portfolios will achieve a level of average daily net
assets in the amounts estimated.
The Subadvisory Agreements were approved by the Directors, including a
majority of the Directors who are not parties to the Subadvisory Agreements or
"interested persons" of any such party, on September 17, 1996, and by the sole
initial shareholder of each Portfolio on November 15, 1996. The Subadvisory
Agreement between Strong and Schafer was approved by the Directors, including a
majority of the Directors who are not parties to the Subadvisory Agreement or
"interested persons" of any such party, on September 17, 1996, and becomes
effective upon commencement of operation of the Fund.
The Subadvisory Agreements will continue in effect for a period of two
years from the date of their execution, unless terminated sooner. They may be
renewed from year to year thereafter, so long as continuance is specifically
approved at least annually in accordance with the requirements of the 1940 Act.
The Subadvisory Agreements provide that they will terminate in the event of an
assignment (as defined in the 1940 Act) or upon termination of the Management
Agreement. Under the terms of the Subadvisory Agreements, no Adviser is liable
to the Portfolios, or their shareholders, for any act or omission by it or for
any losses sustained by the Portfolios or their shareholders, except in the case
of willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties.
B-38
Personal Trading. The Fund and SunAmerica have adopted a written Code of
Ethics (the "Code") which prescribes general rules of conduct and sets
forth guidelines with respect to personal securities trading by "Access
Persons" thereof. An Access Person as defined in the Code is an individual
who is a trustee, director, officer, general partner or advisory person of
the Fund or SunAmerica. 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 SunAmerica, (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. SunAmerica reports to the Board of Directors on a
quarterly basis, as to whether there were any violations of the Code by Access
Persons of the Fund or SunAmerica during the quarter.
The Advisers have each adopted a written Code of Ethics, and have
represented that the provisions of such Code of Ethics are substantially similar
to those in the Code. Further, the Advisers report to SunAmerica on a quarterly
basis, as to whether there were any Code of Ethics violations by employees
thereof who may be deemed Access Persons of the Fund insofar as such violations
related to the Fund. In turn, SunAmerica reports to the Board of Directors as to
whether there were any violations of the Code by Access Persons of the Fund or
SunAmerica.
The Distributor. The Fund, on behalf of each Portfolio, has entered into a
distribution agreement (the "Distribution Agreement") with the Distributor, a
registered broker-dealer and an indirect wholly owned subsidiary of SunAmerica
Inc., to act as the principal underwriter of the shares of each Portfolio. 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 Portfolios 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 Portfolio, for distribution to persons who are not
shareholders of such Portfolio and the costs of preparing and distributing any
other supplemental sales literature. However, certain promotional expenses may
be borne by the Portfolio (see "Distribution Plans" below).
The Distribution Agreement with respect to each Portfolio was approved
by the Directors, including a majority of those Directors who are not
"interested persons" of the Fund, on September 17, 1996. The Distribution
Agreement will remain in effect until September 16, 1998 unless terminated, and
thereafter from year to year if such continuance is approved at least annually
by the Directors, including a majority of the Directors who are not "interested
persons" of the Fund. The Fund and the Distributor each has the right to
terminate the Distribution Agreement with respect to a Portfolio 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 Portfolios. In some instances, such
additional commissions, fees or other incentives may be offered only to
certain firms, including Royal Alliance Associates and SunAmerica Securities,
affiliates of the Distributor, that sell or are expected to sell during
specified time periods certain minimum amounts of shares of the
B-39
Portfolios, or of other funds underwritten by the Distributor. In addition,
the terms and conditions of any given promotional incentive may differ from
firm to firm. Such differences will, nevertheless, be fair and equitable,
and based on such factors as size, geographic location, or other reasonable
determinants, and will in no way affect the amount paid to any investor.
Distribution Plans. As indicated in the Prospectus, the Directors of the Fund
have adopted Distribution Plans (the "Class A Plan," the "Class B Plan" and the
"Class C Plan" and collectively, the "Distribution Plans"). Reference is made to
"Management of the Fund - Distribution Plans" in the Prospectus for certain
information with respect to the Distribution Plans.
Under the Class A Plan, the Distributor may receive payments from a
Portfolio at an annual rate of up to 0.10% of average daily net assets of such
Portfolio'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 C Plans, the Distributor may receive
payments from a Portfolio at the annual rate of up to 0.75% of the average daily
net assets of such Portfolio's Class B and Class C shares to compensate the
Distributor and certain securities firms for providing sales and promotional
activities for distributing each such class of shares. The distribution costs
for which the Distributor may be reimbursed out of such distribution fees
include fees paid to broker-dealers that have sold Portfolio shares, commissions
and other expenses such as sales literature, prospectus printing and
distribution and compensation to wholesalers. It is possible that in any given
year the amount paid to the Distributor under the Class A Plan, the Class B Plan
or the Class C Plan will exceed the Distributor's distribution costs as
described above. The Distribution Plans provide that each class of shares of
each Portfolio may also pay the Distributor an account maintenance and service
fee of up to 0.25% of the aggregate average daily net assets of such class of
shares for payments to broker-dealers for providing continuing account
maintenance. In this regard, some payments are used to compensate broker-dealers
with trail commissions or account maintenance and service fees in an amount up
to 0.25% per year of the assets maintained in a Portfolio by their customers.
The Class A and Class B Distribution Plans with respect to each
Portfolio were approved on September 17, 1996 by the Directors, including a
majority of the Directors who are not "interested persons" of the Fund and who
have no direct or indirect financial interest in the operation of such
Distribution Plans (the "Independent Directors"). The Class C Distribution Plan
with respect to each Portfolio was so approved by the Directors on February 26,
1997.
Continuance of the Distribution Plans with respect to each Portfolio is
subject to annual approval by vote of the Directors, including a majority of the
Independent Directors. 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 Portfolio, without approval of the shareholders of the affected
class of shares of the Portfolio. In addition, all material amendments to the
Distribution Plans must be approved by the Directors in the manner described
above. A Distribution Plan may be terminated at any time with respect to a
Portfolio without payment of any penalty by vote of a majority of the
Independent Directors or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the affected class of shares of the
Portfolio. So long as the Distribution Plans are in effect, the election and
nomination of the Independent Directors of the Fund shall be committed to the
discretion of the Independent Directors. In the Directors' quarterly review of
the Distribution
B-40
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 Portfolio, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Portfolio and the shareholders of the relevant class of the Portfolio.
The Administrator. The Fund has entered into a Service Agreement, under the
terms of which SunAmerica Fund Services ("SAFS"), an indirect wholly owned
subsidiary of SunAmerica Inc., acts as a servicing agent assisting State Street
Bank and Trust Company ("State Street") in connection with certain services
offered to the shareholders of each of the Portfolios. Under the terms of the
Service Agreement, SAFS may receive reimbursement of its costs in providing such
shareholder services. SAFS is located at The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204.
The Directors, including a majority of the Directors who are not
parties to the Service Agreement or "interested persons", as that term is
defined in the 1940 Act, approved the Service Agreement with respect to each
Portfolio, on September 17, 1996. The Service Agreement will remain in effect
until September 16, 1998 and from year to year thereafter provided its
continuance is approved annually by vote of the Directors including a majority
of the disinterested Directors.
Pursuant to the Service Agreement, as compensation for services
rendered, SAFS will receive a fee from the Fund subject to review and approval
by the Directors. This fee represents the full cost of providing shareholder and
transfer agency services to the Fund. 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 which
would be paid by the Fund). For further information regarding the Transfer Agent
see the section entitled "Additional Information" below.
PORTFOLIO TRANSACTIONS AND BROKERAGE
As discussed in the Prospectus, the Advisers are responsible for
decisions to buy and sell securities for each respective Portfolio, 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 SunAmerica or another Adviser.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission (although the price of the security usually includes a profit
to the dealer). In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which case
no commissions or discounts are paid.
An 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 and may cause a Portfolio to pay such
broker-dealers commissions that exceed those that other broker-dealers may
have charged, if in its view the
B-41
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 Fund. No specific value can be determined for research services
furnished without cost to the Adviser by a broker. The Advisers are 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 Portfolio by improving the quality of the Adviser's
investment advice. The investment advisory fees paid by the Portfolio
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 Portfolio as
a factor in the selection of brokers for transactions effected on behalf of a
Portfolio, subject to the requirement of best price and execution.
Although the objectives of other accounts or investment companies that
the Adviser manages may differ from those of the Portfolio, it is possible that,
at times, identical securities will be acceptable for purchase by one or more of
the Portfolios 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 Portfolios 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. However, simultaneous
transactions could adversely affect the ability of a Portfolio to obtain or
dispose of the full amount of a security, which it seeks to purchase or sell, or
the price at which such security can be purchased or sold.
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES
Shares of each of the Portfolios are sold at the respective net asset
value next determined after receipt of a purchase order, plus a sales charge,
which, at the election of the investor, may be imposed either (i) at the time of
purchase (Class A shares), or (ii) on a deferred basis (Class B and Class C
shares, and certain Class A shares). Reference is made to "Purchase of Shares"
in the Prospectus for certain information as to the purchase of Portfolio
shares.
Waiver of Contingent Deferred Sales Charges. As discussed under "Purchase of
Shares" in the Prospectus, the CDSC may be waived on redemptions of Class B and
Class C 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
B-42
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 Class B shares are
not redeemed within one year of the death, they will remain Class B shares and
be subject to the applicable CDSC, when redeemed.
Disability. A CDSC may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of
the Internal Revenue Code of 1986, as amended). To be eligible for such waiver,
(i) the disability must arise after the purchase of shares and (ii) the disabled
shareholder must have been under age 65 at the time of the initial determination
of disability. If the account is transferred to a new registration and then a
redemption is requested, the applicable CDSC will be charged.
Purchases through the Distributor. An investor may purchase shares of a
Portfolio through dealers which have entered into selected dealer agreements
with the Distributor. An investor's dealer who has entered into a distribution
arrangement with the Distributor is expected to forward purchase orders and
payment promptly to the Portfolio. Orders received by the Distributor before the
close of business will be executed at the offering price determined at the close
of regular trading on the New York Stock Exchange (the "NYSE") that day. Orders
received by the Distributor after the close of business will be executed at the
offering price determined after the close of the NYSE on the next trading day.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the fifth business day following the
investment. A Portfolio will not be responsible for delays caused by dealers.
Purchase by Check. In the case of a new account, purchase orders by check must
be submitted directly by mail to SunAmerica Fund Services, Mutual Fund
Operations, The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204,
together with payment for the purchase price of such shares and a completed New
Account Application. Shares of each Portfolio may be purchased directly through
the Transfer Agent. Upon receipt of the completed New Account Application and
payment check, the Transfer Agent will purchase full and fractional shares of
the applicable Portfolio at the net asset value next computed after the check is
received, plus the applicable sales charge. 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. There are
restrictions on the redemption of shares purchased by check for which funds are
being collected. (See "Redemption of Shares.")
Purchase through SAFS. SAFS will effect a purchase order on behalf of a customer
who has an investment account upon confirmation of a verified credit balance at
least equal to the amount of the purchase order (subject to the minimum $500
investment requirement for wire orders). If such order is received at or prior
to 4:00 P.M., Eastern time, on a day the NYSE is open for business, the purchase
of shares of a Portfolio will be effected on that day. If the order is received
after 4:00 P.M., Eastern time, the order will be effected on the next business
day.
B-43
Purchase by Federal Funds Wire. An investor may make purchases by having
his or her bank wire Federal funds to the Fund's Transfer Agent. Federal
funds purchase orders will be accepted only on a day on which the Fund
and the Transfer Agent are open for business. In order to insure prompt receipt
of a Federal funds wire, it is important that these steps be followed:
1. You must have an existing SunAmerica Fund Account before
wiring funds. To establish an account, complete the New
Account Application and send it via facsimile to SunAmerica
Fund Services at: (212) 551-5343.
2. Call SunAmerica Fund Services' Shareholder/Dealer Services,
toll free at (800) 858-8850, extension 5125 to obtain your new
account number.
3. Instruct the bank to wire the specified amount to the Transfer
Agent: State Street Bank and Trust Company, Boston, MA, ABA#
0110-00028; DDA# 99029712, SunAmerica [name of Portfolio, Class
__] (include shareholder name and account number).
Waiver of Sales Charges with Respect to Certain Purchases of Class A Shares. To
the extent that sales are made for personal investment purposes, the sales
charge is waived as to Class A shares purchased by current or retired officers,
directors, and other full-time employees of SunAmerica and its affiliates, as
well as members of the selling group and family members of the foregoing. In
addition, the sales charge is waived with respect to shares purchased by certain
qualified retirement plans or employee benefit plans (other than IRAs), which
are sponsored or administered by SunAmerica or an affiliate thereof. Further,
the sales charge is waived with respect to shares purchased by "wrap accounts"
for the benefit of clients of broker-dealers, financial institutions, 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 Portfolio
may be purchased by clients at net asset value. Shares purchased under this
waiver may not be resold except to the Portfolio. Shares are offered at net
asset value to the foregoing persons because of anticipated economies in sales
effort and sales related expenses. Reductions in sales charges apply to
purchases or shares by a "single person" including an individual; members of a
family unit comprising husband, wife and minor children; or a trustee or other
fiduciary purchasing for a single fiduciary account. Complete details concerning
how an investor may purchase shares at reduced sales charges may be obtained by
contacting the Distributor.
Reduced Sales Charges (Class A Shares only). As discussed under "Purchase of
Shares" in the Prospectus, investors in Class A shares of a Portfolio may be
entitled to reduced sales charges pursuant to the following special purchase
plans made available by the Fund.
Combined Purchase Privilege. The following persons may qualify for the
sales charge reductions or eliminations by combining purchases of Portfolio
shares into a single transaction:
(i) an individual, or a "company" as defined in Section 2(a)(8) of the
1940 Act (which includes corporations which are corporate affiliates of each
other);
B-44
(ii) an individual, his or her spouse and their minor children,
purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust estate
or single fiduciary account (including a pension, profit-sharing, or other
employee benefit trust created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code);
(iv) tax-exempt organizations qualifying under Section 501(c)(3) of
the Internal Revenue Code (not including 403(b) plans);
(v) employee benefit plans of a single employer or of affiliated
employers, other than 403(b) plans; and
(vi) group purchases as described below.
A combined purchase currently may also include shares of other funds in
the SunAmerica Mutual Funds (other than money market funds) purchased at the
same time through a single investment dealer, if the dealer places the order for
such shares directly with the Distributor.
Rights of Accumulation. A purchaser of Portfolio 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 Portfolio that were previously purchased, shares of the
other classes of the same Portfolio, as well as shares of any class of any other
Portfolio or of any of the other Portfolios advised by SunAmerica, as long as
such shares were sold with a sales charge or acquired in exchange for shares
purchased with such a sales charge.
The shareholder's dealer, if any, or the shareholder, must notify the
Distributor at the time an order is placed of the applicability of the reduced
charge under the Right of Accumulation. Such notification must be in writing by
the dealer or shareholder when such an order is placed by mail. The reduced
sales charge will not be granted if: (a) such information is not furnished at
the time of the order; or (b) a review of the Distributor's or the Transfer
Agent's records fails to confirm the investor's represented holdings.
Letter of Intent. A reduction of sales charges is also available to
an investor who, pursuant to a written Letter of Intent which is set forth in
the New Account Application in the Prospectus, establishes a total
investment goal in Class A shares of one or more Portfolios to be
achieved through any number of investments over a thirteen-month period,
of $50,000 or more. Each investment in such Portfolios 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 Portfolio, or of other funds advised by
SunAmerica which impose a sales charge at the time of purchase, which the
investor intends to purchase or has previously purchased during a 30-day
period prior to the date of execution of the
B-45
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 Fund 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 Portfolio 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
Portfolios 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 Portfolios 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 Portfolio 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
Portfolio'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.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association, or
other organized groups of persons (the members of which may include other
qualified groups) provided that: (i) the group has at least 25 members of
which at least ten members participate in the initial purchase; (ii) the
group has been in existence for at least six months; (iii) the group has some
purpose in addition to the purchase of investment company shares at a reduced
sales charge; (iv) the group's sole organizational nexus or connection is
not that the members are credit card customers of a bank or broker-dealer,
clients of an investment adviser or security holders of a company; (v) the
group agrees to provide its designated investment dealer access to the
group's membership by means of written communication or direct presentation
to the membership at a meeting on not less frequently than an annual basis;
(vi) the group or its investment dealer will provide annual certification,
in form satisfactory to the Transfer Agent, that the group then has at
least 25 members and that at least ten members participated in group
purchases during the immediately preceding 12 calendar months; and (vii)
the group or its investment dealer will
B-46
provide periodic certification, in form satisfactory to the Transfer Agent, as
to the eligibility of the purchasing members of the group.
Members of a qualified group include: (i) any group which meets the
requirements stated above and which is a constituent member of a qualified
group; (ii) any individual purchasing for his or her own account who is carried
on the records of the group or on the records of any constituent member of the
group as being a good standing employee, partner, member or person of like
status of the group or constituent member; or (iii) any fiduciary purchasing
shares for the account of a member of a qualified group or a member's
beneficiary. For example, a qualified group could consist of a trade association
which would have as its members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the individuals,
the sole proprietors and their employees, the members of the partnership and
their employees, and the corporations and their employees, as well as the
trustees of employee benefit trusts acquiring a Portfolio's shares for the
benefit of any of the foregoing.
Interested groups should contact their investment dealer or the
Distributor. The Fund reserves the right to revise the terms of or to suspend or
discontinue group sales with respect to shares of the Portfolio at any time.
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for
certain information as to the redemption of Portfolio shares.
If the Directors determine that it would be detrimental to the best
interests of the remaining shareholders of a Portfolio to make payment wholly or
partly in cash, the Fund, having filed with the SEC a notification of election
pursuant to Rule 18f-1 on behalf of each of the Portfolios, may pay the
redemption price in whole, or in part, by a distribution in kind of securities
from a Portfolio in lieu of cash. In conformity with applicable rules of the
SEC, the Portfolios 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 Portfolio at the beginning of such period. If
shares are redeemed in kind, the redeeming shareholder would incur brokerage
costs in converting the assets into cash. The method of valuing portfolio
securities is described below in the section entitled "Determination of Net
Asset Value," and such valuation will be made as of the same time the redemption
price is determined.
DETERMINATION OF NET ASSET VALUE
The Fund is open for business on any day the NYSE is open for
regular trading. Shares are valued each day as of the close of regular
trading on the NYSE (generally, 4:00 p.m., Eastern time). Each Portfolio
calculates the net asset value of its shares separately by dividing the total
value of each class's net assets by the shares of such class outstanding. The
net asset value of a Portfolio's shares will also be computed on each
other day in which there is a sufficient degree of trading in such
Portfolio's securities that the net asset value of its shares might be
materially affected by changes in the values of the portfolio securities;
provided, however, that on such day the Fund receives a request
B-47
to purchase or redeem such Portfolio's shares. The days and times of such
computation may, in the future, be changed by the Directors in the event
that the portfolio securities are traded in significant amounts in markets
other than the NYSE, or on days or at times other than those during which the
NYSE is open for trading.
Securities that are actively traded over-the-counter, including listed
securities for which the primary market is believed by the Adviser to be
over-the-counter, are valued on the basis of the bid prices provided by
principal market makers. Securities listed on the NYSE or other national
securities exchanges, other than those principally traded over-the-counter, are
valued on the basis of the last sale price on the exchange on which they are
primarily traded. However, if the last sale price on the NYSE is different than
the last sale price on any other exchange, the NYSE price will be used. If there
are no sales on that day, then the securities are valued at the bid price on the
NYSE or other primary exchange for that day. Options traded on national
securities exchanges are valued at the last sale price on such exchanges
preceding the valuation, and Futures and options thereon, which are traded on
commodities exchanges, are valued at their last sale price as of the close of
such commodities exchanges.
Securities that are traded on foreign exchanges are ordinarily valued
at the last quoted sales price available before the time when the assets are
valued. If a securities price is available from more than one foreign exchange,
a Portfolio uses the exchange that is the primary market for the security.
Values of portfolio securities primarily traded on foreign exchanges are already
translated into U.S. dollars when received from a quotation service.
The above procedures need not be used to determine the value of debt
securities owned by a Portfolio if, in the opinion of the Directors, some other
method would more accurately reflect the fair market value of such debt
securities in the quantities owned by such Portfolio. Securities for which
quotations are not readily available and other assets are appraised at fair
value, as determined pursuant to procedures adopted in good faith by the
Directors. Short-term debt securities are valued at their current market value
or fair value, which for securities with remaining maturities of 60 days or less
has been determined in good faith by the Directors to be represented by
amortized cost value, absent unusual circumstances. A pricing service may be
utilized to value the Portfolio's assets under the procedures set forth above.
Any use of a pricing service will be approved and monitored by the Directors.
The value of all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the mean between the bid and
offered prices of such currencies against U.S. dollars last quoted by any large
New York bank which is a dealer in foreign currency.
The values of securities held by the Portfolios, and other assets used
in computing net asset value, are determined as of the time trading in such
securities is completed each day, which in the case of foreign securities may be
at a time prior to the close of regular trading on the NYSE. On occasion, the
values of foreign securities and exchange rates may be affected by events
occurring between the time as of which determinations of such values or exchange
rates are made and the close of regular trading on the NYSE. When such events
materially affect the values of securities held by the Portfolio or their
liabilities, such securities and liabilities will be valued at fair value as
determined in good faith by the Directors.
B-48
PERFORMANCE DATA
Each Portfolio may advertise performance data that reflects various
measures of total return and each Portfolio 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 Portfolio's performance may be compared to the historical returns of
various investments, performance indices of those investments or economic
indicators, including, but not limited to, stocks, bonds, certificates of
deposit, money market funds and U.S. Treasury Bills. Certain of these
alternative investments may offer fixed rates of return and guaranteed principal
and may be insured.
Average annual total return is determined separately for Class A, Class
B and Class C shares in accordance with a formula specified by the SEC. Average
annual total return is computed by finding the average annual compounded rates
of return for the 1-, 5-, and 10-year periods or for the lesser included periods
of effectiveness. The formula used is as follows:
P(1 + T)n = ERV
P = a hypothetical initial purchase payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5-, or 10- year periods at the end of the 1-,
5-, or 10-year periods (or fractional portion thereof).
The above formula assumes that:
1. The maximum sales load (i.e., either the front-end sales load in
the case of the Class A shares or the deferred sales load that
would be applicable to a complete redemption of the investment at
the end of the specified period in the case of the Class B or
Class C shares) is deducted from the initial $1,000 purchase
payment;
2. All dividends and distributions are reinvested at net asset
value; and
3. Complete redemption occurs at the end of the 1-, 5-, or 10- year
periods or fractional portion thereof with all nonrecurring
charges deducted accordingly.
Each Portfolio 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.
B-49
Comparisons
Each Portfolio 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 Portfolio.
The following references may be used:
a) Dow Jones Composite Average or its component averages -- an
unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks (Dow Jones Utilities
Average), and 20 transportation company stocks (Dow Jones Transportation
Average). Comparisons of performance assume reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component indices -- an
unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40
utilities stocks, and 20 transportation stocks. Comparisons of performance
assume reinvestment of dividends.
Standard & Poor's 100 Stock Index -- an unmanaged index based on
the prices of 100 blue chip stocks, including 92 industrials, one utility, two
transportation companies, and five financial institutions. The Standard & Poor's
100 Stock Index is a smaller, more flexible index for options trading.
c) The New York Stock Exchange composite or component indices --
unmanaged indices of all industrial, utilities, transportation, and finance
stocks listed on the New York Stock Exchange.
d) Wilshire 5000 Equity Index or its component indices -- represents
the return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
e) Lipper: Mutual Fund Performance Analysis, Fixed Income Analysis, and
Mutual Fund Indices -- measures total return and average current yield for the
mutual fund industry. Ranks individual mutual fund performance over specified
time periods assuming reinvestment of all distributions, exclusive of sales
charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies,
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar -- analyzes
price, risk and total return for the mutual fund industry.
h) Financial publications: Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, Money, Pension and Investment Age,
United Mutual Fund Selector, and Wiesenberger Investment Companies Service, and
other publications containing financial analyses which rate mutual fund
performance over specified time periods.
B-50
i) Consumer Price Index (or Cost of Living Index), published by the
U.S. Bureau of Labor Statistics -- a statistical measure of periodic change in
the price of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson
Associates -- historical measure of yield, price, and total return for common
and small company stock, long-term government bonds, treasury bills, and
inflation.
k) Savings and Loan Historical Interest Rates as published in the U.S.
Savings & Loan League Fact Book.
l) Shearson-Lehman Municipal Bond Index and Government/Corporate Bond
Index -- unmanaged indices that track a basket of intermediate and long-term
bonds. Reflect total return and yield and assume dividend reinvestment.
m) Salomon GNMA Index published by Salomon Brothers Inc. -- Market
value of all outstanding 30-year GNMA Mortgage Pass-Through Securities that
includes single family and graduated payment mortgages.
Salomon Mortgage Pass-Through Index published by Salomon Brothers
Inc. --Market value of all outstanding agency mortgage pass-through securities
that includes 15- and 30-year FNMA, FHLMC and GNMA Securities.
n) Value Line Geometric Index -- broad based index made up of
approximately 1700 stocks each of which have an equal weighting.
o) Morgan Stanley Capital International EAFE Index -- an arithmetic,
market value-weighted average of the performance of over 900 securities on the
stock exchanges of countries in Europe, Australia and the Far East.
p) Goldman Sachs 100 Convertible Bond Index -- currently includes 67
bonds and 33 preferred stocks. The original list of names was generated by
screening for convertible issues of $100 million or more in market
capitalization. The index is priced monthly.
q) Salomon Brothers High Grade Corporate Bond Index -- consists of
publicly issued, non-convertible corporate bonds rated "AA" or "AAA". It is a
value-weighted, total return index, including approximately 800 issues.
r) Salomon Brothers Broad Investment Grade Bond Index -- is a
market-weighted index that contains approximately 4700 individually priced
investment grade corporate bonds rated "BBB" or better, U.S. Treasury/agency
issues and mortgage pass-through securities.
B-51
s) 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
t) J.P. Morgan Global Government Bond Index -- a total return,
market capitalization-weighted index, rebalanced monthly, consisting of the
following countries: Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, The Netherlands, Spain, Sweden, the United Kingdom, and
the United States.
u) Shearson Lehman LONG-TERM Treasury Bond Index -- is comprised of all
bonds covered by the Shearson Lehman Hutton Treasury Bond Index with maturities
of 10 years or greater.
v) NASDAQ Industrial Index -- is comprised of more than 3,000
industrial issues. It is a value-weighted index calculated on pure change only
and does not include income.
w) The MSCI Combined Far East Free ex Japan Index -- a market
capitalization weighted index comprised of stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Singapore and Thailand. Korea is included in this
index at 20% of its market capitalization.
x) First Boston High Yield Index -- generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
y) Morgan Stanley Capital International World Index -- An arithmetic,
market value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of countries in Europe, Australia, the Far East, Canada
and the United States.
z) Russell 2000 and 3000 Indices -- represents the top 2,000 and the
next 3,000 stocks traded on the New York Stock Exchange, American Stock Exchange
and National Association of Securities Dealers Automated Quotations, by market
capitalizations.
aa) 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 Portfolio'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 Portfolio to
calculate its figures.
B-52
Specifically, a Portfolio may compare its performance
to that of certain indices which include securities with government
guarantees. However, a Portfolio's shares do not contain any such guarantees.
In addition, there can be no assurance that a Portfolio will continue its
performance as compared to such other standards.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. Each Portfolio intends to distribute to the
registered holders of its shares substantially all of its net investment income,
which includes dividends, interest and net short-term capital gains, if any, in
excess of any net long-term capital losses. Each Portfolio intends to distribute
any net long-term capital gains in excess of any net short-term capital losses.
The current policy of each Portfolio is to pay investment income dividends, if
any, at least annually. Each Portfolio intends to pay net capital gains, if any,
annually. In determining amounts of capital gains to be distributed, any capital
loss carry-forwards from prior years will be offset against capital gains.
Distributions will be paid in additional Portfolio shares based on the
net asset value at the close of business on the Ex or reinvestment date, unless
the dividends total in excess of $10.00 per distribution period and the
shareholder notifies the Portfolio at least five business days prior to the
payment date to receive such distributions in cash.
Taxes. Each Portfolio intends to qualify and elect to be taxed as a regulated
investment company under Subchapter M of the Code for each taxable year. In
order to be qualified as a regulated investment company, each Portfolio
generally must, among other things, (a) derive at least 90% of its gross income
from dividends, interest, proceeds from loans of stock or securities and certain
other related income; (b) derive less than 30% of its gross income from the sale
or other disposition of stock or securities held less than 3 months; and (c)
diversify its holdings so that, at the end of each fiscal quarter, (i) 50% of
the market value of each Portfolio's assets is represented by cash, government
securities, securities of other regulated investment companies and other
securities limited, in respect of any one issuer, to an amount no greater than
5% of each Portfolio's assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than government
securities or the securities of other regulated investment companies).
As a regulated investment company, each Portfolio will not be subject
to U.S. Federal income tax on its income and capital gains which it distributes
as dividends or capital gains distributions to shareholders provided that it
distributes to shareholders at least 90% of its investment company taxable
income for the taxable year. Each Portfolio 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 Portfolio 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 Portfolio intends to make distributions in
B-53
accordance with the calendar year distribution requirement. A distribution
will be treated as paid on December 31 of the calendar year if declared
by a Portfolio in October, November or December of such year, payable to
shareholders of record on a date in such month and paid by such Portfolio
during January of the following year. Any such distributions paid during
January of the following year will be taxable to shareholders as of such
December 31, rather than the date on which the distributions are received.
Distributions of net investment income and short-term capital gains are
taxable to the shareholder as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares or in cash. The
portion of such dividends received from each Portfolio that will be eligible for
the dividends received deduction for corporations will be determined on the
basis of the amount of each Portfolio's gross income, exclusive of capital gains
from sales of stock or securities, which is derived as dividends from domestic
corporations, other than certain tax-exempt corporations and certain real estate
investment trusts, and will be designated as such in a written notice to
shareholders mailed not later than 60 days after the end of each fiscal year. It
is not anticipated that the dividends paid by the International Equity Portfolio
will be eligible for the dividends-received deduction. Distributions of net
long-term capital gains, if any, are taxable as long-term capital gains
regardless of whether the shareholder receives such distributions in additional
shares or in cash or how long the investor has held his or her shares, and are
not eligible for the dividends received deduction for corporations.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending upon its basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term capital gain or loss if the shares
have been held for more than one year. Generally, any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of. Any loss realized by a shareholder on the sale of shares
of a Portfolio held by the shareholder for six months or less will be treated
for tax purposes as a long-term capital loss to the extent of any distributions
of net capital gains received by the shareholder with respect to such shares.
Under certain circumstances (such as the exercise of an exchange
privilege), the tax effect of sales load charges imposed on the purchase of
shares in a regulated investment company is deferred if the shareholder does not
hold the shares for at least 90 days.
Income received by a Portfolio 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 Portfolio will be subject,
since the amount of that Portfolio's assets to be invested in various
countries is not known. It is not anticipated that any Portfolio (other than
the International Equity Portfolio) 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 Portfolio. If more than 50% in value of
the Portfolio's total assets at the close of its taxable year consists of
securities of foreign corporations, the Portfolio will be eligible, and
intends, to file an election with the Internal Revenue Service pursuant to
which shareholders of the Portfolio will be required to include their
proportionate share of such foreign taxes in their U.S. income tax returns
B-54
as gross income, treat such proportionate share as taxes paid by them,
and deduct such proportionate share in computing their taxable incomes
or, alternatively, use them as foreign tax credits against their U.S. income
taxes. No deductions for foreign taxes, however, may be claimed by
non-corporate shareholders who do not itemize deductions. Of course,
certain retirement accounts which are not subject to tax cannot claim foreign
tax credits on investments in foreign securities held in the Portfolio. A
shareholder that is a nonresident alien individual or a foreign corporation
may be subject to U.S. withholding tax on the income resulting from the
Portfolio's election described in this paragraph but may not be able to claim
a credit or deduction against such U.S. tax for the foreign taxes
treated as having been paid by such shareholder.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Portfolio accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time such Portfolio 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,
foreign currency gains or losses from futures contracts that are not "regulated
futures contracts" and from unlisted non-equity options, gains or losses from
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 Portfolio's investment company taxable income available to be
distributed to its shareholders as ordinary income. Additionally, if Code
Section 988 losses exceed other investment company taxable income during a
taxable year, a Portfolio would not be able to make any ordinary dividend
distributions, and any distributions made in the same taxable year may be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Portfolio shares. In certain cases, a Portfolio may
be entitled to elect to treat foreign currency gains on forward or futures
contracts, or options thereon, as capital gains.
The Code includes special rules applicable to the listed non-equity
options, regulated futures contracts, and options on futures contracts which a
Portfolio 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 Portfolio 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 Portfolio 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
Portfolio 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.
B-55
A substantial portion of each Portfolio'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
Portfolio when offsetting positions are established and which may convert
certain losses from short-term to long-term, and (iv) "conversion
transaction" rules which recharacterize capital gains as ordinary income. The
Code provides that certain elections may be made for mixed straddles that
can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
also are provided in the Code; no determination has been reached to make any of
these elections.
Each Portfolio 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 Portfolio and
therefore is subject to the distribution requirements of the Code. Because the
original issue discount earned by the Portfolio in a taxable year may not be
represented by cash income, the Portfolio may have to dispose of other
securities and use the proceeds to make distributions to shareholders.
A Portfolio 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. Any distributions of net investment income or short-term
capital gains made to a foreign shareholder will be subject to U.S. withholding
tax of 30% (or a lower treaty rate if applicable to such shareholder).
The Fund may, from time to time, invest in "passive foreign
investment companies" (PFICs). A PFIC is a foreign corporation that, in
general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If the Fund acquires and
holds stock in a PFIC beyond the end of the year of its acquisition, the
Fund will be subject to federal income tax on a portion of any "excess
distribution" received on the stock or of any gain from disposition of the
stock (collectively, PFIC income), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment
company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders. Proposed
Treasury regulations provide that the Fund may make a "mark-to-market"
election with respect to any stock it holds of a PFIC. If the election
is in effect, at the end of the Fund's taxable year, the Fund will
recognize the amount of gains, if any, with respect to PFIC stock. No
loss will be recognized on PFIC stock. Alternatively, the Fund may elect
B-56
to treat any PFIC in which it invests as a "qualified electing fund," in
which case, in lieu of the foregoing tax and interest obligation, the Fund
will be required to include in income each year its pro rata share of the
qualified electing fund's annual ordinary earnings and net capital gain,
even if they are not distributed to the Fund; those amounts would be
subject to the distribution requirements applicable to the Fund described
above. It may be very difficult, if not impossible, to make this election
because of certain requirements thereof.
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 Portfolio. Qualification as a
regulated investment company under the Code for tax purposes does not entail
government supervision of management and investment policies.
RETIREMENT PLANS
Shares of each Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 to make contributions, the amount if any,
entitled to be contributed on a deductible basis, 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
B-57
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.
DESCRIPTION OF SHARES
Ownership of the Fund is represented by shares of common stock. The
total number of shares which the Fund has authority to issue is one billion
(1,000,000,000) shares of common stock (par value $0.0001 per share), amounting
in aggregate par value to one hundred thousand dollars ($100,000.00).
Currently, four Portfolios of shares of the Fund have been authorized
pursuant to the Articles: the Aggressive Growth Portfolio, the Mid-Cap Growth
Portfolio, the Value Portfolio and the International Equity Portfolio. Each
Portfolio has been divided into four classes of shares, designated as Class A,
Class B, Class C and Class Z. The Directors may authorize the creation of
additional Portfolios of shares so as to be able to offer to investors
additional investment portfolios within the Fund that would operate
independently from the Fund's present portfolios, or to distinguish among
shareholders, as may be necessary, to comply with future regulations or other
unforeseen circumstances. Each Portfolio of the Fund's shares represents the
interests of the shareholders of that Portfolio in a particular portfolio of
Fund assets. In addition, the Directors 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
Directors have terms of unlimited duration (subject to certain removal
procedures) and have the power to alter the number of Directors, and appoint
their own successors, provided that at all times at least a majority of the
Directors 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 Directors being elected, while the holders of the
remaining shares would be unable to elect any Directors. Although the Fund need
not hold annual meetings of shareholders, the Directors may call special
meetings of shareholders for action by shareholder vote as may be required by
the 1940 Act or the Articles. 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 Fund. In addition, the Directors may be removed by the action of
the holders of record of two-thirds or more of the outstanding shares. All
Portfolios of shares will vote with respect to certain matters, such as election
of Directors. When all Portfolios are not affected by a matter to be voted upon,
such as approval of investment advisory agreements or changes in a Portfolio's
policies, only shareholders of the Portfolios affected by the matter may be
entitled to vote.
The classes of shares of a given Portfolio 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 B shares convert automatically
to Class A shares on the first business day of the month seven years after the
purchase of such Class B Shares, (v) Class C shares are subject to a CDSC, and
an ongoing account maintenance and service fee, (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
B-58
circumstances, the holders of Class B shares may be entitled to vote on
material changes to the Class A Rule 12b-1 plan, and (vii) each class of shares
will be exchangeable only into the same class of shares of any other Portfolio
or other SunAmerica Funds that offer that class. All shares of the Fund issued
and outstanding and all shares offered by the Prospectus when issued, are fully
paid and non-assessable. Shares have no preemptive or other subscription rights
and are freely transferable on the books of the Fund. In addition, shares have
no conversion rights, except as described above.
The Articles provide that no Director, officer, employee or agent of
the Fund is liable to the Fund or to a shareholder, nor is any Director,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, 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 provide that all third persons shall look solely to the Fund's
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, the Articles provides that a Director,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund. The Fund shall continue, without
limitation of time, subject to the provisions in the Articles concerning
termination by action of the shareholders.
ADDITIONAL INFORMATION
Computation of Offering Price per Share
The following is the offering price calculation for each Class of
shares of each Portfolio. The Class A and Class B calculations are based on the
value of each Portfolio's net assets and number of shares outstanding on the
date such shares were first offered for sale to public investors. The Class C
calculations are based on the estimated value of each Portfolio's net assets and
number of Class C shares outstanding on the date such shares are first offered
for sale to public investors.
[Enlarge/Download Table]
Aggressive Growth Mid-Cap Growth
Portfolio Portfolio
--------------------------------------- --------------------------------------
Class A Class B Class C Class A Class B Class C
------------ ------------- ------------ ------------ ------------ ------------
Net Assets $18,722,750 $18,722,750 $1,161,162 $21,054,557 $15,551,069 $855,241
Number of 2,499,347 1,500,130 92,971 1,910,365 1,415,269 77,837
Shares
Outstanding
Net Asset $12.51 $12.48 $12.49 $11.02 $10.99 $10.99
Value Per
Share
(net assets
divided
by number
of shares)
Sales 0.76 None None 0.67 None None
charge for
Class A
Shares:
5.75% of
offering
price
(6.10% of
net asset
value per
share)*...
Offering $13.27 $12.48 $12.49 $11.69 $10.99 $10.99
Price......
-----------------------
* Rounded to nearest one-hundred percent; assumes maximum sales charge is
applicable.
B-59
[Enlarge/Download Table]
Value Portfolio International Equity Portfolio
--------------------------------------- --------------------------------------
Class A Class B Class C Class A Class B Class C
------------ ------------- ------------ ------------ ------------ ------------
Net Assets $35,690,592 $25,641,412 $1,875,057 $22,994,862 $14,123,293 $1,094,630
Number of 2,636,181 1,898,972 138,863 1,841,936 1,134,927 87,909
Shares
Outstanding
Net Asset $13.54 $13.50 $13.50 $12.48 $12.44 $12.45
Value Per
Share
(net assets
divided
by number
of shares) ...
Sales 0.83 None None 0.76 None None
charge for
Class A
Shares:
5.25% of
offering
price
(5.54 of
net asset
value per
share)* ..
Offering $14.37 $13.50 $13.50 $13.24 $12.44 $12.45
Price .....
-----------------------
* Rounded to nearest one-hundred percent; assumes maximum sales charge is
applicable.
Reports to Shareholders. The Fund sends audited annual and unaudited semi-annual
reports to shareholders of each of the Portfolios. In addition, the Transfer
Agent sends a statement to each shareholder having an account directly with the
Fund to confirm transactions in the account.
Custodian and Transfer Agency. State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, MA 02171, serves as Custodian and Transfer Agent
for the Portfolios and in those capacities maintains certain financial and
accounting books and records pursuant to agreements with the Fund. Transfer
agent functions are performed for State Street by National Financial Data
Services, P.O. Box 419572, Kansas City, MO 64141-6572, an affiliate of State
Street.
Independent Accountants and Legal Counsel. Price Waterhouse LLP, 1177 Avenue of
the Americas, New York, NY 10036, has been selected to serve as the Fund's
independent accountants and in that capacity examines the annual financial
statements of the Fund. The firm of Shereff, Friedman, Hoffman & Goodman, LLP,
919 Third Avenue, New York, NY 10022, has been selected as legal counsel to the
Fund.
FINANCIAL STATEMENTS
Set forth following this Statement of Additional Information is the
Statement of Assets and Liabilities of Style Select Series, Inc., as of November
12, 1996 and the unaudited financial statements for the period ended April 30,
1997.
B-60
APPENDIX
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
Description of Moody's Investor's Service's Corporate Ratings
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate, and therefore not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.
B-61
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of the generic rating
category.
Description of Moody's Commercial Paper Ratings
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representations as to whether such commercial paper is by any other
definition "commercial paper" or is exempt from registration under the
Securities Act.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act, nor does it represent that
any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries
-- High rates of return on funds employed
-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation
-- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have
a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more
B-62
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
level of debt protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or entities, then the
name or names of such supporting entity or entities are listed within
parentheses beneath the name of the issuer, or there is a footnote referring the
reader to another page for the name or names of the supporting entity or
entities. In assigning ratings to such issuers, Moody's evaluates the financial
strength of the indicated affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment. Moody's makes no representation and gives no opinion on
the legal validity or enforceability of any support arrangement. You are
cautioned to review with your counsel any questions regarding particular support
arrangements.
Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Description of Standard & Poor's Corporate Debt Ratings
A Standards & Poor's corporate or municipal rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligers such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings
B-63
may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature of and provisions of the
obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest-rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher-rated categories.
Debt rated BB, B, CCC, CC and C are regarded as having
predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the
least degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than
other speculative grade debt. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payment. The BB rating
category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B Debt rated B has a greater vulnerability to default but
presently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions would likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied BB or BB- rating.
B-64
CCC Debt rated CCC has a current identifiable vulnerability to
default, and is dependent upon favorable business, financial
and economic conditions to meet timely payments of interest
and repayments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt
that is assigned an actual or implied B or B- rating.
CC The rating CC is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt
rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed but debt service payments
are continued.
CI The rating CI is reserved for income bonds on which no
interest is being paid.
D Debt rated D is in default. The D rating is assigned on the
day an interest or principal payment is missed. The 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.
B-65
Debt Obligations of Issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the credit-worthiness of the obligor but do not
take into account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Description of Standard & Poor's Commercial Paper Ratings.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of not more
than 365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest.
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category
are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety.
A-1 This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high
as for issues designated "A-1".
A-3 Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, somewhat more
vulnerable to the adverse effect of changes in circumstances
than obligations carrying the higher designations.
B Issues rated "B" are regarded as having only adequate capacity
for timely payment. However, such capacity may be damaged by
changing conditions or short-term adversities.
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D This rating indicates that the issue is either in default or
is expected to be in default upon maturity.
B-66
The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based on current information furnished to
Standard & Poor's by the issuer or obtained from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result
of changes in or unavailability of such information.
B-67
Style Select Series, Inc.
Statement of Assets and Liabilities at November 12, 1996
[Enlarge/Download Table]
Aggressive Mid-Cap International
Growth Portfolio Growth Value Equity
Portfolio Portfolio Portfolio
--------------------------------------- ----------------- ---------------- --------------- ------------------
ASSETS:
Cash.......................... $25,000 $25,000 $25,000 $25,000
Deferred organization
expenses (Note 1)........... 75,000 75,000 75,000 75,000
------ ------ ------ ------
Total Assets.............. 100,000 100,000 100,000 100,000
------- ------- ------- -------
LIABILITIES:
Organizational
expenses payable (Note 1)... 75,000 75,000 75,000 75,000
Commitments (Notes 1 and 2)... -0- -0- -0- -0-
--- --- --- ---
Total Liabilities......... 75,000 75,000 75,000 75,000
------ ------ ------ ------
Net Assets............. $25,000 $25,000 $25,000 $25,000
======= ======= ======= =======
Net Asset Value Per Share
Class A (25,000,000 shares
authorized per class)
($12,500/1,000 net assets
and shares outstanding for
each portfolio
respectively)............... $12.50 $12.50 $12.50 $12.50
====== ====== ====== ======
Class B (25,000,000 shares
authorized per class)
($12,500/1,000 net assets
and shares outstanding for
each portfolio
respectively)................ $12.50 $12.50 $12.50 $12.50
====== ====== ====== ======
See Notes to Financial Statements
B-68
NOTES TO FINANCIAL STATEMENT
Note 1. Organization
Style Select Series, Inc. (the "Fund") is an open-end management investment
company that was organized as a Maryland corporation on July 3, 1996. To date
the Fund has had no transactions other than those relating to organizational
matters and the sale of 8,000 shares of common stock at a price of $12.50 per
share for $100,000 to SunAmerica Asset Management Corp. ("SunAmerica"). The Fund
is registered under the Investment Company Act of 1940, as amended (the "Act").
Organizational expenses of the Fund incurred prior to the offering of the Fund's
shares will be paid by SunAmerica. It is currently estimated that SunAmerica
will incur, and be reimbursed by the Fund for, approximately $300,000 in
organizational expenses. These expenses will be deferred and amortized by the
Fund on a straight-line basis over a period not to exceed five years from the
commencement of the Fund's operations. In the event that, at any time during the
five year period beginning with the commencement of operations, the initial
shares acquired by SunAmerica are redeemed, by any holder thereof, the
redemption proceeds payable in respect of such shares will be reduced by the pro
rata share (based on the proportionate share of the initial shares redeemed to
the total number of original shares outstanding at the time of the redemption)
of the then unamortized deferred organizational expenses as of the date of such
redemption.
The Fund currently offers four separate investment portfolios (each a
"Portfolio"): Aggressive Growth Portfolio, Mid-Cap Growth Portfolio, Value
Portfolio and International Equity Portfolio. The investment objectives for each
of the Portfolios are as follows:
Aggressive Growth Portfolio seeks long-term growth of capital by
investing primarily in equity securities which have a market capitalization of
less than $1 billion.
Mid-Cap Growth Portfolio seeks long-term growth of capital by investing
primarily in equity securities which have a market capitalization of $1 billion
to $5 billion.
Value Portfolio seeks long-term growth of capital by investing
primarily in equity securities using a "value" style of investing.
International Equity Portfolio seeks long-term growth of capital by
investing in equity securities of issuers in countries other than the United
States.
Each Portfolio currently offers two classes of shares. Class A shares
are offered at net asset value per share plus an initial sales charge. Class B
shares are offered without an initial sales charge, although a declining
contingent sales charge may be imposed on redemptions made within six years of
purchase. Additionally, any purchases of Class A shares in excess of $1,000,000
will be subject to a contingent deferred sales charge on redemptions made within
one year of purchase. Class B shares of each Portfolio will convert
automatically to Class A shares on the first business day of the month after
seven years from the issuance of such Class B shares and at such time will be
subject to
B-69
the lower distribution fee applicable to Class A shares. Each class of shares
bears the same voting, dividend, liquidation and other rights and conditions
and each makes distribution and account maintenance and service fee payments
under the distribution plans pursuant to Rule 12b-1 under the Act, except that
Class B shares are subject to higher distribution fee rates.
Note 2. Investment Advisory and Management Agreement
The Fund, on behalf of each Portfolio, has entered into an Investment
Advisory and Management Agreement (the "Agreement") with SunAmerica, an indirect
wholly owned subsidiary of SunAmerica Inc. Under the Agreement, SunAmerica
provides continuous supervision of the respective Portfolios and administers
their corporate affairs, subject to general review by the Board of Directors
(the "Directors"). In connection therewith, SunAmerica furnishes the Fund with
office facilities, maintains certain of the Fund's books and records, and pays
for the salaries and expenses of all personnel, including officers of the Fund
who are employees of SunAmerica and its affiliates. The investment advisory and
management fee payable by each Portfolio to SunAmerica as full compensation for
services and facilities furnished to the Fund is as follows: 1.00% of the
average daily net assets of the Aggressive Growth, Mid-Cap Growth and Value
Portfolios, respectively, and 1.10% of the average daily net assets of the
International Equity Portfolio.
The organizations described below act as advisors to the Fund pursuant
to Subadvisory Agreements with SunAmerica. Under the Subadvisory Agreements, the
advisors manage the investment and reinvestment of the assets of the respective
Portfolios for which they are responsible. Each of the following advisors is
independent of SunAmerica (with the exception of the Aggressive Growth
Portfolio, for which SunAmerica acts as an advisor) and discharges its
responsibilities subject to the policies of the Directors and the oversight and
supervision of SunAmerica, which pays the advisors' fees. The advisors for
Aggressive Growth Portfolio are Janus Capital Corporation; SunAmerica; and
Warburg, Pincus Counsellors, Inc. The advisors for Mid-Cap Growth Portfolio are
Miller Anderson & Sherrerd, LLP; Pilgrim Baxter & Associates, Ltd.; and T. Rowe
Price Associates, Inc. The advisors for Value Portfolio are Davis Selected
Advisers, L.P.; Neuberger & Berman, L.P.; and Strong Capital Management, Inc.
The advisors for International Equity Portfolio are Rowe Price-Fleming
International, Inc.; Strong Capital Management, Inc.; and Warburg, Pincus
Counsellors, Inc. Each advisor is paid monthly by SunAmerica a fee equal to a
percentage of the average daily net assets of the Portfolio allocated to the
advisor. Assuming a level of average daily net assets of $100 million for each
Portfolio, it is estimated that the aggregate annual rates of the fees payable
by SunAmerica to the advisors for each Portfolio the first year of operation
will be the following, expressed as a percentage of the average daily net assets
of each Portfolio: Aggressive Growth Portfolio, .37%; Mid-Cap Growth Portfolio,
.50%; Value Portfolio, .50%; and International Equity Portfolio, .63%. There can
be no assurance that the Portfolios will achieve a level of average daily net
assets in the amount estimated.
B-70
Note 3. Distribution Agreement and Service Agreement
The Fund, on behalf of each Portfolio, has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. ("SACS" or the "Distributor"),
an indirect wholly owned subsidiary of SunAmerica Inc. Each Portfolio has
adopted a Distribution Plan (the "Plan") in accordance with the provisions of
Rule 12b-1 under the Act. Rule 12b-1 under the Act permits an investment company
directly or indirectly to pay expenses associated with the distribution of its
shares ("distribution expenses") in accordance with a plan adopted by the
investment company's Board of Directors. Pursuant to such rule, the Directors
and the shareholders of each class of shares of each Portfolio have adopted
Distribution Plans hereinafter referred to as the "Class A Plan" and the "Class
B Plan." In adopting the Class A Plan and the Class B Plan, the Directors
determined that there was a reasonable likelihood that each such Plan would
benefit the Fund and the shareholders of the respective class. The sales charge
and distribution fees of a particular class will not be used to subsidize the
sale of shares of any other class.
Under the Class A Plan and Class B Plan, the Distributor receives
payments from a Portfolio at an annual rate of up to 0.10% and 0.75%,
respectively, of average daily net assets of such Portfolio's Class A or Class B
shares to compensate the Distributor and certain securities firms for providing
sales and promotional activities for distributing that class of shares. The
distribution costs for which the Distributor may be reimbursed out of such
distribution fees include fees paid to broker-dealers that have sold Portfolio
shares, commissions, and other expenses such as those incurred for sales
literature, prospectus printing and distribution and compensation to
wholesalers. It is possible that in any given year the amount paid to the
Distributor under the Class A Plan or Class B Plan may exceed the Distributor's
distribution costs as described above. The Distribution Plans provide that each
class of shares of each Portfolio 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. SACS also receives sales charges
on each Portfolio's Class A shares, portions of which are reallowed to
affiliated broker-dealers and non-affiliated broker-dealers. Further, SACS
receives the proceeds of contingent deferred sales charges paid by investors in
connection with certain redemptions of each Portfolio's Class B shares.
The Fund, on behalf of each Portfolio, 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 Portfolios' transfer agent in
connection with the services that it offers to the shareholders of the
Portfolios. The Service Agreement, which permits the Portfolios to reimburse
SAFS for costs incurred in providing such services, is approved annually by the
Directors.
B-71
Style Select Series, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of Style Select Series, Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Aggressive Growth
Portfolio, Mid-Cap Growth Portfolio, Value Portfolio and International Equity
Portfolio (constituting Style Select Series, Inc., hereafter referred to as the
"Fund") at November 12, 1996, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Fund's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this financial statement
in accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 12, 1996
B-72
SUNAMERICA EQUITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 30, 1997
The SunAmerica Center General Marketing and
733 Third Avenue Shareholder Information
New York, NY 10017-3204 (800) 858-8850
SunAmerica Equity Funds is a mutual fund consisting of six different
investment funds: SunAmerica Balanced Assets Fund, SunAmerica Global Balanced
Fund, SunAmerica Blue Chip Growth Fund, SunAmerica Mid-Cap Growth Fund,
SunAmerica Small Company Growth Fund and SunAmerica Growth and Income Fund.
Each Fund has distinct investment objectives and strategies.
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Funds' Prospectus dated January 30, 1997. To
obtain a Prospectus, please call the Fund at (800) 858-8850. Capitalized terms
used herein but not defined have the meanings assigned to them in the
Prospectus.
TABLE OF CONTENTS
[Download Table]
PAGE
----
HISTORY OF THE FUNDS.......................................... B-2
INVESTMENT OBJECTIVES AND POLICIES............................ B-3
PORTFOLIO TURNOVER............................................ B-33
INVESTMENT RESTRICTIONS....................................... B-34
TRUSTEES AND OFFICERS......................................... B-36
ADVISER, SUB-ADVISER, PERSONAL TRADING, DISTRIBUTOR AND
ADMINISTRATOR............................................... B-41
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................... B-48
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES........... B-51
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES......... B-59
DETERMINATION OF NET ASSET VALUE.............................. B-59
PERFORMANCE DATA.............................................. B-60
DIVIDENDS, DISTRIBUTIONS AND TAXES............................ B-66
RETIREMENT PLANS.............................................. B-71
DESCRIPTION OF SHARES......................................... B-72
ADDITIONAL INFORMATION........................................ B-74
FINANCIAL STATEMENTS.......................................... B-75
APPENDIX.................................................. APPENDIX-1
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Fund, the Adviser, the Sub-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 may not lawfully be made.
This Statement of Additional Information relates to the six different
investment funds (each, a "Fund," and collectively, the "Funds") of SunAmerica
Equity Funds, a Massachusetts business trust (the "Trust"), which is registered
as an open-end investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). The six Funds are: SunAmerica Balanced Assets Fund
("Balanced Assets Fund"), SunAmerica Global Balanced Fund ("Global Balanced
Fund"), SunAmerica Blue Chip Growth Fund ("Blue Chip Growth Fund"), SunAmerica
Mid-Cap Growth Fund ("Mid-Cap Growth Fund"), SunAmerica Small Company Growth
Fund ("Small Company Growth Fund") and SunAmerica Growth and Income Fund
("Growth and Income Fund").
HISTORY OF THE FUNDS
The Trust was organized under the name "Integrated Equity Portfolios"
in 1986 and subsequently renamed "SunAmerica Equity Portfolios" in 1990. On
September 24, 1993, the Trust reorganized with certain funds in the SunAmerica
Family of Mutual Funds (the "Reorganization") and was renamed "SunAmerica Equity
Funds". In the Reorganization, all outstanding shares of the two then-existing
series of the Trust, the Growth Portfolio ("Growth Portfolio") and the
Aggressive Growth Portfolio ("Aggressive Growth Portfolio"), were redesignated
Class A shares and renamed the SunAmerica Growth Fund ("Growth Fund") and the
SunAmerica Emerging Growth Fund ("Emerging Growth Fund"), respectively. In
addition, the SunAmerica Emerging Growth Fund series of SunAmerica Fund Group
("Old Emerging Growth") reorganized with, and its shareholders received Class B
shares of, the Emerging Growth Fund. With regard to the Balanced Assets Fund
series of the Trust, the Total Return Fund series of SunAmerica Multi-Asset
Portfolios, Inc. ("Total Return") and the SunAmerica Balanced Assets Fund series
of SunAmerica Fund Group ("Old Balanced Assets") reorganized with, and their
shareholders received Class A and Class B shares of the Balanced Assets Fund,
respectively. The SunAmerica Capital Appreciation Fund, Inc. ("Capital
Appreciation") was reorganized with, and its shareholders received Class B
shares of, the SunAmerica Value Fund ("Value Fund"). The Reorganization was
approved by the shareholders of the Funds or their predecessors who were
entitled to vote with respect thereto on September 23, 1993. On March 16, 1994,
the Board of Trustees of the Trust (the "Trustees") approved changing the names
of the Value Fund, Growth Fund and Emerging Growth Fund to the Blue Chip Growth
Fund, Mid-Cap Growth Fund and Small Company Growth Fund, respectively, and such
name changes became effective on June 7, 1994.
On December 21, 1993, the Trustees approved the creation of the Global
Balanced Fund and on March 16, 1994, the Trustees approved the creation of the
Growth and Income Fund.
On June 18, 1996, the Trustees authorized the designation of Class Z
shares of the Balanced Assets Fund and the Small Company
B-2
Growth Fund. The offering of such Class Z shares commenced on October 1, 1996.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each of the Funds are
described in the Funds' Prospectus. Certain types of securities in which the
Funds may invest and certain investment practices which the Funds may employ,
which are described under "Other Investment Practices and Restrictions" in the
Prospectus and in the Appendix to the Prospectus, are discussed more fully
below.
ILLIQUID SECURITIES. 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 which have a maturity of longer than seven days,
interest-rate swaps, currency swaps, caps, floors and collars, or other
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Historically, illiquid
securities have included securities subject to contractual or legal restrictions
on resale because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), securities which are otherwise not
readily marketable and repurchase agreements having a maturity of longer than
seven days. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period. Securities which have not been registered
under the Securities Act are referred to as private placements or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. There will generally be a lapse of time between a mutual fund's decision
to sell an unregistered security and the registration of such security promoting
sale. Adverse market conditions could impede a public offering of such
securities. When purchasing unregistered securities, each of the Funds will
seek to obtain the right of registration at the expense of the issuer (except in
the case of Rule 144A securities).
In recent years, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market
B-3
in which the unregistered security can be readily resold or on an issuer's
ability to honor a demand for repayment. The fact that there are contractual or
legal restrictions on resale to the general public or to certain institutions
may not be indicative of the liquidity of such investments.
Restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act for which there is a readily available market may be deemed
to be liquid. The Adviser (or Sub-Adviser) will monitor the liquidity of such
restricted securities subject to the supervision of the Trustees. In reaching
liquidity decisions the Adviser (or Sub-Adviser) will consider, inter alia,
pursuant to guidelines and procedures established by the Trustees, the following
factors: (1) the frequency of trades and quotes for the security; (2) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the marketplace
trades (i.e., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Commercial paper issues in which 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 which is afforded by
Section 4(2) of the Securities Act ("Section 4(2) paper"). Section 4(2) paper
is restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Section 4(2) paper that is issued by a company that files reports
under the Securities Exchange Act of 1934 is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described above. A Fund's 15%
limitation on investments in illiquid securities includes Section 4(2) paper
other than Section 4(2) paper that the Adviser (or Sub-Adviser) has determined
to be liquid pursuant to guidelines established by the Trustees. The Trustees
have delegated to the Adviser (or Sub-Adviser) the function of making day-to-day
determinations of liquidity with respect to Section 4(2) paper, pursuant to
guidelines approved by the Trustees that require the Adviser (or Sub-Adviser) to
take into account the same factors described above for other restricted
securities and require the Adviser (or Sub-Adviser) to perform the same
monitoring and reporting functions.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
banks, brokers or securities dealers. In such agreements, the seller agrees to
repurchase the security at a mutually agreed-upon time and price. The period of
maturity is
B-4
usually quite short, either overnight or a few days, although it may extend over
a number of months. The repurchase price is in excess of the purchase price by
an amount which reflects an agreed-upon rate of return effective for the period
of time 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% of the repurchase price, including accrued interest. The instruments held
as collateral are valued daily and if the value of the instruments declines, the
Fund will require additional collateral. If the seller defaults and the value
of the collateral securing the repurchase agreements declines, the Fund may
incur a loss. In addition, if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may be
delayed or limited. The Trustees have established guidelines to be used by the
Adviser (or Sub-Adviser) in connection with transactions in repurchase
agreements and will regularly monitor each Fund's use of repurchase agreements.
A Fund will not invest in repurchase agreements maturing in more than seven days
if the aggregate of such investments along with other illiquid securities
exceeds 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
subject to the rights and obligations to repurchase such security. The Fund
then invests the proceeds from the transaction in another obligation in which
the Fund is authorized to invest. In order to minimize any risk involved, the
Fund maintains, in a segregated account with the custodian, cash or liquid
securities equal in value to the repurchase price. Reverse repurchase
agreements are considered to be borrowings and are subject to the percentage
limitations on borrowings. See "Investment Restrictions."
RISKS OF INVESTING IN LOWER RATED BONDS. Debt securities in which the Growth
and Income Fund may invest may be in the lower rating categories of recognized
rating agencies (that is, ratings of Ba or lower by Moody's Investors Service,
Inc. ("Moody's") or BB or lower by Standard & Poor's Ratings Services, a
Division of the McGraw-Hill Companies, Inc. ("S&P")(and comparable unrated
securities) (commonly known as "junk bonds"). For a description of these and
other rating categories, see Appendix A. No minimum rating standard is required
for a purchase by the Fund.
It should be noted that lower-rated securities are subject to risk
factors such as (a) vulnerability to economic downturns and changes in interest
rates; (b) sensitivity to adverse economic changes and corporate developments;
(c) redemption or call provisions which may be exercised at inopportune times;
(d)
B-5
difficulty in accurately valuing or disposing of such securities; (e) federal
legislation which could affect the market for such securities; and (f) special
adverse tax consequences associated with investments in certain high-yield,
high-risk bonds.
High yield bonds, like other bonds, may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest
rate market, the Fund would have to replace the security with a lower yielding
security, resulting in lower return for investors. Conversely, a high yield
bond's value will decrease in a rising interest rate market.
There is a thinly traded market for high yield bonds, and recent
market quotations may not be available for some of these bonds. Market
quotations are generally available only from a limited number of dealers and may
not represent firm bids from such dealers or prices for actual sales. As a
result, a Fund may have difficulty valuing the high yield bonds in their
portfolios accurately and disposing of these bonds at the time or price desired.
Ratings assigned by Moody's and S&P to high yield bonds, like other
bonds, attempt to evaluate the safety of principal and interest payments on
those bonds. However, such ratings do not assess the risk of a decline in the
market value of those bonds. In addition, ratings may fail to reflect recent
events in a timely manner and are subject to change. If a rating with respect to
a portfolio security is changed, the Adviser will determine whether the security
will be retained based upon the factors the Adviser considers in acquiring or
holding other securities in the portfolio. Investment in high yield bonds may
make achievement of the Fund's objective more dependent on the Adviser's own
credit analysis than is the case for higher-rated bonds.
Market prices for high yield bonds tend to be more sensitive than
those for higher-rated securities due to many of the factors described above,
including the credit-worthiness of the issuer, redemption or call provisions,
the liquidity of the secondary trading market and changes in credit ratings, as
well as interest rate movements and general economic conditions. In addition,
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
B-6
indebtedness and are more sensitive to adverse economic conditions, such as
recession or increasing interest rates. Upon a default, bondholders may incur
additional expenses in seeking recovery.
As a result of all these factors, the net asset value of a Fund to the
extent it invests in high yield bonds, is expected to be more volatile than the
net asset value of funds which invest solely in higher-rated debt securities.
This volatility may result in an increased number of redemptions from time to
time. High levels of redemptions in turn may cause a fund to sell its portfolio
securities at inopportune times and decrease the asset base upon which expenses
can be spread.
ASSET-BACKED SECURITIES. The Global Balanced Fund may invest in asset-backed
securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and automobile
loan receivables, representing the obligations of a number of different parties.
The Fund may also invest in privately issued asset-backed securities.
Asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the services to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by a obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or
B-7
sponsor from third parties. The Fund will not pay any additional or separate
fees for credit support. The degree of credit support provided for each issue
is generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.
DOLLAR ROLLS. The Global Balanced Fund may enter into "dollar rolls" in which
the Fund sells mortgage or other asset-backed securities ("Roll Securities") for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Fund foregoes principal and interest
paid on the Roll Securities. The Fund is compensated by the difference between
the current sales price and the lower forward price for the future purchase
(often referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. The Fund also could be compensated through the
receipt of fee income equivalent to a lower forward price. A "covered roll" is
a specific type of dollar roll for which there is an offsetting cash position or
a cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. The Fund will only enter into
covered rolls. Because "roll" transactions include both the sale and purchase
of a security, they may cause the reported portfolio turnover rate to be higher
than that reflecting typical portfolio management activities.
Dollar rolls involve certain risks including the following: if the
broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's
right to purchase or repurchase the security subject to the dollar roll may be
restricted and the instrument which the Fund is required to repurchase may be
worth less than an instrument which the Fund originally held. Successful use of
dollar rolls will depend upon the Adviser's or Sub-Adviser's ability to predict
correctly interest rates and in the case of mortgage dollar rolls, mortgage
prepayments. For these reasons, there is no assurance that dollar rolls can be
successfully employed.
INTEREST-RATE SWAPS, MORTGAGE SWAPS, CAPS, COLLARS AND FLOORS. In order to
protect the value of the Global Balanced Fund from interest rate fluctuations
and to hedge against fluctuations in the fixed income market in which certain of
the Fund's investments are traded, the Fund may enter into interest-rate swaps
and mortgage swaps or purchase or sell interest-rate caps, floors or collars.
The Fund will enter into these hedging transactions primarily to preserve a
return or spread on a particular investment or portion of the portfolio and to
protect against any increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund may also enter into interest-rate swaps
for non-hedging
B-8
purposes. Interest-rate swaps are individually negotiated, and the Fund expects
to achieve an acceptable degree of correlation between its portfolio investments
and interest-rate positions. The Fund will only enter into interest-rate swaps
on a net basis, which means that the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the two
payments. Interest-rate swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest-rate swaps is limited to the net amount of interest payments that the
Fund is contractually obligated to make. If the other party to an interest-rate
swap defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. The use of
interest-rate swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. All of these investments may be deemed to be illiquid
for purposes of the Fund's limitation on investment in such securities.
Inasmuch as these investments are entered into for good faith hedging purposes,
and inasmuch as segregated accounts will be established with respect to such
transactions, the Adviser, Sub-Adviser and the Fund believe such obligations do
not constitute senior securities and accordingly, will not treat them as being
subject to its borrowing restrictions. The net amount of the excess, if any, of
the Fund's obligations over its entitlements with respect to each interest-rate
swap will be accrued on a daily basis and an amount of cash or other liquid
securities having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated account by a custodian that satisfies
the requirements of the 1940 Act. The Fund will also establish and maintain such
segregated accounts with respect to its total obligations under any interest-
rate swaps that are not entered into on a net basis and with respect to any
interest-rate caps, collars and floors that are written by the Fund.
The Fund will enter into these transactions only with banks and
recognized securities dealers believed by the Adviser and Sub-Adviser to present
minimal credit risk in accordance with guidelines established by the Fund's
Board of Trustees. If there is a default by the other party to such a
transaction, the Fund will have to rely on its contractual remedies (which may
be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements
related to the transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps, collars and floors are
more recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.
Mortgage swaps are similar to interest-rate swaps in that they
B-9
represent commitments to pay and receive interest. The notional principal
amount, upon which the value of the interest payments is based, is tied to
reference pool or pools of mortgages.
The purchase of an interest-rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest-rate cap. The purchase of an interest-rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest-rate floor. The Global Balanced Fund will
not enter into any mortgage swap, interest-rate swap, cap or floor transaction
unless the unsecured commercial paper, senior debt, or the claims paying ability
of the other party thereto is rated either AA or A-1 or better by S&P or Aa or
P-1 or better by Moody's, or is determined to be of equivalent quality by the
Adviser of the Sub-Adviser.
INVERSE FLOATERS. The Global Balanced Fund may invest in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's limitation on investments in such securities.
SHORT-TERM AND TEMPORARY DEFENSIVE INSTRUMENTS. In addition to their primary
investments, each Fund may also invest up to 10% of its total assets in money
market instruments for liquidity purposes (to meet redemptions and expenses).
For temporary defensive purposes, each Fund may invest up to 100% of its total
assets in fixed-income securities, including corporate debt obligations and
money market instruments rated in one of the two highest categories by a
nationally recognized statistical rating organization (or determined by the
Adviser or Sub-Adviser to be of equivalent quality). A description of
securities ratings is contained in the Appendix to this Statement of Additional
Information.
Subject to the limitations described above, the following is a
description of the types of money market and fixed-income securities in which
the Funds may invest:
U.S. Government Securities: See section entitled "U.S. Government
Securities" below.
B-10
Commercial Paper: Commercial paper consists of short-term (usually
from 1 to 270 days) unsecured promissory notes issued by entities in order to
finance their current operations. Each Fund's commercial paper investments may
include variable amount master demand notes and floating rate or variable rate
notes. Variable amount master demand notes and variable amount floating rate
notes are obligations that permit the investment of fluctuating amounts by a
Fund at varying rates of interest pursuant to direct arrangements between a
Fund, as lender, and the borrower. Master demand notes permit daily
fluctuations in the interest rates while the interest rate under variable amount
floating rate notes fluctuates on a weekly basis. These notes permit daily
changes in the amounts borrowed. A Fund has the right to increase the amount
under these notes at any time up to the full amount provided by the note
agreement, or to decrease the amount, and the borrower may repay up to the full
amount of the note without penalty. Because these types of notes are direct
lending arrangements between the lender and the borrower, it is not generally
contemplated that such instruments will be traded and there is no secondary
market for these notes. Master demand notes are redeemable (and, thus,
immediately repayable by the borrower) at face value, plus accrued interest, at
any time. Variable amount floating rate notes are subject to next-day
redemption 14 days after the initial investment therein. With both types of
notes, therefore, a Fund's right to redeem depends on the ability of the
borrower to pay principal and interest on demand. In connection with both types
of note arrangements, a Fund considers earning power, cash flow and other
liquidity ratios of the issuer. These notes, as such, are not typically rated
by credit rating agencies. Unless they are so rated, a Fund may invest in them
only if at the time of an investment the issuer has an outstanding issue of
unsecured debt rated in one of the two highest categories by a nationally
recognized statistical rating organization.
The Funds will generally purchase commercial paper only of companies
of medium to large capitalizations (i.e., $1 billion or more). In addition, the
Global Balanced Fund may purchase commercial paper rated in the two highest
rating categories, or deemed by the Adviser (or Sub-Adviser) to be of comparable
quality, without regard to the size of the issuer.
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
B-11
a stated amount of funds to pay for specific merchandise. The draft is then
"accepted" by another bank that, in effect, unconditionally guarantees to pay
the face value of the instrument on its maturity date. The acceptance may then
be held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity.
Although maturities for acceptances can be as long as 270 days, most maturities
are six months or less.
The Funds will generally open interest-bearing accounts only with, or
purchase certificates of deposit, time deposits or bankers' acceptances only
from, banks or savings and loan associations whose deposits are federally-
insured and whose capital is at least $50 million.
Corporate Obligations: Corporate debt obligations (including master
demand notes). For a further description of variable amount master demand
notes, see the section entitled "Commercial Paper" above.
Repurchase Agreements: See the section entitled "Repurchase
Agreements" above.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Treasury securities,
including bills, notes, bonds and other debt securities issued by the U.S.
Treasury. These instruments are direct obligations of the U.S. government and,
as such, are backed by the "full faith and credit" of the United States. They
differ primarily in their interest rates, the lengths of their maturities and
the dates of their issuances. Each Fund may also invest in securities issued by
agencies of the U.S. government or instrumentalities of the U.S. government.
These obligations, including those which are guaranteed by federal agencies or
instrumentalities, may or may not be backed by the "full faith and credit" of
the United States. Obligations of the Government National Mortgage Association
("GNMA"), the Farmers Home Administration and the Export-Import Bank are backed
by the full faith and credit of the United States. In the case of securities
not backed by the full faith and credit of the United States, a Fund must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States if the
agency or instrumentality does not meet its commitments.
The Balanced Assets Fund and the Global Balanced Fund may, in addition
to the U.S. government securities noted above, invest in mortgage-backed
securities (including private mortgage-backed securities), such as GNMA, FNMA or
FHLMC certificates (as defined below), which represent an undivided ownership
interest in a pool of mortgages. The mortgages backing these securities include
conventional thirty-year fixed-rate mortgages, fifteen-year fixed-rate
mortgages, graduated payment mortgages and adjustable rate
B-12
mortgages. These certificates are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal
payments, including prepayments, on the mortgages underlying the certificate,
net of certain fees.
The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. The actual life of any
particular pool will be shortened by any unscheduled or early payments of
principal and interest. Principal prepayments generally result from the sale of
the underlying property or the refinancing or foreclosure of underlying
mortgages. The occurrence of prepayments is affected by a wide range of
economic, demographic and social factors and, accordingly, it is not possible to
predict accurately the average life of a particular pool. Yield on such pools
is usually computed by using the historical record of prepayments for that pool,
or, in the case of newly-issued mortgages, the prepayment history of similar
pools. The actual prepayment experience of a pool of mortgage loans may cause
the yield realized by the Balanced Assets Fund or Global Balanced Fund to differ
from the yield calculated on the basis of the expected average life of the pool.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as does the value of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The reinvestment of scheduled
principal payments and unscheduled prepayments that the Balanced Assets Fund or
Global Balanced Fund receives may occur at higher or lower rates than the
original investment, thus affecting the yield of the Fund. Monthly interest
payments received by the Balanced Assets Fund or Global Balanced Fund have a
compounding effect which may increase the yield to shareholders more than debt
obligations that pay interest semi-annually. Because of those factors,
mortgage-backed securities may be less effective than U.S. Treasury bonds of
similar maturity at maintaining yields during periods of declining interest
rates. Accelerated prepayments adversely affect yields for pass-through
securities purchased at a premium (i.e., at a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-through securities purchased at a discount. The
Balanced Assets Fund or Global Balanced Fund may purchase mortgage-backed
securities at a premium or at a discount.
The following is a description of GNMA, FNMA and FHLMC certificates,
the most widely available mortgage-backed securities:
B-13
GNMA Certificates. GNMA Certificates are mortgage-backed securities
which evidence an undivided interest in a pool or pools of mortgages. GNMA
Certificates that the Balanced Assets Fund or Global Balanced Fund may purchase
are the modified pass-through type, which entitle the holder to receive timely
payment of all interest and principal payments due on the mortgage pool, net of
fees paid to the issuer and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
GNMA guarantees the timely payment of principal and interest on
securities backed by a pool of mortgages insured by the Federal Housing
Administration ("FHA") or the Farmers' Home Administration ("FMHA"), or
guaranteed by the Veterans Administration ("VA"). The GNMA guarantee is
authorized by the National Housing Act and is backed by the full faith and
credit of the United States. The GNMA is also empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosure will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that a Fund has
purchased the certificates at a premium in the secondary market.
FHLMC Certificates. The Federal Home Loan Mortgage Corporation
("FHLMC") issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates ("GMCs")
(collectively, "FHLMC Certificates"). PCs resemble GNMA Certificates in that
each PC represents a pro rata share of all interest and principal payments made
and owed on the underlying pool. The FHLMC guarantees timely monthly payment of
interest (and, under certain circumstances, principal) of PCs and the ultimate
payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal once
a year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years. The FHLMC guarantee is not backed by the
full faith and credit of the U.S. Government.
FNMA Certificates. The Federal National Mortgage Association ("FNMA")
issues guaranteed mortgage pass-through certificates ("FNMA Certificates").
FNMA Certificates represent a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely payment
of interest and principal on FNMA Certificates. The FNMA guarantee is not
backed
B-14
by the full faith and credit of the U.S. Government.
Another type of mortgage-backed security in which the Balanced Assets
Fund or Global Balanced Fund may invest is a collateralized mortgage obligation
("CMO"). CMOs are fully collateralized bonds which are the general obligations
of the issuer thereof (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 or Global Balanced Fund intends to conduct
operations in a manner consistent with this view, and therefore generally may
not invest more than 10% of its total assets in such issuers without obtaining
appropriate regulatory relief. In reliance on recent SEC staff interpretations,
a Fund may invest in those CMOs and other mortgage-backed securities that are
not by definition excluded from the provisions of the 1940 Act, but have
obtained exemptive orders from the SEC from such provisions.
The Balanced Assets Fund or Global Balanced Fund may also invest in
stripped mortgage-backed securities. Stripped mortgage-backed securities are
often structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. Stripped
mortgage-backed securities have greater market volatility than other types of
U.S. Government securities in which a Fund invests. A common
B-15
type of stripped mortgage-backed security has one class receiving some of the
interest and all or most of the principal (the "principal only" class) from the
mortgage pool, while the other class will receive all or most of the interest
(the "interest only" class). The yield to maturity on an interest only class is
extremely sensitive not only to changes in prevailing interest rates, but also
to the rate of principal payments, including principal prepayments, on the
underlying pool of mortgage assets, and a rapid rate of principal payment may
have a material adverse effect on the Fund's yield. While interest-only and
principal-only securities are generally regarded as being illiquid, such
securities may be deemed to be liquid if they can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the
calculation of the Fund's net asset value per share. Only government interest
only and principal only securities backed by fixed-rate mortgages and determined
to be liquid under guidelines and standards established by the Trustees may be
considered liquid securities not subject to a Fund's limitation on investments
in illiquid securities.
INVESTMENT IN SMALL, UNSEASONED COMPANIES. As described in the Prospectus, the
Small Company Growth Fund will invest, and the other Funds may each invest, in
the securities of small companies having market capitalizations under $1
billion. These securities may have a limited trading market, which may
adversely affect their disposition and can result in their being priced lower
than might otherwise be the case. If other investment companies and investors
who invest in such issuers trade the same securities when a Fund attempts to
dispose of its holdings, the Fund may receive lower prices than might otherwise
be obtained.
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.
WARRANTS. Each Fund may invest in warrants which give the holder of the warrant
a right to purchase a given number of shares of a particular issue at a
specified price until expiration. Such investments generally can provide a
greater potential for profit or loss than investments of equivalent amounts in
the underlying common stock. The prices of warrants do not necessarily move
with the prices of the underlying securities. If the holder does not sell the
warrant, he risks the loss of his entire investment if the market price of the
underlying stock does not, before the expiration date, exceed the exercise price
of the warrant plus the 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.
B-16
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase or sell
such securities on a "when-issued" or "delayed delivery" basis. Although a Fund
will enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement. "When-issued" or
"delayed delivery" refers to securities whose terms and indenture are available
and for which a market exists, but which are not available for immediate
delivery. When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made, but
delivery and payment for the securities take place at a later date. During the
period between commitment by a Fund and settlement (generally within two months
but not to exceed 120 days), no payment is made for the securities purchased by
the purchaser, and no interest accrues to the purchaser from the transaction.
Such securities are subject to market fluctuation, and the value at delivery may
be less than the purchase price. A Fund will maintain a segregated account with
its custodian, consisting of cash, U.S. government securities or other high
grade debt obligations at least equal to the value of purchase commitments until
payment is made. A Fund will likewise segregate liquid assets in respect of
securities sold on a delayed delivery basis.
A Fund will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When a Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure to do so may result in a Fund losing the
opportunity to obtain a price and yield considered to be advantageous. If a
Fund chooses to (i) dispose of the right to acquire a when-issued security prior
to its acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss. (At the time a Fund makes a
commitment to purchase or sell a security on a when-issued or forward commitment
basis, it records the transaction and reflects the value of the security
purchased, or if a sale, the proceeds to be received in determining its net
asset value.)
To the extent a Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling securities
consistent with its investment objectives and policies and not for the purposes
of investment leverage. A Fund enters into such transactions only with the
intention of actually receiving or delivering the securities, although (as noted
above) when-issued securities and forward commitments may be sold prior to the
settlement date. In addition, changes in interest rates in a direction other
than that expected by the Adviser (or Sub-Adviser) before settlement will affect
the value of such securities and may cause a loss to a Fund.
B-17
When-issued transactions and forward commitments may be used to offset
anticipated changes in interest rates and prices. For instance, in periods of
rising interest rates and falling prices, a Fund might sell securities in its
portfolio on a forward commitment basis to attempt to limit its exposure to
anticipated falling prices. In periods of falling interest rates and rising
prices, a Fund might sell portfolio securities and purchase the same or similar
securities on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields.
FOREIGN SECURITIES. Investments in foreign securities offer potential benefits
not available from investments solely in securities of domestic issuers by
offering the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or business
cycles different from those of the U.S., or to reduce fluctuations in portfolio
value by taking advantage of foreign stock markets that do not move in a manner
parallel to U.S. markets.
Each Fund may invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs), European Depository Receipts (EDRs), Global
Depository Receipts (GDRs) or other similar securities convertible into
securities of foreign issuers. ADRs are securities, typically issued by a U.S.
financial institution, that evidence ownership interests in a security or a pool
of securities issued by a foreign issuer and deposited with the depository. ADRs
may be sponsored or unsponsored. A sponsored ADR is issued by a depository
which has an exclusive relationship with the issuer of the underlying security.
An unsponsored ADR may be issued by any number of U.S. depositories. Holders of
unsponsored ADRs generally bear all the costs associated with establishing the
unsponsored ADR. The depository of an unsponsored ADR is under no obligation to
distribute shareholder communications received from the underlying issuer or to
pass through to the holders of the unsponsored ADR voting rights with respect to
the deposited securities or pool of securities. A Fund may invest in either
type of ADR. Although the U.S. investor holds a substitute receipt of ownership
rather than direct stock certificates, the use of the depository receipts in the
United States can reduce costs and delays as well as potential currency exchange
and other difficulties. The Fund may purchase securities in local markets and
direct delivery of these ordinary shares to the local depository of an ADR agent
bank in the foreign country. Simultaneously, the ADR agents create a certificate
which settles at the Fund's custodian in five days. The Fund may also execute
trades on the U.S. markets using existing ADRs. A foreign issuer 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
B-18
not reflect undisclosed material information concerning the issuer of the
underlying security. For purposes of a Fund's investment policies, the Fund's
investments in these types of securities will be deemed to be investments in the
underlying securities. Generally ADRs, in registered form, are dollar
denominated securities designed for use in the U.S. securities markets, which
represent and may be converted into the underlying foreign security. EDRs, in
bearer form, are designed for use in the European securities markets.
Investments in foreign securities, including securities of developing
countries, present special additional investment risks and considerations not
typically associated with investments in domestic securities, including
reduction of income by foreign taxes; fluctuation in value of foreign portfolio
investments due to changes in currency rates and control regulations (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
than the U.S.; increased possibilities in some countries of expropriation,
confiscatory taxation, political, financial or social instability or adverse
diplomatic developments; and differences (which may be favorable or unfavorable)
between the U.S. economy and foreign economies.
PASSIVE FOREIGN INVESTMENT COMPANIES ("PFICS"). The Global Balanced Fund may
invest in PFICs, which are any foreign corporations which generate certain
amounts of passive income or hold certain amounts of passive income or hold
certain amounts of assets for the production of passive income. Passive income
includes dividends, interest, royalties, rents and annuities. To the extent that
a Portfolio invests in PFICs, income tax regulations may require the Portfolio
to recognize income associated with the PFIC prior to the actual receipt of any
such income.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, each Fund may lend portfolio securities in amounts up to 33% of
total assets to brokers, dealers and other financial institutions, provided,
that such loans are callable at any time by the Fund and are at all times
secured by cash or equivalent collateral. In lending its portfolio securities,
a Fund receives income while retaining the securities' potential for capital
appreciation. The advantage of such loans is that a Fund continues to receive
the interest and dividends on the loaned securities while at the same time
earning interest on the collateral, which will be invested in short-term
obligations. A loan may be terminated by the borrower on one business day's
notice
B-19
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 only be made to firms deemed
by the Adviser (or Sub-Adviser) to be creditworthy. On termination of the loan,
the borrower is required to return the securities to a Fund; and any gain or
loss in the market price of the loaned security during the loan would inure to
the Fund. Each Fund will pay reasonable finders', administrative and custodial
fees in connection with a loan of its securities or may share the interest
earned on collateral with the borrower.
Since voting or consent rights which accompany loaned securities pass
to the borrower, each Fund will follow the policy of calling the loan, in whole
or in part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Fund's investment in the
securities which are the subject of the loan.
INCOME ENHANCEMENT STRATEGIES. Each Fund may write (i.e., sell) call options
("calls") on securities that are traded on U.S. and foreign securities exchanges
and over-the-counter markets to enhance income through the receipt of premiums
from expired calls and any net profits from closing purchase transactions.
After any such sale up to 100% of a Fund's total assets may be subject to calls.
All such calls written by a Fund must be "covered" while the call is outstanding
(i.e., the Fund must own the securities subject to the call or other securities
acceptable for applicable escrow requirements). Calls on Futures (defined
below) used to enhance income must be covered by deliverable securities or by
liquid assets segregated to satisfy the Futures contract. If a call written by
the Fund is exercised, the Fund forgoes any profit from any increase in the
market price above the call price of the underlying investment on which the call
was written. In addition, the Fund could experience capital losses which might
cause previously distributed short-term capital gains to be re-characterized as
a non-taxable return of capital to shareholders.
The Balanced Assets Fund and Global Balanced Fund also may write put
options ("puts") which give the holder of the option the right to sell the
underlying security to the Fund at the stated exercise price. A Fund will
receive a premium for writing a put option which increases the Fund's return.
A Fund writes only covered put options which means that so long as the Fund is
obligated as the writer of the option it will, through 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
B-20
exercise price of the underlying securities. Puts on Futures (defined below)
will be considered "covered" if the a Fund owns an option to sell that Futures
contract having a strike price equal to or greater than the strike price of the
"covered" option, or if the Fund segregates and maintains with its custodian for
the term of the option cash, U.S. government securities or liquid high-grade
debt obligations at all times equal in value to the exercise price of the put
(less any initial margin deposited by the Fund with its custodian with respect
to such option).
HEDGING STRATEGIES. For hedging purposes as a temporary defensive maneuver,
each Fund may use interest rate futures contracts, foreign currency futures
contracts, and stock and bond index futures contracts (together, "Futures");
forward contracts on foreign currencies ("Forward Contracts"); and call and put
options on equity and debt securities, Futures, stock and bond indices and
foreign currencies (all the foregoing referred to as "Hedging Instruments").
Hedging Instruments may be used to attempt to: (i) protect against possible
declines in the market value of a Fund's portfolio resulting from downward
trends in the equity and debt securities markets (generally due to a rise in
interest rates); (ii) protect a Fund's unrealized gains in the value of its
equity and debt securities which have appreciated; (iii) facilitate selling
securities for investment reasons; (iv) establish a position in the equity and
debt securities markets as a temporary substitute for purchasing particular
equity and debt securities; or (v) reduce the risk of adverse currency
fluctuations.
A Fund's strategy of hedging with Futures and options on Futures will
be incidental to its activities in the underlying cash market. When hedging to
attempt to protect against declines in the market value of a Fund's portfolio,
to permit a Fund to retain unrealized gains in the value of portfolio securities
which have appreciated, or to facilitate selling securities for investment
reasons, a Fund could: (i) sell Futures; (ii) purchase puts on such Futures or
securities; or (iii) write calls on securities held by it or on Futures. When
hedging to attempt to protect against the possibility that portfolio securities
are not fully included in a rise in value of the debt securities market, a Fund
could: (i) purchase Futures, or (ii) purchase calls on such Futures or on
securities. When hedging to protect against declines in the dollar value of a
foreign currency-denominated security, a Fund could: (i) purchase puts on that
foreign currency and on foreign currency Futures; (ii) write calls on that
currency or on such Futures; or (iii) enter into Forward Contracts at a lower
rate than the spot ("cash") rate. Additional information about the Hedging
Instruments the Funds may use is provided below.
The Global Balanced Fund may engage in the foregoing for non-hedging
purposes as well.
B-21
OPTIONS
-------
Options on Securities. As noted above, each Fund may write and
purchase call and put options (including yield curve options) on equity and debt
securities.
When a Fund writes a call on a security it receives a premium and
agrees to sell the underlying security to a purchaser of a corresponding call on
the same security during the call period (usually not more than 9 months) at a
fixed price (which may differ from the market price of the underlying security),
regardless of market price changes during the call period. A Fund has retained
the risk of loss should the price of the underlying security decline during the
call period, which may be offset to some extent by the premium.
To terminate its obligation on a call it has written, a Fund may
purchase a corresponding call in a "closing purchase transaction." A profit or
loss will be realized, depending upon whether the net of the amount of the
option transaction costs and the premium received on the call written was more
or less than the price of the call subsequently purchased. A profit may also be
realized if the call expires unexercised, because a Fund retains the underlying
security and the premium received. 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
B-22
writer of the put) realizes a gain in the amount of the premium. If the put is
exercised, a Fund must fulfill its obligation to purchase the underlying
investment at the exercise price, which will usually exceed the market value of
the investment at that time. In that case, a Fund may incur a loss, equal to
the sum of the sale price of the underlying investment and the premium received
minus the sum of the exercise price and any transaction costs incurred.
A Fund may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an
underlying security from being put. Furthermore, effecting such a closing
purchase transaction will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments by the
Fund. A Fund will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
writing the option.
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
B-23
a Fund as the put writer continues, it may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring a Fund to take
delivery of the underlying security against payment of the exercise price. A
Fund has no control over when it may be required to purchase the underlying
security, since it may be assigned an exercise notice at any time prior to the
termination of its obligation as the writer of the put. This obligation
terminates upon expiration of the put, or such earlier time at which a Fund
effects a closing purchase transaction by purchasing a put of the same series as
that previously sold. Once a Fund has been assigned an exercise notice, it is
thereafter not allowed to effect a closing purchase transaction.
Options on Foreign Currencies. Each Fund may write and purchase puts
and calls on foreign currencies. A call written on a foreign currency by a Fund
is "covered" if the Fund owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A put option is "covered" if the Fund
deposits with its custodian cash 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 which the Fund owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change in
the exchange rate. In such circumstances, a Fund collateralizes the option by
maintaining in a segregated account with the Fund's custodian cash or liquid
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily.
Options on Securities Indices. As noted above, each Fund may write
and purchase call and put options on securities indices. Puts and calls on
broadly-based securities indices are similar to puts and calls on securities
except that all settlements are in cash and gain or loss depends on changes in
the index in question (and thus on price movements in the securities market
generally) rather than on price movements in individual securities or Futures.
When a Fund buys a call on a securities index, it pays a premium. During the
call period, upon exercise of a call by a Fund, a seller of a corresponding call
on the same investment will pay the Fund an amount of cash to settle the call if
the closing level of the 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
B-24
seller of a corresponding put, upon the Fund's exercise of its put, to deliver
to the Fund an amount of cash to settle the put if the closing level of the
securities index upon which the put is based is less than the exercise price of
the put. That cash payment is determined by the multiplier, in the same manner
as described above as to calls.
FUTURES AND OPTIONS ON FUTURES
------------------------------
Futures. Upon entering into a Futures transaction, a Fund will be
required to deposit an initial margin payment with the futures commission
merchant (the "futures broker"). The initial margin will be deposited with the
Fund's custodian in an account registered in the futures broker's name; however,
the futures broker can gain access to that account only under specified
conditions. As the Future is marked to market to reflect changes in its market
value, subsequent margin payments, called variation margin, will be paid to or
by the futures broker on a daily basis. Prior to expiration of the Future, if a
Fund elects to close out its position by taking an opposite position, a final
determination of variation margin is made, additional cash is required to be
paid by or released to the Fund, and any loss or gain is realized for tax
purposes. All Futures transactions are effected through a clearinghouse
associated with the exchange on which the Futures are traded.
Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on a
Fund's current or intended investments in fixed-income securities. For example,
if a Fund owned long-term bonds and interest rates were expected to increase,
that Fund might sell interest rate futures contracts. Such a sale would have
much the same effect as selling some of the long-term bonds in that Fund's
portfolio. However, since the Futures market is more liquid than the cash
market, the use of interest rate futures contracts as a hedging technique allows
a Fund to hedge its interest rate risk without having to sell its portfolio
securities. If interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of that Fund's interest rate futures
contracts would be expected to increase at approximately the same rate, thereby
keeping the net asset value of that Fund from declining as much as it otherwise
would have. On the other hand, if interest rates were expected to decline,
interest rate futures contracts may be purchased to hedge in anticipation of
subsequent purchases of long-term bonds at higher prices. Since the
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
B-25
the cash market.
Purchases or sales of stock or bond index futures contracts are used
for hedging purposes to attempt to protect a Fund's current or intended
investments from broad fluctuations in stock or bond prices. For example, a
Fund may sell stock or bond index futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. If such decline occurs, the
loss in value of portfolio securities may be offset, in whole or part, by gains
on the Futures position. When a Fund is not fully invested in the securities
market and anticipates a significant market advance, it may purchase stock or
bond index futures contracts in order to gain rapid market exposure that may, in
part or entirely, offset increases in the cost of securities that the Fund
intends to purchase. As such purchases are made, the corresponding positions in
stock or bond index futures contracts will be closed out.
As noted above, each Fund may purchase and sell foreign currency
futures contracts for hedging or income enhancement purposes to attempt to
protect its current or intended investments from fluctuations in currency
exchange rates. Such fluctuations could reduce the dollar value of portfolio
securities denominated in foreign currencies, or increase the cost of foreign-
denominated securities to be acquired, even if the value of such securities in
the currencies in which they are denominated remains constant. Each Fund may
sell futures contracts on a foreign currency, for example, when it holds
securities denominated in such currency and it anticipates a decline in the
value of such currency relative to the dollar. In the event such decline
occurs, the resulting adverse effect on the value of foreign-denominated
securities may be offset, in whole or in part, by gains on the Futures
contracts. However, if the value of the foreign currency increases relative to
the dollar, the Fund's loss on the foreign currency futures contract may or may
not be offset by an increase in the value of the securities since a decline in
the price of the security stated in terms of the foreign currency may be greater
than the increase in value as a result of the change in exchange rates.
Conversely, each Fund could protect against a rise in the dollar cost
of foreign-denominated securities to be acquired by purchasing Futures contracts
on the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying 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.
B-26
Options on Futures. As noted above, the Funds may purchase and write
options on interest rate futures contracts, stock and bond index futures
contracts and foreign currency futures contracts. (Unless otherwise specified,
options on interest rate futures contracts, options on stock and bond index
futures contracts and options on foreign currency futures contracts are
collectively referred to as "Options on Futures.")
The writing of a call option on a Futures contract constitutes a
partial hedge against declining prices of the securities in a Fund's portfolio.
If the Futures price at expiration of the option is below the exercise price,
the Fund will retain the full amount of the option premium, which provides a
partial hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a Futures contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures contract. If the
Futures price at expiration of the put option is higher than the exercise price,
a Fund will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the Fund
intends to purchase. If a put or call option a Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its Options on Futures
positions, a Fund's losses from exercised Options on Futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
The Fund may purchase Options on Futures for hedging purposes, instead
of purchasing or selling the underlying Futures contract. For example, where a
decrease in the value of portfolio securities is anticipated as a result of a
projected market-wide decline or changes in interest or exchange rates, a Fund
could, in lieu of selling a Futures contract, purchase put options thereon. In
the event that such decrease occurs, it may be offset, in whole or part, by a
profit on the option. If the market decline does not occur, the Fund will
suffer a loss equal to the price of the put. Where it is projected that the
value of securities to be acquired by a Fund will increase prior to acquisition,
due to a market advance or changes in interest or exchange rates, a Fund could
purchase call Options on Futures, rather than purchasing the underlying Futures
contract. If the market advances, the increased cost of securities to be
purchased may be offset by a profit on the call. However, if the market
declines, the Fund will suffer a loss equal to the price of the call but the
securities which the Fund intends to purchase may be less expensive.
B-27
FORWARD CONTRACTS
-----------------
A Forward Contract involves bilateral obligations of one party to
purchase, and another party to sell, a specific currency at a future date (which
may be any fixed number of days from the date of the contract agreed upon by the
parties), at a price set at the time the contract is entered into. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. No price is paid
or received upon the purchase or sale of a Forward Contract.
A Fund may use Forward Contracts to protect against uncertainty in the
level of future exchange rates. The use of Forward Contracts does not eliminate
fluctuations in the prices of the underlying securities a Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. In addition,
although Forward Contracts limit the risk of loss due to a decline in the value
of the hedged currencies, at the same time they limit any potential gain that
might result should the value of the currencies increase. A Fund (other than
the Global Balanced Fund) will not speculate with Forward Contracts or foreign
currency exchange rates.
A Fund may enter into Forward Contracts with respect to specific
transactions. For example, when a Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when a Fund
anticipates receipt of dividend payments in a foreign currency, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment by entering into a Forward Contract, for a fixed
amount of U.S. dollars per unit of foreign currency, for the purchase or sale of
the amount of foreign currency involved in the underlying transaction. A Fund
will thereby be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the currency exchange rates during
the period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are made or
received.
A Fund may also use Forward Contracts to lock in the U.S. dollar value
of portfolio positions ("position hedge"). In a position hedge, for example,
when a Fund believes that foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a Forward Contract to sell an amount
of that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency, or when a Fund
believes that the U.S. dollar may suffer a substantial decline against a foreign
currency, it may enter into 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.
B-28
dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross-hedged").
The Fund 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's custodian will place cash or liquid securities in a
separate account of the Fund having a value equal to the aggregate amount of the
Fund's commitments under Forward Contracts entered into with respect to position
hedges and cross-hedges. If the value of the securities placed in a separate
account declines, additional cash or securities will be placed in the account on
a daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts. As an alternative to
maintaining all or part of the separate account, a Fund may purchase a call
option permitting the Fund to purchase the amount of foreign currency being
hedged by a forward sale contract at a price no higher than the Forward Contract
price or the Fund may purchase a put option permitting the Fund to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the Forward Contract price. Unanticipated changes in
currency prices may result in poorer overall performance for a Fund than if it
had not entered into such contracts.
The precise matching of the Forward Contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the Forward Contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency a Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency a Fund is obligated to deliver. The
projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Forward Contracts involve the risk that anticipated currency movements will not
be accurately predicted, causing a Fund to sustain losses on these contracts and
transactions costs.
At or before the maturity of a Forward Contract requiring a Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency
B-29
or retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Fund will obtain,
on the same maturity date, the same amount of the currency that it is obligated
to deliver. Similarly, a Fund may close out a Forward Contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. A Fund would realize a gain or loss as a result of entering into such
an offsetting Forward Contract under either circumstance to the extent the
exchange rate or rates between the currencies involved moved between the
execution dates of the first contract and offsetting contract.
The cost to a Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because Forward Contracts are usually
entered into on a principal basis, no fees or commissions are involved. Because
such contracts are not traded on an exchange, a Fund must evaluate the credit
and performance risk of each particular counterparty under a Forward Contract.
Although a Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. A Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Foreign exchange
dealers do not charge a fee for conversion, but they do seek to realize a profit
based on the difference between the prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE
--------------------------------------------------------------
The Fund's custodian, or a securities depository acting for the
custodian, will act as the Fund's escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the securities on which the Fund has
written options or as to other acceptable escrow securities, so that no margin
will be required for such transaction. OCC will release the securities on the
expiration of the option or upon a Fund's entering into a closing transaction.
An option position may be closed out only on a market which provides
secondary trading for options of the same series and there is no assurance that
a liquid secondary market will exist for any particular option. A Fund's option
activities may affect its turnover rate and brokerage commissions. The exercise
by a Fund of puts on securities will cause the sale of related investments,
increasing portfolio turnover. Although such exercise is within a
B-30
Fund's control, holding a put might cause the Fund to sell the related
investments for reasons which would not exist in the absence of the put. A Fund
will pay a brokerage commission each time it buys a put or call, sells a call,
or buys or sells an underlying investment in connection with the exercise of a
put or call. Such commissions may be higher than those which would apply to
direct purchases or sales of such underlying investments. Premiums paid for
options are small in relation to the market value of the related investments,
and consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options could result in a Fund's net asset value
being more sensitive to changes in the value of the underlying investments.
In the future, each Fund may employ Hedging Instruments and strategies
that are not presently contemplated but which may be developed, to the extent
such investment methods are consistent with a Fund's investment objectives,
legally permissible and adequately disclosed.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS
-----------------------------------------
Each Fund must operate within certain restrictions as to its long and
short positions in Futures and options thereon under a rule (the "CFTC Rule")
adopted by the Commodity Futures Trading Commission (the "CFTC") under the
Commodity Exchange Act (the "CEA"), which excludes the Fund from registration
with the CFTC as a "commodity pool operator" (as defined in the CEA) if it
complies with the CFTC Rule. In particular, the Fund may (i) purchase and sell
Futures and options thereon for bona fide hedging purposes, as defined under
CFTC regulations, without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) enter into non-hedging
transactions, provided that the Fund may not enter into such non-hedging
transactions if, immediately thereafter, the sum of the amount of initial margin
deposits on the Fund's existing Futures positions and option premiums would
exceed 5% of the fair value of its portfolio, after taking into account
unrealized profits and unrealized losses on any such transactions. Each Fund
intends to engage in Futures transactions and options thereon only for hedging
purposes, but the Global Balanced Fund may also engage in such transactions for
non-hedging purposes. Margin deposits may consist of cash or securities
acceptable to the broker and the relevant contract market.
Transactions in options by a Fund are subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options were written or purchased on the
same or different exchanges or are held in one or more accounts or through one
or more exchanges or brokers. Thus, the number of options which a Fund may
write or hold may be affected by options written or held by other entities,
including other investment companies having the
B-31
same or an affiliated investment adviser. Position limits also apply to
Futures. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions. Due to
requirements under the 1940 Act, when a Fund purchases a Future, the Fund will
maintain, in a segregated account or accounts with its custodian bank, cash or
liquid securities in an amount equal to the market value of the securities
underlying such Future, less the margin deposit applicable to it.
TAX ASPECTS OF HEDGING INSTRUMENTS
----------------------------------
Each Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). One of the tests
for such qualification is that less than 30% of its gross income must be derived
from gains realized on the sale of stock or securities held for less than three
months. This limitation may limit the ability of a Fund to engage in options
transactions and, in general, to hedge investment risk.
POSSIBLE RISK FACTORS IN HEDGING
--------------------------------
In addition to the risks discussed in the Prospectus and above, there
is a risk in using short hedging by selling Futures to attempt to protect
against decline in value of a Fund's portfolio securities (due to an increase in
interest rates) that the prices of such Futures will correlate imperfectly with
the behavior of the cash (i.e., market value) prices of the Fund's securities.
The ordinary spreads between prices in the cash and Futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the Futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close Futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
Futures markets. Second, the liquidity of the Futures markets depend on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the Futures markets could be reduced, thus producing distortion. Third, from
the point-of-view of speculators, the deposit requirements in the Futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the Futures markets may
cause temporary price distortions.
If a Fund uses Hedging Instruments to establish a position in the debt
securities markets as a temporary substitute for the purchase of individual debt
securities (long hedging) by buying Futures and/or calls on such Futures or on
debt securities, it is possible that the market may decline; if the Adviser then
determines not to invest in such securities at that time because of concerns as
to possible further market decline or for other
B-32
reasons, the Fund will realize a loss on the Hedging Instruments that is not
offset by a reduction in the price of the debt securities purchased.
LEVERAGE. In seeking to enhance investment performance, the Global Balanced
Fund, Small Company Growth Fund, and Growth and Income Fund may increase their
ownership of securities by borrowing from banks at fixed rates of interest and
investing the borrowed funds, subject to the restrictions stated in the
Prospectus. Any such borrowing will be made only from banks and pursuant to the
requirements of the 1940 Act and will be made only to the extent that the value
of each Fund's assets less its liabilities, other than borrowings, is equal to
at least 300% of all borrowings including the proposed borrowing. If the value
of a Fund's assets, so computed, should fail to meet the 300% asset coverage
requirement, the Fund is required, within three business days, to reduce its
bank debt to the extent necessary to meet such requirement and may have to sell
a portion of its investments at a time when independent investment judgment
would not dictate such sale. Interest on money borrowed is an expense the Fund
would not otherwise incur, so that it may have little or no net investment
income during periods of substantial borrowings. Since substantially all of a
Fund's assets fluctuate in value, but borrowing obligations are fixed when the
Fund has outstanding borrowings, the net asset value per share of a Fund
correspondingly will tend to increase and decrease more when the Fund's assets
increase or decrease in value than would otherwise be the case. A Fund's policy
regarding use of leverage is a fundamental policy which may not be changed
without approval of the shareholders of the Fund.
PORTFOLIO TURNOVER
The portfolio turnover rate is calculated for each Fund by dividing
(a) the lesser of purchases or sales of portfolio securities for the fiscal year
by (b) the monthly average of the value of portfolio securities owned during the
fiscal year. For purposes of this calculation, securities which at the time of
purchase had a remaining maturity of one year or less are excluded from the
numerator and the denominator. Transactions in Futures or the exercise of calls
written by a Fund may cause the Fund to sell portfolio securities, thus
increasing its turnover rate. The exercise of puts also may cause a sale of
securities and increase turnover; although such exercise is within a Fund's
control, holding a protective put might cause the Fund to sell the underlying
securities for reasons which would not exist in the absence of the put. A Fund
will pay a brokerage commission each time it buys or sells a security in
connection with the exercise of a put or call. Some commissions may be higher
than those which would apply to direct purchases or sales of portfolio
securities.
B-33
The following table sets forth the portfolio turnover rates for the
fiscal years ended September 30, 1996 and 1995.
PORTFOLIO TURNOVER
[Download Table]
FUND 1996 1995
----------------------------------------
Balanced Assets Fund 187% 130%
----------------------------------------
Blue Chip Growth Fund 269% 251%
----------------------------------------
Global Balanced Fund 103% 169%
----------------------------------------
Growth and Income Fund 161% 230%
----------------------------------------
Mid-Cap Growth Fund 307% 392%
----------------------------------------
Small Company Growth Fund 240% 351%
----------------------------------------
High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs which will be borne directly by a Fund.
High portfolio turnover may also involve a possible increase in short-term
capital gains or losses.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that are
fundamental policies and may not be changed without the approval of the holders
of a majority of that Fund's outstanding voting securities. A "majority of the
outstanding voting securities" of a Fund for this purpose means the lesser of
(i) 67% of the shares of the Fund represented at a meeting at which more than
50% of the outstanding shares are present in person or represented by proxy or
(ii) more than 50% of the outstanding shares. Unless otherwise indicated, all
percentage limitations apply to each Fund on an individual basis, and apply only
at the time the investment is made; any subsequent change in any applicable
percentage resulting from fluctuations in value will not be deemed an investment
contrary to these restrictions. Under these restrictions, no Fund may:
(1) With respect to 75% of its total assets, invest more than 5% of its total
assets (taken at market value at the time of each investment) in the
securities of any one issuer or purchase more than 10% of the outstanding
voting securities of any one company or more than 10% of any class of a
company's outstanding securities, except that these restrictions shall not
apply to securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities ("U.S. government securities"). The
foregoing restriction shall not apply to the Global Balanced Fund.
B-34
(2) Invest more than 5% of its total assets (taken at market value at the time
of each investment) in securities of companies having a record, together
with predecessors, of less than three years of continuous operations,
except that this restriction shall not apply to U.S. government securities.
(3) Purchase securities on margin, borrow money or pledge their assets, except
that the Global Balanced Fund, Small Company Growth Fund and Growth and
Income Fund may borrow money to purchase securities as set forth in the
Prospectus and Statement of Additional Information and each Fund may borrow
from a bank for temporary or emergency purposes in amounts not exceeding 5%
(taken at the lower of cost or current value) of its total assets (not
including the amount borrowed) and pledge its assets to secure such
borrowings. Further, to the extent that an investment technique engaged in
by the Global Balanced Fund or Growth and Income Fund required pledging of
assets, the Funds may pledge assets in connection with such transactions.
For purposes of this restriction and res-triction (5) below, collateral
arrangements with respect to the options, financial futures and options
thereon described in the Prospectus and Statement of Additional Information
are not deemed to constitute a pledge or loan of assets.
(4) Invest more than 25% of each Fund's assets in the securities of issuers
engaged in the same industry.
(5) Engage in arbitrage transactions, buy or sell commodities or commodity
contracts or real estate or interests in real estate, except that each Fund
may (a) purchase or sell financial futures and options thereon for hedging
purposes and the Global Balanced Fund for non-hedging purposes, as
described in the Prospectus and Statement of Additional Information, under
policies developed by the Trustees and (b) purchase and sell marketable
securities which are secured by real estate and marketable securities of
companies which invest or deal in real estate.
(6) Act as underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Funds may be deemed to be
underwriters under certain Federal securities laws.
(7) Make loans, except through (i) repurchase agreements, (ii) loans of
portfolio securities, or (iii) the purchase of portfolio securities
consistent with a Fund's investment objectives and policies, as described
in the Prospectus.
(8) Make short sales of securities or maintain a short position, except that
each Fund may effect short sales against the box.
(9) Issue senior securities as defined in the 1940 Act, except
B-35
that each Fund may enter into repurchase agreements, lend its portfolio
securities and borrow money from banks, as described in restriction (3),
and the Global Balanced Fund may enter into dollar rolls.
The following additional restrictions are not fundamental policies and may be
changed by the Trustees without a vote of shareholders. Each Fund may not:
(10) 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 have a readily
available market, and commercial paper exempted from registration under the
Securities Act pursuant to Section 4(2) of that Act that may be offered and
sold to "qualified institutional buyers" as defined in Rule 144A, which the
Adviser (or Sub-Adviser) has determined to be liquid pursuant to guidelines
established by the Trustees, will not be considered illiquid for purposes
of this 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 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.
B-36
[Download Table]
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
--------------------- ------------- -------------------
S. James Coppersmith, 63 Trustee Director/Trustee of the Boston
Emerson College Stock Exchange, Uno Restaurant
100 Beacon Street Corp., Waban Corp., Kushner-
Boston, MA 02116 Locke Co., Chyron Inc.; Chairman
of the Board of Emerson College;
formerly, President and General
Manager, WCVB-TV, a division of
the Hearst Corp. from 1982 to
1994 (retired); Director/Trustee
of the SunAmerica Mutual Funds
and Anchor Series Trust.
Samuel M. Eisenstat, 56 Chairman of Attorney in private practice;
430 East 86 Street the Board President and Chief Executive
New York, NY 10028 Officer, Abjac Energy Corp.;
Director/Trustee of Atlantic Realty
Trust, UMB Bank and Trust(a
subsidiary of United Mizrachi Bank),
North European Royalty Trust, Volt
Information Sciences Funding, Inc.
(a subsidiary of Volt Information
Sciences, Inc.) and Venture Partners
International (an Israeli venture
capital fund); Chairman of the Boards
of the SunAmerica Mutual Funds and
Director/Trustee of the Anchor Series
Trust.
Stephen J. Gutman, 53 Trustee Partner and Chief Operating
515 East 79th Street Officer of B.B. Associates LLC
New York, NY 10021 (menswear specialty retailing and
other activities) since May 1989;
Director/Trustee of the SunAmerica
Mutual Funds and Anchor Series Trust.
Peter A. Harbeck*, 42 Trustee and Director and President,
The SunAmerica Center President SunAmerica Asset Management
733 Third Avenue Corp. ("SAAMCo"); Director,
New York, NY 10017-3204 SunAmerica Capital Services, Inc.
("SACS"), since February 1993;
Director and President, SunAmerica
Fund Services, Inc.("SAFS"),
since May 1988; President of the
SunAmerica
B-37
[Enlarge/Download Table]
Mutual Funds and Anchor Series
Trust; Executive Vice President
and Chief Operating Officer,
SAAMCo, from May 1988 to August
1995; Executive Vice President,
SACS, from November 1991 to
August 1995; Director, Resources
Trust Company.
Peter McMillan III*, 38 Trustee Executive Vice President and
1 SunAmerica Center Chief Investment Officer, Los
Angeles, CA 90067 SunAmerica Investments, Inc. since
August 1989; Director/Trustee of
the SunAmerica Mutual Funds;
Director, Resources Trust Company.
Sebastiano Sterpa, 67 Trustee Founder of Sterpa Realty
Suite 200 Inc., a full service real
200 West Glenoaks Blvd estate firm, since 1962;
Glendale, CA 91202 Chairman of the Sterpa
Group, real estate invest-
ments and management com-
pany; Trustee/Director of
the SunAmerica Mutual Funds.
Stanton J. Feeley, 59 Executive Vice Executive Vice President and
The SunAmerica Center President Chief Investment Officer,
733 Third Avenue SAAMCo, since February 1992;
New York, NY 10017-3204 Formerly, Senior Portfolio Manager,
Delaware Management Company,
Inc. from December 1987 to February 1992.
Nancy Kelly, 45 Vice Vice President and Head
The SunAmerica Center President Trader, SAAMCo, since April
733 Third Avenue 1994; Formerly, Vice President, Whitehorne
New York, NY 10017-3204 & Co. Ltd. (1991-1994); Sales Trader,
Lynch Jones & Ryan (1992-1994).
Audrey L. Snell, 43 Vice Vice President and Equity
The SunAmerica Center President Portfolio Manager, SAAMCo,
733 Third Avenue since March 1991; Formerly,
New York, NY 10017-3204 held investment management position with
Campbell Associates, Inc. from 1986 to 1991.
B-38
[Download Table]
Peter C. Sutton, 32 Treasurer Vice President, SAAMCo, since
The SunAmerica Center September 1994; Treasurer,
733 Third Avenue SunAmerica Mutual Funds, since
New York, NY 10017-3204 February 1996 and Style Select
Series, Inc. since September
1996; Vice President,
SunAmerica Series Trust and
Anchor Pathway Fund, since
October 1994; Controller,
SunAmerica Mutual Funds (March
1993 to February 1996);
Assistant Controller, SunAmerica
Mutual Funds (1990-1993).
Robert M. Zakem, 39 Secretary and Senior Vice President and
The SunAmerica Center Chief Compli- General Counsel of SAAMCo,
733 Third Avenue ance Officer since April 1993; Executive
New York, NY 10017-3204 Vice President and Director,
SACS, since February 1993; and
Vice President of SAFS, since
January 1994; Formerly, Vice
President and Associate
General Counsel, SAAMCo, from
March 1992 to April 1993;
Associate, Piper & Marbury
from 1989 to 1992.
Trustees and officers of the Trust are also trustees and officers of some
or all of the other investment companies managed, administered or advised by the
Adviser, and distributed by SunAmerica Capital Services, Inc. ("SACS" or the
"Distributor") and other affiliates of SunAmerica Inc.
The Trust pays each Trustee who is not an interested person of the Trust or
the Adviser (each a "disinterested" Trustee) annual compensation in addition to
reimbursement of out-of-pocket expenses in connection with attendance at
meetings of the Trustees. Specifically, each disinterested Trustee receives a
pro rata portion (based upon the Trust's net Assets) aggregate of $40,000 in
annual compensation for acting as director or trustee to all the retail funds in
the SunAmerica Mutual Funds. In addition, Mr. Eisenstat receives an aggregate of
$2,000 in annual compensation for serving as Chairman of the Boards of the
retail funds in the SunAmerica Mutual Funds. Officers of the Trust receive no
direct remuneration in such capacity from the Trust or any of the Funds.
In addition, each disinterested Trustee also serves on the Audit Committee
of the Board of Trustees. Each member of the Audit Committee receives an
aggregate of $5,000 in annual compensation for serving on the Audit Committees
of all of the SunAmerica Family of Mutual Funds. With respect to the Trust,
each member of the committee
B-39
receives a pro rata portion of the $5,000 annual compensation, based on the
relative net assets of the Trust. The Trust also has a Nominating Committee,
comprised solely of disinterested Trustees, which recommends to the Trustees
those persons to be nominated for election as Trustees by shareholders and
selects and proposes nominees for election by Trustees between shareholders'
meetings. Members of the Nominating Committee serve without compensation.
The Trustees (and Directors) of the SunAmerica Mutual Funds have adopted
the SunAmerica Disinterested Trustees' and Directors' Retirement Plan (the
"Retirement Plan") effective January 1, 1993 for the unaffiliated Trustees. The
Retirement Plan provides generally that if a disinterested Trustee who has at
least 10 years of consecutive service as a disinterested Trustee of any of the
SunAmerica Mutual Funds (an "Eligible Trustee") retires after reaching age 60
but before age 70 or dies while a Trustee, such person will be eligible to
receive a retirement or death benefit from each SunAmerica mutual fund with
respect to which he or she is an Eligible Trustee. As of each birthday, prior to
the 70th birthday, each Eligible Trustee will be credited with an amount equal
to (i) 50% of his or her regular fees (excluding committee fees) for services as
a disinterested Trustee of each SunAmerica mutual fund for the calendar year in
which such birthday occurs, plus (ii) 8.5% of any amounts credited under clause
(i) during prior years. An Eligible Trustee may receive any benefits payable
under the Retirement Plan, at his or her election, either in one lump sum or in
up to fifteen annual installments.
As of December 31, 1996, the Trustees and officers of the Trust owned in
the aggregate, less than 1% of the Trust's total outstanding shares.
The following table sets forth information summarizing the compensation of
each disinterested Trustee for his services as Trustee for the fiscal year ended
September 30, 1996. Neither the Trustees who are interested persons of the
Trust nor any officers of the Trust receive any compensation.
COMPENSATION TABLE
[Download Table]
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS FROM REGISTRANT
COMPENSATION ACCRUED AS AND FUND
FROM PART OF FUND COMPLEX PAID TO
TRUSTEE REGISTRANT EXPENSES* TRUSTEES*
----------------------------------------------------------------------
S. James Coppersmith $13,513 34,643 $ 65,000
----------------------------------------------------------------------
Samuel M. Eisenstat $14,143 26,544 $ 69,000
----------------------------------------------------------------------
Stephen J. Gutman $13,513 27,625 $ 65,000
----------------------------------------------------------------------
Sebastiano Sterpa $13,445 21,286** $43,333**
----------------------------------------------------------------------
* Information is as of September 30, 1996 for the five investment companies in
the complex which pay fees to these directors/trustees. The complex consists
of the SunAmerica Mutual Funds and Anchor Series Trust.
** Mr. Sterpa is not a trustee of Anchor Series Trust.
B-40
The following shareholders owned of record or beneficially 5% or more of
the Growth and Income Fund's shares outstanding as of December 31, 1996: Class A
- SunAmerica Asset Management Corp., New York, NY 10017 - owned beneficially
19%; Eli Broad, Los Angeles, CA 90067 -owned beneficially 6%; SunAmerica Capital
Services, Inc., New York, NY 10017 - owned beneficially 11%; Class B - JBC
Profit Sharing Plan & Trust, St. Louis, MO 63131 - owned of record 9%.
ADVISER, SUB-ADVISER, PERSONAL TRADING,
DISTRIBUTOR AND ADMINISTRATOR
THE ADVISER. The Adviser, organized as a Delaware corporation in 1982, is
located at The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204, and
acts as adviser to each of the Funds pursuant to the Investment Advisory and
Management Agreement dated September 23, 1993 as amended May 20, 1994 (the
"Advisory Agreement") with the Trust, on behalf of each Fund. The Adviser is an
indirect wholly owned subsidiary of SunAmerica Inc. (formerly, Broad Inc.).
SunAmerica Inc., is incorporated in the State of Maryland and maintains its
principal executive offices at 1 SunAmerica Center, Los Angeles, CA 90067-6022,
telephone (310) 772-6000.
Under the Advisory Agreement, the Adviser manages the investment of the
assets of each Fund and obtains and evaluates economic, statistical and
financial information to formulate and implement investment policies for each
Fund. Any investment program undertaken by the Adviser will at all times be
subject to the policies and control of the Trustees. The Adviser also provides
certain administrative services to each Fund.
Except to the extent otherwise specified in the Advisory Agreement, each
Fund pays, or causes to be paid, all other expenses of the Trust and each of the
Funds, including, without limitation, charges and expenses of any registrar,
custodian, transfer and dividend disbursing agent; brokerage commissions; taxes;
engraving and printing of share certificates; registration costs of the Funds
and their shares under Federal and state securities laws; the cost and expense
of printing, including typesetting, and distributing Prospectuses and Statements
of Additional Information respecting the Funds, and supplements thereto, to the
shareholders of the Funds; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; all expenses incident to any dividend, withdrawal or redemption
options; fees and expenses of legal counsel and independent accountants;
membership dues of industry associations; interest on borrowings of the Funds;
postage; insurance premiums on property or personnel (including Officers and
Trustees) of the Trust which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Trust's operation.
As compensation for its services to the Funds, the Adviser receives a fee
from each Fund (other than the Global Balanced Fund),
B-41
payable monthly, computed daily at the annual rate of.75% on the first $350
million of such Fund's average daily assets, .70% on the next $350 million of
net assets and .65% on net assets over $700 million. With respect to the Global
Balanced Fund, the Adviser receives a fee, payable monthly, computed daily at
the annual rate of 1.00% on the first $250 million of the Fund's average daily
net assets, .90% on the next $350 million of net assets and .85% on net assets
over $700 million.
The following table sets forth the total advisory fees received by the
Adviser from each Fund pursuant to the Advisory Agreement for the fiscal years
ended September 30, 1996, 1995, and 1994.
ADVISORY FEES
[Enlarge/Download Table]
ADVISORY FEES PAYABLE ADVISORY FEES WAIVED
------------------------------------------------------------------------------------------
FUND 1996 1995 1994 1996 1995 1994
------------------------------------------------------------------------------------------
Balanced Assets -- -- --
Fund $2,282,018 $1,821,586 $1,642,572
------------------------------------------------------------------------------------------
Blue Chip -- -- --
Growth Fund $ 644,774 $ 565,835 $ 615,050
------------------------------------------------------------------------------------------
Global
Balanced Fund $ 240,640 $ 269,441 $ 54,220* $98,765 $115,214 $48,797
------------------------------------------------------------------------------------------
Growth and
Income Fund $ 91,558 $ 32,455 $ 6,177** $91,558 $ 32,455 $ 6,177
------------------------------------------------------------------------------------------
Mid-Cap -- -- --
Growth Fund $ 375,398 $ 294,505 $ 284,308
------------------------------------------------------------------------------------------
Small Company -- -- --
Growth Fund $1,487,650 $ 819,449 $ 607,020
------------------------------------------------------------------------------------------
* For the period 06/15/94 (commencement of operations) through 09/30/94
** For the period 07/01/94 (commencement of operations) through 09/30/94
NET ADVISORY FEES PAID
[Enlarge/Download Table]
FUND 1996 1995 1994
-------------------------------------------------------------------------------------------------------------
Balanced Assets Fund $2,282,018 $1,821,586 $1,642,572
-------------------------------------------------------------------------------------------------------------
Blue Chip Growth Fund $ 644,774 $ 565,835 $ 615,050
-------------------------------------------------------------------------------------------------------------
Global Balanced Fund $ 141,875 $ 154,227 $ 5,423*
-------------------------------------------------------------------------------------------------------------
Growth and Income Fund -- -- --
-------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund $ 375,398 $ 294,505 $ 284,308
-------------------------------------------------------------------------------------------------------------
Small Company Growth Fund $1,487,650 $ 819,449 $ 607,020
-------------------------------------------------------------------------------------------------------------
* For the period 06/15/94 (commencement of operations) through 09/30/94
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, 1996,
1995, and 1994.
B-42
FEE WAIVERS AND EXPENSE REIMBURSEMENTS
[Download Table]
FUND 1996 1995 1994
---------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
---------------------------------------------------------------------------
Balanced
Assets Fund -- -- -- -- -- --
---------------------------------------------------------------------------
Blue Chip
Growth Fund -- -- $13,179 -- $ 25,518 --
---------------------------------------------------------------------------
Global
Balanced Fund $40,660 $61,050 $51,038 $64,176 $ 35,826* $ 21,221*
---------------------------------------------------------------------------
Growth and
Income Fund $73,696 $56,264 $95,986 $55,267 $34,720** $9,874 **
---------------------------------------------------------------------------
Mid-Cap
Growth Fund -- $ 66 -- $10,554 $ 17,806 --
---------------------------------------------------------------------------
Small Company
Growth Fund -- -- -- -- -- --
---------------------------------------------------------------------------
* For the period 6/15/94 (commencement of operations) through 9/30/94
** For the period 7/1/94 (commencement of operations) through 9/30/94
The Advisory Agreement continues in effect with respect to each Fund from
year to year provided that such continuance is approved annually by vote of a
majority of the Trustees including a majority of the disinterested Trustees.
The Advisory Agreement was last so approved on May 16, 1996. 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.
THE SUB-ADVISER. The Adviser has entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with AIG Global Investment Corp. ("AIG Global")
pursuant to which the Sub-Adviser provides the Global Balanced Fund with
investment advisory services, including the continuous review and administration
of such Fund's investment program. AIG Global discharges its responsibilities
subject to the direction and control of the Trustees and the oversight and
review of the Adviser. AIG Global serves as sub-adviser for the foreign equity
component of the Fund. In providing sub-advisory services to the foreign equity
component of the Fund with respect to European, Japanese, and Southeast Asian
securities and markets, AIG Global will utilize the services of certain of its
affiliates.
The Sub-Advisory Agreement continues in effect and may be renewed from year
to year so long as continuance is specifically
B-43
approved at least annually in accordance with the requirements of the 1940 Act.
The Sub-Advisory Agreement was last so renewed on May 16, 1996. The Sub-
Advisory Agreement provides that it will terminate in the event of an assignment
(as defined in the 1940 Act) or upon termination of the Advisory Agreement. The
Sub-Advisory Agreement may be terminated by the Fund, the Adviser or the Sub-
Adviser upon 60 days' prior written notice.
AIG Global is a professional investment counseling firm which provides
investment services to investment companies, employee benefit plans, endowments,
foundations and/or other institutions and individuals. AIG Global is located at
70 Pine Street, New York, NY 10270.
The Adviser pays AIG Global a monthly fee with respect to the actual
component of the Fund for which AIG Global performs services, computed on
average daily net assets, at the following annual rates:
AIG Global .50% on the first $50 million
.40% on the next $100 million
.30% on the next $150 million
.25% thereafter
PRIOR SUB-ADVISER. Prior to April 23, 1996, Goldman Sachs Asset Management
International ("GSAM") was sub-adviser to the global bond component of the
Global Balanced Fund, pursuant to which the Adviser paid a monthly fee, computed
on average daily net assets, at the following rates:
GSAM .40% on the first $50 million
.30% on the next $100 million
.25% on the next $100 million
.20% thereafter
The following table sets forth the fees paid to AIG Global and GSAM for the
fiscal years ended September 30, 1996, 1995 and 1994.
SUB-ADVISORY FEES
[Download Table]
SUB-ADVISER 1996 1995 1994
-----------------------------------------
AIG Global $66,942 $75,883 $14,947*
-----------------------------------------
GSAM $14,483* $29,912 $ 5,328*
-----------------------------------------
* For the period 6/15/94 (commencement of operations) through 9/30/94
* GSAM served as sub-adviser to the global bond component of the Global Balanced
Fund until April 22, 1996.
PERSONAL TRADING. The Trust and the Adviser have adopted a written Code of
Ethics (the "Code") which prescribes general rules of conduct and sets forth
guidelines with respect to personal securities trading by "Access Persons"
thereof. An Access Person as defined in the Code is an individual who is a
trustee, director, officer, general partner or advisory person of the Trust or
the Adviser. Among the guidelines on personal securities trading include: (i)
securities being considered for purchase or sale, or purchased or sold, by any
Investment Company advised by the Adviser, (ii) Initial Public
B-44
Offerings, (iii) private placements, (iv) blackout periods, (v) short-term
trading profits, (vi) gifts, and (vii) services as a director. These guidelines
are substantially similar to those contained in the Report of the Advisory Group
on Personal Investing issued by the Investment Company Institute's Advisory
Panel. The Adviser reports to the Board of Trustees on a quarterly basis, as to
whether there were any violations of the Code by Access Persons of the Trust or
the Adviser during the quarter.
The Sub-Adviser has adopted a written Code of Ethics, the provisions of
which are materially similar to those in the Code, and has undertaken to comply
with the provisions of the Code to the extent such provisions are more
restrictive. Further, the Sub-Adviser reports to the Adviser on a quarterly
basis, as to whether there were any Code of Ethics violations by employees
thereof who may be deemed Access Persons of the Trust. In turn, the Adviser
reports to the Board of Trustees as to whether there were any violations of the
Code by Access Persons of the Trust or the Adviser.
THE DISTRIBUTOR. The Trust, on behalf of each Fund, has entered into a
distribution agreement (the "Distribution Agreement") with the Distributor, a
registered broker-dealer and an indirect wholly owned subsidiary of SunAmerica
Inc., to act as the principal underwriter of the shares of each Fund. The
address of the Distributor is The SunAmerica Center, 733 Third Avenue, New York,
NY 10017-3204. The Distribution Agreement provides that the Distributor has the
exclusive right to distribute shares of the Funds through its registered
representatives and authorized broker-dealers. The Distribution Agreement also
provides that the Distributor will pay the promotional expenses, including the
incremental cost of printing prospectuses, annual reports and other periodic
reports respecting each Fund, for distribution to persons who are not
shareholders of such Fund and the costs of preparing and distributing any other
supplemental sales literature. However, certain promotional expenses may be
borne by Class A and Class B shares of the Funds (see "Distribution Plans"
below).
SACS serves as Distributor of Class Z shares, with respect to the Small
Company Growth and Balanced Assets Funds, and incurs the expenses of
distributing the Funds' Class Z shares under the Distribution Agreement, none of
which expenses are reimbursed or paid by the Trust.
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 Distribution
Agreement was last so approved on May 16, 1996. 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
B-45
Associates, Inc. and SunAmerica Securities, Inc. affiliates of the Distributor,
that sell or are expected to sell during specified time periods certain minimum
amounts of shares of the Funds, or of other funds underwritten by the
Distributor. In addition, the terms and conditions of any given promotional
incentive may differ from firm to firm. Such differences will, nevertheless, be
fair and equitable, and based on such factors as size, geographic location, or
other reasonable determinants, and will in no way affect the amount paid to any
investor.
DISTRIBUTION PLANS. As indicated in the Prospectus, the Trustees of the Trust
and the shareholders of Class A and Class B shares of each Fund have adopted
Distribution Plans (the "Class A Plan" and the "Class B Plan," and collectively,
the "Distribution Plans")pursuant to Rule 12b-1 under the 1940 Act. There is no
Distribution Plan in effect for Class Z shares. Reference is made to
"Management of the Trust - Distribution Plans" in the Prospectus for certain
information with respect to the Distribution Plans.
Under the Class A Plan, the Distributor may receive payments from a Fund at
an annual rate of up to 0.10% of average daily net assets of such Fund's Class A
shares to compensate the Distributor and certain securities firms for providing
sales and promotional activities for distributing that class of shares. Under
the Class B Plan, the Distributor may receive payments from a Fund at the annual
rate of up to 0.75% of the average daily net assets of such Fund's Class B
shares to compensate the Distributor and certain securities firms for providing
sales and promotional activities for distributing that class of shares. The
distribution costs for which the Distributor may be reimbursed out of such
distribution fees include fees paid to broker-dealers that have sold Fund
shares, commissions and other expenses such as sales literature, prospectus
printing and distribution and compensation to wholesalers. It is possible that
in any given year the amount paid to the Distributor under the Class A Plan or
Class B Plan will exceed the Distributor's distribution costs as described
above. The Distribution Plans provide that each class of shares of each Fund
may also pay the Distributor an account maintenance and service fee of up to
0.25% of the aggregate average daily net assets of such class of shares for
payments to broker-dealers for providing continuing account maintenance. In
this regard, some payments are used to compensate broker-dealers with trail
commissions or account maintenance and service fees in an amount up to 0.25% per
year of the assets maintained in a Fund by their customers.
The following table sets forth the distribution and service maintenance
fees the Distributor received from the Funds for the fiscal years ended
September 30, 1996, 1995, and 1994.
B-46
DISTRIBUTION AND SERVICE MAINTENANCE FEES
[Enlarge/Download Table]
FUND 1996 1995 1994
--------------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B
--------------------------------------------------------------------------------------------------------------
Balanced Assets
Fund $478,455 $ 1,675,676 $ 237,888 $1,749,100 $158,785 $1,736,424
--------------------------------------------------------------------------------------------------------------
Blue Chip
Growth Fund $164,198 $ 390,560 $ 42,755 $ 632,288 $ 5,390 $ 804,627
--------------------------------------------------------------------------------------------------------------
Global Balanced
Fund $ 32,163 $ 148,748 $ 44,919 $ 141,100 $ 11,026* $ 22,717*
--------------------------------------------------------------------------------------------------------------
Growth and
Income Fund $ 25,462 $49,329**** $11,338** $10,876*** $2,714** $ 480**
--------------------------------------------------------------------------------------------------------------
Mid-Cap Growth
Fund $136,912 $ 109,353 $ 115,641 $ 62,270 $119,773 $ 36,868
--------------------------------------------------------------------------------------------------------------
Small Company
Growth Fund $408,943 $ 815,125 $ 187,524 $ 556,816 $132,081 $ 431,989
--------------------------------------------------------------------------------------------------------------
* For the period 6/15/94 (commencement of operations) through
9/30/94
** For the period 7/1/94 (commencement of operations) through
9/30/94
*** For the fiscal year ended 9/30/95 the Distributor waived fees
in the amount of $16,747 for Growth and Income Fund.
**** For the fiscal year ended 9/30/96 the Distributor waived fees
in the amount of $3,265 for the Growth and Income Fund.
Continuance of the Distribution Plans with respect to each Fund is subject
to annual approval by vote of the Trustees, including a majority of the
Independent Trustees. The Distribution Plans were last so approved on May 16,
1996. A Distribution Plan may not be amended to increase materially the amount
authorized to be spent thereunder with respect to a class of shares of a Fund,
without approval of the shareholders of the affected class of shares of the
Fund. In addition, all material amendments to the Distribution Plans must be
approved by the Trustees in the manner described above. A Distribution Plan may
be terminated at any time with respect to a Fund without payment of any penalty
by vote of a majority of the Independent Trustees or by vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the affected
class of shares of the Fund. So long as the Distribution Plans are in effect,
the election and nomination of the Independent Trustees of the Trust shall be
committed to the discretion of the Independent Trustees. In the Trustees'
quarterly review of the Distribution Plans, they will consider the continued
appropriateness of, and the level of, compensation provided in the Distribution
Plans. In their consideration of the Distribution Plans with respect to a Fund,
the Trustees must consider all factors they deem relevant, including information
as to the benefits of the Fund and the shareholders of the relevant class of the
Fund.
THE ADMINISTRATOR. The Trust has entered into a Service Agreement, under the
terms of which SunAmerica Fund Services, Inc. ("SAFS"), an indirect wholly owned
subsidiary of SunAmerica Inc., acts as a
B-47
servicing agent assisting State Street Bank and Trust Company ("State Street")
in connection with certain services offered to the shareholders of each of the
Funds. Under the terms of the Service Agreement, SAFS may receive reimbursement
of its costs in providing such shareholder services. SAFS is located at The
SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204.
The Service Agreement dated September 23, 1993 as amended August 21, 1996,
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. The Service Agreement was last so renewed on May 16,
1996.
Pursuant to the Service Agreement, as compensation for services rendered,
SAFS receives a fee from each Fund, computed and payable monthly based upon an
annual rate of 0.22% of average daily net assets. This fee represents the full
cost of providing shareholder and transfer agency services to the Trust. From
this fee, SAFS pays a fee to State Street, and its affiliate, National Financial
Data Services ("NFDS" and with State Street, the "Transfer Agent") (other than
out-of-pocket charges of the Transfer Agent which are paid by the Trust). No
portion of such fee is paid or reimbursed by Class Z shares. Class Z shares,
however, will pay all direct transfer agency fees and out-of pocket expenses.
For further information regarding the Transfer Agent, see the section entitled
"Additional Information" below.
PORTFOLIO TRANSACTIONS AND BROKERAGE
As discussed in the Prospectus, the Adviser is responsible for decisions to
buy and sell securities for each Fund, selection of broker-dealers and
negotiation of commission rates. With respect to the Global Balanced Fund, AIG
Global is responsible for decisions to buy and sell foreign equity securities,
selection of broker-dealers and negotiation of commission rates for their
respective component of the portfolio. Purchases and sales of securities on a
securities exchange are effected through brokers-dealers who charge a negotiated
commission for their services. Orders may be directed to any broker-dealer
including, to the extent and in the manner permitted by applicable law, an
affiliated brokerage subsidiary of the Adviser or AIG Global.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission (although the price of the security usually includes a profit to the
dealer). In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
B-48
The Adviser's (or Sub-Adviser's) primary consideration in effecting a
security transaction is to obtain the best net price and the most favorable
execution of the order. However, the Adviser (or Sub-Adviser) may select
broker-dealers which provide it with research services and may cause a Fund to
pay such broker-dealers commissions which exceed those that other broker-dealers
may have charged, if in its view the commissions are reasonable in relation to
the value of the brokerage and/or research services provided by the broker-
dealer. Certain research services furnished by brokers may be useful to the
Adviser (or Sub-Adviser) with clients other than the Trust. No specific value
can be determined for research services furnished without cost to the Adviser
(or Sub-Adviser) by a broker. The Adviser (and Sub-Adviser) is of the opinion
that because the material must be analyzed and reviewed by its staff, its
receipt does not tend to reduce expenses, but may be beneficial in supplementing
the Adviser's (or Sub-Adviser's) research and analysis. Therefore, it may tend
to benefit the Funds by improving the quality of the Adviser's (or Sub-
Adviser's) investment advice. The investment advisory fees paid by the Funds
are not reduced because the Adviser (or Sub-Adviser) receives such services.
When making purchases of underwritten issues with fixed underwriting fees, the
Adviser (or Sub-Adviser) may designate the use of broker-dealers who have agreed
to provide the Adviser (or Sub-Adviser) with certain statistical, research and
other information.
Subject to applicable law and regulations, consideration may also be given
to the willingness of particular brokers to sell shares of a Fund as a factor in
the selection of brokers for transactions effected on behalf of a Fund, subject
to the requirement of best price and execution.
Although the objectives of other accounts or investment companies which the
Adviser (or Sub-Adviser) manages may differ from those of the Funds, it is
possible that, at times, identical securities will be acceptable for purchase by
one or more of the Funds and one or more other accounts or investment companies
which the Adviser manages. However, the position of each account or company in
the securities of the same issue may vary with the length of the time that each
account or company may choose to hold its investment in those securities. The
timing and amount of purchase by each account and company will also be
determined by its cash position. If the purchase or sale of a security is
consistent with the investment policies of one or more of the Funds and one or
more of these other accounts or companies is considered at or about the same
time, transactions in such securities will be allocated in a manner deemed
equitable by the Adviser (or Sub-Adviser). The Adviser (or Sub-Adviser) may
combine such transactions, in accordance with applicable laws and regulations,
where the size of the transaction would enable it to negotiate a better price or
reduced commission. However, simultaneous transactions could adversely affect
the ability of a Fund to obtain or dispose of the full amount of a security,
which it seeks to purchase or sell, or the price at which such security can be
purchased or sold.
B-49
The following tables set forth the brokerage commissions paid by the Funds
and the amounts of the brokerage commissions which were paid to affiliated
broker-dealers by the Funds for the fiscal years ended September 30, 1996, 1995
and 1994.
1996 BROKERAGE COMMISSIONS
[Download Table]
AMOUNT PAID
AGGREGATE TO PERCENTAGE PAID TO
FUND BROKERAGE AFFILIATED AFFILIATED BROKER-
COMMISSIONS BROKER- DEALERS
DEALERS
--------------------------------------------------------------------------
Balanced Assets
Fund $952,056 $21,450 2.3%
--------------------------------------------------------------------------
Blue Chip Growth
Fund $424,304 $ 0 0.0%
--------------------------------------------------------------------------
Global Balanced
Fund $ 83,133 $ 0 0.0%
--------------------------------------------------------------------------
Growth and Income
Fund $ 66,513 $ 2,130 3.2%
--------------------------------------------------------------------------
Mid-Cap Growth
Fund $238,176 $ 3,150 1.3%
--------------------------------------------------------------------------
Small Company
Growth Fund $408,277 $11,880 2.9%
--------------------------------------------------------------------------
1995 BROKERAGE COMMISSIONS
[Download Table]
AMOUNT PAID
AGGREGATE TO PERCENTAGE PAID TO
FUND BROKERAGE AFFILIATED AFFILIATED BROKER-
COMMISSIONS BROKER- DEALERS
DEALERS
--------------------------------------------------------------------------
Balanced Assets
Fund $758,880 $13,735 1.8%
--------------------------------------------------------------------------
Blue Chip Growth
Fund $479,902 $ 7,125 1.5%
--------------------------------------------------------------------------
Global Balanced
Fund $136,225 $ 1,500 1.1%
--------------------------------------------------------------------------
Growth and Income
Fund $ 19,916 $ 0 0.0%
--------------------------------------------------------------------------
Mid-Cap Growth
Fund $255,418 $ 250 0.1%
--------------------------------------------------------------------------
Small Company
Growth Fund $338,503 $ 0 0.0%
--------------------------------------------------------------------------
B-50
1994 BROKERAGE COMMISSIONS
[Download Table]
AMOUNT PAID
AGGREGATE TO PERCENTAGE PAID TO
FUND BROKERAGE AFFILIATED AFFILIATED BROKER-
COMMISSIONS BROKER- DEALERS
DEALERS
--------------------------------------------------------------------------
Balanced Assets
Fund $715,367 $16,950 2.4%
--------------------------------------------------------------------------
Blue Chip Growth
Fund $302,994 $ 6,054 2.0%
--------------------------------------------------------------------------
Global Balanced
Fund $ 58,702* $ 0* 0.0%*
--------------------------------------------------------------------------
Growth and Income
Fund $3,930** $ 0** 0.0%**
--------------------------------------------------------------------------
Mid-Cap Growth
Fund $443,261 $16,518 3.7%
--------------------------------------------------------------------------
Small Company
Growth Fund $534,360 $20,400 3.8%
--------------------------------------------------------------------------
* For the period 6/15/94 (commencement of operations) through 9/30/94
** For the period 7/1/94 (commencement of operations) through 9/30/94
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES
Shares of each of the Funds are sold at the respective net asset value next
determined after receipt of a purchase order, plus a sales charge, which, at the
election of the investor, may be imposed either (i) at the time of purchase
(Class A shares), or (ii) on a deferred basis (Class B shares and certain Class
A shares). Reference is made to "Purchase of Shares" in the Prospectus for
certain information as to the purchase of Fund shares.
The following tables set forth the front-end sales concessions with respect
to Class A shares of each Fund, the amount of the front-end sales concessions
which was reallowed to affiliated broker-dealers, and the contingent deferred
sales charges with respect to Class B shares of each Fund, received by the
Distributor for the fiscal years ended September 30, 1996, 1995 and 1994.
1996
[Download Table]
FRONT-END AMOUNT CONTINGENT
SALES REALLOWED DEFERRED
FUND CONCESSIONS- TO AFFILIATED SALES CHARGE-
CLASS A SHARES BROKER-DEALERS CLASS B SHARES
-----------------------------------------------------------------------------------
Balanced Assets Fund $1,139,306 $ 830,997 $303,405
-----------------------------------------------------------------------------------
Blue Chip Growth Fund $ 84,051 $ 48,653 $ 37,223
-----------------------------------------------------------------------------------
Global Balanced Fund $ 96,613 $ 60,930 $ 45,769
-----------------------------------------------------------------------------------
Growth and Income Fund $ 384,542 $ 188,254 $ 1,820
-----------------------------------------------------------------------------------
Mid-Cap Growth Fund $ 185,300 $ 125,403 $ 15,696
-----------------------------------------------------------------------------------
Small Company Growth Fund $2,007,194 $1,156,919 $118,032
-----------------------------------------------------------------------------------
B-51
1995
[Download Table]
FRONT-END AMOUNT CONTINGENT
SALES REALLOWED DEFERRED
FUND CONCESSIONS- TO AFFILIATED SALES CHARGE-
CLASS A SHARES BROKER-DEALERS CLASS B SHARES
-----------------------------------------------------------------------------------
Balanced Assets Fund $ 565,677 $ 411,596 $367,583
-----------------------------------------------------------------------------------
Blue Chip Growth Fund $ 33,816 $ 27,360 $ 88,628
-----------------------------------------------------------------------------------
Global Balanced Fund $ 139,083 $ 100,770 $ 47,198
-----------------------------------------------------------------------------------
Growth and Income Fund $ 22,142 $ 14,608 $ 1,965
-----------------------------------------------------------------------------------
Mid-Cap Growth Fund $ 104,245 $ 69,230 $ 40,076
-----------------------------------------------------------------------------------
Small Company Growth Fund $ 602,843 $ 317,796 $105,710
-----------------------------------------------------------------------------------
1994
[Download Table]
FRONT-END AMOUNT CONTINGENT
SALES REALLOWED DEFERRED
FUND CONCESSIONS- TO AFFILIATED SALES CHARGE-
CLASS A SHARES BROKER-DEALERS CLASS B SHARES
-----------------------------------------------------------------------------------
Balanced Assets Fund $637,524 $447,006 $268,455
-----------------------------------------------------------------------------------
Blue Chip Growth Fund $ 70,030 $ 55,499 $ 80,423
-----------------------------------------------------------------------------------
Global Balanced Fund $187,819* $138,775* $ 4,745*
-----------------------------------------------------------------------------------
Growth and Income Fund $715** $620** --
-----------------------------------------------------------------------------------
Mid-Cap Growth Fund $186,243 $118,270 $ 6,456
-----------------------------------------------------------------------------------
Small Company Growth Fund $295,035 $187,986 $ 54,793
-----------------------------------------------------------------------------------
* For the period 6/15/94 (commencement of operations) through 9/30/94
** For the period 7/1/94 (commencement of operations) through 9/30/94
CONTINGENT DEFERRED SALES CHARGES ("CDSCS") APPLICABLE TO CERTAIN CLASS B
SHARES. Class B shares of the Small Company Growth Fund and the Balanced Assets
Fund issued to shareholders in exchange for shares of Old Emerging Growth and
Old Balanced Assets, respectively, in the Reorganization, are subject to the
CDSC schedule that applied to redemptions of shares of these funds at the time
of reorganization. Upon a redemption of these shares, the shareholder will
receive credit for the periods both prior to and after the Reorganization during
which the shares were held. The following table sets forth the rates of the
CDSC applicable to these shares:
[Download Table]
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS
YEAR SINCE PURCHASE PAYMENT WAS MADE INVESTED OR REDEMPTION PROCEEDS
-------------------------------------- ---------------------------------
------------------------------------------------------------------------
First 5%
------------------------------------------------------------------------
Second 4%
------------------------------------------------------------------------
Third 3%
------------------------------------------------------------------------
Fourth 2%
------------------------------------------------------------------------
Fifth 1%
------------------------------------------------------------------------
Sixth and thereafter 0%
------------------------------------------------------------------------
Any Class B shares purchased after the date of the Reorganization (other than
through the reinvestment of dividends and
B-52
distributions, which are not subject to the CDSC) will be subject to the CDSC
schedule reflected in the Prospectus.
CONVERSION FEATURE APPLICABLE TO CERTAIN CLASS B SHARES. Shareholders of Class B
shares of the Small Company Growth Fund and the Balanced Assets Fund issued in
exchange for shares of Old Emerging Growth and Old Balanced Assets,
respectively, in the Reorganization, will receive credit for the periods both
prior to and after the Reorganization during which the shares were held, for
purposes of computing the seven year holding period applicable to the conversion
feature.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. As discussed under "Purchase of
Shares" in the Prospectus, CDSCs may be waived on redemptions of Class B shares
under certain circumstances. The conditions set forth below are applicable with
respect to the following situations with the proper documentation:
DEATH. CDSCs may be waived on redemptions within one year following the
death (i) of the sole shareholder on an individual account, (ii) of a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii) of
the beneficiary of a Uniform Gifts to Minors Act, Uniform Transfers to Minors
Act or other custodial account. The CDSC waiver is also applicable in the case
where the shareholder account is registered as community property. If, upon the
occurrence of one of the foregoing, the account is transferred to an account
registered in the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year of the death. If
the Class B shares are not redeemed within one year of the death, they will
remain Class B shares and be subject to the applicable CDSC, when redeemed.
DISABILITY. CDSCs may be waived on redemptions occurring within one year
after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of
the Internal Revenue Code of 1986, as amended). To be eligible for such
waiver, (i) the disability must arise after the purchase of shares and (ii) the
disabled shareholder must have been under age 65 at the time of the initial
determination of disability. If the account is transferred to a new
registration and then a redemption is requested, the applicable CDSC will be
charged.
PURCHASES THROUGH THE DISTRIBUTOR. An investor may purchase shares of a Fund
through dealers which have entered into selected dealer agreements with the
Distributor. An investor's dealer who has entered into a distribution
arrangement with the Distributor is expected to forward purchase orders and
payment promptly to the Fund. Orders received by the Distributor before the
Fund's close of business will be executed at the offering price determined at
the close of regular trading on the NYSE that day. Orders received by the
Distributor after the Fund's close of business will be executed at the offering
price determined after the close of regular trading of the NYSE on the next
trading day. The Distributor reserves the right to cancel any purchase order
for which payment has not been received by the fifth business day following the
investment. A Fund will not be responsible for delays caused by dealers.
B-53
PURCHASE BY CHECK. With respect to the purchase of Class A and Class B shares,
checks should be made payable to the specific Fund or to "SunAmerica Funds" or,
for retirement plan accounts for which the Adviser serves as fiduciary, to
"Resources Trust Company." In the case of a new account, purchase orders by
check must be submitted directly by mail to SunAmerica Fund Services, Inc.,
Mutual Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New
York 10017-3204, together with payment for the purchase price of such shares and
a completed New Account Application. Payment for subsequent purchases should be
mailed to SunAmerica Fund Services, Inc., c/o NFDS, P.O. Box 419373, Kansas
City, Missouri 64141-6373 and the shareholder's Fund account number should
appear on the check. For fiduciary retirement plan accounts, both initial and
subsequent purchases should be mailed to SunAmerica Fund Services, Inc., Mutual
Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204. Certified checks are not necessary but checks are accepted subject
to collection at full face value in United States funds and must be drawn on a
bank located in the United States. Upon receipt of the completed New Account
Application and payment check, the Transfer Agent will purchase full and
fractional shares of the applicable Fund at the net asset value next computed
after the check is received, plus the applicable sales charge. Subsequent
purchases of shares of each Fund may be purchased directly through the Transfer
Agent. SAFS reserves the right to reject any check made payable other than in
the manner indicated above. Under certain circumstances, a Fund will accept a
multi-party check (i.e., a check made payable to the shareholder by another
party and then endorsed by the shareholder to the Fund in payment for the
purchase of shares); however, the processing of such a check may be subject to a
delay. The Funds do not verify the authenticity of the endorsement of such
multi-party check, and acceptance of the check by a Fund should not be
considered verification thereof. Neither the Funds nor their affiliates will be
held liable for any losses incurred as a result of a fraudulent endorsement.
There are restrictions on the redemption of shares purchased by check for which
funds are being collected. (See "Redemption of Shares.")
PURCHASE THROUGH SAFS. SAFS will effect a purchase order on behalf of a
customer who has an investment account upon confirmation of a verified credit
balance at least equal to the amount of the purchase order (subject to the
minimum $500 investment requirement for wire orders). If such order is received
at or prior to 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 Trust's Transfer Agent. Federal funds
purchase orders will be accepted only on a day on which the Trust and the
Transfer Agent are open for business. In order to insure prompt receipt of a
Federal funds wire, it is important that these steps be followed:
1. You must have an existing SunAmerica Fund Account before wiring funds.
To establish an account, complete the New
B-54
Account Application and send it via facsimile to SunAmerica Fund Services, Inc.
at: (212) 551-5343.
2. Call SunAmerica Fund Services' Shareholder/Dealer Services, toll free
at (800) 858-8850, extension 5125 to obtain your new account number.
3. Instruct the bank to wire the specified amount to the Transfer Agent:
State Street Bank and Trust Company, Boston, MA, ABA# 0110-00028; DDA# 99029712,
SunAmerica [name of Fund, Class __] (include shareholder name and account
number).
WAIVER OF SALES CHARGES WITH RESPECT TO CERTAIN PURCHASES OF CLASS A SHARES. To
the extent that sales are made for personal investment purposes, the sales
charge is waived as to Class A shares purchased by current or retired officers,
directors, and other full-time employees of SunAmerica and its affiliates, as
well as members of the selling group and family members of the foregoing. In
addition, the sales charge is waived with respect to shares purchased by certain
qualified retirement plans or employee benefit plans (other than IRAs), which
are sponsored or administered by SunAmerica or an affiliate thereof. Further,
the sales charge is waived with respect to shares purchased by "wrap accounts"
for the benefit of clients of broker-dealers, financial institutions or
financial planners adhering to the following standards established by the
Distributor: (i) the broker-dealer, financial institution or financial planner
charges its client(s) an advisory fee based on the assets under management on an
annual basis, and (ii) such broker-dealer, financial institution or financial
planner does not advertise that shares of the Funds may be purchased by clients
at net asset value. Shares purchased under this waiver may not be resold except
to the Fund. Shares are offered at net asset value to the foregoing persons
because of anticipated economies in sales effort and sales related expenses.
Reductions in sales charges apply to purchases or shares by a "single person"
including an individual; members of a family unit comprising husband, wife and
minor children; or a trustee or other fiduciary purchasing for a single
fiduciary account. Complete details concerning how an investor may purchase
shares at reduced sales charges may be obtained by contacting the Distributor.
REDUCED SALES CHARGES (CLASS A SHARES ONLY). As discussed under "Purchase of
Shares" in the Prospectus, investors in Class A shares of a Fund may be entitled
to reduced sales charges pursuant to the following special purchase plans made
available by the Trust.
COMBINED PURCHASE PRIVILEGE. The following persons may qualify for the
sales charge reductions or eliminations by combining purchases of Fund shares
into a single transaction:
(i) an individual, or a "company" as defined in Section 2(a)(8) of the 1940
Act (which includes corporations which are corporate affiliates of each other);
(ii) an individual, his or her spouse and their minor children, purchasing for
his, her or their own account;
B-55
(iii) a trustee or other fiduciary purchasing for a single trust estate or
single fiduciary account (including a pension, profit-sharing, or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Internal Revenue Code);
(iv) tax-exempt organizations qualifying under Section 501(c)(3) of the
Internal Revenue Code (not including 403(b) plans);
(v) employee benefit plans of a single employer or of affiliated employers,
other than 403(b) plans; and
(vi) group purchases as described below.
A combined purchase currently may also include shares of other funds in the
SunAmerica Mutual Funds (other than money market funds) purchased at the same
time through a single investment dealer, if the dealer places the order for such
shares directly with the Distributor.
RIGHTS OF ACCUMULATION. A purchaser of Fund shares may qualify for a reduced
sales charge by combining a current purchase (or combined purchases as described
above) with shares previously purchased and still owned; provided the cumulative
value of such shares (valued at cost or current net asset value, whichever is
higher), amounts to $50,000 or more. In determining the shares previously
purchased, the calculation will include, in addition to other Class A shares of
the particular Fund that were previously purchased, shares of the other classes
of the same Fund, as well as shares of any class of any other Fund or of any of
the other Funds advised by the Adviser, as long as such shares were sold with a
sales charge or acquired in exchange for shares purchased with such a sales
charge.
The shareholder's dealer, if any, or the shareholder, must notify the
Distributor at the time an order is placed of the applicability of the reduced
charge under the Right of Accumulation. Such notification must be in writing by
the dealer or shareholder when such an order is placed by mail. The reduced
sales charge will not be granted if: (a) such information is not furnished at
the time of the order; or (b) a review of the Distributor's or the Transfer
Agent's records fails to confirm the investor's represented holdings.
LETTER OF INTENT. A reduction of sales charges is also available to an
investor who, pursuant to a written Letter of Intent which is set forth in the
New Account Application, 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 which
impose a sales charge at the time of purchase, which the investor intends
B-56
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.
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
B-57
sales charge; (iv) the group's sole organizational nexus or connection is not
that the members are credit card customers of a bank or broker-dealer, clients
of an investment adviser or security holders of a company; (v) the group agrees
to provide its designated investment dealer access to the group's membership by
means of written communication or direct presentation to the membership at a
meeting on not less frequently than an annual basis; (vi) the group or its
investment dealer will provide annual certification, in form satisfactory to the
Transfer Agent, that the group then has at least 25 members and that at least
ten members participated in group purchases during the immediately preceding 12
calendar months; and (vii) the group or its investment dealer will provide
periodic certification, in form satisfactory to the Transfer Agent, as to the
eligibility of the purchasing members of the group.
Members of a qualified group include: (i) any group which meets the
requirements stated above and which is a constituent member of a qualified
group; (ii) any individual purchasing for his or her own account who is carried
on the records of the group or on the records of any constituent member of the
group as being a good standing employee, partner, member or person of like
status of the group or constituent member; or (iii) any fiduciary purchasing
shares for the account of a member of a qualified group or a member's
beneficiary. For example, a qualified group could consist of a trade association
which would have as its members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the individuals,
the sole proprietors and their employees, the members of the partnership and
their employees, and the corporations and their employees, as well as the
trustees of employee benefit trusts acquiring a Fund's shares for the benefit of
any of the foregoing.
Interested groups should contact their investment dealer or the Distributor.
The Trust reserves the right to revise the terms of or to suspend or discontinue
group sales with respect to shares of the Funds at any time.
NET ASSET VALUE TRANSFER PROGRAM. Investors may purchase Class A shares of a
Fund at net asset value to the extent that the investment represents the
proceeds from a redemption of a non-SunAmerica mutual fund in which the
investor either (a) paid a front-end sales load or (b) was subject to, or paid a
CDSC on the redemption proceeds. Nevertheless, the Distributor will pay a
commission to any dealer who initiates or is responsible for such an investment,
in the amount of .50% of the amount invested, subject, however, to forfeiture in
the event of a redemption during 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-58
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption of Fund shares.
If the Trustees determine that it would be detrimental to the best interests
of the remaining shareholders of a Fund to make payment wholly or partly in
cash, the Trust, having filed with the SEC a notification of election pursuant
to Rule 18f-1 on behalf of each of the Funds, may pay the redemption price in
whole, or in part, by a distribution in kind of securities from a Fund in lieu
of cash. In conformity with applicable rules of the SEC, the Funds are committed
to pay in cash all requests for redemption, by any shareholder of record,
limited in amount with respect to each shareholder during any 90-day period to
the lesser of (i) $250,000, or (ii) 1% of the net asset value of the applicable
Fund at the beginning of such period. If shares are redeemed in kind, the
redeeming shareholder would incur brokerage costs in converting the assets into
cash. The method of valuing portfolio securities is described below in the
section entitled "Determination of Net Asset Value," and such valuation will be
made as of the same time the redemption price is determined.
DETERMINATION OF NET ASSET VALUE
The Fund is open for business on any day the NYSE is open for regular trading.
Shares are valued each day as of the close of regular trading on the NYSE
(generally, 4:00 p.m., Eastern time). Each Fund calculates the net asset value
of each class of its shares separately by dividing the total value of each
class's net assets by the shares of such class outstanding. The net asset value
of a Fund's shares will also be computed on each other day in which there is a
sufficient degree of trading in such Fund's securities that the net asset value
of its shares might be materially affected by changes in the values of the
portfolio securities; provided, however, that on such day the Trust receives a
request to purchase or redeem such Fund's shares. The days and times of such
computation may, in the future, be changed by the Trustees in the event that the
portfolio securities are traded in significant amounts in markets other than the
NYSE, or on days or at times other than those during which the NYSE is open for
trading.
Securities that are actively traded over-the-counter, including listed
securities for which the primary market is believed by the Adviser (or Sub-
Adviser) to be over-the-counter, are valued on the basis of the bid prices
provided by principal market makers. Securities listed on the NYSE or other
national securities exchanges, other than those principally traded over-the-
counter, are valued on the basis of the last sale price on the exchange on which
they are primarily traded. However, if the last sale price on the NYSE is
different than the last sale price on any other exchange, the NYSE price will be
used. If there are no sales on that day, then the securities are valued at the
bid price on the NYSE or other primary exchange for that day. Options traded on
national securities exchanges are valued at the last sale price on such
exchanges
B-59
preceding the valuation, and Futures and options thereon, which are traded on
commodities exchanges, are valued at their last sale price as of the close of
such commodities exchanges.
Securities that are traded on foreign exchanges are ordinarily valued at the
last quoted sales price available before the time when the assets are valued.
If a securities price is available from more than one foreign exchange, a Fund
uses the exchange that is the primary market for the security. Values of
portfolio securities primarily traded on foreign exchanges are already
translated into U.S. dollars when received from a quotation service.
The above procedures need not be used to determine the value of debt
securities owned by a Fund if, in the opinion of the Trustees, some other method
would more accurately reflect the fair market value of such debt securities in
the quantities owned by such Fund. Securities for which quotations are not
readily available and other assets are appraised at fair value, as determined
pursuant to procedures adopted in good faith by the Trustees. Short-term debt
securities are valued at their current market value or fair value, which for
securities with remaining maturities of 60 days or less has been determined in
good faith by the Trustees to be represented by amortized cost value, absent
unusual circumstances. A pricing service may be utilized to value the Funds'
assets under the procedures set forth above. Any use of a pricing service will
be approved and monitored by the Trustees. The value of all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the mean between the bid and offered prices of such currencies
against U.S. dollars last quoted by any large New York bank which is a dealer in
foreign currency.
The values of securities held by the Funds, and other assets used in computing
net asset value, are determined as of the time trading in such securities is
completed each day, which in the case of foreign securities may be at a time
prior to 4:00 P.M., Eastern time. On occasion, the values of foreign securities
and exchange rates may be affected by events occurring between the time as of
which determinations of such values or exchange rates are made and 4:00 P.M.,
Eastern time. When such events materially affect the values of securities held
by the Funds or their liabilities, such securities and liabilities will be
valued at fair value as determined in good faith by the Trustees.
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
B-60
economic indicators, including, but not limited to, stocks, bonds, certificates
of deposit, money market funds and U.S. Treasury Bills. Certain of these
alternative investments may offer fixed rates of return and guaranteed principal
and may be insured.
Average annual total return is determined separately for Class A, Class B and
Class Z shares in accordance with a formula specified by the SEC. Average
annual total return is computed by finding the average annual compounded rates
of return for the 1-, 5-, and 10-year periods or for the lesser included periods
of effectiveness. The formula used is as follows:
P(1 + T)/n/ = ERV
P = a hypothetical initial purchase payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or 10- year periods at
the end of the 1-, 5-, or 10-year periods (or fractional portion
thereof).
The above formula assumes that:
1. The maximum sales load (i.e., either the front-end sales load in the case
of the Class A shares or the deferred sales load that would be applicable to a
complete redemption of the investment at the end of the specified period in the
case of the Class B shares) is deducted from the initial $1,000 purchase
payment;
2. All dividends and distributions are reinvested at net asset value; and
3. Complete redemption occurs at the end of the 1-, 5-, or 10-year periods or
fractional portion thereof with all nonrecurring charges deducted accordingly.
The Funds' average annual total return for the 1-, 5- and 10-year periods (or
from date of inception, if sooner) ended September 30, 1996, are as follows:
B-61
[Download Table]
CLASS A
------- SINCE ONE FIVE TEN
SHARES INCEPTION YEAR YEARS YEARS
------ --------- ------ ------ ------
-----------------------------------------------------------------------------------
Balanced
Assets Fund 8.23%/1/ 4.29% N/A N/A
-----------------------------------------------------------------------------------
Blue Chip
Growth Fund 8.86%/1/ 7.33% N/A N/A
-----------------------------------------------------------------------------------
Mid-Cap
Growth Fund 12.08%/2/ 6.43% 11.68% N/A
-----------------------------------------------------------------------------------
Small Company
Growth 14.87%/2/ 12.48% 18.63% N/A
-----------------------------------------------------------------------------------
Global
Balanced Fund 4.82%/3/ 4.62% N/A N/A
-----------------------------------------------------------------------------------
Growth and
Income Fund 20.76%/4/ 24.97% N/A N/A
-----------------------------------------------------------------------------------
----------------
(1) From date of September 24, 1993.
(2) From date of inception of January 27, 1987.
(3) From date of inception of June 15, 1994.
(4) From date of inception of July 1, 1994.
[Download Table]
CLASS B
------- SINCE ONE FIVE TEN
SHARES INCEPTION YEAR YEARS YEARS
------ --------- ----- ----- -----
-----------------------------------------------------------------------------------
Balanced
Assets Fund 11.62%/1/ 5.93% 10.01% 10.03%
-----------------------------------------------------------------------------------
Blue Chip
Growth Fund 10.53%/1/ 9.17% 12.86% 9.09%
-----------------------------------------------------------------------------------
Mid-Cap
Growth Fund 8.03%/2/ 8.16% N/A N/A
-----------------------------------------------------------------------------------
Small Company
Growth 16.83%/2/ 14.60% N/A N/A
-----------------------------------------------------------------------------------
Global
Balanced Fund 5.50%/3/ 6.21% N/A N/A
-----------------------------------------------------------------------------------
Growth and
Income Fund 22.52%/4/ 27.75% N/A N/A
-----------------------------------------------------------------------------------
--------------
(1) From dates of inception of April 15, 1985 and March 13, 1985, respectively.
(2) From date of September 24, 1993.
(3) From date of inception of June 15, 1994.
(4) From date of inception of July 1, 1994.
Each Fund may advertise cumulative, rather than average return, for
each class of its shares for periods of time other than the 1-, 5-, and 10-year
periods or fractions thereof, as discussed above. Such return data will be
computed in the same manner as that of
B-62
average annual total return, except that the actual cumulative return will be
computed. Class Z shares were not available on September 30, 1996.
COMPARISONS
Each Fund may compare its total return or yield to similar measures as
calculated by various publications, services, indices, or averages. Such
comparisons are made to assist in evaluating an investment in a Fund. The
following references may be used:
a) Dow Jones Composite Average or its component averages -
- an unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks (Dow Jones Utilities
Average), and 20 transportation company stocks (Dow Jones Transportation
Average). Comparisons of performance assume reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component
indices -- an unmanaged index composed of 400 industrial stocks, 40 financial
stocks, 40 utilities stocks, and 20 transportation stocks. Comparisons of
performance assume reinvestment of dividends.
Standard & Poor's 100 Stock Index -- an unmanaged index based on the
prices of 100 blue chip stocks, including 92 industrials, one utility, two
transportation companies, and five financial institutions. The Standard &
Poor's 100 Stock Index is a smaller, more flexible index for options trading.
c) The New York Stock Exchange composite or component
indices --unmanaged indices of all industrial, utilities, transportation, and
finance stocks listed on the New York Stock Exchange.
d) Wilshire 5000 Equity Index or its component indices --
represents the return on the market value of all common equity securities for
which daily pricing is available. Comparisons of performance assume
reinvestment of dividends.
e) Lipper: Mutual Fund Performance Analysis, Fixed Income
Analysis, and Mutual Fund Indices -- measures total return and average current
yield for the mutual fund industry. Ranks individual mutual fund performance
over specified time periods assuming reinvestment of all distributions,
exclusive of sales charges.
f) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc., analyzes price, current yield, risk, total return, and
average rate of return (average annual compounded growth rate) over specified
time periods for the mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc.
--analyzes price, risk and total return for the mutual fund industry.
B-63
h) Financial publications: Wall Street Journal, Business
Week, Changing Times, Financial World, Forbes, Fortune, Money, Pension and
Investment Age, United Mutual Fund Selector, and Wiesenberger Investment
Companies Service, and other publications containing financial analyses which
rate mutual fund performance over specified time periods.
i) Consumer Price Index (or Cost of Living Index),
published by the U.S. Bureau of Labor Statistics -- a statistical measure of
periodic change in the price of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by
Ibbotson Associates -- historical measure of yield, price, and total return for
common and small company stock, long-term government bonds, treasury bills, and
inflation.
k) Savings and Loan Historical Interest Rates as published
in the U.S. Savings & Loan League Fact Book.
l) Shearson-Lehman Municipal Bond Index and
Government/Corporate Bond Index -- unmanaged indices that track a basket of
intermediate and long-term bonds. Reflect total return and yield and assume
dividend reinvestment.
m) Salomon GNMA Index published by Salomon Brothers Inc. -
-Market value of all outstanding 30-year GNMA Mortgage Pass-Through Securities
that includes single family and graduated payment mortgages.
Salomon Mortgage Pass-Through Index published by Salomon Brothers Inc.
--Market value of all outstanding agency mortgage pass-through securities that
includes 15- and 30-year FNMA, FHLMC and GNMA Securities.
n) Value Line Geometric Index -- broad based index made up
of approximately 1700 stocks each of which have an equal weighting.
o) Morgan Stanley Capital International EAFE Index -- an
arithmetic, market value-weighted average of the performance of over 900
securities on the stock exchanges of countries in Europe, Australia and the Far
East.
p) Goldman Sachs 100 Convertible Bond Index -- currently
includes 67 bonds and 33 preferred stocks. The original list of names was
generated by screening for convertible issues of $100 million or more in market
capitalization. The index is priced monthly.
q) Salomon Brothers High Grade Corporate Bond Index --
consists of publicly issued, non-convertible corporate bonds rated "AA" or
B-64
"AAA". It is a value-weighted, total return index, including approximately 800
issues.
r) Salomon Brothers Broad Investment Grade Bond Index --
is a market-weighted index that contains approximately 4700 individually priced
investment grade corporate bonds rated "BBB" or better, U.S. Treasury/agency
issues and mortgage pass-through securities.
s) Salomon Brother World Bond Index -- measures the total
return performance of high-quality securities in major sectors of the
international bond market. The index covers approximately 600 bonds from 10
currencies:
Australian Dollars Netherlands Guilders
Canadian Dollars Swiss Francs
European Currency Units UK Pound Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
t) J.P. Morgan Global Government Bond Index -- a total
return, market capitalization-weighted index, rebalanced monthly, consisting of
the following countries: Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, The Netherlands, Spain, Sweden, the United Kingdom, and the United
States.
u) Shearson Lehman LONG-TERM Treasury Bond Index -- is
comprised of all bonds covered by the Shearson Lehman Hutton Treasury Bond Index
with maturities of 10 years or greater.
v) NASDAQ Industrial Index -- is comprised of more than 3,000
industrial issues. It is a value-weighted index calculated on pure change only
and does not include income.
w) The MSCI Combined Far East Free ex Japan Index -- a market
capitalization weighted index comprised of stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Singapore and Thailand. Korea is included in this
index at 20% of its market capitalization.
x) First Boston High Yield Index -- generally includes over
180 issues with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
y) Morgan Stanley Capital International World Index -- An
arithmetic, market value-weighted average of the performance of over 1,470
securities list on the stock exchanges of countries in Europe, Australia, the
Far East, Canada and the United States.
z) Russell 3000 and 2000 Index -- represents the top 3,000
and the next 2,000 stocks traded on the New York Stock Exchange, American Stock
Exchange and National Association of Securities Dealers Automated Quotations, by
market capitalizations.
B-65
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
which include securities with government guarantees. However, a Fund's shares
do not contain any such guarantees. In addition, there can be no assurance that
a Fund will continue its performance as compared to such other standards.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. 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.
Dividends and distributions will be paid in additional Fund shares
based on the net asset value at the Fund's close of business on the Ex 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 is qualified and intends to remain qualified and elects to be
treated as a regulated investment company under Subchapter M of the Code for
each taxable year. In order to be qualified as a regulated investment company,
each Fund generally must, among other things, (a) derive at least 90% of its
gross income from dividends, interest, proceeds from loans of stock or
securities and certain other related income; (b) derive less than 30% of its
gross income from the sale or other disposition of stock or securities held less
than 3 months; and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) 50% of the market value of each Fund's assets is represented by
cash, government securities, securities of other regulated investment companies
and other securities limited, in respect of any one issuer, to an amount no
greater than 5% of each Fund's assets and not greater than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
government securities or the securities of other regulated investment
companies).
As a regulated investment company, each Fund will not be subject
to U.S. Federal income tax on its income and capital gains which it distributes
as dividends or capital gains distributions to
B-66
shareholders provided that it distributes to shareholders at least 90% of its
investment company taxable income for the taxable year. Each Fund intends to
distribute sufficient income to meet this qualification requirement.
Under the Code, amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To avoid the tax, each Fund must distribute during
each calendar year (1) at least 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (2) at least 98% of
its capital gains in excess of its capital losses for the 12-month period ending
on October 31 of the calendar year, and (3) all ordinary income and net capital
gains for the previous years that were not distributed during such years. To
avoid application of the excise tax, each Fund intends to make distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the calendar year if declared by each Fund
in October, November or December of such year, payable to shareholders of record
on a date in such month and paid by each Fund during January of the following
year. Any such distributions paid during January of the following year will be
taxable to shareholders as of such December 31, rather than the date on which
the distributions are received.
Distributions of net investment income and short-term capital gains
are taxable to the shareholder as ordinary dividend income regardless of whether
the shareholder receives such distributions in additional shares or in cash.
The portion of such dividends received from each Fund that will be eligible for
the dividends received deduction for corporations will be determined on the
basis of the amount of each Fund's gross income, exclusive of capital gains from
sales of stock or securities, which is derived as dividends from domestic
corporations, other than certain tax-exempt corporations and certain real estate
investment trusts, and will be designated as such in a written notice to
shareholders mailed not later than 60 days after the end of each fiscal year.
Distributions of net long-term capital gains, if any, are taxable as long-term
capital gains regardless of whether the shareholder receives such distributions
in additional shares or in cash or how long the investor has held his or her
shares, and are not eligible for the dividends received deduction for
corporations.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending upon its basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term capital gain or loss if the shares
have been held for more than one year. Generally, any loss realized on a sale
or exchange will be disallowed to the extent the shares disposed of are replaced
(whether through dividend reinvestment or otherwise) within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of.
Any loss realized by a shareholder on
B-67
the sale of shares of a Fund held by the shareholder for six months or less will
be treated for tax purposes as a long-term capital loss to the extent of any
distributions of net capital gains received by the shareholder with respect to
such shares.
Under certain circumstances (such as the exercise of an exchange
privilege), the tax effect of sales load charges imposed on the purchase of
shares in a regulated investment company is deferred if the shareholder does not
hold the shares for at least 90 days.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which a Fund will be subject, since the amount of that Fund's
assets to be invested in various countries is not known. It is not anticipated
that any Fund (other than the Global Balanced Fund) will qualify to pass through
to its shareholders the ability to claim as a foreign tax credit their
respective shares of foreign taxes paid by such Fund. If more than 50% in value
of Global Balanced Fund's total assets at the close of its taxable year consists
of securities of foreign corporations, the Fund will be eligible, and intends,
to file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their proportionate share
of such withholding taxes in their U.S. income tax returns as gross income,
treat such proportionate share as taxes paid by them, and deduct such
proportionate share in computing their taxable incomes or, alternatively, use
them as foreign tax credits against their U.S. income taxes. No deductions for
foreign taxes, however, may be claimed by non-corporate shareholders who do not
itemize deductions. Of course, certain retirement accounts which are not
subject to tax cannot claim foreign tax credits on investments in foreign
securities held in the Fund. A shareholder that is a nonresident alien
individual or a foreign corporation may be subject to U.S. withholding tax on
the income resulting from the Fund's election described in this paragraph but
may not be able to claim a credit or deduction against such U.S. tax for the
foreign taxes treated as having been paid by such shareholder.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time such Fund actually collects such receivables or pays such
liabilities are treated as ordinary income or ordinary loss. Similarly, gains
or losses on forward foreign currency exchange contracts, sale of currencies or
dispositions of debt securities denominated in a foreign currency attributable
to fluctuations in the value of the foreign currency between the date of
acquisition of the security and the date of disposition generally also are
treated as ordinary gain or loss. These gains, referred to under the Code as
"Section 988" gains or
B-68
losses, increase or decrease the amount of each Fund's investment company
taxable income available to be distributed to its shareholders as ordinary
income.
The Code includes special rules applicable to the listed non-equity
options, regulated futures contracts, and options on futures contracts which a
Fund may write, purchase or sell. Such options and contracts are classified as
Section 1256 contracts under the Code. The character of gain or loss resulting
from the sale, disposition, closing out, expiration or other termination of
Section 1256 contracts, except forward foreign currency exchange contracts, is
generally treated as long-term capital gain or loss to the extent of 60% thereof
and short-term capital gain or loss to the extent of 40% thereof ("60/40 gain or
loss"). Such contracts, when held by a Fund at the end of a fiscal year,
generally are required to be treated as sold at market value on the last day of
such fiscal year for Federal income tax purposes ("marked-to-market"). Over-
the-counter options are not classified as Section 1256 contracts and are not
subject to the marked-to-market rule or to 60/40 gain or loss treatment. Any
gains or losses recognized by a Fund from transactions in over-the-counter
options generally constitute short-term capital gains or losses. When call
options written, or put options purchased, by a Fund are exercised, the gain or
loss realized on the sale of the underlying securities may be either short-term
or long-term, depending on the holding period of the securities. In determining
the amount of gain or loss, the sales proceeds are reduced by the premium paid
for the puts or increased by the premium received for calls.
A substantial portion of each Fund's transactions in options, futures
contracts and options on futures contracts, particularly its hedging
transactions, may constitute "straddles" which are defined in the Code as
offsetting positions with respect to personal property. A straddle consisting
of a listed option, futures contract, or option on a futures contract and of
U.S. Government securities would constitute a "mixed straddle" under the Code.
The Code generally provides with respect to straddles (i) "loss deferral" rules
which may postpone recognition for tax purposes of losses from certain closing
purchase transactions or other dispositions of a position in the straddle to the
extent of unrealized gains in the offsetting position, (ii) "wash sale" rules
which may postpone recognition for tax purposes of losses where a position is
sold and a new offsetting position is acquired within a prescribed period, (iii)
"short sale" rules which may terminate the holding period of securities owned by
a Fund when offsetting positions are established and which may convert certain
losses from short-term to long-term, and (iv) "conversion transaction" rules
which recharacterize capital gains as ordinary income. The Code provides that
certain elections may be made for mixed straddles that can alter the character
of the capital gain or loss recognized upon disposition of positions which form
part of a straddle. Certain other elections also are provided
B-69
in the Code; no determination has been reached to make any of these elections.
The Global Balanced Fund and Growth and Income Fund may purchase debt
securities (such as zero-coupon or pay-in-kind securities) that contain original
issue discount. Original issue discount that accrues in a taxable year is
treated as earned by a Fund and therefore is subject to the distribution
requirements of the Code. Because the original issue discount earned by the Fund
in a taxable year may not be represented by cash income, the Fund may have to
dispose of other securities and use the proceeds to make distributions to
shareholders.
A Fund may be required to backup withhold U.S. Federal income tax at
the rate of 31% of all taxable distributions payable to shareholders who fail to
provide their correct taxpayer identification number or fail to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's U.S. Federal
income tax liability.
The Global Balanced Fund may, from time to time, invest in "passive
foreign investment companies" ("PFICs"). A PFIC is a foreign corporation that,
in general, meets either of the following tests: (a) at least 75% of its gross
income is passive or (b) an average of at least 50% of its assets produce, or
are held for the production of, passive income. If the Global Balanced Fund
acquires and holds stock in a PFIC beyond the end of the year of its
acquisition, the Fund will be subject to federal income tax on a portion of any
"excess distribution" received on the stock or of any gain from disposition of
the stock (collectively, "PFIC income"), plus interest thereon, even if the
Global Balanced Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Global
Balanced Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders.
Proposed Treasury regulations provide that the Fund may make a "mark-to-market"
election with respect to any stock it holds of a PFIC. If the election is in
effect, at the end of the Global Balanced Fund's taxable year, the Global
Balanced Fund will recognize the amount of gains, if any, with respect to PFIC
stock. No loss will be recognized on PFIC stock. Alternatively, the Global
Balanced Fund may elect to treat any PFIC in which it invests as a "qualified
electing fund," in which case, in lieu of the foregoing tax and interest
obligation, the Global Balanced Fund will be required to include in income each
year its pro rata share of the qualified electing fund's annual ordinary
earnings and net capital gain, even if they are not distributed to the Global
Balanced Fund; those amounts would be subject to the distribution requirements
applicable to the Global Balanced Fund described above. It may be very
B-70
difficult, if not impossible, to make this election because of certain
requirements thereof.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect.
Shareholders are urged to consult their tax advisors regarding specific
questions as to Federal, state and local taxes. In addition, foreign investors
should consult with their own tax advisors regarding the particular tax
consequences to them of an investment in each Fund. Qualification as a
regulated investment company under the Code for tax purposes does not entail
government supervision of management and investment policies.
RETIREMENT PLANS
Shares of each Fund are eligible to be purchased in conjunction with
various types of qualified retirement plans. The summary below is only a brief
description of the Federal income tax laws for each plan and does not purport to
be complete. Further information or an application to invest in shares of a
Fund by establishing any of the retirement plans described below may be obtained
by calling Retirement Plans at (800) 858-8850. However, it is recommended that
a shareholder considering any retirement plan consult a tax adviser before
participating.
PENSION AND PROFIT-SHARING PLANS. Sections 401(a) and 401(k) of the Code permit
business employers and certain associations to establish pension and profit
sharing plans for employees. Shares of a Fund may be purchased by those who
would have been covered under the rules governing old H.R. 10 (Keogh) Plans, as
well as by corporate plans. Each business retirement plan provides tax
advantages for owners and participants. Contributions made by the employer are
tax-deductible, and participants do not pay taxes on contributions or earnings
until withdrawn.
TAX-SHELTERED CUSTODIAL ACCOUNTS. Section 403(b)(7) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in 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 IRA's
are subject to limitations with respect to the amount that may be contributed,
the eligibility of individuals, and the time in which distributions would be
allowed to commence. In addition, certain distributions from some other types
of retirement plans may be placed on a tax-deferred basis in an IRA.
B-71
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.
DESCRIPTION OF SHARES
Ownership of the Trust is represented by transferable shares of
beneficial interest. The Declaration of Trust of the Trust (the "Declaration of
Trust") permits the Trustees to issue an unlimited number of full and fractional
shares, $.01 par value, and to divide or combine the shares into a greater or
lesser number of shares without thereby changing the proportionate beneficial
interests of the Trust.
Currently, six series of shares of the Trust have been authorized
pursuant to the Declaration of Trust: the Balanced Assets Fund, the Global
Balanced Fund, the Blue Chip Growth Fund, the Mid-Cap Growth Fund, the Small
Company Growth Fund and the Growth and Income Fund. The Global Balanced Fund,
the Blue Chip Growth Fund, the Mid-Cap Growth Fund and the Growth and Income
Fund have each been divided into two classes of shares, designated as Class A
and Class B shares. The Balanced Assets Fund and Small Company Growth Fund have
each been divided into three classes of shares, designated as Class A, Class B
and Class Z shares. The Trustees may authorize the creation of additional
series of shares so as to be able to offer to investors additional investment
portfolios within the Trust that would operate independently from the Trust's
present portfolios, or to distinguish among shareholders, as may be necessary,
to comply with future regulations or other unforeseen circumstances. Each
series of the Trust's shares represents the interests of the shareholders of
that series in a particular portfolio of Trust assets. In addition, the
Trustees may authorize the creation of additional classes of shares in the
future, which may have fee structures different from those of existing classes
and/or may be offered only to certain qualified investors.
Shareholders are entitled to a full vote for each full share held.
The Trustees have terms of unlimited duration (subject to certain removal
procedures) and have the power to alter the number of Trustees, and appoint
their own successors, provided that at all times at least a majority of the
Trustees have been elected by shareholders. The voting rights of shareholders
are not cumulative, so that holders of more than 50% of the shares voting can,
if they choose, elect all Trustees being elected, while the holders of the
remaining shares would be unable to elect any Trustees. Although the Trust need
not hold annual meetings of shareholders, the Trustees may call special meetings
of shareholders for action by shareholder vote
B-72
as may be required by the 1940 Act or the Declaration of Trust. Also, a
shareholders meeting must be called, if so requested in writing by the holders
of record of 10% or more of the outstanding shares of the Trust. In addition,
the Trustees may be removed by the action of the holders of record of two-thirds
or more of the outstanding shares. All series of shares will vote with respect
to certain matters, such as election of Trustees. When all series of shares are
not affected by a matter to be voted upon, such as approval of investment
advisory agreements or changes in a Fund's policies, only shareholders of the
series affected by the matter may be entitled to vote.
All classes of shares of a given series are identical in all respects,
except that (i) each class may bear differing amounts of certain class-specific
expenses, (ii) Class A shares are subject to an initial sales charge, a
distribution fee and an ongoing account maintenance and service fee, (iii) Class
B shares are subject to a contingent deferred sales charge, a distribution fee
and an ongoing account maintenance and service fee, (iv) Class B shares convert
automatically to Class A shares on the first business day of the month seven
years after the purchase of such Class B Shares, (v) each class has voting
rights on matters that pertain to the Rule 12b-1 plan adopted with respect to
such class, except that under certain circumstances, the holders of Class B
shares may be entitled to vote on material changes to the Class A Rule 12b-1
plan, (vi) Class Z shares are not subject to any sales charge or any
distribution, account maintenance or service fee, and (vii) each class of shares
will be exchangeable only into the same class of shares of any other Fund or
other funds in the SunAmerica Family of Mutual Funds that offers that class.
All shares of the Trust issued and outstanding and all shares offered by the
Prospectus when issued, are fully paid and non-assessable. Shares have no
preemptive or other subscription rights and are freely transferable on the books
of the Trust. In addition, shares have no conversion rights, except as
described above.
The Declaration of Trust provides that no Trustee, officer, employee
or agent of the Trust is liable to the Trust or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Trust, except as such liability may arise from his or
its own bad faith, willful misfeasance, gross negligence or reckless disregard
of his duties. It also provides that all third persons shall look solely to the
Trust's property for satisfaction of claims arising in connection with the
affairs of the Trust. With the exceptions stated, the Declaration of Trust
provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Trust.
The Trust shall continue, without limitation of time, subject to the provisions
in the Declaration of Trust concerning termination by action of the
shareholders.
B-73
ADDITIONAL INFORMATION
COMPUTATION OF OFFERING PRICE PER SHARE
---------------------------------------
The following is the offering price calculation for Class A and Class
B shares of the Funds, based on the value of each Fund's net assets as of
September 30, 1996.
[Enlarge/Download Table]
Balanced Assets Blue Chip Growth Global Balanced
Fund + Fund Fund
-------------------- -------------------- ------------------
Class A Class B Class A Class B Class A Class B
-------------------- -------------------- ------------------ ----------- ------------ ------------
Net Assets................. $147,035,456 $171,196,506 $51,993,425 $36,199,481 $ 10,035,090 $ 16,111,902
Number of Shares
Outstanding............... 8,748,465 10,187,608 2,950,757 2,096,657 1,301,793 2,107,949
Net Asset Value Per
Shares (net assets
divided by number
of shares)................ $ 16.81 $ 16.80 $ 17.62 $ 17.27 $ 7.71 $ 7.64
Sales Charge) for
Class A Shares:
5.75% of offering
price (6.10% of net
asset value per
share))*.................. $ 1.03 $ ** $ 1.07 $ ** $ .47 $ **
Offering Price............. $ 17.84 $ 16.80 $ 18.69 $ 17.27 $ 8.18 $ 7.64
[Enlarge/Download Table]
Small Company
Growth and Income Fund Mid-Cap Growth Fund Growth Fund +
-------------------------- -------------------- --------------------
Class A Class B Class A Class B Class A Class B
----------- ----------- ----------- ----------- ----------- -----------
Net Assets................. $ 21,099,017 $ 13,903,004 $41,904,384 $13,783,802 $158,567,071 $107,839,397
Number of Shares
Outstanding.............. 2,015,981 $ 1,330,114 2,356,510 791,770 6,538,057 4,550,952
Net Asset Value Per
Share (net assets
divided by number
of shares)............... $ 10.47 $ 10.45 $ 17.78 $ 17.41 $ 24.25 $ 23.70
Sales Charge (for
Class A Shares:
5.75% of offering
price (6.10% of net
asset value per
share))*................. $ .64 $ ** $ 1.08 $ ** $ 1.48 $ **
Offering Price............. $ 11.11 $ 10.45 $ 18.86 $ 17.41 $ 25.73 $ 23.70
_______________
* 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.
+ The offering of Class Z shares commenced on October 1, 1996.
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,
B-74
1776 Heritage Drive, North Quincy, MA 02171, serves as Custodian and Transfer
Agent for the Funds and in those capacities maintains certain financial and
accounting books and records pursuant to agreements with the Trust. Transfer
agent functions are performed for State Street, by National Financial Data
Services, P.O. Box 419572, Kansas City, MO 64141-6572, an affiliate of State
Street.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL. Price Waterhouse LLP, 1177 Avenue of
the Americas, New York, NY 10036, has been selected to serve as the Trust's
independent accountants and in that capacity examines the annual financial
statements of the Trust. The firm of Shereff, Friedman, Hoffman & Goodman, LLP,
919 Third Avenue, New York, NY 10022, has been selected as legal counsel to the
Trust.
FINANCIAL STATEMENTS
Set forth following this Statement of Additional Information are the financial
statements of SunAmerica Equity Funds with respect to Registrant's fiscal year
ended September 30, 1996.
B-75
SUNAMERICA EQUITY FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- September 30, 1996
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
-----------------------------------------------------------------------------
ASSETS:
Investments securities,
at value (identified
cost $277,773,099;
$74,972,693;
$41,512,876;
$192,419,854;
$21,240,451 and
$28,517,818,
respectively)........... $294,588,658 $80,872,707 $52,121,375 $249,986,112 $23,007,462 $30,316,656
Short-term securities
(cost equals market).... -- -- -- -- 1,302,000 --
Repurchase agreements
(cost equals market).... 8,398,000 1,189,000 4,072,000 9,766,000 1,160,000 4,353,000
Cash..................... 916 954 106 984 5,746 43,371
Foreign cash (identified
cost $303,982).......... -- -- -- -- 301,859 --
Receivable for
investments sold........ 16,737,801 6,086,322 -- 11,679,582 145,472 214,693
Receivable for shares of
beneficial interest
sold.................... 536,009 224,618 83,333 1,231,552 55,202 811,954
Interest and dividends
receivable.............. 1,501,234 60,893 13,589 47,108 197,383 43,577
Prepaid expenses......... 14,818 33,144 6,646 11,998 1,116 973
Receivable from
investment adviser...... -- -- -- -- 6,635 18,817
Unrealized appreciation
of foreign currency
contracts............... -- -- -- -- 146,021 --
Deferred organizational
expenses................ -- -- -- -- 2,334 758
------------ ----------- ----------- ------------ ----------- -----------
Total assets........... 321,777,436 88,467,638 56,297,049 272,723,336 26,331,230 35,803,799
------------ ----------- ----------- ------------ ----------- -----------
LIABILITIES:
Payable for investments
purchased............... 2,411,915 46,000 455,000 5,519,101 72,694 722,860
Payable for shares of
beneficial interest
redeemed................ 511,772 48,834 44,412 373,908 2,870 11,987
Accrued expenses......... 186,061 83,710 54,487 141,863 58,126 30,297
Investment advisory and
management fees payable. 192,235 52,362 32,727 155,384 20,963 18,990
Distribution and service
maintenance fees
payable................. 179,614 43,245 22,133 126,612 15,754 15,130
Dividends payable........ 63,877 581 104 -- -- 2,514
Unrealized depreciation
of foreign currency
contracts............... -- -- -- -- 13,831 --
------------ ----------- ----------- ------------ ----------- -----------
Total liabilities...... 3,545,474 274,732 608,863 6,316,868 184,238 801,778
------------ ----------- ----------- ------------ ----------- -----------
Net assets........... $318,231,962 $88,192,906 $55,688,186 $266,406,468 $26,146,992 $35,002,021
============ =========== =========== ============ =========== ===========
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial
interest, $.01 par
value................... $ 189,361 $ 50,474 $ 31,483 $ 110,890 $ 34,097 $ 33,461
Paid-in capital.......... 272,569,518 71,074,447 44,047,107 209,435,190 23,933,064 31,382,012
------------ ----------- ----------- ------------ ----------- -----------
272,758,879 71,124,921 44,078,590 209,546,080 23,967,161 31,415,473
Accumulated undistributed
net investment income
(loss).................. (18,577) -- -- -- 512,906 (2,516)
Accumulated undistributed
net realized gain (loss)
on investments, foreign
currency and other
assets and liabilities.. 28,676,101 11,167,971 1,001,097 (705,870) (229,373) 1,790,226
Net unrealized
appreciation of
investments............. 16,815,559 5,900,014 10,608,499 57,566,258 1,767,011 1,798,838
Net unrealized
appreciation of foreign
currency, other assets
and liabilities......... -- -- -- -- 129,287 --
------------ ----------- ----------- ------------ ----------- -----------
Net assets........... $318,231,962 $88,192,906 $55,688,186 $266,406,468 $26,146,992 $35,002,021
============ =========== =========== ============ =========== ===========
CLASS A (UNLIMITED SHARES
AUTHORIZED):
Net asset value and
redemption price per
share
($147,035,456/8,748,465;
$51,993,425/2,950,757;
$41,904,384/2,356,510;
$158,567,071/6,538,057;
$10,035,090/1,301,793
and
$21,099,017/2,015,981
net assets and shares of
beneficial interest
issued and outstanding,
respectively)........... $ 16.81 $ 17.62 $ 17.78 $ 24.25 $ 7.71 $ 10.47
Maximum sales charge
(5.75% of offering
price).................. 1.03 1.07 1.08 1.48 0.47 0.64
------------ ----------- ----------- ------------ ----------- -----------
Maximum offering price to
public.................. $ 17.84 $ 18.69 $ 18.86 $ 25.73 $ 8.18 $ 11.11
============ =========== =========== ============ =========== ===========
CLASS B (UNLIMITED SHARES
AUTHORIZED):
Net asset value, offering
and redemption price
(excluding any
applicable contingent
deferred sales charge)
per share
($171,196,506/10,187,608;
$36,199,481/2,096,657;
$13,783,802/791,770;
$107,839,397/4,550,952;
$16,111,902/2,107,949
and
$13,903,004/1,330,114
net assets and shares of
beneficial interest
issued and outstanding,
respectively)........... $ 16.80 $ 17.27 $ 17.41 $ 23.70 $ 7.64 $ 10.45
============ =========== =========== ============ =========== ===========
See Notes to Financial Statements
3
SUNAMERICA EQUITY FUNDS
STATEMENT OF OPERATIONS -- For the year ended September 30, 1996
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
--------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Interest (net of
withholding taxes of
$2,403 on Global
Balanced Fund)........ $ 6,647,500 $ 281,114 $ 293,829 $ 1,324,606 $ 436,750 $ 87,928
Dividends (net of
withholding taxes of
$32,895, $13,450,
$1,459, $3,296,
$32,882 and $854,
respectively)......... 2,928,724 919,680 166,238 366,438 285,671 214,138
----------- ----------- ---------- ----------- ---------- ----------
Total investment
income................ 9,576,224 1,200,794 460,067 1,691,044 722,421 302,066
----------- ----------- ---------- ----------- ---------- ----------
Expenses:
Investment advisory and
management fees....... 2,282,018 644,774 375,398 1,487,650 240,640 91,559
Distribution and
service maintenance
fees-Class A.......... 478,455 164,198 136,912 408,943 32,163 25,462
Distribution and
service maintenance
fees-Class B.......... 1,675,676 390,560 109,353 815,125 148,748 49,329
Transfer agent fees and
expenses-Class A...... 424,921 141,422 111,673 352,438 28,239 18,652
Transfer agent fees and
expenses-Class B...... 453,492 120,037 34,129 235,323 43,907 15,231
Custodian fees and
expenses.............. 140,540 82,285 68,740 111,265 188,610 50,281
Registration fees-Class
A..................... 20,989 7,423 11,199 29,818 5,888 7,257
Registration fees-Class
B..................... 9,105 5,996 6,873 14,911 6,906 6,374
Audit and tax
consulting fees....... 56,410 20,825 16,395 36,270 12,800 10,910
Trustees' fees and
expenses.............. 35,822 10,995 6,178 22,946 2,783 1,141
Printing expense....... 25,575 10,695 4,350 22,020 2,210 --
Insurance expense...... 6,055 1,716 1,092 3,511 550 123
Legal fees and
expenses.............. 4,890 790 -- 3,335 -- --
Interest expense....... 4,189 4,689 1,603 -- -- 248
Amortization of
organizational
expenses.............. -- -- -- -- 878 278
Miscellaneous expenses. 7,750 3,019 2,215 5,197 1,432 596
----------- ----------- ---------- ----------- ---------- ----------
Total expenses......... 5,625,887 1,609,424 886,110 3,548,752 715,754 277,441
Less: expenses
waived/reimbursed by
investment adviser.... -- -- (66) -- (101,710) (129,960)
----------- ----------- ---------- ----------- ---------- ----------
Net expenses........... 5,625,887 1,609,424 886,044 3,548,752 614,044 147,481
----------- ----------- ---------- ----------- ---------- ----------
Net investment income
(loss)................. 3,950,337 (408,630) (425,977) (1,857,708) 108,377 154,585
----------- ----------- ---------- ----------- ---------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments............ 33,912,222 13,200,391 1,634,384 14,472 1,153,686 1,853,730
Net realized gain on
foreign currency and
other assets and
liabilities............ -- -- -- 36 797,602 2
Net change in unrealized
appreciation
(depreciation) of
investments............ (8,691,595) (2,296,867) 4,688,230 33,583,299 218,368 1,445,861
Net change in unrealized
appreciation
(depreciation) of
foreign currency and
other assets and
liabilities............ -- -- -- -- 83,360 --
----------- ----------- ---------- ----------- ---------- ----------
Net realized and
unrealized gain on
investments, foreign
currency and other
assets and liabilities. 25,220,627 10,903,524 6,322,614 33,597,807 2,253,016 3,299,593
----------- ----------- ---------- ----------- ---------- ----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. $29,170,964 $10,494,894 $5,896,637 $31,740,099 $2,361,393 $3,454,178
=========== =========== ========== =========== ========== ==========
See Notes to Financial Statements
4
SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
[Enlarge/Download Table]
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,
1996 1995 1996 1995 1996 1995
-------------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income
(loss)................ $ 3,950,337 $ 4,234,844 $ (408,630) $ (42,924) $ (425,977) $ (237,687)
Net realized gain on
investments........... 33,912,222 13,383,399 13,200,391 7,615,892 1,634,384 7,432,643
Net realized loss on
foreign currency,
other assets and
liabilities........... -- -- -- (10,667) -- --
Net change in
unrealized
appreciation
(depreciation) of
investments........... (8,691,595) 28,115,267 (2,296,867) 6,757,773 4,688,230 3,253,371
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net
assets resulting from
operations............. 29,170,964 45,733,510 10,494,894 14,320,074 5,896,637 10,448,327
------------ ------------ ----------- ----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)...... (2,345,435) (1,892,197) -- -- -- (81,917)
From net investment
income (Class B)...... (1,868,201) (4,315,134) -- -- -- (10,723)
From net realized gains
on investments
(Class A)............. (7,282,221) (2,033,487) (4,646,750) (221,327) (4,337,142) --
From net realized gains
on investments
(Class B)............. (9,730,482) (7,043,145) (4,492,488) (5,263,567) (1,083,506) --
------------ ------------ ----------- ----------- ----------- -----------
Total dividends and
distributions to
shareholders........... (21,226,339) (15,283,963) (9,139,238) (5,484,894) (5,420,648) (92,640)
------------ ------------ ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 8).. 28,256,172 18,827,961 4,897,454 (1,851,797) 7,954,560 (43,053)
------------ ------------ ----------- ----------- ----------- -----------
TOTAL INCREASE IN NET
ASSETS................. 36,200,797 49,277,508 6,253,110 6,983,383 8,430,549 10,312,634
NET ASSETS:
Beginning of period..... 282,031,165 232,753,657 81,939,796 74,956,413 47,257,637 36,945,003
------------ ------------ ----------- ----------- ----------- -----------
End of period [including
undistributed net
investment income
(loss) for September
30, 1996 and September
30,1995 of $(18,577),
$243,698; $0, $0; $0,
and $0, respectively].. $318,231,962 $282,031,165 $88,192,906 $81,939,796 $55,688,186 $47,257,637
============ ============ =========== =========== =========== ===========
See Notes to Financial Statements
5
SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
[Enlarge/Download Table]
SMALL COMPANY GROWTH FUND GLOBAL BALANCED FUND GROWTH AND INCOME 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,
1996 1995 1996 1995 1996 1995
----------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income
(loss)................ $ (1,857,708) $ (587,404) $ 108,377 $ 305,478 $ 154,585 $ 183,673
Net realized gain
(loss) on investments. 14,472 31,433,571 1,153,686 (2,564,836) 1,853,730 346,652
Net realized gain on
foreign currency,
other assets and
liabilities........... 36 10,951 797,602 1,756,424 2 --
Net change in
unrealized
appreciation
(depreciation) of
investments........... 33,583,299 15,112,125 218,368 1,847,343 1,445,861 297,243
Net change in
unrealized
appreciation
(depreciation) of
foreign currency,
other assets and
liabilities........... -- -- 83,360 42,526 -- --
------------ ------------ ----------- ----------- ----------- ----------
Net increase in net
assets resulting from
operations............. 31,740,099 45,969,243 2,361,393 1,386,935 3,454,178 827,568
------------ ------------ ----------- ----------- ----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)...... -- -- (478,740) (24,601) (123,623) (127,668)
From net investment
income (Class B)...... -- -- (693,095) (12,084) (58,296) (54,591)
From net realized gains
on investments
(Class A)............. (16,561,192) (985,792) -- (3,604) (175,889) (63,470)
From net realized gains
on investments
(Class B)............. (12,782,675) (1,122,738) -- (3,671) (127,334) (13,320)
------------ ------------ ----------- ----------- ----------- ----------
Total dividends and
distributions to
shareholders........... (29,343,867) (2,108,530) (1,171,835) (43,960) (485,142) (259,049)
------------ ------------ ----------- ----------- ----------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 8).. 106,187,132 23,184,310 1,366,433 (4,383,749) 25,962,674 2,174,079
------------ ------------ ----------- ----------- ----------- ----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................. 108,583,364 67,045,023 2,555,991 (3,040,774) 28,931,710 2,742,598
NET ASSETS:
Beginning of period..... 157,823,104 90,778,081 23,591,001 26,631,775 6,070,311 3,327,713
------------ ------------ ----------- ----------- ----------- ----------
End of period [including
undistributed net
investment income
(loss) for September
30, 1996 and September
30, 1995 $0, $0;
$512,906, $871,462;
$(2,516), and $2,915,
respectively].......... $266,406,468 $157,823,104 $26,146,992 $23,591,001 $35,002,021 $6,070,311
============ ============ =========== =========== =========== ==========
See Notes to Financial Statements
6
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
BALANCED ASSETS FUND
--------------------
[Enlarge/Download Table]
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
9/24/93-
9/30/93(3)..... $15.07 $ -- $ 0.06 $ 0.06 $ -- $ -- $ -- $15.13 0.40% $ 33,381
9/30/94......... 15.13 0.30 (0.23) 0.07 (0.28) (0.30) (0.58) 14.62 0.50 52,098
9/30/95......... 14.62 0.32 2.51 2.83 (0.45) (0.58) (1.03) 16.42 20.68 119,916
9/30/96......... 16.42 0.27 1.39 1.66 (0.28) (0.99) (1.27) 16.81 10.65 147,035
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
9/24/93-
9/30/93(3)..... 1.54%(4) 0.46%(4) 25% $ NA
9/30/94......... 1.58 2.00 141 NA
9/30/95......... 1.50 2.13 130 NA
9/30/96......... 1.52 1.63 187 0.0611
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B
6/30/93(5)...... $15.63 $ 0.30 $ 2.63 $ 2.93 $(0.30) $(2.40) $(2.70) $15.86 20.29% $113,871
7/01/93-
9/30/93(5)..... 15.86 0.05 0.49 0.54 (0.06) (1.21) (1.27) 15.13 3.44 137,456
9/30/94......... 15.13 0.20 (0.23) (0.03) (0.18) (0.30) (0.48) 14.62 (0.14) 180,655
9/30/95......... 14.62 0.23 2.51 2.74 (0.36) (0.58) (0.94) 16.42 19.96 162,115
9/30/96......... 16.42 0.17 1.38 1.55 (0.18) (0.99) (1.17) 16.80 9.93 171,197
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
6/30/93(5)...... 1.91%(6) 1.94%(6) 251% $ NA
7/01/93-
9/30/93(5)..... 2.10(4)(6) 1.36(4)(6) 25 NA
9/30/94......... 2.21 1.36 141 NA
9/30/95......... 2.12 1.59 130 NA
9/30/96......... 2.12 1.03 187 0.0611
--------------------------------------------------------------------------------
BLUE CHIP GROWTH 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 UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS A
10/08/93-
9/30/94(3)..... $16.24 $ 0.09 (1) $(0.26) $(0.17) $ -- $(0.65) $(0.65) $15.42 (1.05)% $ 3,207
9/30/95......... 15.42 0.02 (1) 2.99 3.01 -- (1.09) (1.09) 17.34 21.29 42,407
9/30/96......... 17.34 (0.03)(1) 2.22 2.19 -- (1.91) (1.91) 17.62 13.88 51,993
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
10/08/93-
9/30/94(3)..... 1.64%(4)(6) 0.65%(4)(6) 170% $ NA
9/30/95......... 1.58(6) 0.11(6) 251 NA
9/30/96......... 1.57 (0.18) 269 0.0600
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B
12/31/92(5)..... $12.53 $(0.13) $ 1.19 $ 1.06 $ -- $ -- $ -- $13.59 8.46% $ 83,237
1/01/93-
9/30/93(5)..... 13.59 (0.02)(1) 2.71 2.69 -- -- -- 16.28 19.79 79,774
9/30/94......... 16.28 (0.01)(1) (0.28) (0.29) -- (0.65) (0.65) 15.34 (1.81) 71,749
9/30/95......... 15.34 (0.01)(1) 2.89 2.88 -- (1.09) (1.09) 17.13 20.51 39,533
9/30/96......... 17.13 (0.14)(1) 2.19 2.05 -- (1.91) (1.91) 17.27 13.17 36,199
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
12/31/92(5)..... 2.53% (0.75)% 192% $ NA
1/01/93-
9/30/93(5)..... 2.46(4) (0.14)(4) 171 NA
9/30/94......... 2.28 (0.05) 170 NA
9/30/95......... 2.22 (0.09) 251 NA
9/30/96......... 2.23 (0.83) 269 0.0600
------------
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased or sold.
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Equity
Funds fiscal year ends were changed to September 30
(6) Net of the following expense reimbursements (based on average net assets):
[Download Table]
6/30/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
Balanced Assets Class B...................... .05% .04% -- --
Blue Chip Growth Class A..................... -- -- 1.66% .11%
See Notes to Financial Statements
7
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
MID-CAP GROWTH FUND
[Enlarge/Download Table]
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS A
11/30/92(4)..... $13.30 $(0.07) $ 2.87 $ 2.80 $(0.02) $(0.44) $(0.46) $15.64 21.42% $30,024
12/01/92-
9/30/93(4)..... 15.64 (0.09)(2) 3.17 3.08 -- (0.69) (0.69) 18.03 20.42 34,918
9/30/94......... 18.03 0.04 (2) (1.64) (1.60) -- (2.65) (2.65) 13.78 (9.60) 32,906
9/30/95......... 13.78 (0.08)(2) 4.14 4.06 (0.04) -- (0.04) 17.80 29.51 37,714
9/30/96......... 17.80 (0.12)(2) 2.21 2.09 -- (2.11) (2.11) 17.78 12.92 41,904
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
11/30/92(4)..... 1.76% (0.46)% 98% $ NA
12/01/92-
9/30/93(4)..... 1.81(3) 1.18 (3) 231 NA
9/30/94......... 1.76 0.28 555 NA
9/30/95......... 1.66 (0.51) 392 NA
9/30/96......... 1.62 (0.69) 307 0.0603
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B
10/04/93-
9/30/94(5)..... $18.12 $ 0.03 (2) $(1.80) $(1.77) $ -- $(2.65) $(2.65) $13.70 (10.56)% $ 4,039
9/30/95......... 13.70 (0.18)(2) 4.08 3.90 (0.02) -- (0.02) 17.58 28.55 9,544
9/30/96......... 17.58 (0.24)(2) 2.18 1.94 -- (2.11) (2.11) 17.41 12.16 13,784
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
10/04/93-
9/30/94(5)..... 2.43%(3)(6) 0.20%(3)(6) 555% $ NA
9/30/95......... 2.31(7) (0.17)(7) 392 NA
9/30/96......... 2.32 (1.43) 307 0.0603
--------------------------------------------------------------------------------
SMALL COMPANY GROWTH 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(2) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS A
11/30/92(4)(8).. $13.88 $(0.12) $ 3.39 $3.27 $ -- $(0.69) $(0.69) $16.46 24.31% $32,056
12/01/92-
9/30/93(4)(8).. 16.46 (0.02) 4.07 4.05 -- (0.73) (0.73) 19.78 25.68 39,238
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
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
11/30/92(4)(8).. 1.90% (0.88)% 209% $ NA
12/01/92-
9/30/93(4)(8).. 1.83(3) (0.15)(3) 216 NA
9/30/94......... 1.67 (0.60) 411 NA
9/30/95......... 1.57 (0.22) 351 NA
9/30/96......... 1.53 (0.68) 240 0.0607
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(2) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B
9/24/93-
9/30/93(5)..... $19.66 $ -- $ 0.12 $ 0.12 $ -- $ -- $ -- $19.78 0.61% $38,898
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
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
9/24/93-
9/30/93(5)..... 2.34%(3) (1.70)%(3) 216% $ NA
9/30/94......... 2.31 (1.23) 411 NA
9/30/95......... 2.22 (0.84) 351 NA
9/30/96......... 2.16 (1.30) 240 0.0607
------------
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased or sold.
(1) Total return is not annualized and does not reflect sales load
(2) Calculated based upon average shares outstanding
(3) Annualized
(4) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Equity
Funds fiscal year ends were changed to September 30
(5) Commencement of sale of respective class of shares
(6) Net of expense reimbursement equivalent to .48% of average net assets for
the period ended 9/30/94
(7) Net of expense reimbursement equivalent to .17% of average net assets for
the year ended 9/30/95
(8) Restated to reflect a 0.984460367 for 1.00 stock split effective September
24, 1993
See Notes to Financial Statements
8
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
GLOBAL BALANCED FUND
[Enlarge/Download Table]
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
6/15/94-
9/30/94(3)..... $6.94 $0.02 $(0.05) $(0.03) $ -- $ -- $ -- $6.91 (0.43)% $13,100
9/30/95......... 6.91 0.10 0.36 0.46 (0.01) -- (0.01) 7.36 6.72 9,615
9/30/96......... 7.36 0.06 0.71 0.77 (0.42) -- (0.42) 7.71 11.00 10,035
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- ------------- -------------- --------- ----------
6/15/94-
9/30/94(3)..... 2.15%(4)(5) 0.93%(4)(5) 18% $ NA
9/30/95......... 2.15(5) 1.36(5) 169 NA
9/30/96......... 2.15(5) 0.84(5) 103 0.0074
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B
6/16/94-
9/30/94(3)..... $6.94 $0.01 $(0.05) $(0.04) $ -- $ -- $ -- $6.90 (0.58)% $13,532
9/30/95......... 6.90 0.05 0.36 0.41 (0.01) -- (0.01) 7.30 5.91 13,976
9/30/96......... 7.30 0.02 0.70 0.72 (0.38) -- (0.38) 7.64 10.21 16,112
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- ------------- -------------- --------- ----------
6/16/94-
9/30/94(3)..... 2.80%(4)(5) 0.33%(4)(5) 18% $ NA
9/30/95......... 2.80(5) 0.75(5) 169 NA
9/30/96......... 2.80(5) 0.21(5) 103 0.0074
--------------------------------------------------------------------------------
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)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
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
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- ------------- -------------- --------- ----------
7/01/94-
9/30/94(3)..... 1.50%(4)(5) 3.48%(4)(5) 8% $ NA
9/30/95......... 0.46(5) 4.16(5) 230 NA
9/30/96......... 0.96(5) 1.52(5) 161 0.0600
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS b
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
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- ------------- -------------- --------- ----------
7/06/94-
9/30/94(3)..... 2.15%(4)(5) 2.86%(4)(5) 8% $ NA
9/30/95......... 0.30(5) 4.48(5) 230 NA
9/30/96......... 1.58(5) 0.73(5) 161 0.0600
------------
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased or sold.
(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):
[Download Table]
9/30/94 9/30/95 9/30/96
------- ------- -------
Global Balanced Class A.............................. 1.14% .40% .44%
Global Balanced Class B.............................. .93 .45 .41
Growth and Income Class A............................ 4.48 2.96 1.01
Growth and Income Class B............................ 20.35 5.07 1.14
See Notes to Financial Statements
9
SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-----------------------------------------------------------------------------
COMMON STOCK--62.8%
AEROSPACE & MILITARY TECHNOLOGY--1.6%
Boeing Co............................................... 30,000 $ 2,835,000
Raytheon Co............................................. 40,000 2,225,000
-----------
5,060,000
-----------
APPAREL & TEXTILES--3.1%
Fila Holding SpA ADR(1)................................. 20,000 1,922,500
NIKE, Inc. Class B...................................... 25,000 3,037,500
Oakley, Inc.+........................................... 58,000 2,465,000
Reebok International Ltd. .............................. 35,000 1,216,250
Tommy Hilfiger Corp.+................................... 20,000 1,185,000
-----------
9,826,250
-----------
AUTOMOTIVE--0.9%
Ford Motor Co........................................... 40,000 1,250,000
Harley-Davidson, Inc. .................................. 35,000 1,505,000
-----------
2,755,000
-----------
BANKS--5.6%
Bank of Boston Corp..................................... 25,000 1,446,875
BankAmerica Corp........................................ 25,000 2,053,125
Chase Manhattan Corp.................................... 40,000 3,205,000
Citicorp................................................ 20,000 1,812,500
First Bank System, Inc.................................. 25,000 1,671,875
First Union Corp. ...................................... 35,000 2,336,250
Summit Bancorp.......................................... 130,000 5,167,500
-----------
17,693,125
-----------
BROADCASTING & MEDIA--0.3%
Comcast Corp. Class A+.................................. 50,000 768,750
Univision Communications, Inc. Class A+................. 2,000 67,000
-----------
835,750
-----------
BUSINESS SERVICES--0.2%
CUC International, Inc.+................................ 20,000 797,500
-----------
CHEMICALS--3.3%
Cabot Corp.............................................. 35,000 975,625
du Pont (E.I.) de Nemours & Co.......................... 20,000 1,765,000
Monsanto Co............................................. 55,000 2,007,500
Olin Corp. ............................................. 50,000 4,200,000
Union Carbide Corp...................................... 35,000 1,596,875
-----------
10,545,000
-----------
COMMUNICATION EQUIPMENT--2.6%
Ericsson (L.M.) Telephone Co., Class B ADR(1)........... 100,000 2,537,500
Nokia Corp. ADR(1)...................................... 40,000 1,770,000
Octel Communications Corp.+............................. 70,000 2,030,000
Tellabs, Inc.+.......................................... 30,000 2,118,750
-----------
8,456,250
-----------
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
[Download Table]
COMPUTERS & BUSINESS EQUIPMENT--3.9%
American Pad & Paper Co.+................................. 111,000 $ 2,358,750
CellNet Data Systems, Inc.+............................... 20,000 315,000
Cisco Systems, Inc.+...................................... 25,000 1,551,563
Electronic Data Systems Corp.............................. 30,000 1,841,250
International Business Machines Corp. .................... 40,000 4,980,000
Sun Microsystems, Inc.+................................... 25,000 1,553,125
-----------
12,599,688
-----------
CONGLOMERATE--1.5%
General Electric Co....................................... 25,000 2,275,000
United Technologies Corp.................................. 20,000 2,402,500
-----------
4,677,500
-----------
DEPARTMENT STORES--1.3%
Penney (J.C.), Inc........................................ 30,000 1,623,750
Wal-Mart Stores, Inc. .................................... 100,000 2,637,500
-----------
4,261,250
-----------
ELECTRONICS--2.2%
Diebold, Inc.............................................. 40,000 2,335,000
Intel Corp................................................ 15,000 1,431,563
Lexmark International Group, Inc. Class A................. 50,000 1,018,750
Micron Technology, Inc.................................... 70,000 2,135,000
-----------
6,920,313
-----------
ENERGY SERVICES--2.5%
Mobil Corp. .............................................. 50,000 5,787,500
Royal Dutch Petroleum Co. ................................ 15,000 2,341,875
-----------
8,129,375
-----------
ENERGY SOURCES--1.0%
Burlington Resources, Inc. ............................... 30,000 1,331,250
Enron Corp................................................ 46,000 1,874,500
-----------
3,205,750
-----------
FINANCIAL SERVICES--4.1%
Alex Brown, Inc........................................... 30,000 1,736,250
Capital One Financial Corp. .............................. 70,000 2,100,000
Dean Witter, Discover & Co. .............................. 35,000 1,925,000
Federal National Mortgage Association..................... 60,000 2,092,500
Litchfield Financial Corp................................. 52,500 735,000
MBNA Corp................................................. 20,000 695,000
Morgan Stanley Group, Inc................................. 50,000 2,487,500
ReliaStar Financial Corp.................................. 25,000 1,187,500
-----------
12,958,750
-----------
FOOD, BEVERAGE & TOBACCO--1.9%
Dole Food, Inc............................................ 35,000 1,470,000
Philip Morris Cos., Inc................................... 30,000 2,692,500
Seagram Co., Ltd.......................................... 50,000 1,868,750
-----------
6,031,250
-----------
10
SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
HEALTH SERVICES--1.3%
Apria Healthcare Group, Inc.+............................. 30,000 $ 562,500
Beverly Enterprises, Inc.+................................ 75,000 815,625
MedPartners, Inc.+........................................ 60,500 1,376,375
NovaCare, Inc.+........................................... 150,000 1,406,250
------------
4,160,750
------------
HOUSEHOLD PRODUCTS--2.7%
Corning, Inc. ............................................ 40,000 1,560,000
Estee Lauder Cos., Inc. Class A........................... 30,000 1,346,250
Procter & Gamble Co....................................... 30,000 2,925,000
Warner-Lambert Co......................................... 40,000 2,640,000
------------
8,471,250
------------
INSURANCE--1.7%
Aetna, Inc................................................ 31,738 2,233,562
Allstate Corp............................................. 53,000 2,610,250
Lawyers Title Corp........................................ 25,000 531,250
------------
5,375,062
------------
LEISURE & TOURISM--4.5%
Callaway Golf Co.......................................... 35,000 1,194,375
Carnival Corp. Class A.................................... 47,000 1,457,000
Disney (Walt) Co.......................................... 35,000 2,218,125
HFS, Inc.+................................................ 30,500 2,039,687
Hilton Hotels Corp........................................ 80,000 2,270,000
MGM Grand, Inc.+.......................................... 65,000 2,746,250
Mirage Resorts, Inc.+..................................... 45,000 1,153,125
Sun International Hotels Ltd.+............................ 25,000 1,281,250
------------
14,359,812
------------
MEDICAL PRODUCTS--3.2%
Baxter International, Inc................................. 75,000 3,506,250
Imagyn Medical, Inc.+..................................... 45,000 483,750
Johnson & Johnson Co...................................... 40,000 2,050,000
Medtronic, Inc............................................ 30,000 1,923,750
Nitinol Medical Technologies, Inc.+....................... 10,000 112,500
Perkin-Elmer Corp......................................... 35,000 2,025,625
------------
10,101,875
------------
PHARMACEUTICALS--9.8%
Allergan, Inc............................................. 70,000 2,668,750
American Home Products Corp............................... 25,000 1,593,750
Bristol-Myers Squibb Co................................... 30,000 2,891,250
Chiron Corp.+............................................. 80,000 1,520,000
Genzyme Corp.+............................................ 40,000 1,020,000
Gilead Sciences, Inc.+.................................... 61,800 1,745,850
Glaxo Holdings PLC ADR(1)................................. 80,000 2,490,000
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
PHARMACEUTICALS (CONTINUED)
Lilly (Eli) & Co................................ 60,000 $ 3,870,000
Merck & Co., Inc................................ 40,000 2,815,000
Neurex Corp.+................................... 65,000 1,243,125
Pfizer, Inc..................................... 60,000 4,747,500
Schering-Plough Corp............................ 40,000 2,460,000
Teva Pharmaceutical Industries Ltd. ADR(1)...... 40,000 1,855,000
Virus Research Institute, Inc.+................. 35,000 284,375
------------
31,204,600
------------
SOFTWARE--1.4%
Computer Associates International, Inc.+........ 20,000 1,195,000
Document Sciences Corp.+........................ 5,000 63,125
Microsoft Corp.+................................ 15,000 1,978,125
NETCOM On-Line Communications Services+......... 40,000 685,000
PSINet, Inc.+................................... 60,000 652,500
------------
4,573,750
------------
SPECIALTY RETAIL--0.7%
Melville Corp................................... 50,000 2,206,250
------------
TELECOMMUNICATIONS--1.5%
Advanced Fibre Communications+(2)............... 10,000 250,000
Andrew Corp.+................................... 30,000 1,496,250
AT&T Corp....................................... 25,000 1,306,250
Lucent Technologies, Inc........................ 35,000 1,605,625
------------
4,658,125
------------
TOTAL COMMON STOCK
(cost $182,931,590)............................. 199,864,225
------------
PREFERRED STOCK--0.0%
INSURANCE--0.0%
Aetna, Inc.
(cost $146,757)................................. 2,247 163,750
------------
BONDS & NOTES--5.5%
AEROSPACE & MILITARY TECHNOLOGY--1.3%
Lockheed Martin Corp.
7.25% due 5/15/06............................... $ 4,000 4,000,880
------------
BANKS--0.6%
Chase Manhattan Corp.
7.88% due 8/01/04............................... 2,000 2,008,420
------------
11
SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
--------------------------------------------------------------------------------
BONDS & NOTES (CONTINUED)
FINANCIAL SERVICES--3.6%
Bear Stearns Cos., Inc.
6.63% due 1/15/04................................. $ 5,000 $4,802,150
DLJ Mortgage Acceptance Corp.
7.35% due 9/18/03................................. 4,689 4,687,398
Donaldson Lufkin & Jenrette, Inc.
6.88% due 11/01/05................................ 2,000 1,911,640
----------
11,401,188
----------
TOTAL BONDS & NOTES
(cost $17,129,808)................................ 17,410,488
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--1.1%
6.50% due 9/01/10
(cost $3,549,898)................................. 3,631 3,531,720
----------
U.S. TREASURY NOTES--16.5%
5.75% due 10/31/97................................ 5,000 4,995,300
6.25% due 5/31/00................................. 5,000 4,978,100
6.75% due 5/31/99................................. 5,000 5,060,150
6.88% due 7/31/99-3/31/00......................... 13,000 13,197,620
7.25% due 2/15/98-8/15/04......................... 13,300 13,713,025
7.50% due 10/31/99................................ 6,000 6,194,040
9.25% due 8/15/98................................. 4,000 4,218,120
----------
TOTAL U.S. TREASURY NOTES
(cost $52,624,421)................................ 52,356,355
----------
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
U.S. TREASURY BONDS--6.7%
6.75% due 8/15/26.............................. $ 10,000 $ 9,773,400
11.25% due 2/15/15............................. 8,000 11,488,720
-------------
TOTAL U.S. TREASURY BONDS
(cost $21,390,625)............................. 21,262,120
-------------
TOTAL INVESTMENT SECURITIES--92.6%
(cost $277,773,099)............................ 294,588,658
-------------
REPURCHASE AGREEMENT--2.6%
Joint Repurchase Agreement
Account (Note 3)
(cost $8,398,000).............................. 8,398 8,398,000
-------------
TOTAL INVESTMENTS--
(cost $286,171,099)............................ 95.2% 302,986,658
Other assets less liabilities................... 4.8 15,245,304
----- -------------
NET ASSETS-- 100.0% $318,231,962
===== =============
--------
+Non-income producing security
(1)ADR ("American Depositary Receipt")
(2)Fair valued security, see Note 2
See Notes to Financial Statements
12
SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK--91.6%
AEROSPACE & MILITARY TECHNOLOGY--2.7%
Boeing Co.................................................. 10,000 $ 945,000
Raytheon Co................................................ 20,000 1,112,500
Remec, Inc.+............................................... 25,000 353,125
-----------
2,410,625
-----------
APPAREL & TEXTILES--4.6%
Fila Holding SpA ADR(1).................................... 5,000 480,625
NIKE, Inc.................................................. 10,000 1,215,000
Oakley, Inc.+.............................................. 35,000 1,487,500
Tommy Hilfiger Corp.+...................................... 15,000 888,750
-----------
4,071,875
-----------
AUTOMOTIVE--1.3%
Ford Motor Co. ............................................ 15,000 468,750
Harley-Davidson, Inc....................................... 15,000 645,000
-----------
1,113,750
-----------
BANKS--5.3%
BankAmerica Corp........................................... 5,000 410,625
Citicorp................................................... 10,000 906,250
First Union Corp........................................... 15,000 1,001,250
Standard Federal Bancorp................................... 25,000 1,143,750
Summit Bancorp............................................. 30,000 1,192,500
-----------
4,654,375
-----------
BROADCASTING & MEDIA--1.0%
Comcast Corp. Class A+..................................... 15,000 230,625
National Media Corp.+...................................... 40,000 595,000
Univision Communications, Inc.
Class A+.................................................. 2,000 67,000
-----------
892,625
-----------
BUSINESS SERVICES--0.4%
CUC International, Inc.+................................... 10,000 398,750
-----------
CHEMICALS--5.3%
Cabot Corp................................................. 15,000 418,125
du Pont (E.I.) de Nemours & Co............................. 5,000 441,250
Hercules, Inc.............................................. 10,000 547,500
Monsanto Co................................................ 20,000 730,000
Olin Corp. ................................................ 25,000 2,100,000
Union Carbide Corp......................................... 10,000 456,250
-----------
4,693,125
-----------
COMMUNICATION EQUIPMENT--4.1%
Ericsson (L.M.) Telephone Co., Class B ADR(1).............. 30,000 761,250
Nokia Corp. ADR(1)......................................... 20,000 885,000
Octel Communications Corp.+................................ 30,000 870,000
Tellabs, Inc.+............................................. 15,000 1,059,375
-----------
3,575,625
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
COMPUTERS & BUSINESS EQUIPMENT--9.0%
American Pad & Paper Co.+.................................. 50,000 $ 1,062,500
Cisco Systems, Inc.+....................................... 15,000 930,937
Electronic Data Systems Corp............................... 20,000 1,227,500
International Business Machines Corp....................... 10,000 1,245,000
Lexmark International Group, Inc.+......................... 25,000 509,375
Micron Technology, Inc..................................... 48,000 1,464,000
Storage Technology Corp.+.................................. 15,000 568,125
Sun Microsystems, Inc.+.................................... 15,000 931,875
-----------
7,939,312
-----------
CONGLOMERATE--2.4%
General Electric Co. ...................................... 10,000 910,000
United Technologies Corp. ................................. 10,000 1,201,250
-----------
2,111,250
-----------
CONSUMER GOODS--0.4%
Whitman Corp............................................... 15,000 346,875
-----------
DEPARTMENT STORES--1.8%
Penney (J.C.), Inc......................................... 15,000 811,875
Wal-Mart Stores, Inc....................................... 30,000 791,250
-----------
1,603,125
-----------
ELECTRONICS--1.9%
Diebold, Inc. ............................................. 20,000 1,167,500
Intel Corp................................................. 5,000 477,188
-----------
1,644,688
-----------
ENERGY SERVICES--2.8%
Mobil Corp................................................. 15,000 1,736,250
Royal Dutch Petroleum Co................................... 5,000 780,625
-----------
2,516,875
-----------
ENERGY SOURCES--0.5%
Burlington Resources, Inc. ................................ 10,000 443,750
-----------
ENTERTAINMENT PRODUCTS--1.2%
Callaway Golf Co........................................... 15,000 511,875
Toy Biz, Inc. Class A+..................................... 30,000 532,500
-----------
1,044,375
-----------
FINANCIAL SERVICES--4.2%
Alex Brown, Inc............................................ 10,000 578,750
Capital One Financial Corp................................. 20,000 600,000
Dean Witter, Discover & Co................................. 15,000 825,000
Federal National Mortgage Association...................... 10,000 348,750
MBNA Corp. ................................................ 10,000 347,500
Morgan Stanley Group, Inc. ................................ 10,000 497,500
ReliaStar Financial Corp................................... 10,000 475,000
-----------
3,672,500
-----------
13
SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FOOD, BEVERAGE & TOBACCO--2.9%
Dole Food, Inc............................................. 15,000 $ 630,000
Odwalla, Inc.+............................................. 25,000 443,750
Philip Morris Cos., Inc.................................... 10,000 897,500
Seagram Co., Ltd. ......................................... 15,000 560,625
-----------
2,531,875
-----------
HEALTH SERVICES--1.5%
Apria Healthcare Group, Inc.+.............................. 20,000 375,000
Beverly Enterprises, Inc.+................................. 25,000 271,875
Health Management Associates+.............................. 15,000 373,125
Healthsource, Inc.+........................................ 20,000 295,000
-----------
1,315,000
-----------
HOUSEHOLD PRODUCTS--3.0%
Corning, Inc. ............................................. 15,000 585,000
Estee Lauder Cos., Inc., Class A........................... 20,000 897,500
Procter & Gamble Co........................................ 5,000 487,500
Warner-Lambert Co.......................................... 10,000 660,000
-----------
2,630,000
-----------
INSURANCE--4.2%
Aetna, Inc................................................. 18,369 1,292,718
Allstate Corp.............................................. 20,000 985,000
Lawyers Title Corp. ....................................... 25,000 531,250
UICI+...................................................... 35,000 910,000
-----------
3,718,968
-----------
LEISURE & TOURISM--7.3%
Extended Stay America, Inc.+............................... 50,000 1,025,000
HFS, Inc.+................................................. 15,000 1,003,125
Hilton Hotels Corp......................................... 40,000 1,135,000
MGM Grand, Inc.+........................................... 45,000 1,901,250
Mirage Resorts, Inc.+...................................... 25,000 640,625
Sun International Hotels Ltd.+............................. 15,000 768,750
-----------
6,473,750
-----------
MEDICAL PRODUCTS--5.2%
Baxter International, Inc.................................. 25,000 1,168,750
Chiron Corp.+.............................................. 42,000 798,000
Johnson & Johnson Co....................................... 15,000 768,750
Medtronic, Inc............................................. 15,000 961,875
Perkin Elmer Corp.......................................... 15,000 868,125
-----------
4,565,500
-----------
PHARMACEUTICALS--12.8%
Allergan, Inc.............................................. 30,000 1,143,750
American Home Products Corp. .............................. 10,000 637,500
Bristol-Myers Squibb Co. .................................. 15,000 1,445,625
Gilead Sciences, Inc.+..................................... 18,200 514,150
Lilly (Eli) & Co. ......................................... 20,000 1,290,000
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
PHARMACEUTICALS (CONTINUED)
Merck & Co., Inc................................... 15,000 $ 1,055,625
Neurex Corp.+...................................... 40,000 765,000
Pfizer, Inc........................................ 25,000 1,978,125
Schering-Plough Corp............................... 20,000 1,230,000
Teva Pharmaceutical Industries Ltd. ADR(1)......... 20,000 927,500
Virus Research Institute, Inc.+.................... 40,000 325,000
-----------
11,312,275
-----------
POLLUTION CONTROL--0.8%
Republic Industries, Inc.+......................... 25,000 725,000
-----------
SOFTWARE--2.1%
Computer Associates International, Inc............. 10,000 597,500
Microsoft Corp.+................................... 5,000 659,375
NETCOM On-Line Communications Services+............ 20,000 342,500
PSINet, Inc.+...................................... 20,000 217,500
-----------
1,816,875
-----------
SPECIALTY RETAIL--1.0%
Melville Corp. .................................... 20,000 882,500
-----------
TELECOMMUNICATIONS--1.9%
Andrew Corp.+...................................... 20,000 997,500
Lucent Technologies, Inc........................... 15,000 688,125
-----------
1,685,625
-----------
TOTAL COMMON STOCK
(cost $74,899,347)................................... 80,790,868
-----------
PREFERRED STOCK--0.1%
INSURANCE--0.1%
Aetna, Inc. Class C................................ 1,123 81,839
-----------
TOTAL INVESTMENT SECURITIES--91.7%
(cost $74,972,693)................................. 80,872,707
-----------
REPURCHASE AGREEMENT--1.3%
Joint Repurchase Agreement Account (Note 3)
(cost $1,189,000).................................. $1,189 1,189,000
-----------
TOTAL INVESTMENTS--
(cost $76,161,693)................................. 93.0% 82,061,707
Other assets less liabilities....................... 7.0 6,131,199
------ -----------
NET ASSETS-- 100.0% $88,192,906
====== ===========
--------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
See Notes to Financial Statements
14
SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-----------------------------------------------------------------------------
COMMON STOCK--92.9%
AEROSPACE & MILITARY TECHNOLOGY--1.3%
Hexcel Corp.+............................................. 10,000 $ 193,750
REMEC, Inc.+.............................................. 37,000 522,625
----------
716,375
----------
APPAREL & TEXTILES--9.6%
Fila Holding SpA ADR(1)................................... 2,000 192,250
Gucci Group NV ADR(1)..................................... 10,000 725,000
Jones Apparel Group, Inc.+................................ 15,000 956,250
NIKE, Inc. ............................................... 6,000 729,000
Nine West Group, Inc.+.................................... 12,000 651,000
North Face, Inc.+......................................... 23,000 649,750
Pacific Sunwear of California+............................ 15,000 493,125
Reebok International Ltd. ................................ 15,000 521,250
Tommy Hilfiger Corp.+..................................... 7,000 414,750
----------
5,332,375
----------
BANKS--1.4%
Charter One Financial, Inc. .............................. 10,500 420,000
PNC Bank Corp. ........................................... 10,000 333,750
----------
753,750
----------
BUSINESS SERVICES--1.8%
Applied Graphics Technologies+............................ 20,100 298,988
Data Processing Resources Corp.+.......................... 14,200 312,400
TeleSpectrum Worldwide, Inc.+............................. 20,000 390,000
----------
1,001,388
----------
CHEMICALS--2.7%
Nalco Chemical Co. ....................................... 10,000 362,500
Praxair, Inc. ............................................ 15,000 645,000
Waters Corp.+............................................. 15,000 491,250
----------
1,498,750
----------
COMMUNICATION EQUIPMENT--2.9%
Cascade Communications Co.+............................... 6,000 489,000
Octel Communications Corp.+............................... 15,000 435,000
Tellabs, Inc.+............................................ 10,000 706,250
----------
1,630,250
----------
COMPUTERS & BUSINESS EQUIPMENT--9.8%
Amati Communications Corp.+............................... 10,000 220,000
Bay Networks, Inc.+....................................... 10,000 272,500
Cabletron Systems, Inc.+.................................. 5,000 341,875
CellNet Data Systems, Inc.+............................... 20,000 315,000
CIBER, Inc.+.............................................. 18,200 691,600
Cisco Systems, Inc.+...................................... 12,000 744,750
COMPAQ Computer Corp.+.................................... 7,000 448,875
Gateway 2000, Inc. ....................................... 7,000 335,125
HBO & Co. ................................................ 10,000 667,500
Micron Technology, Inc. .................................. 15,000 457,500
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
[Download Table]
COMPUTERS & BUSINESS EQUIPMENT (CONTINUED)
Newbridge Networks Corp.+................................... 5,000 $ 318,750
Sun Microsystems, Inc.+..................................... 10,000 621,250
----------
5,434,725
----------
CONGLOMERATE--0.8%
Tyco International Ltd. .................................... 10,000 431,250
----------
DEPARTMENT STORES--0.6%
Woolworth Corp.+............................................ 15,000 309,375
----------
ELECTRONICS--4.7%
Analog Devices, Inc.+....................................... 10,000 271,250
Diebold, Inc. .............................................. 17,000 992,375
National Semiconductor Corp.+............................... 20,000 402,500
Telco Systems, Inc.+........................................ 10,000 190,000
VeriFone, Inc.+............................................. 10,000 447,500
Xilinx, Inc.+............................................... 10,000 340,000
----------
2,643,625
----------
ENERGY SERVICES--3.4%
Global Marine, Inc.+........................................ 25,000 393,750
Noble Drilling Corp.+....................................... 22,500 340,313
Rowan Cos., Inc.+........................................... 30,000 558,750
Transocean Offshore, Inc.................................... 10,000 612,500
----------
1,905,313
----------
ENERGY SOURCES--2.2%
Flores & Rucks, Inc.+....................................... 25,000 965,625
Parker & Parsley Petroleum Co. ............................. 10,000 261,250
----------
1,226,875
----------
ENTERTAINMENT PRODUCTS--0.6%
Callaway Golf Co............................................ 10,000 341,250
----------
FINANCIAL SERVICES--1.4%
Alex Brown, Inc. ........................................... 6,000 347,250
Associates First Capital Corp., Class A..................... 10,000 410,000
----------
757,250
----------
HOUSEHOLD PRODUCTS--1.0%
Blyth Industries, Inc.+..................................... 4,700 227,950
Corning, Inc. .............................................. 8,000 312,000
----------
539,950
----------
INSURANCE--2.7%
Allmerica Financial Corp. .................................. 10,000 325,000
Lawyers Title Corp. ........................................ 20,000 425,000
Maxicare Health Plans, Inc.+................................ 10,000 190,000
Progressive Corp. .......................................... 10,000 572,500
----------
1,512,500
----------
15
SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
LEISURE & TOURISM--1.9%
HFS, Inc.+................................................. 3,800 $ 254,125
Sun International Hotels Ltd.+............................. 16,000 820,000
----------
1,074,125
----------
MACHINERY--3.2%
Allied Products Corp. ..................................... 15,000 375,000
Flanders Corp.+(2)(3)...................................... 100,000 900,000
Precision Castparts Corp. ................................. 10,000 485,000
----------
1,760,000
----------
MEDICAL PRODUCTS--2.6%
Boston Scientific Corp.+................................... 12,000 690,000
Cohr, Inc.+................................................ 20,000 555,000
Nitinol Medical Technologies, Inc.+........................ 5,000 56,250
Serologicals Corp.+........................................ 5,000 173,750
----------
1,475,000
----------
METALS & MINING--0.7%
Crown, Cork & Seal, Inc. .................................. 9,000 415,125
----------
PHARMACEUTICALS--7.0%
ABR Information Services, Inc.+............................ 10,000 720,000
Allergan, Inc. ............................................ 20,000 762,500
Centocor, Inc.+............................................ 10,000 355,000
Guilford Pharmaceuticals, Inc.+............................ 10,000 275,000
Ligand Pharmaceuticals, Inc.+.............................. 15,000 204,375
Neurex Corp.+.............................................. 25,000 478,125
Teva Pharmaceutical Industries Ltd. ADR(1)................. 23,500 1,089,812
----------
3,884,812
----------
POLLUTION CONTROL--4.2%
Culligan Water Technologies, Inc.+......................... 15,000 568,125
United States Filter Corporation........................... 5,000 170,625
United Waste Systems, Inc. ................................ 30,000 1,042,500
USA Waste Services, Inc.+.................................. 17,000 535,500
----------
2,316,750
----------
REAL ESTATE--0.3%
Green Tree Financial Corp. ................................ 5,000 196,250
----------
REAL ESTATE INVESTMENT TRUSTS--2.0%
Bay Apartment Communities, Inc. ........................... 15,000 427,500
Innkeepers USA Trust....................................... 25,000 281,250
Starwood Lodging Trust..................................... 10,000 418,750
----------
1,127,500
----------
RESTAURANTS--0.6%
Starbucks Corp.+........................................... 10,000 330,000
----------
SOFTWARE--8.5%
Baan Co. NV+............................................... 10,000 333,750
BDM International, Inc.+................................... 10,000 595,000
BMC Software, Inc.+........................................ 5,000 397,500
Cognos, Inc.+.............................................. 10,000 326,250
Computer Associates International, Inc. ................... 8,000 478,000
Innovus Corp.+............................................. 14,000 84,000
JDA Software Group, Inc.+.................................. 12,000 330,000
Microsoft Corp.+........................................... 4,000 527,500
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
SOFTWARE (CONTINUED)
PeopleSoft, Inc.+................................. 5,000 $ 416,250
Rational Software Corp.+.......................... 10,000 341,250
RemedyTemp, Inc.+................................. 15,000 318,750
VIASOFT, Inc.+.................................... 14,000 588,000
-----------
4,736,250
-----------
SPECIALTY RETAIL--7.3%
Eagle Hardware And Groden+........................ 20,000 540,000
Global DirectMail Corp.+.......................... 20,000 955,000
Just For Feet, Inc.+.............................. 10,000 501,250
MacFrugals Bargains Closeouts+.................... 25,000 590,625
Melville Corp. ................................... 12,000 529,500
Saks Holdings Incorporated+....................... 10,000 350,000
Tiffany & Co. .................................... 15,000 600,000
-----------
4,066,375
-----------
TELECOMMUNICATIONS--6.5%
ACC Corp. ........................................ 4,500 212,625
Ascend Communications, Inc. ...................... 5,000 330,625
Lucent Technologies, Inc. ........................ 5,000 229,375
NICE Systems Ltd. ADR +(1)........................ 20,000 458,125
Pacific Gateway Exchange, Inc.+................... 22,000 649,000
PairGain Technologies, Inc.+...................... 6,300 492,187
Teleport Communications Group
Class A+......................................... 24,000 567,000
Westell Technologies, Inc. Class A+............... 16,000 708,000
-----------
3,646,937
-----------
UTILITIES--1.2%
El Paso Natural Gas Co. .......................... 15,000 660,000
-----------
TOTAL COMMON STOCK
(cost $41,236,289)................................ 51,724,125
-----------
WARRANTS--0.7%+
ELECTRONICS--0.7%
Intel Corp........................................ 7,000 397,250
-----------
TOTAL INVESTMENT SECURITIES--93.6%
(cost $41,512,876)................................ 52,121,375
-----------
REPURCHASE AGREEMENT--7.3%
Joint Repurchase Agreement
Account (Note 3)
(cost $4,072,000)................................. $4,072 4,072,000
-----------
TOTAL INVESTMENTS--
(cost $45,584,876)................................ 100.9% 56,193,375
Liabilities in excess of other assets.............. (0.9) (505,189)
------ -----------
NET ASSETS-- 100.0% $55,688,186
====== ===========
-------
+ Non-income producing security
(1) ADR ("American Depositary Receipts")
(2) Fair valued security, see Note 2
(3) At September 30, 1996 the Fund held a restricted security amounting to
1.62% 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.
[Download Table]
DATE OF UNIT VALUATION AS OF
DESCRIPTION ACQUISITION COST SEPTEMBER 30, 1996
-------------- ----------- ----- ------------------
Flanders Corp. 5/09/96 $5.00 $9.00
See Notes to Financial Statements
16
SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
------------------------------------------------------------------------------
COMMON STOCK--93.3%
AEROSPACE & MILITARY TECHNOLOGY--1.5%
Hexcel Corp.+........................................... 30,000 $ 581,250
Nichols Research Corp.+................................. 40,000 1,190,000
REMEC, Inc.+............................................ 100,500 1,419,563
Rohr, Inc.+............................................. 40,000 785,000
------------
3,975,813
------------
APPAREL & TEXTILES--2.7%
Fila Holding SpA ADR(1)................................. 8,000 769,000
Gucci Group NV.......................................... 10,000 725,000
Jones Apparel Group, Inc.+.............................. 20,000 1,275,000
Nautica Enterprises, Inc.+.............................. 30,000 967,500
North Face, Inc.+....................................... 45,000 1,271,250
Pacific Sunwear of California+.......................... 62,500 2,054,687
------------
7,062,437
------------
BANKS--2.5%
First American Corp. (Tennessee)........................ 50,000 2,400,000
Long Island Bancorp, Inc................................ 55,000 1,588,125
PNC Bank Corp........................................... 39,500 1,318,313
Summit Bancorp.......................................... 31,500 1,252,125
------------
6,558,563
------------
BROADCASTING & MEDIA--2.4%
Mecklermedia Corp.+..................................... 115,600 2,080,800
National Media Corp.+................................... 70,700 1,051,663
Sinclair Broadcast Group, Inc. Class A+................. 40,800 1,626,900
United Video Satellite Group Class A+................... 80,000 1,620,000
Univision Communications, Inc. Class A+................. 3,000 100,500
------------
6,479,863
------------
BUSINESS SERVICES--5.9%
Abacus Direct Corp.+.................................... 6,500 136,500
Childrens Comprehensive
Services, Inc.+........................................ 90,000 1,597,500
Datamark Holdings, Inc.+................................ 96,774 1,185,481
Datamark Holdings, Inc.+(2)(3).......................... 193,549 1,887,103
International Network Services+......................... 33,000 1,159,125
Learning Tree International, Inc+....................... 12,500 462,500
Mecon, Inc.+............................................ 45,100 1,127,500
Paychex, Inc............................................ 25,000 1,450,000
ProSoft Development, Inc.+(2)(3)........................ 250,000 2,500,000
RTW, Inc.+.............................................. 48,000 1,386,000
SOS Staffing Services, Inc.+............................ 75,000 843,750
TeleSpectrum Worldwide, Inc.+........................... 80,000 1,560,000
Vincam Group, Inc.+..................................... 10,000 382,500
------------
15,677,959
------------
CHEMICALS--2.0%
Betz Laboratories, Inc.................................. 43,100 2,262,750
Nalco Chemical Co....................................... 87,000 3,153,750
------------
5,416,500
------------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
COMMUNICATION EQUIPMENT--3.3%
Cascade Communications Co.+............................... 28,000 $ 2,282,000
DSP Communications, Inc.+................................. 35,000 1,955,625
Octel Communications Corp.+............................... 40,000 1,160,000
Registry, Inc.+........................................... 50,500 1,919,000
Tellabs, Inc.+............................................ 20,000 1,412,500
------------
8,729,125
------------
COMPUTERS & BUSINESS EQUIPMENT--9.0%
3Com Corp.+............................................... 20,000 1,201,250
Amati Communications Corp.+............................... 40,000 880,000
Bay Networks, Inc.+....................................... 25,000 681,250
CellNet Data Systems, Inc.+............................... 20,000 315,000
Chips & Technologies, Inc.+............................... 90,000 1,226,250
CIBER, Inc.+.............................................. 69,300 2,633,400
Cisco Systems, Inc.+...................................... 32,000 1,986,000
Daisytek International Corp.+............................. 21,000 908,250
FORE Systems, Inc.+....................................... 20,000 827,500
HMT Technology Corp.+..................................... 45,000 978,750
ITI Technologies, Inc.+................................... 35,000 1,233,750
Lexmark International Group, Inc.+........................ 75,000 1,528,125
Linear Technology Corp.................................... 50,000 1,843,750
M-Systems Flash Disk Pioneers Ltd.+....................... 100,000 887,500
Micron Electronics, Inc.+................................. 50,000 1,031,250
Micron Technology, Inc.................................... 45,000 1,372,500
Newbridge Networks Corp.+................................. 20,000 1,275,000
Versant Object Technology Corp.+.......................... 60,000 1,425,000
Whittman-Hart, Inc.+...................................... 35,500 1,677,375
------------
23,911,900
------------
ELECTRICAL EQUIPMENT--0.2%
UCAR International, Inc.+................................. 15,000 607,500
------------
ELECTRONICS--5.7%
Altera Corp.+............................................. 10,000 506,250
Cymer, Inc.+.............................................. 25,000 443,750
Diebold, Inc.............................................. 59,000 3,444,125
DuPont Photomasks, Inc.+.................................. 40,000 1,120,000
ESS Technology, Inc.+..................................... 50,000 856,250
Micrel, Inc.+............................................. 30,000 712,500
Photronics, Inc.+......................................... 45,000 1,395,000
Sawtek, Inc.+............................................. 32,500 845,000
Supertex, Inc.+........................................... 80,000 1,450,000
Telco Systems, Inc.+...................................... 55,000 1,045,000
Uniphase Corp.+........................................... 35,000 1,478,750
Vitesse Semiconductor Corp.+.............................. 30,000 1,158,750
Xilinx, Inc.+............................................. 20,000 680,000
------------
15,135,375
------------
ENERGY SERVICES--3.6%
ENSCO International, Inc.+................................ 37,500 1,218,750
Falcon Drilling, Inc.+.................................... 60,000 1,560,000
Marine Drilling Co., Inc.+................................ 75,000 721,875
Noble Drilling Corp.+..................................... 132,500 2,004,062
Parallel Petroleum Corp.+................................. 90,000 455,625
17
SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
ENERGY SERVICES (CONTINUED)
Reading & Bates Corp.+.................................... 65,000 $ 1,763,125
Transocean Offshore, Inc. ................................ 30,000 1,837,500
-----------
9,560,937
-----------
ENERGY SOURCES--2.0%
Belco Oil & Gas Corp.+.................................... 15,500 414,625
Benton Oil & Gas Co. +.................................... 80,000 1,740,000
Flores & Rucks, Inc.+..................................... 40,000 1,545,000
Parker & Parsley Petroleum Co. ........................... 40,000 1,045,000
Pride Petroleum Services, Inc.+........................... 50,000 706,250
-----------
5,450,875
-----------
FOOD, BEVERAGE & TOBACCO--0.4%
Northland Cranberries, Inc. .............................. 55,000 935,000
-----------
HEALTH SERVICES--3.1%
Apache Medical Systems, Inc.+............................. 24,000 324,000
Applied Analytical Industries, Inc.+...................... 76,000 1,729,000
Health Images, Inc. ...................................... 100,000 1,337,500
NovaCare, Inc.+........................................... 175,000 1,640,625
OccuSystems, Inc.+........................................ 17,500 525,000
Pediatrix Medical Group+.................................. 30,000 1,503,750
Sunrise Assisted Living, Inc.+............................ 21,000 588,000
Veterinary Centers of America, Inc.+...................... 30,000 658,125
-----------
8,306,000
-----------
INSURANCE--1.8%
Allmerica Financial Corp.+................................ 15,000 487,500
Lawyers Title Corp. ...................................... 70,000 1,487,500
Maxicare Health Plans, Inc.+.............................. 40,000 760,000
Penn Treaty American Corp.+............................... 90,000 2,137,500
-----------
4,872,500
-----------
LEISURE & TOURISM--1.4%
Bally Entertainment Corp. ................................ 40,000 1,135,000
HFS, Inc.+................................................ 23,700 1,584,938
Studio Plus Hotels, Inc.+................................. 67,500 1,113,750
-----------
3,833,688
-----------
MACHINERY--3.0%
DT Industries Inc. ....................................... 45,000 1,518,750
Flanders Corp.+(2)(3)..................................... 500,000 4,500,000
Precision Castparts Corp. ................................ 40,000 1,940,000
-----------
7,958,750
-----------
MEDICAL PRODUCTS--4.0%
ADAC Laboratories......................................... 80,000 1,610,000
Cardiovascular Dynamics, Inc. ............................ 100,000 1,525,000
Cohr, Inc.+............................................... 70,000 1,942,500
Neurex Corp.+............................................. 127,500 2,438,437
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
MEDICAL PRODUCTS (CONTINUED)
Nitinol Medical Technologies, Inc.+........................ 5,000 $ 56,250
Serologicals Corp.+........................................ 90,000 3,127,500
-----------
10,699,687
-----------
METALS & MINING--1.1%
Diamond Offshore Drilling, Inc.+........................... 26,400 1,452,000
Mueller Industries, Inc.+.................................. 35,000 1,421,875
-----------
2,873,875
-----------
PHARMACEUTICALS--5.8%
ABR Information Services, Inc.+............................ 20,000 1,440,000
Agouron Pharmaceuticals, Inc.+............................. 17,000 741,625
Allergan Ligand Retinoid Theraputics, Inc.+(4)............. 75,000 2,193,750
DepoTech Corp.+............................................ 25,900 446,775
Guilford Pharmaceuticals, Inc.+............................ 65,000 1,787,500
Ligand Pharmaceuticals, Inc.+.............................. 85,000 1,158,125
M.I.M. Corp.+.............................................. 55,000 797,500
Medicis Pharmaceutical Corp. Class A+...................... 10,000 482,500
Millenium Pharmaceuticals, Inc.+........................... 4,000 73,000
Noven Pharmaceuticals, Inc.+............................... 75,000 946,875
PAREXAL International Corp.+............................... 30,000 1,890,000
Pharmaceutical Product Development, Inc.+.................. 36,500 985,500
Teva Pharmaceutical Industries Ltd. ADR(1)................. 57,500 2,666,562
-----------
15,609,712
-----------
POLLUTION CONTROL--0.9%
United Waste Systems, Inc.+................................ 35,000 1,216,250
USA Waste Services, Inc.+.................................. 34,000 1,071,000
-----------
2,287,250
-----------
REAL ESTATE INVESTMENT TRUSTS -- 1.3%
Bay Apartment Communities, Inc............................. 20,000 570,000
FelCor Suite Hotels, Inc................................... 40,000 1,290,000
Innkeepers USA Trust....................................... 95,000 1,068,750
Starwood Lodging Trust..................................... 10,000 418,750
-----------
3,347,500
-----------
SOFTWARE--15.7%
BDM International, Inc.+................................... 62,500 3,718,750
Black Box Corp.+........................................... 60,000 1,980,000
CCC Information Services Group, Inc.+...................... 12,500 262,500
Citrix Systems, Inc.+...................................... 26,500 1,358,125
Cognos, Inc.+.............................................. 59,800 1,950,975
Document Sciences Corp.+................................... 75,000 946,875
DST Systems, Inc.+......................................... 20,000 640,000
Finish Line, Inc. Class A+................................. 20,000 950,000
Forte Software, Inc.+...................................... 13,500 529,875
18
SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
SOFTWARE (CONTINUED)
Ikos Systems, Inc.+........................................ 30,000 $ 596,250
Innovus Corp.+............................................. 92,700 556,200
Innovus Corp.+(2)(3)....................................... 54,000 189,000
JDA Software Group, Inc.................................... 80,000 2,200,000
Legato Systems, Inc.+...................................... 35,000 1,662,500
National Data Corp......................................... 17,000 741,625
Pc Docs Group International, Inc.+......................... 66,000 891,000
PeopleSoft, Inc.+.......................................... 15,000 1,248,750
Rational Software Corp+.................................... 40,000 1,365,000
RemedyTemp, Inc. Class A+.................................. 62,000 1,317,500
Restrac, Inc.+............................................. 122,000 2,287,500
S3, Inc.+.................................................. 60,000 1,185,000
Saville Systems PLC ADR+(1)................................ 50,000 1,762,500
Segue Software, Inc.+...................................... 100,000 1,375,000
Spyglass, Inc.+............................................ 8,200 154,775
Sykes Enterprises, Inc.+................................... 70,650 3,408,862
Symantec Corp.+............................................ 45,000 489,375
Verilink Corp.+............................................ 105,100 2,574,950
Veritas Software Co.+...................................... 30,000 2,122,500
VIASOFT, Inc.+............................................. 60,000 2,520,000
Xionics Document Technologies+............................. 47,500 712,500
----------
41,697,887
----------
SPECIALTY RETAIL--3.2%
Central Garden & Pet Co.+.................................. 35,000 704,375
Gadzooks, Inc.+............................................ 52,500 1,824,375
Global DirectMail Corp.+................................... 30,000 1,432,500
Hot Topic, Inc.+........................................... 67,500 1,586,250
MacFrugals Bargains Closeouts+............................. 75,000 1,771,875
PETsMART, Inc.+............................................ 50,000 1,293,750
----------
8,613,125
----------
TELECOMMUNICATIONS--9.5%
ACC Corp.+................................................. 15,000 708,750
ACE*COMM Corp.+............................................ 100,000 1,200,000
ADC Telecommunications, Inc.+.............................. 20,000 1,280,000
Advanced Fibre Communications+(3).......................... 10,000 250,000
Ascend Communications, Inc.+............................... 10,000 661,250
Boston Communications Group+............................... 65,000 1,056,250
Davox Corp.+............................................... 40,000 1,510,000
Harmonic Lightwaves, Inc.+................................. 80,000 1,570,000
LCC International, Inc.+................................... 54,000 985,500
Nexus Telecommunication Systems Ltd........................ 100,000 450,000
NICE Systems Ltd. ADR+(1).................................. 72,500 1,660,703
Omnipoint Corp.+........................................... 25,000 728,125
Orckit Communications Ltd.+................................ 54,100 994,088
Pacific Gateway Exchange, Inc.+............................ 120,000 3,540,000
PairGain Technologies, Inc.+............................... 21,400 1,671,875
Retix+..................................................... 115,000 934,375
Teledata Communications, Inc.+............................. 85,000 1,561,875
Teleport Communications Group Class A+..................... 58,000 1,370,250
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
TELECOMMUNICATIONS (CONTINUED)
Westell Technologies, Inc. Class A+........... 55,000 $ 2,433,750
Winstar Communications, Inc.+................. 50,000 831,250
------------
25,398,041
------------
TRANSPORTATION--1.3%
Eagle USA Airfreight, Inc. +.................. 40,000 1,040,000
Trico Marine Services, Inc.+.................. 80,000 2,440,000
------------
3,480,000
------------
TOTAL COMMON STOCK
(cost $191,441,211)........................... 248,479,862
------------
WARRANTS--0.5%+
ELECTRONICS--0.5%
Intel Corp.................................... 25,000 1,418,750
------------
TELECOMMUNICATIONS--0.0%
Nexus Telecommunication Systems Ltd. Class D.. 100,000 87,500
------------
TOTAL WARRANTS
(cost $978,643)................................. 1,506,250
------------
TOTAL INVESTMENT SECURITIES--93.8%
(cost $192,419,854)........................... 249,986,112
------------
REPURCHASE AGREEMENT--3.7%
Joint Repurchase Agreement
Account (Note 3)
(cost $9,766,000)............................ $9,766 9,766,000
------------
TOTAL INVESTMENTS--
(cost $202,185,854)........................... 97.5% 259,752,112
Other assets less liabilities.................. 2.5 6,654,356
----
------------
NET ASSETS-- 100.0% $266,406,468
===== ============
-------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
(2) At September 30, 1996 the Fund held restricted securities amounting to
2.5% 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.
[Download Table]
DATE OF UNIT VALUATION AS OF
DESCRIPTION ACQUISITION COST SEPTEMBER 30, 1996
----------- ----------- ------ ------------------
Datamark Holdings, Inc. 4/01/96 $ 7.50 $ 9.75
ProSoft Development, Inc. 7/02/96 10.00 10.00
Flanders Corp. 5/09/96 5.00 9.00
Flanders Corp. 8/30/96 9.00 9.00
Innovus Corp. 3/21/95 3.50 3.50
(3) Fair valued security, see Note 2
(4) Consists of stocks and warrants traded together as a unit
See Notes to Financial Statements
19
SUNAMERICA GLOBAL BALANCED FUND
INVESTMENT PORTFOLIO -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK--65.1%
DOMESTIC EQUITY--17.1%
AEROSPACE & MILITARY TECHNOLOGY--0.8%
Boeing Co................................................... 1,000 $ 94,500
Raytheon Co................................................. 2,000 111,250
-----------
205,750
-----------
AUTOMOTIVE--0.3%
Ford Motor Co............................................... 2,500 78,125
-----------
BANKS--0.6%
Chase Manhattan Corp. ...................................... 1,000 80,125
Citicorp.................................................... 1,000 90,625
-----------
170,750
-----------
BROADCASTING & MEDIA--0.4%
Applied Graphics Technologies+.............................. 5,000 74,375
Chancellor Broadcasting Corp. Class A+...................... 1,000 41,500
-----------
115,875
-----------
BUSINESS SERVICES--0.3%
CUC International, Inc.+.................................... 2,000 79,750
-----------
CHEMICALS--1.7%
du Pont (E.I.) de Nemours & Co.............................. 1,000 88,250
Hercules, Inc............................................... 1,000 54,750
Olin Corp................................................... 1,000 84,000
Union Carbide Corp.......................................... 3,000 136,875
Waters Corp.+............................................... 2,500 81,875
-----------
445,750
-----------
COMMUNICATION EQUIPMENT--0.5%
Tellabs, Inc.+.............................................. 2,000 141,250
-----------
COMPUTERS & BUSINESS EQUIPMENT--0.4%
American Pad & Paper Co.+................................... 5,000 106,250
-----------
CONGLOMERATE--0.8%
AlliedSignal, Inc........................................... 2,000 131,750
General Electric Co......................................... 800 72,800
-----------
204,550
-----------
CONSTRUCTION & HOUSING--0.5%
Armstrong World Industries, Inc............................. 2,000 124,750
-----------
CONSTRUCTION MATERIALS--0.3%
Dal-Tile International, Inc.+............................... 5,000 81,875
-----------
ENERGY SERVICES--0.2%
Baker Hughes, Inc........................................... 2,000 60,750
-----------
ENERGY SOURCES--0.5%
Belco Oil & Gas Corp.+...................................... 1,000 26,750
Benton Oil & Gas Co.+....................................... 5,000 108,750
-----------
135,500
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
FINANCIAL SERVICES--0.7%
Associates First Capital Corp., Class A..................... 2,000 $ 82,000
Morgan Stanley Group, Inc................................... 2,000 99,500
-----------
181,500
-----------
FOOD, BEVERAGE & TOBACCO--0.5%
Consolidated Cigar Holdings, Inc. Class A+.................. 1,000 30,625
Philip Morris Cos., Inc..................................... 1,000 89,750
-----------
120,375
-----------
HEALTH SERVICES--0.2%
Paracelsus Healthcare Corp.+................................ 5,000 50,625
Urocor, Inc................................................. 1,000 12,625
-----------
63,250
-----------
HOUSEHOLD PRODUCTS--1.1%
Eastman Kodak Co............................................ 1,050 82,425
Warner-Lambert Co........................................... 3,000 198,000
-----------
280,425
-----------
INSURANCE--0.2%
Guarantee Life Cos., Inc.................................... 2,500 49,687
-----------
LEISURE & TOURISM--0.7%
Callaway Golf Co............................................ 2,000 68,250
Red Roof Inn's, Inc.+....................................... 1,000 13,625
Sun International Hotels Ltd.+.............................. 2,000 102,500
-----------
184,375
-----------
MACHINERY--0.3%
Allied Products Corp........................................ 3,000 75,000
-----------
MANUFACTURING--0.1%
Strategic Distribution, Inc................................. 5,000 25,313
-----------
MEDICAL PRODUCTS--1.3%
Johnson & Johnson Co........................................ 4,000 205,000
Medtronic, Inc.............................................. 2,000 128,250
-----------
333,250
-----------
PHARMACEUTICALS--3.2%
Allergan, Inc............................................... 3,000 114,375
Lilly (Eli) & Co............................................ 2,000 129,000
Merck & Co., Inc............................................ 2,000 140,750
Neurex Corp.+............................................... 5,000 95,625
Pfizer, Inc................................................. 1,200 94,950
Pharmaceutical Product Development, Inc.+................... 2,500 67,500
Schering-Plough Corp........................................ 3,200 196,800
-----------
839,000
-----------
20
SUNAMERICA GLOBAL BALANCED FUND
INVESTMENT PORTFOLIO -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
------------------------------------------------------------
COMMON STOCK (CONTINUED)
DOMESTIC EQUITY (CONTINUED)
POLLUTION CONTROL--0.2%
Allied Waste Industries, Inc.+.......... 5,000 $ 46,250
-----------
SOFTWARE--1.0%
Documentum, Inc.+....................... 2,000 63,500
Engineering Animation, Inc.+............ 1,000 24,000
Forte Software, Inc.+................... 500 19,625
Metromail Corp.+........................ 5,300 114,612
Sterling Commerce, Inc.+................ 1,000 29,500
-----------
251,237
-----------
SPECIALTY RETAIL--0.3%
Loehmanns, Inc.+........................ 2,500 67,031
-----------
TELECOMMUNICATIONS--0.0%
American Portable Telecom, Inc.+........ 700 7,088
-----------
TOTAL DOMESTIC EQUITY
(COST $3,388,580)......................... 4,474,706
-----------
FOREIGN EQUITY--48.0%
APPAREL & TEXTILES--0.5%
Adidas AG (Germany)..................... 1,450 131,904
Gerry Weber International AG+ (Germany). 130 5,194
-----------
137,098
-----------
AUTOMOTIVE--4.0%
Bridgestone Corp. (Japan)............... 10,000 180,107
Continental AG+ (Germany)............... 7,000 127,952
Honda Motor Co., Ltd. (Japan)........... 12,000 301,075
Mitsubishi Heavy Industrial Ltd.
(Japan)................................ 20,000 162,545
Nokian Tyres (Finland).................. 5,000 85,317
PT Selamat Sempurna alien+ (Indonesia).. 50,000 38,205
Toyota Motor Corp. (Japan).............. 6,000 153,226
-----------
1,048,427
-----------
BANKS--5.8%
Banca Pop Di Milano+ (Italy)............ 15,000 79,271
Banco Credito del Peru (Peru)........... 18,386 27,689
Banco Intercontinental Espanol+ (Spain). 700 80,635
Banco Santander-Chile ADR Series A (1)
(Chile)................................ 800 10,700
Banco Totta & Acores+ (Portugal)........ 2,500 43,688
Bangkok Bank PLC alien (Thailand)....... 1,900 24,804
Bank Of Tokyo-Mitsubishi (Japan)........ 12,600 274,355
CS Holding+ (Switzerland)............... 1,020 100,765
Development Bank of Singapore alien
(Singapore)............................ 3,000 36,856
HSBC Holdings PLC (Hong Kong)........... 6,000 111,341
Industrial Bank of Japan Ltd. (Japan)... 8,000 178,495
Krung Thai Bank PCL alien+ (Thailand)... 7,800 33,738
National Westminster Bank PLC
(United Kingdom)....................... 8,000 85,021
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
BANKS (CONTINUED)
Siam Commercial Bank Co., Ltd. alien (Thailand)............ 3,700 $ 44,811
Societe Generale (France).................................. 1,000 110,541
Toronto-Dominion Bank (Canada)............................. 2,500 50,749
Toyo Trust & Banking (Japan)............................... 25,000 228,495
-----------
1,521,954
-----------
BROADCASTING & MEDIA--0.1%
Singapore Press Holdings Ltd. alien (Singapore)............ 1,000 18,250
-----------
CHEMICALS--1.5%
Laporte PLC (United Kingdom)............................... 10,000 116,059
Sekisui Chemical Co., Ltd. (Japan)......................... 15,000 177,419
Toagosei Co., Ltd.+ (Japan)................................ 20,000 93,369
-----------
386,847
-----------
COMMUNICATION EQUIPMENT--0.7%
Ericsson (L.M.) Telephone Co., Class B ADR(1) (Sweden)..... 4,000 101,500
Nokia Corp. ADR(1)+ (Finland).............................. 2,000 88,500
-----------
190,000
-----------
COMPUTERS & BUSINESS EQUIPMENT-- 1.9%
Ricoh Co. (Japan).......................................... 15,000 153,226
Strafor Facom SA (France).................................. 1,200 95,224
Tokyo Electron Ltd. (Japan)................................ 5,000 144,713
Videologic Group PLC+ (United Kingdom)..................... 100,000 93,912
-----------
487,075
-----------
CONGLOMERATE--1.9%
Alusuisse-Lonza Holdings AG+ (Switzerland)................. 100 74,968
BTR PLC (United Kingdom)................................... 30,000 127,015
Eaux (cie Generale) (France)............................... 1,000 108,605
Lyonnaise des Eaux SA (France)............................. 500 44,720
Nissho Iwai Corp. (Japan).................................. 30,000 137,366
-----------
492,674
-----------
CONSTRUCTION & HOUSING--4.2%
Cheung Kong Infrastructure
(Hong Kong)............................................... 40,000 65,951
Glynwed International PLC
(United Kingdom).......................................... 25,000 144,193
Henry Walker Group Ltd. (Australia)........................ 46,492 93,852
Kajima Corp. (Japan)....................................... 20,000 184,588
Konecranes International Corp.+ (Finland).................. 9,000 250,044
Metacorp Bhd (Malaysia).................................... 29,000 83,307
Nishimatsu Construction (Japan)............................ 20,000 193,548
Pioneer International Ltd. (Australia)..................... 30,000 81,935
-----------
1,097,418
-----------
21
SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FOREIGN EQUITY (CONTINUED)
CONSTRUCTION MATERIALS--2.3%
Cemex SA, Class B+ (Mexico)................................ 6,000 $ 24,550
Grafton Group PLC (Ireland)................................ 10,000 109,079
Lion Land Bhd (Malaysia)................................... 64,000 68,688
Marley PLC (United Kingdom)................................ 60,000 122,554
Nippon Electric Glass Co., Ltd. (Japan).................... 5,000 81,541
PT Semen Gresik+ (Indonesia)............................... 4,000 11,881
Schneider SA (France)...................................... 4,000 188,172
-----------
606,465
-----------
ELECTRONICS--5.4%
Advantest Corp. (Japan).................................... 4,400 179,785
Canon, Inc. (Japan)........................................ 10,000 196,237
Electric & Eltek International Co., Ltd. (Singapore)....... 40,000 113,200
Fanuc Ltd. (Japan)......................................... 2,500 91,846
Hoganas AG (Sweden)........................................ 6,000 186,518
NEC Corp. (Japan).......................................... 15,000 176,075
Pressac Holdings PLC
(United Kingdom).......................................... 30,000 92,503
Rohm Co. (Japan)........................................... 3,000 188,978
Samsung Electronics Co., Ltd. GDR*(2) (Korea).............. 57 2,850
Samsung Electronics Co., Ltd. GDR*(2) (Korea).............. 391 9,677
Ushio, Inc. (Japan)........................................ 15,000 170,699
-----------
1,408,368
-----------
ENERGY SERVICES--0.5%
Suncor, Inc.+ (Canada)..................................... 900 23,952
Total SA, Series B (France)................................ 1,500 118,043
-----------
141,995
-----------
ENERGY SOURCES--0.2%
Crestar Energy, Inc.+ (Canada)............................. 600 11,563
Renaissance Energy Ltd.+ (Canada).......................... 600 17,598
Shell Canada Ltd. Class A (Canada)......................... 140 4,507
TransCanada Pipelines Ltd. (Canada)........................ 1,400 22,458
-----------
56,126
-----------
ENTERTAINMENT PRODUCTS--0.7%
Bluebird Toys PLC (United Kingdom)......................... 30,000 65,236
RBI Holdings Ltd. (Bermuda)................................ 800,000 104,487
-----------
169,723
-----------
FINANCIAL SERVICES--1.1%
Hutchison Whampoa Ltd. alien
(Hong Kong)............................................... 9,000 60,520
National Finance & Securities Co., Ltd. (Thailand)......... 10,000 34,210
Nomura Securities International, Inc. (Japan).............. 10,000 183,692
-----------
278,422
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
FOOD, BEVERAGE & TOBACCO--1.7%
Allied Domecq PLC
(United Kingdom)....... 10,000 $ 70,277
Heineken NV
(Netherlands).......... 500 91,230
Katokichi Co.+ (Japan).. 7,000 151,165
Seagram Ltd. (Canada)... 320 11,923
Vaux Group PLC (United
Kingdom)............... 30,000 122,554
---------
447,149
---------
FOREST PRODUCTS--1.0%
Fletcher Challenge Ltd.
Class A (Canada)....... 1,000 13,509
Maderas Y Sinteticos SA
ADR(1) (Chile)......... 1,900 26,838
New Oji Paper Co., Ltd.
(Japan)................ 15,000 113,575
Waddington (John) PLC
(United Kingdom)....... 25,000 101,737
West Fraser Timber Co.,
Ltd. (Canada).......... 400 10,278
---------
265,937
---------
INSURANCE--1.8%
Corporacion Mapfre SA+
(Spain)................ 1,600 77,833
Legal & General Group
PLC
(United Kingdom)....... 10,000 126,076
Riunione Adriatica de
Sicur+ (Italy)......... 8,800 86,801
Tokio Marine & Fire
Insurance Co., Ltd.
(Japan)................ 15,000 177,420
---------
468,130
---------
LEISURE & TOURISM--1.1%
Air Canada, Inc.+
(Canada)............... 1,800 6,475
Airtours PLC (United
Kingdom)............... 10,000 94,303
Manchester United PLC
(United Kingdom)....... 15,000 106,824
Stanley Leisure PLC
(United Kingdom)....... 20,000 74,190
---------
281,792
---------
MACHINERY--0.3%
Seino Transportation+
(Japan)................ 6,000 85,484
---------
MANUFACTURING--0.5%
Bombardier, Inc. Class B
(Canada)............... 1,100 15,667
Graystone (United
Kingdom)............... 500,000 107,607
Hanjaya Mandala
Sampoerna alien+
(Indonesia)............ 1,750 17,025
---------
140,299
---------
METALS & MINING--3.0%
Barrick Gold Corp.
(Canada)............... 690 17,249
Cameco Corp. (Canada)... 300 14,768
Clutha Ltd.+(4)
(Australia)............ 120,000 950
Cominco Ltd. (Canada)... 240 4,934
CRA Ltd. (Australia).... 5,375 80,846
Diamond Fields
International Ltd.+(4)
(Canada)............... 400 279
22
SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FOREIGN EQUITY (CONTINUED)
METALS & MINING (CONTINUED)
Inco Ltd. (Canada)................................ 322 $ 9,881
Inco Ltd., Class V (Canada)....................... 1,000 30,688
M.I.M. Holdings Ltd. (Australia).................. 50,000 60,956
Nippon Steel Corp. (Japan)........................ 40,000 124,014
SMH AG (Switzerland).............................. 100 67,240
Sumitomo Metal Mining Co., Ltd.
(Japan).......................................... 20,000 168,638
Western Mining Corp. Holdings Ltd. ADS+(3)
(Australia)...................................... 30,000 193,081
--------
773,524
--------
PHARMACEUTICALS--2.1%
Astra AB Series A+ (Sweden)....................... 1,600 67,605
Genset SP ADR+(1) (Finland)....................... 1,000 17,250
Glaxo Holdings PLC ADR(1)
(United Kingdom)................................. 1,000 31,125
Glaxo Wellcome PLC
(United Kingdom)................................. 5,000 78,377
Kissei Pharmaceutical Co. (Japan)................. 4,400 114,337
Roche Holdings AG+ (Switzerland).................. 14 103,004
Sankyo Co., Ltd. (Japan).......................... 5,000 127,688
--------
539,386
--------
REAL ESTATE COMPANIES--0.7%
Cheung Kong Holdings Ltd.
(Hong Kong)...................................... 8,000 61,554
FIL-Estate Land, Inc.+ (Philippines).............. 48,300 44,646
Sun Hung Kai Properties Ltd.
(Hong Kong)...................................... 8,000 85,090
--------
191,290
--------
SOFTWARE--0.6%
Getronics NV (Netherlands)........................ 6,388 161,873
--------
SPECIALTY RETAIL--1.1%
Aoki International Co., Ltd. (Japan).............. 5,000 96,774
Koninklijke Ahold NV (Netherlands)................ 3,600 203,679
--------
300,453
--------
TELECOMMUNICATIONS--2.2%
BCE, Inc. (Canada)................................ 800 34,212
Cable & Wireless PLC
(United Kingdom)................................. 10,000 70,199
Korea Mobile Telecommunications ADR+(1) (Korea)... 5,010 75,776
Nippon Telegraph & Telecommunications Corp.
(Japan).......................................... 12 88,172
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
TELECOMMUNICATIONS (CONTINUED)
Northern Telecom Ltd (Canada)............... 300 $ 17,289
P.T. Indonesian Satellite Corp. ADR+(1)
(Indonesia)................................ 1,000 33,000
STET non-convertible+ (Italy)............... 30,000 81,142
Telecomunic Brasileiras SA+ (Brazil)........ 1,000,000 65,028
Telus Corp. (Canada)........................ 1,140 15,693
Vodafone Group PLC ADR(1)
(United Kingdom)........................... 2,500 85,313
-----------
565,824
-----------
TELEPHONE--0.1%
Telefonos de Mexico SA ADR+(1) (Mexico)..... 750 24,094
-----------
UTILITIES--1.0%
Cogeneration PLC alien+ (Thailand).......... 15,000 46,596
CPT Telefonica de Peru+ (Peru).............. 9,000 20,331
Electricity Generating PLC alien+
(Thailand)................................. 10,000 31,458
Veba AG (Germany)........................... 3,300 172,683
-----------
271,068
-----------
TOTAL FOREIGN EQUITY
(COST $11,972,003).......................... 12,557,145
-----------
TOTAL COMMON STOCK
(COST $15,360,583).......................... 17,031,851
-----------
PREFERRED STOCK--1.5%
APPAREL & TEXTILES--0.4%
Gerry Weber International AG non-voting
(Germany).................................. 2,730 109,064
-----------
ENERGY SOURCES--0.2%
Cemig Cia Energy MG (Brazil)................ 1,650,000 49,285
-----------
HOUSEHOLD PRODUCTS--0.4%
Friedrich Grohe AG non-voting (Germany)..... 400 109,896
-----------
METALS & MINING--0.0%
Inco Ltd. Series E (Canada)................. 36 1,845
-----------
SPECIALTY RETAIL--0.5%
Hornbach Holding AG non-voting (Germany).... 1,600 115,266
-----------
TOTAL PREFERRED STOCK
(COST $398,100)............................. 385,356
-----------
RIGHTS--0.1%+
BANKS--0.0%
Industrial Bank of Japan Ltd.(4) (Japan).... 640 7,398
-----------
CHEMICALS--0.1%
Tessenderlo Chemie (Belgium)................ 290 10,238
-----------
TOTAL RIGHTS
(COST $10,385).............................. 17,636
-----------
23
SUNAMERICA GLOBAL BALANCED FUND
INVESTMENT PORTFOLIO--SEPTEMBER 30, 1996
[Download Table]
SHARES/
PRINCIPAL AMOUNT
(DENOMINATED IN
LOCAL CURRENCY) VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
--------------------------------------------------------------------------------
WARRANTS--0.6%+
BANKS--0.6%
Affin Holdings Bhd (11/99)....................... 112,000 $ 100,989
Credit Lyonnais (4/97)........................... 1,000,000 62,072
-----------
TOTAL WARRANTS
(COST $148,517).................................. 163,061
-----------
FOREIGN BONDS--14.2%
Commonwealth of Australia
7.50% due 7/15/05................................ 100 78,079
Federal Republic of Germany
5.88% due 5/15/00................................ 300 204,905
6.75% due 7/15/04................................ 300 206,988
7.13% due 12/20/02............................... 300 212,686
7.38% due 1/03/05................................ 500 356,638
Government of Canada
7.50% due 9/01/00 Series A81..................... 200 154,247
Government of France
7.00% due 11/12/99............................... 700 145,177
Government of Spain
10.00% due 2/28/05............................... 10,000 87,944
Japan Development Bank
6.50% due 9/20/01................................ 20,000 216,622
Kingdom of Belgium
6.50% due 3/31/05................................ 4,000 130,916
Kingdom of Denmark
9.00% due 11/15/00............................... 1,000 192,705
Kingdom of Sweden
10.25% due 5/05/03............................... 1,500 263,208
13.00% due 6/15/01............................... 1,500 282,520
Republic of Ireland
8.00% due 10/18/00............................... 100 170,115
Republic of Italy
10.50% due 11/01/00.............................. 400,000 285,075
Treuhandanstalt (Germany)
6.13% due 6/25/98................................ 100 68,236
United Kingdom Treasury
8.50% due 12/07/05............................... 300 497,143
9.00% due 3/03/00................................ 100 166,742
-----------
TOTAL FOREIGN BONDS
(cost $3,658,883)................................ 3,719,946
-----------
U.S. TREASURY NOTES--6.5%
5.25% due 1/31/01................................ $ 100 95,812
6.13% due 9/30/00................................ 150 148,453
6.38% due 3/31/01................................ 200 199,468
6.50% due 8/15/05................................ 500 493,595
7.88% due 11/15/04............................... 700 752,284
-----------
TOTAL U.S. TREASURY NOTES
(COST $1,663,983)................................ 1,689,612
-----------
TOTAL INVESTMENT SECURITIES--88.0%
(COST $21,240,451)............................... 23,007,462
-----------
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
SHORT-TERM SECURITIES--5.0%
Cayman Island Time Deposit 4.50% due 10/01/96
(cost $1,302,000)................................ $1,302 $ 1,302,000
-----------
REPURCHASE AGREEMENT--4.4%
Joint Repurchase Agreement Account (Note 3)
(cost $1,160,000)................................ 1,160 1,160,000
-----------
TOTAL INVESTMENTS--
(COST $23,702,451)................................ 97.4% 25,469,462
Other assets less liabilities...................... 2.6 677,530
------ -----------
NET ASSETS-- 100.0% $26,146,992
====== ===========
-------
+ Non-income producing security
* Resale restricted to qualified institutional buyers
(1) ADR ("American Depositary Receipt")
(2) GDR ("Global Depositary Receipt")
(3) ADS ("American Depositary Shares")
(4) Fair valued security, see Note 2
Allocation of net assets by
currency as of September 30,
1996:
U.S. Dollar 35.3%
Japanese Yen 20.3
British Pound 9.4
Deutsche Mark 7.0
French Franc 3.1
Swedish Krona 3.1
Australian
Dollar 2.3
Hong Kong
Dollar 2.1
Italian Lira 2.0
Canadian
Dollar 1.9
Netherland
Guilder 1.7
Swiss Franc 1.3
Finnish
Markka 1.3
Irish Punt 1.1
Malaysian
Ringgit 1.1
Spanish
Peseta 0.9
Thailand Baht 0.8
Danish Kroner 0.7
Belgian Franc 0.5
Brazilian
Real 0.4
Indonesian
Rupiah 0.3
Singapore
Dollar 0.2
Peruvian New
Sol 0.2
Philippines
Peso 0.2
Portuguese
Escudo 0.2
---
97.4%
====
See Notes to Financial Statements
24
SUNAMERICA GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
------------------------------------------------------------------------------
COMMON STOCK--86.5%
AEROSPACE & MILITARY TECHNOLOGY--1.0%
Boeing Co. ............................................... 2,500 $ 236,250
Raytheon Co. ............................................. 2,000 111,250
-----------
347,500
-----------
APPAREL & TEXTILES--0.9%
Guess, Inc.+.............................................. 10,000 133,750
Warnaco Group, Inc. Class A.............................. 7,000 166,250
-----------
300,000
-----------
AUTOMOTIVE--1.1%
Ford Motor Co. ........................................... 7,000 218,750
Harley-Davidson, Inc. .................................... 4,000 172,000
-----------
390,750
-----------
BANKS--2.3%
Chase Manhattan Corp. .................................... 3,000 240,375
First Union Corp. ........................................ 5,000 333,750
Mellon Bank Corp. ........................................ 4,000 237,000
-----------
811,125
-----------
BROADCASTING & MEDIA--0.2%
Comcast Corp.+............................................ 5,000 76,875
-----------
BUSINESS SERVICES--1.4%
Ecolab, Inc. ............................................. 7,000 236,250
Service Corp. International............................... 8,000 242,000
-----------
478,250
-----------
CHEMICALS--7.4%
Cabot Corp. .............................................. 9,000 250,875
du Pont (E.I.) de Nemours & Co. .......................... 3,000 264,750
Hanna (M.A). Co. ......................................... 17,000 388,875
Hercules, Inc. ........................................... 11,000 602,250
Intertape Polymer Group, Inc. ............................ 8,500 190,187
Nalco Chemical Co. ....................................... 4,000 145,000
Olin Corp. ............................................... 3,500 294,000
Waters Corp.+............................................. 14,000 458,500
-----------
2,594,437
-----------
COMMUNICATION EQUIPMENT--1.9%
Motorola, Inc. ........................................... 2,500 129,063
Nokia Corp. ADR(1)........................................ 7,000 309,750
Tellabs, Inc.+............................................ 2,000 141,250
U.S. Robotics Corp.+...................................... 1,000 64,625
-----------
644,688
-----------
COMPUTERS & BUSINESS EQUIPMENT--2.8%
American Pad & Paper Co.+................................. 12,000 255,000
Cisco Systems, Inc.+...................................... 4,500 279,281
Honeywell, Inc. .......................................... 4,000 252,500
Micron Technology, Inc. .................................. 6,000 183,000
-----------
969,781
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
CONGLOMERATE--4.7%
AlliedSignal, Inc. ......................................... 4,500 $ 296,437
General Electric Co. ....................................... 7,000 637,000
ITT Industries, Inc. ....................................... 15,000 361,875
United Technologies Corp. .................................. 3,000 360,375
-----------
1,655,687
-----------
CONSTRUCTION & HOUSING--2.2%
Armstrong World Industries, Inc. ........................... 4,000 249,500
Potash Corp. of Saskatchewan, Inc. ......................... 7,000 511,875
-----------
761,375
-----------
CONSTRUCTION MATERIALS--1.6%
Dal-Tile International, Inc.+............................... 33,000 540,375
-----------
CONSUMER GOODS--0.6%
Whitman Corp. .............................................. 9,000 208,125
-----------
DEPARTMENT STORES--1.7%
Federated Department Stores, Inc.+.......................... 8,500 284,750
Penney (J.C.), Inc. ........................................ 1,000 54,125
Wal-Mart Stores, Inc. ...................................... 10,000 263,750
-----------
602,625
-----------
ELECTRICAL EQUIPMENT--0.6%
Cooper Industries, Inc. .................................... 5,000 216,250
-----------
ELECTRONICS--1.7%
Emerson Electric Co. ....................................... 2,000 180,250
Intel Corp. ................................................ 3,000 286,312
Texas Instruments, Inc. .................................... 2,500 137,813
-----------
604,375
-----------
ENERGY SERVICES--2.8%
Amoco Corp. ................................................ 2,000 141,000
Chevron Corp. .............................................. 2,500 156,563
Mobil Corp. ................................................ 4,000 463,000
Transocean Offshore, Inc. .................................. 3,500 214,375
-----------
974,938
-----------
ENERGY SOURCES--3.1%
Benton Oil & Gas Co.+....................................... 5,000 108,750
Burlington Resources, Inc. ................................. 2,000 88,750
Enron Corp. ................................................ 4,000 163,000
Noble Affiliates, Inc. ..................................... 2,000 84,500
Panhandle Eastern Corp. .................................... 12,000 415,500
Parker & Parsley Petroleum Co. ............................. 5,000 130,625
Union Texas Petroleum Holdings, Inc. ....................... 5,000 108,125
-----------
1,099,250
-----------
ENTERTAINMENT PRODUCTS--1.3%
Mattel, Inc. ............................................... 11,000 284,625
Toy Biz, Inc. Class A+...................................... 10,000 177,500
-----------
462,125
-----------
25
SUNAMERICA GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FINANCIAL SERVICES--3.6%
Advanta Corp.+.............................................. 7,500 $ 345,000
Associates First Capital Corp., Class A..................... 10,500 430,500
Federal National Mortgage Association....................... 13,500 470,812
-----------
1,246,312
-----------
FOOD, BEVERAGE & TOBACCO--5.6%
Dole Food, Inc. ............................................ 18,000 756,000
Heinz (H.J.) Co. ........................................... 6,000 202,500
PepsiCo, Inc. .............................................. 5,000 141,250
Philip Morris Cos., Inc. ................................... 8,000 718,000
Seagram Co., Ltd. .......................................... 4,000 149,500
-----------
1,967,250
-----------
FOREST PRODUCTS--2.8%
Boise Cascade Corp. ........................................ 5,000 170,000
Fort Howard Corp.+.......................................... 11,000 268,125
Kimberly-Clark Corp. ....................................... 5,500 484,688
Willamette Industries, Inc. ................................ 1,000 65,500
-----------
988,313
-----------
HEALTH SERVICES--4.4%
Apria Healthcare Group, Inc.+............................... 15,000 281,250
Columbia/HCA Healthcare Corp. .............................. 9,000 511,875
OrNda Healthcorp+........................................... 16,000 438,000
Paracelsus Healthcare Corp.+................................ 28,000 283,500
Physician Corp. of America+................................. 3,000 36,375
-----------
1,551,000
-----------
HOUSEHOLD PRODUCTS--2.7%
Corning, Inc. .............................................. 10,500 409,500
Eastman Kodak Co. .......................................... 2,000 157,000
Procter & Gamble Co. ....................................... 4,000 390,000
-----------
956,500
-----------
INSURANCE--1.3%
Aetna, Inc. ................................................ 2,000 140,750
ITT Corp+................................................... 2,000 87,250
UICI+....................................................... 8,000 208,000
-----------
436,000
-----------
LEISURE & TOURISM--1.8%
Carnival Corp. Class A...................................... 11,000 341,000
Red Roof Inn's, Inc.+....................................... 12,000 163,500
Sun International Hotels Ltd.+.............................. 2,500 128,125
-----------
632,625
-----------
MACHINERY--0.4%
Case Corp. ................................................. 3,000 146,250
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
MEDICAL PRODUCTS--4.0%
Baxter International, Inc. ................................. 20,000 $ 935,000
CNS, Inc.+.................................................. 16,000 284,000
Sola International, Inc.+................................... 5,000 186,250
-----------
1,405,250
-----------
METALS & MINING--3.4%
Aluminum Co. of America..................................... 1,000 59,000
Crown, Cork & Seal, Inc. ................................... 18,000 830,250
Santa Fe Pacific Gold Corp. ................................ 10,000 125,000
Wolverine Tube, Inc.+....................................... 4,000 172,000
-----------
1,186,250
-----------
PHARMACEUTICALS--4.0%
Bristol-Myers Squibb Co. ................................... 3,000 289,125
Chiron Corp.+............................................... 14,000 266,000
Lilly (Eli) & Co. .......................................... 2,000 129,000
Merck & Co., Inc. .......................................... 8,000 563,000
Teva Pharmaceutical Industries
Ltd. ADR(1)................................................ 3,000 139,125
-----------
1,386,250
-----------
REAL ESTATE INVESTMENT TRUSTS--2.4%
Crescent Real Estate Equities............................... 10,000 411,250
Patriot American Hospitality, Inc........................... 4,000 134,500
Reckson Associates Realty Corp. ............................ 8,000 297,000
-----------
842,750
-----------
SOFTWARE--4.6%
Fiserv, Inc.+............................................... 7,000 267,750
Metromail Corp.+............................................ 7,000 151,375
Microsoft Corp.+............................................ 4,000 527,500
Oracle Systems Corp.+....................................... 3,000 127,687
Reynolds & Reynolds Co. Class A............................. 15,000 391,875
Sterling Software, Inc.+.................................... 2,000 152,750
-----------
1,618,937
-----------
SPECIALTY RETAIL--0.6%
Mail Boxes Etc.+............................................ 5,000 113,125
Zale Corp.+................................................. 5,000 109,375
-----------
222,500
-----------
TELECOMMUNICATIONS--1.9%
AT&T Corp. ................................................. 4,000 209,000
Frontier Corp. ............................................. 4,000 106,500
Lucent Technologies, Inc. .................................. 5,000 229,375
NYNEX Corp. ................................................ 3,000 130,500
-----------
675,375
-----------
26
SUNAMERICA GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
---------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
TELEPHONE--1.5%
Ameritech Corp. ................................... 3,000 $ 157,875
Bell Atlantic Corp. ............................... 1,500 89,813
GTE Corp. ......................................... 7,000 269,500
-----------
517,188
-----------
TRANSPORTATION--0.5%
Canadian National Railway Co. ..................... 8,000 164,000
-----------
UTILITIES--1.7%
Baltimore Gas & Electric Co. ...................... 5,000 130,625
GPU, Inc. ......................................... 5,000 153,750
MAPCO, Inc. ....................................... 5,000 298,125
-----------
582,500
-----------
TOTAL COMMON STOCK
(cost $28,466,914)................................. 30,263,781
-----------
BONDS & NOTES--0.1%
FOREST PRODUCTS--0.1%
Stone Container Corp.
11.88% due 12/01/98
(cost $50,904).................................... $ 50 52,875
-----------
TOTAL INVESTMENT SECURITIES--86.6%
(cost $28,517,818)................................. 30,316,656
-----------
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
REPURCHASE AGREEMENT--12.5%
Joint Repurchase Agreement
Account (Note 3)
(cost $4,353,000)................................ $4,353 $ 4,353,000
-----------
TOTAL INVESTMENTS--
(cost $32,870,818)............................... 99.1% 34,669,656
Other assets less liabilities..................... 0.9 332,365
------ -----------
NET ASSETS-- 100.0% $35,002,021
====== ===========
--------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
See Notes to Financial Statements
27
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996
Note 1. Organization
SunAmerica Equity Funds is an open-end diversified management investment
company organized as a Massachusetts business trust (the "Trust" or "Equity
Funds") on June 16, 1986. It currently consists of six different investment
funds (each, a "Fund" and collectively, the "Funds"). Each Fund is a
separate series of the Trust with a distinct investment objective and/or
strategy. Each Fund is advised and/or managed by SunAmerica Asset
Management Corp. (the "Adviser" or "SAAMCo"). An investor may invest in one
or more of the following Funds: SunAmerica Balanced Assets Fund ("Balanced
Assets Fund"), SunAmerica Blue Chip Growth Fund ("Blue Chip Growth Fund"),
SunAmerica Mid-Cap Growth Fund ("Mid-Cap Growth Fund"), SunAmerica Small
Company Growth Fund ("Small Company Growth Fund"), SunAmerica Global
Balanced Fund ("Global Balanced Fund") and SunAmerica Growth and Income
Fund ("Growth and Income Fund"). The Funds are considered to be separate
entities for financial and tax reporting purposes. The investment 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.
Global Balanced seeks capital appreciation while conserving principal by
maintaining at all times a balanced portfolio of domestic and foreign
stocks and bonds.
Growth and Income seeks capital appreciation and current income by
investing primarily in common stocks.
Each Fund currently offers two classes of shares. Class A shares are
offered at net asset value per share plus an initial sales charge. Class B
shares are offered without an initial sales charge, although a declining
contingent sales charge may be imposed on redemptions made within six years
of purchase. Additionally, any purchases of Class A shares in excess of
$1,000,000 will be subject to a contingent deferred sales charge on
redemptions made within one year of purchase. Class B shares of each Fund
will convert automatically to Class A shares on the first business day of
the month after seven years from the issuance of such Class B shares and at
such time will be subject to the lower distribution fee applicable to Class
A shares. Each class of shares bears the same voting, dividend, liquidation
and other rights and conditions and each makes distribution and account
maintenance and service fee payments under the distribution plans pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"),
except that Class B shares are subject to higher distribution fee rates.
Note 2. Significant Accounting Policies
The following is a summary of the significant accounting policies followed
by the Funds in the preparation of their financial statements:
SECURITY VALUATIONS: Securities that are actively traded in the over-the-
counter market, including listed securities for which the primary market is
believed by the Adviser to be over-the-counter, are
28
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
valued at the quoted bid price provided by principal market makers.
Securities listed on the New York Stock Exchange ("NYSE") or other national
securities exchanges, are valued on the basis of the last sale price on the
exchange on which they are primarily traded. If there is no sale on that
day, then securities are valued at the closing bid price on the NYSE or
other primary exchange for that day. However, if the last sale price on the
NYSE is different than the last sale price on any other exchange, the NYSE
price is used. 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. Values of portfolio securities primarily traded on
foreign exchanges are already translated into U.S. dollars when received
from a quotation service. Options traded on national securities exchanges
are valued as of the close of the exchange on which they are traded.
Futures and options traded on commodities exchanges are valued at their
last sale price as of the close of such exchange. The Funds may make use of
a pricing service in the determination of their net asset values.
Securities for which market quotations are not readily available and other
assets are valued at fair value as determined pursuant to procedures
adopted in good faith by the Trustees. Short-term investments which mature
in less than 60 days are valued at amortized cost, if their original
maturity was 60 days or less, or by amortizing their value on the 61st day
prior to maturity, if their original term to maturity exceeded 60 days.
REPURCHASE AGREEMENTS: The Funds, along with other affiliated registered
investment companies, transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral
is valued daily on a mark to market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In
the event of default of the obligation to repurchase, a Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. If the seller defaults and the value of the collateral declines
or if bankruptcy proceedings are commenced with respect to the seller of
the security, realization of the collateral by the Fund may be delayed or
limited.
OPTIONS: The premium paid by a Fund for the purchase of a call or a put
option is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current market
value of the option. When a Fund writes a call or a put option, an amount
equal to the premium received by the Fund is included in the Fund's
Statement of Assets and Liabilities as a liability and is subsequently
marked to market to reflect the current market value of the option written.
If an option which the Fund has written either expires on its stipulated
expiration date, or if the Fund enters into a closing purchase transaction,
the Fund realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is extinguished. If a call option
which the Fund has written is exercised, the Fund realizes a capital gain
or loss from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. If a put option
which the Fund has written is exercised, the amount of the premium
originally received reduces the cost basis of the security which the Fund
purchased upon exercise of the option.
29
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
SECURITIES TRANSACTIONS, INVESTMENT INCOME, DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS: Securities transactions are recorded on the first business
day following the trade date. Realized gains and losses on sales of
investments are calculated on the identified cost basis. Interest income is
recorded on the accrual basis; dividend income is recorded on the ex-
dividend date. Funds investing in foreign securities may be subject to
taxes imposed by countries in which it invests. Such taxes are generally
based on either income or gains earned or repatriated. The Fund accrues
such taxes when the related income is earned. The Equity Funds, except for
the Global Balanced Fund and the Growth and Income Fund, do not amortize
premiums or accrue 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).
Dividends from net investment income, if any, are paid semiannually, except
for Balanced Assets Fund and Growth and Income Fund, which pay quarterly,
and Global Balanced Fund, which pays annually. Capital gain distributions,
if any, are paid annually.
INVESTMENT SECURITIES LOANED: During the year ended September 30, 1996,
Balanced Assets Fund, Mid-Cap Growth Fund and Small Company Growth Fund
participated in securities lending with qualified brokers. In lending
portfolio securities to brokers the Funds receive cash as collateral
against the loaned securities, which must be maintained at not less than
102% of the market value of the loaned securities during the period of the
loan. To the extent income is earned on the cash collateral invested, it is
recorded as interest income. As with other extensions of credit, should the
borrower of the securities fail financially, the Funds may bear the risk of
delay in recovery or may be subject to replacing the loaned securities by
purchasing them with the cash collateral held, which may be less than 100%
of the market value of such securities at the time of replacement.
FOREIGN CURRENCY TRANSACTION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at published rates on the following basis:
(i) market value of investment securities, other assets and
liabilities--at the closing rate of exchange.
(ii) purchases and sales of investment securities, income and expenses--
at the rate of exchange prevailing on the respective dates of such
transactions.
Assets and liabilities denominated in foreign currencies and commitments
under forward foreign currency contracts are translated into U.S. dollars
at the mean of the quoted bid and asked prices of such currencies against
the U.S. dollar.
The Fund does not isolate that portion of the results of operations arising
as a result of changes in the foreign exchange rates from the changes in
the market prices of securities held at fiscal year-end. Similarly, the
Fund does not isolate the effect of changes in foreign exchange rates from
the changes in the market prices of portfolio securities sold during the
year.
30
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Realized foreign exchange gains and losses on other assets and liabilities
and change in unrealized foreign exchange gains and losses on other assets
and liabilities include foreign exchange gains and losses from currency
gains or losses between the trade and settlement dates of securities
transactions, the difference between the amounts of interest, dividends and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid and changes in the unrealized
foreign exchange gains and losses relating to other assets and liabilities
arising as a result of changes in the exchange rate.
FEDERAL INCOME TAXES: It is the Funds' policy to meet the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute all of their taxable net income to
their shareholders. Therefore, no federal income tax or excise tax
provisions are required.
ORGANIZATIONAL EXPENSES: Costs incurred by SAAMCo in connection with the
organization of Global Balanced Fund and Growth and Income Fund amounted to
$4,347 and $1,383, respectively. These costs are being amortized on a
straight line basis by the Funds over a period not to exceed 60 months from
the date the Funds commenced operations.
EXPENSES: Expenses common to all Funds, not directly related to individual
Funds, are allocated among the Equity Funds based upon their relative net
asset values.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION: The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from these estimates.
STATEMENT OF POSITION 93-2: As required by Statement of Position 93-2,
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies,
permanent book-tax differences relating to shareholder distributions have
been reclassified in the Statement of Assets and Liabilities. Net
investment income/loss, net realized gain/loss, and net assets are not
affected. The following table discloses the current year reclassifications
between paid in capital, accumulated undistributed net investment
income/loss and accumulated undistributed net realized gain/loss on
investments.
[Download Table]
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED PAID
NET REALIZED NET INVESTMENT IN
GAIN/LOSS INCOME/LOSS CAPITAL
------------- -------------- -----------
Balanced Assets Fund............... $ (1,024) $ 1,024 $ --
Blue Chip Growth Fund.............. (408,630) 408,630 --
Mid-Cap Growth Fund................ (399,630) 425,977 (26,347)
Small Company Growth Fund.......... -- 1,857,708 (1,857,708)
Global Balanced Fund............... (704,902) 704,902 --
Growth and Income Fund............. (21,903) 21,903 --
31
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Note 3. Joint Repurchase Agreement Account
As of September 30, 1996, Balanced Assets Fund, Blue Chip Growth Fund, Mid-
Cap Growth Fund, Small Company Growth Fund, Global Balanced Fund and Growth
and Income Fund had a 6.4%, 0.9%, 3.1%, 7.4%, 0.9% and 3.3% undivided
interest, respectively, which represented $8,398,000, $1,189,000,
$4,072,000, $9,766,000, $1,160,000 and $4,353,000, respectively, in
principal amount in a joint repurchase agreement with Yamaichi
International, Inc. As of such date, the repurchase agreement in the joint
account and the collateral therefore were as follows:
Yamaichi International, Inc. Repurchase Agreement, 5.65% dated 9/30/96, in
the principal amount of $132,158,000 repurchase price $132,178,741 due
10/01/96 collateralized by $33,325,000 U.S. Treasury Bond 6.25% due
8/15/23, $37,500,000 U.S. Treasury Note 6.875% due 3/31/00, $20,370,000
U.S. Treasury Note 6.125% due 5/15/98, $32,910,000 U.S. Treasury Note 6.00%
due 8/31/97, and $12,410,000 U.S. Treasury Note 5.75% due 9/30/97,
approximate aggregate value $136,584,546.
Note 4. Investment Advisory and Management Agreement, Distribution Agreement
and Service Agreement
The Trust, on behalf of each Fund, has an Investment Advisory and
Management Agreement (the "Agreement") with SAAMCo, an indirect wholly-
owned subsidiary of SunAmerica Inc. Under the Agreement, SAAMCo provides
continuous supervision of a Fund's portfolio and administers its corporate
affairs, subject to general review by the Trustees. In connection
therewith, SAAMCo furnishes the Funds with office facilities, maintains
certain of the Fund's books and records, and pays the salaries and expenses
of all personnel, including officers of the Funds who are employees of
SAAMCo and its affiliates. The investment advisory and management fee to
SAAMCo with respect to each Fund (other than the Global Balanced Fund) is
computed daily and payable monthly, at an annual rate of .75% of a Fund's
average daily net assets up to $350 million, .70% of the next $350 million,
and .65% thereafter. The Global Balanced Fund pays the Adviser a fee,
payable monthly, computed daily at the annual rate of 1.00% on the first
$350 million of the Fund's average daily net assets, .90% on the next $350
million of net assets and .85% on net assets over $700 million. For the
year ended September 30, 1996, SAAMCo earned fees in the amounts stated on
the Statement of Operations, of which SAAMCo agreed to voluntarily waive
$98,765 and $91,558 on the Global Balanced Fund and Growth and Income Fund,
respectively. In addition to the aforementioned, SAAMCo, on behalf of
SunAmerica Global Balanced Fund, entered into Sub-Advisory Agreements with
AIG Asset Management, Inc. ("AIGAM") and Goldman Sachs Asset Management
International ("GSAM") under which AIGAM and GSAM act as sub-advisers. As
of April 23, 1996, GSAM resigned their role as sub-adviser. Pursuant to the
Agreement with the Trust SAAMCo assumed portfolio management
responsibilities for the component previously sub-advised by GSAM.
SAAMCo pays AIGAM a monthly fee with respect to those net assets of the
Global Balanced Fund actually managed by AIGAM computed based on average
daily net assets at the following annual rates: .50% on the first $50
million of such assets, .40% of the next $100 million of such assets, .30%
on the next $150 million of such assets, and .25% of such assets in excess
of $300 million. Also, from the investment advisory fee the Adviser paid
GSAM a monthly fee with respect to those net assets of the Global Balanced
Fund actually managed by GSAM computed based on average daily net assets,
32
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
at the following annual rates: .40% on the first $50 million of such
assets, .30% on the next $100 million of such assets, .25% on the next $100
million of such assets, and .20% of such assets in excess of $250 million.
For the year ended September 30, 1996, SAAMCo paid AIGAM fees of $66,942
and for the period October 1, 1995 through April 23, 1996 paid GSAM fees of
$14,483.
SAAMCo agreed that it would refund or rebate its management fees to each of
the Funds to the extent that the Fund's expenses (including the fees of
SAAMCo and amortization of organizational expenses, but excluding interest,
taxes, brokerage commissions, distribution fees and other extraordinary
expenses) exceed the most restrictive expense limitation imposed by states
where the Fund's shares are sold. The most restrictive expense limitation
was believed to be 2 1/2% of the first $30 million of the Fund's average
daily net assets, 2% of the next $70 million of average net assets and 1
1/2% of such net assets in excess of $100 million.
For the year ended September 30, 1996, SAAMCo has agreed to voluntarily
reimburse expenses of $66 on Mid-Cap Growth Fund Class B, $2,945 on Global
Balanced Fund Class A and, $18,080 and $17,057 on Growth and Income Fund
(Class A, Class B), respectively, related to both class specific and fund
level expenses excluding management fees and distribution and service
maintenance fees which are stated separately in the Notes.
The Trust, on behalf of each Fund, has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS"), an indirect wholly owned
subsidiary of SunAmerica Inc. Each Fund has adopted a Distribution Plan
(the "Plan") in accordance with the provisions of Rule 12b-1 under the 1940
Act. Rule 12b-1 under the Act permits an investment company directly or
indirectly to pay expenses associated with the distribution of its shares
("distribution expenses") in accordance with a plan adopted by the
investment company's board of trustees and approved by its shareholders.
Pursuant to such rule, the Trustees and the shareholders of each class of
shares of each Fund have adopted Distribution Plans hereinafter referred to
as the "Class A Plan" and the "Class B Plan." In adopting the Class A Plan
and the Class B Plan, the Trustees determined that there was a reasonable
likelihood that each such Plan would benefit the Trust and the shareholders
of the respective class. The sales charge and distribution fees of a
particular class will not be used to subsidize the sale of shares of any
other class.
Under the Class A Plan and Class B Plan, the Distributor receives payments
from a Fund at an annual rate of up to 0.10% and 0.75%, respectively, of
average daily net assets of such Fund's Class A and Class B shares to
compensate the Distributor and certain securities firms for providing sales
and promotional activities for distributing that class of shares. The
distribution costs for which the Distributor may be reimbursed out of such
distribution fees include fees paid to broker-dealers that have sold Fund
shares, commissions and other expenses such as those incurred for sales
literature, prospectus printing and distribution and compensation to
wholesalers. It is possible that in any given year the amount paid to the
Distributor under the Class A Plan or Class B Plan may exceed the
Distributor's distribution costs as described above. The Distribution Plans
provide that each class of shares of each Fund may also pay the Distributor
an account maintenance and service fee up to an annual rate of 0.25% of the
aggregate average daily net assets of such class of shares for payments to
broker-dealers for providing continuing account maintenance. Accordingly,
for the year ended September 30, 1996, SACS received fees (see Statement of
Operations) based upon the aforementioned rates, (of which $3,265 was
waived on Growth and Income Fund).
33
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
SACS receives sales charges on each Fund's Class A shares, portions of
which are reallowed to affiliated broker-dealers and non-affiliated broker-
dealers. SACS also receives the proceeds of contingent deferred sales
charges paid by investors in connection with certain redemptions of each
Fund's Class B shares. SACS has advised the Funds that for the year ended
September 30, 1996 the proceeds received from Class A sales (and paid out
to affiliated and non-affiliated broker-dealers) and Class B redemptions
are as follows:
[Enlarge/Download Table]
CLASS A CLASS B
---------------------------------------- -------------------
SALES AFFILIATED NON-AFFILIATED CONTINGENT DEFERRED
CHARGES BROKER-DEALERS BROKER-DEALERS SALES CHARGES
---------- -------------- -------------- -------------------
Balanced Assets Fund.... $1,139,306 $ 830,997 $132,907 $303,405
Blue Chip Growth Fund... 84,051 48,653 23,355 37,223
Mid-Cap Growth Fund..... 185,300 125,403 31,855 15,696
Small Company Growth
Fund................... 2,007,194 1,156,919 568,659 118,032
Global Balanced Fund.... 96,613 60,930 22,339 45,769
Growth and Income Fund.. 384,542 188,254 140,834 1,820
The Trust has entered into a Service Agreement with SunAmerica Fund
Services, Inc. ("SAFS"), an indirect wholly-owned subsidiary of SunAmerica
Inc. Under the Service Agreement, SAFS performs certain shareholder account
functions by assisting the Funds' transfer agent in connection with the
services that it offers to the shareholders of the Funds. The Service
Agreement permits the Funds to reimburse SAFS for costs incurred in
providing such services which is approved annually by the Trustees. For the
year ended September 30, 1996, the Funds incurred the following expenses to
reimburse SAFS pursuant to the terms of the Service Agreement.
[Download Table]
PAYABLE AT
SEPTEMBER 30,
EXPENSE 1996
----------------- ---------------
CLASS A CLASS B CLASS A CLASS B
-------- -------- ------- -------
Balanced Assets Fund...................... $300,743 $368,649 $25,959 $30,429
Blue Chip Growth Fund..................... 103,210 85,923 8,993 6,366
Mid-Cap Growth Fund....................... 86,059 24,058 7,278 2,322
Small Company Growth Fund................. 257,049 179,827 27,269 18,310
Global Balanced Fund...................... 20,216 32,724 1,763 2,849
Growth and Income Fund.................... 16,005 10,853 3,449 2,122
34
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Note 5. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales and maturities of
investments (excluding U.S. Government securities and short-term
investments) during the year ended September 30, 1996 were as follows:
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
------------ ------------ ------------ ------------- ----------- -----------
Aggregate purchases..... $470,062,644 $219,833,010 $146,077,784 $518,886,339 $20,776,926 $41,022,581
============ ============ ============ ============ =========== ===========
Aggregate sales......... $481,037,139 $222,057,848 $134,646,378 $404,167,995 $21,191,381 $18,134,966
============ ============ ============ ============ =========== ===========
Note 6. Portfolio Securities (Tax Basis)
The cost of securities and the aggregate gross unrealized appreciation and
depreciation of securities for federal income tax purposes at September 30,
1996 were as follows:
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
------------ ----------- ----------- ------------- ----------- -----------
Cost (tax basis)........ $286,714,065 $76,704,287 $45,886,063 $204,188,516 $23,714,810 $32,870,818
============ =========== =========== ============ =========== ===========
Appreciation............ $ 20,942,612 $ 7,779,818 $10,645,466 $ 57,614,727 $ 2,614,967 $ 2,188,075
Depreciation............ (4,670,019) (2,422,398) (338,154) (2,051,181) (860,315) (389,237)
------------ ----------- ----------- ------------ ----------- -----------
Unrealized appreciation/
depreciation--net...... $ 16,272,593 $ 5,357,420 $10,307,312 $ 55,563,546 $ 1,754,652 $ 1,798,838
============ =========== =========== ============ =========== ===========
At September 30, 1996, Global Balanced Fund had net capital loss
carryforwards of $217,014 which are available to the extent provided in
regulations to offset future capital gains of which $17,364 will expire in
2003 and $199,650 will expire in 2004. To the extent that these
carryforwards are used to offset future capital gains, it is probable that
the gains so offset will not be distributed.
35
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Note 7. Open Forward Currency Contracts
At September 30, 1996, the Global Balanced Fund engaged in the trading of
forward foreign currency exchange contracts ("forward contracts") in order
to hedge against changes in future foreign exchange rates and enhance
return. Forward contracts involve elements of market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The Fund bears
the risk of an unfavorable change in the foreign exchange rate underlying
the forward contract. Global Balanced Fund held the following forward
currency contracts at September 30, 1996:
[Download Table]
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
---------------------- ------------------------- -------- ------------
BEF 3,467,742 USD 114,142 12/05/96 $ 3,359
DEM 2,044,653 USD 1,386,337 12/04/96 41,553
DEM 2,000,000 USD 1,332,001 12/12/96 15,828
DKK 1,109,003 USD 194,201 10/22/96 4,697
ESP 10,484,525 USD 81,576 10/15/96 30
FRF 782,303 USD 156,102 10/23/96 4,458
JPY 59,315,200 USD 544,176 10/17/96 11,322
JPY 300,000,000 USD 2,781,125 12/12/96 64,720
*USD 172,143 IEP 107,348 10/1/96 54
--------
146,021
--------
GROSS
UNREALIZED
DEPRECIATION
------------
AUD 94,642 USD 74,247 10/30/96 $ (583)
CAD 216,167 USD 158,051 11/12/96 (930)
GBP 420,664 USD 652,282 11/14/96 (5,805)
IEP 107,348 USD 172,106 12/02/96 (38)
ITL 421,970,840 USD 273,138 10/15/96 (3,548)
SEK 3,074,685 USD 462,567 11/15/96 (1,757)
*IEP 107,348 USD 171,026 10/01/96 (1,170)
--------
(13,831)
--------
Net Appreciation....................................... $132,190
========
*Represents open forward foreign currency contracts and offsetting open
forward foreign currency contracts that do not have additional market risk
but have continued counterparty settlement risk.
AUD--Australian Dollar ESP--Spanish Peseta ITL--Italian Lira
BEF--Belgian Franc FRF--French Franc JPY--Japanese Yen
CAD--Canadian Dollar GBP--Great Britain Pound SEK--Swedish Krona
DEM--Deutsche Mark IEP--Irish Punt USD--United States
DKK--Danish Kroner Dollar
36
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Note 8. Capital Share Transactions
At September 30, 1996, the Adviser and SACS in the aggregate, owned 843,915
Class A shares of the Growth and Income Fund representing 25.24% of the
Fund's net assets.
Transactions in capital shares of each class of each series were as
follows:
[Enlarge/Download Table]
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, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Shares sold..... 3,119,474 $ 50,864,950 4,667,503 $ 71,426,588 3,055,442 $ 49,865,609 3,071,975 $ 45,998,809
Reinvested
dividends...... 583,832 9,290,744 265,763 3,756,343 690,103 10,949,550 769,696 10,686,782
Shares redeemed. (2,257,335) (36,956,739) (1,193,984) (17,782,121) (3,430,716) (55,757,942) (6,322,402) (95,258,440)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... 1,445,971 $ 23,198,955 3,739,282 $ 57,400,810 314,829 $ 5,057,217 (2,480,731) $ (38,572,849)
========== ============ ========== ============ ========== ============ =========== =============
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, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Shares sold..... 753,893 $ 12,709,149 2,404,163 $ 37,806,801 3,214,655 $ 53,717,531 8,964,323 $ 134,971,138
Reinvested
dividends...... 285,095 4,507,347 14,956 207,075 277,108 4,315,647 372,862 5,128,338
Shares redeemed. (533,503) (8,978,653) (181,804) (2,884,125) (3,702,537) (61,373,567) (11,706,255) (177,081,024)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... 505,485 $ 8,237,843 2,237,315 $ 35,129,751 (210,774) $ (3,340,389) (2,369,070) $ (36,981,548)
========== ============ ========== ============ ========== ============ =========== =============
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, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Shares sold..... 585,749 $ 10,047,757 247,141 $ 3,926,322 1,569,285 $ 26,612,848 4,235,563 $ 62,818,790
Reinvested
dividends...... 262,450 4,236,039 5,781 79,602 66,071 1,049,943 1,748 24,200
Shares redeemed. (609,879) (10,404,579) (521,946) (7,755,976) (1,386,338) (23,587,448) (3,989,374) (59,135,991)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... 238,320 $ 3,879,217 (269,024) $ (3,750,052) 249,018 $ 4,075,343 247,937 $ 3,706,999
========== ============ ========== ============ ========== ============ =========== =============
37
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
[Enlarge/Download Table]
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, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------- ------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Shares sold..... 6,607,402 $ 153,907,782 6,544,632 $ 130,462,164 6,285,098 $ 144,713,218 9,886,153 $ 196,092,402
Reinvested
dividends...... 725,288 15,398,224 54,753 964,756 543,295 11,327,669 62,016 1,085,149
Shares redeemed. (4,425,505) (102,867,176) (5,262,148) (102,586,803) (5,086,621) (116,292,585) (10,265,178) (202,833,358)
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Net increase
(decrease)..... 2,907,185 $ 66,438,830 1,337,237 $ 28,840,117 1,741,772 $ 39,748,302 (317,009) $ (5,655,807)
========== ============= ========== ============= ========== ============= =========== =============
GLOBAL BALANCED FUND
-----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
---------------------------------------------------- -----------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------- ------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Shares sold..... 419,512 $ 3,129,820 750,764 $ 5,173,301 771,725 $ 5,700,564 1,150,637 $ 7,847,490
Reinvested
dividends...... 63,292 449,372 4,067 27,252 93,522 662,149 2,161 14,461
Shares redeemed. (488,115) (3,602,549) (1,342,777) (9,319,908) (672,645) (4,972,923) (1,199,716) (8,126,345)
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Net increase
(decrease)..... (5,311) $ (23,357) (587,946) $ (4,119,355) 192,602 $ 1,389,790 (46,918) $ (264,394)
========== ============= ========== ============= ========== ============= =========== =============
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, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------- ------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Shares sold..... 1,608,366 $ 15,926,962 542,589 $ 4,112,191 1,180,720 $ 11,686,226 301,384 $ 2,380,132
Reinvested
dividends...... 32,680 297,897 25,040 190,918 19,593 176,116 7,758 61,110
Shares redeemed. (46,202) (441,023) (562,875) (4,274,466) (172,820) (1,683,504) (37,348) (295,806)
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Net increase.... 1,594,844 $ 15,783,836 4,754 $ 28,643 1,027,493 $ 10,178,838 271,794 $ 2,145,436
========== ============= ========== ============= ========== ============= =========== =============
38
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Note 9. Commitments and Contingencies
The SunAmerica family of mutual funds may borrow up to $75,000,000 under an
uncommitted line of credit with State Street Bank and Trust Company, 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 10. Trustees Retirement Plan
The Trustees (and Directors) of the SunAmerica Family of Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement
Plan (the "Retirement Plan") effective January 1, 1993 for the unaffiliated
Trustees. The Retirement Plan provides generally that if an unaffiliated
Trustee who has at least 10 years of consecutive service as a Disinterested
Trustee of any of the SunAmerica mutual funds (an "Eligible Trustee")
retires after reaching age 60 but before age 70 or dies while a Trustee,
such person will be eligible to receive a retirement or death benefit from
each SunAmerica mutual fund with respect to which he or she is an Eligible
Trustee. As of each birthday, prior to the 70th birthday, but in no event
for a period greater than 10 years, each Eligible Trustee will be credited
with an amount equal to 50% of his or her regular fees (excluding committee
fees) for services as a Disinterested Trustee of each SunAmerica mutual
fund for the calendar year in which such birthday occurs. In addition, an
amount equal to 8.5% of any amounts credited under the preceding clause
during prior years, is added to each Eligible Trustee's account until such
Eligible Trustee reaches his or her 70th birthday. An Eligible Trustee may
receive any benefits payable under the Retirement Plan, at his or her
election, either in one lump sum or in up to fifteen annual installments.
As of September 30, 1996, Balanced Assets Fund, Blue Chip Growth Fund, Mid-
Cap Growth Fund, Small Company Growth Fund, Global Balanced Fund and Growth
and Income Fund had accrued $15,032, $4,872, $2,539, $7,974, $1,258 and
$298, respectively, for the Retirement Plan, which is included in accrued
expenses on the Statement of Assets and Liabilities, and for the year ended
September 30, 1996 expensed $9,912, $3,005, $1,653, $5,731, $822 and $240,
respectively, for the Retirement Plan, which is included in Trustees' fees
and expenses on the Statement of Operations.
Note 11. Subsequent Event
On October 1, 1996 Balanced Assets Fund and Small Company Growth Fund
offered Class Z shares exclusively for sale to employees participating in
the SunAmerica profit sharing and retirement plan.
39
SUNAMERICA EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of SunAmerica Equity Funds
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of SunAmerica Balanced
Assets Fund, SunAmerica Blue Chip Growth Fund, SunAmerica Mid-Cap Growth Fund,
SunAmerica Small Company Growth Fund, SunAmerica Global Balanced Fund and
SunAmerica Growth and Income Fund (constituting SunAmerica Equity Funds,
hereafter referred to as the "Fund") at September 30, 1996, the results of each
of their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 1996 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 15, 1996
40
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, 1996. The information and
distributions reported herein may differ from the information and
distributions taxable to the shareholders for the calendar year ending
December 31, 1996. 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 1997.
During the year ended September 30, 1996 the Funds paid the following
dividends per share:
[Download Table]
TOTAL ORDINARY NET SHORT-TERM NET LONG-TERM
DIVIDENDS INCOME CAPITAL GAINS CAPITAL GAINS
--------- -------- --------------- ---------------
Balanced Assets Class A..... $1.27 $.28 $ .73 $.26
Balanced Assets Class B..... 1.17 .18 .73 .26
Blue Chip Growth Class A.... 1.91 -- 1.39 .52
Blue Chip Growth Class B.... 1.91 -- 1.39 .52
Mid-Cap Growth Class A...... 2.11 -- 1.52 .59
Mid-Cap Growth Class B...... 2.11 -- 1.52 .59
Small Company Growth Class
A.......................... 4.53 -- 4.43 .10
Small Company Growth Class
B.......................... 4.53 -- 4.43 .10
Global Balanced Class A..... .42 .42 -- --
Global Balanced Class B..... .38 .38 -- --
Growth and Income Class A... .56 .17 .39 --
Growth and Income Class B... .52 .13 .39 --
For the year ended September 30, 1996, 19.44%, 17.42%, 3.87%, 28.30% and
14.43% of the dividends paid from ordinary income by Balanced Assets Fund,
Blue Chip Growth Fund, Mid-Cap Growth Fund, Global Balanced Fund and Growth
and Income Fund respectively, qualified for the 70% dividends received
deductions for corporations.
41
SEPTEMBER 30, 1996
SunAmerica
Equity Funds
[LOGO]
Annual Report
BALANCED ASSETS . BLUE CHIP GROWTH . MID-CAP GROWTH
SMALL COMPANY GROWTH . GLOBAL BALANCED . GROWTH AND INCOME
[LOGO]SunAmerica
Asset Management
SUNAMERICA EQUITY FUNDS
SHAREHOLDER LETTER
DEAR SHAREHOLDER:
At the beginning of 1996 we predicted that the Dow Jones Average would reach
6,000 by year-end and we were already at that level in mid October. In this
low inflation, moderate growth environment, we focused on companies with solid
fundamentals, high earnings visibility and consistent double digit growth. We
have seen more than $175 billion come into the equity market thus far compared
with $130 billion in 1995. The rate of increase will clearly slow as year-end
approaches and we would not be surprised to see a 5-7% decline in equities as
the investment community adjusts these numbers down for corporate profits in
1997.
We remained quite diversified in the BALANCED ASSETS FUND with an emphasis
on the interest sensitive sectors of the market along with overweightings in
health care and technology. Our focus was on strong secular trends that
produced favorable earnings in almost any economic environment. The next
twelve months should again provide returns around the historical norm of 11%.
We will maintain our health care and technology positions as well as increase
positions in the energy sector.
Within the BLUE CHIP GROWTH FUND, we looked for companies that were leaders
in their industry and therefore increased market share globally without
sacrificing earnings momentum. The industries that best represented these
characteristics included health care, technology and certain segments of the
service sector including banks and insurance companies. We reduced our
weightings in consumer cyclicals and commodity cyclicals because we expect the
economy to show signs of slower growth before year-end. Going forward, we will
continue to increase our weighting in the interest sensitive sector as well as
maintain our positions in technology and energy.
Investing in companies where industry and secular trends are positive, the
MID-CAP GROWTH FUND was positioned in another secular trend, that of increased
drilling for energy. This was driven by increases in demand, decreases in
supply and lower unit costs for finding energy. In the technology area we
invested in networking, software and semiconductor companies, all of which
benefited from the secular trend of productivity improvement. One final trend
represented in our Fund was therapeutic health care--specifically late stage
biotech companies with products about to be launched commercially. Investment
here enabled shareholders to take advantage of trends in scientific products
and drug designs including those driven by molecular biology. We expect to
maintain investments in therapeutic health care, as many of these companies
are developing unique disease treatments, and with our aging population there
is a ready market for these products.
We have added to our positions of growth stocks in the SMALL COMPANY GROWTH
FUND over the past fiscal year, where earnings were driven by secular changes,
not cyclical or interest rate cycles. We favored technology in selective
markets--productivity-based software manufacturers like Rational Software
Corp., or Viasoft, Inc. or systems integration companies doing contract
software and hardware work. Telecom and network equipment markets were
favored, as the need for larger and upgraded networks in the corporation and
public carrier market continued to grow. We maintained positions in the oil
service sector because of several bullish secular trends which we identified
18 months ago--the increase in energy demand, the reduction in the unit costs
of finding energy due to technology advances in drilling and the need to
restore storage levels to traditional rates in the U.S. and worldwide.
Continuing into this fiscal year, we will maintain positions in the specialty
retail area from a number of secular trends, including the growth in selected
1
SUNAMERICA EQUITY FUNDS
SHAREHOLDER LETTER
demographic groups such as teenagers, as well as the increasing capture of
share by name brands. In addition, we will maintain positions in various
outsourcing companies, serving many different industries, as this secular trend
continues to growth.
The GLOBAL BALANCED FUND as of September 30, 1996 was allocated: 48% to
foreign equities, 20.7% in foreign and U.S. bonds, and 17.1% in domestic
equities. The international portion of the Fund was dominated by Japanese
stocks, which we believed benefited from the current low interest rate
environment and an improving economy in Japan. The domestic equity portion of
the Fund focused on strong fundamental companies with consistent earnings that
will continue to outperform in any economic environment. The U.S. bond holdings
consisted of a small position in U.S. Treasury Notes, a reflection of our
belief that the domestic market offers lower real rates of return than many
European alternatives. Although, international equity markets continued to
underperform the domestic stock markets in the third quarter of 1996, we are
still convinced that international investments are particularly attractive at
this point in the global economic recovery and that they should represent a
significant portion of a well diversified portfolio.
The GROWTH AND INCOME FUND was ranked as the number one growth and income
fund in its category as tracked by Lipper Analytic Services for its fiscal
year. The Fund was broadly diversified with slight overweightings in health
care and selective industrial stocks and decreased positions in technology
helping investment performance. The Fund will continue its health care
positioning while maintaining a 10% cash, or cash equivalents, position as we
see a slowing economy for the remainder of the year and into 1997. We will
begin to increase some technology holdings and search for sectors and stocks
where earnings visibility and reasonable valuations are apparent.
It is our contention that the Wall Street community at large is still
overestimating corporate profits for 1997 given the current economic backdrop.
We would not be surprised to see a correction of 7-8% in the equities market as
the investment community comes to the realization that corporate profits will
not be as strong as expected in 1997. However, it is imperative to stay
invested and use these negative periods as buying opportunities. Interestingly,
in the past 70 years in the market--if you missed the top 180 biggest up days--
you also missed 95% of the compounded appreciation. This is not a period in
history when one should be out of equities--stay invested.
/s/Stanton J. Feeley /s/Audrey Snell /s/Gerard P.
Stanton J. Feeley Audrey Snell Gerard P.
Chief Investment Officer Portfolio Manager Sullivan
Portfolio Manager
2
SUNAMERICA EQUITY FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- September 30, 1996
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
-----------------------------------------------------------------------------
ASSETS:
Investments securities,
at value (identified
cost $277,773,099;
$74,972,693;
$41,512,876;
$192,419,854;
$21,240,451 and
$28,517,818,
respectively)........... $294,588,658 $80,872,707 $52,121,375 $249,986,112 $23,007,462 $30,316,656
Short-term securities
(cost equals market).... -- -- -- -- 1,302,000 --
Repurchase agreements
(cost equals market).... 8,398,000 1,189,000 4,072,000 9,766,000 1,160,000 4,353,000
Cash..................... 916 954 106 984 5,746 43,371
Foreign cash (identified
cost $303,982).......... -- -- -- -- 301,859 --
Receivable for
investments sold........ 16,737,801 6,086,322 -- 11,679,582 145,472 214,693
Receivable for shares of
beneficial interest
sold.................... 536,009 224,618 83,333 1,231,552 55,202 811,954
Interest and dividends
receivable.............. 1,501,234 60,893 13,589 47,108 197,383 43,577
Prepaid expenses......... 14,818 33,144 6,646 11,998 1,116 973
Receivable from
investment adviser...... -- -- -- -- 6,635 18,817
Unrealized appreciation
of foreign currency
contracts............... -- -- -- -- 146,021 --
Deferred organizational
expenses................ -- -- -- -- 2,334 758
------------ ----------- ----------- ------------ ----------- -----------
Total assets........... 321,777,436 88,467,638 56,297,049 272,723,336 26,331,230 35,803,799
------------ ----------- ----------- ------------ ----------- -----------
LIABILITIES:
Payable for investments
purchased............... 2,411,915 46,000 455,000 5,519,101 72,694 722,860
Payable for shares of
beneficial interest
redeemed................ 511,772 48,834 44,412 373,908 2,870 11,987
Accrued expenses......... 186,061 83,710 54,487 141,863 58,126 30,297
Investment advisory and
management fees payable. 192,235 52,362 32,727 155,384 20,963 18,990
Distribution and service
maintenance fees
payable................. 179,614 43,245 22,133 126,612 15,754 15,130
Dividends payable........ 63,877 581 104 -- -- 2,514
Unrealized depreciation
of foreign currency
contracts............... -- -- -- -- 13,831 --
------------ ----------- ----------- ------------ ----------- -----------
Total liabilities...... 3,545,474 274,732 608,863 6,316,868 184,238 801,778
------------ ----------- ----------- ------------ ----------- -----------
Net assets........... $318,231,962 $88,192,906 $55,688,186 $266,406,468 $26,146,992 $35,002,021
============ =========== =========== ============ =========== ===========
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial
interest, $.01 par
value................... $ 189,361 $ 50,474 $ 31,483 $ 110,890 $ 34,097 $ 33,461
Paid-in capital.......... 272,569,518 71,074,447 44,047,107 209,435,190 23,933,064 31,382,012
------------ ----------- ----------- ------------ ----------- -----------
272,758,879 71,124,921 44,078,590 209,546,080 23,967,161 31,415,473
Accumulated undistributed
net investment income
(loss).................. (18,577) -- -- -- 512,906 (2,516)
Accumulated undistributed
net realized gain (loss)
on investments, foreign
currency and other
assets and liabilities.. 28,676,101 11,167,971 1,001,097 (705,870) (229,373) 1,790,226
Net unrealized
appreciation of
investments............. 16,815,559 5,900,014 10,608,499 57,566,258 1,767,011 1,798,838
Net unrealized
appreciation of foreign
currency, other assets
and liabilities......... -- -- -- -- 129,287 --
------------ ----------- ----------- ------------ ----------- -----------
Net assets........... $318,231,962 $88,192,906 $55,688,186 $266,406,468 $26,146,992 $35,002,021
============ =========== =========== ============ =========== ===========
CLASS A (UNLIMITED SHARES
AUTHORIZED):
Net asset value and
redemption price per
share
($147,035,456/8,748,465;
$51,993,425/2,950,757;
$41,904,384/2,356,510;
$158,567,071/6,538,057;
$10,035,090/1,301,793
and
$21,099,017/2,015,981
net assets and shares of
beneficial interest
issued and outstanding,
respectively)........... $ 16.81 $ 17.62 $ 17.78 $ 24.25 $ 7.71 $ 10.47
Maximum sales charge
(5.75% of offering
price).................. 1.03 1.07 1.08 1.48 0.47 0.64
------------ ----------- ----------- ------------ ----------- -----------
Maximum offering price to
public.................. $ 17.84 $ 18.69 $ 18.86 $ 25.73 $ 8.18 $ 11.11
============ =========== =========== ============ =========== ===========
CLASS B (UNLIMITED SHARES
AUTHORIZED):
Net asset value, offering
and redemption price
(excluding any
applicable contingent
deferred sales charge)
per share
($171,196,506/10,187,608;
$36,199,481/2,096,657;
$13,783,802/791,770;
$107,839,397/4,550,952;
$16,111,902/2,107,949
and
$13,903,004/1,330,114
net assets and shares of
beneficial interest
issued and outstanding,
respectively)........... $ 16.80 $ 17.27 $ 17.41 $ 23.70 $ 7.64 $ 10.45
============ =========== =========== ============ =========== ===========
See Notes to Financial Statements
3
SUNAMERICA EQUITY FUNDS
STATEMENT OF OPERATIONS -- For the year ended September 30, 1996
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
--------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Interest (net of
withholding taxes of
$2,403 on Global
Balanced Fund)........ $ 6,647,500 $ 281,114 $ 293,829 $ 1,324,606 $ 436,750 $ 87,928
Dividends (net of
withholding taxes of
$32,895, $13,450,
$1,459, $3,296,
$32,882 and $854,
respectively)......... 2,928,724 919,680 166,238 366,438 285,671 214,138
----------- ----------- ---------- ----------- ---------- ----------
Total investment
income................ 9,576,224 1,200,794 460,067 1,691,044 722,421 302,066
----------- ----------- ---------- ----------- ---------- ----------
Expenses:
Investment advisory and
management fees....... 2,282,018 644,774 375,398 1,487,650 240,640 91,559
Distribution and
service maintenance
fees-Class A.......... 478,455 164,198 136,912 408,943 32,163 25,462
Distribution and
service maintenance
fees-Class B.......... 1,675,676 390,560 109,353 815,125 148,748 49,329
Transfer agent fees and
expenses-Class A...... 424,921 141,422 111,673 352,438 28,239 18,652
Transfer agent fees and
expenses-Class B...... 453,492 120,037 34,129 235,323 43,907 15,231
Custodian fees and
expenses.............. 140,540 82,285 68,740 111,265 188,610 50,281
Registration fees-Class
A..................... 20,989 7,423 11,199 29,818 5,888 7,257
Registration fees-Class
B..................... 9,105 5,996 6,873 14,911 6,906 6,374
Audit and tax
consulting fees....... 56,410 20,825 16,395 36,270 12,800 10,910
Trustees' fees and
expenses.............. 35,822 10,995 6,178 22,946 2,783 1,141
Printing expense....... 25,575 10,695 4,350 22,020 2,210 --
Insurance expense...... 6,055 1,716 1,092 3,511 550 123
Legal fees and
expenses.............. 4,890 790 -- 3,335 -- --
Interest expense....... 4,189 4,689 1,603 -- -- 248
Amortization of
organizational
expenses.............. -- -- -- -- 878 278
Miscellaneous expenses. 7,750 3,019 2,215 5,197 1,432 596
----------- ----------- ---------- ----------- ---------- ----------
Total expenses......... 5,625,887 1,609,424 886,110 3,548,752 715,754 277,441
Less: expenses
waived/reimbursed by
investment adviser.... -- -- (66) -- (101,710) (129,960)
----------- ----------- ---------- ----------- ---------- ----------
Net expenses........... 5,625,887 1,609,424 886,044 3,548,752 614,044 147,481
----------- ----------- ---------- ----------- ---------- ----------
Net investment income
(loss)................. 3,950,337 (408,630) (425,977) (1,857,708) 108,377 154,585
----------- ----------- ---------- ----------- ---------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments............ 33,912,222 13,200,391 1,634,384 14,472 1,153,686 1,853,730
Net realized gain on
foreign currency and
other assets and
liabilities............ -- -- -- 36 797,602 2
Net change in unrealized
appreciation
(depreciation) of
investments............ (8,691,595) (2,296,867) 4,688,230 33,583,299 218,368 1,445,861
Net change in unrealized
appreciation
(depreciation) of
foreign currency and
other assets and
liabilities............ -- -- -- -- 83,360 --
----------- ----------- ---------- ----------- ---------- ----------
Net realized and
unrealized gain on
investments, foreign
currency and other
assets and liabilities. 25,220,627 10,903,524 6,322,614 33,597,807 2,253,016 3,299,593
----------- ----------- ---------- ----------- ---------- ----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. $29,170,964 $10,494,894 $5,896,637 $31,740,099 $2,361,393 $3,454,178
=========== =========== ========== =========== ========== ==========
See Notes to Financial Statements
4
SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
[Enlarge/Download Table]
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,
1996 1995 1996 1995 1996 1995
-------------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income
(loss)................ $ 3,950,337 $ 4,234,844 $ (408,630) $ (42,924) $ (425,977) $ (237,687)
Net realized gain on
investments........... 33,912,222 13,383,399 13,200,391 7,615,892 1,634,384 7,432,643
Net realized loss on
foreign currency,
other assets and
liabilities........... -- -- -- (10,667) -- --
Net change in
unrealized
appreciation
(depreciation) of
investments........... (8,691,595) 28,115,267 (2,296,867) 6,757,773 4,688,230 3,253,371
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net
assets resulting from
operations............. 29,170,964 45,733,510 10,494,894 14,320,074 5,896,637 10,448,327
------------ ------------ ----------- ----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)...... (2,345,435) (1,892,197) -- -- -- (81,917)
From net investment
income (Class B)...... (1,868,201) (4,315,134) -- -- -- (10,723)
From net realized gains
on investments
(Class A)............. (7,282,221) (2,033,487) (4,646,750) (221,327) (4,337,142) --
From net realized gains
on investments
(Class B)............. (9,730,482) (7,043,145) (4,492,488) (5,263,567) (1,083,506) --
------------ ------------ ----------- ----------- ----------- -----------
Total dividends and
distributions to
shareholders........... (21,226,339) (15,283,963) (9,139,238) (5,484,894) (5,420,648) (92,640)
------------ ------------ ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 8).. 28,256,172 18,827,961 4,897,454 (1,851,797) 7,954,560 (43,053)
------------ ------------ ----------- ----------- ----------- -----------
TOTAL INCREASE IN NET
ASSETS................. 36,200,797 49,277,508 6,253,110 6,983,383 8,430,549 10,312,634
NET ASSETS:
Beginning of period..... 282,031,165 232,753,657 81,939,796 74,956,413 47,257,637 36,945,003
------------ ------------ ----------- ----------- ----------- -----------
End of period [including
undistributed net
investment income
(loss) for September
30, 1996 and September
30,1995 of $(18,577),
$243,698; $0, $0; $0,
and $0, respectively].. $318,231,962 $282,031,165 $88,192,906 $81,939,796 $55,688,186 $47,257,637
============ ============ =========== =========== =========== ===========
See Notes to Financial Statements
5
SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
[Enlarge/Download Table]
SMALL COMPANY GROWTH FUND GLOBAL BALANCED FUND GROWTH AND INCOME 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,
1996 1995 1996 1995 1996 1995
----------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income
(loss)................ $ (1,857,708) $ (587,404) $ 108,377 $ 305,478 $ 154,585 $ 183,673
Net realized gain
(loss) on investments. 14,472 31,433,571 1,153,686 (2,564,836) 1,853,730 346,652
Net realized gain on
foreign currency,
other assets and
liabilities........... 36 10,951 797,602 1,756,424 2 --
Net change in
unrealized
appreciation
(depreciation) of
investments........... 33,583,299 15,112,125 218,368 1,847,343 1,445,861 297,243
Net change in
unrealized
appreciation
(depreciation) of
foreign currency,
other assets and
liabilities........... -- -- 83,360 42,526 -- --
------------ ------------ ----------- ----------- ----------- ----------
Net increase in net
assets resulting from
operations............. 31,740,099 45,969,243 2,361,393 1,386,935 3,454,178 827,568
------------ ------------ ----------- ----------- ----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)...... -- -- (478,740) (24,601) (123,623) (127,668)
From net investment
income (Class B)...... -- -- (693,095) (12,084) (58,296) (54,591)
From net realized gains
on investments
(Class A)............. (16,561,192) (985,792) -- (3,604) (175,889) (63,470)
From net realized gains
on investments
(Class B)............. (12,782,675) (1,122,738) -- (3,671) (127,334) (13,320)
------------ ------------ ----------- ----------- ----------- ----------
Total dividends and
distributions to
shareholders........... (29,343,867) (2,108,530) (1,171,835) (43,960) (485,142) (259,049)
------------ ------------ ----------- ----------- ----------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 8).. 106,187,132 23,184,310 1,366,433 (4,383,749) 25,962,674 2,174,079
------------ ------------ ----------- ----------- ----------- ----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................. 108,583,364 67,045,023 2,555,991 (3,040,774) 28,931,710 2,742,598
NET ASSETS:
Beginning of period..... 157,823,104 90,778,081 23,591,001 26,631,775 6,070,311 3,327,713
------------ ------------ ----------- ----------- ----------- ----------
End of period [including
undistributed net
investment income
(loss) for September
30, 1996 and September
30, 1995 $0, $0;
$512,906, $871,462;
$(2,516), and $2,915,
respectively].......... $266,406,468 $157,823,104 $26,146,992 $23,591,001 $35,002,021 $6,070,311
============ ============ =========== =========== =========== ==========
See Notes to Financial Statements
6
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
BALANCED ASSETS FUND
--------------------
[Enlarge/Download Table]
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
9/24/93-
9/30/93(3)..... $15.07 $ -- $ 0.06 $ 0.06 $ -- $ -- $ -- $15.13 0.40% $ 33,381
9/30/94......... 15.13 0.30 (0.23) 0.07 (0.28) (0.30) (0.58) 14.62 0.50 52,098
9/30/95......... 14.62 0.32 2.51 2.83 (0.45) (0.58) (1.03) 16.42 20.68 119,916
9/30/96......... 16.42 0.27 1.39 1.66 (0.28) (0.99) (1.27) 16.81 10.65 147,035
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
9/24/93-
9/30/93(3)..... 1.54%(4) 0.46%(4) 25% $ NA
9/30/94......... 1.58 2.00 141 NA
9/30/95......... 1.50 2.13 130 NA
9/30/96......... 1.52 1.63 187 0.0611
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B
6/30/93(5)...... $15.63 $ 0.30 $ 2.63 $ 2.93 $(0.30) $(2.40) $(2.70) $15.86 20.29% $113,871
7/01/93-
9/30/93(5)..... 15.86 0.05 0.49 0.54 (0.06) (1.21) (1.27) 15.13 3.44 137,456
9/30/94......... 15.13 0.20 (0.23) (0.03) (0.18) (0.30) (0.48) 14.62 (0.14) 180,655
9/30/95......... 14.62 0.23 2.51 2.74 (0.36) (0.58) (0.94) 16.42 19.96 162,115
9/30/96......... 16.42 0.17 1.38 1.55 (0.18) (0.99) (1.17) 16.80 9.93 171,197
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
6/30/93(5)...... 1.91%(6) 1.94%(6) 251% $ NA
7/01/93-
9/30/93(5)..... 2.10(4)(6) 1.36(4)(6) 25 NA
9/30/94......... 2.21 1.36 141 NA
9/30/95......... 2.12 1.59 130 NA
9/30/96......... 2.12 1.03 187 0.0611
--------------------------------------------------------------------------------
BLUE CHIP GROWTH 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 UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS A
10/08/93-
9/30/94(3)..... $16.24 $ 0.09 (1) $(0.26) $(0.17) $ -- $(0.65) $(0.65) $15.42 (1.05)% $ 3,207
9/30/95......... 15.42 0.02 (1) 2.99 3.01 -- (1.09) (1.09) 17.34 21.29 42,407
9/30/96......... 17.34 (0.03)(1) 2.22 2.19 -- (1.91) (1.91) 17.62 13.88 51,993
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
10/08/93-
9/30/94(3)..... 1.64%(4)(6) 0.65%(4)(6) 170% $ NA
9/30/95......... 1.58(6) 0.11(6) 251 NA
9/30/96......... 1.57 (0.18) 269 0.0600
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B
12/31/92(5)..... $12.53 $(0.13) $ 1.19 $ 1.06 $ -- $ -- $ -- $13.59 8.46% $ 83,237
1/01/93-
9/30/93(5)..... 13.59 (0.02)(1) 2.71 2.69 -- -- -- 16.28 19.79 79,774
9/30/94......... 16.28 (0.01)(1) (0.28) (0.29) -- (0.65) (0.65) 15.34 (1.81) 71,749
9/30/95......... 15.34 (0.01)(1) 2.89 2.88 -- (1.09) (1.09) 17.13 20.51 39,533
9/30/96......... 17.13 (0.14)(1) 2.19 2.05 -- (1.91) (1.91) 17.27 13.17 36,199
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
12/31/92(5)..... 2.53% (0.75)% 192% $ NA
1/01/93-
9/30/93(5)..... 2.46(4) (0.14)(4) 171 NA
9/30/94......... 2.28 (0.05) 170 NA
9/30/95......... 2.22 (0.09) 251 NA
9/30/96......... 2.23 (0.83) 269 0.0600
------------
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased or sold.
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Equity
Funds fiscal year ends were changed to September 30
(6) Net of the following expense reimbursements (based on average net assets):
[Download Table]
6/30/93 9/30/93 9/30/94 9/30/95
------- ------- ------- -------
Balanced Assets Class B...................... .05% .04% -- --
Blue Chip Growth Class A..................... -- -- 1.66% .11%
See Notes to Financial Statements
7
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
MID-CAP GROWTH FUND
[Enlarge/Download Table]
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS A
11/30/92(4)..... $13.30 $(0.07) $ 2.87 $ 2.80 $(0.02) $(0.44) $(0.46) $15.64 21.42% $30,024
12/01/92-
9/30/93(4)..... 15.64 (0.09)(2) 3.17 3.08 -- (0.69) (0.69) 18.03 20.42 34,918
9/30/94......... 18.03 0.04 (2) (1.64) (1.60) -- (2.65) (2.65) 13.78 (9.60) 32,906
9/30/95......... 13.78 (0.08)(2) 4.14 4.06 (0.04) -- (0.04) 17.80 29.51 37,714
9/30/96......... 17.80 (0.12)(2) 2.21 2.09 -- (2.11) (2.11) 17.78 12.92 41,904
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
11/30/92(4)..... 1.76% (0.46)% 98% $ NA
12/01/92-
9/30/93(4)..... 1.81(3) 1.18 (3) 231 NA
9/30/94......... 1.76 0.28 555 NA
9/30/95......... 1.66 (0.51) 392 NA
9/30/96......... 1.62 (0.69) 307 0.0603
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B
10/04/93-
9/30/94(5)..... $18.12 $ 0.03 (2) $(1.80) $(1.77) $ -- $(2.65) $(2.65) $13.70 (10.56)% $ 4,039
9/30/95......... 13.70 (0.18)(2) 4.08 3.90 (0.02) -- (0.02) 17.58 28.55 9,544
9/30/96......... 17.58 (0.24)(2) 2.18 1.94 -- (2.11) (2.11) 17.41 12.16 13,784
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
10/04/93-
9/30/94(5)..... 2.43%(3)(6) 0.20%(3)(6) 555% $ NA
9/30/95......... 2.31(7) (0.17)(7) 392 NA
9/30/96......... 2.32 (1.43) 307 0.0603
--------------------------------------------------------------------------------
SMALL COMPANY GROWTH 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(2) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS A
11/30/92(4)(8).. $13.88 $(0.12) $ 3.39 $3.27 $ -- $(0.69) $(0.69) $16.46 24.31% $32,056
12/01/92-
9/30/93(4)(8).. 16.46 (0.02) 4.07 4.05 -- (0.73) (0.73) 19.78 25.68 39,238
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
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
11/30/92(4)(8).. 1.90% (0.88)% 209% $ NA
12/01/92-
9/30/93(4)(8).. 1.83(3) (0.15)(3) 216 NA
9/30/94......... 1.67 (0.60) 411 NA
9/30/95......... 1.57 (0.22) 351 NA
9/30/96......... 1.53 (0.68) 240 0.0607
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(2) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B
9/24/93-
9/30/93(5)..... $19.66 $ -- $ 0.12 $ 0.12 $ -- $ -- $ -- $19.78 0.61% $38,898
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
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
9/24/93-
9/30/93(5)..... 2.34%(3) (1.70)%(3) 216% $ NA
9/30/94......... 2.31 (1.23) 411 NA
9/30/95......... 2.22 (0.84) 351 NA
9/30/96......... 2.16 (1.30) 240 0.0607
------------
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased or sold.
(1) Total return is not annualized and does not reflect sales load
(2) Calculated based upon average shares outstanding
(3) Annualized
(4) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Equity
Funds fiscal year ends were changed to September 30
(5) Commencement of sale of respective class of shares
(6) Net of expense reimbursement equivalent to .48% of average net assets for
the period ended 9/30/94
(7) Net of expense reimbursement equivalent to .17% of average net assets for
the year ended 9/30/95
(8) Restated to reflect a 0.984460367 for 1.00 stock split effective September
24, 1993
See Notes to Financial Statements
8
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
GLOBAL BALANCED FUND
[Enlarge/Download Table]
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
6/15/94-
9/30/94(3)..... $6.94 $0.02 $(0.05) $(0.03) $ -- $ -- $ -- $6.91 (0.43)% $13,100
9/30/95......... 6.91 0.10 0.36 0.46 (0.01) -- (0.01) 7.36 6.72 9,615
9/30/96......... 7.36 0.06 0.71 0.77 (0.42) -- (0.42) 7.71 11.00 10,035
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- ------------- -------------- --------- ----------
6/15/94-
9/30/94(3)..... 2.15%(4)(5) 0.93%(4)(5) 18% $ NA
9/30/95......... 2.15(5) 1.36(5) 169 NA
9/30/96......... 2.15(5) 0.84(5) 103 0.0074
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS B
6/16/94-
9/30/94(3)..... $6.94 $0.01 $(0.05) $(0.04) $ -- $ -- $ -- $6.90 (0.58)% $13,532
9/30/95......... 6.90 0.05 0.36 0.41 (0.01) -- (0.01) 7.30 5.91 13,976
9/30/96......... 7.30 0.02 0.70 0.72 (0.38) -- (0.38) 7.64 10.21 16,112
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- ------------- -------------- --------- ----------
6/16/94-
9/30/94(3)..... 2.80%(4)(5) 0.33%(4)(5) 18% $ NA
9/30/95......... 2.80(5) 0.75(5) 169 NA
9/30/96......... 2.80(5) 0.21(5) 103 0.0074
--------------------------------------------------------------------------------
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)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
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
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- ------------- -------------- --------- ----------
7/01/94-
9/30/94(3)..... 1.50%(4)(5) 3.48%(4)(5) 8% $ NA
9/30/95......... 0.46(5) 4.16(5) 230 NA
9/30/96......... 0.96(5) 1.52(5) 161 0.0600
NET
GAIN(LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
CLASS b
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
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- ------------- -------------- --------- ----------
7/06/94-
9/30/94(3)..... 2.15%(4)(5) 2.86%(4)(5) 8% $ NA
9/30/95......... 0.30(5) 4.48(5) 230 NA
9/30/96......... 1.58(5) 0.73(5) 161 0.0600
------------
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased or sold.
(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):
[Download Table]
9/30/94 9/30/95 9/30/96
------- ------- -------
Global Balanced Class A.............................. 1.14% .40% .44%
Global Balanced Class B.............................. .93 .45 .41
Growth and Income Class A............................ 4.48 2.96 1.01
Growth and Income Class B............................ 20.35 5.07 1.14
See Notes to Financial Statements
9
SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-----------------------------------------------------------------------------
COMMON STOCK--62.8%
AEROSPACE & MILITARY TECHNOLOGY--1.6%
Boeing Co............................................... 30,000 $ 2,835,000
Raytheon Co............................................. 40,000 2,225,000
-----------
5,060,000
-----------
APPAREL & TEXTILES--3.1%
Fila Holding SpA ADR(1)................................. 20,000 1,922,500
NIKE, Inc. Class B...................................... 25,000 3,037,500
Oakley, Inc.+........................................... 58,000 2,465,000
Reebok International Ltd. .............................. 35,000 1,216,250
Tommy Hilfiger Corp.+................................... 20,000 1,185,000
-----------
9,826,250
-----------
AUTOMOTIVE--0.9%
Ford Motor Co........................................... 40,000 1,250,000
Harley-Davidson, Inc. .................................. 35,000 1,505,000
-----------
2,755,000
-----------
BANKS--5.6%
Bank of Boston Corp..................................... 25,000 1,446,875
BankAmerica Corp........................................ 25,000 2,053,125
Chase Manhattan Corp.................................... 40,000 3,205,000
Citicorp................................................ 20,000 1,812,500
First Bank System, Inc.................................. 25,000 1,671,875
First Union Corp. ...................................... 35,000 2,336,250
Summit Bancorp.......................................... 130,000 5,167,500
-----------
17,693,125
-----------
BROADCASTING & MEDIA--0.3%
Comcast Corp. Class A+.................................. 50,000 768,750
Univision Communications, Inc. Class A+................. 2,000 67,000
-----------
835,750
-----------
BUSINESS SERVICES--0.2%
CUC International, Inc.+................................ 20,000 797,500
-----------
CHEMICALS--3.3%
Cabot Corp.............................................. 35,000 975,625
du Pont (E.I.) de Nemours & Co.......................... 20,000 1,765,000
Monsanto Co............................................. 55,000 2,007,500
Olin Corp. ............................................. 50,000 4,200,000
Union Carbide Corp...................................... 35,000 1,596,875
-----------
10,545,000
-----------
COMMUNICATION EQUIPMENT--2.6%
Ericsson (L.M.) Telephone Co., Class B ADR(1)........... 100,000 2,537,500
Nokia Corp. ADR(1)...................................... 40,000 1,770,000
Octel Communications Corp.+............................. 70,000 2,030,000
Tellabs, Inc.+.......................................... 30,000 2,118,750
-----------
8,456,250
-----------
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
[Download Table]
COMPUTERS & BUSINESS EQUIPMENT--3.9%
American Pad & Paper Co.+................................. 111,000 $ 2,358,750
CellNet Data Systems, Inc.+............................... 20,000 315,000
Cisco Systems, Inc.+...................................... 25,000 1,551,563
Electronic Data Systems Corp.............................. 30,000 1,841,250
International Business Machines Corp. .................... 40,000 4,980,000
Sun Microsystems, Inc.+................................... 25,000 1,553,125
-----------
12,599,688
-----------
CONGLOMERATE--1.5%
General Electric Co....................................... 25,000 2,275,000
United Technologies Corp.................................. 20,000 2,402,500
-----------
4,677,500
-----------
DEPARTMENT STORES--1.3%
Penney (J.C.), Inc........................................ 30,000 1,623,750
Wal-Mart Stores, Inc. .................................... 100,000 2,637,500
-----------
4,261,250
-----------
ELECTRONICS--2.2%
Diebold, Inc.............................................. 40,000 2,335,000
Intel Corp................................................ 15,000 1,431,563
Lexmark International Group, Inc. Class A................. 50,000 1,018,750
Micron Technology, Inc.................................... 70,000 2,135,000
-----------
6,920,313
-----------
ENERGY SERVICES--2.5%
Mobil Corp. .............................................. 50,000 5,787,500
Royal Dutch Petroleum Co. ................................ 15,000 2,341,875
-----------
8,129,375
-----------
ENERGY SOURCES--1.0%
Burlington Resources, Inc. ............................... 30,000 1,331,250
Enron Corp................................................ 46,000 1,874,500
-----------
3,205,750
-----------
FINANCIAL SERVICES--4.1%
Alex Brown, Inc........................................... 30,000 1,736,250
Capital One Financial Corp. .............................. 70,000 2,100,000
Dean Witter, Discover & Co. .............................. 35,000 1,925,000
Federal National Mortgage Association..................... 60,000 2,092,500
Litchfield Financial Corp................................. 52,500 735,000
MBNA Corp................................................. 20,000 695,000
Morgan Stanley Group, Inc................................. 50,000 2,487,500
ReliaStar Financial Corp.................................. 25,000 1,187,500
-----------
12,958,750
-----------
FOOD, BEVERAGE & TOBACCO--1.9%
Dole Food, Inc............................................ 35,000 1,470,000
Philip Morris Cos., Inc................................... 30,000 2,692,500
Seagram Co., Ltd.......................................... 50,000 1,868,750
-----------
6,031,250
-----------
10
SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
HEALTH SERVICES--1.3%
Apria Healthcare Group, Inc.+............................. 30,000 $ 562,500
Beverly Enterprises, Inc.+................................ 75,000 815,625
MedPartners, Inc.+........................................ 60,500 1,376,375
NovaCare, Inc.+........................................... 150,000 1,406,250
------------
4,160,750
------------
HOUSEHOLD PRODUCTS--2.7%
Corning, Inc. ............................................ 40,000 1,560,000
Estee Lauder Cos., Inc. Class A........................... 30,000 1,346,250
Procter & Gamble Co....................................... 30,000 2,925,000
Warner-Lambert Co......................................... 40,000 2,640,000
------------
8,471,250
------------
INSURANCE--1.7%
Aetna, Inc................................................ 31,738 2,233,562
Allstate Corp............................................. 53,000 2,610,250
Lawyers Title Corp........................................ 25,000 531,250
------------
5,375,062
------------
LEISURE & TOURISM--4.5%
Callaway Golf Co.......................................... 35,000 1,194,375
Carnival Corp. Class A.................................... 47,000 1,457,000
Disney (Walt) Co.......................................... 35,000 2,218,125
HFS, Inc.+................................................ 30,500 2,039,687
Hilton Hotels Corp........................................ 80,000 2,270,000
MGM Grand, Inc.+.......................................... 65,000 2,746,250
Mirage Resorts, Inc.+..................................... 45,000 1,153,125
Sun International Hotels Ltd.+............................ 25,000 1,281,250
------------
14,359,812
------------
MEDICAL PRODUCTS--3.2%
Baxter International, Inc................................. 75,000 3,506,250
Imagyn Medical, Inc.+..................................... 45,000 483,750
Johnson & Johnson Co...................................... 40,000 2,050,000
Medtronic, Inc............................................ 30,000 1,923,750
Nitinol Medical Technologies, Inc.+....................... 10,000 112,500
Perkin-Elmer Corp......................................... 35,000 2,025,625
------------
10,101,875
------------
PHARMACEUTICALS--9.8%
Allergan, Inc............................................. 70,000 2,668,750
American Home Products Corp............................... 25,000 1,593,750
Bristol-Myers Squibb Co................................... 30,000 2,891,250
Chiron Corp.+............................................. 80,000 1,520,000
Genzyme Corp.+............................................ 40,000 1,020,000
Gilead Sciences, Inc.+.................................... 61,800 1,745,850
Glaxo Holdings PLC ADR(1)................................. 80,000 2,490,000
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
PHARMACEUTICALS (CONTINUED)
Lilly (Eli) & Co................................ 60,000 $ 3,870,000
Merck & Co., Inc................................ 40,000 2,815,000
Neurex Corp.+................................... 65,000 1,243,125
Pfizer, Inc..................................... 60,000 4,747,500
Schering-Plough Corp............................ 40,000 2,460,000
Teva Pharmaceutical Industries Ltd. ADR(1)...... 40,000 1,855,000
Virus Research Institute, Inc.+................. 35,000 284,375
------------
31,204,600
------------
SOFTWARE--1.4%
Computer Associates International, Inc.+........ 20,000 1,195,000
Document Sciences Corp.+........................ 5,000 63,125
Microsoft Corp.+................................ 15,000 1,978,125
NETCOM On-Line Communications Services+......... 40,000 685,000
PSINet, Inc.+................................... 60,000 652,500
------------
4,573,750
------------
SPECIALTY RETAIL--0.7%
Melville Corp................................... 50,000 2,206,250
------------
TELECOMMUNICATIONS--1.5%
Advanced Fibre Communications+(2)............... 10,000 250,000
Andrew Corp.+................................... 30,000 1,496,250
AT&T Corp....................................... 25,000 1,306,250
Lucent Technologies, Inc........................ 35,000 1,605,625
------------
4,658,125
------------
TOTAL COMMON STOCK
(cost $182,931,590)............................. 199,864,225
------------
PREFERRED STOCK--0.0%
INSURANCE--0.0%
Aetna, Inc.
(cost $146,757)................................. 2,247 163,750
------------
BONDS & NOTES--5.5%
AEROSPACE & MILITARY TECHNOLOGY--1.3%
Lockheed Martin Corp.
7.25% due 5/15/06............................... $ 4,000 4,000,880
------------
BANKS--0.6%
Chase Manhattan Corp.
7.88% due 8/01/04............................... 2,000 2,008,420
------------
11
SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
--------------------------------------------------------------------------------
BONDS & NOTES (CONTINUED)
FINANCIAL SERVICES--3.6%
Bear Stearns Cos., Inc.
6.63% due 1/15/04................................. $ 5,000 $4,802,150
DLJ Mortgage Acceptance Corp.
7.35% due 9/18/03................................. 4,689 4,687,398
Donaldson Lufkin & Jenrette, Inc.
6.88% due 11/01/05................................ 2,000 1,911,640
----------
11,401,188
----------
TOTAL BONDS & NOTES
(cost $17,129,808)................................ 17,410,488
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--1.1%
6.50% due 9/01/10
(cost $3,549,898)................................. 3,631 3,531,720
----------
U.S. TREASURY NOTES--16.5%
5.75% due 10/31/97................................ 5,000 4,995,300
6.25% due 5/31/00................................. 5,000 4,978,100
6.75% due 5/31/99................................. 5,000 5,060,150
6.88% due 7/31/99-3/31/00......................... 13,000 13,197,620
7.25% due 2/15/98-8/15/04......................... 13,300 13,713,025
7.50% due 10/31/99................................ 6,000 6,194,040
9.25% due 8/15/98................................. 4,000 4,218,120
----------
TOTAL U.S. TREASURY NOTES
(cost $52,624,421)................................ 52,356,355
----------
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
U.S. TREASURY BONDS--6.7%
6.75% due 8/15/26.............................. $ 10,000 $ 9,773,400
11.25% due 2/15/15............................. 8,000 11,488,720
-------------
TOTAL U.S. TREASURY BONDS
(cost $21,390,625)............................. 21,262,120
-------------
TOTAL INVESTMENT SECURITIES--92.6%
(cost $277,773,099)............................ 294,588,658
-------------
REPURCHASE AGREEMENT--2.6%
Joint Repurchase Agreement
Account (Note 3)
(cost $8,398,000).............................. 8,398 8,398,000
-------------
TOTAL INVESTMENTS--
(cost $286,171,099)............................ 95.2% 302,986,658
Other assets less liabilities................... 4.8 15,245,304
----- -------------
NET ASSETS-- 100.0% $318,231,962
===== =============
--------
+Non-income producing security
(1)ADR ("American Depositary Receipt")
(2)Fair valued security, see Note 2
See Notes to Financial Statements
12
SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK--91.6%
AEROSPACE & MILITARY TECHNOLOGY--2.7%
Boeing Co.................................................. 10,000 $ 945,000
Raytheon Co................................................ 20,000 1,112,500
Remec, Inc.+............................................... 25,000 353,125
-----------
2,410,625
-----------
APPAREL & TEXTILES--4.6%
Fila Holding SpA ADR(1).................................... 5,000 480,625
NIKE, Inc.................................................. 10,000 1,215,000
Oakley, Inc.+.............................................. 35,000 1,487,500
Tommy Hilfiger Corp.+...................................... 15,000 888,750
-----------
4,071,875
-----------
AUTOMOTIVE--1.3%
Ford Motor Co. ............................................ 15,000 468,750
Harley-Davidson, Inc....................................... 15,000 645,000
-----------
1,113,750
-----------
BANKS--5.3%
BankAmerica Corp........................................... 5,000 410,625
Citicorp................................................... 10,000 906,250
First Union Corp........................................... 15,000 1,001,250
Standard Federal Bancorp................................... 25,000 1,143,750
Summit Bancorp............................................. 30,000 1,192,500
-----------
4,654,375
-----------
BROADCASTING & MEDIA--1.0%
Comcast Corp. Class A+..................................... 15,000 230,625
National Media Corp.+...................................... 40,000 595,000
Univision Communications, Inc.
Class A+.................................................. 2,000 67,000
-----------
892,625
-----------
BUSINESS SERVICES--0.4%
CUC International, Inc.+................................... 10,000 398,750
-----------
CHEMICALS--5.3%
Cabot Corp................................................. 15,000 418,125
du Pont (E.I.) de Nemours & Co............................. 5,000 441,250
Hercules, Inc.............................................. 10,000 547,500
Monsanto Co................................................ 20,000 730,000
Olin Corp. ................................................ 25,000 2,100,000
Union Carbide Corp......................................... 10,000 456,250
-----------
4,693,125
-----------
COMMUNICATION EQUIPMENT--4.1%
Ericsson (L.M.) Telephone Co., Class B ADR(1).............. 30,000 761,250
Nokia Corp. ADR(1)......................................... 20,000 885,000
Octel Communications Corp.+................................ 30,000 870,000
Tellabs, Inc.+............................................. 15,000 1,059,375
-----------
3,575,625
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
COMPUTERS & BUSINESS EQUIPMENT--9.0%
American Pad & Paper Co.+.................................. 50,000 $ 1,062,500
Cisco Systems, Inc.+....................................... 15,000 930,937
Electronic Data Systems Corp............................... 20,000 1,227,500
International Business Machines Corp....................... 10,000 1,245,000
Lexmark International Group, Inc.+......................... 25,000 509,375
Micron Technology, Inc..................................... 48,000 1,464,000
Storage Technology Corp.+.................................. 15,000 568,125
Sun Microsystems, Inc.+.................................... 15,000 931,875
-----------
7,939,312
-----------
CONGLOMERATE--2.4%
General Electric Co. ...................................... 10,000 910,000
United Technologies Corp. ................................. 10,000 1,201,250
-----------
2,111,250
-----------
CONSUMER GOODS--0.4%
Whitman Corp............................................... 15,000 346,875
-----------
DEPARTMENT STORES--1.8%
Penney (J.C.), Inc......................................... 15,000 811,875
Wal-Mart Stores, Inc....................................... 30,000 791,250
-----------
1,603,125
-----------
ELECTRONICS--1.9%
Diebold, Inc. ............................................. 20,000 1,167,500
Intel Corp................................................. 5,000 477,188
-----------
1,644,688
-----------
ENERGY SERVICES--2.8%
Mobil Corp................................................. 15,000 1,736,250
Royal Dutch Petroleum Co................................... 5,000 780,625
-----------
2,516,875
-----------
ENERGY SOURCES--0.5%
Burlington Resources, Inc. ................................ 10,000 443,750
-----------
ENTERTAINMENT PRODUCTS--1.2%
Callaway Golf Co........................................... 15,000 511,875
Toy Biz, Inc. Class A+..................................... 30,000 532,500
-----------
1,044,375
-----------
FINANCIAL SERVICES--4.2%
Alex Brown, Inc............................................ 10,000 578,750
Capital One Financial Corp................................. 20,000 600,000
Dean Witter, Discover & Co................................. 15,000 825,000
Federal National Mortgage Association...................... 10,000 348,750
MBNA Corp. ................................................ 10,000 347,500
Morgan Stanley Group, Inc. ................................ 10,000 497,500
ReliaStar Financial Corp................................... 10,000 475,000
-----------
3,672,500
-----------
13
SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FOOD, BEVERAGE & TOBACCO--2.9%
Dole Food, Inc............................................. 15,000 $ 630,000
Odwalla, Inc.+............................................. 25,000 443,750
Philip Morris Cos., Inc.................................... 10,000 897,500
Seagram Co., Ltd. ......................................... 15,000 560,625
-----------
2,531,875
-----------
HEALTH SERVICES--1.5%
Apria Healthcare Group, Inc.+.............................. 20,000 375,000
Beverly Enterprises, Inc.+................................. 25,000 271,875
Health Management Associates+.............................. 15,000 373,125
Healthsource, Inc.+........................................ 20,000 295,000
-----------
1,315,000
-----------
HOUSEHOLD PRODUCTS--3.0%
Corning, Inc. ............................................. 15,000 585,000
Estee Lauder Cos., Inc., Class A........................... 20,000 897,500
Procter & Gamble Co........................................ 5,000 487,500
Warner-Lambert Co.......................................... 10,000 660,000
-----------
2,630,000
-----------
INSURANCE--4.2%
Aetna, Inc................................................. 18,369 1,292,718
Allstate Corp.............................................. 20,000 985,000
Lawyers Title Corp. ....................................... 25,000 531,250
UICI+...................................................... 35,000 910,000
-----------
3,718,968
-----------
LEISURE & TOURISM--7.3%
Extended Stay America, Inc.+............................... 50,000 1,025,000
HFS, Inc.+................................................. 15,000 1,003,125
Hilton Hotels Corp......................................... 40,000 1,135,000
MGM Grand, Inc.+........................................... 45,000 1,901,250
Mirage Resorts, Inc.+...................................... 25,000 640,625
Sun International Hotels Ltd.+............................. 15,000 768,750
-----------
6,473,750
-----------
MEDICAL PRODUCTS--5.2%
Baxter International, Inc.................................. 25,000 1,168,750
Chiron Corp.+.............................................. 42,000 798,000
Johnson & Johnson Co....................................... 15,000 768,750
Medtronic, Inc............................................. 15,000 961,875
Perkin Elmer Corp.......................................... 15,000 868,125
-----------
4,565,500
-----------
PHARMACEUTICALS--12.8%
Allergan, Inc.............................................. 30,000 1,143,750
American Home Products Corp. .............................. 10,000 637,500
Bristol-Myers Squibb Co. .................................. 15,000 1,445,625
Gilead Sciences, Inc.+..................................... 18,200 514,150
Lilly (Eli) & Co. ......................................... 20,000 1,290,000
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
PHARMACEUTICALS (CONTINUED)
Merck & Co., Inc................................... 15,000 $ 1,055,625
Neurex Corp.+...................................... 40,000 765,000
Pfizer, Inc........................................ 25,000 1,978,125
Schering-Plough Corp............................... 20,000 1,230,000
Teva Pharmaceutical Industries Ltd. ADR(1)......... 20,000 927,500
Virus Research Institute, Inc.+.................... 40,000 325,000
-----------
11,312,275
-----------
POLLUTION CONTROL--0.8%
Republic Industries, Inc.+......................... 25,000 725,000
-----------
SOFTWARE--2.1%
Computer Associates International, Inc............. 10,000 597,500
Microsoft Corp.+................................... 5,000 659,375
NETCOM On-Line Communications Services+............ 20,000 342,500
PSINet, Inc.+...................................... 20,000 217,500
-----------
1,816,875
-----------
SPECIALTY RETAIL--1.0%
Melville Corp. .................................... 20,000 882,500
-----------
TELECOMMUNICATIONS--1.9%
Andrew Corp.+...................................... 20,000 997,500
Lucent Technologies, Inc........................... 15,000 688,125
-----------
1,685,625
-----------
TOTAL COMMON STOCK
(cost $74,899,347)................................... 80,790,868
-----------
PREFERRED STOCK--0.1%
INSURANCE--0.1%
Aetna, Inc. Class C................................ 1,123 81,839
-----------
TOTAL INVESTMENT SECURITIES--91.7%
(cost $74,972,693)................................. 80,872,707
-----------
REPURCHASE AGREEMENT--1.3%
Joint Repurchase Agreement Account (Note 3)
(cost $1,189,000).................................. $1,189 1,189,000
-----------
TOTAL INVESTMENTS--
(cost $76,161,693)................................. 93.0% 82,061,707
Other assets less liabilities....................... 7.0 6,131,199
------ -----------
NET ASSETS-- 100.0% $88,192,906
====== ===========
--------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
See Notes to Financial Statements
14
SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-----------------------------------------------------------------------------
COMMON STOCK--92.9%
AEROSPACE & MILITARY TECHNOLOGY--1.3%
Hexcel Corp.+............................................. 10,000 $ 193,750
REMEC, Inc.+.............................................. 37,000 522,625
----------
716,375
----------
APPAREL & TEXTILES--9.6%
Fila Holding SpA ADR(1)................................... 2,000 192,250
Gucci Group NV ADR(1)..................................... 10,000 725,000
Jones Apparel Group, Inc.+................................ 15,000 956,250
NIKE, Inc. ............................................... 6,000 729,000
Nine West Group, Inc.+.................................... 12,000 651,000
North Face, Inc.+......................................... 23,000 649,750
Pacific Sunwear of California+............................ 15,000 493,125
Reebok International Ltd. ................................ 15,000 521,250
Tommy Hilfiger Corp.+..................................... 7,000 414,750
----------
5,332,375
----------
BANKS--1.4%
Charter One Financial, Inc. .............................. 10,500 420,000
PNC Bank Corp. ........................................... 10,000 333,750
----------
753,750
----------
BUSINESS SERVICES--1.8%
Applied Graphics Technologies+............................ 20,100 298,988
Data Processing Resources Corp.+.......................... 14,200 312,400
TeleSpectrum Worldwide, Inc.+............................. 20,000 390,000
----------
1,001,388
----------
CHEMICALS--2.7%
Nalco Chemical Co. ....................................... 10,000 362,500
Praxair, Inc. ............................................ 15,000 645,000
Waters Corp.+............................................. 15,000 491,250
----------
1,498,750
----------
COMMUNICATION EQUIPMENT--2.9%
Cascade Communications Co.+............................... 6,000 489,000
Octel Communications Corp.+............................... 15,000 435,000
Tellabs, Inc.+............................................ 10,000 706,250
----------
1,630,250
----------
COMPUTERS & BUSINESS EQUIPMENT--9.8%
Amati Communications Corp.+............................... 10,000 220,000
Bay Networks, Inc.+....................................... 10,000 272,500
Cabletron Systems, Inc.+.................................. 5,000 341,875
CellNet Data Systems, Inc.+............................... 20,000 315,000
CIBER, Inc.+.............................................. 18,200 691,600
Cisco Systems, Inc.+...................................... 12,000 744,750
COMPAQ Computer Corp.+.................................... 7,000 448,875
Gateway 2000, Inc. ....................................... 7,000 335,125
HBO & Co. ................................................ 10,000 667,500
Micron Technology, Inc. .................................. 15,000 457,500
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
[Download Table]
COMPUTERS & BUSINESS EQUIPMENT (CONTINUED)
Newbridge Networks Corp.+................................... 5,000 $ 318,750
Sun Microsystems, Inc.+..................................... 10,000 621,250
----------
5,434,725
----------
CONGLOMERATE--0.8%
Tyco International Ltd. .................................... 10,000 431,250
----------
DEPARTMENT STORES--0.6%
Woolworth Corp.+............................................ 15,000 309,375
----------
ELECTRONICS--4.7%
Analog Devices, Inc.+....................................... 10,000 271,250
Diebold, Inc. .............................................. 17,000 992,375
National Semiconductor Corp.+............................... 20,000 402,500
Telco Systems, Inc.+........................................ 10,000 190,000
VeriFone, Inc.+............................................. 10,000 447,500
Xilinx, Inc.+............................................... 10,000 340,000
----------
2,643,625
----------
ENERGY SERVICES--3.4%
Global Marine, Inc.+........................................ 25,000 393,750
Noble Drilling Corp.+....................................... 22,500 340,313
Rowan Cos., Inc.+........................................... 30,000 558,750
Transocean Offshore, Inc.................................... 10,000 612,500
----------
1,905,313
----------
ENERGY SOURCES--2.2%
Flores & Rucks, Inc.+....................................... 25,000 965,625
Parker & Parsley Petroleum Co. ............................. 10,000 261,250
----------
1,226,875
----------
ENTERTAINMENT PRODUCTS--0.6%
Callaway Golf Co............................................ 10,000 341,250
----------
FINANCIAL SERVICES--1.4%
Alex Brown, Inc. ........................................... 6,000 347,250
Associates First Capital Corp., Class A..................... 10,000 410,000
----------
757,250
----------
HOUSEHOLD PRODUCTS--1.0%
Blyth Industries, Inc.+..................................... 4,700 227,950
Corning, Inc. .............................................. 8,000 312,000
----------
539,950
----------
INSURANCE--2.7%
Allmerica Financial Corp. .................................. 10,000 325,000
Lawyers Title Corp. ........................................ 20,000 425,000
Maxicare Health Plans, Inc.+................................ 10,000 190,000
Progressive Corp. .......................................... 10,000 572,500
----------
1,512,500
----------
15
SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
LEISURE & TOURISM--1.9%
HFS, Inc.+................................................. 3,800 $ 254,125
Sun International Hotels Ltd.+............................. 16,000 820,000
----------
1,074,125
----------
MACHINERY--3.2%
Allied Products Corp. ..................................... 15,000 375,000
Flanders Corp.+(2)(3)...................................... 100,000 900,000
Precision Castparts Corp. ................................. 10,000 485,000
----------
1,760,000
----------
MEDICAL PRODUCTS--2.6%
Boston Scientific Corp.+................................... 12,000 690,000
Cohr, Inc.+................................................ 20,000 555,000
Nitinol Medical Technologies, Inc.+........................ 5,000 56,250
Serologicals Corp.+........................................ 5,000 173,750
----------
1,475,000
----------
METALS & MINING--0.7%
Crown, Cork & Seal, Inc. .................................. 9,000 415,125
----------
PHARMACEUTICALS--7.0%
ABR Information Services, Inc.+............................ 10,000 720,000
Allergan, Inc. ............................................ 20,000 762,500
Centocor, Inc.+............................................ 10,000 355,000
Guilford Pharmaceuticals, Inc.+............................ 10,000 275,000
Ligand Pharmaceuticals, Inc.+.............................. 15,000 204,375
Neurex Corp.+.............................................. 25,000 478,125
Teva Pharmaceutical Industries Ltd. ADR(1)................. 23,500 1,089,812
----------
3,884,812
----------
POLLUTION CONTROL--4.2%
Culligan Water Technologies, Inc.+......................... 15,000 568,125
United States Filter Corporation........................... 5,000 170,625
United Waste Systems, Inc. ................................ 30,000 1,042,500
USA Waste Services, Inc.+.................................. 17,000 535,500
----------
2,316,750
----------
REAL ESTATE--0.3%
Green Tree Financial Corp. ................................ 5,000 196,250
----------
REAL ESTATE INVESTMENT TRUSTS--2.0%
Bay Apartment Communities, Inc. ........................... 15,000 427,500
Innkeepers USA Trust....................................... 25,000 281,250
Starwood Lodging Trust..................................... 10,000 418,750
----------
1,127,500
----------
RESTAURANTS--0.6%
Starbucks Corp.+........................................... 10,000 330,000
----------
SOFTWARE--8.5%
Baan Co. NV+............................................... 10,000 333,750
BDM International, Inc.+................................... 10,000 595,000
BMC Software, Inc.+........................................ 5,000 397,500
Cognos, Inc.+.............................................. 10,000 326,250
Computer Associates International, Inc. ................... 8,000 478,000
Innovus Corp.+............................................. 14,000 84,000
JDA Software Group, Inc.+.................................. 12,000 330,000
Microsoft Corp.+........................................... 4,000 527,500
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
SOFTWARE (CONTINUED)
PeopleSoft, Inc.+................................. 5,000 $ 416,250
Rational Software Corp.+.......................... 10,000 341,250
RemedyTemp, Inc.+................................. 15,000 318,750
VIASOFT, Inc.+.................................... 14,000 588,000
-----------
4,736,250
-----------
SPECIALTY RETAIL--7.3%
Eagle Hardware And Groden+........................ 20,000 540,000
Global DirectMail Corp.+.......................... 20,000 955,000
Just For Feet, Inc.+.............................. 10,000 501,250
MacFrugals Bargains Closeouts+.................... 25,000 590,625
Melville Corp. ................................... 12,000 529,500
Saks Holdings Incorporated+....................... 10,000 350,000
Tiffany & Co. .................................... 15,000 600,000
-----------
4,066,375
-----------
TELECOMMUNICATIONS--6.5%
ACC Corp. ........................................ 4,500 212,625
Ascend Communications, Inc. ...................... 5,000 330,625
Lucent Technologies, Inc. ........................ 5,000 229,375
NICE Systems Ltd. ADR +(1)........................ 20,000 458,125
Pacific Gateway Exchange, Inc.+................... 22,000 649,000
PairGain Technologies, Inc.+...................... 6,300 492,187
Teleport Communications Group
Class A+......................................... 24,000 567,000
Westell Technologies, Inc. Class A+............... 16,000 708,000
-----------
3,646,937
-----------
UTILITIES--1.2%
El Paso Natural Gas Co. .......................... 15,000 660,000
-----------
TOTAL COMMON STOCK
(cost $41,236,289)................................ 51,724,125
-----------
WARRANTS--0.7%+
ELECTRONICS--0.7%
Intel Corp........................................ 7,000 397,250
-----------
TOTAL INVESTMENT SECURITIES--93.6%
(cost $41,512,876)................................ 52,121,375
-----------
REPURCHASE AGREEMENT--7.3%
Joint Repurchase Agreement
Account (Note 3)
(cost $4,072,000)................................. $4,072 4,072,000
-----------
TOTAL INVESTMENTS--
(cost $45,584,876)................................ 100.9% 56,193,375
Liabilities in excess of other assets.............. (0.9) (505,189)
------ -----------
NET ASSETS-- 100.0% $55,688,186
====== ===========
-------
+ Non-income producing security
(1) ADR ("American Depositary Receipts")
(2) Fair valued security, see Note 2
(3) At September 30, 1996 the Fund held a restricted security amounting to
1.62% 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.
[Download Table]
DATE OF UNIT VALUATION AS OF
DESCRIPTION ACQUISITION COST SEPTEMBER 30, 1996
-------------- ----------- ----- ------------------
Flanders Corp. 5/09/96 $5.00 $9.00
See Notes to Financial Statements
16
SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
------------------------------------------------------------------------------
COMMON STOCK--93.3%
AEROSPACE & MILITARY TECHNOLOGY--1.5%
Hexcel Corp.+........................................... 30,000 $ 581,250
Nichols Research Corp.+................................. 40,000 1,190,000
REMEC, Inc.+............................................ 100,500 1,419,563
Rohr, Inc.+............................................. 40,000 785,000
------------
3,975,813
------------
APPAREL & TEXTILES--2.7%
Fila Holding SpA ADR(1)................................. 8,000 769,000
Gucci Group NV.......................................... 10,000 725,000
Jones Apparel Group, Inc.+.............................. 20,000 1,275,000
Nautica Enterprises, Inc.+.............................. 30,000 967,500
North Face, Inc.+....................................... 45,000 1,271,250
Pacific Sunwear of California+.......................... 62,500 2,054,687
------------
7,062,437
------------
BANKS--2.5%
First American Corp. (Tennessee)........................ 50,000 2,400,000
Long Island Bancorp, Inc................................ 55,000 1,588,125
PNC Bank Corp........................................... 39,500 1,318,313
Summit Bancorp.......................................... 31,500 1,252,125
------------
6,558,563
------------
BROADCASTING & MEDIA--2.4%
Mecklermedia Corp.+..................................... 115,600 2,080,800
National Media Corp.+................................... 70,700 1,051,663
Sinclair Broadcast Group, Inc. Class A+................. 40,800 1,626,900
United Video Satellite Group Class A+................... 80,000 1,620,000
Univision Communications, Inc. Class A+................. 3,000 100,500
------------
6,479,863
------------
BUSINESS SERVICES--5.9%
Abacus Direct Corp.+.................................... 6,500 136,500
Childrens Comprehensive
Services, Inc.+........................................ 90,000 1,597,500
Datamark Holdings, Inc.+................................ 96,774 1,185,481
Datamark Holdings, Inc.+(2)(3).......................... 193,549 1,887,103
International Network Services+......................... 33,000 1,159,125
Learning Tree International, Inc+....................... 12,500 462,500
Mecon, Inc.+............................................ 45,100 1,127,500
Paychex, Inc............................................ 25,000 1,450,000
ProSoft Development, Inc.+(2)(3)........................ 250,000 2,500,000
RTW, Inc.+.............................................. 48,000 1,386,000
SOS Staffing Services, Inc.+............................ 75,000 843,750
TeleSpectrum Worldwide, Inc.+........................... 80,000 1,560,000
Vincam Group, Inc.+..................................... 10,000 382,500
------------
15,677,959
------------
CHEMICALS--2.0%
Betz Laboratories, Inc.................................. 43,100 2,262,750
Nalco Chemical Co....................................... 87,000 3,153,750
------------
5,416,500
------------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
COMMUNICATION EQUIPMENT--3.3%
Cascade Communications Co.+............................... 28,000 $ 2,282,000
DSP Communications, Inc.+................................. 35,000 1,955,625
Octel Communications Corp.+............................... 40,000 1,160,000
Registry, Inc.+........................................... 50,500 1,919,000
Tellabs, Inc.+............................................ 20,000 1,412,500
------------
8,729,125
------------
COMPUTERS & BUSINESS EQUIPMENT--9.0%
3Com Corp.+............................................... 20,000 1,201,250
Amati Communications Corp.+............................... 40,000 880,000
Bay Networks, Inc.+....................................... 25,000 681,250
CellNet Data Systems, Inc.+............................... 20,000 315,000
Chips & Technologies, Inc.+............................... 90,000 1,226,250
CIBER, Inc.+.............................................. 69,300 2,633,400
Cisco Systems, Inc.+...................................... 32,000 1,986,000
Daisytek International Corp.+............................. 21,000 908,250
FORE Systems, Inc.+....................................... 20,000 827,500
HMT Technology Corp.+..................................... 45,000 978,750
ITI Technologies, Inc.+................................... 35,000 1,233,750
Lexmark International Group, Inc.+........................ 75,000 1,528,125
Linear Technology Corp.................................... 50,000 1,843,750
M-Systems Flash Disk Pioneers Ltd.+....................... 100,000 887,500
Micron Electronics, Inc.+................................. 50,000 1,031,250
Micron Technology, Inc.................................... 45,000 1,372,500
Newbridge Networks Corp.+................................. 20,000 1,275,000
Versant Object Technology Corp.+.......................... 60,000 1,425,000
Whittman-Hart, Inc.+...................................... 35,500 1,677,375
------------
23,911,900
------------
ELECTRICAL EQUIPMENT--0.2%
UCAR International, Inc.+................................. 15,000 607,500
------------
ELECTRONICS--5.7%
Altera Corp.+............................................. 10,000 506,250
Cymer, Inc.+.............................................. 25,000 443,750
Diebold, Inc.............................................. 59,000 3,444,125
DuPont Photomasks, Inc.+.................................. 40,000 1,120,000
ESS Technology, Inc.+..................................... 50,000 856,250
Micrel, Inc.+............................................. 30,000 712,500
Photronics, Inc.+......................................... 45,000 1,395,000
Sawtek, Inc.+............................................. 32,500 845,000
Supertex, Inc.+........................................... 80,000 1,450,000
Telco Systems, Inc.+...................................... 55,000 1,045,000
Uniphase Corp.+........................................... 35,000 1,478,750
Vitesse Semiconductor Corp.+.............................. 30,000 1,158,750
Xilinx, Inc.+............................................. 20,000 680,000
------------
15,135,375
------------
ENERGY SERVICES--3.6%
ENSCO International, Inc.+................................ 37,500 1,218,750
Falcon Drilling, Inc.+.................................... 60,000 1,560,000
Marine Drilling Co., Inc.+................................ 75,000 721,875
Noble Drilling Corp.+..................................... 132,500 2,004,062
Parallel Petroleum Corp.+................................. 90,000 455,625
17
SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
ENERGY SERVICES (CONTINUED)
Reading & Bates Corp.+.................................... 65,000 $ 1,763,125
Transocean Offshore, Inc. ................................ 30,000 1,837,500
-----------
9,560,937
-----------
ENERGY SOURCES--2.0%
Belco Oil & Gas Corp.+.................................... 15,500 414,625
Benton Oil & Gas Co. +.................................... 80,000 1,740,000
Flores & Rucks, Inc.+..................................... 40,000 1,545,000
Parker & Parsley Petroleum Co. ........................... 40,000 1,045,000
Pride Petroleum Services, Inc.+........................... 50,000 706,250
-----------
5,450,875
-----------
FOOD, BEVERAGE & TOBACCO--0.4%
Northland Cranberries, Inc. .............................. 55,000 935,000
-----------
HEALTH SERVICES--3.1%
Apache Medical Systems, Inc.+............................. 24,000 324,000
Applied Analytical Industries, Inc.+...................... 76,000 1,729,000
Health Images, Inc. ...................................... 100,000 1,337,500
NovaCare, Inc.+........................................... 175,000 1,640,625
OccuSystems, Inc.+........................................ 17,500 525,000
Pediatrix Medical Group+.................................. 30,000 1,503,750
Sunrise Assisted Living, Inc.+............................ 21,000 588,000
Veterinary Centers of America, Inc.+...................... 30,000 658,125
-----------
8,306,000
-----------
INSURANCE--1.8%
Allmerica Financial Corp.+................................ 15,000 487,500
Lawyers Title Corp. ...................................... 70,000 1,487,500
Maxicare Health Plans, Inc.+.............................. 40,000 760,000
Penn Treaty American Corp.+............................... 90,000 2,137,500
-----------
4,872,500
-----------
LEISURE & TOURISM--1.4%
Bally Entertainment Corp. ................................ 40,000 1,135,000
HFS, Inc.+................................................ 23,700 1,584,938
Studio Plus Hotels, Inc.+................................. 67,500 1,113,750
-----------
3,833,688
-----------
MACHINERY--3.0%
DT Industries Inc. ....................................... 45,000 1,518,750
Flanders Corp.+(2)(3)..................................... 500,000 4,500,000
Precision Castparts Corp. ................................ 40,000 1,940,000
-----------
7,958,750
-----------
MEDICAL PRODUCTS--4.0%
ADAC Laboratories......................................... 80,000 1,610,000
Cardiovascular Dynamics, Inc. ............................ 100,000 1,525,000
Cohr, Inc.+............................................... 70,000 1,942,500
Neurex Corp.+............................................. 127,500 2,438,437
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
MEDICAL PRODUCTS (CONTINUED)
Nitinol Medical Technologies, Inc.+........................ 5,000 $ 56,250
Serologicals Corp.+........................................ 90,000 3,127,500
-----------
10,699,687
-----------
METALS & MINING--1.1%
Diamond Offshore Drilling, Inc.+........................... 26,400 1,452,000
Mueller Industries, Inc.+.................................. 35,000 1,421,875
-----------
2,873,875
-----------
PHARMACEUTICALS--5.8%
ABR Information Services, Inc.+............................ 20,000 1,440,000
Agouron Pharmaceuticals, Inc.+............................. 17,000 741,625
Allergan Ligand Retinoid Theraputics, Inc.+(4)............. 75,000 2,193,750
DepoTech Corp.+............................................ 25,900 446,775
Guilford Pharmaceuticals, Inc.+............................ 65,000 1,787,500
Ligand Pharmaceuticals, Inc.+.............................. 85,000 1,158,125
M.I.M. Corp.+.............................................. 55,000 797,500
Medicis Pharmaceutical Corp. Class A+...................... 10,000 482,500
Millenium Pharmaceuticals, Inc.+........................... 4,000 73,000
Noven Pharmaceuticals, Inc.+............................... 75,000 946,875
PAREXAL International Corp.+............................... 30,000 1,890,000
Pharmaceutical Product Development, Inc.+.................. 36,500 985,500
Teva Pharmaceutical Industries Ltd. ADR(1)................. 57,500 2,666,562
-----------
15,609,712
-----------
POLLUTION CONTROL--0.9%
United Waste Systems, Inc.+................................ 35,000 1,216,250
USA Waste Services, Inc.+.................................. 34,000 1,071,000
-----------
2,287,250
-----------
REAL ESTATE INVESTMENT TRUSTS -- 1.3%
Bay Apartment Communities, Inc............................. 20,000 570,000
FelCor Suite Hotels, Inc................................... 40,000 1,290,000
Innkeepers USA Trust....................................... 95,000 1,068,750
Starwood Lodging Trust..................................... 10,000 418,750
-----------
3,347,500
-----------
SOFTWARE--15.7%
BDM International, Inc.+................................... 62,500 3,718,750
Black Box Corp.+........................................... 60,000 1,980,000
CCC Information Services Group, Inc.+...................... 12,500 262,500
Citrix Systems, Inc.+...................................... 26,500 1,358,125
Cognos, Inc.+.............................................. 59,800 1,950,975
Document Sciences Corp.+................................... 75,000 946,875
DST Systems, Inc.+......................................... 20,000 640,000
Finish Line, Inc. Class A+................................. 20,000 950,000
Forte Software, Inc.+...................................... 13,500 529,875
18
SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
SOFTWARE (CONTINUED)
Ikos Systems, Inc.+........................................ 30,000 $ 596,250
Innovus Corp.+............................................. 92,700 556,200
Innovus Corp.+(2)(3)....................................... 54,000 189,000
JDA Software Group, Inc.................................... 80,000 2,200,000
Legato Systems, Inc.+...................................... 35,000 1,662,500
National Data Corp......................................... 17,000 741,625
Pc Docs Group International, Inc.+......................... 66,000 891,000
PeopleSoft, Inc.+.......................................... 15,000 1,248,750
Rational Software Corp+.................................... 40,000 1,365,000
RemedyTemp, Inc. Class A+.................................. 62,000 1,317,500
Restrac, Inc.+............................................. 122,000 2,287,500
S3, Inc.+.................................................. 60,000 1,185,000
Saville Systems PLC ADR+(1)................................ 50,000 1,762,500
Segue Software, Inc.+...................................... 100,000 1,375,000
Spyglass, Inc.+............................................ 8,200 154,775
Sykes Enterprises, Inc.+................................... 70,650 3,408,862
Symantec Corp.+............................................ 45,000 489,375
Verilink Corp.+............................................ 105,100 2,574,950
Veritas Software Co.+...................................... 30,000 2,122,500
VIASOFT, Inc.+............................................. 60,000 2,520,000
Xionics Document Technologies+............................. 47,500 712,500
----------
41,697,887
----------
SPECIALTY RETAIL--3.2%
Central Garden & Pet Co.+.................................. 35,000 704,375
Gadzooks, Inc.+............................................ 52,500 1,824,375
Global DirectMail Corp.+................................... 30,000 1,432,500
Hot Topic, Inc.+........................................... 67,500 1,586,250
MacFrugals Bargains Closeouts+............................. 75,000 1,771,875
PETsMART, Inc.+............................................ 50,000 1,293,750
----------
8,613,125
----------
TELECOMMUNICATIONS--9.5%
ACC Corp.+................................................. 15,000 708,750
ACE*COMM Corp.+............................................ 100,000 1,200,000
ADC Telecommunications, Inc.+.............................. 20,000 1,280,000
Advanced Fibre Communications+(3).......................... 10,000 250,000
Ascend Communications, Inc.+............................... 10,000 661,250
Boston Communications Group+............................... 65,000 1,056,250
Davox Corp.+............................................... 40,000 1,510,000
Harmonic Lightwaves, Inc.+................................. 80,000 1,570,000
LCC International, Inc.+................................... 54,000 985,500
Nexus Telecommunication Systems Ltd........................ 100,000 450,000
NICE Systems Ltd. ADR+(1).................................. 72,500 1,660,703
Omnipoint Corp.+........................................... 25,000 728,125
Orckit Communications Ltd.+................................ 54,100 994,088
Pacific Gateway Exchange, Inc.+............................ 120,000 3,540,000
PairGain Technologies, Inc.+............................... 21,400 1,671,875
Retix+..................................................... 115,000 934,375
Teledata Communications, Inc.+............................. 85,000 1,561,875
Teleport Communications Group Class A+..................... 58,000 1,370,250
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
TELECOMMUNICATIONS (CONTINUED)
Westell Technologies, Inc. Class A+........... 55,000 $ 2,433,750
Winstar Communications, Inc.+................. 50,000 831,250
------------
25,398,041
------------
TRANSPORTATION--1.3%
Eagle USA Airfreight, Inc. +.................. 40,000 1,040,000
Trico Marine Services, Inc.+.................. 80,000 2,440,000
------------
3,480,000
------------
TOTAL COMMON STOCK
(cost $191,441,211)........................... 248,479,862
------------
WARRANTS--0.5%+
ELECTRONICS--0.5%
Intel Corp.................................... 25,000 1,418,750
------------
TELECOMMUNICATIONS--0.0%
Nexus Telecommunication Systems Ltd. Class D.. 100,000 87,500
------------
TOTAL WARRANTS
(cost $978,643)................................. 1,506,250
------------
TOTAL INVESTMENT SECURITIES--93.8%
(cost $192,419,854)........................... 249,986,112
------------
REPURCHASE AGREEMENT--3.7%
Joint Repurchase Agreement
Account (Note 3)
(cost $9,766,000)............................ $9,766 9,766,000
------------
TOTAL INVESTMENTS--
(cost $202,185,854)........................... 97.5% 259,752,112
Other assets less liabilities.................. 2.5 6,654,356
----
------------
NET ASSETS-- 100.0% $266,406,468
===== ============
-------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
(2) At September 30, 1996 the Fund held restricted securities amounting to
2.5% 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.
[Download Table]
DATE OF UNIT VALUATION AS OF
DESCRIPTION ACQUISITION COST SEPTEMBER 30, 1996
----------- ----------- ------ ------------------
Datamark Holdings, Inc. 4/01/96 $ 7.50 $ 9.75
ProSoft Development, Inc. 7/02/96 10.00 10.00
Flanders Corp. 5/09/96 5.00 9.00
Flanders Corp. 8/30/96 9.00 9.00
Innovus Corp. 3/21/95 3.50 3.50
(3) Fair valued security, see Note 2
(4) Consists of stocks and warrants traded together as a unit
See Notes to Financial Statements
19
SUNAMERICA GLOBAL BALANCED FUND
INVESTMENT PORTFOLIO -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK--65.1%
DOMESTIC EQUITY--17.1%
AEROSPACE & MILITARY TECHNOLOGY--0.8%
Boeing Co................................................... 1,000 $ 94,500
Raytheon Co................................................. 2,000 111,250
-----------
205,750
-----------
AUTOMOTIVE--0.3%
Ford Motor Co............................................... 2,500 78,125
-----------
BANKS--0.6%
Chase Manhattan Corp. ...................................... 1,000 80,125
Citicorp.................................................... 1,000 90,625
-----------
170,750
-----------
BROADCASTING & MEDIA--0.4%
Applied Graphics Technologies+.............................. 5,000 74,375
Chancellor Broadcasting Corp. Class A+...................... 1,000 41,500
-----------
115,875
-----------
BUSINESS SERVICES--0.3%
CUC International, Inc.+.................................... 2,000 79,750
-----------
CHEMICALS--1.7%
du Pont (E.I.) de Nemours & Co.............................. 1,000 88,250
Hercules, Inc............................................... 1,000 54,750
Olin Corp................................................... 1,000 84,000
Union Carbide Corp.......................................... 3,000 136,875
Waters Corp.+............................................... 2,500 81,875
-----------
445,750
-----------
COMMUNICATION EQUIPMENT--0.5%
Tellabs, Inc.+.............................................. 2,000 141,250
-----------
COMPUTERS & BUSINESS EQUIPMENT--0.4%
American Pad & Paper Co.+................................... 5,000 106,250
-----------
CONGLOMERATE--0.8%
AlliedSignal, Inc........................................... 2,000 131,750
General Electric Co......................................... 800 72,800
-----------
204,550
-----------
CONSTRUCTION & HOUSING--0.5%
Armstrong World Industries, Inc............................. 2,000 124,750
-----------
CONSTRUCTION MATERIALS--0.3%
Dal-Tile International, Inc.+............................... 5,000 81,875
-----------
ENERGY SERVICES--0.2%
Baker Hughes, Inc........................................... 2,000 60,750
-----------
ENERGY SOURCES--0.5%
Belco Oil & Gas Corp.+...................................... 1,000 26,750
Benton Oil & Gas Co.+....................................... 5,000 108,750
-----------
135,500
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
FINANCIAL SERVICES--0.7%
Associates First Capital Corp., Class A..................... 2,000 $ 82,000
Morgan Stanley Group, Inc................................... 2,000 99,500
-----------
181,500
-----------
FOOD, BEVERAGE & TOBACCO--0.5%
Consolidated Cigar Holdings, Inc. Class A+.................. 1,000 30,625
Philip Morris Cos., Inc..................................... 1,000 89,750
-----------
120,375
-----------
HEALTH SERVICES--0.2%
Paracelsus Healthcare Corp.+................................ 5,000 50,625
Urocor, Inc................................................. 1,000 12,625
-----------
63,250
-----------
HOUSEHOLD PRODUCTS--1.1%
Eastman Kodak Co............................................ 1,050 82,425
Warner-Lambert Co........................................... 3,000 198,000
-----------
280,425
-----------
INSURANCE--0.2%
Guarantee Life Cos., Inc.................................... 2,500 49,687
-----------
LEISURE & TOURISM--0.7%
Callaway Golf Co............................................ 2,000 68,250
Red Roof Inn's, Inc.+....................................... 1,000 13,625
Sun International Hotels Ltd.+.............................. 2,000 102,500
-----------
184,375
-----------
MACHINERY--0.3%
Allied Products Corp........................................ 3,000 75,000
-----------
MANUFACTURING--0.1%
Strategic Distribution, Inc................................. 5,000 25,313
-----------
MEDICAL PRODUCTS--1.3%
Johnson & Johnson Co........................................ 4,000 205,000
Medtronic, Inc.............................................. 2,000 128,250
-----------
333,250
-----------
PHARMACEUTICALS--3.2%
Allergan, Inc............................................... 3,000 114,375
Lilly (Eli) & Co............................................ 2,000 129,000
Merck & Co., Inc............................................ 2,000 140,750
Neurex Corp.+............................................... 5,000 95,625
Pfizer, Inc................................................. 1,200 94,950
Pharmaceutical Product Development, Inc.+................... 2,500 67,500
Schering-Plough Corp........................................ 3,200 196,800
-----------
839,000
-----------
20
SUNAMERICA GLOBAL BALANCED FUND
INVESTMENT PORTFOLIO -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
------------------------------------------------------------
COMMON STOCK (CONTINUED)
DOMESTIC EQUITY (CONTINUED)
POLLUTION CONTROL--0.2%
Allied Waste Industries, Inc.+.......... 5,000 $ 46,250
-----------
SOFTWARE--1.0%
Documentum, Inc.+....................... 2,000 63,500
Engineering Animation, Inc.+............ 1,000 24,000
Forte Software, Inc.+................... 500 19,625
Metromail Corp.+........................ 5,300 114,612
Sterling Commerce, Inc.+................ 1,000 29,500
-----------
251,237
-----------
SPECIALTY RETAIL--0.3%
Loehmanns, Inc.+........................ 2,500 67,031
-----------
TELECOMMUNICATIONS--0.0%
American Portable Telecom, Inc.+........ 700 7,088
-----------
TOTAL DOMESTIC EQUITY
(COST $3,388,580)......................... 4,474,706
-----------
FOREIGN EQUITY--48.0%
APPAREL & TEXTILES--0.5%
Adidas AG (Germany)..................... 1,450 131,904
Gerry Weber International AG+ (Germany). 130 5,194
-----------
137,098
-----------
AUTOMOTIVE--4.0%
Bridgestone Corp. (Japan)............... 10,000 180,107
Continental AG+ (Germany)............... 7,000 127,952
Honda Motor Co., Ltd. (Japan)........... 12,000 301,075
Mitsubishi Heavy Industrial Ltd.
(Japan)................................ 20,000 162,545
Nokian Tyres (Finland).................. 5,000 85,317
PT Selamat Sempurna alien+ (Indonesia).. 50,000 38,205
Toyota Motor Corp. (Japan).............. 6,000 153,226
-----------
1,048,427
-----------
BANKS--5.8%
Banca Pop Di Milano+ (Italy)............ 15,000 79,271
Banco Credito del Peru (Peru)........... 18,386 27,689
Banco Intercontinental Espanol+ (Spain). 700 80,635
Banco Santander-Chile ADR Series A (1)
(Chile)................................ 800 10,700
Banco Totta & Acores+ (Portugal)........ 2,500 43,688
Bangkok Bank PLC alien (Thailand)....... 1,900 24,804
Bank Of Tokyo-Mitsubishi (Japan)........ 12,600 274,355
CS Holding+ (Switzerland)............... 1,020 100,765
Development Bank of Singapore alien
(Singapore)............................ 3,000 36,856
HSBC Holdings PLC (Hong Kong)........... 6,000 111,341
Industrial Bank of Japan Ltd. (Japan)... 8,000 178,495
Krung Thai Bank PCL alien+ (Thailand)... 7,800 33,738
National Westminster Bank PLC
(United Kingdom)....................... 8,000 85,021
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
BANKS (CONTINUED)
Siam Commercial Bank Co., Ltd. alien (Thailand)............ 3,700 $ 44,811
Societe Generale (France).................................. 1,000 110,541
Toronto-Dominion Bank (Canada)............................. 2,500 50,749
Toyo Trust & Banking (Japan)............................... 25,000 228,495
-----------
1,521,954
-----------
BROADCASTING & MEDIA--0.1%
Singapore Press Holdings Ltd. alien (Singapore)............ 1,000 18,250
-----------
CHEMICALS--1.5%
Laporte PLC (United Kingdom)............................... 10,000 116,059
Sekisui Chemical Co., Ltd. (Japan)......................... 15,000 177,419
Toagosei Co., Ltd.+ (Japan)................................ 20,000 93,369
-----------
386,847
-----------
COMMUNICATION EQUIPMENT--0.7%
Ericsson (L.M.) Telephone Co., Class B ADR(1) (Sweden)..... 4,000 101,500
Nokia Corp. ADR(1)+ (Finland).............................. 2,000 88,500
-----------
190,000
-----------
COMPUTERS & BUSINESS EQUIPMENT-- 1.9%
Ricoh Co. (Japan).......................................... 15,000 153,226
Strafor Facom SA (France).................................. 1,200 95,224
Tokyo Electron Ltd. (Japan)................................ 5,000 144,713
Videologic Group PLC+ (United Kingdom)..................... 100,000 93,912
-----------
487,075
-----------
CONGLOMERATE--1.9%
Alusuisse-Lonza Holdings AG+ (Switzerland)................. 100 74,968
BTR PLC (United Kingdom)................................... 30,000 127,015
Eaux (cie Generale) (France)............................... 1,000 108,605
Lyonnaise des Eaux SA (France)............................. 500 44,720
Nissho Iwai Corp. (Japan).................................. 30,000 137,366
-----------
492,674
-----------
CONSTRUCTION & HOUSING--4.2%
Cheung Kong Infrastructure
(Hong Kong)............................................... 40,000 65,951
Glynwed International PLC
(United Kingdom).......................................... 25,000 144,193
Henry Walker Group Ltd. (Australia)........................ 46,492 93,852
Kajima Corp. (Japan)....................................... 20,000 184,588
Konecranes International Corp.+ (Finland).................. 9,000 250,044
Metacorp Bhd (Malaysia).................................... 29,000 83,307
Nishimatsu Construction (Japan)............................ 20,000 193,548
Pioneer International Ltd. (Australia)..................... 30,000 81,935
-----------
1,097,418
-----------
21
SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FOREIGN EQUITY (CONTINUED)
CONSTRUCTION MATERIALS--2.3%
Cemex SA, Class B+ (Mexico)................................ 6,000 $ 24,550
Grafton Group PLC (Ireland)................................ 10,000 109,079
Lion Land Bhd (Malaysia)................................... 64,000 68,688
Marley PLC (United Kingdom)................................ 60,000 122,554
Nippon Electric Glass Co., Ltd. (Japan).................... 5,000 81,541
PT Semen Gresik+ (Indonesia)............................... 4,000 11,881
Schneider SA (France)...................................... 4,000 188,172
-----------
606,465
-----------
ELECTRONICS--5.4%
Advantest Corp. (Japan).................................... 4,400 179,785
Canon, Inc. (Japan)........................................ 10,000 196,237
Electric & Eltek International Co., Ltd. (Singapore)....... 40,000 113,200
Fanuc Ltd. (Japan)......................................... 2,500 91,846
Hoganas AG (Sweden)........................................ 6,000 186,518
NEC Corp. (Japan).......................................... 15,000 176,075
Pressac Holdings PLC
(United Kingdom).......................................... 30,000 92,503
Rohm Co. (Japan)........................................... 3,000 188,978
Samsung Electronics Co., Ltd. GDR*(2) (Korea).............. 57 2,850
Samsung Electronics Co., Ltd. GDR*(2) (Korea).............. 391 9,677
Ushio, Inc. (Japan)........................................ 15,000 170,699
-----------
1,408,368
-----------
ENERGY SERVICES--0.5%
Suncor, Inc.+ (Canada)..................................... 900 23,952
Total SA, Series B (France)................................ 1,500 118,043
-----------
141,995
-----------
ENERGY SOURCES--0.2%
Crestar Energy, Inc.+ (Canada)............................. 600 11,563
Renaissance Energy Ltd.+ (Canada).......................... 600 17,598
Shell Canada Ltd. Class A (Canada)......................... 140 4,507
TransCanada Pipelines Ltd. (Canada)........................ 1,400 22,458
-----------
56,126
-----------
ENTERTAINMENT PRODUCTS--0.7%
Bluebird Toys PLC (United Kingdom)......................... 30,000 65,236
RBI Holdings Ltd. (Bermuda)................................ 800,000 104,487
-----------
169,723
-----------
FINANCIAL SERVICES--1.1%
Hutchison Whampoa Ltd. alien
(Hong Kong)............................................... 9,000 60,520
National Finance & Securities Co., Ltd. (Thailand)......... 10,000 34,210
Nomura Securities International, Inc. (Japan).............. 10,000 183,692
-----------
278,422
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
FOOD, BEVERAGE & TOBACCO--1.7%
Allied Domecq PLC
(United Kingdom)....... 10,000 $ 70,277
Heineken NV
(Netherlands).......... 500 91,230
Katokichi Co.+ (Japan).. 7,000 151,165
Seagram Ltd. (Canada)... 320 11,923
Vaux Group PLC (United
Kingdom)............... 30,000 122,554
---------
447,149
---------
FOREST PRODUCTS--1.0%
Fletcher Challenge Ltd.
Class A (Canada)....... 1,000 13,509
Maderas Y Sinteticos SA
ADR(1) (Chile)......... 1,900 26,838
New Oji Paper Co., Ltd.
(Japan)................ 15,000 113,575
Waddington (John) PLC
(United Kingdom)....... 25,000 101,737
West Fraser Timber Co.,
Ltd. (Canada).......... 400 10,278
---------
265,937
---------
INSURANCE--1.8%
Corporacion Mapfre SA+
(Spain)................ 1,600 77,833
Legal & General Group
PLC
(United Kingdom)....... 10,000 126,076
Riunione Adriatica de
Sicur+ (Italy)......... 8,800 86,801
Tokio Marine & Fire
Insurance Co., Ltd.
(Japan)................ 15,000 177,420
---------
468,130
---------
LEISURE & TOURISM--1.1%
Air Canada, Inc.+
(Canada)............... 1,800 6,475
Airtours PLC (United
Kingdom)............... 10,000 94,303
Manchester United PLC
(United Kingdom)....... 15,000 106,824
Stanley Leisure PLC
(United Kingdom)....... 20,000 74,190
---------
281,792
---------
MACHINERY--0.3%
Seino Transportation+
(Japan)................ 6,000 85,484
---------
MANUFACTURING--0.5%
Bombardier, Inc. Class B
(Canada)............... 1,100 15,667
Graystone (United
Kingdom)............... 500,000 107,607
Hanjaya Mandala
Sampoerna alien+
(Indonesia)............ 1,750 17,025
---------
140,299
---------
METALS & MINING--3.0%
Barrick Gold Corp.
(Canada)............... 690 17,249
Cameco Corp. (Canada)... 300 14,768
Clutha Ltd.+(4)
(Australia)............ 120,000 950
Cominco Ltd. (Canada)... 240 4,934
CRA Ltd. (Australia).... 5,375 80,846
Diamond Fields
International Ltd.+(4)
(Canada)............... 400 279
22
SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FOREIGN EQUITY (CONTINUED)
METALS & MINING (CONTINUED)
Inco Ltd. (Canada)................................ 322 $ 9,881
Inco Ltd., Class V (Canada)....................... 1,000 30,688
M.I.M. Holdings Ltd. (Australia).................. 50,000 60,956
Nippon Steel Corp. (Japan)........................ 40,000 124,014
SMH AG (Switzerland).............................. 100 67,240
Sumitomo Metal Mining Co., Ltd.
(Japan).......................................... 20,000 168,638
Western Mining Corp. Holdings Ltd. ADS+(3)
(Australia)...................................... 30,000 193,081
--------
773,524
--------
PHARMACEUTICALS--2.1%
Astra AB Series A+ (Sweden)....................... 1,600 67,605
Genset SP ADR+(1) (Finland)....................... 1,000 17,250
Glaxo Holdings PLC ADR(1)
(United Kingdom)................................. 1,000 31,125
Glaxo Wellcome PLC
(United Kingdom)................................. 5,000 78,377
Kissei Pharmaceutical Co. (Japan)................. 4,400 114,337
Roche Holdings AG+ (Switzerland).................. 14 103,004
Sankyo Co., Ltd. (Japan).......................... 5,000 127,688
--------
539,386
--------
REAL ESTATE COMPANIES--0.7%
Cheung Kong Holdings Ltd.
(Hong Kong)...................................... 8,000 61,554
FIL-Estate Land, Inc.+ (Philippines).............. 48,300 44,646
Sun Hung Kai Properties Ltd.
(Hong Kong)...................................... 8,000 85,090
--------
191,290
--------
SOFTWARE--0.6%
Getronics NV (Netherlands)........................ 6,388 161,873
--------
SPECIALTY RETAIL--1.1%
Aoki International Co., Ltd. (Japan).............. 5,000 96,774
Koninklijke Ahold NV (Netherlands)................ 3,600 203,679
--------
300,453
--------
TELECOMMUNICATIONS--2.2%
BCE, Inc. (Canada)................................ 800 34,212
Cable & Wireless PLC
(United Kingdom)................................. 10,000 70,199
Korea Mobile Telecommunications ADR+(1) (Korea)... 5,010 75,776
Nippon Telegraph & Telecommunications Corp.
(Japan).......................................... 12 88,172
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
TELECOMMUNICATIONS (CONTINUED)
Northern Telecom Ltd (Canada)............... 300 $ 17,289
P.T. Indonesian Satellite Corp. ADR+(1)
(Indonesia)................................ 1,000 33,000
STET non-convertible+ (Italy)............... 30,000 81,142
Telecomunic Brasileiras SA+ (Brazil)........ 1,000,000 65,028
Telus Corp. (Canada)........................ 1,140 15,693
Vodafone Group PLC ADR(1)
(United Kingdom)........................... 2,500 85,313
-----------
565,824
-----------
TELEPHONE--0.1%
Telefonos de Mexico SA ADR+(1) (Mexico)..... 750 24,094
-----------
UTILITIES--1.0%
Cogeneration PLC alien+ (Thailand).......... 15,000 46,596
CPT Telefonica de Peru+ (Peru).............. 9,000 20,331
Electricity Generating PLC alien+
(Thailand)................................. 10,000 31,458
Veba AG (Germany)........................... 3,300 172,683
-----------
271,068
-----------
TOTAL FOREIGN EQUITY
(COST $11,972,003).......................... 12,557,145
-----------
TOTAL COMMON STOCK
(COST $15,360,583).......................... 17,031,851
-----------
PREFERRED STOCK--1.5%
APPAREL & TEXTILES--0.4%
Gerry Weber International AG non-voting
(Germany).................................. 2,730 109,064
-----------
ENERGY SOURCES--0.2%
Cemig Cia Energy MG (Brazil)................ 1,650,000 49,285
-----------
HOUSEHOLD PRODUCTS--0.4%
Friedrich Grohe AG non-voting (Germany)..... 400 109,896
-----------
METALS & MINING--0.0%
Inco Ltd. Series E (Canada)................. 36 1,845
-----------
SPECIALTY RETAIL--0.5%
Hornbach Holding AG non-voting (Germany).... 1,600 115,266
-----------
TOTAL PREFERRED STOCK
(COST $398,100)............................. 385,356
-----------
RIGHTS--0.1%+
BANKS--0.0%
Industrial Bank of Japan Ltd.(4) (Japan).... 640 7,398
-----------
CHEMICALS--0.1%
Tessenderlo Chemie (Belgium)................ 290 10,238
-----------
TOTAL RIGHTS
(COST $10,385).............................. 17,636
-----------
23
SUNAMERICA GLOBAL BALANCED FUND
INVESTMENT PORTFOLIO--SEPTEMBER 30, 1996
[Download Table]
SHARES/
PRINCIPAL AMOUNT
(DENOMINATED IN
LOCAL CURRENCY) VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
--------------------------------------------------------------------------------
WARRANTS--0.6%+
BANKS--0.6%
Affin Holdings Bhd (11/99)....................... 112,000 $ 100,989
Credit Lyonnais (4/97)........................... 1,000,000 62,072
-----------
TOTAL WARRANTS
(COST $148,517).................................. 163,061
-----------
FOREIGN BONDS--14.2%
Commonwealth of Australia
7.50% due 7/15/05................................ 100 78,079
Federal Republic of Germany
5.88% due 5/15/00................................ 300 204,905
6.75% due 7/15/04................................ 300 206,988
7.13% due 12/20/02............................... 300 212,686
7.38% due 1/03/05................................ 500 356,638
Government of Canada
7.50% due 9/01/00 Series A81..................... 200 154,247
Government of France
7.00% due 11/12/99............................... 700 145,177
Government of Spain
10.00% due 2/28/05............................... 10,000 87,944
Japan Development Bank
6.50% due 9/20/01................................ 20,000 216,622
Kingdom of Belgium
6.50% due 3/31/05................................ 4,000 130,916
Kingdom of Denmark
9.00% due 11/15/00............................... 1,000 192,705
Kingdom of Sweden
10.25% due 5/05/03............................... 1,500 263,208
13.00% due 6/15/01............................... 1,500 282,520
Republic of Ireland
8.00% due 10/18/00............................... 100 170,115
Republic of Italy
10.50% due 11/01/00.............................. 400,000 285,075
Treuhandanstalt (Germany)
6.13% due 6/25/98................................ 100 68,236
United Kingdom Treasury
8.50% due 12/07/05............................... 300 497,143
9.00% due 3/03/00................................ 100 166,742
-----------
TOTAL FOREIGN BONDS
(cost $3,658,883)................................ 3,719,946
-----------
U.S. TREASURY NOTES--6.5%
5.25% due 1/31/01................................ $ 100 95,812
6.13% due 9/30/00................................ 150 148,453
6.38% due 3/31/01................................ 200 199,468
6.50% due 8/15/05................................ 500 493,595
7.88% due 11/15/04............................... 700 752,284
-----------
TOTAL U.S. TREASURY NOTES
(COST $1,663,983)................................ 1,689,612
-----------
TOTAL INVESTMENT SECURITIES--88.0%
(COST $21,240,451)............................... 23,007,462
-----------
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
SHORT-TERM SECURITIES--5.0%
Cayman Island Time Deposit 4.50% due 10/01/96
(cost $1,302,000)................................ $1,302 $ 1,302,000
-----------
REPURCHASE AGREEMENT--4.4%
Joint Repurchase Agreement Account (Note 3)
(cost $1,160,000)................................ 1,160 1,160,000
-----------
TOTAL INVESTMENTS--
(COST $23,702,451)................................ 97.4% 25,469,462
Other assets less liabilities...................... 2.6 677,530
------ -----------
NET ASSETS-- 100.0% $26,146,992
====== ===========
-------
+ Non-income producing security
* Resale restricted to qualified institutional buyers
(1) ADR ("American Depositary Receipt")
(2) GDR ("Global Depositary Receipt")
(3) ADS ("American Depositary Shares")
(4) Fair valued security, see Note 2
Allocation of net assets by
currency as of September 30,
1996:
U.S. Dollar 35.3%
Japanese Yen 20.3
British Pound 9.4
Deutsche Mark 7.0
French Franc 3.1
Swedish Krona 3.1
Australian
Dollar 2.3
Hong Kong
Dollar 2.1
Italian Lira 2.0
Canadian
Dollar 1.9
Netherland
Guilder 1.7
Swiss Franc 1.3
Finnish
Markka 1.3
Irish Punt 1.1
Malaysian
Ringgit 1.1
Spanish
Peseta 0.9
Thailand Baht 0.8
Danish Kroner 0.7
Belgian Franc 0.5
Brazilian
Real 0.4
Indonesian
Rupiah 0.3
Singapore
Dollar 0.2
Peruvian New
Sol 0.2
Philippines
Peso 0.2
Portuguese
Escudo 0.2
---
97.4%
====
See Notes to Financial Statements
24
SUNAMERICA GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
------------------------------------------------------------------------------
COMMON STOCK--86.5%
AEROSPACE & MILITARY TECHNOLOGY--1.0%
Boeing Co. ............................................... 2,500 $ 236,250
Raytheon Co. ............................................. 2,000 111,250
-----------
347,500
-----------
APPAREL & TEXTILES--0.9%
Guess, Inc.+.............................................. 10,000 133,750
Warnaco Group, Inc. Class A.............................. 7,000 166,250
-----------
300,000
-----------
AUTOMOTIVE--1.1%
Ford Motor Co. ........................................... 7,000 218,750
Harley-Davidson, Inc. .................................... 4,000 172,000
-----------
390,750
-----------
BANKS--2.3%
Chase Manhattan Corp. .................................... 3,000 240,375
First Union Corp. ........................................ 5,000 333,750
Mellon Bank Corp. ........................................ 4,000 237,000
-----------
811,125
-----------
BROADCASTING & MEDIA--0.2%
Comcast Corp.+............................................ 5,000 76,875
-----------
BUSINESS SERVICES--1.4%
Ecolab, Inc. ............................................. 7,000 236,250
Service Corp. International............................... 8,000 242,000
-----------
478,250
-----------
CHEMICALS--7.4%
Cabot Corp. .............................................. 9,000 250,875
du Pont (E.I.) de Nemours & Co. .......................... 3,000 264,750
Hanna (M.A). Co. ......................................... 17,000 388,875
Hercules, Inc. ........................................... 11,000 602,250
Intertape Polymer Group, Inc. ............................ 8,500 190,187
Nalco Chemical Co. ....................................... 4,000 145,000
Olin Corp. ............................................... 3,500 294,000
Waters Corp.+............................................. 14,000 458,500
-----------
2,594,437
-----------
COMMUNICATION EQUIPMENT--1.9%
Motorola, Inc. ........................................... 2,500 129,063
Nokia Corp. ADR(1)........................................ 7,000 309,750
Tellabs, Inc.+............................................ 2,000 141,250
U.S. Robotics Corp.+...................................... 1,000 64,625
-----------
644,688
-----------
COMPUTERS & BUSINESS EQUIPMENT--2.8%
American Pad & Paper Co.+................................. 12,000 255,000
Cisco Systems, Inc.+...................................... 4,500 279,281
Honeywell, Inc. .......................................... 4,000 252,500
Micron Technology, Inc. .................................. 6,000 183,000
-----------
969,781
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
CONGLOMERATE--4.7%
AlliedSignal, Inc. ......................................... 4,500 $ 296,437
General Electric Co. ....................................... 7,000 637,000
ITT Industries, Inc. ....................................... 15,000 361,875
United Technologies Corp. .................................. 3,000 360,375
-----------
1,655,687
-----------
CONSTRUCTION & HOUSING--2.2%
Armstrong World Industries, Inc. ........................... 4,000 249,500
Potash Corp. of Saskatchewan, Inc. ......................... 7,000 511,875
-----------
761,375
-----------
CONSTRUCTION MATERIALS--1.6%
Dal-Tile International, Inc.+............................... 33,000 540,375
-----------
CONSUMER GOODS--0.6%
Whitman Corp. .............................................. 9,000 208,125
-----------
DEPARTMENT STORES--1.7%
Federated Department Stores, Inc.+.......................... 8,500 284,750
Penney (J.C.), Inc. ........................................ 1,000 54,125
Wal-Mart Stores, Inc. ...................................... 10,000 263,750
-----------
602,625
-----------
ELECTRICAL EQUIPMENT--0.6%
Cooper Industries, Inc. .................................... 5,000 216,250
-----------
ELECTRONICS--1.7%
Emerson Electric Co. ....................................... 2,000 180,250
Intel Corp. ................................................ 3,000 286,312
Texas Instruments, Inc. .................................... 2,500 137,813
-----------
604,375
-----------
ENERGY SERVICES--2.8%
Amoco Corp. ................................................ 2,000 141,000
Chevron Corp. .............................................. 2,500 156,563
Mobil Corp. ................................................ 4,000 463,000
Transocean Offshore, Inc. .................................. 3,500 214,375
-----------
974,938
-----------
ENERGY SOURCES--3.1%
Benton Oil & Gas Co.+....................................... 5,000 108,750
Burlington Resources, Inc. ................................. 2,000 88,750
Enron Corp. ................................................ 4,000 163,000
Noble Affiliates, Inc. ..................................... 2,000 84,500
Panhandle Eastern Corp. .................................... 12,000 415,500
Parker & Parsley Petroleum Co. ............................. 5,000 130,625
Union Texas Petroleum Holdings, Inc. ....................... 5,000 108,125
-----------
1,099,250
-----------
ENTERTAINMENT PRODUCTS--1.3%
Mattel, Inc. ............................................... 11,000 284,625
Toy Biz, Inc. Class A+...................................... 10,000 177,500
-----------
462,125
-----------
25
SUNAMERICA GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FINANCIAL SERVICES--3.6%
Advanta Corp.+.............................................. 7,500 $ 345,000
Associates First Capital Corp., Class A..................... 10,500 430,500
Federal National Mortgage Association....................... 13,500 470,812
-----------
1,246,312
-----------
FOOD, BEVERAGE & TOBACCO--5.6%
Dole Food, Inc. ............................................ 18,000 756,000
Heinz (H.J.) Co. ........................................... 6,000 202,500
PepsiCo, Inc. .............................................. 5,000 141,250
Philip Morris Cos., Inc. ................................... 8,000 718,000
Seagram Co., Ltd. .......................................... 4,000 149,500
-----------
1,967,250
-----------
FOREST PRODUCTS--2.8%
Boise Cascade Corp. ........................................ 5,000 170,000
Fort Howard Corp.+.......................................... 11,000 268,125
Kimberly-Clark Corp. ....................................... 5,500 484,688
Willamette Industries, Inc. ................................ 1,000 65,500
-----------
988,313
-----------
HEALTH SERVICES--4.4%
Apria Healthcare Group, Inc.+............................... 15,000 281,250
Columbia/HCA Healthcare Corp. .............................. 9,000 511,875
OrNda Healthcorp+........................................... 16,000 438,000
Paracelsus Healthcare Corp.+................................ 28,000 283,500
Physician Corp. of America+................................. 3,000 36,375
-----------
1,551,000
-----------
HOUSEHOLD PRODUCTS--2.7%
Corning, Inc. .............................................. 10,500 409,500
Eastman Kodak Co. .......................................... 2,000 157,000
Procter & Gamble Co. ....................................... 4,000 390,000
-----------
956,500
-----------
INSURANCE--1.3%
Aetna, Inc. ................................................ 2,000 140,750
ITT Corp+................................................... 2,000 87,250
UICI+....................................................... 8,000 208,000
-----------
436,000
-----------
LEISURE & TOURISM--1.8%
Carnival Corp. Class A...................................... 11,000 341,000
Red Roof Inn's, Inc.+....................................... 12,000 163,500
Sun International Hotels Ltd.+.............................. 2,500 128,125
-----------
632,625
-----------
MACHINERY--0.4%
Case Corp. ................................................. 3,000 146,250
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
MEDICAL PRODUCTS--4.0%
Baxter International, Inc. ................................. 20,000 $ 935,000
CNS, Inc.+.................................................. 16,000 284,000
Sola International, Inc.+................................... 5,000 186,250
-----------
1,405,250
-----------
METALS & MINING--3.4%
Aluminum Co. of America..................................... 1,000 59,000
Crown, Cork & Seal, Inc. ................................... 18,000 830,250
Santa Fe Pacific Gold Corp. ................................ 10,000 125,000
Wolverine Tube, Inc.+....................................... 4,000 172,000
-----------
1,186,250
-----------
PHARMACEUTICALS--4.0%
Bristol-Myers Squibb Co. ................................... 3,000 289,125
Chiron Corp.+............................................... 14,000 266,000
Lilly (Eli) & Co. .......................................... 2,000 129,000
Merck & Co., Inc. .......................................... 8,000 563,000
Teva Pharmaceutical Industries
Ltd. ADR(1)................................................ 3,000 139,125
-----------
1,386,250
-----------
REAL ESTATE INVESTMENT TRUSTS--2.4%
Crescent Real Estate Equities............................... 10,000 411,250
Patriot American Hospitality, Inc........................... 4,000 134,500
Reckson Associates Realty Corp. ............................ 8,000 297,000
-----------
842,750
-----------
SOFTWARE--4.6%
Fiserv, Inc.+............................................... 7,000 267,750
Metromail Corp.+............................................ 7,000 151,375
Microsoft Corp.+............................................ 4,000 527,500
Oracle Systems Corp.+....................................... 3,000 127,687
Reynolds & Reynolds Co. Class A............................. 15,000 391,875
Sterling Software, Inc.+.................................... 2,000 152,750
-----------
1,618,937
-----------
SPECIALTY RETAIL--0.6%
Mail Boxes Etc.+............................................ 5,000 113,125
Zale Corp.+................................................. 5,000 109,375
-----------
222,500
-----------
TELECOMMUNICATIONS--1.9%
AT&T Corp. ................................................. 4,000 209,000
Frontier Corp. ............................................. 4,000 106,500
Lucent Technologies, Inc. .................................. 5,000 229,375
NYNEX Corp. ................................................ 3,000 130,500
-----------
675,375
-----------
26
SUNAMERICA GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 -- (continued)
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
---------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
TELEPHONE--1.5%
Ameritech Corp. ................................... 3,000 $ 157,875
Bell Atlantic Corp. ............................... 1,500 89,813
GTE Corp. ......................................... 7,000 269,500
-----------
517,188
-----------
TRANSPORTATION--0.5%
Canadian National Railway Co. ..................... 8,000 164,000
-----------
UTILITIES--1.7%
Baltimore Gas & Electric Co. ...................... 5,000 130,625
GPU, Inc. ......................................... 5,000 153,750
MAPCO, Inc. ....................................... 5,000 298,125
-----------
582,500
-----------
TOTAL COMMON STOCK
(cost $28,466,914)................................. 30,263,781
-----------
BONDS & NOTES--0.1%
FOREST PRODUCTS--0.1%
Stone Container Corp.
11.88% due 12/01/98
(cost $50,904).................................... $ 50 52,875
-----------
TOTAL INVESTMENT SECURITIES--86.6%
(cost $28,517,818)................................. 30,316,656
-----------
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
REPURCHASE AGREEMENT--12.5%
Joint Repurchase Agreement
Account (Note 3)
(cost $4,353,000)................................ $4,353 $ 4,353,000
-----------
TOTAL INVESTMENTS--
(cost $32,870,818)............................... 99.1% 34,669,656
Other assets less liabilities..................... 0.9 332,365
------ -----------
NET ASSETS-- 100.0% $35,002,021
====== ===========
--------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
See Notes to Financial Statements
27
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996
Note 1. Organization
SunAmerica Equity Funds is an open-end diversified management investment
company organized as a Massachusetts business trust (the "Trust" or "Equity
Funds") on June 16, 1986. It currently consists of six different investment
funds (each, a "Fund" and collectively, the "Funds"). Each Fund is a
separate series of the Trust with a distinct investment objective and/or
strategy. Each Fund is advised and/or managed by SunAmerica Asset
Management Corp. (the "Adviser" or "SAAMCo"). An investor may invest in one
or more of the following Funds: SunAmerica Balanced Assets Fund ("Balanced
Assets Fund"), SunAmerica Blue Chip Growth Fund ("Blue Chip Growth Fund"),
SunAmerica Mid-Cap Growth Fund ("Mid-Cap Growth Fund"), SunAmerica Small
Company Growth Fund ("Small Company Growth Fund"), SunAmerica Global
Balanced Fund ("Global Balanced Fund") and SunAmerica Growth and Income
Fund ("Growth and Income Fund"). The Funds are considered to be separate
entities for financial and tax reporting purposes. The investment 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.
Global Balanced seeks capital appreciation while conserving principal by
maintaining at all times a balanced portfolio of domestic and foreign
stocks and bonds.
Growth and Income seeks capital appreciation and current income by
investing primarily in common stocks.
Each Fund currently offers two classes of shares. Class A shares are
offered at net asset value per share plus an initial sales charge. Class B
shares are offered without an initial sales charge, although a declining
contingent sales charge may be imposed on redemptions made within six years
of purchase. Additionally, any purchases of Class A shares in excess of
$1,000,000 will be subject to a contingent deferred sales charge on
redemptions made within one year of purchase. Class B shares of each Fund
will convert automatically to Class A shares on the first business day of
the month after seven years from the issuance of such Class B shares and at
such time will be subject to the lower distribution fee applicable to Class
A shares. Each class of shares bears the same voting, dividend, liquidation
and other rights and conditions and each makes distribution and account
maintenance and service fee payments under the distribution plans pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"),
except that Class B shares are subject to higher distribution fee rates.
Note 2. Significant Accounting Policies
The following is a summary of the significant accounting policies followed
by the Funds in the preparation of their financial statements:
SECURITY VALUATIONS: Securities that are actively traded in the over-the-
counter market, including listed securities for which the primary market is
believed by the Adviser to be over-the-counter, are
28
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
valued at the quoted bid price provided by principal market makers.
Securities listed on the New York Stock Exchange ("NYSE") or other national
securities exchanges, are valued on the basis of the last sale price on the
exchange on which they are primarily traded. If there is no sale on that
day, then securities are valued at the closing bid price on the NYSE or
other primary exchange for that day. However, if the last sale price on the
NYSE is different than the last sale price on any other exchange, the NYSE
price is used. 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. Values of portfolio securities primarily traded on
foreign exchanges are already translated into U.S. dollars when received
from a quotation service. Options traded on national securities exchanges
are valued as of the close of the exchange on which they are traded.
Futures and options traded on commodities exchanges are valued at their
last sale price as of the close of such exchange. The Funds may make use of
a pricing service in the determination of their net asset values.
Securities for which market quotations are not readily available and other
assets are valued at fair value as determined pursuant to procedures
adopted in good faith by the Trustees. Short-term investments which mature
in less than 60 days are valued at amortized cost, if their original
maturity was 60 days or less, or by amortizing their value on the 61st day
prior to maturity, if their original term to maturity exceeded 60 days.
REPURCHASE AGREEMENTS: The Funds, along with other affiliated registered
investment companies, transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral
is valued daily on a mark to market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In
the event of default of the obligation to repurchase, a Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. If the seller defaults and the value of the collateral declines
or if bankruptcy proceedings are commenced with respect to the seller of
the security, realization of the collateral by the Fund may be delayed or
limited.
OPTIONS: The premium paid by a Fund for the purchase of a call or a put
option is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current market
value of the option. When a Fund writes a call or a put option, an amount
equal to the premium received by the Fund is included in the Fund's
Statement of Assets and Liabilities as a liability and is subsequently
marked to market to reflect the current market value of the option written.
If an option which the Fund has written either expires on its stipulated
expiration date, or if the Fund enters into a closing purchase transaction,
the Fund realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is extinguished. If a call option
which the Fund has written is exercised, the Fund realizes a capital gain
or loss from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. If a put option
which the Fund has written is exercised, the amount of the premium
originally received reduces the cost basis of the security which the Fund
purchased upon exercise of the option.
29
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
SECURITIES TRANSACTIONS, INVESTMENT INCOME, DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS: Securities transactions are recorded on the first business
day following the trade date. Realized gains and losses on sales of
investments are calculated on the identified cost basis. Interest income is
recorded on the accrual basis; dividend income is recorded on the ex-
dividend date. Funds investing in foreign securities may be subject to
taxes imposed by countries in which it invests. Such taxes are generally
based on either income or gains earned or repatriated. The Fund accrues
such taxes when the related income is earned. The Equity Funds, except for
the Global Balanced Fund and the Growth and Income Fund, do not amortize
premiums or accrue 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).
Dividends from net investment income, if any, are paid semiannually, except
for Balanced Assets Fund and Growth and Income Fund, which pay quarterly,
and Global Balanced Fund, which pays annually. Capital gain distributions,
if any, are paid annually.
INVESTMENT SECURITIES LOANED: During the year ended September 30, 1996,
Balanced Assets Fund, Mid-Cap Growth Fund and Small Company Growth Fund
participated in securities lending with qualified brokers. In lending
portfolio securities to brokers the Funds receive cash as collateral
against the loaned securities, which must be maintained at not less than
102% of the market value of the loaned securities during the period of the
loan. To the extent income is earned on the cash collateral invested, it is
recorded as interest income. As with other extensions of credit, should the
borrower of the securities fail financially, the Funds may bear the risk of
delay in recovery or may be subject to replacing the loaned securities by
purchasing them with the cash collateral held, which may be less than 100%
of the market value of such securities at the time of replacement.
FOREIGN CURRENCY TRANSACTION: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at published rates on the following basis:
(i) market value of investment securities, other assets and
liabilities--at the closing rate of exchange.
(ii) purchases and sales of investment securities, income and expenses--
at the rate of exchange prevailing on the respective dates of such
transactions.
Assets and liabilities denominated in foreign currencies and commitments
under forward foreign currency contracts are translated into U.S. dollars
at the mean of the quoted bid and asked prices of such currencies against
the U.S. dollar.
The Fund does not isolate that portion of the results of operations arising
as a result of changes in the foreign exchange rates from the changes in
the market prices of securities held at fiscal year-end. Similarly, the
Fund does not isolate the effect of changes in foreign exchange rates from
the changes in the market prices of portfolio securities sold during the
year.
30
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Realized foreign exchange gains and losses on other assets and liabilities
and change in unrealized foreign exchange gains and losses on other assets
and liabilities include foreign exchange gains and losses from currency
gains or losses between the trade and settlement dates of securities
transactions, the difference between the amounts of interest, dividends and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid and changes in the unrealized
foreign exchange gains and losses relating to other assets and liabilities
arising as a result of changes in the exchange rate.
FEDERAL INCOME TAXES: It is the Funds' policy to meet the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute all of their taxable net income to
their shareholders. Therefore, no federal income tax or excise tax
provisions are required.
ORGANIZATIONAL EXPENSES: Costs incurred by SAAMCo in connection with the
organization of Global Balanced Fund and Growth and Income Fund amounted to
$4,347 and $1,383, respectively. These costs are being amortized on a
straight line basis by the Funds over a period not to exceed 60 months from
the date the Funds commenced operations.
EXPENSES: Expenses common to all Funds, not directly related to individual
Funds, are allocated among the Equity Funds based upon their relative net
asset values.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION: The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from these estimates.
STATEMENT OF POSITION 93-2: As required by Statement of Position 93-2,
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies,
permanent book-tax differences relating to shareholder distributions have
been reclassified in the Statement of Assets and Liabilities. Net
investment income/loss, net realized gain/loss, and net assets are not
affected. The following table discloses the current year reclassifications
between paid in capital, accumulated undistributed net investment
income/loss and accumulated undistributed net realized gain/loss on
investments.
[Download Table]
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED PAID
NET REALIZED NET INVESTMENT IN
GAIN/LOSS INCOME/LOSS CAPITAL
------------- -------------- -----------
Balanced Assets Fund............... $ (1,024) $ 1,024 $ --
Blue Chip Growth Fund.............. (408,630) 408,630 --
Mid-Cap Growth Fund................ (399,630) 425,977 (26,347)
Small Company Growth Fund.......... -- 1,857,708 (1,857,708)
Global Balanced Fund............... (704,902) 704,902 --
Growth and Income Fund............. (21,903) 21,903 --
31
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Note 3. Joint Repurchase Agreement Account
As of September 30, 1996, Balanced Assets Fund, Blue Chip Growth Fund, Mid-
Cap Growth Fund, Small Company Growth Fund, Global Balanced Fund and Growth
and Income Fund had a 6.4%, 0.9%, 3.1%, 7.4%, 0.9% and 3.3% undivided
interest, respectively, which represented $8,398,000, $1,189,000,
$4,072,000, $9,766,000, $1,160,000 and $4,353,000, respectively, in
principal amount in a joint repurchase agreement with Yamaichi
International, Inc. As of such date, the repurchase agreement in the joint
account and the collateral therefore were as follows:
Yamaichi International, Inc. Repurchase Agreement, 5.65% dated 9/30/96, in
the principal amount of $132,158,000 repurchase price $132,178,741 due
10/01/96 collateralized by $33,325,000 U.S. Treasury Bond 6.25% due
8/15/23, $37,500,000 U.S. Treasury Note 6.875% due 3/31/00, $20,370,000
U.S. Treasury Note 6.125% due 5/15/98, $32,910,000 U.S. Treasury Note 6.00%
due 8/31/97, and $12,410,000 U.S. Treasury Note 5.75% due 9/30/97,
approximate aggregate value $136,584,546.
Note 4. Investment Advisory and Management Agreement, Distribution Agreement
and Service Agreement
The Trust, on behalf of each Fund, has an Investment Advisory and
Management Agreement (the "Agreement") with SAAMCo, an indirect wholly-
owned subsidiary of SunAmerica Inc. Under the Agreement, SAAMCo provides
continuous supervision of a Fund's portfolio and administers its corporate
affairs, subject to general review by the Trustees. In connection
therewith, SAAMCo furnishes the Funds with office facilities, maintains
certain of the Fund's books and records, and pays the salaries and expenses
of all personnel, including officers of the Funds who are employees of
SAAMCo and its affiliates. The investment advisory and management fee to
SAAMCo with respect to each Fund (other than the Global Balanced Fund) is
computed daily and payable monthly, at an annual rate of .75% of a Fund's
average daily net assets up to $350 million, .70% of the next $350 million,
and .65% thereafter. The Global Balanced Fund pays the Adviser a fee,
payable monthly, computed daily at the annual rate of 1.00% on the first
$350 million of the Fund's average daily net assets, .90% on the next $350
million of net assets and .85% on net assets over $700 million. For the
year ended September 30, 1996, SAAMCo earned fees in the amounts stated on
the Statement of Operations, of which SAAMCo agreed to voluntarily waive
$98,765 and $91,558 on the Global Balanced Fund and Growth and Income Fund,
respectively. In addition to the aforementioned, SAAMCo, on behalf of
SunAmerica Global Balanced Fund, entered into Sub-Advisory Agreements with
AIG Asset Management, Inc. ("AIGAM") and Goldman Sachs Asset Management
International ("GSAM") under which AIGAM and GSAM act as sub-advisers. As
of April 23, 1996, GSAM resigned their role as sub-adviser. Pursuant to the
Agreement with the Trust SAAMCo assumed portfolio management
responsibilities for the component previously sub-advised by GSAM.
SAAMCo pays AIGAM a monthly fee with respect to those net assets of the
Global Balanced Fund actually managed by AIGAM computed based on average
daily net assets at the following annual rates: .50% on the first $50
million of such assets, .40% of the next $100 million of such assets, .30%
on the next $150 million of such assets, and .25% of such assets in excess
of $300 million. Also, from the investment advisory fee the Adviser paid
GSAM a monthly fee with respect to those net assets of the Global Balanced
Fund actually managed by GSAM computed based on average daily net assets,
32
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
at the following annual rates: .40% on the first $50 million of such
assets, .30% on the next $100 million of such assets, .25% on the next $100
million of such assets, and .20% of such assets in excess of $250 million.
For the year ended September 30, 1996, SAAMCo paid AIGAM fees of $66,942
and for the period October 1, 1995 through April 23, 1996 paid GSAM fees of
$14,483.
SAAMCo agreed that it would refund or rebate its management fees to each of
the Funds to the extent that the Fund's expenses (including the fees of
SAAMCo and amortization of organizational expenses, but excluding interest,
taxes, brokerage commissions, distribution fees and other extraordinary
expenses) exceed the most restrictive expense limitation imposed by states
where the Fund's shares are sold. The most restrictive expense limitation
was believed to be 2 1/2% of the first $30 million of the Fund's average
daily net assets, 2% of the next $70 million of average net assets and 1
1/2% of such net assets in excess of $100 million.
For the year ended September 30, 1996, SAAMCo has agreed to voluntarily
reimburse expenses of $66 on Mid-Cap Growth Fund Class B, $2,945 on Global
Balanced Fund Class A and, $18,080 and $17,057 on Growth and Income Fund
(Class A, Class B), respectively, related to both class specific and fund
level expenses excluding management fees and distribution and service
maintenance fees which are stated separately in the Notes.
The Trust, on behalf of each Fund, has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS"), an indirect wholly owned
subsidiary of SunAmerica Inc. Each Fund has adopted a Distribution Plan
(the "Plan") in accordance with the provisions of Rule 12b-1 under the 1940
Act. Rule 12b-1 under the Act permits an investment company directly or
indirectly to pay expenses associated with the distribution of its shares
("distribution expenses") in accordance with a plan adopted by the
investment company's board of trustees and approved by its shareholders.
Pursuant to such rule, the Trustees and the shareholders of each class of
shares of each Fund have adopted Distribution Plans hereinafter referred to
as the "Class A Plan" and the "Class B Plan." In adopting the Class A Plan
and the Class B Plan, the Trustees determined that there was a reasonable
likelihood that each such Plan would benefit the Trust and the shareholders
of the respective class. The sales charge and distribution fees of a
particular class will not be used to subsidize the sale of shares of any
other class.
Under the Class A Plan and Class B Plan, the Distributor receives payments
from a Fund at an annual rate of up to 0.10% and 0.75%, respectively, of
average daily net assets of such Fund's Class A and Class B shares to
compensate the Distributor and certain securities firms for providing sales
and promotional activities for distributing that class of shares. The
distribution costs for which the Distributor may be reimbursed out of such
distribution fees include fees paid to broker-dealers that have sold Fund
shares, commissions and other expenses such as those incurred for sales
literature, prospectus printing and distribution and compensation to
wholesalers. It is possible that in any given year the amount paid to the
Distributor under the Class A Plan or Class B Plan may exceed the
Distributor's distribution costs as described above. The Distribution Plans
provide that each class of shares of each Fund may also pay the Distributor
an account maintenance and service fee up to an annual rate of 0.25% of the
aggregate average daily net assets of such class of shares for payments to
broker-dealers for providing continuing account maintenance. Accordingly,
for the year ended September 30, 1996, SACS received fees (see Statement of
Operations) based upon the aforementioned rates, (of which $3,265 was
waived on Growth and Income Fund).
33
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
SACS receives sales charges on each Fund's Class A shares, portions of
which are reallowed to affiliated broker-dealers and non-affiliated broker-
dealers. SACS also receives the proceeds of contingent deferred sales
charges paid by investors in connection with certain redemptions of each
Fund's Class B shares. SACS has advised the Funds that for the year ended
September 30, 1996 the proceeds received from Class A sales (and paid out
to affiliated and non-affiliated broker-dealers) and Class B redemptions
are as follows:
[Enlarge/Download Table]
CLASS A CLASS B
---------------------------------------- -------------------
SALES AFFILIATED NON-AFFILIATED CONTINGENT DEFERRED
CHARGES BROKER-DEALERS BROKER-DEALERS SALES CHARGES
---------- -------------- -------------- -------------------
Balanced Assets Fund.... $1,139,306 $ 830,997 $132,907 $303,405
Blue Chip Growth Fund... 84,051 48,653 23,355 37,223
Mid-Cap Growth Fund..... 185,300 125,403 31,855 15,696
Small Company Growth
Fund................... 2,007,194 1,156,919 568,659 118,032
Global Balanced Fund.... 96,613 60,930 22,339 45,769
Growth and Income Fund.. 384,542 188,254 140,834 1,820
The Trust has entered into a Service Agreement with SunAmerica Fund
Services, Inc. ("SAFS"), an indirect wholly-owned subsidiary of SunAmerica
Inc. Under the Service Agreement, SAFS performs certain shareholder account
functions by assisting the Funds' transfer agent in connection with the
services that it offers to the shareholders of the Funds. The Service
Agreement permits the Funds to reimburse SAFS for costs incurred in
providing such services which is approved annually by the Trustees. For the
year ended September 30, 1996, the Funds incurred the following expenses to
reimburse SAFS pursuant to the terms of the Service Agreement.
[Download Table]
PAYABLE AT
SEPTEMBER 30,
EXPENSE 1996
----------------- ---------------
CLASS A CLASS B CLASS A CLASS B
-------- -------- ------- -------
Balanced Assets Fund...................... $300,743 $368,649 $25,959 $30,429
Blue Chip Growth Fund..................... 103,210 85,923 8,993 6,366
Mid-Cap Growth Fund....................... 86,059 24,058 7,278 2,322
Small Company Growth Fund................. 257,049 179,827 27,269 18,310
Global Balanced Fund...................... 20,216 32,724 1,763 2,849
Growth and Income Fund.................... 16,005 10,853 3,449 2,122
34
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Note 5. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales and maturities of
investments (excluding U.S. Government securities and short-term
investments) during the year ended September 30, 1996 were as follows:
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
------------ ------------ ------------ ------------- ----------- -----------
Aggregate purchases..... $470,062,644 $219,833,010 $146,077,784 $518,886,339 $20,776,926 $41,022,581
============ ============ ============ ============ =========== ===========
Aggregate sales......... $481,037,139 $222,057,848 $134,646,378 $404,167,995 $21,191,381 $18,134,966
============ ============ ============ ============ =========== ===========
Note 6. Portfolio Securities (Tax Basis)
The cost of securities and the aggregate gross unrealized appreciation and
depreciation of securities for federal income tax purposes at September 30,
1996 were as follows:
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
------------ ----------- ----------- ------------- ----------- -----------
Cost (tax basis)........ $286,714,065 $76,704,287 $45,886,063 $204,188,516 $23,714,810 $32,870,818
============ =========== =========== ============ =========== ===========
Appreciation............ $ 20,942,612 $ 7,779,818 $10,645,466 $ 57,614,727 $ 2,614,967 $ 2,188,075
Depreciation............ (4,670,019) (2,422,398) (338,154) (2,051,181) (860,315) (389,237)
------------ ----------- ----------- ------------ ----------- -----------
Unrealized appreciation/
depreciation--net...... $ 16,272,593 $ 5,357,420 $10,307,312 $ 55,563,546 $ 1,754,652 $ 1,798,838
============ =========== =========== ============ =========== ===========
At September 30, 1996, Global Balanced Fund had net capital loss
carryforwards of $217,014 which are available to the extent provided in
regulations to offset future capital gains of which $17,364 will expire in
2003 and $199,650 will expire in 2004. To the extent that these
carryforwards are used to offset future capital gains, it is probable that
the gains so offset will not be distributed.
35
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Note 7. Open Forward Currency Contracts
At September 30, 1996, the Global Balanced Fund engaged in the trading of
forward foreign currency exchange contracts ("forward contracts") in order
to hedge against changes in future foreign exchange rates and enhance
return. Forward contracts involve elements of market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The Fund bears
the risk of an unfavorable change in the foreign exchange rate underlying
the forward contract. Global Balanced Fund held the following forward
currency contracts at September 30, 1996:
[Download Table]
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
---------------------- ------------------------- -------- ------------
BEF 3,467,742 USD 114,142 12/05/96 $ 3,359
DEM 2,044,653 USD 1,386,337 12/04/96 41,553
DEM 2,000,000 USD 1,332,001 12/12/96 15,828
DKK 1,109,003 USD 194,201 10/22/96 4,697
ESP 10,484,525 USD 81,576 10/15/96 30
FRF 782,303 USD 156,102 10/23/96 4,458
JPY 59,315,200 USD 544,176 10/17/96 11,322
JPY 300,000,000 USD 2,781,125 12/12/96 64,720
*USD 172,143 IEP 107,348 10/1/96 54
--------
146,021
--------
GROSS
UNREALIZED
DEPRECIATION
------------
AUD 94,642 USD 74,247 10/30/96 $ (583)
CAD 216,167 USD 158,051 11/12/96 (930)
GBP 420,664 USD 652,282 11/14/96 (5,805)
IEP 107,348 USD 172,106 12/02/96 (38)
ITL 421,970,840 USD 273,138 10/15/96 (3,548)
SEK 3,074,685 USD 462,567 11/15/96 (1,757)
*IEP 107,348 USD 171,026 10/01/96 (1,170)
--------
(13,831)
--------
Net Appreciation....................................... $132,190
========
*Represents open forward foreign currency contracts and offsetting open
forward foreign currency contracts that do not have additional market risk
but have continued counterparty settlement risk.
AUD--Australian Dollar ESP--Spanish Peseta ITL--Italian Lira
BEF--Belgian Franc FRF--French Franc JPY--Japanese Yen
CAD--Canadian Dollar GBP--Great Britain Pound SEK--Swedish Krona
DEM--Deutsche Mark IEP--Irish Punt USD--United States
DKK--Danish Kroner Dollar
36
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Note 8. Capital Share Transactions
At September 30, 1996, the Adviser and SACS in the aggregate, owned 843,915
Class A shares of the Growth and Income Fund representing 25.24% of the
Fund's net assets.
Transactions in capital shares of each class of each series were as
follows:
[Enlarge/Download Table]
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, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Shares sold..... 3,119,474 $ 50,864,950 4,667,503 $ 71,426,588 3,055,442 $ 49,865,609 3,071,975 $ 45,998,809
Reinvested
dividends...... 583,832 9,290,744 265,763 3,756,343 690,103 10,949,550 769,696 10,686,782
Shares redeemed. (2,257,335) (36,956,739) (1,193,984) (17,782,121) (3,430,716) (55,757,942) (6,322,402) (95,258,440)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... 1,445,971 $ 23,198,955 3,739,282 $ 57,400,810 314,829 $ 5,057,217 (2,480,731) $ (38,572,849)
========== ============ ========== ============ ========== ============ =========== =============
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, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Shares sold..... 753,893 $ 12,709,149 2,404,163 $ 37,806,801 3,214,655 $ 53,717,531 8,964,323 $ 134,971,138
Reinvested
dividends...... 285,095 4,507,347 14,956 207,075 277,108 4,315,647 372,862 5,128,338
Shares redeemed. (533,503) (8,978,653) (181,804) (2,884,125) (3,702,537) (61,373,567) (11,706,255) (177,081,024)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... 505,485 $ 8,237,843 2,237,315 $ 35,129,751 (210,774) $ (3,340,389) (2,369,070) $ (36,981,548)
========== ============ ========== ============ ========== ============ =========== =============
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, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Shares sold..... 585,749 $ 10,047,757 247,141 $ 3,926,322 1,569,285 $ 26,612,848 4,235,563 $ 62,818,790
Reinvested
dividends...... 262,450 4,236,039 5,781 79,602 66,071 1,049,943 1,748 24,200
Shares redeemed. (609,879) (10,404,579) (521,946) (7,755,976) (1,386,338) (23,587,448) (3,989,374) (59,135,991)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... 238,320 $ 3,879,217 (269,024) $ (3,750,052) 249,018 $ 4,075,343 247,937 $ 3,706,999
========== ============ ========== ============ ========== ============ =========== =============
37
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
[Enlarge/Download Table]
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, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------- ------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Shares sold..... 6,607,402 $ 153,907,782 6,544,632 $ 130,462,164 6,285,098 $ 144,713,218 9,886,153 $ 196,092,402
Reinvested
dividends...... 725,288 15,398,224 54,753 964,756 543,295 11,327,669 62,016 1,085,149
Shares redeemed. (4,425,505) (102,867,176) (5,262,148) (102,586,803) (5,086,621) (116,292,585) (10,265,178) (202,833,358)
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Net increase
(decrease)..... 2,907,185 $ 66,438,830 1,337,237 $ 28,840,117 1,741,772 $ 39,748,302 (317,009) $ (5,655,807)
========== ============= ========== ============= ========== ============= =========== =============
GLOBAL BALANCED FUND
-----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
---------------------------------------------------- -----------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------- ------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Shares sold..... 419,512 $ 3,129,820 750,764 $ 5,173,301 771,725 $ 5,700,564 1,150,637 $ 7,847,490
Reinvested
dividends...... 63,292 449,372 4,067 27,252 93,522 662,149 2,161 14,461
Shares redeemed. (488,115) (3,602,549) (1,342,777) (9,319,908) (672,645) (4,972,923) (1,199,716) (8,126,345)
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Net increase
(decrease)..... (5,311) $ (23,357) (587,946) $ (4,119,355) 192,602 $ 1,389,790 (46,918) $ (264,394)
========== ============= ========== ============= ========== ============= =========== =============
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, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------- ------------------------- ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Shares sold..... 1,608,366 $ 15,926,962 542,589 $ 4,112,191 1,180,720 $ 11,686,226 301,384 $ 2,380,132
Reinvested
dividends...... 32,680 297,897 25,040 190,918 19,593 176,116 7,758 61,110
Shares redeemed. (46,202) (441,023) (562,875) (4,274,466) (172,820) (1,683,504) (37,348) (295,806)
---------- ------------- ---------- ------------- ---------- ------------- ----------- -------------
Net increase.... 1,594,844 $ 15,783,836 4,754 $ 28,643 1,027,493 $ 10,178,838 271,794 $ 2,145,436
========== ============= ========== ============= ========== ============= =========== =============
38
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 -- (continued)
Note 9. Commitments and Contingencies
The SunAmerica family of mutual funds may borrow up to $75,000,000 under an
uncommitted line of credit with State Street Bank and Trust Company, 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 10. Trustees Retirement Plan
The Trustees (and Directors) of the SunAmerica Family of Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement
Plan (the "Retirement Plan") effective January 1, 1993 for the unaffiliated
Trustees. The Retirement Plan provides generally that if an unaffiliated
Trustee who has at least 10 years of consecutive service as a Disinterested
Trustee of any of the SunAmerica mutual funds (an "Eligible Trustee")
retires after reaching age 60 but before age 70 or dies while a Trustee,
such person will be eligible to receive a retirement or death benefit from
each SunAmerica mutual fund with respect to which he or she is an Eligible
Trustee. As of each birthday, prior to the 70th birthday, but in no event
for a period greater than 10 years, each Eligible Trustee will be credited
with an amount equal to 50% of his or her regular fees (excluding committee
fees) for services as a Disinterested Trustee of each SunAmerica mutual
fund for the calendar year in which such birthday occurs. In addition, an
amount equal to 8.5% of any amounts credited under the preceding clause
during prior years, is added to each Eligible Trustee's account until such
Eligible Trustee reaches his or her 70th birthday. An Eligible Trustee may
receive any benefits payable under the Retirement Plan, at his or her
election, either in one lump sum or in up to fifteen annual installments.
As of September 30, 1996, Balanced Assets Fund, Blue Chip Growth Fund, Mid-
Cap Growth Fund, Small Company Growth Fund, Global Balanced Fund and Growth
and Income Fund had accrued $15,032, $4,872, $2,539, $7,974, $1,258 and
$298, respectively, for the Retirement Plan, which is included in accrued
expenses on the Statement of Assets and Liabilities, and for the year ended
September 30, 1996 expensed $9,912, $3,005, $1,653, $5,731, $822 and $240,
respectively, for the Retirement Plan, which is included in Trustees' fees
and expenses on the Statement of Operations.
Note 11. Subsequent Event
On October 1, 1996 Balanced Assets Fund and Small Company Growth Fund
offered Class Z shares exclusively for sale to employees participating in
the SunAmerica profit sharing and retirement plan.
39
SUNAMERICA EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of SunAmerica Equity Funds
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of SunAmerica Balanced
Assets Fund, SunAmerica Blue Chip Growth Fund, SunAmerica Mid-Cap Growth Fund,
SunAmerica Small Company Growth Fund, SunAmerica Global Balanced Fund and
SunAmerica Growth and Income Fund (constituting SunAmerica Equity Funds,
hereafter referred to as the "Fund") at September 30, 1996, the results of each
of their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 1996 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 15, 1996
40
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, 1996. The information and
distributions reported herein may differ from the information and
distributions taxable to the shareholders for the calendar year ending
December 31, 1996. 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 1997.
During the year ended September 30, 1996 the Funds paid the following
dividends per share:
[Download Table]
TOTAL ORDINARY NET SHORT-TERM NET LONG-TERM
DIVIDENDS INCOME CAPITAL GAINS CAPITAL GAINS
--------- -------- --------------- ---------------
Balanced Assets Class A..... $1.27 $.28 $ .73 $.26
Balanced Assets Class B..... 1.17 .18 .73 .26
Blue Chip Growth Class A.... 1.91 -- 1.39 .52
Blue Chip Growth Class B.... 1.91 -- 1.39 .52
Mid-Cap Growth Class A...... 2.11 -- 1.52 .59
Mid-Cap Growth Class B...... 2.11 -- 1.52 .59
Small Company Growth Class
A.......................... 4.53 -- 4.43 .10
Small Company Growth Class
B.......................... 4.53 -- 4.43 .10
Global Balanced Class A..... .42 .42 -- --
Global Balanced Class B..... .38 .38 -- --
Growth and Income Class A... .56 .17 .39 --
Growth and Income Class B... .52 .13 .39 --
For the year ended September 30, 1996, 19.44%, 17.42%, 3.87%, 28.30% and
14.43% of the dividends paid from ordinary income by Balanced Assets Fund,
Blue Chip Growth Fund, Mid-Cap Growth Fund, Global Balanced Fund and Growth
and Income Fund respectively, qualified for the 70% dividends received
deductions for corporations.
41
SUNAMERICA EQUITY FUNDS
COMPARISONS: PORTFOLIOS VS. INDEXES
As required by the Securities and Exchange Commission, the following graphs
compare the performance of a $10,000 investment in the SunAmerica Equity Funds'
portfolios to a similar investment in an index. Please note that "inception" as
used herein reflects the date a Fund commenced operations without regard to
when a second class of shares was introduced. It is important to note that the
SunAmerica Equity Funds are professionally managed mutual funds while the
indices are not available for investment and are unmanaged. The comparison is
shown for illustrative purposes only. The graphs present the performance of the
class of that particular Fund which has been in existence the longest. The
performance of the other class will vary based upon the difference in sales
charges and fees assessed to shareholders of that class. The maximum sales
charge for Class A is 5.75% of the public offering price. The maximum
contingent deferred sales charge for Class B is 4% and is reduced to 0% after
six years. Both Class A and Class B bear ongoing 12b-1 distribution and service
fees. Each index has been chosen by the particular portfolio's manager as an
appropriate comparison and is accompanied by a brief discussion from the
portfolio manager about why the portfolio performed the way it did relative to
the index.
[GRAPH APPEARS HERE]
Balanced Assets Fund
Class A Class B
------------------------ ------------------------
SEC SEC
Balanced Average Cumulative Average Cumulative
Assets Annual Traditional Annual Traditional
Fund Return Return+ Return Return+
--------------- ------- ----------- ------- -----------
1 Year Return 4.29% 10.65% 5.93% 9.93%
5 Year Return N/A N/A 10.01% 63.12%
Since Inception 8.23% 34.74% 11.62% 260.76%
+ Traditional returns do not include sales load.
The SunAmerica Balanced Assets Fund offers a conservative approach to stock
investing. The Fund seeks to conserve principal by maintaining at all times a
balanced portfolio of stocks and bonds. The Fund will traditionally underperform
a pure stock portfolio due to its fixed income component. Over the course of the
past year, the Fund has underperformed the S&P 500 due to our conservative
stance toward the market. Our strategy going forward will be to overweight the
Fund with large, liquid names with consistent earnings, focusing on the
technology, health care, interest sensitive and energy sectors.
Balanced Assets- S&P 500 Lehman Bros.
Class B (dividends reinvested) Int Gov't Index
---------------- ---------------------- ---------------
9/86 10,000 10,000 10,000
6/87 11,752 13,449 10,283
6/88 11,577 12,534 11,056
6/89 12,529 15,110 12,171
6/90 14,144 17,601 13,112
6/91 14,693 18,903 14,492
6/92 15,794 21,439 16,354
6/93 18,999 24,360 17,996
9/93 19,653 24,989 18,401
9/94 19,625 25,912 18,125
9/95 23,543 33,623 20,050
9/96 29,067 40,457 21,073
*Fund changed its fiscal year end from June 30 as of September 24, 1993.
42
SUNAMERICA EQUITY FUNDS
COMPARISONS: PORTFOLIOS VS. INDEXES -- (continued)
[GRAPH APPEARS HERE]
Blue Chip Growth Fund
Class A Class B
-------------------- ---------------------
SEC SEC
Blue Chip Average Cumulative Average Cumulative
Growth Annual Traditional Annual Traditional
Fund Return Return+ Return Return+
--------------- ------- ----------- ------- -----------
1 Year Return 7.33% 13.88% 9.17% 13.17%
5 Year Return N/A N/A 12.86% 85.08%
Since Inception 8.86% 36.67% 10.53% 217.82%
+ Traditional returns do not include sales load.
The SunAmerica Blue Chip Growth Fund seeks capital appreciation by investing
primarily in equity securities of companies with large market capitalizations.
During the past year, the Blue Chip Growth Fund has lagged behind the S&P 500
due to our more conservative stance and the over diversification of the Fund.
Our strategy going forward is to concentrate the Fund on sectors that will
outperform. To that end, we have overweighted the Fund in interest sensitive,
health care and technology names into the Fund's next fiscal year.
Blue Growth Class B S&P 500 (dividends reinvested)
------------------- ------------------------------
9/86 10,000 10,000
12/86 10,451 10,558
12/87 9,678 11,119
12/88 12,506 12,965
12/89 14,101 17,073
12/90 10,560 16,543
12/91 13,711 21,584
12/92 14,872 23,228
9/93 17,816 24,989
9/94 17,493 25,912
9/95 21,082 33,623
9/96 23,858 40,457
*Fund changed its fiscal year end from December 31 to September 30 as of
September 24, 1993.
[GRAPH APPEARS HERE]
Mid-Cap Growth Fund
Class A Class B
---------------------- ---------------------
SEC SEC
Mid-Cap Average Cumulative Average Cumulative
Growth Annual Traditional Annual Traditional
Fund Return Return+ Return Return+
--------------- ------- ----------- ------- -----------
1 Year Return 6.43% 12.92% 8.16% 12.16%
5 Year Return 11.68% 84.31% N/A N/A
Since Inception 12.08% 219.65% 8.03% 28.96%
+ Traditional returns do not include sales load.
The SunAmerica Mid-Cap Growth Fund seeks capital appreciation by investing
primarily in the equity securities of medium-sized companies with market
capitalizations of $1 billion to approximately $5 billion. The Fund took
advantage of the strong advance of the equity markets and performed in line with
the S&P 500. The Fund performance was mainly due to select investments in high
growth industries such as, technology, health care and energy.
S&P 500 (dividends reinvested) Mid-Cap Growth Class A
------------------------------ ----------------------
1/87 10,000 10,000
11/87 8,301 8,839
11/88 10,236 11,224
11/89 13,393 15,308
11/90 12,929 12,610
11/91 15,558 16,535
11/92 18,432 20,077
9/93 20,073 24,177
9/94 20,814 21,873
9/95 27,008 26,679
9/96 32,498 30,127
*Fund changed its fiscal year end from November 30 to September 30 as of
September 24, 1993.
43
SUNAMERICA EQUITY FUNDS
COMPARISONS: PORTFOLIOS VS. INDEXES -- (continued)
[GRAPH APPEARS HERE]
Small Company Growth Fund
Class A Class B
------------------------- ---------------------
Small SEC SEC
Company Average Cumulative Average Cumulative
Growth Annual Traditional Annual Traditional
Fund Return Return+ Return Return+
--------------- ------- ----------- ------- -----------
1 Year Return 12.48% 19.35% 14.60% 18.60%
5 Year Return 18.63% 149.32% N/A N/A
Since Inception 14.87% 305.25% 16.83% 62.95%
+ Traditional returns do not include sales load.
The SunAmerica Small Company Growth Fund seeks to realize capital appreciation
by investing in equity securities of small capitalization growth companies. The
Fund performed well during its fiscal year, ranking among the top third of the
small company growth funds as tracked by Lipper Analytical Services. The Fund's
performance has been successful mainly due to additional positions in growth
stocks where earnings were driven by secular changes. We will continue our
selective investments in health care, and maintain positions in various
outsourcing companies and in the oil service sector, into the next fiscal
year.
NASDAQ Industrials Small Company Growth Class A
------------------ ----------------------------
1/87 10,000 10,000
11/87 6,855 7,313
11/88 8,195 11,503
11/89 10,021 14,886
11/90 8,763 10,334
11/91 13,270 15,714
11/92 15,859 19,533
9/93 17,556 24,549
9/94 17,498 22,638
9/95 23,897 32,003
9/96 26,965 38,195
*Fund changed its fiscal year end from November 30 to September 30 as of
September 24, 1993.
[GRAPH APPEARS HERE]
Global Balanced Fund
Class A Class B
------------------- --------------------
SEC SEC
Global Average Cumulative Average Cumulative
Balanced Annual Traditional Annual Traditional
Fund Return Return+ Return Return+
--------------- ------- ----------- ------- -----------
1 Year Return 4.62% 11.00% 6.21% 10.21%
5 Year Return N/A N/A N/A N/A
Since Inception 4.82% 17.96% 5.50% 16.05%
+ Traditional returns do not include sales load.
The SunAmerica Global Balanced Fund seeks capital appreciation while conserving
principal by maintaining at all times a balanced portfolio of domestic and
foreign stocks and bonds. The Fund has underperformed during the past year due
to its overweighting in the Japanese markets and its conservative stance toward
the domestic markets. Going forward, we continue to believe Japan will benefit
from its current low interest rate environment and improving economy. The
domestic equity and fixed income portion should perform well given the current
economic outlook in the U.S.
[Enlarge/Download Table]
JP Morgan Global MCSI EAFE World S&P 500 (dividends Global Balanced Global Balanced
Gov't Bond Index reinvested) Class A Class B
---------------- --------------- ------------------ --------------- ---------------
6/94 10,000 10,000 10,000 10,000 10,000
9/94 10,239 10,160 10,232 9,384 9,542
9/95 11,872 10,780 13,277 10,015 10,130
9/96 12,473 12,309 15,975 11,117 11,305
44
SUNAMERICA EQUITY FUNDS
COMPARISONS: PORTFOLIOS VS. INDEXES -- (continued)
[GRAPH APPEARS HERE]
Growth and Income Fund
Class A Class B
------------------------ ---------------------
SEC SEC
Growth Average Cumulative Average Cumulative
and Income Annual Traditional Annual Traditional
Fund Return Return+ Return Return+
---------------- ------- ----------- ------- -----------
1 Year Return 24.97% 32.59% 27.75% 31.75%
5 Year Return N/A N/A N/A N/A
Since Inception 20.76% 62.19% 22.52% 60.46%
+ Traditional returns do not include sales load.
The SunAmerica Growth and Income Fund invests in common stocks, which offer
potential for capital appreciation, current income or both. As we positioned the
portfolio in attractive health care, industrial and technology issues early in
the year, the Fund returned 32.59% for its fiscal year, ranking it the #1 growth
and income fund as ranked by Lipper Analytical Services. Currently we are
broadly diversified in primarily large capitalization stocks and are building
positions in areas where we see good earnings visibility and reasonable
valuations.
S&P 500 (dividends Growth & Income Growth & Income
reinvested) Class A Class B
------------------ --------------- ---------------
7/94 10,000 10,000 10,000
9/94 10,489 9,645 9,819
9/95 13,610 11,529 11,779
9/96 16,377 15,286 15,746
45
TRUSTEES INVESTMENT ADVISER
S. James Coppersmith SunAmerica Asset Management Corp.
Samuel M. Eisenstat The SunAmerica Center
Stephen J. Gutman 733 Third Avenue
Peter A. Harbeck New York, NY 10017-3204
Peter McMillan III
Sebastiano Sterpa SUB-ADVISER
AIG Asset Management, Inc. 70 Pine
OFFICERS Street New York, NY 10270
Peter A. Harbeck, President
Stanton J. Feeley, Executive Vice President DISTRIBUTOR
Nancy Kelly, Vice President SunAmerica Capital Services, Inc.
Audrey L. Snell, Vice President The SunAmerica Center
Gerard P. Sullivan, Vice President 733 Third Avenue
Robert M. Zakem, Secretary New York, NY 10017-3204
Peter C. Sutton, Treasurer
Donna M. Handel, Assistant Treasurer SHAREHOLDER SERVICING AGENT
John T. Genoy, Assistant Treasurer SunAmerica Fund Services, Inc.
Hilary R. Kastleman, Assistant Secretary The SunAmerica Center
Abbe P. Stein, Assistant Secretary 733 Third Avenue
New York, NY 10017-3204
CUSTODIAN AND TRANSFER AGENT
State Street Bank & Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BULK RATE
SUNAMERICA EQUITY FUNDS U.S. POSTAGE
THE SUNAMERICA CENTER PAID
733 THIRD AVENUE Kansas City,
NEW YORK, NY 10017-3204 MO
1-800-858-8850 PERMIT NO.
3657
This report is submitted solely for
the general information of
shareholders of the Fund.
Distribution of this report to
persons other than shareholders of
the Fund is authorized only in
connection with a currently effective
prospectus, setting forth details of
the Fund, which must precede or
accompany this report.
SPONSORED BY:
[LOGO]SUN AMERICA
ASSET MANAGEMENT
EFANN
March 31, 1997
SunAmerica
Equity Funds
[LOGO]
Semiannual Report
Balanced Assets (Yen) Blue Chip Growth (Yen) Mid-cap growth
Small company growth (Yen) Global balanced (Yen) Growth and income
[LOGO] SunAmerica
Asset Management
SUNAMERICA EQUITY FUNDS
SHAREHOLDER LETTER
DEAR SHAREHOLDER:
Our dominant thesis with respect to the economy for the past several years
has been one of slow growth and moderate inflation. The overall impression
among most money managers was that the economy would continue to grow
modestly, in the 2%-2.5% range, and that inflation was non-existent. Our
thesis was challenged as the economy surprised many investors by showing
surprising strength at the end of the first quarter, which brought about
inflationary fears. This stronger-than anticipated economic strength, forced
the Federal Reserve to raise interest rates and appear pro-active on the
inflationary outlook. Typically, stocks do not perform well in a rising
interest rate environment and this is likely the cause of the equity market's
difficulties through the first quarter of 1997. Despite these challenges, it
is our belief that the economy will continue to moderate throughout the year
and inflation will remain close to its current level. However, until a series
of more conservative economic numbers are revealed, uncertainty may continue
over the short-term.
BALANCED ASSETS FUND
We continue to focus the Fund on sectors we believe will produce favorable
earnings in most economic environments and on companies with high visibility,
consistent double-digit earnings and strong underlying fundamentals. Earnings
growth will be of paramount importance to continued performance in 1997. To
that end, we continue to emphasize and overweight the healthcare and financial
service sectors of the market. It is our belief that both of these sectors
will show solid growth with significant cash flow, increasing the potential of
share repurchases, dividend increases, and further industry consolidation. Our
underweighting of the energy sector early in the year has proved to be very
beneficial to performance. We will, however, increase our exposure to this
sector as we anticipate an earnings recovery in the energy sector. Finally, we
remain market weighted in the technology sector and will look to increase our
positions as the market outlook for this industry improves. Our top five
equity holdings as of the end of March 1997 included, Summit Bancorp, Allstate
Corp., American Express Co., Lucent Technologies, Inc. and Mobil Corp.
BLUE CHIP GROWTH FUND
The Fund continues to perform well in this difficult market. Our strategy
has been to overweight those companies and industries with leading global
franchises and improving fundamentals. We continue to concentrate the Fund's
investments on quality names, with high earnings visibility and double digit
growth. Our focus will continue to be on strong secular trends that may
produce favorable earnings in almost any economic environment. To that end, we
are emphasizing the interest rate sensitive sectors of the market. It is our
contention that as we begin to see the first signs of a slowdown in the
economy, these stocks will greatly outperform the market. We are also
overweighting the healthcare sector, as we believe firmly, the graying of
America and the demographic changes that are accompanying this trend are
accelerating healthcare nationwide. We are continuing to look for
opportunities in large, mainstream technology companies. Finally, our exposure
to the cyclical sectors of the market have been kept to a minimum. We remain
underweighted to the paper and metals sectors of the market. Our top five
holdings at the end of the first quarter 1997 were American Express Co., Home
Depot, Lucent Technologies, Inc., Aetna, Inc. and Allstate Corp.
1
SUNAMERICA EQUITY FUNDS
SHAREHOLDER LETTER
MID-CAP GROWTH FUND
The need for liquidity and the popularity of index funds has attracted
investors to large-cap stocks, away from small and mid-cap companies. As a
result, small to medium-sized companies have continued to underperformed their
large-cap counterparts. Although, the mid-cap sector has experienced
volatility as a result of disappointing earnings and rising interest rates, we
are confident the potential for significant price recovery and the favorable
fundamentals of this sector should attract investors to return to the mid-cap
universe. We have identified mid-cap leadership stocks in sectors benefiting
from secular trends. These industries include, computer software systems,
hardware and semiconductors such as, BMC Software and National Semiconductor.
Other areas that we continue to emphasize are family-oriented, or cost
conscious retailing, such as Goody's Family Stores and Michael's Stores. These
companies continue to expand their retail operations to meet the increasing
demands of the value-oriented shopper.
SMALL COMPANY GROWTH FUND
The flow of investment assets from small-cap to large-cap companies is the
primary reason for this sector's underperformance. Trying the patience of
investors, small-cap stocks have responded more to emotions than investment
fundamentals. However, we expect this deviation from the long-term growth of
this sector to be short-term in nature. Eventually, the underlying
fundamentals of many smaller companies will, once again, be reflected by the
market. The Fund employs a top-down, secular approach to investing, focusing
on high growth sectors of the economy such as, technology, specialty
retailing, oil service and selective healthcare. We then analyze the
fundamentals of a company's business and seek out opportunities benefiting
from secular trends. As always, we have diversified the Fund among various
leadership companies within promising sectors. In the technology area, one of
our favorites is Internet Publisher and trade show organizer, Mecklermedia.
This company has three growing franchises, recurring revenue streams and
little technology risk. In the retail sector, we have invested in a number of
high growth manufacturers which benefit from increasing levels of disposable
income or recognized brand names such as, Gucci, Pacific Sunwear and Jones
Apparel Group. We continue to participate in the oil and gas service sector,
which we believe is benefiting from the multi-year expansion of energy
exploration worldwide. Small-cap companies, with their faster rates of
earnings growth, currently offer investors more relative value and opportunity
than large-cap alternatives.
GLOBAL BALANCED FUND
International equity markets continued to underperform the domestic stock
markets in the first quarter of 1997. The Global Balanced Fund's portfolio as
of March 31, 1997 was allocated: 49.5% in foreign equities, 20.8% in domestic
and foreign bonds, and 17.1% in U.S. equities. The international portion of
the Fund continues to emphasize Japanese stocks, which we believe will benefit
from the existing low interest rate environment and an improving Japanese
economy. Over the course of the first quarter we increased our holdings of
U.S. Treasury securities as interest rates rose to levels we believe offer
attractive relative value. The foreign bond portion of the Fund is positioned
to offer participation similar to the J.P. Morgan International Government
Bond Index. The U.S. equity portion of the Fund continues to focus on
companies with consistent double-digit earnings and solid fundamentals that
should outperform in any economic
2
SUNAMERICA EQUITY FUNDS
SHAREHOLDER LETTER
environment. We are still convinced that international investments are
particularly attractive at this point in the global economic recovery and they
should represent a significant portion of a well diversified portfolio.
GROWTH AND INCOME FUND
The Growth and Income Fund remains broadly diversified as of March 31, 1997.
Small overweighted positions existed in the healthcare and basic industries
sectors. Utilities remain underweight, as the lack of earnings growth gives us
cause for concern. Our focus will continue to be on attractively priced sectors
and stocks with better than average earnings potential. We have been growing
positions in financial service and selective healthcare companies, particularly
managed care providers. The top five holdings were Crown Cork & Seal Co., Inc.,
Philip Morris, Cos., Inc., Merck & Co., Intel Corp. and IMC Global, Inc.
OUTLOOK
By all historic measures the stock market is overvalued on a short-term
basis, especially given what the Federal Reserve must do to slow the rise of
wage inflation. We anticipate a further rise in interest rates will contain
economic growth at an acceptable 2% level during the second half of this year.
Although a correction seems likely, a correction is not a bear market. The
correction may be sharp and severe. We are confident, however, it will be brief
and should represent a buying opportunity. We still expect to see the Dow at
8000 during 1997 and believe this bull market is not over. It is just maturing.
It is important to note that the secular trend of money flowing into mutual
funds continued in the first quarter, and the effect of retirement savings
leads us to believe this will continue for many years. As of the end of 1996,
the $3.7 trillion in mutual fund assets were distributed as follows: 50% in
equities, 25% in bonds and 25% in money market funds. There is plenty of
liquidity and the demographic trend favors equities.
/s/ Stanton J. Feeley /s/ Audrey Snell /s/ Gerard P.
Stanton J. Feeley Audrey Snell Gerard P.
Chief Investment Officer Portfolio Manager Sullivan
Portfolio Manager
3
SUNAMERICA EQUITY FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- March 31, 1997 (unaudited)
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
--------------------------------------------------------------------------
ASSETS:
Investments securities,
at value*.............. $298,474,863 $80,626,280 $47,730,229 $205,279,466 $21,270,526 $62,152,835
Short-term securities
(cost equals market)... -- -- -- -- 1,287,000 --
Repurchase agreements
(cost equals market)... 11,942,000 7,498,000 -- 23,656,000 1,300,000 5,044,000
Cash.................... 995 298 3,124,937 -- 300,806 155
Foreign cash............ -- -- -- -- 362,313 --
Receivable for
investments sold....... 12,869,232 1,587,997 3,326,148 11,575,277 -- 2,925,182
Interest and dividends
receivable............. 1,456,535 82,614 47,511 83,549 207,246 89,856
Receivable for shares of
beneficial
interest sold.......... 60,171 47,299 25,761 366,211 2,427 278,032
Prepaid expenses........ 16,401 33,570 6,928 13,333 1,246 1,286
Receivable from
investment adviser..... 1,734 -- -- 1,633 6,779 13,575
Unrealized appreciation
of foreign currency
contracts.............. -- -- -- -- 15,896 --
Deferred organizational
expenses............... -- -- -- -- 1,897 620
------------ ----------- ----------- ------------ ----------- -----------
Total assets.......... 324,821,931 89,876,058 54,261,514 240,975,469 24,756,136 70,505,541
------------ ----------- ----------- ------------ ----------- -----------
LIABILITIES:
Payable for investments
purchased.............. 18,153,833 3,216,029 -- 15,356,390 298,041 3,158,271
Payable for shares of
beneficial interest
redeemed............... 1,264,906 651,377 51,125 1,462,797 255,479 162,429
Investment advisory and
management
fees payable........... 203,785 60,192 35,373 158,021 20,967 43,716
Accrued expenses........ 196,845 77,384 73,923 137,239 64,305 52,473
Distribution and service
maintenance
fees payable........... 185,631 48,892 23,709 127,962 15,965 37,575
Due to custodian........ 3,188,854 963,753
Unrealized depreciation
of foreign
currency contracts..... -- -- -- -- 95,712 --
------------ ----------- ----------- ------------ ----------- -----------
Total liabilities..... 20,005,000 4,053,874 3,372,984 18,206,162 750,469 3,454,464
------------ ----------- ----------- ------------ ----------- -----------
Net assets.......... $304,816,931 $85,822,184 $50,888,530 $222,769,307 $24,005,667 $67,051,077
============ =========== =========== ============ =========== ===========
*Identified cost........ $285,479,790 $77,558,861 $43,071,462 $187,343,789 $20,178,458 $60,161,205
============ =========== =========== ============ =========== ===========
See Notes to Financial Statements
4
SUNAMERICA EQUITY FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- March 31, 1997 (unaudited)--(continued)
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
------------------------------------------------------------------------------
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial
interest, $.01 par
value.................. $ 196,014 $ 54,854 $ 30,944 $ 110,337 $ 31,324 $ 61,673
Paid-in capital......... 280,950,072 77,601,264 43,056,348 209,051,079 21,759,929 62,098,165
------------ ----------- ----------- ------------ ----------- -----------
281,146,086 77,656,118 43,087,292 209,161,416 21,791,253 62,159,838
Accumulated
undistributed net
investment income
(loss)................. 71,361 (102,511) (301,999) (1,729,473) (144,548) 24,357
Accumulated
undistributed net
realized gain (loss) on
investments, foreign
currency and other
assets and liabilities. 10,604,411 5,201,158 3,444,470 (2,598,313) 1,355,990 2,875,252
Net unrealized
appreciation of
investments............ 12,995,073 3,067,419 4,658,767 17,935,677 1,092,068 1,991,630
Net unrealized
depreciation of foreign
currency, other assets
and liabilities........ -- -- -- -- (89,096) --
------------ ----------- ----------- ------------ ----------- -----------
Net assets.......... $304,816,931 $85,822,184 $50,888,530 $222,769,307 $24,005,667 $67,051,077
============ =========== =========== ============ =========== ===========
CLASS A (UNLIMITED
SHARES AUTHORIZED):
Net assets.............. $148,941,794 $53,730,593 $39,051,514 $134,029,073 $ 8,738,315 $36,390,513
Shares of beneficial
interest issued and
outstanding............ 9,575,883 3,399,472 2,360,347 6,566,617 1,135,893 3,341,626
Net asset value and
redemption price per
share.................. $ 15.55 $ 15.81 $ 16.54 $ 20.41 $ 7.69 $ 10.89
Maximum sales charge
(5.75% of offering
price)................. 0.95 0.96 1.01 1.25 0.47 0.66
------------ ----------- ----------- ------------ ----------- -----------
Maximum offering price
to public.............. $ 16.50 $ 16.77 $ 17.55 $ 21.66 $ 8.16 $ 11.55
============ =========== =========== ============ =========== ===========
CLASS B (UNLIMITED
SHARES AUTHORIZED):
Net assets.............. $155,856,834 $32,091,591 $11,837,016 $ 88,317,328 $15,267,352 $30,660,564
Shares of beneficial
interest issued and
outstanding............ 10,024,312 2,085,934 734,088 4,446,456 1,996,540 2,825,701
Net asset value,
offering and redemption
price per share
(excluding any
applicable contingent
deferred sales charge). $ 15.55 $ 15.38 $ 16.12 $ 19.86 $ 7.65 $ 10.85
============ =========== =========== ============ =========== ===========
CLASS Z (UNLIMITED
SHARES AUTHORIZED):
Net assets.............. $ 18,303 $ 422,906
Shares of beneficial
interest issued and
outstanding............ 1,177 20,668
Net asset value,
offering and redemption
price per share........ $ 15.55 $ 20.46
============ ============
See Notes to Financial Statements
5
SUNAMERICA EQUITY FUNDS
STATEMENT OF OPERATIONS -- For the six months ended March 31, 1997 (unaudited)
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
---------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Interest (net of
withholding taxes of
$1,960 on Global
Balanced Fund).......... $ 4,215,047 $ 176,598 $ 45,047 $ 221,313 $ 240,377 $ 127,477
Dividends (net of
withholding taxes of
$4,462, $2,749, $1,913,
$2,161, $12,564 and
$1,878, respectively)... 1,418,447 534,456 168,111 424,444 113,869 439,850
----------- ----------- ----------- ------------ --------- ----------
Total investment income.. 5,633,494 711,054 213,158 645,757 354,246 567,327
----------- ----------- ----------- ------------ --------- ----------
Expenses:
Investment advisory and
management fees......... 1,203,037 339,234 213,175 1,006,084 129,099 208,479
Distribution and service
maintenance fees-Class
A....................... 264,165 94,328 75,051 278,654 17,026 54,478
Distribution and service
maintenance fees-Class
B....................... 849,241 182,803 69,802 544,099 80,453 122,320
Transfer agent fees and
expenses-Class A........ 209,799 72,363 59,800 213,843 14,409 40,526
Transfer agent fees and
expenses-Class B........ 216,086 49,173 20,514 145,019 22,362 33,290
Transfer agent fees and
expenses-Class Z........ 2,200 -- -- 2,200 -- --
Custodian fees and
expenses................ 70,675 36,625 35,050 66,700 87,715 40,795
Registration fees-Class
A....................... 19,319 3,762 8,230 23,720 2,269 5,397
Registration fees-Class
B....................... 21,971 4,618 5,302 16,815 2,281 4,283
Registration fees-Class
Z....................... 46 -- -- 202 -- --
Audit and tax consulting
fees.................... 25,710 11,325 10,140 21,855 6,940 11,295
Trustees' fees and
expenses................ 19,909 5,574 3,467 16,147 1,980 2,745
Printing expense......... 12,670 7,705 2,855 11,250 1,740 2,665
Legal fees and expenses.. 3,045 1,110 185 1,760 -- --
Insurance expense........ 2,024 548 335 1,584 164 184
Interest expense......... 207 2,298 9,418 25,242 -- 291
Amortization of
organizational expenses. -- -- -- -- 437 138
Miscellaneous expenses... 3,790 2,099 1,833 2,201 1,115 1,054
----------- ----------- ----------- ------------ --------- ----------
Total expenses........... 2,923,894 813,565 515,157 2,377,375 367,990 527,940
Less: expenses
reimbursed by
investment adviser...... (2,237) -- -- (2,145) (39,251) (90,493)
----------- ----------- ----------- ------------ --------- ----------
Net expenses............. 2,921,657 813,565 515,157 2,375,230 328,739 437,447
----------- ----------- ----------- ------------ --------- ----------
Net investment income
(loss)................... 2,711,837 (102,511) (301,999) (1,729,473) 25,507 129,880
----------- ----------- ----------- ------------ --------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments.............. 14,064,496 6,152,510 4,919,364 7,728,349 778,118 3,195,475
Net realized gain (loss)
on foreign currency and
other assets and
liabilities.............. -- -- -- -- 807,245 (7)
Net change in unrealized
appreciation/depreciation
of investments........... (3,820,486) (2,832,595) (5,949,732) (39,630,581) (674,943) 192,792
Net change in unrealized
appreciation/depreciation
of foreign currency and
other assets and
liabilities.............. -- -- -- -- (218,383) --
----------- ----------- ----------- ------------ --------- ----------
Net realized and
unrealized gain (loss) on
investments, foreign
currency and other assets
and liabilities.......... 10,244,010 3,319,915 (1,030,368) (31,902,232) 692,037 3,388,260
----------- ----------- ----------- ------------ --------- ----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS:.............. $12,955,847 $ 3,217,404 $(1,332,367) $(33,631,705) $ 717,544 $3,518,140
=========== =========== =========== ============ ========= ==========
See Notes to Financial Statements
6
SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
[Enlarge/Download Table]
BALANCED ASSETS FUND BLUE CHIP GROWTH FUND MID-CAP GROWTH FUND
-------------------------------- -------------------------------- --------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, 1997 SEPTEMBER 30, MARCH 31, 1997 SEPTEMBER 30, MARCH 31, 1997 SEPTEMBER 30,
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996
---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income
(loss)............... $ 2,711,837 $ 3,950,337 $ (102,511) $ (408,630) $ (301,999) $ (425,977)
Net realized gain on
investments.......... 14,064,496 33,912,222 6,152,510 13,200,391 4,919,364 1,634,384
Net change in
unrealized
appreciation/depreciation
of investments....... (3,820,486) (8,691,595) (2,832,595) (2,296,867) (5,949,732) 4,688,230
------------ ------------ ------------ ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ 12,955,847 29,170,964 3,217,404 10,494,894 (1,332,367) 5,896,637
------------ ------------ ------------ ----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)..... (1,475,445) (2,345,435) -- -- -- --
From net investment
income (Class B)..... (1,146,279) (1,868,201) -- -- -- --
From net investment
income (Class Z)..... (175) -- -- -- -- --
From net realized
gains on investments
(Class A)............ (14,835,171) (7,282,221) (7,108,685) (4,646,750) (1,856,886) (4,337,142)
From net realized
gains on investments
(Class B)............ (17,300,021) (9,730,482) (5,010,638) (4,492,488) (619,105) (1,083,506)
From net realized
gains on investments
(Class Z)............ (994) -- -- -- -- --
------------ ------------ ------------ ----------- ----------- -----------
Total dividends and
distributions to
shareholders.......... (34,758,085) (21,226,339) (12,119,323) (9,139,238) (2,475,991) (5,420,648)
------------ ------------ ------------ ----------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM CAPITAL
SHARE TRANSACTIONS
(NOTE 7).............. 8,387,207 28,256,172 6,531,197 4,897,454 (991,298) 7,954,560
------------ ------------ ------------ ----------- ----------- -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................ (13,415,031) 36,200,797 (2,370,722) 6,253,110 (4,799,656) 8,430,549
NET ASSETS:
Beginning of period.... 318,231,962 282,031,165 88,192,906 81,939,796 55,688,186 47,257,637
------------ ------------ ------------ ----------- ----------- -----------
End of period
[including
undistributed net
investment income
(loss) for March 31,
1997 and September 30,
1996 of $71,361,
$(18,577); $(102,511),
$0; $(301,999), and
$0, respectively]..... $304,816,931 $318,231,962 $ 85,822,184 $88,192,906 $50,888,530 $55,688,186
============ ============ ============ =========== =========== ===========
See Notes to Financial Statements
7
SUNAMERICA EQUITY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
[Enlarge/Download Table]
SMALL COMPANY GROWTH FUND GLOBAL BALANCED FUND GROWTH AND INCOME FUND
-------------------------------- -------------------------------- --------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, 1997 SEPTEMBER 30, MARCH 31, 1997 SEPTEMBER 30, MARCH 31, 1997 SEPTEMBER 30,
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996
---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income
(loss)............... $ (1,729,473) $ (1,857,708) $ 25,507 $ 108,377 $ 129,880 $ 154,585
Net realized gain on
investments.......... 7,728,349 14,472 778,118 1,153,686 3,195,475 1,853,730
Net realized gain
(loss) on foreign
currency, other
assets and
liabilities.......... -- 36 807,245 797,602 (7) 2
Net change in
unrealized
appreciation/depreciation
of investments....... (39,630,581) 33,583,299 (674,943) 218,368 192,792 1,445,861
Net change in
unrealized
appreciation/depreciation
of foreign currency,
other assets and
liabilities.......... -- -- (218,383) 83,360 -- --
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ (33,631,705) 31,740,099 717,544 2,361,393 3,518,140 3,454,178
------------ ------------ ----------- ----------- ----------- -----------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)..... -- -- (292,534) (478,740) (72,849) (123,623)
From net investment
income (Class B)..... -- -- (390,427) (693,095) (30,158) (58,296)
From net investment
income (Class Z)..... -- -- -- -- -- --
From net realized
gains on investments
(Class A)............ (5,628,252) (16,561,192) -- -- (1,193,264) (175,889)
From net realized
gains on investments
(Class B)............ (3,985,470) (12,782,675) -- -- (917,178) (127,334)
From net realized
gains on investments
(Class Z)............ (7,070) -- -- -- -- --
------------ ------------ ----------- ----------- ----------- -----------
Total dividends and
distributions to
shareholders.......... (9,620,792) (29,343,867) (682,961) (1,171,835) (2,213,449) (485,142)
------------ ------------ ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM CAPITAL
SHARE TRANSACTIONS
(NOTE 7).............. (384,664) 106,187,132 (2,175,908) 1,366,433 30,744,365 25,962,674
------------ ------------ ----------- ----------- ----------- -----------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................ (43,637,161) 108,583,364 (2,141,325) 2,555,991 32,049,056 28,931,710
NET ASSETS:
Beginning of period.... 266,406,468 157,823,104 26,146,992 23,591,001 35,002,021 6,070,311
------------ ------------ ----------- ----------- ----------- -----------
End of period
[including
undistributed net
investment income for
March 31, 1997 and
September 30, 1996
$(1,729,473), $0;
$(144,548), $512,906;
$24,357, and $(2,516),
respectively]......... $222,769,307 $266,406,468 $24,005,667 $26,146,992 $67,051,077 $35,002,021
============ ============ =========== =========== =========== ===========
See Notes to Financial Statements
8
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
BALANCED ASSETS FUND
[Enlarge/Download Table]
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)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
CLASS A
9/24/93-
9/30/93(3)..... $15.07 $ -- $ 0.06 $ 0.06 $ -- $ -- $ -- $15.13 0.40% $ 33,381
9/30/94......... 15.13 0.30 (0.23) 0.07 (0.28) (0.30) (0.58) 14.62 0.50 52,098
9/30/95......... 14.62 0.32 2.51 2.83 (0.45) (0.58) (1.03) 16.42 20.68 119,916
9/30/96......... 16.42 0.27 1.39 1.66 (0.28) (0.99) (1.27) 16.81 10.65 147,035
3/31/97(7)...... 16.81 0.17 0.48 0.65 (0.16) (1.75) (1.91) 15.55 4.10 148,942
9/24/93-
9/30/93(3)..... 1.54%(4) 0.46%(4) 25% $ NA
9/30/94......... 1.58 2.00 141 NA
9/30/95......... 1.50 2.13 130 NA
9/30/96......... 1.52 1.63 187 0.0611
3/31/97(7)...... 1.49(4) 2.02(4) 95 0.0600
CLASS B
6/30/93(5)...... $15.63 $ 0.30 $ 2.63 $ 2.93 $(0.30) $(2.40) $(2.70) $15.86 20.29% $113,871
7/01/93-
9/30/93(5)..... 15.86 0.05 0.49 0.54 (0.06) (1.21) (1.27) 15.13 3.44 137,456
9/30/94......... 15.13 0.20 (0.23) (0.03) (0.18) (0.30) (0.48) 14.62 (0.14) 180,655
9/30/95......... 14.62 0.23 2.51 2.74 (0.36) (0.58) (0.94) 16.42 19.96 162,115
9/30/96......... 16.42 0.17 1.38 1.55 (0.18) (0.99) (1.17) 16.80 9.93 171,197
3/31/97(7)...... 16.80 0.12 0.50 0.62 (0.12) (1.75) (1.87) 15.55 3.86 155,857
6/30/93(5)...... 1.91%(6) 1.94%(6) 251% $ NA
7/01/93-
9/30/93(5)..... 2.10(4)(6) 1.36(4)(6) 25 NA
9/30/94......... 2.21 1.36 141 NA
9/30/95......... 2.12 1.59 130 NA
9/30/96......... 2.12 1.03 187 0.0611
3/31/97(7)...... 2.12(4) 1.40(4) 95 0.0600
CLASS Z
10/07/96-
3/31/97(3)(7).. $17.07 $ 0.21 $ 0.23 $ 0.44 $(0.21) $(1.75) $(1.96) $15.55 2.78% $ 18
10/07/96-
3/31/97(3)(7).. 0.99%(4)(6) 2.67%(4)(6) 95% $ NA
--------------------------------------------------------------------------------
BLUE CHIP GROWTH 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 UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- --------------- --------- ----------
CLASS A
10/08/93-
9/30/94(3)..... $16.24 $ 0.09 (1) $(0.26) $(0.17) $ -- $(0.65) $(0.65) $15.42 (1.05)% $ 3,207
9/30/95......... 15.42 0.02 (1) 2.99 3.01 -- (1.09) (1.09) 17.34 21.29 42,407
9/30/96......... 17.34 (0.03)(1) 2.22 2.19 -- (1.91) (1.91) 17.62 13.88 51,993
3/31/97(7)...... 17.62 -- (1) 0.62 0.62 -- (2.43) (2.43) 15.81 3.96 53,731
10/08/93-
9/30/94(3)..... 1.64%(4)(6) 0.65%(4)(6) 170% $ NA
9/30/95......... 1.58(6) 0.11(6) 251 NA
9/30/96......... 1.57 (0.18) 269 0.0600
3/31/97(7)...... 1.53(4) 0.03(4) 125 0.0600
CLASS B
12/31/92(5)..... $12.53 $(0.13) $ 1.19 $ 1.06 $ -- $ -- $ -- $13.59 8.46% $ 83,237
1/01/93-
9/30/93(5)..... 13.59 (0.02)(1) 2.71 2.69 -- -- -- 16.28 19.79 79,774
9/30/94......... 16.28 (0.01)(1) (0.28) (0.29) -- (0.65) (0.65) 15.34 (1.81) 71,749
9/30/95......... 15.34 (0.01)(1) 2.89 2.88 -- (1.09) (1.09) 17.13 20.51 39,533
9/30/96......... 17.13 (0.14)(1) 2.19 2.05 -- (1.91) (1.91) 17.27 13.17 36,199
3/31/97(7)...... 17.27 (0.05)(1) 0.59 0.54 -- (2.43) (2.43) 15.38 3.55 32,092
12/31/92(5)..... 2.53% (0.75)% 192% $ NA
1/01/93-
9/30/93(5)..... 2.46(4) (0.14)(4) 171 NA
9/30/94......... 2.28 (0.05) 170 NA
9/30/95......... 2.22 (0.09) 251 NA
9/30/96......... 2.23 (0.83) 269 0.0600
3/31/97(7)...... 2.19(4) (0.61)(4) 125 0.0600
------------
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased or sold.
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Equity
Funds fiscal year ends were changed to September 30
(6) Net of the following expense reimbursements (based on average net assets):
[Download Table]
6/30/93 9/30/93 9/30/94 9/30/95 3/31/97
------- ------- ------- ------- -------
Balanced Assets Class B.............. .05% .04% -- -- --
Balanced Assets Class Z.............. -- -- -- -- 43.04%
Blue Chip Growth Class A............. -- -- 1.66% .11% --
(7) Unaudited
See Notes to Financial Statements
9
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
MID-CAP GROWTH FUND
[Enlarge/Download Table]
NET
GAIN (LOSS)
ON INVEST- TOTAL DIVIDENDS DISTRI-
NET ASSET NET MENTS (BOTH FROM FROM NET BUTIONS NET ASSET NET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- -------------- --------- ----------
CLASS A
11/30/92(4)..... $13.30 $(0.07) $ 2.87 $ 2.80 $(0.02) $(0.44) $(0.46) $15.64 21.42% $30,024
12/01/92-
9/30/93(4)..... 15.64 (0.09)(2) 3.17 3.08 -- (0.69) (0.69) 18.03 20.42 34,918
9/30/94......... 18.03 0.04 (2) (1.64) (1.60) -- (2.65) (2.65) 13.78 (9.60) 32,906
9/30/95......... 13.78 (0.08)(2) 4.14 4.06 (0.04) -- (0.04) 17.80 29.51 37,714
9/30/96......... 17.80 (0.12)(2) 2.21 2.09 -- (2.11) (2.11) 17.78 12.92 41,904
3/31/97(9)...... 17.78 (0.08)(2) (0.36) (0.44) -- (0.80) (0.80) 16.54 (2.70) 39,052
11/30/92(4)..... 1.76% (0.46)% 98% $ NA
12/01/92-
9/30/93(4)..... 1.81(3) 1.18(3) 231 NA
9/30/94......... 1.76 0.28 555 NA
9/30/95......... 1.66 (0.51) 392 NA
9/30/96......... 1.62 (0.69) 307 0.0603
3/31/97(9)...... 1.64(3) (0.89)(3) 161 0.0600
CLASS B
10/04/93-
9/30/94(5)..... $18.12 $ 0.03 (2) $(1.80) $(1.77) $ -- $(2.65) $(2.65) $13.70 (10.56)% $ 4,039
9/30/95......... 13.70 (0.18)(2) 4.08 3.90 (0.02) -- (0.02) 17.58 28.55 9,544
9/30/96......... 17.58 (0.24)(2) 2.18 1.94 -- (2.11) (2.11) 17.41 12.16 13,784
3/31/97(9)...... 17.41 (0.14)(2) (0.35) (0.49) -- (0.80) (0.80) 16.12 (3.05) 11,837
10/04/93-
9/30/94(5)..... 2.43%(3)(6) 0.20%(3)(6) 555% $ NA
9/30/95......... 2.31(7) (0.17)(7) 392 NA
9/30/96......... 2.32 (1.43) 307 0.0603
3/31/97(9)...... 2.34(3) (1.60)(3) 161 0.0600
--------------------------------------------------------------------------------
SMALL COMPANY GROWTH 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(2) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN(1) (000'S)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE@
---------------- -------------- -------------- --------- ----------
CLASS A
11/30/92(4)(8).. $13.88 $(0.12) $ 3.39 $ 3.27 $ -- $(0.69) $(0.69) $16.46 24.31% $32,056
12/01/92-
9/30/93(4)(8).. 16.46 (0.02) 4.07 4.05 -- (0.73) (0.73) 19.78 25.68 39,238
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
3/31/97(9)...... 24.25 (0.12) (2.86) (2.98) -- (0.86) (0.86) 20.41 (12.76) 134,029
11/30/92(4)(8).. 1.90% (0.88)% 209% $ NA
12/01/92-
9/30/93(4)(8).. 1.83(3) (0.15)(3) 216 NA
9/30/94......... 1.67 (0.60) 411 NA
9/30/95......... 1.57 (0.22) 351 NA
9/30/96......... 1.53 (0.68) 240 0.0607
3/31/97(9)...... 1.51(3) (1.03)(3) 153 0.0600
CLASS B
9/24/93-
9/30/93(5)..... $19.66 $ -- $ 0.12 $ 0.12 $ -- $ -- $ -- $19.78 0.61% $ 38,898
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
3/31/97(9)...... 23.70 (0.20) (2.78) (2.98) -- (0.86) (0.86) 19.86 (13.06) 88,317
9/24/93-
9/30/93(5)..... 2.34%(3) (1.70)%(3) 216% $ NA
9/30/94......... 2.31 (1.23) 411 NA
9/30/95......... 2.22 (0.84) 351 NA
9/30/96......... 2.16 (1.30) 240 0.0607
3/31/97(9)...... 2.15(3) (1.67)(3) 153 0.0600
CLASS Z
10/07/96-
3/31/97(5)(9).. $24.61 $(0.06) $(3.23) $(3.29) $ -- $(0.86) $(0.86) $20.46 13.83% $423
10/07/96-
3/31/97(5)(9).. 1.10%(3) (0.61)%(3)(10) 153% $0.0600
------------
@ The average commission per share is derived by taking the agency
commissions paid on equity securities trades and dividing by the number of
shares purchased or sold.
(1) Total return is not annualized and does not reflect sales load
(2) Calculated based upon average shares outstanding
(3) Annualized
(4) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Equity
Funds fiscal year ends were changed to September 30
(5) Commencement of sale of respective class of shares
(6) Net of expense reimbursement equivalent to .48% of average net assets for
the period ended 9/30/94
(7) Net of expense reimbursement equivalent to .17% of average net assets for
the year ended 9/30/95
(8) Restated to reflect a 0.984460367 for 1.00 stock split effective September
24, 1993
(9) Unaudited
(10) Net of expense reimbursement equivalent to 1.80% of average net assets for
the period ended 3/31/97
See Notes to Financial Statements
10
SUNAMERICA EQUITY FUNDS
FINANCIAL HIGHLIGHTS
GLOBAL BALANCED FUND
[Enlarge/Download Table]
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)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS(5) NET ASSETS(5) TURNOVER PER SHARE@
---------------- ------------- ------------- --------- ----------
CLASS A
6/15/94-
9/30/94(3)..... $6.94 $0.02 $(0.05) $(0.03) $ -- $ -- $ -- $6.91 (0.43)% $13,100
9/30/95......... 6.91 0.10 0.36 0.46 (0.01) -- (0.01) 7.36 6.72 9,615
9/30/96......... 7.36 0.06 0.71 0.77 (0.42) -- (0.42) 7.71 11.00 10,035
3/31/97(6)...... 7.71 0.02 0.19 0.21 (0.23) -- (0.23) 7.69 2.79 8,738
6/15/94-
9/30/94(3)..... 2.15%(4) 0.93%(4) 18% $ NA
9/30/95......... 2.15 1.36 169 NA
9/30/96......... 2.15 0.84 103 0.0074
3/31/97(6)...... 2.14(4) 0.60(4) 30 0.0152
CLASS B
6/16/94-
9/30/94(3)..... $6.94 $0.01 $(0.05) $(0.04) $ -- $ -- $ -- $6.90 (0.58)% $13,532
9/30/95......... 6.90 0.05 0.36 0.41 (0.01) -- (0.01) 7.30 5.91 13,976
9/30/96......... 7.30 0.02 0.70 0.72 (0.38) -- (0.38) 7.64 10.21 16,112
3/31/97(6)...... 7.64 -- 0.20 0.20 (0.19) -- (0.19) 7.65 2.60 15,267
6/16/94-
9/30/94(3)..... 2.80%(4) 0.33%(4) 18% $ NA
9/30/95......... 2.80 0.75 169 NA
9/30/96......... 2.80 0.21 103 0.0074
3/31/97(6)...... 2.79(4) (0.04)(4) 30 0.0152
--------------------------------------------------------------------------------
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)
---------------- --------- --------- ----------- ---------- --------- ------- ------- --------- --------- ----------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
PERIOD TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
ENDED NET ASSETS(5) NET ASSETS(5) TURNOVER PER SHARE@
---------------- ------------- ------------- --------- ----------
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
3/31/97(6)...... 10.47 0.04 0.85 0.89 (0.03) (0.44) (0.47) 10.89 8.64 36,391
7/01/94-
9/30/94(3)..... 1.50%(4) 3.48%(4) 8% $ NA
9/30/95......... 0.46 4.16 230 NA
9/30/96......... 0.96 1.52 161 0.0600
3/31/97(6)...... 1.29(4) 0.77(4) 94 0.0600
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
3/31/97(6)...... 10.45 -- 0.85 0.85 (0.01) (0.44) (0.45) 10.85 8.34 30,661
7/06/94-
9/30/94(3)..... 2.15%(4) 2.86%(4) 8% $ NA
9/30/95......... 0.30 4.48 230 NA
9/30/96......... 1.58 0.73 161 0.0600
3/31/97(6)...... 1.94(4) 0.08(4) 94 0.0600
------------
@ The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased or sold.
(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):
[Download Table]
9/30/94 9/30/95 9/30/96 3/31/97
------- ------- ------- -------
Global Balanced Class A...................... 1.14% .40% .44% 0.32%
Global Balanced Class B...................... .93 .45 .41 0.29
Growth and Income Class A.................... 4.48 2.96 1.01 0.32
Growth and Income Class B.................... 20.35 5.07 1.14 0.33
(6) Unaudited
See Notes to Financial Statements
11
SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-----------------------------------------------------------------------------
COMMON STOCK--63.3%
AEROSPACE & MILITARY TECHNOLOGY--1.0%
Boeing Co. ............................................ 31,890 $ 3,145,151
------------
APPAREL & TEXTILES--0.7%
NIKE, Inc., Class B.................................... 20,000 1,240,000
Tommy Hilfiger Corp.+.................................. 20,000 1,045,000
------------
2,285,000
------------
AUTOMOTIVE--1.6%
Chrysler Corp. ........................................ 30,000 900,000
Ford Motor Co. ........................................ 40,000 1,255,000
General Motors Corp. .................................. 25,000 1,384,375
Goodyear Tire & Rubber Co. ............................ 25,000 1,306,250
------------
4,845,625
------------
BANKS--5.9%
Bank Of Boston Corp. .................................. 20,000 1,340,000
BankAmerica Corp. ..................................... 15,000 1,511,250
Chase Manhattan Corp. ................................. 20,000 1,872,500
Citicorp. ............................................. 15,000 1,623,750
Fleet Financial Group, Inc. ........................... 40,000 2,290,000
Hibernia Corp. ........................................ 100,000 1,312,500
NationsBank Corp. ..................................... 40,000 2,215,000
Summit Bancorp. ....................................... 130,000 5,687,500
------------
17,852,500
------------
BUSINESS SERVICES--1.4%
American Express Co. .................................. 70,000 4,191,250
------------
CHEMICALS--2.2%
du Pont (E.I.) de Nemours & Co. ....................... 30,000 3,180,000
Monsanto Co. .......................................... 55,000 2,103,750
Morton International, Inc. ............................ 35,000 1,478,750
------------
6,762,500
------------
COMMUNICATION EQUIPMENT--2.3%
Ericsson (L.M.) Telephone Co., Class B ADR(1).......... 50,000 1,690,625
Nokia Corp., Class A ADR(1)............................ 30,000 1,747,500
Octel Communications Corp.+............................ 70,000 1,111,250
Tellabs, Inc.+......................................... 70,000 2,528,750
------------
7,078,125
------------
COMPUTERS & BUSINESS EQUIPMENT--1.5%
Compaq Computer, Corp.+................................ 25,000 1,915,625
International Business Machines Corp. ................. 20,000 2,747,500
------------
4,663,125
------------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
CONGLOMERATE--2.7%
General Electric Co. ..................................... 25,000 $ 2,481,250
Republic Industries, Inc.+................................ 30,000 1,040,625
Schlumberger Ltd. ........................................ 15,000 1,608,750
United Technologies Corp.................................. 40,000 3,010,000
------------
8,140,625
------------
DEPARTMENT STORES--1.8%
Wal-Mart Stores, Inc. .................................... 100,000 2,787,500
Woolworth Corp.+.......................................... 110,000 2,571,250
------------
5,358,750
------------
ELECTRONICS--4.1%
Diebold, Inc. ............................................ 37,500 1,410,937
Intel Corp. .............................................. 20,000 2,782,500
Micron Technology, Inc. .................................. 30,000 1,214,175
Motorola, Inc. ........................................... 30,000 1,825,125
Rockwell International Corp. ............................. 45,000 2,919,375
Texas Instruments, Inc. .................................. 30,000 2,246,250
------------
12,398,362
------------
ENERGY SERVICES--2.7%
Exxon Corp. .............................................. 15,000 1,616,250
Mobil Corp. .............................................. 30,000 3,918,750
Royal Dutch Petroleum Co. ................................ 15,000 2,625,000
------------
8,160,000
------------
ENERGY SOURCES--1.7%
Halliburton Co. .......................................... 30,000 2,032,500
Texaco, Inc. ............................................. 30,000 3,285,000
------------
5,317,500
------------
FINANCIAL SERVICES--6.1%
Alex Brown, Inc. ......................................... 30,000 1,275,000
Capital One Financial Corp. .............................. 80,000 2,980,000
Dean Witter, Discover & Co. .............................. 70,000 2,441,250
Morgan Stanley Group, Inc. ............................... 40,000 2,350,000
Nationwide Financial Services, Inc. ...................... 45,000 1,158,750
Paine Webber Group, Inc. ................................. 45,000 1,271,250
ReliaStar Financial Corp. ................................ 60,000 3,547,500
Travelers Group, Inc. .................................... 45,000 2,154,375
Wells Fargo & Co. ........................................ 5,000 1,420,625
------------
18,598,750
------------
FOOD, BEVERAGE & TOBACCO--2.2%
McDonald's Corp. ......................................... 67,000 3,165,750
Philip Morris Cos., Inc. ................................. 30,000 3,423,750
------------
6,589,500
------------
12
SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FOREST PRODUCTS--0.5%
Kimberly-Clark Corp. ..................................... 15,000 $ 1,490,625
------------
HEALTH SERVICES--2.1%
Apria Healthcare Group, Inc.+............................. 60,000 1,087,500
Columbia/HCA Healthcare Corp. ............................ 70,000 2,353,750
United Healthcare Corp. .................................. 60,000 2,857,500
------------
6,298,750
------------
HOUSEHOLD PRODUCTS--1.8%
Fort Howard Corp.+........................................ 45,000 1,400,625
Procter & Gamble Co. ..................................... 20,000 2,300,000
Warner-Lambert Co. ....................................... 20,000 1,730,000
------------
5,430,625
------------
INSURANCE--3.2%
Aetna, Inc. .............................................. 31,738 2,725,501
Allstate Corp. ........................................... 83,000 4,928,125
Equitable Cos., Inc. ..................................... 75,000 2,043,750
------------
9,697,376
------------
LEISURE & TOURISM--1.7%
Carnival Corp. Class A.................................... 40,000 1,480,000
Disney (Walt) Co. ........................................ 25,000 1,825,000
MGM Grand, Inc.+.......................................... 54,400 1,972,000
------------
5,277,000
------------
MEDICAL PRODUCTS--2.0%
Amgen, Inc.+.............................................. 25,000 1,396,875
Biogen, Inc.+............................................. 25,000 934,375
Cephalon, Inc.+........................................... 75,000 1,575,000
Johnson & Johnson Co. .................................... 30,000 1,586,250
United States Surgical Corp. ............................. 20,000 610,000
------------
6,102,500
------------
METALS & MINING--1.6%
Aluminum Co. of America................................... 40,000 2,720,000
Crown, Cork & Seal, Inc. ................................. 33,000 1,703,625
Martin Marietta Materials, Inc. .......................... 22,000 566,500
------------
4,990,125
------------
PHARMACEUTICALS--5.1%
Bristol-Myers Squibb Co. ................................. 40,000 2,360,000
Chiron Corp.+............................................. 60,000 1,117,500
Lilly (Eli) & Co. ........................................ 20,000 1,645,000
Merck & Co., Inc. ........................................ 25,000 2,106,250
Neurex Corp.+............................................. 115,000 1,365,625
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
PHARMACEUTICALS (CONTINUED)
Novartis AG..................................... 35,000 $ 2,169,548
Pfizer, Inc. ................................... 10,000 841,250
Schering-Plough Corp. .......................... 25,000 1,818,750
Teva Pharmaceutical Industries Ltd. ADR(1)...... 40,000 2,220,000
------------
15,643,923
------------
POLLUTION CONTROL--1.4%
Browning-Ferris Industries, Inc. ............... 50,000 1,443,750
United States Filter Corp.+..................... 55,000 1,698,125
USA Waste Services, Inc.+....................... 35,000 1,242,500
------------
4,384,375
------------
REAL ESTATE INVESTMENT TRUSTS--0.2%
Liberty Property Trust.......................... 20,000 490,000
------------
SOFTWARE--0.9%
Microsoft Corp.+................................ 30,000 2,750,625
------------
SPECIALTY RETAIL--2.3%
CVS Corp. ...................................... 50,000 2,306,250
Harcourt General, Inc. ......................... 35,000 1,627,500
Home Depot, Inc. ............................... 60,000 3,210,000
------------
7,143,750
------------
TELECOMMUNICATIONS--2.1%
AT&T Corp. ..................................... 70,000 2,432,500
Lucent Technologies, Inc. ...................... 78,102 4,119,881
------------
6,552,381
------------
TRANSPORTATION--0.5%
Continental Airlines, Inc.,
Class B+....................................... 45,000 1,411,875
------------
TOTAL COMMON STOCK
(COST $178,005,547)............................. 193,050,693
------------
BONDS & NOTES--8.9%
AEROSPACE & MILITARY TECHNOLOGY--1.3%
Lockheed Martin Corp.
7.25% due 5/15/06............................... $ 4,000 3,939,160
------------
AUTOMOTIVE--3.2%
Chrysler Corp.
7.45% due 3/01/27............................... 5,000 4,735,500
Ford Motor Credit Co.
8.00% due 6/15/02............................... 5,000 5,163,700
------------
9,899,200
------------
13
SUNAMERICA BALANCED ASSETS FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
--------------------------------------------------------------------------------
BONDS & NOTES (CONTINUED)
BANKS--0.7%
Chase Manhattan Corp.
Subordinated Note...............................
7.88% due 8/01/04............................... $ 2,000 $ 1,991,060
------------
FINANCIAL SERVICES--3.7%
Bear Stearns Cos., Inc.
6.63% due 1/15/04............................... 5,000 4,791,100
DLJ Mortgage Acceptance Corp.
7.35% due 9/18/03............................... 4,628 4,606,170
Donaldson Lufkin & Jenrette, Inc.
6.88% due 11/01/05.............................. 2,000 1,892,680
------------
11,289,950
------------
TOTAL BONDS & NOTES
(COST $27,360,600).............................. 27,119,370
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--1.1%
6.50% due 9/01/10
(cost $3,375,491)............................... 3,453 3,335,005
------------
U.S. TREASURY NOTES--17.0%
5.75% due 10/31/97.............................. 5,000 4,996,850
6.25% due 3/31/99............................... 15,000 14,948,400
6.50% due 10/15/06.............................. 10,000 9,689,100
6.88% due 7/31/99-3/31/00....................... 10,000 10,071,850
7.25% due 8/15/04............................... 12,000 12,253,125
------------
TOTAL U.S. TREASURY NOTES
(COST $52,674,322).............................. 51,959,325
------------
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
U.S. TREASURY BONDS--7.6%
6.63% due 2/15/27.............................. $12,500 $ 11,761,750
11.25% due 2/15/15............................. 8,000 11,248,720
-------------
TOTAL U.S. TREASURY BONDS
(COST $24,063,830)............................. 23,010,470
-------------
TOTAL INVESTMENT SECURITIES--97.9%
(COST $285,479,790)............................ 298,474,863
-------------
REPURCHASE AGREEMENT--3.9%
Joint Repurchase Agreement Account (Note 2)
(cost $11,942,000)............................ 11,942 11,942,000
-------------
TOTAL INVESTMENTS--
(COST $297,421,790)............................ 101.8% 310,416,863
Liabilities in excess of other assets........... (1.8) (5,599,932)
------- -------------
NET ASSETS-- 100.0% $ 304,816,931
====== =============
--------
+Non-income producing security
(1)ADR ("American Depositary Receipt")
See Notes to Financial Statements
14
SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-----------------------------------------------------------------------------
COMMON STOCK--94.0%
AEROSPACE & MILITARY TECHNOLOGY--1.2%
Boeing Co. .............................................. 10,630 $ 1,048,384
-----------
APPAREL & TEXTILES--2.0%
NIKE, Inc., Class B...................................... 10,000 620,000
Stride Rite Corp. ....................................... 40,000 600,000
Tommy Hilfiger Corp.+.................................... 10,000 522,500
-----------
1,742,500
-----------
AUTOMOTIVE--2.2%
Chrysler Corp. .......................................... 20,000 600,000
Ford Motor Co. .......................................... 15,000 470,625
General Motors Corp. .................................... 15,000 830,625
-----------
1,901,250
-----------
BANKS--7.7%
BankAmerica Corp. ....................................... 5,000 503,750
Chase Manhattan Corp. ................................... 5,000 468,125
Citicorp. ............................................... 10,000 1,082,500
Fleet Financial Group, Inc. ............................. 15,000 858,750
Hibernia Corp. .......................................... 70,000 918,750
NationsBank Corp. ....................................... 26,000 1,439,750
Summit Bancorp. ......................................... 30,000 1,312,500
-----------
6,584,125
-----------
BUSINESS SERVICES--2.1%
American Express Co. .................................... 30,000 1,796,250
-----------
CHEMICALS--2.6%
du Pont (E.I.) de Nemours & Co. ......................... 10,000 1,060,000
Monsanto Co. ............................................ 15,000 573,750
Morton International, Inc. .............................. 15,000 633,750
-----------
2,267,500
-----------
COMMUNICATION EQUIPMENT--4.0%
Ericsson (L.M.) Telephone Co., Class B ADR(1)............ 20,000 676,250
Nokia Corp., Class A ADR(1).............................. 20,000 1,165,000
Octel Communications Corp.+.............................. 30,000 476,250
Tellabs, Inc.+........................................... 30,000 1,083,750
-----------
3,401,250
-----------
COMPUTERS & BUSINESS EQUIPMENT--4.2%
Compaq Computer, Corp.+.................................. 15,000 1,149,375
Hewlett-Packard Co. ..................................... 20,000 1,065,000
International Business Machines Corp. ................... 10,000 1,373,750
-----------
3,588,125
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
CONGLOMERATE--4.1%
General Electric Co. ....................................... 10,000 $ 992,500
Republic Industries, Inc.+.................................. 10,000 346,875
Schlumberger Ltd. .......................................... 10,000 1,072,500
United Technologies Corp. .................................. 15,000 1,128,750
-----------
3,540,625
-----------
DEPARTMENT STORES--1.8%
Wal-Mart Stores, Inc. ...................................... 30,000 836,250
Woolworth Corp.+............................................ 30,000 701,250
-----------
1,537,500
-----------
ELECTRONICS--6.1%
Diebold, Inc. .............................................. 15,000 564,375
Intel Corp. ................................................ 10,000 1,391,250
Micron Technology, Inc. .................................... 15,000 607,088
Motorola, Inc. ............................................. 15,000 912,562
Rockwell International Corp. ............................... 10,000 648,750
Texas Instruments, Inc. .................................... 15,000 1,123,125
-----------
5,247,150
-----------
ENERGY SERVICES--3.2%
Exxon Corp. ................................................ 5,000 538,750
Mobil Corp. ................................................ 10,000 1,306,250
Royal Dutch Petroleum Co. .................................. 5,000 875,000
-----------
2,720,000
-----------
ENERGY SOURCES--3.5%
Halliburton Co. ............................................ 20,000 1,355,000
Pogo Producing Co. ......................................... 15,000 540,000
Texaco, Inc. ............................................... 10,000 1,095,000
-----------
2,990,000
-----------
ENTERTAINMENT PRODUCTS--0.8%
Mattel, Inc. ............................................... 30,000 720,000
-----------
FINANCIAL SERVICES--7.9%
Alex Brown, Inc. ........................................... 10,000 425,000
Capital One Financial Corp. ................................ 30,000 1,117,500
Dean Witter, Discover & Co. ................................ 25,000 871,875
Morgan Stanley Group, Inc. ................................. 10,000 587,500
Nationwide Financial Services, Inc. ........................ 30,000 772,500
Paine Webber Group, Inc. ................................... 30,000 847,500
ReliaStar Financial Corp. .................................. 20,000 1,182,500
Travelers Group, Inc. ...................................... 20,000 957,500
-----------
6,761,875
-----------
FOOD, BEVERAGE & TOBACCO--2.4%
McDonald's Corp. ........................................... 20,000 945,000
Philip Morris Cos., Inc. ................................... 10,000 1,141,250
-----------
2,086,250
-----------
15
SUNAMERICA BLUE CHIP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FOREST PRODUCTS--1.2%
Kimberly-Clark Corp. ....................................... 10,000 $ 993,750
-----------
HEALTH SERVICES--3.0%
Apria Healthcare Group, Inc.+............................... 30,000 543,750
Columbia/HCA Healthcare Corp. .............................. 22,000 739,750
Health Management Associates+............................... 15,000 356,250
United Healthcare Corp. .................................... 20,000 952,500
-----------
2,592,250
-----------
HOUSEHOLD PRODUCTS--1.7%
Procter & Gamble Co. ....................................... 5,000 575,000
Warner-Lambert Co. ......................................... 10,000 865,000
-----------
1,440,000
-----------
INSURANCE--5.6%
Aetna, Inc. ................................................ 18,369 1,577,438
Allstate Corp. ............................................. 25,000 1,484,375
Equitable Cos., Inc. ....................................... 30,000 817,500
TIG Holdings, Inc.+......................................... 30,000 952,500
-----------
4,831,813
-----------
LEISURE & TOURISM--2.3%
Carnival Corp., Class A..................................... 20,000 740,000
Family Golf Ctrs Inc. ...................................... 28,000 547,750
MGM Grand, Inc.+............................................ 20,000 725,000
-----------
2,012,750
-----------
MEDICAL PRODUCTS--3.0%
Amgen, Inc.+................................................ 13,000 726,375
Biogen, Inc.+............................................... 15,000 560,625
Cephalon, Inc.+............................................. 20,000 420,000
Johnson & Johnson Co. ...................................... 10,000 528,750
United States Surgical Corp. ............................... 10,000 305,000
-----------
2,540,750
-----------
METALS & MINING--2.5%
Aluminum Co. of America..................................... 15,000 1,020,000
Crown, Cork & Seal, Inc. ................................... 14,000 722,750
Martin Marietta Materials, Inc. ............................ 14,000 360,500
-----------
2,103,250
-----------
PHARMACEUTICALS--9.1%
Bristol-Myers Squibb Co. ................................... 20,000 1,180,000
Chiron Corp.+............................................... 30,000 558,750
IDEC Pharmaceuticals Corp.+................................. 35,000 833,437
Lilly (Eli) & Co. .......................................... 10,000 822,500
Merck & Co., Inc. .......................................... 10,000 842,500
Neurex Corp.+............................................... 80,000 950,000
Novartis AG................................................. 10,000 619,871
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
PHARMACEUTICALS (CONTINUED)
Pfizer, Inc. .................................... 5,000 $ 420,625
Schering-Plough Corp. ........................... 10,000 727,500
Teva Pharmaceutical Industries
Ltd. ADR(1)..................................... 15,000 832,500
-----------
7,787,683
-----------
POLLUTION CONTROL--1.5%
United States Filter Corp. ...................... 20,000 617,500
USA Waste Services, Inc.+........................ 20,000 710,000
-----------
1,327,500
-----------
SOFTWARE--1.1%
Microsoft Corp.+................................. 10,000 916,875
-----------
SPECIALTY RETAIL--3.8%
CVS Corp. ....................................... 20,000 922,500
Harcourt General, Inc. .......................... 15,000 697,500
Home Depot, Inc. ................................ 30,000 1,605,000
-----------
3,225,000
-----------
TELECOMMUNICATIONS--2.9%
AT&T Corp. ...................................... 25,000 868,750
Lucent Technologies, Inc. ....................... 30,000 1,582,500
-----------
2,451,250
-----------
TRANSPORTATION--0.5%
Continental Airlines, Inc., Class B+............. 15,000 470,625
-----------
TOTAL COMMON STOCK
(COST $77,558,861)............................... 80,626,280
-----------
TOTAL INVESTMENT SECURITIES--94.0%
(COST $77,558,861)............................... 80,626,280
-----------
REPURCHASE AGREEMENT--8.7%
Joint Repurchase Agreement Account (Note 2)
(cost $7,498,000)............................... $ 7,498 7,498,000
-----------
TOTAL INVESTMENTS--
(cost $85,056,861)............................... 102.7% 88,124,280
Liabilities in excess of other assets............. (2.7) (2,302,096)
------- -----------
NET ASSETS-- 100.0% $85,822,184
======= ===========
--------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
See Notes to Financial Statements
16
SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
------------------------------------------------------------------------------
COMMON STOCK--93.1%
AEROSPACE & MILITARY TECHNOLOGY--3.6%
BE Aerospace, Inc.+....................................... 20,000 $ 490,000
Boeing Co. ............................................... 5,252 517,978
REMEC, Inc.+.............................................. 37,500 806,250
-----------
1,814,228
-----------
APPAREL & TEXTILES--5.3%
Authentic Fitness Corp. .................................. 30,000 442,500
Gucci Group NV ADR(1)..................................... 9,000 649,125
Jones Apparel Group, Inc.+................................ 10,000 371,250
Pacific Sunwear of California+............................ 13,500 442,125
Stride Rite Corp. ........................................ 20,000 300,000
TJX Cos., Inc. ........................................... 11,600 495,900
-----------
2,700,900
-----------
AUTOMOTIVE--1.6%
Brunswick Corp. .......................................... 30,000 806,250
-----------
BANKS--4.4%
First Commerce Corp. ..................................... 10,000 405,000
FirstFed Financial Corp. Delaware......................... 20,000 470,000
Hibernia Corp. ........................................... 30,000 393,750
PNC Bank Corp. ........................................... 15,000 600,000
Summit Bancorp. .......................................... 8,000 350,000
-----------
2,218,750
-----------
BROADCASTING & MEDIA--1.8%
Mecklermedia Corp.+....................................... 10,900 261,600
New York Times Co., Class A............................... 15,000 661,875
-----------
923,475
-----------
BUSINESS SERVICES--3.2%
American Express Co. ..................................... 10,000 598,750
Applied Graphics Technologies+............................ 15,100 534,163
Federal Express Corp.+.................................... 10,000 521,250
-----------
1,654,163
-----------
CHEMICALS--4.3%
Air Products & Chemicals, Inc. ........................... 5,000 339,375
Betz Laboratories, Inc. .................................. 10,000 631,250
Monsanto Co. ............................................. 10,000 382,500
Nalco Chemical Co. ....................................... 10,000 373,750
Praxair, Inc. ............................................ 10,000 448,750
-----------
2,175,625
-----------
COMMUNICATION EQUIPMENT--0.6%
Tellabs, Inc.+............................................ 8,000 289,000
-----------
COMPUTERS & BUSINESS EQUIPMENT--0.2%
Micron Electronics, Inc.+................................. 5,000 95,625
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
CONGLOMERATE--1.9%
Tyco International Ltd. .................................... 18,000 $ 990,000
-----------
DEPARTMENT STORES--0.9%
Penney (J.C.) Co, Inc. ..................................... 10,000 476,250
-----------
ELECTRONICS--3.6%
Exabyte Corp.+.............................................. 20,000 242,500
Jabil Circuit, Inc.+........................................ 10,000 450,625
National Semiconductor Corp.+............................... 15,000 412,500
Rockwell International Corp. ............................... 8,000 519,000
Veeco Instruments, Inc.+.................................... 7,000 205,625
-----------
1,830,250
-----------
ENERGY SERVICES--1.1%
Global Marine, Inc.+........................................ 15,000 322,500
Rowan Cos., Inc.+........................................... 10,000 226,250
-----------
548,750
-----------
FINANCIAL SERVICES--5.5%
Associates First Capital Corp. ............................. 10,000 430,000
Bay View Capital Corp. ..................................... 10,000 510,000
Commercial Federal Corp. ................................... 20,000 675,000
Merrill Lynch & Co., Inc. .................................. 3,000 257,625
Nationwide Financial Services, Inc. ........................ 10,000 257,500
Raymond James Financial, Inc. .............................. 10,000 316,250
Salomon, Inc. .............................................. 7,000 349,125
-----------
2,795,500
-----------
FOOD, BEVERAGE & TOBACCO--3.4%
Coca Cola Enterprises, Inc. ................................ 20,000 1,147,500
Flowers Industries, Inc. ................................... 25,000 571,875
-----------
1,719,375
-----------
FOREST PRODUCTS--1.2%
Sealed Air Corp.+........................................... 8,500 349,563
Silgan Holdings, Inc.+...................................... 10,000 250,000
-----------
599,563
-----------
HEALTH SERVICES--0.7%
HEALTHSOUTH Corp.+.......................................... 20,000 382,500
-----------
HOUSEHOLD PRODUCTS--4.8%
Amway Asia Pacific Ltd. .................................... 20,000 752,500
Corning, Inc. .............................................. 10,000 443,750
Fort Howard Corp.+.......................................... 15,300 476,212
Scotts Co.+................................................. 15,000 345,000
Warner-Lambert Co. ......................................... 5,000 432,500
-----------
2,449,962
-----------
17
SUNAMERICA MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
INSURANCE--8.0%
Aetna, Inc. ............................................... 12,000 $ 1,030,500
Allmerica Financial Corp. ................................. 10,000 351,250
Allstate Corp. ............................................ 10,000 593,750
Chubb Corp. ............................................... 10,000 538,750
Conseco, Inc. ............................................. 10,000 356,250
Protective Life Corp. ..................................... 5,000 210,000
Provident Co., Inc. ....................................... 5,000 273,750
UNUM Corp. ................................................ 10,000 730,000
-----------
4,084,250
-----------
LEISURE & TOURISM--0.7%
Disney (Walt) Co. ......................................... 5,000 365,000
-----------
MACHINERY--2.7%
Flanders Corp.+(2)(3)...................................... 100,000 843,750
Precision Castparts Corp. ................................. 10,000 510,000
-----------
1,353,750
-----------
METALS & MINING--2.2%
Crown, Cork & Seal, Inc. .................................. 9,000 464,625
EASCO, Inc. ............................................... 80,000 640,000
-----------
1,104,625
-----------
PHARMACEUTICALS--6.2%
Bristol-Myers Squibb Co. .................................. 6,000 354,000
Glaxo Wellcome PLC ADR(1).................................. 10,000 353,750
Lilly (Eli) & Co. ......................................... 5,000 411,250
Merck & Co., Inc. ......................................... 7,000 589,750
Teva Pharmaceutical Industries Ltd. ADR(1)................. 26,500 1,470,750
-----------
3,179,500
-----------
POLLUTION CONTROL--3.9%
Philip Environmental, Inc.+................................ 30,000 453,750
United Waste Systems, Inc.+................................ 30,000 1,117,500
USA Waste Services, Inc.+.................................. 12,000 426,000
-----------
1,997,250
-----------
REAL ESTATE INVESTMENT TRUSTS--6.0%
Bay Apartment Communities, Inc. ........................... 15,000 538,125
Crescent Real Estate Equities.............................. 20,000 535,000
Innkeepers USA Trust....................................... 45,000 658,125
Starwood Lodging Trust..................................... 22,500 877,500
Weingarten Realty Investors................................ 10,000 423,750
-----------
3,032,500
-----------
RESTAURANTS--0.6%
Starbucks Corp.+........................................... 10,000 296,250
-----------
SOFTWARE--2.9%
Adobe Systems, Inc. ....................................... 10,000 401,250
Baan Co. NV+............................................... 10,000 446,250
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
SOFTWARE (CONTINUED)
BMC Software, Inc.+....................................... 10,000 $ 461,250
Novell, Inc.+............................................. 20,000 190,000
-----------
1,498,750
-----------
SPECIALTY RETAIL--7.2%
CVS Corp. ................................................ 18,000 830,250
Footstar, Inc.+........................................... 18,000 533,250
MacFrugals Bargains Close-Outs, Inc.+..................... 25,000 662,500
Michaels Stores, Inc.+.................................... 25,000 459,375
Samsonite Corp.+.......................................... 27,000 1,167,750
-----------
3,653,125
-----------
TELECOMMUNICATIONS--1.3%
Lucent Technologies, Inc. ................................ 7,000 369,250
Teleport Communications Group,
Class A+................................................. 14,000 322,000
-----------
691,250
-----------
TRANSPORTATION--1.6%
Caliber System, Inc. ..................................... 10,000 265,000
Consolidated Freightways, Inc. ........................... 20,000 542,500
-----------
807,500
-----------
UTILITIES--1.7%
El Paso Natural Gas Co. .................................. 15,000 849,375
-----------
TOTAL COMMON STOCK
(COST $42,815,524)........................................ 47,383,291
-----------
WARRANTS--0.7%
ELECTRONICS--0.7%
Intel Corp.
(cost $255,938).......................................... 3,500 346,938
-----------
TOTAL INVESTMENT SECURITIES--93.8%
(cost $43,071,462)........................................ 47,730,229
-----------
TOTAL INVESTMENTS--
(COST $43,071,462)........................................ 93.8% 47,730,229
Other assets less liabilities.............................. 6.2 3,158,301
------ -----------
NET ASSETS-- 100.0% $50,888,530
====== ===========
--------
+ Non-income producing security
(1) ADR ("American Depositary Receipts")
(2) Fair valued security, see Note 2
(3) At March 31, 1997 the Fund held a restricted security amounting to 1.7% 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.
[Download Table]
DATE OF UNIT VALUATION AS OF
DESCRIPTION ACQUISITION COST MARCH 31, 1997
-------------- ----------- ----- ---------------
Flanders Corp. 5/09/96 $5.00 $8.44
See Notes to Financial Statements
18
SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-----------------------------------------------------------------------------
COMMON STOCK--91.0%
AEROSPACE & MILITARY TECHNOLOGY--2.1%
BE Aerospace, Inc.+.................................... 55,000 $ 1,347,500
REMEC, Inc.+........................................... 158,500 3,407,750
------------
4,755,250
------------
APPAREL & TEXTILES--5.3%
Authentic Fitness Corp. ............................... 60,000 885,000
Gucci Group NV ADR(1).................................. 15,000 1,081,875
Jones Apparel Group, Inc.+............................. 20,000 742,500
North Face, Inc.+...................................... 46,500 773,063
Pacific Sunwear of California+......................... 41,250 1,350,937
Quiksilver, Inc.+...................................... 50,000 1,187,500
Stage Stores, Inc.+.................................... 21,200 466,400
Stride Rite Corp. ..................................... 135,000 2,025,000
TJX Cos., Inc. ........................................ 38,400 1,641,600
Warnaco Group, Inc. Class A............................ 55,000 1,636,250
------------
11,790,125
------------
BANKS--7.8%
First American Corp. (Tennessee)....................... 72,500 4,612,812
First Commerce Corp. .................................. 42,000 1,701,000
First Tennessee National Corp. ........................ 30,000 1,267,500
FirstFed Financial Corp. Delaware...................... 30,000 705,000
Hamilton Bancorp, Inc. ................................ 65,000 1,121,250
Hibernia Corp., Class A................................ 55,000 721,875
Long Island Bancorp, Inc. ............................. 55,000 1,818,438
PNC Bank Corp. ........................................ 39,500 1,580,000
Summit Bancorp. ....................................... 46,500 2,034,375
U.S. Bancorp .......................................... 35,000 1,872,500
------------
17,434,750
------------
BROADCASTING & MEDIA--2.1%
Mecklermedia Corp.+.................................... 148,600 3,566,400
Yahoo, Inc.+........................................... 35,000 984,375
------------
4,550,775
------------
BUSINESS SERVICES--6.1%
Administaff, Inc.+..................................... 87,500 1,454,688
America Online, Inc.+.................................. 20,000 847,500
Applied Graphics Technologies+......................... 45,500 1,609,562
Datamark Holdings, Inc.+............................... 290,323 2,177,422
NCO Group, Inc.+....................................... 78,200 1,710,625
ProSoft Development, Inc.+............................. 260,000 3,900,000
ProSoft Development, Inc.+(2)(3)....................... 100,000 1,050,000
Vincam Group, Inc.+.................................... 30,000 821,250
------------
13,571,047
------------
CHEMICALS--2.2%
Betz Laboratories, Inc. ............................... 28,100 1,773,813
Fuller (H. B.) Co. .................................... 25,000 1,218,750
Nalco Chemical Co. .................................... 52,000 1,943,500
------------
4,936,063
------------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
COMMUNICATION EQUIPMENT--3.1%
ANADIGICS, Inc.+.......................................... 77,500 $ 2,092,500
Digital Microwave Corp.+.................................. 18,700 359,975
DSP Communications, Inc.+................................. 67,500 649,688
QUALCOMM, Inc.+........................................... 30,000 1,691,250
Tele-Communications Liberty Media Group, Series A+........ 50,000 996,875
Tellabs, Inc.+............................................ 33,500 1,210,187
------------
7,000,475
------------
COMPUTERS & BUSINESS EQUIPMENT--3.3%
Accent Color Sciences, Inc.+.............................. 20,000 102,500
CHS Electronics, Inc.+.................................... 65,000 1,324,375
Data General Corp.+....................................... 30,000 510,000
Hutchinson Technology, Inc.+.............................. 34,000 969,000
Linear Technology Corp.................................... 55,000 2,433,750
Micron Electronics, Inc.+................................. 35,000 669,375
Micron Technology, Inc.................................... 20,000 810,000
Splash Technology Holdings, Inc.+......................... 20,000 500,000
------------
7,319,000
------------
CONSTRUCTION & HOUSING--0.6%
Chicago Bridge And Iron Co. NV ........................... 70,000 1,242,500
------------
DEPARTMENT STORES--0.9%
Penney (J.C.) Co, Inc. ................................... 40,000 1,905,000
------------
ELECTRONICS--5.5%
Advanced Micro Devices, Inc.+............................. 50,000 2,075,000
California Micro Devices Corp.+........................... 207,500 1,530,312
Diebold, Inc.............................................. 18,750 705,469
Exabyte Corp.+............................................ 55,000 666,875
Jabil Circuit, Inc.+...................................... 20,000 901,250
LSI Logic Corp.+.......................................... 30,000 1,042,500
Micrel, Inc.+............................................. 10,000 290,000
Motorola, Inc. ........................................... 10,500 633,938
Perkin-Elmer Corp. ....................................... 20,000 1,287,500
Photronics, Inc.+......................................... 5,000 146,875
Supertex, Inc.+........................................... 40,000 470,000
Veeco Instruments, Inc.+.................................. 46,000 1,351,250
Vitesse Semiconductor Corp.+.............................. 45,000 1,243,125
------------
12,344,094
------------
ENERGY SERVICES--5.7%
Diamond Offshore Drilling, Inc.+.......................... 17,600 1,205,600
ENSCO International, Inc.+................................ 42,500 2,093,125
Falcon Drilling Co., Inc.+................................ 60,000 2,220,000
Marine Drilling Co., Inc.+................................ 35,000 621,250
Noble Drilling Corp.+..................................... 137,500 2,371,875
Petroleum Geo-Services ASA ADR(1)+........................ 65,000 2,795,000
Reading & Bates Corp.+.................................... 65,000 1,470,625
------------
12,777,475
------------
19
SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
ENERGY SOURCES--1.2%
Edge Petroleum Corp. Delaware+............................ 74,000 $ 1,184,000
Pride Petroleum Services, Inc.+........................... 70,000 1,452,500
------------
2,636,500
------------
FINANCIAL SERVICES--5.9%
Alex Brown, Inc. ......................................... 30,000 1,275,000
Ameritrade Holding Corp., Class A+........................ 13,400 209,375
Bay View Capital Corp..................................... 50,000 2,550,000
Capital One Financial Corp. .............................. 12,100 450,725
Commercial Federal Corp. ................................. 30,000 1,012,500
E*TRADE Group, Inc.+...................................... 50,000 900,000
Edwards (A.G.), Inc. ..................................... 30,000 922,500
Legg Mason, Inc. ......................................... 23,200 980,200
Metris Cos, Inc.+......................................... 36,500 912,500
Nationwide Financial Services, Inc. Class A............... 85,300 2,196,475
Raymond James Financial, Inc. ............................ 55,000 1,739,375
------------
13,148,650
------------
FOOD, BEVERAGE & TOBACCO--0.8%
Flowers Industries, Inc. ................................. 80,000 1,830,000
------------
FOREST PRODUCTS--0.7%
Sealed Air Corp.+......................................... 17,000 699,125
Silgan Holdings, Inc.+.................................... 35,000 875,000
------------
1,574,125
------------
HEALTH SERVICES--1.1%
HEALTHSOUTH Corp.+........................................ 25,000 478,125
NovaCare, Inc.+........................................... 160,000 1,940,000
------------
2,418,125
------------
HOUSEHOLD PRODUCTS--1.7%
Fort Howard Corp.+........................................ 16,700 519,788
Scotts Co.+............................................... 85,600 1,968,800
Warner-Lambert Co. ....................................... 15,000 1,297,500
------------
3,786,088
------------
INSURANCE--3.4%
Conseco, Inc. ............................................ 10,000 356,250
Equitable of Iowa Cos. ................................... 60,000 3,000,000
Maxicare Health Plans, Inc.+.............................. 40,000 1,005,000
Penn Treaty American Corp.+............................... 70,000 1,820,000
Penn-America Group, Inc. ................................. 10,000 125,000
ReliaStar Financial Corp. ................................ 20,000 1,182,500
------------
7,488,750
------------
LEISURE & TOURISM--1.2%
CapStar Hotel Co.+........................................ 85,000 2,380,000
Interstate Hotels Co.+.................................... 10,000 282,500
------------
2,662,500
------------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
MACHINERY--3.1%
Flanders Corp.+........................................... 151,700 $ 1,441,150
Flanders Corp.+(2)(3)..................................... 400,000 3,375,000
Precision Castparts Corp. ................................ 40,000 2,040,000
------------
6,856,150
------------
MANUFACTURING--0.2%
Zitel Corp.+.............................................. 15,000 451,875
------------
MEDICAL PRODUCTS--3.4%
Biora AB ADR(1)+.......................................... 51,000 1,020,000
Coherent, Inc.+........................................... 50,000 2,390,625
Cytyc Corp.+.............................................. 25,000 468,750
Guidant Corp. ............................................ 10,000 615,000
Myriad Genetics, Inc.+.................................... 45,000 1,552,500
Neurex Corp.+............................................. 20,000 237,500
Ventana Medical Systems, Inc.+............................ 90,000 1,260,000
------------
7,544,375
------------
PHARMACEUTICALS--6.1%
Allergan Ligand Retinoid Theraputics, Inc.+(4)............ 75,000 2,118,750
Bristol-Myers Squibb Co. ................................. 20,000 1,180,000
Guilford Pharmaceuticals, Inc.+........................... 82,500 1,711,875
IDEC Pharmaceuticals Corp.+............................... 95,000 2,262,187
Kos Pharmaceuticals, Inc.+................................ 25,000 500,000
Ligand Pharmaceuticals, Inc.,
Class B+................................................. 65,000 731,250
Millenium Pharmaceuticals, Inc.+.......................... 4,000 54,500
PAREXAL International Corp.+.............................. 15,000 345,000
PathoGenesis Corp.+....................................... 25,000 625,000
Teva Pharmaceutical Industries Ltd. ADR(1)................ 72,500 4,023,750
------------
13,552,312
------------
POLLUTION CONTROL--2.6%
Culligan Water Technologies, Inc.+........................ 30,000 1,173,750
Philip Environmental, Inc.+............................... 110,000 1,663,750
United Waste Systems, Inc.+............................... 35,000 1,303,750
USA Waste Services, Inc.+................................. 49,000 1,739,500
------------
5,880,750
------------
REAL ESTATE INVESTMENT TRUSTS--2.7%
Bay Apartment Communities, Inc. .......................... 15,000 538,125
FelCor Suite Hotels, Inc. ................................ 30,000 1,102,500
Golf Trust of America, Inc.+.............................. 33,000 804,375
Innkeepers USA Trust...................................... 105,000 1,535,625
Starwood Lodging Trust+................................... 52,500 2,047,500
------------
6,028,125
------------
SOFTWARE--2.6%
3DLabs, Inc Ltd +......................................... 67,500 1,586,250
Arbor Software Corp.+..................................... 10,000 250,000
20
SUNAMERICA SMALL COMPANY GROWTH FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
SOFTWARE (CONTINUED)
Dassault Systems S A ADR(1)+............................... 30,000 $ 1,738,125
Innovus Corp.+............................................. 55,200 186,300
Innovus Corp.+(2)(3)....................................... 54,000 143,100
IONA Technologies PLC ADR(1)+.............................. 26,000 468,000
Rational Software Corp.+................................... 70,000 1,443,750
------------
5,815,525
------------
SPECIALTY RETAIL--5.4%
Coldwater Creek, Inc.+..................................... 92,500 1,283,437
Footstar, Inc.+............................................ 83,000 2,458,875
Guitar Center, Inc.+....................................... 49,500 792,000
Intimate Brands, Inc. ..................................... 50,000 943,750
MacFrugals Bargains Closeouts, Inc.+....................... 20,000 530,000
Payless Shoesource, Inc.+.................................. 30,000 1,256,250
RDO Equipment Co., Class A+................................ 90,000 1,575,000
Samsonite Corp.+........................................... 75,000 3,243,750
------------
12,083,062
------------
TELECOMMUNICATIONS--1.9%
Advanced Fibre Communications+............................. 35,000 1,128,750
COLT Telecom Group PLC ADR(1)+............................. 10,000 188,750
Lucent Technologies, Inc. ................................. 10,000 527,500
MDSI Mobile Data Solutions, Inc.+.......................... 60,000 1,020,000
Pacific Gateway Exchange, Inc.+............................ 45,600 1,140,000
Teleport Communications Group,
Class A+.................................................. 5,000 115,000
------------
4,120,000
------------
TRANSPORTATION--2.3%
Caliber System, Inc. ...................................... 60,000 1,590,000
Consolidated Freightways Corp.+............................ 50,000 593,750
Consolidated Freightways, Inc. ............................ 20,000 542,500
Trico Marine Services, Inc.+............................... 51,000 2,422,500
------------
5,148,750
------------
TOTAL COMMON STOCK
(COST $184,984,763)........................................ 202,652,216
------------
WARRANTS--1.2%
ELECTRONICS--1.2%
Intel Corp. ............................................... 26,000 2,577,250
------------
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
TELECOMMUNICATIONS--0.0%
Nexus Telecommunication
Systems Ltd., Class D+. 100,000 $ 50,000
------------
TOTAL WARRANTS
(COST $2,359,026)....... 2,627,250
------------
TOTAL INVESTMENT
SECURITIES--92.2%
(cost $187,343,789)..... 205,279,466
------------
REPURCHASE AGREEMENT--10.6%
Joint Repurchase
Agreement Account (Note
2)
(cost $23,656,000)..... $23,656 23,656,000
------------
TOTAL INVESTMENTS--
(COST $210,999,789)..... 102.8% 228,935,466
Liabilities in excess of
other assets............ (2.8) (6,166,159)
------- ------------
NET ASSETS-- 100.0% $222,769,307
======= ============
-------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
(2) At March 31, 1997 the Fund held restricted securities amounting to 2.1% 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.
[Download Table]
VALUATION
DATE OF UNIT AS OF
DESCRIPTION ACQUISITION COST MARCH 31, 1997
----------- ----------- ------ --------------
ProSoft Development, Inc. 7/02/96 $10.00 $10.50
Flanders Corp. 5/09/96 5.00 8.44
Innovus Corp. 3/21/95 3.50 2.65
(3) Fair valued security, see Note 2
(4) Consists of stocks and warrants traded together as a unit
See Notes to Financial Statements
21
SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK--66.6%
DOMESTIC EQUITY--17.1%
AEROSPACE & MILITARY TECHNOLOGY--0.4%
Boeing Co. ................................................ 1,000 $ 98,625
-----------
AUTOMOTIVE--1.3%
Ford Motor Co. ............................................ 2,500 78,437
General Motors Corp. ...................................... 4,000 221,500
-----------
299,937
-----------
BANKS--1.1%
Chase Manhattan Corp. ..................................... 1,000 93,625
Citicorp. ................................................. 1,000 108,250
Hibernia Corp., Class A.................................... 5,000 65,625
-----------
267,500
-----------
CHEMICALS--0.7%
du Pont (E.I.) de Nemours & Co. ........................... 1,000 106,000
Waters Corp.+.............................................. 2,500 66,875
-----------
172,875
-----------
COMMUNICATION EQUIPMENT--0.6%
Tellabs, Inc.+............................................. 4,000 144,500
-----------
COMPUTERS & BUSINESS EQUIPMENT--0.3%
American Pad & Paper Co.+.................................. 5,000 75,000
-----------
CONGLOMERATE--0.9%
AlliedSignal, Inc. ........................................ 2,000 142,500
General Electric Co. ...................................... 800 79,400
-----------
221,900
-----------
CONSTRUCTION MATERIALS--0.3%
Dal-Tile International, Inc.+.............................. 5,000 78,125
-----------
FINANCIAL SERVICES--1.8%
Associates First Capital Corp. Class A..................... 2,000 86,000
Morgan Stanley Group, Inc. ................................ 2,000 117,500
Nationwide Financial Services, Inc.
Class A................................................... 5,000 128,750
Travelers Group, Inc. ..................................... 2,000 95,750
-----------
428,000
-----------
FOOD, BEVERAGE & TOBACCO--1.1%
McDonald's Corp. .......................................... 3,000 141,750
Philip Morris Cos., Inc. .................................. 1,000 114,125
-----------
255,875
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
HOUSEHOLD PRODUCTS--1.4%
Scotts Co. Class A+........................................ 3,000 $ 69,000
Warner-Lambert Co. ........................................ 3,000 259,500
-----------
328,500
-----------
MEDICAL PRODUCTS--0.9%
Johnson & Johnson Co. ..................................... 4,000 211,500
-----------
PHARMACEUTICALS--4.5%
Allergan, Inc. ............................................ 3,000 87,375
Bristol-Myers Squibb Co. .................................. 3,000 177,000
Lilly (Eli) & Co. ......................................... 2,000 164,500
Merck & Co., Inc. ......................................... 3,000 252,750
Neurex Corp.+.............................................. 5,000 59,375
Pfizer, Inc. .............................................. 1,200 100,950
Schering-Plough Corp. ..................................... 3,200 232,800
-----------
1,074,750
-----------
TELECOMMUNICATIONS--1.8%
AT&T Corp. ................................................ 3,000 104,250
GTE Corp. ................................................. 5,000 233,125
Lucent Technologies, Inc. ................................. 2,000 105,500
-----------
442,875
-----------
TOTAL DOMESTIC EQUITY
(COST $3,245,800).......................................... 4,099,962
-----------
FOREIGN EQUITY--49.5%
APPAREL & TEXTILES--1.1%
Adidas AG (Germany)........................................ 1,100 124,970
Gamma Holding NV (Netherlands)............................. 2,600 147,641
-----------
272,611
-----------
AUTOMOTIVE--4.3%
Calsonic Corp. (Japan)..................................... 6,000 30,711
Honda Motor Co., Ltd. (Japan).............................. 2,000 59,675
Mitsubishi Heavy Industrial Ltd. (Japan)................... 20,000 130,185
Mitsubishi Motors Corp. (Japan)............................ 9,000 66,734
Nokian Tyres (Finland)..................................... 5,000 124,109
Oriental Holdings Berhad (Malaysia)........................ 16,000 144,615
PT Selamat Sempurna alien+ (Indonesia)..................... 50,000 38,526
Scania AB, Series A (Sweden)............................... 3,200 80,255
Suzuki Motor Corp. (Japan)................................. 10,000 97,032
Toyota Motor Corp. (Japan)................................. 2,000 50,619
Volkswagen AG (Germany).................................... 210 116,079
Volvo AB (Sweden).......................................... 3,500 93,816
-----------
1,032,356
-----------
BANKS--5.8%
Banca Populare Di Milano (Italy)........................... 15,000 84,121
Banco Credito del Peru (Peru).............................. 18,386 31,562
22
SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FOREIGN EQUITY (CONTINUED)
BANKS (CONTINUED)
Banco Santander-Chile Series A ADR(1) (Chile).............. 800 $ 13,400
Banco Totta & Acores (Portugal)............................ 2,500 37,741
Bangkok Bank PLC alien (Thailand).......................... 1,900 18,447
Bank Of Tokyo-Mitsubishi Ltd.+ (Japan)..................... 10,600 165,424
Chiba Bank Ltd. (Japan).................................... 20,000 114,822
CS Holding+ (Switzerland).................................. 1,020 122,450
HSBC Holdings PLC (Hong Kong).............................. 6,000 139,378
Industrial Bank of Japan Ltd. (Japan)...................... 8,640 88,028
National Westminster Bank PLC
(United Kingdom).......................................... 10,000 114,100
Overseas Union Bank Ltd. (Singapore)....................... 6,000 41,329
PT Bank Negara Indonesia alien (Indonesia)................. 165,000 94,492
Sakura Bank Ltd. (Japan)................................... 28,000 156,901
Siam Commercial Bank Co., Ltd alien (Thailand)............. 3,700 21,668
Societe Generale (France).................................. 1,000 117,197
Toronto Dominion Bank Ontario (Canada)..................... 850 21,611
-----------
1,382,671
-----------
BROADCASTING & MEDIA--0.3%
Abitibi Price, Inc. (Canada)............................... 1,790 25,793
News Corp., Ltd. (Australia)............................... 8,000 37,316
Singapore Press Holdings Ltd. alien (Singapore)............ 1,000 18,207
-----------
81,316
-----------
CHEMICALS--1.2%
Laporte PLC (United Kingdom)............................... 13,000 149,720
Nippon Shokubai K.K. Co. (Japan)........................... 8,000 47,740
Sekisui Chemical Co., Ltd. (Japan)......................... 4,000 39,460
Toagosei Co., Ltd. (Japan)................................. 20,000 63,556
-----------
300,476
-----------
COMMUNICATION EQUIPMENT--1.1%
Ericsson (L.M.) Telephone Co., Class B ADR(1) (Sweden)..... 4,000 135,250
Nokia Corp., Class A ADR(1) (Finland)...................... 2,000 116,500
-----------
251,750
-----------
COMPUTERS & BUSINESS EQUIPMENT--1.3%
Logitech International SA+ (Switzerland)................... 400 76,164
Ricoh Co. Ltd. (Japan)..................................... 4,000 45,605
Tokyo Electron Ltd. (Japan)................................ 3,300 109,404
Videologic Group PLC+
(United Kingdom).......................................... 100,000 88,845
-----------
320,018
-----------
CONGLOMERATE--1.8%
Alusuisse-Lonza Holdings AG (Switzerland).................. 100 84,503
Amano Corp. (Japan)........................................ 4,000 37,519
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
CONGLOMERATE (CONTINUED)
Eaux (cie Generale) (France)............................... 1,000 $ 136,254
Fitters Holdings Berhad (Malaysia)......................... 20,000 70,210
Nissho Iwai Corp. (Japan).................................. 30,000 99,216
-----------
427,702
-----------
CONSTRUCTION & HOUSING--4.7%
Bilfinger & Berger Bau AG (Germany)........................ 2,800 109,616
Cheung Kong Infrastructure
(Hong Kong)............................................... 40,000 113,051
Finning Ltd. (Canada)...................................... 400 8,855
Glynwed International PLC
(United Kingdom).......................................... 30,000 138,697
Hilti AG (Switzerland)..................................... 125 81,220
Konecranes International Corp.+
(Finland)................................................. 4,500 175,655
Mori Seiki Co., Ltd. (Japan)............................... 3,000 41,239
Nishimatsu Construction (Japan)............................ 12,000 75,976
Tarmac PLC (United Kingdom)................................ 85,000 135,653
Volker Stevin (Koninklijke) NV+ (Netherlands).............. 1,000 108,238
Walter AG+ (Germany)....................................... 400 136,211
-----------
1,124,411
-----------
CONSTRUCTION MATERIALS--2.2%
Cemex SA, Class B (Mexico)................................. 6,000 24,176
Grafton Group PLC (Ireland)................................ 10,000 141,133
Nippon Electric Glass Co., Ltd. (Japan).................... 10,000 135,037
PT Semen Gresik alien (Indonesia).......................... 4,000 9,954
Schneider SA (France)...................................... 4,000 229,406
-----------
539,706
-----------
DEPARTMENT STORES--0.0%
Hudsons Bay Co. (Canada)................................... 470 9,115
-----------
ELECTRICAL EQUIPMENT--0.3%
Matsushita Electric Works Ltd. (Japan)..................... 8,000 73,098
-----------
ELECTRONICS--3.5%
Advantest Corp. (Japan).................................... 1,980 99,905
Best Denki Co. Ltd. (Japan)................................ 10,000 100,267
Canon, Inc. (Japan)........................................ 3,000 64,284
Fanuc Ltd. (Japan)......................................... 3,000 92,181
Hoganas AG (Sweden)........................................ 2,500 79,286
Kyocera Corp. (Japan)...................................... 1,000 56,764
NEC Corp. (Japan).......................................... 12,000 135,845
Pressac Holdings PLC
(United Kingdom).......................................... 30,000 112,043
Toshiba Corp. (Japan)...................................... 10,000 55,308
Ushio, Inc. (Japan)........................................ 4,000 43,665
-----------
839,548
-----------
23
SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FOREIGN EQUITY (CONTINUED)
ENERGY SERVICES--0.5%
Total SA, Series B (France)............................... 1,500 $ 130,083
-----------
ENERGY SOURCES--0.5%
Chauvco Resources Ltd.+ (Canada).......................... 800 9,679
Crestar Energy, Inc.+ (Canada)............................ 968 18,528
Renaissance Energy Ltd.+ (Canada)......................... 968 27,512
Suncor, Inc. (Canada)..................................... 240 10,574
TransCanada Pipelines Ltd. (Canada)....................... 2,325 42,235
-----------
108,528
-----------
ENTERTAINMENT PRODUCTS--0.9%
Bluebird Toys PLC (United Kingdom)........................ 30,000 95,755
RBI Holdings Ltd. (Bermuda)............................... 800,000 111,503
-----------
207,258
-----------
FINANCIAL SERVICES--1.6%
Asia Securities International
(Hong Kong).............................................. 225,000 76,222
Dhana Siam Finance & Securities PLC (Thailand)............ 7,500 10,041
Hutchison Whampoa Ltd. alien
(Hong Kong).............................................. 9,000 67,657
Nomura Securities International, Inc. (Japan)............. 10,000 110,779
Parmalat Finanziar Spa (Italy)............................ 60,000 83,311
Want Want Holdings+ (Singapore)........................... 12,000 34,440
-----------
382,450
-----------
FOOD, BEVERAGE & TOBACCO--1.7%
HM Sampoerna alien (Indonesia)............................ 3,500 16,400
Katokichi Co. (Japan)..................................... 7,000 104,148
Sainsbury (J.) PLC (United Kingdom)....................... 25,000 139,437
Seagram Co. Ltd. (Canada)................................. 383 14,662
Vaux Group PLC (United Kingdom)........................... 30,000 128,825
-----------
403,472
-----------
FOREST PRODUCTS--1.1%
Fletcher Challenge Ltd., Class A (Canada)................. 1,647 25,576
Macmillan Bloedel Ltd. (Canada)........................... 600 8,386
Maderas Y Sinteticos SA ADR(1) (Chile).................... 1,900 29,925
New Oji Paper Co., Ltd.+ (Japan).......................... 11,000 55,414
Waddington (John) PLC
(United Kingdom)......................................... 25,000 133,267
-----------
252,568
-----------
HOUSING--0.5%
Kon Ahrend NV (Netherlands)............................... 1,700 108,680
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
INSURANCE--1.5%
AXA SA+ (France).......................................... 2,000 $ 132,621
Legal & General Group PLC
(United Kingdom)......................................... 10,000 64,330
Tokio Marine & Fire Insurance Co., Ltd. (Japan)........... 15,000 152,826
-----------
349,777
-----------
LEISURE & TOURISM--1.4%
Air Canada, Inc.+ (Canada)................................ 3,004 14,537
Airtours PLC (United Kingdom)............................. 8,000 130,306
Manchester United PLC
(United Kingdom)......................................... 10,000 106,614
Stanley Leisure PLC
(United Kingdom)......................................... 20,000 97,072
-----------
348,529
-----------
MACHINERY--0.8%
Seino Transportation (Japan).............................. 6,000 58,705
Tomra Systems ASA (Norway)................................ 6,500 131,191
-----------
189,896
-----------
MANUFACTURING--0.3%
Bombardier, Inc. Class B (Canada)......................... 426 7,692
Graystone PLC (United Kingdom)............................ 50,000 69,102
-----------
76,794
-----------
METALS & MINING--1.6%
Barrick Gold Corp. (Canada)............................... 1,126 26,595
Cominco Ltd. (Canada)..................................... 387 10,552
Davao Union Cement Class B (Philippines).................. 140,000 29,205
Diamond Fields International Ltd.(2)+ (Canada)............ 400 274
Inco Ltd. (Canada)........................................ 422 13,655
Inco Ltd., Class V (Canada)............................... 1,000 22,933
Nippon Steel Corp. (Japan)................................ 40,000 109,970
PT Telekomunikasi (Indonesia)............................. 30,000 45,918
Stelco, Inc. Class A+ (Canada)............................ 3,330 17,799
Sumitomo Metal Mining Co., Ltd. (Japan)................... 20,000 120,805
-----------
397,706
-----------
PHARMACEUTICALS--2.7%
Astra AB, Series A (Sweden)............................... 1,600 77,389
Glaxo Wellcome PLC ADR(1)
(United Kingdom)......................................... 10,000 183,613
Kissei Pharmaceutical Co. (Japan)......................... 4,400 77,917
Ono Pharmaceutical Co., Ltd. (Japan)...................... 2,000 61,939
Rhone-Poulenc Rorer, Inc. (France)........................ 3,500 118,630
Roche Holdings AG (Switzerland)........................... 14 121,077
-----------
640,565
-----------
24
SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FOREIGN EQUITY (CONTINUED)
REAL ESTATE COMPANIES--1.1%
Ayala Land, Inc. Class B (Philippines)................... 44,000 $ 50,066
Cheung Kong Holdings Ltd.
(Hong Kong)............................................. 8,000 70,464
City Developments Ltd. (Singapore)....................... 4,000 35,445
Sun Hung Kai Properties Ltd.
(Hong Kong)............................................. 8,000 84,659
Trizec Hahn Corp. (Canada)............................... 610 13,636
-----------
254,270
-----------
SOFTWARE--0.4%
Getronics NV (Netherlands)............................... 3,000 97,574
-----------
SPECIALTY RETAIL--1.7%
Aoki International Co., Ltd. (Japan)..................... 5,000 76,009
Great Universal Stores PLC
(United Kingdom)........................................ 15,000 164,363
Inchcape PLC (United Kingdom)............................ 14,000 59,888
Koninklijke Ahold NV (Netherlands)....................... 1,500 104,532
-----------
404,792
-----------
TELECOMMUNICATIONS--2.0%
BCE, Inc. (Canada)....................................... 417 19,156
Cable & Wireless PLC
(United Kingdom)........................................ 15,000 121,421
Korea Mobile Telecommunications ADR(1) (Korea)........... 5,160 52,893
Nippon Telegraph & Telecommunications Corp. (Japan)...... 12 84,515
Northern Telecom Ltd (Canada)............................ 89 5,805
Sociedade Tecnica de Equipamentos SA ADS (Italy)......... 30,000 106,523
Telecomunic Brasileiras SA (Brazil)...................... 1,000,000 100,812
-----------
491,125
-----------
TELEPHONE--0.1%
Telefonos de Mexico SA ADR(1) (Mexico)................... 750 28,875
-----------
TRANSPORTATION--0.4%
Kamigumi Co., Ltd. (Japan)............................... 7,000 33,452
Mitsubishi Logistc Corp. (Japan)......................... 3,000 32,749
Nippon Express Co., Ltd. (Japan)......................... 6,000 39,977
-----------
106,178
-----------
[Download Table]
SHARES/
PRINCIPAL AMOUNT
(DENOMINATED IN
LOCAL CURRENCY) VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
UTILITIES--1.1%
Cogeneration PLC alien+ (Thailand)............... 15,000 $ 52,302
CPT Telefonica de Peru (Peru).................... 9,000 19,966
Electricity Generating PLC alien (Thailand)...... 10,000 24,466
Tokyo Electric Power Co., Inc. (Japan)........... 4,000 72,774
Veba AG (Germany)................................ 1,500 84,937
-----------
254,445
-----------
TOTAL FOREIGN EQUITY
(COST $11,579,834)............................... 11,888,343
-----------
TOTAL COMMON STOCK
(COST $14,825,634)............................... 15,988,305
-----------
PREFERRED STOCK--1.2%
ENERGY SOURCES--0.3%
Cemig Cia Energy MG (Brazil)..................... 1,650,000 67,913
-----------
HOUSEHOLD PRODUCTS--0.5%
Friedrich Grohe AG non-voting (Germany).......... 400 123,981
-----------
METALS & MINING--0.0%
Inco Ltd., Series E (Canada)..................... 36 2,641
-----------
SPECIALTY RETAIL--0.4%
Hornbach Holding AG non-voting (Germany)......... 1,450 95,189
-----------
TOTAL PREFERRED STOCK
(COST $263,883).................................. 289,724
-----------
WARRANTS--0.0%
FINANCIAL SERVICES--0.0%
Industrial Finance Corp.
(cost $17,074).................................. 12 3,652
-----------
FOREIGN BONDS--13.9%
Commonwealth of Australia
7.50% due 7/15/05................................ 100 76,381
25
SUNAMERICA GLOBAL BALANCED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
PRINCIPAL AMOUNT
(DENOMINATED IN
LOCAL CURRENCY) VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
--------------------------------------------------------------------------------
FOREIGN BONDS (CONTINUED)
Federal Republic of Germany
5.88% due 5/15/00................................ 300 $ 188,525
6.75% due 7/15/04................................ 300 193,148
7.13% due 12/20/02............................... 300 197,374
7.38% due 1/03/05................................ 500 332,194
Government of Canada.............................
7.50% due 9/01/00................................ 200 152,751
Government of France.............................
7.00% due 11/12/99............................... 700 133,754
Government of Spain
10.00% due 2/28/05............................... 10,000 82,930
Kingdom of Belgium
6.50% due 3/31/05................................ 4,000 122,442
Kingdom of Denmark
9.00% due 11/15/00............................... 1,000 177,001
Kingdom of Sweden
10.25% due 5/05/03............................... 1,500 234,827
13.00% due 6/15/01............................... 1,500 249,813
Republic of Ireland
8.00% due 10/18/00 .............................. 100 167,900
Republic of Italy
10.50% due 11/01/00.............................. 400,000 259,709
Treuhandanstalt (Germany)
6.13% due 6/25/98................................ 100 61,841
United Kingdom Treasury
8.50% due 12/07/05............................... 300 520,576
9.00% due 3/03/00................................ 100 172,137
-----------
TOTAL FOREIGN BONDS
(COST $3,408,514)................................ 3,323,303
-----------
U.S. TREASURY NOTES--6.9%
5.25% due 1/31/01................................ 100 95,187
6.13% due 9/30/00................................ 150 147,422
6.38% due 3/31/01................................ 200 197,500
6.50% due 8/15/05................................ 500 486,170
7.88% due 11/15/04............................... 700 739,263
-----------
TOTAL U.S. TREASURY NOTES
(COST $1,663,354)................................ 1,665,542
-----------
TOTAL INVESTMENT SECURITIES--88.6%
(COST $20,178,458)............................... 21,270,526
-----------
SHORT-TERM SECURITIES--5.4%
Cayman Island Time Deposit 4.50% due 4/01/97
(cost $1,287,000)............................... $ 1,287 1,287,000
-----------
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
REPURCHASE AGREEMENT--5.4%
Joint Repurchase Agreement Account (Note 2)
(cost $1,300,000)................................ $1,300 $ 1,300,000
-----------
TOTAL INVESTMENTS--
(COST $22,765,458)................................ 99.4% 23,857,526
Other assets less liabilities...................... 0.6 148,141
------ -----------
NET ASSETS-- 100.0% $24,005,667
====== ===========
-------
+Non-income producing security
(1)ADR ("American Depositary Receipt")
(2)Fair valued security, see Note 2
Allocation of net assets by
currency as of March 31, 1997:
U.S. Dollar 36.5%
Japanese Yen 14.9
British
Pound 12.2
Deutsche Mark 7.4
French Franc 4.2
Swedish Krona 3.4
Hong Kong
Dollar 2.8
Netherland
Guilder 2.4
Canadian
Dollar 2.2
Italian Lira 2.2
Swiss Franc 2.0
Finnish
Markka 1.2
Irish Punt 1.3
Indonesian
Rupiah 0.9
Malaysian
Ringgit 0.9
Brazilian
Real 0.7
Danish Kroner 0.7
Australian
Dollar 0.5
Belgian Franc 0.5
Norwegian
Krone 0.5
Singapore
Dollar 0.4
Thailand Baht 0.5
Philippines
Peso 0.3
Spanish
Peseta 0.3
Mexican Peso 0.1
Peruvian Nouveau
Sol 0.2
Portuguese
Escudo 0.2
---
99.4%
---
---
See Notes to Financial Statements
26
SUNAMERICA GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK--92.6%
AEROSPACE & MILITARY TECHNOLOGY--0.7%
Boeing Co. ................................................ 4,462 $ 440,065
-----------
APPAREL & TEXTILES--0.5%
NIKE, Inc., Class B........................................ 5,000 310,000
-----------
AUTOMOTIVE--1.2%
Ford Motor Co. ............................................ 10,000 313,750
Goodyear Tire & Rubber Co. ................................ 10,000 522,500
-----------
836,250
-----------
BANKS--6.4%
BankAmerica Corp. ......................................... 6,000 604,500
Chase Manhattan Corp. ..................................... 9,000 842,625
First Union Corp. ......................................... 6,000 486,750
Fleet Financial Group, Inc. ............................... 10,000 572,500
Mellon Bank Corp. ......................................... 7,000 509,250
NationsBank Corp. ......................................... 10,000 553,750
Summit Bancorp. ........................................... 16,000 700,000
-----------
4,269,375
-----------
BUSINESS SERVICES--2.2%
American Express Co. ...................................... 4,000 239,500
Omnicom Group.............................................. 10,000 498,750
Service Corp. International................................ 25,000 743,750
-----------
1,482,000
-----------
CHEMICALS--6.5%
du Pont (E.I.) de Nemours & Co. ........................... 5,000 530,000
Fuller H B Co. ............................................ 20,000 975,000
Hanna (M.A), Co. .......................................... 25,000 531,250
IMC Global, Inc. .......................................... 30,000 1,083,750
Monsanto Co. .............................................. 10,000 382,500
RPM, Inc. Ohio............................................. 20,000 332,500
Waters Corp.+.............................................. 20,000 535,000
-----------
4,370,000
-----------
COMMUNICATION EQUIPMENT--0.9%
Nokia Corp., Class A ADR(1)................................ 10,000 582,500
-----------
COMPUTERS & BUSINESS EQUIPMENT--4.6%
American Pad & Paper Co.+.................................. 20,000 300,000
Cisco Systems, Inc.+....................................... 5,000 240,625
Compaq Computer, Corp.+.................................... 2,000 153,250
Computer Associates International, Inc. ................... 15,000 583,125
Hewlett-Packard Co. ....................................... 11,000 585,750
Honeywell, Inc. ........................................... 12,000 814,500
International Business Machines Corp. ..................... 3,000 412,125
-----------
3,089,375
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
CONGLOMERATE--2.5%
AlliedSignal, Inc. ........................................ 7,000 $ 498,750
General Electric Co. ...................................... 7,000 694,750
ITT Industries, Inc. ...................................... 14,000 313,250
Republic Industries, Inc.+................................. 5,000 173,438
-----------
1,680,188
-----------
CONSTRUCTION & HOUSING--1.1%
Chicago Bridge & Iron Co. N.V. ............................ 10,000 177,500
Dal-Tile International, Inc.+.............................. 35,000 546,875
-----------
724,375
-----------
DEPARTMENT STORES--1.4%
Federated Department Stores, Inc.+......................... 20,000 657,500
Wal-Mart Stores, Inc....................................... 10,000 278,750
-----------
936,250
-----------
ELECTRONICS--5.9%
Advanced Micro Devices, Inc.+.............................. 7,000 290,500
Emerson Electric Co. ...................................... 14,000 630,000
Intel Corp................................................. 8,000 1,113,000
Motorola, Inc. ............................................ 5,000 301,875
Newbridge Networks Corp. ADR(1)+........................... 15,000 429,375
Rockwell International Corp................................ 13,000 843,375
Texas Instruments, Inc. ................................... 4,500 336,937
-----------
3,945,062
-----------
ENERGY SERVICES--6.5%
Amoco Corp................................................. 5,000 433,125
Baker Hughes, Inc.......................................... 20,000 767,500
Central & South West Corp. ................................ 20,000 427,500
Chevron Corp. ............................................. 7,000 487,375
Exxon Corp................................................. 9,000 969,750
Mobil Corp................................................. 4,500 587,812
Royal Dutch Petroleum Co................................... 4,000 700,000
-----------
4,373,062
-----------
ENERGY SOURCES--3.4%
Nuevo Energy Co. .......................................... 15,000 575,625
Panhandle Eastern Corp..................................... 15,000 646,875
Parker & Parsley Petroleum Co. ............................ 10,000 295,000
Pogo Producing Co. ........................................ 10,000 360,000
Texaco, Inc. .............................................. 4,000 438,000
-----------
2,315,500
-----------
ENTERTAINMENT PRODUCTS--0.9%
Mattel, Inc. .............................................. 26,000 624,000
-----------
FINANCIAL SERVICES--3.9%
Associates First Capital Corp. ............................ 10,000 430,000
Charles Schwab Corp. ...................................... 10,000 318,750
27
SUNAMERICA GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
-------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
Federal National Mortgage Association...................... 19,300 $ 697,212
HomeSide Inc. ............................................. 11,000 162,250
Nationwide Financial Services, Inc. ....................... 15,000 386,250
Transamerica Corp. ........................................ 7,000 626,500
-----------
2,620,962
-----------
FOOD, BEVERAGE & TOBACCO--6.3%
Coca-Cola Co. ............................................. 6,000 335,250
Dole Food, Inc. ........................................... 20,000 755,000
Flowers Industries, Inc. .................................. 22,000 503,250
Heinz (H.J.) Co. .......................................... 8,000 316,000
McDonald's Corp. .......................................... 11,000 519,750
PepsiCo, Inc. ............................................. 8,000 261,000
Philip Morris Cos., Inc. .................................. 12,000 1,369,500
UST, Inc. ................................................. 6,000 167,250
-----------
4,227,000
-----------
FOREST PRODUCTS--1.7%
Kimberly-Clark Corp. ...................................... 8,000 795,000
Willamette Industries, Inc. ............................... 6,000 375,000
-----------
1,170,000
-----------
HEALTH SERVICES--3.6%
Columbia/HCA Healthcare Corp. ............................. 25,000 840,625
Tenet Healthcare Corp.+.................................... 24,650 607,006
United Healthcare Corp. ................................... 20,000 952,500
-----------
2,400,131
-----------
HOUSEHOLD PRODUCTS--2.0%
Corning, Inc. ............................................. 20,000 887,500
Procter & Gamble Co. ...................................... 4,000 460,000
-----------
1,347,500
-----------
INSURANCE--2.9%
Aetna, Inc. ............................................... 7,500 644,063
Allstate Corp. ............................................ 9,000 534,375
Chubb Corp. ............................................... 10,000 538,750
Equitable Cos., Inc. ...................................... 8,000 218,000
-----------
1,935,188
-----------
LEISURE & TOURISM--1.2%
Carnival Corp., Class A.................................... 14,000 518,000
Family Golf Centers Inc. .................................. 14,000 273,875
-----------
791,875
-----------
MEDICAL PRODUCTS--2.5%
Amgen, Inc.+............................................... 12,000 670,500
Baxter International, Inc. ................................ 15,000 646,875
Sola International, Inc.+.................................. 15,000 346,875
-----------
1,664,250
-----------
[Download Table]
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
METALS & MINING--3.7%
Crown, Cork & Seal, Inc. .................................. 30,000 $ 1,548,750
EASCO, Inc. ............................................... 30,000 240,000
Martin Marietta Materials, Inc. ........................... 13,000 334,750
Nucor Corp. ............................................... 5,000 228,750
Santa Fe Pacific Gold Corp. ............................... 10,000 165,000
-----------
2,517,250
-----------
PHARMACEUTICALS--4.0%
Bristol-Myers Squibb Co. .................................. 16,000 944,000
Lilly (Eli) & Co. ......................................... 6,000 493,500
Merck & Co., Inc. ......................................... 15,000 1,263,750
-----------
2,701,250
-----------
POLLUTION CONTROL--2.4%
Browning-Ferris Industries, Inc. .......................... 12,000 346,500
United States Filter Corp.+................................ 25,000 771,875
USA Waste Services, Inc.+.................................. 13,000 461,500
-----------
1,579,875
-----------
REAL ESTATE INVESTMENT TRUSTS--2.0%
Crescent Real Estate Equities.............................. 16,000 428,000
Evans Withycombe Residential, Inc. ........................ 15,000 309,375
Healthcare Realty Trust.................................... 10,000 273,750
Reckson Associates Realty Corp. ........................... 7,000 322,875
-----------
1,334,000
-----------
RESTAURANTS--0.2%
Ryans Family Steak Houses Inc. ............................ 15,000 117,188
-----------
SOFTWARE--2.3%
Microsoft Corp.+........................................... 10,000 916,875
Reynolds & Reynolds Co. ................................... 27,000 644,625
-----------
1,561,500
-----------
SPECIALTY RETAIL--2.2%
Gillette Co. .............................................. 5,000 363,125
Home Depot, Inc. .......................................... 16,000 856,000
Loehmanns, Inc.+........................................... 15,000 262,500
-----------
1,481,625
-----------
TELECOMMUNICATIONS--3.0%
Ameritech Corp. ........................................... 5,000 307,500
GTE Corp. ................................................. 11,000 512,875
Lucent Technologies, Inc. ................................. 11,296 595,864
MCI Communications Corp. .................................. 10,000 356,250
NYNEX Corp. ............................................... 5,000 228,125
-----------
2,000,614
-----------
28
SUNAMERICA GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
SHARES/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
TRANSPORTATION--1.6%
AMR Corp.+....................................... 4,000 $ 330,000
Burlington Northern Santa Fe..................... 10,000 740,000
-----------
1,070,000
-----------
UTILITIES--2.4%
Baltimore Gas & Electric Co. .................... 7,000 187,250
Consolidated Natural Gas Co. .................... 10,000 503,750
GPU, Inc. ....................................... 7,000 224,875
Peoples Energy Corp. ............................ 10,000 331,250
Utilicorp United, Inc. .......................... 14,000 357,000
-----------
1,604,125
-----------
TOTAL COMMON STOCK
(COST $60,110,491)............................... 62,102,335
-----------
NOTE--0.1%
FOREST PRODUCTS--0.1%
Stone Container Corp.
11.88% due 12/01/98
(cost $50,714).................................. $ 50 50,500
-----------
TOTAL INVESTMENT SECURITIES--92.7%
(COST $60,161,205)............................... 62,152,835
-----------
[Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
REPURCHASE AGREEMENT--7.5%
Joint Repurchase Agreement Account (Note 2)
(cost $5,044,000)............................... $5,044 $ 5,044,000
-----------
TOTAL INVESTMENTS--
(COST $65,205,205)............................... 100.2% 67,196,835
Liabilities in excess of other assets............. (0.2) (145,758)
------ -----------
NET ASSETS-- 100.0% $67,051,077
====== ===========
--------
+ Non-income producing security
(1) ADR ("American Depositary Receipt")
See Notes to Financial Statements
29
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited)
Note 1. Organization
SunAmerica Equity Funds is an open-end diversified management investment
company organized as a Massachusetts business trust (the "Trust" or "Equity
Funds") on June 16, 1986. It currently consists of six different investment
funds (each, a "Fund" and collectively, the "Funds"). Each Fund is a
separate series of the Trust with a distinct investment objective and/or
strategy. Each Fund is advised and/or managed by SunAmerica Asset
Management Corp. (the "Adviser" or "SAAMCo"), an 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 Global Balanced Fund
("Global Balanced Fund") and SunAmerica Growth and Income Fund ("Growth and
Income Fund"). The Funds are considered to be separate entities for
financial and tax reporting purposes. The investment 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.
Global Balanced seeks capital appreciation while conserving principal by
maintaining at all times a balanced portfolio of domestic and foreign
stocks and bonds.
Growth and Income seeks capital appreciation and current income by
investing primarily in common stocks.
Each Fund currently offers two classes of shares. Balanced Assets Fund and
Small Company Growth Fund offer Class Z shares, exclusively for sale to
employees participating in the SunAmerica profit sharing and retirement
plan. Class A shares are offered at net asset value per share plus an
initial sales charge. Class B shares are offered without an initial sales
charge, although a declining contingent sales charge may be imposed on
redemptions made within six years of purchase. Class Z shares are offered
at net asset value. Additionally, any purchases of Class A shares in excess
of $1,000,000 will be subject to a contingent deferred sales charge on
redemptions made within one year of purchase. Class B shares of each Fund
will convert automatically to Class A shares on the first business day of
the month after seven years from the issuance of such Class B shares and at
such time will be subject to the lower distribution fee applicable to Class
A shares. Each class of shares bears the same voting, dividend, liquidation
and other rights and conditions. Class A shares and Class B 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 "1940 Act"), except that Class B shares are subject to
higher distribution fee rates. There are no distribution or service fee
payments applicable to Class Z.
30
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited) -- (continued)
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. Values of
portfolio securities primarily traded on foreign exchanges are already
translated into U.S. dollars when received from a quotation service.
Options traded on national securities exchanges are valued as of the close
of the exchange on which they are traded. Futures and options traded on
commodities exchanges are valued at their last sale price as of the close
of such exchange. The Funds may make use of a pricing service in the
determination of their net asset values. Securities for which market
quotations are not readily available and other assets are valued at fair
value as determined pursuant to procedures adopted in good faith by the
Trustees. Short-term investments which mature in less than 60 days are
valued at amortized cost, if their original maturity was 60 days or less,
or by amortizing their value on the 61st day prior to maturity, if their
original term to maturity exceeded 60 days.
REPURCHASE AGREEMENTS: The Funds, along with other affiliated registered
investment companies, transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral
is valued daily on a mark to market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In
the event of default of the obligation to repurchase, a Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. If the seller defaults and the value of the collateral declines
or if bankruptcy proceedings are commenced with respect to the seller of
the security, realization of the collateral by the Fund may be delayed or
limited.
As of March 31, 1997, Balanced Assets Fund, Blue Chip Growth Fund, Small
Company Growth Fund, Global Balanced Fund and Growth and Income Fund had a
15.8%, 9.9%, 31.3%, 1.7%, and 6.7% undivided interest, respectively, which
represented $11,942,000, $7,498,000, $23,656,000, $1,300,000, and
$5,044,000, respectively, in principal amount in a joint repurchase
agreement with
31
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited) -- (continued)
Yamaichi International Inc. As of such date, the repurchase agreement in
the joint account and the collateral therefore were as follows:
Yamaichi International, Inc. Repurchase Agreement 6.1% dated 3/31/97, in
the principal amount of $75,499,000 repurchase price $75,511,793 due
04/01/97 collateralized by $19,000,000 U.S. Treasury Bond 7.625% due
2/15/07, $19,400,000 U.S. Treasury Note 7.875% due 11/15/04, $20,675,000
U.S. Treasury Note 6.375% due 3/31/01, $16,230,000 U.S. T-bill 5.42% due
9/18/97, approximate aggregate value $77,014,143.
SECURITIES TRANSACTIONS, INVESTMENT INCOME, DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS: Securities transactions are recorded on the first business
day following the trade date. Realized gains and losses on sales of
investments are calculated on the identified cost basis. Interest income is
recorded on the accrual basis; dividend income is recorded on the ex-
dividend date. Funds investing in foreign securities may be subject to
taxes imposed by countries in which it invests. Such taxes are generally
based on either income or gains earned or repatriated. The Fund accrues
such taxes when the related income is earned. The Equity Funds, except for
the Global Balanced Fund and the Growth and Income Fund, do not amortize
premiums or accrue 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).
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.
Dividends from net investment income, if any, are paid semiannually, except
for Balanced Assets Fund and Growth and Income Fund, which pay quarterly,
and Global Balanced Fund, which pays annually. Capital gain distributions,
if any, are paid annually.
The Funds record dividends and distributions to its 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. The
following table discloses the year ended September 30, 1996
reclassifications between paid in capital, accumulated undistributed net
investment income/loss and accumulated undistributed net realized gain/loss
on investments.
32
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited) -- (continued)
[Download Table]
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED PAID
NET REALIZED NET INVESTMENT IN
GAIN/LOSS INCOME/LOSS CAPITAL
------------- -------------- -----------
Balanced Assets Fund............... $ (1,024) $ 1,024 $ --
Blue Chip Growth Fund.............. (408,630) 408,630 --
Mid-Cap Growth Fund................ (399,630) 425,977 (26,347)
Small Company Growth Fund.......... -- 1,857,708 (1,857,708)
Global Balanced Fund............... (704,902) 704,902 --
Growth and Income Fund............. (21,903) 21,903 --
FOREIGN CURRENCY TRANSACTION: The books and records of the Fund are
maintained in U.S. dollars.
Assets and liabilities denominated in foreign currencies and commitments
under forward foreign currency contracts are translated into U.S. dollars
at the mean of the quoted bid and asked prices of such currencies against
the U.S. dollar.
The Fund does not isolate that portion of the results of operations arising
as a result of changes in the foreign exchange rates from the changes in
the market prices of securities held at fiscal year-end. Similarly, the
Fund does not isolate the effect of changes in foreign exchange rates from
the changes in the market prices of portfolio securities sold during the
year.
Realized foreign exchange gains and losses on other assets and liabilities
and change in unrealized foreign exchange gains and losses on other assets
and liabilities include foreign exchange gains and losses from currency
gains or losses between the trade and settlement dates of securities
transactions, the difference between the amounts of interest, dividends and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid and changes in the unrealized
foreign exchange gains and losses relating to other assets and liabilities
arising as a result of changes in the exchange rate.
ORGANIZATIONAL EXPENSES: Costs incurred by SAAMCo in connection with the
organization of Global Balanced Fund and Growth and Income Fund amounted to
$4,347 and $1,383, respectively. These costs are being amortized on a
straight line basis by the Funds over a period not to exceed 60 months from
the date the Funds commenced operations.
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, an indirect wholly-
owned subsidiary of SunAmerica Inc. Under the Agreement, SAAMCo provides
continuous supervision of a Fund's portfolio and administers its corporate
affairs, subject to general review by the Trustees. In connection
therewith, SAAMCo furnishes the Funds with office facilities, maintains
certain of the Fund's books and records, and pays the salaries and expenses
of all personnel, including officers of the Funds who are employees of
SAAMCo and its affiliates. The investment advisory and management fee to
SAAMCo with respect to
33
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited) -- (continued)
each Fund (other than the Global Balanced Fund) is computed daily and
payable monthly, at an annual rate of .75% of a Fund's average daily net
assets up to $350 million, .70% of the next $350 million, and .65%
thereafter. The Global Balanced Fund pays the Adviser a fee, payable
monthly, computed daily at the annual rate of 1.00% on the first $350
million of the Fund's average daily net assets, .90% on the next $350
million of net assets and .85% on net assets over $700 million. For the six
months ended March 31, 1997, SAAMCo earned fees in the amounts stated on
the Statement of Operations, of which SAAMCo agreed to voluntarily
reimburse $37,787 and $89,267 on the Global Balanced Fund and Growth and
Income Fund, respectively. In addition to the aforementioned, SAAMCo, on
behalf of SunAmerica Global Balanced Fund, entered into Sub-Advisory
Agreements with AIG Global Investment Corp. ("AIG Global") under which AIG
Global acts as sub-adviser.
SAAMCo pays AIG Global a monthly fee with respect to those net assets of
the Global Balanced Fund actually managed by AIG Global computed based on
average daily net assets at the following annual rates: .50% on the first
$50 million of such assets, .40% of the next $100 million of such assets,
.30% on the next $150 million of such assets, and .25% of such assets in
excess of $300 million. For the six months ended March 31, 1997, SAAMCo
paid AIG Global fees of $35,150.
For the six months ended March 31, 1997, SAAMCo has agreed to voluntarily
reimburse expenses, excluding management fee reimbursements which are
stated separately in the Notes, as follows:
[Download Table]
Balanced Assets Class Z.......................................... $2,237
Small Company Class Z............................................ $2,145
Global Balanced Class A.......................................... $1,464
Growth and Income Class B........................................ $1,226
The Trust, on behalf of each Fund, has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS"), an indirect wholly owned
subsidiary of SunAmerica Inc. Each Fund has adopted a Distribution Plan
(the "Plan") in accordance with the provisions of Rule 12b-1 under the 1940
Act. Rule 12b-1 under the Act permits an investment company directly or
indirectly to pay expenses associated with the distribution of its shares
("distribution expenses") in accordance with a plan adopted by the
investment company's board of trustees and approved by its shareholders.
Pursuant to such rule, the Trustees and the shareholders of each class of
shares of each Fund have adopted Distribution Plans hereinafter referred to
as the "Class A Plan" and the "Class B Plan." In adopting the Class A Plan
and the Class B Plan, the Trustees determined that there was a reasonable
likelihood that each such Plan would benefit the Trust and the shareholders
of the respective class. The sales charge and distribution fees of a
particular class will not be used to subsidize the sale of shares of any
other class.
Under the Class A Plan and Class B Plan, the Distributor receives payments
from a Fund at an annual rate of up to 0.10% and 0.75%, respectively, of
average daily net assets of such Fund's Class A and Class B shares to
compensate the Distributor and certain securities firms for providing sales
and promotional activities for distributing that class of shares. The
distribution costs for which the Distributor may be reimbursed out of such
distribution fees include fees paid to broker-dealers that have sold Fund
shares, commissions and other expenses such as those incurred for sales
literature,
34
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited) -- (continued)
prospectus printing and distribution and compensation to wholesalers. It is
possible that in any given year the amount paid to the Distributor under
the Class A Plan or Class B Plan may exceed the Distributor's distribution
costs as described above. The Distribution Plans provide that each class of
shares of each Fund may also pay the Distributor an account maintenance and
service fee up to an annual rate of 0.25% of the aggregate average daily
net assets of such class of shares for payments to broker-dealers for
providing continuing account maintenance. Accordingly, for the six months
ended March 31, 1997, SACS received fees (see Statement of Operations)
based upon the aforementioned rates.
SACS receives sales charges on each Fund's Class A shares, portions of
which are reallowed to affiliated broker-dealers and non-affiliated broker-
dealers. SACS also receives the proceeds of contingent deferred sales
charges paid by investors in connection with certain redemptions of each
Fund's Class B shares. SACS has advised the Funds that for the six months
ended March 31, 1997 the proceeds received from Class A sales (and paid out
to affiliated and non-affiliated broker-dealers) and Class B redemptions
are as follows:
[Download Table]
CLASS A CLASS B
-------------------------------------- -------------------
SALES AFFILIATED NON-AFFILIATED CONTINGENT DEFERRED
CHARGES BROKER-DEALERS BROKER-DEALERS SALES CHARGES
-------- -------------- -------------- -------------------
Balanced Assets Fund.... $ 79,335 $ 25,282 $ 6,761 $192,818
Blue Chip Growth Fund... 39,242 23,093 11,266 36,249
Mid-Cap Growth Fund..... 48,233 25,929 15,751 26,010
Small Company Growth
Fund................... 668,701 348,673 229,610 139,274
Global Balanced Fund.... 20,402 14,287 3,283 19,928
Growth and Income Fund.. 311,774 172,092 96,300 27,098
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 six months ended March 31, 1997, 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.
[Download Table]
PAYABLE AT
EXPENSE MARCH 31, 1997
----------------- ---------------
CLASS A CLASS B CLASS A CLASS B
-------- -------- ------- -------
Balanced Assets Fund...................... $166,038 $186,811 $29,122 $30,621
Blue Chip Growth Fund..................... 59,292 40,217 10,615 7,041
Mid-Cap Growth Fund....................... 47,175 15,356 7,940 2,436
Small Company Growth Fund................. 175,154 119,702 27,871 18,397
Global Balanced Fund...................... 10,702 17,700 1,692 2,920
Growth and Income Fund.................... 34,239 26,907 7,006 5,809
35
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited) -- (continued)
Note 4. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales and maturities of
investments (excluding U.S. Government securities and short-term
investments) during the six months ended March 31, 1997 were as follows:
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
------------ ------------ ----------- ------------- ---------- -----------
Aggregate purchases..... $213,554,504 $102,124,218 $85,912,523 $383,958,137 $6,829,270 $75,011,378
============ ============ =========== ============ ========== ===========
Aggregate sales......... $209,548,839 $105,266,174 $89,273,302 $395,862,552 $8,668,703 $46,782,956
============ ============ =========== ============ ========== ===========
Note 5. Portfolio Securities
The Funds intend 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, including short-term securities, were as follows:
[Enlarge/Download Table]
BALANCED BLUE CHIP MID-CAP SMALL COMPANY GLOBAL GROWTH AND
ASSETS GROWTH GROWTH GROWTH BALANCED INCOME
FUND FUND FUND FUND FUND FUND
------------ ----------- ----------- ------------- ----------- -----------
Cost.................... $297,421,790 $85,056,861 $43,071,462 $210,999,789 $22,765,458 $65,205,205
============ =========== =========== ============ =========== ===========
Appreciation............ $ 21,533,522 $ 6,593,958 $ 5,763,251 $ 25,661,037 $ 2,893,104 $ 3,808,761
Depreciation............ (8,538,449) (3,526,539) (1,104,484) (7,725,360) (1,801,036) (1,817,131)
------------ ----------- ----------- ------------ ----------- -----------
Net unrealized
appreciation........... $ 12,995,073 $ 3,067,419 $ 4,658,767 $ 17,935,677 $ 1,092,068 $ 1,991,630
============ =========== =========== ============ =========== ===========
At September 30, 1996, Global Balanced Fund had net capital loss
carryforwards of $217,014 which are available to the extent provided in
regulations to offset future capital gains of which $17,364 will expire in
2003 and $199,650 will expire in 2004. To the extent that these
carryforwards are used to offset future capital gains, it is probable that
the gains so offset will not be distributed.
36
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited) -- (continued)
Note 6. Open Forward Currency Contracts
At March 31, 1997, the Global Balanced Fund engaged in the trading of
forward foreign currency contracts ("forward contracts") in order to hedge
against changes in future foreign exchange rates and enhance return.
Forward contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the
risk of an unfavorable change in the foreign exchange rate underlying the
forward contract. Global Balanced Fund held the following forward currency
contracts at March 31, 1997:
[Download Table]
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
---------------------- ------------------------- -------- ------------
*USD 247,595 DEM 420,664 4/14/97 $ 4,846
CAD 216,167 USD 158,040 4/16/97 1,736
JPY 300,000,000 USD 2,461,034 6/12/97 9,314
--------
15,896
--------
GROSS
UNREALIZED
DEPRECIATION
------------
IEP 107,348 USD 169,460 4/3/97 $ (961)
DEM 2,044,653 USD 1,212,149 4/4/97 (14,001)
BEF 3,467,742 USD 99,464 4/7/97 (1,389)
*DEM 420,664 USD 247,960 4/14/97 (4,481)
GBP 420,664 USD 671,170 4/14/97 (20,834)
ESP 10,484,525 USD 73,083 4/21/97 (1,122)
ITL 421,970,840 USD 248,730 4/21/97 (4,114)
SEK 3,074,685 USD 397,169 4/21/97 (11,208)
DKK 1,109,003 USD 173,460 4/24/97 (1,258)
FRF 782,303 USD 138,230 4/24/97 (1,332)
AUD 94,642 USD 74,067 4/28/97 (99)
DEM 2,000,000 USD 1,170,275 6/12/97 (34,913)
--------
(95,712)
--------
Net Depreciation....................................... $(79,816)
========
*Represents open forward foreign currency contracts and offsetting open
forward foreign currency contracts that do not have additional market risk
but have continued counterparty settlement risk.
AUD--Australian Dollar ESP--Spanish Peseta ITL--Italian Lira
BEF--Belgian Franc FRF--French Franc JPY--Japanese Yen
CAD--Canadian Dollar GBP--Great Britain Pound SEK--Swedish Krona
DEM--Deutsche Mark IEP--Irish Punt USD--United States
DKK--Danish Kroner Dollar
37
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited) -- (continued)
Note 7. Capital Share Transactions
At March 31, 1997, the Adviser and SACS in the aggregate, owned 878,013
Class A shares of the Growth and Income Fund representing 14.26% of the
Fund's net assets.
Transactions in capital shares of each class of each series were as
follows:
[Enlarge/Download Table]
BALANCED ASSETS FUND
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B
---------------------------------------------------- --------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
MARCH 31, 1997 YEAR ENDED MARCH 31, 1997 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996 (UNAUDITED) SEPTEMBER 30, 1996
-------------------------- ------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------- ---------- ------------ ---------- ------------ ---------- ------------
Shares sold..... 1,300,894 $ 20,607,206 3,119,474 $ 50,864,950 890,637 $ 14,253,340 3,055,442 $ 49,865,609
Reinvested
dividends...... 980,977 15,775,166 583,832 9,290,744 1,111,715 17,563,059 690,103 10,949,550
Shares redeemed. (1,454,453) (24,143,227) (2,257,335) (36,956,739) (2,165,648) (35,687,999) (3,430,716) (55,757,942)
----------- ------------- ---------- ------------ ---------- ------------ ---------- ------------
Net increase
(decrease)..... 827,418 $ 12,239,145 1,445,971 $ 23,198,955 (163,296) $ (3,871,600) 314,829 $ 5,057,217
=========== ============= ========== ============ ========== ============ ========== ============
BALANCED ASSETS FUND
--------------------------
CLASS Z
--------------------------
FOR THE PERIOD
OCTOBER 7, 1996* THROUGH
MARCH 31, 1997
(UNAUDITED)
--------------------------
SHARES AMOUNT
------------ -------------
Shares sold..... 1,129 $ 18,945
Reinvested
dividends...... 76 1,169
Shares redeemed. (28) (452)
----------- -------------
Net increase.... 1,177 $ 19,662
=========== =============
BLUE CHIP GROWTH FUND
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B
---------------------------------------------------- --------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
MARCH 31, 1997 YEAR ENDED MARCH 31, 1997 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996 (UNAUDITED) SEPTEMBER 30, 1996
-------------------------- ------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------- ---------- ------------ ---------- ------------ ---------- ------------
Shares sold..... 357,060 $ 6,044,189 753,893 $ 12,709,149 908,161 $ 15,199,458 3,214,655 $ 53,717,531
Reinvested
dividends...... 455,715 6,972,433 285,095 4,507,347 319,328 4,764,383 277,108 4,315,647
Shares redeemed. (364,060) (6,158,172) (533,503) (8,978,653) (1,238,212) (20,291,094) (3,702,537) (61,373,567)
----------- ------------- ---------- ------------ ---------- ------------ ---------- ------------
Net increase
(decrease)..... 448,715 $ 6,858,450 505,485 $ 8,237,843 (10,723) $ (327,253) (210,774) $ (3,340,389)
=========== ============= ========== ============ ========== ============ ========== ============
* Inception of the class
38
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited) -- (continued)
[Enlarge/Download Table]
MID-CAP GROWTH FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
----------------------------------------------------- ---------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
MARCH 31, 1997 YEAR ENDED MARCH 31, 1997 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996 (UNAUDITED) SEPTEMBER 30, 1996
-------------------------- ------------------------- ------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------- ---------- ------------- ---------- ------------ ---------- -------------
Shares sold..... 657,487 $ 11,790,903 585,749 $ 10,047,757 203,348 $ 3,581,412 1,569,285 $ 26,612,848
Reinvested
dividends...... 105,243 1,820,690 262,450 4,236,039 35,395 598,248 66,071 1,049,943
Shares redeemed. (758,893) (13,628,298) (609,879) (10,404,579) (296,425) (5,154,253) (1,386,338) (23,587,448)
----------- ------------- ---------- ------------- ---------- ------------ ---------- -------------
Net increase
(decrease)..... 3,837 $ (16,705) 238,320 $ 3,879,217 (57,682) $ (974,593) 249,018 $ 4,075,343
=========== ============= ========== ============= ========== ============ ========== =============
SMALL COMPANY GROWTH FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
----------------------------------------------------- ---------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
MARCH 31, 1997 YEAR ENDED MARCH 31, 1997 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996 (UNAUDITED) SEPTEMBER 30, 1996
-------------------------- ------------------------- ------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------- ---------- ------------- ---------- ------------ ---------- -------------
Shares sold..... 2,030,100 $ 48,763,091 6,607,402 $ 153,907,782 1,108,316 $ 26,188,678 6,285,098 $ 144,713,218
Reinvested
dividends...... 231,823 5,468,761 725,288 15,398,224 165,485 3,806,222 543,295 11,327,669
Shares redeemed. (2,233,363) (53,069,598) (4,425,505) (102,867,176) (1,378,297) (32,047,346) (5,086,621) (116,292,585)
----------- ------------- ---------- ------------- ---------- ------------ ---------- -------------
Net increase
(decrease)..... 28,560 $ 1,162,254 2,907,185 $ 66,438,830 (104,496) $ (2,052,446) 1,741,772 $ 39,748,302
=========== ============= ========== ============= ========== ============ ========== =============
SMALL COMPANY
GROWTH FUND
--------------------------
CLASS Z
--------------------------
FOR THE PERIOD
OCTOBER 7, 1996* THROUGH
MARCH 31, 1997
(UNAUDITED)
--------------------------
SHARES AMOUNT
------------ -------------
Shares sold..... 21,284 $ 519,531
Reinvested
dividends...... 300 7,070
Shares redeemed. (916) (21,073)
----------- -------------
Net increase.... 20,668 $ 505,528
=========== =============
* Inception of the class
39
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited) -- (continued)
[Enlarge/Download Table]
GLOBAL BALANCED FUND
----------------------------------------------------------------------------------------------
CLASS A CLASS B
---------------------------------------------- ----------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
MARCH 31, 1997 YEAR ENDED MARCH 31, 1997 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996 (UNAUDITED) SEPTEMBER 30, 1996
---------------------- ---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Shares sold............. 115,600 $ 899,899 419,512 $ 3,129,820 271,276 $ 2,096,591 771,725 $ 5,700,564
Reinvested dividends.... 36,605 277,832 63,292 449,372 48,520 366,812 93,522 662,149
Shares redeemed......... (318,105) (2,483,724) (488,115) (3,602,549) (431,205) (3,333,318) (672,645) (4,972,923)
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Net increase (decrease). (165,900) $(1,305,993) (5,311) $ (23,357) (111,409) $ (869,915) 192,602 $ 1,389,790
========= =========== ========= =========== ========= =========== ========= ===========
GROWTH AND INCOME FUND
----------------------------------------------------------------------------------------------
CLASS A CLASS B
---------------------------------------------- ----------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
MARCH 31, 1997 YEAR ENDED MARCH 31, 1997 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996 (UNAUDITED) SEPTEMBER 30, 1996
---------------------- ---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Shares sold............. 1,366,758 $14,979,321 1,608,366 $15,926,962 1,956,963 $21,300,472 1,180,720 $11,686,226
Reinvested dividends.... 118,133 1,248,669 32,680 297,897 86,070 908,039 19,593 176,116
Shares redeemed......... (159,246) (1,782,616) (46,202) (441,023) (547,446) (5,909,520) (172,820) (1,683,504)
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Net increase............ 1,325,645 $14,445,374 1,594,844 $15,783,836 1,495,587 $16,298,991 1,027,493 $10,178,838
========= =========== ========= =========== ========= =========== ========= ===========
Note 8. 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 9. 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
40
SUNAMERICA EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1997 (unaudited) -- (continued)
the Retirement Plan, at his or her election, either in one lump sum or in
up to fifteen annual installments. As of March 31, 1997, Balanced Assets
Fund, Blue Chip Growth Fund, Mid-Cap Growth Fund, Small Company Growth
Fund, Global Balanced Fund and Growth and Income Fund had accrued $21,229,
$6,660, $3,657, $12,531, $1,753 and $947, respectively, for the Retirement
Plan, which is included in accrued expenses on the Statement of Assets and
Liabilities, and for the six months ended March 31, 1997 expensed $6,198,
$1,788, $1,119, $4,557, $495 and $651, respectively, for the Retirement
Plan, which is included in Trustees' fees and expenses on the Statement of
Operations.
41
TRUSTEES INVESTMENT ADVISER
S. James Coppersmith SunAmerica Asset Management Corp.
Samuel M. Eisenstat The SunAmerica Center
Stephen J. Gutman 733 Third Avenue
Peter A. Harbeck New York, NY 10017-3204
Peter McMillan III
Sebastiano Sterpa SUB-ADVISER
AIG Global Investment Corp. 70 Pine
OFFICERS Street New York, NY 10270
Peter A. Harbeck, President
Stanton J. Feeley, Executive Vice President DISTRIBUTOR
Nancy Kelly, Vice President SunAmerica Capital Services, Inc.
Audrey L. Snell, Vice President The SunAmerica Center
Gerard P. Sullivan, Vice President 733 Third Avenue
Robert M. Zakem, Secretary New York, NY 10017-3204
Peter C. Sutton, Treasurer
Donna M. Handel, Assistant Treasurer SHAREHOLDER SERVICING AGENT
John T. Genoy, Assistant Treasurer SunAmerica Fund Services, Inc.
Abbe P. Stein, Assistant Secretary The SunAmerica Center
733 Third Avenue
CUSTODIAN AND TRANSFER AGENT New York, NY 10017-3204
State Street Bank & Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BULK RATE
SUNAMERICA EQUITY FUNDS U.S. POSTAGE
THE SUNAMERICA CENTER PAID
733 THIRD AVENUE Kansas City,
NEW YORK, NY 10017-3204 MO
1-800-858-8850 PERMIT NO.
3657
This report is submitted solely for
the general information of
shareholders of the Fund.
Distribution of this report to
persons other than shareholders of
the Fund is authorized only in
connection with a currently effective
prospectus, setting forth details of
the Fund, which must precede or
accompany this report.
The accompanying report has not been
examined by independent accountants
and accordingly no opinion has been
expressed thereon.
SPONSORED BY:
[LOGO] SUN AMERICA
ASSET MANAGEMENT
EFANN
SUNAMERICA EQUITY FUND--GLOBAL BALANCED FUND
STYLE SELECT SERIES--INTERNATIONAL EQUITY PORTFOLIO
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
[Enlarge/Download Table]
GLOBAL INTERNATIONAL PRO FORMA
BALANCED EQUITIES COMBINED
FUND PORTFOLIO (NOTE 1)
---------- ------------- -----------
ASSETS:
Investments securities, at value (identified cost
$17,642,708, $33,151,969 and $50,794,677, respectively) $19,060,980 $32,848,094 $51,909,074
Short-term securities (cost equals market) 1,329,000 706,000 2,035,000
Repurchase agreements (cost equals market) 1,924,000 3,469,000 5,393,000
Cash 225,124 1,152 226,276
Foreign cash 699,407 109,165 808,572
Receivable for investments sold 92,899 265,641 358,540
Interest and dividends receivable 208,963 148,894 357,857
Foreign currency contracts -- 366,055 366,055
Receivable for shares of beneficial interest sold 748 972,187 972,935
Prepaid expenses 1,185 43,675 44,860
Receivable from investment adviser 7,622 12,421 20,043
Unrealized appreciation of foreign currency contracts 103,609 95,394 199,003
Deferred organizational expenses 1,824 20,019 21,843
----------- ----------- -----------
Total assets 23,655,361 39,057,697 62,713,058
----------- ----------- -----------
LIABILITIES:
Payable for investments purchased 79,655 321,699 401,354
Payable for shares of beneficial interest redeemed -- 55,385 55,385
Investment advisory and management fees payable 19,259 32,101 51,360
Accrued expenses 44,824 40,813 85,637
Foreign currency contracts -- 367,253 367,253
Distribution and service maintenance fees payable 14,354 17,217 31,571
Unrealized depreciation of foreign currency contracts -- 10,444 10,444
----------- ----------- -----------
Total liabilities 158,092 844,912 1,003,004
----------- ----------- -----------
Net assets $23,497,269 $38,212,785 $61,710,054
----------- ----------- -----------
----------- ----------- -----------
NET ASSETS WERE COMPOSED OF:
Shares of beneficial interest, $.01 and $.0001
par value, respectively $30,315 $30,648 $60,963
Paid-in capital 20,995,781 38,284,035 59,279,816
----------- ----------- -----------
21,026,096 38,314,683 59,340,779
Accumulated undistributed net investment income (loss) (183,825) 38,459 (145,366)
Accumulated undistributed net realized gain (loss) on
investments, foreign currency and other assets and liabilities 1,146,527 79,148 1,225,675
Net unrealized appreciation (depreciation) of investments 1,418,272 (303,875) 1,114,397
Net unrealized appreciation of foreign currency, other
assets and liabilities 90,199 84,370 174,569
----------- ----------- -----------
Net assets $23,497,269 $38,212,785 $61,710,054
----------- ----------- -----------
----------- ----------- -----------
Class A (unlimited shares authorized):
Net assets $7,944,521 $22,994,862 $30,939,383
Shares of beneficial interest issued and outstanding (Note 1) 1,020,559 1,841,936 2,862,495
Net assets value and redemption price per share $7.78 $12.48 $12.48
Maximum sales charge (5.75% of offering price) 0.47 0.76 0.76
----------- ----------- -----------
Maximum offering price to public $8.25 $13.24 $13.24
----------- ----------- -----------
----------- ----------- -----------
Class B (unlimited shares authorized):
Net assets $15,552,748 $14,123,293 $29,676,041
Shares of beneficial interest issued and outstanding (Note 1) 2,010,964 1,134,927 3,145,881
Net asset value, offering and redemption price per share $7.73 $12.44 $9.43
(excluding any applicable contingent deferred sales charge) ----------- ----------- -----------
----------- ----------- -----------
Class C (unlimited shares authorized):
Net assets -- $1,094,630 $1,094,630
Shares of beneficial interest issued and outstanding -- 87,909 87,909
Net asset value, offering and redemption price per share -- $12.45 $12.45
(excluding any applicable contingent deferred sales charge) ----------- ----------- -----------
----------- ----------- -----------
See Notes to Pro Forma Financial Statements
SUNAMERICA EQUITY FUND--GLOBAL BALANCED FUND
STYLE SELECT SERIES--INTERNATIONAL EQUITY PORTFOLIO
PRO FORMA STATEMENT OF OPERATIONS
FOR THE PERIOD NOVEMBER 19, 1996* THROUGH APRIL 30, 1997 (UNAUDITED)
[Enlarge/Download Table]
GLOBAL INTERNATIONAL
BALANCED EQUITIES PRO FORMA COMBINED
FUND PORTFOLIO ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
INVESTMENT INCOME:
Income:
Interest (net of withholding taxes of $1,960
on Global Balanced Fund) $ 170,741 $ 80,390 ($102,445) $ 148,686 (a)
Dividends (net of withholding taxes of $12,564 and
$27,741, respectively) 79,312 228,370 15,863 323,545 (a)
----------- --------- --------- -----------
Total investment income 250,053 308,760 (86,582) 472,231
----------- --------- --------- -----------
Expenses:
Investment advisory and management fees 92,532 129,340 32,038 253,910 (b)
Distribution and service maintenance fees-Class A 12,140 31,730 - 43,870
Distribution and service maintenance fees-Class B 57,849 26,172 - 84,021
Distribution and service maintenance fees-Class C - 753 - 753
Transfer agent fees and expenses-Class A 10,320 24,742 - 35,062
Transfer agent fees and expenses-Class B 16,060 7,466 - 23,526
Transfer agent fees and expenses-Class C - 218 - 218
Custodian fees and expenses 68,165 42,347 (27,414) 83,098 (c)
Registration fees-Class A 1,734 8,291 (1,500) 8,525 (d)
Registration fees-Class B 1,735 3,421 (1,500) 3,656 (d)
Registration fees-Class C - 140 - 140
Audit and tax consulting fees 6,060 13,820 (6,060) 13,820 (d)
Trustees' fees and expenses 1,601 1,064 - 2,665
Printing expense 1,510 7,335 (1,000) 7,845 (e)
Legal fees and expenses - 2,445 - 2,445
Amortization of organizational expenses 315 18,164 (315) 18,164 (d)
Miscellaneous expenses 978 814 (700) 1,092 (d)
----------- --------- --------- -----------
Total expenses 270,999 318,262 (6,451) 582,810
Less: expenses reimbursed by investment adviser (34,226) (47,961) - (82,187)
----------- --------- --------- -----------
Net expenses 236,773 270,301 (6,451) 500,623
----------- --------- --------- -----------
Net investment income (loss) 13,280 38,459 (80,131) (28,392)
----------- --------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 705,613 54,101 - 759,714
Net realized gain on foreign currency and other
assets and liabilities 849,581 25,047 - 874,628
Net change in unrealized appreciation/depreciation
of investments (1,135,454) (303,875) - (1,439,329)
Net change in unrealized appreciation/depreciation
of foreign currency and other assets and liabilities 29,073 84,371 - 113,444
----------- --------- --------- -----------
Net realized and unrealized gain (loss) on investments,
foreign currency and other assets and liabilities 448,813 (140,356) - 308,457
----------- --------- --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS: $ 462,093 ($101,897) ($ 80,131) $ 280,065
----------- --------- --------- -----------
----------- --------- --------- -----------
* Inception of the International Equity Portfolio
(a) Income adjustments to reflect change in portfolio composition (see Note 4)
(b) Management fee calculated at 1.10% of combined average daily net assets
(c) Custodian fee adjusted for combined net assets using fees based on International Equity's custodian agreement
(d) Duplication of expenses not required
(e) Expenses based upon combined net assets
See Notes to Pro Forma Financial Statements
PRO FORMA
PORTFOLIO OF INVESTMENTS -- APRIL 30, 1997 - (UNAUDITED)
Value
Security Description Shares (Note 2)
--------------------------------------------------------------------------------
COMMON STOCK - 74.8%
ARGENTINA - 0.7%
Banco Frances del Rio de la
Plata SA ADR(1) (Finance). . . . . . . . . . 560 $ 17,010
Perez Companies SA
(Multi-Industry) . . . . . . . . . . . . . . 2,550 20,683
Telefonica de Argentina SA ADR(1)
(Utilities). . . . . . . . . . . . . . . . . 4,620 153,615
YPF Sociedad Anonima ADR(1)
(Energy) . . . . . . . . . . . . . . . . . . 9,640 266,305
------------
457,613
------------
------------
AUSTRALIA - 3.1%
AAPC Ltd. (Information &
Entertainment) . . . . . . . . . . . . . . . 837,600 509,497
Australia & New Zealand Banking
Group Ltd. (Finance) . . . . . . . . . . . . 2,000 12,774
Australian Gas Light Co., Ltd.
(Utilities). . . . . . . . . . . . . . . . . 3,000 17,196
Broken Hill Proprietary Co., Ltd.
(Materials). . . . . . . . . . . . . . . . . 2,000 28,199
Coca-Cola Amatil Ltd. (Consumer
Staples) . . . . . . . . . . . . . . . . . . 18,000 205,772
Commonwealth Installment Receipt
Trustee Ltd. (Finance) . . . . . . . . . . . 2,000 14,973
David Jones Ltd. (Consumer
Discretionary) . . . . . . . . . . . . . . . 8,400 11,005
FAI Insurances Ltd. (Finance). . . . . . . . . 275,073 135,145
Lend Lease Corp., Ltd. (Finance)
. . . . . . . . . . . . . . . . . . . . . . 1,000 19,138
National Australia Bank Ltd.
(Finance). . . . . . . . . . . . . . . . . . 7,200 98,542
News Corp., Ltd. (Information &
Entertainment) . . . . . . . . . . . . . . . 11,000 50,698
Normandy Mining Ltd. (Energy). . . . . . . . . 162,366 198,795
Publishing & Broadcasting Ltd.
(Information & Entertainment). . . . . . . . 35,000 184,785
St. George Bank Ltd. (Finance) . . . . . . . . 2,000 12,290
TABCORP Holdings Ltd.
(Information & Entertainment). . . . . . . . 3,000 14,821
Western Mining Corp. Holdings
Ltd. (Materials) . . . . . . . . . . . . . . 3,000 17,781
Westpac Banking Corp., Ltd.
(Finance). . . . . . . . . . . . . . . . . . 2,000 10,778
Woodside Petroleum Ltd. (Energy)
. . . . . . . . . . . . . . . . . . . . . . 3,000 23,863
Woolworths Ltd. (Consumer
Discretionary) . . . . . . . . . . . . . . . 117,200 345,485
------------
1,911,537
------------
------------
AUSTRIA - 0.5%
Boehler-Uddeholm AG (Materials). . . . . . . . 1,767 127,494
VAE Eisenbahnsysteme AG
(Industrial & Commercial). . . . . . . . . . 1,776 171,878
------------
299,372
------------
BELGIUM - 0.3%
Generale de Banque Belge Pour
l'Etranger SA (Finance). . . . . . . . . . . 90 37,322
Kredietbank NV (Finance) . . . . . . . . . . . 250 97,378
UCB SA (Healthcare). . . . . . . . . . . . . . 10 27,440
------------
162,140
------------
BRAZIL - 0.7%
Centrais Eletricas Brasileiras SA
ADR+(1) (Utilities). . . . . . . . . . . . . . 1,000 22,519
Compania Brasiletra de
Distribuidora GDR(2) (Industrial
& Commercial). . . . . . . . . . . . . . . . . 1,000 20,121
Compania Energetica de Minas
ADR(1) non voting (Materials). . . . . . . . . 1,000 45,509
Telecomunicacoes Brasileras SA ADR(1)
(Information Technology) . . . . . . . . . . . 650,000 69,981
Telecomunicacoes Brasileras SA
(Information Technology) . . . . . . . . . . . 2,000 229,500
Usinas Siderurgicas de Minas
Gerais SA ADR(1) (Materials) . . . . . . . . . 6,000 70,519
------------
458,149
------------
CANADA - 0.7%
Abitibi Price, Inc. (Information
& Entertainment) . . . . . . . . . . . . . . 1,790 30,175
Air Canada, Inc. (Information &
Entertainment) . . . . . . . . . . . . . . . 3,004 16,127
Alcan Aluminum Ltd. (Materials). . . . . . . . 620 21,037
Barrick Gold Corp. (Materials) . . . . . . . . 1,126 25,027
BCE, Inc. (Information
Technology). . . . . . . . . . . . . . . . . 417 19,522
Bombardier, Inc. Class B
(Industrial & Commercial). . . . . . . . . . 426 8,645
Chauvco Resources Ltd.+ (Energy)
. . . . . . . . . . . . . . . . . . . . . . 800 11,052
Cominco Ltd. (Materials) . . . . . . . . . . . 387 9,973
Crestar Energy, Inc. (Energy). . . . . . . . . 968 18,189
Diamond Fields International
Ltd.(3)+ (Materials) . . . . . . . . . . . . 400 272
Finning Ltd.(Materials). . . . . . . . . . . . 400 8,933
Fletcher Challenge Ltd., Class A
(Materials). . . . . . . . . . . . . . . . . 1,647 27,705
Hudsons Bay Co. (Consumer
Discretionary) . . . . . . . . . . . . . . . 470 9,555
Inco Ltd. (Materials). . . . . . . . . . . . . 422 13,518
Inco Ltd., Class V (Materials) . . . . . . . . 1,000 20,938
MacMillan Bloedel Ltd.
(Materials). . . . . . . . . . . . . . . . . 600 8,203
Northern Telecom Ltd. (Information
Technology). . . . . . . . . . . . . . . . . 89 6,473
Renaissance Energy Ltd.+ (Energy)
. . . . . . . . . . . . . . . . . . . . . . 968 26,816
Royal Bank of Canada (Finance) . . . . . . . . 310 12,360
Seagram Ltd. (Industrial &
Commercial). . . . . . . . . . . . . . . . . 383 14,681
Stelco, Inc. Class A+ (Materials)
. . . . . . . . . . . . . . . . . . . . . . 3,330 19,546
Suncor, Inc. (Energy). . . . . . . . . . . . . 240 10,995
Toronto Dominion Bank Ontario
(Finance). . . . . . . . . . . . . . . . . . 850 24,064
TransCanada Pipelines Ltd.
(Energy) . . . . . . . . . . . . . . . . . . 2,325 42,522
Trizec Hahn Corp. (Real Estate). . . . . . . . 610 13,318
------------
419,646
------------
CHILE - 0.6%
Chilectra SA ADR(1) (Utilities). . . . . . . . 169 10,237
Compania de Telecomunicaciones de
PRO FORMA
PORTFOLIO OF INVESTMENTS -- APRIL 30, 1997 -- (UNAUDITED) -- (CONTINUED)
Value
Security Description Shares (Note 2)
-------------------------------------------------------------------------------
Chile SA ADR(1) (Utilities). . . . . . . . . . 480 15,540
Empresa Nacional de Electricidad
SA ADR(1) (Utilities). . . . . . . . . . . . . 765 14,726
Enersis SA ADR(1) (Energy) . . . . . . . . . . . 2,994 94,311
Maderas Y Sinteticos SA ADR(1)
(Materials). . . . . . . . . . . . . . . . . . 1,900 30,400
Santa Isabel SA ADR(1) (Consumer
Discretionary) . . . . . . . . . . . . . . . . 2,000 48,750
Sociedad Quimica Minera ADR(1)
(Materials). . . . . . . . . . . . . . . . . . 2,700 159,975
-------------
373,939
-------------
DENMARK - 0.2%
Den Danske Bank+ (Finance) . . . . . . . . . . . 150 12,973
ISS International Service Systems
A/S Class B (Industrial &
Commercial). . . . . . . . . . . . . . . . . . 2,600 76,926
Unidanmark A/S (Finance) . . . . . . . . . . . . 200 9,893
-------------
99,792
-------------
FINLAND - 1.2%
Huhtamaki Oy (Consumer Staples). . . . . . . . . 5,224 226,523
Konecranes International Corp.+
(Consumer Discretionary) . . . . . . . . . . . 4,500 173,064
Nokia Corp., Class A ADR(1)
(Information Technology) . . . . . . . . . . . 2,000 129,250
Nokian Tyres (Consumer
Discretionary) . . . . . . . . . . . . . . . . 5,000 120,183
Rauma Oy (Industrial &
Commercial). . . . . . . . . . . . . . . . . . 97 1,996
UPM-Kymmene Oy (Materials) . . . . . . . . . . . 4,230 96,794
-------------
747,810
-------------
FRANCE - 5.0%
Accor SA (Information Technology). . . . . . . . 80 11,473
Alcatel Alsthom Compagnie
Generael D'Electricite
(Information Technology) . . . . . . . . . . . 310 34,471
AXA SA+ (Finance). . . . . . . . . . . . . . . . 2,220 136,589
Bertrand Faure (Consumer
Discretionary) . . . . . . . . . . . . . . . . 1,700 81,410
Canal Plus (Information &
Entertainment) . . . . . . . . . . . . . . . . 70 12,641
Carrefour SA (Consumer
Discretionary) . . . . . . . . . . . . . . . . 180 112,382
Chargeurs International SA+
(Consumer Discretionary) . . . . . . . . . . . 1,200 70,933
Club Mediterranee SA (Information
& Entertainment) . . . . . . . . . . . . . . . 2,300 178,120
Compagnie de St. Gobain
(Materials). . . . . . . . . . . . . . . . . . 370 49,574
Compagnie Generale des Eaux
(Multi-industry) . . . . . . . . . . . . . . . 3,960 551,611
Elf Aquitaine SA (Energy). . . . . . . . . . . . 520 50,428
Guilbert SA (Information
Technology). . . . . . . . . . . . . . . . . . 120 18,710
L'Oreal (Consumer Staples) . . . . . . . . . . . 60 21,290
Lapeyre (Materials). . . . . . . . . . . . . . . 340 20,505
Legrand SA (Information
Technology). . . . . . . . . . . . . . . . . . 130 21,940
Louis Dreyfus Citrus+ (Consumer
Staples) . . . . . . . . . . . . . . . . . . . 7,200 258,689
Marine-Wendel SA (Multi-industry). . . . . . . . 1,100 114,024
Moet Hennessy Louis Vuitton
(Consumer Staples) . . . . . . . . . . . . . . 340 83,012
Pathe SA+ (Information &
Entertainment) . . . . . . . . . . . . . . . . 50 11,677
Pinault Printemps Redoute
(Consumer Discretionary) . . . . . . . . . . . 170 71,507
Primagaz Cie (Utilities) . . . . . . . . . . . . 120 11,760
Rhone-Poulenc Rorer, SA
(Healthcare) . . . . . . . . . . . . . . . . . 3,500 117,716
Sanofi SA (Healthcare) . . . . . . . . . . . . . 460 42,954
Schneider SA+ (Industrial &
Commercial). . . . . . . . . . . . . . . . . . 4,640 261,554
Societe Generale+ (Finance). . . . . . . . . . . 3,800 425,803
Sodexho SA (Information &
Entertainment) . . . . . . . . . . . . . . . . 150 68,877
Television Francais (Utilities). . . . . . . . . 625 60,289
Total SA, Series B (Energy). . . . . . . . . . . 2,640 218,926
-------------
3,118,865
-------------
GERMANY - 3.5%
Adidas AG (Consumer
Discretionary) . . . . . . . . . . . . . . . . 1,100 114,650
Allianz Holdings AG (Finance). . . . . . . . . . 200 38,804
Ashanti Goldfields Co., Ltd.
GDR(2) (Materials) . . . . . . . . . . . . . . 10,000 118,750
Ava Allgemeneine
Handelsgesellschaft der
Verbraucher AG (Consumer
Discretionary) . . . . . . . . . . . . . . . . 600 162,143
Bayer AG (Multi-industry). . . . . . . . . . . . 1,583 62,980
Bayerische Hypotheken Und Bank AG
(Finance). . . . . . . . . . . . . . . . . . . 766 23,885
Bayerische Motoren Werke
(Consumer Discretionary) . . . . . . . . . . . 327 267,748
Bilfinger & Berger Bau AG
(Consumer Discretionary) . . . . . . . . . . . 3,210 119,369
Commerzbank AG (Finance) . . . . . . . . . . . . 6,540 175,415
Deutsche Bank AG (Finance) . . . . . . . . . . . 4,940 260,721
Deutsche Telekom AG (Information
Technology). . . . . . . . . . . . . . . . . . 557 12,087
Gehe AG (Consumer Discretionary) . . . . . . . . 1,590 105,767
Hoechst AG (Healthcare). . . . . . . . . . . . . 430 16,884
Leica Camera AG+ (Information
Technology). . . . . . . . . . . . . . . . . . 5,100 156,080
Mannesmann AG (Industrial &
Commercial). . . . . . . . . . . . . . . . . . 40 15,729
Rhon-Klinikum AG (Consumer
Discretionary) . . . . . . . . . . . . . . . . 200 25,869
SAP AG (Information Technology). . . . . . . . . 80 14,565
Schering AG (Healthcare) . . . . . . . . . . . . 140 13,420
VEBA AG (Utilities). . . . . . . . . . . . . . . 2,880 148,341
Volkswagen AG (Consumer
Discretionary) . . . . . . . . . . . . . . . . 240 152,581
Walter AG (Consumer
Discretionary) . . . . . . . . . . . . . . . . 400 139,970
-------------
2,145,758
-------------
HONG KONG - 2.7%
PRO FORMA
PORTFOLIO OF INVESTMENTS -- APRIL 30, 1997 -- (UNAUDITED) -- (CONTINUED)
Value
Security Description Shares (Note 2)
-------------------------------------------------------------------------------
Cathay Pacific Airways Ltd.
(Industrial & Commercial). . . . . . . . . . . 15,000 23,333
COL Hotels International Ltd.
(Information & Entertainment). . . . . . . . . 340,000 148,131
Cheung Kong Holdings Ltd. (Real
Estate) . . . . . . . . . . . . . . . . . . . 8,000 70,225
Cheung Kong Infrastructure
(Consumer Discretionary) . . . . . . . . . . . 20,000 56,671
China Hong Kong Photo Products
Holdings Ltd. (Information &
Entertainment) . . . . . . . . . . . . . . . . 110,000 34,435
Dao Heng Bank Group Ltd.
(Finance). . . . . . . . . . . . . . . . . . . 4,000 19,002
First Pacific Co., Ltd.
(Industrial & Commercial). . . . . . . . . . . 32,000 38,211
Guoco Group Ltd. (Finance). . . . . . . . . . . 40,000 190,021
Henderson China Holdings Ltd.
(Real Estate). . . . . . . . . . . . . . . . . 16,200 27,918
Hong Kong Land Holdings Ltd.
ADR (1) (Finance). . . . . . . . . . . . . . . 163,000 339,040
Hopewell Holdings Ltd. (Real
Estate). . . . . . . . . . . . . . . . . . . . 39,000 20,264
HSBC Holdings PLC (Finance). . . . . . . . . . . 3,200 80,966
Hutchison Whampoa Ltd. (Finance) . . . . . . . . 21,000 155,877
Jardine Matheson Holdings Ltd.
ADR (1) (Industrial & Commercial). . . . . . . . 21,200 116,600
New World Development Co. Ltd.
(Real Estate). . . . . . . . . . . . . . . . . 14,165 81,737
RBI Holdings Ltd. (Information &
Entertainment) . . . . . . . . . . . . . . . . 800,000 131,156
Swire Pacific Ltd. Class A
(Multi-industry) . . . . . . . . . . . . . . . 8,100 62,477
Wharf Holdings Ltd. (Real Estate). . . . . . . . 15,000 58,735
-------------
1,652,799
-------------
INDIA - 0.2%
Hindalco Industries Ltd. GDR+(2)
(Materials). . . . . . . . . . . . . . . . . . 700 22,659
Tata Engineering & Locomotive
Co., Ltd. GDR(2)(Consumer
Discretionary) . . . . . . . . . . . . . . . . 9,450 115,526
-------------
138,185
-------------
INDONESIA - 1.8%
PT Bank Bali alien shares
(Finance). . . . . . . . . . . . . . . . . . . 93,000 223,889
PT Bank International Indonesia
alien shares (Finance) . . . . . . . . . . . . 7,000 5,041
PT Bank Negara Indonesia alien
shares (Finance)+* . . . . . . . . . . . . . . 165,000 91,667
PT Bank Tiara Asia alien shares
(Finance). . . . . . . . . . . . . . . . . . . 194,000 235,514
PT Indonesian Satellite Corp.
alien shares (Utilities) . . . . . . . . . . . 130,000 358,436
PT Semen Cibinong alien shares
(Materials). . . . . . . . . . . . . . . . . . 51,000 150,586
PT Telekomunikasi (Utilities). . . . . . . . . . 30,000 43,519
-------------
1,108,652
-------------
ISRAEL - 0.1%
Blue Square Israel Ltd. ADR(1)
(Consumer Staples) . . . . . . . . . . . . . . 4,300 80,088
-------------
ITALY - 1.9%
Banca Commerciale Italiana SpA
(Finance). . . . . . . . . . . . . . . . . . . 85,000 182,443
Banca Pop Di Milano (Finance). . . . . . . . . . 15,000 73,854
BCA Fideuram SpA (Finance) . . . . . . . . . . . 9,000 22,603
Brembo SpA (Industrial &
Commercial). . . . . . . . . . . . . . . . . . 16,000 172,880
Credito Italiano SpA (Finance) . . . . . . . . . 10,000 14,017
ENI SpA (Energy) . . . . . . . . . . . . . . . . 5,000 25,377
Gemina SpA+ (Consumer Staples) . . . . . . . . . 12,600 5,085
Holding Oi Partecipazione
(Multi-industry) . . . . . . . . . . . . . . . 179,000 97,572
Industrie Natuzzi SpA ADR(1)
(Consumer Discretionary) . . . . . . . . . . . 1,000 22,250
Istituto Mobiliare Italiano
(Finance). . . . . . . . . . . . . . . . . . . 3,000 25,555
Italgas-Societa Italiana per il
Gas SpA (Utilities). . . . . . . . . . . . . . 5,000 13,156
Parmalat Finanziar (Finance) . . . . . . . . . . 60,000 87,258
Seat SpA+ (Information &
Entertainment) . . . . . . . . . . . . . . . . 7,000 2,142
STET (Industrial & Commercial) . . . . . . . . . 10,000 47,279
STET Risp. (Industrial &
Commercial). . . . . . . . . . . . . . . . . . 33,000 122,388
Telecom Italia SpA (Information
Technology). . . . . . . . . . . . . . . . . . 25,000 78,628
Zucchini SpA (Information
Technology). . . . . . . . . . . . . . . . . . 29,600 196,218
-------------
1,188,705
-------------
JAPAN -14.5%
Advantest Corp. (Information
Technology). . . . . . . . . . . . . . . . . . 980 54,429
Aiwa Co., Ltd. (Information
Technology). . . . . . . . . . . . . . . . . . 3,000 51,759
Alps Electric Co., Ltd.
(Information Technology) . . . . . . . . . . . 2,000 23,319
Amada Co., Ltd. (Industrial &
Commercial). . . . . . . . . . . . . . . . . . 4,000 29,905
Amano Corp. (Multi-industry) . . . . . . . . . . 4,000 37,500
Aoki International Co., Ltd.
(Consumer Discretionary) . . . . . . . . . . . 5,000 87,052
Bank of Tokyo-Mitsubishi Ltd.+
(Finance). . . . . . . . . . . . . . . . . . . 6,600 104,510
Best of Denki Co. (Information
Technology). . . . . . . . . . . . . . . . . . 5,000 44,905
Calsonic Corp. (Consumer
Discretionary) . . . . . . . . . . . . . . . . 6,000 29,779
Canon, Inc. (Information
Technology). . . . . . . . . . . . . . . . . . 11,000 260,842
Chiba Bank Ltd. (Finance). . . . . . . . . . . . 20,000 107,141
Citizen Watch Co. (Consumer
Discretionary) . . . . . . . . . . . . . . . . 3,000 21,578
Daiichi Pharmaceutical
(Healthcare) . . . . . . . . . . . . . . . . . 4,000 64,285
Dainippon Screen MFG Co., Ltd.
(Information Technology) . . . . . . . . . . . 2,000 15,914
PRO FORMA
PORTFOLIO OF INVESTMENTS -- APRIL 30, 1997 -- (UNAUDITED) -- (CONTINUED)
Value
Security Description Shares (Note 2)
--------------------------------------------------------------------------------
Daiwa House Industry Co., Ltd.
(Consumer Discretionary) . . . . . . . . . . 5,000 55,934
DDI Corp. (Utilities). . . . . . . . . . . . . 15 99,618
East Japan Railway Co.
(Industrial & Commercial). . . . . . . . . . 12 51,901
Fanuc Ltd. (Information
Technology). . . . . . . . . . . . . . . . . 2,100 71,635
Fujitsu Denso (Industrial &
Commercial). . . . . . . . . . . . . . . . . 2,000 60,503
Fujitsu Ltd. (Information
Technology). . . . . . . . . . . . . . . . . 12,000 124,788
Hankyu Realty Co. (Real Estate). . . . . . . . 7,000 48,804
Hitachi Ltd.+ (Information
Technology). . . . . . . . . . . . . . . . . 6,000 54,359
Hitachi Zosen Corp. (Industrial &
Commercial). . . . . . . . . . . . . . . . . 4,000 13,897
Honda Motor Co., Ltd. (Consumer
Discretionary) . . . . . . . . . . . . . . . 2,000 62,079
Imagineer Co., Ltd.+ (Information
Technology). . . . . . . . . . . . . . . . . 3,600 114,578
Inax Corp. (Consumer
Discretionary) . . . . . . . . . . . . . . . 2,000 12,416
Industrial Bank of Japan Ltd.
(Finance). . . . . . . . . . . . . . . . . . 6,640 70,619
Ito-Yokado Co., Ltd. (Consumer
Discretionary) . . . . . . . . . . . . . . . 2,000 95,955
Jusco Co., Ltd. (Consumer
Discretionary) . . . . . . . . . . . . . . . 2,000 61,449
Kamigumi Co., Ltd. (Industrial &
Commercial). . . . . . . . . . . . . . . . . 7,000 34,632
KAO Corp. (Consumer Staples) . . . . . . . . . 2,000 23,319
Katokichi Co. (Consumer Staples) . . . . . . . 5,000 78,780
Kawasaki Heavy Industries Ltd.
(Industrial & Commercial). . . . . . . . . . 14,000 55,257
Kissei Pharmaceutical Co.
(Healthcare) . . . . . . . . . . . . . . . . 3,400 64,553
Kokuyo Co., Ltd. (Materials) . . . . . . . . . 2,000 43,487
Komatsu Ltd. (Industrial &
Commercial). . . . . . . . . . . . . . . . . 3,000 21,932
Komori Co., Ltd. (Industrial &
Commercial). . . . . . . . . . . . . . . . . 2,000 42,699
Kuraray Co., Ltd. (Healthcare) . . . . . . . . 4,000 35,294
Kyocera Corp. (Information
Technology). . . . . . . . . . . . . . . . . 3,000 179,619
Makita Corp. (Industrial &
Commercial). . . . . . . . . . . . . . . . . 2,000 27,416
Marubeni Corp. (Consumer
Discretionary) . . . . . . . . . . . . . . . 30,000 111,317
Marui Co., Ltd. (Consumer
Discretionary) . . . . . . . . . . . . . . . 4,000 65,860
Matsushita Electric Industrial
Co., Ltd. (Information
Technology)+ . . . . . . . . . . . . . . . . 6,000 95,955
Matsushita Electric Works Ltd.
(Industrial & Commercial). . . . . . . . . . 27,000 274,392
Meiwa Estate Co.+ (Real Estate). . . . . . . . 2,600 43,014
Mitsubishi Corp. (Consumer
Discretionary) . . . . . . . . . . . . . . . 2,000 18,750
Mitsubishi Estate Co., Ltd. (Real
Estate). . . . . . . . . . . . . . . . . . . 5,000 63,024
Mitsubishi Heavy Industrial Ltd.
(Industrial & Commercial). . . . . . . . . . 30,000 198,054
Mitsubishi Logistics Corp.
(Industrial & Commercial). . . . . . . . . . 3,000 35,215
Mitsubishi Motor (Consumer
Discretionary) . . . . . . . . . . . . . . . 9,000 62,394
Mitsui Fudosan Co., Ltd. (Real
Estate). . . . . . . . . . . . . . . . . . . 24,000 274,156
Miyota Co. (Information
Technology). . . . . . . . . . . . . . . . . 13,000 153,622
Mori Seiki Co., Ltd. (Consumer
Discretionary) . . . . . . . . . . . . . . . 3,000 43,487
Murata Manufacturing Co., Ltd.
(Information Technology) . . . . . . . . . . 2,000 73,739
Mycal Corp. (Consumer
Discretionary) . . . . . . . . . . . . . . . 4,000 49,159
NEC Corp. (Information
Technology). . . . . . . . . . . . . . . . . 33,000 402,962
New Oji Paper Co., Ltd.+
(Materials). . . . . . . . . . . . . . . . . 8,000 40,399
Nippon Denko Co., Ltd.
(Industrial & Commercial). . . . . . . . . . 5,000 113,838
Nippon Electric Glass Co., Ltd.
(Materials). . . . . . . . . . . . . . . . . 7,000 107,535
Nippon Express Co., Ltd.
(Industrial & Commercial). . . . . . . . . . 6,000 41,360
Nippon Shokubai Co. (Materials). . . . . . . . 8,000 51,680
Nippon Steel Corp. (Materials) . . . . . . . . 55,000 156,852
Nippon Telegraph & Telephone
Corp. (Utilities). . . . . . . . . . . . . . 47 331,390
Nissho Iwai Corp.
(Multi-industry) . . . . . . . . . . . . . . 16,000 53,445
Nomura Securities Co., Ltd.
(Finance). . . . . . . . . . . . . . . . . . 13,000 145,429
One Pharmaceutical Co., Ltd.
(Healthcare) . . . . . . . . . . . . . . . . 2,000 56,722
Orix Corp. (Finance) . . . . . . . . . . . . . 3,000 151,495
Pioneer Electronic Corp.
(Industrial & Commercial). . . . . . . . . . 11,000 196,715
Rohm Co. (Information Technology). . . . . . . 1,000 77,520
Sankyo Co., Ltd. (Healthcare). . . . . . . . . 8,000 214,283
Sanwa Bank Ltd. (Finance). . . . . . . . . . . 7,000 74,999
Seino Transportation (Industrial
& Commercial). . . . . . . . . . . . . . . . 6,000 54,359
Sekisui Chemical Co., Ltd.
(Materials). . . . . . . . . . . . . . . . . 9,000 86,501
Sekisui House Ltd. (Consumer
Discretionary) . . . . . . . . . . . . . . . 3,000 26,707
Sharp Corp. (Information
Technology). . . . . . . . . . . . . . . . . 9,000 116,989
Shin-Etsu Chemical Co., Ltd.
(Materials). . . . . . . . . . . . . . . . . 3,000 60,503
Shiseido Co., Ltd. (Consumer
Staples) . . . . . . . . . . . . . . . . . . 20,000 286,761
Shohkoh Fund & Co. (Finance) . . . . . . . . . 600 140,859
Sony Corp. (Information
Technology). . . . . . . . . . . . . . . . . 4,000 291,173
Sumitomo Corp. (Industrial &
PRO FORMA
PORTFOLIO OF INVESTMENTS -- APRIL 30, 1997 -- (UNAUDITED) -- (CONTINUED)
Value
Security Description Shares (Note 2)
-------------------------------------------------------------------------------
Commercial). . . . . . . . . . . . . . . . . . 8,000 53,823
Sumitomo Electric Industries,
Ltd. (Industrial & Commercial) . . . . . . . . 12,000 162,603
Sumitomo Forestry Co., Ltd.
(Materials). . . . . . . . . . . . . . . . . . 2,000 20,325
Sumitomo Metal Mining Co., Ltd.
(Materials). . . . . . . . . . . . . . . . . . 15,000 100,445
Suzuki Motor Corp. (Consumer
Discretionary) . . . . . . . . . . . . . . . . 5,000 53,177
TDK Corp. (Information
Technology). . . . . . . . . . . . . . . . . . 2,000 144,168
Teijin Ltd. (Consumer
Discretionary) . . . . . . . . . . . . . . . . 7,000 28,290
Toagosei Co., Ltd. (Materials) . . . . . . . . . 20,000 74,369
Tokio Marine & Fire Insurance
Co., Ltd. (Finance). . . . . . . . . . . . . . 27,000 263,757
Tokyo Electron Ltd. (Information
Technology). . . . . . . . . . . . . . . . . . 7,600 293,378
Tokyo Steel Manufacturing Co.
(Materials). . . . . . . . . . . . . . . . . . 2,000 21,428
Toppan Printing Co., Ltd.
(Information & Entertainment). . . . . . . . . 3,000 38,760
Toray Industries, Inc.
(Materials). . . . . . . . . . . . . . . . . . 9,000 56,013
Toshiba Corp. (Information
Technology). . . . . . . . . . . . . . . . . . 10,000 56,092
Toyota Motor Corp. (Consumer
Discretionary) . . . . . . . . . . . . . . . . 2,000 57,982
Uny Co., Ltd. (Consumer Staples) . . . . . . . . 2,000 35,136
Ushio, Inc. (Information
Technology). . . . . . . . . . . . . . . . . . 4,000 46,953
Yamanouchi Pharmaceutical Co.,
Ltd. (Healthcare). . . . . . . . . . . . . . . 6,000 128,097
-------------
9,015,851
-------------
KOREA - 0.5%
Kookmin Bank GDR*(2) (Finance) . . . . . . . . . 5,000 89,375
Korea Electric Power Corp. ADR(1)
(Utilities). . . . . . . . . . . . . . . . . . 8,500 144,500
Korea Fund, Inc. (Finance) . . . . . . . . . . . 2,800 36,050
SK Telecom Co., Ltd ADR(1)
(Information Technology) . . . . . . . . . . . 5,160 49,023
-------------
318,948
-------------
LUXEMBOURG - 0.2%
Millicom International Cellular
SA+ (Information & Entertainment). . . . . . . . 2,700 122,850
-------------
MALAYSIA - 1.2%
Berjaya Sports Toto Bhd
(Information & Entertainment). . . . . . . . . 7,000 33,455
Commerce Asset Holding Bhd
(Finance). . . . . . . . . . . . . . . . . . . 3,000 17,923
Land & General Bhd+
(Multi-industry) . . . . . . . . . . . . . . . 21,600 29,422
MBF Capital Bhd (Finance). . . . . . . . . . . . 15,000 22,224
Multi-Purpose Holdings Bhd
(Finance). . . . . . . . . . . . . . . . . . . 11,000 17,962
Oriental Holdings Bhd (Consumer
Discretionary) . . . . . . . . . . . . . . . . 14,000 105,942
Renong Bhd+ (Multi-industry) . . . . . . . . . . 18,000 24,661
Resorts World Bhd (Information &
Entertainment) . . . . . . . . . . . . . . . . 5,000 18,420
TA Enterprise Bhd (Finance). . . . . . . . . . . 144,000 168,042
Technology Resources Industries
Bhd (Information Technology) . . . . . . . . . 77,000 141,071
Time Engineering Bhd+
(Information Technology) . . . . . . . . . . . 6,000 10,993
United Engineers Bhd (Industrial
& Commercial). . . . . . . . . . . . . . . . . 11,000 77,983
YTL Power International Bhd
(Consumer Discretionary) . . . . . . . . . . . 50,000 79,656
-------------
747,754
-------------
MEXICO - 1.2%
Cernex SA de CV Class B
(Materials). . . . . . . . . . . . . . . . . . 10,000 36,620
Cifra SA de CV ADR(1) (Consumer
Staples) . . . . . . . . . . . . . . . . . . . 120,000 182,880
Gruma SA de CV ADR*(1) (Consumer
Staples) . . . . . . . . . . . . . . . . . . . 610 11,751
Gruma SA de CV Class B+ (Consumer
Staples) . . . . . . . . . . . . . . . . . . . 2,000 9,639
Grupo Financiero Banamex-Accival
SA de CV., Class B (Finance) . . . . . . . . . 69,000 147,786
Grupo Industrial Maseca SA de CV
Class B (Industrial & Commercial). . . . . . . . 9,000 8,789
Grupo Modelo SA de CV Class C
(Consumer Staples) . . . . . . . . . . . . . . 2,000 12,131
Kimberly-Clark Corp. (Materials) . . . . . . . . 6,526 24,227
Panamerican Beverages, Inc. Class
A ADR(1) (Consumer Staples). . . . . . . . . . 7,400 214,600
Telefonos de Mexico SA ADR(1)
(Utilities). . . . . . . . . . . . . . . . . . 1,750 72,187
-------------
720,610
-------------
NETHERLANDS - 3.6%
ABN AMRO Holdings NV (Finance) . . . . . . . . . 1,200 82,472
ASM Lithography Holding NV
(Information Technology) . . . . . . . . . . . 400 29,872
ASM Lithography Holding NV+
(Information Technology) . . . . . . . . . . . 1,300 102,863
Baan Co. NV+ (Information
Technology). . . . . . . . . . . . . . . . . . 250 13,406
CSM NV (Consumer Staples). . . . . . . . . . . . 1,190 68,347
Elsevier NV (Consumer
Discretionary) . . . . . . . . . . . . . . . . 13,550 216,989
Fortis Amev NV (Finance) . . . . . . . . . . . . 1,030 38,857
Gamma Holdings NV (Consumer
Discretionary) . . . . . . . . . . . . . . . . 2,600 134,784
Getronics NV (Information
Technology). . . . . . . . . . . . . . . . . . 3,000 90,848
Gucci Group NV (Consumer
Discretionary) . . . . . . . . . . . . . . . . 187 12,973
Hagemeyer NV (Multi-industry). . . . . . . . . . 270 23,490
ING Groep NV (Finance) . . . . . . . . . . . . . 3,490 137,035
Kon Ahrend NV (Consumer
Discretionary) . . . . . . . . . . . . . . . . 1,700 102,962
Koninklijke Ahold NV (Consumer
Discretionary) . . . . . . . . . . . . . . . . 2,320 158,374
PRO FORMA
PORTFOLIO OF INVESTMENTS -- APRIL 30, 1997 -- (UNAUDITED) -- (CONTINUED)
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
--------------------------------------------------------------------------------
Koninlijke PTT Nederland NV
(Utilities). . . . . . . . . . . . . . . . . . 290 10,300
Nutricia Ver Bledrijuen NV
(Consumer Staples) . . . . . . . . . . . . . . 140 21,241
Philips Electronics NV
(Information Technology) . . . . . . . . . . . 4,500 234,897
PolyGram NV (Information &
Entertainment) . . . . . . . . . . . . . . . . 1,750 85,780
Royal Dutch Petroleum Co.
(Energy) . . . . . . . . . . . . . . . . . . . 1,430 255,570
Unilever NV and PLC (Consumer
Staples) . . . . . . . . . . . . . . . . . . . 510 99,183
Volker Stevin (Koninklijke) NV+
(Consumer Discretionary) . . . . . . . . . . . 1,000 113,689
Wolters Kluwer NV+ (Information &
Entertainment) . . . . . . . . . . . . . . . . 1,740 206,214
---------
2,240,146
---------
NEW ZEALAND - 1.6%
Air New Zealand Ltd.+
(Information & Entertainment). . . . . . . . . 74,000 213,920
Brierley Investments Ltd.+
(Finance). . . . . . . . . . . . . . . . . . . 160,900 141,659
Carter Holt Harvey Ltd. (Consumer
Staples) . . . . . . . . . . . . . . . . . . . 4,000 8,873
CDL Hotels New Zealand Ltd.
(Information & Entertainment). . . . . . . . . 575,000 211,265
Fletcher Challenge building
shares Ltd.+ (Multi-industry). . . . . . . . . 4,000 11,230
Fletcher Challenge forest shares
Ltd.+ (Multi-industry) . . . . . . . . . . . . 62,800 86,636
Kiwi Income Property Trust (Real
Estate). . . . . . . . . . . . . . . . . . . . 275,000 211,612
Telecom Corp. of New Zealand Ltd.
(Information Technology) . . . . . . . . . . . 3,000 13,456
Wrightson Ltd. (Multi-industry). . . . . . . . . 112,000 65,997
---------
964,648
---------
NORWAY - 1.1%
Alvem Norway ASA+ (Information &
Entertainment) . . . . . . . . . . . . . . . . 12,000 92,681
Norman Data Defense Systems+
(Industrial & Commercial). . . . . . . . . . . 5,600 86,502
Norsk Hydro ASA (Energy) . . . . . . . . . . . . 2,080 101,354
Orkla ASA (Consumer
Discretionary) . . . . . . . . . . . . . . . . 1,420 119,045
Sage Petroleum ASA Class B
(Energy) . . . . . . . . . . . . . . . . . . . 770 12,435
Smedvig ASA Class B (Energy) . . . . . . . . . . 4,700 110,550
Smedvig ASA ADR(1) (Energy). . . . . . . . . . . 1,850 42,781
Tomra Systems ASA (Industrial &
Commercial). . . . . . . . . . . . . . . . . . 6,500 125,962
---------
691,310
---------
PERU - 0.4%
Backus & Johnston (Consumer
Staples) . . . . . . . . . . . . . . . . . . . 187,000 162,090
Banco Credito del Peru (Finance) . . . . . . . . 18,386 32,150
CPT Telefonica de Peru
(Information Technology) . . . . . . . . . . . 9,000 21,681
Telefonica Peru SA ADR(1)
(Industrial & Commercial). . . . . . . . . . . 346 8,304
---------
224,225
---------
PHILIPPINES - 0.2%
Ayala Land, Inc. (Real Estate) . . . . . . . . . 44,000 31,703
Davao Union Cement (Materials) . . . . . . . . . 140,000 20,971
Metro Bank + Trust Co. (Finance) . . . . . . . . 2,500 51,194
Philippine Long Distance
Telephone Co. (Utilities). . . . . . . . . . . 300 17,122
Philippine National Bank
(Finance). . . . . . . . . . . . . . . . . . . 2,750 18,041
---------
139,031
---------
PORTUGAL - 0.4%
Banco Totta & Acores (Finance) . . . . . . . . . 2,500 34,944
Cimpor-Cimentos de Portugal SA
(Materials). . . . . . . . . . . . . . . . . . 7,100 152,741
Establecimentos Jeronimo Martins
& Filho SA (Consumer
Discretionary) . . . . . . . . . . . . . . . . 519 31,047
---------
218,732
---------
SINGAPORE - 2.1%
City Developments Ltd. (Real
Estate). . . . . . . . . . . . . . . . . . . . 6,000 48,497
DBS Land Ltd. (Real Estate). . . . . . . . . . . 35,000 113,161
Development Bank of Singapore
Ltd. alien shares (Finance). . . . . . . . . . 1,000 11,883
FJ Benjamin Holdings Ltd.+
(Consumer Discretionary) . . . . . . . . . . . 230,000 111,226
Fraser & Neave Ltd. (Consumer
Staples) . . . . . . . . . . . . . . . . . . . 3,000 21,762
Hour Glass Ltd. (Consumer
Discretionary) . . . . . . . . . . . . . . . . 246,000 160,601
Keppel Bank (Finance). . . . . . . . . . . . . . 158,000 412,601
Keppel Corp., Ltd. (Industrial &
Commercial). . . . . . . . . . . . . . . . . . 7,500 32,643
Overseas Chinese Banking Corp.,
Ltd. alien shares (Finance). . . . . . . . . . 1,000 11,675
Overseas Union Bank (Finance). . . . . . . . . . 6,000 39,378
Overseas Union Bank Ltd. alien
shares (Finance) . . . . . . . . . . . . . . . 5,000 32,815
Sembawang Shipyard Ltd.
(Industrial & Commercial). . . . . . . . . . . 27,000 116,580
Singapore Land Ltd. (Real Estate). . . . . . . . 7,000 32,643
Singapore Press Holdings Ltd.
alien shares (Information &
Entertainment) . . . . . . . . . . . . . . . . 3,000 55,544
United Industrial Corp., Ltd.
(Multi-industry) . . . . . . . . . . . . . . . 13,000 9,789
United Overseas Bank Ltd. alien
shares (Finance) . . . . . . . . . . . . . . . 6,000 56,373
Want Want Holdings+ (Real Estate). . . . . . . . 12,000 40,080
Wing Tai Holdings Ltd. (Real
Estate). . . . . . . . . . . . . . . . . . . . 4,000 10,335
---------
1,317,586
---------
SOUTH AFRICA - 0.4%
Energy Africa Ltd. GDR(2)
(Energy) . . . . . . . . . . . . . . . . . . . 11,000 231,000
PRO FORMA
PORTFOLIO OF INVESTMENTS - APRIL 30, 1997 ** (UNAUDITED) - (CONTINUED)
Value
Security Description Shares (Note 2)
--------------------------------------------------------------------------------
------------
SPAIN - 0.6%
Banco Bilbao Vizcaya SA (Finance)
. . . . . . . . . . . . . . . . . . . . . . 180 12,114
Banco de Santander SA (Finance)
. . . . . . . . . . . . . . . . . . . . . . 710 53,418
Banco Popular Espanol SA
(Finance). . . . . . . . . . . . . . . . . . 120 25,444
Corporation Bancaria de Espana SA
(Finance). . . . . . . . . . . . . . . . . . 270 12,041
Empresa Nacional de Electricidad
SA (Utilities) . . . . . . . . . . . . . . . 540 37,747
Gas Natural SDG SA (Utilities) . . . . . . . . 240 50,969
Iberdrola SA (Utilities) . . . . . . . . . . . 5,610 63,312
Repsol SA (Energy) . . . . . . . . . . . . . . 694 29,098
Repsol SA ADR(1) (Energy). . . . . . . . . . . 1,800 75,375
Telefonica de Espana SA
(Utilities). . . . . . . . . . . . . . . . . 948 24,231
------------
383,749
------------
SWEDEN - 1.5%
ABB AB Class A (Utilities) . . . . . . . . . . 1,300 15,828
Astra AB Class A (Healthcare). . . . . . . . . 1,600 65,471
Astra AB Class B (Healthcare). . . . . . . . . 3,150 125,081
Atlas Copco AB Class B
(Industrial & Commercial). . . . . . . . . . 740 18,347
Electrolux AB Class B (Consumer
Discretionary) . . . . . . . . . . . . . . . 6,860 393,514
Hennes & Mauritz AB Class B
(Consumer Discretionary) . . . . . . . . . . 360 52,086
Hoganas AG (Information
Technology). . . . . . . . . . . . . . . . . 2,500 74,891
Sandvik AB (Industrial &
Commercial). . . . . . . . . . . . . . . . . 1,500 36,904
Scania AB, Class A (Consumer
Discretionary) . . . . . . . . . . . . . . . 3,200 82,604
Volvo AB Class A (Consumer
Discretionary) . . . . . . . . . . . . . . . 3,500 88,117
------------
952,841
------------
SWITZERLAND - 4.5%
Adia SA (Industrial & Commercial)
. . . . . . . . . . . . . . . . . . . . . . 190 63,415
Alusuisse-Lonza Holdings AG
(Multi-industry) . . . . . . . . . . . . . . 100 84,797
BBC Brown Boveri AG (Industrial &
Commercial . . . . . . . . . . . . . . . . . 90 108,982
Ciba Specialty Chemicals AG+
(Materials). . . . . . . . . . . . . . . . . 80 6,892
Compagnie Financiere Richemont AG
(Finance). . . . . . . . . . . . . . . . . . 2,300 33,622
CS Holding AG+ (Finance) . . . . . . . . . . . 1,230 138,512
Hilti AG (Consumer Discretionary)
. . . . . . . . . . . . . . . . . . . . . . 125 78,014
Julius Baer Holdings AG (Finance)
. . . . . . . . . . . . . . . . . . . . . . 339 424,296
Liechtenstein Global Trust AG+
(Finance). . . . . . . . . . . . . . . . . . 400 219,795
Logitech International SA+
(Information Technology) . . . . . . . . . . 400 73,265
Nestle SA+ (Consumer Staples). . . . . . . . . 110 133,573
Novartis AG (Healthcare) . . . . . . . . . . . 280 368,876
Roche Holdings AG (Healthcare) . . . . . . . . 50 422,292
SMH AG (Consumer Discretionary). . . . . . . . 730 413,507
Swiss Bank Corp. NY+ (Finance) . . . . . . . . 160 34,950
TAG Heuer International SA+
(Consumer Discretionary) . . . . . . . . . . 1,049 147,305
------------
2,752,093
------------
TAIWAN - 0.3%
Compal Electronics, Inc.+
(Information Technology) . . . . . . . . . . 124,000 181,970
------------
THAILAND - 0.7%
Advanced Information Services PCL
alien shares (Information &
Entertainment) . . . . . . . . . . . . . . . 1,000 6,508
Bangkok Bank PCL alien shares
(Finance). . . . . . . . . . . . . . . . . . 3,800 35,203
Industrial Finance Corp. of
Thailand alien (Finance) . . . . . . . . . . 18,000 48,234
Matichon PCL alien shares
(Information & Entertainment). . . . . . . . 50,000 160,781
PTT Exploration & Production PCL
alien shares (Energy). . . . . . . . . . . . 3,800 48,587
Siam City Cement PCL alien shares
(Materials). . . . . . . . . . . . . . . . . 4,300 115,226
------------
414,539
------------
UNITED KINGDOM - 10.3%
Abbey National PLC (Finance) . . . . . . . . . 7,000 97,569
Airtours PLC (Information &
Entertainment) . . . . . . . . . . . . . . . 13,000 193,209
Argos PLC (Consumer Staples) . . . . . . . . . 6,000 62,723
Argyll Group PLC (Consumer
Discretionary) . . . . . . . . . . . . . . . 9,000 49,887
ASDA Group PLC (Consumer Staples)
. . . . . . . . . . . . . . . . . . . . . . 21,000 39,141
BG PLC (Energy). . . . . . . . . . . . . . . . 6,000 17,310
British Petroleum Co. PLC
(Energy) . . . . . . . . . . . . . . . . . . 4,000 45,900
Cable & Wireless PLC (Information
Technology). . . . . . . . . . . . . . . . . 34,000 261,819
Cadbury Schweppes PLC (Consumer
Staples) . . . . . . . . . . . . . . . . . . 7,000 58,088
Caradon PLC (Materials). . . . . . . . . . . . 12,000 48,039
Centrica PLC+ (Utilities). . . . . . . . . . . 6,000 5,494
Compass Group PLC (Industrial &
Commercial). . . . . . . . . . . . . . . . . 3,000 32,869
Cookson Group PLC
(Multi-industry) . . . . . . . . . . . . . . 58,400 205,394
Electrocomponents PLC
(Information Technology) . . . . . . . . . . 2,000 12,804
Energy Group PLC+ (Utilities). . . . . . . . . 16,340 129,767
Glaxo Wellcome PLC (Healthcare). . . . . . . . 17,000 334,214
Glynwed International PLC
(Consumer Discretionary) . . . . . . . . . . 42,000 175,624
Grand Metropolitan PLC
(Information & Entertainment). . . . . . . . 12,000 100,162
Great Universal Stores PLC
(Consumer Discretionary) . . . . . . . . . . 18,000 186,710
Guinness PLC (Consumer Staples). . . . . . . . 10,000 82,658
Hanson PLC (Industrial &
Commercial). . . . . . . . . . . . . . . . . 24,125 117,106
PRO FORMA
PORTFOLIO OF INVESTMENTS -- APRIL 30, 1997 -- (unaudited) -- (continued)
VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
----------------------------------------------------------------------------
Inchcape PLC (Multi-industry). . . . . . . . . 84,000 373,031
Kingfisher PLC (Consumer Staples). . . . . . . 10,000 108,266
Ladbroke Group PLC (Information &
Entertainment) . . . . . . . . . . . . . . . 6,000 22,366
Laporte PLC (Materials). . . . . . . . . . . . 18,000 193,128
Legal & General PLC (Finance). . . . . . . . . 10,000 67,018
Lonrho PLC (Multi-industry). . . . . . . . . . 38,000 84,992
Medeva PLC (Healthcare). . . . . . . . . . . . 11,300 55,126
Morgan Stanley Emerging Market
Fund, Inc. (Finance) . . . . . . . . . . . . 12,600 201,600
National Westminster Bank PLC
(Finance). . . . . . . . . . . . . . . . . . 46,000 544,246
Orange PLC + (Information &
Entertainment) . . . . . . . . . . . . . . . 114,000 399,092
Rank Group PLC (Information &
Entertainment) . . . . . . . . . . . . . . . 7,000 48,217
Reed International PLC
(Information & Entertainment). . . . . . . . 16,500 304,060
RTZ Corp. PLC (Materials). . . . . . . . . . . 5,000 79,417
Sainsbury (J.) PLC (Consumer
Staples) . . . . . . . . . . . . . . . . . . 35,000 187,763
Shell Transport & Trading Co.
(Energy) . . . . . . . . . . . . . . . . . . 8,000 141,459
Smith (David S) Holdings PLC
(Materials). . . . . . . . . . . . . . . . . 5,000 18,152
Smithkline Beecham PLC
(Healthcare) . . . . . . . . . . . . . . . . 15,000 241,045
T & N PLC (Consumer
Discretionary) . . . . . . . . . . . . . . . 7,000 15,429
Tanjong PLC (Consumer
Discretionary) . . . . . . . . . . . . . . . 10,000 36,243
Tarmac PLC (Consumer
Discretionary) . . . . . . . . . . . . . . . 85,000 169,449
Tesco PLC (Consumer
Discretionary) . . . . . . . . . . . . . . . 8,000 46,418
Thistle Hotels PLC (Information &
Entertainment) . . . . . . . . . . . . . . . 58,300 156,853
Tomkins PLC (Consumer Staples) . . . . . . . . 19,000 81,912
United News & Media PLC
(Information & Entertainment). . . . . . . . 8,000 97,763
Vaux Group PLC (Consumer Staples). . . . . . . 37,000 164,911
Vickers PLC (Multi-industry) . . . . . . . . . 43,000 148,444
Waddington (John) PLC (Materials). . . . . . . 25,000 123,987
----------
6,366,874
----------
United States -- 6.2% (4)
AlliedSignal, Inc.
(Multi-industry) . . . . . . . . . . . . . . 2,000 144,500
Associates First Capital Corp.
Class A (Finance). . . . . . . . . . . . . . 2,000 102,500
Banco Santander-Chile, Class A
ADR(1) (Finance) . . . . . . . . . . . . . . 800 12,800
Boeing Co. (Industrial &
Commercial). . . . . . . . . . . . . . . . . 1,000 98,625
Bristol-Myers Squibb Co.
(Healthcare) . . . . . . . . . . . . . . . . 3,000 196,500
Chase Manhattan Corp. (Finance). . . . . . . . 1,000 92,625
Citicorp (Finance) . . . . . . . . . . . . . . 1,000 112,625
Du Pont (E.I.) de Nemours & Co.
(Materials). . . . . . . . . . . . . . . . . 1,000 106,125
Ericsson (L.M.) Telephone Co.
ADR(1) (Information Technology). . . . . . . 4,000 134,500
Ford Motor Co. (Consumer
Discretionary) . . . . . . . . . . . . . . . 2,500 86,875
General Electric Co.
(Multi-industry) . . . . . . . . . . . . . . 800 88,700
General Motors Corp. (Consumer
Discretionary) . . . . . . . . . . . . . . . 4,000 231,500
GTE Corp. (Information
Technology). . . . . . . . . . . . . . . . . 5,000 229,375
Hibernia Corp. Class A (Finance)
. . . . . . . . . . . . . . . . . . . . . . 5,000 64,375
Johnson & Johnson Co.
(Healthcare) . . . . . . . . . . . . . . . . 4,000 245,000
Lilly (Eli) & Co. (Healthcare). . .. . . . . . 2,000 175,750
Lucent Technologies, Inc.
(Information Technology) . . . . . . . . . . 2,000 118,250
McDonald's Corp. (Consumer
Staples) . . . . . . . . . . . . . . . . . . 3,000 160,875
Merck & Co., Inc. (Healthcare) . . . . . . . . 3,000 271,500
Morgan Stanley Group, Inc.
(Finance). . . . . . . . . . . . . . . . . . 2,000 126,250
Nationwide Financial Services,
Inc. Class A+ (Finance). . . . . . . . . . . 4,100 108,650
Neurex Corp.+ (Healthcare) . . . . . . . . . . 5,000 55,000
Pfizer, Inc. (Healthcare). . . . . . . . . . . 1,200 115,200
Philip Morris Cos., Inc.
(Consumer Staples) . . . . . . . . . . . . . 3,000 118,125
Schering-Plough Corp.
(Healthcare) . . . . . . . . . . . . . . . . 3,200 256,000
Scotts Co., Class A+ (Consumer
Staples) . . . . . . . . . . . . . . . . . . 3,000 76,875
Tellabs, Inc.+ (Information
Technology). . . . . . . . . . . . . . . . . 4,000 159,500
Travelers Group, Inc. (Finance). . . . . . . . 2,000 110,750
----------
3,799,350
----------
Venezuela -- 0.0%
Compania Anon Nacional Tele de
Venezuela ADR(1) (Utilities) . . . . . . . . 230 6,900
----------
TOTAL COMMON STOCK (cost
$45,067,178) . . . . . . . . . . . . . . . . . . 46,174,057
----------
PREFERRED STOCK -- 1.4%
Brazil -- 0.1%
Cemig Cia Energy MG (Energy). . . . . . . . . . 935,000 42,631
----------
CANADA -- 0.0%
Inco Ltd. (Materials). . . . . . . . . . . . . . 36 2,571
----------
FINLAND -- 0.1%
Nokia Corp., Class A ADR+(1)
(Information Technology) . . . . . . . . . . . 520 32,437
----------
GERMANY -- 1.0%
Friedrich Grohe AG non voting
(Industrial & Commercial). . . . . . . . . . . 1,130 338,321
GEA AG non voting (Industrial &
PRO-FORMA
PORTFOLIO OF INVESTMENTS - APRIL 30, 1997 - (UNAUDITED) - (CONTINUED)
Shares/
Principal Amount
(denominated in
local currency) Value
Security Description (in thousands) (Note 2)
--------------------------------------------------------------------------------
Commercial). . . . . . . . . . . . . . . . . . 580 197,598
Hornbach Holding AG non voting
(Consumer Discretionary) . . . . . . . . . . . 1,450 92,938
SAP AG non voting (Information
Technology). . . . . . . . . . . . . . . . . . 90 16,573
-----------
645,430
-----------
ITALY - 0.2%
Istituto Finanziario (Finance) . . . . . . . . . 12,600 151,597
-----------
TOTAL PREFERRED STOCK (cost
$832,893). . . . . . . . . . . . . . . . . . . . 874,666
-----------
CONVERTIBLE BONDS - 0.3%
TAIWAN - 0.2%
Compal Electronics* zero coupon 2003 . . . . . . 93,000 136,478
-----------
THAILAND - 0.1%
Bangkok Bank PCL alien shares 3.25% 2004 29,000 26,645
-----------
TOTAL CONVERTIBLE BONDS
(cost $131,115). . . . . . . . . . . . . . . . . 163,123
-----------
WARRANTS - 0.1%+
PORTUGAL - 0.0%
Jeronimo Martins 9/15/03
(Consumer Staples) . . . . . . . . . . . . . . 43 544
-----------
THAILAND - 0.0%
Industrial Finance Corp. of
Thailand alien (Finance) . . . . . . . . . . . 12,000 6,087
-----------
UNITED KINGDOM - 0.1%
Morgan Stanley Group, Inc.
8/15/97 (Finance). . . . . . . . . . . . . . . 18,300 62,906
-----------
TOTAL WARRANTS (cost $85,177). . . . . . . . . . 69,537
-----------
FOREIGN BONDS & NOTES - 3.6%(4)
AUSTRALIA - 0.1%
Commonwealth of Australia 7.50% 2005 . . . . . . 100 76,896
-----------
BELGIUM - 0.2%
Kingdom of Belgium 6.50% 2005. . . . . . . . . . 4,000 117,975
-----------
CANADA - 0.3%
Government of Canada 7.50% 2000 . . . . . . . . 200 151,134
----------
DENMARK - 0.3%
Kingdom of Denmark 9.00% 2000. . . . . . . . . . 1,000 171,514
-----------
FRANCE - 0.2%
Government of France 7.00% 1999. . . . . . . . . 700 128,594
-----------
GERMANY - 0.1%
Treuhandanstalt (Germany) 6.13% 1998 . . . . . . 100 59,493
-----------
ITALY - 0.4%
Republic of Italy 10.50% 2000. . . . . . . . . . 400,000 258,385
-----------
SPAIN - 0.1%
Government of Spain 10.00% 2005. . . . . . . . . 10,000 82,166
-----------
SWEDEN - 0.8%
Kingdom of Sweden 10.25% 2003. . . . . . . . . . 1,500 224,835
Kingdom of Sweden 13.00% 2001. . . . . . . . . . 1,500 238,661
-----------
463,496
-----------
UNITED KINGDOM - 1.1%
United Kingdom Treasury 8.50% 2005 . . . . . . . 300 518,740
United Kingdom Treasury 9.00% 2000 . . . . . . . 100 169,874
-----------
688,614
-----------
TOTAL FOREIGN BONDS & NOTES
(cost $2,234,630). . . . . . . . . . . . . . . . 2,198,267
-----------
U.S. TREASURY NOTES - 3.9%(4)
UNITED STATES - 3.9%
5.25% due 1/31/01 100 95,954
5.88% due 2/15/00 750 739,920
6.13% due 9/30/00 150 148,383
6.38% due 3/31/01 200 198,938
6.50% due 8/15/05 500 492,580
7.88% due 11/15/04 700 747,908
-----------
2,423,683
-----------
TOTAL U.S. TREASURY NOTES
(cost $2,399,088). . . . . . . . . . . . . . . . 2,423,683
-----------
OPTIONS - 0.0%+
JAPAN - 0.0%
Nikkei 225 Index,Jun1997/17700 Put(3) 189,400 833
-----------
SINGAPORE - 0.0%
Dbs 50 Index,Jan1998/403 Call(3) 8,300 480
Dbs 50 Index,Jan1998/404 Call(3) 2,300 160
Dbs 50 Index,Jan1998/407 Call(3) 8,000 415
Dbs 50 Index,Jan1998/407 Call(3) 7,900 411
THAILAND - 0.0%
Set 50 Index,Jan1998/2 Call(3) 1,119,400 1,235
Set 50 Index,Jan1998/2 Call(3) 1,143,800 720
Set 50 Index,Jan1998/2 Call(3) 1,116,400 449
Set 50 Index,Jan1998/2 Call(3) 1,122,900 1,038
TOTAL OPTIONS (cost $44,596). . . . . . . . . . 5,741
-----------
TOTAL INVESTMENT SECURITIES
(cost $50,794,677) . . . . . . . . . . . . . . . 51,909,074
-----------
SHORT-TERM SECURITIES - 3.3%
Cayman Island Time Deposit 3.00% with
State Street Bank and Trust Co., due 5/01/97 706 706,000
Cayman Island Time Deposit 4.50% with
State Street Bank and Trust Co., due 5/01/97 1,329 1,329,000
-----------
2,035,000
-----------
TOTAL SHORT-TERM SECURITIES
(cost $2,035,000). . . . . . . . . . . . . . . . 2,035,000
-----------
PRO FORMA
PORTFOLIO OF INVESTMENTS--APRIL 30, 1997--(unaudited)--(continued)
[Enlarge/Download Table]
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 8.8%
Agreement with State Street Bank and Trust Co.,
bearing 4.00%, dated 4/30/97 to be repurchased
5/01/97 in the amount of $2,434,270 collaterized
by $2,475,000 U.S. Treasury Note 5.75% due 9/30/97
approximate aggregate value $2,488,406
(cost $2,434,000) $ 2,434 $2,434,000
Agreement with State Street Bank and Trust Co.,
bearing 5.30%, dated 4/30/97 to be repurchased
5/01/97 in the amount of $1,035,152 collaterized
by $1,055,000 U.S. Treasury Note 5.25% due
7/31/98 approximate aggregate value $1,057,902
(cost $1,035,000) 1,035 1,035,000
Joint Agreement with PaineWebber, Inc.
representing 3.20% individual interest, bearing
5.30% dated 4/30/97 to be repurchased 5/01/97
in the amount of $60,776,946 collaterized by
$50,000,000 U.S. Treasury Note 6.50% due 5/31/01,
$10,050,000 U.S. Treasury Note 6.50%
due 5/30/01 approximate aggregate value $62,001,625
(cost $1,924,000) 1,924 1,924,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $5,393,000) ................................... 5,393,000
-------------
TOTAL INVESTMENTS --
(COST $58,222,677) 96.2% 59,337,074
Other assets less liabilities -- 3.8 2,372,980
-------------- -------------
NET ASSETS-- 100.0% $61,710,054
-------------- -------------
-------------- -------------
-------------------------
+ Non-income producing securities
- Resale restricted to qualified institutional buyers
(1) ADR-American Depositary Receipts
(2) GDR-Global Depositary Receipts
(3) Fair valued security, see Note 2
(4) Securities are not consistent with the investment
policy of International Equity Portfolio, the surviving
entity, and will be disposed of upon shareholder
approval of the combination.
See Notes to Pro Forma Financial Statements.
OPEN FORWARD FOREIGN CURRENCY CONTRACTS
[Enlarge/Download Table]
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
----------- ------------ ---- ------------
IEP 107,348 USD 169,889 5/06/97 $8,780
DEM 2,000,000 USD 1,170,275 6/12/97 11,884
JPY 300,000,000 USD 2,461,034 6/12/97 82,944
* DEM 241,478 USD 150,000 7/23/97 9,721
JPY 25,702,500 USD 230,000 10/24/97 22,093
JPY 47,907,500 USD 433,454 10/24/97 45,932
* JPY 18,407,500 USD 166,546 10/24/97 17,649
------------
$199,003
------------
GROSS
UNREALIZED
DEPRECIATION
------------
USD 405,400 GBP 250,000 6/30/97 $(651)
* USD 144,327 DEM 241,478 7/23/97 (4,048)
* USD 154,643 JPY 18,407,500 10/24/97 (5,745)
------------
$(10,444)
------------
Net Appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $188,559
------------
------------
* Represents open forward foreign currency contracts and offsetting open forward
foreign currency contracts that do not have additional market risk but have
continued counterparty settlement risk.
DEM--Deutsche mark
GBP--Great Britain Pound
IEP--Irish Pound
JPY--Japanese Yen
USD--United States Dollar
STYLE SELECT INTERNATIONAL EQUITY PORTFOLIO
SUNAMERICA GLOBAL BALANCED FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
APRIL 30, 1997
(Unaudited)
1. BASIS OF COMBINATION
The Pro Forma Statement of Assets and Liabilities and Statement of
Operations ("Pro Forma Statements") reflect the actual accounts of Style Select
International Equity Portfolio ("International Equity") a separately managed
portfolio of Style Select Series, Inc., and SunAmerica Global Balanced Fund
("Global Balanced") a separately managed portfolio of SunAmerica Equity Funds,
for the period November 19, 1996, commencement of operations for the
International Equity Portfolio, through April 30, 1997. These statements have
been derived from the books and records of International Equity and Global
Balanced used in calculating their respective daily net asset values for the
periods stated above. The Pro Forma Combined Statement of Assets and
Liabilities has been restated to reflect a 1.6037118052 Class A and
1.6090250165 Class B reverse stock split of the Global Balanced as of the
close of business on April 30, 1997. This reverse stock split is assumed
to have occurred immediately prior to the reorganization described below.
The Pro Forma Statements give effect to the proposed transfer of all assets
and liabilities of Global Balanced in exchange for shares of International
Equity. In conjunction with the reorganization, International Equity is the
surviving portfolio.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of International Equity and Global Balanced included in
their respective Statements of Additional Information.
2. VALUATION
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 sale 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.
Values of portfolio
securities primarily traded on foreign exchanges are already translated into
U.S. dollars when received from a quotation service. 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 securities 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.
3. CAPITAL SHARES
The pro forma combined net asset value per share assumes the issuance of
additional shares of International Equity which would have been issued at
April 30, 1997 (after giving effect to the reverse stock split) in connection
with the proposed reorganization. The amount of additional shares assumed to
be issued was calculated based on the April 30, 1997 net asset value of
International Equity Class A ($12.48) and Class B ($12.44) and the
post-reverse split per share net asset value of Global Balanced Class A
($12.48) and Class B ($12.44).
The pro forma number of shares outstanding are as follows:
Class A Class B Class C
Shares
International Equity 1,841,936.323 1,134,927.354 87,908.972
Additional Shares issued
(as calculated above) 636,372.536 1,249,795.961 --
Pro Forma
Shares Outstanding 2,478,308.859 2,384,723.315 87,908.972
These pro forma financial statements assume that all shares of Global
Balanced Class A and Class B outstanding on April 30, 1993 were exchanged for
International Equity Class A and Class B shares, respectively. Class C shares
were not affected by the combination.
4. PRO FORMA OPERATING EXPENSES
The Pro Forma Statement of Operations assumes income and expense
adjustments based on the agreements and portfolio composition of International
Equity, the surviving entity. Certain accounts have been adjusted to reflect
the income and expenses of the combined entity more closely. Pro forma
operating income and expenses include the actual income and expenses of Global
Balanced and International Equity combined, adjusted for certain items which are
factually supportable. Advisory fees have been charged to the combined entity
based upon the contract in effect for International Equity at the level of
assets of the combined fund for the stated period.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
5.01 Indemnification of Directors and Officers. The Corporation 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 a proceeding by or
in the right of the Corporation in which such person shall have been adjudged to
be liable to the Corporation), by reason of being or having been a director or
officer of the Corporation, or serving or having served at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another entity in which the Corporation has an interest as a shareholder,
creditor or otherwise (a "Covered Person"), against all liabilities, including
but not limited to amounts paid in satisfaction of judgements, in compromise or
as fines and penalties, and reasonable expenses (including attorney's fees)
actually incurred by the Covered Person in connection with any such action, suit
or proceeding, except (i) liability in connection with any proceeding in which
it is determined that (A) the act or omission of the Covered Person was material
to the matter giving rise to the proceeding, and was committed in bad faith or
was the result of active and deliberate dishonesty, or (B) the Covered Person
actually received an improper personal benefit in money, property or services,
or (C) in the case of any criminal proceeding, the Covered Person had reasonable
cause to believe that the act or omission was unlawful, and (ii) liability to
the Corporation or its security holders to which the Covered Person 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 (any or all of the conduct referred to in clauses (i) and (ii) being
hereinafter referred to as "Disabling Conduct").
5.02 Procedure for Indemnification. Any indemnification under Section
5.01 shall (unless ordered by a court) be made by the Corporation only as
authorized for a specific proceeding by (i) a final decision on the merits by a
court or other body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of the proceeding against the Covered Person for insufficiency of
evidence of any Disabling Conduct, or (iii) a reasonable determination, based
upon a review of the facts, by a majority of a quorum of the directors who are
neither "interested persons" of the Corporation as defined in the Investment
Company Act of 1940 nor parties to the proceeding ("Disinterested Non-Party
Directors"), or an independent legal counsel in a written opinion, that the
Covered Person was not liable by reason of Disabling Conduct. The termination
of any proceeding by judgement, order or settlement shall not create a
presumption that the Covered Person did not meet the required standard of
conduct; the termination of any proceeding by conviction, or a plea of nolo
contendere or its equivalent, or an entry of an order of probation prior to
judgment, shall create a rebuttable presumption that the Covered Person did not
meet the required standard of conduct. Any determination pursuant to this
Section 5.02 shall not prevent recovery from any Covered Person of any amount
paid to him in accordance with this By-Law as indemnification if such Covered
Person is subsequently adjudicated by a court of competent jurisdiction to be
liable by reason of Disabling Conduct.
5.03 Advance Payment of Expenses. Reasonable expenses (including
attorneys' fees) incurred by a Covered Person may be paid or reimbursed by the
Corporation in advance of the final disposition of an action, suit or proceeding
upon receipt by the Corporation of (i) a written affirmation by the Covered
Person of his good faith belief that the standard of conduct necessary for
indemnification under this By-Law has been met and (ii) a written undertaking by
or on behalf of the Covered Person to repay the amount if it is ultimately
determined that such standard of conduct has not been met, so long as either (A)
the Covered Person has provided a security for his undertaking, (B) the
Corporation is insured against losses arising by reason of any lawful advances,
or (C) a majority of a quorum of the Disinterested Non-Party Directors, or an
independent legal counsel in a written opinion, has determined, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.
5.04 Exclusivity, Etc. The indemnification and advance of expenses
provided by this By-Law shall not be deemed exclusive of any other rights to
which a Covered Person seeking indemnification or advance or expenses may be
entitled under any law (common or statutory), or any agreement, vote of
stockholders or disinterested directors, or other provision that is consistent
with law, both as to action in an official capacity and as to action in another
capacity while holding office or while employed by or acting as agent for the
Corporation, shall continue in respect of all events occurring while the Covered
Person was a director or officer after such Covered Person has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such Covered Person. The Corporation shall not
be liable for any payment under this By-Law in connection with a claim made by a
director or officer to the extent such director or officer has otherwise
actually received payment, under an insurance policy, agreement, vote or
otherwise, of the amounts otherwise indemnifiable hereunder. All rights to
indemnification and advance of expenses under the Charter and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this By-
Law is in effect. Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of any Covered Person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights to indemnification or advance of expenses of a Covered
Person or the obligations of the Corporation arising hereunder with respect to
events occurring, or claims made, while this By-Law or any provision hereof is
in force.
5.05 Insurance. The Corporation may purchase and maintain insurance on
behalf of any Covered Person against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such;
provided, however, that the Corporation shall not purchase insurance to
indemnify any Covered Person against liability for Disabling Conduct.
5.06 Severability: Definitions. The invalidity or un-enforceability of
any provision of this Article V shall not affect the validity or enforceability
of any other provision hereof. The phrase "this By-Law" in this Article V means
this Article V in its entirety.
C-2
Section 8 of the Article of Incorporation provides as follows:
(5) The Corporation shall indemnify (i) its directors and officers,
whether serving the Corporation or at its request any other entity, to the full
extent required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law, and (ii) other employees and agents to such
extent as shall be authorized by the Board of Directors or the By-Laws of the
Corporation and as permitted by law. The foregoing rights of indemnification
shall not be exclusive of any other rights to which those seeking
indemnification may be entitled. The Board of Directors may take such action as
is necessary to carry out these indemnification provisions and is expressly
empowered to adopt, approve and amend from time to time such By-Laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. The right of
indemnification provided hereunder shall not be construed to protect any
director or officer of the Corporation against any liability to the Corporation
or 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.
(6) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or officer of the
Corporation shall be personally liable to the Corporation or its stockholders
for money damages; provided, however, that this provision shall not be construed
to protect any director or officer against any liability to the Corporation or
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. No amendment, modification or repeal of
this provision shall adversely affect any right or protection provided hereunder
that exists at the time of such amendment, modification or repeal.
ITEM 16. EXHIBITS.
1.1 Registrant's charter.(1)
1.2 Supplement to Charter.(1)
1.3 Amendment to Charter.(1)
1.4 Amendment dated November 13, 1996 to Charter.(1)
2 Bylaws of the Registrant, as amended.(1)
3 Not Applicable.
4 Form of Agreement and Plan of Reorganization between SunAmerica Equity
Funds, on behalf of SunAmerica Global Balanced Fund, and Style Select
Series, Inc., on behalf of International Equity Portfolio, filed herewith
as Appendix A to the Proxy and Prospectus.*
5 Instruments Defining Rights of Shareholders.(1)
6.1 Investment Advisory and Management Agreement.(1)
6.2 Subadvisory Agreements.(2)
7 Distribution Agreement.(1)
8 Not Applicable.
9 Custodian Agreement.(1)
10 Distribution Plans.(1)
C-3
11 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding legality of
shares being issued.*
12 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding tax
consequences of the Reorganization between Global Balanced Fund and
International Equity Portfolio.*
13 Not Applicable.
14 Not Applicable.
15 Not Applicable.
16 Power of Attorney.(1)
17.1 Declaration under Rule 24f-2.*
17.2 Form of Proxy of SunAmerica Equity Funds.*
17.3 Prospectus of SunAmerica Equity Funds.*
17.4 Prospectus of Style Select Series, Inc.*
__________________________
* Filed electronically.
(1) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A, filed on November 14, 1996 (File Nos. 33-
11283 and 811-07797).
(2) Response is incorporated by reference to Registrant's Post-Amendment No. 2
on Form N-1A filed on March 3, 1997 (File Nos. 33-11283 and 811-07797).
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
C-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Style Select Series, Inc., has duly caused this 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 2nd day of
June, 1997.
STYLE SELECT SERIES, INC.
By: /s/ Peter A. Harbeck
--------------------------------
Peter A. Harbeck
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date(s) indicated:
Signature Title Date
--------------------------------------------------------------------------------
/s/ Peter A. Harbeck President and Director June 2, 1997
-------------------------- (Principal Executive Officer)
Peter A. Harbeck
* Treasurer June 2, 1997
-------------------------- (Principal Financial and
Peter C. Sutton Accounting Officer)
* Director June 2, 1997
--------------------------
S. James Coppersmith
* Director June 2, 1997
--------------------------
Samuel M. Eisenstat
* Director June 2, 1997
--------------------------
Stephen J. Gutman
* Director June 2, 1997
--------------------------
Peter McMillan III
* Director June 2, 1997
--------------------------
Sebastiano Sterpa
June 2, 1997
*By: /s/ Robert M. Zakem
-------------------
Attorney-in-Fact
Robert M. Zakem
C-5
EXHIBIT INDEX
Exhibit
Number Exhibit
------ -------
4 Form of Agreement and Plan of Reorganization between SunAmerica Equity
Funds, on behalf of SunAmerica Global Balanced Fund, and Style Select
Series, Inc., on behalf of International Equity Portfolio, filed
herewith as Appendix A to the Proxy and Prospectus.
11 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding legality
of shares being issued.
12 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP regarding tax
consequences of the Reorganization between Global Balanced Fund and
International Equity Portfolio.
17.1 Declaration under Rule 24f-2.
17.2 Form of Proxy of SunAmerica Equity Funds.
17.3 Prospectus of SunAmerica Equity Funds.
17.4 Prospectus of Style Select Series, Inc.
Dates Referenced Herein and Documents Incorporated by Reference
↑Top
Filing Submission 0000912057-97-019280 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Thu., May 9, 5:21:07.2am ET 
