SUNAMERICA EQUITY FUNDS, 485APOS, 1998-11-24

SUNAMERICA EQUITY FUNDS
485APOS, 1998-11-24

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<PAGE>

As filed with the Securities and Exchange Commission on November 24, 1998

Securities Act File No. 33-8021

Investment Company Act File Act No. 811-4801

=====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]

POST-EFFECTIVE AMENDMENT NO. 24 [X]
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 23
(Check appropriate box or boxes)

SUNAMERICA EQUITY FUNDS
(Exact Name of Registrant as Specified in Charter)

The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(Address of Principal Executive Office)(Zip Code)

Registrant's telephone number, including area code: (800) 858-8850

Robert M. Zakem
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(Name and Address for Agent for Service)

Copy to:
Margery K. Neale, Esq
Swidler Berlin Shereff & Friedman, LLP
919 Third Avenue
New York, NY 10022

Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.

It is proposed that this filing will become effective (check
appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)

[X] 60 days after filing pursuant to paragraph (a)(1)

[_] on (date) pursuant to paragraph (a)(1)

[_] 75 days after filing pursuant to paragraph (a)(2)

[_] on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>

___________________, 1999 PROSPECTUS
- --------------------------------------------------------------------------------

SUNAMERICA EQUITY FUNDS

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

The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.

[Logo] SUNAMERICA
MUTUAL FUNDS
<PAGE>

TABLE OF CONTENTS

FUND HIGHLIGHTS.............................................................. 3

FINANCIAL HIGHLIGHTS......................................................... 13

SHAREHOLDER ACCOUNT INFORMATION.............................................. 14

MORE INFORMATION ABOUT THE FUNDS............................................. 27
Fund Investment Strategies........................................... 27
Glossary............................................................. 30
Investment Terminology....................................... 30
Risk Terminology............................................. 31

FUND MANAGEMENT.............................................................. 33

2
<PAGE>

FUND HIGHLIGHTS

The following questions and answers are designed to give you an overview of the
Trust, and to provide you information about five of the Trust's investment
portfolios, or "Funds," and their investment goals and principal strategies.
More complete investment information is provided in the chart, under "More
Information About the Funds," which is on page 27, and the glossary that follows
on page 30.

Q: What are the Funds' investment goals?

A: Each Fund operates as a separate mutual fund and has its own investment
goal and a strategy for pursuing it. No goal may be changed without
shareholder approval.

The Blue Chip Growth, Mid-Cap Growth and Small Company Growth Funds each
seek capital appreciation by investing primarily in equity securities.

The Balanced Assets Fund seeks to conserve principal by investing in a
balanced portfolio of stocks and bonds.

The Growth and Income Fund seeks capital appreciation and current income by
investing primarily in dividend-paying common stocks.

Q: How do the Funds pursue these goals?

A: Each of the Blue Chip Growth, Mid-Cap Growth, Small Company Growth and
Growth and Income Funds invests primarily in common stocks. The Blue Chip
Growth, Mid-Cap Growth and Small Company Growth Funds will normally
purchase stocks issued by companies of different sizes as measured by their
market capitalization.

[Margin note: MARKET CAPITALIZATION represents the total market value of
the outstanding securities of a corporation.]

- For the Blue Chip Growth Fund the companies will generally have
market capitalizations of over $5 billion.

- For the Mid-Cap Growth Fund the companies will generally have
market capitalizations between $1 billion and $5 billion and have
conducted operations for at least five years.

- For the Small Company Growth Fund the companies will generally
have market capitalizations of $1 billion or less.

3
<PAGE>

The Growth and Income Fund will buy stock of companies of any size, but
will generally look for stocks that pay dividends, as well as offer the
potential for capital growth.

The Balanced Assets Fund will divide its assets between stocks and bonds.
The stocks will generally be of companies with market capitalizations of
over $1 billion. The bonds will generally be high-quality.

[Margin note: "High-quality" instruments have a very strong capacity to pay
interest and repay principal.]

[Margin note: "growth" companies are considered to have a historical record of
above-average growth rate; to have significant growth potential; above-average
earnings growth or value or the ability to sustain earnings growth; to offer
proven or unusual products or services; or to operate in industries experiencing
increasing demand.]

Q: What are the principal risks of investing in the Funds?

A: As with any equity fund, the value of your investment in each of the Funds
may fluctuate in response to stock market movements, and you could lose
money. Other principal risks include:

- individual stocks selected for a Fund may underperform the market
generally

- stocks of smaller companies may be more volatile than, and not as
liquid as, those of larger companies. This will particularly
affect the Small Company Growth Fund

- the Balanced Assets Fund and the Growth and Income Fund may be
affected by movements in the bond market in addition to the stock
market

In addition, shares of the Funds are not bank deposits and are not
guaranteed or insured by any bank, government entity or the Federal
Deposit Insurance Corporation.

Q: How have the Funds performed historically?

A: The following Risk/Return Bar Charts and Tables illustrate the risks of
investing in the Funds by showing changes in the Funds' performance from
year to year, and compare the Funds' average annual returns to those of an
appropriate market index. Sales loads are not reflected in the bar charts.
If these amounts were reflected, returns would be less than those shown. Of
course, past performance is not necessarily an indication of how a Fund
will perform in the future.

4
<PAGE>

[BAR GRAPH APPEARS HERE]
BLUE CHIP GROWTH FUND

1988.......... 29.34%
1989.......... 12.75%
1990..........-25.11%
1991.......... 29.84%
1992.......... 8.46%
1993.......... 19.39%
1994.......... -4.76%
1995.......... 31.04%
1996.......... 9.67%
1997.......... 30.25%

FIGURE 1
(Class B)

During the 10-year period shown in the bar chart, the highest return for a
quarter was 21.68% (quarter ended 03/31/91) and the lowest return for a quarter
was -25.00% (quarter ended 09/30/90). The Fund's year-to-date return as of
September 30, 1998 was 3.84%.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of Return
the calendar year ended) Past One Past Five Past Ten Since
Year Years Years Inception

- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Blue Chip Growth Fund A 23.63% N/A N/A 13.75%
- -----------------------------------------------------------------------------------
B 26.25% 16.09% 12.59% 11.90%
- -----------------------------------------------------------------------------------
S&P 500(R) Index/*/
- -----------------------------------------------------------------------------------
</TABLE>

/*/ The S&P 500(R) is the Standard & Poor's Composite 500 Stock Price Index, a
widely recognized, unmanaged index of common stock prices.

5
<PAGE>

[BAR GRAPH APPEARS HERE]

MID-CAP GROWTH FUND

1988.......... 23.32%
1989.......... 28.76%
1990..........-14.95%
1991.......... 42.61%
1992.......... 12.45%
1993.......... 10.8%
1994.......... -4.79%
1995.......... 35.05%
1996.......... 12.48%
1997.......... 13.68%

FIGURE 2
(Class A)

During the 10-year period shown in the bar chart, the highest return for a
quarter was 18.40% (quarter ended 03/31/91) and the lowest return for a quarter
was -23.52% (quarter ended 09/30/90). The Fund's year-to-date return as of
September 30, 1998 was -1.58%.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of Return
the calendar year ended) Past One Past Five Past Ten Since
Year Years Years Inception

- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mid-Cap Growth Fund A 7.14% 11.42% 14.04% 12.34%
- -----------------------------------------------------------------------------------
B 8.85% N/A N/A 9.87%
- -----------------------------------------------------------------------------------
S&P 500(R) Index/*/
- -----------------------------------------------------------------------------------
S&P 500(R) Mid-Cap Index/**/
- -----------------------------------------------------------------------------------
</TABLE>

/*/ The S&P 500(R) is the Standard & Poor's Composite 500 Stock Price Index, a
widely recognized, unmanaged index of common stock prices.

/**/ The S&P 400(R) Mid-Cap Index is a market value-weighted and unmanaged index
showing the changes in the aggregate market value of 200 stocks of
companies whose capitalization range from $100 million to over $5 billion
and which represent a wide range of industries.

6
<PAGE>

[BAR GRAPH APPEARS HERE]

SMALL COMPANY GROWTH FUND

1988............. 48.45%
1989............. 23.05%
1990.............-26.99%
1991............. 54.85%
1992............. 20.12%
1993............. 13.89%
1994............. 4.73%
1995............. 50.16%
1996............. 14.92%
1997............. 3.34%

FIGURE 3
(Class A)

During the 10-year period shown in the bar chart, the highest return for a
quarter was 27.23% (quarter ended 03/31/91) and the lowest return for a quarter
was -30.80% (quarter ended 09/30/90). The Fund's year-to-date return as of
September 30, 1998 was -15.15%.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of Return
the calendar year ended) Past One Past Five Past Ten Since
Year Years Years Inception

- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Company Growth Fund A -2.61% 14.92% 17.40% 13.74%
- -----------------------------------------------------------------------------------
B -1.26% N/A N/A 13.34%
- -----------------------------------------------------------------------------------
Russell 200 Index/*/
- -----------------------------------------------------------------------------------
Nasdaq Industrial Index/**/
- -----------------------------------------------------------------------------------
</TABLE>

/*/ The Russell 2000 Index is a unmanaged broad-based index of 2,000 smaller
capitalization companies.

/**/ The Nasdaq Industrial Index is a value-weighted index calculated on price
change only and does not include income and is composed of more than 3,000
industrial issues.

7
<PAGE>

[BAR GRAPH APPEARS HERE]

GROWTH AND INCOME FUND

7/94-12/94............ 1.8%
1995.................. 33.94%
1996.................. 26.33%
1997.................. 29.3%

FIGURE 4
(Class B)

During the 4-year period shown in the bar chart, the highest return for a
quarter was 15.95% (quarter ended 12/31/94) and the lowest return for a quarter
was -0.58% (quarter ended 09/30/98). The Fund's year-to-date return as of
September 30, 1998 was 0.96%.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of the
calendar year ended) Past One Past Past
Year Five Ten
Years Years
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Growth and Income Fund A 22.70% N/A N/A
- -------------------------------------------------------------------------
B 25.30% N/A N/A
- -------------------------------------------------------------------------
S&P 500(R) Index/*/
- -------------------------------------------------------------------------
Insert Broad Based Market Index
- -------------------------------------------------------------------------
</TABLE>

/*/ The S&P 500(R) is the Standard & Poor's Composite 500 Stock Price Index, a
widely recognized, unmanaged index of common stock prices.

8
<PAGE>

[BAR GRAPH APPEARS HERE]

BALANCED ASSETS FUND

1988............. 6.51%
1989............. 16.44%
1990............. -2.34%
1991............. 27.49%
1992............. 5.46%
1993............. 14.17%
1994............. -2.57%
1995............. 26.95%
1996............. 8.3 %
1997............. 23.37%

FIGURE 5
(Class B)

During the 10-year period shown in the bar chart, the highest return for a
quarter was 11.90% (quarter ended 03/31/91) and the lowest return for a quarter
was -13.61% (quarter ended 09/30/90). The Fund's year-to-date return as of
September 30, 1998 was 6.23%.

<TABLE>
<CAPTION>
Average Annual Total Returns (as of Past One Past Five Past Ten Return
the calendar year ended) Year Years Years Since
Inception
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Assets Fund A 16.99% N/A N/A 12.02%
- -----------------------------------------------------------------------------------
B 19.37% 13.30% 12.07% 12.49%
- -----------------------------------------------------------------------------------
S&P 500(R) Index/*/
- -----------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government Index/**/
- -----------------------------------------------------------------------------------
</TABLE>

/*/ The S&P 500(R) is the Standard & Poor's Composite 500 Stock Price Index, a
widely recognized, unmanaged index of common stock prices.

/**/ The Lehman Brothers Intermediate Government Index is an unmanaged index
comprised of all publicly issued, non-convertible domestic debt of the
United States Government. Only notes and bonds with minimum outstanding
principal of $1 million and minimum maturity of one year and maximum
maturity of 10 years are included.

9
<PAGE>

Q: What are the Funds' expenses?

A: The following table describes the fees and expenses that you may pay if you
buy and hold shares of the Funds.

<TABLE>
<CAPTION>
BLUE CHIP MID-CAP SMALL COMPANY
GROWTH FUND GROWTH FUND GROWTH FUND
- ------------------------------------------------------------------------------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B II A B II A B II

- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES (fees
paid directly from your
investment)
- ------------------------------------------------------------------------------------------------------
Maximum Sales Charge 5.75% None 1.00% 5.75% None 1.00 5.75% None 1.00%
(Load) Imposed on Pur
chases (as a per
centage of offering
price)/(1)/
- ------------------------------------------------------------------------------------------------------
Maximum Deferred Sales None 4.00% 1.00% None 4.00% 1.00% None 4.00% 1.00%
Charge (Load) (as a
percentage of amount
redeemed)/(2)/
- ------------------------------------------------------------------------------------------------------
Maximum Sales Charge None None None None None None None None None
(Load) Im posed on
Reinvested Dividends
- ------------------------------------------------------------------------------------------------------
Redemption Fee/(3)/ None None None None None None None None None
- ------------------------------------------------------------------------------------------------------
Exchange Fee None None None None None None None None None
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------

GROSS ANNUAL FUND
OPERATING EXPENSES
(expenses that are
deducted from Fund assets)
- ------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%

- ------------------------------------------------------------------------------------------------------
Distribution
(12b-1) Fees/(4)/ 0.35% 1.00% 1.00% 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------
Other Expenses
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------

Total Gross Annual Fund /(5)/ /(5)/
Operating Expenses/(6)/
- ---------------------------===========================================================================

GROWTH AND BALANCED
INCOME FUND ASSESTS FUND
- --------------------------------------------------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B II A B II

- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES (fees
paid directly from your
investment)
- --------------------------------------------------------------------------
Maximum Sales Charge 5.75% None 1.00% 5.75% None 1.00%
(Load) Imposed on Pur
chases (as a per
centage of offering
price)/(1)/
- --------------------------------------------------------------------------
Maximum Deferred Sales None. 4.00% 1.00% None 4.00% 1.00%
Charge (Load) (as a
percentage of amount
redeemed)/(2)/
- --------------------------------------------------------------------------
Maximum Sales Charge None None None None None None
(Load) Im posed on
Reinvested Dividends
- --------------------------------------------------------------------------
Redemption Fee/(3)/ None None None None None None
- --------------------------------------------------------------------------
Exchange Fee None None None None None None
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

GROSS ANNUAL FUND
OPERATING EXPENSES
(expenses that are
deducted from Fund assets)
- --------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%

- --------------------------------------------------------------------------
Distribution
(12b-1) Fees/(4)/ 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
- --------------------------------------------------------------------------
Other Expenses
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Total Gross Annual Fund /(5)/
Operating Expenses/(6)/
==========================================================================
</TABLE>

(1) The front-end sales charge on Class A shares decreases with the size of
the purchase to 0% for purchases of $1 million or more.

(2) Purchases of Class A shares over $1 million will be subject to a
contingent deferred sales charge (CDSC) on redemptions made within one
year of purchase. The CDSC on Class B shares applies only if shares are
redeemed within six years of their purchase. The CDSC on Class II shares
applies only if shares are redeemed within eighteen months of their
purchase.

(3) A $15.00 fee may be imposed on wire redemptions.

(4) Class B or Class II shareholders who own their shares for an extended
period of time may pay more in Rule 12b-1 distribution fees than the
economic equivalent of the maximum front -end sales charge permitted under
the Conduct Rules of the National Association of Securities Dealers.

10
<PAGE>

/(5)/ The offering of Class II shares commenced for these Funds on December 1,
1998. The amounts shown are estimated based on expenses expected to have
been incurred if Class II shares had been in existence for these Funds
throughout the fiscal year ended September 30, 1998.

/(6)/ The information presented is based on gross expense data for the fiscal
year ended September 30, 1998. In the case of certain Funds and/or
Classes of shares, the actual fees borne by an investor are lower than
those shown in the table due to expense waivers and reimbursements. For
the fiscal year ended September 30, 1998, the actual expense ratios (if
different from those in the chart) were as follows:

[to be filed by amendment]

EXAMPLE

This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
BLUE CHIP GROWTH FUND
(Class A shares)
(Class B shares)/*/
(Class II shares)
MID-CAP GROWTH FUND
(Class A shares)
(Class B shares)/*/
(Class II shares)
SMALL COMPANY GROWTH FUND
(Class A shares)
(Class B shares)/*/
(Class II shares)
GROWTH AND INCOME FUND
(Class A shares)
(Class B shares)/*/
(Class II shares)
</TABLE>

11
<PAGE>

You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
BLUE CHIP GROWTH FUND
(Class A shares).............................
(Class B shares)/*/..........................
(Class II shares)............................
MID-CAP GROWTH FUND
(Class A shares).............................
(Class B shares)/*/..........................
(Class II shares)............................
SMALL COMPANY GROWTH FUND
(Class A shares).............................
(Class B shares)/*/..........................
(Class II shares)............................
GROWTH AND INCOME FUND
(Class A shares).............................
(Class B shares)/*/..........................
(Class II shares)............................
BALANCED ASSETS FUND
(Class A shares).............................
(Class B shares)/*/..........................
(Class II shares)............................
</TABLE>

_______________________________

/*/ Class B shares convert to Class A shares approximately seven years after
purchase. Therefore, expense information for years 8, 9 and 10 is the same
for both Class A and B shares.

The expenses shown in the example are based on gross expense data for the fiscal
year ended September 30, 1998. In the case of Class II shares, previously
designated as Class C shares, actual expenses were less than gross expenses for
fiscal year 1998 because of expense waivers and reimbursements. If the actual
expenses were used in the example rather than gross expenses, your costs would
be as follows:

[TO BE FILED BY AMENDMENT]

If you redeem your investment at the end of each of the periods indicated:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
BLUE CHIP GROWTH FUND
(Class II shares)...........................
MID-CAP GROWTH FUND
(Class II shares)...........................
</TABLE>
12
<PAGE>

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>

SMALL COMPANY GROWTH FUND
(Class II shares)...........................
GROWTH AND INCOME FUND
(Class II shares)...........................
BALANCED ASSETS FUND
(Class II shares)...........................
</TABLE>

If you did not redeem your shares:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
BLUE CHIP GROWTH FUND
(Class II shares).........................
MID-CAP GROWTH FUND
(Class II shares).........................
SMALL COMPANY GROWTH FUND
(Class II shares).........................
GROWTH AND INCOME FUND
(Class II shares).........................
BALANCED ASSETS FUND
(Class II shares).........................
</TABLE>

FINANCIAL HIGHLIGHTS

The Financial Highlights table for each Fund is intended to help you understand
the Fund's financial performance for the past 5 years. Certain information
reflects financial results for a single Fund share. The total returns in each
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with each Fund's financial statements, are included in the Statement of
Additional Information (SAI), which is available upon request.

[to be filed by amendment]

13
<PAGE>

SHAREHOLDER ACCOUNT INFORMATION

SELECTING A SHARE CLASS

Each Fund offers three Classes of shares through this prospectus: Class A, Class
B and Class II shares.

Each class of shares has its own cost structure, so you can choose the one best
suited to your investment needs. Your broker or financial advisor can help you
determine which class is right for you.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS II
<S> <C> <C>
. Front-end sales charges, . No front-end sales . Front-end sales
as described below. charge; all your charge, as described
There are several ways money goes to work below.
to reduce these charges, for you right away.
also described below. . Higher annual
. Higher annual expenses than Class
. Lower annual expenses expenses than Class A shares.
than Class B or Class II A shares.
shares. . Deferred sales
. Deferred sales charge
charge on shares on shares you sell
you sell within six within eighteen
years of purchase, as months of purchase,
described below. as described below.

. Automatic . No conversion to
conversion to Class Class A.
A shares after
approximately seven
years, thus reducing
future annual
expenses.
</TABLE>

14
<PAGE>

CALCULATION OF SALES CHARGES

CLASS A Sales Charges are as follows:

<TABLE>
<CAPTION>
Concession
Sales Charge to
Dealers
---------------------------------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
YOUR INVESTMENT PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $50,000.................. 5.75% 6.10% 5.00%
$50,000 but less than $100,000..... 4.75% 4.99% 4.00%
$100,000 but less than $250,000.... 3.75% 3.90% 3.00%
$250,000 but less than $500,000.... 3.00% 3.09% 2.25%
$500,000 but less than $1,000,000.. 2.10% 2.15% 1.35%
$1,000,000 or more................. None None 1.00%
</TABLE>

INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no front-
end sales charge. However, there is a 1% CDSC on any shares you sell within one
year of purchase.

CLASS B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a CDSC on shares you sell within six
years of buying them. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:

Class B deferred charges:

Years after purchase CDSC on shares being sold

1st or 2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
7th year and thereafter None

15
<PAGE>

For purposes of the CDSC, we count all purchases you make during a calendar
month as having been made on the FIRST day of that month.

CLASS II Sales Charges are as follows:

Sales Charge Concession to Dealers
- --------------------------------------------------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
PRICE INVESTED PRICE

1.00% 1.01% 1.00%

There is also a CDSC of 1% on shares you sell within eighteen months year after
you buy them.

DETERMINATION OF CDSC Each CDSC is based on the original purchase cost or the
current market value of the shares being sold, whichever is less. There is no
CDSC on shares you purchase through reinvestment of dividends. To keep your
CDSC as low as possible, each time you place a request to sell shares we will
first sell any shares in your account that are not subject to a CDSC. If there
are not enough of these shares available, we will sell shares that have the
lowest CDSC.

SALES CHARGE REDUCTIONS AND WAIVERS

WAIVERS FOR CERTAIN INVESTORS Various individuals and institutions may purchase
Class A shares without front-end sales charges, including:

. financial planners, institutions, broker-dealer representatives or
registered investment advisers utilizing Fund shares in fee-based
investment products under an agreement with the Distributor

. participants in certain retirement plans that meet applicable conditions
. Fund Trustees and other individuals who are affiliated with the Funds or
other SunAmerica Mutual Funds and their families
. selling brokers and their employees and sales representatives
. participants in "Net Asset Value Transfer Program"

We will generally waive the CDSC for CLASS B or CLASS II shares in the following
cases:

. within one year of the shareholder's death or becoming disabled
. taxable distributions or loans to participants made by qualified
retirement plans or retirement accounts (not including rollovers) for which
the Adviser serves as a fiduciary
. to make taxable distributions from certain retirement plans
. to make payments through the Systematic Withdrawal Plan (subject to
certain conditions)

16
<PAGE>

REDUCING YOUR CLASS A SALES CHARGES There are several special purchase plans
that allow you to combine multiple purchases of Class A shares of SunAmerica
Mutual Funds to take advantage of the breakpoints in the sales charge schedule.
For information about the "Rights of Accumulation," "Letter of Intent,"
"Combined Purchase Privilege," and "Reduced Sales Charges for Group Purchases,"
contact your broker or financial advisor, or consult the SAI.

To utilize: if you think you may be eligible for a sales charge reduction or
CDSC waiver, contact your broker or financial advisor.

REINSTATEMENT PRIVILEGE If you sell shares of a Fund, you may invest some or
all of the proceeds in the same share class of the same Fund within one year
without a sales charge. If you paid a CDSC when you sold your shares, we will
credit your account with the amount of the CDSC. All accounts involved must be
registered in the same name(s).

12b-1 FEES

Each class of shares of each Fund has its own 12b-1 plan that provides for
distribution and service fees (payable to the Distributor) based on a percentage
of average daily net assets, as follows:

Class Distribution Fee Service Fee
----- ---------------- -----------

A .10% .25%
B .75% .25%
II .75% .25%

Because 12b-1 fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.

OPENING AN ACCOUNT

11. Read this prospectus carefully.

12. Determine how much you want to invest. The minimum initial investments for
the Funds are as follows:
. non-retirement account: $500
. retirement account: $250
. dollar cost averaging: $500 to open; you must invest at least $25
a month

The minimum subsequent investments for the Funds
are as follows:
. non-retirement account: $100
. retirement account: $ 25

17
<PAGE>

13. Complete the appropriate parts of the Account Application, carefully
following the instructions. If you have questions, please contact your
broker or financial advisor or call Shareholder/Dealer Services at 1-800-
858-8850.

14. Complete the appropriate parts of the Supplemental Account Application. By
applying for additional investor services now, you can avoid the delay and
inconvenience of having to submit an additional application if you want to
add services later.

15. Make your initial investment using the chart on the next page. You can
initiate any purchase, exchange or sale of shares through your broker or
financial advisor.

18
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
BUYING SHARES
- ------------------------------------------------------------------------------------------------------------
Opening an account Adding to an account
- ------------------------------------------------------------------------------------------------------------
BY CHECK
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
. Make out a check for the investment . Make out a check for the investment amount
amount, payable to the specific Fund or payable to the specific Fund or SunAmerica
SunAmerica Funds. Funds.

SunAmerica Fund Services, Inc. . Indicate the Fund and account number in the
Mutual Fund Operations, 3rd Floor memo section of your check.
The SunAmerica Center
733 Third Avenue . Deliver the check and your note to your
New York, New York 10017-3204. broker or financial advisor, or mail them to

Non-Retirement Accounts:
------------------------
SunAmerica Fund Services, Inc.
c/o NFDS
P.O. Box 419373
Kansas City, Missouri 64141-6373

Retirement Accounts:
--------------------
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204

- ------------------------------------------------------------------------------------------------------------
BY WIRE
- ------------------------------------------------------------------------------------------------------------
. Deliver your completed application to . Instruct your bank to wire the amount of
your broker or financial advisor or fax it your
to SunAmerica Fund Services, Inc. at investment to:
212-551-5585 (Awd fax).
State Street Bank & Trust Company
. Obtain your account number by referring Boston, MA
to your statement or by calling your ABA #0110-00028
broker or financial advisor or DDA # 99029712
Shareholder/Dealer Services at 1-800-
858-8850, ext. 5125. Specify the Fund name, your share class, your
Fund number, account number and the
name(s) in which the account is registered.
Your bank may charge a fee to wire funds.

. Instruct your bank to wire the amount of
your investment to:

State Street Bank & Trust Company
</TABLE>

19
<PAGE>

Boston, MA
ABA #0110-00028
DDA # 99029712

Specify the Fund name, your choice of
share class, your new Fund number and
account number and the name(s) in which
the account is registered. Your bank may
charge a fee to wire funds.

To open or add to an account using dollar cost averaging, see "Additional
Investor Services."

20
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SELLING SHARES
- ------------------------------------------------------------------------------------------------------------
How Requirements
- ------------------------------------------------------------------------------------------------------------
THROUGH YOUR BROKER OR FINANCIAL ADVISOR
- ------------------------------------------------------------------------------------------------------------
<S> <C>
. Accounts of any type. . Call your broker or financial advisor
. Sales of any amount. to place your order to sell shares.
- ------------------------------------------------------------------------------------------------------------
BY MAIL
- ------------------------------------------------------------------------------------------------------------
. Accounts of any type. . Write a letter of instruction indicating
. Sales of any amount. the Fund name, your share class, your
account number, the name(s) in which
the account is registered and the dollar
value or number of shares you wish to
sell.

. Include all signatures and any
additional documents that may be
required (see next page).

. Mail the materials to:

SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-
3204
. A check will normally be mailed on
the next business day to the name(s)
and address in which the account is
registered, or otherwise according to
your letter of instruction.
- ------------------------------------------------------------------------------------------------------------
BY PHONE
- ------------------------------------------------------------------------------------------------------------
. Most accounts.
. Sales of less than $100,000.

. Call Shareholder/Dealer Services
at 1-800-858-8850 between 8:30
a.m. and 7:00 p.m. (Eastern time)
on
</TABLE>
21
<PAGE>

<TABLE>
<S> <C> <C>
most business days. State the
Fund name, the name of the person
requesting the redemption, your
share class, your account number,
the name(s) in which the account
is registered and the dollar value or
number of shares you wish to sell.

- --------------------------------------------------------------------------------------------
BY WIRE
- --------------------------------------------------------------------------------------------
. Request by mail to sell any amount . Proceeds will normally be wired on
(accounts of any type). the next business day. A $15 fee will
. Request by phone to sell less than be deducted from your account.
$100,000.
</TABLE>

To sell shares through a systematic withdrawal plan, see "Additional Investor
Services."

SELLING SHARES IN WRITING In certain circumstances, you will need to make your
request to sell shares in writing. Corporations, executors, administrators,
trustees or guardians may need to include additional items with a request to
sell shares. You may also need to include a signature guarantee, which protects
you against fraudulent orders. You will need a signature guarantee if:

. your address of record has changed within the past 30 days
. you are selling more than $100,000 worth of shares
. you are requesting payment other than by a check mailed to the address
of record and payable to the registered owner(s)

You can generally obtain a signature guarantee from the following sources:

. a broker or securities dealer
. a federal savings, cooperative or other type of bank
. a savings and loan or other thrift institution
. a credit union
. a securities exchange or clearing agency

A notary public CANNOT provide a signature guarantee.

22
<PAGE>

TRANSACTION POLICIES

VALUATION OF SHARES The net asset value per share (NAV) for each Fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (generally 4:00 p.m., Eastern time) by dividing the net assets of
each class by the number of its shares outstanding.

BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable CDSCs.

EXECUTION OF REQUESTS Each Fund is open on those days when the New York Stock
Exchange is open for regular trading. Buy and sell requests are executed at the
next NAV to be calculated after your request is accepted by the Fund. If your
order is received by the Fund or the Distributor before the Fund's close of
business (generally 4:00 p.m., Eastern time), you will receive that day's
closing price. If your order is received after that time, you will receive the
next business day's closing price. If you place your order through a broker or
financial advisor, you should make sure the order is transmitted to the Fund
before its close of business. The Fund and the Distributor reserve the right to
reject any order to buy shares.

In unusual circumstances, a Fund may temporarily suspend the processing of sell
requests, or may postpone payment of proceeds for up to three business days or
longer, as allowed by federal securities laws.

TELEPHONE TRANSACTIONS For your protection, telephone requests are recorded in
order to verify their accuracy. In addition, Shareholder/Dealer Services will
take measures to verify the identity of the caller, such as asking for name,
account number, social security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, the Fund is responsible for
any losses that may occur to any account due to an unauthorized telephone call.
Also for your protection, telephone transactions are not permitted on accounts
whose names or addresses have changed within the past 30 days. At times of peak
activity, it may be difficult to place requests by phone. During these times,
consider sending your request in writing.

EXCHANGES You may exchange shares of a Fund for shares of the same class of any
other SunAmerica Mutual Fund. In addition, you may exchange your Class II
shares of a Fund for Class C shares of other SunAmerica Mutual Funds. Before
making an exchange, you should review a copy of the prospectus of the fund into
which you would like to exchange. All exchanges are subject to applicable
minimum investment requirements. A Systematic Exchange Program is described
under "Additional Investor Services."
If you exchange shares that were purchased subject to a CDSC, the CDSC will
continue to apply following the exchange. In determining the CDSC applicable to
shares being sold after an exchange, we will take into account the length of
time you held those shares prior to the exchange.

23
<PAGE>

To protect the interests of other shareholders, we may cancel the exchange
privileges of any investors that, in the opinion of the Fund, are using market
timing strategies or making excessive exchanges. A Fund may change or cancel
its exchange privilege at any time, upon 60 days' written notice to its
shareholders. A Fund may also refuse any exchange order.

CERTIFICATED SHARES Most shares are electronically recorded. If you wish to
have certificates for your shares, please call Shareholder/Dealer Services at 1-
800-858-8850 for further information. You may sell or exchange certificated
shares only by returning the certificates to the Fund, along with a letter of
instruction and a signature guarantee. The Fund does not issue certificates for
fractional shares.

MULTI-PARTY CHECKS The Fund may agree to accept a "multi-party check" in
payment for Fund shares. This is a check made payable to the investor by another
party and then endorsed over to the Fund by the investor. If you use a multi-
party check to purchase shares, you may experience processing delays. In
addition, the Fund is not responsible for verifying the authenticity of any
endorsement and assumes no liability for any losses resulting from a fraudulent
endorsement.

ADDITIONAL INVESTOR SERVICES

To select one or more of these additional services, complete the relevant
part(s) of the Supplemental Account Application. To add a service to an
existing account, contact your broker or financial advisor, or call
Shareholder/Dealer Services at 1-800-858-8850.

DOLLAR COST AVERAGING lets you make regular investments from your bank account
to the SunAmerica Mutual Funds of your choice. You determine the frequency and
amount of your investments, and you can terminate your participation at any
time.

SYSTEMATIC WITHDRAWAL PLAN may be used for routine bill payment or periodic
withdrawals from your account. To use:

. Make sure you have at least $5,000 worth of shares in your account.
. Make sure you are not planning to invest more money in this account
(buying shares during a period when you are also selling shares of the
same Fund is not advantageous to you, because of sales charges).
. Specify the payee(s) and amount(s). The payee may be yourself or any
other party, and there is no limit to the number of payees you may
have, as long as they are all on the same payment schedule. Each
withdrawal must be at least $50.
. Determine the schedule: monthly, quarterly, semi-annually, annually
or in certain selected months.
. Make sure your dividends and capital gains are being reinvested.

You cannot elect the systematic withdrawal plan if you have requested
certificates for your shares.

24
<PAGE>

SYSTEMATIC EXCHANGE PROGRAM may be used to exchange shares of a Fund
periodically for the same class of shares of one or more other SunAmerica Mutual
Funds. To use:

. Specify the SunAmerica Mutual Fund(s) from which you would like money
withdrawn and into which you would like money invested.
. Determine the schedule: monthly, quarterly, semi-annually, annually or
in certain selected months.
. Specify the amount(s). Each exchange must be worth at least $25.
. Accounts must be registered identically; otherwise a signature
guarantee will be required.

ASSET PROTECTION PLAN (OPTIONAL) Anchor National Life Insurance Company offers
an Asset Protection Plan to certain investors in the Funds. The benefits of
this optional coverage payable at death will be related to the amounts paid to
purchase Fund shares and to the value of the Fund shares held for the benefit of
the insured persons. However, to the extent the purchased shares are redeemed
prior to death, coverage with respect to these shares will terminate.

Purchasers of the Asset Protection Plan are required to authorize periodic
redemptions of Fund shares to pay the premiums for this coverage. These
redemptions will not be subject to CDSCs but will have the same tax consequences
as any other Fund redemptions.

The Asset Protection Plan will be available to eligible persons who enroll for
the coverage within a limited time period after shares in any Fund are initially
purchased or transferred. In addition, coverage cannot be made available unless
Anchor National knows for whose benefit shares are purchased. For instance,
coverage cannot be made available for shares registered in the name of your
broker unless the broker provides Anchor National with information regarding the
beneficial owners of the shares. In addition, coverage is available only to
shares purchased on behalf of natural persons between 21 and 75 years of age;
coverage is not available with respect to shares purchased for a retirement
account. Other restrictions on the coverage apply. This coverage may not be
available in all states and may be subject to additional restrictions or
limitations. Purchasers of shares should also make themselves familiar with the
impact on the Asset Protection Plan coverage of purchasing additional shares,
reinvestment of dividends and capital gains distributions and redemptions.

Anchor National is a SunAmerica company.

Please call 1-800-858-8850 for more information, including the cost of the Asset
Protection Plan option.

RETIREMENT PLANS SunAmerica Mutual Funds offer a range of qualified retirement
plans, including IRAs, Simple IRAs, SARSEPs, 401(k) plans, 403(b) plans and
other pension and profit-sharing plans. Using these plans, you can invest in any
SunAmerica Mutual Fund with a low minimum investment of $250 or, for some group
plans, no minimum investment at all. To find out more, call Shareholder/Dealer
Services at 1-800-858-8850.

TAX, DIVIDEND AND ACCOUNT POLICIES

25
<PAGE>

ACCOUNT STATEMENTS In general, you will receive account statements as follows:

. after every transaction that affects your account balance (except a
dividend reinvestment or automatic purchase from your bank account)
. after any changes of name or address of the registered owner(s)
. in all other circumstances, quarterly or annually, depending upon the
Fund

Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.

DIVIDENDS The Funds generally distribute most or all of their net earnings in
the form of dividends. Income dividends, if any, are paid quarterly by the
Growth and Income Fund and Balanced Assets Fund, and annually by the other
Funds. Capital gains distributions, if any, are paid annually by the Funds.

DIVIDEND REINVESTMENTS Your dividends and distributions, if any, will be
automatically reinvested in additional shares of the same Fund and share class
on which they were paid. Alternatively, dividends and distributions may be
reinvested in any other SunAmerica Mutual Fund or paid in cash (if more than
$10). You will need to complete the relevant part of the Account Application to
elect one of these other options. For existing accounts, contact your broker or
financial advisor or call Shareholder/Dealer Services at 1-800-858-8850 to
change dividend and distribution payment options.

TAXABILITY OF DIVIDENDS Each Fund intends to continue to qualify for the
special tax treatment afforded regulated investment companies. As long as each
Fund so qualifies, the Funds will not be subject to federal income tax on the
earnings that it distributes to shareholders.

However, dividends you receive from a Fund, whether reinvested or taken as cash,
are generally considered taxable to you. Distributions of a Fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.

Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.

The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.

26
<PAGE>

TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the
sale price of the shares you sell or exchange, you may have a gain or a loss on
the transaction. You are responsible for any tax liabilities generated by your
transactions. If you hold Class B shares, you will not have a taxable event
when they convert into Class A shares.

OTHER TAX CONSIDERATIONS If you are neither a lawful permanent resident nor a
citizen of the U.S. or if you are a foreign entity, ordinary income dividends
paid to you (which include distributions of net short-term capital gains) will
generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate
applies.

By law, each Fund must withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or social security number.

This section summarizes some of the consequences under current federal tax law
of an investment in a Fund. It is not a substitute for professional tax advice.
Consult your tax advisor about the potential tax consequences of an investment
in a Fund under all applicable laws.

SMALL ACCOUNTS If you draw down an account so that its total value is less than
$500 ($250 for retirement plan accounts), you may be asked to purchase more
shares within 60 days. If you do not take action, the Fund may close out your
account and mail you the proceeds. Alternatively, you may be charged a $2.00
monthly charge to maintain your account. Your account will not be closed if its
drop in value is due to Fund performance or the effects of sales charges.

MORE INFORMATION ABOUT THE FUNDS

FUND INVESTMENT STRATEGIES

Each Fund has its own investment goal and a strategy for pursuing it. The chart
summarizes information about each Fund's investment approach. We have included
a glossary to define the investment and risk terminology used in the chart.

27
<PAGE>

<TABLE>
<CAPTION>
BLUE CHIP MID-CAP SMALL COMPANY GROWTH AND BALANCED
GROWTH GROWTH GROWTH INCOME ASSETS
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
What is the Fund's Capital Capital Capital Capital appreciation Conservation of
investment goal? appreciation appreciation appreciation and current income principal

What are the Fund's stocks of large stocks of stocks of small dividend-paying stocks and bonds
principal investments companies (at medium-sized companies (at common stocks (at least 25% of
(under normal market least 65% of companies (at least 65% of total assets will
conditions)? total assets) least 65% of total assets) be invested in
total assets) senior fixed-
income securities)

What are the Fund's . stock market . stock market . stock market . stock and bond . stock and
principal risks? volatility volatility volatility market volatility bond market
. stock selection . stock selection . stock selection . stock selection volatility
. small market . small market . interest rate . stock
capitalization capitalization fluctuations selection
. credit quality . interest
rate
fluctuations

What other investment
strategies can the Fund
use?

. Active Trading Yes Yes Yes Yes Yes

. Fixed income securities

Investment grade Yes Yes Yes Yes Yes

Junk bonds No No No Yes (up to 15%) No

. Small Company stocks Yes Yes see principal Yes Yes (up to 20%)
investments above

. Short-term investments Yes (up to 10%) Yes (up to 10%) Yes (up to 10%) Yes (up to 10%) Yes (up to 10%)
</TABLE>

<PAGE>

. Foreign securities Yes Yes Yes Yes Yes

. Illiquid securities Yes (up to 15%) Yes (up to 15%) Yes (up to 15%) Yes (up to 15%) Yes (up to 15%)

. Securities lending Yes (up to 33%) Yes (up to 33%) Yes (up to 33%) Yes (up to 33%) Yes (up to 33%)

. Borrowing for
emergencies Yes (up to 5%) Yes (up to 5%) Yes (up to 50%) Yes (up to 50%) Yes (up to 5%)

. Options and futures Yes Yes Yes Yes Yes

. Special situations Yes Yes Yes Yes Yes

What other potential risks
can affect a Fund? . interest rate . interest rate . interest rate . small market . small market
fluctuations fluctuations fluctuations capitalizations capitalizations
. small market . foreign exposure . foreign exposure . foreign exposure . foreign exposure
capitalization . illiquidity . illiquidity . junk bonds . illiquidity
. foreign exposure . derivatives . derivatives . credit quality . derivatives
. illiquidity . hedging . hedging . illiquidity . hedging
. derivatives . derivatives
. hedging . hedging
</TABLE>

29
<PAGE>

GLOSSARY

INVESTMENT TERMINOLOGY

CAPITAL APPRECIATION is growth of the value of an investment.

CONSERVATION OF PRINCIPAL means investing in a manner that tries to protect the
value of an investment against market movements and other economic events.

LARGE COMPANIES have market capitalizations of over $5 billion. A "blue chip"
stock is one issued by a large company that the Adviser considers comparable to
the stocks included in the Standard & Poor's Composite 500 Stock Price Index at
the time of purchase and is traded on the New York Stock Exchange, American
Stock Exchange or on other national exchanges or on foreign exchanges.

MEDIUM-SIZED COMPANIES have market capitalizations ranging from $1 billion to $5
billion.

SMALL COMPANIES have market capitalizations of $1 billion or less.

ACTIVE TRADING means that a Fund may engage in frequent trading of portfolio
securities to achieve its investment goal. In addition, because a Fund may sell
a security without regard to how long it has held the security, active trading
may have tax consequences for certain shareholders, involving a possible
increase in short-term capital gains or losses. Active trading may result in
high portfolio turnover and correspondingly greater brokerage commissions and
other transaction costs, which will be borne directly by a Fund. During periods
of increased market volatility, active trading may be more pronounced.

FIXED INCOME SECURITIES provide consistent interest or dividend payments. They
include corporate bonds, notes, debentures, preferred stocks, convertible
securities, U.S. Government securities and mortgage-backed and asset-backed
securities. The issuer of a senior fixed income security is obligated to make
payments on this security ahead of other payments to security holders. An
INVESTMENT GRADE fixed income security is rated in one of the top four ratings
categories by a debt rating agency (or is considered of comparable quality by
the Adviser). A "JUNK BOND" is a high yield, high risk bond that does not meet
the credit quality standards of investment grade securities.

[Margin note: The two best-known debt rating agencies are Standard & Poor's
Rating Services, a Division of The McGraw-Hill Companies, Inc. and Moody's
Investors Service, Inc. "Investment grade" refers to any security rated "BBB" or
above by Standard & Poor's or "Baa" or above by Moody's.]

SHORT-TERM INVESTMENTS include money market securities such as short-term U.S.
Government obligations, repurchase agreements, commercial paper, bankers'
acceptances and certificates of

30
<PAGE>

deposit. These securities provide a Fund with sufficient liquidity to meet
redemptions and cover expenses.

DEFENSIVE INVESTMENTS include high quality fixed income securities, repurchase
agreements and other money market instruments. A Fund will make temporary
defensive investments in response to adverse market, economic, political or
other conditions. When a Fund takes a defensive position, it may miss out on
investment opportunities that could have resulted from investing in accordance
with its principal investment strategy.

FOREIGN SECURITIES are issued by companies located outside of the United States.
Foreign securities may include American Depositary Receipts (ADRs) or other
similar securities that convert into foreign securities.

ILLIQUID SECURITIES are subject to legal or contractual restrictions that may
make them difficult to sell. A security that cannot easily be sold within seven
days will generally be considered illiquid. Certain restricted securities (such
as Rule 144A securities) are not generally considered illiquid because of their
established trading market.

SECURITIES LENDING involves a loan of securities by a Fund in exchange for cash
or collateral. The Fund earns interest on the loan while retaining ownership of
the security.

OPTIONS AND FUTURES are contracts involving the right to receive or obligation
to deliver assets or money depending on the performance of one or more
underlying assets or a market or economic index.

SPECIAL SITUATIONS. A "special situation" arises when, in the opinion of the
Adviser, the securities of a particular issuer will be recognized and
appreciated in value due to a specific development with respect to that issuer.
Developments creating a 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. Investments 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.

RISK TERMINOLOGY

MARKET VOLATILITY: The stock and/or bond markets as a whole could go up or
down (sometimes dramatically). This could affect the value of the securities in
a Fund's portfolio.

SECURITIES SELECTION: A strategy used by a Fund, or securities selected by its
portfolio manager, may fail to produce the intended return.

31
<PAGE>

securities of smaller companies may not be as readily marketable and may be
subject to more abrupt or erratic market movements, making it difficult to buy
and sell in a timely manner.

INTEREST RATE FLUCTUATIONS: Volatility of the bond market is due principally
to changes in interest rates. As interest rates rise, bond prices typically
fall; and as interest rates fall, bond prices typically rise. Longer-term and
lower coupon bonds tend to be more sensitive to changes in interest rates.

CREDIT QUALITY: The creditworthiness of the issuer is always a factor in
analyzing fixed income securities. An issuer with a lower credit rating will be
more likely than a higher rated issuer to default or otherwise become unable to
honor its financial obligations. This type of issuer will typically issue JUNK
BONDS. In addition to the risk of default, junk bonds may be more volatile,
less liquid, more difficult to value and more susceptible to adverse economic
conditions or investor perceptions than other bonds.

FOREIGN EXPOSURE: Investors in foreign countries are subject to a number of
risks. A principal risk is that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. In
addition, there may be less publicly available information about a foreign
company and it may not be subject to the same uniform accounting, auditing and
financial reporting standards as U.S. companies. Foreign governments may not
regulate securities markets and companies to the same degree as in the U.S.
Foreign investments will also be affected by local political or economic
developments and governmental actions. Consequently, foreign securities may be
less liquid, more volatile and more difficult to price than U.S. securities.

ILLIQUIDITY: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.

DERIVATIVES: A derivative is any financial instrument whose value is based on,
and determined by, another security, index or benchmark (i.e., stock options,
----
futures, caps, floors, etc.). In recent years, derivative securities have
become increasingly important in the field of finance. Futures and options are
now actively traded on many different exchanges. Forward contracts, swaps, and
many different types of options are regularly traded outside of exchanges by
financial institutions in what are termed "over the counter" markets. Other
more specialized derivative securities often form part of a bond or stock issue.

HEDGING: Hedging is a strategy in which the Adviser uses a derivative security
to reduce certain risk characteristics of an underlying security or portfolio of
securities. While hedging strategies can be very useful and inexpensive ways of
reducing risk, they are sometimes ineffective due to unexpected changes in the
market. Examples of hedging strategies are:

. Long Hedge - Strategy in which an investor locks in a future price on
a security / index by buying a futures contract.

32
<PAGE>

. Neutral Hedge - Strategy that is designed to provide the highest
expected return on a portfolio of securities assuming that the price
of a particular investment in the portfolio remains constant.
. Perfect Hedge - a hedge whose change in value is equal to the change
in value of the underlying security, positive or negative.
. Short Hedge - Strategy designed to reduce the risk of a decline in
value of a security / index without requiring ownership of that
security.

FUND MANAGEMENT

ADVISER SunAmerica Asset Management Corp. selects and manages the investments,
provides various administrative services, and supervises the daily business
affairs of each Fund. In addition to managing the Funds, the Adviser serves as
adviser, manager and/or administrator for Anchor Pathway Fund, Anchor Series
Trust, Style Select Series, Seasons Series Trust, SunAmerica Income Funds,
SunAmerica Money Market Funds, Inc., and SunAmerica Series Trust. The Adviser
managed, advised or administered assets in excess of $15 billion as of October
31, 1998.

For the fiscal year ended September 30, 1998, each Fund paid the Adviser a fee
equal to the following percentage of average daily net assets:

Fund Fee
---- ---
Blue Chip Growth .75%
Mid-Cap Growth .75%
Small Company Growth .75%
Growth and Income .55% (net of fee waivers)
Balanced Assets .75%

The Domestic Equity Investment Team is responsible for the portfolio management
of each of the Funds. The Team consists of nine portfolio managers, research
analysts and traders.

DISTRIBUTOR SunAmerica Capital Services, Inc. distributes each Fund's shares.
The Distributor, a SunAmerica company, receives the initial and deferred sales
charges, all or a portion of which may be re-allowed to other broker-dealers. In
addition, the Distributor receives fees under each Fund's 12b-1 plans.

33
<PAGE>

some instances, this compensation will be made available only to certain broker-
dealers whose representatives have sold a significant number of shares of the
Fund. Compensation may also include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives for meetings or seminars of a business nature. In addition, the
following types of non-cash compensation may be offered through sales contests:
(i) travel mileage on major air carriers; (ii) tickets for entertainment events
(such as concerts or sporting events); or (iii) merchandise (such as clothing,
trophies, clocks, pens or other electronic equipment). Broker-dealers may not
use sales of the Fund's shares to qualify for this compensation to the extent
receipt of such compensation may be prohibited by applicable law or the rules of
any self-regulatory agency, such as the NASD. Dealers who receive bonuses or
other incentives may be deemed to be underwriters under the Securities Act of
1933.

Certain laws and regulations limit the ability of banks and other depository
institutions to underwrite and distribute securities. However, in the opinion of
the Distributor based upon the advice of counsel, these laws and regulations do
not prohibit such depository institutions from providing other services to
investment companies of the type contemplated by the Funds' 12b-1 plans. Banks
and other financial services firms may be subject to various state laws
regarding these services, and may be required to register as dealers pursuant to
state law.

ADMINISTRATOR SunAmerica Fund Services, Inc. assists the Funds' transfer agent
in providing shareholder services. The Administrator, a SunAmerica company, is
paid a monthly fee by each Fund for its services at the annual rate of .22% of
average daily net assets.

The Adviser, Distributor and Administrator are all located in The SunAmerica
Center, 733 Third Avenue, New York, New York 10017.

34
<PAGE>

(OUTSIDE BACK COVER)

FOR MORE INFORMATION

The following documents contain more information about the Funds and are
available free of charge upon request:

ANNUAL/SEMI-ANNUAL REPORTS. Contain financial statements,
performance data and information on portfolio holdings. The
annual report also contains a written analysis of market
conditions and investment strategies that significantly affected
a Fund's performance during the last fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI). Contains additional
information about the Funds' policies, investment restrictions
and business structure. This prospectus incorporates the SAI by
reference.

You may obtain copies of these documents or ask questions about the Funds
by contacting:

SunAmerica Fund Services, Inc.
Mutual Fund Operations
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
1-800-858-8850

by calling your broker or financial advisor.

Information about the Funds (including the SAI) can be reviewed and copied
at the Public Reference Room of the Securities and Exchange Commission,
Washington, D.C. Call (800) SEC-0330 for information on the operation of the
Public Reference Room. Information about the Funds is also available on the
Securities and Exchange Commission's web-site at http://www.sec.gov and copies
may be obtained upon payment of a duplicating fee by writing the Public
Reference Section of the Securities and Exchange Commission, Washington, D.C.
20549-6009.

You should rely only on the information contained in this prospectus. No
one is authorized to provide you with any different information.

[Logo] SUNAMERICA
MUTUAL FUNDS

DISTRIBUTOR: SunAmerica Capital Services

INVESTMENT COMPANY ACT
File No. 811-4801

35
<PAGE>

___________________, 1999 PROSPECTUS
- --------------------------------------------------------------------------------

"DOGS" OF WALL STREET FUND

The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.

[Logo] SunAmerica
Mutual Funds
<PAGE>

TABLE OF CONTENTS

FUND HIGHLIGHTS............................................................. 3

FINANCIAL HIGHLIGHTS........................................................ 7

HISTORICAL PERFORMANCE INFORMATION.......................................... 8

SHAREHOLDER ACCOUNT INFORMATION.............................................10

MORE INFORMATION ABOUT THE FUND.............................................23
Fund Investment Strategies.............................................23
Glossary...............................................................26
Investment Terminology..........................................26
Risk Terminology................................................27

FUND MANAGEMENT.............................................................28

2
<PAGE>

FUND HIGHLIGHTS

The following questions and answers are designed to give you an overview of the
Fund and to provide you information about its investment goal and principal
strategies. The Fund operates as a separate mutual fund and has its own
investment goal and a strategy for pursuing it. Its goal may not be changed
without shareholder approval. More complete investment information is provided
in the chart, under "More Information About the Fund," which is on page 23, and
the glossary that follows on page 26.

Q: What is the Fund's investment goal?

A: The Fund seeks total return (including capital appreciation and current
income) through a passively managed strategy involving the annual selection
of thirty high dividend yielding common stocks from the Dow Jones
Industrial Average (DJIA) and the broader market.

Q: How does the Fund pursue its goal?

A: The Fund annually selects thirty stocks, consisting of (1) the ten highest
yielding stocks in the DJIA and (2) the twenty other highest yielding
stocks of the 400 largest industrial companies in the U.S. markets that
have market capitalizations of at least $1 billion and have received one of
the two highest rankings from an independently published common stock
ranking service on the basis of growth and stability of earnings and
dividends. The annual selection of the thirty stocks that meet these
criteria will take place no later than January 15, on the basis of
information as of the preceding December 31st. Immediately after the Fund
buys and sells stocks, it will hold an equal value of each of the thirty
stocks. In other words, the Fund will invest 1/30 of its assets in each of
the stocks that make up its portfolio. Thereafter, when an investor
purchases shares of the Fund, the Adviser will invest the additional funds
in the pre-selected stocks based on each stock's respective percentage of
the Fund's assets.

The Fund employs a "buy and hold strategy." This means that the stocks in
the Fund's portfolio over the course of the year will not change, even if
there are adverse developments concerning a particular stock, an industry,
the economy or the stock market generally. However, due to purchases and
redemptions of Fund shares during the year and changes in the market value
of the stocks held by the Fund, it is likely that the weightings of the
stocks in the Fund's portfolio will fluctuate throughout the course of the
year.

Q: What are the principal risks of investing in the Fund?

A: As with any equity fund, the value of your investment in the Fund may
fluctuate in response to stock market movements, and you could lose money.
Other principal risks include:

3
<PAGE>

- the Fund will not deviate from its strategy
(except to the extent necessary to comply
with federal tax laws applicable to the
Fund); if the strategy is unsuccessful, the
Fund will not meet its investment goal.

- because the Fund will not use certain
techniques available to other mutual funds
to reduce its stock market exposure (such
as holding cash reserves), the Fund may be
more susceptible to general market declines
than other Funds.

- the Fund is non-diversified, which means
that it can invest a larger portion of its
assets in the stock of a single company
than can some other mutual funds; by
concentrating in a smaller number of
stocks, the Fund's risk is increased
because the effect of each stock on the
Fund's performance is greater.

In addition, shares of the Funds are not bank deposits and are not
guaranteed or insured by any bank, government entity or the Federal
Deposit Insurance Corporation.

Q: What are the Fund's expenses?

A: The following table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.

<TABLE>
<CAPTION>
"DOGS" OF WALL
STREET FUND
--------------------------------------------------------
CLASS CLASS CLASS
A B II
--------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES (fees paid
directly from your investment)
--------------------------------------------------------
Maximum Sales Charge
(Load) Imposed on Purchases
(as a percentage of offering
price)/(1)/....................... 5.75% None 1.00%
--------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of amount redeemed)/(2)/.......... None 4.00% 1.00%
--------------------------------------------------------
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends......................... None None None
--------------------------------------------------------
Redemption Fee/(3)(4)/............ 1.50% 1.50% 1.50%
--------------------------------------------------------
Exchange Fee/(3)/................. 1.50% 1.50% 1.50%
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
4
<PAGE>

<TABLE>
"DOGS" OF WALL
STREET FUND
--------------------------------------------------------
CLASS CLASS CLASS
A B II
--------------------------------------------------------
<S> <C> <C> <C>
GROSS ANNUAL FUND OPERATING
EXPENSES (expenses that are
deducted from Fund assets)
--------------------------------------------------------
Management Fees................... 0.35% 0.35% 0.35%
--------------------------------------------------------
Distribution (12b-1) Fees /(5)/... 0.35% 1.00% 1.00%
--------------------------------------------------------
Other Expenses.................... % % %
--------------------------------------------------------
--------------------------------------------------------

Total Gross Annual Fund
Operating Expenses/(6)/........... % % %
---------------------------------=======================

</TABLE>

(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1 million or more.

(2) Purchases of Class A shares over $1 million will be subject to a contingent
deferred sales charge (CDSC) on redemptions made within one year of
purchase. The CDSC on Class B shares applies only if shares are redeemed
within six years of their purchase. The CDSC on Class II shares applies
only if shares are redeemed within eighteen months of their purchase.

(3) If shares are redeemed or exchanged within 90 days of purchase, a 1.50% fee
will be assessed on the proceeds of the transaction. This fee will be paid
to the Fund.

(4) A $15.00 fee may be imposed on wire redemptions.

(5) Class B or Class II shareholders who own their shares for an extended
period of time may pay more in Rule 12b-1 distribution fees than the
economic equivalent of the maximum front-end sales charge permitted under
the Conduct Rules of the National Association of Securities Dealers.

(6) The information presented is based on gross expense data for the fiscal
year ended September 30, 1998. The actual fees borne by an investor are
lower than those shown in the table due to expense waivers and
reimbursements. The Adviser has voluntarily agreed to waive fees or
reimburse expenses, if necessary, to keep operating expenses at or below
the following annual rates for the current fiscal year:

<TABLE>
<CAPTION>
- --------------------------------------------------------------
Class A Class B Class II
- --------------------------------------------------------------
<S> <C> <C> <C>
Other expenses (net of
fee waivers/expense
reimbursements) 0.25% .025% .025%

- --------------------------------------------------------------
TOTAL OPERATING
EXPENSES (NET OF FEE
WAIVERS/EXPENSE
REIMBURSEMENTS) .095% 1.60% 1.60%

- --------------------------------------------------------------
</TABLE>
5
<PAGE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
"DOGS" OF WALL STREET FUND
(Class A shares)........................
(Class B shares)/*/.....................
(Class II shares).......................

You would pay the following expenses if you did not redeem your shares:

_______________________________

* Class B shares convert to Class A shares approximately seven years after
purchase. Therefore, expense information for years 8, 9 and 10 is the same
for both Class A and B shares.

** The expenses shown in the example are based on gross expense data for the
fiscal year ended September 30, 1998. In the case of Class II shares,
actual expenses were less than gross expenses for fiscal year 1998 because
of expense waivers and reimbursements. If the actual expenses were used in
the example rather than gross expenses, your costs would be as follows:

If you redeem your investment at the end of each of the periods indicated:

6
<PAGE>

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
"DOGS" OF WALL STREET FUND
(Class II shares).....................

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
"DOGS" OF WALL STREET FUND
(Class II shares).....................

FINANCIAL HIGHLIGHTS

The Financial Highlights table for the Fund is intended to help you understand
the Fund's financial performance since inception. Certain information reflects
financial results for a single Fund share. The total returns in each table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, are included in the Statement of
Additional Information (SAI), which is available upon request.

[insert tables]

7
<PAGE>

HISTORICAL PERFORMANCE INFORMATION

The following tables compare the actual performance of the Standard & Poor's
Composite 500 Stock Price Index (the "S&P 500") and the hypothetical results of
a model strategy employing the same stock selection criteria as the Fund,
rebalanced annually, for the historical periods indicated. The S&P 500 is used
as the performance comparison because (1) it is the performance benchmark
against which the Fund will be measured; and (2) it is the index most widely
recognized as representative of the performance of the U.S. stock market.

The Fund's actual performance may differ from that of the model strategy for the
following reasons: the Fund may not be fully invested at all times;
appreciation or depreciation in an individual stock's value may cause stocks
held by the Fund to be weighted unequally at any particular time; cash surpluses
and deficits from purchases and redemptions of Fund shares may cause the Adviser
to buy and sell stocks for the Fund between annual rebalancings; the Adviser may
modify slightly the Fund's investment strategy as federal tax laws require; and
the returns indicated for the model strategy exclude commission costs, advisory
fees, expenses and taxes that would be borne by the Fund. However, except as
described above, the Adviser can presently foresee no circumstances that would
cause deviation from the stock selection criteria used in managing the Fund.
All returns contained in the tables below reflect reinvestment of dividends and
other earnings. The hypothetical results of the model strategy are based on
statistical data gathered by the Adviser.

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

PERFORMANCE COMPARISON OF S&P 500 AND
HYPOTHETICAL RESULTS OF THE STRATEGY FOR "DOGS" OF WALL STREET FUND
DECEMBER 31, 1988 - DECEMBER 31, 1997

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

The following tables represent the hypothetical performance obtained by applying
the Fund's stock selection criteria retroactively to December 31, 1987. The
performance of the stock selection criteria does not represent the performance
of the Fund, nor does it reflect the advisory fees, commissions, expenses or
taxes that would be borne by the Fund. The Fund's performance, as well as that
of the S&P 500, would be lower if such fees and expenses were deducted. Past
performance of this stock selection criteria is not predictive of future
performance of such criteria or of the Fund.

ANNUAL RESULTS
------------------------------------------------------
YEAR ENDED S&P 500 "DOGS" OF WALL STREET
STRATEGY
- -------------------------------------------------------------------------------

8
<PAGE>

- -------------------------------------------------------------------------
12/31/88 16.56% 34.4%

12/31/89 31.62% 32.3%

12/31/90 -3.10% -1.1%

12/31/91 30.40% 39.3%

12/31/92 7.61% 11.9%

12/31/93 10.06% 12.7%

12/31/94 1.32% 10.2%

12/31/95 37.55% 36.8%

12/31/96 22.95% 20.8%

12/31/97 33.35% 31.2%

=========================================================================
SUMMARY RESULTS
- -------------------------------------------------------------------------
S&P 500 "DOGS" OF WALL STREET
STRATEGY
Arithmetic average 18.83% 22.85%

Standard deviation of return 14.42% 13.82%

1-yr 33.35% 31.20%

3-yr compounded* 31.14% 29.43%

5-yr compounded* 20.25% 21.91%

7-yr compounded* 19.74% 22.74%

10-yr compounded* 18.03% 22.13%

*Quoted return is for the most recent period ended December 31, 1997
=========================================================================
9
<PAGE>

SHAREHOLDER ACCOUNT INFORMATION

SELECTING A SHARE CLASS

The Fund offers more than one class of shares: Class A, Class B and Class II
shares.

Each class of shares has its own cost structure, so you can choose the one best
suited to your investment needs. Your broker or financial advisor can help you
determine which class is right for you.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS II
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
. Front-end sales charges, . No front-end sales . Front-end sales
as described below. charge; all your charge, as described
There are several ways money goes to work below.
to reduce these charges, for you right away.
also described below.
. Higher annual
expenses than Class
A shares.
. Lower annual expenses . Higher annual
than Class B or Class II expenses than Class . Deferred sales
shares. A shares. charge
on shares you sell
. Deferred sales within eighteen
charge on shares months of purchase,
you sell within six as described below.
years of purchase, as
described below. . No conversion to
Class A.
. Automatic
conversion to Class
A shares after
approximately seven
years, thus reducing
future annual
expenses.
</TABLE>

CALCULATION OF SALES CHARGES

CLASS A Sales Charges are as follows:

10
<PAGE>

<TABLE>
<CAPTION>
Concession
to
Sales Charge Dealers
-----------------------------------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
YOUR INVESTMENT PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $50,000.................. 5.75% 6.10% 5.00%
$50,000 but less than $100,000..... 4.75% 4.99% 4.00%
$100,000 but less than $250,000.... 3.75% 3.90% 3.00%
$250,000 but less than $500,000.... 3.00% 3.09% 2.25%
$500,000 but less than $1,000,000.. 2.10% 2.15% 1.35%
$1,000,000 or more................. None None 1.00%
</TABLE>

INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no front-
end sales charge. However, there is a 1% CDSC on any shares you sell within one
year of purchase.

Class B deferred charges:

Years after purchase CDSC on shares being sold

1st or 2nd year 4.00%

3rd or 4th year 3.00%

5th year 2.00%

6th year 1.00%

7th year and thereafter None

For purposes of the CDSC, we count all purchases you make during a calendar
month as having been made on the FIRST day of that month.
CLASS II Sales Charges are as follows:

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

11
<PAGE>

Sales Charge Concession to Dealers
- -------------------------------------------------------------------------------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
PRICE INVESTED PRICE

1.00% 1.01% 1.00%

There is also a CDSC of 1% on shares you sell within the first eighteen months
after you buy them.

SALES CHARGE REDUCTIONS AND WAIVERS

WAIVERS FOR CERTAIN INVESTORS Various individuals and institutions may purchase
Class A shares without front-end sales charges, including:

. financial planners, institutions, broker-dealer representatives or
registered investment advisers utilizing Fund shares in fee-based
investment products under an agreement with the Distributor
. participants in certain retirement plans that meet applicable conditions
. Fund Trustees and other individuals who are affiliated with the Fund or
other SunAmerica Mutual Funds and their families
. selling brokers and their employees and sales representatives
. participants in "Net Asset Value Transfer Program"

We will generally waive the CDSC for CLASS B or CLASS II shares in the following
cases:

. within one year of the shareholder's death or becoming disabled

. taxable distributions or loans to participants made by qualified
retirement plans or retirement accounts (not including rollovers) for which
the Adviser serves as a fiduciary

. to make taxable distributions from certain retirement plans
. to make payments through the Systematic Withdrawal Plan (subject to
certain conditions)

12
<PAGE>

Accumulation," "Letter of Intent," "Combined Purchase Privilege," and "Reduced
Sales Charges for Group Purchases," contact your broker or financial advisor, or
consult the SAI.

To utilize: if you think you may be eligible for a sales charge reduction or
CDSC waiver, contact your broker or financial advisor.

REINSTATEMENT PRIVILEGE If you sell shares of the Fund, you may invest some or
all of the proceeds in the same share class of the Fund within one year without
a sales charge. If you paid a CDSC when you sold your shares, we will credit
your account with the amount of the CDSC. All accounts involved must be
registered in the same name(s).

12b-1 FEES

Each class of shares of the Fund has its own 12b-1 plan that provides for
distribution and service fees (payable to the Distributor) based on a percentage
of average daily net assets, as follows:

Class Distribution Fee Service Fee
----- ---------------- -----------

A .10% .25%
B .75% .25%
II .75% .25%

OPENING AN ACCOUNT

1. Read this prospectus carefully.

2. Determine how much you want to invest. The minimum initial investments for
the Fund are as follows:

. non-retirement account: $500
. retirement account: $250
. dollar cost averaging: $500 to open; you must invest at least $25 a month

The minimum subsequent investments for the Fund are as follows:
. non-retirement account: $100
. retirement account: $25

13
<PAGE>

5. Complete the appropriate parts of the Account Application, carefully
following the instructions. If you have questions, please contact your
broker or financial advisor or call Shareholder/Dealer Services at 1-800-
858-8850.

6. Complete the appropriate parts of the Supplemental Account Application. By
applying for additional investor services now, you can avoid the delay and
inconvenience of having to submit an additional application if you want to
add services later.

7. Make your initial investment using the chart on the next page. You can
initiate any purchase, exchange or sale of shares through your broker or
financial advisor.

14
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
BUYING SHARES
- ---------------------------------------------------------------------------------------------------------------
Opening an account Adding to an account
- ---------------------------------------------------------------------------------------------------------------
BY CHECK
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
. Make out a check for the investment . Make out a check for the investment amount
amount, payable to the Fund or payable to the Fund or SunAmerica Funds.
SunAmerica Funds.

. Deliver the check and your completed . Include the stub from your Fund statement or
Account Application (and Supplemental a note specifying the Fund name, your share
Account Application, if applicable) to class, your account number and the name(s) in
your broker or financial advisor, or mail which the account is registered.
them to: . Indicate the Fund and account number in the
memo section of your check.
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor . Deliver the check and your note to your
The SunAmerica Center broker or financial advisor, or mail them to
733 Third Avenue
New York, New York 10017-3204. Non-Retirement Accounts:
------------------------
SunAmerica Fund Services, Inc.
c/o NFDS
P.O. Box 419373
Kansas City, Missouri 64141-6373

Retirement Accounts:
--------------------
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
- ---------------------------------------------------------------------------------------------------------------
BY WIRE
- ---------------------------------------------------------------------------------------------------------------
. Deliver your completed application to . Instruct your bank to wire the amount of
your broker or financial advisor or fax it your investment to:
to SunAmerica Fund Services, Inc. at
212-551-5585 (Awd fax). State Street Bank & Trust Company
Boston, MA
. Obtain your account number by referring ABA #0110-00028
to your statement or by calling your DDA # 99029712
broker or financial advisor or
Shareholder/Dealer Services at 1-800- Specify the Fund name, your share class, your
858-8850, ext. 5125. Fund number, account number and the
name(s) in which the account is registered.
Your bank may charge a fee to wire funds.

. Instruct your bank to wire the amount of
your investment to:

State Street Bank & Trust Company
Boston, MA
</TABLE>

15
<PAGE>

<TABLE>
<S> <C>
ABA #0110-00028
DDA # 99029712

Specify the Fund name, your choice of
share class, your new Fund number and
account number and the name(s) in which
the account is registered. Your bank may
charge a fee to wire funds.

To open or add to an account using dollar cost averaging, see "Additional Investor Services."
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SELLING SHARES
- ---------------------------------------------------------------------------------------------------------------
How Requirements
- ---------------------------------------------------------------------------------------------------------------
THROUGH YOUR BROKER OR FINANCIAL ADVISOR
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
. Accounts of any type. . Call your broker or financial advisor
. Sales of any amount. to place your order to sell shares.
- ---------------------------------------------------------------------------------------------------------------
BY MAIL
- ---------------------------------------------------------------------------------------------------------------
. Accounts of any type. . Write a letter of instruction indicating
. Sales of any amount. the Fund name, your share class, your
account number, the name(s) in which
the account is registered and the dollar
value or number of shares you wish to
sell.

. Include all signatures and any
additional documents that may be
required (see next page).
. Mail the materials to:

SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204

. A check will normally be mailed on
the next business day to the name(s)
and address in which the account is
registered, or otherwise according to
your letter of instruction.
- ---------------------------------------------------------------------------------------------------------------
BY PHONE
- ---------------------------------------------------------------------------------------------------------------
. Most accounts.
. Sales of less than $100,000.

. Call Shareholder/Dealer Services
at 1-800-858-8850 between 8:30
a.m. and 7:00 p.m. (Eastern time) on
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
most business days. State the
Fund name, the name of the person
requesting the redemption, your
share class, your account number,
the name(s) in which the account
is registered and the dollar value or
number of shares you wish to sell.

. A check will be mailed to the
name(s) and address in which the
account is registered, or to a
different address indicated in a
written authorization previously
provided to the Fund by the
shareholder(s) on the account.
- ---------------------------------------------------------------------------------------------------------------
BY WIRE
- ---------------------------------------------------------------------------------------------------------------
. Request by mail to sell any amount . Proceeds will normally be wired on
(accounts of any type). the next business day. A $15 fee will
. Request by phone to sell less than be deducted from your account.
$100,000.

To sell shares through a systematic withdrawal plan, see "Additional Investor Services."
</TABLE>

You can generally obtain a signature guarantee from the following sources:

. a broker or securities dealer
. a federal savings, cooperative or other type of bank
. a savings and loan or other thrift institution
. a credit union
. a securities exchange or clearing agency

A notary public CANNOT provide a signature guarantee.

18
<PAGE>

TRANSACTION POLICIES

VALUATION OF SHARES The net asset value per share (NAV) for the Fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (generally 4:00 p.m., Eastern time) by dividing the net assets of
each class by the number of its shares outstanding.

BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable CDSCs.

EXECUTION OF REQUESTS The Fund is open on those days when the New York Stock
Exchange is open for regular trading. Buy and sell requests are executed at the
next NAV to be calculated after your request is accepted by the Fund. If your
order is received by the Fund or the Distributor before the Fund's close of
business (generally 4:00 p.m., Eastern time), you will receive that day's
closing price. If your order is received after that time, you will receive the
next business day's closing price. If you place your order through a broker or
financial advisor, you should make sure the order is transmitted to the Fund
before its close of business. The Fund and the Distributor reserve the right to
reject any order to buy shares.

In unusual circumstances, the Fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.

EXCHANGES You may exchange shares of the Fund for shares of the same class of
any other SunAmerica Mutual Fund. In addition, you may exchange your Class II
shares of the Fund for Class C shares of other SunAmerica Mutual Funds. Before
making an exchange, you should review a copy of the prospectus of the fund into
which you would like to exchange. All exchanges are subject to applicable
minimum investment requirements. A Systematic Exchange Program is described
under "Additional Investor Services."
If you exchange shares that were purchased subject to a CDSC, the CDSC will
continue to apply following the exchange. In determining the CDSC applicable to
shares being sold after an exchange, we will take into account the length of
time you held those shares prior to the exchange.

19
<PAGE>

To protect the interests of other shareholders, we may cancel the exchange
privileges of any investors that, in the opinion of the Fund, are using market
timing strategies or making excessive exchanges. The Fund may change or cancel
its exchange privilege at any time, upon 60 days' written notice to its
shareholders. The Fund may also refuse any exchange order.

MULTI-PARTY CHECKS The Fund may agree to accept a "multi-party check" in
payment for Fund shares. This is a check made payable to the investor by
another party and then endorsed over to the Fund by the investor. If you use a
multi-party check to purchase shares, you may experience processing delays. In
addition, the Fund is not responsible for verifying the authenticity of any
endorsement and assumes no liability for any losses resulting from a fraudulent
endorsement.

ADDITIONAL INVESTOR SERVICES

SYSTEMATIC WITHDRAWAL PLAN may be used for routine bill payment or periodic
withdrawals from your account. To use:

. Make sure you have at least $5,000 worth of shares in your account.

. Make sure you are not planning to invest more money in this account
(buying shares during a period when you are also selling shares of the
same Fund is not advantageous to you, because of sales charges).

. Specify the payee(s) and amount(s). The payee may be yourself or any
other party, and there is no limit to the number of payees you may have,
as long as they are all on the same payment schedule. Each withdrawal
must be at least $50.

. Determine the schedule: monthly, quarterly, semi-annually, annually
or in certain selected months.

. Make sure your dividends and capital gains are being reinvested.

You cannot elect the systematic withdrawal plan if you have requested
certificates for your shares.

20
<PAGE>

SYSTEMATIC EXCHANGE PROGRAM may be used to exchange shares of the Fund
periodically for the same class of shares of one or more other SunAmerica Mutual
Funds. To use:

ASSET PROTECTION PLAN (OPTIONAL) Anchor National Life Insurance Company offers
an Asset Protection Plan to certain investors in the Fund. The benefits of this
optional coverage payable at death will be related to the amounts paid to
purchase Fund shares and to the value of the Fund shares held for the benefit of
the insured persons. However, to the extent the purchased shares are redeemed
prior to death, coverage with respect to these shares will terminate.

Purchasers of the Asset Protection Plan are required to authorize periodic
redemptions of Fund shares to pay the premiums for this coverage. These
redemptions will not be subject to CDSCs, but will have the same tax
consequences as any other Fund redemptions.

Anchor National is a SunAmerica company.

Please call 1-800-858-8850 for more information, including the cost of the Asset
Protection Plan option.

21
<PAGE>

minimum investment of $250 or, for some group plans, no minimum investment at
all. To find out more, call Shareholder/Dealer Services at 1-800-858-8850.

TAX, DIVIDEND AND ACCOUNT POLICIES

ACCOUNT STATEMENTS In general, you will receive account statements as follows:

Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.

DIVIDENDS The Fund generally distributes most or all of its net earnings in the
form of dividends. Income dividends and capital gains distributions, if any,
are paid annually.

DIVIDEND REINVESTMENTS Your dividends and distributions, if any, will be
automatically reinvested in additional shares of the Fund and share class on
which they were paid. Alternatively, dividends and distributions may be
reinvested in any other SunAmerica Mutual Fund or paid in cash (if more than
$10). You will need to complete the relevant part of the Account Application to
elect one of these other options. For existing accounts, contact your broker or
financial advisor or call Shareholder/Dealer Services at 1-800-858-8850 to
change dividend and distribution payment options.

TAXABILITY OF DIVIDENDS Each Fund intends to continue to qualify for the
special tax treatment afforded regulated investment companies. As long as each
Fund so qualifies, the Funds will not be subject to Federal income tax on the
earnings that it distributes to shareholders.

However, dividends you receive from the Fund, whether reinvested or taken as
cash, are generally considered taxable to you. Distributions of the Fund's
long-term capital gains are taxable as capital gains; dividends from other
sources are generally taxable as ordinary income.

The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.

22
<PAGE>

generated by your transactions. If you hold Class B shares, you will not have a
taxable event when they convert into Class A shares.

OTHER TAX CONSIDERATIONS If you are neither a lawful permanent resident nor a
citizen of the U.S., or if you are a foreign entity, ordinary income dividends
paid to you (which include distributions of net short-term capital gains) will
generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate
applies.

By law, each Fund must withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or social security number.

MORE INFORMATION ABOUT THE FUND

FUND INVESTMENT STRATEGIES

The chart summarizes information about the Fund's investment approach. We have
included a glossary to define the investment and risk terminology used in the
chart.

23
<PAGE>

<TABLE>
<CAPTION>
"DOGS" OF WALL
STREET FUND
--------------------------------------------
<S> <C>
What is the Fund's investment goal? Total return (including capital
appreciation and current income)

What are the Fund's principal The Fund annually selects the following
investments (under normal market 30 stocks through a passively managed
conditions)? strategy: (1) the 10 highest yielding
common stocks in the DJIA and (2) the
20 other highest yielding stocks of the
400 largest industrial companies in the
U.S. markets that have capitalizations of
at least $1 billion and have received one
of the two highest rankings from an
independently published common stock
ranking service on the basis of growth
and stability of earnings and dividends.

What are the Fund's principal risks? . stock market volatility
. disciplined strategy
. non-diversification

What other investment strategies can
the Fund use?

. Annual rebalancing Yes

. Cash flow management Yes

. Warrants Yes

. Short-term investments Yes
</TABLE>

24
<PAGE>

<TABLE>
<CAPTION>
"DOGS" OF WALL
STREET FUND
--------------------------------------------
<S> <C>

. Foreign Securities/ADRs Yes

. Securities lending Yes (up to 33_%)

. Borrowing for emergencies Yes (up to 50%)

. Options and futures Yes

What other potential risks can affect a . illiquidity
Fund? . derivatives

</TABLE>

25
<PAGE>

GLOSSARY

INVESTMENT TERMINOLOGY

CAPITAL APPRECIATION is growth of the value of an investment.

[SIDEBAR: The Fund's stock selection criteria is designed to implement a
"value" oriented philosophy of investing principally in securities believed to
be undervalued in the market. This philosophy reflects a contrarian approach,
in that the potential for superior relative performance is believed to be
highest when stocks of fundamentally solid companies are out of favor. The
selection criteria is calculated to identify stocks of large, well-known
companies with solid financial strength and generous dividend yields that have
low price-earnings ratios and have been generally overlooked by the market.]

ANNUAL REBALANCING No later than January 15 of each year, the Adviser will
rebalance the Fund's holdings to create equal weightings among the thirty stocks
selected on the basis of the criteria applied as of the preceding December 31st.
The Adviser will implement the rebalancing by purchasing new stocks that meet
the selection criteria, selling stocks that no longer meet the selection
criteria, and adjusting its ownership of stocks that continue to meet the
criteria in order to achieve the proper weightings of each of the thirty stocks.

CASH FLOW MANAGEMENT Because the Fund will be at all times fully invested in
the stocks selected using the criteria described above, the Fund will use the
following policies to manage cash that it receives from the sale of its shares.
As the Fund's shares are sold during the year, new cash received by the Fund
will first be used to the extent necessary to meet redemption requests. The
balance of any such cash will be invested weekly (or more frequently as the
Adviser deems necessary) in the thirty stocks selected for the Fund. The Fund
will purchase the stocks as of its most recent rebalancing in proportion to the
current weightings of such stocks in the Fund's portfolio and without any
intention to rebalance the Fund's holdings on an interim basis. To the extent
redemptions exceed available cash, the Fund will generally meet redemption
requests by selling stocks on a pro rata basis (subject to rounding and the
avoidance of odd lots), based on the current weightings of such stocks in the
Fund's portfolio and without any intention to rebalance the Fund's holdings on
an interim basis.

WARRANTS are rights to buy common stock of a company at a specified price during
the life of the warrant.

SHORT-TERM INVESTMENTS include money market securities such as short-term U.S.
Government obligations, repurchase agreements, commercial paper, bankers'
acceptances and certificates of deposit. These securities provide a Fund with
sufficient liquidity to meet redemptions and cover expenses.

26
<PAGE>

SECURITIES LENDING involves a loan of securities by a Fund in exchange for cash
or collateral. The Fund earns interest on the loan while retaining ownership of
the security.

OPTIONS AND FUTURES are contracts involving the right to receive or obligation
to deliver assets or money depending on the performance of one or more
underlying assets or a market or economic index.

RISK TERMINOLOGY

MARKET VOLATILITY: The stock and/or bond markets as a whole could go up or
down (sometimes dramatically). This could affect the value of the securities in
the Fund's portfolio.

DISCIPLINED STRATEGY: The Fund will not deviate from its passively managed
strategy, which entails buying and holding thirty stocks selected through
objective selection criteria (except to the extent necessary to comply with
federal tax laws applicable to the Fund). The Fund will not sell stocks in its
portfolio and buy different stocks over the course of a year, even if there are
adverse developments concerning a particular stock, company or industry. There
can be no assurance that the strategy will be successful.

NON-DIVERSIFICATION: The Fund will hold only thirty stocks in its portfolio.
This means that its performance can be affected more by a decline in the market
price of one stock than would be the case if the Fund had a more diversified
portfolio.

ILLIQUIDITY: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.

DERIVATIVES: A derivative is any financial instrument whose value is based on,
and determined by, another security, index or benchmark (i.e., stock options,
---
futures, caps, floors, etc.). In recent years, derivative securities have
become increasingly important in the field of finance. Futures and options are
now actively traded on many different exchanges. Forward contracts, swaps, and
many different types of options are regularly traded outside of exchanges by
financial institutions in what are termed "over the counter" markets. Other
more specialized derivative securities often form part of a bond or stock issue.

. Long Hedge - Strategy in which an investor locks in a future price on
a security / index by buying a futures contract.

27
<PAGE>

. Neutral Hedge - Strategy that is designed to provide the highest
expected return on a portfolio of securities assuming that the price
of a particular investment in the portfolio remains constant.

. Perfect Hedge - a hedge whose change in value is equal to the change
in value of the underlying security, positive or negative.

. Short Hedge - Strategy designed to reduce the risk of a decline in
value of a security / index without requiring ownership of that
security.

FUND MANAGEMENT

ADVISER SunAmerica Asset Management Corp. selects and manages the investments,
provides various administrative services, and supervises the daily business
affairs of the Fund. For the fiscal year ended September 30, 1998, the Fund
paid the Adviser a fee equal to _________% of average daily net assets (net of
fee waivers). In addition to managing the Fund and each of the other Equity
Funds, the Adviser serves as adviser, manager and/or administrator for Anchor
Pathway Fund, Anchor Series Trust, Style Select Series, Seasons Series Trust,
SunAmerica Income Funds, SunAmerica Money Market Funds, Inc., and SunAmerica
Series Trust.

The Adviser managed, advised or administered assets in excess of $15 billion as
of October 31, 1998.

The Domestic Equity Investment Team is responsible for the portfolio management
of the Fund. The Team consists of nine portfolio managers, research analysts and
traders. Francis D. Gannon has supervisory responsibility over the Fund. Mr.
Gannon, a Vice President, has been with the Adviser since 1993.

DISTRIBUTOR SunAmerica Capital Services, Inc. distributes the Fund's shares.
The Distributor, a SunAmerica company, receives the initial and deferred sales
charges, all or a portion of which may be re-allowed to other broker-dealers.
In addition, the Distributor receives fees under the Fund's 12b-1 plans.

The Distributor, at its expense, may from time to time provide additional
compensation to broker-dealers (including in some instances, affiliates of the
Distributor) in connection with sales of shares of a Fund. This compensation
may include (i) full re-allowance of the front-end sales charge on Class A
shares; (ii) additional compensation with respect to the sale of Class A, Class
B or Class II shares; or (iii) financial assistance to broker-dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding one or more of the
Funds, and/or other broker-dealer sponsored special events. In some instances,
this compensation will be made available only to certain broker-dealers whose
representatives have sold a significant number of shares of the Fund.
Compensation may also include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
for meetings or seminars of a business nature. In addition, the

28
<PAGE>

following types of non-cash compensation may be offered through sales contests:
(i) travel mileage on major air carriers; (ii) tickets for entertainment events
(such as concerts or sporting events); or (iii) merchandise (such as clothing,
trophies, clocks, pens or other electronic equipment). Broker-dealers may not
use sales of the Fund's shares to qualify for this compensation to the extent
receipt of such compensation may be prohibited by applicable law or the rules of
any self-regulatory agency, such as the NASD. Dealers who receive bonuses or
other incentives may be deemed to be underwriters under the Securities Act of
1933.

Certain laws and regulations limit the ability of banks and other depository
institutions to underwrite and distribute securities. However, in the opinion
of the Distributor based upon the advice of counsel, these laws and regulations
do not prohibit such depository institutions from providing other services to
investment companies of the type contemplated by the Funds' 12b-1 plans. Banks
and other financial services firms may be subject to various state laws
regarding these services, and may be required to register as dealers pursuant to
state law.

ADMINISTRATOR SunAmerica Fund Services, Inc. assists the Fund's transfer agent
in providing shareholder services. The Administrator, a SunAmerica company, is
paid a monthly fee by the Fund for its services at the annual rate of .22% of
average daily net assets.

The Adviser, Distributor and Administrator are all located in The SunAmerica
Center, 733 Third Avenue, New York, New York 10017.

29
<PAGE>

(OUTSIDE BACK COVER)

FOR MORE INFORMATION

The Fund is a series of SunAmerica Equity Funds.

The following documents contain more information about the Fund and are
available free of charge upon request:

ANNUAL REPORT. Contains financial statements, performance data
and information on portfolio holdings. The annual report also
contains a written analysis of market conditions and investment
strategies that significantly affected a Fund's performance
during the last fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI). Contains additional
information about the Fund's policies, investment restrictions
and business structure. This prospectus incorporates the SAI by
reference.

You may obtain copies of these documents or ask questions about the Fund by
contacting:

SunAmerica Fund Services, Inc.
Mutual Fund Operations
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
1-800-858-8850

by calling your broker or financial advisor.

Information about the Fund (including the SAI) can be reviewed and copied
at the Public Reference Room of the Securities and Exchange Commission,
Washington, D.C. Call (800) SEC-0330 for information on the operation of the
Public Reference Room. Information about the Fund is also available on the
Securities and Exchange Commission's web-site at http://www.sec.gov and copies
may be obtained upon payment of a duplicating fee by writing the Public
Reference Section of the Securities and Exchange Commission, Washington, D.C.
20549-6009.

You should rely only on the information contained in this prospectus. No
one is authorized to provide you with any different information.

30
<PAGE>

[Logo] SunAmerica
Mutual Funds

DISTRIBUTOR: SunAmerica Capital Services

INVESTMENT COMPANY ACT
File No. 811-4801
<PAGE>

___________________, 1999 PROSPECTUS

SUNAMERICA EQUITY FUNDS

. SMALL COMPANY GROWTH FUND
. BALANCED ASSETS FUND
(CLASS Z SHARES)

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.

[Logo] SUNAMERICA
Mutual Funds
<PAGE>

TABLE OF CONTENTS

FUND HIGHLIGHTS....................................... 1

FINANCIAL HIGHLIGHTS.................................. 6

SHAREHOLDER ACCOUNT INFORMATION....................... 7

MORE INFORMATION ABOUT THE FUNDS...................... 8
Fund Investment Strategies........................ 8
Glossary.......................................... 11
Investment Terminology........................ 11
Risk Terminology.............................. 12

FUND MANAGEMENT....................................... 13
<PAGE>

FUND HIGHLIGHTS

The following questions and answers are designed to give you an overview of the
Trust, and to provide you information about two of the Trust's investment
portfolios, or "Funds," and their investment goals and principal strategies.
More complete investment information is provided in the chart, under "More
Information About the Funds," which is on page 8, and the glossary that follows
on page 11.

Q: What are the Funds' investment goals?

A: Each Fund operates as a separate mutual fund, and has its own investment
goal and a strategy for pursuing it. No goal may be changed without
shareholder approval.

The Small Company Growth Funds seeks capital appreciation by investing
primarily in equity securities.

The Balanced Assets Fund seeks to conserve principal by investing in a
balanced portfolio of stocks and bonds.

Q: How do the Funds pursue these goals?

A: The Small Company Growth Fund invests primarily in common stocks. The
Small Company Growth Funds will normally purchase stocks issued by
companies with market capitalizations of $1 billion or less.

[Margin note: MARKET CAPITALIZATION represents the total market value of
the outstanding securities of a corporation.]

[Margin note: "High-quality" instruments have a very strong capacity to pay
interest and repay principal.]

Q: What are the principal risks of investing in the Funds?

1
<PAGE>

A: As with any equity fund, the value of your investment in each of the Funds
may fluctuate in response to stock market movements, and you could lose
money. Other principal risks include:

- individual stocks selected for a Fund may underperform the market
generally

- stocks of smaller companies may be more volatile than, and not as
liquid as, those of larger companies. This will particularly
affect the Small Company Growth Fund

- the Balanced Assets Fund may be affected by movements in the bond
market in addition to the stock market

In addition, shares of the Funds are not bank deposits and are not
guaranteed or insured by any bank, government entity or the Federal
Deposit Insurance Corporation.

Q: How have the Funds performed historically?

A: The following Risk/Return Bar Charts and Tables illustrate the risks of
investing in the Funds by showing changes in the Funds' performance from
year to year, and compare the Funds' average annual returns to those of an
appropriate market index. Of course, past performance is not necessarily
an indication of how a Fund will perform in the future.

2
<PAGE>

SMALL COMPANY GROWTH FUND

[BAR GRAPH APPEARS HERE]

1988.................... 48.45%
1989.................... 23.05%
1990....................-26.99%
1991.................... 54.85%
1992.................... 20.12%
1993.................... 13.89%
1994.................... 4.73%
1995.................... 50.16%
1996.................... 14.92%
1997.................... 3.34%

FIGURE 1
(Class A)

<TABLE>
<CAPTION>
Average Annual Total Returns (as of Return
the calendar year ended) Past One Past Five Past Ten Since
Year Years Years Inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Company Growth Fund Z 4.04% N/A N/A 4.84%
- --------------------------------------------------------------------------------
Russell 200 Index/*/
- --------------------------------------------------------------------------------
Nasdaq Industrial Index/**/
- --------------------------------------------------------------------------------
</TABLE>

/*/ The Russell 2000 Index is a unmanaged broad-based index of 2,000 smaller
capitalization companies.
/**/ The Nasdaq Industrial Index is a value-weighted index calculated on price
change only and/ does not include income and is composed of more than 3,000
industrial issues.

3
<PAGE>

BALANCED ASSETS FUND

[BAR GRAPH APPEARS HERE]

1988.................... 6.51%
1989.................... 18.44%
1990.................... -2.34%
1991.................... 27.48%
1992.................... 5.43%
1993.................... 14.17%
1994.................... -2.57%
1995.................... 26.95%
1996.................... 8.3%
1997.................... 23.37%

FIGURE 2
(Class B)

<TABLE>
<CAPTION>
Average Annual Total Returns (as of Past One Past Five Past Ten Return
the calendar year ended) Year Years Years Since
Inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Assets Fund Z 28.82% N/A N/A 21.00%
- --------------------------------------------------------------------------------
S&P 500(R) Index/*/
- --------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government Index/**/
- --------------------------------------------------------------------------------
</TABLE>

/*/ The S&P 500(R) is the Standard & Poor's Composite 500 Stock Price Index, a
widely recognized, unmanaged index of common stock prices.

/**/ The Lehman Brothers Intermediate Government Index is an unmanaged index
comprised/ of all publicly issued, non-convertible domestic debt of the
United States Government. Only notes and bonds with minimum outstanding
principal of $1 million and minimum maturity of one year and maximum
maturity of 10 years are included.

4
<PAGE>

Q: What are the Funds' expenses?

A: The following table describes the fees and expenses that you may pay if you
buy and hold Class Z shares of the Funds.

<TABLE>
<CAPTION>
SMALL COMPANY BALANCED
GROWTH FUND ASSETS FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
SHAREHOLDER FEES
(fees paid directly
from your
investment)
- --------------------------------------------------------------------------------
Maximum Sales Charge
(Load) Imposed on Purchases
(as a percentage of offering None None
price)............................
- --------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage of None None
amount redeemed)..................
- --------------------------------------------------------------------------------
Maximum Sales Charge
(Load) Imposed on Reinvested None None
Dividends.........................
- --------------------------------------------------------------------------------
Redemption Fee.................... None None
- --------------------------------------------------------------------------------
Exchange Fee...................... None None
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
GROSS ANNUAL FUND
OPERATING EXPENSES
(expenses that are
deducted from Fund
assets)..............................
- --------------------------------------------------------------------------------
Management Fees................... 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution None None
(12b-1) Fees......................
- --------------------------------------------------------------------------------
Other Expenses....................
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Total Gross Annual Fund
Operating.........................
- --------------------------------------------------------------------------------
</TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
SMALL COMPANY GROWTH FUND
</TABLE>

5
<PAGE>

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
(Class Z shares).......................

BALANCED ASSETS FUND
(Class Z shares).......................

</TABLE>
You would pay the following expenses if you did not redeem your shares:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
SMALL COMPANY GROWTH FUND
(Class Z shares)......................

BALANCED ASSETS FUND
(Class Z shares)......................
</TABLE>

FINANCIAL HIGHLIGHTS

[to be filed by amendment]

6
<PAGE>

SHAREHOLDER ACCOUNT INFORMATION

SELECTING A SHARE CLASS

Each Fund offers Class Z shares through this prospectus. Class Z shares are
offered exclusively for sale to participants in the SunAmerica Profit Sharing
and Retirement Plan, an employee benefit plan sponsored by Fidelity Investments
(the "401(k) Plan" or the "Plan").

OPENING AN ACCOUNT

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

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

TRANSACTION POLICIES

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

BUY AND SELL PRICES When you buy Class Z shares, you pay the NAV. When you
sell Class Z shares, you receive the NAV.

7
<PAGE>

received after that time, you will receive the next business day's closing
price. The Fund and the Distributor reserve the right to reject any order to buy
shares.

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

EXCHANGES Class Z shareholders of one Fund may exchange their shares for Class
Z shares of another SunAmerica Mutual Fund on the basis of relative net asset
value per share.

TAX, DIVIDEND AND ACCOUNT POLICIES

ACCOUNT STATEMENTS In general, a shareholder will receive account statements as
follows:

. after every transaction that affects your account balance (except a
dividend reinvestment)
. after any changes of name or address of the registered owner(s)
. in all other circumstances, quarterly or annually, depending upon the
Fund

Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.

DIVIDENDS The Funds generally distribute most or all of their net earnings in
the form of dividends. Income dividends, if any, are paid quarterly by the
Balanced Assets Fund, and annually by the other Fund. Capital gains
distributions, if any, are paid annually by the Funds.

DIVIDEND REINVESTMENTS Your dividends and distributions, if any, will be
automatically reinvested in additional shares of the same Fund and share class
on which they were paid. Alternatively, dividends and distributions may be
reinvested in any other SunAmerica Mutual Fund that offers Class Z shares. You
will need to complete the relevant part of the Account Application to elect one
of these other options. For existing accounts, contact your broker or financial
advisor or call Shareholder/Dealer Services at 1-800-858-8850 to change dividend
and distribution payment options.

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

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

MORE INFORMATION ABOUT THE FUNDS

FUND INVESTMENT STRATEGIES

8
<PAGE>

<TABLE>
<CAPTION>
SMALL COMPANY
GROWTH BALANCED ASSETS
-------------------------------------------------------------
<S> <C> <C>
What is the Fund's
investment goal? Capital appreciation Conservation of principal

What are the Fund's stocks of small companies stocks and bonds (at least
principal investments (at least 65% of total assets) 25% of total assets will be
(under normal market invested in senior fixed-
conditions)? income securities)

What are the Fund's . stock market . stock and bond
principal risks? volatility market volatility
. stock selection . stock selection
. small market . interest rate
capitalization fluctuations

What other investment
strategies can the Fund
use?

. Active Trading Yes Yes

. Fixed income
securities

Investment grade Yes Yes

. Small Company see principal Yes (up to 20%)
stocks investments above

. Short-term
investments Yes (up to 10%) Yes (up to 10%)
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
SMALL COMPANY
GROWTH BALANCED ASSETS
-------------------------------------------------------------
<S> <C> <C>
. Defensive
investments Yes Yes

. Foreign securities Yes Yes

. Illiquid securities Yes (up to 15%) Yes (up to 15%)

. Securities lending Yes (up to 33%) Yes (up to 33%)

. Borrowing for
emergencies Yes (up to 50%) Yes (up to 5%)

. Options and futures Yes Yes

. Special situations Yes Yes

What other potential
risks can affect a Fund? . interest rate fluctuations . small market
. foreign exposure capitalizations
. illiquidity . foreign exposure
. derivatives . illiquidity
. hedging . derivatives
. hedging
</TABLE>

10
<PAGE>

GLOSSARY

INVESTMENT TERMINOLOGY

CAPITAL APPRECIATION is growth of the value of an investment.

CONSERVATION OF PRINCIPAL means investing in a manner that tries to protect the
value of an investment against market movements and other economic events.

SMALL COMPANIES have market capitalizations of $1 billion or less.

FIXED INCOME SECURITIES provide consistent interest or dividend payments. They
include corporate bonds, notes, debentures, preferred stocks, convertible
securities, U.S. Government securities and mortgage-backed and asset-backed
securities. The issuer of a SENIOR fixed income security is obligated to make
payments on this security ahead of other payments to security holders. An
INVESTMENT GRADE fixed income security is rated in one of the top four ratings
categories by a debt rating agency (or is considered of comparable quality by
the Adviser).

11
<PAGE>

SECURITIES LENDING involves a loan of securities by a Fund in exchange for cash
or collateral. The Fund earns interest on the loan while retaining ownership of
the security.

OPTIONS AND FUTURES are contracts involving the right to receive or obligation
to deliver assets or money depending on the performance of one or more
underlying assets or a market or economic index.

RISK TERMINOLOGY

MARKET VOLATILITY: The stock and/or bond markets as a whole could go up or
down (sometimes dramatically). This could affect the value of the securities in
a Fund's portfolio.

SECURITIES SELECTION: A strategy used by a Fund, or securities selected by its
portfolio manager, may fail to produce the intended return.

SMALL MARKET CAPITALIZATION: Companies with smaller market capitalizations
(particularly under $1 billion) tend to be at early stages of development with
limited product lines, market access for products, financial resources, access
to new capital, or depth in management. Consequently, the securities of smaller
companies may not be as readily marketable and may be subject to more abrupt or
erratic market movements, making it difficult to buy and sell in a timely
manner.

12
<PAGE>

ILLIQUIDITY: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.

. Long Hedge - Strategy in which an investor locks in a future price on a
security/index by buying a futures contract.

. Neutral Hedge - Strategy that is designed to provide the highest expected
return on a portfolio of securities assuming that the price of a
particular investment in the portfolio remains constant.

. Perfect Hedge - a hedge whose change in value is equal to the change in
value of the underlying security, positive or negative.

. Short Hedge - Strategy designed to reduce the risk of a decline in value
of a security/index without requiring ownership of that security.

FUND MANAGEMENT

For the fiscal year ended September 30, 1998, each Fund paid the Adviser a fee
equal to the following percentage of average daily net assets:

Fund Fee
---- ---
<S> <C>
Small Company Growth .75%
Balanced Assets .75%
</TABLE>

13
<PAGE>

The Domestic Equity Investment Team is responsible for the portfolio management
of each of the Funds. The Team consists of nine portfolio managers, research
analysts and traders.

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

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

The Adviser, Distributor and Administrator are all located in The SunAmerica
Center, 733 Third Avenue, New York, New York 10017.

14
<PAGE>

(OUTSIDE BACK COVER)

FOR MORE INFORMATION

The following documents contain more information about the Funds and are
available free of charge upon request:

You may obtain copies of these documents or ask questions about the Funds
by contacting:

SunAmerica Fund Services, Inc.
Mutual Fund Operations
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
1-800-858-8850

by calling your broker or financial advisor.

You should rely only on the information contained in this prospectus. No
one is authorized to provide you with any different information.

1
<PAGE>

[Logo] SUNAMERICA
MUTUAL FUNDS

DISTRIBUTOR: SunAmerica Capital Services

INVESTMENT COMPANY ACT
File No. 811-4801

2
<PAGE>

SUNAMERICA EQUITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DATED [_____], 1999

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

SunAmerica Equity Funds (the "Trust") is a mutual fund consisting of six
different investment funds: SunAmerica Blue Chip Growth Fund, SunAmerica Mid-Cap
Growth Fund, SunAmerica Small Company Growth Fund, SunAmerica Growth and Income
Fund, SunAmerica Balanced Assets Fund and "Dogs" of Wall Street Fund. Each Fund
has distinct investment objectives and strategies.

This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Trust's Prospectus dated [_____], 1999. To obtain
a Prospectus free of charge, please call the Trust at (800) 858-8850. Each
Prospectus is incorporated by reference into this Statement of Additional
Information. Capitalized terms used herein but not defined have the meanings
assigned to them in the Prospectus.

<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
-----
<S> <C>
HISTORY OF THE FUNDS B-2
INVESTMENT OBJECTIVES AND POLICIES B-3
INVESTMENT RESTRICTIONS B-33
TRUSTEES AND OFFICERS B-35
ADVISER, PERSONAL TRADING, DISTRIBUTOR AND
ADMINISTRATOR B-41
PORTFOLIO TRANSACTIONS AND BROKERAGE B-49
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES B-52
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES B-60
DETERMINATION OF NET ASSET VALUE B-62
PERFORMANCE DATA B-63
DIVIDENDS, DISTRIBUTIONS AND TAXES B-70
RETIREMENT PLANS B-74
DESCRIPTION OF SHARES B-76
ADDITIONAL INFORMATION B-79
FINANCIAL STATEMENTS B-82
APPENDIX APPENDIX-1
</TABLE>

No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Trust, the Adviser or the Distributor. This Statement of
Additional Information and the Prospectus do not constitute an offer to sell or
a solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction in which such an offer to sell or solicitation of an offer to buy
may not lawfully be made.
<PAGE>

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

HISTORY OF THE FUNDS

The Trust, an open-end management investment company, was organized as a
Massachusetts business trust on June 18, 1986. On September 24, 1993, the Trust
reorganized with certain SunAmerica Mutual Funds (the "Reorganization") and was
renamed "SunAmerica Equity Funds." In the Reorganization, all outstanding shares
of the two then-existing series of the Trust, the Growth Portfolio and the
Aggressive Growth Portfolio, were redesignated Class A shares and renamed the
SunAmerica Growth Fund ("Growth Fund") and the SunAmerica Emerging Growth Fund
("Emerging Growth Fund"), respectively. In addition, the SunAmerica Emerging
Growth Fund series of SunAmerica Fund Group ("Old Emerging Growth") reorganized
with, and its shareholders received Class B shares of, the Emerging Growth Fund.
With regard to the Balanced Assets Fund series of the Trust, the Total Return
Fund series of SunAmerica Multi-Asset Portfolios, Inc. ("Total Return") and the
SunAmerica Balanced Assets Fund series of SunAmerica Fund Group ("Old Balanced
Assets") reorganized with, and their shareholders received Class A and Class B
shares of the Balanced Assets Fund, respectively. The SunAmerica Capital
Appreciation Fund, Inc. ("Capital Appreciation") was reorganized with, and its
shareholders received Class B shares of, the SunAmerica Value Fund ("Value
Fund"). The Reorganization was approved by the shareholders of the Funds or
their predecessors who were entitled to vote with respect thereto on September
23, 1993.

On March 16, 1994, the Board of Trustees of the Trust (the "Trustees")
approved changing the names of the Value Fund, Growth Fund and Emerging Growth
Fund to the Blue Chip Growth Fund, Mid-Cap Growth Fund and Small Company Growth
Fund, respectively, and such name changes became effective on June 7, 1994. On
March 16, 1994, the Trustees approved the creation of the Growth and Income
Fund.

B-2
<PAGE>

On June 18, 1996, the Trustees authorized the designation of Class Z shares
of the Balanced Assets Fund and the Small Company Growth Fund. The offering of
such Class Z shares commenced on October 1, 1996.

On November 20, 1997, the Trustees approved the designation of Class C
shares of each of the Funds. The offering of such Class C shares of the Small
Company Growth Fund and Growth and Income Fund commenced on January 28, 1998.

On March 17, 1998, the Trustees approved the creation of "Dogs" of Wall
Street Fund. The offering of such Fund's Class A, B and II shares commenced on
June 1, 1998. All of the Funds except "Dogs" of Wall Street Fund are
diversified.

On November 19, 1998, the Trustees redesignated Class C shares as Class II
shares for each of the Funds except with respect to "Dogs" of Wall Street Fund.
Such offering commenced on December 1, 1998.

INVESTMENT OBJECTIVES AND POLICIES

The investment objectives and policies of each of the Funds are described
in the respective Prospectus. Certain types of securities in which the Funds
may invest and certain investment practices that the Funds may employ, are
described under "More Information About the Funds --Fund Investment Strategies"
in the Prospectus and are discussed more fully below. Unless otherwise
specified, each Fund may invest in the following securities. The stated
percentage limitations are applied to an investment at the time of purchase
unless indicated otherwise.

ILLIQUID AND RESTRICTED SECURITIES. No more than 15% of the value of a Fund's
net assets, determined as of the date of purchase, may be invested in illiquid
securities including repurchase agreements that have a maturity of longer than
seven days, interest-rate swaps, currency swaps, caps, floors and collars, or
other securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale. Historically,
illiquid securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), securities that are
otherwise not readily marketable and repurchase agreements having a maturity of
longer than seven days. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period. Securities that have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby

B-3
<PAGE>

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 generally seek to obtain the right of
registration at the expense of the issuer (except in the case of Rule 144A
securities, discussed below).

In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.

For example, restricted securities that the Board of Trustees, or the
Adviser pursuant to guidelines established by the Board of Trustees, has
determined to be marketable, such as securities eligible for resale under Rule
144A promulgated under the Securities Act, or certain private placements of
commercial paper issued in reliance on an exemption from such Act pursuant to
Section 4(2) thereof, may be deemed to be liquid for purposes of this
restriction. This investment practice could have the effect of increasing the
level of illiquidity in a Fund to the extent that qualified institutional buyers
(as defined in Rule 144A) become for a time uninterested in purchasing these
restricted securities. In addition, a repurchase agreement that by its terms
can be liquidated before its nominal fixed-term on seven days or less notice is
regarded as a liquid instrument. The Adviser will monitor the liquidity of such
restricted securities subject to the supervision of the Trustees. In reaching
liquidity decisions the Adviser will consider, inter alia, pursuant to
guidelines and procedures established by the Trustees, the following factors:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the marketplace trades
(i.e., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).

Commercial paper issues in which a Fund's net assets may be invested
include securities issued by major corporations without registration under the
Securities Act in reliance on the exemption from such registration afforded by
Section 3(a)(3) thereof, and commercial paper issued in reliance on the so-
called private placement exemption from registration afforded by Section 4(2) of
the Securities Act ("Section 4(2) paper"). Section 4(2) paper is restricted as
to disposition under the federal securities laws in that any resale must
similarly be made in an exempt transaction.

B-4
<PAGE>

Section 4(2) paper is normally resold to other institutional investors through
or with the assistance of investment dealers who make a market in Section 4(2)
paper, thus providing liquidity. Section 4(2) paper issued by a company that
files reports under the Securities Exchange Act of 1934, as amended, is
generally eligible to be sold in reliance on the safe harbor of Rule 144A
described above. A Fund's 15% limitation on investments in illiquid securities
includes Section 4(2) paper other than Section 4(2) paper that the Adviser has
determined to be liquid pursuant to guidelines established by the Trustees. The
Trustees have delegated to the Adviser the function of making day-to-day
determinations of liquidity with respect to Section 4(2) paper, pursuant to
guidelines approved by the Trustees that require the Adviser to take into
account the same factors described above for other restricted securities and
require the Adviser to perform the same monitoring and reporting functions.

REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements only
involving securities in which it could otherwise invest and with selected banks
and securities dealers whose financial condition is monitored by the Adviser,
subject to the guidance of the Trustees. In such agreements, the seller agrees
to repurchase the security at a mutually agreed-upon time and price. The period
of maturity is usually quite short, either overnight or a few days, although it
may extend over a number of months. The repurchase price is in excess of the
purchase price by an amount that reflects an agreed-upon rate of return
effective for the period of time a Fund's money is invested in the security.
Whenever a Fund enters into a repurchase agreement, it obtains collateral having
a value equal to at least 102% (100% if such collateral is in the form of cash)
of the repurchase price, including accrued interest. The instruments held as
collateral are valued daily and if the value of the instruments declines, the
Fund will require additional collateral. If the seller under the repurchase
agreement defaults, the Fund may incur a loss if the value of the collateral
securing the repurchase agreement has declined and may incur disposition costs
in connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited. The
Trustees have established guidelines to be used by the Adviser in connection
with transactions in repurchase agreements and will regularly monitor each
Fund's use of repurchase agreements. A Fund will not invest in repurchase
agreements maturing in more than seven days if the aggregate of such investments
along with other illiquid securities exceeds 15% of the value of its net assets.
However, there is no limit on the amount of a Fund's net assets that may be
subject to repurchase agreements having a maturity of seven days or less for
temporary defensive purposes.

REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements. In a reverse repurchase agreement, the Fund sells a security and
agrees to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. The Fund then invests
the proceeds from the transaction in another obligation in which the Fund is
authorized to invest. The Fund's investment of the proceeds of a reverse
repurchase agreement is

B-5
<PAGE>

the speculative factor known as leverage. A Fund will enter into a reverse
repurchase agreement only if the interest income from investment of the proceeds
is expected to be greater than the interest expense of the transaction and the
proceeds are invested for a period no longer than the term of the agreement. In
order to minimize any risk involved, the Fund will segregate cash or liquid
securities in an amount at least equal in value to its purchase obligations
under these agreements (including accrued interest). In the event that the buyer
of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, the buyer or its trustee or receiver may receive an extension
of time to determine whether to enforce the Fund's repurchase obligation, and
the Fund's use of proceeds of the agreement may effectively be restricted
pending such decision. Reverse repurchase agreements are considered to be
borrowings and are subject to the percentage limitations on borrowings. See
"Investment Restrictions."

FIXED INCOME SECURITIES. Each Fund except "Dogs" of Wall Street Fund may
invest, subject to the percentage and credit quality limitations stated herein
and in the Prospectus, in debt securities, including corporate obligations
issued by domestic and foreign corporations and governments and money market
instruments, without regard to the maturities of such securities.

The Blue Chip Growth, Mid-Cap Growth and Small Company Growth Funds may,
under normal circumstances, invest up to 35% of total assets in debt securities
that have the potential for capital appreciation. The Blue Chip Growth, Mid-Cap
Growth and Small Company Growth Funds may invest in securities rated as low as
"BBB" by Standard & Poor's Ratings Services, a Division of the McGraw-Hill
Companies, Inc. ("Standard & Poor's") or "Baa" by Moody's Investors Service,
Inc. ("Moody's"), or unrated securities of equivalent quality.

The Growth and Income Fund generally will not invest in debt securities in
the lowest rating categories ("CC" or lower for Standard & Poor's or "Ca" or
lower for Moody's) unless the Adviser believes that the financial condition of
the issuer or the protection afforded the particular securities is stronger than
would otherwise be indicated by such low ratings. In the event the rating of a
debt security is down-graded below the lowest rating category deemed by the
Adviser to be acceptable for the Growth and Income Fund's investments, the
Adviser will determine on a case by case basis the appropriate action to serve
the interest of shareholders, including disposition of the security.

The Balanced Assets Fund will, under normal circumstances, invest at least
25% of its assets in fixed-income senior securities; however, the fixed income
component will exceed 25% when the Adviser believes such an adjustment in
portfolio mix to be necessary in order to conserve principal, such as in
anticipation of a decline in the equities market. The Balanced Assets Fund may
invest up to 10% of total assets (measured at the time of investment) in
securities rated as low as "BBB" by Standard & Poor's or "Baa" by Moody's (or
determined by the Adviser to be of equivalent quality if unrated).

B-6
<PAGE>

Those debt securities rated "BBB" or "Baa," while considered to be
"investment grade," may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. As a consequence of the foregoing, the opportunities for income and gain
may be limited. While the Funds have no stated policy with respect to the
disposition of securities whose ratings fall below investment grade, each
occurrence is examined by the Adviser to determine the appropriate course of
action.

Risks of Investing in Lower Rated Bonds. As described above, debt
securities in which the Growth and Income Fund may invest may be in the lower
rating categories of recognized rating agencies (that is, ratings of Ba or lower
by Moody's or BB or lower by Standard & Poor's (and comparable unrated
securities) (commonly known as "junk bonds"). For a description of these and
other rating categories, see Appendix. No minimum rating standard is required
for a purchase by the Fund.

Such high yield bonds can be expected to provide higher yields, but
may be subject to greater market price fluctuations and risk of loss of
principal than lower yielding, higher rated fixed income securities. High yield
bonds may be issued by less creditworthy companies or by larger, highly
leveraged companies. It should be noted that lower-rated securities are subject
to risk factors such as (a) vulnerability to economic downturns and changes in
interest rates; (b) sensitivity to adverse economic changes and corporate
developments; (c) redemption or call provisions that may be exercised at
inopportune times; (d) difficulty in accurately valuing or disposing of such
securities; (e) federal legislation that could affect the market for such
securities; and (f) special adverse tax consequences associated with investments
in certain high-yield, high-risk bonds.

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

There is a thinly traded market for high yield bonds, and recent market
quotations may not be available for some of these bonds. Market quotations are
generally available only from a limited number of dealers and may not represent
firm bids from such dealers or prices for actual sales. As a result, a Fund may
have difficulty valuing the high yield bonds in their portfolios accurately and
disposing of these bonds at the time or price desired. Under such conditions,
judgment may play a greater role in valuing certain of the Fund's portfolio
securities than in the case of securities trading in a more liquid market.

B-7
<PAGE>

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

Market prices for high yield bonds tend to be more sensitive than those for
higher-rated securities due to many of the factors described above, including
the credit-worthiness of the issuer, redemption or call provisions, the
liquidity of the secondary trading market and changes in credit ratings, as well
as interest rate movements and general economic conditions. In addition, yields
on such bonds will fluctuate over time. An economic downturn could severely
disrupt the market for high yield bonds. In addition, legislation impacting
high yield bonds may have a materially adverse effect on the market for such
bonds. For example, federally insured savings and loan associations have been
required to divest their investments in high yield bonds.

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

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

Zero Coupon Bonds, Deferred Interest Bonds and PIK Bonds. Fixed income
securities in which the Growth and Income Fund may invest also include zero
coupon bonds, deferred interest bonds and bonds on which the interest is payable
in kind ("PIK bonds"). Zero coupon and deferred interest bonds are debt
obligations issued or purchased at a significant discount from face value. PIK
bonds are debt obligations that provide that the issuer thereof may, at its
option, pay interest on such bonds in cash or in the form of additional debt
obligations. Such investments may experience greater volatility in market value
due to changes in interest rates and other factors than debt obligations that
make regular payments of interest. The Fund will accrue income on such
investments for tax and

B-8
<PAGE>

accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities under disadvantageous circumstances to
satisfy the Fund's distribution obligations.

SHORT-TERM AND TEMPORARY DEFENSIVE INSTRUMENTS. In addition to their primary
investments, each Fund, except as described below, may also invest up to 10% of
its total assets in money market instruments for liquidity purposes (to meet
redemptions and expenses). For temporary defensive purposes, each Fund, except
as described below, may invest up to 100% of its total assets in fixed income
securities, including corporate debt obligations and money market instruments
rated in one of the two highest categories by a nationally recognized
statistical rating organization (or determined by the Adviser to be of
equivalent quality). "Dogs" of Wall Street Fund may invest in money market
instruments pending investment in the stocks selected through its investment
strategy and does not intend to invest any of its assets in fixed income
securities. A description of securities ratings is contained in the Appendix to
this Statement of Additional Information.

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

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

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

B-9
<PAGE>

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).

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

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

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

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

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

U.S. GOVERNMENT SECURITIES. Each Fund except "Dogs" of Wall Street Fund may
invest in U.S. Treasury securities, including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These instruments are direct
obligations of the U.S. government and, as such, are backed by the "full faith
and credit" of the United States. They differ primarily in their interest
rates, the lengths of their maturities and the dates of their issuances. For
these securities, the payment of principal and interest is unconditionally
guaranteed by the U.S. government. They are of the highest possible credit
quality. These securities are subject to variations in market value due to
fluctuations in interest rates, but if held to maturity, are guaranteed by the
U.S. government to be paid in full.

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<PAGE>

Such a Fund may also invest in securities issued by agencies of the U.S.
government or instrumentalities of the U.S. government. These obligations,
including those guaranteed by federal agencies or instrumentalities, may or may
not be backed by the "full faith and credit" of the United States. Obligations
of the Government National Mortgage Association ("GNMA"), the Farmer's Home
Administration ("FMHA") and the Export-Import Bank are backed by the full faith
and credit of the United States.

Such a Fund may also invest in securities issued by U.S. government
instrumentalities and certain federal agencies that are neither direct
obligations of, nor are they guaranteed by, the U.S. Treasury. However, they
involve federal sponsorship in one way or another. For example, some are backed
by specific types of collateral; some are supported by the issuer's right to
borrow from the Treasury; some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer; and others are
supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, the Federal National Mortgage Association ("FNMA"), the Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Land Banks, Central Bank for
Cooperatives, Federal Intermediate Credit Banks and Federal Home Loan Banks. In
the case of securities not backed by the full faith and credit of the United
States, a Fund must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States if the agency or instrumentality does not meet its
commitments.

The Balanced Assets Fund may, in addition to the U.S. government securities
noted above, invest in mortgage-backed securities (including private mortgage-
backed securities), such as GNMA, FNMA or FHLMC certificates (as defined below),
which represent an undivided ownership interest in a pool of mortgages. The
mortgages backing these securities include conventional thirty-year fixed-rate
mortgages, fifteen-year fixed-rate mortgages, graduated payment mortgages and
adjustable rate mortgages. The U.S. government or the issuing agency guarantees
the payment of interest and principal of these securities. However, the
guarantees do not extend to the securities' yield or value, which are likely to
vary inversely with fluctuations in interest rates. These certificates are in
most cases pass-through instruments, through which the holder receives a share
of all interest and principal payments, including prepayments, on the mortgages
underlying the certificate, net of certain fees.

The yield on mortgage-backed securities is based on the average expected
life of the underlying pool of mortgage loans. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life of a particular issue of pass-through certificates.
Mortgage-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying mortgage obligations. Thus, the
actual life of any particular pool will be shortened

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<PAGE>

by any unscheduled or early payments of principal and interest. Principal
prepayments generally result from the sale of the underlying property or the
refinancing or foreclosure of underlying mortgages. The occurrence of
prepayments is affected by a wide range of economic, demographic and social
factors. Yield on such pools is usually computed by using the historical record
of prepayments for that pool, or, in the case of newly-issued mortgages, the
prepayment history of similar pools. The actual prepayment experience of a pool
of mortgage loans may cause the yield realized by the Balanced Assets Fund to
differ from the yield calculated on the basis of the expected average life of
the pool.

Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as does the value of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The reinvestment of scheduled
principal payments and unscheduled prepayments that the Balanced Assets Fund
receives may occur at higher or lower rates than the original investment, thus
affecting the yield of the Fund. Monthly interest payments received by the
Balanced Assets Fund have a compounding effect, which may increase the yield to
shareholders more than debt obligations that pay interest semi-annually.
Because of those factors, mortgage-backed securities may be less effective than
U.S. Treasury bonds of similar maturity at maintaining yields during periods of
declining interest rates. Accelerated prepayments adversely affect yields for
pass-through securities purchased at a premium (i.e., at a price in excess of
principal amount) and may involve additional risk of loss of principal because
the premium may not have been fully amortized at the time the obligation is
repaid. The opposite is true for pass-through securities purchased at a
discount. The Balanced Assets Fund may purchase mortgage-backed securities at a
premium or at a discount.

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

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

GNMA guarantees the timely payment of principal and interest on securities
backed by a pool of mortgages insured by the Federal Housing Administration
("FHA") or the FMHA, or guaranteed by the Veterans Administration ("VA"). The
GNMA guarantee is authorized by the National Housing Act and is backed by the
full faith and credit of the United States. The GNMA

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<PAGE>

is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.

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

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

GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years. The FHLMC guarantee is not backed by the full faith
and credit of the U.S. Government.

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

Another type of mortgage-backed security in which the Balanced Assets Fund
may invest is a collateralized mortgage obligation ("CMO"). CMOs are fully
collateralized bonds that are the general obligations of the issuer thereof
(i.e., the U.S. government, a U.S. government instrumentality, or a private
issuer). Such bonds generally are secured by an assignment to a trustee (under
the indenture pursuant to which the bonds are issued) of collateral consisting
of a pool of mortgages. Payments with respect to the underlying mortgages
generally are made to the trustee under the indenture. Payments of principal
and interest on the underlying mortgages are not passed through to the holders
of the CMOs as such (i.e., the character of payments of principal and interest
is not passed through, and therefore payments to holders of CMOs attributable to
interest paid and principal repaid on the underlying mortgages do not
necessarily constitute income and return of capital, respectively, to such
holders), but such payments are dedicated to payment of interest on and

B-13
<PAGE>

repayment of principal of the CMOs. CMOs often are issued in two or more
classes with varying maturities and stated rates of interest. Because interest
and principal payments on the underlying mortgages are not passed through to
holders of CMOs, CMOs of varying maturities may be secured by the same pool of
mortgages, the payments on which are used to pay interest on each class and to
retire successive maturities in sequence. Unlike other mortgage-backed
securities, CMOs are designed to be retired as the underlying mortgages are
repaid. In the event of prepayment on such mortgages, the class of CMO first to
mature generally will be paid down. Therefore, although in most cases the
issuer of CMOs will not supply additional collateral in the event of such
prepayment, there will be sufficient collateral to secure CMOs that remain
outstanding.

Certain CMOs may be deemed to be investment companies under the 1940 Act.
The Balanced Assets Fund intends to conduct operations in a manner consistent
with this view, and therefore generally may not invest more than 10% of its
total assets in such issuers without obtaining appropriate regulatory relief.
In reliance on Securities and Exchange Commission ("SEC") staff interpretations,
the Fund may invest in those CMOs and other mortgage-backed securities that are
not by definition excluded from the provisions of the 1940 Act but have obtained
exemptive orders from the SEC from such provisions.

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

INVESTMENT IN SMALL, UNSEASONED COMPANIES. As described in the Prospectus, the
Small Company Growth Fund will invest, and each other Fund except for "Dogs" of
Wall Street Fund may invest, in the securities of small companies having market
capitalizations under $1 billion. These

B-14
<PAGE>

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. The securities of these small companies may not be readily marketable,
making it difficult to dispose of shares when desirable. A risk of investing in
smaller, emerging companies is that they often are at an earlier stage of
development and therefore have limited product lines, market access for such
products, financial resources and depth in management as compared to larger,
more established companies, and their securities may be subject to more abrupt
or erratic market movements than securities of larger, more established
companies or the market averages in general. In addition, certain smaller
issuers may face difficulties in obtaining the capital necessary to continue in
operation and may go into bankruptcy, which could result in a complete loss of
an investment. Smaller companies also may be less significant factors within
their industries and may have difficulty withstanding competition from larger
companies. If other investment companies and investors who invest in such
issuers trade the same securities when a Fund attempts to dispose of its
holdings, the Fund may receive lower prices than might otherwise be obtained.
While smaller companies may be subject to these additional risks, they may also
realize more substantial growth than larger, more established companies.

Companies with market capitalization of $1 billion to $5 billion ("Mid-Cap
Companies") may also suffer more significant losses as well as realize more
substantial growth than larger, more established issuers. Thus, investments in
such companies tend to be more volatile and somewhat speculative. Each Fund may
invest in the securities of Mid-Cap Companies.

WARRANTS AND RIGHTS. Each Fund may invest in warrants, which give the holder of
the warrant a right to purchase a given number of shares of a particular issue
at a specified price until expiration (generally two or more years). Such
investments generally can provide a greater potential for profit or loss than
investments of equivalent amounts in the underlying common stock. The prices of
warrants do not necessarily move with the prices of the underlying securities.
If the holder does not sell the warrant, he risks the loss of his entire
investment if the market price of the underlying stock does not, before the
expiration date, exceed the exercise price of the warrant plus the cost thereof.
Investment in warrants is a speculative activity. Warrants pay no dividends and
confer no rights (other than the right to purchase the underlying stock) with
respect to the assets of the issuer. Rights represent a preemptive right of
stockholders to purchase additional shares of a stock at the time of a new
issuance before the stock is offered to the general public, allowing the
stockholder to retain the same ownership percentage after the new stock
offering.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase or sell
such securities on a "when-issued" or "delayed delivery" basis. Although a Fund
will enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement. "When-issued" or
"delayed delivery" refers to securities whose terms and indenture are available
and for which a

B-15
<PAGE>

market exists, but which are not available for immediate delivery. When such
transactions are negotiated, the price (which is generally expressed in yield
terms) is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. During the period between commitment
by a Fund and settlement (generally within two months but not to exceed 120
days), no payment is made for the securities purchased by the purchaser, and no
interest accrues to the purchaser from the transaction. Such securities are
subject to market fluctuation, and the value at delivery may be less than the
purchase price. A Fund will maintain a segregated account with its custodian,
consisting of cash, or liquid securities at least equal to the value of purchase
commitments until payment is made. With respect to securities sold on a delayed-
delivery basis, a Fund will either segregate the securities sold or liquid
assets of a comparable value.

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

To the extent a Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling securities
consistent with its investment objectives and policies and not for the purposes
of investment leverage. A Fund enters into such transactions only with the
intention of actually receiving or delivering the securities, although (as noted
above) when-issued securities and forward commitments may be sold prior to the
settlement date. In addition, changes in interest rates in a direction other
than that expected by the Adviser before settlement will affect the value of
such securities and may cause a loss to a Fund.

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

B-16
<PAGE>

issuers that appear to offer growth potential, or in foreign countries with
economic policies or business cycles different from those of the U.S., or to
reduce fluctuations in portfolio value by taking advantage of foreign stock
markets that do not move in a manner parallel to U.S. markets. Although foreign
securities are generally not expected to constitute a significant portion of any
Fund's investment portfolio, each Fund except "Dogs" of Wall Street Fund is
authorized to invest, without limitation, in foreign securities. A Fund may
purchase securities issued by issuers in any country; provided that a Fund may
not invest more than 25% of its total assets in the securities issued by
entities domiciled in any one foreign country.

Each Fund may invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs), European Depository Receipts (EDRs), Global
Depository Receipts (GDRs) or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are securities, typically issued by a U.S. financial
institution, that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depository. ADRs
may be sponsored or unsponsored. A sponsored ADR is issued by a depository that
has an exclusive relationship with the issuer of the underlying security. An
unsponsored ADR may be issued by any number of U.S. depositories. Holders of
unsponsored ADRs generally bear all the costs associated with establishing the
unsponsored ADR. The depository of an unsponsored ADR is under no obligation to
distribute shareholder communications received from the underlying issuer or to
pass through to the holders of the unsponsored ADR voting rights with respect to
the deposited securities or pool of securities. A Fund may invest in either
type of ADR. Although the U.S. investor holds a substitute receipt of ownership
rather than direct stock certificates, the use of the depository receipts in the
United States can reduce costs and delays as well as potential currency exchange
and other difficulties. The Fund may purchase securities in local markets and
direct delivery of these ordinary shares to the local depository of an ADR agent
bank in the foreign country. Simultaneously, the ADR agents create a
certificate that settles at the Fund's custodian in five days. The Fund may
also execute trades on the U.S. markets using existing ADRs. A foreign issuer
of the security underlying an ADR is generally not subject to the same reporting
requirements in the United States as a domestic issuer. Accordingly the
information available to a U.S. investor will be limited to the information the
foreign issuer is required to disclose in its own country and the market value
of an ADR may not reflect undisclosed material information concerning the issuer
of the underlying security. For purposes of a Fund's investment policies, the
Fund's investments in these types of securities will be deemed to be investments
in the underlying securities. Generally 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.

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<PAGE>

Each Fund except "Dogs" of Wall Street Fund also may invest in securities
denominated in European Currency Units (ECUs). An ECU is a "basket" consisting
of specified amounts of currencies of certain of the twelve member states of the
European Community. In addition, the Funds may invest in securities denominated
in other currency "baskets."

Investments in foreign securities, including securities of emerging market
countries, present special additional investment risks and considerations not
typically associated with investments in domestic securities, including
reduction of income by foreign taxes; fluctuation in value of foreign portfolio
investments due to changes in currency rates and control regulations (i.e.,
currency blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers; less volume on foreign exchanges than on U.S. exchanges; greater
volatility and less liquidity on foreign markets than in the U.S.; less
regulation of foreign issuers, stock exchanges and brokers than the U.S.;
greater difficulties in commencing lawsuits; higher brokerage commission rates
and custodian fees than the U.S.; increased possibilities in some countries of
expropriation, confiscatory taxation, political, financial or social instability
or adverse diplomatic developments; the imposition of foreign taxes on
investment income derived from such countries and differences (which may be
favorable or unfavorable) between the U.S. economy and foreign economies. An
emerging market country is one that the World Bank, the International Finance
Corporation or the United Nations or its authorities has determined to have a
low or middle income economy. Historical experience indicates that the markets
of emerging market countries have been more volatile than more developed
markets; however, such markets can provide higher rates of return to investors.
The performance of investments in securities denominated in a foreign currency
("non-dollar securities") will depend on, among other things, the strength of
the foreign currency against the dollar and the interest rate environment in the
country issuing the foreign currency. Absent other events that could otherwise
affect the value of non-dollar securities (such as a change in the political
climate or an issuer's credit quality), appreciation in the value of the foreign
currency generally can be expected to increase the value of a Fund's non-dollar
securities in terms of U.S. dollars. A rise in foreign interest rates or decline
in the value of foreign currencies relative to the U.S. dollar generally can be
expected to depress the value of the Fund's non-dollar securities. Currencies
are evaluated on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments status
and economic policies) as well as technical and political data. Effective
January 1, 1999, several European countries irrevocably fixed their existing
national currencies to a new single European currency unit, the "euro." Certain
European investments may be subject to additional risks as a result of this
conversion. These risks include adverse tax and accounting consequences, as
well as difficulty in processing transactions. The Adviser is aware of such
potential problems and is coordinating efforts to prevent or alleviate their
adverse impact on the Funds. There can be no assurance that a Fund will not
suffer any adverse consequences as a result of the euro conversion.

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<PAGE>

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 debt
securities, including repurchase agreements. A loan may be terminated by the
borrower on one business day's notice or by a Fund at any time. If the borrower
fails to maintain the requisite amount of collateral, the loan automatically
terminates, and the Fund could use the collateral to replace the securities
while holding the borrower liable for any excess of replacement cost over
collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will be made only to firms deemed by the Adviser to be creditworthy.
On termination of the loan, the borrower is required to return the securities to
a Fund; and any gain or loss in the market price of the loaned security during
the loan would inure to the Fund. Each Fund will pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.

Since voting or consent rights that accompany loaned securities pass to the
borrower, each Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
that are the subject of the loan.

CORPORATE TRANSACTIONS INVOLVING PORTFOLIO COMPANIES. "Dogs" of Wall Street
Fund will employ a buy and hold strategy over the course of each year, which
ignores market timing and rejects active management. The Adviser anticipates
that the thirty stocks held by "Dogs" of Wall Street Fund will remain the same
throughout the course of a year, despite any adverse developments concerning a
particular stock, an industry, the economy or the stock market generally. In
the event a corporate transaction such as a reorganization, merger, acquisition
or bankruptcy affects the issuer of securities in "Dogs" of Wall Street Fund's
portfolio, the Fund generally will not alter its portfolio holdings in an active
manner. For example, if as a result of a merger, a stock held in "Dogs" of Wall
Street Fund's portfolio is automatically exchanged for a stock of another
company, "Dogs" of Wall Street Fund will hold the newly acquired stock until
such time as "Dogs" of Wall Street Fund's entire portfolio is rebalanced;
however, "Dogs" of Wall Street Fund would not add to this position when it
invests new cash flow. In the event that "Dogs" of Wall Street Fund were to
receive cash in exchange for its entire position in an issuer upon a corporate
event, "Dogs" of Wall Street Fund would not replace the issuer in its portfolio,
but would hold only 29 stocks for the balance of the calendar year.

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<PAGE>

DIVERSIFICATION. All of the Funds except "Dogs" of Wall Street Fund are
classified as "diversified" for purposes of the 1940 Act. As a "non-
diversified" fund, "Dogs" of Wall Street Fund is not limited by the 1940 Act
with regard to the portion of its assets that may be invested in the securities
of a single issuer. To the extent "Dogs" of Wall Street Fund makes investments
in excess of 5% of its assets in the securities of a particular issuer, its
exposure to the risks associated with that issuer is increased. Because "Dogs"
of Wall Street Fund invests in a limited number of issuers, the performance of
particular securities may adversely affect the performance of "Dogs" of Wall
Street Fund or subject "Dogs" of Wall Street Fund to greater price volatility
than that experienced by diversified investment companies.

"Dogs" of Wall Street Fund intends to maintain the required level of
diversification and otherwise conduct its operations in order to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"). To qualify as a regulated investment company
under the Code, a Fund must, among other things, diversify its holdings so that,
at the end of each quarter of the taxable year, (i) at least 50% of the market
value of its assets is represented by cash, U.S. government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of its total assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its total assets is invested in the securities of any
one issuer (other than U.S. government securities or the securities of other
regulated investment companies). In the unlikely event application of "Dogs" of
Wall Street Fund's strategy would result in a violation of these requirements of
the Code, it would be required to deviate from its strategy to the extent
necessary to avoid losing its status as a regulated investment company.

INCOME ENHANCEMENT STRATEGIES. Each Fund may write (i.e., sell) call options
("calls") on securities traded on U.S. and foreign securities exchanges and
over-the-counter markets to enhance income through the receipt of premiums from
expired calls and any net profits from closing purchase transactions except that
"Dogs" of Wall Street Fund does not intend to write call options on securities
traded on foreign securities exchanges. After any such sale up to 100% of a
Fund's total assets may be subject to calls. All such calls written by a Fund
must be "covered" while the call is outstanding (i.e., the Fund must own the
securities subject to the call or other securities acceptable for applicable
escrow requirements). If a call written by the Fund is exercised, the
Fund forgoes any profit from any increase in the market price above the call
price of the underlying investment on which the call was written.]

The Balanced Assets Fund also may write put options ("puts"), which give
the holder of the option the right to sell the underlying security to the Fund
at the stated exercise price. The Fund will

B-20
<PAGE>

receive a premium for writing a put option that increases the Fund's return. The
Fund writes only covered put options, which means that so long as the Fund is
obligated as the writer of the option it will, through its custodian, have
deposited and maintained cash or liquid securities denominated in U.S. dollars
or non-U.S. currencies with a securities depository with a value equal to or
greater than the exercise price of the underlying securities.

HEDGING STRATEGIES. For hedging purposes as a temporary defensive maneuver,
each Fund, except as described below, may also use interest rate futures
contracts, foreign currency futures contracts, and stock and bond index futures
contracts (together, "Futures"); forward contracts on foreign currencies
("Forward Contracts"); and call and put options on equity and debt securities,
Futures, stock and bond indices and foreign currencies(all the foregoing
referred to as "Hedging Instruments"). All puts and calls on securities,
interest rate Futures or stock and bond index Futures or options on such Futures
purchased or sold by the Fund will be listed on a national securities or
commodities exchange or on U.S. over-the-counter markets. Hedging Instruments
may be used to attempt to: (i) protect against possible declines in the market
value of a Fund's portfolio resulting from downward trends in the equity and
debt securities markets (generally due to a rise in interest rates); (ii)
protect a Fund's unrealized gains in the value of its equity and debt securities
that have appreciated; (iii) facilitate selling securities for investment
reasons; (iv) establish a position in the equity and debt securities markets as
a temporary substitute for purchasing particular equity and debt securities; or,
except with respect to "Dogs" of Wall Street Fund, (v) reduce the risk of
adverse currency fluctuations. "Dogs" of Wall Street Fund does not intend to
use Forward Contracts on foreign currencies, call and put options on foreign
currencies or foreign currency Futures contracts.

Each Fund except "Dogs" of Wall Street Fund may use spread transactions for
any lawful purpose consistent with the Fund's investment objective. A Fund may
purchase covered spread options from securities dealers. Such covered spread
options are not presently exchange-listed or exchange-traded. The purchase of a
spread option gives a Fund the right to put, or sell, a security that it owns at
a fixed dollar spread or fixed yield spread in relationship to another security
that the Fund does not own, but which is used as a benchmark. The risk to a Fund
in purchasing covered spread options is the cost of the premium paid for the
spread option and any transaction costs. In addition, there is no assurance that
closing transactions will be available. The purchase of spread options will be
used to protect a Fund against adverse changes in prevailing credit quality
spreads, i.e., the yield spread between high quality and lower quality
securities. Such protection is provided only during the life of the spread
option.

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<PAGE>

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

OPTIONS

OPTIONS ON SECURITIES. As noted above, each Fund may write and purchase
call and put options (including yield curve options) on equity and debt
securities except that "Dogs" of Wall Street Fund does not intend to engage in
yield curve options or options on debt securities.

When a Fund writes a call on a security it receives a premium and agrees to
sell the underlying security to a purchaser of a corresponding call on the same
security during the call period (usually not more than 9 months) at a fixed
price (which may differ from the market price of the underlying security),
regardless of market price changes during the call period.

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

B-22
<PAGE>

expiration date and a Fund will lose its premium payment and the right to
purchase the underlying investment.

A put option on securities gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying investment at the exercise price
during the option period. Writing a put covered by segregated liquid assets
equal to the exercise price of the put has the same economic effect to a Fund as
writing a covered call. The premium a Fund receives from writing a put option
represents a profit as long as the price of the underlying investment remains
above the exercise price. However, a Fund has also assumed the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise price, even though the value of the investment may fall below the
exercise price. If the put expires unexercised, a Fund (as the writer of the
put) realizes a gain in the amount of the premium. If the put is exercised, a
Fund must fulfill its obligation to purchase the underlying investment at the
exercise price, which will usually exceed the market value of the investment at
that time. In that case, a Fund may incur a loss, equal to the sum of the sale
price of the underlying investment and the premium received minus the sum of the
exercise price and any transaction costs incurred.

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

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<PAGE>

worthless on its expiration date. In the event of a decline in the stock market,
a Fund could exercise or sell the put at a profit to attempt to offset some or
all of its loss on its portfolio securities.

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

OPTIONS ON FOREIGN CURRENCIES. Each Fund except "Dogs" of Wall Street
Fund may write and purchase puts and calls on foreign currencies. A call
written on a foreign currency by a Fund is "covered" if the Fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by the Fund) upon
conversion or exchange of other foreign currency held in its portfolio. A put
option is "covered" if the Fund segregates cash or liquid securities with a
value at least equal to the exercise price of the put option. A call written by
a Fund on a foreign currency is for cross-hedging purposes if it is not covered,
but is designed to provide a hedge against a decline in the U.S. dollar value of
a security that the Fund owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change in
the exchange rate. In such circumstances, a Fund collateralizes the option by
segregating cash or liquid securities in an amount not less than the value of
the underlying foreign currency in U.S. dollars marked-to-market daily. As with
other kinds of option transactions, the writing of an option on currency will
constitute only a partial hedge, up to the amount of the premium received. A
Fund could be required to purchase or sell currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on currency
may constitute an effective hedge against exchange rate fluctuations; however,
in the event of exchange rate movements adverse to a Fund's position, the Fund
may forfeit the entire amount of the premium plus related transaction costs.

OPTIONS ON SECURITIES INDICES. As noted above, each Fund may write and
purchase call and put options on securities indices. Puts and calls on broadly-
based securities indices are similar to puts and calls on securities except that
all settlements are in cash and gain or loss depends on

B-24
<PAGE>

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

FUTURES AND OPTIONS ON FUTURES

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

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

B-25
<PAGE>

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

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

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

Conversely, a Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing Futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When a Fund purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Fund will sustain losses
on its futures position, which could reduce or eliminate the benefits of the
reduced cost of portfolio securities to be acquired.

B-26
<PAGE>

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

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

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

FORWARD CONTRACTS

Each Fund except "Dogs" of Wall Street Fund may engage in Forward
Contracts. A Forward Contract involves bilateral obligations of one party to
purchase, and another party to sell, a specific currency at a future date (which
may be any fixed number of days from the date of the contract agreed upon by the
parties), at a price set at the time the contract is entered into. These

B-27
<PAGE>

contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. No price is paid
or received upon the purchase or sale of a Forward Contract.

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

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

A Fund may also use Forward Contracts to lock in the U.S. dollar value of
portfolio positions ("position hedge"). In a position hedge, for example, when
a Fund believes that foreign currency may suffer a substantial decline against
the U.S. dollar, it may enter into a Forward Contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in (or affected by fluctuations in, in the case of ADRs)
such foreign currency, or when a Fund believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may enter into a Forward
Contract to buy that foreign currency for a fixed dollar amount. In this
situation a Fund may, in the alternative, enter into a Forward Contract to sell
a different foreign currency for a fixed U.S. dollar amount where the Fund
believes that the U.S. dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which portfolio securities of the Fund are denominated
("cross-hedged"). The Funds, except "Dogs" of Wall Street Fund, may also hedge
investments denominated in a foreign currency by entering into forward currency
contracts with respect to a foreign currency that is expected to correlate to
the currency in which the investments are denominated ("proxy hedging").

B-28
<PAGE>

A Fund will cover outstanding forward currency contracts by maintaining
liquid portfolio securities denominated in the currency underlying the forward
contract or the currency being hedged. To the extent that a Fund is not able to
cover its forward currency positions with underlying portfolio securities, the
Fund will segregate cash or liquid securities having a value equal to the
aggregate amount of the Fund's commitments under Forward Contracts entered into
with respect to position hedges and cross-hedges. If the value of the
segregated securities declines, additional cash or securities will be segregated
on a daily basis so that the value of the segregated assets will equal the
amount of the Fund's commitments with respect to such contracts. As an
alternative to segregating assets, a Fund may purchase a call option permitting
the Fund to purchase the amount of foreign currency being hedged by a forward
sale contract at a price no higher than the Forward Contract price or the Fund
may purchase a put option permitting the Fund to sell the amount of foreign
currency subject to a forward purchase contract at a price as high or higher
than the Forward Contract price. Unanticipated changes in currency prices may
result in poorer overall performance for a Fund than if it had not entered into
such contracts.

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

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

B-29
<PAGE>

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 that provides
secondary trading for options of the same series and there is no assurance that
a liquid secondary market will exist for any particular option. A Fund's option
activities may affect its turnover rate and brokerage commissions. The exercise
by a Fund of puts on securities will cause the sale of related investments,
increasing portfolio turnover. Although such exercise is within a Fund's
control, holding a put might cause the Fund to sell the related investments for
reasons that would not exist in the absence of the put. A Fund will pay a
brokerage commission each time it buys a put or call, sells a call, or buys or
sells an underlying investment in connection with the exercise of a put or call.
Such commissions may be higher than those that would apply to direct purchases
or sales of such underlying investments. Premiums paid for options are small in
relation to the market value of the related investments, and consequently, put
and call options offer large amounts of leverage. The leverage offered by
trading in options could result in a Fund's net asset value being more sensitive
to changes in the value of the underlying investments.

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<PAGE>

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. Margin
deposits may consist of cash or securities acceptable to the broker and the
relevant contract market.

Transactions in options by a Fund are subject to limitations established by
each of the exchanges governing the maximum number of options that may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
exchanges or brokers. Thus, the number of options a Fund may write or hold may
be affected by options written or held by other entities, including other
investment companies having the same or an affiliated investment adviser.
Position limits also apply to Futures. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain other
sanctions. Due to requirements under the 1940 Act, when a Fund purchases a
Future, the Fund will segregate cash or liquid securities in an amount equal to
the market value of the securities underlying such Future, less the margin
deposit applicable to it.

POSSIBLE RISK FACTORS IN HEDGING

Participation in the options or Futures markets and in currency exchange
transactions involves investment risks and transaction costs to which a Fund
would not be subject absent the use of these strategies. If the Adviser's
predictions of movements in the direction of the securities,

B-31
<PAGE>

foreign currency and interest rate markets are inaccurate, the adverse
consequences to a Fund may leave the Fund in a worse position than if such
strategies were not used.

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

If a Fund uses Hedging Instruments to establish a position in the debt
securities markets as a temporary substitute for the purchase of individual debt
securities (long hedging) by buying Futures and/or calls on such Futures or on
debt securities, it is possible that the market may decline; if the Adviser then
determines not to invest in such securities at that time because of concerns as
to possible further market decline or for other reasons, the Fund will realize a
loss on the Hedging Instruments that is not offset by a reduction in the price
of the debt securities purchased.

SHORT SALES. Each Fund except "Dogs" of Wall Street Fund may make "short
sales against the box." A short sale is effected by selling a security that the
Fund does not own. A short sale is against the box to the extent that the Fund
contemporaneously owns, or has the right to obtain without payment, securities
identical to those sold short. A Fund may not enter into a short sale against
the box, if, as a result, more than 25% of its total assets would be subject to
such short sales. A Fund generally will recognize any gain (but not loss) for
federal income tax purposes at the time that it makes a short sale against the
box.

LEVERAGE. In seeking to enhance investment performance, "Dogs" of Wall
Street Fund, the Small Company Growth Fund and the Growth and Income Fund may
increase their ownership of securities by borrowing at fixed rates of interest
up to the maximum extent permitted under the 1940 Act (presently 50% of net
assets) and investing the borrowed funds, subject to the restrictions stated in
the respective Prospectus. Any such borrowing will be made only pursuant to the
requirements of the 1940 Act and will be made only to the extent that the value
of each Fund's assets less its

B-32
<PAGE>

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.

FUTURE DEVELOPMENTS. Each Fund may invest in securities and other instruments
that do not presently exist but may be developed in the future, provided that
each such investment is consistent with the Fund's investment objectives,
policies and restrictions and is otherwise legally permissible under federal and
state laws. Each Fund's Prospectus and Statement of Additional Information will
be amended or supplemented as appropriate to discuss any such new investments.

INVESTMENT RESTRICTIONS

Each Fund is subject to a number of investment restrictions that are
fundamental policies and may not be changed without the approval of the holders
of a majority of that Fund's outstanding voting securities. A "majority of the
outstanding voting securities" of a Fund for this purpose means the lesser of
(i) 67% of the shares of the Fund represented at a meeting at which more than
50% of the outstanding shares are present in person or represented by proxy or
(ii) more than 50% of the outstanding shares. Unless otherwise indicated, all
percentage limitations apply to each Fund on an individual basis, and apply only
at the time the investment is made; any subsequent change in any applicable
percentage resulting from fluctuations in value will not be deemed an investment
contrary to these restrictions.

Under the following fundamental restrictions, no Fund may:

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

B-33
<PAGE>

instrumentalities ("U.S. government securities"); provided, that this
restriction does not apply to "Dogs" of Wall Street Fund.

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

(3) Purchase securities on margin, borrow money or pledge their assets, except
that "Dogs" of Wall Street Fund, the Small Company Growth Fund and the
Growth and Income Fund may borrow money to purchase securities as set forth
in the Prospectus and Statement of Additional Information and each Fund may
borrow for temporary or emergency purposes in amounts not exceeding 5%
(taken at the lower of cost or current value) of its total assets (not
including the amount borrowed) and pledge its assets to secure such
borrowings. Further, to the extent that an investment technique engaged in
by "Dogs" of Wall Street Fund or Growth and Income Fund required pledging
of assets, the Fund may pledge assets in connection with such transactions.
For purposes of this restriction and restriction (9) below, collateral
arrangements with respect to the options, financial futures and options
thereon described in the Prospectus and Statement of Additional Information
are not deemed to constitute a pledge or loan of assets.

(4) Invest more than 25% of each Fund's assets in the securities of issuers
engaged in the same industry, except that "Dogs" of Wall Street Fund may
invest more than 25% of its assets in the securities of issuers in the same
industry to the extent such investment would be selected according to its
stock selection criteria.

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

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

(7) Make loans, except through (i) repurchase agreements, (ii) loans of
portfolio securities, (iii) the purchase of portfolio securities consistent
with a Fund's investment objectives and

B-34
<PAGE>

policies, as described in the Prospectus, and (iv) as otherwise permitted
by exemptive order of the SEC.

(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 that each Fund
may enter into repurchase agreements, lend its portfolio securities and
borrow money, as described in restriction (3).

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

(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 has determined to be liquid pursuant to guidelines established by
the Trustees, will not be considered illiquid for purposes of this 15%
limitation on illiquid securities.

(11 Invest in securities of other registered investment companies, except by
purchases in the open market, involving only customary brokerage
commissions and as a result of which not more than 10% of its total assets
(determined at the time of investment) would be invested in such
securities, or except as part of a merger, consolidation or other
acquisition.

TRUSTEES AND OFFICERS

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

B-35
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal Occupations
Name, Age and Address Position with the Trust During Past 5 Years
- --------------------- ----------------------- -------------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
S. James Coppersmith, 65 Trustee Director/Trustee of B.J.'s Wholesale
7 Elmwood Road Club Inc., Metroservices Group Inc.,
Marblehead, MA 01945 Rasky/Baerlein Group and the Boston
Stock Exchange; formerly, President
and General Manager, WCVB-TV, a
division of the Hearst Corp. (1982 to
1994); Director/Trustee of SAMF and
Anchor Series Trust ("AST").
- ----------------------------------------------------------------------------------------------------
Samuel M. Eisenstat, 58 Chairman of the Board Attorney, solo practitioner, Of
430 East 86th Street Counsel, Kramer, Levin, Naftalis &
New York, NY 10028 Frankel; Director/Trustee of Atlantic
Realty Trust, North European Oil
Royalty Trust; Chairman of the Boards
of Directors/ Trustees of SAMF and
AST.
- ----------------------------------------------------------------------------------------------------
Stephen J. Gutman, 55 Trustee Partner and Managing Member of B.B.
515 East 79th Street Associates LLC (menswear specialty
New York, NY 10021 retailing and other activities) since
June 1988; Director/Trustee of SAMF
and AST.
- ----------------------------------------------------------------------------------------------------
Peter Harbeck*, 44 Trustee and President Director and President, the Adviser;
The SunAmerica Center Director, SunAmerica Capital Services,
733 Third Avenue Inc. ("SACS"), since February 1993;
New York, NY 10017-3204 Director and President, SunAmerica
Fund Services, Inc.("SAFS"), since
May 1988; President, SAMF and AST;
Executive Vice President and Chief
Operating Officer, the Adviser, from
May 1988 to August 1995; Executive
Vice President, SACS, from November
1991 to August 1995; Director,
Resources Trust Company.
- ----------------------------------------------------------------------------------------------------
</TABLE>

B-36
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal Occupations
Name, Age and Address Position with the Trust During Past 5 Years
- --------------------- ----------------------- -------------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
Sebastiano Sterpa, 69 Trustee Founder and Chairman of the Board of
73473 Mariposa Drive the Sterpa Group (real estate), since
Palm Desert, CA 92260 1962; Director, Real Estate Business
Service and Countrywide Financial;
Director/ Trustee of SAMF.
- ---------------------------------------------------------------------------------------------------
Francis D. Gannon, 30 Vice President Vice President and Portfolio Manager,
The SunAmerica Center the Adviser, since May 1997; Co-
733 Third Avenue Portfolio Manager, from November
New York, NY 10017-3204 1996 to May 1997; previously,
Assistant Vice President and Equity
Analyst, from 1993 to 1997.
- ---------------------------------------------------------------------------------------------------
Nancy Kelly, 46 Vice President Vice President and Head Trader, the
The SunAmerica Center Adviser, since 1994; formerly, Vice
733 Third Avenue President, Whitehorne & Co. Ltd.,
New York, NY 10017-3204 from 1991 to 1994; Sales Trader,
Lynch Jones & Ryan, from 1992 to
1994.
- ---------------------------------------------------------------------------------------------------
Peter C. Sutton, 33 Treasurer Senior Vice President, the Adviser,
The SunAmerica Center since April 1997; Treasurer, SAMF
733 Third Avenue and AST, since February 1996; Vice
New York, NY 10017-3204 President, SunAmerica Series Trust
and Anchor Pathway Fund, since
October 1994; Vice President, Seasons
Series Trust, since April 1997;
formerly, Vice President, the Adviser,
from 1994 to 1997; Controller, SAMF
and AST, from March 1993 to
February 1996; Assistant Controller,
SAMF, from 1990 to 1993.
- ---------------------------------------------------------------------------------------------------
</TABLE>

B-37
<PAGE>

Robert M. Zakem, 40 Secretary and Chief Senior Vice President and General
The SunAmerica Center Compliance Officer Counsel, the Adviser, since April 1993;
733 Third Avenue Executive Vice President, General
New York, NY 10017-3204 Counsel and Director, SACS, since
February 1993; Vice President,
General Counsel and Assistant
Secretary, SAFS, since January 1994;
Vice President, SunAmerica Series
Trust, Anchor Pathway and Seasons
Series Trust; Assistant Secretary,
SunAmerica Series Trust and Anchor
Pathway Fund, since September 1993;
Assistant Secretary, Seasons Series
Trust, since April 1997; formerly, Vice
President and Associate General
Counsel, the Adviser, from March
1992 to April 1993.
- ---------------------------------------------------------------------------------------------------
</TABLE>

The Trustees of the Trust are responsible for the overall supervision of
the operation of the Trust and each Fund and perform various duties imposed on
trustees of investment companies by the 1940 Act and under the Trust's
Declaration of Trust. Trustees and officers of the Trust are also trustees and
officers of some or all of the other investment companies managed, administered
or advised by the Adviser, and distributed by SunAmerica Capital Services, Inc.
("SACS" or the "Distributor") and other affiliates of SunAmerica Inc.

The Trust pays each Trustee who is not an interested person of the Trust or
the Adviser (each a "disinterested Trustee") annual compensation in addition to
reimbursement of out-of-pocket expenses in connection with attendance at
meetings of the Trustees. Specifically, each disinterested Trustee receives a
pro rata portion (based upon the Trust's net assets) of an aggregate of $40,000
in annual compensation for acting as director or trustee to the SunAmerica
Mutual Funds and AST. In addition, Mr. Eisenstat receives an aggregate of $2,000
in annual compensation for serving as 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.

B-38
<PAGE>

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

The Trustees (and Directors) of the SunAmerica Mutual Funds have adopted
the SunAmerica Disinterested Trustees' and Directors' Retirement Plan (the
"Retirement Plan") effective January 1, 1993 for the disinterested Trustees.
The Retirement Plan provides generally that if a disinterested Trustee who has
at least 10 years of consecutive service as a disinterested Trustee of any of
the SunAmerica Mutual Funds (an "Eligible Trustee") retires after reaching age
60 but before age 70 or dies while a Trustee, such person will be eligible to
receive a retirement or death benefit from each SunAmerica Mutual Fund with
respect to which he or she is an Eligible Trustee. With respect to Sebastiano
Sterpa, the disinterested Trustees have determined to make an exception to
existing policy and allow Mr. Sterpa to remain on the Board past age 70, until
he has served for ten years. Mr. Sterpa will cease accruing retirement benefits
upon reaching age 70, although such benefits will continue to accrue interest as
provided for in the Retirement Plan. As of each birthday, prior to the 70th
birthday, each Eligible Trustee will be credited with an amount equal to (i) 50%
of his or her regular fees (excluding committee fees) for services as a
disinterested Trustee of each SunAmerica Mutual Fund for the calendar year in
which such birthday occurs, plus (ii) 8.5% of any amounts credited under clause
(i) during prior years. An Eligible Trustee may receive any benefits payable
under the Retirement Plan, at his or her election, either in one lump sum or in
up to fifteen annual installments.

[As of December 31, 1998, the Trustees and officers of the Trust owned in
the aggregate, less than 1% of each Class of the Trust's total outstanding
shares.]

The following table sets forth information summarizing the compensation of
each disinterested Trustee for his services as Trustee for the fiscal year ended
September 30, 1998. Neither the Trustees who are interested persons of the Trust
nor any officers of the Trust receive any compensation.

B-39
<PAGE>

40
<PAGE>

COMPENSATION TABLE

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
TRUSTEE FROM AS PART OF TRUST BENEFITS UPON COMPLEX PAID TO
REGISTRANT EXPENSES* RETIREMENT TRUSTEES*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S. James Coppersmith $ $ $ $
- ---------------------------------------------------------------------------------------------------------
Samuel M. Eisenstat $ $ $ $
- ---------------------------------------------------------------------------------------------------------
Stephen J. Gutman $ $ $ $
- ---------------------------------------------------------------------------------------------------------
Sebastiano Sterpa $ $ $ $**
- ---------------------------------------------------------------------------------------------------------
</TABLE>

* Information is as of September 30, 1998 for the five investment companies in
the complex that pay fees to these directors/trustees. The complex
consists of the SunAmerica Mutual Funds and Anchor Series Trust.

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

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., an investment-grade
financial services company that, as of September 30, 1998, earns fees or spreads
income on $[110] billion in assets. SunAmerica Inc. has agreed to merge with and
into American International Group, Inc., the leading U.S.-based international
insurance organization. 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

B-41
<PAGE>

will at all times be subject to the policies and control of the Trustees. The
Adviser also provides certain administrative services to each Fund.

Except to the extent otherwise specified in the Advisory Agreement, each
Fund pays, or causes to be paid, all other expenses of the Trust and each of the
Funds, including, without limitation, charges and expenses of any registrar,
custodian, transfer and dividend disbursing agent; brokerage commissions; taxes;
engraving and printing of share certificates; registration costs of the Funds
and their shares under Federal and state securities laws; the cost and expense
of printing, including typesetting, and distributing Prospectuses and Statements
of Additional Information respecting the Funds, and supplements thereto, to the
shareholders of the Funds; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; all expenses incident to any dividend, withdrawal or redemption
options; fees and expenses of legal counsel and independent accountants;
membership dues of industry associations; interest on borrowings of the Funds;
postage; insurance premiums on property or personnel (including Officers and
Trustees) of the Trust that inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Trust's operation.

As compensation for its services to the Funds, the Adviser receives a fee
from each Fund, payable monthly, computed daily at the annual rate of .75% on
the first $350 million of such Fund's average daily assets, .70% on the next
$350 million of net assets and .65% on net assets over $700 million, except that
the Adviser receives a fee from "Dogs" of Wall Street Fund, payable monthly,
computed daily at the annual rate of .35% of average daily net assets.

The following table sets forth the total advisory fees incurred by each
Fund pursuant to the Advisory Agreement or waived by the Adviser for the fiscal
years ended September 30, 1998, 1997 and 1996.

ADVISORY FEES

<TABLE>
<CAPTION>
ADVISORY FEES* ADVISORY FEES WAIVED
- ----------------------------------------------------------------------------------------------
FUND 1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Blue Chip
Growth Fund $701,489 $644,774 -- -- --
- ----------------------------------------------------------------------------------------------
Mid-Cap -- --
Growth Fund $416,078 $375,398 --
- ----------------------------------------------------------------------------------------------
</TABLE>

B-42
<PAGE>

- ----------------------------------------------------------------------------------------------
Growth and
Income Fund $ 531,071 $ 91,558 $147,159 $91,558

- ----------------------------------------------------------------------------------------------
Balanced Assets $2,430,522 $2,282,018 -- -- --
Fund
- ----------------------------------------------------------------------------------------------
"Dogs" of Wall
Street Fund -- -- -- --

- ----------------------------------------------------------------------------------------------
</TABLE>
* Without giving effect to voluntary fee waivers.

B-43
<PAGE>

The following table sets forth the fee waivers and expense reimbursements
made to the Funds by the Adviser for the fiscal years ended September 30, 1998,
1997 and 1996.

FEE WAIVERS AND EXPENSE REIMBURSEMENTS

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FUND 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS II* CLASS Z CLASS A CLASS B CLASS Z CLASS A CLASS B

- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blue Chip Growth -- -- -- -- -- --
Fund
- -----------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund -- -- -- -- -- $66
- -----------------------------------------------------------------------------------------------------------
Small Company -- -- $9,971 -- --
Growth Fund
- -----------------------------------------------------------------------------------------------------------
Growth and Income -- $80,226 $71,140 -- $73,696 $56,264-
Fund
- -----------------------------------------------------------------------------------------------------------
Balanced Assets Fund -- -- $9,394 -- -
- -----------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street -- -- -- -- -
Fund
- -----------------------------------------------------------------------------------------------------------
</TABLE>

* Class II shares were previously designated as Class C shares except for
"Dogs" of Wall Street Fund.

The Advisory Agreement continues in effect with respect to each Fund after
an initial two-year term from year to year provided that such continuance is
approved annually by vote of a majority of the Trustees including a majority of
the disinterested Trustees. The Advisory Agreement may be terminated with
respect to a Fund at any time, without penalty, on 60 days' written notice by
the Trustees, by the holders of a majority of the respective Fund's outstanding
voting securities or by the Adviser. The Advisory Agreement automatically
terminates with respect to each Fund in the event of its assignment (as defined
in the 1940 Act and the rules thereunder).

Under the terms of the Advisory Agreement, the Adviser is not liable to
the Funds, or their shareholders, for any act or omission by it or for any
losses sustained by the Funds or their shareholders, except in the case of
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.

PERSONAL TRADING. The Trust and the Adviser have adopted a written Code of
Ethics, which prescribes general rules of conduct and sets forth guidelines with
respect to personal securities

B-44
<PAGE>

trading by "Access Persons" thereof. An Access Person as defined in the Code of
Ethics is an individual who is a trustee, director, officer, general partner or
advisory person of the Trust or the Adviser. The guidelines on personal
securities trading include: (i) securities being considered for purchase or
sale, or purchased or sold, by any Investment Company advised by the Adviser,
(ii) Initial Public Offerings, (iii) private placements, (iv) blackout periods,
(v) short-term trading profits, (vi) gifts, and (vii) services as a director.
These guidelines are substantially similar to those contained in the Report of
the Advisory Group on Personal Investing issued by the Investment Company
Institute's Advisory Panel. The Adviser reports to the Board of Trustees on a
quarterly basis, as to whether there were any violations of the Code of Ethics
by Access Persons of the Trust or the Adviser during the quarter.

THE DISTRIBUTOR. The Trust, on behalf of each class of each Fund, has entered
into a distribution agreement (the "Distribution Agreement") with SunAmerica
Capital Services, Inc. ("SACS" or the "Distributor"), a registered broker-dealer
and an indirect wholly owned subsidiary of 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 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 Trust and the
Distributor each has the right to terminate the Distribution Agreement with
respect to a Fund on 60 days' written notice, without penalty. The Distribution
Agreement will terminate automatically in the event of its assignment as defined
in the 1940 Act and the rules thereunder.

The Distributor may, from time to time, pay additional commissions or
promotional incentives to brokers, dealers or other financial services firms
that sell shares of the Funds. In some instances, such additional commissions,
fees or other incentives may be offered only to certain firms, including Royal
Alliance Associates, Inc., SunAmerica Securities, Inc., Keogler Morgan &

B-45
<PAGE>

Company, Financial Service Corporation and Advantage Capital Corporation,
affiliates of the Distributor, that sell or are expected to sell during
specified time periods certain minimum amounts of shares of the Funds, or of
other funds underwritten by the Distributor. In addition, the terms and
conditions of any given promotional incentive may differ from firm to firm.
Such differences will, nevertheless, be fair and equitable, and based on such
factors as size, geographic location, or other reasonable determinants, and will
in no way affect the amount paid to any investor.

DISTRIBUTION PLANS. Rule 12b-1 under the 1940 Act permits an investment company
directly or indirectly to pay expenses associated with the distribution of its
shares in accordance with a plan adopted by the investment company's board of
directors. Pursuant to such rule, the Funds have adopted Distribution Plans for
Class A, Class B and Class II shares (hereinafter referred to as the "Class A
Plan," the "Class B Plan" and the "Class II Plan" and collectively as the
"Distribution Plans"). There is no Distribution Plan in effect for Class Z
shares.

The sales charge and distribution fees of a particular class will not be
used to subsidize the sale of shares of any other class. Reference is made to
"Shareholder Account Information" in the Prospectus for certain information with
respect to the Distribution Plans.

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

The Distribution Plans provide that each class of shares of each Fund
may also pay the Distributor an account maintenance and service fee of up to
0.25% of the aggregate average daily net assets of such class of shares for
payments to broker-dealers for providing continuing account 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.

B-46
<PAGE>

It is possible that in any given year the amount paid to the
Distributor under any of the Distribution Plans will exceed the Distributor's
distribution costs as described above.

B-47
<PAGE>

The following table sets forth the distribution and account maintenance
and service fees the Distributor received from the Funds for the fiscal years
ended September 30, 1998, 1997 and 1996.

DISTRIBUTION AND ACCOUNT MAINTENANCE AND SERVICE FEES

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
FUND 1998 1997 1996
- --------------------------------------------------------------------------------------
CLASS A CLASS B CLASS CLASS A CLASS B CLASS A CLASS B
II*
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Blue Chip Growth
Fund $202,327 $ 357,241 $164,198 $ 390,560
- --------------------------------------------------------------------------------------
Mid-Cap Growth
Fund $148,384 $ 130,813 $136,912 $ 109,353
- --------------------------------------------------------------------------------------
Small Company
Growth Fund $545,065 $1,045,469 $408,943 $ 815,125
- --------------------------------------------------------------------------------------
Growth and
Income Fund $127,978 $ 342,443 $ 25,462 $ 49,329**
- --------------------------------------------------------------------------------------
Balanced Assets
Fund $545,512 $1,681,853 $478,455 $1,675,676
- --------------------------------------------------------------------------------------
"Dogs" of Wall
Street Fund***
- --------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
* For the period from 1/28/98 (for those Funds for which Class II shares
were previously designated as Class C shares).
** For the fiscal year ended 9/30/96, the Distributor waived fees in the
amount of $3,265 for the Growth and Income Fund.
*** For the period from 6/1/98 (commencement of offering of shares of "Dogs"
of Wall Street Fund).
</TABLE>

Continuance of the Distribution Plans with respect to each Fund is subject
to annual approval by vote of the Trustees, including a majority of the
disinterested Trustees. A Distribution Plan may not be amended to increase
materially the amount authorized to be spent thereunder with respect to a class
of shares of a Fund, without approval of the shareholders of the affected class
of shares of the Fund. In addition, all material amendments to the Distribution
Plans must be approved by the Trustees in the manner described above. A
Distribution Plan may be terminated at any time with respect to a Fund without
payment of any penalty by vote of a majority of the disinterested or by vote of
a majority of the outstanding voting securities (as defined in the 1940 Act) of
the affected

B-48
<PAGE>

class of shares of the Fund. So long as the Distribution Plans are in effect,
the election and nomination of the Independent Trustees of the Trust shall be
committed to the discretion of the disinterested Trustees. In the Trustees'
quarterly review of the Distribution Plans, they will consider the continued
appropriateness of, and the level of, compensation provided in the Distribution
Plans. In their consideration of the Distribution Plans with respect to a Fund,
the Trustees must consider all factors they deem relevant, including information
as to the benefits of the Fund and the shareholders of the relevant class of the
Fund.

THE ADMINISTRATOR. The Trust has entered into a Service Agreement, under the
terms of which SunAmerica Fund Services, Inc. ("SAFS"), an indirect wholly owned
subsidiary of SunAmerica Inc., acts as a servicing agent assisting State Street
Bank and Trust Company ("State Street") in connection with certain services
offered to the shareholders of each of the Funds. Under the terms of the
Service Agreement, SAFS may receive reimbursement of its costs in providing such
shareholder services. SAFS is located at The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204.

Pursuant to the Service Agreement, as compensation for services rendered,
SAFS receives a fee from each Fund, computed and payable monthly based upon an
annual rate of 0.22% of average daily net assets. This fee represents the full
cost of providing shareholder and transfer agency services to the Trust. From
this fee, SAFS pays a fee to State Street, and its affiliate, National Financial
Data Services ("NFDS" and with State Street, the "Transfer Agent") (other than
out-of-pocket charges of the Transfer Agent which are paid by the Trust). No
portion of such fee is paid or reimbursed by Class Z shares. Class Z shares,
however, will pay all direct transfer agency fees and out-of pocket expenses.
For further information regarding the Transfer Agent, see the section entitled
"Additional Information" below.

The Service Agreement dated September 23, 1993 as amended August 21, 1996
and May 19, 1998 continues in effect from year to year provided that such
continuance is approved annually by vote of a majority of the Trustees including
a majority of the disinterested Trustees.

PORTFOLIO TRANSACTIONS AND BROKERAGE

As discussed in each Prospectus, the Adviser is responsible for decisions
to buy and sell securities for each Fund, selection of broker-dealers and
negotiation of commission rates. Purchases and sales of securities on a
securities exchange are effected through broker-dealers who charge a negotiated
commission for their services. Orders may be directed to any broker-dealer
including, to the extent and in the manner permitted by applicable law, an
affiliated brokerage subsidiary of the Adviser.

B-49
<PAGE>

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
that includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.

The Adviser's primary consideration in effecting a security transaction is
to obtain the best net price and the most favorable execution of the order.
However, the Adviser may select broker-dealers that provide it with research
services and may cause a Fund to pay such broker-dealers commissions that exceed
those that other broker-dealers may have charged, if in its view the commissions
are reasonable in relation to the value of the brokerage and/or research
services provided by the broker-dealer. Certain research services furnished by
brokers may be useful to the Adviser with clients other than the Trust. No
specific value can be determined for research services furnished without cost to
the Adviser by a broker. The Adviser is of the opinion that because the
material must be analyzed and reviewed by its staff, its receipt does not tend
to reduce expenses, but may be beneficial in supplementing the Adviser's
research and analysis. Therefore, it may tend to benefit the Funds by improving
the quality of the Adviser's investment advice. The investment advisory fees
paid by the Funds are not reduced because the Adviser receives such services.
When making purchases of underwritten issues with fixed underwriting fees, the
Adviser may designate the use of broker-dealers who have agreed to provide the
Adviser with certain statistical, research and other information.

Subject to applicable law and regulations, consideration may also be given
to the willingness of particular brokers to sell shares of a Fund as a factor in
the selection of brokers for transactions effected on behalf of a Fund, subject
to the requirement of best price and execution.

The Adviser may effect portfolio transactions through an affiliated
broker-dealer, acting as an agent and not as principal, in accordance with Rule
17e-1 under the 1940 Act and other applicable securities laws.

Although the objectives of other accounts or investment companies that the
Adviser manages may differ from those of the Funds, it is possible that, at
times, identical securities will be acceptable for purchase by one or more of
the Funds and one or more other accounts or investment companies that the
Adviser manages. However, the position of each account or company in the
securities of the same issue may vary with the length of the time that each
account or company may choose to hold its investment in those securities. The
timing and amount of purchase by each account and company will also be
determined by its cash position. If the purchase or sale of a security is
consistent with the investment policies of one or more of the Funds and one or
more of

B-50
<PAGE>

these other accounts or companies is considered at or about the same
time, transactions in such securities will be allocated in a manner deemed
equitable by the Adviser. The Adviser may combine such transactions, in
accordance with applicable laws and regulations, where the size of the
transaction would enable it to negotiate a better price or reduced commission.
However, simultaneous transactions could adversely affect the ability of a Fund
to obtain or dispose of the full amount of a security that it seeks to purchase
or sell, or the price at which such security can be purchased or sold.

The following tables set forth the brokerage commissions paid by the Funds
and the amounts of the brokerage commissions paid to affiliated broker-dealers
by the Funds for the fiscal years ended September 30, 1998, 1997 and 1996.

1998 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>

AGGREGATE BROKERAGE AMOUNT PAID TO AFFILIATED PERCENTAGE PAID TO
COMMISSIONS BROKER-DEALERS AFFILIATED BROKER-DEALERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Blue Chip Growth Fund
- ------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund
- ------------------------------------------------------------------------------------------------------------------
Small Company Growth
Fund
- ------------------------------------------------------------------------------------------------------------------
Growth and Income Fund
- ------------------------------------------------------------------------------------------------------------------
Balanced Assets Fund
- ------------------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street Fund
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

1997 BROKERAGE COMMISSIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
AGGREGATE BROKERAGE AMOUNT PAID TO AFFILIATED PERCENTAGE PAID TO
COMMISSIONS BROKER-DEALERS AFFILIATED BROKER-DEALERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Blue Chip Growth Fund $ 398,417 -- --
- ------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund $ 310,572 -- --
- ------------------------------------------------------------------------------------------------------------------
Small Company Growth Fund $1,096,605 -- --
- ------------------------------------------------------------------------------------------------------------------
Growth and Income Fund $ 354,892 -- --
- ------------------------------------------------------------------------------------------------------------------
Balanced Assets Fund $ 777,773 -- -
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
1996 BROKERAGE COMMISSIONS

B-51
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
AGGREGATE BROKERAGE AMOUNT PAID TO AFFILIATED PERCENTAGE PAID TO
FUND COMMISSIONS BROKER-DEALERS AFFILIATED BROKER-DEALERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Blue Chip Growth Fund $424,304 $ 0 0.0%
- ------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund $238,176 $ 3,150 1.3%
- ------------------------------------------------------------------------------------------------------------------
Small Company Growth Fund $408,277 $11,880 2.9%
- ------------------------------------------------------------------------------------------------------------------
Growth and Income Fund $ 66,513 $ 2,130 3.2%
- ------------------------------------------------------------------------------------------------------------------
Balanced Assets Fund $952,056 $21,450 2.3%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES

Upon making an investment in shares of a Fund, an open account will be
established under which shares of such Fund and additional shares acquired
through reinvestment of dividends and distributions will be held for each
shareholder's account by the Transfer Agent. Shareholders will not be issued
certificates for their shares unless they specifically so request in writing but
no certificate is issued for fractional shares. Shareholders receive regular
statements from the Transfer Agent that report each transaction affecting their
accounts. Further information may be obtained by calling Shareholder/Dealer
Services at (800) 858-8850.

Shareholders who have met the Fund's minimum initial investment may elect
to have periodic purchases made through a dollar cost averaging program. At the
shareholder's election, such purchases may be made from their bank checking or
savings account on a monthly, quarterly, semi-annual or annual basis. Purchases
can be made via electronic funds transfer through the Automated Clearing House
or by physical draft check. Purchases made via physical draft check require an
authorization card to be filed with the shareholder's bank.

Shares of each of the Funds are sold at the respective net asset value
next determined after receipt of a purchase order, plus a sales charge, which,
at the election of the investor, may be imposed (i) at the time of purchase
(Class A shares), (ii) on a deferred basis (Class B and certain Class A
shares), or (iii) may contain certain elements of a sales charge that is imposed
at the time of purchase and that is deferred (Class II shares). Class C shares,
now designated as Class II shares, had sales charges imposed on a deferred basis
with no front-end sales load prior to their redesignation.

The following tables set forth the front-end sales concessions with
respect to Class A and Class II shares of each Fund, the amount of the front-end
sales concessions reallowed to affiliated

B-52
<PAGE>

broker-dealers, and the contingent deferred sales charges with respect to Class
B and Class II shares of each Fund, received by the Distributor for the fiscal
years ended September 30, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
1998
- ------------------------------------------------------------------------------------------------
FRONT-END FRONT-END AMOUNT CONTINGENT CONTINGENT
FUND SALES SALES REALLOWED TO DEFERRED DEFERRED
CONCESSIONS- CONCESSIONS- AFFILIATED SALES CHARGE- SALES CHARGE-
CLASS A CLASS II BROKER- CLASS B CLASS II
SHARES SHARES* DEALERS SHARES SHARES**
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Blue Chip
Growth Fund
- ------------------------------------------------------------------------------------------------
Mid-Cap
Growth Fund
- ------------------------------------------------------------------------------------------------
Small
Company
Growth Fund
- ------------------------------------------------------------------------------------------------
Growth and
Income Fund
- ------------------------------------------------------------------------------------------------
Balanced
Assets Fund
- ------------------------------------------------------------------------------------------------
"Dogs" of
Wall Street
Fund ***
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Prior to December 1, 1998, only "Dogs" of Wall Street Fund's Class II
shares carried a front-end sales charge, while Class II shares with
respect the other Funds (then designated as Class C shares) carried no
such charge.
** For the period from 1/28/98 (for those Funds for which Class II shares
were previously designated as Class C shares)
*** For the period from 6/1/98 (commencement of offering of shares of "Dogs"
of Wall Street Fund)
</TABLE>

<TABLE>
<CAPTION>
1997
- ----------------------------------------------------------------------------------------------------------------
FRONT-END SALES AMOUNT REALLOWED TO CONTINGENT DEFERRED SALES
FUND CONCESSIONS - CLASS A SHARES AFFILIATED BROKER-DEALERS CHARGE - CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Growth Fund $ 68,915 $ 42,671 $ 54,673
- ----------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund $ 81,231 $ 44,483 $ 44,557
- ----------------------------------------------------------------------------------------------------------------
Small Company Growth Fund $1,315,944 $536,682 $262,423
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

B-53
<PAGE>

<TABLE>
<CAPTION>
1997
- -----------------------------------------------------------------------------------------------------------------
FRONT-END SALES AMOUNT REALLOWED TO CONTINGENT DEFERRED SALES
FUND CONCESSIONS - CLASS A SHARES AFFILIATED BROKER-DEALERS CHARGE - CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth and Income Fund $ 707,401 $ 367,498 $ 44,335
- ----------------------------------------------------------------------------------------------------------------
Balanced Assets Fund $ 666,236 $ 501,649 $ 299,683
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
1996
- -----------------------------------------------------------------------------------------------------------------
FRONT-END SALES AMOUNT REALLOWED TO CONTINGENT DEFERRED SALES
FUND CONCESSIONS - CLASS A SHARES AFFILIATED BROKER-DEALERS CHARGE - CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Growth Fund $ 84,051 $ 48,653 $ 37,223
- ----------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund $ 185,300 $ 125,403 $ 15,696
- ----------------------------------------------------------------------------------------------------------------
Small Company Growth Fund $2,007,194 $1,156,919 $ 118,032
- ----------------------------------------------------------------------------------------------------------------
Growth and Income Fund $ 384,542 $ 188,254 $ 1,820
- ----------------------------------------------------------------------------------------------------------------
Balanced Assets Fund $1,139,306 $ 830,997 $ 303,405
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

WAIVER OF CDSC. As discussed under "Shareholder Account Information" in the
respective Prospectus, CDSCs may be waived on redemptions of Class B and Class
II shares under certain circumstances. The conditions set forth below are
applicable with respect to the following situations with the proper
documentation:

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

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

B-54
<PAGE>

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

PURCHASE BY CHECK. Checks should be made payable to the specific Fund or to
"SunAmerica Funds." If the payment is for a retirement plan account for which
the Adviser serves as fiduciary, please note on the check that payment is for
such an account. In the case of a new account, purchase orders by check must be
submitted directly by mail to SunAmerica Fund Services, Inc., Mutual Fund
Operations, The SunAmerica Center, 733 Third Avenue, New York, New York 10017-
3204, together with payment for the purchase price of such shares and a
completed New Account Application. Payment for subsequent purchases should be
mailed to SunAmerica Fund Services, Inc., c/o NFDS, P.O. Box 419373, Kansas
City, Missouri 64141-6373 and the shareholder's Fund account number should
appear on the check. For fiduciary retirement plan accounts, both initial and
subsequent purchases should be mailed to SunAmerica Fund Services, Inc., Mutual
Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204. Certified checks are not necessary but checks are accepted subject
to collection at full face value in United States funds and must be drawn on a
bank located in the United States. Upon receipt of the completed New Account
Application and payment check, the Transfer Agent will purchase full and
fractional shares of the applicable Fund at the net asset value next computed
after the check is received, plus the applicable sales charge. Subsequent
purchases of shares of each Fund may be purchased directly through the Transfer
Agent. SAFS reserves the right to reject any check made payable other than in
the manner indicated above. Under certain circumstances, the Fund will accept a
multi-party check (e.g., a check made payable to the shareholder by another
party and then endorsed by the shareholder to the Fund in payment for the
purchase of shares); however, the processing of such a check may be subject to a
delay. The Fund does not verify the authenticity of the endorsement of such
multi-party check, and acceptance of the check by the Fund should not be
considered verification thereof. Neither the Fund nor its affiliates will be
held liable for any losses incurred as a result of a fraudulent endorsement.
There are restrictions on the redemption of shares purchased by check for which
funds are being collected.

B-55
<PAGE>

PURCHASE THROUGH SAFS. SAFS will effect a purchase order on behalf of a
customer who has an investment account upon confirmation of a verified credit
balance at least equal to the amount of the purchase order (subject to the
minimum $500 investment requirement for wire orders). If such order is received
at or prior to the Fund's close of business, the purchase of shares of a Fund
will be effected on that day. If the order is received after the Fund's close
of business, the order will be effected on the next business day.

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

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

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

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

WAIVER OF SALES CHARGES WITH RESPECT TO CERTAIN PURCHASES OF CLASS A SHARES. To
the extent that sales are made for personal investment purposes, the sales
charge is waived as to Class A shares purchased by current or retired officers,
directors, and other full-time employees of the Adviser and its affiliates, as
well as members of the selling group and family members of the foregoing. In
addition, the sales charge is waived with respect to shares purchased by certain
qualified retirement plans or employee benefit plans (other than IRAs), which
are sponsored or administered by the Adviser or an affiliate thereof. Such
plans may include certain employee benefit plans qualified under Sections 401 or
457 of the Code, or employee benefit plans created pursuant to Section 403(b) of
the Code and sponsored by nonprofit organizations defined under Section
501(c)(3) of the Code (collectively, the "Plans"). A Plan will qualify for
purchases at net asset value provided that (a) the initial amount invested in
one or more of the Portfolios (or in combination with the shares of other
SunAmerica Mutual Funds) is at least $1,000,000, (b) the sponsor signs a
$1,000,000 Letter of Intent, (c) such shares are purchased by an employer-
sponsored plan with at least 100 eligible employees, or (d) the purchases are by
trustees or other fiduciaries for certain employer-sponsored plans, the trustee,
fiduciary or administrator that has an agreement with the Distributor with
respect to such purchases and all such transactions for the plan are executed
through a single omnibus

B-56
<PAGE>

account. Further, the sales charge is waived with respect to shares purchased by
"wrap accounts" for the benefit of clients of broker-dealers, financial
institutions or financial planners or registered investment advisers adhering to
the following standards established by the Distributor: (i) the broker-dealer,
financial institution or financial planner charges its client(s) an advisory fee
based on the assets under management on an annual basis, and (ii) such broker-
dealer, financial institution or financial planner does not advertise that
shares of the Funds may be purchased by clients at net asset value. Shares
purchased under this waiver may not be resold except to the Fund. Shares are
offered at net asset value to the foregoing persons because of anticipated
economies in sales effort and sales related expenses. Reductions in sales
charges apply to purchases or shares by a "single person" including an
individual; members of a family unit comprising husband, wife and minor
children; or a trustee or other fiduciary purchasing for a single fiduciary
account. Complete details concerning how an investor may purchase shares at
reduced sales charges may be obtained by contacting the Distributor.

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

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

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

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

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

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

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

(vi) group purchases as described below.

B-57
<PAGE>

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 set forth in the New
Account Application in the Prospectus, establishes a total investment goal in
Class A shares of one or more Funds to be achieved through any number of
investments over a thirteen-month period, of $50,000 or more. Each investment
in such Funds made during the period will be subject to a reduced sales charge
applicable to the goal amount. The initial purchase must be at least 5% of the
stated investment goal and shares totaling 5% of the dollar amount of the Letter
of Intent will be held in escrow by the Transfer Agent, in the name of the
investor. Shares of any class of shares of any Fund, or of other funds advised
by the Adviser, that impose a sales charge at the time of purchase, which the
investor intends to purchase or has previously purchased during a 30-day period
prior to the date of execution of the Letter of Intent and still owns, may also
be included in determining the applicable reduction; provided, the dealer or
shareholder notifies the Distributor of such prior purchase(s).

The Letter of Intent does not obligate the investor to purchase, nor the
Trust to sell, the indicated amounts of the investment goal. In the event the
investment goal is not achieved within the thirteen-month period, the investor
is required to pay the difference between the sales charge otherwise applicable
to the purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
is authorized by the

B-58
<PAGE>

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 sales charge; (iv) the
group's sole organizational nexus or connection is not that the members are
credit card customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to provide to its
designated investment dealer at least annually access to the group's membership
by means of written communication or direct presentation to the membership at a
meeting; (vi) the group or its investment dealer will provide annual
certification, in form satisfactory to the Transfer Agent, that the group then
has at least 25 members and that at least ten members participated in group
purchases during the immediately preceding 12 calendar months; and (vii) the
group or its investment dealer will provide periodic certification, in form
satisfactory to the Transfer Agent, as to the eligibility of the purchasing
members of the group.

B-59
<PAGE>

Members of a qualified group include: (i) any group that meets the
requirements stated above and which is a constituent member of a qualified
group; (ii) any individual purchasing for his or her own account who is carried
on the records of the group or on the records of any constituent member of the
group 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.

ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES

Reference is made to "Shareholder Account Information" in each Prospectus
for certain information as to the redemption of Fund shares.

If the Trustees determine that it would be detrimental to the best
interests of the remaining shareholders of a Fund to make payment wholly or
partly in cash, the Trust, having filed with the SEC a notification of election
pursuant to Rule 18f-1 on behalf of each of the Funds, may pay the redemption
price in whole, or in part, by a distribution in kind of securities from a Fund
in lieu of cash. In conformity with applicable rules of the SEC, the Funds are
committed to pay in cash all requests for redemption, by any shareholder of
record, limited in amount with respect to each

B-60
<PAGE>

shareholder during any 90-day period to the lesser of (i) $250,000, or (ii) 1%
of the net asset value of the applicable Fund at the beginning of such period.
If shares are redeemed in kind, the redeeming shareholder would incur brokerage
costs in converting the assets into cash. The method of valuing portfolio
securities is described below in the section entitled "Determination of Net
Asset Value," and such valuation will be made as of the same time the redemption
price is determined.

The Distributor is authorized, as agent for the Funds, to offer to
repurchase shares that are presented by telephone to the Distributor by
investment dealers. Orders received by dealers must be at least $500. The
repurchase price is the net asset value per share of the applicable class of
shares of a Fund next-determined after the repurchase order is received, less
any applicable CDSC. Repurchase orders received by the Distributor after the
Fund's close of business will be priced based on the next business day's close.
Dealers may charge for their services in connection with the repurchase, but
neither the Funds nor the Distributor imposes any such charge. The offer to
repurchase may be suspended at any time.

EXCHANGE PRIVILEGE

Shareholders in any of the Funds may exchange their shares for the same
class of shares of any other Fund or other SunAmerica Mutual Funds that offer
such class at the respective net asset value per share, except that Class II
shares will be exchangeable into the same class or Class C shares of the other
SunAmerica Mutual Funds that offers these classes. Before making an exchange, a
shareholder should obtain and review the prospectus of the fund whose shares are
being acquired. All exchanges are subject to applicable minimum initial or
subsequent investment requirements. Notwithstanding the foregoing, shareholders
may elect to make periodic exchanges on a monthly, quarterly, semi-annual and
annual basis through the Systematic Exchange Program. Through this program, the
minimum exchange amount is $25 and there is no fee for exchanges made. All
exchanges can be effected only if the shares to be acquired are qualified for
sale in the state in which the shareholder resides. Exchanges of shares
generally will constitute a taxable transaction except for IRAs, Keogh Plans and
other qualified or tax-exempt accounts. The exchange privilege may be terminated
or modified upon 60 days' written notice. Further information about the exchange
privilege may be obtained by calling Shareholder/Dealer Services at (800) 858-
8850.

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

B-61
<PAGE>

acquired in the exchange for purposes of determining whether the 1% CDSC is
applicable upon a redemption of any of such shares.

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

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

In addition, a Fund reserves the right to refuse any exchange purchase
order if, in the judgment of the Adviser, the Fund would be unable to invest
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. A shareholder's purchase exchange
may be restricted or refused if the Fund receives or anticipates simultaneous
orders affecting significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincide with a "market timing" strategy may be
disruptive to the Fund and may therefore be refused.

DETERMINATION OF NET ASSET VALUE

The Trust is open for business on any day the NYSE is open for regular
trading. Shares are valued each day as of the close of regular trading on the
NYSE (generally, 4:00 p.m., Eastern time). Each Fund calculates the net asset
value of each class of its shares separately by dividing the total value of each
class's net assets by the shares outstanding of such class.

Stocks are stated at value based upon closing sales prices reported on
recognized securities exchanges or, for listed securities having no sales
reported and for unlisted securities, upon last reported bid prices. Non-
convertible bonds, debentures, other long-term debt securities and short-term
securities with original or remaining maturities in excess of 60 days, are
normally valued at

B-62
<PAGE>

prices obtained for the day of valuation from a bond pricing service of a major
dealer in bonds, when such prices are available; however, in circumstances in
which the Adviser deems it appropriate to do so, an over-the-counter or exchange
quotation at the mean of representative bid or asked prices may be used.
Securities traded primarily on securities exchanges outside the United States
are valued at the last sale price on such exchanges on the day of valuation, or
if there is no sale on the day of valuation, at the last-reported bid price. If
a security's price is available from more than one foreign exchange, a Fund uses
the exchange that is the primary market for the security. Short-term securities
with 60 days or less to maturity are amortized to maturity based on their cost
to the Trust if acquired within 60 days of maturity or, if already held by the
Trust on the 60th day, are amortized to maturity based on the value determined
on the 61st day. Options traded on national securities exchanges are valued as
of the close of the exchange on which they are traded. Futures and options
traded on commodities exchanges are valued at their last sale price as of the
close of such exchange. Other securities are valued on the basis of last sale or
bid price (if a last sale price is not available) in what is, in the opinion of
the Adviser, the broadest and most representative market, which may be either a
securities exchange or the over-the-counter market. Where quotations are not
readily available, securities are valued at fair value as determined in good
faith in accordance with procedures adopted by the Board of Trustees. The fair
value of all other assets is added to the value of securities to arrive at the
respective Fund's total assets.

A Fund's liabilities, including proper accruals of expense items, are
deducted from total assets.

PERFORMANCE DATA

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

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

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

B-63
<PAGE>

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 Class II shares or the deferred sales load
that would be applicable to a complete redemption of the investment at
the end of the specified period in the case of the Class B or Class II
shares) is deducted from the initial $1,000 purchase payment;

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

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, 1998 are as follows:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------
SINCE ONE FIVE TEN
CLASS A SHARES INCEPTION YEAR YEARS YEARS
- -------------- --------- ----- ----- -----
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Blue Chip Growth Fund _____%/1/ _____% N/A N/A
- ---------------------------------------------------------------
Mid-Cap Growth Fund _____%/2/ _____% _____% _____%
- ---------------------------------------------------------------
Small Company Growth _____%/2/ _____% _____% _____%
Fund
- ---------------------------------------------------------------
Growth and Income Fund _____%/3/ _____% N/A N/A
- ---------------------------------------------------------------
Balanced Assets Fund _____%/1/ _____% N/A N/A
- ---------------------------------------------------------------
"Dogs" of Wall Street Fund ___%/4/ N/A N/A N/A
- ---------------------------------------------------------------
</TABLE>

B-64
<PAGE>

________________
(1) From date of September 24, 1993.
(2) From date of inception of January 27, 1987.
(3) From date of inception of July 1, 1994.
(4) From date of inception of June 1, 1998.

<TABLE>
<CAPTION>
- --------------------------------------------------------------
SINCE ONE FIVE TEN
CLASS B SHARES INCEPTION YEAR YEARS YEARS
- -------------- --------- ------ ------ ------
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Blue Chip Growth Fund _____%/1/ _____% _____% ____%
- --------------------------------------------------------------
Mid-Cap Growth Fund _____%/2/ _____% N/A N/A
- --------------------------------------------------------------
Small Company Growth _____%/2/ _____% N/A N/A
Fund
- --------------------------------------------------------------
Growth and Income Fund _____%/3/ _____% N/A N/A
- --------------------------------------------------------------
Balanced Assets Fund _____%/1/ _____% _____% ____%
- --------------------------------------------------------------
"Dogs" of Wall Street Fund ____%/4/ N/A N/A N/A
- --------------------------------------------------------------
</TABLE>

- --------------
(1) From dates of inception of April 15, 1985 and March 13, 1985, respectively.
(2) From date of September 24, 1993.
(3) From date of inception of July 1, 1994.
(4) From date of inception of June 1, 1998.

<TABLE>
<CAPTION>
- -----------------------------------
SINCE
CLASS II SHARES INCEPTION
--------------- ---------
- -----------------------------------
<S> <C>
Blue Chip Growth Fund ___%/1/
- -----------------------------------
Mid-Cap Growth Fund ___%/1/
- -----------------------------------
Small Company Growth ___%/1/
Fund
- -----------------------------------
Growth and Income Fund ___%/1/
- -----------------------------------
Balanced Assets Fund ___%/1/
- -----------------------------------
</TABLE>

B-65
<PAGE>

- -------------------------------------
"Dogs" of Wall Street ___%/2/
Fund
- -------------------------------------

________________
(1) From date of inception of January 28, 1998.

<TABLE>
<CAPTION>
- ------------------------------------------------------------
SINCE ONE FIVE TEN
CLASS Z SHARES INCEPTION YEAR YEARS YEARS
- -------------- --------- ------ ----- -----
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Company Growth Fund _____%/1/ _____% N/A N/A
- ------------------------------------------------------------
Balanced Assets Fund _____%/1/ _____% N/A N/A
- ------------------------------------------------------------
</TABLE>

Each Fund may advertise cumulative, rather than average return, for each
class of its shares for periods of time other than the 1-, 5-, and 10-year
periods or fractions thereof, as discussed above. Such return data will be
computed in the same manner as that of average annual total return, except that
the actual cumulative return will be computed.

COMPARISONS

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

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

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

B-66
<PAGE>

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

d) The NYSE composite or component indices -- unmanaged indices of all
industrial, utilities, transportation, and finance stocks listed on the NYSE.

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

f) Lipper: Mutual Fund Performance Analysis, Fixed Income Analysis, and
Mutual Fund Indices -- measures total return and average current yield for the
mutual fund industry. Ranks individual mutual fund performance over specified
time periods assuming reinvestment of all distributions, exclusive of sales
charges.

g) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.,
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.

h) Mutual Fund Source Book, Principia, and other publications and
information services provided by Morningstar, Inc. -- analyzes price, risk and
total return for the mutual fund industry.

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

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

k) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates --
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, treasury bills, and inflation.

B-67
<PAGE>

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

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

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

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

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

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

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

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

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

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

B-68
<PAGE>

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

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

w) Shearson Lehman Long-Term Treasury Bond Index -- is comprised of all
bonds covered by the Shearson Lehman Hutton Treasury Bond Index with maturities
of 10 years or greater.

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

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

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

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

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

cc) Russell Midcap Growth Index -- contains those Russell Midcap
securities with a greater-than-average growth orientation. The stocks are also
members of the Russell 1000 Growth Index, the securities in which tend to
exhibit higher price-to-book and price earnings ratios, lower dividend yields
and higher forecasted growth values than the Value universe.

B-69
<PAGE>

In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to a Fund's portfolio, that the averages are generally
unmanaged and that the items included in the calculations of such averages may
not be identical to the formula used by a Fund to calculate its figures.
Specifically, a Fund may compare its performance to that of certain indices that
include securities with government guarantees. However, a Fund's shares do not
contain any such guarantees. In addition, there can be no assurance that a Fund
will continue its performance as compared to such other standards.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS. Dividends from net investment income, if any, and
the excess of net realized long-term capital gains over net capital losses
("capital gain distributions"), if any, will be distributed to the registered
holders at least annually. With respect to capital gain distributions, each
Fund's policy is to offset any prior year capital loss carry forward against any
realized capital gains, and accordingly, no distribution of capital gains will
be made until gains have been realized in excess of any such loss carry forward.

Dividends and distributions will be paid in additional Fund shares based on
the net asset value at the Fund's close of business on the dividend date or,
unless the shareholder notifies the Fund at least five business days prior to
the payment date to receive such distributions in excess of $10 in cash.

TAXES. Each Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as
each Fund so qualifies, each Fund (but not its shareholders) will not be subject
to federal income tax on the part of its net ordinary income and net realized
capital gains that it distributes to shareholders. Each Fund intends to
distribute substantially all of such income.

In order to be qualified as a RIC, each Fund generally must, among other
things, (a) derive at least 90% of its gross income from dividends, interest,
proceeds from loans of stock or securities and certain other related income; and
(b) diversify its holdings so that, at the end of each fiscal quarter, (i) 50%
of the market value of each Fund's assets is represented by cash, government
securities, securities of other RICs and other securities limited, in respect of
any one issuer, to an amount no greater than 5% of each Fund's assets and not
greater than 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than government securities or the securities of other
regulated investment companies).

B-70
<PAGE>

As a RIC, each Fund will not be subject to U.S. Federal income tax on its
income and capital gains that it distributes provided that it distributes to
shareholders at least 90% of its investment company taxable income for the
taxable year. Each Fund intends to distribute sufficient income to meet this
qualification requirement.

Under the Code, amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To avoid the tax, each Fund must distribute during each calendar
year (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses for the 12-month period ending on October
31 of the calendar year, and (3) all ordinary income and net capital gains for
the previous years that were not distributed during such years. To avoid
application of the excise tax, each Fund intends to make distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the calendar year if declared by each Fund
in October, November or December of such year, payable to shareholders of record
on a date in such month and paid by each Fund during January of the following
year. Any such distributions paid during January of the following year will be
taxable to shareholders as of such December 31, rather than the date on which
the distributions are received.

Dividends paid by each Fund from its ordinary income and distributions of
each Fund's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income, whether or not reinvested. The portion of such dividends
received from each Fund that will be eligible for the dividends received
deduction for corporations will be determined on the basis of the amount of each
Fund's gross income, exclusive of capital gains from the sales of stock or
securities, which is derived as dividends from domestic corporations, other than
certain tax-exempt corporations and certain real estate investment trusts, and
will be designated as such in a written notice to shareholders mailed not later
than 60 days after the end of each fiscal year.

Any net capital gains (i.e., the excess of net capital gains from the sale
of assets held for more than 12 months over net short-term capital losses, and
including such gains from certain transactions in futures and options)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals is 20% with respect to assets held for more than 12 months. The
maximum capital gains rate for corporate shareholders currently is the same as
the maximum tax rate for ordinary income.

B-71
<PAGE>

Upon a sale or exchange of its shares, a shareholder will realize a taxable
gain or loss depending on its basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. In the case of an individual, any such capital gain will
be treated as short-term capital gain, taxable at the same rates as ordinary
income if the shares were held for not more than 12 months and capital gain
taxable at the maximum rate of 20% if such shares were held for more than 12
months. In the case of a corporation, any such capital gain will be treated as
long-term capital gain, taxable at the same rates as ordinary income, if such
shares were held for more than 12 months. Any such loss will be treated as
long-term capital loss if such shares were held for more than 12 months. A loss
recognized on the sale or exchange of shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any long-
term capital gains distribution with respect to such shares.

Generally, any loss realized on a sale or exchange of shares of a Fund will
be disallowed if other shares of such Fund are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the shares are
disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.

Under certain circumstances (such as the exercise of an exchange
privilege), the tax effect of sales load charges imposed on the purchase of
shares in a regulated investment company is deferred if the shareholder does not
hold the shares for at least 90 days.

Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which a Fund will be subject, since the amount of that Fund's
assets to be invested in various countries is not known. It is not anticipated
that any Fund will qualify to pass through to its shareholders the ability to
claim as a foreign tax credit their respective shares of foreign taxes paid by
such Fund.

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

B-72
<PAGE>

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

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

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

B-73
<PAGE>

Code Section 1259 requires the recognition of gain (but not loss) if a Fund
makes a "constructive sale" of an appreciated financial position (e.g., stock).
A Fund generally will be considered to make a constructive sale of an
appreciated financial position if it sells the same or substantially identical
property short, enters into a futures or forward contract to deliver the same or
identical property short, or enters into other similar transactions.

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

A Fund may be required to backup withhold U.S. Federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide their correct taxpayer identification number or fail to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's U.S. Federal
income tax liability.

Ordinary income dividends paid by a Fund to shareholders who are non-
resident aliens or foreign entities generally will be subject to a 30% United
States withholding tax under existing provisions of the Code applicable to
foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Nonresident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.

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

RETIREMENT PLANS

B-74
<PAGE>

Shares of each Fund are eligible to be purchased in conjunction with
various types of qualified retirement plans. The summary below is only a brief
description of the Federal income tax laws for each plan and does not purport to
be complete. Further information or an application to invest in shares of a
Fund by establishing any of the retirement plans described below may be obtained
by calling Retirement Plans at (800) 858-8850. However, it is recommended that
a shareholder considering any retirement plan consult a tax adviser before
participating.

PENSION AND PROFIT-SHARING PLANS. Sections 401(a) and 401(k) of the Code permit
business employers and certain associations to establish pension and profit
sharing plans for employees. Shares of a Fund may be purchased by those who
would have been covered under the rules governing old H.R. 10 (Keogh) Plans, as
well as by corporate plans. Each business retirement plan provides tax
advantages for owners and participants. Contributions made by the employer are
tax-deductible, and participants do not pay taxes on contributions or earnings
until withdrawn.

TAX-SHELTERED CUSTODIAL ACCOUNTS. Section 403(b)(7) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code, to purchase
shares of a Fund and, subject to certain limitations, exclude the amount of
purchase payments from gross income for tax purposes.

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

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

SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES ("SIMPLE IRA"). This plan was
introduced by a provision of the Small Business Job Protection Act of 1996 to
provide small employers with a simplified tax-favored retirement plan.
Contributions are deducted from the employee's

B-75
<PAGE>

paycheck before taxes and are deposited into a SIMPLE IRA by the employer, who
must make either matching contributions or non-elective contributions.
Contributions are tax-deductible for the employer and participants do not pay
taxes on contributions on earnings until they are withdrawn.

ROTH IRA. This plan, introduced by Section 302 of the Taxpayer Relief Act of
1997, generally permits individuals with adjusted gross income of up to $95,000,
and married couples with joint adjusted gross income of up to $150,000, to
contribute to a "Roth IRA." Contributions are not tax-deductible, but
distribution of assets (contributions and earnings) held in the account for at
least five years may be distributed tax-free under certain qualifying
conditions.

EDUCATION IRA. Established by the Taxpayer Relief Act of 1997, under Section
530 of the Code, this plan permits individuals to contribute to an IRA on behalf
of any child under the age of 18. Contributions are not tax-deductible but
distributions are tax-free if used for qualified educational expenses.

DESCRIPTION OF SHARES

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

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

B-76
<PAGE>

authorize the creation of additional classes of shares in the future, which may
have fee structures different from those of existing classes and/or may be
offered only to certain qualified investors.

Shareholders are entitled to a full vote for each full share held. The
Trustees have terms of unlimited duration (subject to certain removal
procedures) and have the power to alter the number of Trustees, and appoint
their own successors, provided that at all times at least a majority of the
Trustees have been elected by shareholders. The voting rights of shareholders
are not cumulative, so that holders of more than 50% of the shares voting can,
if they choose, elect all Trustees being elected, while the holders of the
remaining shares would be unable to elect any Trustees. Although the Trust need
not hold annual meetings of shareholders, the Trustees may call special meetings
of shareholders for action by shareholder vote as may be required by the 1940
Act or the Declaration of Trust. Also, a shareholders meeting must be called,
if so requested in writing by the holders of record of 10% or more of the
outstanding shares of the Trust. In addition, the Trustees may be removed by
the action of the holders of record of two-thirds or more of the outstanding
shares. All series of shares will vote with respect to certain matters, such as
election of Trustees. When all series of shares are not affected by a matter to
be voted upon, such as approval of investment advisory agreements or changes in
a Fund's policies, only shareholders of the series affected by the matter may be
entitled to vote.

All classes of shares of a given Fund are identical in all respects, except
that (i) each class may bear differing amounts of certain class-specific
expenses, (ii) Class A shares are subject to an initial sales charge, a
distribution fee and an ongoing account maintenance and service fee, (iii) Class
B shares are subject to a CDSC, a distribution fee and an ongoing account
maintenance and service fee, (iv) Class II shares are subject to an initial
sales charge, a CDSC, a distribution fee and an ongoing account maintenance and
service fee; (v) Class B shares convert automatically to Class A shares on the
first business day of the month seven years after the purchase of such Class B
shares, (vi) each class has voting rights on matters that pertain to the Rule
12b-1 plan adopted with respect to such class, except that under certain
circumstances, the holders of Class B shares may be entitled to vote on material
changes to the Class A Rule 12b-1 plan, (vii) Class Z shares are not subject to
any sales charge or any distribution, account maintenance or service fee, and
(viii) each class of shares will be exchangeable only into the same class of
shares of any of the other Funds or other SunAmerica Mutual Funds that offers
that class except that Class II shares will be exchangeable into Class C shares
of the other SunAmerica Mutual Funds that do not offer Class II. All shares of
the Trust issued and outstanding and all shares offered by each Prospectus when
issued are fully paid and non-assessable. Shares have no preemptive or other
subscription rights and are freely transferable on the books of the Trust. In
addition, shares have no conversion rights, except as described above.

B-77
<PAGE>

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-78
<PAGE>

ADDITIONAL INFORMATION

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

The following is the offering price calculation for each Class of shares of
the Funds, based on the value of each Fund's net assets as of September 30,
1998.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Blue Chip Growth Fund Mid-Cap Growth Fund
--------------------- -------------------
- -------------------------------------------------------------------------------------------------------
Class A Class B Class II + Class A Class B Class II +
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Assets.........................
- -------------------------------------------------------------------------------------------------------
Number of Shares Outstanding.......
- -------------------------------------------------------------------------------------------------------
Net Asset Value Per Share (net
assets divided by number of
shares)...........................
- -------------------------------------------------------------------------------------------------------
Sales Charge
for Class A Shares: 5.75% ** **
of offering price (6.10% of
net asset value per
share)*......................

for Class II Shares: 1.00%
of offering price (1.01% of
net asset value per share)*
- -------------------------------------------------------------------------------------------------------
Offering Price.....................
- -------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
* 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 shares of within six
years of purchase.
+ The offering of Class II shares (previously designated as Class C except
for "Dogs" of Wall Street Fund) commenced on January 28, 1998. Class II
shares may be subject to a contingent deferred sales charge on
redemption of shares within eighteen months of purchase.
</TABLE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Small Company Growth Fund
-------------------------------------
- ---------------------------------------------------------------------------------
Class A Class B Class II + Class Z
------- ------- ---------- -------
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

</TABLE>

B-79
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
Net Assets................................
- ---------------------------------------------------------------------------------
Number of Shares Outstanding..............
- ---------------------------------------------------------------------------------
Net Asset Value Per Shares (net assets
divided by number of shares).............
- ---------------------------------------------------------------------------------
Sales Charge
for Class A Shares: 5.75% of ** **
offering price (6.10% of net asset
value per share)*...................

for Class II Shares: 1.00% of
offering price (1.01% of net asset
value per share)*
- ---------------------------------------------------------------------------------
Offering Price............................
- ---------------------------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
* Rounded to nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class Z shares are not subject to an initial charge. Class B
shares may be subject to a contingent deferred sales charge on redemption
of shares within six years of purchase.
+ The offering of Class II shares (previously designated as Class C except
for "Dogs" of Wall Street Fund) commenced on January 28, 1998. Class II
shares may be subject to a contingent deferred sales charge on redemption
of shares within eighteen months of purchase.
</TABLE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Growth and Income Fund
----------------------------
- ------------------------------------------------------------------------
Class A Class B Class II +
------- ------- ----------
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net Assets................................
- ------------------------------------------------------------------------
Number of Shares Outstanding..............
- ------------------------------------------------------------------------
Net Asset Value Per Shares (net assets
divided by number of shares).............
- ------------------------------------------------------------------------
Sales Charge
for Class A Shares: 5.75% of **
offering price (6.10% of net asset
value per share)*...................

for Class II Shares: 1.00% of
offering price (1.01% of net asset
value per share)*
</TABLE>

B-80
<PAGE>

<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------
Offering Price............................
- ------------------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
* 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 II shares (previously designated as Class C except
for "Dogs" of Wall Street Fund) commenced on January 28, 1998. Class II
shares may be subject to a contingent deferred sales charge on redemption
of shares within eighteen months of purchase.
</TABLE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Balanced Assets Fund "Dogs" of Wall Street Fund+
---------------------- ---------------------------
- -------------------------------------------------------------------------------------------------------
Class A Class B Class II ++ Class Z Class A Class B Class II ++
------- ------- ----------- ------- ------ ------- -----------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Assets........................
- -------------------------------------------------------------------------------------------------------
Number of Shares Outstanding......
- -------------------------------------------------------------------------------------------------------
Net Asset Value Per Shares (net
assets divided by number of
shares)..........................

- -------------------------------------------------------------------------------------------------------
Sales Charge
for Class A Shares: 5.75% of ** **
offering price (6.10% of
net asset value per share)*
**
for Class II Shares: 1.00%
of offering price (1.01% of
net asset value per share)*

- -------------------------------------------------------------------------------------------------------
Offering Price....................
- -------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
* Rounded to nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class Z shares are not subject to an initial charge. Class B
shares may be subject to a contingent deferred sales charge on redemption
of shares within six years of purchase.
+ The offering of shares of "Dogs" of Wall Street Fund commenced on June 1,
1998.
++ The offering of Class II shares (previously designated as Class C except
for "Dogs" of Wall Street Fund) commenced on January 28, 1998. Class II
shares may be subject to a contingent deferred sales charge on redemption
of shares within eighteen months of purchase.
</TABLE>

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.

B-81
<PAGE>

CUSTODIAN AND TRANSFER AGENCY. State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, MA 02171, serves as custodian and as Transfer
Agent for the Funds and in those capacities maintains certain financial and
accounting books and records pursuant to agreements with the Trust. Transfer
agent functions are performed for State Street, by National Financial Data
Services, P.O. Box 419572, Kansas City, MO 64141-6572, an affiliate of State
Street.

INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL. PricewaterhouseCoopers LLP, 1177
Avenue of the Americas, New York, NY 10036, has been selected to serve as the
Trust's independent accountants and in that capacity examines the annual
financial statements of the Trust. The firm of Swidler Berlin Shereff Friedman,
LLP, 919 Third Avenue, New York, NY 10022, has been selected as legal counsel to
the Trust.

FINANCIAL STATEMENTS

Set forth following this Statement of Additional Information are the
financial statements of SunAmerica Equity Funds with respect to Registrant's
fiscal year ended September 30, 1998.

B-82
<PAGE>

APPENDIX

CORPORATE BOND AND COMMERCIAL PAPER RATINGS

DESCRIPTION OF MOODY'S CORPORATE RATINGS

AAA Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.

AA Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or
there may be other elements present that make the long-term risks
appear somewhat larger than in Aaa securities.

A Bonds rated A possess many favorable investment attributes and are
considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment sometime in the
future.

BAA Bonds rated Baa are considered as medium grade obligations; i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative
characteristics as well.

BA Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and therefore not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

Appendix-1
<PAGE>

B Bonds rated B generally lack characteristics of desirable investments.
Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA Bonds rated Caa are of poor standing. Such issues may be in default,
or there may be present elements of danger with respect to principal
or interest.

CA Bonds rated Ca represent obligations that are speculative in a high
degree. Such issues are often in default or have other marked
shortcomings.

C Bonds rated C are the lowest-rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of the generic rating
category.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the Securities Act.

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act, nor does it represent that
any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:

Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:

Appendix-2
<PAGE>

<TABLE>
<S> <C>
-- 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.
</TABLE>

Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
level of debt protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.

Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.

Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks that may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)

Appendix-3
<PAGE>

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 that exist with the issuer; and (8) recognition by management of
obligations that may be present or may arise as a result of public interest
questions and preparations to meet such obligations.

DESCRIPTION OF STANDARD & POOR'S CORPORATE DEBT RATINGS

A Standard & Poor's corporate or municipal rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.

The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation: (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.

AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.

A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-
rated categories.

BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and

Appendix-4
<PAGE>

repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for debt in higher-rated
categories.

Debt rated BB, B, CCC, CC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest
and repay principal. BB indicates the least degree of speculation and
C the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposure to adverse conditions.

BB Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions that
could lead to inadequate capacity to meet timely interest and
principal payment. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB-
rating.

B Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.

CCC Debt rated CCC has a current identifiable vulnerability to default and
is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.

CC The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.

C The rating C is typically applied to debt subordinated to senior debt
assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation

Appendix-5
<PAGE>

where a bankruptcy petition has been filed but debt service payments
are continued.

CI The rating CI is reserved for income bonds on which no interest is
being paid.

D Debt rated D is in default. The D rating is assigned on the day an
interest or principal payment is missed. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.

Plus (+) or minus (-): The ratings of AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within these
ratings categories.

Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.

L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is insured by the Federal Savings & Loan Insurance Corp. or
the Federal Deposit Insurance Corp. and interest is adequately
collateralized.

* Continuance of the rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.

NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.

Debt Obligations of Issuers outside the United States and its territories
are rated on the same 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.

Appendix-6
<PAGE>

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 designated
"A-1" that are determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.

A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."

A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effect of changes in circumstances than obligations carrying
the higher designations.

B Issues rated "B" are regarded as having only adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.

C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

Appendix-7
<PAGE>

D This rating indicates that the issue is either in default or is
expected to be in default upon maturity.

The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.

Appendix-8
<PAGE>

PART C
OTHER INFORMATION

Item 23. Exhibits.

(a) Declaration of Trust, as amended. Incorporated herein by
reference to Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A (File No. 33-8021) filed on
January 12, 1996.

(b) By-Laws, as amended. Incorporated herein by reference to Post-
Effective Amendment No. 17 to Registrant's Registration
Statement on Form N-1A (File No. 33-8021) filed on January 12,
1996.

(d) Investment Advisory and Management Agreement. Incorporated
herein by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A (File No. 33-
8021) filed on January 27, 1997.

(e) (i) Distribution Agreement. Incorporated herein by reference
to Post-Effective Amendment No. 19 to Registrant's
Registration Statement on Form N-1A (File No. 33-8021)
filed on January 27, 1997.

(ii) Form of Dealer Agreement. Incorporated herein by
reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A (File
No. 33-8021) filed on January 27, 1997.

(f) Directors'/Trustees' Retirement Plan. Incorporated herein by
reference to Post-Effective Amendment No. 19 to the Registrant's
Registration Statement on Form N-1A (File No. 33-8021) filed on
January 27, 1997.

(g) Custodian Contract, as amended. Incorporated herein by reference
to Post-Effective Amendment No. 19 to the Registrant's
Registration Statement on Form N-1A (File No. 33-8021) filed on
January 27, 1997.

(h) (i) Transfer Agency and Service Agreement. Incorporated
herein by reference to Post-Effective Amendment No. 19 to
the Registrant's Registration Statement on Form N-1A
(File No. 33-8021) filed on January 27, 1997.

(ii) Service Agreement, as amended. Incorporated herein by
reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A (File
No. 33-8021) filed on January 27, 1997.
<PAGE>

(i) Inapplicable.

(j) Inapplicable.

(k) Inapplicable.

(l) Inapplicable.

(m) (i) Distribution Plans pursuant to Rule 12b-1 (Class A Shares
and Class B Shares). Incorporated herein by reference to
Post-Effective Amendment No. 19 to the Registrant's
Registration Statement on Form N-1A (File No. 33-8021)
filed on January 27, 1997.

(ii) Distribution Plans pursuant to Rule 12b-1 (Class II
shares). To be filed by amendment.

(n) Inapplicable.

(o) (i) Plan Pursuant to Rule 18f-3. Incorporated herein by
reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A (File
No. 33-8021) filed on January 27, 1997.

(ii) Powers of Attorney. Incorporated herein by reference to
Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A (File No. 33-8021)
filed on January 12, 1996.

Item 24. Persons Controlled By or Under Common Control with Registrant.

There are no persons controlled by or under common control with
Registrant.

Item 25. Indemnification.

5.1 Indemnification of Trustees, Officers, Employees and Agents.
-----------------------------------------------------------

(a) The Trust shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right
of the Trust or any of its shareholders) by reason of the fact that he
is or was a Trustee, officer, employee or agent of the Trust. The
indemnification shall be against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him in connection with the action, suit or proceeding, if he
acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Trust, and, with respect to any
criminal action or proceedings, had
<PAGE>

no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgement, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall
---- ----------
not, of itself, create a presumption that, the person did not act in
good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.

(b) The Trust shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or on behalf of the Trust or any of its
shareholders to obtain a judgment or decree in its favor by reason of
the fact that he is or was a Trustee, officer, employee or agent of the
Trust. The indemnification shall be against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of the action or suit, if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust; except that such
indemnification shall preclude payment upon any liability, whether or
not there is an adjudication of liability, arising by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of
duties as described in section 17(h) and (i) of the Investment Company
Act of 1940.

(c) To the extent that a Trustee, officer, employee or agent of
the Trust has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) or (b) or
in defense of any claim, issue or matter therein, he shall be
indemnified against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection therewith.

(d) (1) Unless a court orders otherwise, any indemnification
under subsections (a) or (b) of this section may be made by the Trust
only as authorized in the specific case after a determination that
indemnification of the Trustee, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct
set forth in subsections (a) or (b).

(2) The determination shall be made:

(i) by the Trustees, by a majority vote of a quorum which
consists of Trustees who were not parties to the action, suit or
proceeding; or

(ii) if the required quorum is not obtainable, or if a
quorum of disinterested Trustees so directs, by independent legal
counsel in a written opinion; or

(iii) by the Shareholders.

(3) Notwithstanding the provisions of this Section 5.1,
no person shall be entitled to indemnification for any liability,
whether or not there is an adjudication of liability, arising by reason
of willful malfeasance, bad faith, gross negligence or reckless
<PAGE>

disregard of duties as described in Section 17(h) and (i) of the
Investment Company Act of 1940 ("Disabling Conduct"). A person shall be
deemed not liable by reason of Disabling Conduct if, either:

(i) a final decision on the merits is made by a court or
other body before whom the proceeding was brought that the person to be
indemnified ("Indemnitee") was not liable by reason of Disabling
Conduct; or

(ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Indemnitee was
not liable by reason of Disabling Conduct, is made by either

(A) a majority of a quorum of Trustees who are
neither "interested persons" of the Trust, as defined in section
2(a)(19) of the Investment Company Act of 1940, nor parties to the
action, suit or proceeding; or

(B) an independent legal counsel in a written
opinion.

(e) Expenses, including attorneys' fees, incurred by a Trustee,
officer, employee or agent of the Trust in defending a civil or criminal
action, suit or proceeding may be paid by the Trust in advance of the
final disposition thereof if:

(1) authorized in the specific case by the
Trustees; and

(2) the Trust receives an undertaking by or on
behalf of the Trustee, officer, employee or agent of the Trust to repay
the advance if it is not ultimately determined that such person is
entitled to be indemnified by the Trust; and

(3) either,

(i) such person provides a security for his undertaking;
or

(ii) the Trust is insured against losses by reason of any
lawful advances; or

(iii) a determination, based on a review or readily
available facts, that there is reason to believe that such person
ultimately will be found entitled to indemnification, is made by either

(A) A majority of a quorum which consists of Trustees who
are neither "interested persons" of the Trust, as defined in section
2(a)(19) of the Investment Company Act of 1940, nor parties to the
action, suit or proceeding; or

(B) an independent legal counsel in a written
opinion.
<PAGE>

(f) The indemnification provided by this Section shall not be
deemed exclusive of any other rights to which a person may be entitled
under any by-law, agreement, vote of Shareholders or disinterested
Trustees or otherwise, both as to action in his official capacity and as
to action in another application while holding office, and shall
continue as to a person who has ceased to be a Trustee, officer,
employee or agent and inure to the benefit of the heirs, executors and
administrators of such person; provided that no person may satisfy any
right of indemnity or reimbursement granted herein or to which he may be
otherwise entitled except out of the property of the Trust, and no
Shareholder, as such, shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.

(g) The Trust may purchase and maintain insurance on behalf of
any person who is or was a Trustee, officer, employee or agent of the
Trust, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such. However, in no
event will the Trust pay that portion of insurance premiums, if any,
attributable to coverage which would indemnify any officer of Trustee
against liability for Disabling Conduct.

(h) Nothing contained in this Section shall be construed to
protect any Trustee or officer of the Trust against any liability to the
Trust or to its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.

Item 26. Business and Other Connections of the Investment Adviser.

Information concerning the business and other connections of
SunAmerica Asset Management Corp. is incorporated herein by reference
to SunAmerica Asset Management Corp.'s Form ADV (File No. 801-19813),
which is currently on file with the Securities and Exchange
Commission.

Reference is also made to the caption "Fund Management" in the
Prospectus constituting Part A of the Registration Statement and
"Adviser, Personal Trading, Distributor and Administrator" and
"Trustees and Officers" constituting Part B of the Registration
Statement.

Item 27. Principal Underwriters.

(a) The principal underwriter of the Registrant also acts as principal
underwriter for:

SunAmerica Income Funds
SunAmerica Money Market Funds, Inc.
Style Select Series, Inc.

(b) The following persons are the officers and directors of SunAmerica
Capital Services, Inc., the principal underwriter of Registrant's
Shares:
<PAGE>

<TABLE>
<CAPTION>
Name and Principal
Business Address Position With Underwriter Position with the Registrant
------------------ ------------------------- ----------------------------
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Peter A. Harbeck Director President
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
- -----------------------------------------------------------------------------------------
J. Steven Neamtz President and Director None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
- -----------------------------------------------------------------------------------------
Robert M. Zakem Executive Vice President, Secretary and Chief
The SunAmerica Center General Counsel and Director Compliance Officer
733 Third Avenue
New York, NY 10017-3204
- -----------------------------------------------------------------------------------------
Susan L. Harris Secretary None
SunAmerica, Inc.
1 SunAmerica Center
Los Angeles, CA 90067-6022
- -----------------------------------------------------------------------------------------
Debbie Potash-Turner Controller None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
- -----------------------------------------------------------------------------------------
</TABLE>

Item 28. Location and Accounts and Records.

SunAmerica Asset Management Corp., The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204, or an affiliate thereof, maintains
physical possession of each such accounts, books or other documents
of Registrant, except for those maintained by Registrant's
custodian, State Street Bank and Trust Company, 1776 Heritage Drive,
North Quincy, MA 02171, and its affiliate, National Financial Data
Services, P.O. Box 419572, Kansas City, MO 64141-6572.

Item 29. Management Services.

Inapplicable.

Item 30. Undertakings.

Inapplicable.
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
(the "1933 Act") and the Investment Company Act of 1940, as amended, Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, and State of New York, on the 24/th/ day of November, 1998.

SUNAMERICA EQUITY FUNDS

By: /s/ Peter A. Harbeck
--------------------------------
Peter A. Harbeck
President and Trustee

Pursuant to the requirements of the 1933 Act, the Post-Effective Amendment
No. 24 to Registrant's Registration Statement on Form N-1A has been signed below
by the following persons in the capacities and on the dates indicated:

<TABLE>
<S> <C> <C>
/s/ Peter A. Harbeck President and Trustee November 24, 1998
- ----------------------------------- (Principal Executive Officer)
Peter A. Harbeck

* Treasurer November 24, 1998
- ----------------------------------- (Principal Accounting and
Peter C. Sutton Financial Officer)

* Trustee November 24, 1998
- -----------------------------------
Peter McMillan III

* Trustee November 24, 1998
- -----------------------------------
S. James Coppersmith

* Trustee November 24, 1998
- -----------------------------------
Samuel M. Eisenstat

* Trustee November 24, 1998
- -----------------------------------
Stephen J. Gutman

* Trustee November 24, 1998
- -----------------------------------
Sebastiano Sterpa

*By: /s/ Robert M. Zakem November 24, 1998
- -----------------------------------
Robert M. Zakem, Attorney-in-Fact
</TABLE>