STYLE SELECT SERIES INC, 485APOS, 1996-12-31

STYLE SELECT SERIES INC
485APOS, 1996-12-31

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As filed with the Securities and Exchange Commission on December 31, 1996

File Nos. 333-11283; 811-07797

===============================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
Amendment No. 2 [X]
(Check appropriate box or boxes)

STYLE SELECT SERIES, INC.
(Exact Name of Registrant as Specified in Charter)

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

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

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

Copies to:

Margery K. Neale, Esq.
Shereff, Friedman, Hoffman & Goodman LLP
919 Third Avenue
New York, NY 10022

It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on March 3, 1997 pursuant to paragraph (b)
[ ] 75 days after filing pursuant to paragraph (a)
[X] on March 3, 1997 pursuant to paragraph (a) of Rule 485

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

The Registrant has previously elected to register an indefinite number
of shares of its Aggressive Growth, Mid-Cap Growth, Value and International
Equity Portfolios under the Securities Act of 1933 pursuant to Section 24(f)
under the Investment Company Act of 1940. In accordance with Rule 24f-2(a)(3) a
filing fee of $500 has previously been paid.

===============================================================================

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Style Select Series(Trademark)

CONTENTS
- ---------------------------------------------

1 Prospectus

2 Summary of Expenses

4 Style Select Investing

4 Investment Objectives and Policies

5 Aggressive Growth Portfolio

5 Mid-Cap Growth Portfolio

6 Value Portfolio

7 International Equity Portfolio

7 Advisers' Historical Performance Data

21 Investment Techniques and Risk Factors

28 Management of the Fund

34 Purchase of Shares

36 Redemption of Shares

38 Exchange Privilege

39 Portfolio Transactions, Brokerage and Turnover

39 Determination of Net Asset Value

40 Performance Data

40 Dividends, Distributions and Taxes

42 General Information

<PAGE>

PROSPECTUS o MARCH 3, 1997

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Style Select Series

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

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

Style Select Series, Inc. (the 'Fund') is an open-end management investment
company. The Fund currently offers four separate investment portfolios (each, a
'Portfolio'). The Fund is managed by SunAmerica Asset Management Corp.
('SunAmerica'). The assets of each Portfolio are normally allocated among at
least three investment advisers (each, an 'Adviser'), each of which will be
independently responsible for advising its respective portion of the Portfolio's
assets. The Advisers may include SunAmerica, and otherwise will consist of
professional investment advisers selected by SunAmerica subject to the review
and approval of the Fund's Board of Directors. In choosing Advisers, SunAmerica
will seek to obtain, within each Portfolio's overall objective, a distinct
investment style.

An investor may invest in one or more of the following Portfolios:

AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital by investing
generally in equity securities of small and medium-sized companies. The Advisers
for Aggressive Growth Portfolio are JANUS CAPITAL CORPORATION, SUNAMERICA and
WARBURG, PINCUS COUNSELLORS, INC.

MID-CAP GROWTH PORTFOLIO seeks long-term growth of capital by investing
generally in equity securities of medium-sized companies. The Advisers for
Mid-Cap Growth Portfolio are MILLER ANDERSON & SHERRERD, LLP, PILGRIM BAXTER &
ASSOCIATES, LTD. and T. ROWE PRICE ASSOCIATES, INC.

VALUE PORTFOLIO seeks long-term growth of capital by investing in equity
securities using a 'value' style of investing. The Advisers for Value Portfolio
are DAVIS SELECTED ADVISERS, L.P., NEUBERGER&BERMAN, LLC and STRONG CAPITAL
MANAGEMENT, INC.

INTERNATIONAL EQUITY PORTFOLIO seeks long-term growth of capital by investing in
equity securities of issuers in countries other than the United States. The
Advisers for International Equity Portfolio are ROWE PRICE-FLEMING
INTERNATIONAL, INC., STRONG CAPITAL MANAGEMENT, INC. and WARBURG, PINCUS
COUNSELLORS, INC.

As a result of the market risk inherent in any investment, there is no assurance
that the investment objective of any of the Portfolios will be achieved.

Each Portfolio currently offers Class A, Class B and Class C shares. The

offering price is the next-determined net asset value per share, plus for each
class a sales charge which, at the investor's option, may be (i) imposed at the
time of purchase (Class A shares) or (ii) deferred (purchases of Class B and
Class C shares, and purchases of Class A shares in excess of $1 million). Class
B shares may be subject to a declining contingent deferred sales charge ('CDSC')
imposed on redemptions made within six years of purchase. Class B shares of each
Portfolio will convert automatically to Class A shares on the first business day
of the month following the seventh anniversary of purchase. Class C shares may
be subject to a CDSC imposed on redemptions made within one year of purchase.
Each class makes distribution and account maintenance and service fee payments
under a distribution plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the '1940 Act'). See 'Purchase of Shares.'

Shares of the Portfolios are not obligations of or guaranteed by the United
States Government, are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other governmental agency.

This Prospectus explains concisely what you should know before investing in any
of the Portfolios. Please read it carefully before investing and retain it for
future reference. You can find more detailed information about the Fund in the
Statement of Additional Information dated March 3, 1997, which is incorporated
by reference into this Prospectus. The Statement of Additional Information may
be obtained without charge by contacting the Fund at the address or telephone
number listed above.

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

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2
Style Select Series(Trademark)

Summary of Expenses
- --------------------------------------------------------------------------------

A general comparison of the sales arrangements and other expenses applicable to
Class A, Class B and Class C shares follows:

<TABLE>
<CAPTION>
INTERNATIONAL
AGGRESSIVE MID-CAP EQUITY
GROWTH PORTFOLIO GROWTH PORTFOLIO VALUE PORTFOLIO PORTFOLIO
Class Class Class Class Class Class Class Class Class Class Class Class
A B C A B C A B C A B C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Load(1) 5.75% None None 5.75% None None 5.75% None None 5.75% None None

Maximum Sales Load on
Reinvested Dividends None None None None None None None None None None None None
Maximum Deferred Sales Load(2) None 4.00% 1.00% None 4.00% 1.00% None 4.00% 1.00% None 4.00% 1.00%
Redemption Fees(3) None None None None None None None None None None None None
Exchange Fees None None None None None None None None None None None None
ANNUAL PORTFOLIO OPERATING
EXPENSES (NET OF FEE
WAIVERS/EXPENSE
REIMBURSEMENTS)(4)
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.10% 1.10% 1.10%
12b-1 Fees(5) 0.35% 1.00% 1.00% 0.35% 1.00% 1.00% 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
Other Expenses .43% .43% .43% .43% .43% .43% .43% .43% .43% .58% .58% .58%
TOTAL OPERATING EXPENSES 1.78% 2.43% 2.43% 1.78% 2.43% 2.43% 1.78% 2.43% 2.43% 2.03% 2.68% 2.68%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
</TABLE>

(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1,000,000 or more. See 'Purchase of
Shares.'
(2) Purchases of Class A shares in excess of $1,000,000 will be subject to a
CDSC on redemptions made within one year of purchase. The CDSC on Class B
shares applies only if a redemption occurs within six years from their
purchase date. The CDSC on Class C shares applies only on redemptions made
within one year of purchase.
(3) A $15.00 fee may be imposed for wire redemptions.
(4) The information provided represents estimated amounts for the current fiscal
year.
(5) 0.25% of the 12b-1 fee comprises an Account Maintenance and Service Fee. A
portion of the Account Maintenance and Service Fee is paid for continuous
personal service to investors in the Portfolios, such as responding to
shareholder inquiries, quoting net asset values, providing current marketing
material and attending to other shareholder matters. Class B or Class C
shareholders who own their shares for an extended period of time may pay
more in Rule 12b-1 distribution fees than the economic equivalent of the
maximum front-end sales charge permitted under the Rules of Fair Practice of
the National Association of Securities Dealers, Inc.

<PAGE>

3
Style Select Series(Trademark)
EXAMPLE:
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You would pay the following expenses on a $1,000 investment over various time
periods assuming (1) a 5% annual rate of return and (2) redemption at the end of
each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS

---------------------------
<S> <C> <C>
AGGRESSIVE GROWTH PORTFOLIO
(Class A shares) $ 75 $ 110
(Class B shares)* $ 65 $ 106
(Class C shares) $ 35 $ 76
MID-CAP GROWTH PORTFOLIO
(Class A shares) $ 75 $ 110
(Class B shares)* $ 65 $ 106
(Class C shares) $ 35 $ 76
VALUE PORTFOLIO
(Class A shares) $ 75 $ 110
(Class B shares)* $ 65 $ 106
(Class C shares) $ 35 $ 76
INTERNATIONAL EQUITY PORTFOLIO
(Class A shares) $ 77 $ 118
(Class B shares)* $ 67 $ 113
(Class C shares) $ 37 $ 83
</TABLE>

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
---------------------------
<S> <C> <C>
AGGRESSIVE GROWTH PORTFOLIO
(Class A shares) $ 75 $ 110
(Class B shares)* $ 25 $ 76
(Class C shares) $ 25 $ 76
MID-CAP GROWTH PORTFOLIO
(Class A shares) $ 75 $ 110
(Class B shares)* $ 25 $ 76
(Class C shares) $ 25 $ 76
VALUE PORTFOLIO
(Class A shares) $ 75 $ 110
(Class B shares)* $ 25 $ 76
(Class C shares) $ 25 $ 76
INTERNATIONAL EQUITY PORTFOLIO
(Class A shares) $ 77 $ 118
(Class B shares)* $ 27 $ 83
(Class C shares) $ 27 $ 83
</TABLE>

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

* Class B shares convert to Class A shares on the first business day of the
month following the seventh anniversary of the purchase of such Class B
shares.

The foregoing examples, including the 5% return and the expenses used, are
intended to assist investors in understanding the costs and expenses that a

shareholder in the Fund will bear directly or indirectly, and should not be
considered a representation of past or future performance or expenses. For more
complete descriptions of the various costs and expenses, see 'Purchase of
Shares.' Actual expenses may be greater or less than those shown.

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4
Style Select Series(Trademark)

Style Select Investing
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Each Portfolio of the Fund is intended to provide investors with access to
several different professional investment advisers, each seeking the same
investment objective and utilizing a similar investment style with respect to a
separate portion of the Portfolio's assets. Normally, the investment decisions
for each Portfolio will be made by at least three Advisers, which may include
SunAmerica. SunAmerica will select Advisers that it believes will provide each
Portfolio with the highest quality investment services, while obtaining, within
each Portfolio's overall investment objective, a distinct investment style.

SunAmerica will allocate investments in each Portfolio (and of redemption
requests) equally among the Advisers of each Portfolio. The Fund expects that
differences in investment returns among the portions of a Portfolio managed by
different Advisers will cause the actual percentage of a Portfolio's assets
managed by each Adviser to vary over time. In general, a Portfolio's assets once
allocated to one Adviser will not be reallocated (or 'rebalanced') to another
Adviser for the Portfolio. However, SunAmerica reserves the right, subject to
the review of the Board, to reallocate assets from one Adviser to another when
deemed in the best interests of a Portfolio and its shareholders. Such
rebalancing may be effected by allocating cash flows differently among the
Advisers.

From time to time, SunAmerica, with the approval of the Board, may add a new
Adviser for a Portfolio, replace an Adviser or reduce the number of Advisers for
a Portfolio. See 'Management of the Fund.'

Investment Objectives and Policies
- --------------------------------------------------------------------------------

The investment objective of each Portfolio is long-term growth of capital, and
each Portfolio seeks to achieve its investment objective primarily through
investment in equity securities. There can be no assurance that any Portfolio's
investment objective will be met or that the net return on an investment in a
Portfolio will exceed that which could have been obtained through other
investment or savings vehicles. The section 'Investment Techniques and Risk
Factors' contains a discussion of certain types of other securities in which
each Portfolio may make a significant investment and certain investment
techniques that each Adviser for the Portfolios may use. In addition, that
section contains a discussion of certain of the principal risks attendant to an
investment in the Portfolios. Although each Adviser for a Portfolio is permitted

to invest in the various types of securities and use the investment techniques
indicated in that section, no Adviser is required to invest in any particular
type of permitted security or to use any particular investment technique.
Rather, each Adviser is given full discretion to manage its portion of the
assets of a Portfolio according to its own investment discretion.

Except as specifically indicated, each Portfolio's respective investment
objective and the investment policies and strategies described herein are not
fundamental policies of the Portfolio and may be changed by the Board without
the approval of shareholders. Certain investment restrictions may not be changed
without a majority vote of the outstanding voting securities of that Portfolio.
Each Portfolio's fundamental investment restrictions are described in the
Statement of Additional Information. For purposes of any investment policies or
restrictions discussed below, the percentage limitations of each Portfolio will
be applied by each Adviser to the portion of the Portfolio's assets managed by
that Adviser and will be determined at the time of an investment. SunAmerica,
however, is ultimately responsible for overseeing compliance by the Advisers,
and will in such capacity verify that in the aggregate the investments of each
Portfolio complies with applicable percentage limitations.

Each Portfolio is 'non-diversified' (as such term is defined under the 1940
Act), subject, however, to certain tax diversification requirements. See
'Dividends, Distributions and Taxes.'

<PAGE>

5
Style Select Series(Trademark)

Aggressive Growth Portfolio
- --------------------------------------------------------------------------------

The Aggressive Growth Portfolio, advised by Janus Capital Corporation ('Janus'),
SunAmerica and Warburg, Pincus Counsellors, Inc. ('Warburg'), will invest, under
normal circumstances, in securities of companies believed by the Adviser to have
significant growth potential or to have above-average earnings growth or value.
Such companies will generally be companies that typically have a market
capitalization of less than $1 billion ('Small Cap Companies') or medium-sized
companies that typically have a market capitalization between $1 billion and $5
billion ('Mid-Cap Companies'). However, the Advisers may also purchase
securities of larger companies that typically have a market capitalization in
excess of $5 billion ('Large Cap Companies').

Small Cap Companies generally will be companies that, although not 'start-up'
companies, have been in business for a shorter period of time than Mid-Cap
Companies. Small Cap Companies frequently will be in businesses or industries
involving new, recently developed products, services, or technologies. While
some Small Cap Companies may be listed for trading on a securities exchange, it
is expected that a significant portion of such companies will be traded
over-the-counter.

Mid-Cap Companies generally will be companies that have a substantial record of
operations (i.e., in business for at least five years) and are listed for
trading on the New York Stock Exchange ('NYSE') or another national or

international stock exchange. Such companies, however, may be less seasoned than
Large Cap Companies. In general, the securities of Mid-Cap Companies may be more
volatile than those of Large Cap Companies.

There is no requirement that any minimum percentage of assets of the Portfolio
be maintained in securities of either Small Cap Companies or Mid-Cap Companies.
In general, to the extent that more of the Portfolio's assets are invested in
Small-Cap Companies, the Portfolio's net asset value will be subject to more
volatility than if such assets were invested in larger companies. See
'Investment in Small Cap Companies' in 'Investment Techniques and Risk Factors.'

Under normal conditions, at least 65% of the Portfolio's total assets will be
invested in equity securities (including common and preferred stocks and other
securities having equity features, such as convertible securities, warrants and
rights). In addition, the Portfolio may invest up to 35% of its total assets in
debt securities that the Adviser expects have the potential for capital
appreciation. The Portfolio may invest in such debt securities rated below
investment grade, that is, below 'BBB' by Standard & Poor's Corporation, a
Division of the McGraw-Hill Companies ('S&P'), or below 'Baa' by Moody's
Investors Service ('Moody's'), or if unrated, determined by the Adviser to be of
equivalent quality. See 'Fixed Income Securities' in 'Investment Techniques and
Risk Factors' below for a discussion of the risks associated with investing in
such securities.

Mid-Cap Growth Portfolio
- --------------------------------------------------------------------------------

The Mid-Cap Growth Portfolio, advised by Miller Anderson & Sherrerd, LLP
('MAS'), Pilgrim Baxter & Associates, Ltd. ('PBA') and T. Rowe Price Associates,
Inc. ('T. Rowe Price'), will invest, under normal circumstances, at least 65% of
the Portfolio's total assets in the securities of Mid-Cap Companies, as defined
in 'Aggressive Growth Portfolio,' above. Such companies are considered by the
Adviser to have a historical record of above-average growth rate; to have the
ability to sustain earnings growth; to offer proven products or services; or to
operate in industries experiencing increasing demand. The Adviser may select
certain of such securities because it considers them to be undervalued in the
market. Under normal circumstances, at least 65% of the Portfolio's total assets
will be invested in the securities of Mid-Cap Companies.

<PAGE>

6
Style Select Series(Trademark)

less seasoned than Large Cap Companies, but are believed by the Adviser to offer
greater potential for growth. In general, the securities of Mid-Cap Companies
may be more volatile than those of Large Cap Companies.

Under normal market conditions, at least 65% of the Portfolio's total assets

will be invested in equity securities (including common and preferred stocks and
other securities having equity features, such as convertible securities,
warrants and rights). In addition, the Portfolio may invest up to 35% of its
total assets in equity securities of issuers other than Mid-Cap Companies and in
debt securities that the Adviser expects have the potential for capital
appreciation. The Portfolio may invest in such debt securities rated as low as
'BBB' by S&P, or 'Baa' by Moody's or if unrated, determined by the Adviser to be
of equivalent quality. See 'Fixed Income Securities' in 'Investment Techniques
and Risk Factors' below for a discussion of the risks associated with investing
in such securities.

Value Portfolio
- --------------------------------------------------------------------------------

The Value Portfolio, advised by Davis Selected Advisers, L.P. ('Davis'),
Neuberger&Berman, LLC ('Neuberger&Berman') and Strong Capital Management, Inc.
('Strong') (which has subcontracted with Schafer Capital Management, Inc.
('Schafer') to act as Adviser to its portion of the Value Portfolio), will
invest, under normal circumstances, in securities that the Adviser believes are
selling at a price that is low relative to their worth. Investments will be
identified based upon factors such as undervalued assets or earnings potential,
favorable operating or price to cash flow ratios, a low price to earnings ratio
and, although current income will not always be a significant factor in
selecting securities, a high dividend yield. In addition, the Adviser may take
into account such other factors as an issuer's product demand and development,
resources for expansion, quality of management and overall favorable business
prospects.

While the Adviser seeks to identify investments with the potential for
above-average appreciation, there is a risk that other investors will not
recognize the intrinsic worth of a security owned by the Portfolio for a long
period, if at all. In addition, there is the risk that a security judged to be
undervalued by the Adviser is actually appropriately priced due to fundamental
problems with the issuer's business prospects that are not yet apparent.

Under normal conditions, at least 65% of the Portfolio's total assets will be
invested in equity securities (including common and preferred stocks and other
securities having equity features, such as convertible securities, warrants and
rights). The Portfolio will invest in securities of companies without regard to
their market capitalization. However, investing in smaller companies may have
greater risks than investing in larger companies. See 'Investment in Small
Companies' in 'Investment Techniques and Risk Factors.' In addition, the
Portfolio may invest up to 35% of its total assets in debt securities that the
Adviser expects to have the potential for capital appreciation. The Portfolio
may invest in such debt securities rated below investment grade, that is, below
'BBB' by S&P, or below 'Baa' by Moody's, or if unrated, determined by the
Adviser to be of equivalent quality. See 'Fixed Income Securities' in
'Investment Techniques and Risk Factors' below for a discussion of the risks
associated with investing in such securities.

<PAGE>

Style Select Series(Trademark)

International Equity Portfolio
- --------------------------------------------------------------------------------

The International Equity Portfolio, advised by Warburg, Rowe Price-Fleming
International, Inc. ('Rowe-Fleming') and Strong, will invest, under normal
circumstances, in securities of non-U.S. issuers. Country selection is a
significant part of each Adviser's investment process. The Portfolio is
permitted to invest in any country where it is legal for U.S. investors to
invest.

The Portfolio will invest in securities of companies without regard to their
market capitalization. However, investing in smaller companies may have greater
risks than investing in larger companies. See 'Investment in Small Cap
Companies' in 'Investment Techniques and Risk Factors.' The Portfolio may also
invest in companies located in countries considered to be emerging markets. The
term 'emerging markets' applies to any country that is generally considered to
be an emerging or developing country by the international financial community.
Investment in foreign securities in general, and in emerging markets in
particular, involves certain risks not present when investing in United States
securities. See 'Foreign Securities' in 'Investment Techniques and Risk
Factors.'

Under normal conditions, at least 65% of the Portfolio's total assets will be
invested in equity securities (including common and preferred stocks and other
securities having equity features, such as convertible securities, warrants and
rights) of issuers in at least three countries other than the United States. The
Portfolio may purchase securities on foreign stock exchanges, on U.S. stock
exchanges, or in the over-the-counter market. In addition, the Portfolio may
invest in securities in the form of sponsored or unsponsored American Depositary
Receipts ('ADRs'), European Depositary Receipts ('EDRs'), Global Depositary
Receipts ('GDRs') or other similar securities representing a right to obtain
underlying securities of foreign issuers. The Portfolio may invest up to 35% of
its total assets in debt securities that the Adviser expects have the potential
for capital appreciation. The Portfolio may invest in such debt securities rated
below investment grade, that is below 'BBB' by S&P, or below 'Baa' by Moody's,
or if unrated, determined by the Adviser to be of equivalent quality. See 'Fixed
Income Securities' in 'Investment Techniques and Risk Factors' below for a
discussion of the risks associated with investing in such securities.

Advisers' Historical Performance Data
- --------------------------------------------------------------------------------

Set forth below is historical performance data relating to each of the Advisers
selected by SunAmerica for the Portfolios. The performance information presented
below is based on data provided by each Adviser relating to all of the accounts
managed by that Adviser that have investment objectives and policies similar
(although not necessarily identical) to the relevant Portfolio and are advised
by that Adviser using investment styles and strategies substantially similar to
those to be employed by that Adviser in advising its portion of the Portfolio.
THE PERFORMANCE INFORMATION SET FORTH BELOW DOES NOT REPRESENT THE PERFORMANCE
OF THE FUND OR ANY PORTFOLIO. The Fund is newly organized and has no performance
record of its own. The following performance should not be considered a

prediction of future performance of the Fund or any Portfolio. The performance
of a particular Portfolio may be higher or lower than that shown below.

All of the historical performance information reflects annualized total return
over the stated period of time. Total return shows how much an investment has
increased (decreased) over a specified period of time and includes capital
appreciation and income. The term 'annualized total return' signifies that
cumulative total returns for a stated time period (i.e., 1, 3, 5 or 10 years)
have been annualized over such period. In order to present the total return
information in a consistent manner, all returns were calculated by geometrically
linking quarterly total return data for the relevant number of quarters and
annualizing the result over the equivalent number of years.

All information relies on data supplied by the Advisers or Lipper Analytical
Services, Inc. ('Lipper') and believed by the Fund to be reliable.

<PAGE>

8
Style Select Series(Trademark)

However, such information has not been verified, and unless otherwise indicated
in the endnotes to the tables set forth below, has not been audited. In certain
cases as indicated, the total return for a particular Adviser's composite
performance has been calculated in accordance with Performance Presentation
Standards of the Association for Investment Management and Research ('AIMR'). If
not so stated, the performance, while having been calculated in accordance with
AIMR methodology, has not been independently verified or audited. Performance
figures for any particular Adviser do not necessarily reflect all of the
Adviser's assets under management and may not accurately reflect the performance
of all accounts managed by the Adviser.

The performance information is presented net of actual fees charged by the
individual Advisers, except as otherwise noted, but do not reflect the
imposition of any sales loads or charges, if applicable. If sales loads or
charges were reflected, where applicable, performance would have been lower. If
the performance figures are net of actual fees, they do not reflect the
operating expenses of the Portfolio (such as Rule 12b-1 fees) or any applicable
sales charge. In the event that the performance figures are not net of actual
fees, they are instead presented net of annualized expenses projected for the
particular Portfolio for its initial fiscal period, but do not reflect any sales
charge. Such annualized expenses are higher than actual fees charged to the
accounts reflected in the data, so that the performance depicted below is lower
than the actual performance experienced by such accounts.

Certain of the client accounts that are included in an Adviser's past
performance record may not be registered investment companies. Such accounts
would not be subject to the same types of expenses to which the Fund is subject,
nor to the specific tax diversification and other restrictions and investment
limitations imposed on the Fund and its Portfolios by the 1940 Act or Subchapter
M of the Internal Revenue Code of 1986, as amended (the 'Code'). The performance
results that include accounts that are not registered investment companies might
have been less favorable had they been subject to regulation as investment
companies under the relevant federal laws.

In addition to the individual investment performance of each Adviser for the
periods indicated, the following tables reflect the combined performance of all
of the Advisers for each Portfolio. The combined information is presented only
with respect to periods during which all Advisers to a Portfolio were managing
accounts similar to the Portfolio, and reflects an equal one-third allocation to
each Adviser at all times during the period in question. All performance
information set forth below is premised on the assumption that, had the
Portfolio been in existence, each Adviser would have been selected by SunAmerica
to manage the particular Portfolio at all times during the period for which
performance information is presented and that each Portfolio would have in fact
been allocated in equal one-third portions to each of the Advisers for the
periods for which combined historical information is presented. Notwithstanding
these assumptions, SunAmerica may change Advisers and the allocation of assets
among the different Advisers within a single Porfolio. In addition, the
allocation of assets among the Advisers of a Portfolio is expected to vary
relative to the performance of each portion of the Portfolio. The combined
Adviser performance chart is hypothetical, and is not an actually managed
portfolio. The chart does not represent an estimate of what a Portfolio's
performance would have been had it operated during the relative periods shown.

Finally, for each period presented, the investment performance for the
Advisers of each Portfolio, and, in certain cases, combined hypothetical
information for such Advisers, is compared to the average performance of a group
of similar mutual funds tracked by Lipper. Lipper calculates its group averages
by taking a mathematical average of the returns of the funds included in the
group, weighted by net assets.

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Advisers for Aggressive Growth Portfolio
- --------------------------------------------------------------------------------

The Advisers for the Aggressive Growth Portfolio are:

JANUS CAPITAL CORPORATION (JANUS)
SUNAMERICA ASSET MANAGEMENT CORP. (SUNAMERICA)
WARBURG, PINCUS COUNSELLORS, INC. (WARBURG)

The performance results supplied by each Adviser were prepared as set forth
below under 'Individual Adviser Performance.'

ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
PERIODS ENDED JUNE 30, 1996

[1-YEAR BAR CHART]

One Year
Lipper Small Company Growth Group 30.6%
Combined Adviser Performance 41.4%
Janus 49.8%
SunAmerica 40.8%
Warburg 34.0%

[3-YEAR BAR CHART]

Three Years
Lipper Small Company Growth Group 18.3%
Combined Adviser Performance 25.3%
Janus 31.2%
SunAmerica 23.7%
Warburg 20.8%

[5-YEAR BAR CHART]

Five Years
Lipper Small Company Growth Group 19.0%
Combined Adviser Performance 24.7%
Janus 28.0%
SunAmerica 23.1%
Warburg 22.5%

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ENDNOTES
- --------------------------------------------------------------------------------

INDIVIDUAL ADVISER PERFORMANCE

Except as otherwise noted below, an Adviser's performance is presented net of
actual fees, but does not reflect the imposition of any sales loads or charges,
if applicable. If sales loads or charges were reflected, where applicable,
performance would have been lower. The Portfolio's fees and expenses may be
greater than those charged by the individual Advisers. Accordingly, the
Portfolio's actual performance may be lower.

Janus

Janus' historical performance data covers six and one-half years and reflects
the performance of the Janus Aggressive Growth composite. The annualized return
since inception of the composite is 26% as of June 30, 1996. The composite
includes all aggressive growth equity accounts with assets above $5 million for
which Janus has discretionary authority, including one aggressive growth mutual
fund. As of June 30, 1996, the composite included 11 accounts with aggregate
assets of $536 million, which represented 1.4% of total assets under management.
Accounts enter the composite upon their first full quarter under management in
which assets exceed $5 million. The composite returns are presented net of
actual fees. None of the accounts included in the composite bears any sales
loads or charges. The performance history is calculated in accordance with the
standards set forth by AIMR.

SunAmerica

SunAmerica's historical performance data covers 9 1/4 years and reflects the
performance of a single, front-end load mutual fund ('Class A'). The annualized
return since inception of the fund as of June 30, 1996 for Class A shares is
14.7%. According to SunAmerica, this fund reflects the only comparable vehicle
managed by SunAmerica in the small capitalization growth strategy with a
performance record over one year. As of June 30, 1996, the fund's Class A net
assets totaled $147.2 million. As of such date, the net assets of Class B of the
fund totaled $96.7 million. Class B return for the one year ending June 30, 1996
is 39.8% and since inception, September 24, 1993, 20.7%.

Warburg

Warburg's historical performance data covers 8 1/4 years and reflects the
performance of a single, no-load mutual fund. The annualized return since
inception of the fund is 18% as of June 30, 1996. As of June 30, 1996, the
fund's net assets totaled $968.3 million. According to Warburg, this fund is the
only retail vehicle managed by Warburg with a small capitalization growth
strategy.

COMBINED ADVISER PERFORMANCE

Performance for the 5-year, 3-year and 1-year composite bar charts reflects a
combined composite weighted equally among the Janus Aggressive Growth composite,
SunAmerica fund (Class A), and Warburg fund. The performance for each Adviser is
presented net of actual fees paid by each account included in the composite, but
does not reflect the imposition of any sales loads or charges, if applicable. If
sales loads or charges were reflected, where applicable, performance would have
been lower.

LIPPER SMALL COMPANY GROWTH MUTUAL FUND GROUP

Developed by Lipper Analytical Services, Inc., the Lipper Small Company Growth
Mutual Fund Group currently reflects a group of 429 mutual funds which limit
their investments to companies on the basis of the size of the company. This
group was selected because the investment parameters of the Aggressive Growth
Portfolio are consistent with the criteria Lipper used to include funds in this
group.

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GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
SIX YEARS ENDED JUNE 30, 1996

[6-YEAR MOUNTAIN CHART]

Combined Lipper Small
Adviser Company Growth
Performance Group
1990 $10,000 $10,000
1991 $10,660 $10,510
1992 $12,547 $12,065
1993 $16,349 $15,118
1994 $16,169 $15,405
1995 $22,701 $19,195
1996 $32,099 $25,069

GROWTH OF A $10,000 INVESTMENT

The 'Growth of a $10,000 Investment' composite chart reflects six years of
performance data and reflects a combined composite weighted equally among the
Janus Aggressive Growth composite, SunAmerica fund (Class A) and Warburg fund.
Returns for all time periods are net of actual fees, but do not reflect the
imposition of any sales loads or charges, if applicable. If sales loads or
charges were reflected, where applicable, performance would have been lower.

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Advisers for Mid-Cap Growth Portfolio
- --------------------------------------------------------------------------------

The Advisers for the Mid-Cap Growth Portfolio are:

MILLER ANDERSON & SHERRERD, LLP (MAS)
PILGRIM BAXTER & ASSOCIATES, LTD. (PBA)
T. ROWE PRICE ASSOCIATES, INC. (T. ROWE PRICE)

The performance results supplied by each Adviser were prepared as set forth
below under 'Individual Adviser Performance.'

ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
PERIODS ENDED JUNE 30, 1996

[1-YEAR BAR CHART]

One Year
Lipper Mid-Cap Growth Group 25.3%
Combined Adviser Performance 42.1%
MAS 44.0%
PBHG 48.0%
T. Rowe Price 34.4%

[3-YEAR BAR CHART]

Three Years
Lipper Mid-Cap Growth Group 16.6%
Combined Adviser Performance 22.8%
MAS 22.1%
PBHG 23.5%
T. Rowe Price 22.4%

[5-YEAR BAR CHART]

Five Years
Lipper Mid-Cap Growth Group 17.9%
MAS 19.7%
PBHG 21.8%

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ENDNOTES
- --------------------------------------------------------------------------------

INDIVIDUAL ADVISER PERFORMANCE

Except as otherwise noted below, an Adviser's performance is presented net of
actual fees. The Portfolio's fees and expenses may be greater than those charged
by the individual Advisers. Accordingly, the Portfolio's actual performance may
be lower.

MAS

MAS' historical performance data covers six and one-quarter years and reflects
the performance of a single, no-load mutual fund. The annualized return since
inception of the fund is 21.1% as of June 30, 1996. According to MAS, this fund
is the only account managed by MAS with a mid cap growth strategy. As of June
30, 1996, the fund's net assets totaled $459.1 million.

PBA

PBA's historical performance data covers ten years and reflects the performance
of the PBA Mid-Cap composite, which as of June 30, 1996, included five
unrestricted mid-cap equity accounts totaling $1.23 billion or 10% of all equity
assets under management, and 100% of all mid-cap equity accounts under
management, according to PBA. The annualized ten-year return of the composite is
15.2% as of June 30, 1996. The composite returns are presented net of actual
fees. None of the accounts included in the composite bears any sales loads or
charges. The performance history is calculated in accordance with the standards
set forth by AIMR.

T. Rowe Price

T. Rowe Price's historical performance data covers four years and reflects the
performance of a single, no-load mutual fund. The annualized return since
inception of the fund is 25.9% as of June 30, 1996. According to T. Rowe Price,
this fund is the only account managed by T. Rowe Price with a mid-cap growth
strategy and assets of at least $100 million. As of June 30, 1996, the fund's
net assets totaled $611.2 million.

COMBINED ADVISER PERFORMANCE

Performance on the 3-year and 1-year composite bar charts reflects a combined
composite weighted equally among the MAS fund, PBA Mid Cap Composite and T. Rowe
Price fund. The performance for each Adviser is presented net of actual fees
paid by each account included in the composite.

LIPPER MID-CAP MUTUAL FUND GROUP

Developed by Lipper Analytical Services, Inc., the Lipper Mid-Cap Mutual Fund
Group currently reflects a group of 167 mutual funds which limit their
investments to companies with average market capitalizations and/or revenues
between $800 million and the average market capitalization of the Wilshire 4500
Index (as captured by the Vanguard Index Extended Market Fund). This group was
selected because the investment parameters of the Mid-Cap Growth Portfolio are
consistent with the criteria Lipper used to include funds in this group.

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GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
FOUR YEARS ENDED JUNE 30, 1996

[4-YEAR MOUNTAIN CHART]

Lipper
Combined Mid-Cap
Adviser Growth
Performance Group
1992 $10,000 $10,000
1993 $12,790 $12,470
1994 $12,854 $12,620
1995 $16,684 $15,762
1996 $23,709 $19,750

GROWTH OF A $10,000 INVESTMENT

The 'Growth of a $10,000 Investment' composite chart reflects four years of
performance data, and reflects a combined composite weighted equally among the
MAS fund, PBA Mid Cap Composite and T. Rowe Price fund. Returns for all time
periods are net of actual fees.

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Advisers for Value Portfolio
- --------------------------------------------------------------------------------

The Advisers for the Value Portfolio are:

DAVIS SELECTED ADVISERS, L.P. (DAVIS)
NEUBERGER&BERMAN, LLC (NEUBERGER&BERMAN)
STRONG CAPITAL MANAGEMENT, INC. (SUBCONTRACTED
TO SCHAFER AND REFERRED TO FOR THE PURPOSES OF THIS ENDNOTE AS
'STRONG/SCHAFER').

The performance results supplied by each Adviser were prepared as set forth
below under 'Individual Adviser Performance.'

ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
PERIODS ENDED JUNE 30, 1996

[1-YEAR BAR CHART]

One Year
Lipper Equity-Income Group 21.8%
Combined Adviser Performance 22.1%
Davis 22.2%
Neuberger&Berman 24.8%
Strong/Schafer 19.1%

[3-YEAR BAR CHART]

Three Years
Lipper Equity-Income Group 12.8%
Combined Adviser Performance 16.3%
Davis 16.7%
Neuberger&Berman 17.0%
Strong/Schafer 15.0%

[5-YEAR BAR CHART]

Five Years
Lipper Equity-Income Group 13.7%
Combined Adviser Performance 17.8%
Davis 19.0%
Neuberger&Berman 17.2%
Strong/Schafer 16.8%

[10-YEAR BAR CHART]

Ten Years
Lipper Equity-Income Group 10.7%
Combined Adviser Performance 13.6%
Davis 15.8%
Neuberger&Berman 12.9%
Strong/Schafer 11.9%

<PAGE>
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ENDNOTES
- --------------------------------------------------------------------------------

INDIVIDUAL ADVISER PERFORMANCE

Davis

Davis' historical performance data covers ten years and reflects the performance
of a single, front-end load mutual fund. According to Davis, this fund
represents the only retail vehicle managed by Davis with a value strategy within
the firm. As of June 30, 1996, the fund's net assets totaled $2,150.6 million.

Neuberger&Berman

Neuberger&Berman's historical performance data covers ten years and reflects the
performance of a single, no-load mutual fund. According to Neuberger&Berman,
although there are other value-styled accounts managed by the firm, this fund
represents the only vehicle managed by Neuberger&Berman in accordance with the
same particular value strategy as the Value Portfolio. As of June 30, 1996, the
fund's net assets totaled $2,000.2 million.

Strong/Schafer

Strong/Schafer's historical performance data covers ten years and reflects the
performance of the Schafer Capital Equity composite. As of June 30, 1996, the
composite included 2 accounts, a separately managed account and a mutual fund,
totaling $400 million or 100% of Schafer's total assets under management. The
returns for the Schafer Capital Equity composite were supplied to the Fund gross
of fees, but have been adjusted to give effect to the level of annualized
expenses projected for the Value Portfolio during the initial fiscal period,
which is 1.78%. None of the accounts in the composite bears any sales loads or
charges.

COMBINED ADVISER PERFORMANCE

Performance on all of the composite bar charts reflects a combined composite
weighted equally among the Davis fund, Neuberger&Berman fund, and Schafer
Capital Equity composite. The returns for the Davis fund and Neuberger&Berman
fund are net of actual expenses, but do not reflect the imposition of any sales
loads or charges, if applicable. If sales loads or charges were reflected, where
applicable, performance would have been lower. The gross returns for the Schafer
Capital Equity Composite have been adjusted to give effect to the level of
annualized expenses projected for the Value Portfolio during the initial fiscal
period, which is 1.78%.

LIPPER EQUITY INCOME MUTUAL FUND GROUP--AVERAGE PERFORMANCE

Developed by Lipper Analytical Services, Inc., the Lipper Equity Income Mutual
Fund Group currently reflects a group of 177 mutual funds which seek relatively
high current income and growth of income through investing 60% or more of assets
in equities. This group was selected because the investment parameters of the
Value Portfolio are consistent with the criteria Lipper used to include funds in
this group.

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GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
TEN YEARS ENDED JUNE 30, 1996

[10-YEAR MOUNTAIN CHART]

Combined Lipper
Adviser Equity-Income
Performance Group
1986 $10,000 $10,000
1987 $11,830 $11,530
1988 $11,215 $11,265
1989 $13,480 $12,909
1990 $15,125 $13,723
1991 $15,851 $14,560
1992 $18,752 $16,729
1993 $22,821 $19,322
1994 $23,984 $19,612
1995 $29,381 $22,730
1996 $35,874 $27,686

GROWTH OF A $10,000 INVESTMENT

The 'Growth of a $10,000 Investment' composite chart reflects ten years of
performance data, weighted equally among the Davis fund, Neuberger&Berman fund
and Schafer Capital Equity composite. Returns for the Davis fund and
Neuberger&Berman fund are net of actual expenses, but do not reflect the
imposition of any sales loads or charges, if applicable. If sales loads or
charges were reflected, where applicable, performance would have been lower.
Gross returns for the Schafer Capital Equity Composite have been adjusted to
give effect to the level of annualized expenses projected for the Value
Portfolio during the initial fiscal period, which is 1.78%.

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Advisers for International Equity Portfolio
- --------------------------------------------------------------------------------

The Advisers for the International Equity Portfolio are:

WARBURG, PINCUS COUNSELLORS, INC. (WARBURG)
ROWE PRICE-FLEMING INTERNATIONAL, INC.
(ROWE-FLEMING)
STRONG CAPITAL MANAGEMENT, INC. (STRONG)

The performance results supplied by each Adviser were prepared as set forth
below under 'Individual Adviser Performance.'

ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
PERIODS ENDED JUNE 30, 1996

[1-YEAR BAR CHART]

One Year
Lipper International Group 15.5%
Combined Adviser Performance 21.2%
Warburg 23.7%
Rowe-Fleming 16.3%
Strong 23.7%

[3-YEAR BAR CHART]

Three Years
Lipper International Group 12.3%
Combined Adviser Performance 15.3%
Warburg 15.9%
Rowe-Fleming 13.7%
Strong 16.0%

[5-YEAR BAR CHART]

Five Years
Lipper International Group 10.3%
Warburg 13.8%
Rowe-Fleming 11.8%

<PAGE>
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ENDNOTES
- --------------------------------------------------------------------------------

INDIVIDUAL ADVISER PERFORMANCE

Rowe-Fleming

Rowe-Fleming's historical performance data covers ten years and reflects the
performance of the Mainstream International Equities composite managed by
Rowe-Fleming. As of December 31, 1995, the composite included 15 accounts
totaling $3.35 billion in assets, or 38% of all assets under management. The
annualized ten-year return of the composite is 11.8% as of June 30, 1996. The
performance history provided by Rowe-Fleming's is calculated in accordance with
the standards set forth by AIMR. The returns for the Mainstream International
Equities composite were supplied to the Fund gross of fees but have been
adjusted to give effect to the level of annualized expense projected for the
International Equity Portfolio during the initial fiscal period, which is 2.03%.
None of the accounts included in the composite bears any sales loads or charges.

Strong

Strong's historical performance data covers four and one-quarter years and
reflects the performance of the Strong International Equity composite which, as
of June 30, 1996, included 4 separate accounts totaling $399 million, or 2% of
the firm's total assets under management, as well as two mutual funds, the
Strong International Stock Fund and the Strong International Stock Fund II. The
annualized return since inception of the composite is 14.5% as of June 30, 1996.
According to Strong, the composite reflects all accounts managed by the firm
within their international investment discipline. The returns for the Strong
International Equity composite were supplied to the Fund gross of fees, but have
been adjusted to give effect to the level of annualized expenses projected for
the International Equity Portfolio during the initial fiscal period, which is
2.03%. None of the accounts included in the composite bears any sales loads or
charges.

Warburg

Warburg's historical performance data covers seven years and reflects the
performance of a single, no-load mutual fund. The annualized return since
inception of the fund is 13.6% as of June 30, 1996. As of June 30, 1996, the
fund's net assets totaled $2,943.8 million. According to Warburg, the fund is
the only retail vehicle managed by Warburg with an international strategy.

COMBINED ADVISER PERFORMANCE

Performance on the 3-year and one-year composite bar charts reflects a combined
composite weighted equally among the Rowe-Fleming Mainstream International
Equities composite, Strong International Equity composite and Warburg fund. The
gross returns for the Rowe-Fleming Mainstream International Equities composite
and the Strong International Equity composite have been adjusted to give effect
to the level of annualized expenses projected for the International Equity
Portfolio during the initial fiscal period, which is 2.03%. The returns for the
Warburg fund are net of actual fees.

LIPPER INTERNATIONAL MUTUAL FUND GROUP--AVERAGE PERFORMANCE

Developed by Lipper Analytical Services, Inc., the Lipper International Mutual
Fund Group currently reflects a group of 373 mutual funds which invest in
securities whose primary trading markets are outside of the United States. This
group was selected because the investment parameters of the International Equity
Portfolio are consistent with the criteria Lipper used to include funds in this
group.

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GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
FOUR YEARS ENDED JUNE 30, 1996

[4-YEAR MOUNTAIN CHART]

Combined Lipper
Adviser International
Performance Group
1992 $10,000 $10,000
1993 $10,920 $10,740
1994 $13,901 $12,995
1995 $13,790 $13,151
1996 $16,713 $15,190

GROWTH OF A $10,000 INVESTMENT

The 'Growth of a $10,000 Investment' composite chart reflects four years of
performance data, and reflects a combined composite weighted equally among the
Strong International Equity composite, Rowe-Fleming Mainstream International
Equities composite and Warburg fund. The gross returns for the Strong
International Equity composite and the Rowe-Fleming Mainstream International
Equities composite have been adjusted to give effect to the level of annualized
expenses projected for the International Equities Portfolio during the initial
fiscal period, which is 2.03%. The returns for the Warburg fund are net of
actual fees.

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Investment Techniques and Risk Factors
- --------------------------------------------------------------------------------

Unless otherwise specified, each Portfolio may invest in the following
securities. As used herein, the term 'Adviser' shall mean either SunAmerica or
one of the Advisers chosen by SunAmerica. Also, the stated percentage
limitations are applied to an investment at the time of purchase unless
otherwise indicated.

Convertible Securities, Preferred Stocks, Warrants and Rights--Convertible
securities may be debt securities or preferred stock with a conversion feature.
Traditionally, convertible securities have paid dividends or interest at rates
higher than common stocks but lower than non-convertible securities. They
generally participate in the appreciation or depreciation of the underlying
stock into which they are convertible, but to a lesser degree. In recent years,
convertibles have been developed which combine higher or lower current income
with options and other features. Generally, preferred stock has a specified
dividend and ranks after bonds and before common stocks in its claim on income
for dividend payments and on assets should the company be liquidated. While most
preferred stocks pay a dividend, a Portfolio may purchase preferred stock where
the issuer has omitted, or is in danger of omitting, payment of its dividend.
Such investments would be made primarily for their capital appreciation
potential. Warrants are options to buy a stated number of shares of common stock
at a specified price any time during the life of the warrants (generally two or
more years). 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.

Investment in Small Cap Companies--Each Portfolio may invest in small companies
having market capitalizations of under $1 billion. It may be difficult to obtain
reliable information and financial data on such companies and the securities of
these small companies may not be readily marketable, making it difficult to
dispose of shares when desirable. Securities of small or emerging growth
companies may be subject to more abrupt or erratic market movements than larger,
more established companies or the market average in general. A risk of investing
in smaller, emerging companies is that they often are at an earlier stage of
development and therefore have limited product lines, market access for such
products, financial resources and depth in management than larger, more
established companies, and their securities may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. In addition, certain smaller issuers may face
difficulties in obtaining the capital necessary to continue in operation and may
go into bankruptcy, which could result in a complete loss of an investment.
Smaller companies also may be less significant factors within their industries
and may have difficulty withstanding competition from larger companies. While
smaller companies may be subject to these additional risks, they may also
realize more substantial growth than larger, more established companies.

Foreign Securities--Each Portfolio (other than the International Equity

Portfolio) is authorized to invest up to 30% of its total assets, and the
International Equity Portfolio may invest without limitation, in foreign
securities. Each Portfolio may also invest in U.S. dollar denominated securities
of foreign issuers, including ADRs, as well as EDRs, 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. Each Portfolio 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 Portfolio may invest in securities denominated in
other currency 'baskets.' See the Statement of Additional Information for a
further discussion of these types of securities.

Risks of Foreign Securities. Foreign investments may be affected favorably or
unfavorably by changes in currency rates and exchange-control regulations and
costs will be incurred in connection with conversions between various
currencies. The value of a security may fluctuate as a result of currency
exchange rates in a manner unrelated to the underlying value of the security.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.

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Securities of some foreign companies may be less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions and custodian
fees are generally higher than in the U.S. In addition, there is generally less
governmental regulation of stock exchanges, brokers and listed companies abroad
than in the U.S. Investments in foreign securities may also be subject to other
risks, different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
confiscatory taxation and imposition of withholding taxes on income from sources
within such countries.

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

Foreign Currency Transactions. Each Portfolio has the ability to hold a portion
of its assets in foreign currencies and to enter into forward foreign currency
exchange contracts. It may also purchase and sell exchange-traded futures

contracts relating to foreign currency and purchase and sell put and call
options on currencies and futures contracts.

Each Portfolio may enter into forward foreign currency exchange contracts to
reduce the risks of fluctuations in exchange rates; however, these contracts
cannot eliminate all such risks and do not eliminate fluctuations in the prices
of the Portfolio's portfolio securities.

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

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

Each Portfolio may enter into currency swaps. Currency swaps involve the
exchange by a Portfolio with another party of their respective rights to make or
receive payments in specified currencies. Currency swaps usually involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. A Portfolio will maintain in a
segregated account with its custodian cash or liquid securities equal to the net
amount, if any, of the excess of the Portfolio's obligations over its
entitlements with respect to swap transactions. To the extent that the net
amount of a swap is held in a segregated account consisting of cash or liquid
securities, the Fund believes that swaps do not constitute senior securities
under the 1940 Act and, accordingly, they will not be treated

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as being subject to the Portfolio's borrowing restrictions. The use of currency
swaps is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If an Adviser is incorrect in its forecasts of market values and
currency exchange rates, the investment performance of a Portfolio would be less
favorable than it would have been if this investment technique were not used.

Foreign Investment Companies. The International Equity Portfolio may invest in
foreign investment companies to the extent set forth below. Some of the
countries in which the Portfolio invests may not permit direct investment by
foreign investors such as the Portfolio. Investments in such countries may only
be permitted through foreign government-approved or authorized investment
vehicles, which may include other investment companies. In addition, it may be
less expensive and more expedient for the Portfolio to invest in a foreign
investment company in a country that permits direct foreign investment.
Investing through such vehicles may involve frequent or layered fees or expenses
and may also be subject to limitation under the 1940 Act. Under the 1940 Act, a
fund may invest up to 10% of its assets in shares of other investment companies
and up to 5% of its assets in any one investment company as long as the
investment does not represent more than 3% of the voting stock of the acquired
investment company. The Portfolio does not intend to invest in such investment
companies unless, in the judgment of the Adviser, the potential benefits of such
investments justify the payment of any associated fees and expenses.

Fixed Income Securities--Fixed income securities are broadly characterized as
those that provide for periodic payments to the holder of the security at a
stated rate. Most fixed income securities, such as bonds, represent indebtedness
of the issuer and provide for repayment of principal at a stated time in the
future. Others do not provide for repayment of a principal amount, although they
may represent a priority over common stockholders in the event of the issuer's
liquidation. Many fixed income securities are subject to scheduled retirement,
or may be retired or 'called' by the issuer prior to their maturity dates. The
interest rate on certain fixed income securities, known as 'variable rate
obligations,' is determined by reference to or is a percentage of an objective
standard, such as a bank's prime rate, the 90-day Treasury bill rate, or the
rate of return on commercial paper or bank certificates of deposit, and is
periodically adjusted. Certain variable rate obligations may have a demand
feature entitling the holder to resell the securities at a predetermined amount.
The interest rate on certain fixed income securities, called 'floating rate
instruments,' changes whenever there is a change in a designated base rate.

The market values of fixed income securities tend to vary inversely with the
level of interest rates--when interest rates rise, their values will tend to
decline; when interest rates decline, their values generally will tend to rise.
The potential for capital appreciation with respect to variable rate obligations
or floating rate instruments will be less than with respect to fixed-rate
obligations. Long-term instruments are generally more sensitive to these changes
than short-term instruments. The market value of fixed income securities and
therefore their yield is also affected by the perceived ability of the issuer to
make timely payments of principal and interest.

U.S. Government Securities--Securities guaranteed by the U.S. government include
the following: (1) direct obligations of the U.S. Treasury (such as Treasury
bills, notes and bonds) and (2) federal agency obligations guaranteed as to

principal and interest by the U.S. Treasury (such as Government National
Mortgage Association certificates and Federal Housing Administration
debentures). 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.

Securities issued by U.S. government instrumentalities and certain federal
agencies 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, the Federal Home Loan
Mortgage Corporation, Federal Land Banks, Farmers Home Administration, Central
Bank for Cooperatives, Federal Intermediate Credit Banks and Federal Home Loan
Banks.

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Corporate Debt Instruments--These instruments, such as bonds, represent the
obligation of the issuer to repay a principal amount of indebtedness at a stated
time in the future and, in the usual case, to make periodic interim payments of
interest at a stated rate.

Investment Grade--A designation applied to intermediate and long-term corporate
debt securities rated within the highest four rating categories assigned by S&P
(AAA, AA, A or BBB) or by Moody's (Aaa, Aa, A or Baa), or, if unrated,
considered by the Adviser to be of comparable quality. The ability of the issuer
of an investment grade debt security to pay interest and to repay principal is
considered to vary from extremely strong (for the highest ratings) through
adequate (for the lowest ratings given above), although the lower-rated
investment grade securities may be viewed as having speculative elements as
well.

High-Yield, High Risk Bonds--A designation applied to intermediate and long-term
corporate debt securities that are not investment grade; commonly referred to as
'junk bonds'. These include bonds rated below BBB by S&P, or Baa by Moody's, or
which are unrated but considered by the Adviser to be of equivalent quality.
These securities are considered speculative. See the Statement of Additional
Information for a complete description of bond ratings.

The Mid-Cap Growth Portfolio may invest in debt securities rated as low as 'BBB'
by S&P, 'Baa' by Moody's, or unrated securities determined by the Adviser to be
of comparable quality. The Aggressive Growth, Value and International Equity
Portfolios may invest in debt securities rated below investment grade (i.e.,
below 'BBB' by S&P, or below 'Baa' by Moody's, or if unrated, determined by the
Adviser to be of equivalent quality).

Risk Factors Relating to High-Yield, High-Risk Bonds--High-yield, high-risk
bonds are subject to greater fluctuations in value than are higher rated bonds
because the values of high-yield bonds tend to reflect short-term corporate,
economic and market developments and investor perceptions of the issuer's credit
quality to a greater extent. Although under normal market conditions longer-term
securities yield more than shorter-term securities, they are subject to greater
price fluctuations. Fluctuations in the value of a Portfolio's investments will
be reflected in its net asset value per share. The growth of the high-yield bond
market paralleled a long economic expansion, followed by an economic downturn
which severely disrupted the market for high-yield bonds and adversely affected
the value of outstanding bonds and the ability of the issuers to repay principal
and interest. The economy may affect the market for high-yield bonds in a
similar fashion in the future including an increased incidence of defaults on
such bonds. From time to time, legislation may be enacted which could have a
negative effect on the market for high-yield bonds.

High-yield bonds present the following risks:

Sensitivity to Interest Rate and Economic Changes--High-yield, high-risk bonds
are very sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay interest
or principal or entered into bankruptcy proceedings, a Portfolio may incur
losses or expenses in seeking recovery of amounts owed to it. In addition,
periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices (and therefore yields) of high-yield bonds
and the Portfolio's net asset value.

Payment Expectations--High-yield, high-risk bonds may contain redemption or call
provisions. If an issuer exercised these provisions in a declining interest-rate
market, an Adviser would have to replace the security with a lower-yielding
security, resulting in a decreased return for investors. Conversely, a
high-yield bond's value will decrease in a rising interest rate market, as will
the value of the Portfolio's assets. If the Portfolio experiences unexpected net
redemptions, this may force it to sell high-yield bonds without regard to their
investment merits, thereby decreasing the asset base upon which expenses can be
spread and possibly reducing the Portfolio's rate of return.

Liquidity and Valuation--There may be little trading in the secondary market for
particular bonds, which may affect adversely a Portfolio's ability to value
accurately or dispose of such bonds. Under such circumstances, the task of
accurate valuation becomes more difficult and judgment would play a greater role
due to the relative lack of reliable and objective data. Adverse publicity and
investor perceptions, whether or not based on fundamental

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analysis, may decrease the values and liquidity of high-yield bonds, especially
in a thin market.

Each Adviser attempts to reduce these risks through diversification of the
assets under its control and by credit analysis of each issuer, as well as by
monitoring broad economic trends and corporate and legislative developments. If
a high-yield bond previously acquired by a component is downgraded, the
Advisers, as appropriate, will evaluate the security and determine whether to
retain or dispose of it.

Asset-Backed Securities--These securities represent an interest in a pool of
consumer or other types of loans. Payments of principal and interest on the
underlying loans are passed through to the holders of asset-backed securities
over the life of the securities. See the Statement of Additional Information.

Zero Coupon Bonds, Step-Coupon Bonds, Deferred Interest Bonds and PIK Bonds.
Fixed income securities in which a Portfolio may invest also include zero coupon
bonds, step-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. A step-coupon bond is one in which a change in interest rate is
fixed contractually in advance. PIK bonds are debt obligations which 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 which make regular payments of interest. A
Portfolio will accrue income on such investments for tax and accounting
purposes, as required, which is distributable to shareholders and which, because
no cash is received at the time of accrual, may require the liquidation of other
portfolio securities under disadvantageous circumstances to satisfy the
Portfolio's distribution obligations.

Short-Term and Temporary Defensive Investments--In addition to their primary
investments, each Portfolio may also invest up to 25% of its total assets in
both U.S. and non-U.S. dollar denominated money market instruments (a) for
liquidity purposes (to meet redemptions and expenses) or (b) to generate a
return on idle cash held in a Portfolio's portfolio during periods when an
Adviser is unable to locate favorable investment opportunities. For temporary
defensive purposes, each Portfolio may invest up to 100% of its total assets in
cash and short-term 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). In addition, Janus and
Neuberger&Berman may invest idle cash of the assets under their control in money
market mutual funds that they manage. Such an investment may entail additional
fees. See the Statement of Additional Information for a description of short-
term debt securities and the Appendix to the Statement of Additional Information
for a description of securities ratings.

Repurchase Agreements--Under these types of agreements, a Portfolio buys a
security and obtains a simultaneous commitment from the seller to repurchase the
security at a specified time and price. The seller must maintain collateral with
the Fund's custodian (or at an appropriate sub-custodian in the case of tri- or
quad-party repurchase agreements) equal to at least 102% of the repurchase
price, plus accrued interest. A Portfolio will only enter into repurchase
agreements involving securities in which it could otherwise invest and with

selected banks and securities dealers whose financial condition is monitored by
the Adviser, subject to the guidance of the Directors. If the seller under the
repurchase agreement defaults, the Portfolio may incur a loss if the value of
the collateral securing the repurchase agreement has declined, and may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, realization of the
collateral by the Portfolio may be delayed or limited.

Hedging and Income Enhancement Strategies--Each Portfolio may write covered
calls to enhance income. After writing such a covered call up to 25% of a
Portfolio's total assets may be subject to calls. All such calls written by a
Portfolio must be 'covered' while the call is outstanding (i.e., the Portfolio
must own the securities subject to the call or other securities acceptable for
applicable escrow requirements). For hedging purposes or income enhancement,
each Portfolio may use interest rate futures, and stock and bond index futures,
including futures on U.S. government securities (together, 'Futures'); forward
contracts on foreign currencies; and call and put options on equity and debt
securities, Futures, stock and bond indices and foreign currencies (all of the
foregoing are referred to as 'Hedging Instruments'). All puts and calls on

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securities, interest rate futures or stock and bond index futures or options on
such Futures purchased or sold by a Portfolio will be listed on a national
securities or commodities exchange or on U.S. over-the-counter markets.

Each Portfolio may use spread transactions for any lawful purpose consistent
with the Portfolio's investment objective such as hedging or managing risk, but
not for speculation. A Portfolio 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
Portfolio 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
Portfolio does not own, but which is used as a benchmark. The risk to a
Portfolio 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 Portfolio against adverse changes in
prevailing credit quality spreads, i.e., the yield spread between high quality
and lower quality securities. Such protection is only provided during the life
of the spread option.

Special Risks of Hedging and Income Enhancement Strategies. Participation in
the options or Futures markets and in currency exchange transactions involves
investment risks and transaction costs to which a Portfolio would not be subject
absent the use of these strategies. If the Advisers' predictions of movements in
the direction of the securities, foreign currency and interest rate markets are
inaccurate, the adverse consequences to a Portfolio may leave the Portfolio in a
worse position than if such strategies were not used. Risks inherent in the use
of options, foreign currency and Futures contracts and options on Futures
contracts include (1) dependence on the Advisers' ability to predict correctly
movements in the direction of interest rates, securities prices and currency

markets; (2) imperfect correlation between the price of options and Futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of the Portfolio to
purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for the Portfolio to sell a
portfolio security at a disadvantageous time, due to the need for the Portfolio
to maintain 'cover' or to segregate securities in connection with hedging
transactions. A transaction is 'covered' when the Portfolio owns the security
subject to the option on such security, or some other security acceptable for
applicable escrow requirements. See the Statement of Additional Information for
further information concerning income enhancement and hedging strategies and the
regulation requirements relating thereto.

Illiquid and Restricted Securities--No more than 15% of the value of a
Portfolio's net assets may be invested in securities which are illiquid,
including repurchase agreements that have a maturity of longer than seven days,
interest rate swaps, currency swaps, caps, floors and collars. For this purpose,
not all securities which are restricted are deemed to be illiquid. For example,
restricted securities which the Board of Directors, or the Adviser pursuant to
guidelines established by the Board of Directors, has determined to be
marketable, such as securities eligible for sale under Rule 144A promulgated
under the Securities Act of 1933, as amended, or certain private placements of
commercial paper issued in reliance on an exemption from such Act pursuant to
Section 4(2) thereof, 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 the Portfolio 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 which by its
terms can be liquidated before its nominal fixed-term on seven days or less
notice is regarded as a liquid instrument. Subject to the applicable limitation
on illiquid securities investments, a Portfolio may acquire securities issued by
the U.S. government, its agencies or instrumentalities in a private placement.
See 'Illiquid Securities' in the Statement of Additional Information for a
further discussion of investments in such securities.

Hybrid Instruments--These instruments, including indexed or structured
securities, can combine the characteristics of securities, futures, and options.
For example, the principal amount, redemption, or

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conversion terms of a security could be related to the market price of some
commodity, currency, or securities index. Such securities may bear interest or
pay dividends at below market (or even relatively nominal) rates. Under certain
conditions, the redemption value of such an investment could be zero.

Borrowing--As a matter of fundamental policy each Portfolio is authorized to
borrow up to 33 1/3% of its total assets from banks for temporary or emergency

purposes. In seeking to enhance investment performance, each Portfolio may
borrow money for investment purposes and may pledge assets to secure such
borrowings. This is the speculative factor known as leverage. This practice may
help increase the net asset value of the assets of a Portfolio in an amount
greater than would otherwise be the case when the market values of the
securities purchased through borrowing increase. In the event the return on an
investment of borrowed monies does not fully recover the costs of such
borrowing, the value of the Portfolio's assets would be reduced by a greater
amount than would otherwise be the case. The effect of leverage will therefore
tend to magnify the gains or losses to the Portfolio as a result of investing
the borrowed monies. During periods of substantial borrowings, the value of the
Portfolio's assets would be reduced due to the added expense of interest on
borrowed monies. Each Portfolio is authorized to borrow, and to pledge assets to
secure such borrowings, up to the maximum extent permissible under the 1940 Act
(i.e., presently 50% of net assets). The time and extent to which a Portfolio
may employ leverage will be determined by the Adviser in light of changing facts
and circumstances, including general economic and market conditions, and will be
subject to applicable lending regulations of the Board of Governors of the
Federal Reserve Board.

Securities Lending--Each Portfolio may lend portfolio securities in amounts up
to 33 1/3% of its respective total assets to brokers, dealers and other
financial institutions, provided such loans are callable at any time by the
Portfolio and are at all times secured by cash or equivalent collateral. By
lending its portfolio securities, a Portfolio will receive income while
retaining the securities' potential for capital appreciation. As with any
extensions of credit, there are risks of delay in recovery and, in some cases,
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will be made only to
firms deemed by the Adviser to be creditworthy. The proceeds of such loans will
be invested in high-quality short-term debt securities, including repurchase
agreements.

When-Issued, Delayed Delivery and Forward Transactions--These generally
involve the purchase of a security with payment and delivery at some time in the
future--i.e., beyond normal settlement. A Portfolio does not earn interest on
such securities until settlement and bears the risk of market value fluctuations
in between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner.
One form of when-issued or delayed delivery security that each Portfolio may
purchase is a 'to be announced' or 'TBA' mortgage-backed security. A TBA
mortgage-backed security transaction arises when a mortgage- backed security is
purchased or sold with the specific pools to be announced on a future settlement
date.

Short Sales--Each Portfolio may sell a security it does not own in anticipation
of a decline in the market value of that security (short sales). To complete
such a transaction, a Portfolio must borrow the security to make delivery to the
buyer. The Portfolio then is obligated to replace the security borrowed by
purchasing it at market price at the time of replacement. The price at such time
may be more or less than the price at which the security was sold by the
Portfolio. Until the security is replaced, the Portfolio is required to pay to
the lender any dividends or interest which accrue during the period of the loan.
To borrow the security, the Portfolio also may be required to pay a premium,

which would increase the cost of the security sold. The proceeds of the short
sale will be retained by the broker, to the extent necessary to meet margin
requirements, until the short position is closed out. Until the Portfolio
replaces a borrowed security, the Portfolio will maintain daily a segregated
account, containing cash or liquid securities, at such a level that (i) the
amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and (ii) the
amount deposited in the segregated account plus the amount deposited with the
broker as collateral will not be less than the market value of the security at
the time it was sold short. A Portfolio will incur a loss as a result of the
short sale if the price of the security increases between the date of the short
sale and the date on which the Portfolio

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replaces the borrowed security. A Portfolio will realize a gain if the security
declines in price between those dates. This result is the opposite of what one
would expect from a cash purchase of a long position in a security. The amount
of any gain will be decreased, and the amount of any loss increased, by the
amount of any premium, dividends or interest the Portfolio may be required to
pay in connection with a short sale.

Each Portfolio may make 'short sales against the box.' A short sale is against
the box to the extent that the Portfolio contemporaneously owns, or has the
right to obtain without payment, securities identical to those sold short. A
Portfolio may not enter into a short sale, including a short sale against the
box, if, as a result, more than 25% of its net assets would be subject to such
short sales.

Special Situations--A 'special situation' arises when, in the opinion of the
Adviser, the securities of a particular issuer will be recognized and appreciate
in value due to a specific development with respect to that issuer. Developments
creating a special situation might include, among others, a new product or
process, a technological breakthrough, a management change or other
extraordinary corporate event, or differences in market supply of and demand for
the security. Investment in special situations may carry an additional risk of
loss in the event that the anticipated development does not occur or does not
attract the expected attention.

Future Developments--Each Portfolio may invest in securities and other
instruments which do not presently exist but may be developed in the future,
provided that each such investment is consistent with the Portfolio's investment
objectives, policies and restrictions and is otherwise legally permissible under
federal and state laws. The Prospectus will be amended or supplemented as
appropriate to discuss any such new investments.

See the Statement of Additional Information for further information concerning
these and other types of securities and investment techniques in which the
Portfolio may from time to time invest, including dollar rolls, standby
commitments and reverse repurchase agreements.

Management of the Fund
- --------------------------------------------------------------------------------

Directors. The Directors of the Fund are responsible for the overall
supervision of the operations of the Fund and each Portfolio and perform various
duties imposed on directors of investment companies by the 1940 Act and by the
State of Maryland.

SunAmerica Asset Management Corp. SunAmerica is an indirect wholly owned
subsidiary of SunAmerica Inc., an investment-grade financial services company
which has over $37 billion in assets. SunAmerica Inc.'s principal executive
offices are located at 1 SunAmerica Center, Century City, Los Angeles, CA
90067-6022. In addition to managing the Fund and serving as an Adviser to the
Aggressive Growth Portfolio, SunAmerica and its affiliates serve as adviser,
manager and/or administrator for
Anchor Pathway Fund, Anchor Series Trust, SunAmerica Equity Funds, SunAmerica
Income Funds, SunAmerica Money Market Funds, Inc., and SunAmerica Series Trust.
SunAmerica and its affiliates managed, advised and/or administered assets of
approximately $8.5 billion as of October 31, 1996 for investment companies,
individuals, pension accounts, and corporate and trust accounts.

SunAmerica selects the Advisers for and/or manages the investments of each
Portfolio, provides various administrative services and supervises the
Portfolio's daily business affairs, subject to general review by the Directors.
The Investment Advisory and Management Agreement entered into between SunAmerica
and the Fund, on behalf of each Portfolio (the 'Management Agreement')
authorizes SunAmerica to manage the assets of each Portfolio and/or to retain
the Advisers to do so. SunAmerica monitors the activities of the Advisers, and
from time to time will recommend the replacement of an Adviser on the basis of
investment performance, style drift, or other considerations.

The annual rate of the investment advisory fee payable to SunAmerica that
applies to each of the Aggressive Growth, Mid-Cap Growth and Value Portfolio is
1.00% of Assets. The annual rate of the investment advisory fee payable to
SunAmerica that applies to the International Equity Portfolio is 1.10% of
Assets. The term 'Assets' means the average daily net assets of the Portfolio.
The investment advisory fees are accrued daily and paid monthly,

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and may be higher than those charged to other funds.

SunAmerica has voluntarily agreed to waive fees or reimburse expenses, if
necessary, to keep annual operating expenses at or below the following
percentages of each Portfolio's average net assets: Aggressive Growth Portfolio
1.90% for Class A shares and 2.55% for Class B and Class C shares, Mid-Cap
Portfolio 1.90% for Class A shares and 2.55% for Class B and Class C shares,
Value Portfolio 1.90% for Class A shares and 2.55% for Class B and Class C
shares and International Equity Portfolio 2.15% for Class A shares and 2.80% for
Class B and Class C shares. SunAmerica also may voluntarily waive or reimburse
additional amounts to increase the investment return to a Portfolio's investors.
SunAmerica may terminate all such waivers and/or reimbursements at any time.

Further, any waivers or reimbursements made by SunAmerica with respect to a
Portfolio are subject to recoupment from that Portfolio within the following two
years, provided that the Portfolio is able to effect such payment to SunAmerica
and remain in compliance with the foregoing expense limitations.

The Advisers. The organizations described below act as Advisers to the
respective Portfolio pursuant to agreements with SunAmerica (each, a
'Subadvisory Agreement' and collectively the 'Subadvisory Agreements'). The
duties of each Adviser include furnishing continuing advice and recommendations
to the relevant portion of the respective Portfolio regarding securities to be
purchased and sold. Each Adviser, therefore, generally formulates the continuing
program for management of the Assets under its control consistent with the
Portfolio's investment objectives and the investment policies established by the
Board. Because each Adviser manages its portion of its respective Portfolio
independently of the Portfolio's other Advisers, the same security may be held
in two different portions of the same Portfolio, or may be acquired for one
portion of the Portfolio at the time that the Adviser to another portion of the
Portfolio deems it appropriate to dispose of the security from that other
portion. Under some market conditions, one or more of the Advisers may believe
that temporary, defensive investments in short-term instruments or cash are
appropriate when another Adviser or Advisers believe continued exposure to the
equity markets is appropriate for their portions of the Portfolio.

Each of the Advisers (other than SunAmerica) is independent of SunAmerica and
discharges its responsibilities subject to the oversight and supervision of
SunAmerica, which pays the Advisers' fees. Each Adviser is paid monthly by
SunAmerica a fee equal to a percentage of the Assets of the Portfolio allocated
to the Adviser. Assuming a level of Assets of $100 million for each Portfolio,
it is estimated that the aggregate annual rates of the fees payable by
SunAmerica to the Advisers for each Portfolio the first year of operation will
be the following, expressed as a percentage of the Assets of each Portfolio:
Aggressive Growth Portfolio, .37%; Mid-Cap Growth Portfolio, .50%; Value
Portfolio, .50%; and International Equity Portfolio, .63%. There can be no
assurance that the Portfolio will achieve a level of Assets in the amount
estimated.

SunAmerica may terminate any Subadvisory Agreement without shareholder approval.
Moreover, SunAmerica has received an exemptive order from the Securities and
Exchange Commission which permits SunAmerica, subject to certain conditions, to
enter into Subadvisory Agreements relating to the Fund with Advisers approved by
the Board without obtaining shareholder approval. The exemptive order also
permits SunAmerica, subject to the approval of the Board but without shareholder
approval, to employ new Advisers for new or existing Portfolios, change the
terms of particular Subadvisory Agreements or continue the employment of
existing Advisers after events that would otherwise cause an automatic
termination of a Subadvisory Agreement. Shareholders of a Portfolio have the
right to terminate a Subadvisory Agreement for such Portfolio at any time by a
vote of the majority of the outstanding voting securities of such Portfolio.
Shareholders will be notified of any Adviser changes. The order also permits the
Fund to disclose to shareholders the Advisers' fees only in the aggregate for
each Portfolio.

AGGRESSIVE GROWTH PORTFOLIO

The Advisers for the Aggressive Growth Portfolio are Janus, SunAmerica and
Warburg.

Janus Capital Corporation. Janus is a Colorado corporation located at 100
Fillmore Street, Denver, Colorado 80206-4923, and serves as investment adviser
or subadviser to mutual funds and individual, corporate, charitable and
retirement accounts. Kansas City Southern Industries, Inc. ('KCSI') owns
approximately 83% of the outstanding voting stock of Janus. Thomas H. Bailey,
President and

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Chairman of the Board of Janus, owns approximately 12% of its voting stock and,
by agreement with KCSI, selects a majority of Janus' Board. As of June 30, 1996,
Janus had under management more than $39 billion in assets.

Scott W. Schoelzel serves as Portfolio Manager for Janus' portion of the
Aggressive Growth Portfolio. Mr. Schoelzel joined Janus in January 1994. From
1991 to 1993, Mr. Schoelzel was a portfolio manager with Founders Asset
Management, Inc. Prior to 1991, he was a general partner of Ivy Lane Investments
in Denver, Colorado (a real estate investment partnership).

SunAmerica Asset Management Corp. SunAmerica is described above. Audrey L.
Snell serves as Portfolio Manager for SunAmerica's portion of the Aggressive
Growth Portfolio. Ms. Snell is a Senior Vice President of SunAmerica and has
been a portfolio manager with the firm since 1991.

Warburg, Pincus Counsellors, Inc. Warburg is a professional investment
counseling firm, incorporated in Delaware in 1970. Located at 466 Lexington
Avenue, New York, New York 10017-3147, Warburg provides investment services to
investment companies, employee benefit plans, endowment funds, foundations and
other institutions and individuals. As of October 31, 1996, Warburg managed
approximately $16.8 billion in assets. Warburg is a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P., a New York general partnership. E.M. Warburg,
Pincus & Co., Inc. controls Warburg through its ownership of a class of voting
preferred stock of Warburg.

The Portfolio Managers of Warburg's portion of the Aggressive Growth Portfolio
are Elizabeth B. Dater and Stephen J. Lurito. Ms. Dater is a senior managing
director of E.M. Warburg, Pincus & Co., Inc. and has been a Portfolio Manager of
Warburg since 1978. Mr. Lurito is a managing director of E.M. Warburg, Pincus &
Co., Inc. and has been a Portfolio Manager of Warburg since 1987, before which
time he was a research analyst at Sanford C. Bernstein & Company, Inc.

MID-CAP GROWTH PORTFOLIO

The Advisers for the Mid-Cap Growth Portfolio are MAS, PBA and T. Rowe Price.

Miller Anderson & Sherrerd, LLP. MAS, a Pennsylvania limited liability
partnership founded in 1969, is located at One Tower Bridge, West Conshohocken,
Pennsylvania 19428. MAS provides investment services to employee benefit plans,
endowment funds, foundations and other institutional investors. Morgan Stanley
Group Inc. is MAS's sole general partner, and Morgan Stanley Asset Management
Holdings, Inc. and two other wholly owned subsidiaries of Morgan Stanley Group
Inc. are MAS's limited partners. As of April 19, 1996, MAS had in excess of $35
billion in assets under management.

Arden C. Armstrong serves as Portfolio Manager for MAS's portion of the Mid-Cap
Growth Portfolio. Ms. Armstrong joined MAS as a Portfolio Manager in 1986.

Pilgrim Baxter & Associates, Ltd. PBA, a Delaware corporation, is located at
1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087, and is a professional
investment management firm and registered investment adviser that, along with
its predecessors, has been in business since 1982. PBA provides advisory
services to pension and profit-sharing plans, charitable institutions,
corporations, individual investors, trusts and estates, and other investment
companies. The controlling shareholder of PBA is United Asset Management
Corporation ('UAM'), an NYSE listed holding company principally engaged, through
affiliated firms, in providing institutional investment management services and
acquiring institutional investment management firms. UAM's corporate
headquarters are located at One International Place, Boston, Massachusetts
02110. As of June 30, 1996, PBA had assets under management of approximately $12
billion.

Gary L. Pilgrim, Bruce J. Muzina and James D. McCall serve as Portfolio Managers
for PBA's portion of the Mid-Cap Growth Portfolio. Mr. Pilgrim has served as the
Chief Investment Officer for PBA for the past six years, and has been its
President since 1993. He is also a chartered financial analyst. Mr. Muzina
joined PBA in 1985 from Citibank, where he was Vice President/Portfolio Manager
of U.S. equity portfolios for international institutional accounts. Mr. McCall,
also a chartered financial analyst, was Vice President of Provident Mutual
Management, Inc. from May 1986 to March 1992, and the Vice President of the
Trust Investment Division for First Maryland Bank Corporation from May 1992 to
October 1994. He joined PBA in November 1994.

T. Rowe Price Associates, Inc. T. Rowe Price is a Maryland corporation located
at 100 East Pratt Street, Baltimore, Maryland 21202. Founded in 1937 by the late
Thomas Rowe Price, Jr., T. Rowe

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Style Select Series(Trademark)

Price and its affiliates managed over $75 billion for over three and a half
million individual and institutional investor accounts as of December 31, 1995.
T. Rowe Price is a publicly traded company.

T. Rowe Price's portion of the Mid-Cap Growth Portfolio is advised by an
Investment Advisory Committee composed of Brian W.H. Berghuis, Chairman, Marc L.
Baylin, James A.C. Kennedy and John F. Wakeman. Mr. Berghuis has day-to-day
responsibility for managing the assets and works with the committee in
developing and executing the investment program. Mr. Berghuis has been managing

investments since 1988, and joined T. Rowe Price in 1985.

VALUE PORTFOLIO

The Advisers for the Value Portfolio are Davis, Neuberger&Berman and Strong.
Schafer, pursuant to a subcontract with Strong, serves as Adviser to Strong's
portion of Value Portfolio.

Davis Selected Advisers, L.P. Davis is a Colorado limited partnership, located
at 124 East March Street, Santa Fe, New Mexico 87501, and Venture Advisers, Inc.
is Davis' sole general partner. Shelby M.C. Davis is the controlling shareholder
of the general partner. As of June 30, 1996 Davis had assets under management of
approximately $5.3 billion. In performing its investment advisory services,
Davis, while remaining ultimately responsible for its management of the portion
of the assets of the Value Portfolio allocated to it, is able to draw on the
portfolio management, research and market expertise of its affiliates (including
Davis Selected Advisers--NY, Inc.) in performing such services.

Shelby M.C. Davis serves as the primary Portfolio Manager for Davis' portion of
the Value Portfolio. Since 1969, he has been a director of Davis' general
partner. Christopher C. Davis serves as the portfolio co-manager. He has been
employed by Davis since September 1989 as an assistant portfolio manager and
research analyst.

Neuberger&Berman, LLC Neuberger&Berman is a New York limited liability company
located at 605 Third Avenue, New York, New York 10158-0180. Neuberger&Berman has
been in the investment advisory business since 1939. As of September 30, 1995
Neuberger&Berman and its affiliates, had assets under management of
approximately $37.6 billion.

Michael M. Kassen and Robert I. Gendelman serve as Portfolio Managers to
Neuberger&Berman's portion of the Value Portfolio. Mr. Kassen has been Managing
Director since January 1994 and a Vice President and Portfolio Manager since
June 1990, of Neuberger&Berman Management, Inc. and a general partner of
Neuberger&Berman since January 1993. Mr. Gendelman is a senior portfolio manager
for Neuberger&Berman and an Assistant Vice President of Neuberger&Berman
Management, Inc. He was a portfolio manager for another mutual fund manager from
1992 to 1993 and was managing partner of an investment partnership from 1988 to
1992.

Strong Capital Management, Inc. Strong is a Wisconsin corporation, with a
principal mailing address at P.O. Box 2936, Milwaukee, Wisconsin 53201, and
since it began conducting business in 1974, Strong's principal business has been
providing continuous investment supervision for individuals and institutional
accounts, such as pension funds and profit-sharing plans, as well as mutual
funds, several of which are funding vehicles for variable insurance products.
Mr. Richard S. Strong is the controlling shareholder of Strong. As of July 31,
1996, Strong had over $20 billion under management. Pursuant to an agreement
between Strong and Schafer, under which Schafer manages Strong's portion of
Value Portfolio, SunAmerica pays an advisory fee directly to Strong, and Strong
pays Schafer's fee.

Schafer Capital Management, Inc. Schafer is a Delaware corporation, located at
645 Fifth Avenue, New York, New York 10022, and serves as investment adviser to

a number of equity accounts. An affiliate of Schafer, Schafer Cullen Capital
Management, Inc. serves as investment adviser to equity accounts for
individuals, tax-exempt equity accounts, charitable foundation accounts and
other equity accounts. David K. Schafer is Schafer's controlling person (within
the meaning of the 1940 Act) and sole shareholder. As of July 31, 1996, Schafer
had assets under management of approximately $395 million.

David K. Schafer serves as the Portfolio Manager of Strong's portion of the
Value Portfolio. Mr. Schafer has been in the investment management business for
more than twenty-five years. Mr. Schafer founded Schafer in 1984, and is the
President of Schafer and also a minority shareholder of Schafer Cullen Capital
Management, Inc.

INTERNATIONAL EQUITY PORTFOLIO

The Advisers for the International Equity Portfolio are Rowe-Fleming, Strong and
Warburg.

Rowe Price-Fleming International, Inc. Rowe-Fleming is a Maryland corporation,
incorporated in 1979 as a

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joint venture between T. Rowe Price and Robert Flemings Holding Limited
('Flemings'). It is located at 100 East Pratt Street, Baltimore, Maryland 21202.
T. Rowe Price, Flemings and Jardine Fleming Group Limited ('Jardine Fleming')
are the owners of Rowe-Fleming. The common stock of Rowe-Fleming is 50% owned by
a wholly owned subsidiary of T. Rowe Price, 25% by a subsidiary of Flemings, and
25% by Jardine Fleming. (Half of Jardine Fleming is owned by Flemings and half
by Jardine Matheson Holdings Limited.) T. Rowe Price has the right to elect a
majority of the Board of Directors of Rowe-Fleming, and Flemings has the right
to elect the remaining directors, one of whom will be nominated by Jardine
Fleming. As of December 31, 1995, Rowe-Fleming managed over $22 billion of
foreign assets.

The Portfolio Managers for Rowe-Fleming's portion of the International Equity
Portfolio are Martin G. Wade, Christopher D. Alderson, Peter B. Askew, Mark
Bickford-Smith, Mark J.T. Edwards, John R. Ford and James B.M. Seddon. Martin
Wade joined Rowe-Fleming in 1979 and has 26 years of experience with the Fleming
Group in research, client service, and investment management. (Fleming Group
includes Flemings and/or Jardine Fleming.) Christopher Alderson joined
Rowe-Fleming in 1988 and has nine years of experience with the Fleming Group in
research and portfolio management. Peter Askew joined Rowe-Fleming in 1988 and
has 20 years of experience managing multi-currency fixed income portfolios. Mark
Bickford-Smith joined Rowe-Fleming in 1995 and has ten years of experience in
investment management with the Fleming Group in Tokyo. Mark Edwards joined
Rowe-Fleming in 1986 and has 14 years of experience in financial analysis. John
Ford joined Rowe-Fleming in 1982 and has 15 years of experience with Fleming
Group in research and portfolio management. James Seddon joined Rowe-Fleming in
1987 and has 10 years of experience in portfolio management.

Strong Capital Management, Inc. For a description of Strong, see 'Value

Portfolio' above. Anthony L.T. Cragg serves as Portfolio Manager for Strong's
portion of the International Equity Portfolio. Mr. Cragg joined Strong in April
1993 to develop Strong's international investment activities. During the prior
seven years, he helped establish Dillon, Read International Asset Management,
where he was in charge of Japanese, Asian, and Australian investments.

Warburg, Pincus Counsellors, Inc. For a description of Warburg, see 'Aggressive
Growth Portfolio' above. Richard H. King is Portfolio Manager of Warburg's
portion of the International Equity Portfolio, and Nicholas P.W. Horsley, P.
Nicholas Edwards, Harold W. Ehrlich and Vincent J. McBride are associate
portfolio managers. From 1984 until 1988, Mr. King was chief investment officer
and a director at Fiduciary Trust Company International S.A. in London, with
responsibility for all international equity management and investment strategy.
From 1982 to 1984 he was a director in charge of Far East Equity Investments at
N.M. Rothschild International Asset Management, a London merchant bank. He has
been a managing director of E.M. Warburg, Pincus & Co., Inc. since 1989.

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

The Distributor, at its expense, may from time to time provide additional
compensation to broker-dealers in connection with sales of shares of the Fund.
Such compensation may include (i) full re-allowance of the front-end sales
charge on Class A shares; (ii) additional compensation with respect to the sale
of Class A, Class B or Class C 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 Portfolios, and/or other broker-dealer sponsored special events. In
some instances, this compensation will be made available only to certain
broker-dealers whose representatives have sold a significant amount of shares of
the Fund. Compensation may also include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives for meetings or seminars of a business nature. In addition, the
following types of non-cash compensation may be offered through sales contests:
(i) travel mileage on major air carriers; (ii) tickets for entertainment events
(such as concerts or sporting events); or (iii) merchandise

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(such as clothing, trophies, clocks, pens or other electronic equipment).
Broker-dealers may not use sales of the Funds' shares to qualify for this
compensation to the extent receipt of such compensation may be prohibited by the
laws of any state or any self-regulatory agency, such as, for example, the
National Association of Securities Dealers, Inc. Dealers who receive bonuses or

other incentives may be deemed to be underwriters under the Securities Act of
1933.

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

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

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

Administrator. The Fund has entered into a Service Agreement under the terms of
which SunAmerica Fund Services, Inc. ('SAFS'), an indirect wholly owned
subsidiary of SunAmerica, Inc., assists the transfer agent in providing
shareholder service and may receive reimbursement from the Fund of its costs in
providing such services through a fee approved annually by the Directors. For
providing services rendered, SAFS receives an annual fee of 0.22%, subject to
annual approval by the Directors.

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Style Select Series(Trademark)

Purchase of Shares
- --------------------------------------------------------------------------------

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

The minimum initial investment in each Portfolio is $500 and the minimum
subsequent investment is $100. However, for Individual Retirement Accounts
('IRAs'), Keogh Plan accounts and accounts for other qualified plans, the
minimum initial investment is $250 and the minimum subsequent investment is $25.

The decision as to which class is most beneficial to an investor depends on the
amount and intended length of the investment. Investors should consult their
investment adviser for help in determining which class of shares is most
appropriate for them. Generally, investors making large investments, qualifying
for a reduced initial sales charge, might consider Class A shares because there
is a lower distribution fee than Class B and Class C shares. Shareholders who
purchase $1,000,000 or more of shares of the Portfolios should purchase only
Class A shares. Investors making small investments might consider Class B or
Class C shares because 100% of the purchase price is invested immediately.
Investors should consider the CDSC period and any conversion rights in the
context of their investment time frame. For example, while Class C shares have a
shorter CDSC period than Class B shares, Class C shares do not have a conversion
feature and, therefore, are subject to an ongoing distribution fee. Accordingly,
Class B shares may be more appropriate than Class C shares for investors with a
longer term investment time frame. Dealers may receive different levels of
compensation depending on which class of shares they sell.

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

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

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

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

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Style Select Series(Trademark)

and then other shares held the longest are redeemed first.

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

There are certain special purchase plans for Class A shares which can reduce the
amount of the initial sales charge to investors in the Portfolios. For more

information about 'Rights of Accumulation,' the 'Letter of Intent,' 'Combined
Purchase Privilege' and 'Reduced Sales Charges for Group Purchases,' see the
Statement of Additional Information.

Class B Shares. Class B shares are offered at net asset value. Certain
redemptions of Class B shares within the first six years of the date of purchase
are subject to a CDSC. The charge is assessed on an amount equal to the lesser
of the then-current market value or the purchase price of the shares being
redeemed. No charge is assessed on shares derived from reinvestment of dividends
or capital gains distributions. In determining whether the CDSC is applicable to
a redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first of any Class A shares in the shareholder's Portfolio account, second of
any Class B shares in such account that are not subject to a CDSC (i.e., shares
representing reinvested dividends and distributions), third of Class B shares
held for more than six years and fourth of such shares held the longest during
the six-year period. The CDSC will not be applied to dollar amounts representing
an increase in the net asset value of the shares being redeemed since the time
of purchase of such redeemed shares. The amount of the CDSC, if any, will vary
depending on the number of years from the time of payment for the purchase of
Class B shares until the time of redemption of such shares. Solely for purposes
of determining the number of years from the time of any payment for the purchase
of shares, all payments during a month are aggregated and deemed to have been
made on the first day of the month. The following table sets forth the rates of
the CDSC.

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

Other CDSC Information. For Federal income tax purposes, the amount of the CDSC
will reduce the amount realized on the redemption of shares, concomitantly
reducing gain or increasing loss. For information on the imposition of the CDSC
contact Shareholder/Dealer Services at (800) 858-8850.

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

Class B shares. Such conversion will be on the basis of the relative net asset
values of Class B shares and Class A shares, without the imposition of any sales
load, fee or charge.

Class C Shares. Class C shares are offered at net asset value. Certain
redemptions of Class C shares within the first year of the date of purchase are
subject to a CDSC of 1%. The method for calculating any such CDSC will be the
same method used for calculating the CDSC for Class B shares. See 'Class B
Shares' above.

Waiver of CDSC. The CDSC applicable to Class B and Class C shares will be
waived in connection with redemptions that are (a) requested within one year

<PAGE>
36
Style Select Series(Trademark)

of the death or the initial determination of disability of a shareholder; (b)
taxable distributions or loans to participants made by qualified retirement
plans or retirement accounts (not including rollovers) for which SunAmerica
serves as fiduciary (e.g., prepares all necessary tax reporting documents);
provided that, in the case of a taxable distribution, the plan participant or
accountholder has attained the age of 59 1/2 at the time the redemption is made;
and (c) made pursuant to a Systematic Withdrawal Plan, up to a maximum amount of
12% per year from a shareholder account based on the value of the account at the
time the Plan is established, provided, however, that all dividends and capital
gains distributions are reinvested in Portfolio shares. See the Statement of
Additional Information for further information concerning conditions with
respect to (a) above. For information on the waiver of the CDSC contact
Shareholder/Dealer services at (800) 858-8850.

Additional Purchase Information. All purchases are confirmed to each
shareholder. The Fund reserves the right to reject any purchase order and may at
any time discontinue the sale of any class of shares of any Portfolio.

Shares of the Portfolios may be purchased through the Distributor or SAFS, by
check or federal funds wire and through a dollar cost averaging program. Checks
should be made payable to the specific Portfolio of the Fund or, for retirement
plan accounts for which SunAmerica or its affiliates serve as fiduciary, to
'Resources Trust Company.' Payments to open new accounts should be mailed to
SunAmerica Fund Services, Inc., Mutual Fund Operations, The SunAmerica Center,
733 Third Avenue, New York, New York 10017-3204, together with a completed New
Account Application. Payment for subsequent purchases should be mailed to
SunAmerica Fund Services, Inc., c/o NFDS, P.O. Box 419373, Kansas City, Missouri
64141-6373 and the shareholder's account number for the Portfolio should appear
on the check. SAFS reserves the right to reject any check made payable other
than in the manner indicated above. Under certain circumstances, the Fund will
accept a multi-party check (e.g., a check made payable to the shareholder by
another party and then endorsed by the shareholder to the Fund in payment for
the purchase of shares); however, the processing of such a check may be subject
to a delay. The Fund does not verify the authenticity of the endorsement of such
multi-party check, and acceptance of the check by the Fund should not be
considered verification thereof. Neither the Fund nor its affiliates will be
held liable for any losses incurred as a result of a fraudulent endorsement.

Shares will be priced at the net asset value next determined after the order is
placed with the Distributor or SAFS. See 'Additional Information Regarding
Purchase of Shares' in the Statement of Additional Information for more
information regarding these services and the procedures involved and when orders
are deemed to be placed.

Redemption of Shares
- --------------------------------------------------------------------------------

Shares of any Portfolio may be redeemed at any time at their net asset value
next determined, less any applicable CDSC, after receipt by the Fund of a
redemption request in proper form. Any capital gain or loss realized by a
shareholder upon any redemption of shares will be recognized for federal income
tax purposes, subject to certain loss deferral rules. See 'Dividends,
Distributions and Taxes.'

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

Repurchase Through The Distributor. The Distributor is authorized, as agent for
the Portfolios, to offer to

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37
Style Select Series(Trademark)

repurchase shares which are presented by telephone to the Distributor by
investment dealers. Orders received by dealers must be at least $500. The
repurchase price is the net asset value per share of the applicable class of
shares of a Portfolio next determined after the repurchase order is received,
less any applicable CDSC. Repurchase orders received by the Distributor after
4:00 P.M., Eastern time, will be priced based on the next business day's close.
Dealers may charge for their services in connection with the repurchase, but
neither the Portfolios nor the Distributor imposes any such service charge. The
offer to repurchase may be suspended at any time, as described below.

Telephone Redemption. The Fund accepts telephone requests for redemption of
shares with a value of less than $100,000. The proceeds of a telephone
redemption may be sent by wire to the shareholder's bank account as set forth in
the New Account Application Form or in a subsequent written authorization.
Shareholders utilizing the redemption through the electronic funds transfer
method will incur a $15.00 transaction fee. The Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Failure to do so may result in liability to the Fund for losses incurred due to
unauthorized or fraudulent telephone instructions. Such procedures include, but

are not limited to, requiring some form of personal identification prior to
acting upon instructions received by telephone and/or tape recording of
telephone instructions.

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

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

General. Normally payment is made on the next business day for shares redeemed,
but in any event, payment is made by check within seven days after receipt by
the Transfer Agent of share certificates or of a redemption request, or both, in
proper form. Under unusual circumstances, the Portfolio may suspend repurchases
or postpone payment for up to seven days or longer, as permitted by the federal
securities laws.

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

Because of the high cost of maintaining smaller shareholder accounts, the
Portfolio may redeem, on at least 60 days' written notice and without
shareholder consent, any account that has a net asset value of less than $500
($250 for retirement plan accounts), as of the close of business on the day
preceding such notice, unless such shareholder increases the account balance to
at least $500 during such 60-day period. In the alternative, the applicable
Portfolio may impose a $2.00 monthly charge on accounts below the minimum
account size.

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

<PAGE>
38
Style Select Series(Trademark)

Exchange Privilege
- --------------------------------------------------------------------------------

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

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

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

Restrictions on Exchanges. Because excessive trading (including short-term
'market timing' trading) can hurt a Portfolio's performance, each Portfolio may
refuse any exchange sell order (1) if it appears to be a market timing
transaction involving a significant portion of a Portfolio'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 Portfolio reserves the right to refuse any exchange purchase
order if, in the judgment of SunAmerica, the Portfolio 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 Portfolio receives or anticipates
simultaneous orders affecting significant portions of the Portfolio's assets. In

particular, a pattern of exchanges that coincide with a 'market timing' strategy
may be disruptive to the Portfolio and may therefore be refused.

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

<PAGE>
39
Style Select Series(Trademark)

Portfolio Transactions, Brokerage and Turnover
- --------------------------------------------------------------------------------

The Advisers are responsible for decisions to buy and sell securities for the
Portfolios, selection of broker-dealers and negotiation of commission rates for
their respective portion of the relevant Portfolio. In the over-the-counter
market, securities are generally traded on a 'net' basis with dealers acting as
principal for their own accounts without a stated commission (although the price
of the security usually includes a profit to the dealer). In underwritten
offerings, securities are purchased at a fixed price which includes an
underwriter's concession or discount. On occasion, certain money market
securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.

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

Each Portfolio has no limitation regarding its policy with respect to portfolio
turnover. The portfolio turnover rate is calculated by dividing the lesser of
sales or purchases of portfolio securities, excluding short-term securities, by
the average monthly value of the Portfolio's long-term portfolio securities.
Under certain market conditions, the investment policies of the Portfolios may
result in high portfolio turnover. Because each of the Advisers to each
Portfolio manages its portion of the Portfolio's assets independently, it is
possible that the same security may be purchased and sold on the same day by two
or more Advisers to the same Portfolio, resulting in higher brokerage
commissions for the Portfolio. Notwithstanding the foregoing, however, the
portfolio turnover rates for the Portfolio are not expected to exceed 200%. High
portfolio turnover involves correspondingly greater brokerage commissions and
other transaction costs which will be borne directly by the Portfolio. In
addition, high portfolio turnover may result in increased short-term capital
gains, which, when distributed to shareholders, are currently treated as
ordinary income.

Determination of Net Asset Value
- --------------------------------------------------------------------------------

Each Portfolio calculates the net asset value of each class of its shares
separately by dividing the total value of each class's net assets by the shares
of each class outstanding. Shares are valued each day as of the close of regular
trading on the NYSE. Investments for which market quotations are readily
available are valued at market. All other securities and assets are valued at
fair value following procedures approved by the Directors.

<PAGE>
40
Style Select Series(Trademark)

Performance Data
- --------------------------------------------------------------------------------

Each Portfolio may advertise performance data that reflect its total investment
return. A brief summary of the computations is provided below and a detailed
discussion is in the Statement of Additional Information. Total return is based
on historical earnings and is not intended to indicate future performance.

Total return performance data may be advertised by each Portfolio. The average
annual total return may be calculated for one-, five- and ten-year periods or
for the lesser period since inception. These performance data represent the
average annual percentage changes of a hypothetical $1,000 investment and
assumes the reinvestment of all dividends and distributions and includes sales
charges and recurring fees that are charged to shareholder accounts. A
Portfolio's advertisements may also reflect total return performance data
calculated by means of cumulative, aggregate, average, year-to-date, or other
total return figures. Further, the Portfolio may advertise total return
performance for periods of time in addition to those noted above.

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

Dividends, Distributions and Taxes
- --------------------------------------------------------------------------------

Dividends and Distributions. Dividends from net investment income, if any, are
paid at least annually. Dividends and distributions generally are taxable in the
year in which they are paid, except any dividends paid in January which were
declared in the previous calendar quarter will be treated as paid in December of
the previous year. Dividends and distributions are paid in additional shares
based on the next determined net asset value, unless the shareholder elects in
writing, not less than five business days prior to the payment date, to receive
amounts in excess of $10 in cash.

In addition to having the dividends and distributions of a Portfolio reinvested
in shares of such Portfolio, a shareholder may, if he or she so elects on the
New Account Application, have dividends and distributions invested in the same
class of shares of any other SunAmerica Mutual Fund or any other Portfolio of

the Fund at the then-current net asset value of such fund(s).

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

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

Dividends of net investment income and distributions of any net realized
short-term capital gain ('ordinary income dividends'), whether paid in cash or
reinvested in shares of the Portfolios, are taxable to shareholders as ordinary
income. Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and options) are
taxable to shareholders as long-term capital gains, regardless of the length of
time the shareholder has owned Fund shares. To the extent a Portfolio's income
is derived from certain dividends received from domestic corporations, a portion
of the dividends paid to corporate shareholders of

<PAGE>
41
Style Select Series(Trademark)

such Portfolios will be eligible for the 70% dividends-received deduction. It
generally is not anticipated that dividends paid by the International Equity
Portfolio will qualify for the dividends-received deduction.

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

Income and capital gains received by each Portfolio with respect to foreign
investments may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes. Shareholders may be able to claim U.S. foreign tax credits
with respect to such taxes, subject to certain provisions and limitations
contained in the Code. If more than 50% in value of the Portfolio's total assets
at the close of its taxable year consists of securities of foreign corporations,
the Portfolio will be eligible and may choose to file an election with the
Internal Revenue Service pursuant to which shareholders of the Portfolio may
include their proportionate share of such withholding taxes in their U.S. income
tax returns as gross income, treat such proportionate share as taxes paid by
them, and deduct such proportionate share in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their U.S. income taxes.

No deductions for foreign taxes, however, may be claimed by non-corporate
shareholders who do not itemize deductions. Of course, certain retirement
accounts which are not subject to tax cannot claim foreign tax credits on
investments in foreign securities held in the Fund. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Portfolio's election described
in this paragraph but may not be able to claim a credit or deduction against
such U.S. tax for the foreign taxes treated as having been paid by such
shareholder. The Portfolio will report annually to its shareholders the amount
per share of such withholding taxes. It is not anticipated that the Portfolios,
other than the International Equity Portfolio, will qualify to elect to pass
foreign taxes through to their shareholders.

No gain or loss will be recognized by Class B shareholders on the conversion of
their Class B shares into Class A shares. A shareholder's basis in the Class A
shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class A shares will
include the holding period for the converted Class B shares.

A shareholder who holds shares as a capital asset generally will recognize a
capital gain or loss upon the sale or exchange of such shares, which will be a
long-term capital gain or loss if such shares were held for more than one year.
However, any loss realized by a shareholder who held shares for six months or
less will be treated as a long-term capital loss to the extent of any
distributions of net capital gains received by the shareholder with respect to
such shares.

If a shareholder exercises the exchange privilege within 90 days of acquiring
such shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent the sales charge paid to the Fund
reduces any charges the shareholder would have owed upon the purchase of the new
shares in the absence of the exchange privilege. Instead, such sales charge will
be treated as an amount paid for the new shares. See 'Exchange Privilege'.

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

Under certain provisions of the Code, some shareholders may be subject to a 31%
withholding tax on ordinary income dividends, capital gains distributions and
redemption payments ('backup withholding'). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is

<PAGE>
42
Style Select Series(Trademark)

correct and that the investor is not otherwise subject to backup withholding.

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

General Information
- --------------------------------------------------------------------------------

Reports to Shareholders. The Fund sends to its shareholders audited annual and
unaudited semi-annual reports for the Portfolios. The financial statements
appearing in annual reports are audited by independent accountants. In addition,
the Transfer Agent sends to each shareholder having an account directly with the
Fund a statement confirming transactions in the account.

Organization. The Fund, a corporation organized under the laws of the state of
Maryland on July 3, 1996, is an open-end management investment company, commonly
referred to as a mutual fund. The total number of shares which the Fund has
authority to issue is one billion (1,000,000,000) shares of common stock (par
value $0.0001 per share), amounting in aggregate par value to one hundred
thousand dollars ($100,000.00). All of such shares of common stock are initially
classified into four separate Portfolios known as the Aggressive Growth
Portfolio, the Mid-Cap Growth Portfolio, the Value Portfolio and the
International Equity Portfolio. All of the shares of each such Portfolio are
initially classified into four classes: Class A, Class B, Class C or Class Z.
Each such Portfolio initially consists of twenty-five million (25,000,000)
shares of each class. Only Class A, Class B and Class C shares are currently
being offered to the public.

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

Independent Accountants and Legal Counsel. Price Waterhouse LLP has been
selected as independent accountants for the Fund. The firm of Shereff, Friedman,
Hoffman & Goodman, LLP has been selected as legal counsel for the Fund.

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

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS,
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF ADDITIONAL
INFORMATION AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, SUNAMERICA, ANY
ADVISER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY MAY
NOT LAWFULLY BE MADE.

<PAGE>
STYLE SELECT SERIES
Statement of Additional Information
dated March 3, 1997

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

Style Select Series, Inc. (the "Fund") is a mutual fund consisting of
four different investment portfolios: the Aggressive Growth Portfolio, the
Mid-Cap Growth Portfolio, the Value Portfolio and the International Equity
Portfolio (each, a "Portfolio"). Each Portfolio is managed by SunAmerica Asset
Management Corp. ("SunAmerica"). The assets of each Portfolio are normally
allocated among at least three investment advisers (each, an "Adviser"), each of
which will be independently responsible for advising its respective portion of
the Portfolio's assets. The Advisers may include SunAmerica, and otherwise will
consist of professional investment advisers selected by SunAmerica subject to
the review and approval of the Fund's Board of Directors. In choosing Advisers,
SunAmerica will seek to obtain, within each Portfolio's overall objective,
several separate and distinct investment styles.

This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Fund's Prospectus dated March 3, 1997. To
obtain a Prospectus, please call the Fund at (800) 858-8850. Capitalized terms
used herein but not defined have the meanings assigned to them in the
Prospectus.

TABLE OF CONTENTS

Page
----

The Fund..................................................... B-3
Investment Objectives and Policies........................... B-3
Portfolio Turnover........................................... B-30
Investment Restrictions...................................... B-31
Directors and Officers....................................... B-32
Advisers, Distributor and Administrator...................... B-37
Portfolio Transactions and Brokerage......................... B-42
Additional Information Regarding Purchase of Shares.......... B-43
Additional Information Regarding Redemption of Shares........ B-48
Determination of Net Asset Value............................. B-49
Performance Data............................................. B-50
Dividends, Distributions and Taxes........................... B-54
Retirement Plans............................................. B-58
Description of Shares........................................ B-59
Additional Information....................................... B-60

<PAGE>

Additional Information....................................... B-60
Financial Statements......................................... B-61
Appendix..................................................... B-62

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

B-2

<PAGE>

THE FUND

The Fund, organized as a Maryland corporation on July 3, 1996, is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Fund consists of four Portfolios,
each consisting of Class A, Class B, Class C and Class Z shares. Only Class A,
Class B and Class C Shares are currently being offered to the public.

INVESTMENT OBJECTIVES AND POLICIES

The investment objective and policies of each of the Portfolios are
described in the Fund's Prospectus. Certain types of securities in which the
Portfolios may invest and certain investment practices which the Portfolios may
employ, which are described under "Investment Techniques and Risk Factors" in
the Prospectus, are discussed more fully below.

Warrants. A Portfolio may invest in warrants which give the holder of
the warrant a right to purchase a given number of shares of a particular issue
at a specified price until expiration. Such investments generally can provide a
greater potential for profit or loss than investments of equivalent amounts in
the underlying common stock. The prices of warrants do not necessarily move with
the prices of the underlying securities. If the holder does not sell the
warrant, he risks the loss of his entire investment if the market price of the
underlying stock does not, before the expiration date, exceed the exercise price
of the warrant plus the cost thereof. Investment in warrants is a speculative
activity. Warrants pay no dividends and confer no rights (other than the right
to purchase the underlying stock) with respect to the assets of the issuer.

Investment in Small, Unseasoned Companies. As described in the
Prospectus, each Portfolio may invest in the securities of small companies
having market capitalizations under $1 billion. These securities may have a
limited trading market, which may adversely affect their disposition and can
result in their being priced lower than might otherwise be the case. If other
investment companies and investors who invest in such issuers trade the same

securities when a Portfolio attempts to dispose of its holdings, the Portfolio
may receive lower prices than might otherwise be obtained.

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

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

B-3

<PAGE>

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

foreign security. EDRs, in bearer form, are designed for use in the European
securities markets.

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

Passive Foreign Investment Companies ("PFICs"). The Aggressive Growth
Portfolio and International Equity Portfolio may invest in PFICs, which are any
foreign corporations which

B-4

<PAGE>

generate certain amounts of passive income or hold certain amounts of assets
for the production of passive income. Passive income includes dividends,
interest, royalties, rents and annuities. To the extent that a Portfolio invests
in PFICs, income tax regulations may require the Portfolio to recognize income
associated with the PFIC prior to the actual receipt of any such income.

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

A Portfolio may, in addition to the U.S. government securities noted
above, invest in mortgage-backed securities (including private mortgage-backed

securities), such as GNMA, FNMA or FHLMC certificates (as defined below), which
represent an undivided ownership interest in a pool of mortgages. The mortgages
backing these securities include conventional thirty-year fixed-rate mortgages,
fifteen-year fixed-rate mortgages, graduated payment mortgages and adjustable
rate mortgages. These certificates are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal
payments, including prepayments, on the mortgages underlying the certificate,
net of certain fees.

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

Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as does the value of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a

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

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

GNMA Certificates. GNMA Certificates are mortgage-backed securities

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

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

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

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

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

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

Conventional mortgage pass-through securities ("Conventional Mortgage
Pass-Throughs") represent participation interests in pools of mortgage loans
that are issued by trusts formed by originators of the institutional investors
in mortgage loans (or represent custodial arrangements administered by such
institutions). These originators and institutions include commercial banks,

savings and loans associations, credit unions, savings banks, insurance
companies, investment banks or special purpose subsidiaries of the foregoing.
For federal income tax purposes, such trusts are generally treated as grantor
trusts or REMICs and, in either case, are generally not subject to any
significant amount of federal income tax at the entity level.

The mortgage pools underlying Conventional Mortgage Pass-Throughs
consist of conventional mortgage loans evidenced by promissory notes secured by
first mortgages or first deeds of trust or other similar security instruments
creating a first lien on residential or mixed residential and commercial
properties. Conventional Mortgage Pass-Throughs (whether fixed or adjustable
rate) provide for monthly payments that are a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees or other
amount paid to any guarantor, administrator and/or servicer of the underlying
mortgage loans. A trust fund with respect to which a REMIC election has been
made may include regular interests in other REMICs which in turn will ultimately
evidence interests in mortgage loans.

Conventional mortgage pools generally offer a higher rate of interest
than government and government-related pools because of the absence of any
direct or indirect government or agency payment guarantees. However, timely
payment of interest and principal of mortgage loans in these pools may be
supported by various forms of insurance or guarantees, including individual
loans, title, pool and hazard insurance and letters of credit. The insurance and
guarantees may be issued by private insurers and mortgage poolers. Although the
market for such securities is becoming increasingly liquid, mortgage-related
securities issued by private organizations may not be readily marketable.

Another type of mortgage-backed security in which each Portfolio may
invest is a collateralized mortgage obligation ("CMO"). CMOs are fully
collateralized bonds which are the general obligations of the issuer thereof
(e.g., the U.S. government, a U.S. government

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instrumentality, or a private issuer). Such bonds generally are secured by an
assignment to a trustee (under the indenture pursuant to which the bonds are
issued) of collateral consisting of a pool of mortgages. Payments with respect
to the underlying mortgages generally are made to the trustee under the
indenture. Payments of principal and interest on the underlying mortgages are
not passed through to the holders of the CMOs as such (i.e., the character of
payments of principal and interest is not passed through, and therefore payments
to holders of CMOs attributable to interest paid and principal repaid on the
underlying mortgages do not necessarily constitute income and return of capital,
respectively, to such holders), but such payments are dedicated to payment of
interest on and repayment of principal of the CMOs.

Principal and interest on the underlying mortgage assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the mortgage assets generally are applied to the

classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.

Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the mortgage assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.

A wide variety of CMOs may be issued in the parallel pay or sequential
pay structures. These securities include accrual certificates (also known as
"Z-Bonds"), which only accrue interest at a specified rate until all other
certificates having an earlier final distribution date have been retired and are
converted thereafter to an interest-paying security, and planned amortization
class ("PAC") certificates, which are parallel pay CMOs which generally require
that specified amounts of principal be applied on each payment date to one or
more classes of CMOs (the "PAC Certificates"), even though all other principal
payments and prepayments of the mortgage assets are then required to be applied
to one or more other classes of the certificates. The scheduled principal
payments for the PAC Certificates generally have the highest priority on each
payment date after interest due has been paid to all classes entitled to receive
interest currently. Shortfalls, if any, are added to the amount payable on the
next payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to create
PAC tranches, one or more tranches generally must be created to absorb most of
the volatility in the underlying mortgage assets. These tranches tend to have
market prices and yields which are much more volatile than the PAC classes.

Each Portfolio may also invest in stripped mortgage-backed securities.
Stripped mortgage-backed securities are often structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. Stripped mortgage-backed securities have greater market
volatility than other types of U.S. Government securities in which a component
invests. A common type of stripped mortgage-backed security has one class
receiving some of the

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interest and all or most of the principal (the "principal only" class) from the
mortgage pool, while the other class will receive all or most of the interest
(the "interest only" class). The yield to maturity on an interest only class is
extremely sensitive not only to changes in prevailing interest rates, but also
to the rate of principal payments, including principal prepayments, on the
underlying pool of mortgage assets, and a rapid rate of principal payment may
have a material adverse effect on a Portfolio's yield. While interest-only and
principal-only securities are generally regarded as being illiquid, such
securities may be deemed to be liquid if they can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the

calculation of a Portfolio's net asset value per share. Only government interest
only and principal only securities backed by fixed-rate mortgages and determined
to be liquid under guidelines and standards established by the Directors may be
considered liquid securities not subject to a Portfolio's limitation on
investments in illiquid securities.

Certain Risk Factors Relating to High-Yield Bonds. These bonds
present certain risks which are discussed below:

Sensitivity to Interest Rate and Economic Changes - High-yield
bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience
financial stress that would adversely affect their ability to service
their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a
bond defaults on its obligations to pay interest or principal or enters
into bankruptcy proceedings, a Portfolio may incur losses or expenses
in seeking recovery of amounts owed to it. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of high-yield bonds and the Portfolio's net
asset value.

Payment Expectations - High-yield bonds may contain redemption
or call provisions. If an issuer exercises these provisions in a
declining interest rate market, a Portfolio would have to replace the
security with a lower yielding security, resulting in a decreased
return for investors. Conversely, a high-yield bond's value will
decrease in a rising interest rate market, as will the value of the
Portfolio's assets. If the Portfolio experiences unexpected net
redemptions, this may force it to sell high-yield bonds without regard
to their investment merits, thereby decreasing the asset base upon
which expenses can be spread and possibly reducing the Portfolio's rate
of return.

Liquidity and Valuation - There may be little trading in the
secondary market for particular bonds, which may affect adversely a
Portfolio's ability to value accurately or dispose of such bonds.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of
high-yield bonds, especially in a thin market.

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Asset-Backed Securities. Each Portfolio may invest in asset-backed
securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and
automobile loan receivables, representing the obligations of a number of
different parties.

Asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicer to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.

Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. A
Portfolio will not pay any additional or separate fees for credit support. The
degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated or failure
of the credit support could adversely affect the return on an investment in such
a security.

Short-Term Debt Securities. As described in the Prospectus, in addition
to its primary investments, a Portfolio may also invest in the following types
of money market and short-term fixed-income securities:

Money Market Securities - Money Market securities may include
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, repurchase agreements, commercial paper, bankers'
acceptances, time deposits and certificates of deposit.

Commercial Bank Obligations - Certificates of deposit
(interest-bearing time deposits), bankers' acceptances (time drafts
drawn on a commercial bank where the

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bank accepts an irrevocable obligation to pay at maturity) and
documented discount notes (corporate promissory discount notes
accompanied by a commercial bank guarantee to pay at maturity)
representing direct or contingent obligations of commercial banks
with total assets in excess of $1 billion, based on the latest
published reports. A Portfolio may also invest in obligations issued
by commercial banks with total assets of less than $1 billion if the
principal amount of these obligations owned by the Portfolio is fully
insured by the Federal Deposit Insurance Corporation ("FDIC").

Savings Association Obligations - Certificates of deposit
(interest-bearing time deposits) issued by mutual savings banks or
savings and loan associations with assets in excess of $1 billion and
whose deposits are insured by the FDIC. A Portfolio may also invest in
obligations issued by mutual savings banks or savings and loan
associations with total assets of less than $1 billion if the principal
amount of these obligations owned by the Portfolio is fully insured by
the FDIC.

Commercial Paper - Short-term notes (up to 12 months) issued by
corporations or governmental bodies. A Portfolio may only purchase
commercial paper judged by the Adviser to be of suitable investment
quality. This includes commercial paper that is (a) rated in the two
highest categories by Standard & Poor's Corporation ("Standard &
Poor's") and by Moody's Investors Service ("Moody's"), or (b) other
commercial paper deemed on the basis of the issuer's creditworthiness
to be of a quality appropriate for the Portfolio. See "Description of
Commercial Paper and Bond Ratings" for a description of the ratings. A
Portfolio will not purchase commercial paper described in (b) above if
such paper would in the aggregate exceed 15% of its total assets after
such purchase. The commercial paper in which a component may invest
includes variable amount master demand notes. Variable amount master
demand notes permit a Portfolio to invest varying amounts at
fluctuating rates of interest pursuant to the agreement in the master
note. These are direct lending obligations between the lender and
borrower, they are generally not traded, and there is no secondary
market. Such instruments are payable with accrued interest in whole or
in part on demand. The amounts of the instruments are subject to daily
fluctuations as the participants increase or decrease the extent of
their participation. Investments in these instruments are limited to
those that have a demand feature enabling the Portfolio unconditionally
to receive the amount invested from the issuer upon seven or fewer
days' notice. In connection with master demand note arrangements, the
Adviser, subject to the direction of the Directors, monitors on an
ongoing basis, the earning power, cash flow and other liquidity ratios
of the borrower, and its ability to pay principal and interest on
demand. The Adviser also considers the extent to which the variable
amount master demand notes are backed by bank letters of credit. These
notes generally are not rated by Moody's or Standard & Poor's and a
Portfolio may invest in them only if it is determined that at the time
of investment the notes are of comparable quality to the other
commercial paper in

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which the Portfolio may invest. Master demand notes are considered to
have a maturity equal to the repayment notice period unless the
Adviser has reason to believe that the borrower could not make timely
repayment upon demand.

Corporate Bonds and Notes - A Portfolio may purchase corporate
obligations that mature or that may be redeemed in one year or less.
These obligations originally may have been issued with maturities in
excess of one year. A Portfolio may invest only in corporate bonds or
notes of issuers having outstanding short-term securities rated in the
top two rating categories by Standard & Poor's and Moody's. See
"Description of Commercial Paper and Bond Ratings" for description of
investment-grade ratings by Standard & Poor's and Moody's.

Government Securities - Debt securities maturing within one year
of the date of purchase include adjustable-rate mortgage securities
backed by GNMA, FNMA, FHLMC and other non-agency issuers. Although
certain floating or variable rate obligations (securities whose
coupon rate changes at least annually and generally more frequently)
have maturities in excess of one year, they are also considered
short-term debt securities. See "U.S. Government Securities".

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

Hedging and Income Enhancement Strategies. Each Portfolio may write
(i.e., sell) call options ("calls") on securities that are traded on U.S. and
foreign securities exchanges and over-the-counter markets to enhance income
through the receipt of premiums from expired calls and any net profits from
closing purchase transactions. After writing such a covered call, up to 25% of a

Portfolio's total assets may be subject to calls. All such calls written by a
Portfolio must be

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"covered" while the call is outstanding (i.e., the Portfolio must own the
securities subject to the call or other securities acceptable for applicable
escrow requirements). Calls on Futures (defined below) used to enhance income
must be covered by deliverable securities or by liquid assets segregated to
satisfy the Futures contract. If a call written by the Portfolio is exercised,
the Portfolio forgoes any profit from any increase in the market price above the
call price of the underlying investment on which the call was written.

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

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

Options

Options on Securities. As noted above, each Portfolio may write and
purchase call and put options on equity and debt securities.

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

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retained the risk of loss should the price of the underlying security decline
during the call period, which may be offset to some extent by the premium.

To terminate its obligation on a call it has written, a Portfolio may
purchase a corresponding call in a "closing purchase transaction." A profit or
loss will be realized, depending upon whether the net of the amount of the
option transaction costs and the premium received on the call written was more
or less than the price of the call subsequently purchased. A profit may also be
realized if the call expires unexercised, because a Portfolio retains the
underlying security and the premium received. If a Portfolio could not effect a
closing purchase transaction due to lack of a market, it would hold the callable
securities until the call expired or was exercised.

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

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

A Portfolio may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an underlying
security from being put. Furthermore, effecting such a closing purchase
transaction will permit a Portfolio to write another put option to the extent
that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments by the
Portfolio. A Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the option.

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

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

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

Options on Foreign Currencies. Each Portfolio may write and purchase

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

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liquid securities in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.

Options on Securities Indices. As noted above, each Portfolio may write
and purchase call and put options on securities indices. Puts and calls on
broadly-based securities indices are similar to puts and calls on securities
except that all settlements are in cash and gain or loss depends on changes in
the index in question (and thus on price movements in the securities market
generally) rather than on price movements in individual securities or Futures.
When a Portfolio buys a call on a securities index, it pays a premium. During
the call period, upon exercise of a call by a Portfolio, a seller of a
corresponding call on the same investment will pay the Portfolio an amount of
cash to settle the call if the closing level of the securities index upon which
the call is based is greater than the exercise price of the call. That cash
payment is equal to the difference between the closing price of the index and
the exercise price of the call times a specified multiple (the "multiplier")
which determines the total dollar value for each point of difference. When a
Portfolio buys a put on a securities index, it pays a premium and has the right
during the put period to require a seller of a corresponding put, upon the
Portfolio's exercise of its put, to deliver to the Portfolio an amount of cash
to settle the put if the closing level of the securities index upon which the
put is based is less than the exercise price of the put. That cash payment is
determined by the multiplier, in the same manner as described above as to calls.

Futures and Options on Futures

Futures. Upon entering into a Futures transaction, a Portfolio will be
required to deposit an initial margin payment with the futures commission
merchant (the "futures broker"). The initial margin will be deposited with the
Fund's custodian in an account registered in the futures broker's name; however
the futures broker can gain access to that account only under specified
conditions. As the Future is marked-to-market to reflect changes in its market
value, subsequent margin payments, called variation margin, will be paid to or

by the futures broker on a daily basis. Prior to expiration of the Future, if a
Portfolio elects to close out its position by taking an opposite position, a
final determination of variation margin is made, additional cash is required to
be paid by or released to the Portfolio, and any loss or gain is realized for
tax purposes. All Futures transactions are effected through a clearinghouse
associated with the exchange on which the Futures are traded.

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

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declining as much as it otherwise would have. On the other hand, if interest
rates were expected to decline, interest rate futures contracts may be purchased
to hedge in anticipation of subsequent purchases of long-term bonds at higher
prices. Since the fluctuations in the value of the interest rate futures
contracts should be similar to that of long-term bonds, a Portfolio could
protect itself against the effects of the anticipated rise in the value of
long-term bonds without actually buying them until the necessary cash became
available or the market had stabilized. At that time, the interest rate futures
contracts could be liquidated and that Portfolio's cash reserves could then be
used to buy long-term bonds on the cash market.

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

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

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

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<PAGE>

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

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

value of its Options on Futures positions, a Portfolio's losses from exercised
Options on Futures may to some extent be reduced or increased by changes in the
value of portfolio securities.

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

Forward Contracts

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

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<PAGE>

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

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

exchange rates during the period between the date on which the security is
purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.

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

The Portfolio will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in the currency underlying
the forward contract or the currency being hedged. To the extent that a
Portfolio is not able to cover its forward currency positions with underlying
portfolio securities, the Fund's custodian will place cash or liquid securities
in a separate account of the Portfolio having a value equal to the aggregate
amount of the Portfolio's commitments under Forward Contracts entered into with
respect to position hedges and cross-hedges. If the value of the securities
placed in a separate account declines, additional cash or securities will be
placed in the account on a daily basis so that the value of the account will
equal the amount of the Portfolio's commitments with respect to such contracts.
As an alternative to maintaining all or part of the separate account, a
Portfolio may purchase a call option permitting the Portfolio to purchase the

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<PAGE>

amount of foreign currency being hedged by a forward sale contract at a price no
higher than the Forward Contract price or the Portfolio may purchase a put
option permitting the Portfolio to sell the amount of foreign currency subject
to a forward purchase contract at a price as high or higher than the Forward
Contract price. Unanticipated changes in currency prices may result in poorer
overall performance for a Portfolio than if it had not entered into such
contracts.

The precise matching of the Forward Contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the Forward Contract

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

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

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

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

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<PAGE>

Thus, a dealer may offer to sell a foreign currency to a Portfolio at
one rate, while offering a lesser rate of exchange should the Portfolio desire
to resell that currency to the dealer.

Additional Information About Hedging Instruments and Their Use

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

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

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

Regulatory Aspects of Hedging Instruments

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

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

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

Tax Aspects of Hedging Instruments

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

Possible Risk Factors in Hedging

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

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

Illiquid and Restricted Securities. No more than 15% of the value of a
Portfolio's net assets, determined as of the date of purchase, may be invested
in illiquid securities including repurchase agreements which have a maturity of
longer than seven days, interest-rate swaps, currency swaps, caps, floors and
collars, or in other securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them,
resulting in additional expense and delay. There will generally be a lapse of
time between a mutual fund's decision to sell an unregistered security and the
registration of such security promoting sale. Adverse market conditions could
impede a public offering of such securities. When purchasing unregistered
securities, each of the Portfolios will seek to obtain the right of registration
at the expense of the issuer (except in the case of Rule 144A securities).

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

Restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act for which there is a readily available market may be deemed
to be liquid. The Adviser will monitor the liquidity of such restricted
securities subject to the supervision of the Directors. In reaching liquidity

decisions the Adviser will consider, inter alia, pursuant to guidelines and
procedures established by the Directors, the following factors: (1) the
frequency of trades and quotes for the security; (2) the

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number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).

Commercial paper issues in which a Portfolio's net assets may be
invested include securities issued by major corporations without registration
under the Securities Act in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called private placement exemption from registration which is afforded by
Section 4(2) of the Securities Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Section 4(2) paper that is issued by a company that files reports
under the Securities Exchange Act of 1934 is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described above. A Portfolio's 15%
limitation on investments in illiquid securities includes Section 4(2) paper
other than Section 4(2) paper that the Adviser has determined to be liquid
pursuant to guidelines established by the Directors. The Directors have
delegated to the Advisers the function of making day-to-day determinations of
liquidity with respect to Section 4(2) paper, pursuant to guidelines approved by
the Directors that require the Advisers to take into account the same factors
described above for other restricted securities and require the Advisers to
perform the same monitoring and reporting functions.

Hybrid Instruments; Indexed/Structured Securities. Hybrid Instruments,
including indexed or structured securities, have been developed and combine the
elements of futures contracts or options with those of debt, preferred equity or
a depository instrument. Generally, a Hybrid Instrument will be a debt security,
preferred stock, depository share, trust certificate, certificate of deposit or
other evidence of indebtedness on which a portion of or all interest payments,
and/or the principal or stated amount payable at maturity, redemption or
retirement, is determined by reference to prices, changes in prices, or
differences between prices, of securities, currencies, intangibles, goods,
articles or commodities (collectively "Underlying Assets") or by another
objective index, economic factor or other measure, such as interest rates,
currency exchange rates, commodity indices, and securities indices (collectively
"Benchmarks"). Thus, Hybrid Instruments may take a variety of forms, including,
but not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, preferred stock with dividend

rates determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular commodity.

Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Portfolio may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transactions
costs associated with buying and currency-hedging the foreign bond positions.
One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument
whose redemption price is linked to the average three year interest rate in a
designated group of countries. The redemption

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price formula would provide for payoffs of greater than par if the average
interest rate was lower than a specified level, and payoffs of less than par if
rates were above the specified level. Furthermore, the Portfolio could limit the
downside risk of the security by establishing a minimum redemption price so that
the principal paid at maturity could not be below a predetermined minimum level
if interest rates were to rise significantly. The purpose of this arrangement,
known as a structured security with an embedded put option, would be to give the
Portfolio the desired European bond exposure while avoiding currency risk,
limiting downside market risk, and lowering transactions costs. Of course, there
is no guarantee that the strategy will be successful and the Portfolio could
lose money if, for example, interest rates do not move as anticipated or credit
problems develop with the issuer of the Hybrid.

The risks of investing in Hybrid Instruments reflect a combination of
the risks of investing in securities, options, futures and currencies. Thus, an
investment in a Hybrid Instrument may entail significant risks that are not
associated with a similar investment in a traditional debt instrument that has a
fixed principal amount, is denominated in U.S. dollars or bears interest either
at a fixed rate or a floating rate determined by reference to a common,
nationally published Benchmark. The risks of a particular Hybrid Instrument
will, of course, depend upon the terms of the instrument, but may include,
without limitation, the possibility of significant changes in the Benchmarks or
the prices of Underlying Assets to which the instrument is linked. Such risks
generally depend upon factors which are unrelated to the operations or credit
quality of the issuer of the Hybrid Instrument and which may not be readily
foreseen by the purchaser, such as economic and political events, the supply and
demand for the Underlying Assets and interest rate movements. In recent years,
various Benchmarks and prices for Underlying Assets have been highly volatile,
and such volatility may be expected in the future. Reference is also made to the
discussion of futures, options, and forward contracts herein for a discussion of
the risks associated with such investments.

Hybrid Instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the structure of
the particular Hybrid Instrument, changes in a Benchmark may be magnified by the
terms of the Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid
Instrument and the Benchmark or Underlying Asset may not move in the same

direction or at the same time.

Hybrid Instruments may bear interest or pay preferred dividends at
below market (or even relatively nominal) rates. Alternatively, Hybrid
Instruments may bear interest at above market rates but bear an increased risk
of principal loss (or gain). The latter scenario may result if "leverage" is
used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid
Instrument is structured so that a given change in a Benchmark or Underlying
Asset is multiplied to produce a greater value change in the Hybrid Instrument,
thereby magnifying the risk of loss as well as the potential for gain.

Hybrid Instruments may also carry liquidity risk since the instruments
are often "customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are

B-25

<PAGE>

willing and able to buy such instruments in the secondary market may be smaller
than that for more traditional debt securities. In addition, because the
purchase and sale of Hybrid Instruments could take place in an over-the-counter
market without the guarantee of a central clearing organization or in a
transaction between the Portfolio and the issuer of the Hybrid Instrument, the
creditworthiness of the counter party or issuer of the Hybrid Instrument would
be an additional risk factor which the Portfolio would have to consider and
monitor. Hybrid Instruments also may not be subject to regulation of the CFTC,
which generally regulates the trading of commodity futures by U.S. persons, the
Securities and Exchange Commission (the "SEC"), which regulates the offer and
sale of securities by and to U.S. persons, or any other governmental regulatory
authority.

The various risks discussed above, particularly the market risk of such
instruments, may in turn cause significant fluctuations in the net asset value
of the Portfolio. Accordingly, each Portfolio will limit its investments in
Hybrid Instruments to 10% of total assets at the time of purchase. However,
because of their volatility, it is possible that a Portfolio's investment in
Hybrid Instruments will account for more than 10% of the Portfolio's return
(positive or negative).

When-Issued Securities and Firm Commitment Agreement. A Portfolio may
purchase or sell securities on a "when-issued" or "delayed delivery" basis and
may purchase securities on a firm commitment basis. Although a Portfolio will
enter into such transactions for the purpose of acquiring securities for its
portfolio or for delivery pursuant to options contracts it has entered into, the
Portfolio may dispose of a commitment prior to settlement. "When-issued" or
"delayed delivery" refers to securities whose terms and indenture are available
and for which a market exists, but which are not available for immediate
delivery. When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made, but
delivery and payment for the securities take place at a later date. During the
period between commitment by a Portfolio and settlement (generally within two
months but not to exceed 120 days), no payment is made for the securities

purchased by the purchaser, and no interest accrues to the purchaser from the
transaction. Such securities are subject to market fluctuation, and the value at
delivery may be less than the purchase price. A Portfolio will maintain a
segregated account with its custodian, consisting of cash or liquid securities
at least equal to the value of purchase commitments until payment is made. A
Portfolio will likewise segregate liquid assets in respect of securities sold on
a delayed delivery basis.

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

B-26
<PAGE>

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

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

Loans of Portfolio Securities. Consistent with applicable regulatory
requirements, each Portfolio may lend portfolio securities in amounts up to
33 1/3% of total assets to brokers, dealers and other financial institutions,
provided, that such loans are callable at any time by the Portfolio and are at
all times secured by cash or equivalent collateral. In lending its portfolio
securities, a Portfolio receives income while retaining the securities'
potential for capital appreciation. The advantage of such loans is that a
Portfolio continues to receive the interest and dividends on the loaned
securities while at the same time earning interest on the collateral, which will
be invested in short-term obligations. A loan may be terminated by the borrower

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

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

Reverse Repurchase Agreements. A Portfolio may enter into reverse
repurchase agreements with brokers, dealers, domestic and foreign banks or other
financial institutions that have been determined by the Adviser to be
creditworthy. In a reverse repurchase agreement, the Portfolio

B-27
<PAGE>

sells a security and agrees to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of
the agreement. It may also be viewed as the borrowing of money by the
Portfolio. The Portfolio's investment of the proceeds of a reverse
repurchase agreement is the speculative factor known as leverage. A Portfolio
will enter into a reverse repurchase agreement only if the interest income
from investment of the proceeds is expected to be greater than the interest
expense of the transaction and the proceeds are invested for a period
no longer than the term of the agreement. The Portfolio will maintain with
the Custodian a separate account with a segregated portfolio of cash or
liquid securities in an amount at least equal to its purchase obligations under
these agreements (including accrued interest). In the event that the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the buyer or its trustee or receiver may receive an extension of time
to determine whether to enforce the Portfolio's repurchase obligation, and the
Portfolio's use of proceeds of the agreement may effectively be restricted
pending such decision. Reverse repurchase agreements are considered to be
borrowings and are subject to the percentage limitations on borrowings. See
"Investment Restrictions."

Dollar Rolls. Each Portfolio may enter into "dollar rolls" in which a
Portfolio sells mortgage or other asset-backed securities ("Roll Securities")
for delivery in the current month and simultaneously contracts to repurchase

substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Portfolio foregoes principal and
interest paid on the Roll Securities. The Portfolio is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. The Portfolio also could be
compensated through the receipt of fee income equivalent to a lower forward
price. A "covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction. A
Portfolio will only enter into covered rolls. Because "roll" transactions
involve both the sale and purchase of a security, they may cause the reported
portfolio turnover rate to be higher than that reflecting typical portfolio
management activities.

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

Standby Commitments. Standby commitments are put options that entitle
holders to same day settlement at an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise. A Portfolio may acquire standby commitments to enhance the liquidity
of portfolio securities, but only when the issuers of the commitments present
minimal risk of default. Ordinarily, the Portfolio may not transfer a standby
commitment to a third party, although it could sell the underlying municipal
security to a third party at any time. A Portfolio may purchase

B-28
<PAGE>

standby commitments separate from or in conjunction with the purchase of
securities subject to such commitments. In the latter case, the Portfolio would
pay a higher price for the securities acquired, thus reducing their yield to
maturity. Standby commitments will not affect the dollar-weighted average
maturity of the Portfolio, or the valuation of the securities underlying the
commitments. Issuers or financial intermediaries may obtain letters of credit or
other guarantees to support their ability to buy securities on demand. The
Adviser may rely upon its evaluation of a bank's credit in determining whether
to support an instrument supported by a letter of credit. Standby commitments
are subject to certain risks, including the ability of issuers of standby
commitments to pay for securities at the time the commitments are exercised; the
fact that standby commitments are not marketable by the Portfolio; and the
possibility that the maturities of the underlying securities may be different
from those of the commitments.

Interest-Rate Swaps, Mortgage Swaps, Caps, Collars and Floors. In order

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

B-29
<PAGE>

A Portfolio will enter into these transactions only with banks and
recognized securities dealers believed by the Adviser to present minimal credit
risk in accordance with guidelines established by the Board of Directors. If
there is a default by the other party to such a transaction, the Portfolio will
have to rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreements related to the
transaction.

The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as

agents utilizing standardized swap documentation. Caps, collars and floors are
more recent innovations for which documentation is less standardized, and
accordingly, they are less liquid than swaps.

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

The purchase of an interest-rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest-rate cap. The purchase of an interest-rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest-rate floor.

PORTFOLIO TURNOVER

The portfolio turnover rate is calculated for each Portfolio by
dividing (a) the lesser of purchases or sales of portfolio securities for the
fiscal year by (b) the monthly average of the value of portfolio securities
owned during the fiscal year. For purposes of this calculation, securities which
at the time of purchase had a remaining maturity of one year or less are
excluded from the numerator and the denominator. Transactions in Futures or the
exercise of calls written by a Portfolio may cause the Portfolio to sell
portfolio securities, thus increasing its turnover rate. The exercise of puts
also may cause a sale of securities and increase turnover; although such
exercise is within a Portfolio's control, holding a protective put might cause
the Portfolio to sell the underlying securities for reasons which would not
exist in the absence of the put. A Portfolio will pay a brokerage commission
each time it buys or sells a security in connection with the exercise of a put
or call. Some commissions may be higher than those which would apply to direct
purchases or sales of portfolio securities. Because each of the Advisers to each
Portfolio manages its portion of the Portfolio's assets independently, it is
possible that the same security may be purchased and sold on the same day by two
or more Advisers to the same Portfolio, resulting in higher brokerage
commissions for the Portfolio. It is not anticipated that the annual rate of
portfolio turnover will exceed 200%.

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

B-30
<PAGE>

INVESTMENT RESTRICTIONS

The Fund has adopted for each Portfolio certain investment restrictions
that are fundamental policies and cannot be changed without the approval of the

holders of a majority of that Portfolio's outstanding shares. Such majority is
defined as the vote of the lesser of (i) 67% or more of the outstanding shares
present at a meeting, if the holders of more than 50% of the outstanding shares
are present in person or by proxy or (ii) more than 50% of the outstanding
shares. All percentage limitations expressed in the following investment
restrictions are measured immediately after the relevant transaction is made.
Each Portfolio may not:

1. Invest more than 25% of the Portfolio's total assets in the
securities of issuers in the same industry. Obligations of the U.S.
Government, its agencies and instrumentalities are not subject to this
25% limitation on industry concentration.

2. Invest in real estate (including limited partnership interests but
excluding securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein); provided that a Portfolio may hold or
sell real estate acquired as a result of the ownership of securities.

3. Purchase or sell commodities or commodity contracts, except to the
extent that the Portfolio may do so in accordance with applicable law and the
Prospectus and Statement of Additional Information, as they may be amended from
time to time, and without registering as a commodity pool operator under the
Commodity Exchange Act. Any Portfolio may engage in transactions in put and call
options on securities, indices and currencies, spread transactions, forward and
futures contracts on securities, indices and currencies, put and call options on
such futures contracts, forward commitment transactions, forward foreign
currency exchange contracts, interest rate, mortgage and currency swaps and
interest rate floors and caps and may purchase hybrid instruments.

4. Make loans to others except for (a) the purchase of
debt securities; (b) entering into repurchase agreements; and (c) the
lending of its portfolio securities.

5. Borrow money, except that (i) each Portfolio may borrow from banks
in amounts up to 33 1/3 % of its total assets for temporary or emergency
purposes, (ii) each Portfolio may borrow for investment purposes to the maximum
extent permissible under the 1940 Act (i.e., presently 50% of net assets), and
(iii) a Portfolio may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. This policy shall not
prohibit a Portfolio's engaging in reverse repurchase agreements, dollar rolls
and similar investment strategies described in the Prospectus and Statement of
Additional Information, as they may be amended from time to time.

6. Issue senior securities as defined in the 1940 Act, except that each
Portfolio may enter into repurchase agreements, reverse repurchase agreements,
dollar rolls, lend its portfolio securities

B-31
<PAGE>

and borrow money from banks, as described above, and engage in similar
investment strategies described in the Prospectus and Statement of Additional
Information, as they may be amended from time to time.

7. Engage in underwriting of securities issued by others, except to the
extent that the Portfolio may be deemed to be an underwriter in connection with
the disposition of portfolio securities of the Portfolio.

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

8. Purchase securities on margin, provided that margin deposits in
connection with futures contracts, options on futures contracts and other
derivative instruments shall not constitute purchasing securities on margin.

9. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and, to the extent related to the
segregation of assets in connection with the writing of covered put and call
options and the purchase of securities or currencies on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to forward contracts, options, futures contracts and
options on futures contracts. In addition, a Portfolio may pledge assets in
reverse repurchase agreements, dollar rolls and similar investment strategies
described in the Prospectus and Statement of Additional Information, as they may
be amended from time to time.

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

11. Enter into any repurchase agreement maturing in more than seven
days or investing in any other illiquid security if, as a result, more than 15%
of a Portfolio's net assets would be so invested. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act that have a readily
available market, and commercial paper exempted from registration under the
Securities Act pursuant to Section 4(2) of that Act that may be offered and sold
to "qualified institutional buyers" as defined in Rule 144A, which the Adviser
has determined to be liquid pursuant to guidelines established by the Directors,
will not be considered illiquid for purposes of this 15% limitation on illiquid
securities.

DIRECTORS AND OFFICERS

The following table lists the Directors and executive officers of the
Fund, their ages, business addresses, and principal occupations during the past
five years. The SunAmerica Mutual Funds consist of SunAmerica Equity Funds,
SunAmerica Income Funds, SunAmerica Money Market Funds, and Style

B-32
<PAGE>

Select Series, Inc. An asterisk indicates those Directors who are interested
persons of the Fund within the meaning of the 1940 Act.

Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- ---------------------
<S> <C> <C>
S. James Coppersmith, 64 Director Director/Trustee of the Boston Stock Exchange,
Emerson College Uno Restaurant Corp., Waban Corp.,
100 Beacon Street Kushner-Locke Co., Chayron Inc.; Chairman of
Boston, MA 02116 the Board of Emerson College; formerly,
President and General Manager,
WCVB-TV, a division of the Hearst
Corporation, from 1982 to 1994
(retired); Director/Trustee of the
SunAmerica Mutual Funds and Anchor Series
Trust.

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

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

B-33
<PAGE>

Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- ---------------------
<S> <C> <C>
Peter A. Harbeck*, 43 Director and President Director and President, SunAmerica Asset
The SunAmerica Center Management Corp. ("SunAmerica"); Director

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

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

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

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

B-34
<PAGE>
<TABLE>
<CAPTION>

Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- ---------------------
<S> <C> <C>
P. Christopher Leary, 37 Vice President Senior Vice President, SunAmerica, since
The SunAmerica Center January 1994; Vice President and Senior
733 Third Avenue Portfolio Manager, SunAmerica, since June
New York, NY 10017-3204 1991; Fixed Income Portfolio Manager,
SunAmerica, since October 1990.

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

Robert M. Zakem, 39 Secretary Senior Vice President and General Counsel,
The SunAmerica Center SunAmerica since April 1993; Executive Vice
733 Third Avenue President and Director, SACS, since February
New York, NY 10017-3204 1993; Vice President, SAFS, since January

1994; Assistant Secretary, SunAmerica
Series Trust and Anchor Pathway Fund, since
September 1993; Secretary SunAmerica Income
Funds; formerly, Vice President and Associate
General Counsel, SunAmerica, March 1992 to April
1993; Associate, Piper & Marbury from 1989 to
1992.

Peter C. Sutton, 32 Treasurer Vice President, SunAmerica, since September
The SunAmerica Center 1994; Treasurer, SunAmerica Mutual Funds,
733 Third Avenue since February 1996; Vice President,
New York, NY 10017-3204 SunAmerica Series Trust, Anchor Pathway Fund,
since October 1994; Controller, SunAmerica
Mutual Funds (March 1993 to February 1996);
Assistant Controller, SunAmerica Mutual Funds
(1990-1993).
</TABLE>

Directors and officers of the Fund are also Directors and officers of
some or all of the other investment companies managed, administered or advised
by SunAmerica, and distributed by SunAmerica Capital Services ("SACS" or the
"Distributor") and other affiliates of SunAmerica Inc.

B-35
<PAGE>

The Fund pays each Director who is not an interested person of the Fund
or SunAmerica (each a "disinterested" Director) annual compensation in addition
to reimbursement of out-of-pocket expenses in connection with attendance at
meetings of the Directors. Specifically, each disinterested Director receives a
pro rata portion (based upon the Fund's net assets) of the aggregate of $40,000
in annual compensation for acting as director or trustee to all the retail funds
in the SunAmerica Mutual Funds.

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

The Directors (and Trustees) of the SunAmerica Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement Plan
(the "Retirement Plan") effective January 1, 1993 for the unaffiliated
Directors. The Retirement Plan provides generally that if a disinterested
Director who has at least 10 years of consecutive service as a disinterested
Director of any of the SunAmerica Mutual Funds (an "Eligible Director") retires
after reaching age 60 but before age 70 or dies while a Director, such person
will be eligible to receive a retirement or death benefit from each SunAmerica
mutual fund with respect to which he or she is an Eligible Director. As of each

birthday, prior to the 70th birthday, each Eligible Director will be credited
with an amount equal to (i) 50% of his or her regular fees (excluding committee
fees) for services as a disinterested Director of each SunAmerica mutual fund
for the calendar year in which such birthday occurs, plus (ii) 8.5% of any
amounts credited under clause (i) during prior years. An Eligible Director may
receive any benefits payable under the Retirement Plan, at his or her election,
either in one lump sum or in up to fifteen annual installments.

As of December 12, 1996, the Directors and officers of the Fund owned
in the aggregate less than 1% of the Fund's total outstanding shares.

The following shareholders owned of record or beneficially 5% or more
of the indicated Funds' shares outstanding as of December 12, 1996: Aggressive
Growth Portfolio - Class A - SunAmerica Inc., Los Angeles, CA 90067 - owned
beneficially 82.0%; Mid-Cap Growth Portfolio - Class A - SunAmerica, Inc., Los
Angeles, CA 90067 - owned beneficially 96.3%; Class B - Kathryn Keller Thomas,
Golden, CO 80403 - owned beneficially 6.4%; James L. Keller, Golden, CO 80403 -
owned beneficially 12.8%; International Equity Portfolio - Class A - SunAmerica
Inc., Los Angeles, CA 90067 - owned beneficially 91.9%; Class B - Donaldson
Lufkin Jenrette Securities Corporation, Jersey City, NJ 07303 - owned of record
5.4%; Donaldson Lufkin Jenrette Securities Corporation, Jersey City, NJ 07303 -
owned of record 5.8%; Donaldson Lufkin Jenrette Securities Corporation, Jersey
City, NJ 07303 - owned of record 5.8%; Donaldson Lufkin Jenrette Securities
Corporation, Jersey City, NJ 07303 - owned of record 5.8%; Donaldson Lufkin
Jenrette Securities Corporation, Jersey City, NJ 07303 - owned of record 5.8%;
Value Portfolio - Class A - SunAmerica, Inc., Los Angeles, CA 90067 - owned
beneficially 94.1%; Class B - Donaldson Lufkin Jenrette Securities Corporation,
Jersey City, NJ 07303 - owned of record 5.6%. A

B-36
<PAGE>
shareholder who owns, directly or indirectly, 25% or more of a Fund's
outstanding voting securities may be deemed a "control person" (as defined in
the 1940 Act) of that Fund.

The following table sets forth information summarizing the compensation
that the Fund estimates that it will pay each disinterested Director for his
services as Director for the fiscal year ending October 31, 1997. The Directors
who are interested persons of the Fund receive no compensation.

ESTIMATED COMPENSATION TABLE*

Pension or Retirement
Aggregate Benefits Accrued as Total Compensation from
Compensation Part of Fund Registrant and Fund
Director from Registrant Expenses** Complex Paid to Directors**
- ----------- --------------- ------------ --------------------------
<S> <C> <C> <C>
S. James Coppersmith $7,200 N/A $65,000

Samuel M. Eisenstat $7,520 N/A $69,000
Stephen J. Gutman $7,200 N/A $65,000
Sebastiano Sterpa $7,200 N/A $43,333***

</TABLE>

* Assumes assets of $400 million at fiscal year end.
** Information is for the five investment companies in the complex
which pay fees to these directors/trustees. The complex consists
of the SunAmerica Mutual Funds, Style Select Series and Anchor
Series Trust.
*** Mr. Sterpa is not a trustee of Anchor Series Trust.

ADVISERS, DISTRIBUTOR AND ADMINISTRATOR

SunAmerica Asset Management Corp. SunAmerica, organized as a Delaware
corporation in 1982, is located at The SunAmerica Center, 733 Third Avenue, New
York, NY 10017-3204, and acts as the investment manager to each of the
Portfolios pursuant to the Investment Advisory and Management Agreement dated
September 17, 1996 (the "Management Agreement") with the Fund, on behalf of each
Portfolio. SunAmerica is an indirect wholly owned subsidiary of SunAmerica Inc.
SunAmerica Inc. is incorporated in the State of Maryland and maintains its
principal executive offices at 1 SunAmerica Center, Century City, Los Angeles,
CA 90067-6022, telephone (310) 772-6000.

Under the Management Agreement, and except as delegated to the Advisers
under the Subadvisory Agreements (as defined below), SunAmerica manages the
investment of the assets of each Portfolio and obtains and evaluates economic,
statistical and financial information to formulate and implement investment
policies for each Portfolio. Any investment program undertaken by SunAmerica
will at all times be subject to the policies and control of the Directors.
SunAmerica also provides certain administrative services to each Portfolio.

Except to the extent otherwise specified in the Management Agreement,
each Portfolio pays, or causes to be paid, all other expenses of the Fund and
each of the Portfolios, including, without limitation, charges and expenses of
any registrar, custodian, transfer and dividend disbursing agent; brokerage

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<PAGE>

commissions; taxes; engraving and printing of share certificates; registration
costs of the Portfolios and their shares under Federal and state securities
laws; the cost and expense of printing, including typesetting, and distributing
Prospectuses and Statements of Additional Information respecting the Portfolios,
and supplements thereto, to the shareholders of the Portfolios; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; all expenses incident to any
dividend, withdrawal or redemption options; fees and expenses of legal counsel
and independent accountants; membership dues of industry associations; interest
on borrowings of the Portfolios; postage; insurance premiums on property or
personnel (including Officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and

liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Fund's operation.

The annual rate of the investment advisory fees that apply to each
Portfolio are set forth in the Prospectus.

The Management Agreement with respect to each Portfolio was approved by
the Directors, including the Directors who are not parties to the Management
Agreement or "interested persons" of any such party, on September 17, 1996, and
by the sole initial shareholder of each Portfolio on November 15, 1996.

SunAmerica has voluntarily agreed to waive fees or reimburse expenses,
if necessary, to keep annual operating expenses at or below the following
percentages of each Portfolio's average net assets: Aggressive Growth Portfolio
1.90% for Class A shares and 2.55% for Class B and Class C shares, Mid-Cap
Growth Portfolio 1.90% for Class A shares and 2.55% for Class B and Class C
shares, Value Portfolio 1.90% for Class A shares and 2.55% for Class B and Class
C shares and International Equity Portfolio 2.15% for Class A shares and 2.80%
for Class B and Class C shares. SunAmerica also may voluntarily waive or
reimburse additional amounts to increase the investment return to a Portfolio's
investors. SunAmerica may terminate all such waivers and/or reimbursements at
any time. Further, any waivers or reimbursements made by SunAmerica with respect
to a Portfolio are subject to recoupment from that Portfolio within the
following two years, provided that the Portfolio is able to effect such payment
to SunAmerica and remain in compliance with the foregoing expense limitations.

The Management Agreement will continue in effect with respect to each
Portfolio until September 16, 1998 unless terminated, and thereafter from year
to year, if approved at least annually by vote of a majority of the Directors or
by the holders of a majority of the respective Portfolio's outstanding voting
securities. Any such continuation also requires approval by a majority of the
Directors who are not parties to the Management Agreement or "interested
persons" of any such party as defined in the 1940 Act by vote cast in person at
a meeting called for such purpose. The Management Agreement may be terminated
with respect to a Portfolio at any time, without penalty, on 60 days' written
notice by the Directors, by the holders of a majority of the respective
Portfolio's outstanding voting securities or by SunAmerica. The Management
Agreement automatically terminates with respect to each Portfolio in the event
of its assignment (as defined in the 1940 Act and the rules thereunder).

Under the terms of the Management Agreement, SunAmerica is not liable
to the Portfolios, or their shareholders, for any act or omission by it or for
any losses sustained by the Portfolios or their

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<PAGE>
shareholders, except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.

The Advisers. The organizations identified in the Prospectus act as
Advisers to the Fund and its Portfolios pursuant to the Subadvisory
Agreements with SunAmerica.

As described in the Prospectus, SunAmerica will initially allocate the
assets of each Portfolio equally among the Advisers for that Portfolio, and
subsequently, allocations of new cash flow and of redemption requests will be
made equally among the Advisers of each Portfolio unless SunAmerica determines,
subject to the review of the Directors, that a different allocation of assets
would be in the best interests of a Portfolio and its shareholders. The Fund
expects that differences in investment returns among the portions of a Portfolio
managed by different Advisers will cause the actual percentage of a Portfolio's
assets managed by each Adviser to vary over time. In general, a Portfolio's
assets once allocated to one Adviser will not be reallocated (or "rebalanced")
to another Adviser for the Portfolio. However, SunAmerica reserves the right,
subject to the review of the Board, to reallocate assets from one Adviser to
another when deemed in the best interests of a Portfolio and its shareholders.
In some instances, where a reallocation results in any rebalancing of the
Portfolio from a previous allocation, the effect of the reallocation will be to
shift assets from a better performing Adviser to a portion of the Portfolio with
a relatively lower total return.

Each Adviser is paid monthly by SunAmerica a fee equal to a percentage
of the average daily net assets of the Portfolio allocated to the Adviser.
Assuming a level of average daily net assets of $100 million for each Portfolio,
it is estimated that the aggregate annual rates of the fees payable by
SunAmerica to the Advisers for each Portfolio the first year of operation will
be the following, expressed as a percentage of the average daily net assets of
each Portfolio: Aggressive Growth Portfolio, .37%; Mid-Cap Growth Portfolio,
.50%; Value Portfolio, .50%; and International Equity Portfolio, .63%. There can
be no assurance that the Portfolios will achieve a level of average daily net
assets in the amounts estimated.

The Subadvisory Agreements were approved by the Directors, including a
majority of the Directors who are not parties to the Subadvisory Agreements or
"interested persons" of any such party, on September 17, 1996, and by the sole
initial shareholder of each Portfolio on November 15, 1996. The Subadvisory
Agreement between Strong and Schafer was approved by the Directors, including a
majority of the Directors who are not parties to the Subadvisory Agreement or
"interested persons" of any such party, on September 17, 1996, and becomes
effective upon commencement of operation of the Fund.

The Subadvisory Agreements will continue in effect for a period of two
years from the date of their execution, unless terminated sooner. They may be
renewed from year to year thereafter, so long as continuance is specifically
approved at least annually in accordance with the requirements of the 1940 Act.
The Subadvisory Agreements provide that they will terminate in the event of an
assignment (as defined in the 1940 Act) or upon termination of the Management
Agreement. Under the terms of the Subadvisory Agreements, no Adviser is liable
to the Portfolios, or their shareholders, for any act or omission by it or for
any losses sustained by the Portfolios or their shareholders, except in the case
of willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties.

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<PAGE>

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

The Advisers have each adopted a written Code of Ethics, and have
represented that the provisions of such Code of Ethics are substantially similar
to those in the Code. Further, the Advisers report to SunAmerica on a quarterly
basis, as to whether there were any Code of Ethics violations by employees
thereof who may be deemed Access Persons of the Fund insofar as such violations
related to the Fund. In turn, SunAmerica reports to the Board of Directors as to
whether there were any violations of the Code by Access Persons of the Fund or
SunAmerica.

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

The Distribution Agreement with respect to each Portfolio was approved
by the Directors, including a majority of those Directors who are not
"interested persons" of the Fund, on September 17, 1996. The Distribution
Agreement will remain in effect until September 16, 1998 unless terminated, and
thereafter from year to year if such continuance is approved at least annually
by the Directors, including a majority of the Directors who are not "interested
persons" of the Fund. The Fund and the Distributor each has the right to
terminate the Distribution Agreement with respect to a Portfolio on 60 days'
written notice, without penalty. The Distribution Agreement will terminate
automatically in the event of its assignment as defined in the 1940 Act and the
rules thereunder.

The Distributor may, from time to time, pay additional commissions or
promotional incentives to brokers, dealers or other financial services firms
that sell shares of the Portfolios. In some instances, such additional

commissions, fees or other incentives may be offered only to certain firms,
including Royal Alliance Associates and SunAmerica Securities, affiliates of the
Distributor, that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the

B-40
<PAGE>
Portfolios, or of other funds underwritten by the Distributor. In
addition, the terms and conditions of any given promotional incentive may
differ from firm to firm. Such differences will, nevertheless, be fair and
equitable, and based on such factors as size, geographic location, or other
reasonable determinants, and will in no way affect the amount paid to any
investor.

Distribution Plans. As indicated in the Prospectus, the Directors of the Fund
have adopted Distribution Plans (the "Class A Plan", the "Class B Plan" and the
"Class C Plan" and collectively, the "Distribution Plans"). Reference is made to
"Management of the Fund - Distribution Plans" in the Prospectus for certain
information with respect to the Distribution Plans.

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

The Class A and Class B Distribution Plans with respect to each
Portfolio were approved on September 17, 1996 by the Directors, including a
majority of the Directors who are not "interested persons" of the Fund and who
have no direct or indirect financial interest in the operation of such
Distribution Plans (the "Independent Directors"). The Class C Distribution Plan
with respect to each Portfolio was so approved by the Directors on __________,

199__.

Continuance of the Distribution Plans with respect to each Portfolio is
subject to annual approval by vote of the Directors, including a majority of the
Independent Directors. A Distribution Plan may not be amended to increase
materially the amount authorized to be spent thereunder with respect to a class
of shares of a Portfolio, without approval of the shareholders of the affected
class of shares of the Portfolio. In addition, all material amendments to the
Distribution Plans must be approved by the Directors in the manner described
above. A Distribution Plan may be terminated at any time with respect to a
Portfolio without payment of any penalty by vote of a majority of the
Independent Directors or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the affected class of shares of the
Portfolio. So long as the Distribution Plans are in effect, the election and
nomination of the Independent Directors of the Fund shall be committed to the
discretion of the Independent Directors. In the Directors' quarterly review of
the Distribution

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<PAGE>
Plans, they will consider the continued appropriateness of, and the level
of, compensation provided in the Distribution Plans. In their consideration
of the Distribution Plans with respect to a Portfolio, the Directors must
consider all factors they deem relevant, including information as to the
benefits of the Portfolio and the shareholders of the relevant class of
the Portfolio.

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

The Directors, including a majority of the Directors who are not
parties to the Service Agreement or "interested persons", as that term is
defined in the 1940 Act, approved the Service Agreement with respect to each
Portfolio, on September 17, 1996. The Service Agreement will remain in effect
until September 16, 1998 and from year to year thereafter provided its
continuance is approved annually by vote of the Directors including a majority
of the disinterested Directors.

Pursuant to the Service Agreement, as compensation for services
rendered, SAFS will receive a fee from the Fund subject to review and approval
by the Directors. This fee represents the full cost of providing shareholder and
transfer agency services to the Fund. From this fee, SAFS pays a fee to State
Street, and its affiliate, National Financial Data Services ("NFDS" and with
State Street, the "Transfer Agent") (other than out-of-pocket charges which
would be paid by the Fund). For further information regarding the Transfer Agent
see the section entitled "Additional Information" below.

PORTFOLIO TRANSACTIONS AND BROKERAGE

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

In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission (although the price of the security usually includes a profit
to the dealer). In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which case
no commissions or discounts are paid.

An Adviser's primary consideration in effecting a security transaction
is to obtain the best net price and the most favorable execution of the order.
However, the Adviser may select broker-dealers that provide it with research
services and may cause a Portfolio to pay such broker-dealers commissions that
exceed those that other broker-dealers may have charged, if in its view the

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<PAGE>
commissions are reasonable in relation to the value of the brokerage and/or
research services provided by the broker-dealer. Certain research services
furnished by brokers may be useful to the Adviser with clients other than the
Fund. No specific value can be determined for research services furnished
without cost to the Adviser by a broker. The Advisers are of the opinion that
because the material must be analyzed and reviewed by its staff, its receipt
does not tend to reduce expenses, but may be beneficial in supplementing the
Adviser's research and analysis. Therefore, it may tend to benefit the Portfolio
by improving the quality of the Adviser's investment advice. The investment
advisory fees paid by the Portfolio are not reduced because the Adviser receives
such services. When making purchases of underwritten issues with fixed
underwriting fees, the Adviser may designate the use of broker-dealers who have
agreed to provide the Adviser with certain statistical, research and other
information.

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

Although the objectives of other accounts or investment companies that
the Adviser manages may differ from those of the Portfolio, it is possible that,
at times, identical securities will be acceptable for purchase by one or more of
the Portfolios and one or more other accounts or investment companies that the
Adviser manages. However, the position of each account or company in the
securities of the same issue may vary with the length of the time that each
account or company may choose to hold its investment in those securities. The

timing and amount of purchase by each account and company will also be
determined by its cash position. If the purchase or sale of a security is
consistent with the investment policies of one or more of the Portfolios and one
or more of these other accounts or companies is considered at or about the same
time, transactions in such securities will be allocated in a manner deemed
equitable by the Adviser. The Adviser may combine such transactions, in
accordance with applicable laws and regulations. However, simultaneous
transactions could adversely affect the ability of a Portfolio to obtain or
dispose of the full amount of a security, which it seeks to purchase or sell, or
the price at which such security can be purchased or sold.

ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES

Shares of each of the Portfolios are sold at the respective net asset
value next determined after receipt of a purchase order, plus a sales charge,
which, at the election of the investor, may be imposed either (i) at the time of
purchase (Class A shares), or (ii) on a deferred basis (Class B and Class C
shares, and certain Class A shares). Reference is made to "Purchase of Shares"
in the Prospectus for certain information as to the purchase of Portfolio
shares.

Waiver of Contingent Deferred Sales Charges. As discussed under "Purchase of
Shares" in the Prospectus, the CDSC may be waived on redemptions of Class B and
Class C shares under certain circumstances. The conditions set forth below are
applicable with respect to the following situations with the proper
documentation:

Death. CDSCs may be waived on redemptions within one year following the
death (i) of the sole shareholder on an individual account, (ii) of a joint
tenant where the surviving joint tenant is the

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

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

redemption is requested, the applicable CDSC will be charged.

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

Purchase by Check. In the case of a new account, purchase orders by check must
be submitted directly by mail to SunAmerica Fund Services, Mutual Fund
Operations, The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204,
together with payment for the purchase price of such shares and a completed New
Account Application. Shares of each Portfolio may be purchased directly through
the Transfer Agent. Upon receipt of the completed New Account Application and
payment check, the Transfer Agent will purchase full and fractional shares of
the applicable Portfolio at the net asset value next computed after the check is
received, plus the applicable sales charge. Certified checks are not necessary,
but checks are accepted subject to collection at full face value in United
States funds and must be drawn on a bank located in the United States. There are
restrictions on the redemption of shares purchased by check for which funds are
being collected. (See "Redemption of Shares.")

Purchase through SAFS. SAFS will effect a purchase order on behalf of a customer
who has an investment account upon confirmation of a verified credit balance at
least equal to the amount of the purchase order (subject to the minimum $500
investment requirement for wire orders). If such order is received at or prior
to 4:00 P.M., Eastern time, on a day the NYSE is open for business, the purchase
of shares of a Portfolio will be effected on that day. If the order is received
after 4:00 P.M., Eastern time, the order will be effected on the next business
day.

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<PAGE>
Purchase by Federal Funds Wire. An investor may make purchases by having his or
her bank wire Federal funds to the Fund's Transfer Agent. Federal funds purchase
orders will be accepted only on a day on which the Fund and the Transfer Agent
are open for business. In order to insure prompt receipt of a Federal funds
wire, it is important that these steps be followed:

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

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

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

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

Reduced Sales Charges (Class A Shares only). As discussed under "Purchase of
Shares" in the Prospectus, investors in Class A shares of a Portfolio may be
entitled to reduced sales charges pursuant to the following special purchase
plans made available by the Fund.

Combined Purchase Privilege. The following persons may qualify for the
sales charge reductions or eliminations by combining purchases of Portfolio
shares into a single transaction:

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

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

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

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

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

(vi) group purchases as described below.

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

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

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

Letter of Intent. A reduction of sales charges is also available to an
investor who, pursuant to a written Letter of Intent which is set forth in the
New Account Application in the Prospectus, establishes a total investment goal
in Class A shares of one or more Portfolios to be achieved through any number of
investments over a thirteen-month period, of $50,000 or more. Each investment in
such Portfolios made during the period will be subject to a reduced sales charge
applicable to the goal amount. The initial purchase must be at least 5% of the
stated investment goal and shares totaling 5% of the dollar amount of the Letter
of Intent will be held in escrow by the Transfer Agent, in the name of the
investor. Shares of any class of shares of any Portfolio, or of other funds
advised by SunAmerica which impose a sales charge at the time of purchase, which
the investor intends to purchase or has previously purchased during a 30-day
period prior to the date of execution of the

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<PAGE>

Letter of Intent and still owns, may also be included in determining
the applicable reduction; provided, the dealer or shareholder notifies
the Distributor of such prior purchase(s).

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

Reduced Sales Charge for Group Purchases. Members of qualified groups
may purchase Class A shares of the Portfolios under the combined purchase
privilege as described above.

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

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

B-47
<PAGE>
provide periodic certification, in form satisfactory to the Transfer Agent,
as to the eligibility of the purchasing members of the group.

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

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

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

ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES

Reference is made to "Redemption of Shares" in the Prospectus for
certain information as to the redemption of Portfolio shares.

If the Directors determine that it would be detrimental to the best
interests of the remaining shareholders of a Portfolio to make payment wholly or
partly in cash, the Fund, having filed with the SEC a notification of election
pursuant to Rule 18f-1 on behalf of each of the Portfolios, may pay the
redemption price in whole, or in part, by a distribution in kind of securities
from a Portfolio in lieu of cash. In conformity with applicable rules of the
SEC, the Portfolios are committed to pay in cash all requests for redemption, by
any shareholder of record, limited in amount with respect to each shareholder
during any 90-day period to the lesser of (i) $250,000, or (ii) 1% of the net
asset value of the applicable Portfolio at the beginning of such period. If

shares are redeemed in kind, the redeeming shareholder would incur brokerage
costs in converting the assets into cash. The method of valuing portfolio
securities is described below in the section entitled "Determination of Net
Asset Value," and such valuation will be made as of the same time the redemption
price is determined.

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<PAGE>
DETERMINATION OF NET ASSET VALUE

Each Portfolio calculates the net asset value of its shares separately
by dividing the total value of each class's net assets by the shares of such
class outstanding. Shares are valued each day the NYSE is open as of the close
of regular trading. The net asset value of a Portfolio's shares will also be
computed on each other day in which there is a sufficient degree of trading in
such Portfolio's securities that the net asset value of its shares might be
materially affected by changes in the values of the portfolio securities;
provided, however, that on such day the Fund receives a request to purchase or
redeem such Portfolio's shares. The days and times of such computation may, in
the future, be changed by the Directors in the event that the portfolio
securities are traded in significant amounts in markets other than the NYSE, or
on days or at times other than those during which the NYSE is open for trading.

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

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

The above procedures need not be used to determine the value of debt
securities owned by a Portfolio if, in the opinion of the Directors, some other
method would more accurately reflect the fair market value of such debt
securities in the quantities owned by such Portfolio. Securities for which
quotations are not readily available and other assets are appraised at fair
value, as determined pursuant to procedures adopted in good faith by the
Directors. Short-term debt securities are valued at their current market value
or fair value, which for securities with remaining maturities of 60 days or less
has been determined in good faith by the Directors to be represented by

amortized cost value, absent unusual circumstances. A pricing service may be
utilized to value the Portfolio's assets under the procedures set forth above.
Any use of a pricing service will be approved and monitored by the Directors.
The value of all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the mean between the bid and
offered prices of such currencies against U.S. dollars last quoted by any large
New York bank which is a dealer in foreign currency.

The values of securities held by the Portfolios, and other assets used
in computing net asset value, are determined as of the time trading in such
securities is completed each day, which in the case

B-49
<PAGE>
of foreign securities may be at a time prior to the close of regular
trading on the NYSE. On occasion, the values of foreign securities and
exchange rates may be affected by events occurring between the time as of
which determinations of such values or exchange rates are made and the
close of regular trading on the NYSE. When such events materially affect
the values of securities held by the Portfolio or their liabilities,
such securities and liabilities will be valued at fair value as determined
in good faith by the Directors.

PERFORMANCE DATA

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

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

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

n
P(1 + T) = ERV

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

The above formula assumes that:

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

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

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

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

B-50

<PAGE>

above. Such return data will be computed in the same manner as that of average
annual total return, except that the actual cumulative return will be computed.

Comparisons

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

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

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

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

c) The New York Stock Exchange composite or component indices --

unmanaged indices of all industrial, utilities, transportation, and finance
stocks listed on the New York Stock Exchange.

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

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

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

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

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

B-51

<PAGE>

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

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

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

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

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

Salomon Mortgage Pass-Through Index published by Salomon Brothers
Inc. -- Market value of all outstanding agency mortgage pass-through securities

that includes 15- and 30-year FNMA, FHLMC and GNMA Securities.

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

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

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

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

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

B-52

<PAGE>

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

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

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

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

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

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

index at 20% of its market capitalization.

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

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

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

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

In assessing such comparisons of performance, an investor should keep
in mind that the composition of the investments in the reported indices and
averages is not identical to a Portfolio's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by a Portfolio to calculate
its figures.

B-53
<PAGE>

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

DIVIDENDS, DISTRIBUTIONS AND TAXES

Dividends and Distributions. Each Portfolio intends to distribute to the
registered holders of its shares substantially all of its net investment income,
which includes dividends, interest and net short-term capital gains, if any, in
excess of any net long-term capital losses. Each Portfolio intends to distribute
any net long-term capital gains in excess of any net short-term capital losses.
The current policy of each Portfolio is to pay investment income dividends, if
any, at least annually. Each Portfolio intends to pay net capital gains, if any,
annually. In determining amounts of capital gains to be distributed, any capital
loss carry-forwards from prior years will be offset against capital gains.

Distributions will be paid in additional Portfolio shares based on the
net asset value at the close of business on the Ex or reinvestment date, unless

the dividends total in excess of $10.00 per distribution period and the
shareholder notifies the Portfolio at least five business days prior to the
payment date to receive such distributions in cash.

Taxes. Each Portfolio intends to qualify and elect to be taxed as a regulated
investment company under Subchapter M of the Code for each taxable year. In
order to be qualified as a regulated investment company, each Portfolio
generally must, among other things, (a) derive at least 90% of its gross income
from dividends, interest, proceeds from loans of stock or securities and certain
other related income; (b) derive less than 30% of its gross income from the sale
or other disposition of stock or securities held less than 3 months; and (c)
diversify its holdings so that, at the end of each fiscal quarter, (i) 50% of
the market value of each Portfolio's assets is represented by cash, government
securities, securities of other regulated investment companies and other
securities limited, in respect of any one issuer, to an amount no greater than
5% of each Portfolio's assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than government
securities or the securities of other regulated investment companies).

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

Under the Code, amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To avoid the tax, each Portfolio must distribute during each
calendar year (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses for the 12-month period ending on
October 31 of the calendar year, and (3) all ordinary income and net capital
gains for the previous years that were not distributed during such years. To
avoid application of the excise tax, each Portfolio intends to make
distributions in

B-54
<PAGE>

accordance with the calendar year distribution requirement. A distribution
will be treated as paid on December 31 of the calendar year if declared by
a Portfolio in October, November or December of such year, payable to
shareholders of record on a date in such month and paid by such Portfolio
during January of the following year. Any such distributions paid during January
of the following year will be taxable to shareholders as of such December 31,
rather than the date on which the distributions are received.

Distributions of net investment income and short-term capital gains are
taxable to the shareholder as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares or in cash. The
portion of such dividends received from each Portfolio that will be eligible for

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

Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending upon its basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term capital gain or loss if the shares
have been held for more than one year. Generally, any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of. Any loss realized by a shareholder on the sale of shares
of a Portfolio held by the shareholder for six months or less will be treated
for tax purposes as a long-term capital loss to the extent of any distributions
of net capital gains received by the shareholder with respect to such shares.

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

Income received by a Portfolio from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries. Income
tax treaties between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine in advance the effective
rate of foreign tax to which a Portfolio will be subject, since the amount of
that Portfolio's assets to be invested in various countries is not known. It is
not anticipated that any Portfolio (other than the International Equity
Portfolio) will qualify to pass through to its shareholders the ability to claim
as a foreign tax credit their respective shares of foreign taxes paid by such
Portfolio. If more than 50% in value of the Portfolio's total assets at the
close of its taxable year consists of securities of foreign corporations, the
Portfolio will be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Portfolio will be required
to include their proportionate share of such foreign taxes in their U.S. income
tax returns

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<PAGE>

as gross income, treat such proportionate share as taxes paid by them,
and deduct such proportionate share in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their U.S. income taxes.
No deductions for foreign taxes, however, may be claimed by non-corporate

shareholders who do not itemize deductions. Of course, certain retirement
accounts which are not subject to tax cannot claim foreign tax credits on
investments in foreign securities held in the Portfolio. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Portfolio's election described
in this paragraph but may not be able to claim a credit or deduction against
such U.S. tax for the foreign taxes treated as having been paid by such
shareholder.

Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Portfolio accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time such Portfolio actually collects such receivables
or pays such liabilities are treated as ordinary income or ordinary loss.
Similarly, gains or losses on forward foreign currency exchange contracts,
foreign currency gains or losses from futures contracts that are not "regulated
futures contracts" and from unlisted non-equity options, gains or losses from
sale of currencies or dispositions of debt securities denominated in a foreign
currency attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security and the date of disposition
generally also are treated as ordinary gain or loss. These gains, referred to
under the Code as "Section 988" gains or losses, increase or decrease the amount
of each Portfolio's investment company taxable income available to be
distributed to its shareholders as ordinary income. Additionally, if Code
Section 988 losses exceed other investment company taxable income during a
taxable year, a Portfolio would not be able to make any ordinary dividend
distributions, and any distributions made in the same taxable year may be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Portfolio shares. In certain cases, a Portfolio may
be entitled to elect to treat foreign currency gains on forward or futures
contracts, or options thereon, as capital gains.

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

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<PAGE>

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

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

A Portfolio may be required to backup withhold U.S. Federal income tax
at the rate of 31% of all taxable distributions payable to shareholders who fail
to provide their correct taxpayer identification number or fail to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's U.S. Federal
income tax liability. Any distributions of net investment income or short-term
capital gains made to a foreign shareholder will be subject to U.S. withholding
tax of 30% (or a lower treaty rate if applicable to such shareholder).

The Fund may, from time to time, invest in "passive foreign investment
companies" (PFICs). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (a) at least 75% of its gross income is passive
or (b) an average of at least 50% of its assets produce, or are held for the
production of, passive income. If the Fund acquires and holds stock in a PFIC
beyond the end of the year of its acquisition, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or of any gain from disposition of the stock (collectively, PFIC income),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be

taxable to it to the extent that income is distributed to its shareholders.
Proposed Treasury regulations provide that the Fund may make a "mark-to-market"
election with respect to any stock it holds of a PFIC. If the election is in
effect, at the end of the Fund's taxable year, the Fund will recognize the
amount of gains, if any, with respect to PFIC stock. No loss will be recognized
on PFIC stock. Alternatively, the Fund may elect

B-57
<PAGE>
to treat any PFIC in which it invests as a "qualified electing fund,"
in which case, in lieu of the foregoing tax and interest obligation,
the Fund will be required to include in income each year its pro rata
share of the qualified electing fund's annual ordinary earnings and net
capital gain, even if they are not distributed to the Fund; those amounts
would be subject to the distribution requirements applicable to the Fund
described above. It may be very difficult, if not impossible, to make
this election because of certain requirements thereof.

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

RETIREMENT PLANS

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

Pension and Profit-Sharing Plans. Sections 401(a) and 401(k) of the Code permit
business employers and certain associations to establish pension and profit
sharing plans for employees. Shares of a Portfolio may be purchased by those who
would have been covered under the rules governing old H.R. 10 (Keogh) Plans, as
well as by corporate plans. Each business retirement plan provides tax
advantages for owners and participants. Contributions made by the employer are
tax-deductible, and participants do not pay taxes on contributions or earnings
until withdrawn.

Tax-Sheltered Custodial Accounts. Section 403(b)(7) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Sections 501(c)(3) of the Code, to
purchase shares of a Portfolio and, subject to certain limitations, exclude the
amount of purchase payments from gross income for tax purposes.

Individual Retirement Accounts (IRA). Section 408 of the Code permits eligible

individuals to contribute to an individual retirement program, including
Simplified Employee Pension Plans, commonly referred to as SEP-IRA. These IRAs
are subject to limitations with respect to the amount that may be contributed,
the eligibility of individuals to make contributions, the amount if any,
entitled to be contributed on a deductible basis, and the time in which
distributions would be allowed to commence. In addition, certain distributions
from some other types of retirement plans may be placed on a tax-deferred basis
in an IRA.

Salary Reduction Simplified Employee Pension. This plan was introduced by a
provision of the Tax Reform Act of 1986 as a unique way for small employers to
provide the benefit of retirement planning for their employees. Contributions
are deducted from the employee's paycheck before tax

B-58
<PAGE>
deductions and are deposited into an IRA by the employer. These
contributions are not included in the employee's income and therefore
are not reported or deducted on his or her tax return.

DESCRIPTION OF SHARES

Ownership of the Fund is represented by shares of common stock. The
total number of shares which the Fund has authority to issue is one billion
(1,000,000,000) shares of common stock (par value $0.0001 per share), amounting
in aggregate par value to one hundred thousand dollars ($100,000.00).

Currently, four Portfolios of shares of the Fund have been authorized
pursuant to the Articles: the Aggressive Growth Portfolio, the Mid-Cap Growth
Portfolio, the Value Portfolio and the International Equity Portfolio. Each
Portfolio has been divided into four classes of shares, designated as Class A,
Class B, Class C and Class Z. The Directors may authorize the creation of
additional Portfolios of shares so as to be able to offer to investors
additional investment portfolios within the Fund that would operate
independently from the Fund's present portfolios, or to distinguish among
shareholders, as may be necessary, to comply with future regulations or other
unforeseen circumstances. Each Portfolio of the Fund's shares represents the
interests of the shareholders of that Portfolio in a particular portfolio of
Fund assets. In addition, the Directors may authorize the creation of additional
classes of shares in the future, which may have fee structures different from
those of existing classes and/or may be offered only to certain qualified
investors.

Shareholders are entitled to a full vote for each full share held. The
Directors have terms of unlimited duration (subject to certain removal
procedures) and have the power to alter the number of Directors, and appoint
their own successors, provided that at all times at least a majority of the
Directors have been elected by shareholders. The voting rights of shareholders
are not cumulative, so that holders of more than 50% of the shares voting can,
if they choose, elect all Directors being elected, while the holders of the
remaining shares would be unable to elect any Directors. Although the Fund need
not hold annual meetings of shareholders, the Directors may call special
meetings of shareholders for action by shareholder vote as may be required by
the 1940 Act or the Articles. Also, a shareholders meeting must be called, if so

requested in writing by the holders of record of 10% or more of the outstanding
shares of the Fund. In addition, the Directors may be removed by the action of
the holders of record of two-thirds or more of the outstanding shares. All
Portfolios of shares will vote with respect to certain matters, such as election
of Directors. When all Portfolios are not affected by a matter to be voted upon,
such as approval of investment advisory agreements or changes in a Portfolio's
policies, only shareholders of the Portfolios affected by the matter may be
entitled to vote.

The classes of shares of a given Portfolio are identical in all
respects, except that (i) each class may bear differing amounts of certain
class-specific expenses, (ii) Class A shares are subject to an initial sales
charge, a distribution fee and an ongoing account maintenance and service fee,
(iii) Class B shares are subject to a CDSC, a distribution fee and an ongoing
account maintenance and service fee, (iv) Class B shares convert automatically
to Class A shares on the first business day of the month seven years after the
purchase of such Class B Shares, (v) Class C shares are subject to a CDSC, and
an ongoing account maintenance and service fee, (vi) each class has voting
rights on matters that pertain to the Rule 12b-1 plan adopted with respect to
such class, except that under certain

B-59
<PAGE>
circumstances, the holders of Class B shares may be entitled to vote on
material changes to the Class A Rule 12b-1 plan, and (vii) each class of
shares will be exchangeable only into the same class of shares of any
other Portfolio or other SunAmerica Funds that offer that class. All
shares of the Fund issued and outstanding and all shares offered by the
Prospectus when issued, are fully paid and non-assessable. Shares have
no preemptive or other subscription rights and are freely transferable
on the books of the Fund. In addition, shares have no conversion rights,
except as described above.

The Articles provide that no Director, officer, employee or agent of
the Fund is liable to the Fund or to a shareholder, nor is any Director,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his or its own bad
faith, willful misfeasance, gross negligence or reckless disregard of his
duties. It also provide that all third persons shall look solely to the Fund's
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, the Articles provides that a Director,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund. The Fund shall continue, without
limitation of time, subject to the provisions in the Articles concerning
termination by action of the shareholders.

ADDITIONAL INFORMATION

Computation of Offering Price per Share

The following is the offering price calculation for each Class of
shares of each Portfolio. The Class A and Class B calculations are based on the
value of each Portfolio's net assets and number of shares outstanding on the
date such shares were first offered for sale to public investors. The Class C
calculations are based on the estimated value of each Portfolio's net assets and
number of Class C shares outstanding on the date such shares are first offered
for sale to public investors.

------------ ------------ ------------- ------------ ------------ -------------------------
Aggressive Growth Portfolio Mid-Cap Growth Portfolio
----------------------------------- ------------------------------
------------ ------------ ------------- ------------ ------------ ------------ ------------
Class A Class B Class C Class A Class B Class C

------------ ------------ ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Assets $12,500 $12,500 $12,500 $12,500 $12,500 $12,500
------------ ------------ ------------- ------------ ------------ ------------ ------------
Number of 1,000 1,000 1,000 1,000 1,000 1,000
Shares
Outstanding
------------ ------------ ------------- ------------ ------------ ------------ ------------
Net Asset $12.50 $12.50 $12.50 $12.50 $12.50 $12.50
Value Per
Share
(net assets
divided
by number
of shares)
------------ ------------ ------------- ------------ ------------ ------------ ------------
Sales 0.76 None None 0.76 None None
charge for
Class A
Shares:
5.75% of
offering
price (6.10%
of net
asset
value per
share)*
------------ ------------ ------------- ------------ ------------ ------------ ------------
Offering $13.26 $12.50 $12.50 $13.26 $12.50 $12.50
Price
------------ --------------------------------------- --------------------------------------
</TABLE>

- -----------------------
*Rounded to nearest one-hundredth percent; assumes maximum sales charge

is applicable.
B-60
<PAGE>
<TABLE>
<CAPTION>

------------ --------------------------------------- --------------------------------------
Value Portfolio International Equity Portfolio
------------------------------ ----------------------------------
------------ ------------ ------------- ------------ ------------ ------------ ------------
Class A Class B Class C Class A Class B Class C
------------ ------------ ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Assets $12,500 $12,500 $12,500 $12,500 $12,500 $12,500
------------ ------------ ------------- ------------ ------------ ------------ ------------
Number of 1,000 1,000 1,000 1,000 1,000 1,000
Shares
Outstanding
------------ ------------ ------------- ------------ ------------ ------------ ------------
Net Asset $12.50 $12.50 $12.50 $12.50 $12.50 $12.50
Value Per
Share
(net assets
divided
by number
of
shares)
------------ ------------ ------------- ------------ ------------ ------------ ------------
Sales 0.76 None None 0.76 None None
charge for
Class A
Shares:
5.25% of
offering
price
(5.54 of
net asset
value per
share)*
------------ ------------ ------------- ------------ ------------ ------------ ------------
Offering $13.26 $12.50 $12.50 $13.26 $12.50 $12.50
Price
------------ ------------ ------------- ------------ ------------ ------------ ------------
</TABLE>
- -----------------------

* Rounded to nearest one-hundred percent; assumes maximum sales
charge is applicable.

Reports to Shareholders. The Fund sends audited annual and unaudited semi-annual
reports to shareholders of each of the Portfolios. Price Waterhouse LLP serves
as the Fund's independent accountants, and in that capacity, audits the annual
financial statements of the Fund. In addition, the Transfer Agent sends a

statement to each shareholder having an account directly with the Fund to
confirm transactions in the account.

Custodian and Transfer Agency. State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, MA 02171, serves as Custodian and Transfer Agent
for the Portfolios and in those capacities maintains certain financial and
accounting books and records pursuant to agreements with the Fund. Transfer
agent functions are performed for State Street by National Financial Data
Services, P.O. Box 419572, Kansas City, MO 64141-6572, an affiliate of State
Street.

Independent Accountants and Legal Counsel. Price Waterhouse LLP, 1177 Avenue of
the Americas, New York, NY 10036, has been selected to serve as the Fund's
independent accountants and in that capacity examines the annual financial
statements of the Fund. The firm of Shereff, Friedman, Hoffman & Goodman, LLP,
919 Third Avenue, New York, NY 10022, has been selected as legal counsel to the
Fund.

FINANCIAL STATEMENTS

Set forth following this Statement of Additional Information is the
Statement of Assets and Liabilities of Style Select Series, Inc., as of November
12, 1996.

B-61

<PAGE>

APPENDIX

CORPORATE BOND AND COMMERCIAL PAPER RATINGS

Description of Moody's Investor's Service's Corporate Ratings

Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.

Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.

A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate, and therefore not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.

Caa Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.

B-62

<PAGE>

Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of the generic rating
category.

Description of Moody's Commercial Paper Ratings

The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's

makes no representations as to whether such commercial paper is by any other
definition "commercial paper" or is exempt from registration under the
Securities Act.

Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act, nor does it represent that
any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:

Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:

-- Leading market positions in well established industries
-- High rates of return on funds employed
-- Conservative capitalization structures with moderate reliance on
debt and ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation
-- Well established access to a range of financial markets and
assured sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more

B-64

<PAGE>

subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
level of debt protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or entities, then the
name or names of such supporting entity or entities are listed within
parentheses beneath the name of the issuer, or there is a footnote referring the
reader to another page for the name or names of the supporting entity or

entities. In assigning ratings to such issuers, Moody's evaluates the financial
strength of the indicated affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment. Moody's makes no representation and gives no opinion on
the legal validity or enforceability of any support arrangement. You are
cautioned to review with your counsel any questions regarding particular support
arrangements.

Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.

Description of Standard & Poor's Corporate Debt Ratings

A Standards & Poor's corporate or municipal rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligers such as
guarantors, insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings

B-65

<PAGE>

may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.

The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature of and provisions of the
obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.

AAA Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is
extremely strong.

AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest-rated issues only
in small degree.

A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.

BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher-rated categories.

Debt rated BB, B, CCC, CC and C are regarded as having
predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the
least degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.

BB Debt rated BB has less near-term vulnerability to default than
other speculative grade debt. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payment. The BB rating
category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.

B Debt rated B has a greater vulnerability to default but
presently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions would likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied BB or BB- rating.

B-66

<PAGE>

CCC Debt rated CCC has a current identifiable vulnerability to
default, and is dependent upon favorable business, financial
and economic conditions to meet timely payments of interest
and repayments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt
that is assigned an actual or implied B or B- rating.

CC The rating CC is typically applied to debt subordinated to

senior debt which is assigned an actual or implied CCC rating.

C The rating C is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt
rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed but debt service payments
are continued.

CI The rating CI is reserved for income bonds on which no
interest is being paid.

D Debt rated D is in default. The D rating is assigned on the
day an interest or principal payment is missed. The D rating
also will be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.

Plus (+) or minus (-): The ratings of AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within these
ratings categories.

Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.

L The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the
underlying deposit collateral is insured by the Federal
Savings & Loan Insurance Corp. or the Federal Deposit
Insurance Corp. and interest is adequately collateralized.

* Continuance of the rating is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.

NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of
obligation as a matter of policy.

B-67

<PAGE>

Debt Obligations of Issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the credit-worthiness of the obligor but do not take
into account currency exchange and related uncertainties.

Bond Investment Quality Standards: Under present commercial bank regulations

issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

Description of Standard & Poor's Commercial Paper Ratings.

A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of not more
than 365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest.

A Issues assigned this highest rating are regarded as having
the greatest capacity for timely payment. Issues in this
category are delineated with the numbers 1, 2 and 3 to
indicate the relative degree of safety.

A-1 This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.

A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high
as for issues designated "A-1".

A-3 Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, somewhat more
vulnerable to the adverse effect of changes in circumstances
than obligations carrying the higher designations.

B Issues rated "B" are regarded as having only adequate
capacity for timely payment. However, such capacity may be
damaged by changing conditions or short-term adversities.

C This rating is assigned to short-term debt obligations with
a doubtful capacity for payment.

D This rating indicates that the issue is either in default or
is expected to be in default upon maturity.

B-68
<PAGE>

The commercial paper rating is not a recommendation to purchase or sell
a security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.

B-69

<PAGE>

Style Select Series, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder and Board of Directors of Style Select Series, Inc.

In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Aggressive Growth
Portfolio, Mid-Cap Growth Portfolio, Value Portfolio and International Equity
Portfolio (constituting Style Select Series, Inc., hereafter referred to as the
"Fund") at November 12, 1996, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Fund's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this financial statement
in accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.

/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 12, 1996

B-70

<PAGE>

Style Select Series, Inc.

Statement of Assets and Liabilities at November 12, 1996

Aggressive Mid-Cap International
Growth Growth Value Equity
Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS:

Cash......................................... $25,000 $25,000 $25,000 $25,000
Deferred organization expenses (Note 1)...... 75,000 75,000 75,000 $75,000

------ ------ ------ ------
Total Assets.............................. 100,000 100,000 100,000 100,000
------- ------- ------- -------
LIABILITIES:

Organizational expenses payable (Note 1)..... 75,000 75,000 75,000 75,000
Commitments (Notes 1 and 2).................. -0- -0- -0- -0-
------- ------- ------- -------
Total Liabilities......................... 75,000 75,000 75,000 75,000
------ ------ ------ ------
Net Assets.............................. $25,000 $25,000 $25,000 $25,000
======= ======= ======= =======
Net Asset Value Per Share

Class A (25,000,000 shares authorized per
class) ($12,500/1,000 net assets and
shares outstanding for each portfolio
respectively)............................ $12.50 $12.50 $12.50 $12.50
====== ====== ====== ======
Class B (25,000,000 shares authorized per
class) ($12,500/1,0900 net assets and
shares outstanding for each portfolio $12.50 $12.50 $12.50 $12.50
respectively)............................ ====== ====== ====== ======

</TABLE>

See Notes to Financial Statements

B-71

<PAGE>

NOTES TO FINANCIAL STATEMENT

Note 1. Organization

Style Select Series, Inc. (the "Fund") is an open-end management investment
company that was organized as a Maryland corporation on July 3, 1996. To date
the Fund has had no transactions other than those relating to organizational
matters and the sale of 8,000 shares of common stock at a price of $12.50 per
share for $100,000 to SunAmerica Asset Management Corp. ("SunAmerica"). The Fund
is registered under the Investment Company Act of 1940, as amended (the "Act").
Organizational expenses of the Fund incurred prior to the offering of the Fund's
shares will be paid by SunAmerica. It is currently estimated that SunAmerica
will incur, and be reimbursed by the Fund for, approximately $300,000 in
organizational expenses. These expenses will be deferred and amortized by the
Fund on a straight-line basis over a period not to exceed five years from the
commencement of the Fund's operations. In the event that, at any time during the
five year period beginning with the commencement of operations, the initial
shares acquired by SunAmerica are redeemed, by any holder thereof, the
redemption proceeds payable in respect of such shares will be reduced by the pro
rata share (based on the proportionate share of the initial shares redeemed to
the total number of original shares outstanding at the time of the redemption)

of the then unamortized deferred organizational expenses as of the date of such
redemption.

The Fund currently offers four separate investment portfolios (each a
"Portfolio"): Aggressive Growth Portfolio, Mid-Cap Growth Portfolio, Value
Portfolio and International Equity Portfolio. The investment objectives for each
of the Portfolios are as follows:

Aggressive Growth Portfolio seeks long-term growth of capital by
investing primarily in equity securities which have a market capitalization of
less than $1 billion.

Mid-Cap Growth Portfolio seeks long-term growth of capital by investing
primarily in equity securities which have a market capitalization of $1 billion
to $5 billion.

Value Portfolio seeks long-term growth of capital by investing
primarily in equity securities using a "value" style of investing.

International Equity Portfolio seeks long-term growth of capital by
investing in equity securities of issuers in countries other than the United
States.

Each Portfolio currently offers two classes of shares. Class A shares
are offered at net asset value per share plus an initial sales charge. Class B
shares are offered without an initial sales charge, although a declining
contingent sales charge may be imposed on redemptions made within six years of
purchase. Additionally, any purchases of Class A shares in excess of $1,000,000
will be subject to a contingent deferred sales charge on redemptions made within
one year of purchase. Class B shares of each Portfolio will convert
automatically to Class A shares on the first business day of the month after
seven years from the issuance of such Class B shares and at such time will be
subject to

B-72

<PAGE>

the lower distribution fee applicable to Class A shares. Each class of
shares bears the same voting, dividend, liquidation and other rights and
conditions and each makes distribution and account maintenance and service fee
payments under the distribution plans pursuant to Rule 12b-1 under the Act,
except that Class B shares are subject to higher distribution fee rates.

Note 2. Investment Advisory and Management Agreement

The Fund, on behalf of each Portfolio, has entered into an Investment
Advisory and Management Agreement (the "Agreement") with SunAmerica, an indirect
wholly owned subsidiary of SunAmerica Inc. Under the Agreement, SunAmerica
provides continuous supervision of the respective Portfolios and administers
their corporate affairs, subject to general review by the Board of Directors
(the "Directors"). In connection therewith, SunAmerica furnishes the Fund with
office facilities, maintains certain of the Fund's books and records, and pays
for the salaries and expenses of all personnel, including officers of the Fund

who are employees of SunAmerica and its affiliates. The investment advisory and
management fee payable by each Portfolio to SunAmerica as full compensation for
services and facilities furnished to the Fund is as follows: 1.00% of the
average daily net assets of the Aggressive Growth, Mid-Cap Growth and Value
Portfolios, respectively, and 1.10% of the average daily net assets of the
International Equity Portfolio.

The organizations described below act as advisors to the Fund pursuant
to Subadvisory Agreements with SunAmerica. Under the Subadvisory Agreements, the
advisors manage the investment and reinvestment of the assets of the respective
Portfolios for which they are responsible. Each of the following advisors is
independent of SunAmerica (with the exception of the Aggressive Growth
Portfolio, for which SunAmerica acts as an advisor) and discharges its
responsibilities subject to the policies of the Directors and the oversight and
supervision of SunAmerica, which pays the advisors' fees. The advisors for
Aggressive Growth Portfolio are Janus Capital Corporation; SunAmerica; and
Warburg, Pincus Counsellors, Inc. The advisors for Mid-Cap Growth Portfolio are
Miller Anderson & Sherrerd, LLP; Pilgrim Baxter & Associates, Ltd.; and T. Rowe
Price Associates, Inc. The advisors for Value Portfolio are Davis Selected
Advisers, L.P.; Neuberger & Berman, L.P.; and Strong Capital Management, Inc.
The advisors for International Equity Portfolio are Rowe Price-Fleming
International, Inc.; Strong Capital Management, Inc.; and Warburg, Pincus
Counsellors, Inc. Each advisor is paid monthly by SunAmerica a fee equal to a
percentage of the average daily net assets of the Portfolio allocated to the
advisor. Assuming a level of average daily net assets of $100 million for each
Portfolio, it is estimated that the aggregate annual rates of the fees payable
by SunAmerica to the advisors for each Portfolio the first year of operation
will be the following, expressed as a percentage of the average daily net assets
of each Portfolio: Aggressive Growth Portfolio, .37%; Mid-Cap Growth Portfolio,
.50%; Value Portfolio, .50%; and International Equity Portfolio, .63%. There can
be no assurance that the Portfolios will achieve a level of average daily net
assets in the amount estimated.

B-73

<PAGE>

Note 3. Distribution Agreement and Service Agreement

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

Under the Class A Plan and Class B Plan, the Distributor receives
payments from a Portfolio at an annual rate of up to 0.10% and 0.75%,
respectively, of average daily net assets of such Portfolio's Class A or Class B
shares to compensate the Distributor and certain securities firms for providing
sales and promotional activities for distributing that class of shares. The
distribution costs for which the Distributor may be reimbursed out of such
distribution fees include fees paid to broker-dealers that have sold Portfolio
shares, commissions, and other expenses such as those incurred for sales
literature, prospectus printing and distribution and compensation to
wholesalers. It is possible that in any given year the amount paid to the
Distributor under the Class A Plan or Class B Plan may exceed the Distributor's
distribution costs as described above. The Distribution Plans provide that each
class of shares of each Portfolio may also pay the Distributor an account
maintenance and service fee up to an annual rate of 0.25% of the aggregate
average daily net assets of such class of shares for payments to broker-dealers
for providing continuing account maintenance. SACS also receives sales charges
on each Portfolio's Class A shares, portions of which are reallowed to
affiliated broker-dealers and non-affiliated broker-dealers. Further, SACS
receives the proceeds of contingent deferred sales charges paid by investors in
connection with certain redemptions of each Portfolio's Class B shares.

The Fund, on behalf of each Portfolio, has entered into a Service
Agreement with SunAmerica Fund Services, Inc. ("SAFS"), an indirect wholly owned
subsidiary of SunAmerica Inc. Under the Service Agreement, SAFS performs certain
shareholder account functions by assisting the Portfolios' transfer agent in
connection with the services that it offers to the shareholders of the
Portfolios. The Service Agreement, which permits the Portfolios to reimburse
SAFS for costs incurred in providing such services, is approved annually by the
Directors.

B-74

<PAGE>
PART C
OTHER INFORMATION

Item 24. Financial Statements and Exhibits.

(a) Financial Statements.

The Financial Highlights set forth in Part A of the
Prospectus:

None

Contained in Part B of Registrant's Statement of Additional
Information:
Statement of Assets and Liabilities

(b) Exhibit Number

(1)(A) Articles of Incorporation of Registrant, as amended,
are incorporated by reference to Exhibit 1(A) of
Pre-Effective Amendment No. 1 on form N1-A, filed
with the commission on November 14, 1996.
(1)(B) Articles Supplementary are incorporated by reference
to Exhibit 1(B) of Pre-Effective Amendment No. 1 on
form N1-A, filed with the commission on November 14,
1996.
(1)(C) Articles of Amendment are incorporated by reference
to Exhibit 1(C) of Pre-Effective Amendment No. 1 on
form N1-A, filed with the commission on November 14,
1996.
(1)(D) Articles of Amendment dated November 13, 1996 are
incorporated by reference to Exhibit 1(D) of
Pre-Effective Amendment No. 1 on form N1-A, filed
with the commission on November 14, 1996.

(2) By-Laws of Registrant are incorporated by reference
to Exhibit 2 of Pre-Effective Amendment No. 1 on
form N1-A, filed with the commission on November 14,
1996.

(3) Voting Trust Agreement. Inapplicable.

(4) Instruments Defining Rights of Shareholders.
Incorporated by reference to Exhibits 1 and 2 above
are incorporated by reference to Exhibit 4 of
Pre-Effective Amendment No. 1 on form N1-A, filed
with the commission on November 14, 1996.

(5)(a) Investment Advisory and Management Agreement between
Registrant and SunAmerica Asset Management Corp. is
incorporated by reference to Exhibit 5(a) of
Pre-Effective Amendment No. 1 on form N1-A, filed
with the commission on November 14, 1996.

(5)(b) Form of Subadvisory Agreement is incorporated by
reference to Exhibit 5(b) of Pre-Effective Amendment
No. 1 on form N1-A, filed with the commission on
November 14, 1996.

(6) Distribution Agreement is incorporated by reference
to Exhibit 6 of Pre-Effective Amendment No. 1 on
form N1-A, filed with the commission on November 14,
1996.

(7) Disinterested Trustees and Directors' Retirement
Plan is incorporated by reference to Exhibit 7 of
Pre-Effective Amendment No. 1 on form N1-A, filed
with the commission on November 14, 1996.

C-1
<PAGE>

(8) Custodian Agreement. is incorporated by reference
to Exhibit 8 of Pre-Effective Amendment No. 1 on
form N1-A, filed with the commission on November 14,
1996.

(9)(a) Service Agreement between Registrant and SunAmerica
Fund Services. is incorporated by reference to
Exhibit 9(a) of Pre-Effective Amendment No. 1 on
form N1-A, filed with the commission on November 14,
1996.

(9)(b) Transfer Agency Agreement is incorporated by
reference to Exhibit 9(b) of Pre-Effective Amendment
No. 1 on form N1-A, filed with the commission on
November 14, 1996.

(10) Opinion and Consent of Counsel. is/are incorporated
by reference to Exhibit 10 of Pre-Effective
Amendment No. 1 on form N1-A, filed with the
commission on November 14, 1996.

(11) Consent of Independent Accountants.

(12) Financial Statements Omitted from Item 23.
Inapplicable.

(13) Initial Capitalization Agreement. Inapplicable.

(14) Model Retirement Plan. Inapplicable.

(15) Rule 12b-1 Plans are incorporated by reference to
Exhibit 15 of Pre-Effective Amendment No. 1 on form
N1-A, filed with the commission on November 14,
1996.

(16) Performance Computations. Inapplicable.

(17)(a) Other Exhibits
Powers of Attorney of Trustees and Officers are
incorporated by reference to Exhibit 5(a) of
Pre-Effective Amendment No. 1 on form N1-A, filed
with the commission on November 14, 1996.

(17)(b) Financial Data Schedules. Inapplicable.

(18) 18f-3 Plan is incorporated by reference to Exhibit
18 of Pre-Effective Amendment No. 1 on form N1-A,
filed with the commission on November 14, 1996.

Item 25. Persons Controlled by or Under Common Control with Registrant.

The Registrant sold 8,000 shares of the Registrant to SunAmerica
Asset Management Corp.

C-2

<PAGE>
Item 26. Number of Holders of Securities.

As of December 12, 1996, the number of record holders of Style Select
Series was as follows:

<TABLE>
<CAPTION>
Portfolio Title of Class Number of Record Holders
--------- -------------- ------------------------
<S> <C> <C>
Aggressive Growth Class A 280
Portfolio Class B 198

Mid-Cap Growth Class A 82
Portfolio Class B 153

Value Portfolio Class A 100
Class B 168

International Equity Class A 92
Portfolio Class B 149
</TABLE>

Item 27. Indemnification.

Article V of the Registrant's By-Laws relating to the indemnification of
officers and directors is quoted below.

ARTICLE V

INDEMNIFICATION

5.01 Indemnification of Directors and Officers. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than a proceeding by or
in the right of the Corporation in which such person shall have been adjudged to
be liable to the Corporation), by reason of being or having been a director or
officer of the Corporation, or serving or having served at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another entity in which the Corporation has an interest as a shareholder,
creditor or otherwise (a "Covered Person"), against all liabilities, including
but not limited to amounts paid in satisfaction of judgements, in compromise or
as fines and penalties, and reasonable expenses (including attorney's fees)
actually incurred by the Covered Person in connection with any such action, suit
or proceeding, except (i) liability in connection with any proceeding in which
it is determined that (A) the act or omission of the Covered Person was material
to the matter giving rise to the proceeding, and was committed in bad faith or
was the result of active and deliberate dishonesty, or (B) the Covered Person
actually received an improper personal benefit in money, property or services,
or (C) in the case of any criminal proceeding, the Covered Person had reasonable
cause to believe that the act or omission was unlawful, and (ii) liability to
the Corporation or its security holders to which the Covered Person would

otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office (any or all of the conduct referred to in clauses (i) and (ii) being
hereinafter referred to as "Disabling Conduct").

5.02 Procedure for Indemnification. Any indemnification under Section
5.01 shall (unless ordered by a court) be made by the Corporation only as
authorized for a specific proceeding by (i) a final decision on the

C-3
<PAGE>
merits by a court or other body before whom the proceeding was brought that the
Covered Person to be indemnified was not liable by reason of Disabling Conduct,
(ii) dismissal of the proceeding against the Covered Person for insufficiency of
evidence of any Disabling Conduct, or (iii) a reasonable determination, based
upon a review of the facts, by a majority of a quorum of the directors who are
neither "interested persons" of the Corporation as defined in the Investment
Company Act of 1940 nor parties to the proceeding ("Disinterested Non-Party
Directors"), or an independent legal counsel in a written opinion, that the
Covered Person was not liable by reason of Disabling Conduct. The termination of
any proceeding by judgement, order or settlement shall not create a presumption
that the Covered Person did not meet the required standard of conduct; the
termination of any proceeding by conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment, shall create
a rebuttable presumption that the Covered Person did not meet the required
standard of conduct. Any determination pursuant to this Section 5.02 shall not
prevent recovery from any Covered Person of any amount paid to him in accordance
with this By-Law as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to be liable by reason of
Disabling Conduct.

5.03 Advance Payment of Expenses. Reasonable expenses (including
attorneys' fees) incurred by a Covered Person may be paid or reimbursed by the
Corporation in advance of the final disposition of an action, suit or proceeding
upon receipt by the Corporation of (i) a written affirmation by the Covered
Person of his good faith belief that the standard of conduct necessary for
indemnification under this By-Law has been met and (ii) a written undertaking by
or on behalf of the Covered Person to repay the amount if it is ultimately
determined that such standard of conduct has not been met, so long as either (A)
the Covered Person has provided a security for his undertaking, (B) the
Corporation is insured against losses arising by reason of any lawful advances,
or (C) a majority of a quorum of the Disinterested Non-Party Directors, or an
independent legal counsel in a written opinion, has determined, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.

5.04 Exclusivity, Etc. The indemnification and advance of expenses
provided by this By-Law shall not be deemed exclusive of any other rights to
which a Covered Person seeking indemnification or advance or expenses may be
entitled under any law (common or statutory), or any agreement, vote of
stockholders or disinterested directors, or other provision that is consistent
with law, both as to action in an official capacity and as to action in another
capacity while holding office or while employed by or acting as agent for the

Corporation, shall continue in respect of all events occurring while the Covered
Person was a director or officer after such Covered Person has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such Covered Person. The Corporation shall not
be liable for any payment under this By-Law in connection with a claim made by a
director or officer to the extent such director or officer has otherwise
actually received payment, under an insurance policy, agreement, vote or
otherwise, of the amounts otherwise indemnifiable hereunder. All rights to
indemnification and advance of expenses under the Charter and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this
By-Law is in effect. Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of any Covered Person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this ByLaw shall not in any way diminish
any rights to indemnification or advance of expenses of a Covered Person or the
obligations of the Corporation arising hereunder with respect to events
occurring, or claims made, while this By-Law or any provision hereof is in
force.

5.05 Insurance. The Corporation may purchase and maintain insurance on
behalf of any Covered Person against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such;
provided, however, that the Corporation shall not purchase insurance to
indemnify any Covered Person against liability for Disabling Conduct.

C-4
<PAGE>
5.06 Severability; Definitions. The invalidity or unenforceability of
any provision of this Article V shall not affect the validity or enforceability
of any other provision hereof. The phrase "this By-Law" in this Article V means
this Article V in its entirety.

Section 8 of the Article of Incorporation provides as follows:

(5) The Corporation shall indemnify (i) its directors and
officers, whether serving the Corporation or at its request any other entity, to
the full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under the
procedures and to the full extent permitted by law, and (ii) other employees and
agents to such extent as shall be authorized by the Board of Directors or the
By-Laws of the Corporation and as permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such By-Laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. The right of
indemnification provided hereunder shall not be construed to protect any
director or officer of the Corporation against any liability to the Corporation
or its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.

(6) To the fullest extent permitted by Maryland statutory or decisional
law, as amended or interpreted, no director or officer of the Corporation shall
be personally liable to the Corporation or its stockholders for money damages;
provided, however, that this provision shall not be construed to protect any
director or officer against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. No amendment, modification or repeal of this provision
shall adversely affect any right or protection provided hereunder that exists at
the time of such amendment, modification or repeal.

Item 28. Business and other Connections of Investment Adviser.

SunAmerica Asset Management Corp. ("SunAmerica"), the Investment
Adviser of the Registrant, is primarily in the business of providing
investment management, advisory and administrative services. Reference
is made to the most recent Form ADV and schedules thereto of SunAmerica
on file with the Commission (File No. 801-19813) for a description of
the names and employment of the directors and officers of SunAmerica
and other required information.

Miller Anderson & Sherrerd, LLP, Pilgrim Baxter & Associates, Ltd., T.
Rowe Price Associates, Inc., Davis Selected Advisers, L.P.,
Neuberger&Berman, L.P., Strong Capital Management, Inc., Schafer
Capital Management, Inc., Janus Capital Corporation, Warburg, Pincus
Counsellors, Inc. and Rowe-Price Fleming International, Inc., the
Advisers of certain of the Portfolios of the Registrant, are primarily
engaged in the business of rendering investment advisory services.
Reference is made to the recent Form ADV and schedules thereto on file
with the Commission for a description of the names and employment of
the directors and officers of the Advisers, and other required
information:

C-5
<PAGE>

<TABLE>
<CAPTION>
File No.
--------
<S> <C>
Miller Anderson & Sherrerd, LLP 801-10437

Pilgrim Baxter & Associates, Ltd. 801-48872

T. Rowe Price Associates, Inc. 801-856

Davis Selected Advisers, L.P. 801-31648

Neuberger&Berman, L.P. 801-3908

Strong Capital Management 801-10724

Schafer Capital Management 801-25825

Warburg, Pincus Counsellors, Inc. 801-07321

Janus Capital Corporation 801-13991

Rowe-Price Fleming International 801-14713
</TABLE>

Item 29. Principal Underwriters.

(a) The principal underwriter of the Registrant also acts as
principal underwriter for:

SunAmerica Income Funds
SunAmerica Money Market Funds, Inc.
SunAmerica Equity Funds

(b) The following persons are the officers and directors of
SunAmerica Capital Services, Inc., the principal underwriter
of Registrant's Shares:

Name and Principal Position Position with the
Business Address With Underwriter Registrant
------------------ ---------------- ------------------
<S> <C> <C>
Peter A. Harbeck Director President &
The SunAmerica Center Director
733 Third Avenue
New York, NY 10017-3204

Gary H. Krat Director None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204

Joseph M. Tumbler Director None
SunAmerica Inc.
1 SunAmerica Center

C-6
<PAGE>
Century City
Los Angeles, CA 90067-6022

J. Steven Neamtz President None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204

Robert M. Zakem Executive Vice Secretary and Chief
The SunAmerica Center President and Director Compliance Officer
733 Third Avenue
New York, NY 10017-3204

Susan L. Harris Secretary None
SunAmerica Inc.
1SunAmerica Center
Century City
Los Angeles, CA 90067-6022

Steven E. Rothstein Treasurer None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
</TABLE>

Item 30. Location of Accounts and Records.

State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, and its affiliate, National Financial Data
Services, collectively act as custodian, transfer agent and dividend
paying agent They maintain books, records and accounts pursuant to the
instructions of the Fund.

SunAmerica Asset Management Corp., ("SunAmerica") is located at The
SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204.
SunAmerica has contracted with Callan Associates, Inc. ("Callan" to
compile historical performance data relating to the Advisers, both
individually and on a composite basis. Registrant's records relating
thereto are maintained by Callan. Callan is located at 71 Stevenson
Street, Suite 1300, San Francisco, CA 94105.

Miller Anderson & Sherrerd, LLP is located at One Tower Bridge, West
Conshohocken, Pennsylvania 19428.

Pilgrim Baxter & Associates, Ltd. is located at 1255 Drummers Lane,
Suite 300, Wayne, Pennsylvania 19087.

T. Rowe Price Associates, Inc. is located at 100 East Pratt Street,
Baltimore, Maryland 21202.

Davis Selected Advisers, L.P. is located at 124 East March Street,
Santa Fe, New Mexico, 87501.

C-7
<PAGE>
Neuberger&Berman, L.P. is located at 605 Third Avenue, New York, New
York 10158-0180.

Strong Capital Management, Inc. has a principal mailing address at P.O.
Box 2936, Milwaukee, Wisconsin 53201.

Schafer Capital Management is located at 645 Fifth Avenue, New York,
New York 10022. Janus Capital Corporation is located at 100 Fillmore
Street, Denver, Colorado 80296-4923.

Warburg, Pincus Counsellors, Inc. is located at 466 Lexington Avenue,
New York, New York, 10017-3147

Rowe Price-Fleming International, Inc. is located at 100 East Pratt
Street, Baltimore, Maryland 21202.

Each of the Advisers maintains the books, accounts and records required
to be maintained pursuant to Section 31(a) of the Investment Company
Act of 1940 and the rules promulgated thereunder.

Item 31. Management Services.

None.

Item 32. Undertakings.

Registrant hereby undertakes to:

File a post-effective amendment, using financial statements which may
not be certified, within four to six months of the effective date of
Re-Effective Amendment No. 1.

The Registrant will furnish each investor to whom a Prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.

C-8

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
the Post-Effective Amendment No. 1 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 31st of December 1996.

STYLE SELECT SERIES, INC.

Registrant

By:
----------------------

Pursuant to the requirements of the Securities Act of 1933, the
Post-Effective Amendment No. 1 to the Registration Statement on Form N-1A has
been signed below by the following persons in their respective capacities and on
the dates indicated.

<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Peter A. Harbeck President and Director December 31, 1996
---------------------- (Principal Executive
Peter A. Harbeck Officer)

* Treasurer
---------------------- (Principal Accounting and
Peter C. Sutton Financial Officer)

* Director
----------------------
Peter McMillan III

* Director
----------------------
S. James Coppersmith

* Director
----------------------
Samuel M. Eisenstat

* Director
----------------------
Stephen J. Gutman

* Director
----------------------
Sebastiano Sterpa

*By: /s/Robert M. Zakem December 31, 1996
------------------
Robert M. Zakem, Attorney-in-Fact
</TABLE>

C-9

<PAGE>

Consent of Independent Accountants

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
November 12, 1996, relating to the statement of assets and liabilities of Style
Select Series, Inc., which appears in such Statement of Additional Information.
We also consent to the reference to us to us under the heading "Additional
Information - Independent Accountants and Legal Counsel" in such Statement of
Additional Information and to the reference to us under the heading "General
Information - Independent Accountants and Legal Counsel" in the Prospectus
which constitutes part of this Registration Statement.

/s/ Price Waterhouse LLP

PRICE WATERHOUSE LLP
New York, New York
December 23, 1996