SUNAMERICA STYLE SELECT SERIES INC, N-1A EL, 1996-08-30

SUNAMERICA STYLE SELECT SERIES INC
N-1A EL, 1996-08-30

Previous: SUNAMERICA STYLE SELECT SERIES INC, N-8A, 1996-08-30

Next: SPECIALTY CATALOG CORP, 424A, 1996-08-30

<PAGE>

As filed with the Securities and Exchange Commission on August 30, 1996
File Nos. 33-____________; 811-

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
(Check appropriate box or boxes)

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

The SunAmerica Center, 733 Third Avenue
New York, New York 10017-3204
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 858-8850

Robert M. Zakem
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue
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

<PAGE>

Approximately Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration Statement

The Registrant declares that an indefinite amount of common stock, par value
$.0001 per share, is being registered by this Registration Statement pursuant to
Section 24(f) under the Investment Company Act of 1940, as amended, and Rule
24f-2 thereunder. In accordance with Rule 24f-2(a)(3) a filing fee of $500 is
being paid with this filing.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 481(a))

N-1A Item No. Location in Prospectus
- ------------- ----------------------
Part A
- ------
Item 1. Cover Page ............................. Cover Page
Item 2. Synopsis................................ Summary of Expenses
Item 3. Condensed Financial Information......... Not Applicable
Item 4. General Description of Registrant....... Investment Objectives and
Policies; Management of the
Fund; Investment Techniques
and Risk Factors; General
Information
Item 5. Management of the Fund.................. Management of the
Fund; Portfolio Transactions,
Bokerage and Turnover
Item 5A. Management's Discussion of Fund
Performance............................. Not Applicable
Item 6. Capital Stock and Other Securities...... Dividends, Distributions and
Taxes; Purchase of Shares;
Redemption of Shares; General
Information
Item 7. Purchase of Securities Being Offered.... Purchase of Shares;
Determination of Net Asset
Value; General Information
Item 8. Redemption or Repurchase................ Redemption of Shares
Item 9. Pending Legal Proceedings............... Not Applicable

Part B
Item 10. Cover Page.............................. Cover Page
Item 11. Table of Contents....................... Cover Page
Item 12. General Information and History......... The Fund; Additional
Information;
Item 13. Investment Objectives and Policies...... Investment Objectives and
Policies; Investment
Restrictions; Portfolio
Transactions and Brokerage
Item 14. Management of the Fund................. Directors and Officers
Item 15. Control Persons and Principal Holders
of Securities.......................... Not Applicable
Item 16. Investment Advisory and Other Services. Advisers, Distributor and
Administrator
Item 17. Brokerage Allocation .................. Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities..... Dividends, Distributions and
Taxes; Description of Shares

<PAGE>

Item 19. Purchase, Redemption and Pricing of
Securities Being Offered.............. Additional Information
Regarding Purchase of Shares;
Additional Information
Regarding Redemption of
Shares; Determination of Net
Asset Value; Retirement Plans
Item 20. Tax Status............................ Dividends Distributions and
Taxes
Item 21. Underwriters.......................... Advisers, Distributor and
Administrator
Item 22. Calculations of Performance Data...... Performance Data
Item 23. Financial Statements.................. Financial Statements

Part C
Information required to be included is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commmission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

STYLE SELECT SERIES

The SunAmerica Center, 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"). Each Portfolio is managed by
SunAmerica Asset Management Corp. ("SunAmerica"). Decisions concerning
the investment and reinvestment of the assets of each Portfolio will
normally be made by at least three investment advisers (each, an
"Adviser"), each of which will be responsible for advising a separate
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.

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

Growth Portfolio seeks long-term growth of capital by investing primarily in
equity securities of medium- and large-sized companies. The Advisers for Growth
Portfolio are _______________________________, Pilgrim Baxter & Associates, Ltd.
and T. Rowe Price Associates, Inc.

Value Portfolio seeks long-term growth of capital by investing primarily in
equity securities using a "value" style of investing. The Advisers for Value
Portfolio are Davis Selected Advisers, L.P., Neuberger&Berman, L.P. and Strong
Capital Management, Inc.

<PAGE>

Aggressive Growth Portfolio seeks long-term growth of capital by investing
primarily in equity securities of small- and medium-sized companies. The
Advisers for Aggressive Growth Portfolio are ., Janus
Capital Corporation and SunAmerica.

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 Janus Capital
Corporation, Rowe Price-Fleming International, Inc. and Strong Capital
Management, 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 shares and Class B 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 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. 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

-ii-

<PAGE>

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 ____________, 1996, 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.
-------------------------------------------------------

Prospectus dated ______, 1996

-iii-

<PAGE>

------------
TABLE OF CONTENTS
Page
-----
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Summary of Expenses. . . . . . . . . . . . . . . . . . . . . . 1
Style Select Investing . . . . . . . . . . . . . . . . . . . . 4
Investment Objectives and Policies . . . . . . . . . . . . . . 5
Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . 6
Value Portfolio. . . . . . . . . . . . . . . . . . . . . . . .11
Aggressive Growth Portfolio. . . . . . . . . . . . . . . . . .14
International Equity Portfolio . . . . . . . . . . . . . . . .18
Investment Techniques and Risk Factors . . . . . . . . . . . .22
Management of the Fund . . . . . . . . . . . . . . . . . . . .41
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . .55
Redemption of Shares . . . . . . . . . . . . . . . . . . . . .61
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . .64
Portfolio Transactions, Brokerage and Turnover . . . . . . . .66
Determination of Net Asset Value . . . . . . . . . . . . . . .68
Performance Data . . . . . . . . . . . . . . . . . . . . . . .68
Dividends, Distributions and Taxes . . . . . . . . . . . . . .69
General Information. . . . . . . . . . . . . . . . . . . . . .73

-iv-

<PAGE>

SUMMARY OF EXPENSES

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

Growth Portfolio Value Portfolio Aggressive Growth International
--------------- --------------- ------------------ --------------
Portfolio Equity Portfolio
--------- ----------------
Class Class Class Class Class Class Class Class
A B A B A B A B
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses

Maximum Initial Sales Load(1) 5.75% None 5.75% None 5.75% None 5.75% None

Maximum Sales Load on Reinvested None None None None None None None None
Dividends

Maximum Deferred Sales Load(2) None 4.00% None 4.00% None 4.00% None 4.00%

Redemption Fees(3) None None None None None None None None

Exchange Fees 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% 1.10% 1.10%

12b-1 Fees(5)............ 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%

Other Expenses........... ----- ----- ----- ----- ----- ----- ----- -----

Total Operating Expenses.............. ----% ----% ----% ----% ----% ----% ----% ----%
===== ===== ===== ===== ===== ===== ===== =====

</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.

(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 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.

-1-

<PAGE>

EXAMPLE:

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

1 Year 3 Years
------ -------
Growth Portfolio
(Class A shares)......... $___ $___
(Class B shares)*........ $___ $___

Value Portfolio
(Class A shares)......... $___ $___
(Class B shares)*........ $___ $___

Aggressive Growth Portfolio
(Class A shares)......... $___ $___
(Class B shares)*........ $___ $___

International Equity Portfolio
(Class A shares)......... $___ $___
(Class B shares)*........ $___ $___

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

1 Year 3 Years
------ -------
Growth Portfolio
(Class A shares)......... $___ $___
(Class B shares)*........ $___ $___

Value Portfolio
(Class A shares)......... $___ $___
(Class B shares)*........ $___ $___

Aggressive Growth Portfolio
(Class A shares)......... $___ $___
(Class B shares)*........ $___ $___

International Equity Portfolio
(Class A shares)......... $___ $___
(Class B shares)*........ $___ $___

- ------
* 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

-2-

<PAGE>

more complete descriptions of the various costs and expenses, see "Purchase of
Shares." Actual expenses may be greater or less than those shown.

-3-

<PAGE>

STYLE SELECT INVESTING

Each Portfolio of the Fund is intended to provide investors with access to
the individual investment styles of several different professional investment
advisers, each seeking the same investment objective 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, separate and distinct investment
styles.

Initially, SunAmerica will allocate the assets of each Portfolio equally
among the Advisers for that Portfolio. 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 Fund's
Board of Directors (the "Board" or 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.

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."

-4-

<PAGE>

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 style.

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 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.

-5-

<PAGE>

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."

Each of the following descriptions of the Portfolios concludes with a
discussion of the combined and individual past performance of the Advisers to
the respective Portfolio. The graphs contained in those discussions are based on
performance data provided by each Adviser relating to all of the accounts
managed by that Adviser that have investment objectives and policies
substantially similar to the relevant Portfolio and are advised by that Adviser
using investment styles and strategies substantially similar (although not
necessarily identical) to those to be employed by that Adviser in advising its
portion of the Portfolio's 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 information 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.

GROWTH PORTFOLIO

The Growth Portfolio, advised by _______________________________, Pilgrim
Baxter & Associates, Ltd. ("Pilgrim Baxter") and T. Rowe Price Associates, Inc.
("T. Rowe Price"), will invest, under normal circumstances, in securities
believed 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. The companies in which the Portfolio

-6-

<PAGE>

will invest will generally be medium-sized companies that typically have a
market capitalization between $1 billion and $5 billion, but may have market
capitalization as low as $300 million or as high as $8 billion ("Mid-Cap
Companies") or larger companies that typically have a market capitalization in
excess of $5 billion ("Large-Cap Companies").

There is no requirement that any minimum percentage of assets of the

Portfolio be maintained in securities of either Mid-Cap Companies or Large-Cap
Companies. In general, to the extent that more of the Portfolio's assets are
invested in Mid-Cap Companies, the Portfolio's net asset value will be subject
to more volatility than if such assets were invested in Large-Cap Companies. In
addition, while such investments are not expected to form a significant part of
the Portfolio's assets, the Portfolio may invest in smaller or less well known
companies typically having a market capitalization of under $1 billion
("Small-Cap Companies") that meet the "growth stock" criteria described above.
Investment in Small-Cap Companies will subject the Portfolio to additional
risks. See "Investment in Small Companies" in "Investment Techniques and Risk
Factors."

The theory of growth stock investing is based on the premise that inflation
represents a more serious long-term threat to an investor's portfolio than stock
market fluctuations or recessions. Under this theory, when a company's earnings
grow faster than both inflation and the economy in general, the market will
eventually reward its long-term earnings growth with a higher stock price. In
addition, the company should be able to raise its dividend in line with its
growth in earnings.

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

-7-

<PAGE>

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 as low as "BBB" by Standard & Poor's
Ratings Services, a Division of The McGraw-Hill Companies, Inc. ("S&P"), or
"Baa" by Moody's Investors Service, Inc. ("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.

Past Adviser Performance

Total Return on $10,000 Investment

Plot Points for Graph

Annual
Periods ending GROWTH PORTFOLIO LIPPER
June 30 (COMBINED ADVISER) GROWTH
- -------------- ------------------ ------
1986 $ 10,000 $ 10,000
1987 $ 13,860 $ 12230
1988 $ 18,469.00 $ 14933

1989 $ 17,453 $ 15090
1990 $ 22,372 $ 17429
1991 $ 25,091 $ 19509
1992 $ 26,182.00 $ 20490
1993 $ 30,012 $ 23236
1994 $ 34637 $ 26773
1995 $ 31258 $ 25168
1996 $ 37072 $ 28910

-8-

<PAGE>

CUMULATIVE PERFORMANCE DATA
---------------------------

Growth
Portfolio
Periods ending Lipper (Combined T. Rowe
June 30, 1996 Growth Adviser) PBHG Price
- -------------- ------ --------- -------- ---- -----------

1 Year 22.3 37 46 33.8
3 Year 14.7 21 21.8 21.8
5 Year 14.3 20.2 20.1 -
10 Year 11.2 14 13.7 -

STANDARD DEVIATION vs. RETURN
-----------------------------
For periods ending June 30, 1996

3 Yr Return Std Dev
----------- -------

Combined Adviser 3 yr 21.0 12.7

Pilgrim Baxter 21.8 16.6
T. Rowe Price 21.8 10.4

Growth Portfolio
- ----------------

Performance for the 10-year and 5-year bar charts reflects a combined composite
of __%__ and 50% Pilgrim Baxter. Performance for the 3-year, 1-year, and
year-to-date bar charts and 3-year risk/reward chart reflect a combined
composite of 34% T. Rowe Price, __%__ and 33% Pilgrim Baxter. Each adviser's
performance has been adjusted to give effect to the level of annualized expenses
projected for the Growth Portfolio during the initial fiscal period.

Performance for Advisers
- ------------------------

Each adviser's quarterly return history was adjusted to reflect performance
before the deduction of the adviser's expenses (gross of fees) and then
subsequently re-adjusted to give effect to the level of annualized expenses
projected for the Growth Portfolio during the initial fiscal period (net of
fees).

[TO BE SUPPLIED]

-9-

<PAGE>

PBHG
----

Pilgrim Baxter's data covers ten years of performance history and reflects
the Pilgrim Baxter Mid Cap Composite, which as of June 30, 1996,
included 5 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. The performance history provided by Pilgrim
Baxter is calculated in accordance with the standards set forth by the
Association for Investment Management and Research (AIMR). The returns for
the Pilgrim Baxter Mid Cap Composite were gross of fees prior to being
adjusted to give effect to the level of annualized expenses projected for
the Growth Portfolio during the initial fiscal period.

T. Rowe Price
-------------

T. Rowe Price's data covers three and one-half years of performance history
and reflects the T. Rowe Price Mid Cap Growth Fund, a mutual fund. This fund
reflects the only vehicle managed by T. Rowe Price in the mid cap growth
strategy. As of June 30, 1996, the fund's net assets totaled $611 million.
The returns for the T. Rowe Price Mid Cap Growth Fund were gross of fees
prior to being adjusted to give effect to the level of annualized expenses
projected for the Growth Portfolio during the initial fiscal period. The
following annual expense ratios were added back into the quarterly net
performance of the T. Rowe Price Mid Cap Growth Fund: 1992-1995 1.25% (.31%
per quarter); 1996 1.01% (.25% per quarter).

Lipper Growth Mutual Fund Group
- -------------------------------

Developed by Lipper Analytical Services, Inc., the Lipper Growth Mutual Fund
Group reflects a group of mutual funds which normally invest in companies whose
long-term earnings are expected to grow significantly faster than the earnings
of the stocks represented in the major unmanaged stock indices.

-10-

<PAGE>

VALUE PORTFOLIO

The Value Portfolio, advised by Davis Selected Advisers, L.P. ("Davis"),
Neuberger&Berman, L.P. ("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.

-11-

<PAGE>

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.

Past Adviser Performance

Total Return on a $10,000 Investment
Plot Points for Graph

Annual VALUE PORTFOLIO LIPPER
Periods ending (COMBINED EQUITY
June 30 ADVISER) INCOME
- -------------- --------------- ------
1986 $ 10000 $ 10000
1987 $ 11850 $ 11530
1988 $ 11032 $ 11265
1989 $ 13338 $ 12909
1990 $ 15165 $ 13723
1991 $ 15787 $ 14560
1992 $ 18992 $ 16729
1993 $ 22980 $ 19322
1994 $ 24244 $ 19612
1995 $ 29384 $ 22730
1996 $ 35290 $ 27686

-12-

<PAGE>

CUMULATIVE PERFORMANCE DATA
---------------------------

Value
Portfolio
Periods ending Lipper Equity- (Combined Neuberger&- Strong
June 30, 1996 Income Adviser) Davis Berman Schafer
- -------------- -------------- ---------- ----- ------------ -------

1 Year 21.8 21.3 21.2 23.7 19.1
3 Year 12.8 15.6 15.7 15.9 15
5 Year 13.7 17.5 18 - 16.8
10 Year 10.7 13.4 14.8 - 11.9

STANDARD DEVIATION vs. RETURN
-----------------------------
For periods ending June 30, 1996

3 Yr Return Std Dev
----------- -------

Combined Adviser 3 yr 15.6 9.7

Davis 15.7 11.5
Neuberger&Berman 15.9 10.0
Strong/Schafer 15.0 9.1

Value Portfolio - Combined Adviser
- ----------------------------------

Performance for the 10-year and 5-year bar charts reflects a combined
composite of 50% Davis and 50% Strong Schafer. Performance for the 3-year,
1-year and year-to-date bar charts and 3-year risk/reward chart reflects a
combined composite of 34% Davis, 33% Neuberger&Berman, and 33% Strong Schafer.
Each adviser's performance has been adjusted to give effect to the level of
annualized expenses projected for the Value Portfolio during the initial fiscal
period.

Performance for Advisers
- ------------------------

Each adviser's quarterly return history was adjusted to reflect performance
before the deduction of the adviser's expenses (gross of fees) and then
subsequently re-adjusted to give effect to the level of annualized expenses
projected for the Value Portfolio during the initial fiscal period (net of
fees).

Davis
-----

Davis' data covers ten years of performance history and reflects the Davis
New York Venture fund, a mutual fund. The returns for the Davis New York
Venture fund were gross of fees prior to being adjusted to give effect to
the level of annualized expenses projected for the Value Portfolio during
the initial fiscal period. The following annual expense ratios were added
back into the quarterly net performance of the Davis New York Venture fund:
1986 .99% (.25% per quarter); 1987 .93% (.23% per quarter); 1988 1.01% (.25%
per quarter); 1989 .97% (.24% per quarter); 1990 .97% (.24% per quarter);
1991 .97% (.24% per quarter); 1992 .91% (.23% per quarter); 1993 .89% (.22%
per quarter);

-13-

<PAGE>

1994 .87% (.22% per quarter); 1995 .90% (.23% per quarter); 1996 .90% (.23%
per quarter).

Neuberger&Berman
----------------

Neuberger&Berman's data covers four and one-half years of performance
history and reflects the Neuberger&Berman Partners fund, a mutual fund. The
returns for the Neuberger&Berman Partners fund were gross of fees prior to

being adjusted to give effect to the level of annualized expenses projected
for the Value Portfolio during the initial fiscal period. The following
annual expense ratios were added back into the quarterly net performance of
the Neuberger&Berman Partners fund: 1992-1993 .86% (.22% per quarter); 1994
.81% (.20% per quarter); 1995-1996 .83% (.21% per quarter).

Strong Schafer
--------------

Strong Schafer's data covers ten years of performance history and reflects
the Schafer Capital Equity Composite. As of June 30, 1996, the composite
included 2 accounts totaling $400 million or 100% of the firm's total assets
under management. Composite data includes both a separately managed account
and a mutual fund. The returns for the Schafer Capital Equity Composite were
gross of fees prior to being adjusted to give effect to the level of
annualized expenses projected for the ValuePortfolio during the initial
fiscal period.

Lipper Equity Income Mutual Fund Group
- --------------------------------------

Developed by Lipper Analytical Services, Inc., the Lipper Equity Income
Mutual Fund Group reflects a group of mutual funds which seeks relatively high
current income and growth of income through investing 60% or more of assets in
equities.

AGGRESSIVE GROWTH PORTFOLIO

The Aggressive Growth Portfolio, advised by , Janus
Capital Corporation ("Janus") and SunAmerica, 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 Small-Cap Companies or Mid-Cap Companies.

-14-

<PAGE>

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.

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 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 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.

-15-

<PAGE>

Past Adviser Performance
Total Return on a $10,000 Investment
Plot Points for Bar Graph

AGGRESSIVE
GROWTH
Annual PORTFOLIO
periods ending (COMBINED LIPPER MID
June 30 ADVISER) CAP
- -------------- --------- ----------

1991 $ 10000 $ 10000
1992 $ 11890 $ 11530
1993 $ 15921 $ 14378
1994 $ 16637 $ 14550
1995 $ 23359 $ 18174
1996 $ 34033 $ 22771

CUMULATIVE PERFORMANCE DATA
---------------------------

Aggressive
Growth
Periods ending Lipper Mid (Combined
June 30, 1996 Cap Adviser) Janus SunAmerica
- --------------- ----------- ---------- ----- ----------

1 Year 25.3 45.8 45.1 40.5
3 Year 16.6 28.8 31.4 23.5
5 Year 17.9 27.7 28.1 23

STANDARD DEVIATION vs. RETURN
-----------------------------
For periods ending June 30, 1996

3 Yr Return Std Dev
----------- -------

Combined Adviser 3 yr 28.8 12.9
Janus 31.4 14.1
SunAmerica 23.5 14.9

-16-

<PAGE>

Aggressive Growth Portfolio - Combined Adviser
- ----------------------------------------------

Performance for the 5-year, 3-year, 1-year, and year-to-date bar charts, and
three-year risk/reward chart reflects a combined composite of 34% Janus, 33%
, and 33% SunAmerica. Each adviser's performance has been adjusted to give
effect to the level of annualized expenses projected for the Aggressive Growth
Portfolio during the initial fiscal period.

Performance for Advisers
- ------------------------

Each adviser's quarterly return history was adjusted to reflect performance
before the deduction of the adviser's expenses (gross of fees) and then
subsequently re-adjusted to give effect to the level of annualized expenses
projected for the Aggressive Growth Portfolio during the initial fiscal period
(net of fees).

[to be supplied]

Janus
-----

Janus' data covers six and one-half years of performance history and

reflects the Janus Aggressive Growth Composite. The composite includes all
aggressive growth equity accounts managed by Janus for one full quarter and
with assets above $5 million for which Janus has discretionary authority.
The composite does not include any mutual funds. As of December 31, 1995,
the composite included 8 accounts with assets totaling $120 million, which
represented .4% of total assets under management. The returns were gross of
fees prior to being adjusted to give effect to the level of annualized
expenses projected for the Aggressive Growth Portfolio during the initial
fiscal period. For the Janus composite, a

-17-

<PAGE>

management fee of .75% per annum applies to all new separately managed
equity accounts over $5 million. The performance history provided by Janus
is calculated in accordance with the standards set forth by the Association
for Investment Management and Research (AIMR).

SunAmerica
----------

SunAmerica's data covers ten years of performance history and reflects the
SunAmerica Small Company Growth Fund (Class A shares), a mutual fund. The
returns for the SunAmerica Small Company Growth Fund were gross of fees
prior to being adjusted to give effect to the level of annualized expenses
projected for the Aggressive Growth Portfolio during the initial fiscal
period. The following annual expense ratios were added back into the
quarterly net performance of the SunAmerica Small Company Growth Fund: 1987
1.84% (.46% per quarter); 1988 2.16% (.54% per quarter); 1989 1.82% (.455%
per quarter); 1990 2.05% (.51% per quarter); 1991 1.86% (.465% per quarter);
1992 1.90% (.475% per quarter); 1993 1.83% (.46% per quarter); 1994 1.67%
(.42% per quarter); 1995 1.57% (.39% per quarter); 1996 1.52% (.38% per
quarter).

Lipper Mid Cap Mutual Fund Group
- --------------------------------

Developed by Lipper Analytical Services, Inc., the Lipper Mid Cap Mutual Fund
Group reflects a group of mutual funds which by prospectus or portfolio
practice, limits its investments to companies with average market
capitalizations and/or revenues between $800 million and the average market
capitalization of the Wilshire 4500 Index.

INTERNATIONAL EQUITY PORTFOLIO

The International Equity Portfolio, advised by Janus, 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 Companies" in
"Investment Techniques and Risk

-18-

<PAGE>

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.

-19-

<PAGE>

Past Adviser Performance

Total Return on a $10,000 Investment

Plot Points for Bar Graph

INTERNATIONAL
EQUITY
Annual PORTFOLIO

Periods ending (COMBINED
June 30 ADVISER) LIPPER INTL
- -------------- -------------- -----------

1986 $ 10000 $ 10000
1987 $ 15120 $ 14480
1988 $ 14046 $ 14161
1989 $ 15465 $ 15677
1990 $ 19471 $ 18859
1991 $ 17582 $ 17011
1992 $ 19797 $ 18270
1993 $ 21342 $ 19622
1994 $ 26762 $ 23742
1995 $ 28074 $ 24027
1996 $ 35148 $ 27751

CUMULATIVE PERFORMANCE DATA
----------------------------

International
Equity
Portfolio
Periods ending Lipper (Combined
June 30, 1996 International Adviser) Janus Strong Rowe-Fleming
- -------------- ------------- ------------ ----- ------ ------------

1 Year 15.5 25.2 35.2 24 16.5
3 Year 12.3 15.2 - 16.3 14

STANDARD DEVIATION vs. RETURN
-----------------------------
For periods ending June 30, 1996

3 Yr Return Std Dev
----------- -------

Combined Adviser 3 yr 15.2 11.1
Janus -- --

Strong 16.3 12.7
Rowe-Fleming 14.0 10.0

International Equity Portfolio - Combined Adviser
- -------------------------------------------------

Performance for the 3-year bar chart and three-year risk/reward chart reflects a
combined composite of 50% Strong and 50% Rowe-Fleming. Performance for the
1-year and year-to-date bar charts reflect a combined composite of 34% Janus,
33% Strong, and 33% Rowe-Fleming. Each adviser's performance has been adjusted
to give effect to the level of annualized expenses projected for the
International Equity Portfolio during the initial fiscal period.

-20-

<PAGE>

Performance for Advisers
- ------------------------

Each adviser's quarterly return history was adjusted to reflect performance
before the deduction of the adviser's expenses (gross of fees) and then
subsequently re-adjusted to give effect to the level of annualized expenses
projected for the International Equity Portfolio during the initial fiscal
period (net of fees).

Janus
-----

Janus' data covers two years of performance history and reflects the Janus
Overseas Fund, a mutual fund. The returns for the Janus Overseas Fund were
gross of fees prior to being adjusted to give effect to the level of
annualized expenses projected for the International Equity Portfolio during
the initial fiscal period. The following annual expense ratios were added
back into the quarterly net performance of the Janus Overseas Fund: 1994
2.16% (.54% per quarter); 1995 1.80% (.45% per quarter); 1996 1.34% (.335%
per quarter).

Strong
------

Strong's data covers four and one-quarter years of performance history and
reflects 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 returns for the composite were gross of fees prior to being adjusted to
give effect to the level of annualized expenses projected for the
International Equity Portfolio during the initial fiscal period.

Rowe-Fleming
-------------

Rowe-Fleming's data covers ten years of performance history and reflects
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
performance history provided by Rowe-Fleming is calculated in accordance
with the standards set forth by the Association for Investment Management
and Research (AIMR). The returns for the Mainstream International Equities
composite were gross of fees prior to being adjusted to give effect to the l
evel of annualized expenses projected for the International Equity
Portfolio during the initial fiscal period.

Lipper International Mutual Fund Group
- ---------------------------------------

-21-

<PAGE>

Developed by Lipper Analytical Services, Inc., the Lipper International
Mutual Fund Group reflects a group of mutual funds which invests in securities
whose primary trading markets are outside of the United States.

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 and Warrants -- 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).

-22-

<PAGE>

Investment in Small 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

-23-

<PAGE>

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. 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

-24-

<PAGE>

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

-25-

<PAGE>

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

-26-

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 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

-27-

<PAGE>

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.

-28-

<PAGE>

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.

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.

-29-

<PAGE>

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.

Lower Grade -- 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 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 Value, Aggressive Growth, and International Equity
Portfolio 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).

-30-

<PAGE>

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

-31-

<PAGE>

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 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.

-32-

<PAGE>

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 the 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, wh ich 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

-33-

<PAGE>

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
Neurger&Berman may invest idle cash of the assets under their control in money

market mutual funds that they manage. See the Statement of Additional
Information for a description of short-term debt securities and the Appendix to
the S ptatement of Additional Information for a description of securities
ratings.

Repurchase Agreements -- Under these types of agreement, 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, including 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

-34-

<PAGE>

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
foeign currencies; and call and put options on equity and debt securities,
Futures, stock and bond indices and foreign currencies (all of the foregoing are
referred to as "Hedging Instruments"). All puts and calls on securities,
interest rate futures or stock and bond index futures or options on such Futures
purchased or sold by a 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.

-35-

<PAGE>

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.

-36-

<PAGE>

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 Directors, or the Adviser pursuant to guidelines
established by the 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, ncluding indexed or structured
securities, can combine the characteristics of securities, futures, and options.
For example, the principal amount, redemption, or conversion terms of a security
could be related to the market price of some commodity, currency, or securities
index. Such securities may bear interest or pay dividends at

-37-

<PAGE>

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 % 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 lever age will
thereforep 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 % 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

-38-
<PAGE>

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

-39-

<PAGE>

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
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 short sales 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

-40-

<PAGE>

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 $35 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

-41-

<PAGE>

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, Seasons 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 in excess of $8 billion as of June 15, 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 or other considerations.

The annual rate of the investment advisory fee payable to SunAmerica that
applies to each of the Growth, Value and Aggressive Growth 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, 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 lesser of the
maximum allowable percentages

-42-

<PAGE>

according to state law or the following percentages of each Portfolio's average
net assets: Growth Portfolio ___% for Class A shares and ___% for Class B
shares, Value Portfolio ___% for Class A shares and ___% for Class B shares,
Aggressive Growth Portfolio ___% for Class A shares and ___% for Class B shares,
and International Equity Portfolio ___% for Class A shares and ___% for Class B
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.

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

-43-
<PAGE>

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:
Growth Portfolio, ___%; Value Portfolio, ___%; Aggressive Growth Portfolio,
___%; and International Equity Portfolio, ___%. 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
Portfolio, 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.

Growth Portfolio.

The Advisers for the Growth Portfolio are ____________________________
Pilgrim Baxter and T. Rowe Price.

-44-

<PAGE>

[TO BE SUPPLIED]

Pilgrim Baxter & Associates, Ltd. Pilgrim Baxter, 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. Pilgrim Baxter
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 Pilgrim Baxter 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 Pilgrim Baxter had assets under
management of approximately $12 billion.

-45-

<PAGE>

Gary L. Pilgrim, Bruce J. Muzina and James D. McCall serve as Portfolio
Managers for Pilgrim Baxter's portion of the Growth Portfolio. Mr. Pilgrim has
served as the Chief Investment Officer for Pilgrim Baxter for the past six
years, and has been its President since 1993. He is also a chartered financial
analyst. Mr. Muzina joined Pilgrim 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 a
Vice President/Portfolio Manager at The First National Bank of Maryland from
1992 to 1994 before joining Pilgrim in 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 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 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.

-46-

<PAGE>

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.

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, L.P. Neuberger&Berman is a New York limited partnership,
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 is a Vice
President of Neuberger&Berman Management, Inc. and a general partner of
Neuberger&Berman. 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.
-47-

<PAGE>

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.

-48-
<PAGE>

Aggressive Growth Portfolio. The

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

[to be supplied]

Janus Capital Corporation. Janus is a Colorado corporation located at 100
Fillmore Street, Denver, Colorado 80296-4923, and serves as investment adviser
or subadviser to mutual funds and individual, corporate, charitable and
retirement accounts. KCSI owns approximately 83% of the outstanding voting stock
of Janus. Thomas H. Bailey, President and Chairman of the Board of Janus, owns
approximately 12% of its voting stock and, by agreement with KCSI,

-49-

<PAGE>

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.

International Equity Portfolio

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

Janus Capital Corporation. For a description of Janus, see "Aggressive Growth
Portfolio," above. Helen Young Hayes serves as Portfolio Manager of Janus'
portion of the International Equity Portfolio. Ms. Hayes, a Chartered Financial
Analyst, joined Janus Capital in 1987.

Rowe Price-Fleming International, Inc. Rowe-Fleming is a Maryland corporation,

incorporated in 1979 as a 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-

-50-

<PAGE>

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
-51-
<PAGE>

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.

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 (including in some instances, exclusively to
Royal Alliance Associates, Inc., SunAmerica Securities, Inc. and/or Advantage
Capital Corporation, affiliates of the Distributor) in connection with sales of
shares of the Fund. Such compensation may include (i) full re-allowance of the
front-end sales charge on Class A shares; (ii) additional compensation with
respect to the sale of Class A or Class B 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

-52-

<PAGE>

taken by invited registered representatives for meetings or seminars of a
business nature. 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 ("distribution expenses") 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" and the "Class B 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 the respective class. The sales

-53-

<PAGE>

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 Plan, 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 shares, respectively, to compensate the Distributor and
certain securities firms for providing sales and promotional activities for
distributing that class of shares. The distribution costs for which the
Distributor may be reimbursed out of such distribution fees include fees paid to
broker-dealers that have sold 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 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,

-54-

<PAGE>

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.

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 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 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 shares.
Investors making small investments might consider Class B shares because 100% of
the purchase price is invested immediately. Shareholders who purchase $1,000,000
or more of shares of the Portfolios should purchase only Class A shares. Dealers
may receive different levels of compensation depending on which class of shares
they sell.

-55-

<PAGE>

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 quarterly
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:

Concession to
Sales Charge Dealers
---------------------- ---------
% of % of % of
Offering Net Amount Offering
Size of Purchase Price Invested Price
------------------ ----- -------- -----
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

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

-56-

<PAGE>

dividends and distributions) or the total cost of such shares. This
CDSC is paid to the Distributor. Redemptions of such shares held
longer than twelve months would not be subject to a CDSC. However,
one-half of the commission paid with respect to such a purchase is
subject to forfeiture by the dealer in the event the redemption occurs
during the second year from the date of purchase. In determining
whether a deferred sales charge is payable, it is assumed that shares
purchased with reinvested dividends and distributions and then other
shares held the longest are redeemed first.

To the extent that sales are made for personal investment purposes,
the sales charge is waived as to Class A shares purchased by current
or retired officers, directors, and other full-time employees of
SunAmerica, 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 accounts"
for the benefit of clients of broker-dealers, financial institutions
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," "Reduced Sales
Charges for Group Purchases" and the "Net Asset Value Transfer
Program," see the Statement of Additional Information.

-57-

<PAGE>

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.

Contingent Deferred Sales
Charge as a Percentage of
Year Since Purchase Dollars Invested or
Payment Was Made Redemption Proceeds
------------------ ---------------------
First. . . . . . . . . . . . . 4%
Second . . . . . . . . . . . . 4%
Third. . . . . . . . . . . . . 3%
Fourth . . . . . . . . . . . . 3%

-58-

<PAGE>
Fifth. . . . . . . . . . . . . 2%
Sixth. . . . . . . . . . . . . 1%
Seventh and thereafter . . . . 0%

The CDSC will be waived in connection with redemptions that are (a)
requested within one year 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<< 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 Federal income tax purposes, the amount of the CDSC
will reduce the amount realized on the redemption of shares,
concomitantly reducing gain or increasing loss. For information on the
imposition and waiver of the CDSC contact Shareholder/Dealer Services
at (800) 858-8850.

Conversion Feature. 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

-59-

<PAGE>

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.

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 serves 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. For fiduciary retirement plan accounts, both initial
and subsequent purchases should be mailed to SunAmerica Fund Services, Inc.,
Mutual Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New
York 10017-3204. SAFS reserves the right to reject any check made payable other
than in the manner indicated above. Under certain circumstances, the Fund will
accept a multi-party check (e.g., a check made payable to the shareholder by
another party and then endorsed by the shareholder to the Fund in payment for
the purchase of shares); however, the processing of such a check may be subject
to a delay. The Fund does not verify the authenticity of the endorsement of such
multi-party check, and acceptance of the check by the Fund should not be

-60-

<PAGE>

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. 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 repurchase shares which are presented by
telephone to the Distributor by

-61-

<PAGE>

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.

-62-

<PAGE>

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[, due to a shareholder redemption and not
to market fluctuation of the account's value,] has a net

-63-

<PAGE>

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 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.

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'

-64-

<PAGE>

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 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

-65-

<PAGE>

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.

PORTFOLIO TRANSACTIONS,
BROKERAGE AND TURNOVER

The Advisers are responsible for decisions to buy and sell securities for the
Portfolios, selection of broker-dealers and negotiations 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.

-66-

<PAGE>

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

-67-
<PAGE>

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.

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

-68-

<PAGE>

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 shares may be higher than those for Class A
shares, the performance of Class B 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 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
such amounts 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 Form, 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,

-69-

<PAGE>

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 Internal Revenue Code of 1986, as amended (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.

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. Currently, for Federal income tax
purposes, dividends of net investment income and distributions of any net
realized short-term capital gain, whether paid in cash or reinvested in shares
of the Portfolios, are taxable to shareholders as ordinary income. To the extent
a Portfolios' income is derived from certain dividends received from domestic
corporations, a portion of the dividends paid to corporate shareholders of 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.

-70-

<PAGE>

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

-71-

<PAGE>

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 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

-72-

<PAGE>

Fund's knowledge, have furnished an incorrect number. When establishing an
account, an investor must certify under penalty of perjury that such number is
correct and that the investor is not otherwise subject to backup withholding.

Statements as to the tax status of distributions to shareholders of the Fund
will be mailed annually. Shareholders are urged to consult their own tax
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 9, 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 Growth Portfolio, the
Value Portfolio, the Aggressive Growth Portfolio, and the International Equity
Portfolio. All
-73-

<PAGE>

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 and Class B

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 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.

-74-

<PAGE>

-75-

<PAGE>

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.

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

-76-

<PAGE>

STYLE SELECT SERIES
Statement of Additional Information
dated __________, 1996

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 Growth Portfolio, the Value Portfolio,
the Aggressive Growth Portfolio, and the International Equity Portfolio (each,
a "Portfolio"). Each Portfolio is managed by SunAmerica Asset Management Corp.
("SunAmerica"). Decisions concerning the investment and reinvestment of the
assets of each Portfolio will normally be made by at least three investment
advisers (each, an "Adviser"), each of which will be responsible for advising
a separate 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 _______, 1996.
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-31
Investment Restrictions .................................................. B-31
Directors and Officers ................................................... B-34
Advisers, Distributor and
Administrator .......................................................... B-35
Portfolio Transactions and Brokerage ..................................... B-40
Additional Information Regarding Purchase of Shares....................... B-42
Additional Information Regarding Redemption of Shares..................... B-47
Determination of Net Asset Value ......................................... B-47
Performance Data ......................................................... B-48
Dividends, Distributions and Taxes ....................................... B-52
Retirement Plans ......................................................... B-57
Description of Shares .................................................... B-57
Additional Information ................................................... B-59

<PAGE>

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 9, 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
and Class B 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 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.

B-4

<PAGE>

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

B-5

<PAGE>

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 do the value of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The reinvestment of scheduled
principal payments and unscheduled prepayments that the 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
("FHA") or the Farmers' Home Administration ("FMHA"), or guaranteed by the
Veterans Administration ("VA"). The GNMA guarantee is authorized by the
National Housing Act and is backed by the full faith and credit of the United
States. The GNMA is also empowered to borrow without limitation from the U.S.
Treasury if necessary to make any payments required under its guarantee.

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

B-6

<PAGE>

GNMA Certificates in that each PC represents a pro rata share of all interest
and principal payments made and owed on the underlying pool. The FHLMC
guarantees timely monthly payment of interest (and, under certain
circumstances, principal) of PCS and the ultimate payment of principal.

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

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

B-7

<PAGE>

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 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

B-8

<PAGE>

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 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

B-9

<PAGE>

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.

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 services to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.

Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by 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.

B-10

<PAGE>

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
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

B-11

<PAGE>

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 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

B-12

<PAGE>

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 "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

B-13

<PAGE>

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
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

B-14

<PAGE>

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.

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

B-15

<PAGE>

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 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.

B-16

<PAGE>

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 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

B-17

<PAGE>

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.

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

B-18

<PAGE>

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.

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

B-19

<PAGE>

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
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.

B-20

<PAGE>

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. 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

B-21

<PAGE>

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 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

B-22

<PAGE>

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.

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

B-23

<PAGE>

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 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

B-24

<PAGE>

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 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

B-25

<PAGE>

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 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 Commodity Futures
Trading Commission (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

B-26

<PAGE>

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.)

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

B-27

<PAGE>

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
331/3% 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 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

B-28

<PAGE>

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 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

B-29

<PAGE>

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.

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

B-30

<PAGE>

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.

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

B-31

<PAGE>

outstanding shares are present in person or by proxy or (ii) more than 50% of
the B-31 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 331/3% 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 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.

B-32

<PAGE>

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. Invest in companies for the purpose of exercising control or
management.

9. 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.

10. 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.

11. Sell securities short, including short sales "against the box"
(i.e., where a Portfolio contemporaneously owns, or has the right to acquire at
no additional cost, securities identical to those sold short) if as a result
more than 25% of its net assets would be subject to such short sales.

12. 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.

13. Invest in interests in oil, gas or other mineral
exploration or development programs, or mineral leases, although a
Portfolio may invest in the debt or equity securities of companies
which invest in or sponsor such programs.

14. 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

B-33

<PAGE>

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

<TABLE>

Principal Occupations
Name, Age and Address Position with the Fund During Past 5 Years
- --------------------- ---------------------- ---------------------
<S> <C> <C>
[to be filed by amendment]

</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.

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

B-34

<PAGE>

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 the date of this Statement of Additional Information,
the Directors and officers of the Fund (__ persons) owned in the
aggregate less than 1% of the Fund's total outstanding shares.

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 199_). The
Directors who are interested persons of the Fund receive no compensation.

COMPENSATION TABLE
<TABLE>
<Captions>
Pension or
Retirement Total Compensation

Aggregate Benefits Accrued from Registrant and
Compensation as Part of Fund Fund Complex Paid
Director from Registrant Expenses* to Directors*
<S> <C> <C> <C>

</TABLE>

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 ____, 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.

B-35

<PAGE>

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
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 ______, 1996, and by the
sole initial shareholder of each Portfolio on _____, 1996. The Management
Agreement with respect to each Portfolio became effective on _______, 1996.

Certain states in which the shares of the Portfolios are qualified for
sale impose limitations on the expenses of the Portfolios. The current annual
expense limitations require that SunAmerica reimburse each Portfolio in any
amount necessary to prevent such Portfolio's aggregate ordinary operating
expenses (excluding interest, taxes, distribution and brokerage fees and
commissions, and extraordinary charges such as litigation costs) from exceeding,
in any fiscal year, 2 1/2% of the first $30 million of the average daily net
assets of each Portfolio, 2% of the next $70 million of such assets, plus 1 1/2%
of such assets in excess of $100 million. In accordance with the terms of the
Management Agreement, if the expenses of a Portfolio exceed the amount of the
fees paid by the Portfolio to SunAmerica, then SunAmerica will reimburse the
Portfolio the amount of such excess. 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 ______, 1998 unless terminated, and thereafter from year to
year, if approved at least annually by

B-36

<PAGE>

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 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 $50 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: Growth Portfolio, ___%; Value Portfolio, ___%; Aggressive Growth
Portfolio, ___%; and International Equity Portfolio, ___%. 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 ______, 1996, and by the sole initial
shareholder of each Portfolio on _____, 1996, and became effective on ________,
1996. The Subadvisory Agreement between Strong and Schafer was approved by on ,
1996, and became effective on , 1996.

B-37

<PAGE>

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.

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 ____, 1996. The Distribution Agreement
became effective with respect to each Portfolio on ____, 1996. The Distribution
Agreement will remain in effect until ____, 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

B-38

<PAGE>

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 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
and the shareholders of each class of shares of each Portfolio have adopted
Distribution Plans (the "Class A Plan" and the "Class B 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 Plan, 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 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 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 the Class B 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 Distribution Plans with respect to each Portfolio were approved on
______, 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 the Distribution Plans (the "Independent
Directors"), and by the sole initial shareholder of each class of each Portfolio
on ____, 1996.

B-39

<PAGE>

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 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 ____, 1996. The Service Agreement will remain in effect until
_____, 19__ 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

B-40

<PAGE>

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
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.

B-41

<PAGE>

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 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, CDSCs may be waived on redemptions of Class B shares
under certain circumstances. The conditions set forth below are applicable with
respect to the following situations with the proper documentation:

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

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

Purchases through the Distributor. An investor may purchase shares of a
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

B-42

<PAGE>

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.

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

B-43

<PAGE>

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);

(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.

B-44

<PAGE>

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 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

B-45

<PAGE>

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 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

B-46

<PAGE>

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.

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.

B-47

<PAGE>

Securities that are traded on foreign exchanges are ordinarily valued
at the last quoted sales price available before the time when the assets are
valued. If a securities price is available from more than one foreign exchange,

a Portfolio uses the exchange that is the primary market for the security.
Values of portfolio securities primarily traded on foreign exchanges are already
translated into U.S. dollars when received from a quotation service.

The above procedures need not be used to determine the value of debt
securities owned by a Portfolio if, in the opinion of the Directors, some other
method would more accurately reflect the fair market value of such debt
securities in the quantities owned by such Portfolio. Securities for which
quotations are not readily available and other assets are appraised at fair
value, as determined pursuant to procedures adopted in good faith by the
Directors. Short-term debt securities are valued at their current market value
or fair value, which for securities with remaining maturities of 60 days or less
has been determined in good faith by the Directors to be represented by
amortized cost value, absent unusual circumstances. A pricing service may be
utilized to value the Portfolio's assets under the procedures set forth above.
Any use of a pricing service will be approved and monitored by the Directors.
The value of all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the mean between the bid and
offered prices of such currencies against U.S. dollars last quoted by any large
New York bank which is a dealer in foreign currency.

The values of securities held by the Portfolios, and other assets used
in computing net asset value, are determined as of the time trading in such
securities is completed each day, which in the case of foreign securities may be
at a time prior to the close of regular trading on the NYSE. On occasion, the
values of foreign securities and exchange rates may be affected by events
occurring between the time as of which determinations of such values or exchange
rates are made and the close of regular trading on the NYSE. When such events
materially affect the values of securities held by the Portfolio or their
liabilities, such securities and liabilities will be valued at fair value as
determined in good faith by the Directors.

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

B-48

<PAGE>

P(1 + T)n = ERV

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

The above formula assumes that:

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

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

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

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

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.

B-49

<PAGE>

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.

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.

B-50

<PAGE>

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.

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:

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

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.

B-51

<PAGE>

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. 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 shareholder notifies the Portfolio at least five business days prior to the
payment date to receive such distributions in cash.

B-52

<PAGE>

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 accordance with the calendar year distribution requirement. A
distribution will be treated as paid on December 31 of the calendar year if
declared by each Portfolio in October, November or December of such year,
payable to shareholders of record on a date in such month and paid by each
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.
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.

B-53

<PAGE>

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 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 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

B-54

<PAGE>

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.

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

B-55

<PAGE>

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 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.

B-56

<PAGE>

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 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 Growth Portfolio, the Value Portfolio, the
Aggressive Growth 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

B-57

<PAGE>

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) each class has voting rights on matters
that pertain to the Rule 12b-1 plan adopted with respect to such class, except
that under certain circumstances, the holders of Class B shares may be entitled
to vote on material changes to the Class A Rule 12b-1 plan, and (vi) 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

B-58

<PAGE>

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.

B-59

<PAGE>

ADDITIONAL INFORMATION

Computation of Offering Price per Share

The following is the offering price calculation for Class A and Class
B shares of each Portfolio, based on the value of each Portfolio's net assets
and number of shares outstanding on the date its shares are first offered for
sale to public investors.
<TABLE>
<Captions>
Growth Portfolio Value Portfolio
--------------------------- ---------------------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Assets............... $12,500 $12,500 $12,500 $12,500
Number of Shares 1,250 1,250 1,250 1,250
Outstanding.............
Net Asset Value Per $10.00 $10.00 $10.00 $10.00
Share (net assets
divided by number
of shares) .............
Sales charge for 0.55 0 0.55 **
Class A Shares:
5.25% of offering
price (5.54 of net
asset value per
share)0.................
Offering Price........... $10.55 $10.00 $10.55 $10.00
</TABLE>

<TABLE>
<Captions>
Aggressive Growth Portfolio International Equity Portfolio
--------------------------- ------------------------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Assets .............. $12,500 $12,500 $12,500 $12,500
Number of Shares 1,250 1,250 1,250 1,250
Outstanding ............
Net Asset Value Per $10.00 $10.00 $10.00 $10.00
Share (net assets
divided by number
of shares) .............
Sales charge for 0.55 ** 0.55 **
Class A Shares:
5.25% of offering
price (5.54 of net
asset value per

share)* ................
Offering Price .......... $10.55 $10.00 $10.55 $10.00
</TABLE>
- --------
* Rounded to nearest one-hundredth percent; assumes maximum sales charge is
applicable
** Class B shares are not subject to an initial sales charge but may be
subject to a CDSC on redemption of shares within six years of purchase.

B-60

<PAGE>

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
____, 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.

B-62

<PAGE>

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.

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.

B-63

<PAGE>

Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

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

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

If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or entities, then the
name or names of such supporting entity or entities are listed within
parentheses beneath the name of the issuer, or there is a footnote referring the
reader to another page for the name or names of the supporting entity or
entities. In assigning ratings to such issuers, Moody's evaluates the financial
strength of the indicated affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment. Moody's makes no representation and gives no opinion on
the legal validity or enforceability of any support arrangement. You are
cautioned to review with your counsel any questions regarding particular support
arrangements.

Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks 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.

B-64

<PAGE>

The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.

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

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

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

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

BBB Debt rated BBB is regarded as having an adequate capacity
to pay interest and 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-65

<PAGE>

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

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

CC The rating CC is typically applied to debt subordinated
to senior debt 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.

B-66

<PAGE>

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

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

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

Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank 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.

AIssues 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.

BIssues 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.

B-67

<PAGE>

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

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

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

B-68

<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:
None

(b) Exhibit Number

(1)(A) Articles of Incorporation of Registrant, as amended.

(1)(B) Articles Supplementary.

(1)(C) Articles of Amendment

(2) By-Laws of Registrant.

(3) Voting Trust Agreement. Inapplicable.

(4) Instruments Defining Rights of Shareholders. Incorporated by
reference to Exhibits 1 and 2 above.

(5)(a) Investment Advisory and Management Agreement between Registrant
and SunAmerica Asset Management Corp.*

(5)(b) Subadvisory Agreements.*

(6) Underwriting and Distribution Agreement.*

(7) Bonus, Profit Sharing, Pension or Similar Contracts. Inapplicable.

(8) Custodian Agreement.*

(9) Service Agreement between Registrant and SunAmerica Fund
Services.*

(10) Opinion and Consent of Counsel.*

(11) Consent of Independent Accountants.*

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

(13) Initial Capitalization Agreement. Inapplicable.

(14) Model Retirement Plan.*

(15) Rule 12b-1 Plan.*

C-1

<PAGE>

(16) Performance Computations.*

(17) Powers of Attorney.*

(18) 18f-3 Plan*

- --------------------------
*To be filed by amendment.

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

Prior to the effective date of this Registration Statement, the
Registrant will sell _______ shares of the Registrant to _________.

Item 26. Number of Holders of Securities.

As of _______, 1996, the number of record holders of Style Select
Series was as follows:

Portfolio Title of Class Number of Record Holders
- --------- -------------- ------------------------
Growth Portfolio Class A
Class B
Value PortfolioClass A
Class B
Aggressive Growth PortfolioClass A
Class B
International Equity PortfolioClass A
Class B

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

as fines and penalties, and reasonable expenses (including attorneys' 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

C-2

<PAGE>

the result of active and deliberate dishonesty, or (B) the Covered Person
actually received an improper personal benefit in money, property or services,
or (C) in the case of any criminal proceeding, the Covered Person had reasonable
cause to believe that the act or omission was unlawful, and (ii) liability to
the Corporation or its security holders to which the Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office (any or all of the conduct referred to in clauses (i) and (ii) being
hereinafter referred to as "Disabling Conduct").

5.02 Procedure for Indemnification. Any indemnification under Section
5.01 shall (unless ordered by a court) be made by the Corporation only as
authorized for a specific proceeding by (i) a final decision on the merits by a
court or other body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of the proceeding against the Covered Person for insufficiency of
evidence of any Disabling Conduct, or (iii) a reasonable determination, based
upon a review of the facts, by a majority of a quorum of the directors who are
neither "interested persons" of the Corporation as defined in the Investment
Company Act of 1940 nor parties to the proceeding ("Disinterested Non-Party
Directors"), or an independent legal counsel in a written opinion, that the
Covered Person was not liable by reason of Disabling Conduct. The termination of
any proceeding by judgement, order or settlement shall not create a presumption
that the Covered Person did not meet the required standard of conduct; the
termination of any proceeding by conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment, shall create
a rebuttable presumption that the Covered Person did not meet the required
standard of conduct. Any determination pursuant to this Section 5.02 shall not
prevent recovery from any Covered Person of any amount paid to him in accordance
with this By-Law as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to be liable by reason of
Disabling Conduct.

5.03 Advance Payment of Expenses. Reasonable expenses (including
attorneys' fees) incurred by a Covered Person may be paid or reimbursed by the
Corporation in advance of the final disposition of an action, suit or proceeding
upon receipt by the Corporation of (i) a written affirmation by the Covered
Person of his good faith belief that the standard of conduct necessary for
indemnification under this By-Law has been met and (ii) a written undertaking by
or on behalf of the Covered Person to repay the amount if it is ultimately
determined that such standard of conduct has not been met, so long as either (A)
the Covered Person has provided a security for his undertaking, (B) the
Corporation is insured against losses arising by reason of any lawful advances,

or (C) a majority of a quorum of the Disinterested Non-Party Directors, or an
independent legal counsel in a written opinion, has determined, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be found
entitled to indemnification.

C-3

<PAGE>

consistent with law, both as to action in an official capacity and as to action
in another capacity while holding office or while employed by or acting as agent
for the Corporation, shall continue in respect of all events occurring while the
Covered Person was a director or officer after such Covered Person has ceased to
be a director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such Covered Person. The Corporation shall not
be liable for any payment under this By-Law in connection with a claim made by a
director or officer to the extent such director or officer has otherwise
actually received payment, under an insurance policy, agreement, vote or
otherwise, of the amounts otherwise indemnifiable hereunder. All rights to
indemnification and advance of expenses under the Charter and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this
By-Law is in effect. Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of any Covered Person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights to indemnification or advance of expenses of a Covered
Person or the obligations of the Corporation arising hereunder with respect to
events occurring, or claims made, while this ByLaw or any provision hereof is in
force.

5.05 Insurance. The Corporation may purchase and maintain insurance on
behalf of any Covered Person against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such;
provided, however, that the Corporation shall not purchase insurance to
indemnify any Covered Person against liability for Disabling Conduct.

5.06 Severability: Definitions. The invalidity or 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

C-4

<PAGE>

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.

, 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, 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 most 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:

File No.

[TO BE SUPPLIED] _______

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

[TO BE SUPPLIED]

C-5

<PAGE>

Janus Capital Corporation 801-13991

Rowe-Price Fleming International 801-14713

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

Peter A. Harbeck Director None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204

Gary W. Krat Director None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204

Joseph M. Tumbler Director None
SunAmerica Inc.
1 SunAmerica Center
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
The SunAmerica Center President and Chief Compliance
733 Third Avenue Director Officer
New York, NY 10017-3204

Susan L. Harris Secretary None
SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022

Steven E. Rothstein Treasurer None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204

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., is located at The SunAmerica Center,
733 Third Avenue, New York, New York 10017-3204.

[ADVISER TO BE PROVIDED]

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-6

<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, Inc. is located at 645 Fifth Avenue, New
York, New York 10022.

[ADVISER TO BE PROVIDED]

Janus Capital Corporation is located at 100 Fillmore Street, Denver,
Colorado 80296-4923.

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 this
Registration Statement.

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-7

<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
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 29th of August, 1996.

STYLE SELECT SERIES, INC.

Registrant

By: /s/ Peter A. Harbeck
---------------------------
Peter A. Harbeck, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in their
respective capacities and on the dates indicated.

Signatures Title Date
--------------- ----

/s/ Peter C. SuttonTreasurer and Director August 29, 1996
--------------------
Peter C. Sutton

/s/ Robert M. ZakemDirector August 29, 1996
--------------------
Robert M. Zakem

/s/ Peter A. Harbeck Director August 29, 1996
--------------------
Peter A. Harbeck

C-8

<PAGE>

INDEX TO EXHIBITS

Exhibit
NumberDescription
------- -----------

1(A) Articles of Incorporation, as amended

1(B) Articles Supplementary

1(C) Articles of Amendment

2 By-Laws

<PAGE>
Exhibit 1(A)

SUNAMERICA STYLE SELECT SERIES, INC.

ARTICLES OF INCORPORATION

FIRST: The undersigned, Kimberly A. Williams, whose address is
36 S. Charles Street, Baltimore, Maryland 21201, being at least eighteen years
of age, acting as incorporator, does hereby form a corporation under the General
Laws of the State of Maryland.

SECOND: The name of the corporation (which is hereinafter
called the "Corporation") is:

SunAmerica Style Select Series, Inc.

THIRD: (a) The purposes for which the Corporation is formed
and the business and objects to be carried on and promoted by it are:

(1) To engage primarily in the business of investing,
reinvesting or trading in securities as an investment company
classified under the Investment Company Act of 1940 as an open-end,
management company.

(2) To engage in any one or more businesses or
transactions, or to acquire all or any portion of any entity engaged in
any one or more businesses or transactions, which the Board of
Directors may from time to time authorize or approve, whether or not
related to the business described elsewhere in this Article or to any
other business at the time or theretofore engaged in by the
Corporation.

(b) The foregoing enumerated purposes and objects shall be in
no way limited or restricted by reference to, or inference from, the terms of
any other clause of this or any other Article of the Charter of the Corporation,
and each shall be regarded as independent; and they are intended to be and shall
be construed as powers as well as purposes and objects of the Corporation and
shall be in addition to and not in limitation of the general powers of
corporations under the General Laws of the State of Maryland.

FOURTH: The present address of the principal office of the
Corporation in this State is 32 South Street, Baltimore, Maryland 21202.

<PAGE>

FIFTH: The name and address of the resident agent of the
Corporation in this State are The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. Said resident agent is a Maryland
corporation.

SIXTH: (a) The total number of shares of stock of all classes
and series which the Corporation initially has authority to issue is one
billion (1,000,000,000) shares of capital stock (par value $.0001 per share),
amounting in aggregate par value to one hundred thousand dollars ($100,000).
All of the authorized shares of capital stock of the Corporation are initially
classified as "Common Stock", of which one hundred million (100,000,000) shares
are further initially classified as a series of Common Stock designated the
"Aggressive Growth Series", one hundred million (100,000,000) shares as a
series of Common Stock designated the "Value Series" and one hundred million
(100,000,000) shares as a series of Common Stock designated the "International
Equity Series". The Aggressive Growth Series, Value Series and International
Equity Series shall each initially have four classes of shares, designated
Class A, Class B, Class C and Class Z, consisting, until further changed, of
twenty-five million (25,000,000) Class A shares, twenty-five million
(25,000,000) Class B shares, twenty-five million (25,000,000) Class C shares
and twenty-five million (25,000,000) Class C shares. The Board of Directors may
classify and reclassify any unissued shares of capital stock by setting or
changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of such shares of stock.

(b) Unless otherwise prohibited by law, so long as the
Corporation is registered as an open-end company under the Investment Company
Act of 1940, the Board of Directors shall have the power and authority, without
the approval of the holders of any outstanding shares, to increase or decrease
the number of shares of capital stock, or the number of shares of capital stock
of any class or series, that the Corporation has authority to issue.

(c) The following is a description of the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the
Aggressive Growth Series, Value Series, International Equity Series and any
additional series of Common Stock (unless otherwise provided in the articles
supplementary or other charter document classifying or reclassifying such
series):

(1) All consideration received by the Corporation
from the issue or sale of shares of a particular series of Common
Stock, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits and proceeds
thereof,

-2-

<PAGE>

including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
investment or reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that series for all purposes and
shall be so recorded upon the books of account of the Corporation.
Such consideration, assets, income, earnings, profits and proceeds,
together with any items allocated as provided in the following
sentence, are hereinafter referred to collectively as the "assets
belonging to" that series. In the event that there are any assets,
income, earnings, profits or proceeds which are not identifiable as
belonging to a particular series of Common Stock, such items shall be
allocated by or under the supervision of the Board of Directors to and
among one or more of the series of Common Stock from time to time
classified or reclassified, in such manner and on such basis as the
Board of Directors, in its sole discretion, deems fair and equitable.
Each such allocation shall be conclusive and binding for all purposes.
No holder of a particular series of Common Stock shall have any right
or claim against the assets belonging to any other series, except as a
holder of the shares of such other series.

(2) The assets belonging to each series of Common Stock shall
be charged with the liabilities of the Corporation in respect of that
series and all expenses, costs, charges and reserves attributable to
that series. Any liabilities, expenses, costs, charges or reserves of
the Corporation which are attributable to more than one series of
Common Stock, or are not identifiable as pertaining to any series,
shall be allocated and charged by or under the supervision of the
Board of Directors to and among one or more of the series of Common
Stock from time to time classified or reclassified, in such manner and
on such basis as the Board of Directors, in its sole discretion, deems
fair and equitable. Each such allocation shall be conclusive and
binding for all purposes. The liabilities, expenses, costs, charges
and reserves charged to a series of Common Stock are hereinafter
referred to collectively as the "liabilities of" that series.

(3) The net asset value per share of a particular series of
Common Stock shall be the quotient obtained by dividing the value of
the net assets of that series (being the value of the assets belonging
to that series less the liabilities of that series) by the total
number of shares of that series outstanding, all as determined by or
under the supervision of the Board of Directors in accordance with
generally accepted accounting principles and the Investment Company
Act of 1940. Subject to the applicable provisions of the Investment
Company Act of 1940, the Board of Directors, in its sole discretion,
may prescribe and shall set forth in the By-Laws of the Corporation,
or in a duly adopted resolution of the Board of Directors, such bases
and times for determining the current net asset value per share of
each series of Common Stock, and the net income attributable to such
series, as the Board of Directors deems necessary or desirable. The
Board of Directors shall have

-3-

<PAGE>

full discretion, to the extent not inconsistent with the Maryland
General Corporation Law and the Investment Company Act of 1940, to
determine whether any moneys or other assets received by the
Corporation shall be treated as income or capital and whether any item
of expense shall be charged to income or capital, and each such
determination shall be conclusive and binding for all purposes.

(4) Subject to the provisions of law and any preferences of
any class or series of stock from time to time classified or
reclassified, dividends, including dividends payable in shares of
another series of the Corporation's stock, may be paid on a particular
series of Common Stock of the Corporation at such time and in such
amounts as the Board of Directors may deem advisable. Dividends and
other distributions on the shares of a particular series of Common
Stock shall be paid only out of the assets belonging to that series
after providing for the liabilities of that series.

(5) Each share of Common Stock shall have one vote,
irrespective of the class or series thereof, and the exclusive voting
power for all purposes shall be vested in the holders of the Common
Stock. All classes and series of Common Stock shall vote together as a
single class; provided, however, that as to any matter with respect to
which a separate vote of a particular class or series is required by
the Investment Company Act of 1940 or the Maryland General Corporation
Law, such requirement shall apply and, in that event, the other
classes and series entitled to vote on the matter shall vote together
as a single class; and provided, further, that the holders of a
particular class or series of Common Stock shall not be entitled to
vote on any matter which does not affect any interest of that class or
series, including liquidation of another series, except as otherwise
required by the Investment Company Act of 1940 or the Maryland General
Corporation Law.

(6) Each holder of Common Stock shall have the right to
require the Corporation to redeem all or any part of his shares of any
class or series at a redemption price equal to the current net asset
value per share of that class or series which is next computed after
receipt of a tender of such shares for redemption, less such
redemption fee or contingent deferred sales charge, if any, as the
Board of Directors may from time to time establish in accordance with
the Investment Company Act of 1940 and the Rules of Fair Practice
adopted by the National Association of Securities Dealers, Inc.
Payment of the redemption price shall be made by the Corporation only
from the assets belonging to the series whose shares are being
redeemed. The redemption price shall be paid in cash; provided,
however, that if the Board of Directors determines, which
determination shall be conclusive, that conditions exist which make
payment wholly in cash unwise or

-4-

<PAGE>

undesirable, the Corporation may, to the extent and in the manner
permitted by law, make payment wholly or partly in securities or other
assets, at the value of such securities or other assets used in such
determination of current net asset value. Notwithstanding the
foregoing, the Corporation may suspend the right of holders of Common
Stock to require the Corporation to redeem their shares, or postpone
the date of payment or satisfaction upon such redemption for more than
seven days after tender of such shares for redemption, during any
period or at any time when and to the extent permitted under the
Investment Company Act of 1940.

(7) To the extent and in the manner permitted by the
Investment Company Act of 1940 and the Maryland General Corporation
Law, the Board of Directors may cause the Corporation to redeem, at
their current net asset value, the shares of any series of Common
Stock held in the account of any stockholder having, because of
redemptions or exchanges, an aggregate net asset value which is less
than the minimum initial investment in that series specified by the
Board of Directors from time to time in its sole discretion.

(8) In the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, or of the
liquidation of a particular series of Common Stock, the holders of
each series that is being liquidated shall be entitled, after payment
or provision for payment of the liabilities of that series, as a
class, to share ratably in the remaining assets belonging to the
series. The holders of shares of any particular series shall not be
entitled thereby to any distribution upon the liquidation of any other
series. The liquidation of any series of Common Stock of which there
are shares then outstanding shall be approved by the vote of a
majority (as defined in the Investment Company Act of 1940) of the
outstanding shares of that series, and without the vote of the holders
of shares of any other series of Common Stock.

(9) Subject to compliance with the Investment Company Act of
1940, the Board of Directors shall have authority to provide that
holders of any series of Common Stock shall have the right to exchange
their shares for shares of one or more other series in accordance with
such requirements and procedures as may be established by the Board of
Directors.

(10) Except to the extent provided otherwise by the Charter
of the Corporation, the Class A, Class B, Class C and Class Z shares
of each series of Common Stock shall represent an equal proportionate
interest in the assets belonging to that series (subject to the
liabilities of that series) and each share of a particular series
shall have identical voting,

-5-

<PAGE>

dividend, liquidation and other rights; provided, however, that
notwithstanding anything in the Charter of the Corporation to the
contrary:

(i) The Class A, Class B and Class C shares may be
issued and sold subject to such different sales loads or
charges, whether initial, deferred or contingent, or any
combination thereof, as the Board of Directors may from time
to time establish in accordance with the Investment Company
Act of 1940 and the Rules of Fair Practice adopted by the
National Association of Securities Dealers, Inc.

(ii) Liabilities of a series which are determined by
or under the supervision of the Board of Directors to be
attributable to a particular class of that series may be
charged to that class and appropriately reflected in the net
asset value of, or dividends payable on, the shares of that
class of the series.

(iii) Except as otherwise provided hereinafter, on
the seventh anniversary of the first business day of the
month following the month in which Class B shares were
purchased by a holder thereof, such shares (together with a
pro rata portion of any Class B shares purchased through the
reinvestment of dividends or other distributions paid on all
Class B shares held by such holder) shall automatically
convert to Class A shares of the same series on the basis of
the respective net asset values of the Class B shares and the
Class A shares of that series on the conversion date;
provided, however, that conversion of Class B shares
represented by stock certificates shall be subject to tender
of such certificates; and provided, further, that any
conversion of Class B shares shall be subject to the
continuing availability of an opinion of counsel to the
effect that (A) the assessment of the expenses referred to in
sub-paragraph (ii) above with respect to the Class B shares
does not result in the Corporation's dividends or
distributions constituting "preferential dividends" under the
Internal Revenue Code of 1986, as amended, and (B) such
conversion does not constitute a taxable event under federal
income tax law. The Board of Directors, in its sole
discretion, may suspend the conversion of Class B shares if
such opinion is no longer available.

(iv) The Class A, Class B, Class C and Class Z
shares of a particular series may have such different exchange
rights as the Board of Directors shall provide in compliance
with the Investment Company Act of 1940.

-6-

<PAGE>

(d) Subject to the foregoing and to the Investment Company Act of
1940, the power of the Board of Directors to classify and reclassify any of the
shares of capital stock shall include, without limitation, subject to the
provisions of the Charter of the Corporation, authority to classify or
reclassify any unissued shares of such stock into one or more classes or series
of preferred stock, preference stock, special stock or other stock, and to
divide and classify shares of any class or series into one or more classes or
series of such class or series, by determining, fixing or altering one or more
of the following:

(1) The distinctive designation of such class or
series and the number of shares to constitute such class or series;
provided that, unless otherwise prohibited by the terms of such or any
other class or series, the number of shares of any class or series may
be decreased by the Board of Directors in connection with any
classification or reclassification of unissued shares and the number
of shares of such class or series may be increased by the Board of
Directors in connection with any such classification or
reclassification, and any shares of any class or series which have
been redeemed, purchased, otherwise acquired or converted into shares
of any other class or series shall become part of the authorized
capital stock and be subject to classification and reclassification as
herein provided.

(2) Whether or not and, if so, the rates, amounts and times
at which, and the conditions under which, dividends shall be payable
on shares of such class or series, whether any such dividends shall
rank senior or junior to or on a parity with the dividends payable on
any other class or series of stock, and the status of any such
dividends as cumulative, cumulative to a limited extent or
non-cumulative and as participating or non-participating.

(3) Whether or not shares of such class or series shall have
voting rights, in addition to any voting rights provided by law and,
if so, the terms of such voting rights.

(4) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions
thereof, including provision for adjustment of the conversion or
exchange rate in such events or at such times as the Board of
Directors shall determine.

(5) Whether or not shares of such class or series shall be
subject to redemption and, if so, the terms and conditions of such
redemption, including the date or dates upon

-7-

<PAGE>

or after which they shall be redeemable and the amount per share
payable in case of redemption, which amount may vary under different
conditions and at different redemption dates; and whether or not there

shall be any sinking fund or purchase account in respect thereof and,
if so, the terms thereof.

(6) The rights of the holders of shares of such class or
series upon the liquidation, dissolution or winding up of the affairs
of, or upon any distribution of the assets of, the Corporation, which
rights may vary depending upon whether such liquidation, dissolution
or winding up is voluntary or involuntary and, if voluntary, may vary
at different dates, and whether such rights shall rank senior or
junior to or on a parity with such rights of any other class or series
of stock.

(7) Whether or not there shall be any limitations applicable,
while shares of such class or series are outstanding, upon the payment
of dividends or making of distributions on, or the acquisition of, or
the use of moneys for purchase or redemption of, any stock of the
Corporation, or upon any other action of the Corporation, including
action under this paragraph and, if so, the terms and conditions
thereof.

(8) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of such
class or series, not inconsistent with law and the Charter of the
Corporation.

(e) For the purposes hereof and of any articles supplementary to the
Charter providing for the classification or reclassification of any shares of
capital stock or of any other charter document of the Corporation (unless
otherwise provided in any such articles or document), any class or series of
stock of the Corporation shall be deemed to rank:

(1) prior to another class or series either as to
dividends or upon liquidation, if the holders of such class or series
shall be entitled to the receipt of dividends or of amounts
distributable on liquidation, dissolution or winding up, as the case
may be, in preference or priority to holders of such other class or
series;

(2) on a parity with another class or series either as to
dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation price per share
thereof be different from those of such others, if the holders of such
class or series of stock shall be entitled to receipt of dividends or
amounts

-8-

<PAGE>

distributable upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective dividend rates or
redemption or liquidation prices, without preference or priority over
the holders of such other class or series; and

(3) junior to another class or series either as to dividends
or upon liquidation, if the rights of the holders of such class or
series shall be subject or subordinate to the rights of the holders of
such other class or series in respect of the receipt of dividends or
the amounts distributable upon liquidation, dissolution or winding up,
as the case may be.

(f) The Corporation may issue and sell fractions of shares of capital
stock having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends, and wherever the words
"share" or "shares" are used in the Charter or By-Laws of the Corporation, they
shall be deemed to include fractions of shares where the context does not
clearly indicate that only full shares are intended.

(g) The Corporation shall not be obligated to issue
certificates representing shares of capital stock of any class or series. At
the time of issue or transfer of shares without certificates, the Corporation
shall provide the stockholder with such information as may be required under the
Maryland General Corporation Law.

SEVENTH: The number of directors of the Corporation shall be
three, which number may be increased or decreased pursuant to the By-Laws of the
Corporation, but shall never be less than the minimum number permitted by the
General Laws of the State of Maryland now or hereafter in force. The names of
the directors who will serve until the first annual meeting and until their
successors are elected and qualified are as follows:

Peter A. Harbeck

Robert M. Zakem

Peter C. Sutton

-9-

<PAGE>

EIGHTH: (a) The following provisions are hereby adopted for
the purpose of defining, limiting and regulating the powers of the
Corporation and of the directors and stockholders:

(1) The Board of Directors is hereby empowered to
authorize the issuance from time to time of shares of its stock of any
class or series, whether now or hereafter authorized, or securities
convertible into shares of its stock of any class or series, whether
now or hereafter authorized, for such consideration as may be deemed
advisable by the Board of Directors and without any action by the
stockholders.

(2) No holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any other

securities of the Corporation other than such, if any, as the Board of
Directors, in its sole discretion, may determine and at such price or
prices and upon such other terms as the Board of Directors, in its
sole discretion, may fix; and any stock or other securities which the
Board of Directors may determine to offer for subscription may, as the
Board of Directors in its sole discretion shall determine, be offered
to the holders of any class, series or type of stock or other
securities at the time outstanding to the exclusion of the holders of
any or all other classes, series or types of stock or other securities
at the time outstanding.

(3) The Board of Directors of the Corporation shall,
consistent with applicable law, have power in its sole discretion to
determine from time to time in accordance with sound accounting
practice or other reasonable valuation methods what constitutes annual
or other net profits, earnings, surplus or net assets in excess of
capital; to determine that retained earnings or surplus shall remain
in the hands of the Corporation; to set apart out of any funds of the
Corporation such reserve or reserves in such amount or amounts and for
such proper purpose or purposes as it shall determine and to abolish
any such reserve or any part thereof; to distribute and pay
distributions or dividends in stock, cash or other securities or
property, out of surplus or any other funds or amounts legally
available therefor, at such times and to the stockholders of record on
such dates as it may, from time to time, determine; and to determine
whether and to what extent and at what times and places and under what
conditions and regulations the books, accounts and documents of the
Corporation, or any of them, shall be open to the inspection of
stockholders, except as otherwise provided by statute or the By-Laws
of the Corporation, and, except as so provided, no stockholder shall
have any right to inspect any book, account or document of the
Corporation unless authorized to do so by resolution of the Board of
Directors.

-10-

<PAGE>

(4) Notwithstanding any provision of law requiring the
authorization of any action by a greater proportion than a majority of
the total number of shares of capital stock or of any class or series
of capital stock, such action shall be valid and effective if
authorized by the affirmative vote of the holders of a majority of the
total number of shares of capital stock or of such class or series, as
the case may be, outstanding and entitled to vote thereon, except as
otherwise provided in the Charter of the Corporation.

(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.

(7) The Corporation reserves the right from time to time to
make any amendments of its Charter which may now or hereafter be
authorized by law, including any

-11-

<PAGE>

amendments changing the terms or contract rights, as expressly set
forth in its Charter, of any of its outstanding stock by
classification, reclassification or otherwise.

(b) The enumeration and definition of particular powers of the Board
of Directors included in the foregoing shall in no way be limited or restricted
by reference to or inference from the terms of any other clause of this or any
other Article of the Charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any powers conferred
upon the Board of Directors under the General Laws of the State of Maryland now
or hereafter in force.

NINTH: The duration of the Corporation shall be perpetual.

IN WITNESS WHEREOF, I have signed these Articles of
Incorporation, acknowledging the same to be my act, on this 3rd day of July,
1996.

Witness:

/s/ /s/ Kimberly A. Williams
- ------------------------------- --------------------------------
Incorporator

-12-

<PAGE>
Exhibit 1(B)

SUNAMERICA STYLE SELECT SERIES, INC.

ARTICLES SUPPLEMENTARY

SUNAMERICA STYLE SELECT SERIES, INC., a Maryland corporation having its
principal office in Baltimore City, Maryland (which is hereinafter called the
"Corporation"), hereby certified to the State Department of Assessments and
Taxation of Maryland that:

FIRST: The Board of Directors of the Corporation has duly divided and
classified one hundred million (100,000,000) unissued shares of the authorized
Common Stock, par value $.0001 per share, of the Corporation as a series
designated the "Growth Series" and has further divided and classified the shares
of the Growth Series as shares of four classes, which are designated Class A,
Class B, Class C and Class Z, and shall consist, until further changed, of
twenty-five million (25,000,000) Class A shares, twenty-five million
(25,000,000) Class B shares, twenty-five million (25,000,000) Class C shares and
twenty-five million (25,000,000) Class Z shares. The preferences, conversion and
other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the Class A, Class B,
Class C and Class Z shares of the Growth Series are set forth in the Charter of
the Corporation.

SECOND: The foregoing amendment to the Charter of the Corporation does
not increase the authorized capital stock of the Corporation.

THIRD: The aforesaid shares have been duly classified by the Board of
Directors pursuant to authority and power contained in the Charter of the
Corporation.

IN WITNESS WHEREOF, the Corporation has caused these present to be
signed in its name and on its behalf by its President and attested by its
Secretary on this 1st day of August, 1996.

SUNAMERICA STYLE SELECT SERIES, INC.

By: /s/ Peter A. Harbeck
________________________________
Peter A. Harbeck
President

ATTEST:

/s/ Robert M. Zakem
- -------------------------
Robert M. Zakem
Secretary

<PAGE>

The undersigned, President of SunAmerica Style Select Series, Inc., who
executed on behalf of said Corporation the foregoing Articles Supplementary of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.

/s/ Peter A. Harbeck
-------------------------
Peter A. Harbeck
President

<PAGE>

Exhibit 1(C)

SUNAMERICA STYLE SELECT SERIES, INC.

ARTICLES OF AMENDMENT

FIRST: Article SECOND of the Charter of the Corporation is
hereby amended to read in its entirety as follows:

"SECOND: The name of the corporation (which is hereinafter
called the "Corporation") is:

Style Select Series, Inc."

SECOND: The names of the respective series of capital stock as
designated in Article SIXTH of the Charter of the Corporation are hereby
amended as follows:

"Aggressive Growth Series" is hereby changed to "Aggressive
Growth Portfolio."

"Value Series" is hereby changed to "Value Portfolio."

"International Equity Series" is hereby changed to
"International Equity Portfolio."

"Growth Series" is hereby changed to "Growth Portfolio."

THIRD: The amendments do not change the outstanding capital stock
of the Corporation or the aggregate par value thereof.

FOURTH: The foregoing amendments to the Charter of the Corporation
have been approved by a majority of the entire Board of Directors and are
limited to changes expressly permitted by Section 2-605 of the Maryland General
Corporation Law to be made without action by the stockholders.

FIFTH: The Corporation is registered as an open-end company under
the Investment Company Act of 1940.

<PAGE>

IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and attested by its
Secretary on this 19th day of August, 1996.

SUNAMERICA STYLE SELECT SERIES, INC.

By: /s/ Peter A. Harbeck
_________________________________
Peter A. Harbeck
President

ATTEST:

/s/ Robert M. Zakem
- ------------------------------
Robert M. Zakem, Secretary

<PAGE>

The undersigned, President of SunAmerica Style Select Series,
Inc., who executed on behalf of said Corporation the foregoing Articles of
Amendment of which this certificate is made a part, hereby acknowledges in the
name and on behalf of said Corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.

/s/ Peter A. Harbeck
-------------------------
Peter A. Harbeck
President

<PAGE>

SUNAMERICA STYLE SELECT SERIES, INC.

BY-LAWS

ARTICLE I

STOCKHOLDERS

1.01 Annual Meeting. The Corporation is not required to hold an annual
meeting of its stockholders in any year in which the election of directors is
not required to be acted upon under the Investment Company Act of 1940. If the
Corporation is required by the Investment Company Act of 1940 to hold a meeting
of stockholders to elect directors, such meeting shall be held at a date and
time set by the Board of Directors in accordance with the Investment Company Act
of 1940 and no later than 120 days after the occurrence of the event requiring
the meeting. Any stockholders' meeting held in accordance with the preceding
sentence shall for all purposes con stitute the annual meeting of stockholders
for the fiscal year of the Corporation in which the meeting is held. Except as
the Charter or statute provides otherwise, any business may be con sidered at an
annual meeting without the purpose of the meeting having been specified in the
no tice. Failure to hold an annual meeting does not invalidate the Corporation's
existence or affect any otherwise valid corporate acts.

1.02 Special Meetings. At any time in the interval between annual
meetings, a special meeting of stockholders may be called by the Chairman of the
Board or the President or by a ma jority of the Board of Directors by vote at a
meeting or in writing (addressed to the Secretary of the Corporation) with or
without a meeting. Special meetings of the stockholders shall be called as may
be required by law.

1.03 Place of Meetings. Meetings of stockholders shall be held at such
place in the U nited States as is set from time to time by the Board of
Directors.

1.04 Notice of Meetings; Waiver of Notice. Not less than ten nor more than
90 days be fore each stockholders' meeting, the Secretary shall give written
notice of the meeting to each stockholder entitled to vote at the meeting and
each other stockholder entitled to notice of the meeting. The notice shall state
the time and place of the meeting and, if the meeting is a special meeting or
notice of the purpose is required by statute, the purpose of the meeting. Notice
is given to a stockholder when it is personally delivered to him, left at his
residence or usual place of business, or mailed to him at his address as it
appears on the records of the Corporation. Not withstanding the foregoing
provisions, each person who is entitled to notice waives notice if he before or
after the meeting signs a waiver of the notice which is filed with the records
of stock holders' meetings, or is present at the meeting in person or by proxy.

<PAGE>

1.05 Quorum; Voting. Unless statute or the Charter provides otherwise, at a
meeting of stockholders the presence in person or by proxy of stockholders
entitled to cast a majority of all the votes entitled to be cast at the meeting
constitutes a quorum, and a majority of all the votes cast at a meeting at
which a quorum is present is sufficient to approve any matter which properly
comes before the meeting, except that a plurality of all the votes cast at a
meeting at which a quorum is present is sufficient to elect a director.

1.06 Adjournments. Whether or not a quorum is present, a meeting of
stockholders convened on the date for which it was called may be adjourned from
time to time without further notice by a majority vote of the stockholders
present in person or by proxy to a date not more than 120 days after the
original record date. Any business which might have been transacted at the
meeting as originally notified may be deferred and transacted at any such
adjourned meeting at which a quorum shall be present.

1.07 General Right to Vote; Proxies. Unless the Charter provides for a
greater or lesser number of votes per share or limits or denies voting rights,
each outstanding share of stock, regardless of class or series, is entitled to
one vote on each matter submitted to a vote at a meeting of stockholders. In all
elections for directors, each share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A stockholder may vote the stock he owns of
record either in person or by proxy as provided by statute.

1.08 List of Stockholders. At each meeting of stockholders, a full, true
and complete list of all stockholders entitled to vote at such meeting, showing
the number and class or series of shares held by each and certified by the
transfer agent for such class or series or by the Secretary, shall be furnished
by the Secretary.

1.09 Conduct of Business and Voting. At all meetings of stockholders,
unless the voting is conducted by inspectors, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies, the acceptance or rejection of votes and procedures for the
conduct of business not otherwise specified by these By-Laws, the Charter or law
shall be decided or determined, by the chairman of the meeting. If demanded by
stockholders, present in person or by proxy, entitled to cast ten percent in
number of votes entitled to be cast, or if ordered by the chairman, the vote
upon any election or question shall be taken by ballot and, upon like demand or
order, the voting shall be conducted by one or more inspectors, in which event
the proxies and ballots shall be received, and all questions touching the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided, by such inspectors. Unless so demanded or
ordered, no vote need be by ballot and voting need not be conducted by
inspectors. The stockholders at any meeting may choose an inspector or

-2-

<PAGE>

inspectors to act at such meeting, and in default of such election the chairman
of the meeting may appoint an inspector or inspectors. No candidate for election
as a director at a meeting shall serve as an inspector thereat.

1.10 Action by Written Consent. Any action required or permitted to be
taken at a meeting of stockholders may be taken without a meeting if there is
filed with the records of stockholders' meetings an unanimous written consent
which sets forth the action and is signed by each stockholder entitled to vote
on the matter and a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote at it.

ARTICLE II

BOARD OF DIRECTORS

2.01 Function of Directors. The business and affairs of the Corporation
shall be managed under the direction of its Board of Directors. All powers of
the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws. The Board may delegate the duty of management of the
assets and the administration of the day-to-day operations of the Corporation to
one or more entities or individuals pursuant to a written contract or contracts
which have obtained the approvals, including the approval of renewals thereof,
required by the Investment Company Act of 1940.

2.02 Number of Directors. The Corporation shall have at least three
directors; provided that, if there is no stock outstanding, the number of
directors may be less than three but not less than one, and, if there is stock
outstanding and so long as there are fewer than three stockholders, the number
of directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in its
Charter until changed as herein provided. A majority of the entire Board of
Directors may alter the number of directors set by the Charter to a number not
exceeding 25 nor less than the minimum number then permitted herein, but the
action may not affect the tenure of office of any director.

2.03 Election and Tenure of Directors. At each annual meeting, the
stockholders shall elect directors to hold office until the next annual
meeting and until their successors are elected and qualify.

2.04 Removal of Directors. Unless statute or the Charter provides
otherwise, the stockholders may remove any director, with or without cause, by
the affirmative vote of a majority of all the votes entitled to be cast for
the election of directors.

-3-

<PAGE>

2.05 Vacancy on Board. The stockholders may elect a successor to fill a
vacancy on the Board of Directors which results from the removal of a director
by the stockholders. A director elected by the stockholders to fill a vacancy
which results from the removal of a director serves for the balance of the term

of the removed director. Unless otherwise provided by statute or the Charter, a
majority of the remaining directors, whether or not sufficient to constitute a
quorum, may fill a vacancy on the Board of Directors which results from any
cause except an increase in the number of directors and a majority of the entire
Board of Directors may fill a vacancy which results from an increase in the
number of directors. A director elected by the Board of Directors to fill a
vacancy serves until the next annual meeting of stockholders and until his
successor is elected and qualifies.

2.06 Regular Meetings. After each meeting of stockholders at which
directors shall have been elected, the Board of Directors shall meet as soon as
practicable for the purpose of organization and the transaction of other
business. In the event that no other time and place are specified by resolution
of the Board, the President or the Chairman with notice in accordance with
Section 2.08, the Board of Directors shall meet immediately following the close
of, and at the place of, such stockholders' meeting. Any other regular meeting
of the Board of Directors shall be held on such date and at any place as may be
designated from time to time by the Board of Directors.

2.07 Special Meetings. Special meetings of the Board of Directors may be
called at any time by the Chairman of the Board or the President or by a
majority of the Board of Directors by vote at a meeting, or in writing with or
without a meeting. A special meeting of the Board of Directors shall be held on
such date and at any place as may be designated from time to time by the Board
of Directors. In the absence of designation such meeting shall be held at such
place as may be designated in the call.

2.08 Notice of Meetings; Waiver of Notice. Except as provided in Section
2.06, the Secretary shall give notice to each director of each regular and
special meeting of the Board of Directors. The notice shall state the time and
place of the meeting. Notice is given to a director when it is delivered
personally to him, left at his residence or usual place of business, or sent by
telegraph, facsimile transmission or telephone, at least 24 hours before the
time of the meeting or, in the alternative, by mail to his address as it shall
appear on the records of the Corporation at least 72 hours before the time of
the meeting. Unless statute, the By-Laws or a resolution of the Board of
Directors provides otherwise, the notice need not state the business to be
transacted at or the purposes of any regular or special meeting of the Board of
Directors. No notice of any meeting of the Board of Directors need be given to
any director who attends, or to any director who, in a writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Any meeting of the Board of Directors, regular or
special,

-4-

<PAGE>

may adjourn from time to time to reconvene at the same or some other place, and
no notice need be given of any such adjourned meeting other than by
announcement.

2.09 Action by Directors. Unless statute or the Charter or the By-Laws
requires a greater proportion, the action of a majority of the directors present

at a meeting at which a quorum is present is action of the Board of Directors. A
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business. In the absence of a quorum, the directors present by
majority vote and without notice other than by announcement may adjourn the
meeting from time to time until a quorum shall attend. At any such adjourned
meeting at which a quorum shall be present, any business may be transacted which
might have been transacted at the meeting as originally notified. Unless
otherwise provided by statute or regulation, any action required or permitted to
be taken at a meeting of the Board of Directors may be taken without a meeting,
if an unanimous written consent which sets forth the action is signed by each
member of the Board and filed with the minutes of proceedings of the Board.

2.10 Participation by Telephone. Members of the Board of Directors may
participate in a meeting by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Unless provided otherwise by statute or
regulation, participation in a meeting by these means constitutes presence in
person at the meeting.

2.11 Compensation. By resolution of the Board of Directors a fixed sum and
expenses, if any, for attendance at each regular or special meeting of the
Board of Directors or of committees thereof, and other compensation for their
services as such or on committees of the Board of Directors, may be paid to
directors. A director who serves the Corporation in any other capacity also may
receive compensation for such other services, pursuant to a resolution of the
Board of Directors.

2.12 Resignation. Any director may resign at any time by sending a
written notice of such resignation to the principal office of the Corporation
addressed to the Chairman of the Board or the President. Unless otherwise
specified such resignation shall take effect upon receipt thereof by the
Chairman of the Board or the President.

ARTICLE III

COMMITTEES

3.01 Committees. The Board of Directors may appoint from among its
members an Executive Committee and other committees composed of two or more
directors and delegate to these committees any of the powers of the Board of
Directors, except the power to declare

-5-

<PAGE>

dividends or other distributions on stock, elect directors, issue stock other
than as provided in the next sentence, recommend to the stockholders any action
which requires stockholder approval, amend the By-Laws, or approve any merger or
share exchange which does not require stockholder approval. If the Board of
Directors has given general authorization for the issuance of stock, a committee
of the Board, in accordance with a general formula or method specified by the
Board by resolution or by adoption of a stock option or other plan, may fix the

terms of stock subject to classification or reclassification and the terms on
which any stock may be issued, including all terms and conditions required or
permitted to be established or authorized by the Board of Directors.

3.02 Committee Procedure. Each committee may fix rules of procedure for its
business. A majority of the members of a committee shall constitute a quorum
for the transaction of business and the action of a majority of those present
at a meeting at which a quorum is present shall be action of the committee. The
members of a committee present at any meeting, whether or not they constitute a
quorum, may appoint a director to act in the place of an absent member. Any
action required or permitted to be taken at a meeting of a committee may be
taken without a meeting, if an unanimous written consent which sets forth the
action is signed by each member of the committee and filed with the minutes of
the committee. The members of a committee may conduct any meeting thereof by
telephone in accordance with the provisions of Section 2.10.

3.03 Emergency. In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Corporation by its directors and officers as contemplated by the Charter and
these By-Laws, any two or more available members of the then incumbent Executive
Committee shall constitute a quorum of that Committee for the full conduct and
management of the affairs and business of the Corporation in accordance with the
provisions of Section 3.01. In the event of the unavailability, at such time, of
a minimum of two members of the then incumbent Executive Committee, the
available directors shall elect an Executive Committee composed of any two
members of the Board of Directors, whether or not they be officers of the
Corporation, which two members shall constitute the Executive Committee for the
full conduct and management of the affairs of the Corporation in accordance with
the foregoing provisions of this Section 3.03. This Section 3.03 shall be
subject to implementation by resolution of the Board of Directors passed from
time to time for that purpose, and any provisions of the By-Laws (other than
this Section) and any resolutions which are contrary to the provisions of this
Section or to the provisions of any such implementing resolutions shall be
suspended until it shall be determined by any interim Executive Committee acting
under this Section that it shall be to the advantage of the Corporation to
resume the conduct and management of its affairs and business under all the
other provisions of these By-Laws.

ARTICLE IV

-6-

<PAGE>

OFFICERS

4.01 Executive and Other Officers. The Corporation shall have a President,
a Secretary and a Treasurer. It may also have a Chairman of the Board. The Board
of Directors shall designate who shall serve as chief executive officer, who
shall have general supervision of the business and affairs of the Corporation,
and may designate a chief operating officer, who shall have supervision of the
operations of the Corporation. In the absence of any designation the Chairman of
the Board, if there be one, shall serve as chief executive officer and the

President shall serve as chief operating officer. In the absence of the Chairman
of the Board, or if there be none, the President shall be the chief executive
officer. The same person may hold both offices. The Corporation may also have
one or more Vice-Presidents, assistant officers and subordinate officers as may
be established by the Board of Directors. A person may hold more than one office
in the Corporation except that no person may serve concurrently as both
President and Vice-President of the Corporation. The Chairman of the Board shall
be a director. The other officers may be directors.

4.02 Chairman of the Board. The Chairman of the Board, if one be elected,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. Unless otherwise specified by the Board of
Directors, he shall be the chief executive officer of the Corporation and
perform the duties customarily performed by chief executive officers, and may
perform any duties of the President. In general, he shall perform all such
duties as are from time to time assigned to him by the Board of Directors.

4.03 President. Unless otherwise provided by resolution of the Board of
Directors, the President, in the absence of the Chairman of the Board, shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present. Unless otherwise specified by the Board of
Directors, the President shall be the chief operating officer of the
Corporation and perform the duties customarily performed by chief operating
officers. He may sign and execute, in the name of the Corporation, all
authorized deeds, mortgages, bonds, contracts or other instruments, except in
cases in which the signing and execution thereof shall have been expressly
delegated to some other officer or agent of the Corporation. In general, he
shall perform all duties usually performed by a president of a corporation and
such other duties as are from time to time assigned to him by the Board of
Directors or the chief executive officer of the Corporation.

4.04 Vice-Presidents. The Vice-President or Vice-Presidents, at the
request of the chief executive officer or the President, or in the President's
absence or during his inability to act, shall perform the duties and exercise
the functions of the President, and when so acting shall have the powers of the
President. If there be more than one Vice-President, the Board of Directors may
determine which one or more of the Vice-Presidents shall perform any of such
duties or exercise

-7-

<PAGE>

any of such functions, or if such determination is not made by the Board of
Directors, the chief executive officer or the President may make such
determination; otherwise any of the Vice-Presidents may perform any of such
duties or exercise any of such functions. The Vice-President or Vice-Presidents
shall have such other powers and perform such other duties, and have such
additional descriptive designations in their titles (if any), as are from time
to time assigned to them by the Board of Directors, the chief executive officer,
or the President.

4.05 Secretary. The Secretary shall keep the minutes of the meetings of the
stockholders, of the Board of Directors and of any committees, in books

provided for that purpose; he shall see that all notices are duly given in
accordance with the provisions of the By-Laws or as required by law; he shall
be custodian of the records of the Corporation; he may witness any document on
behalf of the Corporation, the execution of which is duly authorized, see that
the corporate seal is affixed where such document is required or desired to be
under its seal, and, when so affixed, may attest the same; and, in general, he
shall perform all duties incident to the office of a secretary of a
corporation, and such other duties as are from time to time assigned to him by
the Board of Directors, the chief executive officer, or the President.

4.06 Treasurer. The Treasurer shall have charge of and be responsible for
all funds, securities, receipts and disbursements of the Corporation, and shall
deposit, or cause to be deposited, in the name of the Corporation, all moneys or
other valuable effects in such banks, trust companies or other depositories as
shall, from time to time, be selected by the Board of Directors; he shall render
to the President and to the Board of Directors, whenever requested, an account
of the financial condition of the Corporation; and, in general, he shall perform
all the duties incident to the office of a treasurer of a corporation, and such
other duties as are from time to time assigned to him by the Board of Directors,
the chief executive officer, or the President.

4.07 Assistant and Subordinate Officers. The assistant and subordinate
officers of the Corporation are all officers below the office of Vice-President,
Secretary or Treasurer. The assistant or subordinate officers shall have such
duties as are from time to time assigned to them by the Board of Directors, the
chief executive officer, or the President.

4.08 Election, Tenure and Removal of Officers. The Board of Directors shall
elect the officers of the Corporation. The Board of Directors may from time to
time authorize any committee or officer to appoint assistant and subordinate
officers. Election or appointment of an officer, employee or agent shall not of
itself create contract rights. All officers shall be elected or appointed to
hold their respective offices during the pleasure of the Board. The Board of
Directors (or, as to any assistant or subordinate officer, any committee or
officer authorized by the Board) may remove an officer at any time. The removal
of an officer does not prejudice any of his contract rights. The Board of
Directors (or, as to any assistant or subordinate officer, any committee or
officer authorized by the Board) may fill a vacancy which occurs in any office.

-8-

<PAGE>

4.09 Compensation. The Board of Directors shall have power to fix the
salaries and other compensation and remuneration, of whatever kind, of all
officers of the Corporation. It may authorize any committee or officer, upon
whom the power of appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation and remuneration of such assistant
and subordinate officers.

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 judgments, in compromise or
as fines and penalties, and reasonable expenses (including attorney's fees)
actually incurred by the Covered Person in connection with 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").

-9-

<PAGE>

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 judgment, 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 attorney's
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 of 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 ByLaw 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

-10-

<PAGE>

the amendment of this By-Law, provided that no such amendment shall diminish the
rights of any Covered Person hereunder with respect to events occurring or
claims made before its adoption or as to claims made after its adoption in
respect of events occurring before its adoption. Any repeal or modification of
this By-Law shall not in any way diminish any rights to indemnification or
advance of expenses of a Covered Person or the obligations of the Corporation
arising hereunder with respect to events occurring, or claims made, while this
By-Law or any provision hereof is in force.

indemnify any Covered Person against liability for Disabling Conduct.

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.

ARTICLE VI

STOCK

6.01 Certificates for Stock. The Board of Directors may determine to issue
certificated or uncertificated shares of capital stock and other securities of
the Corporation. For certificated stock of any class or series, each
stockholder is entitled to certificates which represent and certify the shares
of that class or series he holds in the Corporation. Each stock certificate
shall include on its face the name of the Corporation, the name of the
stockholder or other person to whom it is issued, and the class or series of
stock and number of shares it represents. It shall also include a statement
which provides in substance that the Corporation will furnish to any
stockholder on request and without charge a full statement of the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of the stock of each class which the Corporation is authorized to
issue, or the differences in the relative rights and preferences between the
shares of each series of a preferred or special class in series which the
Corporation is authorized to issue, to the extent they have been set, and of
the authority of the Board of Directors to set the relative rights and
preferences of subsequent series of a preferred or special class of stock and
any restriction on transferability. Such request shall be made to the Secretary
of the Corporation or its transfer agent. Upon the issuance of uncertificated
shares of capital stock, the Corporation shall send the stockholder a written
statement of the same information required on the certificate. It shall be in
such form, not inconsistent with law or with the Charter, as shall be approved
by the Board of

-11-

<PAGE>

Directors or any officer or officers designated for such purpose by resolution
of the Board of Directors. Each stock certificate shall be signed by the
Chairman of the Board, the President, or a Vice-President, and countersigned by
the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer.
Each certificate may be sealed with the actual corporate seal or a facsimile of
it or in any other form and the signatures may be either manual or facsimile
signatures. A certificate is valid and may be issued whether or not an officer
who signed it is still an officer when it is issued.

6.02 Transfers. The Board of Directors shall have power and authority to
make such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of shares of stock; and may appoint transfer agents
and registrars thereof. The duties of transfer agent and registrar may be

combined.

6.03 Record Date and Closing of Transfer Books. The Board of Directors
may set a record date or direct that the stock transfer books be closed for a
stated period for the purpose of making any proper determination with respect to
stockholders, including which stockholders are entitled to notice of a meeting,
vote at a meeting, receive a dividend, or be allotted other rights. The record
date may not be prior to the close of business on the day the record date is
fixed nor, subject to Section 1.06, more than 90 days before the date on which
the action requiring the determination will be taken; the transfer books may not
be closed for a period longer than twenty days; and, in the case of a meeting of
stockholders, the record date or the closing of the transfer books shall be at
least ten days before the date of the meeting.

6.04 Stock Ledger. The Corporation shall maintain a stock ledger which
contains the name and address of each stockholder and the number of shares of
stock of each class or series which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of the transfer agent
for a particular class or series of stock, or, if none, at the principal office
in the State of Maryland or the principal executive office of the Corporation.

6.05 Certification of Beneficial Owners. The Board of Directors may adopt
by resolution a procedure by which a stockholder of the Corporation may certify
in writing to the Corporation that any shares of stock registered in the name of
the stockholder are held for the account of a specified person other than the
stockholder. The resolution shall set forth the class of stockholders who may
certify, the purpose for which the certification may be made, the form of
certification and the information to be contained in it, if the certification is
with respect to a record date or closing of the stock transfer books, the time
after the record date or closing of the stock transfer books within which the
certification must be received by the Corporation, and any other provisions with
respect to the procedure which the Board considers necessary or desirable. On

-12-

<PAGE>

receipt of a certification which complies with the procedure adopted by the
Board in accordance with this Section, the person specified in the certification
is, for the purpose set forth in the certification, the holder of record of the
specified stock in place of the stockholder who makes the certification.

6.06 Lost Stock Certificates. The Board of Directors of the Corporation may
determine the conditions for issuing a new stock certificate in place of one
which is alleged to have been lost, stolen or destroyed, including the
requirement that the owner furnish a bond as indemnity against any claim that
may be made against the Corporation in respect of the lost, stolen or destroyed
certificate, or the Board of Directors may delegate such power to any officer
or officers of the Corporation. In their discretion, the Board of Directors or
such officer or officers may refuse to issue such new certificate save upon the
order of some court having jurisdiction in the premises.

ARTICLE VII

FINANCE

7.01 Checks, Drafts, Etc. All checks, drafts and orders for the payment of
money, notes and other evidences of indebtedness, issued in the name of the
Corporation, shall, unless otherwise provided by resolution of the Board of
Directors, be signed by the President, a Vice-President or an Assistant
Vice-President and countersigned by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary.

7.02 Annual Statement of Affairs. The President or chief accounting
officer shall prepare annually a full and correct statement of the affairs of
the Corporation, to include a statement of net assets and a financial statement
of operations for the preceding fiscal year. The statement of affairs shall be
placed on file at the Corporation's principal office within 120 days after the
end of the fiscal year.

7.03 Fiscal Year. The fiscal year of the Corporation shall be the
twelve-calendar-month period ending December 31 in each year, unless otherwise
provided by the Board of Directors.

7.04 Dividends. If declared by the Board of Directors at any meeting
thereof, the Corporation may pay dividends on its shares in cash, property, or
in shares of the capital stock of the Corporation, unless such dividend is
contrary to law or to a restriction contained in the Charter of the
Corporation.

7.05 Net Asset Value. Except in the event of emergency conditions or as
otherwise permitted by the Investment Company Act of 1940, the net asset value
per share of each class or

-13-

<PAGE>

series of stock shall be determined no less frequently than once daily, Monday
through Friday, at such time or times as the Board of Directors shall determine.
For purposes of determining the current net asset value per share of any class
or series of stock, securities for which market quotations are readily available
shall be valued at prices which, in the opinion of the Board of Directors or the
person designated by the Board of Directors to make the determination, most
nearly represent the current market value of such securities, and other
securities and assets shall be valued at their fair value as determined in good
faith by or under the supervision of the Board of Directors. Portfolio
securities may be valued on the basis of prices furnished by one or more
independent pricing services approved by the Board of Directors.

7.06 Custodian. The Corporation shall place and maintain its securities and
similar investments in the custody of one or more custodians meeting the
requirements of the Investment Company Act of 1940, or may serve as its own
custodian in accordance with such rules, regulations and orders as the
Securities and Exchange Commission may from time to time prescribe for the

protection of investors. Securities held by a custodian may be registered in
the name of the Corporation, including the designation of the particular class
or series to which such assets belong, or any such custodian, or the nominee of
either of them. Subject to such rules, regulations and orders as the Securities
an Exchange Commission may adopt as necessary or appropriate for the protection
of investors, the Corporation or any custodian, with the consent of the
Corporation, may deposit all or any part of the securities owned by the
Corporation in a system for the central handling of securities, pursuant to
which system all securities of a particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities.

ARTICLE VIII

SUNDRY PROVISIONS

8.01 Books and Records. The Corporation shall keep correct and complete
books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of a Corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of these By-Laws
shall be kept at the principal office of the Corporation.

8.02 Corporate Seal. The Board of Directors shall provide a suitable seal,
bearing the name of the Corporation, which shall be in the charge of the
Secretary. The Board of Directors

-14-

<PAGE>

may authorize one or more duplicate seals and provide for the custody thereof.
If the Corporation is required to place its corporate seal to a document, it is
sufficient to meet the requirement of any law, rule or regulation relating to a
corporate seal to place the word "Seal" adjacent to the signature of the person
authorized to sign the document on behalf of the Corporation.

8.03 Bonds. The Board of Directors may require any officer, agent or
employee of the Corporation to give a bond to the Corporation, conditioned upon
the faithful discharge of his duties, with one or more sureties and in such
amount as may be satisfactory to the Board of Directors.

8.04 Voting Shares in Other Corporations. Shares of other corporations
or associations, registered in the name of the Corporation, may be voted by the
President, a Vice-President, or a proxy appointed by either of them. The Board
of Directors, however, may by resolution appoint some other person to vote such
shares, in which case such person shall be entitled to vote such shares upon the
production of a certified copy of such resolution.

8.05 Mail. Any notice or other document which is required by these By-Laws

to be mailed shall be deposited in the United States mails, postage prepaid.

8.06 Execution of Documents. A person who holds more than one office in
the Corporation may not act in more than one capacity to execute, acknowledge or
verify an instrument required by law to be executed, acknowledged or verified by
more than one officer.

8.07 Amendments. Subject to the special provisions of Section 2.02, (i)
any and all provisions of these By-Laws may be altered or repealed and new
by-laws may be adopted at any annual meeting of the stockholders, or at any
special meeting called for that purpose, and (ii) the Board of Directors shall
have the power, at any regular or special meeting thereof, to make and adopt new
by-laws, or to amend, alter or repeal any of the By-Laws of the Corporation.

-15-

<PAGE>