STYLE SELECT SERIES INC, 485APOS, 1998-02-02

STYLE SELECT SERIES INC
485APOS, 1998-02-02

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<PAGE>

As filed with the Securities and Exchange Commission on February 2, 1998
File Nos. 33-11283; 811-07797

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933

Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 7 [x]

and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940

Amendment No. 8
(Check appropriate box or boxes)

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

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

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

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

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

It is proposed that this filing will become effective (check appropriate box)

______ immediately upon filing pursuant to paragraph (b)

______ on (date) pursuant to paragraph (b)

______ 60 days after filing pursuant to paragraph (a)

X on February 27, 1998 pursuant to paragraph (a) of Rule 485
______

<PAGE>

STYLE SELECT SERIES, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Under the Securities Act of 1933
--------------------------------

N-1A Item No.

Part A Registration Statement Caption Caption in Prospectus
Item No.

1. Cover Page Cover Page

2. Synopsis - Fee Table *

3. Financial Highlights *

4. General Description of Registrant Style-Based Investing;
Investment Objectives and
Policies; General Information

5. Management of the Fund Management of the Fund

6. Capital Stock and Other Securities Dividends, Distributions and
Taxes

7. Purchase of Securities Being Offered Purchase of Shares

8. Redemption or Repurchase Redemption of Shares

9. Pending Legal Proceedings *

Part B Registration Statement Caption Caption in Statement
Item No. of Additional Information

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History The Fund

13. Investment Objectives and Policies Investment Objectives and
Policies; Investment
Restrictions

14. Management of the Fund Directors and Officers

15. Contact Persons and Principal The Fund
Holders of Securities

<PAGE>

16. Investment Advisory and Adviser, Distributor and
Other Services Administrator; Additional
Information

17. Brokerage Allocation and Portfolio Transactions
Other Practices and Brokerage

18. Capital Stock and Other Securities *

19. Purchase, Redemption and Pricing of Additional Information
Securities Being Offered Regarding Purchase of Shares;
Additional Information
Regarding Redemption of
Shares; Determination of Net
Asset Value

20. Tax Status Dividends, Distributions and
Taxes

21. Underwriters *

22. Calculation of Performance Data *

23. Financial Statements Financial Statements

* Omitted from the Prospectus or Statement of Additional Information because the
item is not applicable.

Part C

The information required to be included in Part C is set forth under
the appropriate item, so numbered in Part C of this Registration Statement.

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

<PAGE>

PROSPECTUS OF OCTOBER 14, 1997

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

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

THE GROWTH PORTFOLIOS

LARGE-CAP GROWTH PORTFOLIO seeks long-term growth of capital by investing
generally in equity securities of large-sized companies. The Advisers for
Large-Cap Growth Portfolio are Janus Capital Corporation ("Janus"), L. Roy Papp
& Associates ("Papp") and Montag & Caldwell, Inc. ("Montag & Caldwell").

MID-CAP GROWTH PORTFOLIO seeks long-term growth of capital by investing
generally in equity securities of medium-sized companies. The Advisers for
Mid-Cap Growth Portfolio are Miller Anderson & Sherrerd, LLP ("MAS"), Pilgrim
Baxter & Associates, Ltd. ("Pilgrim Baxter") and T. Rowe Price Associates, Inc.
("T. Rowe Price").

AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital by investing
generally in equity securities of small and medium-sized companies. The Advisers
for Aggressive Growth Portfolio are Janus, SunAmerica and Warburg Pincus Asset
Management, Inc. ("Warburg").

THE BLEND PORTFOLIO

LARGE-CAP BLEND PORTFOLIO seeks long-term growth of capital and a reasonable
level of current income by investing generally in equity securities of
large-sized companies. The Advisers for Large-Cap Blend Portfolio are Lazard
Asset Management ("Lazard"), SunAmerica and T. Rowe Price. (Cover continued on
next page)

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

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.

Shares of the Portfolios are not obligations of or guaranteed by the United
States Government, are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit

<PAGE>

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 October 14, 1997, which is
incorporated by reference into this Prospectus. The Statement of Additional
Information may be obtained without charge by contacting the Fund at the address
or telephone number listed above.

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

<PAGE>

THE VALUE PORTFOLIOS

LARGE-CAP VALUE PORTFOLIO seeks long-term growth of capital by investing in
equity securities of large-sized companies using a "value" style of investing.
The Advisers for Large-Cap Value Portfolio are David L. Babson & Co., Inc.
("Babson"), Davis Selected Advisers, L.P. ("Davis") and Wellington Management
Company, LLP ("Wellington Management").

VALUE PORTFOLIO seeks long-term growth of capital by investing in equity
securities (without regard to the size of the issuer), using a "value" style of
investing. The Advisers for Value Portfolio are Davis, Neuberger&Berman, LLC
("Neuberger&Berman") and Strong Capital Management, Inc. ("Strong"). Strong has
subcontracted with Schafer Capital Management, Inc. ("Schafer," and together
with Strong, "Strong/Schafer") to act as Adviser to its portion of the Value
Portfolio.

SMALL-CAP VALUE PORTFOLIO seeks long-term growth of capital by investing in
equity securities of small-sized companies using a "value" style of investing.
The Advisers for Small-Cap Value Portfolio are Berger Associates, Inc.
("Berger"), Lazard and The Glenmede Trust Company ("Glenmede"). Berger has
subcontracted with Perkins, Wolf, McDonnell & Company ("PWM," and together with
Berger, "Berger/PWM") to act as Adviser to its portion of the Small-Cap Value
Portfolio.

THE INTERNATIONAL PORTFOLIO

INTERNATIONAL EQUITY PORTFOLIO seeks long-term growth of capital by investing in
equity securities of issuers in countries other than the United States. The
Advisers for International Equity Portfolio are Rowe Price-Fleming
International, Inc. ("Rowe-Fleming"), Strong and Warburg.

<PAGE>

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

1 Prospectus

3 Summary of Expenses

6 Financial Highlights

7 Style-Based Investing

7 Investment Objectives and Policies

8 The Growth Portfolios

9 The Blend Portfolio

10 The Value Portfolios

11 The International Portfolio

12 Advisers' Historical Performance Data

37 Investment Techniques and Risk Factors

44 Management of the Fund

53 Purchase of Shares

56 Redemption of Shares

57 Exchange Privilege

58 Portfolio Transactions, Brokerage and Turnover

58 Determination of Net Asset Value

59 Performance Data

59 Dividends, Distributions and Taxes

61 General Information

<PAGE>

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

<TABLE>
<CAPTION>
LARGE-CAP AGGRESSIVE
GROWTH MID-CAP GROWTH GROWTH LARGE-CAP BLEND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------- --------------------------
Class Class Class Class Class Class Class Class Class Class Class Class
A B C A B C A B C A B C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction
Expenses
Maximum Initial
Sales Load(1) 5.75% None None 5.75% None None 5.75% None None 5.75% None None
Maximum Sales
Load on Reinvested
Dividends None None None None None None None None None None None None
Maximum Deferred
Sales Load(2) None 4.00% 1.00% None 4.00% 1.00% None 4.00% 1.00% None 4.00% 1.00%
Redemption Fees(3) None None None None None None None None None None None None
Exchange Fees None None None None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------

Annual Portfolio
Operating
Expenses (as a
percentage of
average net assets)
Management Fees 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (4) 0.35% 1.00% 1.00% 0.35% 1.00% 1.00% 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
Other Expenses (net .43% .43% .43% .43% .43% .43% .43% .43% .43% .43% .43% .43%
of fee
waivers/expense
reimbursements)(5)
Total Operating
Expenses (net of fee 1.78% 2.43% 2.43% 1.78% 2.43% 2.43% 1.78% 2.43% 2.43% 1.78% 2.43% 2.43%
waivers/expense ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
reimbursements)(5)
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1,000,000 or more. See "Purchase of
Shares."

(2) Purchases of Class A shares in excess of $1,000,000 will be subject to a
CDSC on redemptions made within one year of purchase. The CDSC on Class B
shares applies only if a redemption occurs within six years from their
purchase date. The CDSC on Class C shares applies only on redemptions made
within one year of purchase.
(3) A $15.00 fee may be imposed for wire redemptions.

(4) 0.25% of the 12b-1 fee comprises an Account Maintenance and Service Fee. A
portion of the Account Maintenance and Service Fee is paid for continuous
personal service to investors in the Portfolios, such as responding to
shareholder inquiries, quoting net asset values, providing current
marketing material and attending to other shareholder matters. Class B or
Class C shareholders who own their shares for an extended period of time
may pay more in Rule 12b-1 distribution fees than the economic equivalent
of the maximum front-end sales charge permitted under the Conduct Rules of
the National Association of Securities Dealers, Inc.
(5) Effective June 17, 1997, with respect to the Mid-Cap Growth Portfolio and
Aggressive Growth Portfolio, and the date of commencement of operations
with respect to the Large-Cap Growth Portfolio and Large-Cap Blend
Portfolio, SunAmerica has voluntarily agreed to waive fees or reimburse
expenses, if necessary, to keep operating expenses at or below an annual
rate of 1.78% of the average daily net assets of Class A shares and 2.43%
of the average daily net assets of Class B and Class C shares for each such
Portfolio. Prior to June 17, 1997, with respect to the Mid-Cap Growth
Portfolio and Aggressive Growth Portfolio, SunAmerica voluntarily agreed to
waive fees or reimburse expenses to keep annual operating expenses at or
below an annual rate of 1.90% of the average daily net assets of Class A
shares and 2.55% of the average daily net assets of Class B and Class C
shares for each such Portfolio. The information provided in the table
represents estimated amounts for the current fiscal year net of current fee
waivers/expense reimbursements. Absent such fee waivers/expense
reimbursements, estimated annual Other Expenses and Total Operating
Expenses would be: Large-Cap Growth Portfolio, Class A, .80% and 2.15%,
Large-Cap Growth Portfolio, Class B, .85% and 2.85%, Large-Cap Growth
Portfolio, Class C, 1.57% and 3.57%, Mid-Cap Growth Portfolio, Class A,
.65% and 2.00%, Mid-Cap Growth Portfolio, Class B, .62% and 2.62%, Mid-Cap
Growth Portfolio, Class C, .92% and 2.92%, Aggressive Growth Portfolio,
Class A, .61% and 1.96%, Aggressive Growth Portfolio, Class B, .60% and
2.60%, Aggressive Growth Portfolio, Class C, .81% and 2.81%, Large-Cap
Blend Portfolio, Class A, .80% and 2.15%, Large-Cap Blend Portfolio, Class

B, .85% and 2.85%, and Large-Cap Blend Portfolio, Class C, 1.57% and 3.57%.

<PAGE>

Summary of Expenses (continued)

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

LARGE-CAP SMALL-CAP INTERNATIONAL
VALUE PORTFOLIO VALUE PORTFOLIO VALUE PORTFOLIO EQUITY PORTFOLIO
--------------------------------------------------------------------------------- --------------------------
Class Class Class Class Class Class Class Class Class Class Class Class
A B C A B C A B C A B C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction
Expenses
Maximum Initial
Sales Load(1) 5.75% None None 5.75% None None 5.75% None None 5.75% None None
Maximum Sales
Load on Reinvested
Dividends None None None None None None None None None None None None
Maximum Deferred
Sales Load(2) None 4.00% 1.00% None 4.00% 1.00% None 4.00% 1.00% None 4.00% 1.00%
Redemption Fees(3) None None None None None None None None None None None None
Exchange Fees None None None None None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------

Annual Portfolio
Operating
Expenses (as a
percentage of
average net assets)
Management Fees 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.10% 1.10% 1.10%
12b-1 Fees (4) 0.35% 1.00% 1.00% 0.35% 1.00% 1.00% 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
Other Expenses (net .43% .43% .43% .43% .43% .43% .43% .43% .43% .58% .58% .58%
of fee
waivers/expense
reimbursements)(5)
Total Operating
Expenses (net of fee 1.78% 2.43% 2.43% 1.78% 2.43% 2.43% 1.78% 2.43% 2.43% 2.03% 2.68% 2.68%
waivers/expense ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
reimbursements)(5)
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1,000,000 or more. See "Purchase of
Shares."
(2) Purchases of Class A shares in excess of $1,000,000 will be subject to a
CDSC on redemptions made within one year of purchase. The CDSC on Class B
shares applies only if a redemption occurs within six years from their
purchase date. The CDSC on Class C shares applies only on redemptions made
within one year of purchase.
(3) A $15.00 fee may be imposed for wire redemptions.

marketing material and attending to other shareholder matters. Class B or
Class C shareholders who own their shares for an extended period of time
may pay more in Rule 12b-1 distribution fees than the economic equivalent
of the maximum front-end sales charge permitted under the Conduct Rules of
the National Association of Securities Dealers, Inc.
(5) Effective June 17, 1997, with respect to the Value Portfolio and
International Equity Portfolio, and the date of commencement of operations
with respect to the Large-Cap Value Portfolio and Small-Cap Value
Portfolio, SunAmerica has voluntarily agreed to waive fees or reimburse
expenses, if necessary, to keep operating expenses at or below an annual
rate of 1.78% of the average daily net assets of Class A shares and 2.43%
of the average daily net assets of Class B and Class C shares for each such
Portfolio (other than the International Equity Portfolio) and 2.03% of the
average daily net assets of Class A shares and 2.68% of the average daily
net assets of Class B and Class C shares for the International Equity
Portfolio. Prior to June 17 , 1997, SunAmerica voluntarily agreed to waive
fees or reimburse expenses to keep annual operating expenses at or below an
annual rate of 1.90% of the average daily net assets of Class A shares and
2.55% of the average daily net assets of Class B and Class C shares for the
Value Portfolio, and 2.15% of the average daily net assets of Class A
shares and 2.80% of the average daily net assets of Class B and Class C
shares for the International Equity Portfolio. The information provided in
the table represents estimated amounts for the current fiscal year net of
the current fee waivers/expense reimbursements. Absent such fee
waivers/expense reimbursements, estimated annual Other Expenses and Total
Operating Expenses would be: Large-Cap Value Portfolio, Class A, .78% and
2.13%, Large-Cap Value Portfolio, Class B, .81% and 2.81%, Large-Cap Value
Portfolio, Class C, 1.41% and 3.41%, Value Portfolio, Class A, .59% and
1.94%, Value Portfolio, Class B, .57% and 2.57%, Value Portfolio, Class C,
.71% and 2.71%, Small-Cap Value Portfolio, Class A, .80% and 2.15%,
Small-Cap Value Portfolio, Class B, .89% and 2.89%, Small-Cap Value
Portfolio, Class C, 1.77% and 3.77%, International Equity Portfolio, Class
A, .95% and 2.40%, International Equity Portfolio, Class B, 1.00% and
3.10%, and International Equity Portfolio, Class C, 2.03% and 4.13%.

EXAMPLE:

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

<PAGE>

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
---------------------
Large-Cap Growth Portfolio

(Class A shares) $75 $110
(Class B shares)* $65 $106
(Class C shares) $35 $76
Mid-Cap Growth Portfolio
(Class A shares) $75 $110
(Class B shares)* $65 $106
(Class C shares) $35 $76
Aggressive Growth Portfolio
(Class A shares) $75 $110
(Class B shares)* $65 $106
(Class C shares) $35 $76
Large-Cap Blend Portfolio
(Class A shares) $75 $110
(Class B shares)* $65 $106
(Class C shares) $35 $76
Large-Cap Value Portfolio
(Class A shares) $75 $110
(Class B shares)* $65 $106
(Class C shares) $35 $76
Value Portfolio
(Class A shares) $75 $110
(Class B shares)* $65 $106
(Class C shares) $35 $76
Small-Cap Value Portfolio
(Class A shares) $75 $110
(Class B shares)* $65 $106
(Class C shares) $35 $76
International Equity
Portfolio
(Class A shares) $77 $118
(Class B shares)* $67 $113
(Class C shares) $37 $83

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

1 YEAR 3 YEARS
---------------------
Large-Cap Growth Portfolio
(Class A shares) $75 $110
(Class B shares)* $25 $76
(Class C shares) $25 $76
Mid-Cap Growth Portfolio

(Class A shares) $75 $110
(Class B shares)* $25 $76
(Class C shares) $25 $76
Aggressive Growth Portfolio
(Class A shares) $75 $110
(Class B shares)* $25 $76
(Class C shares) $25 $76
Large-Cap Blend Portfolio
(Class A shares) $75 $110
(Class B shares)* $25 $76
(Class C shares) $25 $76
Large-Cap Value Portfolio
(Class A shares) $75 $110
(Class B shares)* $25 $76
(Class C shares) $25 $76
Value Portfolio
(Class A shares) $75 $110
(Class B shares)* $25 $76
(Class C shares) $25 $76
Small-Cap Value Portfolio
(Class A shares) $75 $110
(Class B shares)* $25 $76
(Class C shares) $25 $76
International Equity
Portfolio
(Class A shares) $77 $118
(Class B shares)* $27 $83
(Class C shares) $27 $83

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

The foregoing examples, including the 5% return and the expenses used, are
intended to assist investors in understanding the costs and expenses that a
shareholder in the Fund will bear directly or indirectly, and should not be
considered a representation of past or future performance or expenses. For more
complete descriptions of the various costs and expenses, see "Purchase of
Shares." Actual expenses may be greater or less than those shown.

<PAGE>

Financial Highlights
- --------------------------------------------------------------------------------

The following unaudited Financial Highlights are for the period November 19,
1996 (commencement of operations) through April 30, 1997 with respect to Class A
and Class B shares, and for the period March 6, 1997 (initial offering of Class
C shares) through April 30, 1997, with respect to Class C shares of the Mid-Cap
Growth Portfolio, Aggressive Growth Portfolio, Value Portfolio and International
Equity Portfolio. These Financial Highlights should be read in conjunction with

the unaudited financial statements and notes thereto, which are included in the
Statement of Additional Information and are incorporated by reference herein.
Shares of the Large-Cap Growth Portfolio, Large-Cap Blend Portfolio, Large-Cap
Value Portfolio and Small-Cap Value Portfolio will be first offered as of the
date of this Prospectus.

Net gain
(loss) on
Net Asset Investments Dividends
Value Net (both Total from from net Distributions
beginning Investment realized and Investment Investment from capital Total
Period of period Income (1) unrealized) operations Income gains distributions
------ --------- ---------- ----------- ---------- ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MID-CAP GROWTH
PORTFOLIO
- --------------
Class A
11/19/96-4/30/97 $12.50 $(0.06) $(1.42) $(1.48) $ --- $ --- $ ---

Class B
11/19/96-4/30/97 12.50 (0.10) (1.41) (1.51) ----- ----- -----

Class C
3/06/97-4/30/97 11.93 (0.03) (0.91) (0.94) ----- ----- -----

AGGRESSIVE GROWTH
PORTFOLIO
- -----------------
Class A
11/19/96-4/30/97 $12.50 $(0.02) $0.03 $0.01 $---- $---- $----

Class B
11/19/96-4/30/97 12.50 (0.06) 0.04 (0.02) ----- ----- -----

Class C
3/06/97-4/30/97 13.38 (0.01) (0.88) (0.89) ----- ----- -----

VALUE PORTFOLIO
- ---------------
Class A
11/19/96-4/30/97 $12.50 $0.01 $1.03 $1.04 $---- $---- $----

Class B
11/19/96-4/30/97 12.50 (0.04) 1.04 1.00 ----- ----- -----

Class C
3/06/97-4/30/97 13.56 (0.02) (0.04) (0.06) ----- ----- -----

INTERNATIONAL EQUITY

PORTFOLIO
- --------------------
Class A
11/19/96-4/30/97 $12.50 $0.02 $(0.04) $(0.02) $---- $---- $----

Class B
11/19/96-4/30/97 12.50 0.02 (0.08) (0.06) ----- ----- -----

Class C
3/06/97-4/30/97 12.60 0.03 (0.18) (0.15) ----- ----- -----
</TABLE>

<TABLE>
<CAPTION>
Ratio of net
Net Asset Net Assets Ratio of investment
Value, Total end of expenses to Income to Average
end of Return period average net average net Portfolio commission per
Period period (2) (000's) assets (3)(4) assets (3)(4) turnover share (5)
------ ------ --- ------- ------------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
MID-CAP GROWTH
PORTFOLIO
- --------------

11/19/96-4/30/97 $11.02 (11.84)% $21,055 1.90% (1.04)% 38% $0.0472

11/19/96-4/30/97 10.99 (12.08) 15,551 2.55 (1.76) 38 0.0472

3/06/97-4/30/97 10.99 (7.88) 855 2.55 (1.80) 38 0.0472

AGGRESSIVE GROWTH
PORTFOLIO
- -----------------

11/19/96-4/30/97 $12.51 0.08% $31,278 1.90% (0.27)% 95% $0.0544

11/19/96-4/30/97 12.48 (0.16) 18,723 2.55 (0.91) 95 0.0544

3/06/97-4/30/97 12.49 (6.65) 1,161 2.55 (0.64) 95 0.0544

VALUE PORTFOLIO
- ---------------

11/19/96-4/30/97 $13.54 8.32% $35,691 1.90% 0.16% 16% $0.0600

11/19/96-4/30/97 13.50 8.00 25,641 2.55 (0.62) 16 0.0600

3/06/97-4/30/97 13.50 (0.44) 1,875 2.55 (0.83) 16 0.0600

INTERNATIONAL EQUITY

PORTFOLIO
- --------------------

11/19/96-4/30/97 $12.48 (0.16)% $22,995 2.15% 0.32% 14% $0.0175

11/19/96-4/30/97 12.44 (0.48) 14,123 2.80 0.31 14 0.0175

3/06/97-4/30/97 12.45 (1.19) 1,095 2.80 1.39 14 0.0175
</TABLE>
- --------------------------------------------

(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Annualized

(4) Net of the following expense reimbursements (based on average net assets)
Mid-Cap Growth Portfolio, Class A....................28%
Mid-Cap Growth Portfolio, Class B....................44%
Mid-Cap Growth Portfolio, Class C..................3.16%
Aggressive Growth Portfolio, Class A.................22%
Aggressive Growth Portfolio, Class B.................35%
Aggressive Growth Portfolio, Class C...............2.14%
Value Portfolio, Class A.............................26%
Value Portfolio, Class B.............................36%
Value Portfolio, Class C...........................1.67%
International Equity Portfolio, Class A..............35%
International Equity Portfolio, Class B..............53%
International Equity Portfolio, Class C............3.22%

(5) The average commission per share is derived by
taking the agency commissions paid on equity
securities trades and dividing by the number of
shares purchased and sold

<PAGE>

Style-Based Investing

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

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

SunAmerica will generally allocate investments in each Portfolio (and redemption
requests) equally among its three Advisers. 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. SunAmerica intends, on a quarterly basis, to
review the asset allocation in each Portfolio to ensure that no portion of
assets managed by an Adviser exceeds that portion managed by any other Adviser
to the Portfolio by more than 5%. If such a condition exists, SunAmerica will
then re-allocate cash flows among the three Advisers, differently from the
manner described above, in an effort to effect a re-balancing of the Portfolio's
asset allocation. SunAmerica does not intend, but reserves the right, to effect
such a re-balancing of asset allocation by re-allocating assets from one Adviser
to another. Re-balancing may involve re-directing cash flows from a better
performing Adviser to one with relatively lower returns.

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

Investment Objectives and Policies

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

The investment objective of each Portfolio is long-term growth of capital, and
each Portfolio seeks to achieve its investment objective primarily through
investment in equity securities. There can be no assurance that any Portfolio's
investment objective will be met or that the net return on an investment in a
Portfolio will exceed that which could have been obtained through other
investment or savings vehicles. The section "Investment Techniques and Risk
Factors" contains a discussion of certain types of other securities in which
each Portfolio may invest 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 philosophy.

Except as specifically indicated, each Portfolio's respective investment
objective and the investment policies and strategies described herein are not
fundamental policies of the Portfolio and may be changed by the Board without
the approval of shareholders. Certain investment restrictions may not be changed
without a majority vote of the outstanding voting securities of that Portfolio.
Each Portfolio's fundamental investment restrictions are described in the
Statement of Additional Information. For purposes of any investment policies or
restrictions discussed below, the percentage limitations of each Portfolio will
be applied by each Adviser to the portion of the Portfolio's assets managed by
that Adviser and will be determined at the time of

<PAGE>

an investment. SunAmerica, however, is ultimately responsible for overseeing
compliance by the Advisers, and will in such capacity verify that in the
aggregate the investments of each Portfolio complies with applicable percentage
limitations.

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

The Growth Portfolios
- -------------------------------------------------------------------------------

The Growth Portfolios consist of the Large-Cap Growth Portfolio, Mid-Cap Growth
Portfolio and Aggressive Growth Portfolio. Under normal conditions, at least 65%
of each Growth Portfolio's total assets will be invested in equity securities
(including common and preferred stocks and other securities having equity
features, such as convertible securities, warrants and rights). The issuers of
such securities are companies considered by the respective Advisers to have a
historical record of above-average growth rate; to have significant growth
potential; above-average earnings growth or value or the ability to sustain
earnings growth; to offer proven or unusual products or services; or to operate
in industries experiencing increasing demand. The Advisers may select certain of
such securities because they consider them to be undervalued in the market. Each
of the Growth Portfolios may also invest in debt securities that the Advisers
expect have the potential for capital appreciation which are rated as low as
"BBB" by Standard & Poor's Corporation, a Division of the McGraw-Hill Companies
("S&P"), or "Baa" by Moody's Investors Service, Inc. ("Moody's") or, if unrated,
determined by the Adviser to be of equivalent quality. The Large-Cap Growth
Portfolio and the Aggressive Growth Portfolio may also invest in debt securities
rated below "BBB" or "Baa" or unrated securities of comparable quality (junk
bonds). See "Fixed Income Securities" in "Investment Techniques and Risk
Factors" below for a discussion of the risks associated with investing in such
securities. The investment polices and strategies specific to each of the Growth
Portfolios are described below.

Large-Cap Growth Portfolio. The Large-Cap Growth Portfolio, advised by Janus,
Papp and Montag & Caldwell, will invest, under normal circumstances, at least
65% of the Portfolio's total assets in the securities of companies that have, at
the time of purchase, a market capitalization in excess of $5 billion
("Large-Cap Companies").

Large-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"), American Stock Exchange
("AMEX") or on another national or international stock exchange or, in some
cases, are traded over-the-counter.

The Portfolio may also invest up to 35% of its total assets in securities of
issuers other than Large-Cap Companies. These investments may include equity
securities of companies with market capitalizations below $5 billion, including
companies with market capitalizations of less than $1 billion, and debt
securities that the Advisers expect have the potential for capital appreciation.
See "Investment in Small-Cap Companies" and "Fixed Income Securities" in
"Investment Techniques and Risk Factors" below for a discussion of the risks
associated with investing in such securities.

Mid-Cap Growth Portfolio. The Mid-Cap Growth Portfolio, advised by MAS, Pilgrim
Baxter and T. Rowe Price, will invest, under normal circumstances, at least 65%
of the Portfolio's total assets in the securities of medium-sized companies that
have, at the time of purchase, a market capitalization between $1 billion and $5
billion ("Mid-Cap Companies").

<PAGE>

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 NYSE or another national or international stock exchange or, in
some cases, are traded over-the-counter. Such companies, however, may be less
seasoned than Large-Cap Companies, as defined in "Large-Cap Growth Portfolio,"
above. In general, the securities of Mid-Cap Companies may be more volatile than
those of Large-Cap Companies.

The Portfolio may also invest up to 35% of its total assets in securities of
issuers other than Mid-Cap Companies. These investments may include equity
securities of Large-Cap Companies and companies with market capitalizations of
less than $1 billion, and debt securities that the Advisers expect have the
potential for capital appreciation. See "Investment in Small-Cap Companies" and
"Fixed Income Securities" in "Investment Techniques and Risk Factors" below for
a discussion of the risks associated with investing in such securities.

Aggressive Growth Portfolio. The Aggressive Growth Portfolio, advised by Janus,
SunAmerica and Warburg, will invest in equity securities to aggressively and
selectively seek long-term total return, without regard to the market
capitalization of an issuer. Generally, the Portfolio will invest in securities
of companies that have, at the time of purchase, a market capitalization of less
than $1 billion ("Small-Cap Companies") or Mid-Cap Companies, as defined in
"Mid-Cap Growth Portfolio," above. The Advisers may also purchase securities of
Large-Cap Companies, as defined in "Large-Cap Growth Portfolio," above.

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 or
Large-Cap Companies. Small-Cap Companies frequently will be in businesses or
industries involving new, recently developed products, services, or
technologies, or may be in businesses that are out of favor with or have not yet
been discovered by the broader investment community. 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.

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 may be subject to more
volatility than if such assets were invested in larger companies. See
"Investment in Small-Cap Companies" in "Investment Techniques and Risk Factors."
In addition, the Portfolio may invest up to 35% of its total assets in debt
securities that the Advisers expect have the potential for capital appreciation.
See "Fixed Income Securities" in "Investment Techniques and Risk Factors" below
for a discussion of the risks associated with investing in such securities.

The Blend Portfolio
- -------------------------------------------------------------------------------

The Fund currently offers one Blend Portfolio, the Large-Cap Blend Portfolio,
the investment policies and strategies of which are described below.

Large-Cap Blend Portfolio. The Large-Cap Blend Portfolio, advised by Lazard,
SunAmerica and T. Rowe Price, will invest, under normal circumstances, at least
65% of the Portfolio's total assets in equity securities (including common and
preferred stocks and other securities having equity features, such as
convertible securities, warrants and rights) of Large-Cap Companies. Large-Cap
Companies have, at the time of purchase, a market capitalization in excess of $5
billion. Large-Cap Companies generally will be companies that have a substantial
record of operations

<PAGE>

(i.e., in business for at least five years) and are listed for trading on the
NYSE, AMEX or on another national or international stock exchange or, in some
cases, are traded over-the-counter. In selecting equity securities of Large-Cap
Companies, an Adviser will seek to achieve a blend of what it considers to be
growth companies, value companies and companies which the adviser believes have
elements of both growth and value. An Adviser will normally select securities of
companies whose earnings are expected by the Adviser to grow and to be able to
support a growing dividend payment, as well as securities that do not pay
dividends currently but offer prospects of appreciation and future income.
Investments will be identified based upon factors including undervalued assets
or earnings potential, favorable operating or price to cash flow ratios, a
below-average price to book value ratio, a below-average price to earnings ratio
and, although current income will not always be a significant factor in
selecting securities, an above-average dividend yield. Investments will also be
identified based upon other factors including above-average earnings growth and
cash flow sufficient to support growing dividends, as well as the prospect for
capital appreciation and future dividend payments with respect to securities
that do not currently pay dividends.

The Large-Cap Blend Portfolio may invest up to 35% of its total assets in
securities of issuers other than Large-Cap Companies. These investments may
include equity securities of companies with market capitalizations below $5
billion, including companies with market capitalizations of less than $1
billion. These investments may also include debt securities that the Advisers
expect to have the potential for capital appreciation, including debt securities
rated below "BBB" by S&P, or "Baa" by Moody's, or, if unrated, determined by the
Advisers to be of equivalent quality (junk bonds). See "Investment in Small-Cap
Companies" and "Fixed Income Securities" in "Investment Techniques and Risk
Factors" below for a discussion of the risks associated with investing in such
securities.

The Value Portfolios
- -------------------------------------------------------------------------------

The Value Portfolios consist of the Large-Cap Value Portfolio, Value Portfolio
and Small-Cap Value Portfolio. Under normal circumstances, at least 65% of each
Value Portfolio's total assets will be invested in equity securities (including
common and preferred stocks and other securities having equity features, such as
convertible securities, warrants and rights). The Advisers will normally select
securities that they believe are selling at a price that is low relative to
their worth. Investments will be identified based upon factors including
undervalued assets or earnings potential, favorable operating or price to cash
flow ratios, a below-average price to book value ratio, a below-average price to
earnings ratio and, although current income will not always be a significant
factor in selecting securities, an above-average dividend yield. In addition,
the Advisers may take into account such other factors as an issuer's product
demand and development, resources for expansion, quality of management, overall
favorable business prospects and industry fundamentals. While the Advisers seek
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 Value Portfolios for a long period, if at all. In
addition, there is the risk that a security judged to be undervalued by the
Advisers is actually appropriately priced due to fundamental problems with the
issuer's business prospects that are not yet apparent. Each of the Value
Portfolios may invest in debt securities that the Advisers expect to have the
potential for capital appreciation, which are rated as low as "BBB" by S&P, or
"Baa" by Moody's, or, if unrated, determined by the Advisers to be of equivalent
quality. The Value Portfolio and Small-Cap Value Portfolio may also invest in
debt securities rated below "BBB" or "Baa" or unrated securities of comparable
quality (junk bonds). See "Fixed Income Securities" in "Investment Techniques
and Risk Factors" below for a discussion of the risks associated with

<PAGE>

investing in such securities. The investment policies and strategies specific to
each of the Value Portfolios are described below.

Large-Cap Value Portfolio. The Large-Cap Value Portfolio, advised by Babson,
Davis and Wellington Management, will invest, under normal circumstances, at

least 65% of the Portfolio's assets in securities of Large-Cap Companies that
the Advisers believe are selling at a price that is low relative to their worth.
Large-Cap Companies have, at the time of purchase, a market capitalization in
excess of $5 billion. Large-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 NYSE, AMEX or on another national or
international stock exchange or, in some cases, are traded over-the-counter.

The Portfolio may also invest up to 35% of its total assets in securities of
issuers other than Large-Cap Companies. These investments may include equity
companies with market capitalizations below $5 billion, including companies with
market capitalizations of less than $1 billion, and debt securities that the
Advisers expect to have the potential for capital appreciation. See "Investment
in Small-Cap Companies" and "Fixed Income Securities" in "Investment Techniques
and Risk Factors" below for a discussion of the risks associated with investing
in such securities.

Value Portfolio. The Value Portfolio, advised by Davis, Neuberger&Berman, and
Strong/Schafer, will invest, under normal circumstances, in securities that the
Advisers believe are selling at a price that is low relative to their worth,
without regard to the market capitalization of the issuer. It is anticipated
that a significant portion of the Portfolio's assets as a whole will generally
be invested in securities of Mid-Cap Companies, which have, at the time of
purchase, a market capitalization between $1 billion and $5 billion; however,
any particular Adviser may not necessarily invest a significant portion of the
Portfolio's assets allocated to it in such companies. 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 NYSE,
AMEX or on another national or international stock exchange or, in some cases,
are traded over-the-counter. Investing in such companies may have greater risks
than investing in larger companies.

The Portfolio may also invest up to 35% of its total assets in debt securities
that the Advisers expect to have the potential for capital appreciation. See
"Fixed Income Securities" in "Investment Techniques and Risk Factors."

Small-Cap Value Portfolio. The Small-Cap Value Portfolio, advised by Berger/PWM,
Lazard and Glenmede, will invest under normal circumstances, at least 65% of the
Portfolio's total assets in securities of Small-Cap Companies that the Advisers
believe are selling at a price that is low relative to their worth. Small-Cap
Companies have, at the time of purchase, a market capitalization of less than $1
billion. 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 or Large-Cap Companies. Small-Cap Companies frequently will be in
businesses or industries involving new, recently developed products, services,
or technologies, or may be in businesses that are out of favor with or have not
yet been discovered by the broader investment community. 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. In
general, to the extent that the Portfolio's assets are invested in Small-Cap

Companies, the Portfolio's net asset value may be subject to more volatility
than if such assets were invested in larger companies. See "Investment in
Small-Cap Companies" in "Investment Techniques and Risk Factors."

<PAGE>

The Portfolio may also invest up to 35% of its total assets in equity securities
of issuers other than Small-Cap Companies and in debt securities that the
Advisers expect have the potential for capital appreciation. See "Fixed Income
Securities" in "Investment Techniques and Risk Factors" below for a discussion
of the risks associated with investing in such securities.

The International Portfolio
- -------------------------------------------------------------------------------

The Fund currently offers one International Portfolio, the International Equity
Portfolio, the investment policies and strategies of which are described below.

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

The Portfolio will invest in securities of companies without regard to their
market capitalization. However, investing in smaller companies may have greater
risks than investing in larger companies. See "Investment in Small-Cap
Companies" in "Investment Techniques and Risk Factors." The Portfolio may also
invest from time to time in companies located in countries considered to be
emerging markets (i.e., those generally considered to be in emerging or
developing countries). 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 Advisers expect 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 Advisers to be of equivalent quality (junk
bonds). See "Fixed Income Securities" in "Investment Techniques and Risk
Factors" below for a discussion of the risks associated with investing in such

securities.

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

Set forth below is historical performance data relating to each of the Advisers
selected by SunAmerica for the Portfolios. The performance information presented
below is based on data provided by each Adviser relating to accounts managed by
that Adviser that have investment objectives and policies similar (although not
necessarily identical) to the relevant Portfolio and are advised by that Adviser
using investment styles and strategies substantially similar to those to be
employed by that Adviser in advising its portion of the Portfolio. THE
PERFORMANCE INFORMATION SET FORTH BELOW DOES NOT REPRESENT THE PERFORMANCE OF
THE FUND OR ANY PORTFOLIO. The Fund is recently organized and the Mid-Cap
Growth, Aggressive Growth, Value and International Equity Portfolios have
performance records of less than a year. The Large-Cap Growth, Large-Cap Blend,
Large-Cap Value and Small-Cap Value

<PAGE>

Portfolios will commence operations on or about the date of this Prospectus. The
following performance should not be considered a prediction of future
performance of the Fund or any Portfolio. The performance of a particular
Portfolio may be higher or lower than that shown below.

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

All information is based on data supplied by the Advisers or Morningstar, Inc.
("Morningstar") and believed by the Fund to be reliable. However, such
information has not been verified, and unless otherwise indicated in the
endnotes to the tables set forth below, has not been audited. Where an Adviser's
performance is based on a single account, performance has been calculated in
accordance with prescribed Securities and Exchange Commission guidelines. Where
composite performance information is provided, the total return for each
Adviser's composite performance has been calculated in accordance with
Performance Presentation Standards of the Association for Investment Management
and Research ("AIMR"). Unless otherwise indicated, the performance, while having
been calculated in accordance with either Securities and Exchange Commission or
AIMR methodology, has not been independently verified or audited. AIMR's method
of calculating performance differs from that of the Securities and Exchange
Commission. Performance figures for any particular Adviser do not necessarily
reflect all of the Adviser's assets under management and may not accurately
reflect the performance of all accounts managed by the Adviser.

The performance information in the following tables is presented net of actual
fees charged by the individual Advisers, except as otherwise noted, and reflects
the imposition of any sales loads or charges, if applicable. If the performance
figures are net of actual fees, they do not reflect the operating expenses of
the Portfolio (such as Rule 12b-1 fees) or any applicable sales charge. In the
event that the performance figures are not net of actual fees, they are instead
presented net of the highest annual expenses charged to any account which is
included in the particular composite.

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

Finally, for each period presented, the investment performance for the Advisers
of each Portfolio, is compared to the average performance of a group of similar
mutual funds tracked by Morningstar. Morningstar calculates its group averages
by taking a mathematical average of the returns of the funds included in the
group.

<PAGE>

Advisers for Large-Cap Growth Portfolio
- -------------------------------------------------------------------------------

The Advisers for the Large-Cap Growth Portfolio are:

Janus Capital Corporation (Janus)
L. Roy Papp & Associates (Papp)
Montag & Caldwell, Inc. (Montag & Caldwell)

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

ANNUALIZED TOTAL RETURNS
- -------------------------------------------------------------------------------

Periods Ended June 30, 1997

Advisers' Past Performance (Bar Chart)

1 Year

Morningstar Large Growth Category 25.1%
Janus 27.9%
Papp 39.8%
Montag & Caldwell 41.3%

3 Years

Morningstar Large Growth Category 24.2%
Janus 28.7%
Papp 35.3%
Montag & Caldwell 34.1%

5 Years

Morningstar Large Growth Category 17.2%
Janus 17.5%
Papp 21.6%
Montag & Caldwell 23.9%

NOTES (Large-Cap Growth Portfolio)
- -------------------------------------------------------------------------------

Individual Adviser Performance

<PAGE>

Except as otherwise noted below, an Adviser's performance is presented net of
actual fees and reflects the imposition of any sales loads or charges, if
applicable. The Portfolio's fees and expenses may be greater than those charged
by the individual Advisers. Accordingly, the Portfolio's actual performance
results may be less.

Janus

Janus' historical performance data covers 9 1/2 years (the period since
inception) and reflects the performance of the Janus Earnings Growth Composite
(which includes mutual funds). The annualized return since inception of the
composite is 20.0% as of June 30, 1997. The composite includes all accounts with
investment objectives, policies and strategies substantially similar to those to
be used by Janus in managing its portion of the Large-Cap Growth Portfolio,
except that 38 such accounts, with net assets totaling $62 million (less than 1%
of the total assets in the 78 similar accounts), have been omitted from the
composite. Such omission, however, does not render the performance information
presented misleading. As of June 30, 1997, the composite included 40 accounts
with aggregate assets of $11.8 billion. The composite returns are presented net
of actual fees. None of the accounts included in the composite bears any sales
loads or charges.

Papp

Papp's historical performance data covers 5 1/2 years (the period since
inception) and reflects the performance of a single account, which is a no-load
mutual fund. The annualized return since inception of the account is 20.4% as of
June 30, 1997. This account represents the only account managed by Papp with an
investment objective and investment policies and strategies substantially
similar to those to be used by Papp in managing its portion of the Large-Cap
Growth Portfolio. As of June 30, 1997, the account's net assets totaled $157.8
million. The returns are presented net of actual fees.

Montag & Caldwell

Montag & Caldwell's historical performance data covers 10 years and reflects the
performance of the Montag & Caldwell Growth Composite. The annualized ten-year
return of the composite is 18.0% as of June 30, 1997. The composite includes all
accounts with investment objectives, policies and strategies substantially
similar to those to be used by Montag & Caldwell in managing its portion of the
Large-Cap Growth Portfolio, except that 11 such accounts, with net assets
totaling $20 million (less than 1% of the total assets in the 125 similar
accounts), have been omitted from the composite. Such omission, however, does
not render the performance information presented misleading. As of June 30,
1997, the composite included 114 accounts with aggregate assets of $4.8 billion.
The composite returns are presented net of actual fees. None of the accounts
included in the composite bears any sales load or charges.

Morningstar Large Growth Category

Developed by Morningstar, the Morningstar Large Growth Category currently
reflects a group of 209 mutual funds which have portfolios with median market
capitalizations, price/earnings ratios, and price/book ratios similar to those
expected for the Large-Cap Growth Portfolio.

<PAGE>

GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------------------------------------------

Five Years Ended June 30, 1997

Growth of a $10,000 Investment (Mountain Chart)

Morningstar
Large Growth
Janus Papp Montag & Caldwell Category

1992 $10,000 $10,000 $10,000 $10,000
1993 $11,490 $10,179 $11,200 $11,392

1994 $10,674 $10,750 $12,085 $11,299
1995 $13,514 $14,611 $15,928 $14,133
1996 $17,784 $19,032 $20,642 $17,335
1997 $22,746 $26,609 $29,168 $21,653

NOTE (Large-Cap Growth Portfolio)
- -------------------------------------------------------------------------------

Growth of a $10,000 Investment

The "Growth of $10,000" chart reflects five and one-half years of performance
data for the Janus Earnings Growth Composite, L. Roy Papp American-Abroad Fund,
and Montag & Caldwell Growth Composite. The returns for the Janus Earnings
Growth Composite, L. Roy Papp American-Abroad Fund, and Montag & Caldwell Growth
Composite are net of actual expenses.

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

The Advisers for the Mid-Cap Growth Portfolio are:

Miller Anderson & Sherrerd, LLP (MAS)
Pilgrim Baxter & Associates, Ltd. (Pilgrim Baxter)
T. Rowe Price Associates, Inc. (T. Rowe Price)

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

PORTFOLIO PERFORMANCE
- -------------------------------------------------------------------------------

The Portfolio's total return since inception (November 19, 1996) through June
30, 1997 was 1.6%.

<PAGE>

ANNUALIZED TOTAL RETURNS
- -------------------------------------------------------------------------------

Periods Ended June 30, 1997

Advisers' Past Performance (Bar Chart)

1 Year

Morningstar Mid-Cap Category 10.8%
MAS 7.6%
Pilgrim Baxter -6.4%
T. Rowe Price 17.2%

3 Years

Morningstar Mid-Cap Category 21.9%
MAS 24.9%
Pilgrim Baxter 24.1%
T. Rowe Price 25.8%
5 Years

Morningstar Mid-Cap Category 17.3%
MAS 18.4%
Pilgrim Baxter 17.7%
T. Rowe Price 24.1%

NOTES (Mid-Cap Growth Portfolio)
- -------------------------------------------------------------------------------

Individual Adviser Performance

Except as otherwise noted below, an Adviser's performance is presented net of
actual fees and reflects the imposition of any sales load or charges, if
applicable. The Portfolio's fees and expenses may be greater than those charged
by the individual Advisers. Accordingly, the Portfolio's actual performance
results may be less.

MAS

MAS' historical performance data covers 7 1/4 years (the period since inception)
and reflects the performance of a single account, which is a no-load mutual
fund. The annualized return since inception of the account is 19.1% as of June
30, 1997. This account represents the only account managed by MAS with an
investment objective and investment policies and strategies substantially
similar to those to be used by MAS in managing its portion of the Mid-Cap Growth
Portfolio. As of June 30, 1997, the account's net assets totaled $387.9 million.
The returns are presented net of actual fees.

<PAGE>

Pilgrim Baxter

Pilgrim Baxter's historical performance data covers 10 years and reflects the
performance of the Pilgrim Baxter Mid-Cap Composite. The annualized ten-year
return of the composite is 12.3% as of June 30, 1997. The composite includes all
accounts with investment objectives, policies and strategies substantially

similar to those to be used by Pilgrim Baxter in managing its portion of the
Mid-Cap Growth Portfolio. As of June 30, 1997, the composite included 11
accounts totaling $1.3 billion, which represented 9.3% of all equity accounts
under management. The composite returns are presented net of actual fees. None
of the accounts included in the composite bears any sales loads or charges.

T. Rowe Price

T. Rowe Price's historical performance data covers approximately 5 years (the
period since inception) and reflects the performance of a single account, which
is a no-load mutual fund. The five-year annualized return of the account is
24.1% as of June 30, 1997. T. Rowe Price manages a total of 6 accounts (all of
which are mutual funds) with an investment objective, policies and strategy
substantially similar to those to be used in managing its portfolio of the
Mid-Cap Growth Portfolio. T. Rowe Price does not calculate composite performance
for mutual fund accounts. Of the other 5 accounts, 4 do not have performance
records as of June 30, 1997. The omission of the fifth account, with assets of
approximately $92 million (approximately 5% of the total assets in the 6
accounts), does not render the performance information presented misleading. As
of June 30, 1997, the account's net assets totaled approximately $1.3 billion.
The returns are presented net of actual fees.

Morningstar Mid-Cap Growth Category

Developed by Morningstar, the Morningstar Mid-Cap Growth Category
currently reflects a group of 334 mutual funds which have portfolios with
similar median market capitalizations, price/earnings ratios, and price/book
ratios similar to those expected for the Mid-Cap Growth Portfolio.

GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------------------------------------------

Five Years Ended June 30, 1997

Growth of a $10,000 Investment (Mountain Chart)

Pilgrim T. Rowe Morningstar Mid-Cap
MAS Baxter Price Category

1992 $10,000 $10,000 $10,000 $10,000
1993 $11,857 $12,830 $13,688 $12,396
1994 $11,902 $11,842 $14,797 $12,392
1995 $14,817 $16,318 $18,675 $15,869
1996 $21,330 $24,151 $25,095 $20,402
1997 $23,016 $22,606 $29,408 $22,609

<PAGE>

NOTE (Mid-Cap Growth Portfolio)
- -------------------------------------------------------------------------------

Growth of a $10,000 Investment

The "Growth of $10,000" chart reflects five years of performance data for the
Pilgrim Baxter Mid Cap Composite, T. Rowe Price Mid Cap Growth Fund, and MAS Mid
Cap Growth Fund. Returns for all time periods are net of actual expenses.

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

The Advisers for the Aggressive Growth Portfolio are:

Janus Capital Corporation (Janus)
SunAmerica Asset Management Corp. (SunAmerica)
Warburg Pincus Asset Management, Inc. (Warburg)

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

PORTFOLIO PERFORMANCE
- -------------------------------------------------------------------------------

The Portfolio's total return since inception (November 19, 1996) through June
30, 1997 was 14%.

ANNUALIZED TOTAL RETURNS
- -------------------------------------------------------------------------------

Periods Ended June 30, 1997

1 Year

Morningstar Aggressive Growth Category 7.5%
Janus 14.7%
SunAmerica -12.3%
Warburg 7.8%

3 Years

Morningstar Aggressive Growth Category 20.6%
Janus 35.8%
SunAmerica 21.0%
Warburg 23.6%
5 Years

<PAGE>

Morningstar Aggressive Growth Category 17.1%
Janus 26.2%
SunAmerica 18.0%
Warburg 19.3%

NOTES (Aggressive Growth Portfolio)
- -------------------------------------------------------------------------------

Individual Adviser Performance

Janus

Janus' historical performance data covers 7 1/2 years (the period since
inception) and reflects the performance of the Janus Aggressive Growth Composite
(which includes mutual funds). The annualized return since inception of the
composite is 24.4% as of June 30, 1997. The composite includes all accounts with
investment objectives, policies and strategies substantially similar to those to
be used by Janus in managing its portion of the Aggressive Growth Portfolio,
except that 12 such accounts, with net assets totaling $38.9 million (less than
5% of the total assets in the 27 similar accounts), have been omitted from the
composite. Such omission, however, does not render the performance information
presented misleading. As of June 30, 1997, the composite included 15 accounts
with aggregate assets of $782 million. The composite returns are presented net
of actual fees. None of the accounts included in the composite bears any sales
loads or charges.

SunAmerica

SunAmerica's historical performance data covers 10 years and reflects the
performance of a single account, which is a front-end load mutual fund. The
annualized ten-year return of the account is 13.3% as of June 30, 1997.
SunAmerica manages a total of 2 accounts (both of which are mutual funds) with
an investment objective, policies and strategy substantially similar to those to
be used in managing its portion of the Aggressive Growth Portfolio. SunAmerica
does not calculate composite performance for mutual fund accounts. The omission
of the other account, with assets of $62 million (approximately 28.5% of the
total assets in the 2 accounts), does not render the performance information
presented misleading. As of June 30, 1997, the account's net assets totaled
$155.5 million. The returns presented in the chart are net of actual fees and
reflect the imposition of a sales charge of 5.75%.

Warburg

<PAGE>

accounts (1 of which is an institutional account and 2 of which are mutual
funds) with an investment objective, policies and strategy substantially
similar to those to be used in managing its portion of the Aggressive Growth
Portfolio. Warburg does not calculate a combined composite performance for its
mutual fund accounts, nor does it calculate a combined composite of the
institutional account's performance and the mutual funds' performance. However,
the performance for the other 2 accounts was, in the aggregate, better than that
shown for the account and, therefore, the omission of such accounts does not
render the performance information presented misleading. As of June 30, 1997,
the account's net assets totaled $390.9 million, which represented approximately
22% of the total assets in the 3 similar accounts. The returns are presented
net of actual fees and sales charges.

Morningstar Aggressive Growth Category

Developed by Morningstar, the Morningstar Aggressive Growth Category
currently reflects a group of 131 mutual funds which seek rapid growth of
capital. The group typically employ strategies that involve greater risk than
those used by most equity funds.

GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------------------------------------------

Six Years Ended June 30, 1997

Growth of a $10,000 Investment (Mountain Chart)

Morningstar
Aggressive
Janus SunAmerica Warburg Growth
Objective

1991 $10,000 $10,000 $10,000 $10,000
1992 $12,333 $10,210 $12,027 $11,603
1993 $15,242 $14,064 $15,526 $14,811
1994 $15,747 $13,156 $15,381 $14,844
1995 $22,974 $18,887 $20,219 $19,209
1996 $34,407 $26,469 $26,867 $24,840

1997 $39,474 $24,614 $28,959 $26,803

NOTE (Aggressive Growth Portfolio)
- -------------------------------------------------------------------------------

Growth of a $10,000 Investment

The "Growth of $10,000" chart reflects six years of performance data for the
Janus Aggressive Growth Composite, SunAmerica Small Company Growth Fund and
Warburg Pincus Emerging Growth Fund. Returns for all time periods are net of
actual expenses.

Advisers for Large-Cap Blend Portfolio
- -------------------------------------------------------------------------------

The Advisers for the Large-Cap Blend Portfolio are:

<PAGE>

Lazard Asset Management (Lazard)
SunAmerica Asset Management Corp. (SunAmerica)
T. Rowe Price Associates, Inc. (T. Rowe Price)

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

ANNUALIZED TOTAL RETURNS
- -------------------------------------------------------------------------------

Periods Ended June 30, 1997

Advisers' Past Performance (Bar Chart)

1 Year

Morningstar Large Blend Category 28.8%
Lazard 30.0%
SunAmerica 24.2%
T. Rowe Price 29.1%

3 Years

Morningstar Large Blend Category 24.4%
Lazard 26.6%
SunAmerica 24.4%
T. Rowe Price 24.1%

5 Years

Morningstar Large Blend Category 17.4%

Lazard 20.2%
T. Rowe Price 18.5%

10 Years

Morningstar Large Blend Category 12.6%
Lazard 14.1%
T. Rowe Price 13.1%

NOTES (Large-Cap Blend Portfolio)
- -------------------------------------------------------------------------------

<PAGE>

Individual Adviser Performance

Except as otherwise noted below, an Adviser's performance is presented net of
actual fees, and reflects the imposition of any sales loads or charges, if
applicable. The Portfolio's fees and expenses may be greater than those charged
by the individual Advisers. Accordingly, the Portfolio's actual performance
results may be less.

Lazard

Lazard's historical performance data covers 10 years and reflects the
performance of Lazard's U.S. Equity Composite. The composite includes all
accounts with investment objectives, policies and strategies substantially
similar to those to be used by Lazard in managing its portion of the Large-Cap
Blend Portfolio, except that 37 such accounts, with net assets totaling $4.2
million (less than 1% of the total assets in the 91 similar accounts), have been
omitted from the composite. Such omission, however, does not render the
performance information presented misleading. As of June 30, 1997, the composite
included 54 accounts totaling over $6.8 billion in assets under management. The
returns are presented net of actual fees. None of the accounts included in the
composite bears any sales loads or charges.

SunAmerica

SunAmerica's historical performance data covers 3 years (the period since
inception) and reflects the performance of a single account, which is a
front-end load mutual fund. This account represents the only account managed by
SunAmerica with an investment objective and investment policies and strategies
substantially similar to those to be used by SunAmerica in managing its portion
of the Large-Cap Blend Portfolio. As of June 30, 1997, the fund's net assets
totaled $155.5 million. The returns presented in the chart are net of actual
fees and reflect the imposition of a sales charge of 5.75%.

T. Rowe Price

T. Rowe Price's historical performance data covers 10 years and reflects the
performance of a single account, which is a no-load mutual fund. According to T.
Rowe Price, this account represents the only investment vehicle managed by T.
Rowe Price with an investment objective and investment policies and strategies
substantially similar to those to be used by T. Rowe Price in managing its
portion of the Large-Cap Blend Portfolio. As of June 30, 1997, the account's net
assets totaled over $3.0 billion. The returns are presented net of actual fees.

Morningstar Large Blend Category

Developed by Morningstar, the Morningstar Large Blend Category currently
reflects a group of 679 mutual funds which have portfolios with median market
capitalizations, price/earnings ratios, and price/book ratios similar to those
expected for the Large-Cap Blend Portfolio.

GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------------------------------------------

Three Years Ended June 30, 1997

Growth of a $10,000 Investment (Mountain Chart)

<PAGE>

Morningstar Large
Lazard SunAmerica T. Rowe Price Blend Category

1994 $10,000 $10,000 $10,000 $10,000

1995 $12,630 $10,645 $11,878 $13,608

1996 $15,611 $14,436 $14,802 $14,867

1997 $20,294 $19,010 $19,121 $19,131

NOTE (Large-Cap Blend Portfolio)
- -------------------------------------------------------------------------------

Growth of a $10,000 Investment

The "Growth of $10,000" chart reflects three years of performance data for the
Lazard U.S. Equity Composite, SunAmerica Series Trust Venture Value Fund, and T.
Rowe Price Growth & Income Fund. The returns for the Lazard U.S. Equity
Composite, SunAmerica Series Trust Venture Value Fund, and T. Rowe Price Growth
& Income Fund are net of actual expenses.

Advisers for Large-Cap Value Portfolio
- -------------------------------------------------------------------------------

The Advisers for the Large-Cap Value Portfolio are:

David L. Babson & Co., Inc. (Babson)
Davis Selected Advisers, L.P. (Davis)
Wellington Management Company, LLP (Wellington Management)

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

ANNUALIZED TOTAL RETURNS
- -------------------------------------------------------------------------------

Periods Ended June 30, 1997

Advisers' Past Performance

1 Year

Morningstar Large Value Category 28.5%
Babson 27.4%
Davis 32.8%
Wellington Management 29.5%

3 Years

Morningstar Large Value Category 23.0%

<PAGE>

Babson 24.1%
Davis 26.4%
Wellington Management 24.2%

5 Years

Morningstar Large Value Category 17.0%
Babson 20.4%
Davis 21.7%
Wellington Management 20.1%

10 Years

Morningstar Large Value Category 11.8%
Babson 13.9%
Davis 17.2%
Wellington Management 13.9%

NOTES (Large-Cap Value Portfolio)
- -------------------------------------------------------------------------------

Individual Adviser Performance

Babson

Babson's historical performance data covers 10 years and reflects the
performance of the Babson Value Composite. According to Babson, the composite
includes all accounts with investment objectives, policies and strategies
substantially similar to those to be used by Babson in managing its portion of
the Large-Cap Value Portfolio. Composite returns with respect to the period
prior to 1995 are based on results from a single account, which is a no-load
mutual fund, and, with respect to the period from 1995 to present, are based on
results from fully discretionary separate accounts and no-load mutual funds
advised by Babson. As of June 30, 1997, the composite included 10 accounts with
aggregate assets of $1.3 billion. The composite returns are presented net of
actual fees. None of the accounts included in composite bears any sales loads or
charges.

<PAGE>

Davis

Davis' historical performance data covers 10 years and reflects the performance
of a single account, which is a front-end load mutual fund. Davis manages a
total of 12 accounts (8 of which are institutional accounts and 4 of which are
mutual funds) with investment objectives, policies and strategies substantially
similar to those to be used in managing its portion of the Large-Cap Value
Portfolio. Davis does not calculate composite performance for either its
institutional accounts or its mutual fund accounts, nor does it calculate a
combined composite of the institutional accounts' performance and the mutual
funds' performance. However, the performance for the other 11 accounts was, in
the aggregate, better than that shown for the account and, therefore, the
omission of such accounts does not render the performance information presented
misleading. As of June 30, 1997, the account's net assets totaled $5.5 billion,
which represented approximately 83% of the total assets in the 12 similar
accounts. The returns presented in the chart are net of actual fees and reflect
the imposition of a sales charge of 4.75%.

Wellington Management

Wellington Management's historical performance data covers 10 years and reflects
the performance of the Wellington Management Value/Yield Composite. The
composite includes all accounts with investment objectives, policies and
strategies substantially similar to those to be used by Wellington Management in
managing its portion of the Large-Cap Value Portfolio. As of June 30, 1997, the
composite included 14 separately managed accounts totaling $3.4 billion of
assets under management. The returns for the composite were supplied to the Fund
by Wellington Management gross of certain fees, but have been adjusted to
reflect the highest fees charged to any account included in the composite for
the reporting period. None of the accounts in the composite bears any sales
loads or charges.

Morningstar Large Value Category

Developed by Morningstar, the Morningstar Large Value Category reflects a group
of 294 mutual funds which have portfolios with median market capitalizations,
price/earnings ratios, and price/book ratios similar to those expected for the
Large-Cap Value Portfolio.

GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------------------------------------------

Ten Years Ended June 30, 1997

Growth of a $10,000 Investment (Mountain Chart)

Morningstar
Large
Wellington Value
Babson Davis Management Category

1987 $10,000 $10,000 $10,000 $10,000
1988 $9,680 $9,435 $9,630 $9,596
1989 $11,026 $11,756 $11,238 $11,261

<PAGE>

1990 $11,577 $13,608 $12,059 $12,172
1991 $12,433 $14,549 $13,072 $12,759
1992 $14,457 $17,144 $14,810 $14,630
1993 $16,409 $21,660 $17,713 $16,880
1994 $19,215 $22,594 $19,325 $17,337
1995 $23,193 $28,131 $22,494 $20,705
1996 $28,852 $34,367 $28,567 $25,116
1997 $36,757 $47,928 $36,909 $32,273

NOTE (Large-Cap Value Portfolio)

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

Growth of a $10,000 Investment

The "Growth of $10,000" chart reflects ten years of performance data for the
Babson Value Composite, Davis New York Venture Fund, and Wellington Value/Yield
Composite. Returns for the Babson Value Composite and the Davis New York Venture
Fund are net of actual expenses. The returns for the Wellington Value/Yield
Composite have been adjusted to give effect to the account in the composite with
the highest annualized expense for each 1, 3, 5, and 10 year period.

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

The Advisers for the Value Portfolio are:

Davis Selected Advisers, L.P. (Davis)
Neuberger&Berman, LLC (Neuberger&Berman)
Strong Capital Management, Inc. (subcontracted to Schafer Capital Management,
Inc., together with Strong Capital Management, Inc. referred to as
"Strong/Schafer").

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

PORTFOLIO PERFORMANCE
- -------------------------------------------------------------------------------

The Portfolio's total return since inception (November 19, 1996) through June
30, 1997 was 19.28%.

ANNUALIZED TOTAL RETURNS

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

Periods Ended June 30, 1997

Advisers' Past Performance (Bar Chart)

<PAGE>

1 Year

Morningstar Mid-Cap Value 27.0%
Davis 32.8%

Neuberger&Berman 33.0%
Strong/Schafer 33.3%

3 Years

Morningstar Mid-Cap Value 21.0%
Davis 26.4%
Neuberger&Berman 27.2%
Strong/Schafer 24.1%

5 Years

Morningstar Mid-Cap Value 16.6%
Davis 21.7%
Neuberger&Berman 21.0%
Strong/Schafer 19.2%

10 Years

Morningstar Mid-Cap Value 12.0%
Davis 17.2%
Neuberger&Berman 14.3%
Strong/Schafer 13.2%

NOTES (Value Portfolio)
- -------------------------------------------------------------------------------

Individual Adviser Performance

<PAGE>

Davis

does not render the performance information presented misleading. As of June 30,
1997, the account's net assets totaled $5.5 billion, which represented
approximately 83% of the total assets in the 12 similar accounts. The returns
presented in the chart are net of actual fees and reflect the imposition of a
sales charge of 4.75%.

Neuberger&Berman

Neuberger&Berman's historical performance data covers 10 years and reflects the
performance of a single account, which is a no-load mutual fund. This account
represents the only account managed by Neuberger&Berman with an investment
objective and investment policies and strategies substantially similar to those
to be used by Neuberger&Berman in managing its portion of the Value Portfolio.
As of June 30, 1997, the account's net assets totaled $2.34 billion. The returns
are presented net of actual fees.

Strong/Schafer

Strong/Schafer's historical performance data covers 10 years and reflects the
performance of the Schafer Capital Equity Composite. The composite includes all
accounts with investment objectives, policies and strategies substantially
similar to those to be used by Strong/Schafer in managing its portion of the
Value Portfolio. As of June 30, 1997, the composite included 2 separately
managed accounts and 1 mutual fund totaling approximately $1.1 billion of assets
under management. The returns are presented net of actual fees. None of the
accounts in the composite bears any sales loads or charges. Prior to January 1,
1993, not all composite calculations complied with AIMR. Accordingly,
performance results prior to January 1, 1993 do not comply with AIMR.

Morningstar Mid-Cap Value Category

Developed by Morningstar, Inc., the Morningstar Mid-Cap Value Category currently
reflects a group of 191 mutual funds which have portfolios with median market
capitalizations, price/earnings ratios, and price/book ratios similar to those
expected for the Value Portfolio.

GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------------------------------------------

Ten Years Ended June 30, 1997

Growth of a $10,000 Investment (Mountain Chart)

Neuberger& Morningstar
Davis Berman Strong/Schafer Mid-Cap Value

<PAGE>

1987 $10,000 $10,000 $10,000 $10,000
1988 $9,435 $9,714 $8,780 $10,082
1989 $11,756 $11,419 $10,317 $11,812

1990 $13,608 $12,336 $11,596 $12,487
1991 $14,549 $12,970 $11,770 $13,187
1992 $17,144 $14,687 $14,430 $15,133
1993 $21,660 $17,885 $16,839 $17,872
1994 $22,594 $18,505 $18,136 $18,483
1995 $28,131 $22,937 $21,709 $21,757
1996 $34,367 $28,635 $26,029 $26,395
1997 $47,928 $38,092 $34,696 $33,568

NOTE (Value Portfolio)
- -------------------------------------------------------------------------------

Growth of a $10,000 Investment

The "Growth of $10,000" chart reflects ten years of performance data for the
Davis New York Venture Fund, Neuberger & Berman Partners Fund, and Schafer
Capital Equity Composite. The returns for the Davis New York Venture Fund,
Neuberger & Berman Partners Fund, and the Schafer Capital Equity Composite
are net of actual expenses.

Advisers for Small-Cap Value Portfolio
- -------------------------------------------------------------------------------

The Advisers for the Small-Cap Value Portfolio are:

Berger Associates, Inc. (subcontracted to Perkins, Wolf, McDonnell & Company,
together with Berger Associates, Inc. referred to as "Berger/PWM")
Lazard Asset Management (Lazard)
The Glenmede Trust Company (Glenmede)

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

ANNUALIZED TOTAL RETURNS
- -------------------------------------------------------------------------------

Periods Ended June 30, 1997

Advisers' Past Performance (Bar Chart)

1 Year

Morningstar Small Value Category 24.1%

<PAGE>

Berger/PWM 34.3%
Lazard 34.6%

Glenmede 34.3%

3 Years

Morningstar Small Value Category 20.6%
Berger/PWM 22.6%
Lazard 25.2%
Glenmede 23.5%

5 Years

Morningstar Small Value Category 17.7%
Berger/PWM 21.3%
Lazard 23.2%
Glenmede 21.6%

NOTES (Small-Cap Value Portfolio)
- -------------------------------------------------------------------------------

Individual Adviser Performance

Berger/PWM

Berger/PWM's historical performance data covers approximately 9 3/4 years (the
period since inception) and reflects the performance of a single account, which
is a no-load mutual fund. The annualized total return since inception of the
account is 16.2% as of June 30, 1997. This account represents the only account
managed by Berger/PWM with an investment objective and investment policies and
strategies substantially similar to those to be used by Berger/PWM in managing
its portion of the Small-Cap Value Portfolio. As of June 30, 1997, the account's
net assets totaled $67 million. The returns are presented net of actual fees.

Lazard

Lazard's historical performance data covers 9 1/2 years (the period since
inception) and reflects the performance of the Lazard U.S. Small Cap Equity
Composite. The annualized total return since inception of the composite is 17.3%
as of June 30, 1997. The composite includes all accounts

<PAGE>

with investment objectives, policies and strategies substantially similar to
those to be used by Lazard in managing its portion of the Small-Cap Value

Portfolio, except that 11 such accounts, with net assets totaling $193 million
(less than 13% of the total assets in the 32 accounts), have been omitted from
the composite. Such omission, however, does not render the performance
information presented misleading. As of June 30, 1997, the composite included 21
accounts totaling $1.3 billion in assets under management. The returns for the
composite were supplied to the Fund by Lazard gross of certain fees, but have
been adjusted to reflect the highest fees charged to any account included in the
composite for the reporting period. None of the accounts included in the
composite bears any sales loads or charges.

Glenmede

Glenmede's historical performance data covers approximately 6 years (the period
since inception) and reflects the performance of a single account, which is a
no-load mutual fund. The annualized return since inception of the account is
18.3% as of June 30, 1997. This account represents the only account managed by
Glenmede with an investment objective and investment policies and strategies
substantially similar to those to be used by Glenmede in managing its portion of
the Small-Cap Value Portfolio. As of June 30, 1997, the account's net assets
totaled $400 million. The returns for the account were supplied to the Fund by
Glenmede gross of certain fees, but have been adjusted to reflect the highest
fees charged to the account for the reporting period.

Morningstar Small Value Category

Developed by Morningstar, the Morningstar Small Value Category currently
reflects a group of 182 mutual funds which have portfolios with median market
capitalizations, price/earnings ratios, and price/book ratios similar to those
expected for the Small-Cap Value Portfolio.

GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------------------------------------------

Six Years Ended June 30, 1997

Growth of a $10,000 Investment (Mountain Chart)

Morningstar
Small Value
Berger/PWM Lazard Glenmede Category

1991 $10,000 $10,000 $10,000 $10,000
1992 $10,883 $11,030 $10,290 $11,584
1993 $12,751 $14,493 $13,768 $14,205
1994 $15,530 $15,957 $14,539 $15,101
1995 $17,830 $19,755 $17,098 $17,547
1996 $21,231 $23,271 $20,381 $21,326
1997 $28,518 $31,323 $27,371 $26,467

<PAGE>

NOTE (Small-Cap Value Portfolio)
- -------------------------------------------------------------------------------

Growth of a $10,000 Investment

The "Growth of $10,000" chart reflects five years of performance data for the
Berger Small Cap Value Fund, Glenmede Small Cap Value Equity Fund, and Lazard
U.S. Small Cap Composite. The performance for the Berger Small Cap Value Fund,
Glenmede Small Cap Value Equity Fund, and Lazard U.S. Small Cap Composite
reflect net-of-fee data.

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

The Advisers for the International Equity Portfolio are:

Rowe Price-Fleming International, Inc. (Rowe-Fleming)
Bankers Trust Company (BT)
Warburg Pincus Asset Management, Inc. (Warburg)

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

PORTFOLIO PERFORMANCE
- -------------------------------------------------------------------------------

The Portfolio's total return since inception (November 19, 1996) through June
30, 1997 was 10.24%.

ANNUALIZED TOTAL RETURNS
- -------------------------------------------------------------------------------

Periods Ended June 30, 1997

Advisers' Past Performance (Bar Chart)

1 Year

Morningstar Foreign Stock 17.5%
Rowe-Fleming 18.1%
BT 12.2%
Warburg 14.8%

3 Years

Morningstar Foreign Stock 10.3%
Rowe-Fleming 13.4%
BT 10.8%
Warburg 10.4%

<PAGE>

5 Years

Morningstar Foreign Stock 12.2%
Rowe-Fleming 13.6%
BT 14.3%
Warburg 14.6%

NOTES (International Equity Portfolio)
- -------------------------------------------------------------------------------

Individual Adviser Performance

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

Rowe-Fleming

Rowe-Fleming's historical performance data covers 10 years and reflects the
performance of a single account, which is a no-load mutual fund. The ten-year
annualized return of the account is 10.2% as of June 30, 1997. Rowe-Fleming
manages a total of 32 accounts (19 of which are institutional accounts and 12 of
which are mutual funds) with investment objectives, policies and strategies
substantially similar to those to be used in managing its portfolio of the
International Equity Portfolio. Although Rowe-Fleming calculates composite
performance for its institutional accounts, it does not calculate composite
performance for mutual fund accounts, nor does it calculate a composite which
combines the institutional accounts' composite performance with the mutual
funds' performance. However, the performance for the other 31 accounts was, in
the aggregate, better than that shown for the account and, therefore, the
omission of such accounts does not render the performance information presented
misleading. As of June 30, 1997, the account's net assets totaled approximately
$10.8 billion, which represented approximately 40.5% of the total assets in the
32 similar accounts. The returns are presented net of actual fees.

Bankers Trust Company

BT's historical performance data covers approximately 19 years and reflects the
composite performance of two accounts, one of which is a mutual fund and the
other an institutional account. The annualized return since inception of the
accounts is 8.8% as of December 31, 1997. These accounts represent all of the
accounts managed by BT with an investment objective, policies and strategy
substantially similar to those to be used in managing its portion of the
International Equity Portfolio. As of December 31, 1997, the net assets managed
under the two accounts totaled approximately $1.1 billion. The returns are
presented net of actual fees and sales charges.

<PAGE>

Warburg

Warburg's historical performance data covers approximately 6 1/4 years and
reflects the performance of a single account, which is a mutual fund. The
annualized return since inception of the account is 12.2% as of June 30, 1997.
Warburg manages a total of 8 accounts (1 of which is an institutional account
and 7 of which are mutual funds) with an investment objective, policies and
strategy substantially similar to those to be used in managing its portion of
the International Equity Portfolio. Warburg does not calculate a combined
composite performance for its mutual fund accounts, nor does it calculate a
combined composite of the institutional account's performance and the mutual
funds' performance. However, the performance for the other 7 accounts was, in
the aggregate, better than that shown for the account and, therefore, the
omission of such accounts does not render the performance information
presented misleading. As of June 30, 1997, the account's net assets totaled
$571.6 million, which represented approximately 10.3% of the total assets in
the 8 similar accounts. The returns are presented net of actual fees and
sales charges.

Morningstar Foreign Stock Category

Developed by Morningstar, the Morningstar Foreign Stock Category currently
reflects a group of 413 mutual funds which invest most of their assets in
foreign stocks.

GROWTH OF A $10,000 INVESTMENT
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Five Years Ended June 30, 1997

Growth of a $10,000 Investment (Mountain Chart)

Morningstar
Rowe-Fleming BT Warburg Foreign Stock

1992 $10,000 $ 9,510 $10,000 $10,000
1993 $10,625 $13,190 $11,218 $10,777
1994 $12,969 $13,599 $14,715 $12,894
1995 $13,540 $14,714 $13,998 $12,808
1996 $15,996 $16,510 $17,216 $14,872
1997 $18,882 $18,524 $19,749 $17,432

NOTE (International Equity Portfolio)
- -------------------------------------------------------------------------------

Growth of a $10,000 Investment

The "Growth of $10,000" chart reflects five years of performance data for the T.
Rowe Price International Stock Fund, the BT International Equity Composite and
the Warburg Pincus ADV International Equity Fund. Returns for the T. Rowe Price
International Stock Fund and the Warburg Pincus ADV International Equity Fund
are net of actual expenses. The returns for the Strong International Equity
Composite have been adjusted to give effect to the account in the composite with
the highest annualized expenses for each 1, 3 and 5 year period.

<PAGE>

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

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

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

Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrants (generally two or more
years). Rights represent a preemptive right of stockholders to purchase
additional shares of a stock at the time of a new issuance before the stock is
offered to the general public, allowing the stockholder to retain the same
ownership percentage after the new stock offering.

Investment in Small-Cap Companies--Each Portfolio may invest in small companies
having market capitalizations of under $1 billion. It may be difficult to obtain
reliable information and financial data on such companies and the securities of
these small companies may not be readily marketable, making it difficult to
dispose of shares when desirable. Securities of small or emerging growth
companies may be subject to more abrupt or erratic market movements and less

market liquidity 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. In addition, certain smaller
issuers may have a higher probability of facing 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 will invest without limitation, in foreign
securities. Each Portfolio may also invest in U.S. dollar denominated securities
of foreign issuers, including ADRs, as well as EDRs, GDRs or other similar
securities convertible into securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities into which
they may be converted. Each Portfolio also may invest in securities denominated
in European Currency Units (ECUs). An ECU is a "basket" consisting of specified
amounts of currencies of certain of the twelve member states of the European
Community. In addition, each Portfolio may invest in securities denominated in
other currency "baskets." Each Portfolio may also seek to gain exposure to
certain foreign markets,

<PAGE>

including developing countries or emerging markets, where direct investment may
be difficult or impracticable, through investment in domestic closed-end mutual
funds which invest predominately in such markets. See the Statement of
Additional Information for a further discussion of foreign 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 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. See "Foreign Investment
Companies" below for a discussion of investing in investment companies which
invest in emerging markets.

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

<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 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--Each Portfolio may invest in domestic closed-end
investment companies which invest in certain foreign markets, including
developing countries or emerging markets. The Large-Cap Growth, Aggressive
Growth and International Equity Portfolios may also invest in foreign investment
companies which invest in such markets. Some of the countries in which the
Portfolios invest may not permit direct investment by foreign investors such as
the Portfolios. 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 Portfolios to invest in investment companies 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 Portfolios do not
intend to invest in such investment companies unless, in the judgment of the
Advisers, the potential benefits of such investments justify the payment of any
associated fees and expenses. See "Foreign Securities" and "Emerging Markets"
above and the Statement of Additional Information.

<PAGE>

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

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

U.S. Government Securities--Securities guaranteed by the U.S. government include
the following: (1) direct obligations of the U.S. Treasury (such as Treasury
bills, notes and bonds) and (2) federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as Government National
Mortgage Association certificates and Federal Housing Administration
debentures). For these securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. government. They are of the highest
possible credit quality. These securities are subject to variations in market
value due to fluctuations in interest rates, but if held to maturity, are
guaranteed by the U.S. government to be paid in full.

Securities issued by U.S. government instrumentalities and certain federal
agencies are neither direct obligations of, nor are they guaranteed by, the U.S.
Treasury. However, they involve federal sponsorship in one way or another. For
example, some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but are
not limited to, the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, Federal Land Banks, Farmers Home Administration, Central
Bank for Cooperatives, Federal Intermediate Credit Banks and Federal Home Loan
Banks.

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

interest at a stated rate.

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

<PAGE>

(for the lowest ratings given above), although the lower-rated investment grade
securities may be viewed as having speculative elements as well.

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

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

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

High-yield bonds present the following risks:

Sensitivity to Interest Rate and Economic Changes--High-yield, high-risk bonds
are very sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely

affect their ability to service their principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay interest
or principal or entered into bankruptcy proceedings, a Portfolio may incur
losses or expenses in seeking recovery of amounts owed to it. In addition,
periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices (and therefore yields) of high-yield bonds
and the Portfolio's net asset value.

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

Liquidity and Valuation--There may be little trading in the secondary market for
particular bonds, which may affect adversely a Portfolio's ability to value
accurately or dispose of such bonds.

<PAGE>

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 thinly traded 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 Portfolio is downgraded, the
Advisers, as appropriate, will evaluate the security and determine whether to
retain or dispose of it.

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

Zero Coupon Bonds, Step-Coupon Bonds, Deferred Interest Bonds and PIK Bonds.
Fixed income securities in which a Portfolio may invest also include zero coupon
bonds, step-coupon bonds, deferred interest bonds and bonds on which the
interest is payable in kind ("PIK bonds"). Zero coupon and deferred interest
bonds are debt obligations issued or purchased at a significant discount from
face value. A step-coupon bond is one in which a change in interest rate is
fixed contractually in advance. PIK bonds are debt obligations which provide

that the issuer thereof may, at its option, pay interest on such bonds in cash
or in the form of additional debt obligations. Such investments may experience
greater volatility in market value due to changes in interest rates and other
factors than debt obligations which make regular payments of interest. A
Portfolio will accrue income on such investments for tax and accounting
purposes, as required, which is distributable to shareholders and which, because
no cash is received at the time of accrual, may require the liquidation of other
portfolio securities under disadvantageous circumstances to satisfy the
Portfolio's distribution obligations.

REITs -- The Large-Cap Blend and each of the Value Portfolios may invest in Real
Estate Investment Trusts ("REITs"), which are trusts that invest primarily in
commercial real estate or real estate related loans. The value of an interest in
a REIT may be affected by the value and the cash flows of the properties owned
or the quality of the mortgages held by the trust.

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

Repurchase Agreements--Under these types of agreements, a Portfolio buys a
security and obtains a simultaneous commitment from the seller to repurchase the
security at a specified time and

<PAGE>

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% (100% if such collateral is cash) of the
repurchase price, plus accrued interest. A Portfolio will only enter into
repurchase agreements involving securities in which it could otherwise invest
and with selected banks and securities dealers whose financial condition is
monitored by the Adviser, subject to the guidance of the Directors. If the
seller under the repurchase agreement defaults, the Portfolio may incur a loss
if the value of the collateral securing the repurchase agreement has declined,
and may incur disposition costs in connection with liquidating the collateral.
If bankruptcy proceedings are commenced with respect to the seller, realization

of the collateral by the Portfolio may be delayed or limited.

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

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

Special Risks of Hedging and Income Enhancement Strategies. Participation in the
options or Futures markets and in currency exchange transactions involves
investment risks and transaction costs to which a Portfolio would not be subject
absent the use of these strategies. If the Advisers' predictions of movements in
the direction of the securities, foreign currency and interest rate markets are
inaccurate, the adverse consequences to a Portfolio may leave the Portfolio in a
worse position than if such strategies were not used. Risks inherent in the use
of options, foreign currency and Futures contracts and options on Futures
contracts include (1) dependence on the Advisers' ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and Futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of the Portfolio to
purchase or sell a

<PAGE>

portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for the Portfolio to sell a portfolio security at a
disadvantageous time, due to the need for the Portfolio to maintain "cover" or
to segregate securities in connection with hedging transactions. A transaction
is "covered" when the Portfolio owns the security subject to the option on such
security, or some other security acceptable for applicable escrow requirements.
See the Statement of Additional Information for further information concerning
income enhancement and hedging strategies and the regulation requirements
relating thereto.

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

Hybrid Instruments--These instruments, including indexed or structured
securities, can combine the characteristics of securities, futures, and options.
For example, the principal amount, redemption, or conversion terms of a security
could be related to the market price of some commodity, currency, or securities
index. Such securities may bear interest or pay dividends at below market (or
even relatively nominal) rates. Under certain conditions, the redemption value
of such an investment could be zero.

Borrowing--As a matter of fundamental policy, each Portfolio is authorized to
borrow up to 33 1/3% of its total assets from banks for temporary or emergency
purposes. In seeking to enhance investment performance, each Portfolio may
borrow money for investment purposes and may pledge assets to secure such
borrowings. This is the speculative factor known as leverage. This practice may
help increase the net asset value of the assets of a Portfolio in an amount
greater than would otherwise be the case when the market values of the
securities purchased through borrowing increase. In the event the return on an
investment of borrowed monies does not fully recover the costs of such
borrowing, the value of the Portfolio's assets would be reduced by a greater
amount than would otherwise be the case. The effect of leverage will therefore
tend to magnify the gains or losses to the Portfolio as a result of investing

the borrowed monies. During periods of substantial borrowings, the value of the
Portfolio's assets would be reduced due to the added expense of interest on
borrowed monies. Each Portfolio is authorized to borrow, and to pledge assets to
secure such borrowings, up to the maximum extent permissible under the 1940 Act
(i.e., presently 50% of net assets). The time and extent to which a Portfolio
may employ leverage will be determined by the Adviser in light of changing facts
and circumstances, including general economic and market conditions, and will be
subject to applicable lending regulations of the Board of Governors of the
Federal Reserve Board.

<PAGE>

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

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

Short Sales--Each Portfolio may sell a security it does not own in anticipation
of a decline in the market value of that security (short sales). To complete
such a transaction, a Portfolio must borrow the security to make delivery to the
buyer. The Portfolio then is obligated to replace the security borrowed by
purchasing it at market price at the time of replacement. The price at such time
may be more or less than the price at which the security was sold by the
Portfolio. Until the security is replaced, the Portfolio is required to pay to
the lender any dividends or interest which accrue during the period of the loan.
To borrow the security, the Portfolio also may be required to pay a premium,
which would increase the cost of the security sold. The proceeds of the short
sale will be retained by the broker, to the extent necessary to meet margin
requirements, until the short position is closed out. Until the Portfolio
replaces a borrowed security, the Portfolio will maintain daily a segregated
account, containing cash or liquid securities, at such a level that (i) the
amount deposited in the account plus the amount deposited with the broker as

collateral will equal the current value of the security sold short and (ii) the
amount deposited in the segregated account plus the amount deposited with the
broker as collateral will not be less than the market value of the security at
the time it was sold short. A Portfolio will incur a loss as a result of the
short sale if the price of the security increases between the date of the short
sale and the date on which the Portfolio replaces the borrowed security. A
Portfolio will realize a gain if the security declines in price between those
dates. This result is the opposite of what one would expect from a cash purchase
of a long position in a security. The amount of any gain will be decreased, and
the amount of any loss increased, by the amount of any premium, dividends or
interest the Portfolio may be required to pay in connection with a short sale.

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

Special Situations--A "special situation" arises when, in the opinion of the
Adviser, the securities of a particular issuer will be recognized and appreciate
in value due to a specific development with respect to that issuer. Developments
creating a special situation might include, among others, a

<PAGE>

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, as of June 30, 1997, held more than $46 billion in assets. SunAmerica
Inc.'s principal executive offices are located at 1 SunAmerica Center, Los
Angeles, CA 90067-6022. In addition to managing the Fund and serving as an
Adviser to the Aggressive Growth Portfolio and Large-Cap Blend Portfolio,
SunAmerica serves 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 managed, advised and/or administered assets in excess
of $10 billion as of June 30, 1997 for investment companies, individuals,
pension accounts, and corporate and trust accounts.

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

The annual rate of the investment advisory fee payable to SunAmerica that
applies to each of the Growth Portfolios, Large-Cap Blend Portfolio and Value
Portfolios 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.

<PAGE>

Cap Value Portfolio and Small-Cap Value Portfolio, SunAmerica has voluntarily
agreed to waive fees or reimburse expenses, if necessary, to keep operating
expenses at or below an annual rate of 1.78% of the Assets of Class A shares and
2.43% of the Assets of Class B and Class C shares for each such Portfolio (other
than the International Equity Portfolio) and 2.03% of the Assets of Class A
shares and 2.68% of the Assets of Class B and Class C shares for the
International Equity Portfolio. Prior to June 17, 1997, with respect to the
Mid-Cap Growth Portfolio, Aggressive Growth Portfolio, Value Portfolio and
International Equity Portfolio, SunAmerica voluntarily agreed to waive fees or
reimburse expenses to keep annual operating expenses at or below an annual rate
of 1.90% of the Assets of Class A shares and 2.55% of the Assets of Class B and

Class C shares for each such Portfolio (other than the International Equity
Portfolio) and 2.15% of the Assets of Class A shares and 2.80% of the Assets of
Class B and Class C shares for the International Equity Portfolio. SunAmerica
also may voluntarily waive or reimburse additional amounts to increase the
investment return to a Portfolio's investors. SunAmerica may terminate all such
waivers and/or reimbursements at any time. Further, any waivers or
reimbursements made by SunAmerica with respect to a Portfolio are subject to
recoupment from that Portfolio within the following two years, provided that the
Portfolio is able to effect such payment to SunAmerica and remain in compliance
with the foregoing expense limitations.

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

Each of the Advisers (other than SunAmerica) is independent of SunAmerica and
discharges its responsibilities subject to the oversight and supervision of
SunAmerica, which pays the Advisers' fees. Each Adviser is paid monthly by
SunAmerica a fee equal to a percentage of the Assets of the Portfolio allocated
to the Adviser. The aggregate annual rates of the fees payable by SunAmerica to
the Advisers for each Portfolio may vary according to the level of Assets of
each Portfolio. The highest aggregate annual rates of such fees would be the
following, expressed as a percentage of the Assets of each Portfolio: Large-Cap
Growth Portfolio, .48%; Mid-Cap Growth Portfolio, .50%; Aggressive Growth
Portfolio, .55%; Large-Cap Blend Portfolio, .48%; Large-Cap Value Portfolio,
.43%; Value Portfolio, .50%; Small-Cap Value Portfolio, .55%; and International
Equity Portfolio, .68%.

SunAmerica may terminate any Subadvisory Agreement without shareholder approval.
Moreover, SunAmerica has received an exemptive order from the Securities and
Exchange Commission which permits SunAmerica, subject to certain conditions, to
enter into Subadvisory Agreements relating to the Fund with Advisers approved by
the Board without obtaining shareholder approval. The exemptive order also
permits SunAmerica, subject to the approval of the Board but without shareholder
approval, to employ new Advisers for new or existing Portfolios, change the
terms of particular Subadvisory Agreements or continue the employment of
existing Advisers

48
<PAGE>
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.

Large-Cap Growth Portfolio

The Advisers for the Large-Cap Growth Portfolio are Janus, Papp and Montag &
Caldwell.

Janus Capital Corporation. Janus is a Colorado corporation located at 100
Fillmore Street, Denver, Colorado 80206-4923, and serves as investment adviser
or subadviser to mutual funds and individual, corporate, charitable and
retirement accounts. Kansas City Southern Industries, Inc. ("KCSI") owns
approximately 83% of the outstanding voting stock of Janus. KCSI is a publicly
traded holding company with principal operations in rail transportation, through
its subsidiary The Kansas City Southern Railway Company, and financial asset
management businesses. Thomas H. Bailey, President and Chairman of the Board of
Janus, owns approximately 12% of its voting stock and, by agreement with KCSI,
selects a majority of Janus' board. As of June 30, 1997, Janus had under
management approximately $60 billion in assets.

Marc Pinto serves as the Portfolio Manager for Janus' portion of the Large-Cap
Growth Portfolio. Mr. Pinto has been the Vice President of Portfolio Management
of Janus since 1994. From 1993 to 1994, he was Co-President of Creative Retail
Technology, a producer of hardware for retail clients. From 1991 to 1993, Mr.
Pinto was an equity analyst at Priority Investments Ltd., a family owned
business. He was also an associate in the Corporate Finance Department of
Goldman Sachs & Company from 1987 to 1991.

L. Roy Papp & Associates. Papp is an Arizona partnership located at 4400 North
32nd Street, Suite 280, Phoenix, Arizona 85018. Papp serves as investment
adviser to individuals, trusts, retirement plans, endowments, and foundations.
As of June 30, 1997, assets under management exceeded $800 million.

L. Roy Papp and Rosellen C. Papp, partners of Papp, serve as the Portfolio
Managers of Papp's portion of the Large-Cap Growth Portfolio. Except for two
years when he was United States director of, and ambassador to, the Asian
Development Bank, Manila, Philippines, Mr. Papp has been in the money management
field since 1955. He has served as managing general partner of Papp since 1989.
Rosellen C. Papp has been the Director of Research of Papp since 1981.

Montag & Caldwell, Inc. Montag & Caldwell is a Georgia corporation located at
3343 Peachtree Road, Suite 1100, Atlanta, Georgia 30326-1022. Montag & Caldwell
was founded in 1945 and is an indirect, wholly owned subsidiary of Alleghany
Corporation. Montag & Caldwell serves as investment adviser to employee benefit,

endowment, charitable and other institutional clients, as well as high net worth
individuals. As of June 30, 1997, Montag & Caldwell had in excess of $12 billion
in assets under management.

Montag & Caldwell's portion of the Large-Cap Growth Portfolio is advised by an
investment management team headed by Ronald E. Canakaris. He has been in the
money management business since 1970 and has served as President and Chief
Investment Officer of Montag & Caldwell since 1984.

<PAGE>

Mid-Cap Growth Portfolio

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

Miller Anderson & Sherrerd, LLP. MAS, a Pennsylvania limited liability
partnership founded in 1969, is located at One Tower Bridge, West Conshohocken,
Pennsylvania 19428. MAS provides investment services to employee benefit plans,
endowment funds, foundations and other institutional investors. MAS is a
subsidiary of Morgan Stanley, Dean Witter, Discover & Co., a financial services
company with three major businesses: full service brokerage, credit services and
asset management. As of June 30, 1997, MAS had in excess of $42 billion in
assets under management.

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

Pilgrim Baxter & Associates, Ltd. 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, 1997, Pilgrim Baxter had assets under
management of approximately $14.7 billion.

Bruce J. Muzina serves as primary manager and Gary L. Pilgrim serves as
co-manager for Pilgrim Baxter's portion of the Mid-Cap Growth Portfolio. Mr.
Muzina joined Pilgrim Baxter in 1985 from Citibank, where he was Vice
President/Portfolio Manager of U.S. equity portfolios for international
institutional accounts. Mr. Pilgrim has served as the Chief Investment Officer
for Pilgrim Baxter for the past six years, and has been its President since
1993. In addition, he is a chartered financial analyst.

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 $95
billion for over four and a half million individual and institutional investor
accounts as of June 30, 1997. T. Rowe Price is a publicly traded company.

T. Rowe Price's portion of the Mid-Cap Growth Portfolio is advised by an
Investment Advisory Committee composed of Brian W.H. Berghuis, Chairman, Marc L.
Baylin, James A.C. Kennedy and John F. Wakeman. Mr. Berghuis has day-to-day
responsibility for managing the assets and works with the committee in
developing and executing T. Rowe Price's portion of the investment program. Mr.
Berghuis has been managing investments since joining T. Rowe Price in 1985.

Aggressive Growth Portfolio

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

<PAGE>

Janus Capital Corporation. Janus is a Colorado corporation located at 100
Fillmore Street, Denver, Colorado 80206-4923, and serves as investment adviser
or subadviser to mutual funds and individual, corporate, charitable and
retirement accounts. Kansas City Southern Industries, Inc. ("KCSI") owns
approximately 83% of the outstanding voting stock of Janus. KCSI is a publicly
traded holding company with principal operations in rail transportation, through
its subsidiary The Kansas City Southern Railway Company, and financial asset
management businesses. Thomas H. Bailey, President and Chairman of the Board of
Janus, owns approximately 12% of its voting stock and, by agreement with KCSI,
selects a majority of Janus' Board. As of June 30, 1997, Janus had under
management approximately $60 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.

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

Warburg Pincus Asset Management, Inc. Warburg is a professional investment
counseling firm which provides investment services to investment companies,
employee benefit plans, endowment funds, foundations and other institutions and
individuals. As of August 31, 1997, Warburg managed approximately $20.2 billion
in assets. Incorporated in 1970, Warburg is indirectly controlled by Warburg,
Pincus and Co., Inc. which has no businesses other than being a holding company
of Warburg and its affiliates. Warburg is located at 466 Lexington Avenue, New
York, NY 10017-3147.

The Portfolio Managers of Warburg's portion of the Aggressive Growth Portfolio
are Elizabeth B. Dater and Stephen J. Lurito. Ms. Dater is a Senior Managing
Director of Warburg and has been a Portfolio Manager of Warburg since 1978. Mr.
Lurito is a Managing Director of Warburg and has been a Portfolio Manager of
Warburg since 1987.

Large-Cap Blend Portfolio

Lazard Asset Management. Lazard is a division of Lazard Freres & Co. LLC, a New
York limited liability company. Located at 30 Rockefeller Plaza, New York, New
York 10020, Lazard provides investment management services to individual and
institutional clients. As of June 30, 1997, Lazard and its affiliated companies
managed client discretionary accounts with assets totaling approximately $53
billion.

<PAGE>

Lazard manages assets on a team basis. Herbert W. Gullquist oversees the
investment team which is responsible for Lazard's portion of the Large-Cap Blend
Portfolio. Mr. Gullquist is Vice Chairman of Lazard and has been with Lazard
since 1982. Michael S. Rome is the member of the investment team who is
primarily responsible for the day-to-day management of Lazard's portion of the
Large-Cap Blend Portfolio. Mr. Rome is the Managing Director responsible for
U.S./global equity management of Lazard and for overseeing the day-to-day
operations of the U.S. core equity investment team. He has been with Lazard
since 1991.

SunAmerica Income Funds, SunAmerica Money Market Funds, Inc., and SunAmerica
Series Trust. SunAmerica managed, advised and/or administered assets in excess
of $10 billion as of June 30, 1997 for investment companies, individuals,
pension accounts, and corporate and trust accounts.

Gerald P. Sullivan serves as Portfolio Manager for SunAmerica's portion of the
Large-Cap Blend Portfolio. Prior to joining SunAmerica as an equity analyst in
February 1995, Mr. Sullivan spent two years as a portfolio manager for Texas
Commerce Investment Management. Prior to his time at Texas Commerce, he spent
four years as a director for the Southmore Foundation, Inc. and as an adjunct
professor at Rice University in Houston, Texas.

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 $95
billion for over four and a half million individual and institutional investor
accounts as of June 30, 1997. T. Rowe Price is a publicly traded company.

T. Rowe Price's portion of the Large-Cap Blend Portfolio is advised by an
Investment Advisory Committee composed of Stephen W. Boesel, Chairman, Andrew M.
Brooks, Artur B. Cecil III, Gregory A. McCrickard, Mark J. Vaselkiv, and Richard
T. Whitney. The committee chairman has day-to-day responsibility for managing T.
Rowe Price's portion of the Large-Cap Blend Portfolio and works with the
committee in developing and executing the Portfolio's investment program. Mr.
Boesel has been the chairman of such committee since 1987. He has been managing
investments since joining T. Rowe Price in 1973.

Large-Cap Value Portfolio

The Advisers for the Large-Cap Value Portfolio are Babson, Davis and Wellington
Management.

David L. Babson & Co., Inc. Babson is a Massachusetts corporation, located at
One Memorial Drive, Cambridge, Massachusetts 02142. Babson is a wholly owned
subsidiary of DLB Acquisition Corp., a holding company, which is controlled by
Mass Mutual Holding Company, a holding company and wholly owned subsidiary of
Massachusetts Mutual Life Insurance Company, a mutual life insurance company.
Babson provides investment advisory services to a substantial number of
institutional and other investors, including other registered investment
companies. As of June 30, 1997, Babson had over $16.5 billion in assets under
management.

<PAGE>

Ronald W. Whitridge is primarily responsible for the day-to-day management of
the portion of the Large-Cap Value Portfolio allocated to Babson. Mr. Whitridge
has been employed by Babson in portfolio management for over twenty years.

Davis Selected Advisers, L.P. Davis is a Colorado limited partnership, located

at 124 East Marcy 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, 1997, Davis had assets under management
of approximately $10.7 billion. In performing its investment advisory services,
Davis, while remaining ultimately responsible for its management of the portion
of the assets of the Large-Cap Value Portfolio allocated to it, is able to draw
on the portfolio management, research and market expertise of its affiliates
(including Davis Selected Advisers--NY, Inc.) in performing such services.

Christopher C. Davis is responsible for the day-to-day management of Davis'
portion of the Large-Cap Value Portfolio. He joined Davis in September 1989 as
an assistant portfolio manager and research analyst.

Wellington Management Company, LLP. Wellington Management is a Massachusetts
limited liability partnership, located at 75 State Street, Boston Massachusetts
02109. Wellington Management is a professional investment counseling firm which
provides investment services to investment companies, employee benefit plans,
endowments, foundations, and other institutions and individuals. The following
persons are managing partners of Wellington Management: Robert W. Doran, Duncan
M. McFarland and John R. Ryan. As of June 30, 1997, Wellington Management had
investment management authority with respect to approximately $154.5 billion of
assets.

Wellington Management's Value/Yield Team manages the day-to-day operations of
the portion of the Large-Cap Value Portfolio allocated to it. The Value/Yield
Team, headed by John R. Ryan, is comprised of five specialized fundamental
analysts. The group is supported by Wellington Management's twenty-eight
industry analysts and specialized fundamental, quantitative and technical
analysts, macroanalysts and traders. Mr. Ryan is a Senior Vice President and
Managing Partner of Wellington Management, and has been with the firm for
sixteen years.

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 the Value Portfolio.

Davis Selected Advisers, L.P. Davis is a Colorado limited partnership, located
at 124 East Marcy 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, 1997, Davis had assets under management
of approximately $10.7 billion.

Christopher C. Davis, formerly co-manager for the Davis portion of the Value
Portfolio, assumed full responsibility for the management of Davis' portion
effective February 19, 1997. Mr. Davis joined Davis in September 1989 as an
assistant portfolio manager and research analyst. Prior to February 19, 1997,
Shelby M.C. Davis served as co-manager of the Davis portion of the Value

Portfolio. He will continue to consult with Christopher Davis in his capacity of
Chief Investment Officer of Davis.

<PAGE>

Neuberger&Berman, LLC. Neuberger&Berman is a Delaware limited liability company
located at 605 Third Avenue, New York, New York 10158-0180. Neuberger&Berman has
been in the investment advisory business since 1939. As of June 30, 1997,
Neuberger&Berman and its affiliates had assets under management of approximately
$44.7 billion.

Michael M. Kassen and Robert I. Gendelman serve as Portfolio Managers to
Neuberger&Berman's portion of the Value Portfolio. Mr. Kassen has been Managing
Director since January 1994 and a Vice President and Portfolio Manager since
June 1990, of Neuberger&Berman Management, Inc. and a principal of
Neuberger&Berman since January 1993. Mr. Gendelman is a senior portfolio manager
for Neuberger&Berman and an Assistant Vice President of Neuberger&Berman
Management, Inc. and a principal of Neuberger&Berman since December 1996. 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.

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 June 30, 1997, Schafer
had assets under management of approximately $600 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.

Small-Cap Value Portfolio

The Advisers for the Small-Cap Value Portfolio are Berger, Lazard and Glenmede.
PWM, pursuant to a subcontract with Berger, serves as Adviser to Berger's
portion of Small-Cap Value Portfolio.

Berger Associates, Inc. Berger is a Delaware corporation, located at 210
University Boulevard, Suite 900, Denver Colorado 80206, and serves as investment
adviser or sub-adviser to mutual funds, pension and profit-sharing plans, and
institutional and private investors. Kansas City Southern Industries, Inc.
("KCSI") owns approximately 87% of the outstanding shares of Berger. KCSI is a
publicly traded holding company with principal operations in rail
transportation, through its subsidiary The Kansas City Southern Railway Company,
and financial asset management businesses. As of June 30, 1997, Berger had

assets under management of more than $3.6 billion. Pursuant to an agreement
between Berger and PWM under which PWM manages Berger's portion of the Small-Cap
Value Portfolio, SunAmerica pays an advisory fee directly to Berger, and Berger
pays PWM's fee.

Perkins, Wolf, McDonnell & Company. PWM, located at 53 West Jackson Boulevard,
Suite 818, Chicago, Illinois 60604, was organized as a Delaware corporation in
1980 under the name Mac-Per-Wolf Co. to operate as a securities broker-dealer.
In September 1983, it changed its name to Perkins, Wolf, McDonnell & Company.
PWM is a member of the National Association of Securities Dealers, Inc. and, in
1984, registered with the Securities and Exchange Commission as an investment
adviser. As of June 30, 1997, PWM had assets under management of approximately
$117 million.

<PAGE>

Robert H. Perkins is primarily responsible for the investment management of the
portion of the Small-Cap Value Portfolio allocated to Berger. Mr. Perkins owns
49% of PWM's outstanding common stock and serves as President and Chief
Investment Officer and as a director of PWM.

Lazard manages assets on a team basis. Herbert W. Gullquist oversees the
investment team which is responsible for Lazard's portion of the Small-Cap Value
Portfolio. Mr. Gullquist is Vice Chairman of Lazard and has been with Lazard
since 1982. Eileen D. Alexanderson is the member of the investment team who is
primarily responsible for the day-to-day management of Lazard's portion of the
Small-Cap Value Portfolio. Ms. Alexanderson is the Managing Director for small
and mid-cap equity management of Lazard and has been with Lazard since 1979.

The Glenmede Trust Company. Glenmede is a privately-owned, independent trust
company devoted exclusively to investment management and trust services.
Glenmede is a wholly-owned subsidiary of The Glenmede Corporation and is located
at One Liberty Place, 1650 Market Street, Suite 1200, Philadelphia, Pennsylvania
19103. As of June 30, 1997, Glenmede had approximately $11.6 billion in assets
under management.

Robert J. Mancuso, CFA, is the primary Portfolio Manager responsible for
Glenmede's portion of the Small-Cap Value Portfolio. Scott R. Abernethy, CFA,
Thomas R. Angers, CFA, Barry D. Kohout, CFA, and Anthony J. Albuquerque are
Glenmede's equity research analysts. Mr. Mancuso joined Glenmede in 1992 and has
18 years of experience in equity research and portfolio management.

International Equity Portfolio

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

Rowe Price-Fleming International, Inc. Rowe-Fleming is a Maryland corporation,
incorporated in 1979 as a joint venture between T. Rowe Price and Robert
Flemings Holding Limited ("Flemings"). It is located at 100 East Pratt Street,
Baltimore, Maryland 21202. T. Rowe Price, Flemings and Jardine Fleming Group
Limited ("Jardine Fleming") are the owners of Rowe-Fleming. The common stock of
Rowe-Fleming is 50% owned by a wholly owned subsidiary of T. Rowe Price, 25% by
a subsidiary of Flemings, and 25% by Jardine Fleming. (Half of Jardine Fleming
is owned by Flemings and half by Jardine Matheson Holdings Limited.) T. Rowe
Price has the right to elect a majority of the Board of Directors of
Rowe-Fleming, and Flemings has the right to elect the remaining directors, one
of whom will be nominated by Jardine Fleming. As of June 30, 1997, Rowe-Fleming
managed over $25 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 J.T.
Edwards, John R. Ford, James B.M. Seddon, Benedict R.F. Thomas, and David J.L.
Warren. Martin Wade joined Rowe-Fleming in 1979 and has 27 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 10 years of experience with the Fleming
Group in research and portfolio management. Peter Askew joined Rowe-Fleming in

<PAGE>

1988 and has 21 years of experience managing multi-currency fixed income
portfolios. Mark Edwards joined Rowe-Fleming in 1986 and has 15 years of
experience in financial analysis. John Ford joined Rowe-Fleming in 1982 and has
16 years of experience with Fleming Group in research and portfolio management.
James Seddon joined Rowe-Fleming in 1987 and has 11 years of experience in
portfolio management. Benedict Thomas joined Price-Fleming in 1988 and has 7
years of portfolio management experience. David Warren joined Price-Fleming in
1984 and has 16 years of experience in equity research, fixed income research,
and portfolio management.

Bankers Trust Company. BT is a wholly owned subsidiary of Bankers Trust New York
Corporation, with principal offices at 280 Park Avenue, New York, New York
10017. BT is a worldwide merchant bank that provides investment management
services for the nation's largest corporations and institutions. As of December
31, 1997, BT managed approximately $300 billion in assets globally.

The Portfolio Manager for BT's portion of the International Equity Portfolio is
Michael Levy, Managing Director of Bankers Trust Global Investment Management.

Mr. Levy heads BT's international equity team, which is responsible for the day
to day management of the portion of the Portfolio. Mr. Levy's experience prior
to joining BT includes investment banking and equity analysis with Oppenheimer &
Company, and he has more than twenty-six years of business experience, of which
sixteen years have been in the investment industry.

Richard H. King is Portfolio Manager of Warburg's portion of the International
Equity Portfolio, and P. Nicholas Edwards, Harold W. Ehrlich and Vincent J.
McBride are Associate Portfolio Managers. From 1984 until 1988, Mr. King was
Chief Investment Officer and a Director at Fiduciary Trust Company International
S.A. in London, with responsibility for all international equity management and
investment strategy. From 1982 to 1984 he was a Director in charge of Far East
Equity Investments at N.M. Rothschild International Asset Management, a London
merchant bank. Mr. King, a Senior Managing Director of Warburg, has been with
Warburg since 1989.

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

The Distributor, at its expense, may from time to time provide additional
compensation to broker-dealers (including in some instances 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, Class
B

<PAGE>

or Class C shares; or (iii) financial assistance to broker-dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns regarding one or more of the Portfolios,
and/or other broker-dealer sponsored special events. In some instances, this
compensation will be made available only to certain broker-dealers whose

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

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

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

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

Distributor under the Class A Plan, Class B Plan or Class C Plan may exceed the
Distributor's distribution costs as described above. The Distribution Plans
provide that each class of shares of

<PAGE>

each Portfolio may also pay the Distributor an account maintenance and service
fee of up to 0.25% of the aggregate average daily net assets of such class of
shares for payments to broker-dealers for providing continuing account
maintenance. In this regard, some payments are used to compensate broker-dealers
with account maintenance and service fees in an amount up to 0.25% per year of
the assets maintained in a Portfolio by their customers.

Administrator. The Fund has entered into a Service Agreement under the terms of
which SunAmerica Fund Services, Inc. ("SAFS"), an indirect wholly owned
subsidiary of SunAmerica Inc., assists the transfer agent in providing
shareholder services. Pursuant to the Service Agreement, as compensation for
services rendered, SAFS receives a fee from the Fund, calculated and payable
monthly, at an annual rate of 0.22% of average daily net assets (in addition to
out-of-pocket charges reimbursed by the Fund). See the Statement of Additional
Information for further information.

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

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

The minimum initial investment in each Portfolio is $500 and the minimum
subsequent investment is $100. However, for Individual Retirement Accounts
("IRAs"), Keogh Plan accounts and accounts for other qualified plans, the
minimum initial investment is $250 and the minimum subsequent investment is $25.
The decision as to which class is most beneficial to an investor depends on the
amount and intended length of the investment. Investors should consult their
investment adviser for help in determining which class of shares is most
appropriate for them. Generally, investors making large investments, qualifying
for a reduced initial sales charge, might consider Class A shares because there
is a lower distribution fee than Class B and Class C shares. Shareholders who
purchase $1,000,000 or more of shares of the Portfolios should purchase only
Class A shares. Investors making small investments might consider Class B or
Class C shares because 100% of the purchase price is invested immediately.
Investors should consider the CDSC period and any conversion rights in the
context of their investment time frame. For example, while Class C shares have a
shorter CDSC period than Class B shares, Class C shares do not have a conversion
feature and, therefore, are subject to an ongoing distribution fee. Accordingly,
Class B shares may be more appropriate than Class C shares for investors with a
longer term investment time frame. Dealers may receive different levels of
compensation depending on which class of shares they sell.

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

<PAGE>

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:

Sales Charge Concession of Dealers
----------------------------------------------------- ---------------------
% of Net Amount
Size of Purchase % of Offering Price Invested % of Offering Price
---------------- ------------------- ---------------------- -------------------
<S> <C> <C> <C>
Less than $50,000.............. 5.75% 6.10% 5.00%
$50,000 but less than
$100,000....................... 4.75% 4.99% 4.00%
$100,000 but less than
$250,000 ...................... 3.75% 3.90% 3.00%
$250,000 but less than
$500,000 3.00% 3.09% 2.25%
$500,000 but less than
$1,000,000 .................... 2.10% 2.15% 1.35%
$1,000,000 or more . . None None see below
</TABLE>

No sales charge is payable at the time of purchase on investments of $1 million
or more. In addition, subject to the conditions listed below, shares may be
purchased at net asset value, without payment of a sales charge, by employee
benefit plans qualified under Sections 401 or 457 of the Code, or employee
benefit plans created pursuant to Section 403(b) of the Code and sponsored by
nonprofit organizations defined under Section 501(c)(3) of the Code
(collectively, "Plans"). A Plan will qualify for purchases at net asset value
provided that (a) the initial amount invested in one or more of the Portfolios
(or in combination with the shares of other funds in the SunAmerica Mutual
Funds, which consist of the SunAmerica Equity Funds, SunAmerica Income Funds and
SunAmerica Money Market Funds) is at least $1,000,000, (b) the sponsor signs a
$1,000,000 Letter of Intent, (c) such shares are purchased by an
employer-sponsored plan with at least 100 eligible employees, or (d) the
purchases are by trustees or other fiduciaries for certain employer-sponsored

plans, the trustee, fiduciary or administrator for which has an agreement with
the Distributor with respect to such purchases and all such transactions for the
plan are executed through a single omnibus account. Nevertheless, the
Distributor will pay a commission to any dealer who initiates or is responsible
for such an investment, in the amount of 1.00% of the amount invested.
Redemptions of such shares within the twelve months following their purchase
will be subject to a CDSC at the rate of 1.00% of the lesser of the net asset
value of the shares being redeemed (exclusive of reinvested dividends and
distributions) or the total cost of such shares. This CDSC is paid to the
Distributor. Redemptions of such shares held longer than twelve months would not
be subject to a CDSC. However, one-half of the commission paid with respect to
such a purchase is subject to forfeiture by the dealer in the event the
redemption occurs during the second year from the date of purchase. In
determining whether a deferred sales charge is payable, it is assumed that
shares purchased with reinvested dividends and distributions 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

<PAGE>

or certain other advisory accounts for the benefit of clients of broker-dealers,
financial institutions, registered investment advisers or financial planners
adhering to certain standards established by the Distributor. Shares purchased
under this waiver are subject to certain limitations described in the Statement
of Additional Information. Complete details concerning how an investor may
purchase shares at reduced sales charges may be obtained by contacting
Shareholder/Dealer Services at (800) 858-8850.

There are certain special purchase plans for Class A shares which can reduce the
amount of the initial sales charge to investors in the Portfolios. For more
information about "Rights of Accumulation," the "Letter of Intent," "Combined
Purchase Privilege" and "Reduced Sales Charges for Group Purchases," see the
Statement of Additional Information.

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

an increase in the net asset value of the shares being redeemed since the time
of purchase of such redeemed shares. The amount of the CDSC, if any, will vary
depending on the number of years from the time of payment for the purchase of
Class B shares until the time of redemption of such shares. Solely for purposes
of determining the number of years from the time of any payment for the purchase
of shares, all payments during a month are aggregated and deemed to have been
made on the first day of the month. The following table sets forth the rates of
the CDSC.

<TABLE>
<CAPTION>
Contingent Deferred Sales Charge as a
Year Since Purchase Percentage of Dollars Invested or
Payment Was Made Redemption Proceeds
<S> <C>
First.................................................................... 4%
Second................................................................ 4%
Third................................................................... 3%
Fourth................................................................. 3%
Fifth.................................................................... 2%
Sixth................................................................... 1%
Seventh and thereafter........................................ 0%
</TABLE>

Conversion Feature--Class B Shares. Class B shares (including a pro rata portion
of the Class B shares purchased through the reinvestment of dividends and
distributions) will convert automatically to Class A shares on the first
business day of the month following the seventh

<PAGE>

anniversary of the issuance of such Class B shares. Subsequent to the conversion
of a Class B share to a Class A share, such shares will no longer be subject to
the higher distribution fee of Class B shares. Such conversion will be on the
basis of the relative net asset values of Class B shares and Class A shares,
without the imposition of any sales load, fee or charge.

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

Waiver of CDSC. The CDSC applicable to Class B and Class C shares will be
waived, subject to certain conditions, in connection with redemptions that are
(a) requested within one year of the death of the shareholder of an individual
account or of a joint tenant where the surviving joint tenant is the deceased's
spouse; (b) requested within one year after the shareholder of an individual
account or a joint tenant on a spousal joint account becomes disabled; or the
initial determination of disability of a shareholder; (c) 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 account holder has
attained the age of 59 1/2 at the time the redemption is made; and (d) made
pursuant to a Systematic Withdrawal Plan, up to a maximum amount of 12% per year
from a shareholder account based on the value of the account at the time the
Plan is established, provided, however, that all dividends and capital gains
distributions are reinvested in Portfolio shares. See the Statement of
Additional Information for further information concerning conditions with
respect to (a) above. For information on the waiver of the CDSC contact
Shareholder/Dealer services at (800) 858-8850.

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

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

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. If the payment is
for a retirement plan account for which the Adviser serves as fiduciary, please
indicate on the check that payment is for such an account. 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

<PAGE>

Fund does not verify the authenticity of the endorsement of such multi-party
check, and acceptance of the check by the Fund should not be considered
verification thereof. Neither the Fund nor its affiliates will be held liable
for any losses incurred as a result of a fraudulent endorsement. Shares will be
priced at the net asset value next determined after the order is placed with the
Distributor or SAFS. See "Additional Information Regarding Purchase of Shares"
in the Statement of Additional Information for more information regarding these
services and the procedures involved and when orders are deemed to be placed.

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

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

General. Normally payment is made by check mailed 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.

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. Requests for redemption of shares with a value
of less than $100,000 will be made by check payable to the shareholders(s) and
mailed to the address of record. All written requests for redemption of shares
with a value of $100,000 or more, or those mailed to an address other than the
address of record, 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 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 the Fund's close of business, will be priced based on the next
business day's close. Dealers may charge for their services in connection with
the repurchase, but neither the 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 check payable to the Shareholder(s) and mailed to the
address of record 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

<PAGE>

instructions communicated by telephone are genuine. Failure to do so may result
in liability to the Fund for losses incurred due to unauthorized or fraudulent
telephone instructions. Such procedures include, but are not limited to,
requiring some form of personal identification prior to acting upon instructions
received by telephone and/or tape recording of telephone instructions.

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

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

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

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

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

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

<PAGE>

constitute a taxable transaction except for IRAs, Keogh Plans and other
qualified or tax-exempt accounts. The exchange privilege may be terminated or
modified upon 60 days' written notice. Further information about the exchange
privilege may be obtained by calling Shareholder/Dealer Services at (800)
858-8850.

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

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

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

In addition, a Portfolio reserves the right to refuse any exchange purchase
order if, in the judgment of SunAmerica, the Portfolio would be unable to invest
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. A shareholder's purchase exchange

may be restricted or refused if the Portfolio receives or anticipates
simultaneous orders affecting significant portions of the Portfolio's assets. In
particular, a pattern of exchanges that coincide with a "market timing" strategy
may be disruptive to the Portfolio and may therefore be refused.

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

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

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

<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 in increased short-term capital
gains, which, when distributed to shareholders, are currently treated as

ordinary income.

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

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

<PAGE>

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

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

Dividends and Distributions. For each Portfolio other than the Large-Cap Blend
Portfolio, dividends from net investment income, if any, are to be paid at least
annually. For the Large-Cap Blend Portfolio, dividends from net investment
income, if any, are to be paid quarterly. 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 to be
paid in additional shares based on the next determined net asset value, unless
the shareholder elects in writing, not less than five business days prior to the

payment date, to receive amounts in excess of $10 in cash.

If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, no interest will accrue
on amounts represented by uncashed dividend or distribution checks.

In addition to having the dividends and distributions of a Portfolio reinvested
in shares of such Portfolio, a shareholder may, if he or she so elects on the
New Account Application, have dividends and distributions invested in the same
class of shares of any other SunAmerica Mutual Fund or any other Portfolio of
the Fund at the then-current net asset value of such fund(s).

The excess of net realized capital gains from the sale of assets held for more
than 12 months over net capital losses ("net capital gains"), if any, with
respect to each Portfolio, will be distributed to the shareholders at least
annually. Each Portfolio's policy is to offset any prior year capital loss carry
forward against any realized capital gains, and accordingly, no distribution of
capital gains will be made until gains have been realized in excess of any such
loss carry forward.

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

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

<PAGE>

shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.

Income and capital gains received by each Portfolio with respect to foreign

investments may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes. Shareholders may be able to claim U.S. foreign tax credits
with respect to such taxes, subject to certain provisions and limitations
contained in the Code. If more than 50% in value of the Portfolio's total assets
at the close of its taxable year consists of securities of foreign corporations,
the Portfolio will be eligible and may choose to file an election with the
Internal Revenue Service pursuant to which shareholders of the Portfolio may
include their proportionate share of such withholding taxes in their U.S. income
tax returns as gross income, treat such proportionate share as taxes paid by
them, and deduct such proportionate share in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their U.S. income taxes.
No deductions for foreign taxes, however, may be claimed by non-corporate
shareholders who do not itemize deductions. Of course, certain retirement
accounts which are not subject to tax cannot claim foreign tax credits on
investments in foreign securities held in the Fund. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Portfolio's election described
in this paragraph but may not be able to claim a credit or deduction against
such U.S. tax for the foreign taxes treated as having been paid by such
shareholder. The Portfolio will report annually to its shareholders the amount
per share of such withholding taxes. It is not anticipated that the Portfolios,
other than the International Equity Portfolio, will qualify to elect to pass
foreign taxes through to their shareholders.

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

A shareholder who holds shares as a capital asset (i.e., generally, for
investment) generally will recognize a capital gain or loss upon the sale or
exchange of such shares. In the case of an individual, any such capital gain
will be treated as short-term capital gain if the shares were held for not more
than 12 months, mid-term gain, taxable at the maximum rate of 28%, if such
shares were held for more than 12, but not more than 18 months, and long-term
capital gain, taxable at the maximum rate of 20%, if such shares were held for
more than 18 months. In the case of a corporation, any such capital gain will be
treated as long-tem capital gain, taxable at the same rates as ordinary income,
if such shares were held for more than 12 months. Any such capital loss will be
a long-term capital 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

<PAGE>

disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.

Under certain provisions of the Code, some shareholders may be subject to a 31%
withholding tax on ordinary income dividends, capital gains distributions and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that the investor is
not otherwise subject to backup withholding.

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

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

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

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

To the knowledge of SunAmerica, as of September 29, 1997, no person owned
beneficially 25% or more of a Portfolio's outstanding voting securities. A

shareholder who owns beneficially, directly or indirectly, 25% or more of a
Portfolio's outstanding voting securities may be deemed to "control" (as defined
in the 1940 Act) that Portfolio.

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 Director 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. Each share of each Portfolio is entitled
to participate equally with the other shares of that Portfolio in dividends and
other distributions and the proceeds of any liquidation, except that, due to the
differing expenses borne by the classes, such dividends and proceeds are likely
to be lower for Class B and Class C shares than for

<PAGE>

Class A shares. See the Statement of Additional Information for more information
with respect to the distinctions among classes.

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

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

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

<PAGE>

STYLE SELECT SERIES
Statement of Additional Information
dated October 14, 1997

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

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

This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Fund's Prospectus dated October 14, 1997.
To obtain a Prospectus, please call the Fund at (800) 858-8850. Capitalized
terms used herein but not defined have the meanings assigned to them in the
Prospectus.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
The Fund .......................................................................................................B-2
Investment Objectives and Policies..............................................................................B-2
Portfolio Turnover.............................................................................................B-29
Investment Restrictions....................................................................................... B-30
Directors and Officers.........................................................................................B-32
Advisers, Distributor and Administrator........................................................................B-37
Portfolio Transactions and Brokerage...........................................................................B-42
Additional Information Regarding Purchase of Shares............................................................B-44
Additional Information Regarding Redemption of Shares..........................................................B-49
Determination of Net Asset Value...............................................................................B-49
Performance Data...............................................................................................B-50
Dividends, Distributions and Taxes.............................................................................B-54
Retirement Plans...............................................................................................B-60
Description of Shares..........................................................................................B-61

Additional Information.........................................................................................B-62
Financial Statements...........................................................................................B-64
Appendix.................................................................................................Appendix-1
</TABLE>

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

<PAGE>

THE FUND

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

INVESTMENT OBJECTIVES AND POLICIES

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

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

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

may receive lower prices than might otherwise be obtained.

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

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

B-2

<PAGE>

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

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

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

B-3

<PAGE>

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 Portfolio must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment and may not be able to assert a claim
against the United States if the agency or instrumentality does not meet its
commitments.

A Portfolio may, in addition to the U.S. government securities noted
above, invest in mortgage-backed securities (including private mortgage-backed
securities), such as GNMA, FNMA or FHLMC certificates (as defined below), which
represent an undivided ownership interest in a pool of mortgages. The mortgages

backing these securities include conventional thirty-year fixed-rate mortgages,
fifteen-year fixed-rate mortgages, graduated payment mortgages and adjustable
rate mortgages. These certificates are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal
payments, including prepayments, on the mortgages underlying the certificate,
net of certain fees.

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

Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as does the value of other debt securities, but, when

B-4

<PAGE>

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 or the Farmers' Home Administration, or guaranteed by the
Veterans Administration. The GNMA guarantee is authorized by the National
Housing Act and is backed by the full faith and credit of the United States. The
GNMA is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.

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

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

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

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

Conventional mortgage pass-through securities ("Conventional Mortgage
Pass-Throughs") represent participation interests in pools of mortgage loans
that are issued by trusts formed by originators of the institutional investors
in mortgage loans (or represent custodial arrangements administered by such
institutions). These originators and institutions include commercial banks,
savings and loans associations, credit unions, savings banks, insurance
companies, investment banks or special purpose subsidiaries of the foregoing.
For federal income tax purposes, such trusts are generally treated as grantor
trusts or REMICs and, in either case, are generally not subject to any

significant amount of federal income tax at the entity level.

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

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

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

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

Principal and interest on the underlying mortgage assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the mortgage assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.

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

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

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

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

investments in illiquid securities.

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

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

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

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

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

Asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the

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

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

Loan Participations. Each Portfolio may invest in loan participations.
Loan participations are loans sold by the lending bank to an investor. The loan
participant borrower may be a company with highly-rated commercial paper that
finds it can obtain cheaper funding through a loan participation than with
commercial paper and can also increase the company's name recognition in the
capital markets. Loan participations often generate greater yield than
commercial paper.

The borrower of the underlying loan will be deemed to be the issuer
except to the extent the Portfolio derives its rights from the intermediary bank
which sold the loan participations. Because loan participations are undivided
interests in a loan made by the issuing bank, the Portfolio may not have the
right to proceed against the loan participations borrower without the consent of
other

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holders of the loan participations. In addition, loan participations will be
treated as illiquid if, in the judgment of the Adviser, they can not be sold
within seven days.

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), including Eurodollar certificates of
deposit (certificates of deposit issued by domestic or foreign banks
located outside the U.S.) and Yankee certificates of deposit
(certificates of deposit issued by branches of foreign banks located in
the U.S.), domestic and foreign 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
U.S. 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"). A
Portfolio may also invest in notes and obligations issued by foreign
branches of U.S. and foreign commercial banks.

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 domestic and foreign 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

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aggregate exceed 15% of its total assets after such purchase. The
commercial paper in which a Portfolio may invest includes variable
amount master demand notes. Variable amount master demand notes permit

a Portfolio to invest varying amounts at fluctuating rates of interest
pursuant to the agreement in the master note. These are direct lending
obligations between the lender and borrower, they are generally not
traded, and there is no secondary market. Such instruments are payable
with accrued interest in whole or in part on demand. The amounts of the
instruments are subject to daily fluctuations as the participants
increase or decrease the extent of their participation. Investments in
these instruments are limited to those that have a demand feature
enabling the Portfolio unconditionally to receive the amount invested
from the issuer upon seven or fewer days" notice. In connection with
master demand note arrangements, the Adviser, subject to the direction
of the Directors, monitors on an ongoing basis, the earning power, cash
flow and other liquidity ratios of the borrower, and its ability to pay
principal and interest on demand. The Adviser also considers the extent
to which the variable amount master demand notes are backed by bank
letters of credit. These notes generally are not rated by Moody's or
Standard & Poor's and a Portfolio may invest in them only if it is
determined that at the time of investment the notes are of comparable
quality to the other commercial paper in 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"
above. A Portfolio may also purchase securities issued or guaranteed by
a foreign government, its agencies or instrumentalities. See "Foreign
Securities" above.

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

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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% (100% if such collateral is
cash) of the repurchase price, including accrued interest. The instruments held
as collateral are valued daily and if the value of the instruments declines, the
Portfolio will require additional collateral. If the seller defaults and the
value of the collateral securing the repurchase agreements declines, the
Portfolio may incur a loss. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Portfolio may be delayed or limited. The Directors have established guidelines
to be used by the Adviser in connection with transactions in repurchase
agreements and will regularly monitor each Portfolio's use of repurchase
agreements. A Portfolio will not invest in repurchase agreements maturing in
more than seven days if the aggregate of such investments along with other
illiquid securities exceeds 15% of the value of its net assets. However, there
is no limit on the amount of a Portfolio's net assets that may be subject to
repurchase agreements having a maturity of seven days or less for temporary
defensive purposes.

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

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

Options

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

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

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

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

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

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of the exercise price. A Portfolio has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
This obligation terminates upon expiration of the put, or such earlier time at
which a Portfolio effects a closing purchase transaction by purchasing a put of
the same series as that previously sold. Once a Portfolio has been assigned an
exercise notice, it is thereafter not allowed to effect a closing purchase
transaction.

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

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

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

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portfolio securities denominated in foreign currencies, or increase the cost of
foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant.
Each Portfolio may sell futures contracts on a foreign currency, for example,
when it holds securities denominated in such currency and it anticipates a
decline in the value of such currency relative to the dollar. In the event such
decline occurs, the resulting adverse effect on the value of foreign-denominated
securities may be offset, in whole or in part, by gains on the Futures
contracts. However, if the value of the foreign currency increases relative to
the dollar, the Portfolio's loss on the foreign currency futures contract may or
may not be offset by an increase in the value of the securities since a decline
in the price of the security stated in terms of the foreign currency may be
greater than the increase in value as a result of the change in exchange rates.

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

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

contracts are collectively referred to as "Options on Futures.")

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

A Portfolio may purchase Options on Futures for hedging purposes,
instead of purchasing or selling the underlying Futures contract. For example,
where a decrease in the value of portfolio securities is anticipated as a result
of a projected market-wide decline or changes in interest or

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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 that the U.S. dollar may suffer a substantial decline
against a foreign currency, it may enter into a Forward Contract to buy

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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.

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,

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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 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.

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

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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 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

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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 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

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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 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.

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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 CFTC, which generally
regulates the trading of commodity futures by U.S. persons, the Securities and
Exchange Commission (the "SEC"), which regulates the offer and sale of
securities by and to U.S. persons, or any other governmental regulatory
authority.

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

When-Issued Securities and Firm Commitment Agreement. A Portfolio may
purchase or sell securities on a "when-issued" or "delayed delivery" basis and
may purchase securities on a firm commitment basis. Although a Portfolio will

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

B-25

<PAGE>

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 exposure to
anticipated falling prices. In periods of falling interest rates and rising
prices, a Portfolio might sell portfolio securities and purchase the same or
similar securities on a when-issued or forward commitment basis, thereby

obtaining the benefit of currently higher cash yields.

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

B-26

<PAGE>

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 Portfolio; 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 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

B-27

<PAGE>

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 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

B-28

<PAGE>

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 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

B-29

<PAGE>

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 outstanding shares
are present in person or by proxy or (ii) more than 50% of the outstanding
shares. All percentage limitations expressed in the following investment
restrictions are measured immediately after the relevant transaction is made.
Each Portfolio may not:

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

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

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

B-30

<PAGE>

rate, mortgage and currency swaps and interest rate floors and caps and may
purchase hybrid instruments.

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

5. Borrow money, except that (i) each Portfolio may borrow from banks
in amounts up to 33 1/3% of its total assets for temporary or emergency

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

6. Issue senior securities as defined in the 1940 Act, except that each
Portfolio may enter into repurchase agreements, reverse repurchase agreements,
dollar rolls, lend its portfolio securities and borrow money from banks, as
described above, and engage in similar investment strategies described in the
Prospectus and Statement of Additional Information, as they may be amended from
time to time.

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

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

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

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

10. Invest in securities of other registered investment companies,
except by purchases in the open market, involving only customary brokerage
commissions and as a result of which not more

B-31

<PAGE>

than 10% of its total assets (determined at the time of investment) would be
invested in such securities, or except as part of a merger, consolidation or
other acquisition.

11. Enter into any repurchase agreement maturing in more than seven
days or investing in any other illiquid security if, as a result, more than 15%
of a Portfolio's net assets would be so invested. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act that have a readily

available market, and commercial paper exempted from registration under the
Securities Act pursuant to Section 4(2) of that Act that may be offered and sold
to "qualified institutional buyers" as defined in Rule 144A, which the Adviser
has determined to be liquid pursuant to guidelines established by the Directors,
will not be considered illiquid for purposes of this 15% limitation on illiquid
securities.

DIRECTORS AND OFFICERS

The following table lists the Directors and executive officers of the
Fund, their ages, business addresses, and principal occupations during the past
five years. The SunAmerica Mutual Funds consist of SunAmerica Equity Funds,
SunAmerica Income Funds and SunAmerica Money Market Funds. An asterisk indicates
those Directors who are interested persons of the Fund within the meaning of the
1940 Act.

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

B-32

<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- -------------------
<S> <C> <C>
Samuel M. Eisenstat, 57 Chairman of the Attorney in private practice; President
430 East 86th Street Board and Chief Executive Officer, Abjac
New York, NY 10028 Energy Corporation; Director/Trustee of
Atlantic Realty Trust, UMB Bank and
Trust (a subsidiary of United Mizrachi
Bank), North European Royalty Trust, Volt
Information Sciences Funding, Inc. (a
subsidiary of Volt Information Sciences,
Inc.) and Venture Partners International
(an Israeli venture capital fund);

Chairman of the Boards of the
Directors/Trustees of the SunAmerica
Mutual Funds and AST.

Stephen J. Gutman, 53 Director Partner and Chief Operating Officer of
515 East 79th Street B.B. Associates LLC (menswear
New York, NY 10021 specialty retailing and other activities)
(1989 to present); Director/Trustee of
the SunAmerica Mutual Funds and AST.

Peter A. Harbeck,*43 Director and Director and President, SunAmerica
The SunAmerica Center President Asset Management Corp.
733 Third Avenue ("SunAmerica"); Director, SunAmerica
New York, NY 10017-3204 Capital Services, Inc. ("SACS"), (1993
to present); Director and President,
SunAmerica Fund Services, Inc. ("SAFS"),
(1988 to present); President, SunAmerica
Mutual Funds and AST; Executive Vice
President and Chief Operating Officer,
SunAmerica, (1988-1995); Executive
Vice President, SACS, (1991-1995);
Director, Resources Trust Company.

J. Steven Neamtz, 38 Vice President Executive Vice President, SunAmerica,
The SunAmerica Center (1996 to present); President,
733 Third Avenue SunAmerica Capital Services, Inc. (1996
New York, NY 10017-3204 to present); formerly Executive Vice
President, New England Funds, L.P.
(1990 to 1996).
</TABLE>

B-33

<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- -------------------
<S> <C> <C>
Peter McMillan III,*39 Director Executive Vice President and Chief
1 SunAmerica Center Investment Officer, SunAmerica
Los Angeles, CA 90067 Investments, Inc., (1989 to present);
Director/Trustee of the SunAmerica
Mutual Funds; Director, Resources
Trust Company.

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

Robert M. Zakem, 39 Secretary Senior Vice President and General
The SunAmerica Center Counsel, SunAmerica (1993 to present);
733 Third Avenue Executive Vice President, General
New York, NY 10017-3204 Counsel and Director, SACS, (1993 to
present); Vice President, General
Counsel and Assistant Secretary,
SAFS, (1994 to present); Vice
President and Assistant Secretary,
SunAmerica Series Trust and Anchor
Pathway Fund, (1993 to present);
Assistant Secretary, Seasons Series
Trust (1997 to present); Secretary,
SunAmerica Mutual Funds and AST;
formerly, Vice President and
Associate General Counsel, SunAmerica,
(1992-1993); Associate, Piper &
Marbury (1989-1992).
</TABLE>

B-34

<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- -------------------
<S> <C> <C>
Peter C. Sutton, 33 Treasurer Senior Vice President, SunAmerica,
The SunAmerica Center (1997 to present); Treasurer,
733 Third Avenue SunAmerica Mutual Funds and AST
New York, NY 10017-3204 (1996 to present); Vice President,
SunAmerica Series Trust, Anchor
Pathway Fund (1994 to present);
Vice President, Seasons Series
Trust (1997 to present); formerly,
Vice President, SunAmerica
(1994-1997); Controller, SunAmerica
Mutual Funds and AST (1993-1996);
Assistant Controller, SunAmerica
Mutual Funds and AST (1990-1993).
</TABLE>

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

The Fund pays each Director who is not an interested person of the
Fund, SunAmerica or any Adviser, nor a party to any Management Agreement or
Subadvisory Agreement (collectively, the "Disinterested Directors") 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 an aggregate of up to $60,000 in annual
compensation for acting as director or trustee to the SunAmerica Mutual Funds,
Anchor Series Trust ("AST") and/or the Fund, a pro rata portion of which, based
on relative net assets, is borne by the Fund.

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 up to $5,000 in annual compensation for serving on the Audit
Committees of the SunAmerica Mutual Funds, AST and/or the Fund, 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, AST and
the Fund have adopted the SunAmerica Disinterested Trustees' and Directors'
Retirement Plan (the "Retirement Plan") effective January 1, 1993 for the
unaffiliated Directors. The Retirement Plan provides generally that if a
Disinterested Director who has at least 10 years of consecutive service as a
Disinterested Director of any of the SunAmerica Mutual Funds, AST or the Fund
(an "Eligible Director") retires after reaching age 60

B-35

<PAGE>

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.

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

ESTIMATED COMPENSATION TABLE*

<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual from Registrant and
Compensation Accrued as Part of Benefits Upon Fund Complex Paid
Director from Fund Fund Expenses** Retirement**+ to Directors**
<S> <C> <C> <C> <C>

S. James Coppersmith $3,200 N/A $29,670 $65,000
Samuel M. $3,500 N/A $46,089 $69,000
Eisenstat***

Stephen J. Gutman $3,200 N/A $60,912 $65,000
Sebastiano Sterpa $3,200 N/A $7,900 $43,333****
</TABLE>

* Assumes Fund assets of $400 million at fiscal year end.
** Information is for the five investment companies in the complex which pay
fees to these directors/trustees. The complex consists of the SunAmerica
Mutual Funds, AST and the Fund.
*** Mr. Eisenstat receives additional compensation for serving as Chairman of
each of the boards in the complex, $300 of which is payable by the Fund.
**** Mr. Sterpa is not a trustee of AST.
+ Assuming participant elects to receive benefits in 15 yearly
installments.

As of July 11, 1997, the Directors and officers of the Fund owned in the
aggregate less than 1% of the Fund's total outstanding shares.

The following shareholders owned of record or beneficially 5% or more of
the indicated Portfolio Class' shares outstanding as of September 29, 1997:
Mid-Cap Growth Portfolio - Class A - SunAmerica, Inc., Los Angeles, CA 90067 -
owned beneficially 21%; Class B - Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL 32246 - owned of record 9%; Class C - Merrill Lynch, Pierce,
Fenner & Smith, Inc., Jacksonville, FL 32246 - owned of record 28%, Paine Webber
for benefit of Tramco, Inc. Profit Sharing Plant Trust, Wichita, KS 67214 -
owned of record 10%; Aggressive Growth Portfolio - Class B - Merrill Lynch,
Pierce, Fenner & Smith, Inc., Jacksonville, FL 32246 - owned of record 7%; Class
C - Paine Webber for benefit of Tramco, Inc. Profit Sharing Plan Trust, Wichita,
KS 67214 - owned of record 9%; Value Portfolio - Class B - Merrill Lynch,
Pierce, Fenner & Smith, Inc.,

B-36

<PAGE>

Jacksonville, FL 32246 - owned of record 7%; Class C - Paine Webber for benefit
of Tramco, Inc. Profit Sharing Plan Trust, Wichita, KS 67214 - owned of record
6%; and International Equity Portfolio - Class B - Merrill Lynch, Pierce, Fenner
& Smith, Inc., Jacksonville, FL 32246 - owned of record 6%; Class C - Merrill
Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL 32246 - owned of record
44%.

To the knowledge of SunAmerica, as of September 29, 1997, no person owned
beneficially 25% or more of a Portfolio's outstanding voting securities. A
shareholder who owns beneficially, directly or indirectly, 25% or more of a
Portfolio's outstanding voting securities may be deemed to "control" (as defined
in the 1940 Act) that Portfolio.

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 (the
"Management Agreement") with the Fund, on behalf of each Portfolio. SunAmerica
is an indirect wholly owned subsidiary of SunAmerica Inc. SunAmerica Inc. is
incorporated in the State of Maryland and maintains its principal executive
offices at 1 SunAmerica Center, Los Angeles, CA 90067-6022, telephone (310)
772-6000.

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

Except to the extent otherwise specified in the Management Agreement,
each Portfolio pays, or causes to be paid, all other expenses of the Fund and
each of the Portfolios, including, without limitation, charges and expenses of
any registrar, custodian, transfer and dividend disbursing agent; brokerage
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 the Mid-Cap Portfolio, the
Aggressive Growth Portfolio, the Value Portfolio and International Equity
Portfolio was approved by the Directors, including

B-37

<PAGE>

the Disinterested Directors, on September 17, 1996, and by the sole initial
shareholder of each such Portfolio on November 15, 1996. The Management
Agreement with respect to the Large-Cap Growth Portfolio, the Large-Cap Blend
Portfolio, the Large-Cap Value Portfolio and the Small-Cap Value Portfolio was
approved by the Directors, including the Disinterested Directors, on August 20,
1997.

Effective June 17, 1997, with respect to the Mid-Cap Growth Portfolio,
Aggressive Growth Portfolio, Value Portfolio and International Equity Portfolio,
and the date of commencement of operations with respect to the Large-Cap Growth
Portfolio, Large-Cap Blend Portfolio, Large-Cap Value Portfolio and Small-Cap
Value Portfolio, SunAmerica has voluntarily agreed to waive fees or reimburse
expenses, if necessary, to keep operating expenses at or below an annual rate of
1.78% of the Assets of Class A shares and 2.43% of the Assets of Class B and
Class C shares for each such Portfolio (other than the International Equity
Portfolio) and 2.03% of the Assets of Class A shares and 2.68% of the Assets of
Class B and Class C shares for the International Equity Portfolio. Prior to June
17, 1997, with respect to the Mid-Cap Growth Portfolio, Aggressive Growth
Portfolio, Value Portfolio and International Equity Portfolio, SunAmerica
voluntarily agreed to waive fees or reimburse expenses to keep annual operating
expenses at or below an annual rate of 1.90% of the Assets of Class A shares and
2.55% of the Assets of Class B and Class C shares for each such Portfolio (other
than the International Equity Portfolio) and 2.15% of the Assets of Class A
shares and 2.80% of the Assets of Class B and Class C shares for the
International Equity Portfolio. 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 potential reimbursements are accounted for as possible contingent
liabilities that are not recordable on the balance sheet of a Portfolio until
collection is probable, but appear as footnote disclosure to each Portfolio's
financial statements. At such time as it appears probable that a Portfolio is
able to effect such reimbursement and that SunAmerica intends to seek such
reimbursement, the amount of the reimbursement will be accrued as an expense of
the Portfolio for that current period.

The Management Agreement will continue in effect with respect to each
Portfolio, for a period of two years from the date of execution unless
terminated sooner, and thereafter from year to year, if approved at least
annually by vote of a majority of the Directors or by the holders of a majority
of the respective Portfolio's outstanding voting securities. Any such
continuation also requires approval by a majority of the Disinterested Directors
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.

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<PAGE>

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. The
aggregate annual rates of the fees payable by SunAmerica to the Advisers for
each Portfolio may vary according to the level of Assets of each Portfolio. The
highest aggregate annual rates of such fees would be the following, expressed as
a percentage of the Assets of each Portfolio: Large-Cap Growth Portfolio, .48%;
Mid-Cap Growth Portfolio, .50%; Aggressive Growth Portfolio, .55%; Large-Cap
Blend Portfolio, .48%; Large-Cap Value Portfolio, .43%; Value Portfolio, .50%;
Small-Cap Value Portfolio, .55%; and International Equity Portfolio, .65%.

The Subadvisory Agreements with respect to the Mid-Cap Growth
Portfolio, Aggressive Growth Portfolio, Value Portfolio, and International
Equity Portfolio were approved by the Directors, including the Disinterested
Directors, on September 17, 1996, and by the sole initial shareholder of each
such Portfolio on November 15, 1996. The Subadvisory Agreement with respect to
the Value Portfolio between Strong and Schafer was approved by the Directors,
including the Disinterested Directors, on September 17, 1996, and became
effective upon commencement of operation of the Fund. The Subadvisory Agreements
with respect to the Large-Cap Growth Portfolio, Large-Cap Blend Portfolio,
Large-Cap Value Portfolio and Small-Cap Value Portfolio, including the
Subadvisory Agreement with respect to the Small-Cap Value Portfolio between
Berger and PWM, were approved by the Directors, including the Disinterested
Directors, on August 20, 1997.

The Subadvisory Agreements will continue in effect for a period of two
years from the date of their execution, unless terminated sooner. They may be
renewed from year to year thereafter, so long as continuance is specifically
approved at least annually in accordance with the requirements of the 1940 Act.
The Subadvisory Agreements provide that they will terminate in the event of an

assignment (as defined in the 1940 Act) or upon termination of the Management
Agreement. Under the terms of the Subadvisory Agreements, no Adviser is liable
to the Portfolios, or their shareholders, for any act or omission by it or for
any losses sustained by the Portfolios or their shareholders, except in the case
of willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties.

B-39

<PAGE>

Personal Trading. The Fund and SunAmerica have adopted a written Code of Ethics
(the "Code") which prescribes general rules of conduct and sets forth guidelines
with respect to personal securities trading by "Access Persons" thereof. An
Access Person as defined in the Code is an individual who is a trustee,
director, officer, general partner or advisory person of the Fund or SunAmerica.
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 the Mid-Cap Growth
Portfolio, Aggressive Growth Portfolio, Value Portfolio and International Equity
Portfolio was approved by the Directors, including the Disinterested Directors,
on September 17, 1996. The Distribution Agreement with respect to the Large-Cap

Growth Portfolio, Large-Cap Blend Portfolio, Large-Cap Value Portfolio and
Small-Cap Value Portfolio was approved by the Directors, including the
Disinterested Directors, on August 20, 1997. The Distribution Agreement with
respect to each Portfolio will remain in effect for two years from the date of
execution unless terminated sooner, and thereafter from year to year if such
continuance is approved at least annually by the Directors, including a majority
of the Disinterested Directors. The Fund and the Distributor each has the right
to terminate the Distribution Agreement with respect to a Portfolio on 60 days'
written notice, without penalty. The Distribution Agreement will terminate
automatically in the event of its assignment as defined in the 1940 Act and the
rules thereunder.

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<PAGE>

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

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

maintenance. In this regard, some payments are used to compensate broker-dealers
with trail commissions or account maintenance and service fees in an amount up
to 0.25% per year of the assets maintained in a Portfolio by their customers.

The Class A and Class B Distribution Plans with respect to the Mid-Cap
Growth Portfolio, Aggressive Growth Portfolio, Value Portfolio and International
Equity Portfolio were approved on September 17, 1996 by the Directors, including
the Directors who are not "interested persons" of the Fund and who have no
direct or indirect financial interest in the operation of Distribution Plans of
the Fund (the "Independent Directors"). The Class C Distribution Plan with
respect to each such Portfolio was so approved by the Directors, including the
Independent Directors, on February 26, 1997. The Class A, Class B and Class C
Distribution Plans with respect to the Large-Cap Growth Portfolio, Large-Cap
Blend Portfolio, Large-Cap Value Portfolio and Small-Cap Value Portfolio were
approved on August 20, 1997 by the Directors, including Independent Directors.

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

B-41

<PAGE>

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 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 on September 17, 1996 with respect to the

Mid-Cap Growth Portfolio, Aggressive Growth Portfolio, Value Portfolio and
International Equity Portfolio, and on August 20, 1997 with respect to the
Large-Cap Growth Portfolio, Large-Cap Blend Portfolio, Large-Cap Value Portfolio
and Small-Cap Value Portfolio. The Service Agreement will remain in effect for
two years from the date of approval with respect to each Portfolio and from year
to year thereafter provided its continuance is approved annually by vote of the
Directors including a majority of the Disinterested Directors.

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

PORTFOLIO TRANSACTIONS AND BROKERAGE

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

B-42

<PAGE>

In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission (although the price of the security usually includes a profit
to the dealer). In underwritten offerings, securities are purchased at a fixed
price 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 respect to 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.

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<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 and Class C
shares, and certain Class A shares). Reference is made to "Purchase of Shares"
in the Prospectus for certain information as to the purchase of Portfolio
shares.

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

Death. CDSCs may be waived on redemptions within one year following the
death (i) of the sole shareholder on an individual account, (ii) of a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii) of
the beneficiary of a Uniform Gifts to Minors Act, Uniform Transfers to Minors
Act or other custodial account. The CDSC waiver is also applicable in the case

where the shareholder account is registered as community property. If, upon the
occurrence of one of the foregoing, the account is transferred to an account
registered in the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year of the death. If
Class B shares are not redeemed within one year of the death, they will remain
Class B shares and be subject to the applicable CDSC, when redeemed.

Disability. A CDSC may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of
the Internal Revenue Code). 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. Checks should be made payable to the specific Portfolio or to
"SunAmerica Funds." If the payment is for a retirement plan account for which
SunAmerica serves as fiduciary, please note on the check that payment is for
such an account. In the case of a new account, purchase orders by check must be
submitted directly by mail to SunAmerica Fund Services, Inc., Mutual Fund

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<PAGE>

Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204, together with payment for the purchase price of such shares and a
completed New Account Application. Payment for subsequent purchases should be
mailed to SunAmerica Fund Services, Inc., c/o NFDS, P.O. Box 419373, Kansas
City, Missouri 64141-6373 and the shareholder's Fund account number should
appear on the check. For fiduciary retirement plan accounts, both initial and
subsequent purchases should be mailed to SunAmerica Fund Services, Inc., Mutual
Fund Operations, The SunAmerica Center, 733 Third Avenue, New York, New York
10017-3204. Certified checks are not necessary but checks are accepted subject
to collection at full face value in United States funds and must be drawn on a
bank located in the United States. Upon receipt of the completed New Account
Application and payment check, the Transfer Agent will purchase full and
fractional shares of the applicable Portfolio at the net asset value next
computed after the check is received, plus the applicable sales charge.
Subsequent purchases of shares of each Fund may be purchased directly through

the Transfer Agent. SAFS reserves the right to reject any check made payable
other than in the manner indicated above. Under certain circumstances, the Fund
will accept a multi-party check (e.g., a check made payable to the shareholder
by another party and then endorsed by the shareholder to the Fund in payment for
the purchase of shares); however, the processing of such a check may be subject
to a delay. The Fund does not verify the authenticity of the endorsement of such
multi-party check, and acceptance of the check by the Fund should not be
considered verification thereof. Neither the Fund nor its affiliates will be
held liable for any losses incurred as a result of a fraudulent endorsement.
There are restrictions on the redemption of shares purchased by check for which
funds are being collected. (See "Redemption of the Shares" in the Prospectus.)

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).

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<PAGE>

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. Such plans
may include certain employee benefit plans qualified under Sections 401 or 457

of the Internal Revenue Code, or employee benefit plans created pursuant to
Section 403(b) of the Internal Revenue Code and sponsored by nonprofit
organizations defined under Section 501(c)(3) of the Internal Revenue Code
(collectively, "Plans"). A Plan will qualify for purchases at net asset value
provided that (a) the initial amount invested in one or more of the Portfolios
(or in combination with the shares of other SunAmerica Mutual Funds) is at least
$1,000,000, (b) the sponsor signs a $1,000,000 Letter of Intent, (c) such shares
are purchased by an employer-sponsored plan with at least 100 eligible
employees, or (d) the purchases are by trustees or other fiduciaries for certain
employer-sponsored plans, the trustee, fiduciary or administrator for which has
an agreement with the Distributor with respect to such purchases and all such
transactions for the plan are executed through a single omnibus account.
Further, the sales charge is waived with respect to shares purchased by "wrap
accounts" for the benefit of clients of broker-dealers, financial institutions,
financial planners or registered investment advisers adhering to the following
standards established by the Distributor: (i) the broker-dealer, financial
institution or financial planner charges its client(s) an advisory fee based on
the assets under management on an annual basis, and (ii) such broker-dealer,
financial institution or financial planner does not advertise that shares of the
Portfolio may be purchased by clients at net asset value. Shares purchased under
this waiver may not be resold except to the Portfolio. Shares are offered at net
asset value to the foregoing persons because of anticipated economies in sales
effort and sales related expenses. Reductions in sales charges apply to
purchases or shares by a "single person" including an individual; members of a
family unit comprising husband, wife and minor children; or a trustee or other
fiduciary purchasing for a single fiduciary account. Complete details concerning
how an investor may purchase shares at reduced sales charges may be obtained by
contacting the Distributor.

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

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

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

(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);

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

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

(vi) group purchases as described below.

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

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

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

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

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<PAGE>

payment may be made directly to the Distributor or, if not paid, the Distributor
is authorized by the Letter of Intent to liquidate a sufficient number of
escrowed shares to obtain such difference. If the goal is exceeded and purchases
pass the next sales charge break-point, the sales charge on the entire amount of
the purchase that results in passing that break-point, and on subsequent
purchases, will be subject to a further reduced sales charge in the same manner
as set forth above under "Rights of Accumulation," but there will be no
retroactive reduction of sales charges on previous purchases. At any time while
a Letter of Intent is in effect, a shareholder may, by written notice to the
Distributor, increase the amount of the stated goal. In that event, shares of
the applicable Portfolio purchased during the previous 90-day period and still
owned by the shareholder will be included in determining the applicable sales
charge. The 5% escrow and the minimum purchase requirement will be applicable to
the new stated goal. Investors electing to purchase shares of one or more of the
Portfolios pursuant to this purchase plan should carefully read such Letter of
Intent.

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

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

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

months; and (vii) the group or its investment dealer will 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

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member of a qualified group or a member's beneficiary. For example, a qualified
group could consist of a trade association which would have as its members
individuals, sole proprietors, partnerships and corporations. The members of the
group would then consist of the individuals, the sole proprietors and their
employees, the members of the partnership and their employees, and the
corporations and their employees, as well as the trustees of employee benefit
trusts acquiring a Portfolio's shares for the benefit of any of the foregoing.

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

ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES

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

If the Directors determine that it would be detrimental to the best
interests of the remaining shareholders of a Portfolio to make payment wholly or
partly in cash, the Fund, having filed with the SEC a notification of election
pursuant to Rule 18f-1 on behalf of each of the Portfolios, may pay the
redemption price in whole, or in part, by a distribution in kind of securities
from a Portfolio in lieu of cash. In conformity with applicable rules of the
SEC, the Portfolios are committed to pay in cash all requests for redemption, by
any shareholder of record, limited in amount with respect to each shareholder
during any 90-day period to the lesser of (i) $250,000, or (ii) 1% of the net
asset value of the applicable Portfolio at the beginning of such period. If
shares are redeemed in kind, the redeeming shareholder would incur brokerage
costs in converting the assets into cash. The method of valuing portfolio
securities is described below in the section entitled "Determination of Net
Asset Value," and such valuation will be made as of the same time the redemption
price is determined.

DETERMINATION OF NET ASSET VALUE

The Fund is open for business on any day the NYSE is open for regular
trading. Shares are valued each day as of the close of regular trading on the
NYSE (generally, 4:00 p.m., Eastern time). Each Portfolio calculates the net

asset value of its shares separately by dividing the total value of each class's
net assets by the shares of such class outstanding. The net asset value of a
Portfolio's shares will also be computed on each other day in which there is a
sufficient degree of trading in such Portfolio's securities that the net asset
value of its shares might be materially affected by changes in the values of the
portfolio securities; provided, however, that on such day the Fund receives a
request 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

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<PAGE>

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

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

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

currencies will be converted into U.S. dollars at the mean between the bid and
offered prices of such currencies against U.S. dollars last quoted by any large
New York bank which is a dealer in foreign currency.

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

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,

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bonds, certificates of deposit, money market funds and U.S. Treasury Bills.
Certain of these alternative investments may offer fixed rates of return and
guaranteed principal and may be insured.

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

P(1 + T)n = ERV

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

The above formula assumes that:

1. The maximum sales load (i.e., either the front-end sales load in
the case of the Class A shares or the deferred sales load that
would be applicable to a complete redemption of the investment at

the end of the specified period in the case of the Class B or
Class C shares) is deducted from the initial $1,000 purchase
payment;

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

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

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

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.

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<PAGE>

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

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

c) The New York Stock Exchange composite or component indices --
unmanaged indices of all industrial, utilities, transportation, and finance
stocks listed on the New York Stock Exchange.

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

e) Lipper: Mutual Fund Performance Analysis, Fixed Income Analysis, and

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

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

g) Mutual Fund Source Book, Principia and other publications by
Morningstar, Inc. -- 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.

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<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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<PAGE>

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

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

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

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

y) Morgan Stanley Capital International World Index -- An arithmetic,
market value-weighted average of the performance of over 1,470 securities listed

on the stock exchanges of countries in Europe, Australia, the Far East, Canada
and the United States.

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

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

In assessing such comparisons of performance, an investor should keep
in mind that the composition of the investments in the reported indices and
averages is not identical to a Portfolio's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by a Portfolio to calculate
its figures. 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 capital gains from the sale of assets held for more than 12 months in
excess of any net short-term capital losses. The current policy of each
Portfolio other than the Large-Cap Blend Portfolio, is to pay investment income
dividends, if any, at least annually. Large-Cap Blend Portfolio's current policy
is to pay investment income dividends, if any, on a quarterly basis. Each
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Portfolio intends to pay net capital gains, if any, annually. In determining
amounts of capital gains to be distributed, any capital loss carry-forwards from
prior years will be offset against capital gains.

Distributions will be paid in additional Portfolio shares based on the
net asset value at the close of business on the Ex or reinvestment date, unless
the dividends total in excess of $10.00 per distribution period and the
shareholder notifies the Portfolio at least five business days prior to the
payment date to receive such distributions in cash.

Taxes. Each Portfolio intends to qualify and elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue 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) with respect to tax years
beginning on or before August 5, 1997, 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 Internal Revenue 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 during the calendar year if actually paid
during such year. Additionally, a distribution will be treated as paid on
December 31 of a calender year if it is declared by a Portfolio in October,
November or December of such year, payable to shareholders of record on a date
in such month and paid by such Portfolio during January of the following year.
Any such distributions paid during January of the following year will be taxable
to shareholders as of such December 31, rather than the date on which the
distributions are received.

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

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

Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending upon its basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. In the case of an individual, any such capital gain will be
treated as short-term capital gain if the shares were held for not more than 12
months, mid-term gain, taxable at the maximum rate of 28%, if such shares were
held for more than 12, but not more than 18 months, and long-term capital gain,
taxable at the maximum rate of 20%, if such shares were held for more than 18
months. In the case of a corporation, any such capital gain will be treated as
long-term capital gain, taxable at the same rates as ordinary income, if such
shares were held for more than 12 months. Any such capital loss will be
long-term capital 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
recognized by a shareholder on the sale of shares of a Portfolio held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.

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

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

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<PAGE>

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 Internal Revenue 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 Internal Revenue Code as "Section 988" gains or losses,
increase or decrease the amount of each Portfolio's investment company taxable
income available to be distributed to its shareholders as ordinary income.
Additionally, if Internal Revenue 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 Internal Revenue 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 Internal Revenue
Code. The character of gain or loss resulting from the sale, disposition,
closing out, expiration or other termination of Section 1256 contracts, except
forward foreign currency exchange contracts, is generally treated as long-term
capital gain or loss to the extent of 60% thereof and short-term capital gain or
loss to the extent of 40% thereof ("60/40 gain or loss"). Such contracts, when
held by a Portfolio at the end of a fiscal year, generally are required to be
treated as sold at market value on the last day of such fiscal year for Federal
income tax purposes ("marked-to-market"). Over-the-counter options are not
classified as Section 1256 contracts and are not subject to the marked-to-market
rule or to 60/40 gain or loss treatment. Any gains or losses recognized by a
Portfolio from transactions in over-the-counter options generally constitute

short-term capital gains or losses. When call options written, or put options
purchased, by a Portfolio are exercised, the gain or loss realized on the sale
of the underlying securities may be either short-term or long-term, depending on
the holding period of the securities. In determining the amount of gain or loss,
the sales proceeds are reduced by the premium paid for the puts or increased by
the premium received for calls.

B-57

<PAGE>

A substantial portion of each Portfolio's transactions in options,
futures contracts and options on futures contracts, particularly its hedging
transactions, may constitute "straddles" which are defined in the Internal
Revenue 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 Internal Revenue Code. The Internal Revenue 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 Internal
Revenue 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 Internal Revenue Code; no determination has been
reached to make any of these elections.

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

Each Portfolio may purchase debt securities (such as zero-coupon or
pay-in-kind securities) that contain original issue discount. Original issue
discount that accrues in a taxable year is treated as earned by a Portfolio and
therefore is subject to the distribution requirements of the Internal Revenue
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).

Each of the Large-Cap Growth Portfolio, Aggressive Growth Portfolio and
International Equity Portfolio 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 any such Portfolio acquires
and holds stock in a PFIC beyond

B-58

<PAGE>

the end of the year of its acquisition, the Portfolio 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 Portfolio distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Portfolio'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 Portfolio 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 Portfolio will
recognize the amount of gains, if any, with respect to PFIC stock. Recently
enacted legislation codified this "mark-to-market" election effective for tax
years beginning after December 31, 1997. Any gains resulting from such elections
will be treated as ordinary income. No loss will be recognized on PFIC stock.
Alternatively, the Portfolio 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 Portfolio 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
Portfolio; those amounts would be subject to the distribution requirements
applicable to the Portfolio described above. It may be very difficult, if not
impossible, to make this election because of certain requirements thereof.
Each of the Large-Cap Blend and Value Portfolios may invest in real estate
investment trusts ("REITs") that hold residual interests in real estate mortgage
investment conduits ("REMICs"). Under Treasury regulations that have not yet
been issued, but may apply retroactively, a portion of the Portfolio's income
from a REIT that is attributable to the REIT's residual interest in a REMIC
(referred to in the Internal Revenue Code as an "excess inclusion") will be
subject to federal income tax. These regulations are also expected to provide
that excess inclusion income of a regulated investment company, such as the
Fund, will be allocated to shareholders of the regulated investment company in
proportion to the dividends received by such shareholders, with the same
consequences as if the shareholders held the related REMIC residual interest
directly. In general, excess inclusion income allocated to shareholders (i)
cannot be offset by net operating losses (subject to a limited exception for
certain thrift institutions), (ii) will constitute unrelated business taxable

income to entities (including a qualified pension plan, an individual retirement
account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax
on unrelated business income, thereby potentially requiring such an entity that
is allocated excess inclusion income, and otherwise might not be required to
file a tax return, to file a tax return and pay tax on such income, and (iii) in
the case of a foreign shareholder, will not qualify for any reduction in U.S.
federal withholding tax. In addition, if at any time during any taxable year a
"disqualified organization" (as defined in the Internal Revenue Code) is a
record holder of a share in a regulated investment company, then the regulated
investment company will be subject to a tax equal to that portion of its excess
inclusion income for the taxable year that is allocable to the disqualified
organization, multiplied by the highest federal income tax rate imposed on
corporations.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Internal Revenue 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

B-59

<PAGE>

the Internal Revenue Code for tax purposes does not entail government
supervision of management and investment policies.

RETIREMENT PLANS

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

Pension and Profit-Sharing Plans. Sections 401(a) and 401(k) of the Internal
Revenue 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.

Savings Incentive Match Plan for Employees (SIMPLE). The SIMPLE was created to
make establishing employee retirement plans practical for small businesses.
Generally, the plan permits employers with 100 or fewer employees who do not
maintain another employer-sponsored retirement plan to establish a SIMPLE Plan.
Contributions made by the employer are tax deductible and contributions are

deducted from the employee's paycheck before tax deductions and are deposited
into a SIMPLE Plan by the employer.

Tax-Sheltered Custodial Accounts. Section 403(b)(7) of the Internal Revenue Code
permits public school employees and employees of certain types of charitable,
educational and scientific organizations specified in Section 501(c)(3) of the
Internal Revenue 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 Internal Revenue 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.

B-60

<PAGE>

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, eight Portfolios of shares of the Fund have been authorized
pursuant to the Fund's Articles of Incorporation ("Articles"): the Large-Cap
Growth Portfolio, the Mid-Cap Growth Portfolio, the Aggressive Growth Portfolio,
the Large-Cap Blend Portfolio, the Large-Cap Value Portfolio, the Value
Portfolio, the Small-Cap Value Portfolio and the International Equity Portfolio.
Each Portfolio has been divided into four classes of shares, designated as Class
A, Class B, Class C and Class Z. The Directors may authorize the creation of

additional Portfolios of shares so as to be able to offer to investors
additional investment portfolios within the Fund that would operate
independently from the Fund's present portfolios, or to distinguish among
shareholders, as may be necessary, to comply with future regulations or other
unforeseen circumstances. Each Portfolio of the Fund's shares represents the
interests of the shareholders of that Portfolio in a particular portfolio of
Fund assets. In addition, the Directors may authorize the creation of additional
classes of shares in the future, which may have fee structures different from
those of existing classes and/or may be offered only to certain qualified
investors.

Shareholders are entitled to a full vote for each full share held. The
Directors have terms of unlimited duration (subject to certain removal
procedures) and have the power to alter the number of Directors, and appoint
their own successors, provided that at all times at least a majority of the
Directors have been elected by shareholders. The voting rights of shareholders
are not cumulative, so that holders of more than 50% of the shares voting can,
if they choose, elect all Directors being elected, while the holders of the
remaining shares would be unable to elect any Directors. Although the Fund need
not hold annual meetings of shareholders, the Directors may call special
meetings of shareholders for action by shareholder vote as may be required by
the 1940 Act or the Articles. Also, a shareholders meeting must be called, if so
requested in writing by the holders of record of 10% or more of the outstanding
shares of the Fund. In addition, the Directors may be removed by the action of
the holders of record of two-thirds or more of the outstanding shares. All
Portfolios of shares will vote with respect to certain matters, such as election
of Directors. When all Portfolios are not affected by a matter to be voted upon,
such as approval of investment advisory agreements or changes in a Portfolio's
policies, only shareholders of the Portfolios affected by the matter may be
entitled to vote.

The classes of shares of a given Portfolio are identical in all
respects, except that (i) each class may bear differing amounts of certain
class-specific expenses, (ii) Class A shares are subject to an

B-61

<PAGE>

initial sales charge, a distribution fee and an ongoing account maintenance and
service fee, (iii) Class B shares are subject to a CDSC, a distribution fee and
an ongoing account maintenance and service fee, (iv) Class B shares convert
automatically to Class A shares on the first business day of the month seven
years after the purchase of such Class B Shares, (v) Class C shares are subject
to a CDSC, and an ongoing account maintenance and service fee, (vi) each class
has voting rights on matters that pertain to the Rule 12b-1 plan adopted with
respect to such class, except that under certain circumstances, the holders of
Class B shares may be entitled to vote on material changes to the Class A Rule
12b-1 plan, and (vii) each class of shares will be exchangeable only into the
same class of shares of any other Portfolio or other SunAmerica Funds that offer
that class. All shares of the Fund issued and outstanding and all shares offered
by the Prospectus when issued, are fully paid and non-assessable. Shares have no
preemptive or other subscription rights and are freely transferable on the books
of the Fund. In addition, shares have no conversion rights, except as described

above.

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

ADDITIONAL INFORMATION

Computation of Offering Price per Share

The following is the offering price calculation for each Class of
shares of the Mid-Cap Growth Portfolio, Aggressive Growth Portfolio, Value
Portfolio and International Equity Portfolio. The Class A and Class B
calculations are based on the value of each such Portfolio's net assets and
number of shares outstanding on April 30, 1997. The Class C calculations are
based on the estimated value of each such Portfolio's net assets and number of
Class C shares outstanding on the date such shares were first offered for sale
to public investors.

<TABLE>
<CAPTION>
Mid-Cap Growth Portfolio Aggressive Growth Portfolio
------------------------------------------- --------------------------------------------
Class A Class B Class C Class A Class B Class C
----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Assets............... $21,054,557 $15,551,069 $855,241 $31,277,613 $18,722,750 $1,161,162
Number of Shares
Outstanding............ 1,910,365 1,415,269 77,837 2,499,347 1,500,130 92,971
Net Asset Value Per Share
(net assets divided by
number of shares) ..... $11.02 $10.99 $10.99 $12.51 $12.48 $12.49
</TABLE>

B-62

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sales charge for Class
A Shares: 5.75% of
offering price
(6.10% of net asset
value per share)*...... 0.67 None None 0.76 None None

Offering Price........... $11.69 $10.99 $10.99 $13.27 $12.48 $12.49

<CAPTION>
Value Portfolio International Equity Portfolio
------------------------------------------- --------------------------------------------
Class A Class B Class C Class A Class B Class C
----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Assets............... $35,690,592 $25,641,412 $1,875,057 $22,994,862 $14,123,293 $1,094,630
Number of Shares
Outstanding ........... 2,636,181 1,898,972 138,863 1,841,936 1,134,927 87,909
Net Asset Value Per
Share (net assets
divided by number
of shares) ............ $13.54 $13.50 $13.50 $12.48 $12.44 $12.45
Sales charge for Class
A Shares: 5.25% of
offering price (5.54
of net asset value
per share)* ........... 0.83 None None 0.76 None None
Offering Price........... $14.37 $13.50 $13.50 $13.24 $12.44 $12.45
</TABLE>
- -----------------------

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

Reports to Shareholders. The Fund sends audited annual and unaudited semi-annual
reports to shareholders of each of the Portfolios. In addition, the Transfer
Agent sends a statement to each shareholder having an account directly with the
Fund to confirm transactions in the account.

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

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

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

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<PAGE>

FINANCIAL STATEMENTS

Set forth following this Statement of Additional Information is the
Statement of Assets and Liabilities of the Fund, as of November 12, 1996 and the
unaudited financial statements for the period ended April 30, 1997.

B-64

<PAGE>

Style Select Series, Inc.
Statement of Assets and Liabilities at November 12, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aggressive Mid-Cap International
Growth Growth Value Equity
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
ASSETS:

Cash................................................. $25,000 $25,000 $25,000 $25,000
Deferred organization expenses (Note 1).............. 75,000 75,000 75,000 75,000
------ ------ ------ ------
Total Assets..................................... 100,000 100,000 100,000 100,000
------- ------- ------- -------
LIABILITIES:

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

Class A (25,000,000 shares authorized per class)
($12,500/1,000 net assets and shares
outstanding for each portfolio
respectively).......................... $12.50 $12.50 $12.50 $12.50
====== ====== ====== ======
Class B (25,000,000 shares authorized per class)
($12,500/1,000 net assets and shares
outstanding for each portfolio
respectively)........................... $12.50 $12.50 $12.50 $12.50
====== ====== ====== ======
</TABLE>
See Notes to Financial Statements

B-65

<PAGE>

NOTES TO FINANCIAL STATEMENT

Note 1. Organization

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

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

Aggressive Growth Portfolio seeks long-term growth of capital by
investing generally in equity securities of small and medium sized companies
which have a market capitalization of less than $1 billion.

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

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

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

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

seven years from the issuance of such Class B shares and at such time will be
subject to

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<PAGE>

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

Note 2. Investment Advisory and Management Agreement

The Fund, on behalf of each Portfolio, has entered into an Investment
Advisory and Management Agreement (the "Agreement") with SunAmerica, an indirect
wholly owned subsidiary of SunAmerica Inc. Under the Agreement, SunAmerica
provides continuous supervision of the respective Portfolios and administers
their corporate affairs, subject to general review by the Board of Directors
(the "Directors"). In connection therewith, SunAmerica furnishes the Fund with
office facilities, maintains certain of the Fund's books and records, and pays
for the salaries and expenses of all personnel, including officers of the Fund
who are employees of SunAmerica and its affiliates. The investment advisory and
management fee payable by each Portfolio to SunAmerica as full compensation for
services and facilities furnished to the Fund is as follows: 1.00% of the
average daily net assets of the Aggressive Growth, Mid-Cap Growth and Value
Portfolios, respectively, and 1.10% of the average daily net assets of the
International Equity Portfolio.

The organizations described below act as advisors to the Fund pursuant
to Subadvisory Agreements with SunAmerica. Under the Subadvisory Agreements, the
advisors manage the investment and reinvestment of the assets of the respective
Portfolios for which they are responsible. Each of the following advisors is
independent of SunAmerica (with the exception of the Aggressive Growth
Portfolio, for which SunAmerica acts as an advisor) and discharges its
responsibilities subject to the policies of the Directors and the oversight and
supervision of SunAmerica, which pays the advisors' fees. The advisors for
Aggressive Growth Portfolio are Janus Capital Corporation; SunAmerica; and
Warburg, Pincus Counsellors, Inc. The advisors for Mid-Cap Growth Portfolio are
Miller Anderson & Sherrerd, LLP; Pilgrim Baxter & Associates, Ltd.; and T. Rowe
Price Associates, Inc. The advisors for Value Portfolio are Davis Selected
Advisers, L.P.; Neuberger & Berman, LLC.; and Strong Capital Management, Inc.
The advisors for International Equity Portfolio are Rowe Price-Fleming
International, Inc.; Strong Capital Management, Inc.; and Warburg, Pincus
Counsellors, Inc. Each advisor is paid monthly by SunAmerica a fee equal to a
percentage of the Assets of the Portfolio allocated to the advisor. The highest
aggregate annual rates of the fees payable by SunAmerica to the Advisors for
each Portfolio will be the following, expressed as a percentage of the Assets
of each Portfolio: Large-Cap Growth Portfolio, .48%; Large-Cap Blend Portfolio,
.48%; Large-Cap Value Portfolio, .48%; Small-Cap Value Portfolio, .55%;
Aggressive Growth Portfolio, .55%; Mid-Cap Growth Portfolio, .50%; Value
Portfolio, .50%; and International Equity Portfolio, .68%. There can be no

assurance that the Portfolios will achieve a level of average daily net assets
in the amount estimated.

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<PAGE>

Note 3. Distribution Agreement and Service Agreement

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

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

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

B-68

<PAGE>

Style Select Series, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS

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

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

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

B-69

<PAGE>
1
[STYLE SELECT SERIES(SM) LOGO]

STATEMENT OF ASSETS AND LIABILITIES -- April 30, 1997 (unaudited)

<TABLE>
<CAPTION>
AGGRESSIVE MID-CAP INTERNATIONAL
GROWTH GROWTH VALUE EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------
<S> <C> <C> <C> <C>

ASSETS:

Investment securities, at value (identified cost
$42,533,592; $34,071,753; $54,534,507 and
$33,151,969, respectively)...................... $42,931,330 $31,946,118 $56,716,131 $ 32,848,094

Short-term securities (cost equals market)........ 5,282,749 5,392,183 5,917,000 706,000

Repurchase agreements (cost equals market)........ 4,204,000 -- 665,000 3,469,000

Cash.............................................. 18,837 606 2,578 1,152

Foreign cash...................................... -- -- -- 109,165

Receivable for fund shares sold................... 785,927 840,913 1,281,173 972,187

Receivable for investments sold................... 638,839 36,684 -- 265,490

Other assets...................................... 43,675 43,675 43,675 43,675

Interest and dividends receivable................. 25,550 5,049 47,731 149,192

Deferred organizational expenses.................. 20,019 20,019 20,019 20,019

Receivable from investment adviser................ 10,733 12,215 13,967 12,421

Foreign currency contracts........................ -- -- -- 365,948

Unrealized appreciation of foreign currency
contracts....................................... -- -- -- 95,395
----------- ----------- ----------- ------------

Total assets.................................... 53,961,659 38,297,462 64,707,274 39,057,738
----------- ----------- ----------- ------------

LIABILITIES:

Payable for investments purchased................. 2,679,087 754,571 1,353,760 321,629

Investment advisory and management

fees payable.................................... 38,425 28,264 45,670 32,101

Payable for fund shares repurchased............... 35,323 14,237 35,060 55,385

Other accrued expenses............................ 24,598 22,115 37,504 40,816

Distribution and service maintenance fees
payable......................................... 22,701 17,408 28,219 17,217

Foreign currency contracts........................ -- -- -- 367,361

Unrealized depreciation of foreign currency
contracts....................................... -- -- -- 10,444
----------- ----------- ----------- ------------

Total liabilities............................... 2,800,134 836,595 1,500,213 844,953
----------- ----------- ----------- ------------

Net assets.................................... $51,161,525 $37,460,867 $63,207,061 $ 38,212,785
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
<PAGE>

2
[STYLE SELECT SERIES(SM) LOGO]

STATEMENT OF ASSETS AND LIABILITIES -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>
AGGRESSIVE MID-CAP INTERNATIONAL
GROWTH GROWTH VALUE EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSETS WERE COMPOSED OF:

Common Stock, $.0001 par value (1 billion shares
authorized)..................................... $ 409 $ 340 $ 467 $ 306

Paid-in capital................................... 52,418,220 41,347,283 60,880,139 38,314,376
----------- ----------- ----------- ------------

52,418,629 41,347,623 60,880,606 38,314,682

Accumulated undistributed net investment income
gain (loss)..................................... (62,301) (144,086) (10,719) 38,459

Accumulated undistributed net realized gain (loss)
on investments, foreign currency, options and
other assets and liabilities.................... (1,592,541) (1,617,035) 155,550 79,148

Net unrealized appreciation (depreciation) of
investments..................................... 397,738 (2,125,635) 2,181,624 (303,875)

Net unrealized appreciation of foreign currency,
other assets and liabilities.................... -- -- -- 84,371
----------- ----------- ----------- ------------

Net assets.................................... $51,161,525 $37,460,867 $63,207,061 $ 38,212,785
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------

CLASS A:

Net assets........................................ $31,277,613 $21,054,557 $35,690,592 $ 22,994,862

Shares outstanding................................ 2,499,347 1,910,365 2,636,181 1,841,936

Net asset value and redemption price per share.... $ 12.51 $ 11.02 $ 13.54 $ 12.48

Maximum sales charge (5.75% of offering price).... 0.76 0.67 0.83 0.76
----------- ----------- ----------- ------------

Maximum offering price to public.................. $ 13.27 $ 11.69 $ 14.37 $ 13.24
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------

CLASS B:

Net assets........................................ $18,722,750 $15,551,069 $25,641,412 $ 14,123,293

Shares outstanding................................ 1,500,130 1,415,269 1,898,972 1,134,927

Net asset value, offering and redemption price per
share (excluding any applicable contingent
deferred sales charge).......................... $ 12.48 $ 10.99 $ 13.50 $ 12.44
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------

CLASS C:

Net assets........................................ $ 1,161,162 $ 855,241 $ 1,875,057 $ 1,094,630

Shares outstanding................................ 92,971 77,837 138,863 87,909

Net asset value, offering and redemption price per
share (excluding any applicable contingent
deferred sales charge).......................... $ 12.49 $ 10.99 $ 13.50 $ 12.45
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>

See Notes to Financial Statements

<PAGE>
3
[STYLE SELECT SERIES(SM) LOGO]

STATEMENT OF OPERATIONS -- For the period ended April 30, 1997 (unaudited)

<TABLE>
<CAPTION>
AGGRESSIVE MID-CAP INTERNATIONAL
GROWTH GROWTH VALUE EQUITY
PORTFOLIO# PORTFOLIO# PORTFOLIO# PORTFOLIO#
--------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest........................................ $ 180,976 $ 76,076 $ 88,163 $ 80,390
Dividends*...................................... 53,152 22,603 213,423 228,370
----------- ----------- ----------- ------------
Total investment income....................... 234,128 98,679 301,586 308,760
----------- ----------- ----------- ------------
Expenses:
Investment advisory and management fees......... 143,475 117,215 149,345 129,340
Distribution and service maintenance fees
Class A....................................... 37,389 30,228 36,898 31,730
Class B....................................... 35,542 30,089 42,405 26,171
Class C....................................... 1,108 761 1,518 753
Transfer agent fees and expenses
Class A....................................... 29,911 24,182 28,377 24,742
Class B....................................... 9,952 8,426 11,545 7,466
Class C....................................... 310 213 410 218
Registration fees
Class A....................................... 14,465 14,010 18,268 16,013
Class B....................................... 10,261 10,720 13,518 11,143
Class C....................................... 2,341 2,357 2,524 2,380
Custodian fees and expenses..................... 24,391 19,927 25,100 42,347
Audit and tax consulting fees................... 14,670 12,225 14,670 13,820
Printing expense................................ 5,705 7,335 7,335 7,335
Legal fees and expenses......................... 2,445 2,445 2,445 2,445
Directors' fees and expenses.................... 1,182 1,136 1,080 1,064
Amortization of organizational expenses......... 480 480 480 480
Miscellaneous expenses.......................... 815 815 1,160 815
----------- ----------- ----------- ------------
Total expenses................................ 334,442 282,564 357,078 318,262
Less: expenses waived/reimbursed by investment
adviser..................................... (38,013) (39,799) (44,773) (47,961)
----------- ----------- ----------- ------------
Net expenses.................................. 296,429 242,765 312,305 270,301
----------- ----------- ----------- ------------
Net investment income gain (loss)................. (62,301) (144,086) (10,719) 38,459
----------- ----------- ----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments........... (1,592,541) (1,616,501) 155,550 56,452
Net realized loss on options contracts............ -- -- -- (2,351)

Net realized gain (loss) on foreign currency and
other assets and liabilities.................... -- (534) -- 25,047
Net change in unrealized appreciation/depreciation
of investments.................................. 397,738 (2,125,635) 2,181,624 (303,875)
Net change in unrealized appreciation/depreciation
of foreign currency and other assets and
liabilities..................................... -- -- -- 84,371
----------- ----------- ----------- ------------
Net realized and unrealized gain (loss) on
investments, foreign currency and other assets
and liabilities................................. (1,194,803) (3,742,670) 2,337,174 (140,356)
----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS: $(1,257,104) $(3,886,756) $ 2,326,455 $ (101,897)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------

*Net of foreign withholding taxes on dividends
of.............................................. $ 209 $ 27 $ 2,470 $ 27,741
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>

- ------------------
# Commenced operations November 19, 1996
See Notes to Financial Statements

<PAGE>
4
[STYLE SELECT SERIES(SM) LOGO]

STATEMENT OF CHANGES IN NET ASSETS -- For the period ended April 30,
1997 -- (unaudited)

<TABLE>
<CAPTION>
AGGRESSIVE MID-CAP INTERNATIONAL
GROWTH GROWTH VALUE EQUITY
PORTFOLIO# PORTFOLIO# PORTFOLIO# PORTFOLIO#
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income gain (loss)............... $ (62,301) $ (144,086) $ (10,719) $ 38,459
Net realized gain (loss) on investments......... (1,592,541) (1,616,501) 155,550 56,452
Net realized loss on options contracts.......... -- -- -- (2,351)
Net realized gain (loss) on foreign currency and
other assets and liabilities.................. -- (534) -- 25,047
Net change in unrealized
appreciation/depreciation of investments...... 397,738 (2,125,635) 2,181,624 (303,875)
Net change in unrealized
appreciation/depreciation of foreign currency
and other assets and liabilities.............. -- -- -- 84,371
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations............................... (1,257,104) (3,886,756) 2,326,455 (101,897)
-------------- -------------- -------------- --------------

NET INCREASE IN NET ASSETS RESULTING FROM FUND
SHARE TRANSACTIONS (NOTE 7)..................... 52,393,629 41,322,623 60,855,606 38,289,682
-------------- -------------- -------------- --------------

TOTAL INCREASE IN NET ASSETS...................... 51,136,525 37,435,867 63,182,061 38,187,785

NET ASSETS:
Beginning of period............................... 25,000 25,000 25,000 25,000
-------------- -------------- -------------- --------------
End of period [including undistributed net
investment income gain (loss) for April 30, 1997
of $(62,301), $(144,086), $(10,719) and $38,459,
respectively]................................... $ 51,161,525 $ 37,460,867 $ 63,207,061 $ 38,212,785
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>

- ------------------
# Commenced operations November 19, 1996
See Notes to Financial Statements

<PAGE>
5
[STYLE SELECT SERIES(SM) LOGO]

FINANCIAL HIGHLIGHTS -- (unaudited)
<TABLE>
<CAPTION>
NET
GAIN(LOSS) DIVIDENDS
ON INVEST- TOTAL FROM DISTRI-
NET ASSET NET MENTS(BOTH FROM NET BUTIONS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM TOTAL
PERIOD BEGINNING MENT AND MENT MENT CAPITAL DISTRI-
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME GAINS BUTIONS
- ------------------- ---------- ---------- ----------- ---------- --------- ------- -------

AGGRESSIVE GROWTH PORTFOLIO
- ---------------------------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... $12.50 $(0.02) $ 0.03 $ 0.01 $-- $-- $ --

<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... 12.50 (0.06) 0.04 (0.02) -- -- --

<CAPTION>
CLASS C
-------
<S> <C> <C> <C> <C> <C> <C> <C>
3/06/97-4/30/97.... 13.38 (0.01) (0.88) (0.89) -- -- --

<CAPTION>
- --------------------------------------------------------------------------------------------------------
MID-CAP GROWTH PORTFOLIO
- ------------------------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... $12.50 $(0.06) $ (1.42) $(1.48) $-- $-- $ --

<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... 12.50 (0.10) (1.41) (1.51) -- -- --

<CAPTION>
CLASS C
-------
<S> <C> <C> <C> <C> <C> <C> <C>
3/06/97-4/30/97.... 11.93 (0.03) (0.91) (0.94) -- -- --

<CAPTION>
- --------------------------------------------------------------------------------------------------------
VALUE PORTFOLIO
- ---------------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... $12.50 $ 0.01 $ 1.03 $ 1.04 $-- $-- $ --

<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... 12.50 (0.04) 1.04 1.00 -- -- --

<CAPTION>
CLASS C
-------
<S> <C> <C> <C> <C> <C> <C> <C>
3/06/97-4/30/97.... 13.56 (0.02) (0.04) (0.06) -- -- --

<CAPTION>
- --------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- ------------------------------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... $12.50 $ 0.02 $ (0.04) $(0.02) $-- $-- $ --

<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... 12.50 0.02 (0.08) (0.06) -- -- --

<CAPTION>
CLASS C
-------
<S> <C> <C> <C> <C> <C> <C> <C>
3/06/97-4/30/97.... 12.60 0.03 (0.18) (0.15) -- -- --

<CAPTION>
RATIO OF NET
NET RATIO OF INVESTMENT
ASSET NET ASSETS EXPENSES INCOME AVERAGE
VALUE, END OF TO AVERAGE TO AVERAGE COMMISSION
PERIOD END OF TOTAL PERIOD NET NET PORTFOLIO PER
ENDED PERIOD RETURN(2) (000'S) ASSETS(3)(4) ASSETS(3)(4) TURNOVER SHARE(5)
- ------------------- ------ --------- ---------- ------------ ------------ -------- ----------

AGGRESSIVE GROWTH PORTFOLIO
- ---------------------------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... $12.51 0.08% $ 31,278 1.90% (0.27)% 95% $ 0.0544

<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... 12.48 (0.16) 18,723 2.55 (0.91) 95 0.0544

<CAPTION>
CLASS C
-------
<S> <C> <C> <C> <C> <C> <C> <C>
3/06/97-4/30/97.... 12.49 (6.65) 1,161 2.55 (0.64) 95 0.0544

<CAPTION>
- ---------------------------------------------------------------------------------------------------------
MID-CAP GROWTH PORTFOLIO
- ------------------------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... $11.02 (11.84)% $ 21,055 1.90% (1.04)% 38% $ 0.0472

<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... 10.99 (12.08) 15,551 2.55 (1.76) 38 0.0472

<CAPTION>
CLASS C
-------
<S> <C> <C> <C> <C> <C> <C> <C>
3/06/97-4/30/97.... 10.99 (7.88) 855 2.55 (1.80) 38 0.0472

<CAPTION>
- ---------------------------------------------------------------------------------------------------------
VALUE PORTFOLIO
- ---------------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... $13.54 8.32% $ 35,691 1.90% 0.16% 16% $ 0.0600

<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... 13.50 8.00 25,641 2.55 (0.62) 16 0.0600

<CAPTION>
CLASS C
-------
<S> <C> <C> <C> <C> <C> <C> <C>
3/06/97-4/30/97.... 13.50 (0.44) 1,875 2.55 (0.83) 16 0.0600

<CAPTION>
- ---------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- ------------------------------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... $12.48 (0.16)% $ 22,995 2.15% 0.32% 14% $ 0.0175

<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C>
11/19/96-4/30/97... 12.44 (0.48) 14,123 2.80 0.31 14 0.0175

<CAPTION>
CLASS C
-------
<S> <C> <C> <C> <C> <C> <C> <C>
3/06/97-4/30/97.... 12.45 (1.19) 1,095 2.80 1.39 14 0.0175
</TABLE>

- ------------------------
(1) Calculated based upon average shares outstanding

(2) Total return is not annualized and does not reflect sales load

(3) Annualized

(4) Net of the following expense reimbursements (based on average net assets):

Aggressive Growth A...... .22%
Aggressive Growth B...... .35%
Aggressive Growth C...... 2.14%
Mid-Cap Growth A......... .28%
Mid-Cap Growth B......... .44%
Mid-Cap Growth C......... 3.16%
Value A.................. .26%
Value B.................. .36%
Value C.................. 1.67%
International Equity A... .35%
International Equity B... .53%
International Equity C... 3.22%

(5) The average commission per share is derived by taking the agency commissions
paid on equity securities trades and dividing by the number of shares
purchased and sold.
See Notes to Financial Statements

<PAGE>
6
[STYLE SELECT SERIES(SM) LOGO]

AGGRESSIVE GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--83.6%
AEROSPACE & MILITARY TECHNOLOGY--3.0%
Boeing Co............................................ 5,150 $ 507,919
DONCASTERS PLC ADR+(1)............................... 7,600 171,000
Gulfstream Aerospace Corp.+.......................... 6,000 153,000
REMEC, Inc.+......................................... 25,500 554,625
Tracor, Inc.+........................................ 129,000 129,000
-----------
1,515,544
-----------
APPAREL & TEXTILES--2.4%
Authentic Fitness Corp............................... 15,000 217,500
Goody's Family Clothing, Inc.+....................... 5,000 87,500
NIKE, Inc. Class B................................... 5,075 285,469
Pacific Sunwear of California+....................... 5,000 156,250
Wolverine World Wide, Inc............................ 11,450 460,862
-----------
1,207,581
-----------
BANKS--8.8%
Bank United Corp. Class A............................ 4,500 136,125
BankAmerica Corp..................................... 8,900 1,040,188
Chase Manhattan Corp................................. 1,925 178,303
Citicorp............................................. 7,000 788,375
City National Corp................................... 5,600 128,100
Cullen Frost Bankers, Inc............................ 3,600 124,650
First American Corp.................................. 5,600 365,400
First Security Corp.................................. 3,800 134,425
Hamilton Bancorp, Inc.+.............................. 20,000 380,000
Long Island Bancorp, Inc............................. 4,500 151,875
Wells Fargo & Co..................................... 4,000 1,067,000
-----------
4,494,441
-----------
BROADCASTING & MEDIA--3.2%
Applied Graphics Technologies, Inc.+................. 5,000 148,125
Central European Media Entertainment Light Ltd.,
Class A+........................................... 4,100 115,825
DeVry, Inc.+......................................... 6,100 134,200
Harte Hanks Communications Co........................ 4,700 128,075
Heftel Broadcasting Corp. Class A+................... 3,100 153,450

Houghton Mifflin Co.................................. 2,500 140,312
ITT Educational Services, Inc.+...................... 5,900 134,225
Mecklermedia Corp.+.................................. 20,000 510,000
Paging Network, Inc.+................................ 6,800 47,388
Wiley (John) & Sons, Inc. Class A.................... 4,500 135,562
-----------
1,647,162
-----------

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES--7.5%
ADT Ltd.+............................................ 5,100 $ 139,613
Allied Waste Industries, Inc.+....................... 16,800 186,900
America Online, Inc.+................................ 12,500 564,062
Catalina Marketing Corp.+............................ 1,500 47,250
Chicago Bridge & Iron Co. NV+ ....................... 10,000 171,250
CHS Electronics, Inc.+............................... 11,000 206,250
E*TRADE Group, Inc.+................................. 5,000 74,375
Nabors Industries, Inc.+............................. 10,500 196,875
Norrell Corp......................................... 5,400 142,425
NPH, Inc.+........................................... 5,900 131,275
Outdoor Systems, Inc.+............................... 5,250 144,375
Philip Environmental, Inc.+.......................... 10,000 157,500
Quick Response Services, Inc.+....................... 3,200 86,400
Robert Half International, Inc.+..................... 5,800 227,650
Samsonite Corp.+..................................... 23,000 943,000
Superior Services, Inc.+............................. 6,200 136,400
USA Waste Services, Inc.+............................ 4,000 131,000
Waters Corp.+........................................ 4,900 145,162
-----------
3,831,762
-----------
CHEMICALS--0.3%
Monsanto Co.......................................... 4,100 175,275
-----------
COMMUNICATION EQUIPMENT--1.1%
Electronics For Imaging, Inc.+....................... 2,450 95,550
QUALCOMM, Inc.+...................................... 5,000 232,500
Sterling Commerce, Inc.+............................. 5,300 137,138
Tellabs, Inc.+....................................... 2,000 79,500
-----------
544,688
-----------
COMPUTERS & BUSINESS EQUIPMENT--3.6%
BISYS Group, Inc.+................................... 4,600 147,200
Dell Computer Corp.+................................. 13,225 1,105,941
International Business Machines Corp................. 1,000 160,750
Miller (Herman), Inc................................. 6,200 199,950
Quantum Corp.+....................................... 1,900 79,087

Reynolds & Reynolds Co. Class A...................... 6,800 141,100
-----------
1,834,028
-----------
</TABLE>
<PAGE>

7
[STYLE SELECT SERIES(SM) LOGO]

AGGRESSIVE GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
DRUGS--3.0%
Lilly (Eli) & Co..................................... 3,725 $ 327,334
Merck & Co., Inc..................................... 2,225 201,362
Pfizer, Inc.......................................... 5,475 525,600
Sepracor, Inc.+...................................... 5,900 114,313
Teva Pharmaceutical Industries Ltd. ADR(1)........... 7,000 351,750
-----------
1,520,359
-----------

ELECTRICAL EQUIPMENT--0.6%
Etec Systems, Inc.+.................................. 4,400 126,500
General Electric Co.................................. 1,425 157,997
-----------
284,497
-----------

ELECTRONICS--11.5%
3D Labs, Inc., Ltd.+................................. 10,000 227,500
Altera Corp.+........................................ 8,800 435,600
ANADIGICS, Inc.+..................................... 4,500 124,875
Analog Devices, Inc.+................................ 10,000 267,500
Burr-Brown Corp.+.................................... 7,800 230,100
GaSonics International Corp.+........................ 11,800 100,300
Intel Corp........................................... 5,525 845,325
Lam Research Corp.+.................................. 3,300 95,700
Lattice Semiconductor Corp.+......................... 2,400 134,100
Linear Technology Corp............................... 5,000 250,000
LSI Logic Corp.+..................................... 5,000 191,250
Maxim Integrated Products, Inc.+..................... 9,400 494,675
Micrel, Inc.+........................................ 3,000 131,250
Microchip Technology, Inc.+.......................... 3,150 98,437
Micron Technology, Inc............................... 5,000 176,250
Motorola, Inc........................................ 7,000 400,750

Speedfam International, Inc.+........................ 4,000 97,000
Tencor Instruments+.................................. 3,600 159,750
Texas Instruments, Inc............................... 5,000 446,250
Veeco Instruments, Inc.+............................. 11,000 343,750
Vitesse Semiconductor Corp.+......................... 15,000 472,500
Xilinx, Inc.+........................................ 3,800 185,725
-----------
5,908,587
-----------

ENERGY SERVICES--1.3%
Global Industries Ltd.+.............................. 6,000 124,500
Petroleum Geo-Services A/S ADR+(1)................... 6,100 234,850
Pride Petroleum Services, Inc.+...................... 10,500 179,813
Trico Marine Services, Inc.+......................... 3,600 126,900
-----------
666,063
-----------
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
ENERGY SOURCES--0.8%
Brown (Tom), Inc.+................................... 7,700 $ 138,600
Chieftain International, Inc.+....................... 6,800 136,000
Nuevo Energy Co.+.................................... 1,400 48,125
Texas Meridian Resources Corp.+...................... 9,900 110,138
-----------
432,863
-----------
FINANCIAL SERVICES--3.5%
American Express Co.................................. 6,050 398,544
Edwards (A.G.), Inc.................................. 5,000 175,000
Legg Mason, Inc...................................... 3,000 142,500
Merrill Lynch & Co., Inc............................. 7,750 738,187
Nationwide Financial Services, Inc. Class A+......... 5,100 135,150
T. Rowe Price Associates, Inc........................ 4,200 194,250
-----------
1,783,631
-----------
FOOD, BEVERAGE & TOBACCO--2.0%
Anheuser-Busch Cos., Inc............................. 6,050 259,394
Coca-Cola Co......................................... 4,300 273,587
Coca-Cola Enterprises, Inc........................... 900 54,338
Consolidated Cigar Holdings, Inc. Class A+........... 5,600 128,800
Flowers Industries, Inc.............................. 7,500 182,812
General Cigar Holdings, Inc. Class A+................ 5,000 118,125
-----------
1,017,056
-----------
FOREST PRODUCTS--0.2%
Consolidated Papers, Inc............................. 2,000 107,500

-----------
HEALTH SERVICES--1.6%
Gilead Sciences, Inc.+............................... 5,300 116,600
Healthsource, Inc.+.................................. 6,500 136,500
MedPartners, Inc.+................................... 8,000 146,000
Mid Atlantic Medical Services, Inc.+................. 9,900 117,563
Oxford Health Plans, Inc.+........................... 4,575 300,806
-----------
817,469
-----------
</TABLE>
<PAGE>

8
[STYLE SELECT SERIES(SM) LOGO]

AGGRESSIVE GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
HOUSEHOLD PRODUCTS--4.7%
Alberto-Culver Co. Class A........................... 7,700 $ 190,575
Carson, Inc. Class A+................................ 11,700 87,750
Central Garden & Pet Co.+............................ 7,500 149,063
Corning, Inc......................................... 10,000 482,500
Gillette Co.......................................... 3,200 272,000
Intimate Brands, Inc. Class A........................ 10,000 186,250
Libbey, Inc.......................................... 4,200 130,200
Procter & Gamble Co.................................. 2,075 260,931
Warner-Lambert Co.................................... 6,375 624,750
-----------
2,384,019
-----------

INSURANCE--1.2%
American International Group, Inc.................... 975 125,288
Protective Life Corp................................. 5,000 221,250
Provident Co., Inc................................... 5,000 279,375
-----------
625,913
-----------

LEISURE & TOURISM--1.5%
Doubletree Corp.+.................................... 3,600 151,200
La Quinta Inns, Inc.................................. 6,000 131,250
Premier Parks, Inc.+................................. 4,700 137,475
Ryan's Family Steak Houses, Inc.+.................... 29,000 250,125
Vistana, Inc.+....................................... 11,900 113,050

-----------
783,100
-----------

MACHINERY--1.1%
ASM Lithography Holding NV+.......................... 2,000 158,250
Flanders Corp.+...................................... 2,500 18,125
Kulicke & Soffa Industries, Inc...................... 5,000 139,375
Minnesota Mining & Manufacturing Co.................. 2,975 258,825
-----------
574,575
-----------

MEDICAL PRODUCTS--0.9%
Conceptus, Inc.+..................................... 11,200 109,200
ESC Medical Systems Ltd.+............................ 6,000 159,000
Nitinol Medical Technologies, Inc.+.................. 8,000 68,000
SangStat Medical Corp.+.............................. 6,000 102,000
-----------
438,200
-----------

REAL ESTATE COMPANIES--0.2%
U.S. Restaurant Properties Master LP................. 3,500 98,875
-----------
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT
TRUSTS--0.4%
CarrAmerica Realty Corp.............................. 5,000 $ 139,375
Security Capital Pacific Trust....................... 3,800 86,450
-----------
225,825
-----------
RETAIL--4.0%
Borders Group, Inc.+................................. 10,600 225,250
Footstar, Inc.+...................................... 17,800 369,350
Guitar Center, Inc.+................................. 5,000 70,000
Home Depot, Inc...................................... 4,375 253,750
Mac Frugals Bargains
Close-Outs, Inc.+.................................. 4,800 140,400
Payless ShoeSource, Inc.+............................ 4,400 187,000
Stride Rite Corp..................................... 25,000 343,750
Warnaco Group, Inc. Class A.......................... 10,000 285,000
Wet Seal, Inc. Class A+.............................. 6,200 151,900
-----------
2,026,400
-----------
SOFTWARE--7.8%
Baan Co. NV+......................................... 10,400 557,700

BMC Software, Inc.+.................................. 6,400 276,000
Cisco Systems, Inc.+................................. 7,625 394,594
Harbinger Corp.+..................................... 6,050 121,000
Keane, Inc.+......................................... 3,000 139,125
KLA Instruments Corp.+............................... 3,600 160,200
Microsoft Corp.+..................................... 5,700 692,550
National Instruments Corp.+.......................... 5,600 169,400
Peoplesoft, Inc.+.................................... 7,600 316,350
Rational Software Corp.+............................. 7,900 108,625
Read-Rite Corp.+..................................... 5,000 129,375
Storage Technology Corp.+............................ 2,500 87,812
Structural Dynamics Research Corp.+.................. 7,200 150,300
SunGard Data Systems, Inc.+.......................... 3,800 168,625
Synopsys, Inc.+...................................... 4,745 151,247
Transaction Systems Architects, Inc. Class A+........ 5,000 148,125
Veritas Software Corp.+.............................. 5,000 168,125
Zitel Corp.+......................................... 2,000 27,500
-----------
3,966,653
-----------
TELECOMMUNICATIONS--2.6%
Advanced Micro Devices, Inc.+........................ 1,000 42,500
Brooks Fiber Properties, Inc.+....................... 7,600 165,300
Lucent Technologies, Inc............................. 16,975 1,003,647
McLeod, Inc. Class A+................................ 7,300 133,225
-----------
1,344,672
-----------
</TABLE>

<PAGE>
9
[STYLE SELECT SERIES(SM) LOGO]

AGGRESSIVE GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)

<TABLE>
<CAPTION>
SHARES/WARRANTS/
PRINCIPAL AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
TELEPHONE--1.0%
Telecomunicacoes Brasileras SA ADR(1)........... 2,000 $ 229,500
Telefonica de Espana SA ADR(1).................. 1,000 77,000
WorldCom, Inc.+................................. 9,040 215,830
-----------
522,330
-----------
TRANSPORTATION--3.8%
Caliber System, Inc............................. 25,000 743,750

Coach USA, Inc.+................................ 7,400 187,775
Consolidated Freightways
Corp.+........................................ 4,000 43,500
Consolidated Freightways, Inc................... 5,000 148,750
Heartland Express, Inc.+........................ 7,100 148,212
M.S. Carriers, Inc.+............................ 6,000 115,500
Swift Transportation Co., Inc.+................. 4,900 139,650
Team Rental Group, Inc.+........................ 5,000 112,500
Yellow Corp.+................................... 15,000 286,875
-----------
1,926,512
-----------
TOTAL COMMON STOCK (cost $42,316,092)............. 42,705,580
-----------
WARRANTS--0.4%+
ELECTRONICS--0.4%
Intel Corp. 3/14/98
(cost $217,500)................................. 2,000 225,750
-----------
TOTAL INVESTMENT SECURITIES--84.0%
(cost $42,533,592).............................. 42,931,330
-----------
SHORT-TERM SECURITIES--10.3%
Federal Home Loan
Mortgage Discount Notes
5.23% due 6/13/97............................. $2,000 1,987,506
Federal Home Loan
Mortgage Discount Notes
5.41% due 5/13/97............................. 2,000 1,996,393
Avco Financial Services, Inc. 5.52% due
5/14/97....................................... 500 498,850
Household Finance Corp. 5.58% due 5/01/97....... 800 800,000
-----------
TOTAL SHORT-TERM SECURITIES
(cost $5,282,749)............................... 5,282,749
-----------
</TABLE>

PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE
AGREEMENTS--8.2%
Agreement with State Street Bank and Trust Co.,
bearing 5.30% dated 4/30/97 to be repurchased
5/01/97 in the amount of $2,872,423
collateralized by $2,925,000 U.S. Treasury Note
5.25%, due 7/31/98 approximate aggregate value
$2,933,047

(cost $2,872,000)............................... $2,872 $ 2,872,000
Joint Repurchase Agreement
Account (Note 2)
(cost $1,332,000)............................... 1,332 1,332,000
-----------
TOTAL REPURCHASE AGREEMENTS (cost $4,204,000)....... 4,204,000
-----------

TOTAL INVESTMENTS-- (cost $52,020,341).............. 102.5% 52,418,079
Liabilities in excess of other assets............... (2.5) (1,256,554)
------- -----------

NET ASSETS-- 100.0% $51,161,525
------- -----------
------- -----------
</TABLE>

- ------------------
+ Non-income producing security
(1) ADR ('American Depositary Receipt')
See Notes to Financial Statements

<PAGE>
10
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MID-CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--85.3%
AEROSPACE & MILITARY TECHNOLOGY--0.5%
BE Aerospace, Inc.+.................................. 7,300 $ 177,025
-----------

APPAREL & TEXTILES--4.1%
Burlington Coat Factory Warehouse+................... 3,600 68,400
Danaher Corp. ....................................... 9,900 446,737
Finish Line, Inc. Class A+........................... 6,000 61,500
Gucci Group NV....................................... 3,200 222,000
Jones Apparel Group, Inc.+........................... 5,300 221,275
Nautica Enterprises, Inc.+........................... 5,100 111,563
Tommy Hilfiger Corp.+................................ 4,100 162,975
Warnaco Group, Inc.
Class A............................................ 9,200 262,200
-----------
1,556,650
-----------

AUTOMOTIVE--0.7%
Harley-Davidson, Inc. ............................... 2,500 98,750
OEA, Inc. ........................................... 4,500 161,438
-----------
260,188
-----------

BROADCASTING & MEDIA--5.5%
360 Communications Co.+.............................. 8,500 147,687
Apollo Group, Inc.+.................................. 5,900 158,562
Cinar Films, Inc. Class B+........................... 5,700 128,250
Clear Channel Communications, Inc.+.................. 6,300 305,550
Comcast Corp. Class A................................ 17,900 281,925
Heftel Broadcasting Corp. Class A+................... 3,400 168,300
Imax Corp.+.......................................... 4,400 156,200
Metro Networks, Inc.+................................ 5,700 144,638
Palmer Wireless, Inc. Class A+....................... 6,000 69,750
Scholastic Corp.+.................................... 1,800 45,000
TCI Satellite Entertainment, Inc. Class A+........... 14,980 112,350
Tele-Communications Liberty Media Group+............. 16,550 310,312
Vanguard Cellular Systems, Inc....................... 4,700 46,413
-----------

2,074,937
-----------

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES--10.7%
AccuStaff, Inc.+..................................... 9,800 $ 178,850
Adaptec, Inc.+....................................... 4,900 181,300
ADT Ltd.+............................................ 8,800 240,900
Advo, Inc.+.......................................... 2,500 30,313
Catalina Marketing Corp.+............................ 4,300 135,450
Cintas Corp. ........................................ 3,800 208,050
Corporate Express, Inc.+............................. 10,800 105,300
Corrections Corp.
of America+........................................ 9,100 296,887
CUC International, Inc.+............................. 6,300 133,088
Gartner Group, Inc.
Class A+........................................... 13,900 364,875
Interim Services, Inc.+.............................. 5,600 217,000
National Data Corp. ................................. 3,600 135,000
Paychex, Inc. ....................................... 6,600 308,550
Philip Environmental, Inc.+.......................... 10,000 157,500
Republic Industries, Inc.+........................... 9,800 242,550
Samsonite Corp.+..................................... 2,400 98,400
Scopus Technology, Inc.+............................. 3,900 103,350
Solectron Corp.+..................................... 2,500 143,437
TeleTech Holdings, Inc.+............................. 4,500 78,188
Ticketmaster Group, Inc.+............................ 5,600 65,800
U.S. Filter Corp.+................................... 4,500 136,687
United Waste Systems, Inc.+.......................... 3,800 127,775
USA Waste Services, Inc.+............................ 9,600 314,400
-----------
4,003,650
-----------
CHEMICALS--0.7%
Great Lakes Chemical Corp. .......................... 2,100 88,988
Polymer Group, Inc. ................................. 3,400 43,350
Zoltek Cos., Inc.+................................... 4,000 114,500
-----------
246,838
-----------
COMMUNICATION EQUIPMENT--4.8%
ADC Telecommunications, Inc.+........................ 7,200 187,200
Ascend Communications, Inc.+......................... 2,400 109,800
Cascade Communicationse Co.+......................... 2,800 87,850
CIENA Corp.+......................................... 2,200 68,750
Cox Communications, Inc. Class A+.................... 6,000 117,000
FORE Systems, Inc.+.................................. 3,100 47,275
Loral Space & Communications Corp.+.................. 13,700 200,362
QUALCOMM, Inc.+...................................... 1,600 74,400

</TABLE>
<PAGE>

11
[STYLE SELECT SERIES(SM) LOGO]

MID-CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
COMMUNICATION EQUIPMENT (CONTINUED)
Tellabs, Inc.+....................................... 12,200 $ 484,950
U.S. Robotics Corp.+................................. 5,900 297,950
Univision Communications, Inc. Class A+.............. 4,100 139,400
-----------
1,814,937
-----------
COMPUTERS & BUSINESS EQUIPMENT--2.7%
BDM International, Inc.+............................. 6,100 141,825
Checkfree Corp.+..................................... 5,000 69,375
Dell Computer Corp.+................................. 1,700 142,163
Gateway 2000, Inc.+.................................. 4,800 262,800
Hutchinson Technology, Inc.+......................... 3,700 99,900
Ikon Office Solutions, Inc. ......................... 7,700 206,937
Security Dynamics Technologies, Inc.+................ 3,100 78,275
-----------
1,001,275
-----------
DRUGS--2.0%
BioChem Pharma, Inc.+................................ 5,200 92,950
Biogen, Inc.+........................................ 4,600 147,200
Centocor, Inc.+...................................... 2,800 78,750
Dura Pharmaceuticals, Inc.+.......................... 4,700 136,300
Jones Medical Industries, Inc........................ 6,100 215,787
PathoGenesis Corp.+.................................. 2,700 70,200
-----------
741,187
-----------
ELECTRONICS--4.6%
Altera Corp.+........................................ 10,000 495,000
Analog Devices, Inc.+................................ 4,566 122,140
Cadence Design Systems, Inc.+........................ 3,100 99,200
Kulicke & Soffa Industries, Inc...................... 3,900 108,713
Lattice Semiconductor Corp.+......................... 1,100 61,463
Linear Technology Corp. ............................. 4,300 215,000
Macrovision Corp.+................................... 4,100 45,613
Maxim Integrated Products, Inc....................... 2,500 131,562
Teleflex, Inc. ...................................... 3,300 190,575

Uniphase Corp.+...................................... 3,400 133,450
Xilinx, Inc.+........................................ 2,500 122,187
-----------
1,724,903
-----------
ENERGY SERVICES--2.7%
Camco International, Inc. ........................... 4,500 199,687
Cooper Cameron Corp.+................................ 2,200 156,750
Global Marine, Inc.+................................. 13,200 265,650
Tidewater, Inc.+..................................... 6,200 248,775
Weatherford Enterra, Inc.+........................... 4,000 127,000
-----------
997,862
-----------
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
ENERGY SOURCES--0.7%
Chesapeake Energy Corp.+............................. 7,800 $ 117,975
United Meridian Corp.+............................... 4,500 127,688
-----------
245,663
-----------
FINANCIAL SERVICES--3.0%
Charles Schwab Corp. ................................ 4,900 179,463
Franklin Resources, Inc. ............................ 3,350 198,069
Mercury Finance Co. ................................. 6,000 9,750
Money Store, Inc. ................................... 18,300 393,450
Nationwide Financial Services, Inc. Class A+......... 5,200 137,800
Sirrom Capital Corp. ................................ 6,100 189,862
-----------
1,108,394
-----------
FOOD, BEVERAGE & TOBACCO--1.3%
Consolidated Cigar Holdings, Inc. Class A+........... 3,200 73,600
JP Foodservice, Inc.+................................ 7,500 209,063
Robert Mondavi Corp.+................................ 5,200 193,700
-----------
476,363
-----------
FOREST PRODUCTS--0.7%
American Pad & Paper Co.+............................ 7,400 110,075
Sealed Air Corp. .................................... 3,300 152,625
-----------
262,700
-----------
HEALTH SERVICES--8.7%
Apria Healthcare Group, Inc.+........................ 5,100 86,063
Covance, Inc.+....................................... 8,400 123,900
HBO & Co. ........................................... 9,300 496,387
Health Management Associates, Inc.+.................. 17,400 465,450

HEALTHSOUTH Corp.+................................... 11,000 217,250
Lincare Holdings, Inc.+.............................. 8,100 313,875
Orthodontic Centers of America, Inc.+................ 7,900 93,813
Oxford Health Plans, Inc.+........................... 4,800 315,600
Pacificare Health Systems, Inc. Class B+............. 1,600 128,200
Pediatrix Medical Group+............................. 2,100 69,300
PhyCor, Inc.+........................................ 8,400 222,600
Quest Diagnostics, Inc.+............................. 8,400 148,050
</TABLE>
<PAGE>

12
[STYLE SELECT SERIES(SM) LOGO]

MID-CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
HEALTH SERVICES (CONTINUED)
Quintiles Transnational Corp.+ ...................... 3,800 $ 192,850
Quorum Health Group, Inc.+........................... 6,100 188,337
Total Renal Care Holdings, Inc.+..................... 2,400 77,100
Vivra, Inc.+......................................... 5,000 129,375
-----------
3,268,150
-----------

HOUSEHOLD PRODUCTS--1.0%
Blyth Industries, Inc.+.............................. 2,800 110,600
Estee Lauder Cos., Inc. Class A...................... 3,900 178,425
Rexall Sundown, Inc.+................................ 5,300 105,338
-----------
394,363
-----------

INSURANCE--1.5%
Ace Ltd. ............................................ 4,200 252,000
PartnerRe Ltd. ...................................... 5,600 188,300
PMI Group, Inc. ..................................... 2,200 112,475
-----------
552,775
-----------

LEISURE & TOURISM--4.3%
Boston Chicken, Inc.+................................ 17,400 413,250
Callaway Golf Co. ................................... 3,200 95,600
CKE Restaurants, Inc. ............................... 2,800 54,950
HFS, Inc.+........................................... 5,600 331,800

La Quinta Inns, Inc. ................................ 9,800 214,375
Landry's Seafood Restaurants, Inc.+.................. 3,400 47,600
Outback Steakhouse, Inc.+............................ 5,600 109,900
Premier Parks, Inc.+................................. 3,100 90,675
Royal Caribbean Cruises Ltd.......................... 5,000 159,375
Vail Resorts, Inc.+.................................. 4,300 87,612
-----------
1,605,137
-----------

MACHINERY--0.8%
MSC Industrial Direct Co., Inc. Class A+............. 3,500 107,625
Smith International, Inc.+........................... 4,200 198,975
-----------
306,600
-----------

MEDICAL PRODUCTS--1.8%
Cardinal Health, Inc. ............................... 6,700 356,775
Gilead Sciences, Inc.+............................... 5,600 123,200
Sybron International Corp.+.......................... 5,700 189,525
-----------
669,500
-----------
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
METALS & MINERALS--1.6%
Battle Mountain Gold Co. ............................ 21,300 $ 122,475
Cambior, Inc. ....................................... 10,100 121,200
TriMas Corp. ........................................ 9,800 241,325
TVX Gold, Inc.+...................................... 20,400 114,750
-----------
599,750
-----------
REAL ESTATE COMPANIES--0.2%
Security Capital US Realty+.......................... 5,500 81,950
-----------
REAL ESTATE INVESTMENT TRUSTS--0.3%
Security Capital Industrial Trust.................... 6,200 124,775
-----------
RETAIL--7.1%
Bed Bath & Beyond, Inc.+............................. 8,400 228,900
Borders Group, Inc.+................................. 9,500 201,875
CDW Computer Centers, Inc.+.......................... 2,100 99,488
Circuit City Stores-Circuit City Group............... 5,000 198,125
CompUSA, Inc.+....................................... 8,000 154,000
Costco Cos., Inc.+................................... 5,000 144,375
CVS Corp. ........................................... 4,400 218,350
Eagle Hardware & Garden, Inc.+....................... 5,500 101,750
Fastenal Co. ........................................ 2,000 77,250

General Nutrition Cos., Inc.+........................ 10,100 215,887
Gymboree Corp.+...................................... 7,000 193,375
Just For Feet, Inc.+................................. 4,600 73,025
Kohl's Corp.+........................................ 3,400 166,175
Richfood Holdings, Inc. ............................. 8,100 165,037
Staples, Inc.+....................................... 8,300 149,400
Tiffany & Co. ....................................... 2,700 106,988
Waban, Inc.+......................................... 5,600 149,800
-----------
2,643,800
-----------
SOFTWARE--9.7%
Affiliated Computer Services, Inc.+.................. 5,900 153,400
BEA Systems, Inc.+................................... 5,800 34,800
BMC Software, Inc.+.................................. 12,800 552,000
DST Systems, Inc.+................................... 5,000 141,875
Electronics For Imaging, Inc.+....................... 9,900 386,100
Fiserv, Inc.+........................................ 5,300 198,750
HNC Software, Inc.+.................................. 3,900 103,350
Intuit, Inc.+........................................ 2,600 57,525
McAfee Associates, Inc.+............................. 8,700 483,937
Network General Corp.+............................... 5,800 79,750
Parametric Technology Corp.+......................... 3,700 166,962
Peoplesoft, Inc.+.................................... 9,600 399,600
Platinum Technology, Inc.+........................... 4,300 51,600
Sapient Corp.+....................................... 2,800 98,000
SeaChange International, Inc.+....................... 3,600 69,750
</TABLE>
<PAGE>

13
[STYLE SELECT SERIES(SM) LOGO]

MID-CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
SOFTWARE (CONTINUED)
Sterling Commerce, Inc.+............................. 2,800 $ 72,450
SunGard Data Systems, Inc.+.......................... 3,600 159,750
Synopsys, Inc.+...................................... 3,900 124,313
Viasoft, Inc.+....................................... 1,400 59,150
Visio Corp.+......................................... 3,000 150,000
Wind River Systems+.................................. 3,750 86,250
-----------
3,629,312
-----------

TELECOMMUNICATIONS--3.0%
Advanced Fibre Communications+....................... 2,600 103,675
Aerial Communications, Inc.+......................... 5,000 24,375
Aspect Telecommunications Corp.+..................... 3,400 59,925
Globalstar Telecommunications Ltd.+.................. 6,154 324,623
Millicom International Cellular SA+.................. 4,700 213,850
PairGain Technologies, Inc.+......................... 8,700 225,113
Tel-Save Holdings, Inc.+............................. 4,400 61,600
Vitesse Semiconductor Corp.+......................... 4,000 126,000
-----------
1,139,161
-----------

TELEPHONE--0.6%
WorldCom, Inc.+...................................... 9,980 238,273
-----------

TOTAL INVESTMENT SECURITIES--85.3%
(cost $34,071,753)............................................. 31,946,118
-----------
</TABLE>

PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM SECURITIES--14.4%
Cayman Island Time Deposit
4.50% due 5/01/97 .......................... $3,851 $ 3,851,000
Federal Home Loan Mortgage Discount Notes
5.35% due 5/12/97 .......................... 1,244 1,241,966
Federal Home Loan Mortgage Discount Notes
5.36% due 5/07/97 .......................... 56 55,950
United States Treasury Bills
4.98% due 6/05/97 .......................... 94 93,545
United States Treasury Bills
5.00% due 5/01/97 .......................... 73 73,000
United States Treasury Bills
5.02% due 5/01/97 .......................... 20 20,000
United States Treasury Bills
5.02% due 6/05/97 .......................... 57 56,722
-----------
TOTAL SHORT-TERM SECURITIES
(cost $5,392,183)............................. 5,392,183
-----------
TOTAL INVESTMENTS--
(cost $39,463,936)............................ 99.7% 37,338,301
Other assets less liabilities................... 0.3 122,566
------- -----------
NET ASSETS-- 100.0% $37,460,867

------- -----------
------- -----------
</TABLE>

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

+ Non-income producing security

See Notes to Financial Statements

<PAGE>
14
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VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--89.6%
AEROSPACE & MILITARY TECHNOLOGY--1.0%
Boeing Co. ........................................ 2,900 $ 286,013
LucasVarity PLC ADR+(1)............................ 3,800 114,000
Sundstrand Corp. .................................. 4,700 229,125
-----------
629,138
-----------
APPAREL & TEXTILES--1.0%
Burlington Industries, Inc.+ ...................... 42,400 434,600
NIKE, Inc. Class B................................. 3,100 174,375
-----------
608,975
-----------
AUTOMOTIVE--6.0%
Borg-Warner Automotive, Inc. ...................... 10,050 422,100
Chrysler Corp. .................................... 28,850 865,500
Cummins Engine, Inc. .............................. 8,200 460,225
Ford Motor Co. .................................... 12,650 439,587
General Motors Corp. .............................. 14,050 813,144
Goodyear Tire & Rubber Co. ........................ 15,400 810,425
-----------
3,810,981
-----------
BANKS--8.0%
Banc One Corp. .................................... 4,600 194,925
BankAmerica Corp. ................................. 3,600 420,750
Barnett Banks, Inc. ............................... 2,700 131,963
Chase Manhattan Corp. ............................. 5,100 472,387
Citicorp........................................... 7,700 867,212
First Bank System, Inc. ........................... 3,900 299,325
Golden West Financial Corp.+ ...................... 2,200 143,000
KeyCorp. .......................................... 8,700 453,487
Mellon Bank Corp. ................................. 5,600 465,500
National Bank Canada Montreal Quebec............... 40,300 470,215
Northern Trust Corp. .............................. 10,900 485,050
TCF Financial Corp. ............................... 1,300 53,138
Wells Fargo & Co. ................................. 2,300 613,525
-----------
5,070,477
-----------

BROADCASTING & MEDIA--3.2%
360 Communications Co.+............................ 8,700 151,162
Comcast Corp. Class A.............................. 15,500 244,125
Evergreen Media Corp. Class A+..................... 12,000 387,000
Gannett Co., Inc. ................................. 2,800 244,300
Knight Ridder, Inc. ............................... 9,100 353,762
News Corp., Ltd. ADR(1)............................ 7,900 119,488
Scripps Howard, Inc. Class A....................... 4,000 152,000
Time Warner, Inc. ................................. 5,600 252,000
Tribune Co. ....................................... 2,600 114,075
-----------
2,017,912
-----------

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES--2.7%
ACNielson Corp.+ .................................. 11,000 $ 165,000
Federal Express Corp.+ ............................ 8,150 439,081
Fluor Corp. ....................................... 2,600 143,000
Halliburton Co. ................................... 7,400 522,625
Owens Corning Co. ................................. 11,050 447,525
-----------
1,717,231
-----------
CHEMICALS--3.4%
Cabot Corp. ....................................... 13,500 297,000
Cyprus Amax Minerals Co. .......................... 18,400 411,700
du Pont (E.I.) de Nemours & Co. ................... 2,500 265,312
IMC Global, Inc. .................................. 5,100 188,063
Morton International, Inc. ........................ 10,500 439,687
Raychem Corp. ..................................... 4,000 258,000
W.R. Grace & Co. .................................. 5,500 286,000
-----------
2,145,762
-----------
COMMUNICATION
EQUIPMENT--1.6%
AirTouch Communications, Inc.+ .................... 20,900 532,950
SBC Communications, Inc. .......................... 8,650 480,075
-----------
1,013,025
-----------
COMPUTERS & BUSINESS EQUIPMENT--4.7%
3Com Corp.+ ....................................... 4,100 118,900
Cabletron Systems, Inc.+ .......................... 6,600 227,700
Compaq Computer Corp.+ ............................ 4,500 384,187
Hewlett-Packard Co. ............................... 13,100 687,750
International Business Machines Corp. ............. 5,300 851,975
Komag, Inc.+ ...................................... 13,700 381,887

Western Digital Corp.+ ............................ 5,300 326,613
-----------
2,979,012
-----------
DRUGS--1.7%
Bristol-Myers Squibb Co. .......................... 2,000 131,000
Lilly (Eli) & Co. ................................. 1,300 114,237
Merck & Co., Inc. ................................. 700 63,350
Novartis AG ADR(1)................................. 8,059 531,090
Pfizer, Inc. ...................................... 2,700 259,200
-----------
1,098,877
-----------
ELECTRIC UTILITIES--0.7%
Northeast Utilities System+........................ 52,500 433,125
-----------
</TABLE>
<PAGE>

15
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VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
ELECTRICAL EQUIPMENT--0.6%
General Electric Co. .............................. 200 $ 22,175
Harman International Industries, Inc.+ ............ 8,300 317,475
Molex, Inc. ....................................... 750 23,156
-----------
362,806
-----------

ELECTRONICS--6.4%
Analog Devices, Inc.+ ............................. 11,800 315,650
Applied Materials, Inc.+ .......................... 4,950 271,013
Avnet, Inc. ....................................... 7,450 453,519
Intel Corp. ....................................... 4,400 673,200
KLA Instruments Corp.+ ............................ 6,300 280,350
Millipore Corp. ................................... 6,600 249,150
Motorola, Inc. .................................... 3,100 177,475
NCR Corp.+ ........................................ 6 174
Novellus Systems, Inc.+ ........................... 2,000 114,500
Philips Electronics NV ADR(1)...................... 9,050 484,175
Seagate Technology, Inc.+ ......................... 7,000 321,125
Tektronix, Inc. ................................... 8,300 449,237
Texas Instruments, Inc. ........................... 3,200 285,600

-----------
4,075,168
-----------

ENERGY SERVICES--2.9%
Burlington Resources, Inc. ........................ 7,100 300,862
Chevron Corp. ..................................... 200 13,700
Cooper Cameron Corp.+ ............................. 2,700 192,375
Energy Ventures, Inc. ............................. 2,300 153,813
Exxon Corp. ....................................... 700 39,638
Falcon Drilling, Inc.+ ............................ 600 22,950
Reading & Bates Corp.+ ............................ 18,300 409,462
Schlumberger Ltd................................... 2,200 243,650
YPF Sociedad Anonima ADR(1)........................ 15,750 435,094
-----------
1,811,544
-----------

ENERGY SOURCES--3.6%
Atlantic Richfield Co. ............................ 3,350 456,019
Noble Affiliates, Inc. ............................ 6,300 225,225
Repsol SA ADR(1)................................... 10,300 431,312
Tosco Corp......................................... 500 14,813
Triton Energy Ltd. Class A+........................ 9,400 345,450
Ultramar Diamond Shamrock Co. ..................... 14,000 449,750
Union Pacific Resources Group, Inc. ............... 13,600 368,900
-----------
2,291,469
-----------
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES--6.9%
American Express Co. .............................. 13,600 $ 895,900
Capital One Financial Corp. ....................... 5,700 205,913
Countrywide Credit
Industries, Inc. ................................ 3,400 92,225
Dean Witter, Discover & Co. ....................... 6,800 260,100
Donaldson Lufkin & Jenrette, Inc. ................. 4,000 172,500
Federal Home Loan Mortgage Corp. .................. 10,000 318,750
Morgan (J.P.) & Co., Inc. ......................... 2,400 244,500
Morgan Stanley Asia-Pacific Fund+.................. 11,900 116,025
Morgan Stanley Group, Inc. ........................ 12,450 785,906
Paine Webber Group, Inc. .......................... 13,400 455,600
State Street Corp. ................................ 3,500 275,625
Travelers Group, Inc. ............................. 9,800 542,675
-----------
4,365,719
-----------
FOOD, BEVERAGE & TOBACCO--4.3%
Archer-Daniels-Midland Co. ........................ 13,900 255,413

Coca-Cola Co. ..................................... 3,200 203,600
IBP, Inc. ......................................... 28,750 682,812
Nestle SA ADR(1)................................... 2,700 164,004
Philip Morris Cos., Inc. .......................... 28,700 1,130,062
RJR Nabisco Holdings Corp. ........................ 6,800 202,300
Tyson Foods, Inc. Class A.......................... 3,400 67,150
-----------
2,705,341
-----------
FOREST PRODUCTS--2.8%
Asia Pulp & Paper Ltd. ADR+(1)..................... 36,400 486,850
Fort Howard Corp.+ ................................ 12,200 417,850
Jefferson Smurfit Corp.+ .......................... 3,100 40,300
Mead Corp. ........................................ 4,900 275,013
Owens Illinois, Inc.+ ............................. 17,200 464,400
Temple-Inland, Inc. ............................... 1,400 77,700
-----------
1,762,113
-----------
HEALTH SERVICES--0.3%
Columbia/HCA Healthcare Corp. ..................... 5,100 178,500
-----------
HOUSEHOLD PRODUCTS--1.3%
Kimberly-Clark Corp. .............................. 1,300 66,625
Singer Co., Inc.+ ................................. 22,800 421,800
Tupperware Corp. .................................. 10,700 355,775
-----------
844,200
-----------
HOUSING--0.7%
Masco Corp. ....................................... 11,700 441,675
-----------
</TABLE>
<PAGE>

16
[STYLE SELECT SERIES(SM) LOGO]

VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
INSURANCE--7.8%
20th Century Industries............................ 4,400 $ 78,100
Allstate Corp.+ ................................... 9,500 622,250
American International Group, Inc. ................ 1,300 167,050
Berkley (W.R.) Corp. .............................. 13,100 641,900
Chubb Corp. ....................................... 5,500 317,625

Equitable Cos., Inc. .............................. 4,600 134,550
EXEL Ltd........................................... 7,500 292,500
General Reinsurance Group.......................... 2,400 401,400
LaSalle Reinsurance Holdings Ltd................... 15,100 419,025
NAC Reinsurance Corp. ............................. 1,100 42,625
Old Republic International Corp. .................. 15,800 446,350
Progressive Corp. ................................. 13,600 1,035,300
Transatlantic Holdings, Inc. ...................... 2,700 223,425
UNUM Corp. ........................................ 1,100 84,700
-----------
4,906,800
-----------
LEISURE & TOURISM--4.0%
Continental Airlines, Inc. Class B+................ 9,600 304,800
Disney (Walt) Co. ................................. 1,600 131,200
Host Marriott Corp.+ .............................. 25,100 436,112
La Quinta Inns, Inc. .............................. 6,300 137,813
McDonald's Corp. .................................. 17,800 954,525
Mirage Resorts, Inc.+ ............................. 21,500 432,687
Royal Caribbean Cruises Ltd........................ 4,600 146,625
-----------
2,543,762
-----------
MACHINERY--1.1%
New Holland NV+.................................... 19,650 434,756
Smith International, Inc.+ ........................ 5,500 260,563
-----------
695,319
-----------
MEDICAL PRODUCTS--0.4%
Allegiance Corp. .................................. 5,600 123,900
Johnson & Johnson Co. ............................. 1,700 104,125
-----------
228,025
-----------
METALS & MINERALS--3.7%
AK Steel Holding Corp. ............................ 8,800 319,000
Carpenter Technology Corp. ........................ 11,150 452,969
Lafarge Corp. ..................................... 18,550 449,837
Martin Marietta Materials,
Inc. ............................................ 9,200 250,700
Southdown, Inc. ................................... 11,900 429,888
UCAR International, Inc.+ ......................... 10,200 428,400
-----------
2,330,794
-----------
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
MULTI-INDUSTRY--0.6%
Cooper Industries, Inc. ........................... 5,100 $ 234,600

Tenneco, Inc. ..................................... 4,200 167,475
-----------
402,075
-----------
REAL ESTATE INVESTMENT
TRUSTS--0.8%
Crescent Real Estate Equities...................... 9,900 259,875
Federal Realty Investment Trust.................... 1,400 36,050
Kimco Realty Corp.+ ............................... 300 9,338
Mid Atlantic Realty Trust.......................... 800 8,900
Saul Centers, Inc. ................................ 800 12,500
United Dominion Realty Trust, Inc. ................ 1,500 20,625
Vornado Realty Trust............................... 2,200 139,975
Weingarten Realty Investors........................ 500 21,312
-----------
508,575
-----------
RETAIL--2.7%
Costco Cos., Inc.+ ................................ 12,800 369,600
Harcourt General, Inc. ............................ 8,800 407,000
Home Depot, Inc. .................................. 4,900 284,200
May Department Stores Co. ......................... 9,350 432,438
Wal-Mart Stores, Inc. ............................. 8,600 242,950
-----------
1,736,188
-----------
SOFTWARE--0.5%
Autodesk, Inc. .................................... 8,700 309,938
-----------
TELECOMMUNICATIONS--1.0%
AT&T Corp. ........................................ 14,500 485,750
Globalstar Telecommunications Ltd.+................ 311 16,405
Lucent Technologies, Inc. ......................... 100 5,913
Tele-Communications
International, Inc.
Series A+........................................ 8,000 103,000
-----------
611,068
-----------
TRANSPORTATION--3.2%
Burlington Northern
Santa Fe ........................................ 15,350 1,208,812
Illinois Central Corp. ............................ 2,500 83,125
Kansas City Southern Industries, Inc. ............. 4,100 211,150
Tidewater, Inc.+ .................................. 7,400 296,925
Union Pacific Corp. ............................... 3,600 229,500
-----------
2,029,512
-----------
TOTAL COMMON STOCK
(cost $54,483,460)................................. 56,665,106
-----------
</TABLE>

<PAGE>
17
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VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK--0.1%
BANKS--0.0%
Banc One Corp. Series C+ 3.50%.................. 200 $ 16,100
-----------
COMMUNICATION
EQUIPMENT--0.1%
AirTouch Communications, Inc. Class B 6.00%..... 600 16,725
AirTouch Communications, Inc. Class C 4.25%..... 400 18,200
-----------
34,925
-----------
TOTAL PREFERRED STOCK
(cost $51,047).................................. 51,025
-----------
TOTAL INVESTMENT SECURITIES--89.7%
(cost $54,534,507).............................. 56,716,131
-----------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- ------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM
SECURITIES--9.4%
Cayman Island Time Deposit
4.50% due 5/01/97........................... $3,602 $ 3,602,000
Federal Home Loan Mortgage Discount Notes
5.28% due 5/01/97........................... 2,315 2,315,000
-----------
TOTAL SHORT-TERM SECURITIES
(cost $5,917,000)............................. 5,917,000
-----------
REPURCHASE
AGREEMENT--1.0%
Agreement with State Street
Bank and Trust Co., bearing

2.00%, dated 4/30/97 to be
repurchased 5/01/97 in the
amount of $665,037
collaterized by $685,000
U.S. Treasury Note 5.875%,
due 10/31/98 approximate
aggregate value $681,789
(cost $665,000)............................. 665 665,000
-----------
TOTAL INVESTMENTS--
(cost $61,116,507)............................ 100.1% 63,298,131
Liabilities in excess of other assets........... (0.1) (91,070)
------- -----------
NET ASSETS-- 100.0% $63,207,061
------- -----------
------- -----------
</TABLE>

- ------------------
+ Non-income producing security
(1) ADR ('American Depositary Receipt')

See Notes to Financial Statements

<PAGE>
18
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INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK--83.8%
ARGENTINA--1.2%
Banco Frances del Rio de la
Plata SA ADR(1) (Finance).............................. 560 $ 17,010
Perez Companies SA
(Multi-industry)....................................... 2,550 20,683
Telefonica de Argentina SA ADR(1) (Utilities)............ 4,620 153,615
YPF Sociedad Anonima ADR(1)
(Energy)............................................... 9,640 266,305
-----------
457,613
-----------
AUSTRALIA--4.9%
AAPC Ltd.
(Information & Entertainment).......................... 837,600 509,497
Australia & New Zealand
Banking Group Ltd. (Finance)........................... 2,000 12,774
Australian Gas Light Co., Ltd.
(Utilities)............................................ 3,000 17,196
Broken Hill Proprietary Co., Ltd. (Materials)............ 2,000 28,199
Coca-Cola Amatil Ltd.
(Consumer Staples)..................................... 18,000 205,772
Commonwealth Instalment
Receipt Trustee Ltd. (Finance)......................... 2,000 14,973
David Jones Ltd.
(Consumer Discretionary)............................... 8,400 11,005
FAI Insurances Ltd. (Finance)............................ 275,073 135,145
Lend Lease Corp., Ltd. (Finance)......................... 1,000 19,138
National Australia Bank Ltd.
(Finance).............................................. 7,200 98,542
News Corp., Ltd.
(Information & Entertainment).......................... 3,000 13,827
Normandy Mining Ltd. (Energy)............................ 162,366 198,795
Publishing & Broadcasting Ltd.
(Information & Entertainment).......................... 35,000 184,785
St. George Bank Ltd.
(Finance).............................................. 2,000 12,290
TABCORP Holdings Ltd.
(Information & Entertainment).......................... 3,000 14,821
Western Mining Corp.
Holdings Ltd. (Materials).............................. 3,000 17,781

Westpac Banking Corp., Ltd.
(Finance).............................................. 2,000 10,778
Woodside Petroleum Ltd.
(Energy)............................................... 3,000 23,863
Woolworths Ltd.
(Consumer Discretionary)............................... 117,200 345,485
-----------
1,874,666
-----------

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
AUSTRIA--0.8%
Boehler-Uddeholm AG (Materials).......................... 1,767 $ 127,494
VAE Eisenbahnsysteme AG
(Industrial & Commercial).............................. 1,776 171,878
-----------
299,372
-----------
BELGIUM--0.4%
Generale de Banque Belge Pour
l'Etranger SA (Finance)................................ 90 37,322
Kredietbank NV (Finance)................................. 250 97,378
UCB SA (Healthcare)...................................... 10 27,440
-----------
162,140
-----------
BRAZIL--1.0%
Centrais Eletricas Brasileiras
SA ADR+(1) (Utilities)................................. 1,000 22,519
Compania Brasileira de Distribuidora GDR(2)
(Industrial & Commercial).............................. 1,000 20,121
Compania Energetica de Minas ADR(1) (Materials).......... 1,000 45,508
Telecomunicacoes Brasileras SA
ADR(1)
(Information Technology)............................... 2,000 229,500
Usinas Siderurgicas de Minas
Gerais ADR(1) (Materials).............................. 6,000 70,519
-----------
388,167
-----------
CANADA--0.1%
Alcan Aluminum Ltd. (Materials).......................... 620 21,037
Royal Bank of Canada
(Finance).............................................. 310 12,360
-----------
33,397
-----------
CHILE--0.9%
Chilectra SA ADR(1) (Utilities).......................... 169 10,237

Compania de Telecomunicaciones de Chile SA(Utilities).... 480 15,540
Empresa Nacional de
Electricidad SA ADR(1)
(Utilities)............................................ 765 14,726
Enersis SA ADR(1) (Energy)............................... 2,994 94,311
Santa Isabel SA ADR(1)
(Consumer Discretionary)............................... 2,000 48,750
Sociedad Quimica Minera ADR(1) (Materials)............... 2,700 159,975
-----------
343,539
-----------
DENMARK--0.3%
Den Danske Bank+ (Finance)............................... 150 12,973
</TABLE>
<PAGE>

19
[STYLE SELECT SERIES(SM) LOGO]

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
DENMARK (CONTINUED)
ISS International Service
Systems A/S
(Industrial & Commercial).............................. 2,600 $ 76,926
Unidanmark A/S (Finance)................................. 200 9,893
-----------
99,792
-----------
FINLAND--0.9%
Huhtamaki Oy (Consumer Staples).......................... 5,224 226,523
Rauma Oy
(Industrial & Commercial).............................. 97 1,996
UPM-Kymmene Oy (Materials)............................... 4,230 96,794
-----------
325,313
-----------
FRANCE--6.0%
Accor SA
(Information & Entertainment).......................... 80 11,473
Alcatel Alsthom Compagnie
Generael D' Electricite
(Information Technology)............................... 310 34,471
AXA SA (Finance)......................................... 220 13,536
Bertrand Faure
(Consumer Discretionary)............................... 1,700 81,410

Canal Plus
(Information & Entertainment).......................... 70 12,641
Carrefour SA
(Consumer Discretionary)............................... 180 112,382
Chargeurs International SA+
(Consumer Discretionary)............................... 1,200 70,933
Cie Generale des Eaux
(Industrial & Commercial).............................. 2,960 412,316
Club Mediterranee SA
(Information & Entertainment).......................... 2,300 178,120
Compagine de St. Gobain
(Materials)............................................ 370 49,574
Elf Aquitaine SA (Energy)................................ 520 50,427
Guilbert SA
(Information Technology)............................... 120 18,710
L' Oreal (Consumer Staples).............................. 60 21,290
Lapeyre (Materials)...................................... 340 20,505
Legrand SA
(Information Technology)............................... 130 21,940
Louis Dreyfus Citrus+
(Consumer Staples)..................................... 7,200 258,689
Marine-Wendel SA
(Multi-industry)....................................... 1,100 114,024
Moet Hennessy Louis Vuitton
(Consumer Staples)..................................... 340 83,012
Pathe SA
(Information & Entertainment).......................... 50 11,677
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
FRANCE (CONTINUED)
Pinault Printemps Redoute
(Consumer Discretionary)............................... 170 $ 71,507
Primagaz Cie (Utilities)................................. 120 11,760
Sanofi SA (Healthcare)................................... 460 42,954
Schneider SA+
(Industrial & Commercial).............................. 640 36,076
Societe Generale+ (Finance).............................. 2,800 313,750
Sodexho SA
(Information & Entertainment).......................... 150 68,877
Television Francais (Utilities).......................... 625 60,289
Total SA, Series B (Energy).............................. 1,140 94,536
-----------
2,276,879
-----------
GERMANY--4.1%
Allianz Holdings AG (Finance)............................ 200 38,803
Ashanti Goldfields Ltd. GDR(2)
(Materials)............................................ 10,000 118,750
Ava Allgememeine
Handelsgesellschaft AG

(Consumer Discretionary)............................... 600 162,143
Bayer AG (Multi-industry)................................ 1,583 62,980
Bayerische Hypotheken-Und
Bank AG (Finance)...................................... 766 23,885
Bayerische Motoren Werke
(Consumer Discretionary)............................... 327 267,748
Bilfinger & Berger
(Industrial & Commercial).............................. 410 15,247
Commerzbank AG (Finance)................................. 6,540 175,415
Deutsche Bank AG (Finance)............................... 4,940 260,721
Deutsche Telekom AG (Information Technology)............. 557 12,087
Gehe AG
(Consumer Discretionary)............................... 1,590 105,767
Hoechst AG (Healthcare).................................. 430 16,884
Leica Camera AG+
(Information & Entertainment).......................... 5,100 156,080
Mannesmann AG
(Industrial & Commercial).............................. 40 15,729
Rhon-Klinikum AG
(Consumer Discretionary)............................... 200 25,869
SAP AG
(Information Technology)............................... 80 14,565
Schering AG (Healthcare)................................. 140 13,420
VEBA AG (Utilities)...................................... 1,380 71,080
Volkswagen AG
(Consumer Discretionary)............................... 30 19,073
-----------
1,576,246
-----------
</TABLE>
<PAGE>

20
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INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
HONG KONG--3.3%
Cathay Pacific Airways Ltd.
(Industrial & Commercial).............................. 15,000 $ 23,333
CDL Hotels International Ltd.
(Information & Entertainment).......................... 340,000 148,132
China Hong Kong Photo
Products Holdings Ltd.
(Information & Entertainment).......................... 110,000 34,435
Dao Heng Bank Group Ltd.

(Finance).............................................. 4,000 19,002
First Pacific Co., Ltd.
(Industrial & Commercial).............................. 32,000 38,211
Guoco Group Ltd. (Finance)............................... 40,000 190,021
Henderson China Holdings Ltd. (Real Estate).............. 16,200 27,918
Hong Kong Land Holdings Ltd. ADR(1) (Finance)............ 163,000 339,040
Hopewell Holdings Ltd.
(Real Estate).......................................... 39,000 20,264
Hutchison Whampoa Ltd.
(Multi-industry)....................................... 12,000 89,073
Jardine Matheson Holdings Ltd. ADR(1)
(Industrial & Commercial).............................. 21,200 116,600
New World Development Co.,
Ltd. (Real Estate)..................................... 14,165 81,737
Swire Pacific Ltd. Class A
(Multi-Industry)....................................... 8,100 62,477
Wharf Holdings Ltd.
(Real Estate).......................................... 15,000 56,735
-----------
1,246,978
-----------
INDIA--0.4%
Hindalco Industries Ltd. GDR*(2) (Materials)............. 700 22,659
Tata Engineering & Locomotive
Ltd. GDR(2)
(Consumer Discretionary)............................... 9,450 115,526
-----------
138,185
-----------
INDONESIA--2.5%
PT Bank Internasional Indonesia alien (Finance).......... 7,000 5,041
PT Bank Bali alien (Finance)............................. 93,000 223,889
PT Bank Tiara Asia alien
(Finance).............................................. 194,000 235,514
PT Indonesian Satellite Corp. alien (Utilities).......... 130,000 358,436
PT Semen Cibinong alien (Materials) ..................... 51,000 150,587
-----------
973,467
-----------
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
ISRAEL--0.2%
Blue Square Israel Ltd. ADR(1)
(Consumer Staples)..................................... 4,300 $ 80,087
-----------
ITALY--2.4%
Banca Commerciale Italiana
SpA (Finance).......................................... 85,000 182,444
BCA Fideuram SpA (Finance)............................... 9,000 22,603
Brembo SpA

(Industrial & Commercial).............................. 16,000 172,880
Credito Italiano SpA (Finance)........................... 10,000 14,017
ENI SpA (Energy)......................................... 5,000 25,377
Gemina SpA+
(Consumer Staples)..................................... 12,600 5,085
Holding di Partecipazione
(Multi-industry)....................................... 179,000 97,572
Industrie Natuzzi SpA ADR(1)
(Consumer Discretionary)............................... 1,000 22,250
Istituto Mobiliare Italiano
(Finance).............................................. 3,000 25,555
Seat SpA+
(Information & Entertainment).......................... 7,000 2,142
Societa Italiana per il Gas SpA (Utilities).............. 5,000 13,156
STET (Industrial & Commercial)........................... 10,000 47,279
STET risp (Industrial & Commercial) ..................... 3,000 11,126
Telecom Italia SpA
(Information Technology)............................... 25,000 78,628
Zucchini SpA
(Information Technology)............................... 29,600 196,218
-----------
916,332
-----------
JAPAN--16.5%
Aiwa Co., Ltd.
(Information Technology)............................... 3,000 51,759
Alps Electric Co., Ltd.
(Information Technology)............................... 2,000 23,319
Amada Co., Ltd.
(Industrial & Commercial).............................. 4,000 29,905
Canon, Inc.
(Information Technology)............................... 8,000 189,703
Citizen Watch Co.
(Consumer Discretionary)............................... 3,000 21,578
Daiichi Pharmaceutical
(Healthcare)........................................... 4,000 64,285
Dainippon Screen MFG Co., Ltd.
(Information Technology)............................... 2,000 15,914
Daiwa House Industry Co., Ltd.
(Consumer Discretionary)............................... 5,000 55,934
DDI Corp. (Utilities).................................... 15 99,618
</TABLE>
<PAGE>

21
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INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)

- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
JAPAN (CONTINUED)
East Japan Railway Co.
(Industrial & Commercial).............................. 12 $ 51,901
Fanuc Ltd.
(Information Technology)............................... 600 20,467
Fujitsu Denso
(Industrial & Commercial).............................. 2,000 60,503
Fujitsu Ltd.
(Information Technology)............................... 12,000 124,788
Hankyu Realty Co. (Real Estate).......................... 7,000 48,804
Hitachi Zosen Corp.
(Industrial & Commercial).............................. 4,000 13,897
Hitachi Ltd.+
(Information Technology)............................... 6,000 54,359
Imagineer Co., Ltd.+
(Information & Entertainment).......................... 3,600 114,578
Inax Corp.
(Consumer Staples)..................................... 2,000 12,416
Ito-Yokado Co., Ltd.
(Consumer Discretionary)............................... 2,000 95,955
Jusco Co., Ltd.
(Consumer Discretionary)............................... 2,000 61,449
KAO Corp. (Consumer Staples)............................. 2,000 23,319
Kawasaki Heavy Industries Ltd.
(Industrial & Commercial).............................. 14,000 55,257
Kokuyo Co., Ltd. (Materials)............................. 2,000 43,487
Komatsu Ltd.
(Industrial & Commercial).............................. 3,000 21,932
Komori Corp.
(Industrial & Commercial).............................. 2,000 42,699
Kuraray Co., Ltd. (Healthcare)........................... 4,000 35,294
Kyocera Corp.
(Information Technology)............................... 2,000 119,746
Makita Corp.
(Industrial & Commercial).............................. 2,000 27,416
Marubeni Corp.
(Consumer Discretionary)............................... 30,000 111,317
Marui Co., Ltd.
(Consumer Discretionary)............................... 4,000 65,860
Matsushita Electric Industrial
Co., Ltd.
(Information Technology)+.............................. 6,000 95,955
Matsushita Electric Works Ltd.
(Industrial & Commercial).............................. 19,000 193,091
Meiwa Estate Co.+ (Real Estate).......................... 2,600 43,014
Mitsubishi Corp.
(Consumer Discretionary)............................... 2,000 18,750
Mitsubishi Estate Co., Ltd.
(Real Estate).......................................... 5,000 63,024
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONTINUED)
Mitsubishi Heavy Industries Ltd.
(Industrial & Commercial).............................. 15,000 $ 99,027
Mitsui Fudosan Co., Ltd.
(Real Estate).......................................... 24,000 274,156
Miyota Co.
(Information Technology)............................... 13,000 153,622
Murata Manufacturing Co., Ltd.
(Information Technology)............................... 2,000 73,739
Mycal Corp.
(Consumer Discretionary)............................... 4,000 49,159
NEC Corp.
(Information Technology)............................... 25,000 305,274
Nippon Denso Co., Ltd.
(Industrial & Commercial).............................. 5,000 113,838
Nippon Steel Corp. (Materials)........................... 25,000 71,296
Nippon Telegraph & Telephone
Corp. (Utilities)...................................... 35 246,780
Nomura Securities Co., Ltd.
(Finance).............................................. 6,000 67,121
Orix Corp. (Finance)..................................... 3,000 151,495
Pioneer Electronic Corp.
(Industrial & Commercial).............................. 11,000 196,715
Rohm Co.
(Information Technology)............................... 1,000 77,520
Sankyo Co., Ltd. (Healthcare)............................ 8,000 214,283
Sekisui Chemical Co., Ltd.
(Materials)............................................ 5,000 48,056
Sekisui House Ltd.
(Consumer Discretionary)............................... 3,000 26,707
Sharp Corp.
(Information Technology)............................... 9,000 116,989
Shin-Etsu Chemical Co., Ltd.
(Materials)............................................ 3,000 60,503
Shiseido Co., Ltd.
(Consumer Staples)..................................... 20,000 286,761
Shohkoh Fund & Co.
(Finance).............................................. 600 140,859
Sony Corp.
(Information Technology)............................... 4,000 291,173
Sumitomo Corp.
(Industrial & Commercial).............................. 8,000 53,823
Sumitomo Electric Industries Ltd.
(Industrial & Commercial).............................. 12,000 162,603
Sumitomo Forestry Co., Ltd.
(Materials)............................................ 2,000 20,325
TDK Corp.
(Information Technology)............................... 2,000 144,168
Teijin Ltd.
(Consumer Discretionary)............................... 7,000 28,290

</TABLE>
<PAGE>

22
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INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
JAPAN (CONTINUED)
Tokio Marine & Fire Insurance
Co., Ltd. (Finance).................................... 18,000 $ 175,838
Tokyo Electron Ltd.
(Information Technology)............................... 5,300 204,593
Tokyo Steel Manufacturing Co.
(Materials)............................................ 2,000 21,428
Toppan Printing Co., Ltd.
(Information & Entertainment).......................... 3,000 38,760
Toray Industries, Inc.
(Materials)............................................ 9,000 56,013
UNY Co., Ltd.
(Consumer Staples)..................................... 2,000 35,136
Yamanouchi Pharmaceutical Co., Ltd.
(Healthcare)........................................... 6,000 128,097
-----------
6,305,440
-----------
KOREA--0.7%
Kookmin Bank GDR*(2)
(Finance).............................................. 5,000 89,375
Korea Electric Power Corp. ADR(1)
(Utilities)............................................ 8,500 144,500
Korea Fund, Inc. (Finance)............................... 2,800 36,050
-----------
269,925
-----------
LUXEMBOURG--0.3%
Millicom International Cellular SA
(Information & Entertainment).......................... 2,700 122,850
-----------
MALAYSIA--1.5%
Berjaya Sports Toto Bhd
(Information & Entertainment).......................... 7,000 33,455
Commerce Asset Holding Bhd
(Finance).............................................. 3,000 17,923
Land & General Bhd+
(Multi-industry)....................................... 21,600 29,422

MBF Capital Bhd (Finance)................................ 15,000 22,224
Multi-Purpose Holdings Bhd
(Finance).............................................. 11,000 17,962
Renong Bhd+ (Multi-industry)............................. 18,000 24,661
Resorts World Bhd
(Information & Entertainment).......................... 5,000 18,420
TA Enterprise Bhd (Finance).............................. 144,000 168,042
Technology Resources
Industries Bhd
(Information Technology)............................... 77,000 141,071
Time Engineering Bhd+
(Information Technology)............................... 6,000 10,993
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
MALAYSIA (CONTINUED)
United Engineers Bhd
(Industrial & Commercial).............................. 11,000 $ 77,983
-----------
562,156
-----------
MEXICO--1.8%
Cemex SA de CV Class B
(Materials)............................................ 4,000 14,648
Cifra SA de CV ADR(1)
(Consumer Staples)..................................... 120,000 182,880
Gruma SA de CV ADR*(1)
(Consumer Staples)..................................... 610 11,751
Gruma SA de CV Class B+
(Consumer Staples)..................................... 2,000 9,639
Grupo Financiero Banamex-
Accival SA de CV
(Finance).............................................. 69,000 147,786
Grupo Industrial Maseca SA
de CV Class B
(Industrial & Commercial).............................. 9,000 8,789
Grupo Modelo SA de CV Class C
(Consumer Staples)..................................... 2,000 12,131
Kimberly-Clark de Mexico SA de CV (Materials)............ 6,526 24,227
Panamerican Beverages, Inc. Class A ADR(1)
(Consumer Staples)..................................... 7,400 214,600
Telefonos de Mexico SA ADR(1)
(Utilities)............................................ 1,000 41,250
-----------
667,701
-----------

NETHERLANDS--4.4%
ABN AMRO Holdings NV (Finance) .......................... 1,200 82,472
ASM Lithography Holding NV (Information Technology)...... 400 29,872
ASM Lithography Holding NV ADR+(1)

(Information Technology)............................... 1,300 102,863
Baan Co. NV+
(Information Technology)............................... 250 13,406
CSM NV (Consumer Staples)................................ 1,190 68,347
Elsevier NV
(Consumer Discretionary)............................... 13,550 216,989
Fortis Amev NV (Finance)................................. 1,030 38,857
Gucci Group NV (Consumer Discretionary) ................. 187 12,973
Hagemeyer NV
(Multi-industry)....................................... 270 23,490
ING Groep NV (Finance)................................... 3,490 137,035
</TABLE>
<PAGE>

23
[STYLE SELECT SERIES(SM) LOGO]

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
NETHERLANDS (CONTINUED)
Koninklijke Ahold NV (Consumer Discretionary)............ 820 $ 55,977
Koninlijke PTT Nederland NV (Utilities).................. 290 10,300
Nutricia Ver Bedrijuen NV (Consumer Staples)............. 140 21,241
Philips Electronics NV (Information Technology).......... 4,500 234,897
PolyGram NV
(Information & Entertainment).......................... 1,750 85,780
Royal Dutch Petroleum Co.
(Energy)............................................... 1,430 255,570
Unilever NV & PLC (Consumer Staples)..................... 510 99,183
Wolters Kluwer NV+
(Information & Entertainment).......................... 1,740 206,214
-----------
1,695,466
-----------
NEW ZEALAND--2.5%
Air New Zealand Ltd.+
(Information & Entertainment).......................... 74,000 213,920
Brierley Investment Ltd.+(Finance) ...................... 160,900 141,659
Carter Holt Harvey Ltd. (Consumer Staples)............... 4,000 8,873
CDL Hotels New Zealand Ltd.
(Information & Entertainment).......................... 575,000 211,265
Fletcher Challenge Ltd. forest shares +
(Multi-industry)....................................... 62,800 86,636
Fletcher Challenge Ltd. building shares+
(Multi-industry)....................................... 4,000 11,230
Kiwi Income Property Trust

(Real Estate).......................................... 275,000 211,612
Telecom Corp. of New Zealand Ltd.
(Information Technology)............................... 3,000 13,456
Wrightson Ltd.
(Multi-industry)....................................... 112,000 65,997
-----------
964,648
-----------
NORWAY--1.5%
Alvern Norway ASA+ (Information & Entertainment)......... 12,000 92,681
Norman Data Defense Systems+ (Industrial & Commercial)... 5,600 86,502
Norsk Hydro ASA (Energy)................................. 2,080 101,354
Orkla ASA
(Consumer Discretionary)............................... 1,420 119,045
Saga Petroleum ASA Class B (Energy)...................... 770 12,435
Smedvig ASA (Energy)..................................... 1,850 42,781
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
NORWAY (CONTINUED)
Smedvig ASA Class B (Energy)............................. 4,700 $ 110,550
-----------
565,348
-----------
PERU--0.4%
Backus & Johnston
(Consumer Staples)..................................... 187,000 162,090
Telefonica Peru SA ADR(1) (Industrial & Commercial)...... 346 8,304
-----------
170,394
-----------
PHILIPPINES--0.1%
Philippine Long Distance Telephone Co. (Utilities)....... 300 17,122
Philippine National Bank (Finance) ...................... 2,750 18,041
-----------
35,163
-----------
PORTUGAL--0.5%
Cimpor-Cimentos de Portugal SA (Materials)............... 7,100 152,741
Establecimentos Jeronimo Martins & Filho SA
(Consumer Discretionary)............................... 519 31,047
-----------
183,788
-----------
SINGAPORE--3.1%
City Developments Ltd. (Real Estate) .................... 2,000 16,166
DBS Land Ltd. (Real Estate).............................. 35,000 113,161
Development Bank of Singapore Ltd. alien (Finance)....... 1,000 11,883
FJ Benjamin Holdings Ltd.+ (Consumer Discretionary)...... 230,000 111,226
Fraser & Neave Ltd. (Consumer Staples)................... 3,000 21,762
Hour Glass Ltd. (Consumer Discretionary)................. 246,000 160,601

Keppel Bank (Finance).................................... 158,000 412,601
Keppel Corp., Ltd. (Industrial & Commercial)............. 7,500 32,643
Overseas Chinese Banking Corp., Ltd. alien (Finance)..... 1,000 11,675
Overseas Union Bank Ltd. alien (Finance)................. 5,000 32,815
Sembawang Shipyard Ltd. (Industrial & Commercial)........ 27,000 116,580
Singapore Land Ltd. (Real Estate)........................ 7,000 32,643
Singapore Press Holdings Ltd. alien (Information &
Entertainment)......................................... 2,000 37,029
United Industrial Corp., Ltd.
(Multi-industry)....................................... 13,000 9,789
</TABLE>
<PAGE>

24
[STYLE SELECT SERIES(SM) LOGO]

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
SINGAPORE (CONTINUED)
United Overseas Bank Ltd. alien (Finance)................ 6,000 $ 56,373
Wing Tai Holdings Ltd.
(Real Estate).......................................... 4,000 10,335
-----------
1,187,282
-----------
SOUTH AFRICA--0.6%
Energy Africa Ltd. GDR(2) (Energy)....................... 11,000 231,000
-----------
SPAIN--1.0%
Banco Bilbao Vizcaya SA
(Finance).............................................. 180 12,114
Banco de Santander SA
(Finance).............................................. 710 53,418
Banco Popular Espanol SA
(Finance).............................................. 120 25,444
Corporacion Bancaria
de Espana SA (Finance)................................. 270 12,041
Empresa Nacional
de Electricidad SA (Utilities)......................... 540 37,747
Gas Natural SDG SA (Utilities)........................... 240 50,969
Iberdrola SA (Utilities)................................. 5,610 63,312
Repsol SA (Energy)....................................... 694 29,098
Repsol SA ADR(1) (Energy)................................ 1,800 75,375
Telefonica de Espana SA
(Utilities)............................................ 946 24,231
-----------

383,749
-----------
SWEDEN--1.7%
ABB AB (Utilities)....................................... 1,300 15,826
Astra AB (Healthcare).................................... 3,150 125,081
Atlas Copco AB Class B
(Industrial & Commercial).............................. 740 18,348
Electrolux AB Class B (Consumer Discretionary)........... 6,860 393,514
Hennes & Mauritz AB
(Consumer Discretionary)............................... 360 52,086
Sandvik AB (Industrial & Commercial)..................... 1,500 36,904
-----------
641,759
-----------
SWITZERLAND--6.0%
Adia SA
(Industrial & Commercial).............................. 190 63,415
BBC Brown Boveri AG
(Industrial & Commercial).............................. 90 108,982
Ciba Specialty Chemicals AG+ (Materials)................. 80 6,892
Compagnie Financiere Richemont AG
(Industrial & Commercial).............................. 2,300 33,622
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
SWITZERLAND (CONTINUED)
CS Holding AG+ (Finance)................................. 210 $ 23,648
Julius Baer Holdings AG
(Finance).............................................. 339 424,296
Liechtenstein Global Trust AG+ (Finance)................. 400 219,795
Nestle SA+ (Consumer Staples)............................ 110 133,573
Novartis AG (Healthcare)................................. 280 368,876
Roche Holdings AG
(Healthcare)........................................... 36 304,050
SMH AG (Consumer Discretionary).......................... 730 413,507
Swiss Bank Corp. + (Finance)............................. 160 34,950
TAG Heuer International SA+ (Consumer Discretionary)..... 1,049 147,306
-----------
2,282,912
-----------
TAIWAN--0.5%
Compal Electronics, Inc.+ (Information Technology)....... 124,000 181,970
-----------
THAILAND--0.9%
Advanced Information Services PCL alien
(Information & Entertainment).......................... 1,000 6,508
Bangkok Bank PCL alien (Finance) ........................ 1,900 17,602
Industrial Finance Corp. of Thailand alien (Finance)..... 18,000 48,234
Matichon PCL alien (Information & Entertainment)......... 50,000 160,781
PTT Exploration & Production PCL alien (Energy).......... 700 8,950
Siam City Cement PCL alien (Materials)................... 4,300 115,226

-----------
357,301
-----------
UNITED KINGDOM--10.4%
Abbey National PLC (Finance)............................. 7,000 97,569
Argos PLC (Consumer Staples)............................. 6,000 62,723
Argyll Group PLC (Consumer Discretionary)................ 9,000 49,887
ASDA Group PLC (Consumer Staples)........................ 21,000 39,141
BG PLC (Energy).......................................... 6,000 17,310
British Petroleum Co. PLC
(Energy)............................................... 4,000 45,900
Cable & Wireless PLC (Information Technology)............ 10,000 77,006
Cadbury Schweppes PLC (Consumer Staples)................. 7,000 58,088
Caradon PLC (Materials).................................. 12,000 48,039
Centrica PLC+ (Utilities)................................ 6,000 5,494
</TABLE>
<PAGE>

25
[STYLE SELECT SERIES(SM) LOGO]

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)
<TABLE>
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
UNITED KINGDOM (CONTINUED)
Compass Group PLC (Industrial & Commercial).............. 3,000 $ 32,869
Cookson Group PLC
(Multi-industry)....................................... 58,400 205,394
Electrocomponents PLC (Information Technology)........... 2,000 12,804
Energy Group PLC+ (Utilities)............................ 16,340 129,767
Glaxo Wellcome PLC (Healthcare).......................... 7,000 137,617
Grand Metropolitan PLC (Information & Entertainment)..... 12,000 100,162
Guinness PLC (Consumer Staples).......................... 10,000 82,658
Hanson PLC (Industrial & Commercial)..................... 24,125 117,106
Inchcape PLC (Multi-industry)............................ 44,000 195,397
Kingfisher PLC (Consumer Staples) ....................... 10,000 108,266
Ladbroke Group PLC
(Information & Entertainment).......................... 6,000 22,366
Lonrho PLC (Multi-industry).............................. 38,000 84,992
Medeva PLC (Healthcare).................................. 11,300 55,126
Morgan Stanley Emerging Market Fund, Inc. (Finance)...... 12,600 201,600
National Westminster Bank PLC (Finance).................. 16,000 189,303
Orange PLC+ (Information & Entertainment)................ 114,000 399,092
Rank Group PLC
(Information & Entertainment).......................... 7,000 48,217
Reed International PLC (Information & Entertainment)..... 16,500 304,060
RTZ Corp. PLC (Materials)................................ 5,000 79,417

Shell Transport & Trading Co. (Energy)................... 8,000 141,459
Smith (David S) Holdings PLC (Materials)................. 5,000 18,152
Smithkline Beecham PLC (Healthcare)...................... 15,000 241,045
T & N PLC
(Consumer Discretionary)............................... 7,000 15,429
Tanjong PLC
(Information & Entertainment).......................... 10,000 36,243
Tesco PLC
(Consumer Discretionary)............................... 8,000 46,418
<CAPTION>

VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Thistle Hotels PLC
(Information & Entertainment).......................... 58,300 $ 156,853
Tomkins PLC (Consumer Staples)........................... 19,000 81,912
United News & Media PLC
(Information & Entertainment).......................... 8,000 97,763
Vickers PLC (Multi-industry)............................. 43,000 148,444
-----------
3,991,088
-----------
VENEZUELA--0.0%
Compania Anon Nacional Tele de Venezuela ADR(1)
(Utilities)............................................ 230 6,900
-----------
TOTAL COMMON STOCK
(cost $32,323,012)....................................... 31,999,013
-----------
PREFERRED STOCK--1.6%
FINLAND--0.1%
Nokia Corp. (Information Technology)..................... 520 32,438
-----------
GERMANY--1.1%
Friedrich Grohe AG (Industrial & Commercial)............. 730 218,561
GEA AG (Industrial & Commercial) ........................ 580 197,598
SAP AG (Information Technology).......................... 90 16,573
-----------
432,732
-----------
ITALY--0.4%
Instituto Finanziario (Finance).......................... 12,600 151,597
-----------
TOTAL PREFERRED STOCK
(cost $585,143).......................................... 616,767
-----------
OPTIONS--0.0%+(3)
JAPAN--0.0%
NIKKEI 225 Index,
Jun 1997/17700 Put..................................... 1,894 833
-----------

SINGAPORE--0.0%
DBS 50 Index, Jan 1998/403 Call.......................... 83 480
DBS 50 Index, Jan 1998/407 Call.......................... 80 415
DBS 50 Index, Jan 1998/407 Call.......................... 79 411
DBS 50 Index, Feb 1998/404 Call.......................... 23 160
-----------
1,466
-----------
</TABLE>

<PAGE>
26
[STYLE SELECT SERIES(SM) LOGO]

INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS -- April 30, 1997 (unaudited) -- (continued)

<TABLE>
<CAPTION>
SHARES/WARRANTS/
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
OPTIONS (CONTINUED)
THAILAND--0.0%
SET 50 Index, Jan 1998/2 Call........................... 11,229 $ 1,037
SET 50 Index, Jan 1998/2 Call........................... 11,194 1,235
SET 50 Index, Jan 1998/2 Call........................... 11,164 449
SET 50 Index, Jan 1998/2 Call........................... 11,438 721
-----------
3,442
-----------
TOTAL OPTIONS (cost $44,596).............................. 5,741
-----------
WARRANTS--0.2%+
PORTUGAL--0.0%
Jeronimo Martins 9/15/03
(Consumer Staples).................................... 43 544
-----------
UNITED KINGDOM--0.2%
Morgan Stanley Group, Inc. 8/15/97 (Finance)............ 18,300 62,906
-----------
TOTAL WARRANTS (cost $68,103)............................. 63,450
-----------
CONVERTIBLE BONDS--0.4%
TAIWAN--0.3%
Compal Electronics zero coupon 2003*.................... $ 93 136,478
-----------
THAILAND--0.1%
Bangkok Bank PCL 3.25%
2004.................................................. 29 26,645
-----------

TOTAL CONVERTIBLE BONDS
(cost $131,115)......................................... 163,123
-----------
TOTAL INVESTMENT SECURITIES--86.0%
(cost $33,151,969)...................................... 32,848,094
-----------
SHORT-TERM SECURITIES--1.8%
Cayman Island Time Deposit
3.00% due 5/01/97
(cost $706,000)....................................... 706 706,000
-----------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS--9.1%
Agreement with State Street Bank and Trust Co.,
bearing 4.00%, dated 4/30/97 to be repurchased
5/01/97 in the amount of $2,434,270
collateralized by $2,475,000 U.S Treasury Note
5.75%, due 9/30/97 approximate aggregate value
$2,488,406
(cost $2,434,000)............................. $2,434 $ 2,434,000
Agreement with State Street Bank and Trust Co.,
bearing 5.30%, dated 4/30/97 to be repurchased
5/01/97 in the amount of $1,035,152
collateralized by $1,055,000 U.S Treasury Note
5.25%, due 7/31/98 approximate aggregate value
$1,057,902
(cost $1,035,000)............................. 1,035 1,035,000
-----------
TOTAL REPURCHASE AGREEMENTS
(cost $3,469,000)............................... 3,469,000
-----------
TOTAL INVESTMENTS--
(cost $37,326,969).............................. 96.9% 37,023,094
Other assets less liabilities................... 3.1 1,189,691
-------------- -----------
NET ASSETS--.................................... 100.0% $38,212,785
-------------- -----------
-------------- -----------
</TABLE>
- ------------------
+ Non-income producing security
* Resale restricted to qualified institutional buyers
(1) ADR ('American Depositary Receipt')
(2) GDR ('Global Depositary Receipt')
(3) Fair valued security, see Note 2

See Notes to Financial Statements

<PAGE>
27
[STYLE SELECT SERIES(SM) LOGO]

NOTES TO FINANCIAL STATEMENTS -- April 30, 1997 (unaudited)

Note 1. Organization

Style Select Series, Inc. (the 'Fund') is an open-end non-diversified management
investment company organized as a Maryland corporation on July 3, 1996. The Fund
is managed by SunAmerica Asset Management Corp. ('SunAmerica'), an indirect
wholly-owned subsidiary of SunAmerica Inc. The assets of each Portfolio are
normally allocated among at least three investment advisers (each, an
'Adviser'), each of which will be independently responsible for advising its
respective portion of the Portfolio's assets. The Fund currently offers four
separate investment portfolios (each, a 'Portfolio'): Aggressive Growth
Portfolio, Mid-Cap Growth Portfolio, Value Portfolio and International Equity
Portfolio. The investment objectives for each of the Portfolios are as follows:

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

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

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

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

Each Portfolio currently offers three classes of shares. Class A shares are
offered at net asset value per share plus an initial sales charge. Class B
shares are offered without an initial sales charge, although a declining
contingent sales charge may be imposed on redemptions made within six years of
purchase. Additionally, any purchases of Class A shares in excess of $1,000,000
will be subject to a contingent deferred sales charge on redemptions made within
one year of purchase. Class B shares of each Portfolio will convert
automatically to Class A shares on the first business day of the month after
seven years from the issuance of such Class B shares and at such time will be
subject to the lower distribution fee applicable to Class A shares. Class C
shares are offered at net asset value, although they may be subject to a
contingent deferred sales charge on redemptions made within one year of
purchase. Each class of shares bears the same voting, dividend, liquidation and
other rights and conditions and each makes distribution and account maintenance
and service fee payments under the distribution plans pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the '1940 Act'), except that Class B
shares and Class C shares are subject to higher distribution fee rates.

Note 2. Significant Accounting Policies

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that

affect the reported amounts and disclosures in the financial statements. Actual
results could differ from these estimates. The following is a summary of the
significant accounting policies followed by the Portfolios in the preparation of
their financial statements:

SECURITY VALUATIONS: Securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed by
the Adviser to be over-the-counter, are valued at the quoted bid price provided
by principal market makers. Securities listed on the New York Stock Exchange
('NYSE') or other national securities exchanges, are valued on the basis of the
last sale price on the exchange on which they are primarily traded. If there is
no sale on that day, then securities are valued at the closing bid price on the
NYSE or other primary exchange for that day. However, if the last sale price on
the NYSE is different than the last sale price on any other exchange, the NYSE
price is used. Securities that are traded on foreign exchanges are ordinarily
valued at the last quoted sales price available before the time when the assets
are valued. If a security's price is available from more than one foreign
exchange, a Portfolio uses the

<PAGE>

28
[STYLE SELECT SERIES(SM) LOGO]

NOTES TO FINANCIAL STATEMENTS -- April 30, 1997 (unaudited) -- (continued)

exchange that is the primary market for the security. Values of portfolio
securities primarily traded on foreign exchanges are already translated into
U.S. dollars when received from a quotation service. Options traded on national
securities exchanges are valued as of the close of the exchange on which they
are traded. Futures and options traded on commodities exchanges are valued at
their last sale price as of the close of such exchange. The Portfolios may make
use of a pricing service in the determination of their net asset values.
Securities for which market quotations are not readily available and other
assets are valued at fair value as determined pursuant to procedures adopted in
good faith by the Directors. Short-term investments which mature in less than 60
days are valued at amortized cost, if their original maturity was 60 days or
less, or by amortizing their value on the 61st day prior to maturity, if their
original term to maturity exceeded 60 days.

REPURCHASE AGREEMENTS: The Portfolios, along with other affiliated registered
investment companies, may transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. The Portfolios' custodian takes possession of the collateral
pledged for investments in such repurchase agreements. The underlying collateral
is valued daily on a mark to market basis to ensure that the value, at the time
the agreement is entered into, is equal to at least 102% of the repurchase
price, including accrued interest. In the event of default of the obligation to
repurchase, a Portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. If the seller defaults and the value
of the collateral declines or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the

Portfolio may be delayed or limited.

Pursuant to exemptive relief granted by the Securities and Exchange Commission,
the Portfolios are permitted to participate in joint repurchase agreement
transactions with other affiliated mutual funds.

As of April 30, 1997, the Aggressive Growth Portfolio had a 2.2% undivided
interest which represented $1,332,000 in principal amount in a joint repurchase
agreement with PaineWebber, Inc. As of such date, the repurchase agreement in
the joint account and the collateral therefore were as follows:

PaineWebber, Inc. Repurchase Agreement 5.30% dated 4/30/97, in the principal
amount of $60,768,000 repurchase price $60,776,946 due 5/01/97 collateralized by
$60,050,000 U.S. Treasury Notes 6.50% due 5/31/01, approximate aggregate value
$62,001,625.

SECURITIES TRANSACTIONS, INVESTMENT INCOME, EXPENSES, DIVIDENDS AND
DISTRIBUTIONS TO SHAREHOLDERS: Securities transactions are recorded on a trade
date basis. Realized gains and losses on sales of investments are calculated on
the identified cost basis. Interest income is recorded on the accrual basis;
dividend income is recorded on the ex-dividend date. Portfolios investing in
foreign securities may be subject to taxes imposed by countries in which it
invests. Such taxes are generally based on either income or gains earned or
repatriated. The Portfolio accrues such taxes when the related income is earned.
The Portfolios amortize premiums and accrue discounts including original issue
discounts as required for federal income tax purposes.

Net investment income, other than class specific expenses and realized and
unrealized gains and losses, is allocated daily to each class of shares based
upon the relative net asset value of outstanding shares of each class of shares
at the beginning of the day (after adjusting for the current capital shares
activity of the respective class).

Expenses common to all Portfolios, not directly related to individual
Portfolios, are allocated among the Portfolios based upon their relative net
asset value or other appropriate methods.

The Portfolios record dividends and distributions to their shareholders on the
ex-dividend date. The amount of dividends and distributions from net investment
income and net realized capital gains are determined and presented in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. These 'book/tax' differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the

<PAGE>
29
[STYLE SELECT SERIES(SM) LOGO]

NOTES TO FINANCIAL STATEMENTS -- April 30, 1997 (unaudited) -- (continued)

capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends from net investment

income and capital gain distributions, if any, are paid annually.

FOREIGN CURRENCY TRANSACTION: The books and records of the Fund are maintained
in U.S. dollars. Assets and liabilities denominated in foreign currencies and
commitments under forward foreign currency contracts are translated into U.S.
dollars at the mean of the quoted bid and asked prices of such currencies
against the U.S. dollar.

The Fund does not isolate that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the changes in the market
prices of securities held at fiscal year-end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the changes in the
market prices of portfolio securities sold during the year.

Realized foreign exchange gains and losses on other assets and liabilities and
change in unrealized foreign exchange gains and losses on other assets and
liabilities include foreign exchange gains and losses from currency gains or
losses between the trade and settlement dates of securities transactions, the
difference between the amounts of interest, dividends and foreign withholding
taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts
actually received or paid and changes in the unrealized foreign exchange gains
and losses relating to other assets and liabilities arising as a result of
changes in the exchange rate.

OPTIONS: The premium paid by a Portfolio for the purchase of a call or a put
option is included in the Portfolio's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current market value
of the option. When a Portfolio writes a call or a put option, an amount equal
to the premium received by the Portfolio is included in the Portfolio's
Statement of Assets and Liabilities as a liability and is subsequently marked to
market to reflect the current market value of the option written. If an option
which the Portfolio has written either expires on its stipulated expiration
date, or if the Portfolio enters into a closing purchase transaction, the
Portfolio realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a call option which the Portfolio has written is
exercised, the Portfolio realizes a capital gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received. If a put option which the Portfolio has written is
exercised, the amount of the premium originally received reduces the cost basis
of the security which the Portfolio purchased upon exercise of the option.

ORGANIZATIONAL EXPENSES: Costs incurred by SAAMCo in connection with the
organization of the Fund amounted to $20,498 for each Portfolio. These costs are
being amortized on a straight line basis by the Portfolios over a period not to
exceed 60 months from the date the Portfolios commenced operations.

Note 3. Investment Advisory and Management Agreement, Distribution Agreement and
Service Agreement

The Fund, on behalf of each Portfolio, has entered into an Investment Advisory
and Management Agreement (the 'Agreement') with SunAmerica, an indirect
wholly-owned subsidiary of SunAmerica Inc. Under the Agreement, SunAmerica

provides continuous supervision of the respective Portfolios and administers
their corporate affairs, subject to general review by the Board of Directors
(the 'Directors'). In connection therewith, SunAmerica furnishes the Fund with
office facilities, maintains certain of the Fund's books and records, and pays
for the salaries and expenses of all personnel, including officers of the Fund
who are employees of SunAmerica and its affiliates. The annual rate of the
investment advisory and management fee payable by each Portfolio to SunAmerica
as full compensation for services and facilities furnished to the Fund is as
follows: 1.00% of the average daily net assets of the Aggressive Growth, Mid-Cap
Growth and Value Portfolios, respectively, and 1.10% of the average daily net
assets of the International Equity Portfolio.

<PAGE>

30
[STYLE SELECT SERIES(SM) LOGO]

NOTES TO FINANCIAL STATEMENTS -- April 30, 1997 (unaudited) -- (continued)

The organizations described below act as Advisers to the Fund pursuant to
Subadvisory Agreements with SunAmerica. Under the Subadvisory Agreements, the
Advisers manage the investment and reinvestment of the assets of the respective
Portfolios for which they are responsible. Each of the following Advisers is
independent of SunAmerica (with the exception of the Aggressive Growth
Portfolio, for which SunAmerica acts as an Adviser) and discharges its
responsibilities subject to the policies of the Directors and the oversight and
supervision of SunAmerica, which pays the Advisers' fees. The Advisers for the
Aggressive Growth Portfolio are Janus Capital Corporation; SunAmerica; and
Warburg, Pincus Counsellors, Inc. The Advisers for the Mid-Cap Growth Portfolio
are Miller Anderson & Sherrerd, LLP; Pilgrim Baxter & Associates, Ltd.; and T.
Rowe Price Associates, Inc. The Advisers for the Value Portfolio are Davis
Selected Advisers, L.P.; Neuberger & Berman, LLC.; and Strong Capital
Management, Inc. The Advisers for the International Equity Portfolio are Rowe
Price-Fleming International, Inc.; Strong Capital Management, Inc.; and Warburg,
Pincus Counsellors, Inc. 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. For the period ended April 30, 1997, SunAmerica paid the Advisers
for each Portfolio the following, expressed as an annual percentage of the
average daily net assets of each Portfolio: Aggressive Growth Portfolio, .37%;
Mid-Cap Growth Portfolio, .50%; Value Portfolio, .48%; and International Equity
Portfolio, .63%.

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

For the period November 19, 1996 (date of commencement of operations) to April
30, 1997, SAAMCo has agreed to voluntarily reimburse expenses as follows:

<TABLE>
<CAPTION>
MANAGEMENT FEES OTHER EXPENSES
REIMBURSED REIMBURSED
--------------- --------------
<S> <C> <C>
Aggressive Growth A...... $23,405 $--
Aggressive Growth B...... 7,700 4,534
Aggressive Growth C...... 244 2,130
Mid-Cap Growth A......... 24,046 --
Mid-Cap Growth B......... 8,856 4,490
Mid-Cap Growth C......... 251 2,156
Value A.................. 26,936 --
Value B.................. 10,636 4,663
Value C.................. 381 2,157
International Equity A... 31,546 --
International Equity B... 8,476 5,513
International Equity C... 2,178 248
</TABLE>

The Fund, on behalf of each Portfolio, has entered into a Distribution Agreement
with SunAmerica Capital Services, Inc. ('SACS' or the 'Distributor'), an
indirect wholly-owned subsidiary of SunAmerica Inc. Each Portfolio has adopted a
Distribution Plan (the 'Plan') in accordance with the provisions of Rule 12b-1
under the Act. Rule 12b-1 under the Act permits an investment company directly
or indirectly to pay expenses associated with the distribution of its shares in
accordance with a plan adopted by the investment company's Board of Directors.
Pursuant to such rule, the Directors and the shareholders of each class of
shares of each

<PAGE>
31
[STYLE SELECT SERIES(SM) LOGO]

NOTES TO FINANCIAL STATEMENTS -- April 30, 1997 (unaudited) -- (continued)

Portfolio have adopted Distribution Plans hereinafter referred to as the 'Class
A Plan,' the 'Class B Plan' and the 'Class C Plan.' In adopting the Class A
Plan, the Class B Plan and the Class C Plan, the Directors determined that there
was a reasonable likelihood that each such Plan would benefit the Fund and the
shareholders of the respective class. The sales charge and distribution fees of
a particular class will not be used to subsidize the sale of shares of any other
class.

Under the Class A Plan, the Distributor receives payments from a Portfolio at an
annual rate of up to 0.10% of average daily net assets of such Portfolio's Class
A shares to compensate the Distributor and certain securities firms for
providing sales and promotional activities for distributing that class of

shares. Under the Class B and Class C Plans, the Distributor may receive
payments from a Portfolio at the annual rate of up to 0.75% of the average daily
net assets of such Portfolio's Class B and Class C shares, respectively, to
compensate the Distributor and certain securities firms for providing sales and
promotional activities for distributing each such class of shares. The
distribution costs for which the Distributor may be reimbursed out of such
distribution fees include fees paid to broker-dealers that have sold Portfolio
shares, commissions, and other expenses such as those incurred for sales
literature, prospectus printing and distribution and compensation to
wholesalers. It is possible that in any given year the amount paid to the
Distributor under the Class A Plan, Class B Plan or Class C Plan may exceed the
Distributor's distribution costs as described above. The Distribution Plans also
provide that each class of shares of each Portfolio may also pay the Distributor
an account maintenance and service fee up to an annual rate of 0.25% of the
aggregate average daily net assets of such class of shares for payments to
broker-dealers for providing continuing account maintenance. Accordingly, for
the period ended April 30, 1997, SACS received fees (see Statement of
Operations) based upon the aforementioned rates.

SACS receives sales charges on each Portfolio's Class A shares, portions of
which are reallowed to affiliated broker-dealers and non-affiliated
broker-dealers. SACS also receives the proceeds of contingent deferred sales
charges paid by investors in connection with certain redemptions of each
Portfolio's Class B shares and Class C shares. SACS has advised the Portfolios
that for the period November 19, 1996 (date of commencement of operations) to
April 30, 1997, the proceeds received from Class A sales (and paid out to
affiliated and non-affiliated broker-dealers), Class B and Class C redemptions
are as follows:

<TABLE>
<CAPTION>
CLASS B
CLASS A ----------- CLASS C
---------------------------------------- CONTINGENT ---------------
AFFILIATED NON-AFFILIATED DEFERRED CONTINGENT
SALES BROKER- BROKER- SALES DEFERRED
CHARGES DEALERS DEALERS CHARGES SALES CHARGES
-------- ---------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Aggressive Growth Portfolio...... $604,328 $ 244,388 $283,855 $ 2,368 $ --
Mid-Cap Growth Portfolio......... 355,402 132,061 178,535 1,634 --
Value Portfolio.................. 717,073 273,496 351,147 1,581 --
International Equity Portfolio... 315,089 94,682 177,689 1,487 --
</TABLE>

<PAGE>

32
[STYLE SELECT SERIES(SM) LOGO]

NOTES TO FINANCIAL STATEMENTS -- April 30, 1997 (unaudited) -- (continued)

The Fund, on behalf of each Portfolio, has entered into a Service Agreement with

SunAmerica Fund Services, Inc. ('SAFS'), an indirect wholly-owned subsidiary of
SunAmerica Inc. Under the Service Agreement, SAFS performs certain shareholder
account functions by assisting the Portfolios' transfer agent in connection with
the services that it offers to the shareholders of the Portfolios. The Service
Agreement, which permits the Portfolios to compensate SAFS for services rendered
based upon an annual rate of 0.22% of average daily net assets, is approved
annually by the Directors. For the period November 19, 1996 (date of
commencement of operations) to April 30, 1997, the Portfolios incurred the
following expenses which are included in transfer agent fees in the Statement of
Operations, to compensate SAFS pursuant to the terms of the Service Agreement.

<TABLE>
<CAPTION>
PAYABLE
EXPENSE APRIL 30, 1997
----------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Portfolio...... $23,501 $ 7,819 $ 244 $ 5,322 $ 2,952 $ 179
Mid-Cap Growth Portfolio......... 19,000 6,619 168 3,675 2,416 128
Value Portfolio.................. 23,193 9,329 334 5,907 3,885 256
International Equity Portfolio... 19,945 5,758 166 4,050 2,237 133
</TABLE>

Note 4. Purchases and Sales of Investment Securities

The aggregate cost of purchase and proceeds from sales and maturities of
investments (excluding U.S. Government securities and short-term investments)
for the period November 19, 1996 (date of commencement of operations) to April
30, 1997 were as follows:

<TABLE>
<CAPTION>
AGGRESSIVE MID-CAP INTERNATIONAL
GROWTH GROWTH VALUE EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Aggregate purchases... $65,515,534 $43,117,207 $58,618,636 $35,968,499
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Aggregate sales....... $21,389,227 $ 7,443,735 $ 4,239,679 $ 2,843,327
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

Note 5. Portfolio Securities

The Portfolios intend to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distribute all of its
taxable income, including any net realized gain on investments, to its
shareholders. Therefore, no federal tax provision is required.

The amounts of aggregate unrealized gain (loss) and the cost of investment
securities, including short-term securities, were as follows:

<TABLE>
<CAPTION>
AGGRESSIVE MID-CAP INTERNATIONAL
GROWTH GROWTH VALUE EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cost.................... $52,020,341 $39,463,936 $61,116,507 $37,326,969
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Appreciation............ $ 2,366,134 $ 1,103,307 $ 3,233,615 $ 1,572,564
Depreciation............ (1,968,396) (3,228,942) (1,051,991) (1,876,439)
----------- ----------- ----------- -----------
Unrealized appreciation
(depreciation)--net... $ 397,738 $(2,125,635) $ 2,181,624 $ (303,875)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

<PAGE>
33
[STYLE SELECT SERIES(SM) LOGO]

NOTES TO FINANCIAL STATEMENTS -- April 30, 1997 (unaudited) -- (continued)

Note 6. Open Forward Currency Contracts

At April 30, 1997, the International Equity Portfolio engaged in the trading of
forward foreign currency exchange contracts ('forward contracts') in order to
hedge against changes in future foreign exchange rates and enhance return.
Forward contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Portfolio bears the
risk of an unfavorable change in the foreign exchange rate underlying the
forward contracts. International Equity Portfolio held the following forward
currency contracts at April 30, 1997.
<TABLE>
<CAPTION>
GROSS
CONTRACT IN DELIVERY UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
- --------------- -------------- -------- -----------
<S> <C> <C> <C>
*DEM 241,478 USD 150,000 7/23/97 $ 9,721
JPY 25,702,500 USD 230,000 10/24/97 22,093
JPY 47,907,500 USD 433,454 10/24/97 45,932
*JPY 18,407,500 USD 166,546 10/24/97 17,649
-----------
95,395
-----------

GROSS
UNREALIZED
DEPRECIATION
-----------
<S> <C> <C> <C>
USD 405,400 GBP 250,000 6/30/97 $ (651)
*USD 144,327 DEM 241,478 7/23/97 (4,048)
*USD 154,643 JPY 18,407,500 10/24/97 (5,745)
-----------
(10,444)
-----------
Net Appreciation........................... $ 84,951
-----------
-----------
</TABLE>

* Represents open forward foreign currency contracts and offsetting open forward
foreign currency contracts that do not have additional market risk but have
continued counterparty settlement risk.

DEM --Deutsche Mark
GBP --Great Britain Pound
JPY --Japanese Yen
USD --United States Dollar

<PAGE>

34
[STYLE SELECT SERIES(SM) LOGO]

NOTES TO FINANCIAL STATEMENTS -- April 30, 1997 (unaudited) -- (continued)

Note 7. Capital Share Transactions

At April 30, 1997, SunAmerica Inc. owned 1,200,000 Class A shares in each
Aggressive Growth, Mid-Cap Growth, Value and International Equity Portfolios
representing 29.34%, 35.30%, 25.71% and 39.19% of total net assets,
respectively.

Transactions in shares of each class of each series were as follows:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------ ------------------------ ---------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
NOVEMBER 19, 1996* NOVEMBER 19, 1996 MARCH 6, 1997
THROUGH THROUGH THROUGH
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997
------------------------ ------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............ 2,577,461 $32,809,583 1,556,525 $20,069,772 93,888 $1,187,829
Reinvested dividends... -- -- -- -- -- --
Shares redeemed........ (78,114) (1,001,178) (56,395) (660,740) (917) (11,637)
--------- ----------- --------- ----------- ------- ----------
Net increase........... 2,499,347 $31,808,405 1,500,130 $19,409,032 92,971 $1,176,192
--------- ----------- --------- ----------- ------- ----------
--------- ----------- --------- ----------- ------- ----------

MID-CAP GROWTH PORTFOLIO
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------ ------------------------ ---------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
NOVEMBER 19, 1996* NOVEMBER 19, 1996 MARCH 6, 1997
THROUGH THROUGH THROUGH
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997
------------------------ ------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............ 2,542,032 $31,032,701 1,472,651 $17,333,404 78,106 $ 875,571
Reinvested dividends... -- -- -- -- -- --
Shares redeemed........ (631,667) (7,271,410) (57,382) (644,724) (269) (2,919)
--------- ----------- --------- ----------- ------- ----------
Net increase........... 1,910,365 $23,761,291 1,415,269 $16,688,680 77,837 $ 872,652
--------- ----------- --------- ----------- ------- ----------
--------- ----------- --------- ----------- ------- ----------
<CAPTION>

VALUE PORTFOLIO
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------ ------------------------ ---------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
NOVEMBER 19, 1996* NOVEMBER 19, 1996 MARCH 6, 1997
THROUGH THROUGH THROUGH
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997
------------------------ ------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............ 2,909,491 $37,637,259 1,925,436 $25,413,944 139,015 $1,841,152
Reinvested dividends... -- -- -- -- -- --
Shares redeemed........ (273,310) (3,689,160) (26,464) (345,611) (152) (1,978)
--------- ----------- --------- ----------- ------- ----------
Net increase........... 2,636,181 $33,948,099 1,898,972 $25,068,333 138,863 $1,839,174
--------- ----------- --------- ----------- ------- ----------
--------- ----------- --------- ----------- ------- ----------

<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------ ------------------------ ---------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
NOVEMBER 19, 1996* NOVEMBER 19, 1996 MARCH 6, 1997
THROUGH THROUGH THROUGH
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997
------------------------ ------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............ 2,391,485 $29,937,892 1,160,928 $14,457,262 87,909 $1,088,635
Reinvested dividends... -- -- -- -- -- --
Shares redeemed........ (549,549) (6,870,565) (26,001) (323,542) -- --
--------- ----------- --------- ----------- ------- ----------
Net increase........... 1,841,936 $23,067,327 1,134,927 $14,133,720 87,909 $1,088,635
--------- ----------- --------- ----------- ------- ----------
--------- ----------- --------- ----------- ------- ----------
</TABLE>

*Date of commencement of operations

<PAGE>
35
[STYLE SELECT SERIES(SM) LOGO]

NOTES TO FINANCIAL STATEMENTS -- April 30, 1997 (unaudited) -- (continued)

Note 8. Directors' Retirement Plan

The Directors (and Trustees) of the SunAmerica Family of Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement Plan
(the 'Retirement Plan') effective January 1, 1993 for the unafilliated
Directors. The Retirement Plan provides generally that if a disinterested
Director who has at least 10 years of consecutive service as a Disinterested
Director of any of the SunAmerica mutual funds (an 'Eligible Director') retires
after reaching age 60 but before age 70 or dies while a Director, such person
will be eligible to receive a retirement or death benefit from each SunAmerica
mutual fund with respect to which he or she is an Eligible Director. As of each
birthday, prior to the 70th birthday, but in no event for a period greater than
10 years, each Eligible Director will be credited with an amount equal to 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. In addition, an amount equal to 8.5% of any amounts
credited under the preceding clause during prior years, is added to each
Eligible Director's account until such Eligible Trustee reaches his or her 70th
birthday. An Eligible Director may receive any benefits payable under the
Retirement Plan, at his or her election, either in one lump sum or in up to
fifteen annual installments. As of April 30, 1997, Aggressive Growth Portfolio,
Mid-Cap Growth Portfolio, Value Portfolio and International Equity Portfolio had
accrued $297, $251, $266 and $249, respectively, for the Retirement Plan, which

is included in accrued expenses on the Statement of Assets and Liabilities, and
for the period from November 19, 1996 (date of commencement of operations) to
April 30, 1997 expensed $297, $251, $266, and $249, respectively, for the
Retirement Plan, which is included in Directors' fees and expenses on the
Statement of Operations.

<PAGE>

APPENDIX

CORPORATE BOND AND COMMERCIAL PAPER RATINGS

Description of Moody's Investors Service's Corporate Ratings

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

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

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

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

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

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

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

Appendix-1

<PAGE>

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

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

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

Description of Moody's Commercial Paper Ratings

The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months.
Moody's makes no representations as to whether such commercial paper is by
any other definition "commercial paper" or is exempt from registration under
the Seurities Act.

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

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

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

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

Appendix-2

<PAGE>

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

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

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

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

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

Description of Standard & Poor's Corporate Debt Ratings

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

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

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

Appendix-3

<PAGE>

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

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

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

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

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

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

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

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

implied BBB- rating.

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

Appendix-4

<PAGE>

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

CC The rating CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC rating.

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

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

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

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

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

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

or the Federal Deposit Insurance Corp. and interest is adequately
collateralized.

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

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

Appendix-5

<PAGE>

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

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

Description of Standard & Poor's Commercial Paper Ratings.

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

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

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

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

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

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

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

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

Appendix-6

<PAGE>

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

Appendix-7

<PAGE>

PART C
OTHER INFORMATION

Item 24. Financial Statements and Exhibits.

(a) Financial Statements.

Set forth in the Statement of Additional Information are the
unaudited financial statements of Style Select Series, Inc.
with respect to Registrant's six month period ended April 30,
1997. The Financial Highlights are set forth in of the
Prospectus under the caption "Financial Highlights."

(b) Exhibit Number

(l)(a) Articles of Incorporation of Registrant, as amended, are
incorporated by reference to Exhibit 1(A) of Pre-Effective
Amendment No. 1 on form N-1A, filed with the Securities and
Exchange Commission on November 14, 1996.

(l)(b) Articles Supplementary are incorporated by reference to
Exhibit 1(B) of Pre-Effective Amendment No. 1 on form N-1A,
filed with the Securities and Exchange Commission on
November 14, 1996.

(l)(c) Articles of Amendment are incorporated by reference to
Exhibit 1(C) of Pre-Effective Amendment No. 1 on form N-1A,
filed with the Securities and Exchange Commission on
November 14, 1996.

(l)(d) Articles of Amendment dated November 13, 1996 are incorporated
by reference to Exhibit 1(D) of Pre-Effective Amendment No. 1
on form N-1A, filed with the Securities and Exchange Commission
on November 14, 1996.

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

(3) Voting Trust Agreement. Inapplicable.

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

<PAGE>

(5)(a) Investment Advisory and Management Agreement between Registrant

and SunAmerica Asset Management Corp. is incorporated by
reference to Exhibit 5(a) of Pre-Effective Amendment No. 1 on
form N-1A, filed with the Securities and Exchange Commission on
November 14, 1996.

(5)(b)(1) Subadvisory Agreement between SunAmerica and Miller, Anderson &
Sherrerd, LLP is incorporated by reference to the same numbered
Exhibit of Post-Effective Amendment No. 4 on form N-1A, filed
with the Securities and Exchange Commission on August 5, 1997.

(5)(b)(2) Subadvisory Agreement between SunAmerica and Pilgrim Baxter &
Associates is incorporated by reference to the same numbered
Exhibit of Post-Effective Amendment No. 4 on form N-1A, filed
with the Securities and Exchange Commission on August 5, 1997.

(5)(b)(3) Subadvisory Agreement between SunAmerica and T. Rowe Price
Associates, Inc. is incorporated by reference to the same
numbered Exhibit of Post-Effective Amendment No. 4 on form
N-1A, filed with the Securities and Exchange Commission on
August 5, 1997.

(5)(b)(4) Subadvisory Agreement between SunAmerica and Janus Capital
Corporation is incorporated by reference to the same numbered
Exhibit of Post-Effective Amendment No. 4 on form N-1A, filed
with the Securities and Exchange Commission on August 5, 1997.

(5)(b)(5) Subadvisory Agreement between SunAmerica and Warburg, Pincus
Counsellors, Inc. is incorporated by reference to the same
numbered Exhibit of Post-Effective Amendment No. 4 on form
N1-A, filed with the Securities and Exchange Commission on
August 5, 1997.

(5)(b)(6) Subadvisory Agreement between SunAmerica and Davis Selected
Advisers, L.P. is incorporated by reference to the same
numbered Exhibit of Post-Effective Amendment No. 4 on form
N1-A, filed with the Securities and Exchange Commission on
August 5, 1997.

(5)(b)(7) Subadvisory Agreement between SunAmerica and Neuberger&Berman,
L.P. is incorporated by reference to the same numbered Exhibit
of Post-Effective Amendment No. 4 on form N-1A, filed with the
Securities and Exchange Commission on August 5, 1997.

<PAGE>

(5)(b)(8) Subadvisory Agreement between SunAmerica and Strong Capital
Management, Inc. is incorporated by reference to the same
numbered Exhibit of Post-Effective Amendment No. 4 on form
N1-A, filed with the Securities and Exchange Commission on

August 5, 1997.

(5)(b)(9) Subadvisory Agreement between SunAmerica and Rowe Price-Fleming
International, Inc. is incorporated by reference to the same
numbered Exhibit of Post-Effective Amendment No. 4 on form
N1-A, filed with the Securities and Exchange Commission on
August 5, 1997.

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

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

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

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

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

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

(11) Consent of Independent Accountants is incorporated by reference
to Exhibit 11 of Post-Effective Amendment No. 5 on Form N-1A,
filed with the Securities and Exchange Commission on October
10, 1997.

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

(13) Initial Capitalization Agreement. Inapplicable.

(14) Model Retirement Plan. Inapplicable.

<PAGE>

(15) Rule 12b-1 Plan for Class C Shares is incorporated by reference
to Exhibit 15 of Post-Effective Amendment No. 2 on form N-1A,

filed with the Securities and Exchange Commission on March 3,
1997.

Rule 12b-1 Plans for Class A Shares and Class B Shares are
incorporated by reference to Exhibit 15 of Pre-Effective
Amendment No. 1 on form N1-A, filed with the Securities and
Exchange Commission on November 14, 1996.

(16) Performance Computations. Inapplicable.

(17)(a) Other Exhibits.

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

(17)(b) Financial Data Schedules.

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

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

SunAmerica Life Insurance Company; Anchor National Life Insurance
Company; Saamsun Holdings Corp.; SAM Holdings Corp. and SunAmerica
Asset Management Corp.

Item 26. Number of Holders of Securities.

As of January 29, 1998, the number of record holders of Style Select
Series was as follows:

Number of
Portfolio Title of Class Record Holders
--------- -------------- --------------
Aggressive Growth Class A 5,727
Portfolio Class B 6,126
Class C 605

Mid-Cap Growth Class A 2,399
Portfolio Class B 4,102
Class C 468

<PAGE>

Value Portfolio Class A 5,715
Class B 7,258
Class C 786

International Equity Class A 2,927
Portfolio Class B 5,229
Class C 448

Large-Cap Growth Class A 375
Portfolio Class B 571
Class C 120

Large-Cap Value Class A 497
Portfolio Class B 803
Class C 177

Large-Cap Blend Class A 341
Portfolio Class B 499
Class C 48

Small-Cap Value Class A 798
Portfolio Class B 1,180
Class C 217

Item 27. Indemnification.

Article V of the Registrant's By-Laws relating to the indemnification
of officers and directors is quoted below.

ARTICLE V
INDEMNIFICATION

5.01 Indemnification of Directors and Officers. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than a proceeding by
or in the right of the Corporation in which such person shall have been
adjudged to be liable to the Corporation), by reason of being or having been a
director or officer of the Corporation, or serving or having served at the
request of the Corporation as a director, officer, partner, trustee, employee
or agent of another entity in which the Corporation has an interest as a
shareholder, creditor or otherwise (a "Covered Person"), against all
liabilities, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and reasonable expenses
(including attorney's fees) actually incurred by the Covered Person in
connection with any such action, suit or proceeding, except (i) liability in
connection with any proceeding in

<PAGE>

which it is determined that (A) the act or omission of the Covered Person was
material to the matter giving rise to the proceeding, and was committed in bad
faith or was the result of active and deliberate dishonesty, or (B) the Covered
Person actually received an improper personal benefit in money, property or

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

5.02 Procedure for Indemnification. Any indemnification under Section
5.01 shall (unless ordered by a court) be made by the Corporation only as
authorized for a specific proceeding by (i) a final decision on the merits by
a court or other body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of the proceeding against the Covered Person for insufficiency of
evidence of any Disabling Conduct, or (iii) a reasonable determination, based
upon a review of the facts, by a majority of a quorum of the directors who are
neither "interested persons" of the Corporation as defined in the Investment
Company Act of 1940 nor parties to the proceeding ("Disinterested Non-Party
Directors"), or an independent legal counsel in a written opinion, that the
Covered Person was not liable by reason of Disabling Conduct. The termination
of any proceeding by 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
attorneys' fees) incurred by a Covered Person may be paid or reimbursed by the
Corporation in advance of the final disposition of an action, suit or
proceeding upon receipt by the Corporation of (i) a written affirmation by the
Covered Person of his good faith belief that the standard of conduct necessary
for indemnification under this By-Law has been met and (ii) a written
undertaking by or on behalf of the Covered Person to repay the amount if it is
ultimately determined that such standard of conduct has not been met, so long
as either (A) the Covered Person has provided a security for his undertaking,
(B) the Corporation is insured against losses arising by reason of any lawful
advances, or (C) a majority of a quorum of the Disinterested Non-Party
Directors, or an independent legal counsel in a written opinion, has
determined, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the Covered Person
ultimately will be found entitled to indemnification.

5.04 Exclusivity, Etc. The indemnification and advance of expenses
provided by this By-Law shall not be deemed exclusive of any other rights to
which a Covered Person seeking

<PAGE>

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

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

5.06 Severability: Definitions. The invalidity or 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

<PAGE>

otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

(6) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or officer of the
Corporation shall be personally liable to the Corporation or its stockholders
for money damages; provided, however, that this provision shall not be
construed to protect any director or officer against any liability to the
Corporation or its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. No amendment,
modification or repeal of this provision shall adversely affect any right or
protection provided hereunder that exists at the time of such amendment,
modification or repeal.

Item 28. Business and other Connections of Investment Adviser.

SunAmerica Asset Management Corp. ("SunAmerica"), the Investment
Adviser of the Registrant, is primarily in the business of providing
investment management, advisory and administrative services.
Reference is made to the most recent Form ADV and schedules thereto
of SunAmerica on file with the Commission (File No. 801-19813) for a
description of the names and employment of the directors and officers
of SunAmerica and other required information.

Janus Capital Corporation, L. Roy Papp & Associates, Montag & Caldwell,
Inc., Miller Anderson & Sherrerd, LLP, Pilgrim Baxter & Associates,
Ltd., T. Rowe Price Associates, Inc., Warburg, Pincus Counsellors,
Inc., Lazard Asset Management, David L. Babson & Co., Inc., Davis
Selected Advisers, L.P., Wellington Management, LLP, Neuberger&Berman,
L.P., Strong Capital Management, Inc., Schafer Capital Management,
Inc., Bankers Trust Company, Berger Associates, Inc., Perkins, Wolf,
McDonnell & Company, The Glenmede Trust Company, and Rowe-Price
Fleming International, Inc., the current and/or proposed Advisers of
certain of the Portfolios of the Registrant, are primarily engaged in
the business of rendering investment advisory services. Reference is
made to the recent Form ADV and schedules thereto on file with the
Commission for a description of the names and employment of the
directors and officers of the following Advisers, and other required
information:

File No.
--------
Janus Capital Corporation 801-13991
L. Roy Papp & Associates 801-35594

Montag & Caldwell, Inc. 801-15398
Miller Anderson & Sherrerd, LLP 801-10437
Pilgrim Baxter & Associates, Ltd. 801-48872
T. Rowe Price Associates, Inc. 801-856
Warburg, Pincus Counsellors, Inc. 801-07321
Lazard Asset Management 801-6568
David L. Babson & Co., Inc. 801-241

<PAGE>

Davis Selected Advisers, L.P. 801-31648
Wellington Management, LLP 801-15908
Neuberger&Berman, L.P. 801-3908
Strong Capital Management 801-10724
Schafer Capital Management 801-25825
Berger Associates, Inc. 801-9451
Perkins, Wolf, McDonnell & Company 801-19974
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 President &
The SunAmerica Center Director
733 Third Avenue
New York, NY 10017-3204

J. Steven Neamtz President None
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204

Robert M. Zakem Executive Vice Secretary and Chief
The SunAmerica Center President Compliance Officer
733 Third Avenue and Director
New York, NY 10017-3204

Susan L. Harris Secretary None

SunAmerica Inc.
1 SunAmerica Center
Los Angeles, CA 90067-6022

<PAGE>

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., ("SunAmerica") is located at The
SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204.
SunAmerica has contracted with Callan Associates, Inc. ("Callan") to
compile historical performance data relating to the Advisers, both
individually and on a composite basis. Registrant's records relating
thereto are maintained by Callan. Callan is located at 71 Stevenson
Street, Suite 1300, San Francisco, CA 94105.

Janus Capital Corporation is located at 100 Fillmore Street, Denver,
Colorado 80206-4923.

L. Roy Papp & Associates is located at 4400 North 32nd Street, Suite
280, Phoenix, Arizona 85018.

Montag & Caldwell, Inc. is located at 3343 Peachtree Road, NE, Suite
1100, Atlanta, Georgia 30326-1022.

Miller Anderson & Sherrerd, LLP is located at One Tower Bridge, West
Conshohocken, Pennsylvania 19428.

Pilgrim Baxter & Associates, Ltd. is located at 1255 Drummers Lane,
Suite 300, Wayne, Pennsylvania 19087.

T. Rowe Price Associates, Inc. is located at 100 East Pratt Street,
Baltimore, Maryland 21202.

Warburg, Pincus Counsellors, Inc. is located at 466 Lexington Avenue,
New York, New York, 10017-3147

Lazard Asset Management is located at 30 Rockefeller Plaza, New York,

New York 10020.

<PAGE>

David L. Babson & Co. Inc. is located at one Memorial Drive,
Cambridge, Massachusetts 02142-1300.

Davis Selected Advisers, L.P. is located at 124 East March Street,
Santa Fe, New Mexico, 87501.

Wellington Management Company, LLP is located at 75 State Street,
Boston, Massachusetts 02109.

Neuberger&Berman, L.P. is located at 605 Third Avenue, New York, New
York 10158-0180.

Strong Capital Management, Inc. has a principal mailing address at
P.O. Box 2936, Milwaukee, Wisconsin 53201.

Schafer Capital Management is located at 645 Fifth Avenue, New York,
New York 10022.

Berger Associates Investment Management Services is located at 210
University Boulevard, Suite 900, Denver, Colorado 80206.

Perkins, Wolf, McDonnell & Company is located at 53 West Jackson
Boulevard, Suite 818, Chicago, Illinois 60604.

The Glenmede Trust Co. is located at One Liberty Place, 1650 Market
Street, Suite 1200, Philadelphia, Pennsylvania 19103-7391.

Rowe Price-Fleming International, Inc. is located at 100 East Pratt
Street, Baltimore, Maryland 21202.

Bankers Trust Company is located at 130 Liberty Street, New York, New
York 10006.

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 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.

Registrant hereby undertakes to file a post-effective amendment,
using financial statements which need not be certified, within four
to six months from the effective date of the Registration Statement.

<PAGE>
STYLE SELECT SERIES, INC.

EXHIBIT INDEX

Exhibit No. Name
- ----------- ----

11 Consent of Independent Accountants

27 Financial Data Schedules

<PAGE>

Consent of Independent Accountants

We hereby consent to the use in the Statement of Additional
Information constituting part of this Post-Effective Amendment
No. 5 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated November 12,
1996, relating to the statement of assets and liabilities of
Style Select Series, Inc., which appears in such Statement of
Additional Information. We also consent to the reference to us
under the heading "Additional Information Independent
Accountants and Legal Counsel" in such Statement of Additional
Information and to the reference to us under the heading
"General Information Independent Accountants and Legal
Counsel" in the Prospectus which constitutes part of this
Registration Statement.

PRICE WATERHOUSE LLP
New York, New York
October 3, 1997

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 031
<NAME> STYLE SELECT SERIES AGGRESSIVE GROWTH CLASS A

<GROSS-EXPENSE> 334,442<F1>
<AVERAGE-NET-ASSETS> 23,920,846<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> (.02)<F2>
<PER-SHARE-GAIN-APPREC> .03<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.51<F2>
<EXPENSE-RATIO> 1.90<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Aggressive Growth Fund as
a whole.
<F2>Information given pertains to Style Select Aggressive Growth Fund Class A.
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 032
<NAME> STYLE SELECT SERIES AGGRESSIVE GROWTH CLASS B

<GROSS-EXPENSE> 334,442<F1>
<AVERAGE-NET-ASSETS> 7,958,852<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> (.06)<F2>
<PER-SHARE-GAIN-APPREC> .04<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.48<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Aggressive Growth Fund as a
whole.
<F2>Information given pertains to Style Select Aggressive Growth Fund Class B.
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 033
<NAME> STYLE SELECT SERIES AGGRESSIVE GROWTH CLASS C

<GROSS-EXPENSE> 334,442<F1>
<AVERAGE-NET-ASSETS> 722,343<F2>
<PER-SHARE-NAV-BEGIN> 13.38<F2>
<PER-SHARE-NII> (.01)<F2>
<PER-SHARE-GAIN-APPREC> (.88)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.49<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Aggressive Growth Fund as a
whole.
<F2>Information given pertains to Style Select Aggressive Growth Fund Class C.
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 011
<NAME> STYLE SELECT SERIES MID-CAP GROWTH CLASS A

<GROSS-EXPENSE> 282,564<F1>
<AVERAGE-NET-ASSETS> 19,339,364<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> (0.06)<F2>
<PER-SHARE-GAIN-APPREC> (1.42)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 11.02<F2>
<EXPENSE-RATIO> 1.90<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Mid-Cap Growth Fund as a whole.
<F2>Information given pertains to Style Select Mid-Cap Growth Fund Class A.
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 012
<NAME> STYLE SELECT SERIES MID-CAP GROWTH CLASS B

<GROSS-EXPENSE> 282,564<F1>
<AVERAGE-NET-ASSETS> 6,737,593<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> (0.10)<F2>
<PER-SHARE-GAIN-APPREC> (1.41)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 10.99<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Mid-Cap Growth Fund as a whole.
<F2>Information given pertains to Style Select Mid-Cap Growth Fund Class B.
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 013
<NAME> STYLE SELECT SERIES MID-CAP GROWTH CLASS C

<GROSS-EXPENSE> 282,564<F1>
<AVERAGE-NET-ASSETS> 496,419<F2>
<PER-SHARE-NAV-BEGIN> 11.93<F2>
<PER-SHARE-NII> (0.03)<F2>
<PER-SHARE-GAIN-APPREC> (0.91)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 10.99<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Mid-Cap Growth Fund as a whole.
<F2>Information given pertains to Style Select Mid-Cap Growth Fund Class C.
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 021
<NAME> STYLE SELECT SERIES VALUE CLASS A

<GROSS-EXPENSE> 357,078<F1>
<AVERAGE-NET-ASSETS> 23,606,902<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> .01<F2>
<PER-SHARE-GAIN-APPREC> 1.03<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 13.54<F2>
<EXPENSE-RATIO> 1.90<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Value Fund as a whole.
<F2>Information given pertains to Style Select Value Fund Class A.
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 022
<NAME> STYLE SELECT SERIES VALUE CLASS B

<GROSS-EXPENSE> 357,078<F1>
<AVERAGE-NET-ASSETS> 9,495,550<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> (.04)<F2>
<PER-SHARE-GAIN-APPREC> 1.04<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 13.50<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Value Fund as a whole.
<F2>Information given pertains to Style Select Value Fund Class B.
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 023
<NAME> STYLE SELECT SERIES VALUE CLASS C

<GROSS-EXPENSE> 357,078<F1>
<AVERAGE-NET-ASSETS> 989,154<F2>
<PER-SHARE-NAV-BEGIN> 13.56<F2>
<PER-SHARE-NII> (.02)<F2>
<PER-SHARE-GAIN-APPREC> (.04)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 13.50<F2>
<EXPENSE-RATIO> 2.55<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select Value Fund as a whole.
<F2>Information given pertains to Style Select Value Fund Class C.
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 041
<NAME> STYLE SELECT INTERNATIONAL EQUITY CLASS A

<GROSS-EXPENSE> 318,262<F1>
<AVERAGE-NET-ASSETS> 20,300,455<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> 0.02<F2>
<PER-SHARE-GAIN-APPREC> (0.04)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.48<F2>
<EXPENSE-RATIO> 2.15<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select International Equity Fund as a
whole.
<F2>Information given pertains to Style Select International Equity Fund
Class A.

</FN>

</TABLE>

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 042
<NAME> STYLE SELECT INTERNATIONAL EQUITY CLASS B

<GROSS-EXPENSE> 318,262<F1>
<AVERAGE-NET-ASSETS> 5,860,465<F2>
<PER-SHARE-NAV-BEGIN> 12.50<F2>
<PER-SHARE-NII> 0.02<F2>
<PER-SHARE-GAIN-APPREC> (0.08)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.44<F2>
<EXPENSE-RATIO> 2.80<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select International Equity Fund as a
whole.
<F2>Information given pertains to Style Select International Equity Fund
Class B.
</FN>

</TABLE>

<ARTICLE> 6
<CIK> 1020861
<NAME> STYLE SELECT SERIES, INC.
<SERIES>
<NUMBER> 043
<NAME> STYLE SELECT INTERNATIONAL EQUITY CLASS C

<GROSS-EXPENSE> 318,262<F1>
<AVERAGE-NET-ASSETS> 490,933<F2>
<PER-SHARE-NAV-BEGIN> 12.60<F2>
<PER-SHARE-NII> 0.03<F2>
<PER-SHARE-GAIN-APPREC> (0.18)<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.45<F2>
<EXPENSE-RATIO> 2.80<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to Style Select International Equity Fund as a
whole.
<F2>Information given pertains to Style Select International Equity Fund
Class C.
</FN>

</TABLE>