SUNAMERICA SERIES TRUST, 497, 1998-12-24

SUNAMERICA SERIES TRUST
497, 1998-12-24

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<PAGE> 1

PROSPECTUS -- DECEMBER 10, 1998
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SUNAMERICA SERIES TRUST
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P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299

SunAmerica Series Trust ("Trust") is an open-end management investment company.
The Trust consists of 25 Portfolios, each of which has its own investment
objectives and policies. This Prospectus includes 23 of the 25 Portfolios of the
Trust.

The CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving capital
by investing in a diversified selection of money market instruments.

The CORPORATE BOND PORTFOLIO seeks high total return with only moderate price
risk by investing primarily in investment grade fixed income securities.

The GLOBAL BOND PORTFOLIO seeks high total return, emphasizing current income
and, to a lesser extent, providing opportunities for capital appreciation,
through investment in high quality fixed income securities of U.S. and foreign
issuers and through transactions in foreign currencies.

The HIGH-YIELD BOND PORTFOLIO seeks high current income and secondarily seeks
capital appreciation by investing primarily in intermediate and long-term
corporate obligations, with emphasis on higher-yielding, higher-risk,
lower-rated or unrated securities.

The WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income and, secondarily,
capital appreciation, by investing primarily in a portfolio of high-yielding
fixed income securities of issuers located throughout the world.

The SUNAMERICA BALANCED PORTFOLIO seeks to conserve principal by maintaining, at
all times, a balanced portfolio of stocks and bonds.

The ASSET ALLOCATION PORTFOLIO seeks high total return (including income and
capital gains) consistent with preservation of capital over the long-term
through a diversified portfolio that may include common stocks and other
securities having common stock characteristics, bonds and other intermediate and
long-term fixed income securities and money market instruments (debt securities
maturing in 397 days or less) in any combination.

The EQUITY INCOME PORTFOLIO seeks long-term capital appreciation and income by
primarily investing in equity securities that are expected to pay above-average
dividends.

The UTILITY PORTFOLIO seeks high current income and moderate capital
appreciation by investing primarily in the equity and debt securities of utility
companies.

THE HIGH-YIELD BOND AND WORLDWIDE HIGH INCOME PORTFOLIOS INVEST PREDOMINANTLY
IN, AND THE CORPORATE BOND, ASSET ALLOCATION, EQUITY INCOME, REAL ESTATE,
INTERNATIONAL GROWTH AND INCOME, SMALL COMPANY VALUE AND EMERGING MARKETS
PORTFOLIOS MAY INVEST IN, LOWER-RATED AND UNRATED BONDS (ALSO KNOWN AS "JUNK
BONDS"). BONDS OF THIS TYPE ARE TYPICALLY SUBJECT TO GREATER MARKET FLUCTUATIONS
AND RISK OF LOSS OF INCOME AND PRINCIPAL DUE TO DEFAULT BY THE ISSUER THAN ARE
INVESTMENTS IN LOWER-YIELDING, HIGHER-RATED BONDS. SEE "DESCRIPTION OF
SECURITIES AND INVESTMENT TECHNIQUES -- RISK FACTORS RELATING TO HIGH-YIELD,
HIGH-RISK BONDS" FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH HIGH-YIELD,
HIGH-RISK SECURITIES.

The EQUITY INDEX PORTFOLIO seeks to provide investment results that correspond
with the performance of the Standard & Poor's 500 Corporate Stock Price Index
("S&P 500").

The GROWTH-INCOME PORTFOLIO seeks growth of capital and income by investing
primarily in common stocks or securities which demonstrate the potential for
appreciation and/or dividends.

The FEDERATED VALUE PORTFOLIO seeks growth of capital and income by investing
primarily in the securities of high quality companies.

The VENTURE VALUE PORTFOLIO seeks growth of capital by investing primarily in
common stocks.

The "DOGS" OF WALL STREET PORTFOLIO seeks total return (including capital
appreciation and current income) primarily through the annual selection of
thirty high dividend yielding common stocks from the Dow Jones Industrial
Average and the broader market.

(Cover continued on next page)
------------------------

This prospectus contains information you should know before investing. Please
read it carefully before you invest and keep it for future reference.

Investments in a Portfolio are not bank deposits and are not guaranteed or
insured by any bank, government entity or the FDIC.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2

(Cover continued from previous page)

The ALLIANCE GROWTH and PUTNAM GROWTH PORTFOLIOS seek long-term growth of
capital by investing primarily in common stocks or securities with common stock
characteristics which its subadviser believes have the potential for
appreciation.

The REAL ESTATE PORTFOLIO seeks total return through a combination of growth and
income by investing primarily in securities of companies principally engaged in
or related to the real estate industry or which own significant real estate
assets or which primarily invest in real estate financial instruments.

The SMALL COMPANY VALUE PORTFOLIO seeks capital appreciation by investing in a
broadly diversified portfolio of equity securities of small capitalization
companies.

The AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation by investing
primarily in equity securities of small capitalization growth companies.

The INTERNATIONAL GROWTH AND INCOME PORTFOLIO seeks growth of capital with
current income as a secondary objective by investing primarily in common stocks
traded on markets outside the U.S.

The GLOBAL EQUITIES PORTFOLIO seeks long-term growth of capital through
investment primarily in common stocks or securities of U.S. and foreign issuers
with common stock characteristics which demonstrate the potential for
appreciation and through transactions in foreign currencies.

The INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO seeks long-term capital
appreciation by investing in accordance with country weightings determined by
its subadviser in common stocks of foreign issuers which, in the aggregate,
replicate broad country indices.

The EMERGING MARKETS PORTFOLIO seeks long-term capital appreciation by investing
mainly in the common stocks and other equity securities of companies that its
subadviser believes have above-average growth prospects primarily in emerging
markets outside the United States.

Shares of the Trust are issued and redeemed only in connection with investments
in and payments under variable annuity contracts and may be sold to fund
variable life contracts issued in the future. The contracts involve fees and
expenses not described in this Prospectus. Certain Portfolios may not be
available in connection with a particular contract. See the applicable contract
prospectus for information regarding contract fees and expenses and any
restrictions or limitations.
<PAGE> 3

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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
TOPIC PAGE
----- ----
<S> <C> <C>
FINANCIAL HIGHLIGHTS...................... 4
THE TRUST, ITS INVESTMENT OBJECTIVES AND
POLICIES................................ 7
Cash Management Portfolio.......... 8
Corporate Bond Portfolio........... 8
Global Bond Portfolio.............. 9
High-Yield Bond Portfolio.......... 10
Worldwide High Income Portfolio.... 11
SunAmerica Balanced Portfolio...... 12
Asset Allocation Portfolio......... 13
Equity Income Portfolio............ 14
Utility Portfolio.................. 15
Equity Index Portfolio............. 15
Growth-Income Portfolio............ 16
Federated Value Portfolio.......... 16
Venture Value Portfolio............ 17
"Dogs" of Wall Street Portfolio.... 18
Alliance Growth Portfolio.......... 19
Putnam Growth Portfolio............ 19
Real Estate Portfolio.............. 20
Small Company Value Portfolio...... 21
Aggressive Growth Portfolio........ 21
International Growth and Income
Portfolio.......................... 22
Global Equities Portfolio.......... 22
International Diversified Equities
Portfolio.......................... 23
Emerging Markets Portfolio......... 23
DESCRIPTION OF SECURITIES AND INVESTMENT
TECHNIQUES.............................. 24
MANAGEMENT................................ 35
PORTFOLIO TURNOVER AND BROKERAGE..........
43
DIVIDENDS, DISTRIBUTIONS AND FEDERAL
TAXES................................... 44
PRICE OF SHARES........................... 45
PURCHASES AND REDEMPTIONS................. 45
SHAREHOLDER VOTING RIGHTS................. 45
INDEPENDENT ACCOUNTANTS................... 46
GENERAL INFORMATION....................... 46
SHAREHOLDER INQUIRIES..................... 46
FINANCIAL INFORMATION..................... 46
</TABLE>

3
<PAGE> 4

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FINANCIAL HIGHLIGHTS
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The following Financial Highlights for the Portfolios and periods set forth
below, except for the six months ended May 31, 1998 which is unaudited, have
been audited by PricewaterhouseCoopers LLP, the Trust's independent accountants,
whose report on the financial statements containing such information is included
in the Trust's Annual Report to Shareholders. These Financial Highlights* should
be read in conjunction with the financial statements and notes thereto, which
are included in the Statement of Additional Information.
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
NET NET TOTAL DECLARED FROM NET NET NET
ASSET NET REALIZED FROM FROM NET REALIZED ASSET ASSETS
VALUE INVEST- & UNREALIZED INVEST- INVEST- GAIN ON VALUE END OF
BEGINNING MENT GAIN (LOSS) ON MENT MENT INVEST- END OF TOTAL PERIOD
PERIOD ENDED OF PERIOD INCOME** INVESTMENTS OPERATIONS INCOME MENTS PERIOD RETURN*** (000'S)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Management Portfolio
2/9/93-11/30/93 $10.00 $0.19 $ 0.01 $ 0.20 $ -- $ -- $10.20 2.00% $ 24,603
11/30/94 10.20 0.38 (0.02) 0.36 (0.09) -- 10.47 3.51 89,098
11/30/95 10.47 0.56 0.01 0.57 (0.34) -- 10.70 5.59 90,731
11/30/96 10.70 0.53 (0.02) 0.51 (0.45) -- 10.76 4.92 91,247
11/30/97 10.76 0.53 0.01 0.54 (0.56) -- 10.74 5.22 156,119
5/31/98# 10.74 0.25 0.01 0.26 (0.68) -- 10.32 2.47 256,449
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Corporate Bond Portfolio
7/1/93-11/30/93 10.00 0.14 0.05 0.19 -- -- 10.19 1.90 11,667
11/30/94 10.19 0.52 (0.87) (0.35) (0.05) (0.04) 9.75 (3.41) 15,869
11/30/95 9.75 0.60 1.00 1.60 (0.53) -- 10.82 17.01 29,475
11/30/96 10.82 0.65 0.03 0.68 (0.41) -- 11.09 6.51 37,207
11/30/97 11.09 0.77 0.21 0.98 (0.53) -- 11.54 9.26 62,272
5/31/98# 11.54 0.39 0.09 0.48 (0.46) -- 11.56 4.18 99,855
- -----------------------------------------------------------------------------------------------------------------------------
Global Bond Portfolio
7/1/93-11/30/93 10.00 0.13 0.17 0.30 -- -- 10.30 3.00 25,010
11/30/94 10.30 0.53 (0.86) (0.33) (0.09) (0.05) 9.83 (3.18) 44,543
11/30/95 9.83 0.60 0.97 1.57 (0.38) -- 11.02 16.40 59,759
11/30/96 11.02 0.59 0.54 1.13 (0.75) -- 11.40 10.94 68,221
11/30/97 11.40 0.52 0.38 0.90 (0.75) (0.04) 11.51 8.43 89,043
5/31/98# 11.51 0.23 0.37 0.60 (0.79) (0.22) 11.10 5.39 99,194
- -----------------------------------------------------------------------------------------------------------------------------
High-Yield Bond Portfolio
2/9/93-11/30/93 10.00 0.76 0.36 1.12 -- -- 11.12 11.20 41,851
11/30/94 11.12 1.20 (1.65) (0.45) (0.29) (0.06) 10.32 (4.26) 55,803
11/30/95 10.32 1.11 0.12 1.23 (1.02) -- 10.53 12.64 82,174
11/30/96 10.53 0.98 0.48 1.46 (0.95) -- 11.04 14.86 113,229
11/30/97 11.04 1.04 0.48 1.52 (0.74) -- 11.82 14.53 195,639
05/31/98# 11.82 0.58 0.27 0.85 (0.66) (0.08) 11.93 7.28 289,830
- -----------------------------------------------------------------------------------------------------------------------------
Worldwide High Income Portfolio
10/28/94-11/30/94 10.00 0.04 (0.09) (0.05) -- -- 9.95 (0.50) 10,478
11/30/95 9.95 1.10 0.47 1.57 (0.10) -- 11.42 16.02 21,515
11/30/96 11.42 1.25 1.60 2.85 (0.87) (0.05) 13.35 26.87 49,204
11/30/97 13.35 0.98 0.68 1.66 (0.90) (0.91) 13.20 14.17 125,224
05/31/98# 13.20 0.53 0.33 0.86 (0.61) (0.74) 12.71 6.33 147,739
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SunAmerica Balanced Portfolio
6/3/96-11/30/96 10.00 0.10 1.03 1.13 -- -- 11.13 11.30 10,224
11/30/97 11.13 0.23 2.15 2.38 (0.04) (0.02) 13.45 21.48 44,621
05/31/98# 13.45 0.14 1.50 1.64 (0.11) (0.36) 14.62 12.21 79,469
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RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
PERIOD ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE
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<S> <C> <C> <C> <C>
Cash Management Portfolio
2/9/93-11/30/93 0.71%+++ 2.53%+++ --% N/A
11/30/94 0.70++ 3.73++ -- N/A
11/30/95 0.67 5.32 -- N/A
11/30/96 0.62 4.90 -- N/A
11/30/97 0.63 5.06 -- N/A
5/31/98# 0.62+ 5.25+ -- N/A
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Corporate Bond Portfolio
7/1/93-11/30/93 0.94+++ 3.92+++ 208 N/A
11/30/94 0.94++ 5.21++ 419 N/A
11/30/95 0.96++ 5.93++ 412 N/A
11/30/96 0.97 6.11 338 N/A
11/30/97 0.91 6.99 49 N/A
5/31/98# 0.78+ 6.75+ 12 N/A
- ----------------------------------------------------------------------------------------------
Global Bond Portfolio
7/1/93-11/30/93 1.35+++ 3.56+++ 84 N/A
11/30/94 1.06 5.29 347 N/A
11/30/95 0.95 5.89 339 N/A
11/30/96 0.89 5.44 223 N/A
11/30/97 0.90 4.70 360 N/A
5/31/98# 0.84+ 4.02+ 118 N/A
- ----------------------------------------------------------------------------------------------------------
High-Yield Bond Portfolio
2/9/93-11/30/93 0.94+++ 9.43+++ 229 N/A
11/30/94 0.92++ 11.07++ 225 N/A
11/30/95 0.80 10.80 174 N/A
11/30/96 0.77 9.41 107 N/A
11/30/97 0.75 9.26 243 N/A
05/31/98# 0.69+ 9.72+ 92 N/A
- ----------------------------------------------------------------------------------------------------------------------
Worldwide High Income Portfolio
10/28/94-11/30/94 1.60+++ 4.48+++ 2 N/A
11/30/95 1.30 10.46 176 N/A
11/30/96 1.18 10.45 177 N/A
11/30/97 1.10 7.58 146 N/A
05/31/98# 1.07+ 8.09+ 76 N/A
- -----------------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced Portfolio
6/3/96-11/30/96 1.00+++ 1.92+++ 40 0.0600
11/30/97 1.00 1.82 143 0.0600
05/31/98# 0.82+ 1.97+ 64 N/A
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company and First SunAmerica Life Insurance Company.
If such expenses had been included, total return would have been lower for
each period presented.
+ Annualized
++ During the periods indicated, the investment adviser waived a portion of or
all fees and assumed a portion of or all expenses for the Portfolios. If
all fees and expenses had been incurred by the Portfolios, the ratio of
expenses to average net assets and the ratio of net investment income to
average net assets would have been as follows:
# Unaudited

<TABLE>
<CAPTION>
EXPENSES NET INVESTMENT INCOME
--------------------------------------- ------------------------------------------
1993 1994 1995 1996 1997 1998 1993 1994 1995 1996 1997 1998
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Management Portfolio............ 1.10% 0.78% 0.67% 0.62% 0.63% 0.62% 2.14% 3.65% 5.32% 4.90% 5.06% 5.25%
Corporate Bond Portfolio............. 1.81 1.09 0.97 0.97 0.91 0.78 3.05 5.06 5.92 6.11 6.99 6.75
Global Bond Portfolio................ 1.81 1.06 0.95 0.89 0.90 0.84 3.10 5.29 5.89 5.44 4.70 4.02
High-Yield Bond Portfolio............ 1.29 0.93 0.80 0.77 0.75 0.69 9.08 11.06 10.80 9.41 9.26 9.72
Worldwide High Income Portfolio...... -- 2.26 1.30 1.18 1.10 1.07 -- 3.82 10.46 10.45 7.58 8.07
SunAmerica Balanced Portfolio........ -- -- -- 1.43 1.00 0.82 -- -- -- 1.49 1.82 1.95
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</TABLE>

4
<PAGE> 5

<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
NET NET NET TOTAL DECLARED FROM NET NET NET
ASSET INVEST- REALIZED FROM FROM NET REALIZED ASSET ASSETS
VALUE MENT & UNREALIZED INVEST- INVEST- GAIN ON VALUE END OF
BEGINNING INCOME GAIN (LOSS) ON MENT MENT INVEST- END OF TOTAL PERIOD
PERIOD ENDED OF PERIOD (LOSS)** INVESTMENTS OPERATIONS INCOME MENTS PERIOD RETURN*** (000'S)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation Portfolio
7/1/93-11/30/93 10.00 0.08 0.28 0.36 -- -- 10.36 3.60 35,590
11/30/94 10.36 0.29 (0.25) 0.04 (0.05) (0.03) 10.32 0.30 106,856
11/30/95 10.32 0.42 2.24 2.66 (0.20) (0.04) 12.74 26.10 199,836
11/30/96 12.74 0.48 2.00 2.48 (0.31) (0.39) 14.52 20.27 316,388
11/30/97 14.52 0.44 2.55 2.99 (0.40) (0.90) 16.21 21.97 526,585
05/31/98# 16.21 0.24 0.93 1.17 (0.35) (1.61) 15.42 7.09 671,222
- --------------------------------------------------------------------------------------------------------------------------------
Utility Portfolio
6/3/96-11/30/96 10.00 0.24 0.51 0.75 -- -- 10.75 7.50 6,299
11/30/97 10.75 0.36 1.91 2.27 (0.09) (0.02) 12.91 21.26 24,366
05/31/98# 12.91 0.20 0.92 1.12 (0.16) (0.33) 13.54 8.60 42,601
- --------------------------------------------------------------------------------------------------------------------------------
Growth-Income Portfolio
2/9/93-11/30/93 10.00 0.12 0.49 0.61 -- -- 10.61 6.10 45,080
11/30/94 10.61 0.13 (0.36) (0.23) (0.04) (0.01) 10.33 (2.20) 84,899
11/30/95 10.33 0.17 3.31 3.48 (0.10) -- 13.71 33.89 171,281
11/30/96 13.71 0.18 3.48 3.66 (0.12) (0.43) 16.82 27.41 325,463
11/30/97 16.82 0.17 4.69 4.86 (0.13) (0.73) 20.82 30.11 622,062
05/31/98# 20.82 0.09 3.20 3.29 (0.13) (0.96) 23.02 15.82 832,054
- --------------------------------------------------------------------------------------------------------------------------------
Federated Value Portfolio
6/3/96-11/30/96 10.00 0.07 1.01 1.08 -- -- 11.08 10.80 12,460
11/30/97 11.08 0.13 2.72 2.85 (0.03) -- 13.90 25.75 59,024
05/31/98# 13.90 0.09 2.13 2.22 (0.06) (0.30) 15.76 16.02 107,670
- --------------------------------------------------------------------------------------------------------------------------------
Venture Value Portfolio
10/28/94-11/30/94 10.00 0.03 (0.25) (0.22) -- -- 9.78 (2.20) 4,449
11/30/95 9.78 0.17 3.55 3.72 (0.03) -- 13.47 38.17 154,908
11/30/96 13.47 0.18 3.46 3.64 (0.09) (0.12) 16.90 27.44 516,413
11/30/97 16.90 0.19 4.73 4.92 (0.09) (0.26) 21.47 29.62 1,140,053
05/31/98# 21.47 0.11 2.06 2.17 (0.12) (0.68) 22.84 10.10 1,519,053
- --------------------------------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street Portfolio
4/01/98-5/31/98# 10.00 0.03 (0.29) (0.26) -- -- 9.74 (2.60) 14,025
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------

RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
PERIOD ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
7/1/93-11/30/93 0.99+++ 2.33+++ 71 N/A
11/30/94 0.94++ 2.71++ 152 N/A
11/30/95 0.81 3.62 207 N/A
11/30/96 0.74 3.66 200 0.0587
11/30/97 0.68 2.88 176 0.0591
05/31/98# 0.64+ 2.96+ 78 N/A
- ----------------------------------------------------------------------------------
Utility Portfolio
6/3/96-11/30/96 1.05+++ 4.41+++ 24 0.0439
11/30/97 1.05++ 3.15++ 77 0.0365
05/31/98# 1.05+ 2.94+ 40 N/A
- ----------------------------------------------------------------------------------------------
Growth-Income Portfolio
2/9/93-11/30/93 0.82+++ 1.59+++ 27 N/A
11/30/94 0.81++ 1.26++ 59 N/A
11/30/95 0.77 1.42 59 N/A
11/30/96 0.72 1.21 82 0.0597
11/30/97 0.65 0.89 44 0.0555
05/31/98# 0.60+ 0.81+ 31 N/A
- ----------------------------------------------------------------------------------------------------------
Federated Value Portfolio
6/3/96-11/30/96 1.05+++ 1.26+++ 30 0.0520
11/30/97 1.03 1.03 46 0.0494
05/31/98# 0.84+ 1.14+ 24 N/A
- ----------------------------------------------------------------------------------------------------------------------
Venture Value Portfolio
10/28/94-11/30/94 1.10+++ 3.93+++ -- N/A
11/30/95 1.00++ 1.43++ 18 N/A
11/30/96 0.85 1.21 22 0.0598
11/30/97 0.79 0.98 22 0.0599
05/31/98# 0.75+ 0.96+ 7 N/A
- --------------------------------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street Portfolio
4/01/98-5/31/98# 0.85+++ 2.23+++ -- N/A
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company and First Sun America Life Insurance
Company. If such expenses had been included, total return would have been
lower for each period presented.
+ Annualized
++ During the periods indicated, the investment adviser waived a portion of or
all fees and assumed a portion of or all expenses for the Portfolios. If
all fees and expenses had been incurred by the Portfolios, the ratio of
expenses to average net assets and the ratio of net investment income to
average net assets would have been as follows:
# Unaudited

<TABLE>
<CAPTION>
EXPENSES NET INVESTMENT INCOME (LOSS)
--------------------------------------- ------------------------------------------
1993 1994 1995 1996 1997 1998 1993 1994 1995 1996 1997 1998
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation Portfolio........... 1.67 0.94 0.81 0.74 0.68 0.64 1.65 2.71 3.62 3.66 2.88 2.96
Utility Portfolio.................... -- -- -- 1.93 1.24 1.05 -- -- -- 3.53 2.96 2.94
Growth-Income Portfolio.............. 1.40 0.89 0.77 0.72 0.65 0.60 1.01 1.18 1.42 1.21 0.89 0.81
Federated Value Portfolio............ -- -- -- 1.57 1.03 0.84 -- -- -- 0.74 1.03 1.14
Venture Value Portfolio.............. -- 3.89 1.02 0.85 0.79 0.75 -- 1.14 1.41 1.21 0.98 0.96
"Dogs" of Wall Street Portfolio...... -- -- -- -- -- 1.13 -- -- -- -- -- 1.95
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

5
<PAGE> 6

<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
NET NET NET TOTAL DECLARED FROM NET NET NET
ASSET INVEST- REALIZED FROM FROM NET REALIZED ASSET ASSETS
VALUE MENT & UNREALIZED INVEST- INVEST- GAIN ON VALUE END OF
BEGINNING INCOME GAIN (LOSS) ON MENT MENT INVEST- END OF TOTAL PERIOD
PERIOD ENDED OF PERIOD (LOSS)** INVESTMENTS OPERATIONS INCOME MENTS PERIOD RETURN*** (000'S)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Growth Portfolio
2/9/93-11/30/93 $10.00 $0.05 $ 0.87 $ 0.92 $ -- $ -- $10.92 9.20% $ 23,256
11/30/94 10.92 0.04 (0.14) (0.10) (0.01) (0.17) 10.64 (0.93) 52,213
11/30/95 10.64 0.07 5.08 5.15 (0.03) (0.13) 15.63 48.91 167,870
11/30/96 15.63 0.08 4.07 4.15 (0.04) (1.01) 18.73 28.05 381,367
11/30/97 18.73 0.16 4.76 4.92 (0.05) (1.04) 22.56 27.80 704,533
05/31/98# 22.56 0.04 5.31 5.35 (0.06) (2.30) 25.55 23.85 1,029,515
- --------------------------------------------------------------------------------------------------------------------------------
Putnam Growth Portfolio
2/9/93-11/30/93 10.00 0.02 0.02 0.04 -- -- 10.04 0.40 42,911
11/30/94 10.04 0.03 (0.01) 0.02 (0.01) -- 10.05 0.19 75,342
11/30/95 10.05 (0.01) 3.09 3.08 (0.03) -- 13.10 30.66 115,276
11/30/96 13.10 -- 2.61 2.61 -- -- 15.71 19.92 160,073
11/30/97 15.71 0.03 3.93 3.96 -- (0.52) 19.15 26.01 234,726
05/31/98# 19.15 0.01 3.01 3.02 (0.02) (3.08) 19.07 15.65 320,428
- --------------------------------------------------------------------------------------------------------------------------------
Real Estate Portfolio
6/2/97-11/30/97 10.00 0.16 1.37 1.53 -- -- 11.53 15.30 29,565
05/31/98# 11.53 0.20 (0.41) (0.21) (0.16) (0.01) 11.15 (1.86) 53,271
- --------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth Portfolio
6/3/96-11/30/96 10.00 0.02 0.34 0.36 -- -- 10.36 3.60 35,124
11/30/97 10.36 0.01 1.40 1.41 (0.01) -- 11.76 13.62 103,603
05/31/98# 11.76 0.02 0.29 0.31 -- -- 12.07 2.64 112,531
- --------------------------------------------------------------------------------------------------------------------------------
International Growth and Income Portfolio
6/2/97-11/30/97 10.00 0.03 0.38 0.41 -- -- 10.41 4.10 42,844
05/31/98# 10.41 0.10 1.91 2.01 (0.03) (0.06) 12.33 19.46 94,656
- --------------------------------------------------------------------------------------------------------------------------------
Global Equities Portfolio
2/9/93-11/30/93 10.00 0.03 0.96 0.99 -- -- 10.99 9.90 43,737
11/30/94 10.99 0.05 0.71 0.76 (0.01) (0.07) 11.67 6.87 136,758
11/30/95 11.67 0.12 1.64 1.76 (0.08) (0.29) 13.06 15.58 165,752
11/30/96 13.06 0.14 2.19 2.33 (0.14) (0.33) 14.92 18.21 246,482
11/30/97 14.92 0.09 1.79 1.88 (0.13) (0.69) 15.98 13.30 341,639
05/31/98# 15.98 0.04 2.85 2.89 (0.19) (1.36) 17.32 18.21 417,005
- --------------------------------------------------------------------------------------------------------------------------------
International Diversified Equities Portfolio
10/28/94-11/30/94 10.00 0.01 (0.23) (0.22) -- -- 9.78 (2.20) 12,438
11/30/95 9.78 0.07 0.38 0.45 (0.08) -- 10.15 4.63 48,961
11/30/96 10.15 0.05 1.43 1.48 (0.26) -- 11.37 14.85 157,008
11/30/97 11.37 0.09 0.28 0.37 (0.31) (0.10) 11.33 3.52 248,927
05/31/98# 11.33 0.08 2.16 2.24 (0.40) (0.15) 13.02 19.80 320,893
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio
6/2/97-11/30/97 10.00 0.06 (2.03) (1.97) -- -- 8.03 (19.70) 19,979
05/31/98# 8.03 0.03 (0.41) (0.38) (0.07) -- 7.58 (4.77) 29,046
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------

RATIO OF NET
RATIO OF INVESTMENT
EXPENSES INCOME AVERAGE
TO AVERAGE TO AVERAGE PORTFOLIO COMMISSION
PERIOD ENDED NET ASSETS NET ASSETS TURNOVER PER SHARE
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance Growth Portfolio
2/9/93-11/30/93 0.82%+++ 0.61%+++ 73% N/A
11/30/94 0.82++ 0.37++ 146 N/A
11/30/95 0.79 0.51 138 N/A
11/30/96 0.71 0.51 121 0.0649
11/30/97 0.65 0.37 110 0.0617
05/31/98# 0.59+ 0.34+ 44 N/A
- --------------------------------------------------------------------------------------------------------------------------------
2/9/93-11/30/93 0.97+++ 0.32+++ 40 N/A
11/30/94 0.96++ 0.31++ 54 N/A
11/30/95 0.93 (0.05) 52 N/A
11/30/96 0.90 (0.02) 63 0.0443
11/30/97 0.91 0.18 125 0.0324
05/31/98# 0.87+ 0.13+ 30 N/A
- --------------------------------------------------------------------------------------------------------------------------------
Real Estate Portfolio
6/2/97-11/30/97 1.25+++ 3.25+++ 7 0.0600
05/31/98# 1.01+ 3.49+ 8 N/A
- --------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth Portfolio
6/3/96-11/30/96 1.05+++ 0.46+++ 47 0.0600
11/30/97 0.90 (0.13) 221 0.0600
05/31/98# 0.84+ 0.31+ 155 N/A
- --------------------------------------------------------------------------------------------------------------------------------
International Growth and Income Portfolio
6/2/97-11/30/97 1.60+++ 0.61+++ 19 0.0030
05/31/98# 1.54+ 1.80+ 22 N/A
- --------------------------------------------------------------------------------------------------------------------------------
Global Equities Portfolio
2/9/93-11/30/93 1.50+++ 0.38+++ 58 N/A
11/30/94 1.28 0.42 67 N/A
11/30/95 1.14 1.02 106 N/A
11/30/96 1.03 1.04 70 0.0256
11/30/97 0.95 0.58 115 0.0284
05/31/98# 0.89+ 0.51+ 40 N/A
- --------------------------------------------------------------------------------------------------------------------------------
International Diversified Equities Portfolio
10/28/94-11/30/94 1.70+++ 1.60+++ -- N/A
11/30/95 1.70++ 0.76++ 52 N/A
11/30/96 1.59 0.47 53 0.0023
11/30/97 1.35 0.82 56 0.0008
05/31/98# 1.27+ 1.36+ 29 N/A
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio
6/2/97-11/30/97 1.90+++ 1.33+++ 49 0.0011
05/31/98# 1.90+ 0.67+ 33 N/A
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Calculated based upon average shares outstanding
** After fee waivers and expense reimbursements by the investment adviser
*** Does not reflect expenses that apply to the separate accounts of Anchor
National Life Insurance Company and First SunAmerica Life Insurance Company.
If such expenses had been included, total return would have been lower for
each period presented.
+ Annualized
++ During the periods indicated, the investment adviser waived a portion of or
all fees and assumed a portion of or all expenses for the Portfolios. If
all fees and expenses had been incurred by the Portfolios, the ratio of
expenses to average net assets and the ratio of net investment income
(loss) to average net assets would have been as follows:
# Unaudited

<TABLE>
<CAPTION>
EXPENSES NET INVESTMENT INCOME (LOSS)
--------------------------------------- --------------------------------------------
1993 1994 1995 1996 1997 1998 1993 1994 1995 1996 1997 1998
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Growth Portfolio.......... 1.56% 0.96% 0.79% 0.71% 0.65% 0.59% (0.13)% 0.23% 0.51% 0.51% 0.37% 0.34%
Putnam Growth Portfolio............ 1.46 1.05 0.93 0.90 0.91 0.87 (0.17) 0.22 (0.05) (0.02) 0.18 0.13
Real Estate Portfolio.............. -- -- -- -- 1.36 1.01 -- -- -- -- 3.14 3.49
Aggressive Growth Portfolio........ -- -- -- 1.09 0.90 0.84 -- -- -- 0.42 (0.13) 0.31
International Growth and Income
Portfolio......................... -- -- -- -- 2.02 1.54 -- -- -- -- 0.19 1.80
Global Equities Portfolio.......... 2.52 1.28 1.14 1.03 0.95 0.89 (0.64) 0.42 1.02 1.04 0.58 0.51
International Diversified Equities
Portfolio......................... -- 3.50 2.09 1.59 1.35 1.27 -- (0.20) 0.37 0.47 0.82 1.36
Emerging Markets Portfolio......... -- -- -- -- 2.60 1.90 -- -- -- -- 0.63 0.67
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

6
<PAGE> 7

- ---------------------------------------------------------
- ---------------------------------------------------------
THE TRUST, ITS INVESTMENT OBJECTIVES AND POLICIES
- ---------------------------------------------------------
- ---------------------------------------------------------

The Trust, organized as a Massachusetts business trust on September 11, 1992, is
an open-end management investment company. It was established to provide a
funding medium for certain annuity contracts issued by various separate accounts
(the "Accounts") of Anchor National Life Insurance Company and First SunAmerica
Life Insurance Company (collectively referred to as the "Life Companies").

The Trust issues 25 separate series of shares ("Portfolios"), each of which
represents a separately managed portfolio of securities with its own investment
objectives. The Board of Trustees may establish additional series in the future.
This Prospectus describes 23 of the 25 Portfolios of the Trust which are the
Cash Management Portfolio, Corporate Bond Portfolio, Global Bond Portfolio,
High-Yield Bond Portfolio, Worldwide High Income Portfolio, SunAmerica Balanced
Portfolio, Asset Allocation Portfolio, Equity Income Portfolio, Utility
Portfolio, Equity Index Portfolio, Growth-Income Portfolio, Federated Value
Portfolio, Venture Value Portfolio, "Dogs" of Wall Street Portfolio, Alliance
Growth Portfolio, Putnam Growth Portfolio, Real Estate Portfolio, Small Company
Value Portfolio, Aggressive Growth Portfolio, International Growth and Income
Portfolio, Global Equities Portfolio, International Diversified Equities
Portfolio and Emerging Markets Portfolio. All shares may be purchased or
redeemed by the Accounts at net asset value without any sales or redemption
charge.

SunAmerica Asset Management Corp. ("SAAMCo" or the "Adviser"), an indirect,
wholly owned subsidiary of Anchor National Life Insurance Company, serves as
investment adviser for all the Portfolios of the Trust. See "Management." Some
Portfolios benefit from discretionary advisory services provided by separate
registered investment advisers (each a "Subadviser"). Alliance Capital
Management L.P. ("Alliance") serves as subadviser for the Global Equities,
Alliance Growth and Growth-Income Portfolios; Davis Selected Advisers, L.P.
("Davis Selected") serves as subadviser for the Venture Value and Real Estate
Portfolios; Federated Investment Counseling ("Federated") serves as subadviser
for the Corporate Bond, Federated Value and Utility Portfolios; Goldman Sachs
Asset Management ("GSAM") serves as subadviser for the Asset Allocation
Portfolio; Goldman Sachs Asset Management International ("GSAM-International")
serves as subadviser for the Global Bond Portfolio; First American Asset
Management ("First American") serves as subadviser for the Equity Income, Small
Company Value and Equity Index Portfolios; Morgan Stanley Dean Witter Investment
Management Inc. ("MSDW Investment Management") serves as subadviser for the
International Diversified Equities and Worldwide High Income Portfolios; and
Putnam Investment Management, Inc. ("Putnam") serves as subadviser for the
Putnam Growth, International Growth and Income and Emerging Markets Portfolios.
There is no subadviser for the Cash Management, High-Yield Bond, SunAmerica
Balanced, "Dogs" of Wall Street or Aggressive Growth Portfolios. SAAMCo performs
all investment advisory services for these Portfolios.

Each Portfolio has investment objectives and certain policies as described in
this Prospectus. There can be no guarantee that any Portfolio's investment
objectives 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. Investors should carefully review the investment objectives
and policies of a Portfolio and consider their ability to assume the risks
involved before making an investment in a Portfolio. Each Portfolio also has
certain fundamental investment restrictions, which are described in the
Statement of Additional Information. A Portfolio's fundamental investment
restrictions may not be changed without a majority of the outstanding voting
securities of that Portfolio. All other investment practices may be changed
without a vote of the shareholders. See "Shareholder Voting Rights."

The Global Bond, Worldwide High Income, International Diversified Equities and
"Dogs" of Wall Street Portfolios are organized as separate "non-diversified"
portfolios of the Trust (as such term is defined under the Investment Company
Act of 1940, as amended, (the "1940 Act")); subject, however, to certain tax
diversification requirements. See "Dividends, Distributions and Federal Taxes."
Each of the Utility and Real Estate Portfolios intends to concentrate its
investments in the industry stated in its name, which means that each Portfolio
intends to invest at least 25% of its total assets in the securities of such
industry. See "Investment Objectives and Policies -- Non-Diversified Status" in
the Statement of Additional Information.

The Portfolios' investment objectives are discussed below. Reference to
limitations and restrictions on Portfolio investment used herein apply at the
time of purchase unless otherwise indicated. Please also see the section
captioned "Description of Securities and Investment Techniques" for a more
detailed

7
<PAGE> 8

description of the characteristics and risks associated with the types of
securities in which the various Portfolios may invest. Reference is also made in
the following sections to ratings assigned to certain types of securities by
Standard & Poor's Rating Services, a Division of the McGraw-Hill Companies, Inc.
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps Credit Rating Co. ("Duff & Phelps") and Thomson
BankWatch, Inc. ("Thomson BankWatch"), recognized independent securities ratings
institutions. References to the particular ratings categories of the securities
in which a Portfolio may invest should be read to include unrated securities
deemed by the Adviser or Subadviser to be of comparable quality to the rated
securities in such categories. A description of the ratings categories assigned
by S&P, Moody's, Fitch, Thomson BankWatch and Duff & Phelps is contained in the
Statement of Additional Information.

CASH MANAGEMENT PORTFOLIO

The Cash Management Portfolio seeks high current yield while preserving capital
by investing in a diversified selection of money market instruments including
corporate bonds and notes; commercial bank obligations; securities of the U.S.
government, its agencies and instrumentalities; commercial paper and savings
association obligations. These securities mature in 397 days or less. The Cash
Management Portfolio also may enter into repurchase agreements and firm
commitment agreements and purchase when-issued securities. See "Description of
Securities and Investment Techniques."

The Cash Management Portfolio invests only in securities determined, in
accordance with procedures established by the Trust's Board of Trustees, to
present minimal credit risks. It is the current policy to invest only in
instruments rated in the highest rating category by Moody's and S&P (for
example, commercial paper rated P-1 and A-1 by Moody's and S&P, respectively) or
in instruments that are issued, guaranteed or insured by the U.S. government,
its agencies or instrumentalities, as to the payment of principal and interest,
or in other instruments rated in the highest two categories by either Moody's or
S&P, provided the issuer has commercial paper rated in the highest rating
category by Moody's and S&P.

Although investments in the Cash Management Portfolio should present minimal
market risk because the investments of the Portfolio consist of only short-term
debt obligations, an investment in this Portfolio is subject to the risks of
declining interest rates and the economy as a whole. Also, the return on an
investment in the Cash Management Portfolio would not be the same as the return
on an investment in a money market fund available directly to the public even
where yields are equivalent, due to fees imposed at the variable annuity
contract level.

CORPORATE BOND PORTFOLIO

The Corporate Bond Portfolio seeks high total return with only moderate price
risk by investing primarily in investment grade fixed income securities. Under
normal market conditions, at least 65% of the Portfolio's total assets will be
invested in investment grade debt securities (i.e., those rated at the time of
purchase within the four highest grades assigned by Moody's (Aaa, Aa, A or Baa)
or by S&P (AAA, AA, A or BBB)), securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities (including mortgage-backed
securities) or repurchase agreements collateralized by such investment grade or
U.S. government securities. In addition, under normal circumstances, the
Portfolio will invest at least 65% of the value of its total assets in corporate
debt securities, including asset-backed securities and privately placed debt
securities, of domestic and foreign issuers. Certain fixed rate obligations in
which the Portfolio invests may involve equity characteristics. The Portfolio
may, for example, invest in unit offerings that combine fixed rate securities
and common stock or common stock equivalents such as warrants, rights and
options. These may be purchased by the Portfolio only when the debt security
meets the Portfolio's investment criteria and the value of the equity security
or equity equivalent is relatively small. If the equity security or equity
equivalent becomes valuable it will ordinarily be sold rather than exercised in
the case of warrants, rights or options. It is anticipated that no more than 10%
of the assets of the Portfolio will constitute equity securities or equity
equivalents regardless of how such securities were acquired. To the extent that
such securities are acquired, there may be some additional investment risk and
countervailing opportunity, depending upon the extent to which the common stock
price fluctuates.

Up to 35% of the Portfolio's total assets may be invested in the following:
other types of debt securities, including those rated below investment grade,
zero-coupon bonds, pay-in-kind securities, and units consisting of bonds and
equity equivalents; commercial paper rated P-1 by Moody's or A-1 by S&P;
obligations of banks having total assets in excess of $1 billion; and preferred
stocks (including those rated below investment grade, convertible into,

8
<PAGE> 9

or carrying warrants to purchase, common stocks or other equity interests).

The Portfolio will generally invest in debt securities and preferred stocks
rated below investment grade only to the extent that the Subadviser believes
that lower credit quality of such securities is offset by more attractive
yields. There is no limit with respect to the rating categories for securities
in which the Portfolio may invest. The weighted average ratings by S&P as a
percentage of all bonds held by the Portfolio during the fiscal year ended
November 30, 1997 were: "AAA" 10.39%; "AA" 3.47%; "A" 21.23%; "BBB" 35.24%; "BB"
11.72%; and "B" 15.85%, and 2.10% in cash. See "Description of Securities and
Investment Techniques -- Corporate Debt Instruments -- Lower Grade" for a
description of lower-rated securities.

The Portfolio may invest in high quality short-term money market instruments
denominated in U.S. dollars, including repurchase agreements, which are also
authorized for purchase by the Cash Management Portfolio. The Portfolio may
enter into "dollar rolls" in which the Portfolio sells mortgage or other
asset-backed securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same types, coupons and maturity)
securities on a specified future date. The Portfolio may also invest in
synthetic or derivative instruments based on permitted investments, including
futures contracts, options, interest-rate swaps, mortgage swaps and interest-
rate caps, floors and collars.

GLOBAL BOND PORTFOLIO

The investment objective of the Global Bond Portfolio is to provide investors
with high total return, emphasizing current income and, to a lesser extent,
providing opportunities for capital appreciation. Under normal circumstances,
the Portfolio will seek to meet its investment objective by pursuing investment
opportunities in foreign and domestic fixed income securities markets and by
engaging in currency transactions to enhance returns and for the purpose of
hedging its investments.

The fixed income securities in which the Portfolio may invest include: (i)
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities and custodial receipts thereof; (ii) securities issued or
guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies or instrumentalities or by multiple governmental entities
(i.e., international organizations designated or supported by governmental
entities to promote economic reconstruction or development, such as the World
Bank); (iii) corporate debt securities; (iv) certificates of deposit and
bankers' acceptances issued or guaranteed by, or time deposits maintained at,
banks (including U.S. or foreign branches of U.S. banks or U.S. or foreign
branches of foreign banks) having total assets of more than $1 billion; (v)
commercial paper; and (vi) mortgage-related and asset-backed securities.

All securities purchased by the Portfolio will be rated at least BBB by S&P or
Baa by Moody's. However, the Portfolio generally intends to invest at least 50%
of its total assets in securities having the highest applicable credit quality
rating. The debt securities in which the Portfolio will invest may have fixed,
variable or floating interest rates.

In selecting securities for the Portfolio, the Subadviser will consider such
factors as the security's duration, sector and credit quality rating as well as
the security's yield and prospects for capital appreciation. It is expected that
the Portfolio will use currency transactions both to enhance returns for a given
level of risk and to hedge its exposure to foreign currencies. While the
Portfolio will have both long and short currency positions, neither its net long
foreign currency exposure nor its net short foreign currency exposure will
exceed the value of the Portfolio's total assets.

Under normal circumstances, the Portfolio's duration is expected to be equal to
that of its benchmark, the J.P. Morgan Global Government Bond Index, plus or
minus 2-5 years. In addition, the Portfolio will normally maintain a
dollar-weighted average duration of not more than 7.5 years. However, the
Portfolio is not subject to any limitation with respect to the average maturity
of its Portfolio or the individual securities in which the Portfolio may invest.
Duration represents the weighted average maturity of expected cash flows on a
debt obligation, discounted to present value. Maturity measures only the time
until final payment is due on a bond or other debt security; it takes no account
of the pattern of a security's cash flows over time. In computing the duration
of its portfolio, the Subadviser will have to estimate the duration of debt
obligations that are subject to prepayment or redemption by the issuer. The
Portfolio may use various techniques to shorten or lengthen its dollar-weighted
average duration, including the acquisition of debt obligations at a premium or
discount, transactions in options, futures contracts, options on futures and
mortgage and interest-rate swaps, caps, collars and floors. The Portfolio may
also enter into dollar rolls.

9
<PAGE> 10

It is expected that the Portfolio will employ certain active currency and
interest-rate management techniques involving risks different from those
associated with investing solely in dollar-denominated fixed income securities
of U.S. issuers. Such active management techniques include transactions in
options (including yield curve options), futures and options on futures, forward
foreign currency exchange contracts, currency options and futures, currency,
mortgage and interest-rate swaps, floors, caps and collars. The aggregate amount
of the Portfolio's net currency exposure will not exceed its total asset value.
However, to the extent that the Portfolio is fully invested in fixed income
securities while also maintaining currency positions, it may be exposed to
greater combined risk. The Portfolio's net currency positions may expose it to
risks independent of its securities positions.

The Portfolio will, under normal market conditions, have at least 30% of its
total assets, adjusted to reflect the Portfolio's net exposure after giving
effect to currency transactions and positions, denominated in U.S. dollars. The
Portfolio may, for temporary defensive purposes (such as when instability or
unfavorable conditions exist in foreign countries), invest 100% of its total
assets in U.S. dollar-denominated securities or securities of U.S. issuers.

The Portfolio may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan,
and the United Kingdom as well as in the securities of U.S. issuers.
Concentration of the Portfolio's investments in such issuers will subject the
Portfolio, to a greater extent than if investment was more limited, to the risks
of adverse securities markets, exchange rates and social, political or economic
events which may occur in those countries. Not more than 25% of the Portfolio's
total assets will be invested in securities of issuers in any other single
foreign country. Concentration of the Portfolio's investments in such issuers
will subject the Portfolio to the risks of adverse social, political or economic
events which may occur in those countries.

Investment in foreign securities involves special risks. See "Description of
Securities and Investment Techniques -- Risks and Considerations Applicable to
Investment in Securities of Foreign Issuers."

HIGH-YIELD BOND PORTFOLIO

The primary investment objective of the High-Yield Bond Portfolio is high
current income; its secondary investment objective is capital appreciation.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in high-yield bonds. Subject to this requirement the Portfolio may
maintain assets in cash or cash equivalents, including commercial bank
obligations (certificates of deposit; bankers' acceptances, which are time
drafts on a commercial bank for which the bank accepts an irrevocable obligation
to pay at maturity; and demand or time deposits), commercial paper (short-term
notes issued by corporations or governmental bodies) and obligations issued or
guaranteed by the U.S. government. These "high-yield" bonds, commonly referred
to as "junk bonds," typically are subject to greater market fluctuations and
risk of loss of income and principal due to default by the issuer than are
investments in lower-yielding, higher-rated bonds. Further, a substantial
portion of the Portfolio's assets will generally be invested in long-term (over
10 years to maturity) and intermediate-term (3 to 10 years to maturity) fixed
income securities, with emphasis on higher-yielding, higher-risk, lower-rated or
unrated corporate bonds.

High-yield, high-risk bonds generally include any bonds that are rated Ba or
below by Moody's or BB or below by S&P. Bonds rated Ba or BB or below are
considered speculative. The Portfolio may invest without limitation in bonds
rated as low as Ca by Moody's or C by S&P. In addition, the Portfolio may invest
up to 10% of its total assets in bonds rated C by Moody's or D by S&P. The
weighted average ratings by Moody's as a percentage of all bonds held by the
Portfolio during the fiscal year ended November 30, 1997 were: "Aaa" -- 5.17%;
"Ba" 14.04%; "B" 62.04%; and "Caa" 11.45%; and the balance 7.3% in unrated bonds
which the adviser deemed comparable to "Caa" rating. See "Description of
Securities and Investment Techniques -- Corporate Debt Instruments -- Lower
Grade" and "Description of Securities and Investment Techniques -- Risk Factors
Relating to High-Yield, High-Risk Bonds" for a more detailed description of
these securities.

In pursuing its secondary investment objective of capital appreciation, the
Portfolio may purchase high-yield bonds that are expected by the Adviser to
increase in value due to improvements in their credit quality or ratings or
anticipated declines in interest rates. In addition, the Portfolio may invest
for this purpose up to 25% of its assets in equity securities, such as common
stocks, or other securities having common stock characteristics. Securities
designated as having "common stock" characteristics include, but are not limited
to, securities convertible into or exchangeable for common stock. Such
securities normally will be purchased as part of a unit with fixed income
securities or when an unusual

10
<PAGE> 11

opportunity for capital appreciation is perceived due to anticipated improvement
in the issuer's credit quality or ratings. The Portfolio also may purchase or
hold warrants or rights.

Up to 25% of the Portfolio's assets may be invested in securities of foreign
issuers, which are generally denominated in currencies other than the U.S.
dollar. The Portfolio also has the ability to hold a portion of its assets in
foreign currencies and to enter into forward foreign currency exchange
contracts, currency options, currency and financial futures contracts, and
options on such futures contracts. The Portfolio may enter into repurchase
agreements and firm commitment agreements and may purchase securities on a
when-issued basis. Investment in foreign securities also involves special risks.
See "Description of Securities and Investment Techniques -- Risks and
Considerations Applicable to Investment in Securities of Foreign Issuers."

WORLDWIDE HIGH INCOME PORTFOLIO

The investment objective of the Worldwide High Income Portfolio is high current
income and, secondarily, capital appreciation, by investing primarily in a
portfolio of high-yielding, fixed income securities of issuers located
throughout the world. The Portfolio seeks to achieve its investment objective by
allocating its assets among any or all of three investment sectors: U.S.
corporate lower-rated and unrated debt securities, emerging country debt
securities and global fixed income securities offering high real yields. The
types of securities in each of these investment sectors are described in detail
in the Statement of Additional Information. In selecting U.S. corporate
lower-rated and unrated debt securities for the Portfolio, the Subadviser will
consider, among other things, the price of the security, and the financial
history, condition, prospects and management of the issuer. The Subadviser
intends to invest a portion of the Portfolio's assets in emerging country debt
securities that provide a high level of current income, while at the same time
holding the potential for capital appreciation if the perceived creditworthiness
of the issuers improves due to improving economic, financial, political, social
or other conditions in the country in which the issuer is located. In addition,
the Subadviser will attempt to invest a portion of the Portfolio's assets in
fixed income securities of issuers in global fixed income markets displaying
high real (inflation adjusted) yields. Under normal conditions, the Portfolio
intends to invest between 80% and 100% of its total assets in some or all of
three categories of higher-yielding securities, some of which may entail
increased credit and market risk.

The Subadviser's approach to multi-currency fixed income management is strategic
and value-based and designed to produce an attractive real rate of return. The
Subadviser's assessment of the bond markets and currencies is based on an
analysis of real interest rates. Current nominal yields of securities are
adjusted for inflation prevailing in each currency sector using an analysis of
past and projected inflation rates. The Portfolio's aim is to invest in bond
markets which offer the most attractive real returns relative to inflation.

From time to time, a portion of the Portfolio's investments, which may be up to
100% of its investments, may be considered to have credit quality below
investment grade as determined by internationally recognized credit rating
agency organizations, such as Moody's and S&P. Such lower-rated bonds are
commonly referred to as "junk bonds." Securities in such lower rating categories
may have predominantly speculative characteristics or may be in default. See
"Description of Securities and Investment Techniques -- Corporate Debt
Instruments -- Lower Grade" for a description of Moody's and S&P's corporate
bond ratings. Ratings represent the opinion of rating agencies as to the quality
of bonds and other debt securities they undertake to rate at the time of
issuance. However, ratings are not absolute standards of quality and may not
reflect changes in an issuer's creditworthiness. Accordingly, while the
Subadviser will consider ratings, it will perform its own analysis and will not
rely principally on ratings. Emerging country debt securities in which the
Portfolio may invest will be subject to high risk and will not be required to
meet a minimum rating standard and may not be rated for creditworthiness by any
internationally recognized credit rating organization. The Portfolio's
investments in U.S. corporate lower-rated and unrated debt securities and
emerging country debt securities are expected to be rated in the lower and
lowest rating categories of internationally recognized credit rating
organizations. Ratings of a foreign debt instrument, to the extent that those
ratings are undertaken, are related to evaluations of the country in which the
issuer of the instrument is located. Ratings generally take into account the
currency in which a foreign debt instrument is denominated; instruments issued
by a foreign government in other than the local currency, for example, typically
have a lower rating than local currency instruments due to the existence of an
additional risk that the government will be unable to obtain the required
foreign currency to service its foreign currency-denominated debt. In

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general, the ratings of debt securities or obligations issued by a foreign
public or private entity will not be higher than the rating of the currency or
the foreign currency debt of the central government of the country in which the
issuer is located, regardless of the intrinsic creditworthiness of the issuer.
To mitigate the risks associated with investment in such lower-rated securities,
the Portfolio will diversify its holdings by market, issuer, industry and credit
quality. The weighted average ratings by Moody's as a percentage of all bonds
held by the Portfolio during the fiscal year ended November 30, 1997 were: "Aaa"
0.11%; "Baa" 1.11%; "Ba" 41.32%; "B" 44.20%; "Caa" 12.56%; and the balance 0.70%
in unrated bonds. See "Risk Factors Relating to High-Yield, High-Risk Bonds" and
"Risks and Considerations Applicable to Investment in Securities of Foreign
Issuers" under "Description of Securities and Investment Techniques."

The Portfolio may invest in or own securities of companies in various stages of
financial restructuring, bankruptcy or reorganization which are not currently
paying interest or dividends, provided that the total value of all such
securities will not exceed 10% of the value of the Portfolio's total assets. The
Portfolio may have limited recourse in the event of default on such debt
instruments. The Portfolio may invest in loans, assignments of loans and
participation in loans. See the Statement of Additional Information for a
description of these investments. The Portfolio may also invest in depositary
receipts issued by U.S. or foreign financial institutions. See the Statement of
Additional Information for further information.

The Portfolio is not restricted in the portion of its assets which may be
invested in securities denominated in a particular currency and a substantial
portion of its assets may be invested in non-U.S. dollar-denominated securities.
The portion of the Portfolio's assets invested in securities denominated in
currencies other than the U.S. dollar will vary depending on market conditions.
The analysis of currencies is made independent of the analysis of markets. Value
in foreign exchange is determined by relative purchasing power parity of a given
currency. The Portfolio seeks to invest in currencies currently undervalued
based on purchasing power parity. The Subadviser analyzes current account and
capital account performance and real interest rates to adjust for short-term
currency flows. Although the Portfolio is permitted to engage in a wide variety
of investment practices designed to hedge against currency exchange rate risks
with respect to its holdings of non-U.S. dollar-denominated debt securities, the
Portfolio may be limited in its ability to hedge against these risks. See
"Foreign Currency Transactions" under "Description of Securities and Investment
Techniques." The Portfolio may also write (i.e., sell), covered call options and
may enter into futures contracts and options on futures and sell indexed
financial futures contracts. See "Options on Securities and Securities Indices"
and "Futures Contracts and Options Thereon" under "Description of Securities and
Investment Techniques."

The average time to maturity of the Portfolio's securities will vary depending
upon the Subadviser's perception of market conditions. The Subadviser invests in
medium-term securities (i.e., those with a remaining maturity of approximately 5
years) in a market neutral environment. When the Subadviser believes that real
yields are high, the Subadviser lengthens the remaining maturities of securities
held by the Portfolio and, conversely, when the Subadviser believes real yields
are low, it shortens the remaining maturities. Thus, the Portfolio is not
subject to any restrictions on the maturities of the debt securities it holds,
and the Subadviser may vary the average maturity of the securities held in the
Portfolio without limit.

The Portfolio may also invest in other types of securities and/or engage in a
variety of investment strategies including, but not limited to, zero-coupon,
pay-in-kind, illiquid and restricted securities; repurchase agreements; and
borrowing for investment and temporary purposes. See "Description of Securities
and Investment Techniques." For temporary defensive purposes, the Portfolio may
invest part or all of its total assets in cash or in short-term securities,
including certificates of deposit, commercial paper, notes, obligations issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities.

SUNAMERICA BALANCED PORTFOLIO

The investment objective of the SunAmerica Balanced Portfolio is to conserve
principal by maintaining at all times a balanced portfolio of stocks and bonds.
In seeking to achieve the investment objective of the Portfolio, the Adviser has
the flexibility to select among different types of investments for capital
growth and income and may alter the composition of the Portfolio as economic and
market trends change. The Adviser considers both the opportunity for gain and
the risk of loss in making investments. The Adviser anticipates that, over the
long-term, the Portfolio will consist of equity investments, in the form of
common and preferred stocks, warrants and other rights, as well as long-term
bonds and other debt securities such as convertible securities, short-
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<PAGE> 13

term investments and U.S. government securities. The Portfolio will, under
normal circumstances, invest at least 25% of its assets in fixed income senior
securities; however, the fixed income component will exceed 25% when the Adviser
believes such an adjustment in portfolio mix to be necessary in order to
conserve principal, such as in anticipation of decline in the equities market.
The Adviser shifts its emphasis among these different types of investments, as
well as among various industry sectors, as financial trends and economic
conditions change.

In selecting equity investments, the Adviser typically seeks companies of medium
to large capitalizations (generally $1 billion or more) that, based on their
future prospects or opportunities, it believes are undervalued in the
marketplace. Investments in companies with market capitalizations of less than
$1 billion may be more volatile than investments in companies with larger market
capitalizations, and thus the Portfolio intends to limit its investments in such
companies to no more than 20% of its total assets. See "Description of
Securities and Investment Techniques -- Investment in Small Cap Companies."

In selecting debt investments, the Adviser seeks debt securities with longer
maturities during periods of anticipated lower interest rates and shorter-term
debt securities when interest rates are expected to rise. The Adviser generally
selects long-term debt securities from high quality bonds (rated AA or higher by
S&P, Aa or higher by Moody's) to achieve income and capital gains. The Adviser
may also invest the Portfolio's assets in high quality, short-term debt
securities (such as commercial paper rated A-1 by S&P or P-1 by Moody's, or
determined by the Adviser to be of equivalent quality if unrated). However, the
Adviser may invest up to 10% of the value of the Portfolio's total assets in
securities rated as low as BBB by S&P or Baa by Moody's. See "Fixed Income
Securities" in "Description of Securities and Investment Techniques" below for a
discussion of the risks associated with investing in such securities. See also
the Statement of Additional Information for a description of securities ratings.

The Adviser may select equity and debt securities for the Portfolio issued by
either domestic or foreign issuers. See "Description of Securities and
Investment Techniques" for a description of the risks associated with foreign
securities.

ASSET ALLOCATION PORTFOLIO

The investment objective of the Asset Allocation Portfolio is high total return
(including income and capital gains) consistent with preservation of capital
over the long-term. The Portfolio seeks to achieve its objectives by investing
in a diversified portfolio that can include common stocks and other securities
having common stock characteristics, bonds and other intermediate and long-term
fixed income securities, including mortgage-related and asset-backed securities,
and money market instruments (debt securities maturing in 397 days or less).
Securities designated as having "common stock" characteristics include, but are
not limited to, securities convertible into, or exchangeable for, common stock.

The Subadviser will determine the relative mix of equities, fixed income
securities and money market instruments for the Portfolio based on its view of
long-term economic and market trends under the relative risks and opportunities
for long-term total return of the different classes of assets. Under normal
conditions, the Subadviser expects (but is not required) to maintain an
investment mix falling within the following ranges: 40% to 80% in equities; 20%
to 50% in fixed income securities; and 0% to 40% in money market instruments.
The Subadviser may make frequent shifts within these broad ranges whenever, in
the Subadviser's judgment, market or economic changes warrant a reallocation.
The Subadviser intends, in normal situations, to make any shifts in the
Portfolio's asset allocation gradually over time based on its views of long-term
trends and conditions.

The Portfolio may invest in securities of foreign issuers, including issuers in
emerging countries (which are generally denominated in currencies other than the
U.S. dollar), although there is no requirement that the Portfolio maintain
investments in foreign issuers. See "Description of Securities and Investment
Techniques -- Risks and Considerations Applicable to Investment in Securities of
Foreign Issuers." The Portfolio also has the ability to hold a portion of its
assets in foreign currencies and to enter into forward foreign currency exchange
contracts, currency options, currency swaps, currency and financial futures
contracts, and options on such futures contracts.

The Portfolio's fixed income investments will consist primarily of "investment
grade" bonds; that is, bonds that are rated BBB or better by S&P or Baa or
better by Moody's. Up to 25% of the Portfolio's fixed income assets may be
invested in securities that are below investment grade as defined above,
including securities rated as low as CC by S&P or Ca by Moody's. Securities
rated BBB or below by S&P or Baa or below by Moody's are considered to have
speculative characteristics. The weighted average ratings by S&P as a percentage
of all bonds held by

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<PAGE> 14

the Portfolio during the fiscal year ended November 30, 1997 were: "AAA" 60.04%;
"AA" 0.36%; "A" 6.46%; "BBB" 14.48%; "BB" 15.10%; "B" 2.04%; and CCC/NR 1.52%.
For a more detailed description of the risks involved with these securities, see
"Description of Securities and Investment Techniques -- Corporate Debt
Instruments -- Lower Grade" and "-- Risk Factors Relating to High-Yield,
High-Risk Bonds." The Portfolio's investments in foreign fixed income securities
will be concentrated in securities issued or guaranteed as to principal and
interest by foreign governments or their agencies and instrumentalities or by
multinational agencies.

The Portfolio may enter into repurchase agreements and firm commitment
agreements, and may purchase when-issued securities. The Portfolio may also
engage in interest-rate swaps, mortgage swaps, transactions involving
interest-rate caps, floors and collars, dollar rolls and securities lending.

EQUITY INCOME PORTFOLIO

The Equity Income Portfolio seeks long-term growth of capital and income. Under
normal market conditions, the Portfolio invests at least 65% of its total assets
in equity securities of issuers believed by the Subadviser to be characterized
by sound management, the ability to finance expected growth and the ability to
pay above average dividends.

The Portfolio invests in equity securities that have relatively high dividend
yields and which, in the Subadviser's opinion, will result in a relatively
stable Portfolio dividend with a growth rate sufficient to maintain the
purchasing power of the income stream. Although the Subadviser anticipates that
higher yielding equity securities will generally represent the core holdings of
the Portfolio, the Portfolio may invest in lower yielding but higher growth
equity securities to the extent that the Subadviser believes such investments
are appropriate to achieve fund balance. All securities held by the Portfolio
will normally provide current income consistent with the Portfolio's investment
objective.

The "equity securities" in which the Portfolio may invest include corporate debt
obligations that are convertible into common stock. These convertible debt
obligations may include obligations rated as low as CCC by S&P or Caa by Moody's
or which have been assigned an equivalent rating by another nationally
recognized statistical rating organization. Debt obligations rated less than BBB
by S&P or Baa by Moody's are considered to be less than "investment grade" and
are sometimes referred to as "junk bonds." Obligations rated CCC by S&P or Caa
by Moody's are considered to be of poor standing and are predominantly
speculative. For a more detailed description of the risks involved with these
securities, see "Description of Securities and Investment
Techniques -- Corporate Debt Instruments" and "-- Risk Factors Relating to
High-Yield, High-Risk Bonds." If the rating of an obligation is reduced below
the categories set forth above after purchase or is discontinued, the Portfolio
is not required to sell the obligation but may consider doing so.

Purchases of less than investment grade convertible debt obligations are
intended to advance the Portfolio's objective of long-term growth of capital
through the "upside" potential of the obligations' conversion features and to
advance the Portfolio's objective of income through receipt of interest payable
on the obligations. The Portfolio will not invest more than 25% of its total
assets in convertible debt obligations that are rated less than investment
grade.

The Portfolio also may invest up to 35% of its total assets in fixed income
securities including securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities, nonconvertible preferred stocks,
nonconvertible corporate debt securities, and short-term obligations including
"cash items" such as rated commercial paper and variable amount master demand
notes; U.S. dollar-denominated time and savings deposits (including certificates
of deposit); bankers' acceptances; repurchase agreements collateralized by
eligible investments of the Portfolio securities of other mutual funds which
invest primarily in debt obligations with remaining maturities of 397 days or
less (which investments also are subject to the advisory fee); and other similar
high-quality short-term U.S. dollar-denominated obligations.

Subject to the limitations stated above, the Portfolio may invest up to 25% of
its total assets in securities of foreign issuers which are either listed on a
U.S. stock exchange or represented by American Depositary Receipts ("ADRs").
Investment in foreign securities involves special risks. See "Description of
Securities and Investment Techniques -- Risks and Considerations Applicable to
Investment in Securities of Foreign Issuers."

In addition, the Portfolio may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering up to
25% of the equity securities owned by the Portfolio and write call options on
stock indices related to such equity securities; (iv) purchase securities on a
when-issued

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or delayed delivery basis; and (v) engage in the lending of fund securities. See
"Description of Securities and Investment Techniques" for more information on
these securities and strategies.

For temporary defensive purposes, the Portfolio may, without limitation, hold
cash or invest in cash items of the kinds described above. The Portfolio also
may invest not more than 35% of its total assets in cash and cash items in order
to utilize assets awaiting normal investment.

UTILITY PORTFOLIO

The Utility Portfolio seeks high current income and moderate capital
appreciation. The Portfolio's investment approach is based on the Subadviser's
conviction that over the long-term, the economy will continue to expand and
develop and that this economic growth will be reflected in the growth of the
revenues and earnings of utility companies. The Portfolio intends to achieve its
investment objective by investing in equity and debt securities of utility
companies that produce, transmit, or distribute gas and electric energy as well
as those companies that provide communications facilities, such as telephone and
telegraph companies.

The Portfolio will, under normal circumstances, invest at least 65% of its total
assets in securities of utility companies. Such investments will be primarily in
common stocks selected by the Subadviser on the basis of traditional research
techniques, including assessment of earnings and dividend growth prospects and
of the risk and volatility of an issuer's industry. However, other factors, such
as product position, market share, or profitability will also be considered by
the Subadviser. The Portfolio may also invest in preferred stocks, corporate
bonds, notes, and warrants of utility companies. Fixed income securities
purchased by the Portfolio will be rated at least BBB by S&P or Baa by Moody's.

The Portfolio may also invest in other types of securities and/or engage in a
variety of investment strategies, including: U.S. government securities; money
market instruments; foreign securities; illiquid securities; repurchase and
reverse repurchase agreements; securities lending; when-issued and
delayed-delivery transactions; and options, financial futures and options on
such futures. See "Description of Securities and Investment Techniques" for more
information on these securities and strategies. For temporary defensive
purposes, the Portfolio may invest up to 100% of its assets in cash, cash
equivalents and short-term debt instruments.

Risk Factors Applicable to Utility Securities -- There exist certain risks
associated with the utility industry of which investors in the Portfolio should
be aware. These include (i) utility companies' difficulty in earning adequate
returns on investment despite frequent rate increases; (ii) restrictions on
operations and increased costs and delays due to governmental regulations; (iii)
building or construction delays; (iv) environmental regulations; (v) difficulty
of the capital markets in absorbing utility debt and equity securities; and (vi)
difficulties in obtaining fuel at reasonable prices. Further information
concerning the risks associated with the utility industry generally, and
particular segments within the utility industry is contained in the Statement of
Additional Information.

Reducing Risks of Utility Securities -- The Subadviser believes that the risks
of investing in utility securities can be reduced. The professional portfolio
management techniques used by the Subadviser to attempt to reduce these risks
include credit research and diversification techniques. The Subadviser will
perform its own credit analysis in addition to using recognized rating agencies,
and will obtain information from other sources, including the issuer's
management and other investment analysts. The Subadviser's credit analysis will
consider the issuer's financial soundness, its responsiveness to changes in
interest rates and business conditions, and its anticipated cash flow, interest
or dividend coverage, and earnings. In evaluating an issuer, the Subadviser
places special emphasis on the estimated current value of the issuer's assets
rather than historical cost.

EQUITY INDEX PORTFOLIO

The Equity Index Portfolio seeks investment results that correspond to the
performance of the S&P 500. The Equity Index Portfolio invests primarily (at
least 65% of total assets) in common stocks included in the S&P 500. The
Subadviser believes that the Portfolio's objective can best be achieved by
investing in the common stocks of approximately 50% to 100% of the issues
included in the S&P 500, depending on the size of the Portfolio.

The Portfolio is managed by utilizing a computer program that identifies which
stocks should be purchased or sold in order to replicate, as closely as
possible, the composition of the S&P 500. The Portfolio includes a stock in its
investment portfolio in the order of the stock's weighting in the S&P 500,
starting with the most heavily weighted stock. Thus, the proportion of Portfolio
assets invested in a stock or industry closely approximates the percentage of
the S&P 500 represented by that stock or industry.

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Portfolio turnover is expected to be well below that of actively managed mutual
funds. Inasmuch as the common stock of the Adviser's parent company (SunAmerica,
Inc.) and the Subadviser's parent company (U.S. Bancorp) are included in the S&P
500, such stocks may be purchased by the Portfolio consistent with its
indexing-based policies.

Because the Portfolio may not always hold all of the stocks included in the S&P
500, the Portfolio will not duplicate the S&P 500's performance precisely.
However, there will be a close correlation between the Portfolio's performance
and that of the S&P 500 in both rising and falling markets. The Portfolio will
attempt to achieve a correlation between the performance of its portfolio and
that of the S&P 500 of at least 95%, without taking into account expenses of the
Portfolio. A perfect correlation would be indicated by a figure of 100%, which
would be achieved if the Portfolio's net asset value, including the value of its
dividends and capital gains distributions, increased or decreased in exact
proportion to changes in the S&P 500. The Portfolio's ability to replicate the
performance of the S&P 500 may be affected by, among other things, changes in
securities markets, the manner in which S&P calculates the S&P 500, the amount
and timing of cash flows into and out of the Portfolio, commissions, sales
charges (if any) and other expenses. Although cash flows into and out of the
Portfolio will affect portfolio turnover rate for the Portfolio and its ability
to replicate the S&P 500's performance, investment adjustments will be made, as
practicably as possible, to account for these circumstances. In the event the
Portfolio is unable to achieve this correlation over time, the Board of Trustees
of the Trust will consider alternative strategies for the Portfolio.

The Portfolio also may invest up to 20% of its total assets, in the aggregate,
in stock index futures contracts, options on stock indices, options on stock
index futures, and index participation contracts based on the S&P 500. The
Portfolio will not invest in these types of contracts and options for
speculative purposes, but rather to maintain sufficient liquidity to meet
redemption requests; to increase the level of portfolio assets devoted to
replicating the composition of the S&P 500; and to reduce transaction costs. See
"Description of Securities and Investment Techniques" for more information on
these securities and strategies. In addition, the Portfolio may engage in
securities lending described under "Description of Securities and Investment
Techniques -- Securities Lending."

For temporary defensive purposes, the Portfolio may, without limitation, hold
cash or invest in cash items including rated commercial paper and variable
amount master demand notes; U.S. dollar-denominated time and savings deposits
(including certificates of deposit); bankers' acceptances; repurchase agreements
collateralized by eligible investments of a Portfolio; and other similar high-
quality short-term U.S. dollar-denominated obligations. The Portfolio may also
invest not more than 35% of its total assets in the above items in order to
utilize assets awaiting normal investment.

GROWTH-INCOME PORTFOLIO

The Growth-Income Portfolio seeks growth of capital and income. In the selection
of securities for investment, the possibilities of appreciation and potential
dividends are given more weight than current yield. Ordinarily, the assets of
the Portfolio consist principally of a diversified group of common stocks, but
other types of securities, including preferred stocks, corporate bonds and
convertible bonds, may be held when deemed advisable. The Subadviser determines
the relative amounts to be invested in common stocks, preferred stocks, bonds
(including corporate and convertible), securities of the U.S. government, its
agencies and instrumentalities, cash and cash equivalents (such as commercial
bank and savings association obligations, commercial paper and short-term
corporate bonds and notes) and repurchase agreements. See "Description of
Securities and Investment Techniques."

FEDERATED VALUE PORTFOLIO

The Federated Value Portfolio seeks growth of capital and income. The Portfolio
pursues its investment objective by investing, under normal circumstances, at
least 65% of its assets in a portfolio of securities issued by the one hundred
companies contained in "The Leaders List" described below. The Portfolio's
investment approach is based upon the Subadviser's conviction that over the
longer term, the economy will continue to expand and develop and that this
economic growth will be reflected importantly in the growth of major
corporations. Generally, the Subadviser makes portfolio selections utilizing
fundamental analysis, with emphasis on the issuer's earning power, financial
condition and valuation.

The securities in which the Portfolio invests include, but are not limited to:
common stocks; preferred stocks; domestic issues of corporate debt obligations;
and warrants. The fixed income securities in which the Portfolio may invest must
be rated at least BBB by S&P, Baa by Moody's, or BBB by Fitch. If a

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security loses its rating or has its rating reduced after the Portfolio has
purchased it, the Portfolio is not required to sell the security, but will
consider doing so.

The Portfolio may also invest in other securities and/or engage in various
investment strategies, including: foreign securities; repurchase agreements;
illiquid securities; and securities lending. See "Description of Securities and
Investment Techniques" for more information on these securities and strategies.
For temporary or defensive purposes, the Portfolio may also hold cash and invest
in U.S. government securities in such proportions as the Subadviser may deem
necessary for such purposes.

"The Leaders List" is a trade name which represents a list of 100 blue chip
companies selected by the Subadviser. In the opinion of the Subadviser,
securities of these companies represent diversified and highly marketable
investments. The Subadviser uses its proprietary securities selection process to
evaluate the relative value of securities suitable for "The Leaders List." The
Subadviser also uses a number of standards and fundamental research factors in
selecting "The Leaders List." "The Leaders List" generally includes leading
companies in their industries determined in terms of sales, earnings, and/or
market capitalization. Companies on "The Leaders List" typically have a market
capitalization in excess of $1 billion. The list is subject to continuous review
and modification.

VENTURE VALUE PORTFOLIO

The Venture Value Portfolio seeks growth of capital. Under normal circumstances,
the assets of the Portfolio will be invested in securities which the Subadviser
believes have above-average appreciation potential. Usually these securities are
common stocks. Income is not a significant factor in selecting investments for
the Portfolio.

Generally, the Portfolio will invest predominantly in equity securities of
companies with market capitalizations of at least $250 million. Investments will
consist of issues which the Subadviser believes have capital growth potential
due to factors such as undervalued assets or earnings potential, product
development and demand, favorable operating ratios, resources for expansion,
management abilities, reasonableness of market price, and favorable overall
business prospects. These companies may offer greater potential for capital
appreciation but may also involve certain risks. See "Description of Securities
and Investment Techniques -- Investment in Small Cap Companies."
The Portfolio may invest in securities of foreign issuers. Such foreign
investments may involve a higher degree of risk than investments in domestic
issuers. Foreign securities are often denominated in foreign currencies, which
means that their value will be affected by changes in exchange rates, as well as
other factors that affect securities prices. To help reduce exposure to currency
fluctuations, the Portfolio may trade in forward foreign currency exchange
contracts (forward contracts), currency futures contracts and options thereon,
and securities indexed to foreign securities. The Subadviser will use these
techniques to lock in an exchange rate in connection with transactions in
securities denominated or traded in foreign currencies, to hedge the currency
risk in foreign securities held by the Portfolio and to hedge a currency risk
involved in an anticipated purchase of foreign securities.

The Portfolio will generally invest in securities of foreign companies through
trades of individual securities on recognized exchanges and developed
over-the-counter markets, through ADRs covering such securities, and through
U.S. registered investment companies primarily investing in foreign securities.
With respect to other registered investment companies, no such investment may
cause more than 10% of the Portfolio's total assets to be invested in such
companies. Such other investment companies usually have their own management
costs or fees and the Portfolio's Subadviser earns its regular fee on such
assets.

Investment in foreign securities and engaging in foreign currency transactions
involves special risks. See "Description of Securities and Investment
Techniques -- Risks and Considerations Applicable to Investment in Securities of
Foreign Issuers" and " -- Foreign Currency Transactions."

Sometimes a more defensive position may be desirable under certain economic or
financial circumstances. At these times, the Portfolio may, without limitation,
hold assets in cash and cash equivalents, including repurchase agreements, or in
fixed income or other defensive securities rather than in securities selected
for appreciation potential. The Portfolio may also have such holdings
temporarily for the purpose of managing exceptional in-flows and out-flows of
cash.

The Portfolio may also engage in other types of investment practices, including,
but not limited to, investment in illiquid securities and lending of portfolio
securities. See "Description of Securities and Investment Techniques" for a
description of these investment techniques and a discussion of the other
techniques in which the Portfolio may engage.

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"DOGS" OF WALL STREET PORTFOLIO

The investment objective of the "Dogs" of Wall Street Portfolio is to seek total
return (including capital appreciation and current income) through a passively
managed strategy involving the annual selection of thirty high dividend yielding
common stocks from the Dow Jones Industrial Average ("DJIA")(1) and the broader
market. The thirty stocks will consist of (1) the ten highest yielding stocks in
the DJIA and (2) the twenty other highest yielding stocks of the largest
industrial companies in the market (with market capitalizations of at least $1
billion) that have been assessed as being of high quality from the perspective
of historical earnings and dividend performance. The Adviser will rely on
independently published reports for purposes of selecting these twenty stocks.
The Adviser will employ the same methodology, using the same analytical
parameters and benchmarks, in selecting the thirty stocks each year.

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

The Portfolio invests in the thirty common stocks selected according to the
methodology described above. The Adviser will annually rebalance the Portfolio's
holdings within the first several weeks of each year according to the same
selection criteria, based on information as of the preceding December 31. The
Adviser will rebalance the Portfolio's holdings to create equal weightings among
the thirty stocks by purchasing new stocks that meet the selection criteria,
selling stocks that no longer meet the selection criteria, and adjusting its
ownership of stocks that continue to meet the criteria in order to achieve the
proper weightings of each of the thirty stocks.

The Portfolio employs a buy and hold strategy over the course of each year,
which ignores market timing and rejects active management. The Adviser
anticipates that the thirty stocks held by the Portfolio will remain the same
throughout the course of a year, despite any adverse developments concerning a
particular stock, an industry, the economy or the stock market generally.
However, due to purchases and redemptions of Portfolio shares during the year
and changes in the market value of the stock positions held by the Portfolio, it
is likely that the weightings of the stock positions in the Portfolio will
fluctuate throughout the year.

As the Portfolio's shares are sold during the year, new cash received by the
Portfolio is first used to the extent necessary to meet redemption requests. The
balance of any such cash is invested weekly (or more frequently as the Adviser
deems necessary) in the thirty stocks selected for the Portfolio as of its most
recent rebalancing in proportion to the current weightings of such stocks in the
Portfolio and without any intention to rebalance the Portfolio's holdings on an
interim basis. To the extent redemptions exceed available cash, the Portfolio
generally meets redemption requests by selling stocks on a pro rata basis
(subject to rounding and avoidance of odd lots), based on the current weightings
of such stocks in the Portfolio and without any intention to rebalance the
Portfolio's holdings on an interim basis.

The Adviser intends that the Portfolio be at all times fully invested in the
stocks that are selected using the criteria described above, but reserves the
right to deviate from the investment strategy to the extent necessary to comply
with federal tax laws applicable to the Portfolio. In order to enhance its
income, the Portfolio may lend its securities and enter into repurchase
agreements. It may also seek to equitize uninvested cash through the use of
options and futures strategies. See "Description of Securities and Investment
Techniques."

HISTORICAL PERFORMANCE INFORMATION

The following tables compare the actual performance of the S&P 500 and the
hypothetical performance of a model portfolio employing the same stock selection
criteria as the "Dogs" of Wall Street Portfolio, rebalanced annually, for the
historical periods indicated. The S&P 500 is used as the performance comparison
because (1) it is the performance benchmark against which the Portfolio will be
measured; and (2) it is the index most widely

- ---------------
(1) "Dow Jones Industrial Average" is a trademark of Dow Jones & Company, Inc.
("Dow Jones"). None of the Trust, the Portfolio or SAAMCo is affiliated
with, nor is the Trust or the Portfolio sponsored by, Dow Jones. Dow Jones
has not participated in any way in the creation of the Trust or the
Portfolio or in the selection of the stocks included in the Portfolio, nor
has Dow Jones viewed or approved any information included in this
Prospectus.

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<PAGE> 19

recognized as representative of the performance of the U.S. stock market. The
S&P 500 is a composite index consisting of 500 common stocks that are traded on
the New York Stock Exchange ("NYSE"), American Stock Exchange and NASDAQ
National Market System. The companies that are included in the S&P 500 are
leading companies of important industry segments within the U.S. economy.

The Portfolio's actual performance may differ from that of the hypothetical
model for the following reasons: the Portfolio may not be fully invested at all
times; appreciation or depreciation in an individual stock's value may cause
stocks held by the Portfolio to be weighted unequally at any particular time;
cash surpluses and deficits from purchases and redemptions of Portfolio shares
may cause the Adviser to buy and sell stocks for the Portfolio between annual
rebalancings; the Adviser may modify slightly the Portfolio's investment
strategy as federal tax laws require; and the returns indicated in the
hypothetical model exclude commission costs, advisory fees, expenses and taxes
that would be borne by the Portfolio.

Because the returns for the model portfolio are hypothetical, they do not
represent actual trading or the impact that material economic and market factors
might have had on the Adviser's decision-making under actual circumstances.
However, except as described above, the Adviser can presently foresee no
circumstances that would cause deviation from the stock selection criteria used
in managing the Portfolio. All returns contained in the tables below reflect
reinvestment of dividends and other earnings. The results of the Portfolio's
strategy are based on statistical data gathered by the Adviser.

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

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

<S> <C> <C>
ANNUAL RESULTS

<CAPTION>
"DOGS" OF
WALL STREET
YEAR ENDED S&P 500 STRATEGY
<S> <C> <C>
12/31/88............. 16.56% 34.4%
12/31/89............. 31.62% 32.3%
12/31/90............. -3.10% -1.1%
12/31/91............. 30.40% 39.3%
12/31/92............. 7.61% 11.9%
12/31/93............. 10.06% 12.7%
12/31/94............. 1.82% 10.2%
12/31/95............. 37.55% 36.8%
12/31/96............. 22.95% 20.8%
12/31/97............. 33.35% 31.2%
</TABLE>
<TABLE>
<CAPTION>

<S> <C> <C>
SUMMARY RESULTS

<CAPTION>
"DOGS" OF
WALL STREET
YEAR ENDED S&P 500 STRATEGY
<S> <C> <C>
Arithmetic average... 18.83% 22.85%
Standard deviation of
return............. 14.42% 13.82%
1-yr................. 33.35% 31.20%
3-yr compounded*..... 31.14% 29.43%
5-yr compounded*..... 20.25% 21.91%
7-yr compounded*..... 19.74% 22.74%
10-yr compounded*.... 18.03% 22.13%
</TABLE>

* Quoted return is for the most recent period ended December 31, 1997

ALLIANCE GROWTH PORTFOLIO

PUTNAM GROWTH PORTFOLIO

The two Growth Portfolios have the same investment objectives, policies and
restrictions, but have different Subadvisers. The investment objective of each
Portfolio is to seek long-term growth of capital. Whatever current income is
generated by the Portfolio is incidental to the objective of capital growth.
Each Portfolio's objective of capital growth is sought by investing primarily in
common stocks or securities with common stock characteristics. Securities
designated as having "common stock" characteristics include, but are not limited
to, securities convertible into or exchangeable for common stock. Such
convertible securities may be rated below BBB by S&P or Baa by Moody's (i.e.,
junk bonds). See "Description of Securities and Investment Techniques -- Risk
Factors Relating to High-Yield, High-Risk Securities". In addition, each
Portfolio may from time to time purchase preferred stocks and debt securities.
Each Portfolio's Subadviser considers the factors that it believes affect
potential for capital appreciation, including an

19
<PAGE> 20

issuer's current and projected revenue, earnings, cash flow and assets, as well
as general market conditions. When the outlook for common stocks is not
considered promising, for temporary defensive purposes, a substantial portion of
the assets may be invested in securities of the U.S. government, its agencies
and instrumentalities, cash and cash equivalents (such as commercial bank and
savings association obligations, commercial paper and short-term corporate bonds
and notes) and repurchase agreements. Because the securities purchased by the
Portfolios, in pursuing their investment objective, are selected for growth
potential rather than production of income, the market values of such securities
(and therefore, to a large extent, the net asset values per share of the
Portfolios) will tend to be more volatile in response to market changes than
they would be if income-producing securities were sought for investment by the
Portfolios. Up to 25% of each Portfolio's total assets may be invested in
foreign securities. See "Description of Securities and Investment
Techniques -- Risks and Considerations Applicable to Investment in Securities of
Foreign Issuers" and the Statement of Additional Information.

REAL ESTATE PORTFOLIO

The investment objective of the Real Estate Portfolio is total return through a
combination of growth and income. It invests primarily in securities of
companies principally engaged in or related to the real estate industry or which
own significant real estate assets or which primarily invest in real estate
financial instruments. Normally, at least 65% of its total assets will be
invested in securities of companies which have at least 50% of the value of
their assets, gross income or net profits attributable to ownership, financing,
construction, management or sale of real estate, or to products or services that
are related to real estate or the real estate industry. The Portfolio does not
invest directly in real estate. Real estate companies include real estate
investment trusts ("REITs"), or other securitized real estate investments,
brokers, developers, lenders and companies with substantial real estate holdings
such as paper, lumber, hotel and entertainment companies. The Portfolio invests
in common stocks and other equity securities and debt securities. In keeping
with its primary growth objective, it will normally invest primarily in equity
securities (including securities convertible into equity securities). It may
also invest in fixed income securities for income or as a defensive strategy
when the Subadviser believes that adverse economic or market conditions require
such strategy.

The remaining 35% of the Portfolio's assets may be invested in securities of
companies in any other industries. These may include companies which are not
primarily involved in real estate operations or ownership but which have
products or services relating to the real estate industry, such as manufacturers
and distributors of building supplies, financial institutions which make or
service real estate loans or companies which have substantial real estate assets
such as some companies in the energy, retailing or railroad industries. There is
no limitation on such investments except that the Portfolio intends to invest
less than 25% of its total assets in the securities of any industry other than
the real estate industry.

The Portfolio will invest in shares of REITs. REITs pool investors' funds for
investment primarily in income producing real estate or real estate related
loans or interests. A REIT is not taxed on income distributed to shareholders if
it complies with various requirements relating to its organization, ownership,
assets and income and with the requirement that it distribute to its
shareholders at least 95% of its taxable income (other than net capital gains)
for each taxable year. REITs can generally be classified as Equity REITs,
Mortgage REITs and Hybrid REITs. Equity REITs invest the majority of their
assets directly in real property and derive their income primarily from rents.
Equity REITs can also realize capital gains by selling property that has
appreciated in value. Mortgage REITs invest the majority of their assets in real
estate mortgages and derive their income primarily from interest payments.
Hybrid REITs combine the characteristics of both Equity REITs and Mortgage
REITs.

Risk Factors Applicable to The Real Estate Portfolio -- The Real Estate
Portfolio will generally not purchase securities rated BB by S&P or Ba by
Moody's or lower if such purchase would then cause more than 30% of the
Portfolio's net assets to be invested in such securities. The Real Estate
Portfolio does not presently intend to have more than 5% of its assets invested
in fixed income securities rated below BBB by S&P or Baa by Moody's in the near
future.

Because the Portfolio invests primarily in the real estate industry, it is
subject to risks associated with the direct ownership of real estate. The
Portfolio could also be subject to such risks by reason of direct ownership as a
result of a default on a debt security it may own. These risks include declines
in the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and

20
<PAGE> 21

operating expenses, changes in zoning laws, casualty or condemnation losses,
fluctuations in rental income, changes in neighborhood values, the appeal of
properties to tenants and increases in interest rates. If the Portfolio has
rental income or income from the disposition of real property, the receipt of
such income may adversely affect its ability to retain its tax status as a
regulated investment company.

Equity REITs may be affected by changes in the value of the underlying property
owned by the trusts, while Mortgage REITs may be affected by the quality of
credit extended. Equity and Mortgage REITs are dependent upon management skill,
may not be diversified and are subject to project financing risks. Such trusts
are also subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Internal Revenue Code of 1986, as amended (the
"Code") and to maintain exemption from registration under the 1940 Act. Changes
in interest rates may also affect the value of the debt securities in the
Portfolio's portfolio. By investing in REITs indirectly through the Portfolio, a
shareholder will bear not only his proportionate share of the expense of the
Portfolio, but also, indirectly, similar expenses of the REITs, including
compensation of management.

SMALL COMPANY VALUE PORTFOLIO

The Small Company Value Portfolio seeks capital appreciation. Under normal
market conditions, Small Company Value Portfolio invests at least 65% of its
total assets in equity securities of small capitalization companies. For these
purposes, small capitalization companies are deemed those with market
capitalizations of less than $1 billion at the time of purchase. In selecting
equity securities, the Subadviser utilizes a value-based selection discipline,
investing in equity securities it believes are undervalued relative to other
securities in the same industry or market at the time of purchase. In assessing
relative value, the Subadviser will consider such factors as ratios of market
price to earnings, market price to book value, market price to assets, estimated
earnings growth rate, cash flow and liquidation value.

The Portfolio also may invest up to 35% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of $1 billion or more
and in fixed income securities including securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities, nonconvertible preferred
stocks, nonconvertible corporate debt securities, and short-term obligations
including "cash items" such as rated commercial paper and variable amount master
demand notes; U.S. dollar-denominated time and savings deposits (including
certificates of deposit); bankers' acceptances; repurchase agreements
collateralized by eligible investments of the Portfolio; securities of other
mutual funds which invest primarily in debt obligations with remaining
maturities of 397 days or less (which investments also are subject to the
advisory fee); and other similar high-quality short-term U.S. dollar-
denominated obligations.

Subject to the limitations stated above, the Portfolio may invest up to 25% of
its total assets in securities of foreign issuers which are either listed on a
U.S. stock exchange or represented by ADRs. Investment in foreign securities
involves special risks. See "Description of Securities and Investment
Techniques -- Risks and Considerations Applicable to Investment in Securities of
Foreign Issuers."

In addition, the Portfolio may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering up to
25% of the equity securities owned by the Portfolio; (iv) purchase securities on
a when-issued or delayed delivery basis; and (v) engage in the lending of fund
securities. See "Description of Securities and Investment Techniques" for more
information on these securities and strategies.

For temporary defensive purposes, the Portfolio may without limitation hold cash
or invest in cash items of the kinds described above. The Portfolio also may
invest not more than 35% of its total assets in cash and cash items in order to
utilize assets awaiting normal investment.

AGGRESSIVE GROWTH PORTFOLIO

The Aggressive Growth Portfolio seeks capital appreciation as its investment
objective. The Portfolio pursues this investment objective by investing, under
normal circumstances, at least 65% of its total assets in the equity securities
of small, lesser known or new growth companies or industries, such as
telecommunications, media and biotechnology. Such "Small Cap" companies will
typically have, at the time of purchase, market capitalizations of under $1
billion and have achieved, or are expected to achieve, growth or earnings over
various major business cycles. These companies may offer greater potential for
capital appreciation but may also involve certain risks. See "Description of
Securities and Investment Techniques -- Investment in Small Cap

21
<PAGE> 22

Companies." The Portfolio may invest in securities issued by well known and
established domestic or foreign companies, as well as in newer and less-
seasoned companies. Such securities may be listed on an exchange or traded
over-the-counter. In addition, the Portfolio may invest up to 35% of its total
assets in debt securities that have the potential for capital appreciation due
to anticipated market conditions. The Portfolio may invest in securities rated
as low as BBB by S&P or Baa by Moody's.

INTERNATIONAL GROWTH AND INCOME PORTFOLIO

The investment objective of the International Growth and Income Portfolio is
growth of capital with current income as a secondary objective. The Portfolio
will seek its objectives by investing primarily in common stocks that offer
potential for capital growth. The Portfolio may also invest, consistent with its
objectives, in stocks that offer potential for current income. Under normal
market conditions, the Portfolio expects to invest substantially all of its
assets in securities principally traded on markets outside the U.S.

Moreover, the Portfolio will normally diversify its investments among a number
of different countries and, except when investing for defensive purposes, will
invest at least 65% of its total assets in at least three countries other than
the U.S.

The Portfolio may also purchase corporate bonds, notes and debentures (including
those rated below BBB by S&P or Baa by Moody's, i.e., junk bonds), preferred
stocks, securities convertible into common stocks or other equity securities, or
U.S. or foreign government securities if the Subadviser determines that their
purchase would help further the Portfolio's investment objectives or for
temporary defensive purposes. In addition, when circumstances warrant, the
Portfolio may hold some or all of its assets in cash or high-quality money
market instruments. See "Description of Securities and Investment
Techniques -- Corporate Debt Instruments" and "-- Risk Factors Relating to
High-Yield, High-Risk Bonds."

The types of securities selected for the Portfolio may vary from time to time in
light of the Portfolio's investment objective, changes in interest rates, and
economic and other factors. The Subadviser will seek to identify securities that
offer the potential for capital growth, and that are undervalued in relation to
underlying asset values or earnings potential. In selecting securities for the
Portfolio, the Subadviser may invest in the securities of issuers in developed
countries, as well as emerging markets. Investing in emerging markets, however,
may involve risks not generally associated with more developed markets. See
"Description of Securities and Investment Techniques -- Risks and Considerations
Applicable to Investment in Securities of Foreign Issuers" for more details. In
addition, the Subadviser may invest in the securities of companies with equity
market capitalizations of less than $1 billion. These companies may offer
greater potential for capital appreciation, but may also involve certain risks.
See "Description of Securities and Investment Techniques -- Investment in Small
Cap Companies."

GLOBAL EQUITIES PORTFOLIO

The investment objective of the Global Equities Portfolio is long-term growth of
capital through investment primarily in common stocks or securities of U.S. and
foreign issuers with common stock characteristics and through transactions in
foreign currencies. Securities designated as having "common stock"
characteristics include, but are not limited to, securities convertible into or
exchangeable for common stock. A major premise of the Portfolio's investment
approach is the Subadviser's belief that economic and political developments
have helped to create new opportunities worldwide.

The assets of the Portfolio will be invested with geographic flexibility. Under
normal market conditions, the Portfolio will invest at least 50% of its assets
in equity securities of issuers domiciled outside the U.S. or dollar-denominated
securities or securities of U.S. issuers. The Subadviser seeks to identify those
companies, both domestic and foreign, likely to benefit from long-term trends
and shifting trade patterns as they develop in the global economy. The
Subadviser currently does not intend to invest more than 20% of the Portfolio's
total assets in issuers domiciled in, or governments of, developing countries
(i.e., those identified as such by the international financial community).

When prevailing market, economic, political or currency conditions warrant, the
Portfolio may purchase fixed income securities (including securities of
governments other than the U.S., which may be securities of either national,
regional or local governments). For temporary defensive purposes, the Portfolio
may at times maintain all or any part of its assets in U.S. or
dollar-denominated or foreign currency-denominated cash or cash equivalents
(including U.S. government securities, foreign government securities,
certificates of deposit, time deposits, commercial paper, bankers' acceptances
and other high quality short-term debt securities).

22
<PAGE> 23

The Portfolio may, from time to time, use currency transactions and financial
index futures both to enhance returns for a given level of risk and to hedge its
exposure to foreign currencies and local market conditions. While the Portfolio
will have both long and short currency positions, neither its net long foreign
currency exposure nor its net short foreign currency exposure will exceed the
value of the Portfolio's total assets. See "Description of Securities and
Investment Techniques -- Risks and Considerations Applicable to Investment in
Securities of Foreign Issuers" and the Statement of Additional Information.

INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO

The investment objective of the International Diversified Equities Portfolio is
to provide long-term capital appreciation by investing in accordance with
country weightings determined by the Subadviser in common stocks of foreign
issuers which, in the aggregate, replicate broad country indices. The Subadviser
utilizes a top-down approach in selecting investments for the Portfolio that
emphasizes country selection and weighting rather than individual stock
selection. This approach reflects the Subadviser's philosophy that a diversified
selection of securities representing exposure to world markets, based upon the
economic outlook and current valuation levels for each country, is an effective
way to maximize the return and minimize the risk associated with international
investment.

The Subadviser determines country allocations for the Portfolio on an ongoing
basis within policy ranges dictated by each country's market capitalization and
liquidity. The Portfolio will invest in the industrialized countries throughout
the world that comprise the Morgan Stanley Capital International EAFE (Europe,
Australia and the Far East) Index. The Portfolio will also invest in emerging
country equity securities. Further information concerning emerging country
equity securities is contained in the Statement of Additional Information. See
"Description of Securities and Investment Techniques -- Risks and Considerations
Applicable to Investment in Securities of Foreign Issuers."

By analyzing a variety of macroeconomic and political factors, the Subadviser
develops fundamental projections on interest rates, currencies, corporate
profits and economic growth for each country. These country projections are then
used to determine what the Subadviser believes to be a fair value for the stock
market of each country. Discrepancies between actual value and fair value, as
determined by the Subadviser, provide an expected return for each stock market.
The expected return is adjusted by currency return expectations derived from the
Subadviser's purchasing-power parity exchange rate model to arrive at an
expected total return in U.S. dollars. The final country allocation decision is
then arrived at by considering the expected total return in light of various
country specific considerations such as market size, volatility, liquidity and
country risk.

Within a particular country, investments are made through the purchase of common
stocks which, in aggregate, replicate a broad market index, which in most cases
will be the Morgan Stanley Capital International EAFE Index for the given
country. The Subadviser may overweight or underweight an industry segment of a
particular index if it concludes this would be advantageous to the Portfolio.
Common stocks purchased for the Portfolio include common stocks and equivalents,
such as securities convertible into common stocks and securities having common
stock characteristics, such as rights and warrants to purchase common stocks.
Indexation of the Portfolio's stock selection reduces stock-specific risk
through diversification and minimizes transaction costs, which can be
substantial in foreign markets.

Common stocks purchased for the Portfolio normally will be listed on a major
stock exchange in the subject country. The Portfolio will not invest in the
stocks of U.S. issuers. For a description of special considerations and certain
risks associated with investments in foreign issuers, see "Description of
Securities and Investment Techniques -- Risks and Considerations Applicable to
Investment in Securities of Foreign Issuers." The Portfolio may temporarily
reduce its equity holdings in response to adverse market conditions and invest
in domestic, Eurodollar and foreign short-term money market instruments for
defensive purposes. Notwithstanding the foregoing, the Portfolios may seek to
gain exposure to certain foreign markets where direct investment may be
difficult or impracticable through investment in domestic closed-end mutual
funds which invest predominately in such markets.

The Portfolio may also engage in certain options transactions and enter into
financial futures contracts and related options for hedging purposes.

EMERGING MARKETS PORTFOLIO

The investment objective of the Emerging Markets Portfolio is long-term capital
appreciation. The Portfolio will invest in companies that the Subadviser
believes have above-average growth prospects primarily in emerging markets
outside the U.S. The Subadviser currently expects that, under normal

23
<PAGE> 24

market conditions, the Portfolio will invest substantially all of its assets,
other than short-term investments held pending investment, and, except when
investing for defensive purposes as described below, at least 65% of its total
assets, in common stocks and other equity securities of "emerging market"
companies. The Portfolio will consider an issuer of securities to be an
"emerging market" company if it is organized under the laws of an emerging
market country and has a principal office in such country, or if it derives 50%
or more of its revenues from business in emerging market countries. For these
purposes, a country is considered to be an "emerging market country" based on
the Subadviser's evaluation of its level of economic development or the size and
experience of its securities markets. While emerging market countries may change
over time depending on market and economic conditions, at present the Subadviser
believes that these countries include every country in the world except
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,
Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland,
the United Kingdom and the United States. Investing in emerging market countries
generally involves special risks. See "Description of Securities and Investment
Techniques -- Risks and Considerations Applicable to Investment in Securities of
Foreign Issuers." The Portfolio will normally diversify its investments among a
number of different countries.

Common stocks and other equity securities are normally the Portfolio's main
investments. However, the Portfolio may purchase preferred stock, debt
securities and securities convertible into common stock or other equity
securities if the Subadviser believes they would help achieve the Portfolio's
objective. The Portfolio may also hold a portion of its assets in cash or
high-quality money market instruments.

Because the Subadviser evaluates securities for the Portfolio based on their
long-term potential for capital appreciation, the Portfolio's investments may
not appreciate or yield significant income over the shorter term, and, as a
result, the Portfolio's total return over certain periods may be less than that
of other equity mutual funds.

- ---------------------------------------------------------
- ---------------------------------------------------------
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
- ---------------------------------------------------------
- ---------------------------------------------------------

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 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.
Long-term instruments are generally more sensitive to these changes than are
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.

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). The
ability of the issuer of an investment grade debt security to pay interest
and to repay principal is considered to vary from extremely strong (for the
highest ratings) through adequate (for the lowest ratings given above),
although the lower-rated investment grade securities may be viewed as having
speculative elements as well.

Lower Grade -- A designation applied to intermediate and long-term corporate
debt securities that are not investment grade; commonly referred to as "junk
bonds." These include bonds rated BB or below by S&P, or Ba or below by
Moody's. These securities are considered speculative.

The Corporate Bond and Worldwide High Income Portfolios may invest in bonds
rated as low as C by Moody's or D by S&P without limitation. The High-Yield Bond
Portfolio may invest in bonds rated as low as Ca by Moody's or CC by S&P and may
invest no more than 10% of its total net assets in bonds rated as low as C by
Moody's or D by S&P. The Asset Allocation Portfolio may invest in bonds rated as
low as Ca by Moody's or CC by S&P. The

24
<PAGE> 25

International Growth and Income Portfolio may invest up to 20% of its assets in
bonds rated as low as C by Moody's or S&P. The Emerging Markets Portfolio may
invest in both higher-rated and lower-rated fixed income securities and is not
subject to any restrictions based on credit rating. The Equity Index and Small
Company Value Portfolios may invest up to 5% of their net assets in less than
investment grade convertible debt obligations. The Equity Income Portfolio may
invest up to 25% of its net assets in less than investment grade convertible
debt obligations. Bonds rated Ca by Moody's are described as "speculative in a
high degree; often in default or having other marked shortcomings." Bonds rated
D by Moody's -- the lowest rated class -- can be "regarded as having extremely
poor prospects of ever attaining any real investment standing." Not all fixed
income securities are rated, and each of the foregoing Portfolios may invest in
securities that are not rated but that are determined by the Adviser or
Subadviser to be of comparable quality to the rated securities in which the
Portfolio may invest. Bonds rated C by S&P are of the "highest degree of
speculation;" those rated D by that organization are in default and in arrears.

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.

In the case of corporate debt obligations which are convertible into common
stock, these risks may be present in a greater degree where the principal amount
of the obligation is greater than the current market value of the common stock
into which it is convertible.
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, 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. Under such
circumstances, the task of accurate valuation becomes more difficult and
judgment would play a greater role due to the relative lack of reliable and
objective data. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of
high-yield bonds, especially in a thin market.

The Adviser or Subadviser attempts to reduce these risks through diversification
of the applicable Portfolio 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 Adviser
or Subadviser, as

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appropriate, will evaluate the security and determine whether to retain or
dispose of it.

U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. government
include: (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 ("GNMA") 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 the 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, Federal Land Banks, Farmers Home Administration, Central Bank
for Cooperatives, Federal Intermediate Credit Banks and Federal Home Loan Banks.

GNMA CERTIFICATES -- GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
government. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity. Because both interest and principal payments (including prepayments)
on the underlying mortgage loans are passed through to the holder of the
certificate, GNMA certificates are called "pass-through" securities.

Although the mortgage loans in the pool have maturities of up to 30 years, the
actual average life of the GNMA certificates typically will be substantially
less because the mortgages are subject to normal principal amortization and may
be prepaid prior to maturity. Prepayment rates vary widely and may be affected
by changes in market interest rates. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of the GNMA certificates. Conversely, when interest rates are rising, the rate
of prepayment tends to decrease, thereby lengthening the actual average life of
the GNMA certificates. Accordingly, it is not possible to predict accurately the
average life of a particular pool. Reinvestment of prepayments may occur at
higher or lower rates than the original yield on the certificates. Due to the
prepayment feature and the need to reinvest prepayments of principal at current
rates, GNMA certificates can be less effective than typical bonds of similar
maturities at "locking-in" yields during periods of declining interest rates,
although they may have comparable risks of decline in value during periods of
rising interest rates.

FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS -- The Federal National Mortgage
Association ("FNMA"), a federally chartered and privately owned corporation,
issues pass-through securities representing an interest in a pool of
conventional mortgage loans. FNMA guarantees the timely payment of principal and
interest but this guarantee is not backed by the full faith and credit of the
U.S. government. The Federal Home Loan Mortgage Corporation ("FHLMC"), a
corporate instrumentality of the United States, issues participation
certificates that represent an interest in a pool of conventional mortgage
loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal and maintains reserves to protect holders against losses
due to default, but the certificates are not backed by the full faith and credit
of the U.S. government. As is the case with GNMA certificates, the actual
maturity of and realized yield on particular FNMA and FHLMC pass-through
securities will vary based on the prepayment experience of the underlying pool
of mortgages.

OTHER MORTGAGE-RELATED SECURITIES -- The Global Bond, Corporate Bond, High-Yield
Bond, SunAmerica Balanced, and Asset Allocation Portfolios may invest in
collateralized mortgage obligations ("CMOs") or mortgage-backed bonds issued by
financial institutions such as commercial banks, savings and loan associations,
mortgage banks and securities broker-dealers (or affiliates of such institutions
established to issue these securities). CMOs are obligations fully
collateralized directly or indirectly by a pool of mortgages on which payments
of principal and interest are dedicated to payment of principal and interest on
the CMOs. Payments on the underlying mortgages (both interest and principal) are
passed through to the holders, although not necessarily on a pro rata basis, on
the same schedule

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<PAGE> 27

as they are received. Mortgage-backed bonds are general obligations of the
issuer fully collateralized directly or indirectly by a pool of mortgages. The
mortgages serve as collateral for the issuer's payment obligations on the bonds,
but interest and principal payments on the mortgages are not passed through
either directly (as with GNMA certificates and FNMA and FHLMC pass-through
securities) or on a modified basis (as with CMOs). Accordingly, a change in the
rate of prepayments on the pool of mortgages could change the effective maturity
of a CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds may be callable by the issuer prior to maturity).

The Corporate Bond, Global Bond, High-Yield Bond, Asset Allocation and Emerging
Markets Portfolios may also invest in stripped mortgage-backed securities
("SMBS"), which are derivative multiclass mortgage securities, provided they are
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions from a pool of mortgage assets. A
common type of SMBS will have one class receiving all of the interest from the
mortgage assets, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying mortgage assets experience
greater-than-anticipated prepayments of principal, the Portfolio may fail to
fully recoup its initial investment in these securities. Although the market for
such securities is increasingly liquid, certain SMBS may not be readily
marketable and will be considered illiquid for purposes of the Portfolios'
limitation on investments in illiquid securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage assets are generally higher
than prevailing market yields on other mortgage-backed securities because their
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped.

ASSET-BACKED SECURITIES -- These securities represent an interest in a pool of
consumer or other types of loans ("asset-backed securities"). 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. Some asset-backed
securities may be subject to early prepayment of principal, which can be
expected to accelerate during periods of declining interest rates. Such
prepayments can usually be reinvested only at the lower yields then prevailing
in the market. Therefore, during periods of declining interest rates, asset-
backed securities are less likely than other fixed income obligations to
appreciate in value and less effective at locking in a particular yield. On the
other hand, asset-backed securities are subject to substantially the same risk
of depreciation during periods of rising interest rates as other fixed income
securities.

DOLLAR ROLLS -- The Corporate Bond, Global Bond, High-Yield Bond, SunAmerica
Balanced, Asset Allocation and Emerging Markets Portfolios may enter into
"dollar rolls" in which the 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. A
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. A Portfolio also could be compensated through the receipt of fee income
equivalent to a lower forward price. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position which matures on or before the forward settlement date of the
dollar roll transaction. The Portfolio will hold and maintain in a segregated
account until the settlement date cash or liquid securities in an amount equal
to the forward purchase price. The Portfolios will only enter into covered
rolls. Covered rolls are not treated as a borrowing or other senior security and
will be excluded from the calculation of each Portfolio's borrowings and other
senior securities. 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 that 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 or Subadviser's ability to predict
correctly interest rates and in the case of mortgage dollar rolls, mortgage
prepayments. For these reasons,
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<PAGE> 28

there is no assurance that dollar rolls can be successfully employed.

SHORT-TERM DEBT SECURITIES -- Debt securities maturing within 397 days of the
date of purchase include (1) commercial bank obligations (certificates of
deposit, bankers' acceptances (time drafts 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)), (2) savings association obligations
(certificates of deposit issued by mutual savings banks or savings and loan
associations), (3) commercial paper (short-term notes with maturities of up to 9
months issued by corporations or governmental bodies), (4) corporate bonds and
notes (corporate obligations that mature, or that may be redeemed, in 397 days
or less), and (5) 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 397 days, they are also
considered short-term debt securities.

ZERO-COUPON, PAY-IN-KIND AND DEFERRED INTEREST BONDS -- The Corporate Bond,
Global Bond, High-Yield Bond, Worldwide High Income, SunAmerica Balanced, Asset
Allocation, and Venture Value Portfolios may invest in zero-coupon bonds as well
as deferred interest bonds, or other obligations that contain "original issue
discount" for federal income tax purposes. In addition, the Corporate Bond,
High-Yield Bond and Worldwide High Income Portfolios may invest in pay-in-kind
securities. Zero-coupon, deferred interest and capital appreciation bonds are
debt obligations which are issued or purchased at a significant discount from
face value. Pay-in-kind 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 than do 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.

REPURCHASE AGREEMENTS -- Each Portfolio may enter into repurchase agreements,
under which the Portfolio buys a security and obtains a simultaneous commitment
from the seller to repurchase the security at a specified time and price. The
seller must maintain appropriate collateral in a segregated account. Each
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 or applicable Subadviser,
subject to the oversight of the Board of Trustees. 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.

REVERSE REPURCHASE AGREEMENTS -- The Cash Management, Corporate Bond, High-Yield
Bond, Worldwide High Income, SunAmerica Balanced, Utility, Federated Value and
Aggressive Growth Portfolios may enter into reverse repurchase agreements. In a
reverse repurchase agreement, the Portfolio sells a security subject to the
right and obligation to repurchase such security. The Portfolio then invests the
proceeds from the transaction in another obligation in which the Portfolio is
authorized to invest. In order to minimize any risk involved, the Portfolio
maintains in a segregated account cash or liquid securities equal in value to
the repurchase price.

ILLIQUID SECURITIES -- Each of the Portfolios may invest no more than 15% (10%
in the case of the Cash Management Portfolio) of the value of its net assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, certain interest-rate and
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 Trustees, or the Adviser (or Subadviser, as the
case may be) pursuant to guidelines established by the Board of Trustees, 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.

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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 "Investment
Objectives and Policies -- Illiquid Securities" in the Statement of Additional
Information for a further discussion of investments in such securities.

FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED AND DELAYED-DELIVERY
TRANSACTIONS -- Each Portfolio (except Equity Index Portfolio) may purchase
securities on a firm commitment, when-issued or delayed-delivery basis. Firm
commitment agreements and when-issued or delayed-delivery transactions call for
the purchase or sale of securities at an agreed-upon price on a specified future
date. While a Portfolio will only purchase securities on a when-issued or
delayed-delivery basis with the intention of acquiring the securities, the
Portfolio may sell the securities before the settlement date, if it is deemed
advisable to do so. At the time a Portfolio makes the commitment to purchase
securities on a when-issued or delayed-delivery basis, the Portfolio will record
the transaction and thereafter reflect the value, each day, of such security in
determining the net asset value of the Portfolio. At the time of delivery of the
securities, the value may be more or less than the purchase price. A Portfolio
will maintain in a segregated account liquid assets having a value equal to or
greater than the Portfolio's purchase commitments. The Portfolio will likewise
segregate liquid assets with respect to securities sold on a delayed-delivery
basis.

INTEREST-RATE SWAPS, MORTGAGE SWAPS, CAPS, FLOORS AND COLLARS -- In order to
protect the value of the Corporate Bond, Global Bond, Asset Allocation and
Emerging Markets Portfolios from interest rate fluctuations and to hedge against
fluctuations in the fixed income market in which the Portfolio's investments are
traded, the Portfolios may enter into interest-rate swaps and mortgage swaps or
purchase or sell interest-rate caps, floors or collars. A 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 Global Bond Portfolio may also enter into interest-rate swaps
for non-hedging purposes. Interest-rate swaps involve the exchange by the
Portfolio with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating-rate payments for fixed-rate payments.
Since interest-rate swaps are individually negotiated, the Portfolios expect to
achieve an acceptable degree of correlation between their respective portfolio
investments and their interest-rate positions. The Portfolios will only enter
into interest-rate swaps on a net basis, which means that the two payment
streams are netted out, with the Portfolios receiving or paying, as the case may
be, only the net amount of the two payments. Interest-rate swaps do not involve
the delivery of securities, other underlying assets or principal. Accordingly,
the risk of loss with respect to interest-rate swaps is limited to the net
amount of interest payments that the Portfolio is contractually obligated to
make. If the other party to an interest-rate swap defaults, the Portfolio's risk
of loss consists of the net amount of interest payments that the Portfolio is
contractually entitled to receive, if any. 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.

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 a 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. An interest-rate collar is the
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates.

The Portfolios will not enter into any mortgage swap, interest-rate swap, cap or
floor transaction unless the unsecured commercial paper, senior debt, or the
claims paying ability of the other party thereto is rated either AA or A-1 or
better by S&P or Aa or P-1 or better by Moody's, or is determined to be of
equivalent quality by the applicable Subadviser.

STRUCTURED SECURITIES -- The Global Bond, Worldwide High Income, Asset
Allocation, International Growth and Income and Emerging Markets Portfolios may
invest in structured notes, bonds or debentures, the value of the principal of
and/or interest on which is determined by reference to changes in the value of
specific currencies, interest
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rates, commodities, indices or other financial indicators (the "Reference") or
the relative change in two or more References. The interest rate or the
principal amount payable upon maturity or redemption may be increased or
decreased depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal is
due at maturity and, therefore, may result in the loss of the Portfolio's
investment. Structured securities may be positively or negatively indexed, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the
change in the value of the Reference. Consequently, structured securities entail
a greater degree of market risk than other types of debt obligations. Structured
securities may also be more volatile, less liquid and more difficult to price
accurately than less complex securities.

LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS -- The Worldwide High Income
Portfolio may invest a portion of its assets in "loan participations." By
purchasing a loan participation, the Portfolio acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate
borrower. Many such loans are secured, and most impose restrictive covenants
which must be met by the borrower. These loans are made generally to finance
internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs
and other corporate activities. Such loans may be in default at the time of
purchase. The Portfolio may also purchase trade or other claims against
companies, which generally represent money owed by the company to a supplier of
goods or services. These claims may also be purchased at a time when the company
is in default. Certain of the loan participations acquired by the Portfolio may
involve credit facilities or other standby financing commitments which obligate
the Portfolio to pay additional cash on a certain date or on demand.

The highly leveraged nature of many such loans may make such loans especially
vulnerable to adverse changes in economic or market conditions. Loan
participations and other direct investments may not be in the form of securities
or may be subject to restrictions on transfer, and only limited opportunities
may exist to resell such instruments. As a result, the Portfolio may be unable
to sell such investments at an opportune time or may have to resell them at less
than fair market value.

SECURITIES LENDING -- Each Portfolio (except the Cash Management 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 or Subadviser to be
creditworthy. The proceeds of such loans will be invested in high-quality
short-term debt securities, including repurchase agreements.

BORROWING AND OTHER FORMS OF LEVERAGE -- All of the Portfolios (except the Cash
Management Portfolio) are authorized to borrow money to the extent permitted by
applicable law. The 1940 Act permits each Portfolio to borrow up to 33 1/3% of
its total assets from banks for temporary or emergency purposes. In seeking to
enhance performance, a Portfolio may borrow for investment purposes and may
pledge assets to secure such borrowings. The Cash Management Portfolio may not
borrow money, except from banks for temporary emergency purposes, and then in an
amount not in excess of 5% of the value of the Portfolio's total assets. In the
event that asset coverage for a Portfolio's borrowings falls below 300%, the
Portfolio will reduce within three days the amount of its borrowings in order to
provide for 300% asset coverage.

To the extent a Portfolio borrows for investment purposes, borrowing creates
leverage which is a speculative characteristic. Although a Portfolio is
authorized to borrow, it will do so only when the Adviser or Subadviser believes
that borrowing will benefit the Portfolio after taking into account
considerations such as the costs of borrowing and the likely investment returns
on securities purchased with borrowed monies. Borrowing by a Portfolio will
create the opportunity for increased net income but, at the same time, will
involve special risk considerations. Leveraging results from borrowing and will
magnify declines as well as increases in a Portfolio's net asset value per share
and net yield. The Portfolios expect that all of their borrowing will be made on
a secured basis. The Portfolios will maintain a segregated account of cash or
other liquid assets securing the borrowing for the benefit of the lenders. If
assets used to secure a borrowing decrease in value, a Portfolio may be required
to

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pledge additional collateral to the lender in the form of cash or securities to
avoid liquidation of those assets.

INVESTMENT IN SMALL CAP COMPANIES -- The SunAmerica Balanced, Venture Value,
Small Company Value and Aggressive Growth Portfolios and certain other
Portfolios may invest in small companies having market capitalizations of under
$1 billion. While such companies may realize more substantial growth than
larger, more established companies, they may also be subject to some additional
risks. The securities of these small companies may not be readily marketable,
making it difficult to dispose of shares when desirable. A risk of investing in
smaller, emerging companies is that they often are at an earlier stage of
development and therefore have limited product lines, market access for such
products, financial resources and depth in management then larger, more
established companies and their securities may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. In addition, certain smaller issuers may face
difficulties in obtaining the capital necessary to continue in operation and may
go into bankruptcy, which could result in a complete loss of an investment.
Smaller companies also may be less significant factors within their industries
and may have difficulty withstanding competition from larger companies.

RISKS AND CONSIDERATIONS APPLICABLE TO INVESTMENT IN SECURITIES OF FOREIGN
ISSUERS -- There are elements of risk and opportunity involved, when investments
in foreign issuers are made, which include: trade imbalances and related
economic policies; currency fluctuations; foreign exchange control policies;
taxation on income from sources in such countries; expropriation or confiscatory
taxation; limitation on the removal of funds or other assets; political or
social instability; the diverse structure and liquidity of securities markets in
various countries and regions; policies of governments with respect to possible
nationalization of their industries; and other specific local political and
economic considerations. There may be less information publicly available about
foreign companies, and foreign companies may not be subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those of U.S. companies. Investment decisions made in the context
of the Portfolios' objectives and policies involve the evaluation of
opportunities and risks presented by probable future currency relationships,
especially during periods of broad adjustments in such relationships.
The Emerging Markets Portfolio will invest, and the other Portfolios (except the
Cash Management and Equity Index Portfolios) may invest, in issuers domiciled
in, or governments of, developing countries or emerging markets as well as
developed countries. Although there is no universally accepted definition, a
developing or emerging market country is generally considered to be a country
which is 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 have been more volatile than the markets of developed
countries; however, such markets can provide higher rates of return to
investors. The risks described above with respect to investment in foreign
securities generally may be exacerbated with respect to investments in
developing or emerging 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.

The performance of investments in securities denominated in a foreign currency
("non-dollar securities") will depend, among other things, on the strength of
the foreign currency against the dollar and the interest rate environment in the
country issuing the foreign currency. Absent other events which could otherwise
affect the value of non-dollar securities (such as a change in the political
climate or an issuer's credit quality), appreciation in the value of the foreign
currency generally can be expected to increase the value of a Portfolio's
nondollar securities in terms of U.S. dollars. A rise in foreign interest rates
or decline in the value of foreign currencies relative to the U.S. dollar
generally can be expected to depress the value of the Portfolio's non-dollar
securities. Currencies are evaluated on the basis of fundamental economic
criteria (e.g., relative inflation levels and trends, growth rate forecasts,
balance of payments status and economic policies) as well as technical and
political data.

Additional costs could be incurred in connection with a Portfolio's foreign
investment activities. Foreign brokerage commissions are generally higher than
in the U.S. and a Portfolio will bear certain expenses in connection with its
foreign currency transactions. Increased custodian costs as well as
administrative difficulties (such as the applicability of foreign laws to
foreign custodians in various circumstances

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including bankruptcy, ability to recover lost assets, expropriation,
nationalization, record access, etc.) may be associated with the maintenance of
assets in foreign jurisdictions.

AMERICAN DEPOSITARY RECEIPTS -- Certain of the Portfolios may invest in American
Depositary Receipts ("ADRs") which are certificates issued by a U.S. depository
(usually a bank) and represent a specified quantity of shares of an underlying
non-U.S. stock on deposit with a custodian bank as collateral. Because ADRs
trade on U.S. securities exchanges, the Portfolios' Subadvisers do not treat
them as foreign securities. Nonetheless, they are subject to many of the risks
of foreign securities such as changes in exchange rates and more limited
information about foreign issuers.

FOREIGN CURRENCY TRANSACTIONS -- Currency exchange rate fluctuations are a major
area of risk and opportunity for the Global Bond, Worldwide High Income,
International Growth and Income, Global Equities, International Diversified
Equities and Emerging Markets Portfolios, and is of some risk to the other
Portfolios. Each Portfolio (other than the Cash Management and Equity Index
Portfolios), has the ability to hold a portion of its assets in foreign
currencies and to enter into forward foreign currency exchange contracts. Each
may also purchase and sell exchange-traded futures contracts relating to foreign
currency and purchase and sell put and call options on currencies and futures
contracts. A significant portion of the Portfolios' currency transactions will
be over-the-counter transactions.

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 (other than the Cash Management and Equity Index Portfolios and
except as described below), 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 the Portfolio's position, the
Portfolio may forfeit the entire amount of the premium plus related transaction
costs. As with other kinds of option transactions, the writing of an option on
currency will constitute only a partial hedge, up to an 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 that invests in foreign securities may utilize certain techniques
to attempt to enhance return, including forward foreign currency exchange
contracts, currency options and currency swaps. These techniques may be used
when the Subadviser anticipates that a foreign currency will appreciate or
depreciate in value, but securities denominated in that currency do not present
attractive investment opportunities or are not included in the Portfolio. Each
Portfolio may also use currency contracts and options to cross-hedge, which
involves selling or purchasing instruments on 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, each Portfolio will segregate
cash or liquid securities in an amount sufficient to meet its payment
obligations in these transactions or otherwise "cover" the obligation. See the
Statement of Additional Information for more information regarding foreign
currency transactions.

The Global Bond, Worldwide High Income, Asset Allocation, Real Estate,
International Growth and Income, Global Equities, International Diversified
Equities and Emerging Markets Portfolios may enter into currency swaps. Currency
swaps involve the exchange by the 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.
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 the Adviser or a Subadviser is incorrect
in its forecasts of market values and currency exchange rates, the investment
performance of the respective Portfolio would be less favorable than it would
have been if this investment technique were not used.

EURO CONVERSION -- Effective January 1, 1999, several European countries will
irrevocably fix their existing national currencies to a new single European
currency unit, the "euro." Certain European investments may be subject to
additional risks as a result of this conversion. These risks include adverse
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tax and accounting consequences, as well as difficulty in processing
transactions. The Adviser is aware of such potential problems and is
coordinating efforts to prevent or alleviate their adverse impact on the
Portfolios. There can be no assurance that a Portfolio will not suffer any
adverse consequences as a result of the euro conversion.

OPTIONS ON SECURITIES AND SECURITIES INDICES -- Each Portfolio (other than the
Cash Management Portfolio) may write (sell) covered call and put options on any
securities in which it may invest. The Small Company Value and Equity Income
Portfolios may each write covered call options covering up to 25% of the equity
securities it owns. Each Portfolio may also write call and put options on any
securities index composed of securities in which it may invest. The Small
Company Value Portfolio does not intend to write call and put options on
securities indices. A Portfolio may purchase put and call options on any
securities in which it may invest or options on any securities index composed of
securities in which it may invest. None of the Equity Income, Small Company
Value and Equity Index Portfolios will invest more than 5% of the value of their
total assets in purchased options, provided that options which are "in the
money" at the time of purchase may be excluded from this 5% limitation. A call
option is "in the money" if the exercise price is lower than the current market
price of the underlying security or index, and a put option is "in the money" if
the exercise price is higher than the current market price.

All call options written by each Portfolio are covered, which means that the
Portfolio will own the securities subject to the option so long as the option is
outstanding or will have an absolute and immediate right to acquire such
security without additional cash consideration (or for additional cash
consideration held in a segregated account) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Portfolio
holds a call on the same security and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in liquid
assets. A put option written by a Portfolio is covered if the Portfolio
maintains liquid assets with a value equal to the exercise price in a segregated
account, or else holds a put on the same security and in the same principal
amount as the put written where the exercise price of the put held (i) is equal
to or greater than the exercise price of the put written or (ii) is less than
the exercise price of the put written if the difference is maintained by the
Portfolio in liquid assets. Put and call options written by a Portfolio may also
be covered in such other manner as may be in accordance with the requirements of
the exchange on which, or the counterparty with which, the option is traded, and
applicable laws and regulations.

Each Portfolio (other than the Cash Management, Equity Income, Small Company
Value and Equity Index Portfolios) may purchase and write options on the yield
"spread," or yield differential between two securities. Such transactions are
referred to as "yield curve" options. In contrast to other types of options, a
yield curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a call) or narrows (in the
case of a put), regardless of whether the yields of the underlying securities
increase or decrease. All yield curve options written by a Portfolio will be
covered in the manner described above.

There is no assurance that a liquid secondary market on a domestic or foreign
options exchange will exist for any particular exchange-traded option or at any
particular time. If a Portfolio is unable to effect a closing purchase
transaction with respect to covered options it has written, the Portfolio will
not be able to sell the underlying securities or dispose of assets held in a
segregated account until the options expire or are exercised. Similarly, if a
Portfolio is unable to effect a closing sale transaction with respect to options
it has purchased, it would have to exercise the options in order to realize any
profit and will incur transaction costs upon the purchase or sale of the
underlying securities. In a closing purchase or sale transaction, a Portfolio
acquires a position that offsets and cancels an option position then held by the
Portfolio.

A Portfolio may purchase and sell both options that are traded: (i) on U.S.
exchanges; (ii) on foreign exchanges; and (iii) over-the-counter with broker-
dealers who make markets in these options. The ability to terminate
over-the-counter options is more limited than with exchange-traded options and
may involve the risk that broker-dealers participating in such transactions will
not fulfill their obligations. Until such time as the staff of the U.S.
Securities and Exchange Commission ("SEC") changes its position, each Portfolio
will treat purchased over-the-counter options and all assets used to cover
written over-the-counter options as illiquid securities. However, for
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<PAGE> 34

options written with primary dealers in U.S. government securities pursuant to
an agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to a formula
approved by the SEC staff.

The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The use of options to increase total
return involves the risk of loss if the Adviser or Subadviser is incorrect in
its expectations of fluctuations in securities prices or interest rates. The
successful use of puts for hedging purposes depends in part on the ability of
the Adviser or Subadviser to predict future price fluctuations and the degree of
correlation between the options and securities markets. A Portfolio pays
brokerage commissions or spreads in connection with its options transactions.
The writing of options could significantly increase portfolio turnover rate of a
Portfolio and, therefore, associated brokerage commissions or spreads.

FUTURES CONTRACTS AND OPTIONS THEREON -- Futures contracts may be based on
various securities (including U.S. government securities), securities indices,
foreign currencies and other financial instruments and indices. The purchases of
futures contracts or call options thereon can serve as a long hedge, and the
sale of futures or the purchase of put options thereon can serve as a short
hedge. Writing covered call options on futures contracts can serve as a limited
short hedge, using a strategy similar to that used for writing covered call
options on securities and indices. The Equity Index Portfolio will use futures
contracts and related options as a means of gaining exposure to securities in
the S&P 500.

In addition, subject to regulations promulgated by the Commodity Futures Trading
Commission, a Portfolio may engage in futures transactions for non-hedging
purposes. For example, futures strategies can be used to manage the average
duration of a Portfolio. To shorten the average duration of a Portfolio, the
Portfolio may sell a futures contract or a call option thereon, or purchase a
put option on that futures contract; to lengthen the average duration of a
Portfolio, the Portfolio may buy a futures contract or a call option thereon.

No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Portfolio is required to deposit in a
segregated account with the Trust's custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash
or liquid securities, in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call option on a
futures contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent
a borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Portfolio at the termination of the transaction
if all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Portfolio may be required by an exchange
to increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.

Subsequent "variation margin" payments are made to and from the futures broker
daily as the value of the futures position varies, a process known as "marking
to market." Variation margin does not involve borrowing, but rather represents a
daily settlement of the Portfolio's obligations to or from a futures broker.
When a Portfolio purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Portfolio
purchases or sells a futures contract or writes a call option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Portfolio has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
while a Portfolio may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for the Portfolio than if it
had not entered into any futures contracts or options transactions. The loss
incurred by a Portfolio in writing options on futures is potentially unlimited
and may exceed the amount of the premium received.

In the event of an imperfect correlation between a futures position and a
portfolio position which is intended to be protected, the desired protection may
not be obtained and a Portfolio may be exposed to risk of loss. In addition, it
is not possible to hedge fully or perfectly against currency fluctuations
affecting the value of securities denominated in foreign currencies because the
value of such securities is also likely to fluctuate as a result of independent
factors not related to currency
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fluctuations. Therefore, perfect correlation between a Portfolio's futures
positions and portfolio positions will be impossible to achieve.

Investment in futures contracts or options thereon may also involve liquidity
risks due, for example, to exchange-imposed daily trading limits that would
prevent the Portfolio from liquidating an unfavorable position. See the
Statement of Additional Information concerning futures and options contracts.

WARRANTS -- Certain Portfolios 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.

INVERSE FLOATERS -- The Corporate Bond, Asset Allocation and Emerging Markets
Portfolios may invest in leveraged inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in their market values.
Accordingly, the duration of an inverse floater may exceed its stated final
maturity. Certain inverse floaters may be deemed to be illiquid securities for
purposes of a Portfolio's 15% limitation on investments in such securities.

- ---------------------------------------------------------
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MANAGEMENT
- ---------------------------------------------------------
- ---------------------------------------------------------

The Trust's Board of Trustees is responsible for the overall supervision of the
operations of the Trust and performs various duties imposed on trustees of
investment companies by the 1940 Act. The Board has retained others to provide
certain services to the Trust.

INVESTMENT ADVISER -- SAAMCo, located at The SunAmerica Center, 733 Third
Avenue, New York, New York 10017-3204, is a corporation organized in 1982 under
the laws of the State of Delaware. SAAMCo is an indirect, wholly-owned
subsidiary of Anchor National Life Insurance Company, which is an indirect
subsidiary of SunAmerica Inc., an investment grade financial services company
with assets held at December 31, 1997, of approximately $52 billion. SAAMCo is
engaged in providing investment advice and management services to the Trust,
other mutual funds and private accounts. As of February 28, 1998, SAAMCo
managed, advised and/or administered assets of approximately $13.7 billion.

The Trust, on behalf of each Portfolio, entered into an Investment Advisory and
Management Agreement (the "Agreement") with SAAMCo to handle the Trust's
day-to-day affairs, to provide investment advisory services, office space, and
other facilities for the management of the affairs of the Trust, and to pay the
compensation of certain officers of the Trust who are affiliated persons of
SAAMCo. The Agreement authorizes SAAMCo to retain one or more Subadvisers to
make the investment decisions for the Portfolios, and to place the purchase and
sale orders for the Portfolio transactions. SAAMCo has hired Subadvisers for
certain Portfolios, and manages the investments of other Portfolios itself
without the assistance of a Subadviser. SAAMCo, in consultation with one or more
SunAmerica affiliates, monitors the activities of the Subadvisers, and from time
to time will recommend the replacement of a Subadviser on the basis of
investment performance or other considerations.

SAAMCo may terminate any Subadvisory Agreement without shareholder approval.
Moreover, SAAMCo has obtained an exemptive order from the SEC which would permit
SAAMCo, subject to certain conditions, to enter into Subadvisory Agreements
relating to the Trust with Subadvisers approved by the Board without obtaining
shareholder approval. The exemptive order would also permit SAAMCo, subject to
the approval of the Board but without shareholder approval, to employ new
Subadvisers for new or existing Portfolios, change the terms of particular
Subadvisory Agreements or continue the employment of existing Subadvisers after
events that would otherwise cause an automatic termination of a Subadvisory
Agreement. Shareholders of a Portfolio have the right to terminate such
agreements for such Portfolio at any time by a vote of the majority of the
outstanding voting securities of such Portfolio. Shareholders will be notified
when SAAMCo intends to commence relying on the exemptive order, and would be
notified of any Subadviser changes effected thereafter.

Purchase and sale orders may be directed to any broker including, in the manner
and to the extent permitted by applicable law, affiliates of the Adviser or a
Subadviser. The individual Portfolio Managers for both the Adviser and
Subadvisers are identified in this section.

The term "Assets" means the average daily net assets of the Portfolio. The
investment advisory fees are accrued daily and paid monthly.

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The annual rates of the investment advisory fees which apply to the CASH
MANAGEMENT PORTFOLIO are 0.55% on the first $100 million of Assets, 0.50% on the
next $200 million and 0.45% on Assets over $300 million.

The annual rates of the investment advisory fees which apply to the CORPORATE
BOND PORTFOLIO are 0.70% on the first $50 million of Assets, 0.60% on the next
$100 million, 0.55% on the next $100 million and 0.50% on Assets over $250
million.

The annual rates of the investment advisory fees which apply to both the GLOBAL
BOND AND ASSET ALLOCATION PORTFOLIOS are 0.75% on the first $50 million of
Assets, 0.65% on the next $100 million, 0.60% on the next $100 million and 0.55%
on Assets over $250 million.

The annual rates of the investment advisory fees which apply to the HIGH-YIELD
BOND PORTFOLIO are 0.70% on the first $50 million of Assets, 0.65% on the next
$100 million, 0.60% on the next $100 million and 0.55% on Assets over $250
million.

The annual rate of the investment advisory fees which applies to each of the
WORLDWIDE HIGH INCOME AND INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIOS is 1.00%
of Assets.

The annual rates of the investment advisory fees which apply to each of the
SUNAMERICA BALANCED, GROWTH-INCOME, AND ALLIANCE GROWTH PORTFOLIOS are 0.70% on
the first $50 million of Assets, 0.65% on the next $100 million, 0.60% on the
next $150 million, 0.55% on the next $200 million, and 0.50% on Assets over $500
million.

The annual rates of the investment advisory fees which apply to the UTILITY AND
FEDERATED VALUE PORTFOLIOS are 0.75% on the first $150 million of Assets, 0.60%
on the next $350 million and 0.50% on Assets over $500 million.

The annual rate of the investment advisory fees which applies to the EQUITY
INCOME PORTFOLIO is 0.65% of Assets.

The annual rate of the investment advisory fees which applies to the SMALL
COMPANY VALUE PORTFOLIO is 1.00% of Assets.

The annual rate of the investment advisory fees which applies to the "DOGS" OF
WALL STREET PORTFOLIO is 0.60% of Assets.

The annual rates of the investment advisory fees which apply to the VENTURE
VALUE AND REAL ESTATE PORTFOLIOS are 0.80% on the first $100 million of Assets,
0.75% on the next $400 million and 0.70% on Assets over $500 million.

The annual rates of the investment advisory fees which apply to the PUTNAM
GROWTH PORTFOLIO are 0.85% on the first $150 million of Assets, 0.80% on the
next $150 million and 0.70% on Assets over $300 million.

The annual rates of the investment advisory fees which apply to the AGGRESSIVE
GROWTH PORTFOLIO are 0.75% on the first $100 million of Assets, 0.675% on the
next $150 million, 0.625% on the next $250 million and 0.60% on Assets over $500
million.

The annual rate of the investment advisory fees which applies to the EQUITY
INDEX PORTFOLIO is 0.40% of Assets.

The annual rates of the investment advisory fees which apply to the
INTERNATIONAL GROWTH AND INCOME PORTFOLIO are 1.00% on the first $150 million of
Assets, 0.90% on the next $150 million and 0.80% on Assets over $300 million.

The annual rate of the advisory fee which applies to the EMERGING MARKETS
PORTFOLIO is 1.25% of Assets.

The annual rates of the investment advisory fees which apply to the GLOBAL
EQUITIES PORTFOLIO are 0.90% on the first $50 million of Assets, 0.80% on the
next $100 million, 0.70% on the next $150 million and 0.65% on Assets over $300
million.

For the fiscal year ended November 30, 1997, the following Portfolios paid to
SAAMCo a fee equal to the following percentage of Assets: Cash Management
Portfolio -- 0.54%, Corporate Bond Portfolio -- 0.70%, Global Bond
Portfolio -- 0.72%, High-Yield Bond Portfolio -- 0.66%, Worldwide High Income
Portfolio -- 1.00%, SunAmerica Balanced Portfolio -- 0.70%, Asset Allocation
Portfolio -- 0.61%, Utility Portfolio -- 0.75%, Growth-Income
Portfolio -- 0.60%, Venture Value Portfolio -- 0.74%, Alliance Growth
Portfolio -- 0.59%, Putnam Growth Portfolio -- 0.83%, Aggressive Growth
Portfolio -- 0.75%, Global Equities Portfolio -- 0.76%, Federated Value
Portfolio -- 0.75% and International Diversified Equities Portfolio -- 1.00%.
For the period June 2, 1997 (commencement of operations) through November 30,
1997, the following Portfolios paid to SAAMCo a fee equal to the following
percentage of Assets: Real Estate Portfolio -- 0.69%, International Growth and
Income Portfolio -- 0.58% and Emerging Markets Portfolio -- 0.55%.

The advisory fees for the Putnam Growth Portfolio for the fiscal year ended
November 30, 1997 was calculated at the annual rate set forth in the Statement
of Additional Information under
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"Investment Advisory and Management Agreement -- Advisory Fees."

For certain Portfolios, the Adviser has voluntarily agreed to waive fees or
reimburse expenses, if necessary, to keep annual operating expenses at or below
the lesser of the following percentages of each of the following Portfolio's
Assets: SunAmerica Balanced Portfolio -- 1.00%, "Dogs" of Wall Street
Portfolio -- 0.85%, Utility Portfolio -- 1.05%, Federated Value
Portfolio -- 1.05%, Real Estate Portfolio -- 1.25%, International Growth and
Income Portfolio -- 1.60%, Emerging Markets Portfolio -- 1.90%, Equity Index
Portfolio -- 0.55%, Equity Income Portfolio -- 0.95% and Small Company Value
Portfolio -- 1.40%. The Adviser also may voluntarily waive or reimburse
additional amounts to increase the investment return to a Portfolio's investors.
The Adviser may terminate all such waivers and/or reimbursements at any time.
Further, any waivers or reimbursements made by the Adviser (after June 3, 1996)
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 the Adviser and remain in compliance with the foregoing expense
limitations. For the fiscal year ended November 30, 1997, such recoupments were
as follows: SunAmerica Balanced Portfolio -- 0.02%; Federated Value Portfolio --
0.05%; and Aggressive Growth Portfolio -- 0.01%.

SAAMCo's Fixed Income Investment Team headed by P. Christopher Leary has been
responsible for managing the CASH MANAGEMENT PORTFOLIO, HIGH-YIELD BOND
PORTFOLIO and the fixed income component of the SUNAMERICA BALANCED PORTFOLIO
since October 1996. Mr. Leary is an Executive Vice President of SAAMCo and has
been a portfolio manager with the firm since 1990. John W. Risner has
supervisory responsibility for the High-Yield Bond Portfolio. He is a Vice
President of SAAMCo and joined the firm in February 1997. Prior to joining
SAAMCo, Mr. Risner served as Senior Portfolio Manager of the Value Line
Aggressive Income Trust and the Value Line Convertible Fund.

The Domestic Equity Investment Team is responsible for managing the AGGRESSIVE
GROWTH PORTFOLIO, the equity component of the SUNAMERICA BALANCED PORTFOLIO and
the "DOGS" OF WALL STREET PORTFOLIO. The Team is composed of eight investment
professionals and traders, some of whom may focus more heavily on particular
Portfolios or particular aspects of the domestic equity markets. Donna Calder
has supervisory responsibility for the Aggressive Growth Portfolio. Ms. Calder
is a Vice President of SAAMCo and has been a portfolio manager with the firm
since March 1998. Prior to joining SAAMCo, Ms. Calder was the Founder and
General Partner of Manhattan Capital Partners, L.P. Francis D. Gannon has
supervisory responsibility for the equity component of the SunAmerica Balanced
Portfolio and the "Dogs" of Wall Street Portfolio. Mr. Gannon joined SAAMCo as
an equity analyst in 1993.

SUBADVISERS AND PORTFOLIO MANAGEMENT -- The organizations described below act as
Subadvisers to the Trust and certain of its Portfolios pursuant to Subadvisory
Agreements with SAAMCo. Under the Subadvisory Agreements, the Subadvisers manage
the investment and reinvestment of the assets of the respective Portfolios for
which they are responsible. Each of the Subadvisers is independent of SAAMCo and
discharges its responsibilities subject to the policies of the Trustees and the
oversight and supervision of SAAMCo, which pays the Subadvisers' fees.

Alliance Capital Management L.P. The Subadviser for the Growth-Income, Alliance
Growth and Global Equities Portfolios is Alliance. Alliance is a Delaware
limited partnership with principal offices at 1345 Avenue of the Americas, New
York, New York 10105. Alliance is a major international investment manager,
supervising client accounts with assets totaling over $218.7 billion as of
December 31, 1997. Alliance serves its clients, who primarily are major
corporate employee benefit funds, investment companies, foundations, endowment
funds and public employee retirement systems. As of December 31, 1997, Alliance
was retained as an investment manager of employee benefit fund assets for 28 of
the Fortune 100 companies.

The portion of the annual investment advisory fees received by SAAMCo which is
paid to Alliance with respect to the Growth-Income and Alliance Growth
Portfolios is 0.35% on the first $50 million of Assets, 0.30% on the next $100
million, 0.25% on the next $150 million, 0.20% on the next $200 million and
0.15% on Assets over $500 million; and with respect to the Global Equities
Portfolio is 0.50% on the first $50 million of Assets, 0.40% on the next $100
million, 0.30% on the next $150 million and 0.25% on Assets over $300 million.
For the fiscal year ended November 30, 1997, SAAMCo paid to Alliance, with
respect to each Portfolio subadvised by Alliance, a fee equal to the following
percentage of average daily net assets: Growth-Income Portfolio -- 0.25%,
Alliance Growth Portfolio -- 0.24%, and Global Equities Portfolio -- 0.36%.
James G. Reilly has served as the portfolio manager for the ALLIANCE GROWTH
PORTFOLIO since the inception date of February 9, 1993. Mr. Reilly is a Senior
Vice

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President of Alliance and joined the company in 1984.

Michael R. Baldwin and Bruce W. Calvert have served as co-portfolio managers of
the GROWTH-INCOME PORTFOLIO since the inception date of February 9, 1993 and
Stephen W. Pelensky has served as a co-portfolio manager for the Portfolio since
June 30, 1995. Mr. Baldwin is a Vice President of Alliance and joined the
company in 1989. Mr. Calvert is Vice Chairman and Chief Investment Officer, and
joined Alliance in 1973. Mr. Pelensky is a Vice President of Alliance and joined
the company in 1994. Prior to joining Alliance, Mr. Pelensky was a portfolio
manager and analyst with Affinity Investment Advisors and BEA Associates.

Mr. Pelensky has also served as co-portfolio manager of the domestic equity
component of the GLOBAL EQUITIES PORTFOLIO since June 30, 1995 and Stephen
Beinhacker has served as co-portfolio manager of the foreign equity component of
the Global Equities Portfolio since February 1997. Mr. Beinhacker is a Director
and Vice President of Alliance and joined the company in 1992.

Davis Selected Advisers, L.P. The Subadviser of the Venture Value and Real
Estate Portfolios is Davis Selected, 124 East Marcy Street, Santa Fe, New Mexico
87501. Venture Advisers, Inc. is the sole General Partner of the limited
partnership, which, in turn, is controlled by Shelby M.C. Davis. Davis Selected
provides advisory services to other investment companies. As of February 28,
1998, Davis Selected had over $16.58 billion of assets under management. The
Subadvisory Agreement with Davis Selected provides that Davis Selected may
delegate any of its responsibilities under the agreement to one of its
affiliates, including Davis Selected Advisers -- NY, Inc., a wholly-owned
subsidiary; however Davis Selected remains ultimately responsible (subject to
supervision by SAAMCo) for the assets of the Portfolios allocated to it.

The portion of the annual investment advisory fee received by SAAMCo which is
paid to Davis Selected with respect to the Venture Value and Real Estate
Portfolios is 0.45% on the first $100 million of Assets, 0.40% on the next $400
million and 0.35% on Assets over $500 million. For the fiscal year ended
November 30, 1997, SAAMCo paid to Davis Selected, with respect to the Venture
Value and Real Estate Portfolios, a fee equal to 0.39% and 0.22%, respectively,
of each Portfolio's average daily net assets.
Christopher C. Davis has served as portfolio manager of the VENTURE VALUE
PORTFOLIO since October 1994. He has been employed by Davis Selected since
September, 1989 as a research analyst, assistant portfolio manager, co-portfolio
manager, and portfolio manager, working side by side with Shelby M.C. Davis.

Andrew A. Davis has served as the primary portfolio manager of the REAL ESTATE
PORTFOLIO since October 1994. He is a Vice President of Davis Series, Inc. and a
Co-President of Davis Selected's General Partner. Until February 1993, he was
the Vice President and head of convertible research at PaineWebber Incorporated.
Shelby M.C. Davis previously served as co-portfolio manager of the Venture Value
Portfolio. He will continue to consult with Christopher and Andrew Davis in his
capacity as Chief Investment Officer of Davis Selected.

Federated Investment Counseling. The Subadviser for the Corporate Bond, Utility
and Federated Value Portfolios is Federated, Federated Investors Tower, 1001
Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779. Federated is a subsidiary
of Federated Investors, Inc., a Pennsylvania corporation. All of the Class A
(voting) stock of Federated Investors, Inc. is owned by a trust, the trustees of
which are John F. Donahue, Chairman and Director of Federated Investors, Inc.,
Mr. Donahue's wife and Mr. Donahue's son, J. Christopher Donahue, President and
Director of Federated Investors, Inc. Federated, together with other
subsidiaries of Federated Investors, Inc., serves as investment adviser to a
number of investment companies and private accounts. With over $139.5 billion
invested across more than 300 funds under management and/or administration as of
December 31, 1997 Federated Investors, Inc. is one of the largest mutual fund
investment managers in the U.S.

The portion of the annual investment advisory fees received by SAAMCo which is
paid to Federated with respect to the Corporate Bond Portfolio is 0.30% on the
first $25 million of Assets, 0.25% on the next $25 million, 0.20% on the next
$100 million and 0.15% on Assets over $150 million; and with respect to each of
the Utility and Federated Value Portfolios is 0.55% on the first $20 million of
Assets, 0.35% on the next $30 million, 0.25% on the next $100 million, 0.20% on
the next $350 million and 0.15% on Assets over $500 million. For the fiscal year
ended November 30, 1997, SAAMCo paid to Federated, with respect to each
Portfolio subadvised by Federated, a fee equal to the following percentage of
average daily net assets: Utility -- 0.55%, Federated

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Value -- 0.46%, and Corporate Bond Portfolio -- 0.27%.

Joseph M. Balestrino and Mark E. Durbiano have served as co-portfolio managers
of the CORPORATE BOND PORTFOLIO since May 1996. Mr. Balestrino joined Federated
Investors, Inc. in 1986 and has been a Vice President of Federated Advisers
since 1995. Mr. Balestrino served as an Assistant Vice President of Federated
Advisers from 1991 to 1995. Mr. Balestrino is a Chartered Financial Analyst. Mr.
Durbiano joined Federated Investors, Inc. in 1982 and has been a Senior Vice
President of Federated Advisers since January 1996. From 1988 through 1995, Mr.
Durbiano was a Vice President of Federated Advisers. Mr. Durbiano is a Chartered
Financial Analyst.

Linda A. Duessel has served as portfolio manager of the UTILITY PORTFOLIO since
June 1996. Ms. Duessel joined Federated Investors, Inc. in 1991, and has been a
Vice President of Federated Advisers since 1995. She was an Assistant Vice
President of Federated Advisers from 1991 until 1995. Ms. Duessel is a Certified
Public Accountant and a Chartered Financial Analyst.

Michael P. Donnelly and Arthur J. Barry have served as co-portfolio managers of
the FEDERATED VALUE PORTFOLIO since October 1997 and October 1998, respectively.
Mr. Donnelly joined Federated Investors, Inc. in 1989 as an Investment Analyst
and has been a Vice President of Federated Investors, Inc. since 1994. He served
as an Assistant Vice President of an affiliate of Federated Investors, Inc. from
1992 to 1994. Mr. Donnelly is a Chartered Financial Analyst. Mr. Barry, who has
been a Vice President of Federated since July 1998 and was an Assistant Vice
President from April 1997 to July 1998, joined an affiliate of Federated in 1994
as an Investment Analyst. Mr. Barry is a Chartered Financial Analyst and
received his M.S.I.A. from Carnegie Mellon University, where he concentrated in
finance and accounting.

First American Asset Management. The Subadviser for the Equity Income, Small
Company Value and Equity Index Portfolios is First American, a division of U.S.
Bank National Association. First American is located at 601 Second Avenue South,
Minneapolis, Minnesota 55402. First American has acted as an investment adviser
to First American Investment Funds, Inc. since its inception in 1987 and has
acted as investment adviser to First American Funds, Inc. since 1982 and to
First American Strategy Funds, Inc. since 1996. As of July 31, 1998, First
American was managing accounts with an aggregate value of approximately $77
billion, including mutual fund assets of approximately $31 billion. U.S.
Bancorp, 601 Second Avenue South, Minneapolis, Minnesota 55402, is the holding
company for First American.

The portion of the annual investment advisory fees received by SAAMCo which is
paid to First American with respect to the Equity Income Portfolio is 0.30% of
all assets; with respect to the Equity Index Portfolio is 0.125% of all assets;
and with respect to the Small Company Value Portfolio is 0.80% of all assets.

The EQUITY INCOME PORTFOLIO is managed by a committee comprised of Gerald C.
Bren, James Doak, Albin S. Dubiak, Cori B. Johnson, John M. Murphy, Roland P.
Whitcomb and Glenn E. Johnson, whose backgrounds are set forth below. The SMALL
COMPANY VALUE FUND PORTFOLIO is managed by a committee comprised of Albin S.
Dubiak, John D. Grangaard, Michael K. Sabbann, Douglas K. Rose, Robert L. Buss,
Anthony W. Hipple and Frank G. Magdalen, whose backgrounds also are set forth
below.

James Doak joined First American in 1982 after serving for two years as vice
president of INA Capital Advisors and ten years as Vice President of
Loomis-Sayles & Co. He has managed assets for individual and institutional
clients, specializing in equity investments. Mr. Doak received his bachelor's
degree from Brown University and his master's degree in business administration
from Wharton School of Business. He is a Chartered Financial Analyst.

John M. Murphy, Jr. is Chief Investment Officer of First American, having joined
the Subadviser in 1984. He has more than 30 years in the investment management
field and served with Investment Advisers, Inc. and Blyth, Eastman, Dillon & Co.
before joining First American. Mr. Murphy received his bachelor's degree from
Regis College.

Gerald C. Bren joined First American in 1972 as an investment analyst. Mr. Bren
received his master's degree in business administration from the University of
Chicago. He is a Chartered Financial Analyst.

Albin S. Dubiak began his investment career as a security trader with The First
National Bank of Chicago in 1963 before joining First American as an investment
analyst in 1969. Mr. Dubiak received his bachelor's degree from Indiana
University and his master's degree in business administration from the
University of Arizona.

Cori B. Johnson joined First American in 1991 as a securities analyst. Ms.
Johnson received her
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bachelor's degree from Concordia College and her master's degree in business
administration from the University of Minnesota. She is a Chartered Financial
Analyst.

Roland P. Whitcomb, Jr. joined First American in 1986 after serving as an
account executive with Smith Barney & Co. since 1979. Mr. Whitcomb received his
bachelor's degree from the University of Chicago. He is a Chartered Financial
Analyst.

Douglas K. Rose joined First American in 1996 and has 10 years of investment
industry experience. Mr. Rose has analytic responsibilities for the business
services, environmental services, leisure and restaurant/lodging industries. Mr.
Rose holds a bachelor's degree from the University of Nebraska, and a master's
degree in business administration from the University of Minnesota. He is a
Chartered Financial Analyst.

Robert L. Buss joined First American in 1989 and has nine years of investment
industry experience. In 1996, Mr. Buss began analytical work in the equity
research area covering electric equipment, machinery and diversified
manufacturing. Mr. Buss holds a bachelor's degree in economics from the
University of Minnesota.

Anthony W. Hipple is primarily responsible for portfolio analytics and
screening. Mr. Hipple joined First American in 1996 and has four years of
investment industry experience. Mr. Hipple holds a bachelor's degree from the
University of Northern Iowa and a master's degree in business administration
from the University of Iowa.

Frank G. Magdalen joined First American in 1979 and has 24 years of investment
industry experience. Prior to joining First American, he was with the First
Interstate and Farmers Group. Mr. Magdalen received his bachelor's degree from
the University of Portland and his master's degree in business administration
from the University of Southern California. He is a Chartered Financial Analyst
and past president of the Portland Society of Financial Analysts.

Glenn E. Johnson joined First American in 1989 and has 13 years of investment
industry experience. Prior to joining First American, he was an analyst with
Piper Jaffray Inc. Mr. Johnson received his bachelor's degree and his master's
degree in business administration from the University of Minnesota. He is a
Chartered Financial Analyst.

Michael K. Sabbann joined First American in 1998 and has 11 years of investment
industry experience. Mr. Sabbann is responsible for analyzing and recommending
equity investments in small market capitalization companies for the Small
Company Value Portfolio. Mr. Sabbann received an MBA from the University of
Minnesota's Carlson School of Business in 1986 and a BA in chemistry from the
University of Minnesota in 1979. He is a Certified Financial Analyst.

John D. Grangaard joined First American in 1998 and has a diverse background
with 18 years of experience in the financial industry. Mr. Grangaard's
responsibilities include analysis for the financial industry in managing the
Small Company Value Portfolio. His professional responsibilities have included
work in securities analysis, corporate finance and banking, venture capital,
asset liability management and strategic planning. Mr. Grangaard holds a B.A. in
English from Yale University, an MBA in finance from the University of Minnesota
and a JD from the University of North Dakota.

The EQUITY INDEX PORTFOLIO is managed by James S. Rovner and Evan C. Lundquist.

James S. Rovner joined First American in 1986 and has managed assets for
institutional and individual clients for over 15 years, specializing in equity
and balanced investment strategies. Mr. Rovner received his bachelor's degree
and his master's degree in business administration from the University of
Wisconsin. He is a Chartered Financial Analyst.

Evan C. Lundquist joined First American in 1993 and has four years of investment
industry experience. Mr. Lundquist has analytic responsibilities for
paper/forest products, metals and mining, steel, engineering and construction,
and building and appliances industries. Mr. Lundquist received his bachelor's
degree from St. Mary's College.

Goldman Sachs Asset Management. The Subadviser for the Asset Allocation
Portfolio is GSAM, a separate operating division of Goldman, Sachs & Co.

Goldman Sachs Asset Management-International. The Subadviser for the Global Bond
Portfolio is GSAM-International, an affiliate of Goldman, Sachs & Co. Goldman,
Sachs & Co. is a New York limited partnership with its principal offices at 85
Broad Street, New York, New York 10004.

GSAM serves a wide range of clients including private and public pension funds,
endowments, foundations, banks, thrifts, insurance companies, corporations, and
private investors and family groups. The asset management services are divided
into the following areas: institutional fixed income investment management;
global currency management;

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institutional equity investment management; fund management; money market mutual
fund management and administration; and private asset management. As of February
23, 1998, GSAM, together with its affiliates, acted as investment adviser,
administrator or distributor for approximately $148 billion in assets.

GSAM-International was organized in 1990 as a company with limited liability
under the laws of England. It is authorized to conduct investment advisory
business in the United Kingdom as a member of the Investment Management
Regulatory Organization Limited, a United Kingdom self-regulatory organization.
GSAM and GSAM-International are able to draw on the research and market
expertise of Goldman, Sachs & Co. in making investment decisions for the
Portfolios for which they act as Subadviser. In performing their subadvisory
services, GSAM and GSAM-International, while remaining ultimately responsible
for the management of the Portfolio, are able to draw upon the research and
expertise of their affiliate offices, for portfolio decisions and management
with respect to certain portfolio securities.

The portion of the annual investment advisory fees received by SAAMCo which is
paid to GSAM with respect to the Asset Allocation Portfolio is 0.40% on the
first $50 million of Assets, 0.30% on the next $100 million, 0.25% on the next
$100 million and 0.20% on Assets over $250 million. For the fiscal year ended
November 30, 1997, SAAMCo paid to GSAM, with respect to the Asset Allocation
Portfolio, a fee equal to 0.26% of average daily net assets. The portion of the
annual investment advisory fees received by SAAMCo which is paid to GSAM-
International with respect to the Global Bond Portfolio is 0.40% on the first
$50 million of Assets, 0.30% on the next $100 million, 0.25% on the next $100
million and 0.20% on Assets over $250 million. For the fiscal year ended
November 30, 1997, SAAMCo paid to GSAM-International, with respect to the Global
Bond Portfolio, a fee equal to 0.36% of the Portfolio's average daily net
assets.

Greg Gigliotti, Vice President of GSAM, Thomas S. Price, Vice President of GSAM,
Lawrence S. Sibley, Vice President of GSAM and Karma Wilson, Vice President of
GSAM serve as co-portfolio managers of the equity portion of the ASSET
ALLOCATION PORTFOLIO. Mr. Gigliotti joined GSAM in 1997. From 1996 to 1997 he
was a Vice President and senior analyst at Franklin Mutual Advisors, Inc., the
asset management division of Franklin Resources, Inc. From 1989 to 1996 he was a
Vice President and senior analyst at Heine Securities Corporation which was
purchased by Franklin Resources, Inc. Mr. Price joined GSAM in 1997. From 1996
to 1997 he was a Vice President and senior analyst at Franklin Mutual Advisors,
Inc., the asset management division of Franklin Resources, Inc. From 1993 to
1996 he was a Vice President and senior analyst at Heine Securities Corporation
which was purchased by Franklin Resources, Inc. Mr. Sibley joined GSAM in 1997.
From 1994 to 1997 he headed Institutional Equity Sales at J.P. Morgan Securities
and from 1987 to 1994, he was a principal of Sanford C. Bernstein & Co. in its
Institutional Sales Department. Ms. Wilson joined GSAM in 1994. Prior to 1994,
she was an investment analyst with Bankers Trust Australia Ltd. Before 1992 she
was employed at Arthur Andersen LLP.

Jonathan A. Beinner and Richard C. Lucy have served as co-portfolio managers of
the fixed income portion of the Asset Allocation Portfolio since its inception
date of July 1, 1993. Mr. Beinner is a Managing Director of Goldman, Sachs and
Co. -- Head of GSAM's U.S. Fixed Income Department, where he joined the Funds
Group in 1990. Mr. Lucy is a Vice President of Goldman, Sachs and Co.'s Fixed
Income Department, where he joined the Funds Group in 1992.

Stephen C. Fitzgerald and Andrew F. Wilson serve as co-portfolio managers of the
GLOBAL BOND PORTFOLIO. Mr. Fitzgerald has served as co-portfolio manager since
the inception date of July 1, 1993 and Mr. Wilson has served as co-portfolio
manager since December 1, 1995. Mr. Fitzgerald, an Executive Director and Chief
Investment Officer for international fixed income in the London office, joined
GSAM-International in 1992. Mr. Wilson, an Executive Director and Portfolio
Manager for international fixed income in the London office, joined
GSAM-International in December 1995. Prior to joining GSAM-International, Mr.
Wilson spent three years as an Assistant Director of Rothschild Asset
Management, where he was responsible for managing global and international bond
portfolios, with specific focus on the U.S., Canadian, Australian and Japanese
economies.

Morgan Stanley Dean Witter Investment Management Inc. The Subadviser of the
Worldwide High Income and International Diversified Equities Portfolios is MSDW
Investment Management, 1221 Avenue of the Americas, New York, New York 10020.
MSDW Investment Management is a wholly owned subsidiary of Morgan Stanley Dean
Witter & Co., and provides a broad range of portfolio management services to
customers in the United States and abroad. As of February 28, 1998, MSDW

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Investment Management, together with its affiliated institutional investment
management companies, had approximately $154.6 billion of assets under
management (inclusive of assets under fiduciary advisory control).

Morgan Stanley Dean Witter & Co. is a preeminent global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.

The portion of the annual investment advisory fee received by SAAMCo which is
paid to MSDW Investment Management with respect to each of the Worldwide High
Income and International Diversified Equities Portfolios is 0.65% on Assets up
to $350 million and 0.60% on Assets thereafter. For the fiscal year ended
November 30, 1997, SAAMCo paid to MSDW Investment Management, with respect to
the International Diversified Equities Portfolio and Worldwide High Income
Portfolio, a fee equal to 0.65% of each Portfolio's average daily net assets.

Robert Angevine, Thomas L. Bennett, Stephen F. Esser and Abigail L. McKenna
serve as co-portfolio managers for the Worldwide High Income Portfolio. Mr.
Angevine has served as a co-portfolio manager since the inception date of
October 28, 1994, and Mr. Bennett, Mr. Esser and Ms. McKenna have served as
co-portfolio Managers since October, 1998. Mr Angevine is a principal of Morgan
Stanley & Co. Incorporated ("Morgan Stanley") and a portfolio manager of MSDW
Investment Management's high yield investments. He has been with the firm since
1988. Mr. Bennett, a Managing Director of Morgan Stanley, joined MSDW Investment
Management in 1996 and has been a portfolio manager with Miller, Anderson and
Sherrerd, LLP ("MAS"), an affiliate of MSDW Investment Management, since 1984.
Mr. Esser, also a Managing Director of Morgan Stanley, joined MSDW Investment
Management in 1996 and has been a portfolio manager with MAS since 1988. Ms.
McKenna, a Vice President of MSDW Investment Management and Morgan Stanley,
joined the firm in 1996. She focuses primarily on the trading and management of
the emerging markets debt portfolios. Prior to joining MSDW Investment
Management, she was a Senior Portfolio manager at MetLife Investment Management
Corp. from 1995 to 1996 and Limited Partner at Weiss Peck & Greer from 1991 to
1995 where she was responsible for the trading and management of Corporate Bond
Portfolios.

Barton Biggs and Ann Thivierge serve as co-portfolio managers for the
International Diversified Equities Portfolio. Mr. Biggs has served as a
co-portfolio manager since the inception date of October 28, 1994 and Ann
Thivierge has served as a co-portfolio manager since July 1, 1995. Mr. Biggs
joined Morgan Stanley Dean Witter & Co. in 1973 as a General Partner and
Managing Director. He has been Chairman and a Director of MSDW Investment
Management and a Managing Director of Morgan Stanley since 1975. Ms. Thivierge
joined the company in 1986 as an analyst and served as a Vice President of MSDW
Investment Management from 1992 to 1996. She is currently a Principal of MSDW
Investment Management.

Putnam Investment Management, Inc. The Subadviser of the Putnam Growth,
International Growth and Income and Emerging Markets Portfolios is Putnam, a
Massachusetts corporation with principal offices at One Post Office Square,
Boston, Massachusetts. Putnam has been managing mutual funds since 1937 and
serves as investment adviser to the funds in the Putnam Family. Putnam and its
affiliates managed approximately $256 billion as of February 28, 1998. Putnam is
a subsidiary of Putnam Investments, Inc., which, other than a minority interest
owned by employees, is wholly owned by Marsh & McLennan Companies, Inc., a
publicly owned holding company whose principal businesses are international
insurance and reinsurance brokerage, employee benefit consulting and investment
management.

The portion of the annual investment advisory fees received by SAAMCo which is
paid to Putnam with respect to the Putnam Growth Portfolio is 0.50% on the first
$150 million of Assets, 0.45% on the next $150 million of Assets and 0.35% on
Assets over $300 million. Putnam became the Subadviser to the Putnam Growth
Portfolio on April 15, 1997. For the fiscal year ended November 30, 1997, with
respect to the International Growth and Income and Emerging Markets Portfolios,
and for the period April 15, 1997 through November 30, 1997, with respect to the
Putnam Growth Portfolio, SAAMCo paid to Putnam, a fee equal to 0.32%, 0.50% and
0.33%, respectively. For the period December 1, 1996 through April 14, 1997,
SAAMCo paid to the Portfolio's predecessor subadviser, Provident Investment
Counsel, Inc., with respect to the Provident Growth Portfolio a fee equal to
0.15% of the Portfolio's average daily net assets. See "Investment Advisory and
Management Agreement -- Advisory Fees" in the Statement of Additional
Information for the annual rates applicable with respect to the predecessor
subadvisers. The portion of the annual investment advisory fees received by
SAAMCo which is paid to Putnam with respect to the International Growth and
Income Portfolio is 0.65% on the first $150 million of Assets,
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0.55% on the next $150 million of Assets and 0.45% on Assets over $300 million.
The portion of the annual investment advisory fees received by SAAMCo which is
paid to Putnam with respect to the Emerging Markets Portfolio is 1.00% on the
first $150 million of Assets, 0.95% on the next $150 million of Assets and 0.85%
on Assets over $300 million.

C. Beth Cotner, Richard England, Manuel H. Weiss and David Santos have served as
co-portfolio managers of the PUTNAM GROWTH PORTFOLIO since April 1997. Ms.
Cotner, a Senior Vice President of Putnam has been an investment professional
with Putnam since 1995. Prior to that time, she was an Executive Vice President
of Kemper Financial Services. Mr. England, a Senior Vice President of Putnam has
been an investment professional with Putnam since 1992. Mr. Weiss, a Senior Vice
President of Putnam has been an investment professional with Putnam since 1987.
Mr. Santos, a Vice President of Putnam has been an investment professional with
Putnam since 1986.

Deborah F. Kuenstner and George W. Stairs have served as co-portfolio managers
of the INTERNATIONAL GROWTH AND INCOME PORTFOLIO since March 1998. Ms. Kuenstner
is a Senior Vice President of Putnam. Prior to March 1997, she was Senior
Portfolio Manager at Dupont Pension Fund Management. Mr. Stairs is a Senior Vice
President of Putnam. Prior to July 1994, he was an Associate at Value Quest Ltd.

Thomas R. Haslett, Managing Director of Putnam and J. Peter Grant, Senior Vice
President of Putnam, serve as co-portfolio managers of the EMERGING MARKETS
PORTFOLIO. Mr. Haslett has been an investment professional with Putnam since
1996. Prior to December 1996, he was a Managing Director of Montgomery Asset
Management, Ltd. Mr. Grant has been an investment professional with Putnam since
1973.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT -- State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts
02110, is the Trust's custodian, transfer agent and dividend paying agent. State
Street maintains custody of the Trust's securities and cash and the records of
each shareholder's account. State Street also performs other related shareholder
service functions.
- ---------------------------------------------------------
- ---------------------------------------------------------
PORTFOLIO TURNOVER AND BROKERAGE
- ---------------------------------------------------------
- ---------------------------------------------------------
All Portfolios effect portfolio transactions without regard to the length of
time particular investments have been held. Under certain market conditions, the
investment policies of the Portfolios may result in high portfolio turnover. The
portfolio turnover rates for the Portfolios (other than the Equity Income, Small
Company Value, "Dogs" of Wall Street, and Equity Index Portfolios) are contained
in the section entitled "Financial Highlights." The portfolio turnover rates for
the following Portfolios are not expected to exceed the stated percentages:
"Dogs" of Wall Street Portfolio -- 25%; Equity Income Portfolio -- 30%; Equity
Index Portfolio -- 10%; and Small Company Value Portfolio -- 40%. High portfolio
turnover involves correspondingly greater brokerage commissions, to the extent
such commissions are payable, and other transaction costs that are borne
directly by the Portfolio involved. Higher turnover rates reflect an increased
rate of realization of gains and losses by the Portfolio, which would normally
affect the taxable income of the Portfolio's shareholders. Where the shareholder
is an insurance company separate account funding variable annuity contracts,
qualified as such under the Code, however, the contract owners are not currently
charged with such income or losses except to the extent provided under the Code
(normally when distributions under the contracts are made). Corporate bonds and
U.S. government securities are generally traded on a net basis and usually
neither brokerage commissions nor transfer taxes are involved.

Broker-dealers involved in the execution of portfolio transactions on behalf of
the Trust are selected on the basis of their professional capability and the
value and quality of their services. In selecting such broker-dealers, the
Adviser and Subadvisers will consider various relevant factors, including, but
not limited to, the size and type of the transaction; the nature and character
of the markets in which the security can be purchased or sold; the execution
efficiency, settlement capability, and financial condition of the broker-dealer;
the broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions. The Adviser or a Subadviser also may select
broker-dealers which provide it 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 or Subadviser's view the
commissions are reasonable in relation to the value of the brokerage and/or
research services provided by the broker-dealer. Further, the Adviser or a
Subadviser may effect