TRAVELERS SERIES FUND INC, 497, 1998-03-12

TRAVELERS SERIES FUND INC
497, 1998-03-12

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TRAVELERS SERIES FUND INC.
388 Greenwich Street
New York, New York 10013
1-800-842-8573

The Alliance Growth Portfolio, the Putnam Diversified Income Portfolio
and the MFS Total Return Portfolio are three of thirteen portfolios that
currently comprise Travelers Series Fund Inc. (the "Fund"), the investment
underlying certain variable annuity and variable life insurance contracts.

The Alliance Growth Portfolio seeks long-term growth of capital.
Current income is only an incidental consideration.

The Putnam Diversified Income Portfolio seeks high current income
consistent with preservation of capital.

The MFS Total Return Portfolio seeks above-average income (compared to
a portfolio invested entirely in equity securities) consistent with prudent
employment of capital. While current income is the primary objective, the
Portfolio believes that there should be a reasonable opportunity for growth of
capital and income.

Shares of the Fund are offered only to insurance company separate
accounts (the "Separate Accounts"), which fund certain variable annuity and
variable life insurance contracts (the "Contracts"). The Separate Accounts
invest in shares of one or more of the Portfolios in accordance with allocation
instructions received from Contract owners. Such allocation rights are further
described in the accompanying Contract prospectus.

Shares of each Portfolio are offered to Separate Accounts at their net
asset value, without a sales charge, next determined after receipt of an order
by an insurance company. The offering of shares of a Portfolio may be suspended
from time to time and the Fund reserves the right to reject any specific
purchase order.

THIS PROSPECTUS, WHICH SETS FORTH CONCISE INFORMATION ABOUT THE
FUND THAT PROSPECTIVE INVESTORS SHOULD KNOW BEFORE INVESTING, SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION ("SAI"),
ALSO REFERRED TO AS "PART B", DATED FEBRUARY 27, 1998 IS HEREBY INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS AND IS AVAILABLE FROM THE FUND, WITHOUT CHARGE,
BY WRITING TO THE FUND AT THE ABOVE ADDRESS OR CALLING THE TELEPHONE NUMBER
LISTED ABOVE.

This Prospectus should be read in conjunction with the prospectus for the
Contracts.

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

THE DATE OF THIS PROSPECTUS IS FEBRUARY 27, 1998.

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<PAGE>

TABLE OF CONTENTS
================================================================================

FINANCIAL HIGHLIGHTS ................................ 1

THE FUND'S INVESTMENT PROGRAM ....................... 4

Alliance Growth Portfolio ...................... 4

Putnam Diversified Income Portfolio ............ 5

MFS Total Return Portfolio ..................... 8

SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS 10

DIVIDENDS, DISTRIBUTIONS AND TAXES .................. 25

REDEMPTION OF SHARES ................................ 25

PERFORMANCE ......................................... 25

MANAGEMENT .......................................... 26

SHARES OF THE FUND .................................. 29

DETERMINATION OF NET ASSET VALUE .................... 30

APPENDIX A .......................................... 32

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<PAGE>

FINANCIAL HIGHLIGHTS
================================================================================

The following information for the three-year period ended October 31,
1997 and for the period from June 16, 1994 (commencement of operations) to
October 31, 1994 has been audited in conjunction with the annual audits of the
financial statements of each of the portfolios within the Fund by KPMG Peat
Marwick LLP, independent auditors. The 1997 financial statements and the
independent auditors' reports thereon appear in the October 31, 1997 Annual
Reports to Shareholders. The information set out below should be read in
conjunction with the financial statements and related notes that also appear
within each portfolio's Annual Reports, which are available upon request and
incorporated by reference into the Statement of Additional Information.

For a share of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>

Alliance Growth
------------------------------------------------
1997 1996 1995 1994(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Net Asset Value, Beginning of Period $16.30 $13.28 $10.65 $10.00
- --------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (2) 0.05 0.04 0.14 0.06
Net realized and unrealized gain 5.11 3.39 2.61 0.59
- --------------------------------------------------------------------------------------------------
Total Income from Operations 5.16 3.43 2.75 0.65
- --------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.02) (0.09) (0.02) --
Net realized gains (0.62) (0.32) (0.10) --
- --------------------------------------------------------------------------------------------------
Total Distributions (0.64) (0.41) (0.12) --
- --------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $20.82 $16.30 $13.28 $10.65
- --------------------------------------------------------------------------------------------------
Total Return 32.59% 26.55% 26.18% 6.50%++
- --------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's) $544,526 $294,596 $111,573 $17,086
- --------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 0.82% 0.87% 0.90% 0.88%+
Net investment income 0.32 0.39 1.24 1.47%+
- --------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 66% 88% 78% 37%
- --------------------------------------------------------------------------------------------------
Average commissions paid
on equity security transactions (3) $0.05 $0.05 $0.06 --
- --------------------------------------------------------------------------------------------------
</TABLE>

(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) Travelers Investment Adviser, Inc. ("TIA") (the "Manager") has waived
all or part of its fees for the year ended
October 31, 1995 and the period ended October 31, 1994. In addition, the
Manager has reimbursed the Alliance Growth Portfolio for $3,500 in expenses
for the period ended October 31, 1994. If such fees were not waived and
expenses not reimbursed, the per share decreases in net investment income
and the ratios of expenses to average net assets for the Alliance Growth
Portfolio would have been as follows:

Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------- --------------------
1995 $0.01 0.97%
1994 0.03 1.76+

(3) As of September 1995, the Securities and Exchange Commission ("SEC")
instituted new guidelines requiring the disclosure of average commissions
per share.
+ Annualized.
++ Total return is not annualized, as it may not be representative of the
total return for the year.

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1
<PAGE>

For a share of capital stock outstanding throughout the period:

Putnam Diversified Income
-----------------------------------------------------
1997 1996(3) 1995 1994(1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Net Asset Value, Beginning of Period $11.99 $11.46 $10.18 $10.00
- ------------------------------------------------------------------------------------------------------------------
Income (loss) From Operations:
Net investment income (2) 0.67 0.78 0.79 0.23
Net realized and unrealized gain (loss) 0.30 0.27 0.58 (0.05)
- ------------------------------------------------------------------------------------------------------------------
Total Income (loss) from Operations 0.97 1.05 1.37 0.18
- ------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.56) (0.39) (0.09) --
Net realized gains (0.09) (0.13) -- --
- ------------------------------------------------------------------------------------------------------------------
Total Distributions (0.65) (0.52) (0.09) --
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.31 $11.99 $11.46 $10.18
- ------------------------------------------------------------------------------------------------------------------
Total Return 8.44% 9.43% 13.55% 1.80%++
- ------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's) $121,601 $81,076 $31,514 $6,763
- ------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 0.88% 0.96% 0.97% 0.98%+
Net investment income 6.99 7.57 7.53 6.14 +
- ------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 253% 255% 276% 20%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager has waived all or part of its fees for the years ended October
31, 1996, October 31, 1995 and the period ended October 31, 1994. In
addition, the manager has reimbursed the Putnam Diversified Income
Portfolio for $19,028 in expenses for the period ended October 31, 1994. If
such fees were not waived and expenses not reimbursed, the per share
decreases in net investment income and the ratios of expenses to average
net assets of the Putnam Diversified Income Portfolio would have been as
follows:

Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------ -----------------
1995 $0.04 1.31%
1994 0.07 2.92+

(3) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed net investment income method does not
accord with results of operations.
* Includes realized gains and losses from foreign currency transactions.
+ Annualized.
++ Total return is not annualized, as it may not be representative of the
total return for the year.

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2
<PAGE>

For a share of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
MFS Total Return
------------------------------------------------------
1997 1996 1995 1994(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.13 $11.53 $9.98 $10.00
- -------------------------------------------------------------------------------------------------------------------
Income (loss) From Operations:
Net investment income (2) 0.38 0.33 0.45 0.13
Net realized and unrealized gain (loss) 2.27 1.62 1.15 (0.15)
- -------------------------------------------------------------------------------------------------------------------
Total Income (loss) from Operations 2.65 1.95 1.60 (0.02)
- -------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.29) (0.27) (0.05) --
Net realized gains (0.18) (0.08) -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions (0.47) (0.35) (0.05) --
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.31 $13.13 $11.53 $9.98
- -------------------------------------------------------------------------------------------------------------------
Total Return 20.64% 17.16% 16.12% (0.20)%++
- -------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's) $263,585 $134,529 $49,363 $8,504
- -------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 0.86% 0.91% 0.95% 0.93%+
Net investment income 3.54 3.82 4.40 3.51 +
- -------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 99% 139% 104% 18%
- -------------------------------------------------------------------------------------------------------------------
Average commissions paid
on equity security transactions (3) $0.06 $0.06 $0.04 --
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager has waived all or part of its fees for the year ended October
31, 1995 and the period ended October 31, 1994. In addition, the Manager
has reimbursed the MFS Total Return Portfolio for $13,857 in expenses for
the period ended October 31, 1994. If such fees were not waived and
expenses not reimbursed, the per share decreases in net investment income
and the ratios of expenses to average net assets of the MFS Total Return
Portfolio would have been as follows:

Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------- --------------------
1995 $0.01 1.06%
1994 0.06 2.51+

(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
+ Annualized.
++ Total return is not annualized, as it may not be representative of the
total return for the year.

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

3
<PAGE>

THE FUND'S INVESTMENT PROGRAM
================================================================================

The Fund consists of thirteen investment portfolios, three of which are
offered herein. Each Portfolio has its own investment objective and policies as
described in more detail below. Of course, no assurance can be given that a
Portfolio's objective will be achieved. Investors should realize that risk of
loss is inherent in the ownership of any securities and that shares of each
Portfolio will fluctuate with the market value of its securities. Additional
information about each Portfolio's investment policies and investment risks can
be found herein under "Special Investment Techniques and Risk Considerations"
and in the SAI.

The investment objectives and certain investment restrictions
designated as such in the SAI are fundamental and may not be changed by the
Directors without shareholder approval. Each Portfolio's investment policies,
however, are not fundamental and may be changed by the Directors without
shareholder approval.

Alliance Growth Portfolio

Investment Objective

The investment objective of the Alliance Growth Portfolio is to provide
long-term growth of capital. Current income is only an incidental consideration.
The Portfolio attempts to achieve its objective by investing primarily in equity
securities of companies with a favorable outlook for earnings and whose rate of
growth is expected to exceed that of the U.S. economy over time. The Portfolio
is managed by Travelers Investment Adviser, Inc. ("TIA" or the "Manager");
Alliance Capital Management L.P. serves as the Portfolio's Sub-Adviser.

Investment Policies

The Alliance Growth Portfolio invests primarily in common stocks and
securities convertible into common stocks such as convertible bonds, convertible
preferred stocks and warrants convertible into common stocks. Because the values
of fixed-income securities are expected to vary inversely with changes in
interest rates generally, when the Sub-Adviser expects a general decline in
interest rates, the Portfolio may also invest for capital growth in fixed-income
securities. The Portfolio may invest up to 25% of its total assets in
fixed-income securities rated at the time of purchase below investment grade,
that is, securities rated Ba or lower by Moody's Investors Service, Inc.
("Moody's") or BB or lower by Standard & Poor's Ratings Group ("S&P"), or in
unrated fixed-income securities determined by the Sub-Adviser to be of
comparable quality. The Portfolio will generally invest in securities with a
minimum rating of Caa- by Moody's or CCC- by S&P or in unrated securities judged
by the Sub-Adviser to be of comparable quality.

The Portfolio may invest without limit in securities that are not
publicly traded in the U.S., although the Portfolio generally will not invest
more than 15% of its total assets in such securities. The Portfolio may also
invest a portion of its assets in developing countries or countries with new or
developing capital markets.

The Portfolio may invest in securities that are not publicly traded,
including securities sold pursuant to Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Investment in non-publicly traded securities is
restricted to 5% of the Portfolio's total assets (not including Rule 144A
Securities, to the extent permitted by applicable law) and is also subject to
the Portfolio's restriction against investing more than 15% of net assets in
"illiquid securities". To the extent permitted by applicable law, Rule 144A
Securities will not be treated as illiquid for purposes of the foregoing
restriction so long as such securities meet liquidity guidelines established by
the Fund's Board of Directors.
- --------------------------------------------------------------------------------

4
<PAGE>

The Portfolio may invest in high-yield, high-risk, fixed-income and
convertible securities rated at the time of purchase Ba or lower by Moody's or
BB or lower by S&P, or, if unrated, judged by the Sub-Adviser to be of
comparable quality. The Portfolio will generally invest in securities with a
minimum rating of Caa- by Moody's or CCC- by S&P or in unrated securities judged
by the Sub-Adviser to be of comparable quality. However, from time to time, the
Portfolio may invest in securities rated in the lowest grades of Moody's (C) or
S&P (D) or in unrated securities judged by the Sub-Adviser to be of comparable
quality, if the Sub-Adviser determines that there are prospects for an upgrade
or a favorable conversion into equity securities (in the case of convertible
securities). Securities rated Ba or lower (and comparable unrated securities)
are commonly referred to as "junk bonds." Securities rated D by S&P are in
default. See "Lower-Quality and Non-Rated Securities." For a description of the
ratings referred to above, See Appendix A.

The Portfolio may also invest in zero-coupon bonds, payment-in-kind
bonds and real estate investment trusts. It may also buy and sell stock index
futures contracts ("index futures") and may buy options on index futures and on
stock indices for hedging purposes. The Portfolio may buy and sell call and put
options on index futures or on stock indices in addition to, or as an
alternative to, purchasing or selling index futures or, to the extent permitted
by applicable law, to earn additional income. The Portfolio may also, for
hedging purposes, purchase and sell futures contracts, options thereon and
options with respect to U.S. Treasury securities, including U.S. Treasury bills,
notes and bonds. The Portfolio may also seek to increase its current return by
writing covered call and put options on securities it owns or in which it may
invest.

The Portfolio may lend portfolio securities amounting to not more than
25% of its total assets and may enter into repurchase agreements on up to 25% of
its total assets. It may also purchase securities for future delivery, which may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date. In addition, the
Portfolio may invest in real estate investment trusts. For temporary defensive
purposes, the Portfolio may invest all or a major part of its assets in money
market instruments and repurchase agreements. To the extent the Portfolio's
assets are invested for temporary defensive purposes, they will not be invested
in a manner designed to achieve the Portfolio's investment objective.

Putnam Diversified Income Portfolio

Investment Objective

The Putnam Diversified Income Portfolio seeks high current income
consistent with preservation of capital. The Portfolio is managed by TIA; Putnam
Investment Management, Inc. serves as the Portfolio's Sub-Adviser.

Investment Policies

Basic investment strategy. The Putnam Diversified Income Portfolio will
allocate its investments among the following three sectors of the fixed-
income securities markets:

* a U.S. Government Sector, consisting primarily of securities of the U.S.
Government, its agencies and instrumentalities and related options, futures
and repurchase agreements;

* a High Yield Sector, consisting primarily of high yielding, lower-rated,
higher risk U.S. and foreign corporate fixed-income securities; and

* an International Sector, consisting primarily of obligations of foreign
governments, their agencies and instrumentalities, and related options and
futures.

5
<PAGE>

The Portfolio may invest significantly in lower rated and unrated U.S.
and foreign bonds whose credit quality is generally considered the equivalent of
U.S. corporate debt securities, commonly known as "junk bonds." Investments of
this type are subject to a greater risk of loss of principal and interest.
Purchasers should carefully assess the risks associated with an investment in
this Portfolio.

The Sub-Adviser believes that diversifying the Portfolio's investments
among these sectors, as opposed to investing in any one sector, will better
enable the Portfolio to preserve capital while pursuing its objective of high
current income. Historically, the markets for U.S. Government securities,
lower-rated, high yielding U.S. corporate fixed-income securities, and debt
securities of foreign issuers have tended to behave independently and have at
times moved in opposite directions. For example, U.S. Government securities have
generally been affected negatively by inflationary concerns resulting from
increased economic activity. High yield U.S. corporate fixed-income securities,
on the other hand, have generally benefitted from increased economic activity
due to improvement in the credit quality of corporate issuers. The reverse has
generally been true during periods of economic decline. Similarly, U.S.
Government securities have often been negatively affected by a decline in the
value of the dollar against foreign currencies, while the bonds of foreign
issuers held by U.S. investors have generally benefitted from such decline. The
Sub-Adviser believes that, when financial markets exhibit such a lack of
correlation, a pooling of investments among these markets may produce greater
preservation of capital and lower volatility over the long term than would be
obtained by investing exclusively in any one of the markets.

The Sub-Adviser will determine the amount of assets to be allocated to
each of the three market sectors in which the Portfolio will invest based on its
assessment of the maximum level of current income that can be achieved from a
portfolio which is invested in all three sectors without incurring undue risks
to principal value. In making this determination, the Sub-Adviser will rely in
part on quantitative analytical techniques that measure relative risks and
opportunities of each market sector based on current and historical market data
for each sector, as well as on its own assessment of economic and market
conditions. The Sub-Adviser will continuously review this allocation of assets
and make such adjustments as it deems appropriate, although there are no fixed
limits on allocations among sectors, including investment in the High Yield
Sector. Because of the importance of sector diversification to the Portfolio's
investment policies, the Sub-Adviser expects that a substantial portion of the
Portfolio's assets will normally be invested in each of the three market sectors
described below. See "Defensive Strategies." The Portfolio's assets allocated to
each of these market sectors will be managed in accordance with particular
investment policies, which are described below. At times, the Portfolio may hold
a portion of its assets in cash and money market instruments.

U.S. Government Sector. The Portfolio will invest assets allocated to
the U.S. Government Sector primarily in U.S. Government securities and may
engage in options, futures, and repurchase transactions with respect to such
securities. The Portfolio may also enter into forward commitments for the
purchase of U.S. Government securities and make secured loans of its portfolio
securities with respect to U.S. Government securities. In purchasing securities
for the U.S. Government Sector, the Sub-Adviser may take full advantage of the
entire range of maturities of U.S. Government securities and may adjust the
average maturity of the investments held in the portfolio from time to time,
depending on its assessment of relative yields of securities of different
maturities and its expectations of future changes in interest rates. Under
normal market conditions, the Portfolio will invest at least 20% of its net
assets in U.S. Government securities. The Portfolio may also invest assets
allocated to the U.S. Government Sector in a variety of debt securities,
including asset-backed and mortgage-backed securities, such as CMOs, that are
issued by private U.S. issuers. With respect to the U.S. Government Sector, the
Portfolio will only invest in privately issued debt securities that are rated at
the time of purchase at least Baa by Moody's, or BBB by S&P or the equivalent by
any other nationally recognized statistical

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6
<PAGE>

rating agency, or in unrated securities that the Sub-Adviser determines are of
comparable quality. Securities rated Baa or BBB are considered to have some
speculative characteristics. The rating services' descriptions of these rating
categories are included in Appendix A. The Portfolio will not necessarily
dispose of a security if its rating is reduced below these levels, although the
Sub-Adviser will monitor the investment to determine whether continued
investment in the security will assist in meeting the Portfolio's investment
objective.

High Yield Sector. The Portfolio will invest assets allocated to the
High Yield Sector primarily in high yielding, lower-rated higher risk U.S. and
foreign corporate fixed-income securities, including debt securities,
convertible securities and preferred stocks. Subject to the foregoing sentence,
the Portfolio may also purchase equity securities. As described below, however,
the Portfolio may invest all or any part of the High Yield Sector portfolio in
higher-rated and unrated fixed-income securities. The Portfolio will not
necessarily invest in the highest yielding securities available if in the
Sub-Adviser's opinion the differences in yield are not sufficient to justify the
higher risks involved. In addition, the Portfolio may invest up to 15% of its
net assets in securities that are not publicly traded and for which market
quotations are not readily available. The Portfolio may also invest in
"zero-coupon" bonds and "payment-in-kind" bonds.

At times, a substantial portion of the Portfolio's assets may be
invested in securities as to which the Portfolio, by itself or together with
other funds and accounts managed by the Sub-Adviser and its affiliates, holds a
major portion or all of such securities. Under adverse market or economic
conditions or in the event of adverse changes in the financial condition of the
issuer, the Portfolio could find it more difficult to sell such securities when
the Sub-Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to determine the fair
value of such securities for purposes of computing the Portfolio's net asset
value. In order to enforce its rights in the event of a default under such
securities, the Portfolio may be required to take possession of and manage
assets securing the issuer's obligations on such securities, which may increase
the Portfolio's operating expenses and adversely affect the Portfolio's net
asset value.

The High Yield Sector may invest in any security which is rated, at the
time of purchase, at least Caa as determined by Moody's or CCC as determined by
S&P's (or, the equivalent by another, nationally recognized statistical rating
agency) or in any unrated security which the Sub-Adviser determines is at least
of comparable quality, although up to 5% of the net assets of the Portfolio
(whether they are allocated to the High Yield Sector or the International
Sector) may be invested in securities rated below such quality, or in unrated
securities that the Sub-Adviser determines are of comparable quality. Securities
rated below Caa by Moody's or CCC by S&P's are of poor standing and may be in
default. The rating services' descriptions of these rating categories, including
the speculative characteristics of the lower categories, are included in
Appendix A.

International Sector. The Portfolio will invest the assets allocated to
the International Sector in debt obligations and other fixed-income securities
denominated in any currency including the U.S. dollar.
These securities include:

* debt obligations issued or guaranteed by foreign (including emerging
markets), national, provincial, state or other governments with taxing
authority, or by their agencies or instrumentalities;

* debt obligations of supranational entities (described below); and

* debt obligations and other fixed-income securities of foreign and
U.S. corporate issuers.

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7
<PAGE>

In the past, yields available from securities denominated in foreign
currencies have often been higher than those of securities denominated in U.S.
dollars. The Sub-Adviser will consider expected changes in foreign currency
exchange rates in determining the anticipated returns of securities denominated
in foreign currencies.

The obligations of foreign governmental entities, including
supranational issuers, have various kinds of government support. Obligations of
foreign governmental entities include obligations issued or guaranteed by
national, provincial, state or other governments with taxing power or by their
agencies. These obligations may or may not be supported by the full faith and
credit of a foreign government.

Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Steel and Coal Community, the Asian
Development Bank, and the Inter-American Development Bank. The governmental
members or "stockholders" usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional capital
contributions if the supranational entity is unable to repay its borrowing. Each
supranational entity's leading activities are limited to a percentage of its
total capital (including "callable capital" contributed by members at the
entity's call), reserves, and net income.

Defensive Strategies. At times, the Sub-Adviser may judge that
conditions in the securities market make pursuing the Portfolio's basic
investment strategy inconsistent with the best interests of its shareholders. At
such times, the Sub-Adviser may temporarily use alternative strategies,
primarily designed to reduce fluctuations in the value of the Portfolio's
assets. In implementing these "defensive" strategies, depending on the
circumstances, the Portfolio may temporarily reduce or suspend its option
writing activities, shift its portfolio emphasis to higher-rated securities in
the High Yield Sector, hedge currency risks in the International Sector, or
generally reduce the average maturity of its holdings in any or all of the
Sectors. Under unusual market conditions, the Portfolio could invest up to 100%
of its assets in short-term U.S. Government securities when the risks of
investing in the other Sectors are perceived to outweigh the possible benefits
of sector diversification. The Portfolio may also increase the portion of its
assets invested in cash or money market instruments for such defensive purposes
or for liquidity purposes. To the extent the Portfolio's assets are invested for
temporary defensive purposes, they will not be invested in a manner designed to
achieve the Portfolio's investment objective.

The Portfolio may also purchase securities of issuers located in
emerging markets, invest in sovereign debt, Brady Bonds, loan participations and
assignments and enter into dollar roll transactions. It may also engage in the
writing of covered call and put options with respect to foreign fixed-income
securities, foreign currencies, and related futures in order to supplement the
Fund's portfolio income. See "Special Investment Techniques and Risk
Considerations" below and in the SAI.

MFS Total Return Portfolio

Investment Objectives

The primary investment objective of the MFS Total Return Portfolio is
to obtain above-average income (compared to a portfolio entirely invested in
equity securities) consistent with the prudent employment of capital. While
current income is the primary objective, the Portfolio believes that there
should also be a reasonable opportunity for growth of capital and income, since
many securities offering a better than average yield may also possess growth
potential. Thus, in selecting securities for its portfolio, the Portfolio
considers each of these objectives. Under normal market conditions, at least 25%
of the Portfolio's assets will be invested in fixed

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

8
<PAGE>

income securities and at least 40% and no more than 75% of the Portfolio's
assets will be invested in equity securities. The Portfolio is managed by TIA;
Massachusetts Financial Services Company serves as the Portfolio's Sub-Adviser.

Investment Policies

The MFS Total Return Portfolio's policy is to invest in a broad list of
securities, including short-term obligations. The list may be diversified not
only by companies and industries, but also by type of security. Fixed income
securities and equity securities (which include: common and preferred stocks;
securities such as bonds, warrants or rights that are convertible into stock;
and depositary receipts for those securities) may be held by the Portfolio. Some
fixed income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Portfolio may vary the percentage
of assets invested in any one type of security in accordance with the
Sub-Adviser's interpretation of economic and money market conditions, fiscal and
monetary policy and underlying security values. The Portfolio's debt investments
may consist of both "investment grade" securities (rated Baa or better by
Moody's or BBB or better by S&P or Fitch IBCA, Inc., formerly Fitch Investors
Service, Inc. ("Fitch")) and securities that are unrated or are in the lower
rating categories (rated Ba or lower by Moody's or BB or lower by S&P or Fitch)
(commonly known as "junk bonds") including up to 20% of its net assets in
nonconvertible fixed income securities that are in these lower rating
categories and comparable unrated securities. See "Lower-Quality and Non-Rated
Securities". Generally, most of the Portfolio's long-term debt investments will
consist of "investment grade" securities. See Appendix A to this Prospectus for
a description of these ratings. It is not the Portfolio's policy to rely
exclusively on ratings issued by established credit rating agencies but rather
to supplement such ratings with the Sub-Adviser's own independent and ongoing
review of credit quality.

As noted above, the Portfolio invests in lower-rated and unrated
corporate debt securities, commonly known as "junk bonds." Investments of this
type are subject to a greater risk of loss of principal and interest. Purchasers
should carefully assess the risks associated with an investment in this
Portfolio. See "Lower-Quality and Non-Rated Securities".

The Portfolio may invest up to 20% (and generally expects to invest
between 5% and 20%) of its total assets in foreign securities which are not
traded on a U.S. exchange (not including American Depositary Receipts). The
Portfolio may invest in American Depositary Receipts. The Portfolio may also
invest in emerging market securities, Brady Bonds, U.S. Government securities,
mortgage pass-through securities, corporate asset-backed securities, zero-coupon
bonds, deferred interest bonds and payment-in-kind bonds. In addition, the
Portfolio may enter into repurchase agreements and mortgage dollar roll
transactions, may lend its portfolio securities, purchase securities on a
when-issued or forward delivery basis, enter into swap transactions and invest
in indexed securities and loan participations and other direct indebtedness. The
Portfolio may invest up to 15% of its net assets in illiquid securities and may
also invest in restricted securities, including Rule 144A Securities. Finally,
the Portfolio may engage in various options and futures transactions including
options on securities, options on stock indexes, options on foreign currencies,
stock indices and foreign currency futures contracts, options on futures
contracts, forward foreign currency exchange contracts and yield curve options.
See "Special Investment Techniques and Risk Considerations" for additional
information about these types of securities.

The Portfolio will be managed actively with respect to the Portfolio's
fixed income securities and the asset allocations modified as the Sub-adviser
deems necessary. Although the Portfolio does not intend to seek short-term
profits, fixed income securities will be sold whenever the sub-adviser believes
it is appropriate to do so without regard to the length of time the particular
asset may have been held. With respect to its equity securities the Portfolio
does not intend to trade in securities for short-term profits and anticipates
that portfolio

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securities ordinarily will be held for one year or longer. However, the
Portfolio will effect trades whenever it believes that changes in its portfolio
securities are appropriate.

In addition, when the Sub-adviser believes that investing for defensive
purposes is appropriate, such as during periods of unusual or unfavorable market
or economic conditions, or in order to meet anticipated redemption requests, up
to 100% of the Portfolio's assets may be temporarily invested in cash (including
foreign currency) or cash equivalents including, but not limited to, obligations
of banks (including certificates of deposit, bankers' acceptances and repurchase
agreements) with assets of $1 billion or more, commercial paper, short-term
notes, obligations issued or guaranteed by the U.S. or any foreign government or
any of their agencies, authorities or instrumentalities and repurchase
agreements.

SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS
================================================================================

Foreign Securities. Each of the Portfolios may purchase securities
issued by foreign governments, corporations or banks.

Investments in foreign securities involve risks that are different in
some respects from investments in securities of U.S. issuers, such as the risk
of fluctuations in the value of the currencies in which they are denominated,
the risk of adverse political, social, economic and diplomatic developments, the
possible imposition of exchange controls or other foreign governmental laws or
restrictions and, with respect to certain countries, the possibility of
expropriation of assets, nationalization or confiscatory taxation or limitations
on the removal of funds or other assets of the Portfolios. Securities of some
foreign companies and banks are less liquid and more volatile than securities of
comparable domestic companies and banks. Non-U.S. securities markets, while
growing in volume have, for the most part, substantially less volume than U.S.
markets, and there is generally less government supervision and regulation of
exchanges, brokers and issuers than there is in the U.S. Dividend and interest
income from non-U.S. securities will generally be subject to withholding taxes
by the country in which the issuer is located and may not be recoverable by the
Portfolio or the investors. There also may be less publicly available
information about foreign issuers than domestic issuers, and foreign issuers
generally are not subject to the uniform accounting, auditing and financial
reporting standards, practices and requirements applicable to domestic issuers.
Delays may be encountered in settling securities transactions in certain foreign
markets, and the Portfolios will incur costs in converting foreign currencies
into U.S. dollars. Custody and transaction charges are generally higher for
foreign securities. There is also a risk of the adoption of government
regulations that might adversely affect the payment of principal and interest on
securities held by a Portfolio. In addition, a Portfolio may encounter greater
difficulties in invoking legal processes abroad than would be the case in the
U.S. Finally, changes in foreign currency exchange rates will, to the extent a
Portfolio does not adequately hedge against such fluctuations, affect the value
of securities in its portfolio and the unrealized appreciation or depreciation
of investments so far as U.S. investors are concerned.

Securities of Emerging Markets. Because of the special risks associated
with investing in emerging markets, an investment in the Putnam Diversified
Income or MFS Total Return Portfolios, may be considered speculative. Investors
are strongly advised to consider carefully the special risks involved in
emerging markets, which are in addition to the usual risks of investing in
developed foreign markets around the world.

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the country's foreign currency debt rating, its political and economic stability
and the development of its financial and capital markets. The investment adviser
(or sub-adviser) determines an issuer's principal trading market for its
securities and the source of its revenues and assets. The issuer's principal
activities generally are deemed to be located in a particular country if: (a)
the security is issued or guaranteed by the government of that country or any of
its agencies, authorities or instrumentalities; (b) the issuer is organized
under the laws of, and maintains a principal office in, that country; (c) the
issuer has its principal securities trading market in that country; or (d) the
issuer has 50% or more of its assets in that country.

Investing in emerging markets involves risks relating to potential
political and economic instability within such markets and the risks of
expropriation, nationalization, confiscation of assets and property, the
imposition of restrictions on foreign investments and the repatriation of
capital invested. In Eastern Europe, for example, upon the accession to power of
Communist regimes in the past, the governments of a number of Eastern European
countries expropriated a large amount of property. The claims of many property
owners against those governments were never finally settled. There can be no
assurance that any investments that a Portfolio might make in an emerging market
would not be expropriated, nationalized or otherwise confiscated at some time in
the future. In the event of such expropriation, nationalization or other
confiscation in any emerging market, each Portfolio could lose its entire
investment in that market. Many emerging market countries have also experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economics and securities of certain
emerging market countries.

Economies in emerging markets generally are dependent heavily upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be affected adversely by economic conditions in the countries in which they
trade.

The securities markets of emerging countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the United States and
other major markets. There also may be a lower level of monitoring and
regulation of emerging securities markets and the activities of investors in
such markets, and enforcement of existing regulations has been extremely
limited.

In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the United States, particularly with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of a Portfolio to make intended securities purchases due to
settlement problems could cause it to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to a Portfolio due to subsequent declines in value of
the portfolio security or, if the Portfolio has entered into a contract to sell
the security, could result in possible liability to the purchaser.

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exists within the meaning of Section 22(a) of the 1940 Act. During the period
commencing from a Portfolio's identification of such conditions until the date
of SEC action, the portfolio securities in the affected markets will be valued
at fair value as determined in good faith by or under the direction of the Board
of Directors.

Sovereign Debt. The Putnam Diversified Income and the MFS Total Return
Portfolios may each invest in sovereign debt securities of emerging market
governments including Brady Bonds. Investments in such securities involve
special risks. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay principal
or interest when due in accordance with the terms of such debt. Periods of
economic uncertainty may result in the volatility of market prices of sovereign
debt obligations, and in turn a Portfolio's net asset value, to a greater extent
than the volatility inherent in domestic fixed income securities.

A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Emerging market governments could default on
their sovereign debt. Such sovereign debtors also may be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
abroad to reduce principal and interest arrearages on their debt. The commitment
on the part of these governments, agencies and others to make such disbursements
may be conditioned on a sovereign debtor's implementation of economic reforms
and/or economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due, may result in the cancellation of such
third parties' commitments to lend funds to the sovereign debtor, which may
further impair such debtor's ability or willingness to timely service its debts.

The occurrence of political, social or diplomatic changes in one or
more of the countries issuing sovereign debt could adversely affect a
Portfolio's investments. Emerging markets are faced with social and political
issues and some of them have experienced high rates of inflation in recent years
and have extensive internal debt. Among other effects, high inflation and
internal debt service requirements may adversely affect the cost and
availability of future domestic sovereign borrowing to finance governmental
programs, and may have other adverse social, political and economic
consequences. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. Although management intends to manage each Portfolio in a
manner that will minimize the exposure to such risks, there can be no assurance
that adverse political changes will not cause a Portfolio to suffer a loss of
interest or principal on any of its holdings.

In recent years, some of the emerging market countries in which each
Portfolio expects to invest have encountered difficulties in servicing their
sovereign debt obligations. Some of these countries have withheld payments of
interest and/or principal of sovereign debt. These difficulties have also led to
agreements to restructure external debt obligations -- in particular, commercial
bank loans, typically by rescheduling principal payments, reducing interest
rates and extending new credits to finance interest payments on existing debt.
In the future, holders of emerging market sovereign debt securities may be
requested to participate in similar rescheduling of such debt. Certain emerging
market countries are among the largest debtors to commercial banks and foreign
governments. Currently, Brazil, Russia and Mexico are among the largest debtors
among developing countries. At times certain emerging market countries have
declared moratoria on the payment of principal and interest on external debt;
such a moratorium is currently in effect in certain emerging market countries.
There is no bankruptcy proceeding by which a creditor may collect in whole or in
part sovereign debt on which an emerging market government has defaulted.

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The ability of emerging market governments to make timely payments on
their sovereign debt securities is likely to be influenced strongly by a
country's balance of trade and its access to trade and other international
credits. A country whose exports are concentrated in a few commodities could be
vulnerable to a decline in the international prices of one or more of such
commodities. Increased protectionism on the part of a country's trading partners
could also adversely affect its exports. Such events could diminish a country's
trade account surplus, if any. To the extent that a country receives payments
for its exports in currencies other than hard currencies, its ability to make
hard currency payments could be affected.

Investors should also be aware that certain sovereign debt instruments
in which the Portfolios may invest involve great risk. As noted above, sovereign
debt obligations issued by emerging market governments generally are deemed to
be the equivalent in terms of quality to securities rated below investment grade
by Moody's and S&P. Such securities are regarded as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse conditions. Some of such securities, with respect to which the issuer
currently may not be paying interest or may be in payment default, may be
comparable to securities rated D by S&P or C by Moody's. The Portfolios may have
difficulty disposing of and valuing certain sovereign debt obligations because
there may be a limited trading market for such securities. Because there is no
liquid secondary market for many of these securities, each Portfolio anticipates
that such securities could be sold only to a limited number of dealers or
institutional investors.

Brady Bonds. The Putnam Diversified Income and the MFS Total Return
Portfolios may each invest in "Brady Bonds," which are debt restructurings that
provide for the exchange of cash and loans for newly issued bonds. Brady Bonds
have been issued by the governments of Albania, Argentina, Brazil, Bulgaria,
Costa Rica, Croatia, Dominican Republic, Ecuador, Ivory Coast, Jordan, Mexico,
Morocco, Nigeria, Panama, Peru, Philippines, Poland, Slovenia, Uruguay,
Venezuela and Vietnam and are expected to be issued by other emerging market
countries. As of the date of this Prospectus, the Portfolios are not aware of
the occurrence of any payment defaults on Brady Bonds. Investors should
recognize, however, that Brady Bonds do not have a long payment history. In
addition, Brady Bonds are often rated below investment grade. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (primarily
the U.S. dollar) and are actively traded in the secondary market for Latin
American debt. The Salomon Brothers Brady Bond Index provides a benchmark that
can be used to compare returns of emerging market Brady Bonds with returns in
other bond markets, e.g., the U.S. bond market.

The Portfolios may invest in either collateralized or uncollateralized
Brady Bonds. U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed rate par bonds or floating rate discount bonds, are collateralized in full
as to principal by U.S. Treasury zero coupon bonds having the same maturity as
the bonds. Interest payments on such bonds generally are collateralized by cash
or securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.

Loan Participations and Assignments. The Putnam Diversified Income and
the MFS Total Return Portfolios may each invest a portion of its assets in loan
participations ("Participations"). By purchasing a Participation, a Portfolio
acquires some or all of the interest of a bank or other lending institution in a
loan to a corporate or government borrower. The Participations typically will
result in the Portfolio having a contractual relationship only with the lender
not the borrower. A Portfolio will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the lender
selling the Participation and only upon receipt by the lender of the payments
from the borrower. In connection with purchasing Participations, a Portfolio
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan, nor any rights of set-off
against the borrower, and a Portfolio may not directly benefit from any
collateral supporting the loan in which it has purchased the Participation. As a
result, a

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Portfolio will assume the credit risk of both the borrower and the lender that
is selling the Participation. In the event of the insolvency of the lender
selling a Participation, a Portfolio may be treated as a general creditor of the
lender and may not benefit from any set-off between the lender and the borrower.
Each Portfolio will acquire Participations only if the lender interpositioned
between the Portfolio and the borrower is determined by management to be
creditworthy.

The Putnam Diversified Income Portfolio may also invest in assignments
of portions of loans from third parties ("Assignments"). When it purchases
Assignments from lenders, the Portfolio will acquire direct rights against the
borrower on the loan. However, since Assignments are arranged through private
negotiations between potential assignees and assignors, the rights and
obligations acquired by the Portfolio as the purchaser of an Assignment may
differ from, and be more limited than, those held by the assigning lender.

The Portfolios may have difficulty disposing of Assignments and
Participations. The liquidity of such securities is limited and, each Portfolio
anticipates that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market could have an
adverse impact on the value of such securities and on each Portfolio's ability
to dispose of particular Assignments or Participations when necessary to meet
the Portfolio's liquidity needs or in response to a specific economic event,
such as a deterioration in the creditworthiness of the borrower. The lack of a
liquid secondary market for Assignments and Participations also may make it more
difficult for the Portfolio to assign a value to those securities for purposes
of valuing the Portfolio's portfolio and calculating its net asset value.

Synthetic Security Positions. The Putnam Diversified Income Portfolio
may utilize combinations of futures on bonds and forward currency contracts to
create investment positions that have substantially the same characteristics as
bonds of the same type on which the futures contracts are written. Investment
positions of this type are generally referred to as "synthetic securities."

For example, in order to establish a synthetic security position for
the Portfolio that is comparable to owning a Japanese government bond, the
relevant Sub-Adviser might purchase futures contracts on Japanese government
bonds in the desired principal amount and purchase forward currency contracts
for Japanese Yen in an amount equal to the then current purchase price for such
bonds in the Japanese cash market, with each contract having approximately the
same delivery date.

The Sub-Adviser might roll over the futures and forward currency
contract positions before taking delivery in order to continue the Portfolio's
investment position, or the Sub-Adviser might close out those positions, thus
effectively selling the synthetic security. Further, the amount of each contract
might be adjusted in response to market conditions and the forward currency
contract might be changed in amount or eliminated in order to hedge against
currency fluctuations.

Further, while these futures and currency contracts remain open, a
Portfolio will comply with applicable SEC guidelines to set aside cash, debt
securities of any grade or equity securities, in a segregated account with its
custodian in an amount sufficient to cover its potential obligations under such
contracts; provided such securities have been determined by the Sub-Adviser to
be liquid and unencumbered pursuant to guidelines established by the Directors.

The Sub-Adviser would create synthetic security positions for a
Portfolio when it believes that it can obtain a better yield or achieve cost
savings in comparison to purchasing actual bonds or when comparable bonds are
not readily available in the market. Synthetic security positions are subject to
the risk that changes in the value of purchased futures contracts may differ
from changes in the value of the bonds that might otherwise have been purchased
in the cash market. Also, while the Sub-Adviser believes that the cost of
creating synthetic security positions generally will be materially lower than
the cost of acquiring comparable bonds in

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the cash market, the Sub-Adviser will incur transaction costs in connection with
each purchase of a futures or a forward currency contract. The use of futures
contracts and forward currency contracts to create synthetic security positions
also is subject to substantially the same risks as those that exist when these
instruments are used in connection with hedging strategies. See "Futures,
Options and Currency Transactions" in the Prospectus and "Options, Futures
Contracts and Related Options," "Interest Rate, Securities Index, Financial
Futures and Currency Futures Contracts," "Options on Futures Contracts" and
"Forward Currency Contracts and Options on Currency" in the SAI.

Lower-Quality and Non-Rated Securities. Each Portfolio may invest in
lower-quality securities. Investments in lower-rated securities are subject to
special risks, including a greater risk of loss of principal and non-payment of
interest. An investor should carefully consider the following factors before
investing in these Portfolios.

Generally, lower-quality securities offer a higher return potential
than higher-rated securities but involve greater volatility of price and greater
risk of loss of income and principal, including the possibility of default or
bankruptcy of the issuers of such securities. Lower-quality securities and
comparable non-rated securities will likely have large uncertainties or major
risk exposure to adverse conditions and are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. The occurrence of adverse
conditions and uncertainties would likely reduce the value of securities held by
a Portfolio, with a commensurate effect on the value of the Portfolio's shares.

The markets in which lower-quality securities or comparable non-rated
securities are traded generally are more limited than those in which
higher-quality securities are traded. The existence of limited markets for these
securities may restrict the availability of securities for a Portfolio to
purchase and also may restrict the ability of a Portfolio to obtain accurate
market quotations for purposes of valuing securities and calculating net asset
value or to sell securities at their fair value. The public market for
lower-quality securities and comparable non-rated securities is relatively new
and has not fully weathered a major economic recession. Any such economic
downturn could adversely affect the ability of issuers' lower-quality securities
to repay principal and pay interest thereon.

While the market values of lower-quality securities and comparable
non-rated securities tend to react less to fluctuations in interest rate levels
than do those of higher-quality securities, the market values of certain of
these securities also tend to be more sensitive to individual corporate
developments and changes in economic conditions than higher-quality securities.
In addition, lower-quality securities and comparable non-rated securities
generally present a higher degree of credit risk. Issuers of lower-quality
securities and comparable non-rated securities are often highly leveraged and
may not have more traditional methods of financing available to them so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater because
lower-quality securities and comparable non-rated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. A Portfolio may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings.

Fixed-income securities, including lower-quality securities and
comparable non-rated securities, frequently have call and buy-back features that
permit their issuers to call or repurchase the securities from their holders,
such as the Portfolios. If an issuer exercises these rights during periods of
declining interest rates, a Portfolio may have to replace the security with a
lower yielding security, resulting in a decreased return to the Portfolio.

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In general, the ratings of nationally recognized statistical rating
organizations represent the opinions of these agencies as to the quality of
securities that they rate. Such ratings, however, are relative and subjective,
and are not absolute standards of quality and do not evaluate the market value
risk of the securities. It is possible that an agency might not change its
rating of a particular issue to reflect subsequent events. These ratings will be
used by each Portfolio as initial criteria for the selection of portfolio
securities, but each Portfolio also will rely upon the independent advice of the
Manager or the Sub-Adviser, as the case may be, to evaluate potential
investments.

In light of these risks, management will take various factors into
consideration in evaluating the creditworthiness of an issue, whether rated or
non-rated. These factors may include, among others, the issuer's financial
resources, its sensitivity to economic conditions and trends, the operating
history of and the community support for the facility financed by the issue, the
ability of the issuer's management and regulatory matters.

Securities Lending. Each Portfolio may seek to increase its net
investment income by lending portfolio securities to unaffiliated brokers,
dealers and other financial institutions, provided such loans are callable at
any time and are continuously secured by cash or U.S. Government securities or
other liquid debt securities equal to no less than the market value, determined
daily, of the securities loaned. The risks in lending portfolio securities
consist of possible delay in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially.

Repurchase Agreements. Each Portfolio may on occasion enter into
repurchase agreements, wherein the seller agrees to repurchase a security from
the Portfolio at an agreed-upon future date, normally the next business day. The
resale price is greater than the purchase price, which reflects the agreed-upon
rate of return for the period the Portfolio holds the security and which is not
related to the coupon rate on the purchased security. Each Portfolio requires
continual maintenance of the market value of the collateral in amounts at least
equal to the resale price, thus risk is limited to the ability of the seller to
pay the agreed-upon amount on the delivery date; however, if the seller
defaults, realization upon the collateral by the Portfolio may be delayed or
limited or the Portfolio might incur a loss if the value of the collateral
securing the repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. Repurchase agreements are considered
loans by the Portfolios. The Portfolios will only enter into repurchase
agreements with broker/dealers or other financial institutions that are deemed
creditworthy by management, under guidelines approved by the Board of Directors.

Dollar Roll Transactions. The Putnam Diversified Income Portfolio may
enter into "dollar rolls", in which the Portfolio sells fixed income 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. The MFS Total Return Portfolio may enter into similar transactions
pursuant to which the Portfolio sells mortgage-backed securities for delivery in
the future (generally within 30 days). During the roll period, the Portfolio
would forego principal and interest paid on such securities. The Portfolio would
be compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. Since the Portfolio will receive interest on the
securities in which it invests the transaction proceeds, such transactions may
involve leverage. However, since such securities must satisfy the quality
requirements of the Portfolio and will mature on or before the settlement date
on the transaction, management believes that such transactions do not present
the risks to the Portfolio that are associated with other types of leverage. The
MFS Total Return Portfolio will only enter into covered rolls, where 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. Dollar
roll transactions are considered borrowings by

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the Portfolios and will be subject to each Portfolio's overall borrowing
limitation. Dollar roll transactions are considered speculative.

When-Issued, Delayed Delivery and Forward Commitment Securities. Each
Portfolio may purchase or sell securities on a when-issued, delayed delivery or
forward commitment basis. Such transactions arise when securities are purchased
or sold by a Portfolio with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to the
Portfolio at the time of entering into the transaction. Purchasing such
securities involves the risk of loss if the value of the securities declines
prior to settlement date. The sale of securities for delayed delivery involves
the risk that the prices available in the market on the delivery date may be
greater than those obtained in the sale transaction. Each Portfolio's custodian
will maintain, in a segregated account on behalf of the Portfolio, cash, U.S.
Government securities or other liquid securities having a value equal to or
greater than the Portfolio's purchase commitments; the custodian will likewise
segregate securities sold on a delayed basis.

Convertible Securities. Each Portfolio can invest in convertible
securities. Convertible securities are fixed-income securities that may be
converted at either a stated price or stated rate into underlying shares of
common stock. Convertible securities have general characteristics similar to
both fixed-income and equity securities. Although to a lesser extent than with
fixed-income securities, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stocks and, therefore, also will react to
variations in the general market for equity securities.

Convertible securities are investments which provide for a stable
stream of income with generally higher yields than common stocks. There can be
no assurance of current income because the issuers of the convertible securities
may default on their obligations. Synthetic convertible securities differ from
convertible securities in certain respects, including that each component of a
synthetic convertible security has a separate market value and responds
differently to market fluctuations. Investing in synthetic convertible
securities involves the risk normally involved in holding the securities
comprising the synthetic convertible security.

Borrowing. Each Portfolio may borrow from banks, on a secured or
unsecured basis.

Illiquid and Restricted Securities. Each Portfolio may purchase
securities that are not registered ("restricted securities") under the
Securities Act of 1933, as amended (the "1933 Act"), but can be offered and sold
to "qualified institutional buyers" under Rule 144A under the 1933 Act ("Rule
144A"). Each Portfolio may also invest a portion of its assets in illiquid
investments, which include repurchase agreements maturing in more than seven
days and restricted securities. The Board of Directors may determine, based upon
a continuing review of the trading markets for the specific restricted security,
that such restricted securities are liquid. The Board of Directors has adopted
guidelines and delegated to management the daily function of determining and
monitoring liquidity of restricted securities available pursuant to Rule 144A.
The Board, however, retains sufficient oversight and is ultimately responsible
for the determinations. Since it is not possible to predict with assurance
exactly how the market for Rule 144A restricted securities will develop, the
Board will carefully monitor each Portfolio's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. Investments in restricted securities could have the
effect of increasing the level of illiquidity in a Portfolio to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. The Portfolios may also purchase restricted
securities that are not registered under Rule 144A.

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17
<PAGE>

Zero-Coupon Bonds, Deferred Interest Bonds and Payment-in-Kind Bonds.
Each Portfolio may invest in zero-coupon and payment-in-kind bonds. The MFS
Total Return and Putnam Diversified Income Portfolios also may each invest in
deferred interest bonds. Zero-coupon and deferred interest bonds are issued at a
significant discount from their principal amount. While zero-coupon bonds do not
require the periodic payment of interest, deferred interest bonds provide for a
period of delay before the regular payment of interest begins. Payment-in-kind
bonds allow the issuer, at its option, to make current interest payments on the
bonds either in cash or in additional bonds. The value of zero-coupon bonds is
subject to greater fluctuation in market value in response to changes in market
interest rates than bonds of comparable maturity which pay interest currently.
Both zero-coupon and payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly, such bonds may
involve greater credit risks than bonds that pay interest currently. Even though
such bonds do not pay current interest in cash, the Portfolio is nonetheless
required to accrue interest income on such investments and to distribute such
amounts at least annually to shareholders. Accordingly, for a Portfolio to
continue to qualify for tax treatment as a regulated investment company and to
avoid certain excise taxes, the Portfolio may be required to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. These distributions must be made from the Portfolio's cash assets or,
if necessary, from the proceeds of sales of portfolio securities. The Portfolio
will not be able to purchase additional income-producing securities with cash
used to make such distributions and its current income ultimately may be reduced
as a result.

Futures, Options and Currency Transactions. Consistent with its
investment objective and policies, each Portfolio may enter into contracts for
the purchase or sale for future delivery of fixed-income securities, foreign
currencies or contracts based on financial indices including interest rates or
an index of U.S. Government or foreign government securities or equity or
fixed-income securities ("futures contracts"), and may buy and write put and
call options to buy or sell futures contracts ("options on futures contracts").
When a Portfolio buys or sells a futures contract it incurs a contractual
obligation to receive or deliver the underlying instrument (or a cash payment
based on the difference between the underlying instrument's closing price and
the price at which the contract was entered into) at a specified price on a
specified date. An option on a futures contract gives a Portfolio the right (but
not the obligation) to buy or sell a futures contract at a specified price on or
before a specified date.

The Portfolios will not enter into transactions in futures contracts
and options on futures contracts for speculation and will not enter into such
transactions other than to hedge against potential changes in interest or
currency exchange rates or the price of a security or a securities index which
might correlate with or otherwise adversely affect either the value of the
Portfolio's securities or the prices of securities which the Portfolio is
considering buying at a later date. The MFS Total Return Portfolio, however, may
enter into futures contracts and options on futures contracts for non-hedging
purposes, provided that the aggregate initial margin and premiums on such
non-hedging positions does not exceed 5% of the liquidation value of a
Portfolio's assets.

Although futures contracts by their terms call for the delivery or
acquisition of the underlying commodities or a cash payment based on the value
of the underlying commodities, in most cases the contractual obligation is
offset before the delivery date of the contract by buying, in the case of a
contractual obligation to sell, or selling, in the case of a contractual
obligation to buy, an identical futures contract on a commodities exchange. Such
a transaction cancels the obligation to make or take delivery of the
commodities. Since all transactions in the futures market are made through a
member of, and are offset or fulfilled through a clearinghouse associated with,
the exchange on which the contracts are traded, a Portfolio will incur brokerage
fees when it buys or sells futures contracts.

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18
<PAGE>

A Portfolio will not (1) enter into any futures contracts or options on
futures contracts if immediately thereafter the aggregate margin deposits on all
outstanding futures contracts positions held by the Portfolio and premiums paid
on outstanding options on futures contracts, after taking into account
unrealized profits and losses, would exceed 5% of the market value of the total
assets of the Portfolio or (2) enter into any futures contracts or options on
futures contracts if the aggregate amount of the Portfolio's commitments under
outstanding futures contracts positions and options on futures contracts written
by the Portfolio would exceed the market value of the total assets of the
Portfolio. See the SAI for further discussion of the use, risks and costs
associated with futures contracts and options on futures contracts.

Forward Currency Transactions. Each Portfolio may enter into forward
foreign currency exchange contracts ("forward currency contracts") to attempt to
minimize the risk to the Portfolio from adverse changes in the relationship
between the U.S. dollar and other currencies. A forward currency contract is an
obligation to buy or sell an amount of a specified currency for an agreed price
(which may be in U.S. dollars or a foreign currency) at a future date which is
individually negotiated between currency traders and their customers. A
Portfolio may enter into a forward currency contract, for example, when it
enters into a contract to buy or sell a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). Additionally, when a Portfolio believes that a foreign
currency in which the portfolio securities are denominated may suffer a
substantial decline against the U.S. dollar, the Portfolio may enter into a
forward currency contract to sell an amount of that foreign currency
approximating the value of some or all of the portfolio securities denominated
in that currency, or, when the Portfolio believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, the Portfolio may enter
into a forward currency contract to buy that foreign currency for a fixed U.S.
dollar amount ("position hedge"). A Portfolio also may enter into a forward
currency contract with respect to a currency where the Portfolio is considering
the purchase of investments denominated in that currency but has not yet done so
("anticipatory hedge"). In any of these circumstances the Portfolio may,
alternatively, enter into a forward currency contract with respect to a
different foreign currency when the Portfolio believes that the U.S. dollar
value of that currency will correlate with the U.S. dollar value of the currency
in which portfolio securities of, or being considered for purchase by, the
Portfolio are denominated ("cross hedge"). A Portfolio may invest in forward
currency contracts with stated contract values of up to the value of the
Portfolio's assets. The MFS Total Return Portfolio and Putnam Diversified Income
Portfolio may also enter into forward currency contracts for non-hedging
purposes, subject to applicable law.

A Portfolio also may enter into forward contracts to buy or sell at a
later date instruments in which the Portfolio may invest directly or on
financial indices based on those instruments. The market for those types of
forward contracts is developing and it is not currently possible to identify
instruments on which forward contracts might be created in the future. See the
SAI for further discussion of the use, risks and costs of forward contracts.

A Portfolio may also enter into currency swaps where each party
exchanges one currency for another on a particular date and agrees to reverse
the exchange on a later date at a specific exchange rate.

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<PAGE>

political data. The exchange rates between the U.S. dollar and other currencies
are determined by supply and demand in the currency exchange markets, the
international balance of payments, governmental intervention, speculation and
other economic and political conditions. If the currency in which a security is
denominated appreciates against the U.S. dollar, the dollar value of the
security will increase. Conversely, a decline in the exchange rate of the
currency would adversely affect the value of the security expressed in U.S.
dollars.

Options on Securities and on Foreign Currencies. In an effort to reduce
fluctuations in net asset value or to increase its portfolio return, the
Portfolios may write covered put and call options and may buy put and call
options and warrants on securities traded on U.S. and foreign securities
exchanges. The purpose of such transactions is to hedge against changes in the
market value of portfolio securities caused by fluctuating interest rates,
fluctuating currency exchange rates and changing market conditions, and to close
out or offset existing positions in such options or futures contracts as
described below. A Portfolio may write and buy options on the same types of
securities that the Portfolio could buy directly and may buy options on
financial indices as described above with respect to futures contracts. There
are no specific limitations on the writing and buying of options on securities.

A put option gives the holder the right, upon payment of a premium, to
deliver a specified amount of a security to the writer of the option on or
before a fixed date at a predetermined price. A call option gives the holder the
right, upon payment of a premium, to call upon the writer to deliver a specified
amount of a security on or before a fixed date at a predetermined price.

A call option is "covered" if a Portfolio owns the underlying security
covered by the call. If a "covered" call option expires unexercised, the writer
realizes a gain in the amount of the premium received. If the covered call
option is exercised, the writer realizes either a gain or loss from the sale or
purchase of the underlying security with the proceeds to the writer being
increased by the amount of the premium. Prior to its expiration, a call option
may be closed out by means of a purchase of an identical option. Any gain or
loss from such transaction will depend on whether the amount paid is more or
less than the premium received for the option plus related transaction costs. A
Portfolio also may write a covered call option to cross-hedge if the Portfolio
does not own the underlying security. The option is designed to provide a hedge
against a decline in value in another security which the Portfolio owns or has
the right to acquire.

In purchasing an option, the Portfolio would be in a position to
realize a gain if, during the option period, the price of the underlying
security increased (in the case of a call) or decreased (in the case of a put)
by an amount in excess of the premium paid and would realize a loss if the price
of the underlying security did not increase (in the case of a call) or decrease
(in the case of a put) during the period by more than the amount of the premium.
If a put or call option bought by the Portfolio were permitted to expire without
being sold or exercised, the Portfolio would lose the amount of the premium.

Although they entitle the holder to buy equity securities, warrants on
and options to purchase equity securities do not entitle the holder to dividends
or voting rights with respect to the underlying securities, nor do they
represent any rights in the assets of the issuer of those securities.

If a put or call option written by a Portfolio were exercised, the
Portfolio would be obligated to buy or sell the underlying security at the
exercise price. Writing a put option involves the risk of a decrease in the
market value of the underlying security, in which case the option could be
exercised and the underlying security would then be sold by the option holder to
the Portfolio at a higher price than its current market value. Writing a call
option involves the risk of an increase in the market value of the underlying
security, in which case the option could be exercised and the underlying
security would then be sold by the Portfolio to the option holder at a

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20
<PAGE>

lower price than its current market value. Those risks could be reduced by
entering into an offsetting transaction. The Portfolio retains the premium
received from writing a put or call option whether or not the option is
exercised.

A Portfolio may buy put and call options and may write covered put and
call options on foreign currencies to hedge against declines in the U.S. dollar
value of foreign currency-denominated securities held by the Portfolio and
against increases in the U.S. dollar cost of foreign currency-denominated
securities being considered for purchase by the Portfolio. As in the case of
other options, however, the writing of an option on a foreign currency will
constitute only a partial hedge, up to the amount of the premium received, and
the Portfolio could be required to buy or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates, although, in the event of rate movements adverse
to the Portfolio's options position, the option may expire worthless and the
Portfolio will lose the amount of the premium. There is no specific percentage
limitation on a Portfolio's investments in options on foreign currencies.

A Portfolio may buy or write options in privately negotiated
transactions on the types of securities and indices based on the types of
securities in which the Portfolio is permitted to invest directly. The Portfolio
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy, and only pursuant to procedures adopted by management for
monitoring the creditworthiness of those entities. To the extent that an option
bought or written by the Portfolio in a negotiated transaction is illiquid, the
value of an option bought or the amount of the Portfolio's obligations under an
option written by the Portfolio, as the case may be, will be subject to the
Portfolio's limitation on illiquid investments. In the case of illiquid options,
it may not be possible for the Portfolio to effect an offsetting transaction at
a time when management believes it would be advantageous for the Portfolio to do
so. See the SAI for a further discussion of the use, risks and costs of option
trading.

Swaps and Swap-Related Products. As one way of managing its exposure to
different types of investments, the MFS Total Return Portfolio may enter into
interest rate swaps, currency swaps and other types of available swap
agreements, such as caps, collars and floors. Swaps involve the exchange by the
Portfolio with another party of cash payments based upon different interest rate
indexes, currencies, and other prices or rates, such as the value of mortgage
prepayment rates. For example, in the typical interest rate swap, the Portfolio
might exchange a sequence of cash payments based on a floating rate index for
cash payments based on a fixed rate. Payments made by both parties to a swap
transaction are based on a principal amount determined by the parties.

The Portfolio may also purchase and sell caps, floors and collars. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the
counterparty. For example, the purchase of an interest rate cap entitles the
buyer, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the counterparty selling such interest rate cap. The sale of an interest
rate floor obligates the seller to make payments to the extent that a specified
interest rate falls below an agreed-upon level. A collar arrangement combines
elements of buying a cap and selling a floor.

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21
<PAGE>

floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall volatility
of the Portfolio's investments and its share price and yield.

Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Portfolio's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Portfolio may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.

Swaps, caps, floors and collars are highly specialized activities which
involve certain risks. See the Statement of Additional Information for a further
discussion on the risks involved in these activities.

Special Investment Considerations and Risks With Respect to Futures,
Options and Currency Transactions and Swaps and Swap-Related Products. The
successful use of the investment practices described above with respect to
futures contracts, options on futures contracts, forward contracts, options on
securities and on foreign currencies, and swaps and swap-related products draws
upon skills and experience which are different from those needed to select the
other instruments in which the Portfolio invests. Should interest or exchange
rates or the prices of securities or financial indices move in an unexpected
manner, a Portfolio may not achieve the desired benefits of futures, options,
swaps and forwards or may realize losses and thus be in a worse position than if
such strategies had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price fluctuation limits
with respect to options on currencies, forward contracts and other negotiated or
over-the-counter instruments, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In addition, the
correlation between movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.

With respect to interest rate swaps, the Portfolio recognizes that
such arrangements are relatively illiquid and will include the principal amount
of the obligations owed to it under a swap as an illiquid security for purposes
of the Portfolio's investment restrictions except to the extent a third party
(such as a large commercial bank) has guaranteed the Portfolio's ability to
offset the swap at any time.

A Portfolio's ability to dispose of its positions in the foregoing
instruments will depend on the availability of liquid markets in the
instruments. Markets in a number of the instruments are relatively new and still
developing, and it is impossible to predict the amount of trading interest that
may exist in those instruments in the future. Particular risks exist with
respect to the use of each of the foregoing instruments and could result in such
adverse consequences to the Portfolio as the possible loss of the entire premium
paid for an option bought by the Portfolio, the inability of the Portfolio, as
the writer of a covered call option, to benefit from the appreciation of the
underlying securities above the exercise price of the option and the possible
need to defer closing out positions in certain instruments to avoid adverse tax
consequences. As a result, no assurance can be given that the Portfolio will be
able to use those instruments effectively for the purposes set forth above. See
the SAI for a further discussion of the use, risks and costs of these
instruments.

In connection with its transactions in futures, options, swaps and
forwards, the Portfolio may be required to place assets in a segregated account
with the Portfolio's custodian bank to ensure that the Portfolio will be able to
meet its obligations under these instruments. Assets held in a segregated
account generally may not be disposed of for so long as the Portfolio maintains
the positions giving rise to the segregation requirement. Segregation of a large
percentage of the Portfolio's assets could impede implementation of the
Portfolio's investment policies or the Portfolio's ability to meet redemption
requests or other current obligations.

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<PAGE>

Real Estate Investment Trusts. The Alliance Growth Portfolio may invest
in real estate investment trusts ("REITs"). REITs are entities which either own
properties or make construction or mortgage loans. Equity trusts own real estate
directly and the value of, and income earned by, the trust depends upon the
income of the underlying properties and the rental income they earn. Equity
trusts may also include operating or finance companies. Equity trusts can also
realize capital gains by selling properties that have appreciated in value. A
mortgage trust can make construction, development or long-term mortgage loans,
and are sensitive to the credit quality of the borrower. Mortgage trusts derive
their income from interest payments. Hybrid trusts combine the characteristics
of both equity and mortgage trusts, generally by holding both ownership
interests and mortgage interests in real estate. The value of securities issued
by REITs are affected by tax and regulatory requirements and by perceptions of
management skill. They are also subject to heavy cash flow dependency, defaults
by borrowers or tenants, self-liquidation, the possibility of failing to qualify
for tax-free status under the Internal Revenue Code of 1986, as amended, and
failing to maintain exemption from the 1940 Act.

Mortgage-Backed Securities. The Putnam Diversified Income and MFS Total
Return Portfolios may invest in mortgage-backed securities, which represent
pools of mortgage loans assembled for sale to investors by various governmental
agencies and government-related organizations, such as Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC"), as well as by private
issuers such as commercial banks, savings and loan institutions, mortgage
bankers and private mortgage insurance companies. Mortgage-backed securities
provide a monthly payment consisting of interest and principal payments.
Additional payment may be made out of unscheduled repayments of principal
resulting from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs that may be incurred. Prepayments of principal
on mortgage-backed securities may tend to increase due to refinancing of
mortgages as interest rates decline. Prompt payment of principal and interest on
GNMA mortgage pass through certificates is backed by the full faith and credit
of the United States. FNMA guaranteed mortgage pass-through certificates are
solely the obligations of those entities but are supported by the discretionary
authority of the U.S Government to purchase the agencies' obligations. Mortgage
pools created by private organizations generally offer a higher rate of interest
than governmental and government-related pools because there are no direct or
indirect guarantees of payments in the former pools. Timely payment of interest
and principal in these pools, however, may be supported by various forms of
private insurance or guarantees, including individual loan, title, pool and
hazard insurance. There can be no assurance that the private insurers can meet
their obligations under the policies.

Collateralized mortgage obligations are a type of bond secured by an
underlying pool of mortgages or mortgage pass-through certificates that are
structured to direct payments on underlying collateral to different series of
classes of the obligations.

To the extent that each Portfolio purchases mortgage-related securities
at a premium, mortgage foreclosures and prepayments of principal (which may be
made at any time without penalty) may result in some loss of the Portfolio's
principal investment to the extent of the premium paid. The yield of a Portfolio
that invests in mortgage-related securities may be affected by reinvestment of
prepayments at higher or lower rates than the original investment. In addition,
like other debt securities, the values of mortgage-related securities, including
government and government related mortgage pools, generally will fluctuate in
response to market interest rates.

Other Asset-Backed Securities. The Putnam Diversified Income and MFS
Total Return Portfolios may invest in asset-backed securities arising through
the grouping by governmental, government-related and private

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23
<PAGE>

organizations of loans, receivables and other assets originated by various
lenders. Interests in pools of these assets differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Instead,
asset-backed securities provide periodic payments which generally consist of
both interest and principal payments.

The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. The rate
of such prepayments, and hence the life of an asset-backed security, will be
primarily a function of current market interest rates, although other economic
and demographic factors may be involved. For example, falling interest rates
generally result in an increase in the rate of prepayments of mortgage loans
while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
asset-backed securities are not as effective in locking in high long-term
yields. Conversely, in periods of sharply rising rates, prepayments generally
slow, increasing the security's average life and its potential for price
depreciation.

U.S. Government Securities. Each Portfolio may invest in U.S.
Government securities, which are debt obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government (including Treasury
bills, notes and bonds, certain mortgage participation certificates and
collateralized mortgage obligations) or by its agencies and instrumentalities
(such as GNMA, the Student Loan Marketing Association, the Tennessee Valley
Authority, the Bank for Cooperatives, the Farmers Home Administration, Federal
Farm Credit Banks, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Land Banks, the Export-Import Bank of the U.S., the Federal Housing
Administration, FHLMC, the U.S. Postal Service, the Federal Financing Bank and
FNMA). Some of these securities (such as Treasury bills) are supported by the
full faith and credit of the U.S. Treasury; others (such as obligations of the
Federal Home Loan Bank) are supported by the right of the issuer to borrow from
the Treasury; while still others (such as obligations of FNMA and the Student
Loan Marketing Association) are supported only by the credit of the
instrumentality.

Portfolio Turnover. Although it is anticipated that most investments of
each Portfolio will be long-term in nature, the rate of portfolio turnover will
depend upon market and other conditions, and it will not be a limiting factor
when management believes that portfolio changes are appropriate. The historical
portfolio turnover rates for each Portfolio are included in the Financial
Highlights tables above. A higher rate of portfolio turnover may result in
higher transaction costs, including brokerage commissions.

Year 2000. The investment management services provided to the Fund by
the Manager and the services provided to shareholders by Smith Barney, the
Fund's Distributor, depend on the smooth functioning of their computer systems.
Many computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact of the Fund's
operations, including the handling of securities trades, pricing and account
services. The Manager and Smith Barney have advised the Fund that they have been
reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, the Manager have been
advised by the Fund's custodian, transfer agent and accounting service agent
that they are also in the process of modifying their systems with the same goal.
There can, however, be no assurance that the Manager, Smith Barney or any other
service provider will be successful, or that interaction with other
non-complying computer systems will not impair Fund services at that time.

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<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES
================================================================================

Each Portfolio of the Fund intends to qualify and be taxed as a
"regulated investment company" under Subchapter M of the Code. In order to
qualify as a regulated investment company, each Portfolio must meet certain
income and diversification tests. As a regulated investment company and provided
certain distribution requirements are met, a Portfolio will not be subject to
federal income tax on its investment income and net capital gains that it
distributes to its shareholders. Such distributions are automatically reinvested
in additional shares of the Portfolio at net asset value and are includable in
gross income of the Separate Accounts holding such shares. See the accompanying
Contract prospectus for information regarding the federal income tax treatment
of distributions to the Separate Accounts and to holders of the Contracts.

Each Portfolio of the Fund is also subject to asset diversification
regulations promulgated by the U.S. Treasury Department under the Code. The
regulations generally provide that, as of the end of each calendar quarter or
within 30 days thereafter, no more than 55% of the total assets of each
Portfolio may be represented by any one investment, no more than 70% by any two
investments, no more than 80% by any three investments, and no more than 90% by
any four investments. For this purpose all securities of the same issuer are
considered a single investment. If a Portfolio should fail to comply with these
regulations, Contracts invested in that Portfolio would not be treated as
annuity, endowment or life insurance contracts under the Code.

REDEMPTION OF SHARES
================================================================================

The redemption price of the shares of each Portfolio will be the net
asset value next determined after receipt by the Fund of a redemption order from
a Separate Account, which may be more or less than the price paid for the
shares. The Fund will ordinarily make payment within one business day, though
redemption proceeds must be remitted to a Separate Account on or before the
third day following receipt of proper tender, except on a day on which the New
York Stock Exchange ("NYSE") is closed or as permitted by the SEC in
extraordinary circumstances.

PERFORMANCE
================================================================================

From time to time the Fund may include a Portfolio's total return,
average annual total return, yield and current distribution return in
advertisements and/or other types of sales literature. These figures are based
on historical earnings and are not intended to indicate future performance. In
addition, these figures will not reflect the deduction of the charges that are
imposed on the Contracts by the Separate Account (see Contract prospectus)
which, if reflected, would reduce the performance quoted. Total return is
computed for a specified period of time assuming reinvestment of all income
dividends and capital gains distributions at net asset value on the ex-dividend
dates at prices calculated as stated in this Prospectus, then dividing the value
of the investment at the end of the period so calculated by the initial amount
invested and subtracting 100%. The standard average annual total return, as
prescribed by the SEC, is derived from this total return, which provides the
ending redeemable value. Such standard total return information may also be
accompanied with nonstandard total return information over different periods of
time by means of aggregate, average, year-by-year, or other types of total
return figures. The yield of a Portfolio refers to the net investment income
earned by investments in the Portfolio over a thirty-day period. This net
investment income is then annualized, i.e., the amount of income earned by the
investments during that thirty-day period is assumed to be earned each 30-day
period for twelve periods and is expressed as a percentage of the investments.
The yield quotation is calculated according to a formula prescribed by the SEC
to facilitate comparison with yields quoted by other investment companies. The
Fund calculates current distribution return for each Portfolio by dividing the
distributions from investment income declared during the most recent period by
the net asset value on the last day of the period for which current

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25
<PAGE>

distribution return is presented. A Portfolio's current distribution return may
vary from time to time depending on market conditions, the composition of its
investment portfolio and operating expenses. These factors and possible
differences in the methods used in calculating current distribution return, and
the charges that are imposed on the Contracts by the Separate Account, should be
considered when comparing the Portfolio's current distribution return to yields
published for other investment companies and other investment vehicles.

MANAGEMENT
================================================================================

The Investment Manager:

TIA manages the investment operations of each Portfolio pursuant to
management agreements entered into by the Fund on behalf of each such Portfolio.

Under each management agreement TIA is responsible for furnishing or
causing to be furnished to each applicable Portfolio advice and assistance with
respect to the acquisition, holding or disposal of investments and
recommendations with respect to other aspects and affairs of the Portfolio,
bookkeeping, accounting and administrative services, office space and equipment,
and the services of the officers and employees of the Fund.

TIA and each Portfolio are also subject to a subadvisory agreement (see
"The Sub-Advisers" below). Pursuant to each subadvisory agreement, each
Sub-Adviser is responsible for the day to day operations and investment
decisions for the respective Portfolio and is authorized, in its discretion and
without prior consultation with TIA, to: (a) manage the Portfolio's assets in
accordance with the Portfolio's investment objective(s) and policies as stated
in the Prospectus and the SAI; (b) make investment decisions for the Portfolio;
(c) place purchase and sale orders for portfolio transactions on behalf of the
Portfolio; and (d) employ professional portfolio managers and securities
analysts who provide research services to the Portfolio.

TIA has also entered into a Sub-Administrative Services Agreement with
an affiliate (the "Sub-Administrator") to: (a) assist TIA in supervising all
aspects of each Portfolio's operations; (b) supply each Portfolio with office
facilities, statistical and research services, data processing services,
clerical, accounting and bookkeeping services; and (c) prepare reports to each
Portfolio's shareholders and prepare reports to and filings with the SEC and
state blue sky authorities, if applicable. TIA pays the Sub-Administrator a fee
in an amount equal to an annual rate of 0.10% of each Portfolio's average daily
net assets.

For the services provided by TIA, each Portfolio pays TIA an annual
management fee calculated at a rate equal to the following percentage of its
average daily net assets, paid monthly.

Alliance Growth Portfolio 0.80%
Putnam Diversified Income Portfolio 0.75%
MFS Total Return Portfolio 0.80%

Although the management fee paid by each Portfolio is greater than that
paid by most mutual funds, management has determined that each fee is comparable
to the fee charged by other investment advisers of mutual funds that have
similar investment objectives and policies.

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26
<PAGE>

such registrations and qualifications (including the printing of the Fund's
registration statements), fees of auditors and legal counsel, costs of
performing portfolio valuations, out-of-pocket expenses of directors and fees of
directors who are not "interested persons" as defined in the 1940 Act, interest,
taxes and governmental fees, fees and commissions of every kind, expenses of
issue, repurchase or redemption of shares, insurance expense, association
membership dues, all other costs incident to the Fund's existence and
extraordinary expenses such as litigation and indemnification expenses. Direct
expenses are charged to each of the Fund's Portfolios; general corporate
expenses are allocated on the basis of relative net assets.

TIA was incorporated in 1996 under the laws of the State of Delaware.
It is a wholly owned subsidiary of The Plaza Corporation ("Plaza"), which is an
indirect wholly owned subsidiary of Travelers Group Inc. ("Travelers"), which is
a financial services holding company engaged, through its subsidiaries,
principally in four business segments: Investment Services including Asset
Management, Consumer Finance Services, Life Insurance Services and Property &
Casualty Insurance Services. TIA is located at 388 Greenwich Street, New York,
New York 10013. TIA and its affiliates may in the future act as investment
advisers for other accounts.

The Sub-Advisers:

Alliance Capital Management L.P. Alliance Capital Management L.P.
("Alliance Capital") will serve as Sub-Adviser to the Alliance Growth Portfolio
and will manage the day to day operations of the Portfolio pursuant to a
subadvisory agreement. Pursuant to the subadvisory agreement TIA pays Alliance
Capital an annual fee calculated at the rate of 0.375% of the Portfolio's
average daily net assets, paid monthly.

Alliance is a global investment adviser providing diversified services
to institutions and individuals through a broad line of investments including
more than 100 mutual funds. Since 1971, Alliance has earned a reputation as a
leader in the investment world, with over $218.7 billion in assets under
management as of December 31, 1997. Alliance provides investment management
services to 31 of the FORTUNE 100 companies.

Alliance Capital Management Corporation ("ACMC") the sole general
partner of Alliance Capital, is an indirect wholly owned subsidiary of The
Equitable Life Assurance Society of the United States, one of the largest life
insurance companies in the United States, which is itself a wholly owned
subsidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA, a member of a large French insurance group. AXA is indirectly controlled
by a group of five mutual insurance companies.

Tyler Smith, who is a Senior Vice President of Alliance Capital, is the
portfolio manager of the Alliance Growth Portfolio and is principally
responsible for the Portfolio's investment program. Prior to joining Alliance
Capital in July 1993, Mr. Smith was employed by Equitable Capital Management
Corporation ("Equitable Capital"), or its affiliates for more than 20 years.

Massachusetts Financial Services Company. Massachusetts Financial
Services Company ("MFS") serves as Sub-Adviser to the MFS Total Return Portfolio
pursuant to a subadvisory agreement. Pursuant to the subadvisory agreement TIA
pays MFS an annual fee calculated at the rate of 0.375% of the Portfolio's
average daily net assets.

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27
<PAGE>

of Sun Life Assurance Company of Canada ("Sun Life"), in connection with the
sale of various fixed/variable annuity contracts. MFS and its wholly owned
subsidiary, MFS Institutional Advisors, Inc., also provide investment advice to
substantial private clients.

MFS is located at 500 Boylston Street, Boston, Massachusetts 02116. MFS
is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $69.4 billion on behalf of approximately 2.7 million investors
accounts as of November 28, 1997. As of such date, the MFS organization managed
approximately $20.1 billion of assets in fixed income securities. MFS is a
subsidiary of Sun Life of Canada (U.S.) Financial Services Holdings, Inc. which
in turn is an indirect wholly owned subsidiary of Sun Life. Sun Life, a mutual
life insurance company, is one of the largest international life insurance
companies and has been operating in the U.S. since 1895, establishing a
headquarters office here in 1973. The executive officers of MFS report to the
Chairman of Sun Life.

David M. Calabro, a Senior Vice President of MFS, Geoffrey L. Kurinsky,
a Senior Vice President of MFS, Judith N. Lamb, a Vice President of MFS, Lisa B.
Nurme, a Senior Vice President of MFS, and Maura A. Shaughnessy, a Senior Vice
President of MFS, are the Fund's portfolio managers. Mr. Calabro is the head of
this portfolio management team and a manager of the common stock portion of the
Fund's portfolio. Mr. Calabro has been employed by MFS since 1992 and served as
an analyst and sector portfolio manager with Fidelity Investments prior to that
time. Mr. Kurinsky, the manager of the Fund's fixed income securities, has been
employed by MFS since 1987. Ms. Lamb, the manager of the Fund's convertible
securities, has been employed by MFS since 1992, and served as an analyst with
Fidelity Investments prior to that time. Ms. Nurme, a manager of the common
stock portion of the Fund's portfolio, has been employed by MFS since 1987. Ms.
Shaughnessy, also a manager of the common stock portion of the Fund's portfolio,
has been employed by MFS since 1991 and served as an analyst with Harvard
Management Company prior to that time.

In certain instances there may be securities which are suitable for the
Fund's portfolio as well as for portfolios of other clients of MFS. Some
simultaneous transactions are inevitable when several clients receive investment
advice from MFS, particularly when the same security is suitable for more than
one client. While in some cases this arrangement could have a detrimental effect
on the price or availability of the security as far as the Fund is concerned, in
other cases, however, it may produce increased investment opportunities for the
Fund.

Putnam Investment Management, Inc. Putnam Investment Management, Inc.
("Putnam Management") will serve as Sub-Adviser to the Putnam Diversified Income
Portfolio pursuant to a subadvisory agreement. Pursuant to the subadvisory
agreement TIA pays Putnam Management an annual fee calculated at the rate of
0.35% of the Portfolio's average daily net assets, paid monthly.

Putnam Management principal offices are located at One Post Office
Square, Boston, Massachusetts 02109. Putnam is wholly owned subsidiary of Putnam
Investments, Inc., a holding company which, except for shares held by employees,
is in turn 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.

Putnam has been managing mutual funds since 1937. The firm serves as
the investment manager for the funds in the Putnam family, with approximately
$182 billion in assets in over nine million shareholder accounts as of December
31, 1997. The Putnam Advisory Company, Inc., an affiliate, manages domestic and
foreign institutional accounts and foreign mutual funds. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to institutional
clients under its banking and fiduciary powers. Putnam and its affiliates
managed over $235 billion in assets as of December 31, 1997.

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28
<PAGE>

Robert M. Paine, D. William Kohli, Gail S. Attridge and Kenneth J.
Taubes (each a Senior Vice President of Putnam Management) are primarily
responsible for the day-to-day management of the Portfolio. Messers. Paine,
Kohli, and Taubes and Ms. Attridge have been employed by Putnam Management since
1987, 1994, 1991 and 1993, respectively. Prior to September, 1994, Mr. Kohli was
Executive Vice President and Co-Director of Global Bond Management and Senior
Portfolio Manager from 1988 to 1993 at Franklin Advisors/Templeton Investment
Counsel. Prior to 1991, Mr. Taubes was Senior Vice President, Finance Division,
at United States Trust Company of Boston. Prior to 1993, Ms. Attridge was an
International Fixed Income Analyst for Keystone Custodian Funds, Inc.

Board of Directors

Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Directors approve all significant
agreements between the Fund and the companies that furnish services to the Fund
and each Portfolio, including agreements with the Fund's distributor, investment
managers, investment sub-advisers, custodian and transfer agent. The SAI
contains background information regarding each Director and executive officer of
the Fund.

Portfolio Transactions and Distribution

TIA and each Sub-Adviser are subject to the supervision and direction
of the Fund's Board of Directors and manage each Portfolio in accordance with
its investment objective and policies, make investment decisions for the
Portfolio, place orders to purchase and sell securities and employ professionals
who provide research services. All orders for transactions in securities on
behalf of a Portfolio are made by management, with broker-dealers selected by
management, including affiliated brokers. In placing orders management will seek
to obtain the most favorable price and execution available. In selecting
broker-dealers, management may consider research and brokerage services
furnished to it and its affiliates.

The Fund's Board of Directors has determined that transactions for the
Fund may be executed through any broker-dealer affiliate of the Fund
("Affiliated Broker") if, in the judgement of management, the use of an
Affiliated Broker is likely to result in price and execution at least as
favorable to the Fund as those obtainable through other qualified
broker-dealers, and if, in the transaction, the Affiliated Broker charges the
Fund a fair and reasonable rate consistent with that charged to comparable
unaffiliated customers in similar transactions. The Fund will not deal with an
Affiliated Broker in any transaction in which such Affiliated Broker acts as
principal. In addition, the Alliance Growth Portfolio may not deal with
Donaldson, Lufkin & Jenrette ("DLJ") (an affiliate of Alliance Capital) in any
transaction in which DLJ acts as principal.

SHARES OF THE FUND
================================================================================
General

The Fund, an open-end managed investment company, was incorporated in
Maryland on February 22, 1994. The Fund has an authorized capital of
6,000,000,000 shares with a par value of $.00001 per share. The Board of
Directors has authorized the issuance of thirteen series of shares, each
representing shares in one of thirteen separate Portfolios. The Directors also
have the power to create additional series of shares. The assets of each
Portfolio will be segregated and separately managed and a shareowner's interest
is in the assets of the Portfolio in which he or she holds shares.

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29
<PAGE>

Voting Rights

The Fund offers its shares only for purchase by insurance company
separate accounts. Thus, the insurance company is technically the shareholder of
the Fund and, under the 1940 Act, is deemed to be in control of the Fund.
Nevertheless, with respect to any Fund shareholder meeting, an insurance company
will solicit and accept timely voting instructions from its contractowners who
own units in a separate account investment division which corresponds to shares
in the Fund in accordance with the procedures set forth in the accompanying
prospectus for the applicable contract issued by the insurance company and to
the extent required by law. Shares of the Fund attributable to contractowner
interests for which no voting instructions are received will be voted by an
insurance company in proportion to the shares for which voting instructions are
received.

Each share of a Portfolio represents an equal proportionate interest in
that Portfolio with each other share of the same Portfolio and is entitled to
such dividends and distributions out of the net income of that Portfolio as are
declared in the discretion of the Directors. Shareowners are entitled to one
vote for each share held and will vote by individual Portfolio except to the
extent required by the 1940 Act. The Fund is not required to hold annual
shareowner meetings, although special meetings may be called for the Fund as a
whole, or a specific Portfolio, for purposes such as electing or removing
Directors, changing fundamental policies or approving a management contract.
Shareowners may cause a meeting of shareowners to be held upon a vote of 10% of
the Fund's outstanding shares for the purpose of voting on the removal of
Directors.

Availability of the Fund

Investment in the Fund is only available to owners of either variable
annuity or variable life insurance contracts issued by insurance companies
through their separate accounts. It is possible that in the future it may become
disadvantageous for both variable annuity and variable life insurance separate
accounts to be invested simultaneously in the Fund. However, the Fund does not
currently foresee any disadvantages to the contractowners of the different
contracts which are funded by such separate accounts. The Board monitors events
for the existence of any material irreconcilable conflict between or among such
owners, and each insurance company will take whatever remedial action may be
necessary to resolve any such conflict. Such action could include the sale of
Fund shares by one or more of the insurance company separate accounts which fund
these contracts, which could have adverse consequences to the Fund. Material
irreconcilable conflicts could result from, for example: (a) changes in state
insurance laws; (b) changes in U.S. federal income tax laws; or (c) differences
in voting instructions between those given by variable annuity contractowners
and those given by variable life insurance contractowners. If the Board were to
conclude that separate series of the Fund should be established for variable
annuity and variable life separate accounts, each insurance company would bear
the attendant expenses. Should this become necessary, contractowners would
presumably no longer have the economies of scale resulting from a larger
combined mutual fund.

DETERMINATION OF NET ASSET VALUE
================================================================================

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30
<PAGE>

respect to these securities, such securities are valued at the mean of the
latest published closing bid and asked prices. Over-the-counter securities are
valued at last sales price or, if there were no sales that day, at the mean
between the bid and asked prices. Options, futures contracts and options thereon
that are traded on exchanges are also valued at last sales prices as of the
close of the principal exchange on which each is listed or if there were no such
sales on the valuation date, the last quoted sale, up to the time of valuation,
on other exchanges. In the absence of any sales on the valuation date, valuation
shall be the mean of the latest closing bid and asked prices. Fixed income
obligations are valued at the mean of bid and asked prices based on market
quotations for those securities or if no quotations are available, then for
securities of similar type, yield and maturity. Securities with a remaining
maturity of 60 days or less are valued at amortized cost where the Board of
Directors has determined that amortized cost is fair value. Premiums received on
the sale of call options will be included in the Portfolio's net assets, and
current market value of such options sold by a Portfolio will be subtracted from
that Portfolio's net assets. Any other investments of a Portfolio, including
restricted securities and listed securities for which there is a thin market or
that trade infrequently (i.e., securities for which prices are not readily
available), are valued at a fair value determined by the Board of Directors in
good faith. This value generally is determined as the amount that a Portfolio
could reasonably expect to receive from an orderly disposition of these assets
over a reasonable period of time but in no event more than seven days. The value
of any security or commodity denominated in a currency other than U.S. dollars
will be converted into U.S. dollars at the prevailing market rate as determined
by management.

Foreign securities trading may not take place on all days on which the
NYSE is open. Further, trading takes place in various foreign markets on days on
which the NYSE is not open. Accordingly, the determination of the net asset
value of a Portfolio may not take place contemporaneously with the determination
of the prices of investments held by such Portfolio. Events affecting the values
of investments that occur between the time their prices are determined and 4:00
P.M. on each day that the NYSE is open will not be reflected in a Portfolio's
net asset value unless management under the supervision of the Fund's Board of
Directors, determines that the particular event would materially affect the net
asset value. As a result, a Portfolio's net asset value may be significantly
affected by such trading on days when a shareholder has no access to such
Portfolio.

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<PAGE>

APPENDIX A
================================================================================

RATINGS ON DEBT OBLIGATIONS

BOND (AND NOTES) RATINGS

Moody's Investors Service, Inc.

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

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

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

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

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

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

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

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

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

Note: The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.

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32
<PAGE>

Standard & Poor's

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

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

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

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

BB, B, CCC, CC, C - Debt rated 'BB', 'B', 'CCC', 'CC' or 'C' is
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
'BB' indicates the lowest degree of speculation and 'C' the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

Plus (+) or Minus (-): The ratings from 'AA' to 'B' may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

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

L - The letter "L" indicates that the rating pertains to the principal
amount of those bonds where the underlying deposit collateral is fully insured
by the Federal Savings & Loan Insurance Corp. or the Federal Deposit Insurance
Corp.

+ - Continuance of the rating is contingent upon S&P's receipt of
closing documentation confirming investments and cash flow.

* - Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement.

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

Fitch IBCA, Inc.

AAA - Bonds rated AAA by Fitch have the lowest expectation of credit
risk. The obligor has an exceptionally strong capacity for timely payment of
financial commitments which is highly unlikely to be adversely affected by
foreseeable events.

AA - Bonds rated AA by Fitch have a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitment. This capacity is not significantly vulnerable to foreseeable events.

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33
<PAGE>

A - Bonds rated A by Fitch are considered to have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be strong, but may be more vulnerable to changes in economic
conditions and circumstances than bonds with higher ratings.

BBB - Bonds rated BBB by Fitch currently have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to impair this capacity. This is the
lowest investment grade category assigned by Fitch.

BB - Bonds rated BB by Fitch carry the possibility of credit risk
developing, particularly as the result of adverse economic change over time.
Business or financial alternatives may, however, be available to allow financial
commitments to be met. Securities rated in this category are not considered by
Fitch to be investment grade.

B - Bonds rated B by Fitch carry significant credit risk, however, a
limited margin of safety remains. Although financial commitments are currently
being met, capacity for continued payment depends upon a sustained, favorable
business and economic environment.

CCC, CC, C - Default on bonds rated CCC,CC, and C by Fitch is a real
possibility. The capacity to meet financial commitments depends solely on a
sustained, favorable business and economic environment. Default of some kind on
bonds rated CC appears probable, a C rating indicates imminent default.

Plus and minus signs are used by Fitch to indicate the relative
position of a credit within a rating category. Plus and minus signs however, are
not used in the AAA category.

COMMERCIAL PAPER RATINGS

Moody's Investors Service, Inc.

Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial changes and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.

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

Standard & Poor's

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

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

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34
<PAGE>

Fitch IBCA, Inc.

Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.

The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet financial commitment in a timely
manner.

Fitch's short-term ratings are as follows:

F1+ - Issues assigned this rating are regarded as having the strongest
capacity for timely payments of financial commitments. The "+" denotes an
exceptionally strong credit feature.

F1 - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments.

F2 - Issues assigned this rating have a satisfactory capacity for
timely payment of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.

F3 - The capacity for the timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to non
investment grade.

Duff & Phelps Inc.

Duff 1+ - Indicates the highest certainty of timely payment: short-term
liquidity is clearly outstanding, and safety is just below risk-free United
States Treasury short-term obligations.

Duff 1 - Indicates a high certainty of timely payment.

Duff 2 - Indicates a good certainty of timely payment: liquidity
factors and company fundamentals are sound.

The Thomson BankWatch ("TBW")

TBW-1 - Indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.

TBW-2 - While the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is not as high
as for issues rated TBW-1.
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TRAVELERS SERIES FUND INC.
388 Greenwich Street
New York, New York 10013
1-800-842-8573

The Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio and the Smith Barney Money Market Portfolio are three of
thirteen portfolios that currently comprise Travelers Series Fund Inc. (the
"Fund"), the investment underlying certain variable annuity and variable life
insurance contracts.

The Investment objectives of the Smith Barney Large Cap Value Portfolio
are current income and long-term growth of income and capital. The Portfolio
attempts to achieve its objectives by investing primarily, but not exclusively,
in common stocks.

The investment objective of the Smith Barney International Equity
Portfolio is total return on its assets from growth of capital and income. The
Portfolio seeks to achieve its objective by investing at least 65% of its assets
in a diversified portfolio of equity securities of established non-U.S. issuers.

The investment objectives of the Smith Barney Money Market Portfolio are
maximum current income and preservation of capital.

Shares of the Smith Barney Money Market Portfolio are not insured or
guaranteed by the U.S. Government. There is no assurance that the Portfolio will
be able to maintain a stable net asset value of $1.00 per share.

THIS PROSPECTUS, WHICH SETS FORTH CONCISE INFORMATION ABOUT THE FUND THAT
PROSPECTIVE INVESTORS SHOULD KNOW BEFORE INVESTING, SHOULD BE READ AND RETAINED
FOR FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION ("SAI"), ALSO
REFERRED TO AS "PART B", DATED FEBRUARY 27, 1998 IS HEREBY INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS AND IS AVAILABLE FROM THE FUND, WITHOUT CHARGE,
BY WRITING TO THE FUND AT THE ABOVE ADDRESS OR CALLING THE TELEPHONE NUMBER
LISTED ABOVE.

This Prospectus should be read in conjunction with the prospectus for
the Contracts.

THE DATE OF THIS PROSPECTUS IS FEBRUARY 27, 1998.

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

<PAGE>

TABLE OF CONTENTS
================================================================================

FINANCIAL HIGHLIGHTS ................................................... 1

THE FUND'S INVESTMENT PROGRAM .......................................... 4
Smith Barney Large Cap Value Portfolio ............................. 4
Smith Barney International Equity Portfolio ........................ 5
Smith Barney Money Market Portfolio ................................ 6

SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS................... 8

DIVIDENDS, DISTRIBUTIONS AND TAXES ..................................... 17

REDEMPTION OF SHARES ................................................... 17

PERFORMANCE ............................................................ 18

MANAGEMENT ............................................................. 18

SHARES OF THE FUND ..................................................... 21

DETERMINATION OF NET ASSET VALUE ....................................... 22

APPENDIX A ............................................................. 23

<PAGE>

FINANCIAL HIGHLIGHTS
================================================================================

For a share of capital stock outstanding throughout the period:

<TABLE>
<CAPTION>
Smith Barney Large Cap Value (1)
------------------------------------------------------
1997 1996 1995 1994(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $14.84 $12.12 $10.14 $10.00
- --------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (3) 0.25 0.32 0.28 0.11
Net realized and unrealized gain 3.16 2.62 1.76 0.03
- --------------------------------------------------------------------------------------------------------
Total Income from Operations 3.41 2.94 2.04 0.14
- --------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.18) (0.17) (0.06) --
Net realized gains (0.17) (0.05) -- --
- --------------------------------------------------------------------------------------------------------
Total Distributions (0.35) (0.22) (0.06) --
- --------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $17.90 $14.84 $12.12 $10.14
- --------------------------------------------------------------------------------------------------------
Total Return 23.38% 24.55% 20.21% 1.40%++
- --------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's) $287,333 $138,712 $39,364 $6,377
- --------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 0.69% 0.73% 0.73% 0.73%+
Net investment income 2.01 2.35 2.70 2.82%+
- --------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 46% 32% 38% 2%
========================================================================================================
Average commissions paid
on equity security transactions(4) $0.06 $0.06 $0.07 --
========================================================================================================
</TABLE>
(1) Formerly known as Smith Barney Income and Growth Portfolio.
(2) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(3) Mutual Management Corp. ("MMC"), formerly known as Smith Barney Mutual
Funds Management Inc. (the "Manager") has waived all or part of its fees
for the year ended October 31, 1995 and the period ended October 31, 1994.
In addition, the Manager has reimbursed the Smith Barney Large Cap Value
Portfolio for $13,120 in expenses for the period ended October 31, 1994. If
such fees were not waived and expenses not reimbursed, the per share
decreases in net investment income and the ratios of expenses to average
net assets for the Smith Barney Large Cap Value Portfolio would have been
as follows:
Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------ --------------------
1995 $0.02 0.94%
1994 0.05 2.08+

(4) As of September 1995, the Securities and Exchange Commission ("SEC")
instituted new guidelines requiring the disclosure of average commissions
per share.
+ Annualized.
++ Total return is not annualized, as it may not be representative of the
total return for the year.

- --------------------------------------------------------------------------------
1
<PAGE>

For a share of capital stock outstanding throughout the period:

<TABLE>
<CAPTION>
Smith Barney International Equity
----------------------------------------------------------
1997 1996 1995 1994(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.18 $10.48 $10.55 $10.00
- --------------------------------------------------------------------------------------------------------------------
Income (loss) From Operations:
Net investment income (loss)(2) 0.01 0.02 0.03* (0.03)
Net realized and unrealized gain (loss) 1.05 1.69 (0.10) 0.58
- --------------------------------------------------------------------------------------------------------------------
Total Income (loss) from Operations 1.06 1.71 (0.07) 0.55
- --------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.01) (0.01) -- --
Net realized gains -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total Distributions (0.01) (0.01) -- --
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.23 $12.18 $10.48 $10.55
- --------------------------------------------------------------------------------------------------------------------
Total Return 8.73% 16.36% (0.66)% 5.50%++
- --------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's) $219,037 $143,323 $53,538 $13,811
- --------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 1.01% 1.10% 1.44% 1.20%+
Net investment income (loss) 0.09 0.23 0.25 (0.73)+
- --------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 38% 41% 29% --
====================================================================================================================
Average commissions paid
on equity security transactions (3)(4) $0.02 $0.02 $0.01 --
====================================================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager has waived a portion of its fees for the period ended October
31, 1994 for the Smith Barney International Equity Portfolio. If such fees
were not waived the effect of the per share increase in net investment loss
for the Smith Barney International Equity Portfolio would have been $0.03
and the ratio of expenses to average net assets would have been 2.00%+. In
addition, during the years ended October 31, 1995 and 1996, the Smith
Barney International Equity Portfolio has earned credits from the
custodian, which reduces service fees incurred. When the credits are taken
into consideration the ratio of expenses to average net assets is 1.21% and
1.05%, respectively; prior year numbers have not been restated to reflect
these adjustments.
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(4) Trades executed in the United States and Canada have an average commission
rate of $0.06 per share. Commission on trades executed outside these
countries are generally executed as a percentage of cost or proceeds
ranging from 0.5% to 1.00%.
* Includes realized gains and losses from foreign currency transactions.
+ Annualized.
++ Total return is not annualized, as it may not be representative of the
total return for the year.

- --------------------------------------------------------------------------------
2
<PAGE>

For a share of capital stock outstanding throughout the period:

<TABLE>
<CAPTION>
Smith Barney Money Market
----------------------------------------------------------
1997 1996 1995 1994(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income(2) 0.049 0.049 0.052 0.014
Net realized and unrealized gain (loss) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total Income from Operations 0.049 0.049 0.052 0.014
- --------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.049) (0.049) (0.052) (0.014)
- --------------------------------------------------------------------------------------------------------------------
Total Distributions (0.049) (0.049) (0.052) (0.014)
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------------
Total Return 5.05% 5.05% 5.35% 1.46%++
- --------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's) $111,168 $99,150 $37,487 $5,278
- --------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.65% 0.65% 0.65% 0.66%+
Net investment income 4.94 4.86 5.26 3.83 +
- --------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate n/a n/a n/a n/a
====================================================================================================================
Average commissions paid
on equity security transactions n/a n/a n/a n/a
====================================================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to
October 31, 1994.
(2) The Manager has reimbursed the Smith Barney Money Market Portfolio for
$15,423 in expenses for the period ended October 31, 1994. If such fees
were not waived and expenses not reimbursed, the per share decreases in net
investment income and the ratios of expenses to average net assets of the
Smith Barney Money Market Portfolio would have been as follows:

Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------ -------------------
1997 $0.000* 0.67%
1996 0.001 0.74
1995 0.003 0.94
1994 0.005 2.11+

+ Annualized.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
* Amount represents less than $0.001.

- --------------------------------------------------------------------------------
3
<PAGE>

THE FUND'S INVESTMENT PROGRAM
================================================================================

Smith Barney Large Cap Value Portfolio

Investment Objectives

The investment objectives of the Smith Barney Large Cap Value Portfolio
(formerly known as Smith Barney Income and Growth Portfolio) are current income
and long-term growth of income and capital. The Portfolio attempts to achieve
its objectives by investing primarily, but not exclusively, in common stocks.
The Portfolio is managed by Mutual Management Corp. ("MMC" or the "Manager")
(formerly known as Smith Barney Mutual Funds Management Inc.) (See
"Management").

Investment Policies

The Smith Barney Large Cap Value Portfolio invests primarily in common
stocks offering a current return from dividends and in interest-paying debt
obligations (such as U.S. Government securities, investment grade bonds and
debentures) and high quality short-term debt obligations (such as commercial
paper and repurchase agreements collateralized by U.S. Government securities
with broker/dealers or other financial institutions). Under normal market
conditions at least 65% of the Portfolio's assets will be invested in equity
securities. The Portfolio may also purchase preferred stocks and convertible
securities. In the selection of common stock investments, emphasis is generally
placed on issues with established dividend records as well as potential for
price appreciation. From time to time, however, a portion of the assets may be
invested in non-dividend paying stocks. Under unusual economic or market
conditions as determined by the Manager, for defensive purposes the Portfolio
may temporarily invest all or a major portion of its assets in short-term U.S.
Government securities. A higher percentage of debt securities may also be held
when deemed advisable by the Manager. To the extent the Portfolio's assets are
invested for temporary defensive purposes, such assets will not be invested in a
manner designed to achieve the Portfolio's investment objectives.

The Portfolio may make investments in foreign securities, though
management currently intends to limit such investments to 5% of the Portfolio's
assets, and an additional 10% of its assets may be invested in sponsored
American Depositary Receipts ("ADRs"), which are certificates issued by U.S.
banks representing the right to receive securities of a foreign issuer deposited
with that bank or a correspondent bank. The Portfolio will ordinarily purchase
foreign securities that are traded in the U.S. It may, however, also purchase
the securities of foreign issuers directly in foreign markets. The Portfolio may
also lend up to 20% of the value of its total assets and may purchase or sell
securities on a when-issued or delayed delivery basis.

- --------------------------------------------------------------------------------
4
<PAGE>

Smith Barney International Equity Portfolio

Investment Objective

The investment objective of the Smith Barney International Equity
Portfolio is to provide a total return on its assets from growth of capital and
income. The Portfolio seeks to achieve its objective by investing at least 65%
of its assets in a diversified portfolio of equity securities of established
non-U.S. issuers. The Portfolio is managed by MMC.

Investment Policies

Under normal market conditions, the Smith Barney International Equity
Portfolio will invest at least 65% of its assets in a diversified portfolio of
equity securities consisting of dividend and non-dividend paying common stock,
preferred stock, convertible debt and rights and warrants to such securities and
up to 35% of its assets in bonds, notes and debt securities (consisting of
securities issued in Eurocurrency markets or obligations of the United States or
foreign governments and their political subdivisions) of established non-U.S.
issuers. Investments may be made for capital appreciation or for income or any
combination of both for the purpose of achieving a higher overall return than
might otherwise be obtained solely from investing for growth of capital or for
income. There is no limitation on the percent or amount of the Portfolio's
assets which may be invested for growth or income and, therefore, from time to
time the investment emphasis may be placed solely or primarily on growth of
capital or solely or primarily on income.

In seeking to achieve its objective, the Portfolio presently expects to
invest its assets primarily in common stocks of established non-U.S. companies
that, in the opinion of the Manager, have potential for growth of capital.
However, there is no requirement that the Portfolio invests exclusively in
common stocks or other equity securities, and, when the Manager believes that
the return on debt securities will equal or exceed the return on common stocks,
the Portfolio may, in seeking its objective of total return, substantially
increase its holdings (up to a maximum of 35% of its assets) in debt securities.
In determining whether the Portfolio will be invested for capital appreciation
or for income or any combination of both, the Manager regularly analyzes a broad
range of international equity and fixed income markets in order to asses the
degree of risk and level of return that can be expected from each market.

The Portfolio will generally invest its assets broadly among countries
and will normally have represented in the portfolio business activities in not
less than three different countries. Except as stated below, the Portfolio will
invest at least 65% of its assets in companies organized or governments located
in any area of the world other than the U.S., such as the Far East (e.g., Japan,
Hong Kong, Singapore, Malaysia), Western Europe (e.g., United Kingdom, Germany,
the Netherlands, France, Italy, Switzerland), Eastern Europe (e.g. Hungary,
Poland, The Czech Republic and the countries of the former Soviet Union),
Central and South America (e.g., Mexico, Chile and Venezuela), Australia, Canada
and such other areas and countries as the Manager may determine from time to
time. Allocation of the Portfolio's investments will depend upon the relative
attractiveness of the international markets and particular issuers.
Concentration of the Portfolio assets in one or a few countries or currencies
will subject the Portfolio to greater risks than if the Portfolio's assets were
not geographically concentrated.

Under unusual economic or market conditions as determined by the
Manager, for defensive purposes the Portfolio may temporarily invest all or a
major portion of its assets in U.S. government securities or in debt or equity
securities of companies incorporated in and having their principal business
activities in the United States. To the extent the Portfolio's assets are
invested for temporary defensive purposes, such assets will not be invested in a
manner designed to achieve the Portfolio's investment objective.

- --------------------------------------------------------------------------------
5
<PAGE>

In determining the appropriate distribution of investments among
various countries and geographic regions, the Manager ordinarily considers the
following factors: prospects for relative economic growth between countries;
expected levels of inflation; government policies influencing business
conditions; the outlook for currency relationships; and the range of individual
investment opportunities available to international investors. In the future, if
any other relevant factors arise they will also be considered. In analyzing
companies for investment, the Manager ordinarily looks for one or more of the
following characteristics: an above-average earnings growth per share; high
return on invested capital; healthy balance sheet; sound financial and
accounting policies and overall financial strength; strong competitive
advantages; effective research and product development and marketing; efficient
service; pricing flexibility; strength of management; and general operating
characteristics which will enable the company to compete successfully in its
market place. Ordinarily, the Manager will not view a company as being
sufficiently well established to be considered for inclusion in the Portfolio
unless the company, together with any predecessors, has been operating for at
least three fiscal years. However, the Portfolio may invest up to 5% of its
assets in such "unseasoned" issuers.

It is expected that portfolio securities will ordinarily be traded on a
stock exchange or other market in the country in which the issuer is principally
based, but may also be traded on markets in other countries including, in many
cases, the United States securities exchanges and over-the-counter markets.

In order to protect the dollar equivalent value of its portfolio
securities against declines resulting from currency value fluctuations and
changes in interest rate or other market changes, the Portfolio may enter into
the following hedging transactions: forward foreign currency contracts, interest
rate and currency swaps and financial instrument and market index futures
contracts and related options contracts. In addition, the Portfolio may engage
in leveraging, enter into repurchase agreements and lend portfolio securities.

To the extent that the Portfolio's assets are not otherwise invested as
described above, the assets may be held in cash, in any currency, or invested in
U.S. as well as foreign high quality money market instruments and equivalents.

Smith Barney Money Market Portfolio

Investment Objectives

The investment objectives of the Smith Barney Money Market Portfolio
are maximum current income and preservation of capital. The Portfolio is
managed by MMC.

Investment Policies

The Smith Barney Money Market Portfolio seeks to achieve its objectives
by investing in bank obligations and high quality commercial paper, corporate
obligations and municipal obligations, in addition to U.S. Government securities
and related repurchase agreements. Shares of the Portfolio are not insured or
guaranteed by the U.S. Government. The Portfolio has adopted certain investment
policies to assure that, to the extent reasonably possible, the Portfolio's
price per share will not change from $1.00, although no assurance can be given
that this goal will be achieved on a continuous basis. In order to minimize
fluctuations in market price the Portfolio will not purchase a security with a
remaining maturity of greater than 13 months (or that is deemed to have a
remaining maturity of greater than 13 months) or maintain a dollar-weighted
average portfolio maturity in excess of 90 days (securities used as collateral
for repurchase agreements are not subject to these restrictions). The
Portfolio's investments will be limited to U.S. dollar-denominated instruments
that its Board of Directors determines present minimal credit risks and which
are "Eligible Securities" at the time of acquisition by the Portfolio. The term
Eligible

- --------------------------------------------------------------------------------
6
<PAGE>

Securities includes securities rated by the "Requisite NRSROs" in one of the two
highest short-term rating categories, securities of issuers that have received
such ratings with respect to other short-term debt securities and comparable
unrated securities. "Requisite NRSROs" means (a) any two nationally recognized
statistical rating organizations ("NRSROs") that have issued a rating with
respect to a security or class of debt obligations of an issuer, or (b) one
NRSRO, if only one NRSRO has issued such a rating at the time that the Portfolio
acquires the security. The NRSROs currently designated as such by the Securities
and Exchange Commission (the "SEC") are S&P, Moody's, Fitch IBCA, Inc. (formerly
Fitch Investors Service, Inc.) ("Fitch"), Duff and Phelps Inc., and Thomson
BankWatch. See Appendix A for a discussion of the ratings categories of the
NRSROs.

The Portfolio may enter into repurchase agreements collateralized by
U.S. Government securities with any broker/dealer or other financial institution
that is deemed creditworthy by the Manager, under guidelines approved by the
Fund's Board of Directors. The Portfolio will not enter into a repurchase
agreement on behalf of the Portfolio if, as a result thereof, more than 10% of
the Portfolio's net assets (taken at current value) at that time would be
subject to repurchase agreements maturing in more than seven days.

The following are also permitted investments for the Portfolio:

High Quality Commercial Paper. The Portfolio's purchase of commercial
paper is restricted to direct obligations of issuers that at the time of
purchase are Eligible Securities that are rated by at least one NRSRO in the
highest category for short-term debt securities or comparable unrated
securities. The Portfolio may invest without limit in the commercial paper of
foreign issuers.

High Quality Corporate Obligations. Obligations of corporations that
are: (1) rated AA or better by S&P or Aa or better by Moody's or (2) issued by
an issuer that has a class of short-term debt obligations that are comparable in
priority and security with the obligation and that have been rated in one of the
two highest rating categories for short-term debt obligations. The Portfolio
will only invest in corporate obligations with remaining maturities of 13 months
or less.

Bank Obligations. Obligations (including certificates of deposit,
bankers' acceptances and fixed time deposits) and securities backed by letters
of credit of U.S. banks or other U.S. financial institutions that are members of
the Federal Reserve System or the Federal Deposit Insurance Corporation ("FDIC")
(including obligations of foreign branches of such members) if either: (a) the
principal amount of the obligation is insured in full by the FDIC, or (b) the
issuer of such obligation has capital, surplus and undivided profits in excess
of $100 million or total assets of $1 billion (as reported in its most recently
published financial statements prior to the date of investment). Under current
FDIC regulations, the maximum insurance payable as to any one certificate of
deposit is $100,000; therefore, certificates of deposit in denominations greater
than $100,000 that are purchased by the Smith Barney Money Market Portfolio will
not be fully insured. The Portfolio currently intends to limit its investment in
fixed time deposits with an ultimate maturity of from two business days to six
months and will invest in such time deposits only if, when combined with other
illiquid assets of the Portfolio, not more than 10% of its assets would be
invested in all such instruments. The Portfolio may also invest in securities of
foreign branches of U.S. banks. Such investments involve considerations that are
not ordinarily associated with investing in domestic certificates of deposit.
(See "Foreign Securities.") The Portfolio may invest in instruments issued by
domestic banks, including those issued by their branches outside the United
States and subsidiaries located in Canada, and instruments issued by foreign
banks through their branches located in the United States and the United
Kingdom. In addition, the Portfolio may invest in fixed time deposits of foreign
banks issued through their branches located in Grand Cayman Island, London,
Nassau, Tokyo and Toronto.

- --------------------------------------------------------------------------------
7
<PAGE>

The purchase of obligations of foreign banks will involve similar
investment and risk considerations that are applicable to investing in
obligations of foreign branches of U.S. banks. (See "Foreign Securities.") These
factors will be carefully considered by the Manager in selecting investments for
the Portfolio.

High Quality Municipal Obligations. Debt obligations of states, cities,
counties, municipalities, municipal agencies and regional districts rated SP-1+
or A-1 or AA or better by S&P or MIG 2, VMIG 2, or Prime-1 or Aa or better by
Moody's or, if not rated, are determined by the Sub-Adviser to be of comparable
quality. At certain times, supply/demand imbalances in the tax-exempt market
cause municipal obligations to yield more than taxable obligations of equivalent
credit quality and maturity length. The purchase of these securities could
enhance the Portfolio's yield. The Portfolio will not invest more than 10% of
its total assets in municipal obligations.

The Portfolio may, to a limited degree, engage in short-term trading to
attempt to take advantage of short-term market variations, or may dispose of the
portfolio security prior to its maturity if it believes such disposition
advisable or it needs to generate cash to satisfy redemptions. In such cases,
the Portfolio may realize a gain or loss.

As a matter of fundamental policy, the Portfolio may borrow money from
banks for temporary purposes but only in an amount up to 10% of the value of its
total assets and may pledge its assets in an amount up to 10% of the value of
its total assets only to secure such borrowings. The Portfolio will borrow money
only to accommodate requests for the redemption of shares while effecting an
orderly liquidation of portfolio securities or to clear securities transactions
and not for leveraging purposes. The Portfolio may also lend its portfolio
securities to brokers, dealers and other financial organizations. Such loans, if
and when made, may not exceed 20% of the Portfolio's total assets, taken at
value.

Notwithstanding any of the foregoing investment restrictions, the Smith
Barney Money Market Portfolio may invest up to 100% of its assets in U.S.
Government securities.

SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS
================================================================================

Foreign Securities. Each of the Portfolios may purchase securities
issued by foreign governments, corporations or banks. The Smith Barney Money
Market Portfolio may also purchase securities of foreign branches of U.S. banks
and of domestic and foreign branches of foreign banks.

- --------------------------------------------------------------------------------
8
<PAGE>

encountered in settling securities transactions in certain foreign markets, and
the Portfolios will incur costs in converting foreign currencies into U.S.
dollars. Custody and transaction charges are generally higher for foreign
securities. There is also a risk of the adoption of government regulations that
might adversely affect the payment of principal and interest on securities held
by a Portfolio. In addition, a Portfolio may encounter greater difficulties in
invoking legal processes abroad than would be the case in the U.S. Finally,
changes in foreign currency exchange rates will, to the extent a Portfolio does
not adequately hedge against such fluctuations, affect the value of securities
in its portfolio and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned.

Securities of Emerging Markets. Because of the special risks associated
with investing in emerging markets, an investment in the Smith Barney
International Equity Portfolio, may be considered speculative. Investors are
strongly advised to consider carefully the special risks involved in emerging
markets, which are in addition to the usual risks of investing in developed
foreign markets around the world.

Emerging market countries include any country determined by the
investment adviser or sub-adviser, as the case may be, to have an emerging
market economy, taking into account a number of factors, including the country's
foreign currency debt rating, its political and economic stability and the
development of its financial and capital markets. The investment adviser (or
sub-adviser) determines an issuer's principal trading market for its securities
and the source of its revenues and assets. The issuer's principal activities
generally are deemed to be located in a particular country if: (a) the security
is issued or guaranteed by the government of that country or any of its
agencies, authorities or instrumentalities; (b) the issuer is organized under
the laws of, and maintains a principal office in, that country; (c) the issuer
has its principal securities trading market in that country; or (d) the issuer
has 50% or more of its assets in that country.

Investing in emerging markets involves risks relating to potential
political and economic instability within such markets and the risks of
expropriation, nationalization, confiscation of assets and property, the
imposition of restrictions on foreign investments and the repatriation of
capital invested. In Eastern Europe, for example, upon the accession to power of
Communist regimes in the past, the governments of a number of Eastern European
countries expropriated a large amount of property. The claims of many property
owners against those governments were never finally settled. There can be no
assurance that any investments that the Portfolio might make in an emerging
market would not be expropriated, nationalized or otherwise confiscated at some
time in the future. In the event of such expropriation, nationalization or other
confiscation in any emerging market, the Portfolio could lose its entire
investment in that market. Many emerging market countries have also experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economics and securities of certain
emerging market countries.

- --------------------------------------------------------------------------------
9
<PAGE>

In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the United States, particularly with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of the Portfolio to make intended securities purchases due to
settlement problems could cause it to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to the Portfolio due to subsequent declines in value of
the portfolio security or, if the Portfolio has entered into a contract to sell
the security, could result in possible liability to the purchaser.

The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for the portfolio securities in such
markets may not be readily available. Section 22(e) of the Investment Company
Act of 1940, as amended (the "1940 Act") permits a registered investment company
to suspend redemption of its shares for any period during which an emergency
exists, as determined by the SEC. Accordingly, if the Portfolio believes that
appropriate circumstances warrant, it will promptly apply to the SEC for a
determination that an emergency exists within the meaning of Section 22(a) of
the 1940 Act. During the period commencing from the Portfolio's identification
of such conditions until the date of SEC action, the portfolio securities in the
affected markets will be valued at fair value as determined in good faith by or
under the direction of the Board of Directors.

When-Issued, Delayed Delivery and Forward Commitment Securities. The
Smith Barney Large Cap Value Portfolio and the Smith Barney International Equity
Portfolio may each purchase or sell securities on a when-issued, delayed
delivery or forward commitment basis. Such transactions arise when securities
are purchased or sold by a Portfolio with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous price and
yield to the Portfolio at the time of entering into the transaction. Purchasing
such securities involves the risk of loss if the value of the securities
declines prior to settlement date. The sale of securities for delayed delivery
involves the risk that the prices available in the market on the delivery date
may be greater than those obtained in the sale transaction. Each Portfolio's
custodian will

- --------------------------------------------------------------------------------
10
<PAGE>

maintain, in a segregated account on behalf of the Portfolio, cash, U.S.
Government securities or other liquid securities having a value equal to or
greater than the Portfolio's purchase commitments; the custodian will likewise
segregate securities sold on a delayed basis.

Convertible Securities. The Smith Barney Large Cap Value Portfolio and
the Smith Barney International Equity Portfolio can invest in convertible
securities. Convertible securities are fixed-income securities that may be
converted at either a stated price or stated rate into underlying shares of
common stock. Convertible securities have general characteristics similar to
both fixed-income and equity securities. Although to a lesser extent than with
fixed-income securities, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stocks and, therefore, also will react to
variations in the general market for equity securities.

Borrowing and Leverage. Each Portfolio may borrow from banks, on a
secured or unsecured basis. If the Portfolio borrows and uses the proceeds to
make additional investments, income and appreciation from such investments will
improve its performance if they exceed the associated borrowing costs but impair
its performance if they are less than such borrowing costs. This speculative
factor is known as "leverage". Only the Smith Barney International Equity
Portfolio will utilize leverage. Should the Portfolio engage in leverage,
immediately after such borrowing the value of its assets, including the amount
borrowed, less liabilities, must be equal to at least 300% of the amount
borrowed, plus all outstanding borrowings.

Leverage creates an opportunity for increased returns to shareholders
of the Smith Barney International Equity Portfolio but, at the same time,
creates special risk considerations. For example, leverage may exaggerate
changes in the net asset value of the Portfolio's shares and in the Portfolio's
yield. Although the principal or stated value of such borrowings will be fixed,
the portfolio assets may change in value during the time the borrowing is
outstanding. By leveraging the Portfolio, changes in net asset values, higher or
lower, may be greater in degree than if leverage was not employed. Leverage will
create interest or dividend expenses for the Portfolio which can exceed the
income from the assets retained. To the extent the income or other gain derived
from securities purchased with borrowed funds exceeds the interest and other
charges the Portfolio will have to pay in respect thereof, the Portfolio's net
income or other gain will be greater than if leverage had not been used.
Conversely, if the income or other gain from the incremental assets is not
sufficient to cover the cost of leverage, the net income or other gain of the
Portfolio will be less than if leverage had not been used. If the amount of
income from the incremental securities is insufficient to cover the cost of
borrowing, securities might have to be liquidated to obtain required funds.
Depending on market or other conditions, such liquidations could be
disadvantageous to the Portfolio.

- --------------------------------------------------------------------------------
11
<PAGE>

continuing review of the trading markets for the specific restricted security,
that such restricted securities are liquid. The Board of Directors has adopted
guidelines and delegated to management the daily function of determining and
monitoring liquidity of restricted securities available pursuant to Rule 144A.
The Board, however, retains sufficient oversight and is ultimately responsible
for the determinations. Since it is not possible to predict with assurance
exactly how the market for Rule 144A restricted securities will develop, the
Board will carefully monitor each Portfolio's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. Investments in restricted securities could have the
effect of increasing the level of illiquidity in a Portfolio to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. The Portfolios may also purchase restricted
securities that are not registered under Rule 144A.

Futures, Options and Currency Transactions. Consistent with its
investment objective and policies, the Smith Barney International Equity
Portfolio may enter into contracts for the purchase or sale for future delivery
of fixed-income securities, foreign currencies or contracts based on financial
indices including interest rates or an index of U.S. Government or foreign
government securities or equity or fixed-income securities ("futures
contracts"), and may buy and write put and call options to buy or sell futures
contracts ("options on futures contracts"). When the Portfolio buys or sells a
futures contract it incurs a contractual obligation to receive or deliver the
underlying instrument (or a cash payment based on the difference between the
underlying instrument's closing price and the price at which the contract was
entered into) at a specified price on a specified date. An option on a futures
contract gives the Portfolio the right (but not the obligation) to buy or sell a
futures contract at a specified price on or before a specified date.

The Portfolio will not enter into transactions in futures contracts and
options on futures contracts for speculation and will not enter into such
transactions other than to hedge against potential changes in interest or
currency exchange rates or the price of a security or a securities index which
might correlate with or otherwise adversely affect either the value of the
Portfolio's securities or the prices of securities which the Portfolio is
considering buying at a later date. The Portfolio, however, may enter into
futures contracts and options on futures contracts for non-hedging purposes,
provided that the aggregate initial margin and premiums on such non-hedging
positions does not exceed 5% of the liquidation value of the Portfolio's assets.

Although futures contracts by their terms call for the delivery or
acquisition of the underlying commodities or a cash payment based on the value
of the underlying commodities, in most cases the contractual obligation is
offset before the delivery date of the contract by buying, in the case of a
contractual obligation to sell, or selling, in the case of a contractual
obligation to buy, an identical futures contract on a commodities exchange. Such
a transaction cancels the obligation to make or take delivery of the
commodities. Since all transactions in the futures market are made through a
member of, and are offset or fulfilled through a clearinghouse associated with,
the exchange on which the contracts are traded, the Portfolio will incur
brokerage fees when it buys or sells futures contracts.

The Portfolio will not (1) enter into any futures contracts or options
on futures contracts if immediately thereafter the aggregate margin deposits on
all outstanding futures contracts positions held by the Portfolio and premiums
paid on outstanding options on futures contracts, after taking into account
unrealized profits and losses, would exceed 5% of the market value of the total
assets of the Portfolio or (2) enter into any futures contracts or options on
futures contracts if the aggregate amount of the Portfolio's commitments under
outstanding futures contracts positions and options on futures contracts written
by the Portfolio would exceed the market value of the total assets of the
Portfolio. See the SAI for further discussion of the use, risks and costs
associated with futures contracts and options on futures contracts.

- --------------------------------------------------------------------------------
12
<PAGE>

Forward Currency Transactions. The Smith Barney International Equity
Portfolio may enter into forward foreign currency exchange contracts ("forward
currency contracts") to attempt to minimize the risk to the Portfolio from
adverse changes in the relationship between the U.S. dollar and other
currencies. A forward currency contract is an obligation to buy or sell an
amount of a specified currency for an agreed price (which may be in U.S. dollars
or a foreign currency) at a future date which is individually negotiated between
currency traders and their customers. The Portfolio may enter into a forward
currency contract, for example, when it enters into a contract to buy or sell a
security denominated in a foreign currency in order to "lock in" the U.S. dollar
price of the security ("transaction hedge"). Additionally, when the Portfolio
believes that a foreign currency in which the portfolio securities are
denominated may suffer a substantial decline against the U.S. dollar, the
Portfolio may enter into a forward currency contract to sell an amount of that
foreign currency approximating the value of some or all of the portfolio
securities denominated in that currency, or, when the Portfolio believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, the
Portfolio may enter into a forward currency contract to buy that foreign
currency for a fixed U.S. dollar amount ("position hedge"). The Portfolio also
may enter into a forward currency contract with respect to a currency where the
Portfolio is considering the purchase of investments denominated in that
currency but has not yet done so ("anticipatory hedge"). In any of these
circumstances the Portfolio may, alternatively, enter into a forward currency
contract with respect to a different foreign currency when the Portfolio
believes that the U.S. dollar value of that currency will correlate with the
U.S. dollar value of the currency in which portfolio securities of, or being
considered for purchase by, the Portfolio are denominated ("cross hedge"). The
Portfolio may invest in forward currency contracts with stated contract values
of up to the value of the Portfolio's assets.

The Portfolio also may enter into forward contracts to buy or sell at a
later date instruments in which the Portfolio may invest directly or on
financial indices based on those instruments. The market for those types of
forward contracts is developing and it is not currently possible to identify
instruments on which forward contracts might be created in the future. See the
SAI for further discussion of the use, risks and costs of forward contracts.

The Portfolio may also enter into currency swaps where each party
exchanges one currency for another on a particular date and agrees to reverse
the exchange on a later date at a specific exchange rate.

Currency Risks. Because the Smith Barney International Equity Portfolio
may invest substantially in securities denominated in currencies other than the
U.S. dollar, or may hold foreign currencies, the Portfolio will be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rates between such currencies and the U.S. dollar. Changes in currency
exchange rates will influence the value of the Portfolio's shares and also may
affect the value of dividends and interest earned by the Portfolio and gains and
losses realized by the Portfolio. Currencies generally are evaluated on the
basis of fundamental economic criteria (e.g., relative inflation and interest
rate levels and trends, growth rate forecasts, balance of payments status and
economic policies) as well as technical and political data. The exchange rates
between the U.S. dollar and other currencies are determined by supply and demand
in the currency exchange markets, the international balance of payments,
governmental intervention, speculation and other economic and political
conditions. If the currency in which a security is denominated appreciates
against the U.S. dollar, the dollar value of the security will increase.
Conversely, a decline in the exchange rate of the currency would adversely
affect the value of the security expressed in U.S. dollars.

Options on Securities and on Foreign Currencies. In an effort to reduce
fluctuations in net asset value or to increase its portfolio return, the Smith
Barney International Equity Portfolio may write covered put and call options and
may buy put and call options and warrants on securities traded on U.S. and
foreign securities exchanges. The purpose of such transactions is to hedge
against changes in the market value of portfolio

- --------------------------------------------------------------------------------
13
<PAGE>

securities caused by fluctuating interest rates, fluctuating currency exchange
rates and changing market conditions, and to close out or offset existing
positions in such options or futures contracts as described below. The Portfolio
may write and buy options on the same types of securities that the Portfolio
could buy directly and may buy options on financial indices as described above
with respect to futures contracts. There are no specific limitations on the
writing and buying of options on securities.

A call option is "covered" if the Portfolio owns the underlying
security covered by the call. If a "covered" call option expires unexercised,
the writer realizes a gain in the amount of the premium received. If the covered
call option is exercised, the writer realizes either a gain or loss from the
sale or purchase of the underlying security with the proceeds to the writer
being increased by the amount of the premium. Prior to its expiration, a call
option may be closed out by means of a purchase of an identical option. Any gain
or loss from such transaction will depend on whether the amount paid is more or
less than the premium received for the option plus related transaction costs.
The Portfolio also may write a covered call option to cross-hedge if the
Portfolio does not own the underlying security. The option is designed to
provide a hedge against a decline in value in another security which the
Portfolio owns or has the right to acquire.

If a put or call option written by the Portfolio were exercised, the
Portfolio would be obligated to buy or sell the underlying security at the
exercise price. Writing a put option involves the risk of a decrease in the
market value of the underlying security, in which case the option could be
exercised and the underlying security would then be sold by the option holder to
the Portfolio at a higher price than its current market value. Writing a call
option involves the risk of an increase in the market value of the underlying
security, in which case the option could be exercised and the underlying
security would then be sold by the Portfolio to the option holder at a lower
price than its current market value. Those risks could be reduced by entering
into an offsetting transaction. The Portfolio retains the premium received from
writing a put or call option whether or not the option is exercised.

The Portfolio may buy put and call options and may write covered put
and call options on foreign currencies to hedge against declines in the U.S.
dollar value of foreign currency-denominated securities held by the Portfolio
and against increases in the U.S. dollar cost of foreign currency-denominated
securities being considered for purchase by the Portfolio. As in the case of
other options, however, the writing of an option on a foreign currency will
constitute only a partial hedge, up to the amount of the premium received, and
the Portfolio could be required to buy or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against

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14
<PAGE>

fluctuations in exchange rates, although, in the event of rate movements adverse
to the Portfolio's options position, the option may expire worthless and the
Portfolio will lose the amount of the premium. There is no specific percentage
limitation on a Portfolio's investments in options on foreign currencies.

The Portfolio may buy or write options in privately negotiated
transactions on the types of securities and indices based on the types of
securities in which the Portfolio is permitted to invest directly. The Portfolio
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy, and only pursuant to procedures adopted by management for
monitoring the creditworthiness of those entities. To the extent that an option
bought or written by the Portfolio in a negotiated transaction is illiquid, the
value of an option bought or the amount of the Portfolio's obligations under an
option written by the Portfolio, as the case may be, will be subject to the
Portfolio's limitation on illiquid investments. In the case of illiquid options,
it may not be possible for the Portfolio to effect an offsetting transaction at
a time when management believes it would be advantageous for the Portfolio to do
so. See the SAI for a further discussion of the use, risks and costs of option
trading.

Swaps and Swap-Related Products. As one way of managing its exposure to
different types of investments, the Smith Barney International Equity Portfolio
may enter into interest rate swaps, currency swaps and other types of available
swap agreements, such as caps, collars and floors. Swaps involve the exchange by
the Portfolio with another party of cash payments based upon different interest
rate indexes, currencies, and other prices or rates, such as the value of
mortgage prepayment rates. For example, in the typical interest rate swap, the
Portfolio might exchange a sequence of cash payments based on a floating rate
index for cash payments based on a fixed rate. Payments made by both parties to
a swap transaction are based on a principal amount determined by the parties.

Swap agreements will tend to shift the Portfolio's investment exposure
from one type of investment to another. For example, if the Portfolio agreed to
exchange payments in dollars for payments in foreign currency, in each case
based on a fixed rate, the swap agreement would tend to decrease the Portfolio's
exposure to U.S. interest rates and increase its exposure to foreign currency
and interest rates. Caps and floors have an effect similar to buying or writing
options. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of the Portfolio's investments and its share
price and yield.

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15
<PAGE>

Special Investment Considerations and Risks With Respect to Futures,
Options and Currency Transactions and Swaps and Swap-Related Products. The
successful use of the investment practices described above with respect to
futures contracts, options on futures contracts, forward contracts, options on
securities and on foreign currencies, and swaps and swap-related products draws
upon skills and experience which are different from those needed to select the
other instruments in which the Portfolio invests. Should interest or exchange
rates or the prices of securities or financial indices move in an unexpected
manner, the Portfolio may not achieve the desired benefits of futures, options,
swaps and forwards or may realize losses and thus be in a worse position than if
such strategies had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price fluctuation limits
with respect to options on currencies, forward contracts and other negotiated or
over-the-counter instruments, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In addition, the
correlation between movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.

With respect to interest rate swaps, the Portfolio recognizes that such
arrangements are relatively illiquid and will include the principal amount of
the obligations owed to it under a swap as an illiquid security for purposes of
the Portfolio's investment restrictions except to the extent a third party (such
as a large commercial bank) has guaranteed the Portfolio's ability to offset the
swap at any time.

The Portfolio's ability to dispose of its positions in the foregoing
instruments will depend on the availability of liquid markets in the
instruments. Markets in a number of the instruments are relatively new and still
developing, and it is impossible to predict the amount of trading interest that
may exist in those instruments in the future. Particular risks exist with
respect to the use of each of the foregoing instruments and could result in such
adverse consequences to the Portfolio as the possible loss of the entire premium
paid for an option bought by the Portfolio, the inability of the Portfolio, as
the writer of a covered call option, to benefit from the appreciation of the
underlying securities above the exercise price of the option and the possible
need to defer closing out positions in certain instruments to avoid adverse tax
consequences. As a result, no assurance can be given that the Portfolio will be
able to use those instruments effectively for the purposes set forth above. See
the SAI for a further discussion of the use, risks and costs of these
instruments.

In connection with its transactions in futures, options, swaps and
forwards, each Portfolio may be required to place assets in a segregated account
with the Portfolio's custodian bank to ensure that the Portfolio will be able to
meet its obligations under these instruments. Assets held in a segregated
account generally may not be disposed of for so long as the Portfolio maintains
the positions giving rise to the segregation requirement. Segregation of a large
percentage of the Portfolio's assets could impede implementation of the
Portfolio's investment policies or the Portfolio's ability to meet redemption
requests or other current obligations.

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<PAGE>

Portfolio Turnover. Although it is anticipated that most investments of
each Portfolio (except the Smith Barney Money Market Portfolio) will be
long-term in nature, the rate of portfolio turnover will depend upon market and
other conditions, and it will not be a limiting factor when management believes
that portfolio changes are appropriate. The historical portfolio turnover rates
for each Portfolio (except the Smith Barney Money Market Portfolio) are included
in the Financial Highlights tables above. A higher rate of portfolio turnover
may result in higher transaction costs, including brokerage commissions.
Portfolio turnover rates for the Smith Barney Money Market Portfolio are not
shown because of the short-term nature of the investments owned by the
Portfolio.

DIVIDENDS, DISTRIBUTIONS AND TAXES
================================================================================

Each Portfolio of the Fund intends to qualify and be taxed as a
"regulated investment company" under Subchapter M of the Code. In order to
qualify as a regulated investment company, each Portfolio must meet certain
income and diversification tests. As a regulated investment company and provided
certain distribution requirements are met, a Portfolio will not be subject to
federal income tax on its investment income and net capital gains that it
distributes to its shareholders. The Smith Barney Money Market Portfolio intends
to declare daily and pay monthly substantially all of its taxable income and to
make distributions of net realized capital gains, if any, at least annually.
Such distributions are automatically reinvested in additional shares of the
Portfolio at net asset value and are includable in gross income of the Separate
Accounts holding such shares. See the accompanying Contract prospectus for
information regarding the federal income tax treatment of distributions to the
Separate Accounts and to holders of the Contracts.

REDEMPTION OF SHARES
================================================================================

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17
<PAGE>

except on a day on which the New York Stock Exchange ("NYSE") is closed or as
permitted by the SEC in extraordinary circumstances.

PERFORMANCE
================================================================================

MANAGEMENT
================================================================================

The Investment Manager:

MMC manages the investment operations of each Portfolio, pursuant to
management agreements entered into by the Fund on behalf of each such Portfolio.

By written agreement the research and other departments and staff of
Smith Barney Inc. ("Smith Barney") furnish MMC with information, advice and
assistance and are available for consultation on the Fund's Portfolios, thus
Smith Barney may also be considered an investment adviser to the Fund. Smith
Barney's services are paid for by MMC on the basis of direct and indirect costs
to Smith Barney of performing such services; there is no charge to the Fund for
such services.

Under each management agreement MMC is responsible for furnishing or
causing to be furnished to each applicable Portfolio advice and assistance with
respect to the acquisition, holding or disposal of investments and
recommendations with respect to other aspects and affairs of the Portfolio,
bookkeeping, accounting and administrative services, office space and equipment,
and the services of the officers and employees of the Fund.

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<PAGE>

For the services provided by MMC, each Portfolio pays MMC an annual
management fee calculated at a rate equal to the following percentage of its
average daily net assets, paid monthly.

Smith Barney Large Cap Value Portfolio 0.65%
Smith Barney International Equity Portfolio 0.90%
Smith Barney Money Market Portfolio 0.60%

Although the management fee paid by the Smith Barney International
Equity Portfolio is greater than that paid by most mutual funds, management has
determined that each fee is comparable to the fee charged by other investment
advisers of mutual funds that have similar investment objectives and policies.

The management agreement further provides that all other expenses not
specifically assumed by MMC under the management agreement on behalf of a
Portfolio are borne by the Fund. Expenses payable by the Fund include, but are
not limited to, all charges of custodians and shareholder servicing agents,
expenses of preparing, printing and distributing all prospectuses, proxy
material, reports and notices to shareholders, all expenses of shareholders' and
directors' meetings, filing fees and expenses relating to the registration and
qualification of the Fund's shares and the Fund under federal and state
securities laws and maintaining such registrations and qualifications (including
the printing of the Fund's registration statements), fees of auditors and legal
counsel, costs of performing portfolio valuations, out-of-pocket expenses of
directors and fees of directors who are not "interested persons" as defined in
the 1940 Act, interest, taxes and governmental fees, fees and commissions of
every kind, expenses of issue, repurchase or redemption of shares, insurance
expense, association membership dues, all other costs incident to the Fund's
existence and extraordinary expenses such as litigation and indemnification
expenses. Direct expenses are charged to each of the Fund's Portfolios; general
corporate expenses are allocated on the basis of relative net assets.

MMC was incorporated in 1968 under the laws of the State of Delaware.
It is a wholly owned subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"),
the parent company of Smith Barney. SSBH is a wholly owned subsidiary of
Travelers Group Inc. ("Travelers"), which is a financial services holding
company engaged, through its subsidiaries, principally in four business
segments: Investment Services including Asset Management, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Services.
MMC, Smith Barney and SSBH are each located at 388 Greenwich Street, New York,
New York 10013. MMC also acts as investment manager to numerous other investment
companies having aggregate assets as of the date of this Prospectus of
approximately $94 billion. Smith Barney also advises profit-sharing and pension
accounts. Smith Barney and its affiliates may in the future act as investment
advisers for other accounts.

Portfolio Management by MMC. MMC serves as the investment adviser to
Smith Barney Large Cap Value Portfolio, Smith Barney International Equity
Portfolio and Smith Barney Money Market Portfolio. MMC manages the day to day
operations of each such Portfolio pursuant to a management agreement entered
into by the Fund on behalf of each Portfolio. Under each management agreement,
MMC will (a) manage the Portfolio's assets in accordance with the Portfolio's
investment objective(s) and policies as stated in the Prospectus and the SAI;
(b) make investment decisions for the Portfolio; (c) place purchase and sale
orders for portfolio transactions on behalf of the Portfolio; (d) employ
professional portfolio managers and securities analysts who provide research
services to the Portfolio; (e) administer the Portfolio's corporate affairs and,
in connection therewith, furnish the Portfolio with office facilities and with
clerical, bookkeeping and recordkeeping services at such office facilities; and
(f) prepare reports to shareholders and reports to and filings with the SEC and
state blue sky authorities if applicable. In providing these services, MMC will
conduct a continual program of investment, evaluation and, if appropriate, sale
and reinvestment of each Portfolio's assets.

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<PAGE>

Bruce D. Sargent, a Vice President of the Fund, is the portfolio
manager of the Smith Barney Large Cap Value Portfolio. Mr. Sargent manages the
day to day operations of the Smith Barney Large Cap Value Portfolio and has been
involved in equity investing for over 27 years. He currently manages over $20
billion of institutional and mutual fund assets.

The Smith Barney International Equity Portfolio is managed by Maurits
E. Edersheim and a team of seasoned international equity portfolio managers, who
collectively have over 129 years of experience. Mr. Edersheim is Chairman and
Advisory Director of Smith Barney World Funds, Inc. and is Deputy Chairman of
Smith Barney International Incorporated. Prior to joining Smith Barney in 1990,
Mr. Edersheim was Deputy Chairman and Director of Drexel Burnham Lambert
Incorporated ("Drexel Burnham"). Mr. James Conheady and Mr. Jeffrey Russell,
both Vice Presidents of the Fund and Managing Directors of Smith Barney are
members of the international equity team, and are responsible for the day-to-day
operations of the Smith Barney International Equity Portfolio, making all of the
investment decisions for the Portfolio since its inception. Together, Mr.
Conheady and Mr. Russell currently manage in excess of $4 billion in global
equity assets for other investment companies and managed accounts. Prior to
joining Smith Barney in February 1990, Mr. Conheady was a First Vice President
and Mr. Russell was a Vice President of Drexel Burnham.

Board of Directors

Portfolio Transactions and Distribution

MMC is subject to the supervision and direction of the Fund's Board of
Directors and manage the applicable Portfolio in accordance with its investment
objective and policies, make investment decisions for the Portfolio, place
orders to purchase and sell securities and employ professionals who provide
research services. All orders for transactions in securities on behalf of a
Portfolio are made by management, with broker-dealers selected by management,
including affiliated brokers. In placing orders management will seek to obtain
the most favorable price and execution available. In selecting broker-dealers,
management may consider research and brokerage services furnished to it and its
affiliates.

Smith Barney distributes shares of the Fund as principal underwriter.
In addition, the Fund's Board of Directors has determined that transactions for
the Fund may be executed through Smith Barney or any broker-dealer affiliate of
Smith Barney (each, an "Affiliated Broker") if, in the judgement of management,
the use of an Affiliated Broker is likely to result in price and execution at
least as favorable to the Fund as those obtainable through other qualified
broker-dealers, and if, in the transaction, the Affiliated Broker charges the
Fund a fair and reasonable rate consistent with that charged to comparable
unaffiliated customers in similar transactions. The Fund will not deal with
Smith Barney in any transaction in which Smith Barney acts as principal.

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<PAGE>

SHARES OF THE FUND
================================================================================

General

Voting Rights

Availability of the Fund

- --------------------------------------------------------------------------------
21
<PAGE>

DETERMINATION OF NET ASSET VALUE
================================================================================

The net asset value of each Portfolio's shares is determined as of the
close of regular trading on the NYSE, which is currently 4:00 P.M. New York City
time on each day that the NYSE is open, by dividing the Portfolio's net assets
by the number of its shares outstanding. Securities owned by a Portfolio for
which market quotations are readily available are valued at current market value
or, in their absence, at fair value. Securities traded on an exchange are valued
at last sales price on the principal exchange on which each such security is
traded, or if there were no sales on that exchange on the valuation date, the
last quoted sale, up to the time of valuation, on the other exchanges. If
instead there were no sales on the valuation date with respect to these
securities, such securities are valued at the mean of the latest published
closing bid and asked prices. Over-the-counter securities are valued at last
sales price or, if there were no sales that day, at the mean between the bid and
asked prices. Options, futures contracts and options thereon that are traded on
exchanges are also valued at last sales prices as of the close of the principal
exchange on which each is listed or if there were no such sales on the valuation
date, the last quoted sale, up to the time of valuation, on other exchanges. In
the absence of any sales on the valuation date, valuation shall be the mean of
the latest closing bid and asked prices. Fixed income obligations are valued at
the mean of bid and asked prices based on market quotations for those securities
or if no quotations are available, then for securities of similar type, yield
and maturity. Securities with a remaining maturity of 60 days or less are valued
at amortized cost where the Board of Directors has determined that amortized
cost is fair value. Premiums received on the sale of call options will be
included in the Portfolio's net assets, and current market value of such options
sold by a Portfolio will be subtracted from that Portfolio's net assets. Any
other investments of a Portfolio, including restricted securities and listed
securities for which there is a thin market or that trade infrequently (i.e.,
securities for which prices are not readily available), are valued at a fair
value determined by the Board of Directors in good faith. This value generally
is determined as the amount that a Portfolio could reasonably expect to receive
from an orderly disposition of these assets over a reasonable period of time but
in no event more than seven days. The value of any security or commodity
denominated in a currency other than U.S. dollars will be converted into U.S.
dollars at the prevailing market rate as determined by management.

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<PAGE>

APPENDIX A
================================================================================

RATINGS ON DEBT OBLIGATIONS

BOND (AND NOTES) RATINGS

Moody's Investors Service, Inc.

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

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

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

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<PAGE>

Standard & Poor's

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

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

Plus (+) or Minus (-): The ratings from 'AA' to 'B' may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

+ - Continuance of the rating is contingent upon S&P's receipt of
closing documentation confirming investments and cash flow.

* - Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement.

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

Fitch IBCA, Inc.

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<PAGE>

CCC, CC, C - Default on bonds rated CCC,CC,
and C by Fitch is a real possibility. The capacity to meet financial commitments
depends solely on a sustained, favorable business and economic environment.
Default of some kind on bonds rated CC appears probable, a C rating indicates
imminent default.

Plus and minus signs are used by Fitch to indicate the relative
position of a credit within a rating category. Plus and minus signs however, are
not used in the AAA category.

COMMERCIAL PAPER RATINGS

Moody's Investors Service, Inc.

Standard & Poor's

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

- --------------------------------------------------------------------------------
25
<PAGE>

Fitch IBCA, Inc.

The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet financial commitment in a timely
manner. Fitch's short-term ratings are as follows:

F1+ - Issues assigned this rating are regarded as having the strongest
capacity for timely payments of financial commitments. The "+" denotes an
exceptionally strong credit feature.

F1 - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments.

F2 - Issues assigned this rating have a satisfactory capacity for
timely payment of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.

F3 - The capacity for the timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to non
investment grade. Duff & Phelps Inc.

Duff 1+ - Indicates the highest certainty of timely payment: short-term
liquidity is clearly outstanding, and safety is just below risk-free United
States Treasury short-term obligations.

Duff 1 - Indicates a high certainty of timely payment.

Duff 2 - Indicates a good certainty of timely payment: liquidity
factors and company fundamentals are sound.

The Thomson BankWatch ("TBW")

TBW-1 - Indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.

TBW-2 - While the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is not as high
as for issues rated TBW-1.

- --------------------------------------------------------------------------------
26
<PAGE>

TRAVELERS SERIES FUND INC.
MFS Total Return Portfolio
388 Greenwich Street
New York, New York 10013
1-800-842-8573

The MFS Total Return Portfolio (the "Portfolio") is one of thirteen
portfolios that currently comprise Travelers Series Fund Inc. (the "Fund"), the
investment underlying certain variable annuity and variable life insurance
contracts.

The Portfolio seeks above-average income (compared to a portfolio
invested entirely in equity securities) consistent with prudent employment of
capital. While current income is the primary objective, the Portfolio believes
that there should be a reasonable opportunity for growth of capital and income.

Shares of the Fund are offered only to insurance company separate
accounts (the "Separate Accounts"), which fund certain variable annuity and
variable life insurance contracts (the "Contracts"). The Separate Accounts
invest in shares of the Fund in accordance with allocation instructions received
from Contract owners. Such allocation rights are further described in the
accompanying Contract prospectus.

Shares of the Portfolio are offered to Separate Accounts at their net
asset value, without a sales charge, next determined after receipt of an order
by an insurance company. The offering of shares of the Portfolio may be
suspended from time to time and the Fund reserves the right to reject any
specific purchase order.

THIS PROSPECTUS, WHICH SETS FORTH CONCISE INFORMATION ABOUT THE FUND THAT
PROSPECTIVE INVESTORS SHOULD KNOW BEFORE INVESTING, SHOULD BE READ AND RETAINED
FOR FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION ("SAI"), ALSO
REFERRED TO AS "PART B", DATED FEBRUARY 27, 1998 IS HEREBY INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS AND IS AVAILABLE FROM THE FUND, WITHOUT CHARGE,
BY WRITING TO THE FUND AT THE ABOVE ADDRESS OR CALLING THE TELEPHONE NUMBER
LISTED ABOVE.

This Prospectus should be read in conjunction with the prospectus for the
Contracts.

THE DATE OF THIS PROSPECTUS IS FEBRUARY 27, 1998.

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

TABLE OF CONTENTS
================================================================================
FINANCIAL HIGHLIGHTS ...................................................... 1
THE FUND'S INVESTMENT PROGRAM ............................................. 2
SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS ..................... 3
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................ 16
REDEMPTION OF SHARES ...................................................... 17
PERFORMANCE ............................................................... 17
MANAGEMENT ................................................................ 18
SHARES OF THE FUND ........................................................ 20
DETERMINATION OF NET ASSET VALUE .......................................... 21
APPENDIX A ................................................................ 23

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

FINANCIAL HIGHLIGHTS
================================================================================
The following information for the three-year period ended October 31, 1997 and
for the period from June 16, 1994 (commencement of operations) to October 31,
1994 has been audited in conjunction with the annual audits of the financial
statements of each of the portfolios within the Fund by KPMG Peat Marwick LLP,
independent auditors. The 1997 financial statements and the independent
auditors' reports thereon appear in the October 31, 1997 Annual Reports to
Shareholders. The information set out below should be read in conjunction with
the financial statements and related notes that also appear within each
portfolio's Annual Reports, which are available upon request and incorporated by
reference into the Statement of Additional Information.

For a share of capital stock outstanding throughout the period:

MFS Total Return
---------------------------------------
1997 1996 1995 1994(1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.13 $ 11.53 $ 9.98 $10.00
- -------------------------------------------------------------------------------------------
Income (loss) From Operations:
Net investment income (2) 0.38 0.33 0.45 0.13
Net realized and unrealized gain (loss) 2.27 1.62 1.15 (0.15)
- -------------------------------------------------------------------------------------------
Total Income (loss) from Operations 2.65 1.95 1.60 (0.02)
- -------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.29) (0.27) (0.05) --
Net realized gains (0.18) (0.08) -- --
- -------------------------------------------------------------------------------------------
Total Distributions (0.47) (0.35) (0.05) --
- -------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 15.31 $ 13.13 $ 11.53 $ 9.98
- -------------------------------------------------------------------------------------------
Total Return 20.64% 17.16% 16.12% (0.20)%++
- -------------------------------------------------------------------------------------------
Net Assets, End of Period (000's) $263,585 $134,529 $49,363 $8,504
- -------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 0.86% 0.91% 0.95% 0.93%+
Net investment income 3.54 3.82 4.40 3.51%+
- -------------------------------------------------------------------------------------------
Portfolio Turnover Rate 99% 139% 104% 18%
===========================================================================================
Average commissions paid
on equity security transactions (3) $ 0.06 $ 0.06 $ 0.04 --
===========================================================================================
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) Travelers Investment Adviser, Inc. ("TIA") (the "Manager") has waived
all or part of its fees for the year ended October 31, 1995
and the period ended October 31, 1994. In addition, the Manager
has reimbursed the MFS Total Return Portfolio for $13,857 in expenses for
the period ended October 31, 1994. If such fees were not waived and
expenses not reimbursed, the per share decreases in net investment income
and the ratios of expenses to average net assets of the MFS Total Return
Portfolio would have been as follows:

Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------ -------------------
1995 $0.01 1.06%
1994 0.06 2.51+

1
<PAGE>

THE FUND'S INVESTMENT PROGRAM
================================================================================

The Fund consists of thirteen investment portfolios one of which is offered
herein. The Portfolio's investment objective and policies are described in more
detail below. Of course, no assurance can be given that the Portfolio's
objective will be achieved. Investors should realize that risk of loss is
inherent in the ownership of any securities and that shares of the Portfolio
will fluctuate with the market value of its securities. Additional information
about the Portfolio's investment policies and investment risks can be found
herein under "Special Investment Techniques and Risk Considerations" and in the
SAI.

The investment objectives and certain investment restrictions designated as
such in the SAI are fundamental and may not be changed by the Directors without
shareholder approval. The Portfolio's investment policies, however, are not
fundamental and may be changed by the Directors without shareholder approval.

Investment Objectives

The primary investment objective of the Portfolio is to obtain above-average
income (compared to a portfolio entirely invested in equity securities)
consistent with the prudent employment of capital. While current income is the
primary objective, the Portfolio believes that there should also be a reasonable
opportunity for growth of capital and income, since many securities offering a
better than average yield may also possess growth potential. Thus, in selecting
securities for its portfolio, the Portfolio considers each of these objectives.
Under normal market conditions, at least 25% of the Portfolio's assets will be
invested in fixed income securities and at least 40% and no more than 75% of the
Portfolio's assets will be invested in equity securities. The Portfolio is
managed by Travelers Investment Adviser, Inc. ("TIA" or the "Manager");
Massachusetts Financial Services Company serves as the Portfolio's Sub-Adviser
(the "Sub-Adviser").

Investment Policies

The Portfolio's policy is to invest in a broad list of securities, including
short-term obligations. The list may be diversified not only by companies and
industries, but also by type of security. Fixed income securities and equity
securities (which include: common and preferred stocks; securities such as
bonds, warrants or rights that are convertible into stock; and depositary
receipts for those securities) may be held by the Portfolio. Some fixed income
securities may also have a call on common stock by means of a conversion
privilege or attached warrants. The Portfolio may vary the percentage of assets
invested in any one type of security in accordance with the Sub-Adviser's
interpretation of economic and money market conditions, fiscal and monetary
policy and underlying security values. The Portfolio's debt investments may
consist of both "investment grade" securities (rated Baa or better by Moody's or
BBB or better by S&P or Fitch IBCA, Inc., formerly Fitch Investors Service, Inc.
("Fitch")) and securities that are unrated or are in the lower rating categories
(rated Ba or lower by Moody's or BB or lower by S&P or Fitch) (commonly known as
"junk bonds") including up to 20% of its net assets in nonconvertible fixed
income securities that are in these lower rating categories and comparable
unrated securities. See "Lower-Quality and Non-Rated Securities". Generally,
most of the Portfolio's long-term debt investments will consist of "investment
grade" securities. See Appendix A to this Prospectus for a description of these
ratings. It is not the Portfolio's policy to rely exclusively on ratings issued
by established credit rating agencies but rather to supplement such ratings with
the Sub-Adviser's own independent and ongoing review of credit quality.

As noted above, the Portfolio invests in lower-rated and unrated corporate
debt securities, commonly known as "junk bonds." Investments of this type are
subject to a greater risk of loss of principal and interest. Purchasers should
carefully assess the risks associated with an investment in this Portfolio. See
"Lower-Quality and Non-Rated Securities".

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

2
<PAGE>

The Portfolio may invest up to 20% (and generally expects to invest between 5%
and 20%) of its total assets in foreign securities which are not traded on a
U.S. exchange (not including American Depositary Receipts). The Portfolio may
invest in American Depositary Receipts. The Portfolio may also invest in
emerging market securities, Brady Bonds, U.S. Government securities, mortgage
pass-through securities, corporate asset-backed securities, zero-coupon bonds,
deferred interest bonds and payment-in-kind bonds. In addition, the Portfolio
may enter into repurchase agreements and mortgage dollar roll transactions, may
lend its portfolio securities, purchase securities on a when-issued or forward
delivery basis, enter into swap transactions and invest in indexed securities
and loan participations and other direct indebtedness. The Portfolio may invest
up to 15% of its net assets in illiquid securities and may also invest in
restricted securities, including Rule 144A Securities. Finally, the Portfolio
may engage in various options and futures transactions including options on
securities, options on stock indexes, options on foreign currencies, stock
indices and foreign currency futures contracts, options on futures contracts,
forward foreign currency exchange contracts and yield curve options. See
"Special Investment Techniques and Risk Considerations" for additional
information about these types of securities.

The Portfolio will be managed actively with respect to the Portfolio's fixed
income securities and the asset allocations modified as the Sub-adviser deems
necessary. Although the Portfolio does not intend to seek short-term profits,
fixed income securities will be sold whenever the sub-adviser believes it is
appropriate to do so without regard to the length of time the particular asset
may have been held. With respect to its equity securities the Portfolio does not
intend to trade in securities for short-term profits and anticipates that
portfolio securities ordinarily will be held for one year or longer. However,
the Portfolio will effect trades whenever it believes that changes in its
portfolio securities are appropriate.

SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS
================================================================================

Foreign Securities. The Portfolio may purchase securities issued by foreign
governments, corporations or banks.

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

3
<PAGE>

investors. There also may be less publicly available information about foreign
issuers than domestic issuers, and foreign issuers generally are not subject to
the uniform accounting, auditing and financial reporting standards, practices
and requirements applicable to domestic issuers. Delays may be encountered in
settling securities transactions in certain foreign markets, and the Portfolio
will incur costs in converting foreign currencies into U.S. dollars. Custody and
transaction charges are generally higher for foreign securities. There is also a
risk of the adoption of government regulations that might adversely affect the
payment of principal and interest on securities held by the Portfolio. In
addition, the Portfolio may encounter greater difficulties in invoking legal
processes abroad than would be the case in the U.S. Finally, changes in foreign
currency exchange rates will, to the extent the Portfolio does not adequately
hedge against such fluctuations, affect the value of securities in its portfolio
and the unrealized appreciation or depreciation of investments so far as U.S.
investors are concerned.

Securities of Emerging Markets. Because of the special risks associated with
investing in emerging markets, an investment in the Portfolio may be considered
speculative. Investors are strongly advised to consider carefully the special
risks involved in emerging markets, which are in addition to the usual risks of
investing in developed foreign markets around the world.

Emerging market countries include any country determined by the investment
adviser or sub-adviser, as the case may be, to have an emerging market economy,
taking into account a number of factors, including the country's foreign
currency debt rating, its political and economic stability and the development
of its financial and capital markets. The investment adviser (or sub-adviser)
determines an issuer's principal trading market for its securities and the
source of its revenues and assets. The issuer's principal activities generally
are deemed to be located in a particular country if: (a) the security is issued
or guaranteed by the government of that country or any of its agencies,
authorities or instrumentalities; (b) the issuer is organized under the laws of,
and maintains a principal office in, that country; (c) the issuer has its
principal securities trading market in that country; or (d) the issuer has 50%
or more of its assets in that country.

Investing in emerging markets involves risks relating to potential political
and economic instability within such markets and the risks of expropriation,
nationalization, confiscation of assets and property, the imposition of
restrictions on foreign investments and the repatriation of capital invested. In
Eastern Europe, for example, upon the accession to power of Communist regimes in
the past, the governments of a number of Eastern European countries expropriated
a large amount of property. The claims of many property owners against those
governments were never finally settled. There can be no assurance that any
investments that the Portfolio might make in an emerging market would not be
expropriated, nationalized or otherwise confiscated at some time in the future.
In the event of such expropriation, nationalization or other confiscation in any
emerging market, the Portfolio could lose its entire investment in that market.
Many emerging market countries have also experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economics and securities of certain emerging market countries.

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

4
<PAGE>

and regulatory standards in many respects are less stringent than in the United
States and other major markets. There also may be a lower level of monitoring
and regulation of emerging securities markets and the activities of investors in
such markets, and enforcement of existing regulations has been extremely
limited.

In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the United States, particularly with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of the Portfolio to make intended securities purchases due to
settlement problems could cause it to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to the Portfolio due to subsequent declines in value of
the portfolio security or, if the Portfolio has entered into a contract to sell
the security, could result in possible liability to the purchaser.

The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the portfolio securities in such markets
may not be readily available. Section 22(e) of the Investment Company Act of
1940, as amended (the "1940 Act") permits a registered investment company to
suspend redemption of its shares for any period during which an emergency
exists, as determined by the SEC. Accordingly, if the Portfolio believes that
appropriate circumstances warrant, it will promptly apply to the SEC for a
determination that an emergency exists within the meaning of Section 22(a) of
the 1940 Act. During the period commencing from the Portfolio's identification
of such conditions until the date of SEC action, the portfolio securities in the
affected markets will be valued at fair value as determined in good faith by or
under the direction of the Board of Directors.

Sovereign Debt. The Portfolio may invest in sovereign debt securities of
emerging market governments including Brady Bonds. Investments in such
securities involve special risks. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal or interest when due in accordance with the terms of such debt.
Periods of economic uncertainty may result in the volatility of market prices of
sovereign debt obligations, and in turn the Portfolio's net asset value, to a
greater extent than the volatility inherent in domestic fixed income securities.

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

5
<PAGE>

and availability of future domestic sovereign borrowing to finance governmental
programs, and may have other adverse social, political and economic
consequences. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. Although management intends to manage the Portfolio in a
manner that will minimize the exposure to such risks, there can be no assurance
that adverse political changes will not cause the Portfolio to suffer a loss of
interest or principal on any of its holdings.

In recent years, some of the emerging market countries in which the Portfolio
expects to invest have encountered difficulties in servicing their sovereign
debt obligations. Some of these countries have withheld payments of interest
and/or principal of sovereign debt. These difficulties have also led to
agreements to restructure external debt obligations -- in particular, commercial
bank loans, typically by rescheduling principal payments, reducing interest
rates and extending new credits to finance interest payments on existing debt.
In the future, holders of emerging market sovereign debt securities may be
requested to participate in similar rescheduling of such debt. Certain emerging
market countries are among the largest debtors to commercial banks and foreign
governments. Currently, Brazil, Russia and Mexico are among the largest debtors
among developing countries. At times certain emerging market countries have
declared moratoria on the payment of principal and interest on external debt;
such a moratorium is currently in effect in certain emerging market countries.
There is no bankruptcy proceeding by which a creditor may collect in whole or in
part sovereign debt on which an emerging market government has defaulted.

The ability of emerging market governments to make timely payments on their
sovereign debt securities is likely to be influenced strongly by a country's
balance of trade and its access to trade and other international credits. A
country whose exports are concentrated in a few commodities could be vulnerable
to a decline in the international prices of one or more of such commodities.
Increased protectionism on the part of a country's trading partners could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any. To the extent that a country receives payments for its
exports in currencies other than hard currencies, its ability to make hard
currency payments could be affected.

Investors should also be aware that certain sovereign debt instruments in
which the Portfolio may invest involve great risk. As noted above, sovereign
debt obligations issued by emerging market governments generally are deemed to
be the equivalent in terms of quality to securities rated below investment grade
by Moody's and S&P. Such securities are regarded as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse conditions. Some of such securities, with respect to which the issuer
currently may not be paying interest or may be in payment default, may be
comparable to securities rated D by S&P or C by Moody's. The Portfolio may have
difficulty disposing of and valuing certain sovereign debt obligations because
there may be a limited trading market for such securities. Because there is no
liquid secondary market for many of these securities, the Portfolio anticipates
that such securities could be sold only to a limited number of dealers or
institutional investors.

Brady Bonds. The Portfolio may invest in "Brady Bonds," which are debt
restructurings that provide for the exchange of cash and loans for newly issued
bonds. Brady Bonds have been issued by the governments of Albania, Argentina,
Brazil, Bulgaria, Costa Rica, Croatia, Dominican Republic, Ecuador, Ivory Coast,
Jordan, Mexico, Morocco, Nigeria, Panama, Peru, Philippines, Poland, Slovenia,
Uruguay, Venezuela and Vietnam and are expected to be issued by other emerging
market countries. As of the date of this Prospectus, the Portfolio is not aware
of the occurrence of any payment defaults on Brady Bonds. Investors should
recognize, however, that Brady Bonds do not have a long payment history. In
addition, Brady Bonds are often rated below investment grade. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (primarily
the U.S. dollar) and are actively traded in the secondary market for Latin
American debt. The Salomon Brothers Brady Bond Index provides a benchmark that
can be used to compare returns of emerging market Brady Bonds with returns in
other bond markets, e.g., the U.S. bond market.

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

6
<PAGE>

The Portfolio may invest in either collateralized or uncollateralized Brady
Bonds. U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.

Loan Participations and Assignments. The Portfolio may invest a portion of its
assets in loan participations ("Participations"). By purchasing a Participation,
the Portfolio acquires some or all of the interest of a bank or other lending
institution in a loan to a corporate or government borrower. The Participations
typically will result in the Portfolio having a contractual relationship only
with the lender not the borrower. The Portfolio will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the lender selling the Participation and only upon receipt by the lender of the
payments from the borrower. In connection with purchasing Participations, the
Portfolio generally will have no right to enforce compliance by the borrower
with the terms of the loan agreement relating to the loan, nor any rights of
set-off against the borrower, and the Portfolio may not directly benefit from
any collateral supporting the loan in which it has purchased the Participation.
As a result, the Portfolio will assume the credit risk of both the borrower and
the lender that is selling the Participation. In the event of the insolvency of
the lender selling a Participation, the Portfolio may be treated as a general
creditor of the lender and may not benefit from any set-off between the lender
and the borrower. The Portfolio will acquire Participations only if the lender
interpositioned between the Portfolio and the borrower is determined by
management to be creditworthy.

Lower-Quality and Non-Rated Securities. The Portfolio may invest in lower-
quality securities. Investments in lower-rated securities are subject to special
risks, including a greater risk of loss of principal and non-payment of
interest. An investor should carefully consider the following factors before
investing in the Portfolio.

Generally, lower-quality securities offer a higher return potential than
higher-rated securities but involve greater volatility of price and greater risk
of loss of income and principal, including the possibility of default or
bankruptcy of the issuers of such securities. Lower-quality securities and
comparable non-rated securities will likely have large uncertainties or major
risk exposure to adverse conditions and are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. The occurrence of adverse
conditions and uncertainties would likely reduce the value of securities held by
a Portfolio, with a commensurate effect on the value of the Portfolio's shares.

The markets in which lower-quality securities or comparable non-rated
securities are traded generally are more limited than those in which higher-
quality securities are traded. The existence of limited markets for these
securities may restrict the availability of securities for the Portfolio to
purchase and also may restrict the ability of the Portfolio to obtain accurate
market quotations for purposes of valuing securities and calculating net asset
value or to sell securities at their fair value. The public market for lower-
quality securities and comparable non-rated securities is relatively new and has
not fully weathered a major economic recession. Any such economic downturn could
adversely affect the ability of issuers' lower-quality securities to repay
principal and pay interest thereon.

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

7
<PAGE>

comparable non-rated securities are often highly leveraged and may not have more
traditional methods of financing available to them so that their ability to
service their debt obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. The risk of loss due to
default by such issuers is significantly greater because lower-quality
securities and comparable non-rated securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness. The
Portfolio may incur additional expenses to the extent that it is required to
seek recovery upon a default in the payment of principal or interest on its
portfolio holdings.

Fixed-income securities, including lower-quality securities and comparable
non-rated securities, frequently have call and buy-back features that permit
their issuers to call or repurchase the securities from their holders, such as
the Portfolio. If an issuer exercises these rights during periods of declining
interest rates, the Portfolio may have to replace the security with a lower
yielding security, resulting in a decreased return to the Portfolio.

In general, the ratings of nationally recognized statistical rating
organizations represent the opinions of these agencies as to the quality of
securities that they rate. Such ratings, however, are relative and subjective,
and are not absolute standards of quality and do not evaluate the market value
risk of the securities. It is possible that an agency might not change its
rating of a particular issue to reflect subsequent events. These ratings will be
used by each Portfolio as initial criteria for the selection of portfolio
securities, but the Portfolio also will rely upon the independent advice of the
Manager or the Sub-Adviser, as the case may be, to evaluate potential
investments.

Securities Lending. The Portfolio may seek to increase its net investment
income by lending portfolio securities to unaffiliated brokers, dealers and
other financial institutions, provided such loans are callable at any time and
are continuously secured by cash or U.S. Government securities or other liquid
debt securities equal to no less than the market value, determined daily, of the
securities loaned. The risks in lending portfolio securities consist of possible
delay in receiving additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially.

Repurchase Agreements. The Portfolio may on occasion enter into repurchase
agreements, wherein the seller agrees to repurchase a security from the
Portfolio at an agreed-upon future date, normally the next business day. The
resale price is greater than the purchase price, which reflects the agreed-upon
rate of return for the period the Portfolio holds the security and which is not
related to the coupon rate on the purchased security. The Portfolio requires
continual maintenance of the market value of the collateral in amounts at least
equal to the resale price, thus risk is limited to the ability of the seller to
pay the agreed-upon amount on the delivery date; however, if the seller
defaults, realization upon the collateral by the Portfolio may be delayed or
limited or the Portfolio might incur a loss if the value of the collateral
securing the repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. Repurchase agreements are considered
loans by the Portfolio. The Portfolio will only enter into repurchase agreements
with broker/dealers or other financial institutions that are deemed creditworthy
by management, under guidelines approved by the Board of Directors.

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

8
<PAGE>

Dollar Roll Transactions. The Portfolio may enter into "dollar rolls" pursuant
to which the Portfolio sells mortgage-backed securities for delivery in the
future (generally within 30 days). During the roll period, the Portfolio would
forego principal and interest paid on such securities. The Portfolio would be
compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. Since the Portfolio will receive interest on the
securities in which it invests the transaction proceeds, such transactions may
involve leverage. However, since such securities must satisfy the quality
requirements of the Portfolio and will mature on or before the settlement date
on the transaction, management believes that such transactions do not present
the risks to the Portfolio that are associated with other types of leverage. The
Portfolio will only enter into covered rolls, where 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. Dollar roll transactions
are considered borrowings by the Portfolio and will be subject to the
Portfolio's overall borrowing limitation. Dollar roll transactions are
considered speculative.

When-Issued, Delayed Delivery and Forward Commitment Securities. The Portfolio
may purchase or sell securities on a when-issued, delayed delivery or forward
commitment basis. Such transactions arise when securities are purchased or sold
by the Portfolio with payment and delivery taking place in the future in order
to secure what is considered to be an advantageous price and yield to the
Portfolio at the time of entering into the transaction. Purchasing such
securities involves the risk of loss if the value of the securities declines
prior to settlement date. The sale of securities for delayed delivery involves
the risk that the prices available in the market on the delivery date may be
greater than those obtained in the sale transaction. The Portfolio's custodian
will maintain, in a segregated account on behalf of the Portfolio, cash, U.S.
Government securities or other liquid securities having a value equal to or
greater than the Portfolio's purchase commitments; the custodian will likewise
segregate securities sold on a delayed basis.

Convertible Securities. The Portfolio can invest in convertible securities.
Convertible securities are fixed-income securities that may be converted at
either a stated price or stated rate into underlying shares of common stock.
Convertible securities have general characteristics similar to both fixed-income
and equity securities. Although to a lesser extent than with fixed-income
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market value of
convertible securities tends to vary with fluctuations in the market value of
the underlying common stocks and, therefore, also will react to variations in
the general market for equity securities.

Convertible securities are investments which provide for a stable stream of
income with generally higher yields than common stocks. There can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. Synthetic convertible securities differ from
convertible securities in certain respects, including that each component of a
synthetic convertible security has a separate market value and responds
differently to market fluctuations. Investing in synthetic convertible
securities involves the risk normally involved in holding the securities
comprising the synthetic convertible security.

Borrowing. The Portfolio may borrow from banks, on a secured or unsecured
basis.

Illiquid and Restricted Securities. The Portfolio may purchase securities
that are not registered ("restricted securities") under the Securities Act of
1933, as amended (the "1933 Act"), but can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A"). The
Portfolio may also invest a portion of its assets in illiquid investments, which
include repurchase agreements maturing in more than seven days and restricted
securities. The Board of Directors may determine, based upon a

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9
<PAGE>

continuing review of the trading markets for the specific restricted security,
that such restricted securities are liquid. The Board of Directors has adopted
guidelines and delegated to management the daily function of determining and
monitoring liquidity of restricted securities available pursuant to Rule 144A.
The Board, however, retains sufficient oversight and is ultimately responsible
for the determinations. Since it is not possible to predict with assurance
exactly how the market for Rule 144A restricted securities will develop, the
Board will carefully monitor the Portfolio's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. Investments in restricted securities could have the
effect of increasing the level of illiquidity in the Portfolio to the extent
that qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. The Portfolio may also purchase restricted
securities that are not registered under Rule 144A.

Zero-Coupon Bonds, Deferred Interest Bonds and Payment-in-Kind Bonds. The
Portfolio may invest in zero-coupon and payment-in-kind bonds. The Portfolio
also may invest in deferred interest bonds. Zero-coupon and deferred interest
bonds are issued at a significant discount from their principal amount. While
zero-coupon bonds do not require the periodic payment of interest, deferred
interest bonds provide for a period of delay before the regular payment of
interest begins. Payment-in-kind bonds allow the issuer, at its option, to make
current interest payments on the bonds either in cash or in additional bonds.
The value of zero-coupon bonds is subject to greater fluctuation in market value
in response to changes in market interest rates than bonds of comparable
maturity which pay interest currently. Both zero-coupon and payment-in-kind
bonds allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit risks than
bonds that pay interest currently. Even though such bonds do not pay current
interest in cash, the Portfolio is nonetheless required to accrue interest
income on such investments and to distribute such amounts at least annually to
shareholders. Accordingly, for the Portfolio to continue to qualify for tax
treatment as a regulated investment company and to avoid certain excise taxes,
the Portfolio may be required to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. These distributions
must be made from the Portfolio's cash assets or, if necessary, from the
proceeds of sales of portfolio securities. The Portfolio will not be able to
purchase additional income-producing securities with cash used to make such
distributions and its current income ultimately may be reduced as a result.

Futures, Options and Currency Transactions. Consistent with its investment
objective and policies, the Portfolio may enter into contracts for the purchase
or sale for future delivery of fixed-income securities, foreign currencies or
contracts based on financial indices including interest rates or an index of
U.S. Government or foreign government securities or equity or fixed-income
securities ("futures contracts"), and may buy and write put and call options to
buy or sell futures contracts ("options on futures contracts"). When the
Portfolio buys or sells a futures contract it incurs a contractual obligation to
receive or deliver the underlying instrument (or a cash payment based on the
difference between the underlying instrument's closing price and the price at
which the contract was entered into) at a specified price on a specified date.
An option on a futures contract gives the Portfolio the right (but not the
obligation) to buy or sell a futures contract at a specified price on or before
a specified date.

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10
<PAGE>

options on futures contracts for non-hedging purposes, provided that the
aggregate initial margin and premiums on such non-hedging positions does not
exceed 5% of the liquidation value of a Portfolio's assets.

Although futures contracts by their terms call for the delivery or acquisition
of the underlying commodities or a cash payment based on the value of the
underlying commodities, in most cases the contractual obligation is offset
before the delivery date of the contract by buying, in the case of a contractual
obligation to sell, or selling, in the case of a contractual obligation to buy,
an identical futures contract on a commodities exchange. Such a transaction
cancels the obligation to make or take delivery of the commodities. Since all
transactions in the futures market are made through a member of, and are offset
or fulfilled through a clearinghouse associated with, the exchange on which the
contracts are traded, the Portfolio will incur brokerage fees when it buys or
sells futures contracts.

The Portfolio will not (1) enter into any futures contracts or options on
futures contracts if immediately thereafter the aggregate margin deposits on all
outstanding futures contracts positions held by the Portfolio and premiums paid
on outstanding options on futures contracts, after taking into account
unrealized profits and losses, would exceed 5% of the market value of the total
assets of the Portfolio or (2) enter into any futures contracts or options on
futures contracts if the aggregate amount of the Portfolio's commitments under
outstanding futures contracts positions and options on futures contracts written
by the Portfolio would exceed the market value of the total assets of the
Portfolio. See the SAI for further discussion of the use, risks and costs
associated with futures contracts and options on futures contracts.

Forward Currency Transactions. The Portfolio may enter into forward foreign
currency exchange contracts ("forward currency contracts") to attempt to
minimize the risk to the Portfolio from adverse changes in the relationship
between the U.S. dollar and other currencies. A forward currency contract is an
obligation to buy or sell an amount of a specified currency for an agreed price
(which may be in U.S. dollars or a foreign currency) at a future date which is
individually negotiated between currency traders and their customers. The
Portfolio may enter into a forward currency contract, for example, when it
enters into a contract to buy or sell a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). Additionally, when the Portfolio believes that a foreign
currency in which the portfolio securities are denominated may suffer a
substantial decline against the U.S. dollar, the Portfolio may enter into a
forward currency contract to sell an amount of that foreign currency
approximating the value of some or all of the portfolio securities denominated
in that currency, or, when the Portfolio believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, the Portfolio may enter
into a forward currency contract to buy that foreign currency for a fixed U.S.
dollar amount ("position hedge"). The Portfolio also may enter into a forward
currency contract with respect to a currency where the Portfolio is considering
the purchase of investments denominated in that currency but has not yet done so
("anticipatory hedge"). In any of these circumstances the Portfolio may,
alternatively, enter into a forward currency contract with respect to a
different foreign currency when the Portfolio believes that the U.S. dollar
value of that currency will correlate with the U.S. dollar value of the currency
in which portfolio securities of, or being considered for purchase by, the
Portfolio are denominated ("cross hedge"). The Portfolio may invest in forward
currency contracts with stated contract values of up to the value of the
Portfolio's assets. The Portfolio may also enter into forward currency contracts
for non-hedging purposes, subject to applicable law.

The Portfolio also may enter into forward contracts to buy or sell at a later
date instruments in which the Portfolio may invest directly or on financial
indices based on those instruments. The market for those types of forward
contracts is developing and it is not currently possible to identify instruments
on which forward contracts might be created in the future. See the SAI for
further discussion of the use, risks and costs of forward contracts.

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11
<PAGE>

The Portfolio may also enter into currency swaps where each party exchanges
one currency for another on a particular date and agrees to reverse the exchange
on a later date at a specific exchange rate.

Currency Risks. Since the Portfolio invests substantially in securities
denominated in currencies other than the U.S. dollar, or that hold foreign
currencies, it will be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rates between such currencies and the
U.S. dollar. Changes in currency exchange rates will influence the value of the
Portfolio's shares and also may affect the value of dividends and interest
earned by the Portfolio and gains and losses realized by the Portfolio.
Currencies generally are evaluated on the basis of fundamental economic criteria
(e.g., relative inflation and interest rate levels and trends, growth rate
forecasts, balance of payments status and economic policies) as well as
technical and political data. The exchange rates between the U.S. dollar and
other currencies are determined by supply and demand in the currency exchange
markets, the international balance of payments, governmental intervention,
speculation and other economic and political conditions. If the currency in
which a security is denominated appreciates against the U.S. dollar, the dollar
value of the security will increase. Conversely, a decline in the exchange rate
of the currency would adversely affect the value of the security expressed in
U.S. dollars.

Options on Securities and on Foreign Currencies. In an effort to reduce
fluctuations in net asset value or to increase its portfolio return, the
Portfolio may write covered put and call options and may buy put and call
options and warrants on securities traded on U.S. and foreign securities
exchanges. The purpose of such transactions is to hedge against changes in the
market value of portfolio securities caused by fluctuating interest rates,
fluctuating currency exchange rates and changing market conditions, and to close
out or offset existing positions in such options or futures contracts as
described below. The Portfolio may write and buy options on the same types of
securities that the Portfolio could buy directly and may buy options on
financial indices as described above with respect to futures contracts. There
are no specific limitations on the writing and buying of options on securities.

A put option gives the holder the right, upon payment of a premium, to deliver
a specified amount of a security to the writer of the option on or before a
fixed date at a predetermined price. A call option gives the holder the right,
upon payment of a premium, to call upon the writer to deliver a specified amount
of a security on or before a fixed date at a predetermined price.

A call option is "covered" if the Portfolio owns the underlying security
covered by the call. If a "covered" call option expires unexercised, the writer
realizes a gain in the amount of the premium received. If the covered call
option is exercised, the writer realizes either a gain or loss from the sale or
purchase of the underlying security with the proceeds to the writer being
increased by the amount of the premium. Prior to its expiration, a call option
may be closed out by means of a purchase of an identical option. Any gain or
loss from such transaction will depend on whether the amount paid is more or
less than the premium received for the option plus related transaction costs.
The Portfolio also may write a covered call option to cross-hedge if the
Portfolio does not own the underlying security. The option is designed to
provide a hedge against a decline in value in another security which the
Portfolio owns or has the right to acquire.

In purchasing an option, the Portfolio would be in a position to realize a
gain if, during the option period, the price of the underlying security
increased (in the case of a call) or decreased (in the case of a put) by an
amount in excess of the premium paid and would realize a loss if the price of
the underlying security did not increase (in the case of a call) or decrease (in
the case of a put) during the period by more than the amount of the premium. If
a put or call option bought by the Portfolio were permitted to expire without
being sold or exercised, the Portfolio would lose the amount of the premium.

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<PAGE>

Although they entitle the holder to buy equity securities, warrants on and
options to purchase equity securities do not entitle the holder to dividends or
voting rights with respect to the underlying securities, nor do they represent
any rights in the assets of the issuer of those securities.

If a put or call option written by the Portfolio were exercised, the Portfolio
would be obligated to buy or sell the underlying security at the exercise price.
Writing a put option involves the risk of a decrease in the market value of the
underlying security, in which case the option could be exercised and the
underlying security would then be sold by the option holder to the Portfolio at
a higher price than its current market value. Writing a call option involves the
risk of an increase in the market value of the underlying security, in which
case the option could be exercised and the underlying security would then be
sold by the Portfolio to the option holder at a lower price than its current
market value. Those risks could be reduced by entering into an offsetting
transaction. The Portfolio retains the premium received from writing a put or
call option whether or not the option is exercised.

The Portfolio may buy put and call options and may write covered put and call
options on foreign currencies to hedge against declines in the U.S. dollar value
of foreign currency-denominated securities held by the Portfolio and against
increases in the U.S. dollar cost of foreign currency-denominated securities
being considered for purchase by the Portfolio. As in the case of other options,
however, the writing of an option on a foreign currency will constitute only a
partial hedge, up to the amount of the premium received, and the Portfolio could
be required to buy or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange rates, although,
in the event of rate movements adverse to the Portfolio's options position, the
option may expire worthless and the Portfolio will lose the amount of the
premium. There is no specific percentage limitation on the Portfolio's
investments in options on foreign currencies.

The Portfolio may buy or write options in privately negotiated transactions on
the types of securities and indices based on the types of securities in which
the Portfolio is permitted to invest directly. The Portfolio will effect such
transactions only with investment dealers and other financial institutions (such
as commercial banks or savings and loan institutions) deemed creditworthy, and
only pursuant to procedures adopted by management for monitoring the
creditworthiness of those entities. To the extent that an option bought or
written by the Portfolio in a negotiated transaction is illiquid, the value of
an option bought or the amount of the Portfolio's obligations under an option
written by the Portfolio, as the case may be, will be subject to the Portfolio's
limitation on illiquid investments. In the case of illiquid options, it may not
be possible for the Portfolio to effect an offsetting transaction at a time when
management believes it would be advantageous for the Portfolio to do so. See the
SAI for a further discussion of the use, risks and costs of option trading.

Swaps and Swap-Related Products. As one way of managing its exposure to
different types of investments, the Portfolio may enter into interest rate
swaps, currency swaps and other types of available swap agreements, such as
caps, collars and floors. Swaps involve the exchange by the Portfolio with
another party of cash payments based upon different interest rate indexes,
currencies, and other prices or rates, such as the value of mortgage prepayment
rates. For example, in the typical interest rate swap, the Portfolio might
exchange a sequence of cash payments based on a floating rate index for cash
payments based on a fixed rate. Payments made by both parties to a swap
transaction are based on a principal amount determined by the parties.

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13
<PAGE>

specified index exceeds a predetermined interest rate, to receive payments of
interest on a contractually-based principal amount from the counterparty selling
such interest rate cap. The sale of an interest rate floor obligates the seller
to make payments to the extent that a specified interest rate falls below an
agreed-upon level. A collar arrangement combines elements of buying a cap and
selling a floor.

Swap agreements will tend to shift the Portfolio's investment exposure from
one type of investment to another. For example, if the Portfolio agreed to
exchange payments in dollars for payments in foreign currency, in each case
based on a fixed rate, the swap agreement would tend to decrease the Portfolio's
exposure to U.S. interest rates and increase its exposure to foreign currency
and interest rates. Caps and floors have an effect similar to buying or writing
options. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of the Portfolio's investments and its share
price and yield.

Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Portfolio's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Portfolio may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.

Special Investment Considerations and Risks With Respect to Futures, Options
and Currency Transactions and Swaps and Swap-Related Products. The successful
use of the investment practices described above with respect to futures
contracts, options on futures contracts, forward contracts, options on
securities and on foreign currencies, and swaps and swap-related products draws
upon skills and experience which are different from those needed to select the
other instruments in which the Portfolio invests. Should interest or exchange
rates or the prices of securities or financial indices move in an unexpected
manner, the Portfolio may not achieve the desired benefits of futures, options,
swaps and forwards or may realize losses and thus be in a worse position than if
such strategies had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price fluctuation limits
with respect to options on currencies, forward contracts and other negotiated or
over-the-counter instruments, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In addition, the
correlation between movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.

With respect to interest rate swaps, the Portfolio recognizes that such
arrangements are relatively illiquid and will include the principal amount of
the obligations owed to it under a swap as an illiquid security for purposes of
the Portfolio's investment restrictions except to the extent a third party (such
as a large commercial bank) has guaranteed the Portfolio's ability to offset the
swap at any time.

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14
<PAGE>

be given that the Portfolio will be able to use those instruments effectively
for the purposes set forth above. See the SAI for a further discussion of the
use, risks and costs of these instruments.

In connection with its transactions in futures, options, swaps and forwards,
the Portfolio may be required to place assets in a segregated account with the
Portfolio's custodian bank to ensure that the Portfolio will be able to meet its
obligations under these instruments. Assets held in a segregated account
generally may not be disposed of for so long as the Portfolio maintains the
positions giving rise to the segregation requirement. Segregation of a large
percentage of the Portfolio's assets could impede implementation of the
Portfolio's investment policies or the Portfolio's ability to meet redemption
requests or other current obligations.

Mortgage-Backed Securities. The Portfolio may invest in mortgage-backed
securities, which represent pools of mortgage loans assembled for sale to
investors by various governmental agencies and government-related organizations,
such as Government National Mortgage Association ("GNMA"), Federal National
Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation
("FHLMC"), as well as by private issuers such as commercial banks, savings and
loan institutions, mortgage bankers and private mortgage insurance companies.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. Prompt payment of
principal and interest on GNMA mortgage pass through certificates is backed by
the full faith and credit of the United States. FNMA guaranteed mortgage
pass-through certificates are solely the obligations of those entities but are
supported by the discretionary authority of the U.S Government to purchase the
agencies' obligations. Mortgage pools created by private organizations generally
offer a higher rate of interest than governmental and government-related pools
because there are no direct or indirect guarantees of payments in the former
pools. Timely payment of interest and principal in these pools, however, may be
supported by various forms of private insurance or guarantees, including
individual loan, title, pool and hazard insurance. There can be no assurance
that the private insurers can meet their obligations under the policies.

To the extent that the Portfolio purchases mortgage-related securities at a
premium, mortgage foreclosures and prepayments of principal (which may be made
at any time without penalty) may result in some loss of the Portfolio's
principal investment to the extent of the premium paid. The yield of the
Portfolio that invests in mortgage-related securities may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment. In addition, like other debt securities, the values of
mortgage-related securities, including government and government related
mortgage pools, generally will fluctuate in response to market interest rates.

Other Asset-Backed Securities. The Portfolio may invest in asset-backed
securities arising through the grouping by governmental, government-related and
private organizations of loans, receivables and other assets originated by
various lenders. Interests in pools of these assets differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal paid at maturity or specified call dates. Instead,
asset-backed securities provide periodic payments which generally consist of
both interest and principal payments.

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The estimated life of an asset-backed security varies with the prepayment
experience with respect to the underlying debt instruments. The rate of such
prepayments, and hence the life of an asset-backed security, will be primarily a
function of current market interest rates, although other economic and
demographic factors may be involved. For example, falling interest rates
generally result in an increase in the rate of prepayments of mortgage loans
while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
asset-backed securities are not as effective in locking in high long-term
yields. Conversely, in periods of sharply rising rates, prepayments generally
slow, increasing the security's average life and its potential for price
depreciation.

U.S. Government Securities. The Portfolio may invest in U.S. Government
securities, which are debt obligations issued or guaranteed as to payment of
principal and interest by the U.S. Government (including Treasury bills, notes
and bonds, certain mortgage participation certificates and collateralized
mortgage obligations) or by its agencies and instrumentalities (such as GNMA,
the Student Loan Marketing Association, the Tennessee Valley Authority, the Bank
for Cooperatives, the Farmers Home Administration, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks,
the Export-Import Bank of the U.S., the Federal Housing Administration, FHLMC,
the U.S. Postal Service, the Federal Financing Bank and FNMA). Some of these
securities (such as Treasury bills) are supported by the full faith and credit
of the U.S. Treasury; others (such as obligations of the Federal Home Loan Bank)
are supported by the right of the issuer to borrow from the Treasury; while
still others (such as obligations of FNMA and the Student Loan Marketing
Association) are supported only by the credit of the instrumentality.

Portfolio Turnover. Although it is anticipated that most investments of the
Portfolio will be long-term in nature, the rate of portfolio turnover will
depend upon market and other conditions, and it will not be a limiting factor
when management believes that portfolio changes are appropriate. The historical
portfolio turnover rates are included in the Financial Highlights tables above.
A higher rate of portfolio turnover may result in higher transaction costs,
including brokerage commissions.

Year 2000. The investment management services provided to the Fund by the
Manager and the services provided to shareholders by Smith Barney, the Fund's
Distributor, depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact of the Fund's
operations, including the handling of securities trades, pricing and account
services. The Manager and Smith Barney have advised the Fund that they have been
reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, the Manager have been
advised by the Fund's custodian, transfer agent and accounting service agent
that they are also in the process of modifying their systems with the same goal.
There can, however, be no assurance that the Manager, Smith Barney or any other
service provider will be successful, or that interaction with other
non-complying computer systems will not impair Fund services at that time.

DIVIDENDS, DISTRIBUTIONS AND TAXES
================================================================================

The Portfolio of the Fund intends to qualify and be taxed as a "regulated
investment company" under Subchapter M of the Code. In order to qualify as a
regulated investment company, the Portfolio must meet certain income and
diversification tests. As a regulated investment company and provided certain
distribution requirements are met, the Portfolio will not be subject to federal
income tax on its investment income and net capital gains that it distributes to
its shareholders. Such distributions are automatically reinvested in additional

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16
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shares of the Portfolio at net asset value and are includable in gross income of
the Separate Accounts holding such shares. See the accompanying Contract
prospectus for information regarding the federal income tax treatment of
distributions to the Separate Accounts and to holders of the Contracts.

The Portfolio of the Fund is also subject to asset diversification regulations
promulgated by the U.S. Treasury Department under the Code. The regulations
generally provide that, as of the end of each calendar quarter or within 30 days
thereafter, no more than 55% of the total assets of the Portfolio may be
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. For this purpose all securities of the same issuer are considered a
single investment. If the Portfolio should fail to comply with these
regulations, Contracts invested in the Portfolio would not be treated as
annuity, endowment or life insurance contracts under the Code.

REDEMPTION OF SHARES
================================================================================

The redemption price of the shares of the Portfolio will be the net asset
value next determined after receipt by the Fund of a redemption order from a
Separate Account, which may be more or less than the price paid for the shares.
The Fund will ordinarily make payment within one business day, though redemption
proceeds must be remitted to a Separate Account on or before the third day
following receipt of proper tender, except on a day on which the New York Stock
Exchange ("NYSE") is closed or as permitted by the SEC in extraordinary
circumstances.

PERFORMANCE
================================================================================

From time to time the Fund may include the Portfolio's total return, average
annual total return, yield and current distribution return in advertisements
and/or other types of sales literature. These figures are based on historical
earnings and are not intended to indicate future performance. In addition, these
figures will not reflect the deduction of the charges that are imposed on the
Contracts by the Separate Account (see Contract prospectus) which, if reflected,
would reduce the performance quoted. Total return is computed for a specified
period of time assuming reinvestment of all income dividends and capital gains
distributions at net asset value on the ex-dividend dates at prices calculated
as stated in this Prospectus, then dividing the value of the investment at the
end of the period so calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as prescribed by the SEC, is
derived from this total return, which provides the ending redeemable value. Such
standard total return information may also be accompanied with nonstandard total
return information over different periods of time by means of aggregate,
average, year-by-year, or other types of total return figures. The yield of the
Portfolio refers to the net investment income earned by investments in the
Portfolio over a thirty-day period. This net investment income is then
annualized, i.e., the amount of income earned by the investments during that
thirty-day period is assumed to be earned each 30-day period for twelve periods
and is expressed as a percentage of the investments. The yield quotation is
calculated according to a formula prescribed by the SEC to facilitate comparison
with yields quoted by other investment companies. The Fund calculates current
distribution return for the Portfolio by dividing the distributions from
investment income declared during the most recent period by the net asset value
on the last day of the period for which current distribution return is
presented. The Portfolio's current distribution return may vary from time to
time depending on market conditions, the composition of its investment portfolio
and operating expenses. These factors and possible differences in the methods
used in calculating current distribution return, and the charges that are
imposed on the Contracts by the Separate Account, should be considered when
comparing the Portfolio's current distribution return to yields published for
other investment companies and other investment vehicles.

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MANAGEMENT
================================================================================

The Investment Manager:

TIA manages the investment operations of the Portfolio pursuant to management
agreements entered into by the Fund on behalf of the Portfolio.

Under the management agreement TIA is responsible for furnishing or causing to
be furnished to the Portfolio advice and assistance with respect to the
acquisition, holding or disposal of investments and recommendations with respect
to other aspects and affairs of the Portfolio, bookkeeping, accounting and
administrative services, office space and equipment, and the services of the
officers and employees of the Fund.

TIA and the Portfolio are also subject to a subadvisory agreement (see "The
Sub-Adviser" below). Pursuant to the subadvisory agreement, the Sub-Adviser is
responsible for the day to day operations and investment decisions for the
Portfolio and is authorized, in its discretion and without prior consultation
with TIA, to: (a) manage the Portfolio's assets in accordance with the
Portfolio's investment objective(s) and policies as stated in the Prospectus and
the SAI; (b) make investment decisions for the Portfolio; (c) place purchase and
sale orders for portfolio transactions on behalf of the Portfolio; and (d)
employ professional portfolio managers and securities analysts who provide
research services to the Portfolio.

TIA has also entered into a Sub-Administrative Services Agreement with an
affiliate (the "Sub-Administrator") to (a) assist TIA in supervising all aspects
of the Portfolio's operations; (b) supply the Portfolio with office facilities,
statistical and research services, data processing services, clerical,
accounting and bookkeeping services; and (c) prepare reports to the Portfolio's
shareholders and prepare reports to and filings with the SEC and state blue sky
authorities, if applicable. TIA pays the Sub-Administrator a fee in an amount
equal to an annual rate of 0.10% of the Portfolio's average daily net assets.

For the services provided by TIA, the Portfolio pays TIA an annual management
fee calculated at a rate equal to 0.80% of its average daily net assets, paid
monthly.

Although the management fee paid by the Portfolio is greater than that paid by
most mutual funds, management has determined that the fee is comparable to the
fee charged by other investment advisers of mutual funds that have similar
investment objectives and policies.

The management agreement further provides that all other expenses not
specifically assumed by TIA under the management agreement on behalf of the
Portfolio are borne by the Fund. Expenses payable by the Fund include, but are
not limited to, all charges of custodians and shareholder servicing agents,
expenses of preparing, printing and distributing all prospectuses, proxy
material, reports and notices to shareholders, all expenses of shareholders' and
directors' meetings, filing fees and expenses relating to the registration and
qualification of the Fund's shares and the Fund under federal and state
securities laws and maintaining such registrations and qualifications (including
the printing of the Fund's registration statements), fees of auditors and legal
counsel, costs of performing portfolio valuations, out-of-pocket expenses of
directors and fees of directors who are not "interested persons" as defined in
the 1940 Act, interest, taxes and governmental fees, fees and commissions of
every kind, expenses of issue, repurchase or redemption of shares, insurance
expense, association membership dues, all other costs incident to the Fund's
existence and extraordinary expenses such as litigation and indemnification
expenses. Direct expenses are charged to each of the Fund's Portfolios; general
corporate expenses are allocated on the basis of relative net assets.

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

18
<PAGE>

TIA was incorporated in 1996 under the laws of the State of Delaware. It is a
wholly owned subsidiary of The Plaza Corporation ("Plaza"), which is an indirect
wholly owned subsidiary of Travelers Group Inc. ("Travelers"), which is a
financial services holding company engaged, through its subsidiaries,
principally in four business segments: Investment Services including Asset
Management, Consumer Finance Services, Life Insurance Services and Property &
Casualty Insurance Services. TIA is located at 388 Greenwich Street, New York,
New York 10013. TIA and its affiliates may in the future act as investment
advisers for other accounts.

The Sub-Adviser:

Massachusetts Financial Services Company. Massachusetts Financial Services
Company ("MFS") serves as Sub-Adviser to the MFS Total Return Portfolio pursuant
to a subadvisory agreement. Pursuant to the subadvisory agreement TIA pays MFS
an annual fee calculated at the rate of 0.375% of the Portfolio's average daily
net assets.

MFS also serves as investment adviser to each of the funds in the MFS Family
of Funds and to MFS Institutional Trust, MFS Variable Insurance Trust, MFS
Municipal Income Trust, MFS Government Markets Income Trust, MFS Multimarket
Income Trust, MFS Intermediate Income Trust, MFS Charter Income Trust, MFS
Special Value Trust, MFS/Sun Life Series Trust and seven variable accounts, each
of which is a registered investment company established by Sun Life Assurance
Company of Canada (U.S.), a subsidiary of Sun Life Assurance Company of Canada
("Sun Life"), in connection with the sale of various fixed/variable annuity
contracts. MFS and its wholly owned subsidiary, MFS Institutional Advisors,
Inc., also provide investment advice to substantial private clients.

MFS is located at 500 Boylston Street, Boston, Massachusetts 02116. MFS is
America's oldest mutual fund organization. MFS and its predecessor organizations
have a history of money management dating from 1924 and the founding of the
first mutual fund in the United States, Massachusetts Investors Trust. Net
assets under the management of the MFS organization were approximately $69.4
billion on behalf of approximately 2.7 million investors accounts as of November
28, 1997. As of such date, the MFS organization managed approximately $20.1
billion of assets in fixed income securities. MFS is a subsidiary of Sun Life of
Canada (U.S.) Financial Services Holdings, Inc. which in turn is an indirect
wholly owned subsidiary of Sun Life. Sun Life, a mutual life insurance company,
is one of the largest international life insurance companies and has been
operating in the U.S. since 1895, establishing a headquarters office here in
1973. The executive officers of MFS report to the Chairman of Sun Life.

David M. Calabro, a Senior Vice President of MFS, Geoffrey L. Kurinsky, a
Senior Vice President of MFS, Judith N. Lamb, a Vice President of MFS, Lisa B.
Nurme, a Senior Vice President of MFS, and Maura A. Shaughnessy, a Senior Vice
President of MFS, are the Fund's portfolio managers. Mr. Calabro is the head of
this portfolio management team and a manager of the common stock portion of the
Fund's portfolio. Mr. Calabro has been employed by MFS since 1992 and served as
an analyst and sector portfolio manager with Fidelity Investments prior to that
time. Mr. Kurinsky, the manager of the Fund's fixed income securities, has been
employed by MFS since 1987. Ms. Lamb, the manager of the Fund's convertible
securities, has been employed by MFS since 1992, and served as an analyst with
Fidelity Investments prior to that time. Ms. Nurme, a manager of the common
stock portion of the Fund's portfolio, has been employed by MFS since 1987. Ms.
Shaughnessy, also a manager of the common stock portion of the Fund's portfolio,
has been employed by MFS since 1991 and served as an analyst with Harvard
Management Company prior to that time.

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

19
<PAGE>

in some cases this arrangement could have a detrimental effect on the price or
availability of the security as far as the Fund is concerned, in other cases,
however, it may produce increased investment opportunities for the Fund.

Board of Directors

Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant agreements
between the Fund and the companies that furnish services to the Fund and the
Portfolio, including agreements with the Fund's distributor, investment
managers, investment sub-advisers, custodian and transfer agent. The SAI
contains background information regarding each Director and executive officer of
the Fund.

Portfolio Transactions and Distribution

TIA and the Sub-Adviser are subject to the supervision and direction of the
Fund's Board of Directors and manage the Portfolio in accordance with its
investment objective and policies, make investment decisions for the Portfolio,
place orders to purchase and sell securities and employ professionals who
provide research services. All orders for transactions in securities on behalf
of the Portfolio are made by management, with broker-dealers selected by
management, including affiliated brokers. In placing orders management will seek
to obtain the most favorable price and execution available. In selecting
broker-dealers, management may consider research and brokerage services
furnished to it and its affiliates.

The Fund's Board of Directors has determined that transactions for the Fund
may be executed through any broker-dealer affiliate of the Fund ("Affiliated
Broker") if, in the judgement of management, the use of an Affiliated Broker is
likely to result in price and execution at least as favorable to the Fund as
those obtainable through other qualified broker-dealers, and if, in the
transaction, the Affiliated Broker charges the Fund a fair and reasonable rate
consistent with that charged to comparable unaffiliated customers in similar
transactions. The Fund will not deal with an Affiliated Broker in any
transaction in which such Affiliated Broker acts as principal.

SHARES OF THE FUND
================================================================================

General

The Fund, an open-end managed investment company, was incorporated in Maryland
on February 22, 1994. The Fund has an authorized capital of 6,000,000,000 shares
with a par value of $.00001 per share. The Board of Directors has authorized the
issuance of thirteen series of shares, each representing shares in one of
thirteen separate Portfolios. The Directors also have the power to create
additional series of shares. The assets of the Portfolio will be segregated and
separately managed and a shareowner's interest is in the assets of the Portfolio
in which he or she holds shares.

Voting Rights

The Fund offers its shares only for purchase by insurance company separate
accounts. Thus, the insurance company is technically the shareholder of the Fund
and, under the 1940 Act, is deemed to be in control of the Fund. Nevertheless,
with respect to any Fund shareholder meeting, an insurance company will solicit
and accept timely voting instructions from its contractowners who own units in a
separate account investment division which corresponds to shares in the Fund in
accordance with the procedures set forth in the accompanying prospectus for the
applicable contract issued by the insurance company and to the extent required
by law. Shares of the Fund attributable to contractowner interests for which no
voting instructions are

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

20
<PAGE>

received will be voted by an insurance company in proportion to the shares for
which voting instructions are received.

Each share of a Portfolio represents an equal proportionate interest in that
Portfolio with each other share of the same Portfolio and is entitled to such
dividends and distributions out of the net income of that Portfolio as are
declared in the discretion of the Directors. Shareowners are entitled to one
vote for each share held and will vote by individual Portfolio except to the
extent required by the 1940 Act. The Fund is not required to hold annual
shareowner meetings, although special meetings may be called for the Fund as a
whole, or a specific Portfolio, for purposes such as electing or removing
Directors, changing fundamental policies or approving a management contract.
Shareowners may cause a meeting of shareowners to be held upon a vote of 10% of
the Fund's outstanding shares for the purpose of voting on the removal of
Directors.

Availability of the Fund

Investment in the Fund is only available to owners of either variable annuity
or variable life insurance contracts issued by insurance companies through their
separate accounts. It is possible that in the future it may become
disadvantageous for both variable annuity and variable life insurance separate
accounts to be invested simultaneously in the Fund. However, the Fund does not
currently foresee any disadvantages to the contractowners of the different
contracts which are funded by such separate accounts. The Board monitors events
for the existence of any material irreconcilable conflict between or among such
owners, and each insurance company will take whatever remedial action may be
necessary to resolve any such conflict. Such action could include the sale of
Fund shares by one or more of the insurance company separate accounts which fund
these contracts, which could have adverse consequences to the Fund. Material
irreconcilable conflicts could result from, for example: (a) changes in state
insurance laws; (b) changes in U.S. federal income tax laws; or (c) differences
in voting instructions between those given by variable annuity contractowners
and those given by variable life insurance contractowners. If the Board were to
conclude that separate series of the Fund should be established for variable
annuity and variable life separate accounts, each insurance company would bear
the attendant expenses. Should this become necessary, contractowners would
presumably no longer have the economies of scale resulting from a larger
combined mutual fund.

DETERMINATION OF NET ASSET VALUE
================================================================================

The net asset value of the Portfolio's shares is determined as of the close of
regular trading on the NYSE, which is currently 4:00 P.M. New York City time on
each day that the NYSE is open, by dividing the Portfolio's net assets by the
number of its shares outstanding. Securities owned by the Portfolio for which
market quotations are readily available are valued at current market value or,
in their absence, at fair value. Securities traded on an exchange are valued at
last sales price on the principal exchange on which each such security is
traded, or if there were no sales on that exchange on the valuation date, the
last quoted sale, up to the time of valuation, on the other exchanges. If
instead there were no sales on the valuation date with respect to these
securities, such securities are valued at the mean of the latest published
closing bid and asked prices. Over-the-counter securities are valued at last
sales price or, if there were no sales that day, at the mean between the bid and
asked prices. Options, futures contracts and options thereon that are traded on
exchanges are also valued at last sales prices as of the close of the principal
exchange on which each is listed or if there were no such sales on the valuation
date, the last quoted sale, up to the time of valuation, on other exchanges. In
the absence of any sales on the valuation date, valuation shall be the mean of
the latest closing bid and asked prices. Fixed income obligations are valued at
the mean of bid and asked prices based on market quotations for those securities
or if no quotations are available, then for securities of similar type, yield
and maturity. Securities with a remaining maturity of 60 days or less are valued
at amortized cost where the

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

21
<PAGE>

Board of Directors has determined that amortized cost is fair value. Premiums
received on the sale of call options will be included in the Portfolio's net
assets, and current market value of such options sold by the Portfolio will be
subtracted from that Portfolio's net assets. Any other investments of the
Portfolio, including restricted securities and listed securities for which there
is a thin market or that trade infrequently (i.e., securities for which prices
are not readily available), are valued at a fair value determined by the Board
of Directors in good faith. This value generally is determined as the amount
that the Portfolio could reasonably expect to receive from an orderly
disposition of these assets over a reasonable period of time but in no event
more than seven days. The value of any security or commodity denominated in a
currency other than U.S. dollars will be converted into U.S. dollars at the
prevailing market rate as determined by management.

Foreign securities trading may not take place on all days on which the NYSE is
open. Further, trading takes place in various foreign markets on days on which
the NYSE is not open. Accordingly, the determination of the net asset value of
the Portfolio may not take place contemporaneously with the determination of the
prices of investments held by the Portfolio. Events affecting the values of
investments that occur between the time their prices are determined and 4:00
P.M. on each day that the NYSE is open will not be reflected in the Portfolio's
net asset value unless management under the supervision of the Fund's Board of
Directors, determines that the particular event would materially affect the net
asset value. As a result, the Portfolio's net asset value may be significantly
affected by such trading on days when a shareholder has no access to the
Portfolio.

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

22
<PAGE>

APPENDIX A
================================================================================
RATINGS ON DEBT OBLIGATIONS

BOND (AND NOTES) RATINGS

Moody's Investors Service, Inc.

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

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

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

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

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

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

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

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

Note: The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.

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

23
<PAGE>

Standard & Poor's

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

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

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

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

BB, B, CCC, CC, C - Debt rated 'BB', 'B', 'CCC', 'CC' or 'C' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation and 'C' the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

Plus (+) or Minus (-): The ratings from 'AA' to 'B' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

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

L - The letter "L" indicates that the rating pertains to the principal amount
of those bonds where the underlying deposit collateral is fully insured by the
Federal Savings & Loan Insurance Corp. or the Federal Deposit Insurance Corp.

+ - Continuance of the rating is contingent upon S&P's receipt of closing
documentation confirming investments and cash flow.

* - Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement.

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

Fitch IBCA, Inc.

AAA - Bonds rated AAA by Fitch have the lowest expectation of credit risk. The
obligor has an exceptionally strong capacity for timely payment of financial
commitments which is highly unlikely to be adversely affected by foreseeable
events.

AA - Bonds rated AA by Fitch have a very low expectation of credit risk. They
indicate very strong capacity for timely payment of financial commitment. This
capacity is not significantly vulnerable to foreseeable events.

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

24
<PAGE>

A - Bonds rated A by Fitch are considered to have a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered to
be strong, but may be more vulnerable to changes in economic conditions and
circumstances than bonds with higher ratings.

BBB - Bonds rated BBB by Fitch currently have a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered to
be adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to impair this capacity. This is the lowest investment grade
category assigned by Fitch.

BB - Bonds rated BB by Fitch carry the possibility of credit risk developing,
particularly as the result of adverse economic change over time. Business or
financial alternatives may, however, be available to allow financial commitments
to be met. Securities rated in this category are not considered by Fitch to be
investment grade.

B - Bonds rated B by Fitch carry significant credit risk, however, a limited
margin of safety remains. Although financial commitments are currently being
met, capacity for continued payment depends upon a sustained, favorable business
and economic environment.

Plus and minus signs are used by Fitch to indicate the relative position of a
credit within a rating category. Plus and minus signs however, are not used in
the AAA category.

COMMERCIAL PAPER RATINGS

Moody's Investors Service, Inc.

Issuers rated "Prime-1" (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
will normally be evidenced by the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial changes and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.

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

Standard & Poor's

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

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

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

25
<PAGE>

Fitch IBCA, Inc.

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.

The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet financial commitment in a timely
manner.

Fitch's short-term ratings are as follows:

F1+ - Issues assigned this rating are regarded as having the strongest
capacity for timely payments of financial commitments. The "+" denotes an
exceptionally strong credit feature.

F1 - Issues assigned this rating are regarded as having the strongest capacity
for timely payment of financial commitments.

F2 - Issues assigned this rating have a satisfactory capacity for timely
payment of financial commitments, but the margin of safety is not as great as in
the case of the higher ratings.

F3 - The capacity for the timely payment of financial commitments is adequate;
however, near-term adverse changes could result in a reduction to non investment
grade.

Duff & Phelps Inc.

Duff 1+ - Indicates the highest certainty of timely payment: short-term
liquidity is clearly outstanding, and safety is just below risk-free United
States Treasury short-term obligations.

Duff 1 - Indicates a high certainty of timely payment.

Duff 2 - Indicates a good certainty of timely payment: liquidity factors and
company fundamentals are sound.

The Thomson BankWatch ("TBW")

TBW-1 - Indicates a very high degree of likelihood that principal and interest
will be paid on a timely basis.

TBW-2 - While the degree of safety regarding timely repayment of principal and
interest is strong, the relative degree of safety is not as high as for issues
rated TBW-1.

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

26
<PAGE>

TRAVELERS SERIES FUND INC.
388 Greenwich Street
New York, New York 10013
1-800-842-8573

The Alliance Growth Portfolio and the MFS Total Return Portfolio are
two of thirteen portfolios that currently comprise Travelers Series Fund Inc.
(the "Fund"), the investment underlying certain variable annuity and variable
life insurance contracts.

The Alliance Growth Porfolio seeks long-term growth of capital.
Current income is only an incidental consideration.

The MFS Total Return Portfolio seeks above-average income (compared
to a portfolio invested entirely in equity securities) consistant with prudent
employment of capital. While current income is the primary objective, the
Portfolio believes that there should be a reasonable opportunity for growth of
capital and income.

Shares of the Fund are offered only to insurance company separate
accounts (the "Separate Accounts"), which fund certain variable annuity and
variable life insurance contracts (the "Contracts"). The Separate Accounts
invest in shares of one or both of the Portfolios in accordance with allocation
instructions received from Contract owners. Such allocation rights are further
described in the accompanying Contract prospectus.

Shares of each Portfolio are offered to Separate Accounts at their
net asset value, without a sales charge, next determined after receipt of an
order by an insurance company. The offering of shares of a Portfolio may be
suspended from time to time and the Fund reserves the right to reject any
specific purchase order.

THIS PROSPECTUS, WHICH SETS FORTH CONCISE INFORMATION ABOUT THE FUND THAT
PROSPECTIVE INVESTORS SHOULD KNOW BEFORE INVESTING, SHOULD BE READ AND RETAINED
FOR FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION ("SAI"), ALSO
REFERRED TO AS "PART B", DATED FEBRUARY 27, 1998 IS HEREBY INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS AND IS AVAILABLE FROM THE FUND, WITHOUT CHARGE,
BY WRITING TO THE FUND AT THE ABOVE ADDRESS OR CALLING THE TELEPHONE NUMBER
LISTED ABOVE.

This Prospectus should be read in conjunction with the prospectus for
the Contracts.

THE DATE OF THIS PROSPECTUS IS FEBRUARY 27, 1998.

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

TABLE OF CONTENTS
=============================================================================
FINANCIAL HIGHLIGHTS .................................................. 1

THE FUND'S INVESTMENT PROGRAM ......................................... 3
Alliance Growth Portfolio ........................................... 3
MFS Total Return Portfolio .......................................... 4

SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS ................. 6

DIVIDENDS, DISTRIBUTIONS AND TAXES ....................................19

REDEMPTION OF SHARES ..................................................19

PERFORMANCE ...........................................................19

MANAGEMENT ............................................................20

SHARES OF THE FUND ....................................................23

DETERMINATION OF NET ASSET VALUE ......................................24

APPENDIX A ............................................................26

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

FINANCIAL HIGHLIGHTS
================================================================================

The following information for the three-year period ended October 31, 1997
and for the period from June 16, 1994 (commencement of operations) to October
31, 1994 has been audited in conjunction with the annual audits of the financial
statements of each of the portfolios within the Fund by KPMG Peat Marwick LLP,
independent auditors. The 1997 financial statements and the independent
auditors' reports thereon appear in the October 31, 1997 Annual Reports to
Shareholders. The information set out below should be read in conjunction with
the financial statements and related notes that also appear within each
portfolio's Annual Reports, which are available upon request and incorporated by
reference into the Statement of Additional Information.

For a share of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
Alliance Growth
---------------------------------------------------------
1997 1996 1995 1994(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $16.30 $13.28 $10.65 $10.00
- -----------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (2) 0.05 0.04 0.14 0.06
Net realized and unrealized gain 5.11 3.39 2.61 0.59
- -----------------------------------------------------------------------------------------------------------------
Total Income from Operations 5.16 3.43 2.75 0.65
- -----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.02) (0.09) (0.02) --
Net realized gains (0.62) (0.32) (0.10) --
- -----------------------------------------------------------------------------------------------------------------
Total Distributions (0.64) (0.41) (0.12) --
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 20.82 $ 16.30 $ 13.28 $ 10.65
- -----------------------------------------------------------------------------------------------------------------
Total Return 32.59% 26.55% 26.18% 6.50%++
- -----------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's) $ 544,526 $ 294,596 $ 111,573 $ 17,086
- -----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 0.82% 0.87% 0.90% 0.88%+
Net investment income 0.32 0.39 1.24 1.47%+
- -----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 66% 88% 78% 37%
- -----------------------------------------------------------------------------------------------------------------
Average commissions paid on equity
security transactions (3) $0.05 $0.05 $0.06 --
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) Travelers Investment Adviser, Inc. ("TIA") (the "Manager") has waived all or
part of its fees for the year ended October 31, 1995 and the period ended
October 31, 1994. In addition, the Manager has reimbursed the Alliance
Growth Portfolio for $3,500 in expenses for the period ended October 31,
1994. If such fees were not waived and expenses not reimbursed, the per
share decreases in net investment income and the ratios of expenses to
average net assets for the Alliance Growth Portfolio would have been as
follows:

Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------ -------------------
1995 $0.01 0.97%
1994 0.03 1.76+

(3) As of September 1995, the Securities and Exchange Commission ("SEC")
instituted new guidelines requiring the disclosure of average commissions
per share.

+ Annualized.

++ Total return is not annualized, as it may not be representative of the
total return for the year.

- --------------------------------------------------------------------------------
1
<PAGE>

For a share of capital stock outstanding throughout the period:

<TABLE>
<CAPTION>
MFS Total Return

------------------------------------------------------
1997 1996 1995 1994(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.13 $11.53 $9.98 $10.00
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) From Operations:
Net investment income (2) 0.38 0.33 0.45 0.13
Net realized and unrealized gain (loss) 2.27 1.62 1.15 (0.15)
- ----------------------------------------------------------------------------------------------------------------------
Total Income (loss) from Operations 2.65 1.95 1.60 (0.02)
- ----------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.29) (0.27) (0.05) --
Net realized gains (0.18) (0.08) -- --
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.47) (0.35) (0.05) --
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 15.31 $ 13.13 $ 11.53 $ 9.98
- ----------------------------------------------------------------------------------------------------------------------
Total Return 20.64% 17.16% 16.12% (0.20)%++
- ----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's) $ 263,585 $ 134,529 $ 49,363 $ 8,504
- ----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 0.86% 0.91% 0.95% 0.93%+
Net investment income 3.54 3.82 4.40 3.51%+
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 99% 139% 104% 18%
- ----------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity
security transactions (3) $0.06 $0.06 $0.04 --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
31, 1994.
(2) The Manager has waived all or part of its fees for the year ended October
31, 1995 and the period ended October 31, 1994. In addition, the Manager has
reimbursed the MFS Total Return Portfolio for $13,857 in expenses for the
period ended October 31, 1994. If such fees were not waived and expenses not
reimbursed, the per share decreases in net investment income and the ratios
of expenses to average net assets of the MFS Total Return Portfolio would
have been as follows:

Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
------------------------ -------------------
1995 $0.01 1.06%
1994 0.06 2.51+

- --------------------------------------------------------------------------------
2
<PAGE>

THE FUND'S INVESTMENT PROGRAM
===============================================================================

The Fund consists of thirteen investment portfolios, two of which are
offered herein. Each Portfolio has its own investment objective and policies as
described in more detail below. Of course, no assurance can be given that a
Portfolio's objective will be achieved. Investors should realize that risk of
loss is inherent in the ownership of any securities and that shares of each
Portfolio will fluctuate with the market value of its securities. Additional
information about each Portfolio's investment policies and investment risks can
be found herein under "Special Investment Techniques and Risk Considerations"
and in the SAI.

The investment objectives and certain investment restrictions designated as
such in the SAI are fundamental and may not be changed by the Directors without
shareholder approval. Each Portfolio's investment policies, however, are not
fundamental and may be changed by the Directors without shareholder approval.

Alliance Growth Portfolio

Investment Objective

Investment Policies

The Alliance Growth Portfolio invests primarily in common stocks and
securities convertible into common stocks such as convertible bonds, convertible
preferred stocks and warrants convertible into common stocks. Because the values
of fixed-income securities are expected to vary inversely with changes in
interest rates generally, when the Sub-Adviser expects a general decline in
interest rates, the Portfolio may also invest for capital growth in fixed-income
securities. The Portfolio may invest up to 25% of its total assets in fixed-
income securities rated at the time of purchase below investment grade, that is,
securities rated Ba or lower by Moody's Investors Service, Inc. ("Moody's") or
BB or lower by Standard & Poor's Ratings Group ("S&P"), or in unrated fixed-
income securities determined by the Sub-Adviser to be of comparable quality. The
Portfolio will generally invest in securities with a minimum rating of Caa- by
Moody's or CCC- by S&P or in unrated securities judged by the Sub-Adviser to be
of comparable quality.

The Portfolio may invest without limit in securities that are not publicly
traded in the U.S., although the Portfolio generally will not invest more than
15% of its total assets in such securities. The Portfolio may also invest a
portion of its assets in developing countries or countries with new or
developing capital markets.

- --------------------------------------------------------------------------------
3
<PAGE>

The Portfolio may invest in high-yield, high-risk, fixed-income and
convertible securities rated at the time of purchase Ba or lower by Moody's or
BB or lower by S&P, or, if unrated, judged by the Sub-Adviser to be of
comparable quality. The Portfolio will generally invest in securities with a
minimum rating of Caa-by Moody's or CCC- by S&P or in unrated securities judged
by the Sub-Adviser to be of comparable quality. However, from time to time, the
Portfolio may invest in securities rated in the lowest grades of Moody's (C) or
S&P (D) or in unrated securities judged by the Sub-Adviser to be of comparable
quality, if the Sub-Adviser determines that there are prospects for an upgrade
or a favorable conversion into equity securities (in the case of convertible
securities). Securities rated Ba or lower (and comparable unrated securities)
are commonly referred to as "junk bonds." Securities rated D by S&P are in
default. See "Lower-Quality and Non-Rated Securities." For a description of the
ratings referred to above, See Appendix A.

The Portfolio may also invest in zero-coupon bonds, payment-in-kind bonds
and real estate investment trusts. It may also buy and sell stock index futures
contracts ("index futures") and may buy options on index futures and on stock
indices for hedging purposes. The Portfolio may buy and sell call and put
options on index futures or on stock indices in addition to, or as an
alternative to, purchasing or selling index futures or, to the extent permitted
by applicable law, to earn additional income. The Portfolio may also, for
hedging purposes, purchase and sell futures contracts, options thereon and
options with respect to U.S. Treasury securities, including U.S. Treasury bills,
notes and bonds. The Portfolio may also seek to increase its current return by
writing covered call and put options on securities it owns or in which it may
invest.

The Portfolio may lend portfolio securities amounting to not more than 25%
of its total assets and may enter into repurchase agreements on up to 25% of its
total assets. It may also purchase securities for future delivery, which may
increase its overall investment exposure and involves a risk of loss if the
value of the securities declines prior to the settlement date. In addition, the
Portfolio may invest in real estate investment trusts. For temporary defensive
purposes, the Portfolio may invest all or a major part of its assets in money
market instruments and repurchase agreements. To the extent the Portfolio's
assets are invested for temporary defensive purposes, they will not be invested
in a manner designed to achieve the Portfolio's investment objective.

MFS Total Return Portfolio

Investment Objectives

The primary investment objective of the MFS Total Return Portfolio is to
obtain above-average income (compared to a portfolio entirely invested in equity
securities) consistent with the prudent employment of capital. While current
income is the primary objective, the Portfolio believes that there should also
be a reasonable opportunity for growth of capital and income, since many
securities offering a better than average yield may also possess growth
potential. Thus, in selecting securities for its portfolio, the Portfolio
considers each of these objectives. Under normal market conditions, at least 25%
of the Portfolio's assets will be invested in fixed income securities and at
least 40% and no more than 75% of the Portfolio's assets will be invested in
equity securities. The Portfolio is managed by TIA; Massachusetts Financial
Services Company serves as the Portfolio's Sub-Adviser.

Investment Policies

- --------------------------------------------------------------------------------
4
<PAGE>

held by the Portfolio. Some fixed income securities may also have a call on
common stock by means of a conversion privilege or attached warrants. The
Portfolio may vary the percentage of assets invested in any one type of security
in accordance with the Sub-Adviser's interpretation of economic and money market
conditions, fiscal and monetary policy and underlying security values. The
Portfolio's debt investments may consist of both "investment grade" securities
(rated Baa or better by Moody's or BBB or better by S&P or Fitch, IBCA, Inc.,
formerly Fitch Investors Service, Inc. ("Fitch")) and securities that are
unrated or are in the lower rating categories (rated Ba or lower by Moody's
or BB or lower by S&P or Fitch) (commonly known as "junk bonds") including up
to 20% of its net assets in nonconvertible fixed income securities that are
in these lower rating categories and comparable unrated securities. See
"Lower-Quality and Non-Rated Securities". Generally, most of the Portfolio's
long-term debt investments will consist of "investment grade" securities. See
Appendix A to this Prospectus for a description of these ratings. It is not the
Portfolio's policy to rely exclusively on ratings issued by established credit
rating agencies but rather to supplement such ratings with the Sub-Adviser's
own independent and ongoing review of credit quality.

AS NOTED ABOVE, THE PORTFOLIO INVESTS IN LOWER-RATED AND UNRATED CORPORATE
DEBT SECURITIES, COMMONLY KNOWN AS "JUNK BONDS." INVESTMENTS OF THIS TYPE ARE
SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST. PURCHASERS SHOULD
CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THIS PORTFOLIO. SEE
"LOWER-QUALITY AND NON-RATED SECURITIES".

The Portfolio may invest up to 20% (and generally expects to invest between
5% and 20%) of its total assets in foreign securities which are not traded on a
U.S. exchange (not including American Depositary Receipts). The Portfolio may
invest in American Depositary Receipts. The Portfolio may also invest in
emerging market securities, Brady Bonds, U.S. Government securities, mortgage
pass-through securities, corporate asset-backed securities, zero-coupon bonds,
deferred interest bonds and payment-in-kind bonds. In addition, the Portfolio
may enter into repurchase agreements and mortgage dollar roll transactions, may
lend its portfolio securities, purchase securities on a when-issued or forward
delivery basis, enter into swap transactions and invest in indexed securities
and loan participations and other direct indebtedness. The Portfolio may invest
up to 15% of its net assets in illiquid securities and may also invest in
restricted securities, including Rule 144A Securities. Finally, the Portfolio
may engage in various options and futures transactions including options on
securities, options on stock indexes, options on foreign currencies, stock
indices and foreign currency futures contracts, options on futures contracts,
forward foreign currency exchange contracts and yield curve options. See
"Special Investment Techniques and Risk Considerations" for additional
information about these types of securities.

- --------------------------------------------------------------------------------
5
<PAGE>

SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS
================================================================================

Foreign Securities. Each of the Portfolios may purchase securities issued
by foreign governments, corporations or banks.

Investments in foreign securities involve risks that are different in some
respects from investments in securities of U.S. issuers, such as the risk of
fluctuations in the value of the currencies in which they are denominated, the
risk of adverse political, social, economic and diplomatic developments, the
possible imposition of exchange controls or other foreign governmental laws or
restrictions and, with respect to certain countries, the possibility of
expropriation of assets, nationalization or confiscatory taxation or limitations
on the removal of funds or other assets of the Portfolios. Securities of some
foreign companies and banks are less liquid and more volatile than securities of
comparable domestic companies and banks. Non-U.S. securities markets, while
growing in volume have, for the most part, substantially less volume than U.S.
markets, and there is generally less government supervision and regulation of
exchanges, brokers and issuers than there is in the U.S. Dividend and interest
income from non-U.S. securities will generally be subject to withholding taxes
by the country in which the issuer is located and may not be recoverable by the
Portfolio or the investors. There also may be less publicly available
information about foreign issuers than domestic issuers, and foreign issuers
generally are not subject to the uniform accounting, auditing and financial
reporting standards, practices and requirements applicable to domestic issuers.
Delays may be encountered in settling securities transactions in certain foreign
markets, and the Portfolios will incur costs in converting foreign currencies
into U.S. dollars. Custody and transaction charges are generally higher for
foreign securities. There is also a risk of the adoption of government
regulations that might adversely affect the payment of principal and interest on
securities held by a Portfolio. In addition, a Portfolio may encounter greater
difficulties in invoking legal processes abroad than would be the case in the
U.S. Finally, changes in foreign currency exchange rates will, to the extent a
Portfolio does not adequately hedge against such fluctuations, affect the value
of securities in its portfolio and the unrealized appreciation or depreciation
of investments so far as U.S. investors are concerned.

Securities of Emerging Markets. Because of the special risks associated
with investing in emerging markets, an investment in the MFS Total Return
Portfolio, may be considered speculative. Investors are strongly advised to
consider carefully the special risks involved in emerging markets, which are in
addition to the usual risks of investing in developed foreign markets around the
world.

Emerging market countries include any country determined by the investment
adviser or sub-adviser, as the case may be, to have an emerging market economy,
taking into account a number of factors, including the country's foreign
currency debt rating, its political and economic stability and the development
of its financial and capital markets. The investment adviser (or sub-adviser)
determines an issuer's principal trading market for its securities and the
source of its revenues and assets. The issuer's principal activities generally
are deemed to be located in a particular country if: (a) the security is issued
or guaranteed by the government of that country or any of its agencies,
authorities or instrumentalities; (b) the issuer is organized under the laws of,
and maintains a principal office in, that country; (c) the issuer has its
principal securities trading market in that country; or (d) the issuer has 50%
or more of its assets in that country.

- --------------------------------------------------------------------------------
6
<PAGE>

those governments were never finally settled. There can be no assurance that any
investments that a Portfolio might make in an emerging market would not be
expropriated, nationalized or otherwise confiscated at some time in the future.
In the event of such expropriation, nationalization or other confiscation in any
emerging market, each Portfolio could lose its entire investment in that market.
Many emerging market countries have also experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economics and securities of certain emerging market countries.

In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the United States, particularly with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of the Portfolio to make intended securities purchases due to
settlement problems could cause it to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to the Portfolio due to subsequent declines in value of
the portfolio security or, if the Portfolio has entered into a contract to sell
the security, could result in possible liability to the purchaser.

The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the portfolio securities in such markets
may not be readily available. Section 22(e) of the Investment Company Act of
1940, as amended (the "1940 Act") permits a registered investment company to
suspend redemption of its shares for any period during which an emergency
exists, as determined by the SEC. Accordingly, if the Portfolio believes that
appropriate circumstances warrant, it will promptly apply to the SEC for a
determination that an emergency exists within the meaning of Section 22(a) of
the 1940 Act. During the period commencing from the Portfolio's identification
of such conditions until the date of SEC action, the portfolio securities in the
affected markets will be valued at fair value as determined in good faith by or
under the direction of the Board of Directors.

Sovereign Debt. The MFS Total Return Portfolio may invest in sovereign debt
securities of emerging market governments including Brady Bonds. Investments in
such securities involve special risks. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due in accordance with the terms
of such debt. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt obligations, and in turn the Portfolio's net
asset value, to a greater extent than the volatility inherent in domestic fixed
income securities.

- --------------------------------------------------------------------------------
7
<PAGE>

economy as a whole, the sovereign debtor's policy toward principal international
lenders and the political constraints to which a sovereign debtor may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due, may result in the cancellation of such third
parties' commitments to lend funds to the sovereign debtor, which may further
impair such debtor's ability or willingness to timely service its debts.

The occurrence of political, social or diplomatic changes in one or more of
the countries issuing sovereign debt could adversely affect the Portfolio's
investments. Emerging markets are faced with social and political issues and
some of them have experienced high rates of inflation in recent years and have
extensive internal debt. Among other effects, high inflation and internal debt
service requirements may adversely affect the cost and availability of future
domestic sovereign borrowing to finance governmental programs, and may have
other adverse social, political and economic consequences. Political changes or
a deterioration of a country's domestic economy or balance of trade may affect
the willingness of countries to service their sovereign debt. Although
management intends to manage the Portfolio in a manner that will minimize the
exposure to such risks, there can be no assurance that adverse political changes
will not cause the Portfolio to suffer a loss of interest or principal on any of
its holdings.

In recent years, some of the emerging market countries in which
the Portfolio expects to invest have encountered difficulties in servicing their
sovereign debt obligations. Some of these countries have withheld payments of
interest and/or principal of sovereign debt. These difficulties have also led to
agreements to restructure external debt obligations -- in particular, commercial
bank loans, typically by rescheduling principal payments, reducing interest
rates and extending new credits to finance interest payments on existing debt.
In the future, holders of emerging market sovereign debt securities may be
requested to participate in similar rescheduling of such debt. Certain emerging
market countries are among the largest debtors to commercial banks and foreign
governments. Currently, Brazil, Russia and Mexico are among the largest debtors
among developing countries. At times certain emerging market countries have
declared moratoria on the payment of principal and interest on external debt;
such a moratorium is currently in effect in certain emerging market countries.
There is no bankruptcy proceeding by which a creditor may collect in whole or in
part sovereign debt on which an emerging market government has defaulted.

The ability of emerging market governments to make timely payments on their
sovereign debt securities is likely to be influenced strongly by a country's
balance of trade and its access to trade and other international credits. A
country whose exports are concentrated in a few commodities could be vulnerable
to a decline in the international prices of one or more of such commodities.
Increased protectionism on the part of a country's trading partners could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any. To the extent that a country receives payments for its
exports in currencies other than hard currencies, its ability to make hard
currency payments could be affected.

- --------------------------------------------------------------------------------
8
<PAGE>

may have difficulty disposing of and valuing certain sovereign debt obligations
because there may be a limited trading market for such securities. Because there
is no liquid secondary market for many of these securities, the Portfolio
anticipates that such securities could be sold only to a limited number of
dealers or institutional investors.

Brady Bonds. The MFS Total Return Portfolio may invest in "Brady Bonds,"
which are debt restructurings that provide for the exchange of cash and loans
for newly issued bonds. Brady Bonds have been issued by the governments of
Albania, Argentina, Brazil, Bulgaria, Costa Rica, Croatia, Dominican Republic,
Ecuador, Ivory Coast, Jordan, Mexico, Morocco, Nigeria, Panama, Peru,
Philippines, Poland, Slovenia, Uruguay, Venezuela and Vietnam and are expected
to be issued by other emerging market countries. As of the date of this
Prospectus, the Portfolio is not aware of the occurrence of any payment defaults
on Brady Bonds. Investors should recognize, however, that Brady Bonds do not
have a long payment history. In addition, Brady Bonds are often rated below
investment grade. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the secondary market for Latin American debt. The Salomon Brothers Brady Bond
Index provides a benchmark that can be used to compare returns of emerging
market Brady Bonds with returns in other bond markets, e.g., the U.S. bond
market.

Loan Participations and Assignments. The MFS Total Return Portfolio may
invest a portion of its assets in loan participations ("Participations"). By
purchasing a Participation, the Portfolio acquires some or all of the interest
of a bank or other lending institution in a loan to a corporate or government
borrower. The Participations typically will result in the Portfolio having a
contractual relationship only with the lender not the borrower. The Portfolio
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the lender selling the Participation and only
upon receipt by the lender of the payments from the borrower. In connection with
purchasing Participations, the Portfolio generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
loan, nor any rights of set-off against the borrower, and the Portfolio may not
directly benefit from any collateral supporting the loan in which it has
purchased the Participation. As a result, the Portfolio will assume the credit
risk of both the borrower and the lender that is selling the Participation. In
the event of the insolvency of the lender selling a Participation, the Portfolio
may be treated as a general creditor of the lender and may not benefit from any
set-off between the lender and the borrower. The Portfolio will acquire
Participations only if the lender interpositioned between the Portfolio and the
borrower is determined by management to be creditworthy.

Lower-Quality and Non-Rated Securities. Each Portfolio may invest in lower-
quality securities. Investments in lower-rated securities are subject to special
risks, including a greater risk of loss of principal and non-payment of
interest. An investor should carefully consider the following factors before
investing in these Portfolios.

Generally, lower-quality securities offer a higher return potential than
higher-rated securities but involve greater volatility of price and greater risk
of loss of income and principal, including the possibility of default or
bankruptcy of the issuers of such securities. Lower-quality securities and
comparable non-rated securities will likely have large uncertainties or major
risk exposure to adverse conditions and are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. The occurrence of adverse
conditions and uncertainties would likely reduce the value of securities held by
a Portfolio, with a commensurate effect on the value of the Portfolio's shares.

- --------------------------------------------------------------------------------
9
<PAGE>

Fixed-income securities, including lower-quality securities and comparable
non-rated securities, frequently have call and buy-back features that permit
their issuers to call or repurchase the securities from their holders, such as
the Portfolios. If an issuer exercises these rights during periods of declining
interest rates, a Portfolio may have to replace the security with a lower
yielding security, resulting in a decreased return to the Portfolio.

Securities Lending. Each Portfolio may seek to increase its net investment
income by lending portfolio securities to unaffiliated brokers, dealers and
other financial institutions, provided such loans are callable at any time and
are continuously secured by cash or U.S. Government securities or other liquid
debt securities equal to no less than the market value, determined daily, of the
securities loaned. The risks in lending portfolio securities consist of possible
delay in receiving additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially.

- --------------------------------------------------------------------------------
10
<PAGE>

business day. The resale price is greater than the purchase price, which
reflects the agreed-upon rate of return for the period the Portfolio holds the
security and which is not related to the coupon rate on the purchased security.
Each Portfolio requires continual maintenance of the market value of the
collateral in amounts at least equal to the resale price, thus risk is limited
to the ability of the seller to pay the agreed-upon amount on the delivery date;
however, if the seller defaults, realization upon the collateral by the
Portfolio may be delayed or limited or the Portfolio might incur a loss if the
value of the collateral securing the repurchase agreement declines and might
incur disposition costs in connection with liquidating the collateral.
Repurchase agreements are considered loans by the Portfolios. The Portfolios
will only enter into repurchase agreements with broker/dealers or other
financial institutions that are deemed creditworthy by management, under
guidelines approved by the Board of Directors.

Dollar Roll Transactions. The MFS Total Return Portfolio may enter into
"dollar rolls" pursuant to which the Portfolio sells mortgage-backed securities
for delivery in the future (generally within 30 days). During the roll period,
the Portfolio would forego principal and interest paid on such securities. The
Portfolio would be compensated by the difference between the current sales price
and the forward price for the future purchase, as well as by the interest earned
on the cash proceeds of the initial sale. Since the Portfolio will receive
interest on the securities in which it invests the transaction proceeds, such
transactions may involve leverage. However, since such securities must satisfy
the quality requirements of the Portfolio and will mature on or before the
settlement date on the transaction, management believes that such transactions
do not present the risks to the Portfolio that are associated with other types
of leverage. The MFS Total Return Portfolio will only enter into covered rolls,
where 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. Dollar roll transactions are considered borrowings by the
Portfolios and will be subject to each Portfolio's overall borrowing limitation.
Dollar roll transactions are considered speculative.

- --------------------------------------------------------------------------------
11
<PAGE>

market value and responds differently to market fluctuations. Investing in
synthetic convertible securities involves the risk normally involved in holding
the securities comprising the synthetic convertible security.

Borrowing. Each Portfolio may borrow from banks, on a secured or unsecured
basis.

Illiquid and Restricted Securities. Each Portfolio may purchase securities
that are not registered ("restricted securities") under the Securities Act of
1933, as amended (the "1933 Act"), but can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A"). Each
Portfolio may also invest a portion of its assets in illiquid investments, which
include repurchase agreements maturing in more than seven days and restricted
securities. The Board of Directors may determine, based upon a continuing review
of the trading markets for the specific restricted security, that such
restricted securities are liquid. The Board of Directors has adopted guidelines
and delegated to management the daily function of determining and monitoring
liquidity of restricted securities available pursuant to Rule 144A. The Board,
however, retains sufficient oversight and is ultimately responsible for the
determinations. Since it is not possible to predict with assurance exactly how
the market for Rule 144A restricted securities will develop, the Board will
carefully monitor each Portfolio's investments in these securities, focusing on
such important factors, among others, as valuation, liquidity and availability
of information. Investments in restricted securities could have the effect of
increasing the level of illiquidity in a Portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. The Portfolios may also purchase restricted securities
that are not registered under Rule 144A.

Zero-Coupon Bonds, Deferred Interest Bonds and Payment-in-Kind Bonds. Each
Portfolio may invest in zero-coupon and payment-in-kind bonds. The MFS Total
Return Portfolio also may invest in deferred interest bonds. Zero-coupon and
deferred interest bonds are issued at a significant discount from their
principal amount. While zero-coupon bonds do not require the periodic payment of
interest, deferred interest bonds provide for a period of delay before the
regular payment of interest begins. Payment-in-kind bonds allow the issuer, at
its option, to make current interest payments on the bonds either in cash or in
additional bonds. The value of zero-coupon bonds is subject to greater
fluctuation in market value in response to changes in market interest rates than
bonds of comparable maturity which pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to generate cash to meet
current interest payments. Accordingly, such bonds may involve greater credit
risks than bonds that pay interest currently. Even though such bonds do not pay
current interest in cash, the Portfolio is nonetheless required to accrue
interest income on such investments and to distribute such amounts at least
annually to shareholders. Accordingly, for a Portfolio to continue to qualify
for tax treatment as a regulated investment company and to avoid certain excise
taxes, the Portfolio may be required to distribute as a dividend an amount that
is greater than the total amount of cash it actually receives. These
distributions must be made from the Portfolio's cash assets or, if necessary,
from the proceeds of sales of portfolio securities. The Portfolio will not be
able to purchase additional income-producing securities with cash used to make
such distributions and its current income ultimately may be reduced as a result.

Futures, Options and Currency Transactions. Consistent with its investment
objective and policies, each Portfolio may enter into contracts for the purchase
or sale for future delivery of fixed-income securities, foreign currencies or
contracts based on financial indices including interest rates or an index of
U.S. Government or foreign government securities or equity or fixed-income
securities ("futures contracts"), and may buy and write put and call options to
buy or sell futures contracts ("options on futures contracts"). When a
Portfolio buys or sells a futures contract it incurs a contractual obligation to
receive or deliver the underlying instrument (or a cash payment based on the
difference between the underlying instrument's closing price and

- --------------------------------------------------------------------------------
12
<PAGE>

the price at which the contract was entered into) at a specified price on a
specified date. An option on a futures contract gives a Portfolio the right (but
not the obligation) to buy or sell a futures contract at a specified price on or
before a specified date.

The Portfolios will not enter into transactions in futures contracts and
options on futures contracts for speculation and will not enter into such
transactions other than to hedge against potential changes in interest or
currency exchange rates or the price of a security or a securities index which
might correlate with or otherwise adversely affect either the value of the
Portfolio's securities or the prices of securities which the Portfolio is
considering buying at a later date. The MFS Total Return Portfolio, however, may
enter into futures contracts and options on futures contracts for non-hedging
purposes, provided that the aggregate initial margin and premiums on such
non-hedging positions does not exceed 5% of the liquidation value of a
Portfolio's assets.

- --------------------------------------------------------------------------------
13
<PAGE>

to a different foreign currency when the Portfolio believes that the U.S. dollar
value of that currency will correlate with the U.S. dollar value of the currency
in which portfolio securities of, or being considered for purchase by, the
Portfolio are denominated ("cross hedge"). A Portfolio may invest in forward
currency contracts with stated contract values of up to the value of the
Portfolio's assets. The MFS Total Return Portfolio may also enter into forward
currency contracts for non-hedging purposes, subject to applicable law.

A Portfolio also may enter into forward contracts to buy or sell at a later
date instruments in which the Portfolio may invest directly or on financial
indices based on those instruments. The market for those types of forward
contracts is developing and it is not currently possible to identify instruments
on which forward contracts might be created in the future. See the SAI for
further discussion of the use, risks and costs of forward contracts.

A Portfolio may also enter into currency swaps where each party exchanges
one currency for another on a particular date and agrees to reverse the exchange
on a later date at a specific exchange rate.

Currency Risks. The Portfolios that invest substantially in securities
denominated in currencies other than the U.S. dollar, or that hold foreign
currencies, will be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rates between such currencies and the
U.S. dollar. Changes in currency exchange rates will influence the value of each
Portfolio's shares and also may affect the value of dividends and interest
earned by the Portfolios and gains and losses realized by the Portfolios.
Currencies generally are evaluated on the basis of fundamental economic criteria
(e.g., relative inflation and interest rate levels and trends, growth rate
forecasts, balance of payments status and economic policies) as well as
technical and political data. The exchange rates between the U.S. dollar and
other currencies are determined by supply and demand in the currency exchange
markets, the international balance of payments, governmental intervention,
speculation and other economic and political conditions. If the currency in
which a security is denominated appreciates against the U.S. dollar, the dollar
value of the security will increase. Conversely, a decline in the exchange rate
of the currency would adversely affect the value of the security expressed in
U.S. dollars.

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14
<PAGE>

transaction will depend on whether the amount paid is more or less than the
premium received for the option plus related transaction costs. A Portfolio also
may write a covered call option to cross-hedge if the Portfolio does not own the
underlying security. The option is designed to provide a hedge against a decline
in value in another security which the Portfolio owns or has the right to
acquire.

In purchasing an option, the Portfolio would be in a position to realize a
gain if, during the option period, the price of the underlying security
increased (in the case of a call) or decreased (in the case of a put) by an
amount in excess of the premium paid and would realize a loss if the price of
the underlying security did not increase (in the case of a call) or decrease (in
the case of a put) during the period by more than the amount of the premium. If
a put or call option bought by the Portfolio were permitted to expire without
being sold or exercised, the Portfolio would lose the amount of the premium.

Although they entitle the holder to buy equity securities, warrants on and
options to purchase equity securities do not entitle the holder to dividends or
voting rights with respect to the underlying securities, nor do they represent
any rights in the assets of the issuer of those securities.

A Portfolio may buy put and call options and may write covered put and call
options on foreign currencies to hedge against declines in the U.S. dollar value
of foreign currency-denominated securities held by the Portfolio and against
increases in the U.S. dollar cost of foreign currency-denominated securities
being considered for purchase by the Portfolio. As in the case of other options,
however, the writing of an option on a foreign currency will constitute only a
partial hedge, up to the amount of the premium received, and the Portfolio could
be required to buy or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange rates, although,
in the event of rate movements adverse to the Portfolio's options position, the
option may expire worthless and the Portfolio will lose the amount of the
premium. There is no specific percentage limitation on a Portfolio's investments
in options on foreign currencies.

A Portfolio may buy or write options in privately negotiated transactions
on the types of securities and indices based on the types of securities in which
the Portfolio is permitted to invest directly. The Portfolio will effect such
transactions only with investment dealers and other financial institutions (such
as commercial banks or savings and loan institutions) deemed creditworthy, and
only pursuant to procedures adopted by management for monitoring the
creditworthiness of those entities. To the extent that an option bought or
written by the Portfolio in a negotiated transaction is illiquid, the value of
an option bought or the amount of the Portfolio's obligations under an option
written by the Portfolio, as the case may be, will be subject to the Portfolio's
limitation on illiquid investments. In the case of illiquid options, it may not
be possible for the Portfolio to effect an offsetting transaction at a time when
management believes it would be advantageous for the Portfolio to do so. See the
SAI for a further discussion of the use, risks and costs of option trading.

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15
<PAGE>

Swap agreements will tend to shift the Portfolio's investment exposure from
one type of investment to another. For example, if the Portfolio agreed to
exchange payments in dollars for payments in foreign currency, in each case
based on a fixed rate, the swap agreement would tend to decrease the Portfolio's
exposure to U.S. interest rates and increase its exposure to foreign currency
and interest rates. Caps and floors have an effect similar to buying or writing
options. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of the Portfolio's investments and its share
price and yield.

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16
<PAGE>

for purposes of the Portfolio's investment restrictions except to the extent a
third party (such as a large commercial bank) has guaranteed the Portfolio's
ability to offset the swap at any time.

Real Estate Investment Trusts. The Alliance Growth Portfolio may invest in
real estate investment trusts ("REITs"). REITs are entities which either own
properties or make construction or mortgage loans. Equity trusts own real estate
directly and the value of, and income earned by, the trust depends upon the
income of the underlying properties and the rental income they earn. Equity
trusts may also include operating or finance companies. Equity trusts can also
realize capital gains by selling properties that have appreciated in value. A
mortgage trust can make construction, development or long-term mortgage loans,
and are sensitive to the credit quality of the borrower. Mortgage trusts derive
their income from interest payments. Hybrid trusts combine the characteristics
of both equity and mortgage trusts, generally by holding both ownership
interests and mortgage interests in real estate. The value of securities issued
by REITs are affected by tax and regulatory requirements and by perceptions of
management skill. They are also subject to heavy cash flow dependency, defaults
by borrowers or tenants, self-liquidation, the possibility of failing to qualify
for tax-free status under the Internal Revenue Code of 1986, as amended, and
failing to maintain exemption from the 1940 Act.

Mortgage-Backed Securities. The MFS Total Return Portfolio may invest in
mortgage-backed securities, which represent pools of mortgage loans assembled
for sale to investors by various governmental agencies and government-related
organizations, such as Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"), as well as by private issuers such as commercial banks,
savings and loan institutions, mortgage bankers and private mortgage insurance
companies. Mortgage-backed securities provide a monthly payment consisting of
interest and principal payments. Additional payment may be made out of
unscheduled repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Prepayments of principal on mortgage-backed securities may tend to
increase due to refinancing of mortgages as interest rates decline. Prompt
payment of principal and interest on GNMA mortgage pass through certificates is
backed by the full faith and credit of the United States. FNMA guaranteed
mortgage pass-through certificates are solely the obligations of those entities
but are supported by the discretionary authority of the U.S Government to
purchase the agencies' obligations. Mortgage pools created by private

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17
<PAGE>

organizations generally offer a higher rate of interest than governmental and
government-related pools because there are no direct or indirect guarantees of
payments in the former pools. Timely payment of interest and principal in these
pools, however, may be supported by various forms of private insurance or
guarantees, including individual loan, title, pool and hazard insurance. There
can be no assurance that the private insurers can meet their obligations under
the policies.

Other Asset-Backed Securities. The MFS Total Return Portfolio may invest in
asset-backed securities arising through the grouping by governmental,
government-related and private organizations of loans, receivables and other
assets originated by various lenders. Interests in pools of these assets differ
from other forms of debt securities, which normally provide for periodic payment
of interest in fixed amounts with principal paid at maturity or specified call
dates. Instead, asset-backed securities provide periodic payments which
generally consist of both interest and principal payments.

The estimated life of an asset-backed security varies with the prepayment
experience with respect to the underlying debt instruments. The rate of such
prepayments, and hence the life of an asset-backed security, will be primarily a
function of current market interest rates, although other economic and
demographic factors may be involved. For example, falling interest rates
generally result in an increase in the rate of prepayments of mortgage loans
while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
asset-backed securities are not as effective in locking in high long-term
yields. Conversely, in periods of sharply rising rates, prepayments generally
slow, increasing the security's average life and its potential for price
depreciation.

U.S. Government Securities. Each Portfolio may invest in U.S. Government
securities, which are debt obligations issued or guaranteed as to payment of
principal and interest by the U.S. Government (including Treasury bills, notes
and bonds, certain mortgage participation certificates and collateralized
mortgage obligations) or by its agencies and instrumentalities (such as GNMA,
the Student Loan Marketing Association, the Tennessee Valley Authority, the Bank
for Cooperatives, the Farmers Home Administration, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks,
the Export-Import Bank of the U.S., the Federal Housing Administration, FHLMC,
the U.S. Postal Service, the Federal Financing Bank and FNMA). Some of these
securities (such as Treasury bills) are supported by the full faith and credit
of the U.S. Treasury; others (such as obligations of the Federal Home Loan Bank)
are supported by the right of the issuer to borrow from the Treasury; while
still others (such as obligations of FNMA and the Student Loan Marketing
Association) are supported only by the credit of the instrumentality.

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18
<PAGE>

turnover rates for each Portfolio are included in the Financial Highlights
tables above. A higher rate of portfolio turnover may result in higher
transaction costs, including brokerage commissions.

Year 2000. The investment management services provided to the Fund by the
Manager and the services provided to shareholders by Smith Barney, the Fund's
Distributor, depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact of the Fund's
operations, including the handling of securities trades, pricing and account
services. The Manager and Smith Barney have advised the Fund that they have been
reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, the Manager have been
advised by the Fund's custodian, transfer agent and accounting service agent
that they are also in the process of modifying their systems with the same goal.
There can, however, be no assurance that the Manager, Smith Barney or any other
service provider will be successful, or that interaction with other
non-complying computer systems will not impair Fund services at that time.

DIVIDENDS, DISTRIBUTIONS AND TAXES
================================================================================

Each Portfolio of the Fund intends to qualify and be taxed as a "regulated
investment company" under Subchapter M of the Code. In order to qualify as a
regulated investment company, each Portfolio must meet certain income and
diversification tests. As a regulated investment company and provided certain
distribution requirements are met, a Portfolio will not be subject to federal
income tax on its investment income and net capital gains that it distributes to
its shareholders. Such distributions are automatically reinvested in additional
shares of the Portfolio at net asset value and are includable in gross income of
the Separate Accounts holding such shares. See the accompanying Contract
prospectus for information regarding the federal income tax treatment of
distributions to the Separate Accounts and to holders of the Contracts.

REDEMPTION OF SHARES
================================================================================

The redemption price of the shares of each Portfolio will be the net asset
value next determined after receipt by the Fund of a redemption order from a
Separate Account, which may be more or less than the price paid for the shares.
The Fund will ordinarily make payment within one business day, though redemption
proceeds must be remitted to a Separate Account on or before the third day
following receipt of proper tender, except on a day on which the New York Stock
Exchange ("NYSE") is closed or as permitted by the SEC in extraordinary
circumstances.

PERFORMANCE
================================================================================

From time to time the Fund may include a Portfolio's total return, average
annual total return, yield and current distribution return in advertisements
and/or other types of sales literature. THESE FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. In addition, these
figures will not

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19
<PAGE>

reflect the deduction of the charges that are imposed on the Contracts by the
Separate Account (see Contract prospectus) which, if reflected, would reduce the
performance quoted. Total return is computed for a specified period of time
assuming reinvestment of all income dividends and capital gains distributions at
net asset value on the ex-dividend dates at prices calculated as stated in this
Prospectus, then dividing the value of the investment at the end of the period
so calculated by the initial amount invested and subtracting 100%. The standard
average annual total return, as prescribed by the SEC, is derived from this
total return, which provides the ending redeemable value. Such standard total
return information may also be accompanied with nonstandard total return
information over different periods of time by means of aggregate, average,
year-by-year, or other types of total return figures. The yield of a Portfolio
refers to the net investment income earned by investments in the Portfolio over
a thirty-day period. This net investment income is then annualized, i.e., the
amount of income earned by the investments during that thirty-day period is
assumed to be earned each 30-day period for twelve periods and is expressed as a
percentage of the investments. The yield quotation is calculated according to a
formula prescribed by the SEC to facilitate comparison with yields quoted by
other investment companies. The Fund calculates current distribution return for
each Portfolio by dividing the distributions from investment income declared
during the most recent period by the net asset value on the last day of the
period for which current distribution return is presented. A Portfolio's current
distribution return may vary from time to time depending on market conditions,
the composition of its investment portfolio and operating expenses. These
factors and possible differences in the methods used in calculating current
distribution return, and the charges that are imposed on the Contracts by the
Separate Account, should be considered when comparing the Portfolio's current
distribution return to yields published for other investment companies and other
investment vehicles.

MANAGEMENT
================================================================================

The Investment Manager:

TIA manages the investment operations of each Portfolio pursuant to
management agreements entered into by the Fund on behalf of each such Portfolio.

Under each management agreement TIA is responsible for furnishing or
causing to be furnished to each Portfolio advice and assistance with respect to
the acquisition, holding or disposal of investments and recommendations with
respect to other aspects and affairs of the Portfolio, bookkeeping, accounting
and administrative services, office space and equipment, and the services of the
officers and employees of the Fund.

TIA has also entered into a Sub-Administrative Services Agreement with an
affiliate (the "Sub-Administrator") to: (a) assist TIA in supervising all
aspects of each Portfolio's operations; (b) supply each Portfolio with office
facilities, statistical and research services, data processing services,
clerical, accounting and bookkeeping services; and (c) prepare reports to each
Portfolio's shareholders and prepare reports to and filings with the SEC and
state blue sky authorities, if applicable. TIA pays the Sub-Administrator a fee
in an amount equal to an annual rate of 0.10% of each Portfolio's average daily
net assets.

For the services provided by TIA, each Portfolio pays TIA an annual
management fee calculated at a rate equal to the following percentage of its
average daily net assets, paid monthly.

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20
<PAGE>

Alliance Growth Portfolio 0.80%
MFS Total Return Portfolio 0.80%

Each management agreement further provides that all other expenses not
specifically assumed by TIA under the management agreement on behalf of a
Portfolio are borne by the Fund. Expenses payable by the Fund include, but are
not limited to, all charges of custodians and shareholder servicing agents,
expenses of preparing, printing and distributing all prospectuses, proxy
material, reports and notices to shareholders, all expenses of shareholders' and
directors' meetings, filing fees and expenses relating to the registration and
qualification of the Fund's shares and the Fund under federal and state
securities laws and maintaining such registrations and qualifications (including
the printing of the Fund's registration statements), fees of auditors and legal
counsel, costs of performing portfolio valuations, out-of-pocket expenses of
directors and fees of directors who are not "interested persons" as defined in
the 1940 Act, interest, taxes and governmental fees, fees and commissions of
every kind, expenses of issue, repurchase or redemption of shares, insurance
expense, association membership dues, all other costs incident to the Fund's
existence and extraordinary expenses such as litigation and indemnification
expenses. Direct expenses are charged to each of the Fund's Portfolios; general
corporate expenses are allocated on the basis of relative net assets.

TIA was incorporated in 1996 under the laws of the State of Delaware. It is
a wholly owned subsidiary of The Plaza Corporation ("Plaza"), which is an
indirect wholly owned subsidiary of Travelers Group Inc. ("Travelers"), which is
a financial services holding company engaged, through its subsidiaries,
principally in four business segments: Investment Services including Asset
Management, Consumer Finance Services, Life Insurance Services and Property &
Casualty Insurance Services. TIA is located at 388 Greenwich Street, New York,
New York 10013. TIA and its affiliates may in the future act as investment
advisers for other accounts.

The Sub-Advisers:

Alliance is a global investment adviser providing diversified services to
institutions and individuals through a broad line of investments including more
than 100 mutual funds. Since 1971, Alliance has earned a reputation as a leader
in the investment world, with over $218.7 billion in assets under management as
of December 31, 1997. Alliance provides investment management services to 31 of
the FORTUNE 100 companies.

Alliance Capital Management Corporation ("ACMC") the sole general partner
of Alliance Capital, is an indirect wholly owned subsidiary of The Equitable
Life Assurance Society of the United States, one of the largest life insurance
companies in the United States, which is itself a wholly owned subsidiary of The
Equitable Companies Incorporated, a holding company controlled by AXA, a member
of a large French insurance group. AXA is indirectly controlled by a group of
five mutual insurance companies.

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21
<PAGE>

Massachusetts Financial Services Company. Massachusetts Financial Services
Company ("MFS") serves as Sub-Adviser to the MFS Total Return Portfolio pursuant
to a subadvisory agreement. Pursuant to the subadvisory agreement TIA pays MFS
an annual fee calculated at the rate of 0.375% of the Portfolio's average daily
net assets.

MFS also serves as investment adviser to each of the funds in the MFS
Family of Funds and to MFS Institutional Trust, MFS Variable Insurance Trust,
MFS Municipal Income Trust, MFS Government Markets Income Trust, MFS Multimarket
Income Trust, MFS Intermediate Income Trust, MFS Charter Income Trust, MFS
Special Value Trust, MFS/Sun Life Series Trust and seven variable accounts, each
of which is a registered investment company established by Sun Life Assurance
Company of Canada (U.S.), a subsidiary of Sun Life Assurance Company of Canada
("Sun Life"), in connection with the sale of various fixed/variable annuity
contracts. MFS and its wholly owned subsidiary, MFS Institutional Advisors,
Inc., also provide investment advice to substantial private clients.

MFS is located at 500 Boylston Street, Boston, Massachusetts 02116. MFS is
America's oldest mutual fund organization. MFS and its predecessor organizations
have a history of money management dating from 1924 and the founding of the
first mutual fund in the United States, Massachusetts Investors Trust. Net
assets under the management of the MFS organization were approximately $69.4
billion on behalf of approximately 2.7 million investors accounts as of November
28, 1997. As of such date, the MFS organization managed approximately $20.1
billion of assets in fixed income securities. MFS is a subsidiary of Sun Life of
Canada (U.S.) Financial Services Holdings, Inc. which in turn is an indirect
wholly owned subsidiary of Sun Life. Sun Life, a mutual life insurance company,
is one of the largest international life insurance companies and has been
operating in the U.S. since 1895, establishing a headquarters office here in
1973. The executive officers of MFS report to the Chairman of Sun Life.

David M. Calabro, a Senior Vice President of MFS, Geoffrey L. Kurinsky, a
Senior Vice President of MFS, Judith N. Lamb, a Vice President of MFS, Lisa B.
Nurme, a Senior Vice President of MFS, and Maura A. Shaughnessy, a Senior Vice
President of MFS, are the Fund's portfolio managers. Mr. Calabro is the head of
this portfolio management team and a manager of the common stock portion of the
Fund's portfolio. Mr. Calabro has been employed by MFS since 1992 and served as
an analyst and sector portfolio manager with Fidelity Investments prior to that
time. Mr. Kurinsky, the manager of the Fund's fixed income securities, has been
employed by MFS since 1987. Ms. Lamb, the manager of the Fund's convertible
securities, has been employed by MFS since 1992, and served as an analyst with
Fidelity Investments prior to that time. Ms. Nurme, a manager of the common
stock portion of the Fund's portfolio, has been employed by MFS since 1987. Ms.
Shaughnessy, also a manager of the common stock portion of the Fund's portfolio,
has been employed by MFS since 1991 and served as an analyst with Harvard
Management Company prior to that time.

Board of Directors

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<PAGE>

managers, investment sub-advisers, custodian and transfer agent. The SAI
contains background information regarding each Director and executive officer of
the Fund.

Portfolio Transactions and Distribution

TIA and each Sub-Adviser are subject to the supervision and direction of
the Fund's Board of Directors and manage each Portfolio in accordance with its
investment objective and policies, make investment decisions for the Portfolio,
place orders to purchase and sell securities and employ professionals who
provide research services. All orders for transactions in securities on behalf
of a Portfolio are made by management, with broker-dealers selected by
management, including affiliated brokers. In placing orders management will seek
to obtain the most favorable price and execution available. In selecting
broker-dealers, management may consider research and brokerage services
furnished to it and its affiliates.

The Fund's Board of Directors has determined that transactions for the Fund
may be executed through any broker-dealer affiliate of the Fund ("Affiliated
Broker") if, in the judgement of management, the use of an Affiliated Broker is
likely to result in price and execution at least as favorable to the Fund as
those obtainable through other qualified broker-dealers, and if, in the
transaction, the Affiliated Broker charges the Fund a fair and reasonable rate
consistent with that charged to comparable unaffiliated customers in similar
transactions. The Fund will not deal with an Affiliated Broker in any
transaction in which such Affiliated Broker acts as principal. In addition, the
Alliance Growth Portfolio may not deal with Donaldson, Lufkin & Jenrette ("DLJ")
(an affiliate of Alliance Capital) in any transaction in which DLJ acts as
principal.

SHARES OF THE FUND
================================================================================

General

Voting Rights

The Fund offers its shares only for purchase by insurance company separate
accounts. Thus, the insurance company is technically the shareholder of the Fund
and, under the 1940 Act, is deemed to be in control of the Fund. Nevertheless,
with respect to any Fund shareholder meeting, an insurance company will solicit
and accept timely voting instructions from its contractowners who own units in a
separate account investment division which corresponds to shares in the Fund in
accordance with the procedures set forth in the accompanying prospectus for the
applicable contract issued by the insurance company and to the extent required
by law. Shares of the Fund attributable to contractowner interests for which no
voting instructions are received will be voted by an insurance company in
proportion to the shares for which voting instructions are received.

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23
<PAGE>

and will vote by individual Portfolio except to the extent required by the 1940
Act. The Fund is not required to hold annual shareowner meetings, although
special meetings may be called for the Fund as a whole, or a specific Portfolio,
for purposes such as electing or removing Directors, changing fundamental
policies or approving a management contract. Shareowners may cause a meeting of
shareowners to be held upon a vote of 10% of the Fund's outstanding shares for
the purpose of voting on the removal of Directors.

Availability of the Fund

DETERMINATION OF NET ASSET VALUE
================================================================================

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<PAGE>

expect to receive from an orderly disposition of these assets over a reasonable
period of time but in no event more than seven days. The value of any security
or commodity denominated in a currency other than U.S. dollars will be converted
into U.S. dollars at the prevailing market rate as determined by management.

Foreign securities trading may not take place on all days on which the NYSE
is open. Further, trading takes place in various foreign markets on days on
which the NYSE is not open. Accordingly, the determination of the net asset
value of a Portfolio may not take place contemporaneously with the determination
of the prices of investments held by such Portfolio. Events affecting the values
of investments that occur between the time their prices are determined and 4:00
P.M. on each day that the NYSE is open will not be reflected in a Portfolio's
net asset value unless management under the supervision of the Fund's Board of
Directors, determines that the particular event would materially affect the net
asset value. As a result, a Portfolio's net asset value may be significantly
affected by such trading on days when a shareholder has no access to such
Portfolio.

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<PAGE>

APPENDIX A
================================================================================

RATINGS ON DEBT OBLIGATIONS

BOND (AND NOTES) RATINGS

Moody's Investors Service, Inc.

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

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

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

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

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

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

Note: The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.

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<PAGE>

Standard & Poor's

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

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

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

BB, B, CCC, CC, C - Debt rated 'BB', 'B', 'CCC', 'CC' or 'C' is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

Plus (+) or Minus (-): The ratings from 'AA' to 'B' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

+ - Continuance of the rating is contingent upon S&P's receipt of closing
documentation confirming investments and cash flow.

* - Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement.

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

Fitch IBCA, Inc.

AAA - Bonds rated AAA by Fitch have the lowest expectation of credit risk.
The obligor has an exceptionally strong capacity for timely payment of financial
commitments which is highly unlikely to be adversely affected by foreseeable
events.

AA - Bonds rated AA by Fitch have a very low expectation of credit risk.
They indicate very strong capacity for timely payment of financial commitment.
This capacity is not significantly vulnerable to foreseeable events.

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<PAGE>

BBB - Bonds rated BBB by Fitch currently have a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered to
be adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to impair this capacity. This is the lowest investment grade
category assigned by Fitch.

Plus and minus signs are used by Fitch to indicate the relative position of
a credit within a rating category. Plus and minus signs however, are not used in
the AAA category.

COMMERCIAL PAPER RATINGS

Moody's Investors Service, Inc.

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

Standard & Poor's

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

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

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Fitch IBCA, Inc.

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.

The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet financial commitment in a timely
manner.

Fitch's short-term ratings are as follows:

F1+ - Issues assigned this rating are regarded as having the strongest
capacity for timely payments of financial commitments. The "+" denotes an
exceptionally strong credit feature.

F1 - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments.

F2 - Issues assigned this rating have a satisfactory capacity for timely
payment of financial commitments, but the margin of safety is not as great as in
the case of the higher ratings.

F3 - The capacity for the timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to non
investment grade.

Duff & Phelps Inc.

Duff 1+ - Indicates the highest certainty of timely payment: short-term
liquidity is clearly outstanding, and safety is just below risk-free United
States Treasury short-term obligations.

Duff 1 - Indicates a high certainty of timely payment.

Duff 2 - Indicates a good certainty of timely payment: liquidity factors
and company fundamentals are sound.

The Thomson BankWatch ("TBW")

TBW-1 - Indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.

TBW-2 - While the degree of safety regarding timely repayment of principal
and interest is strong, the relative degree of safety is not as high as for
issues rated TBW-1.

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